Vonage 2008 Annual Report Download - page 35

ITEM 7.
M
ana
g
ement’s Discussion and Analysis o
f
Financial
C
ondition and Results of
O
peration
s
Y
ou should read the followin
g
discussion to
g
ether with “
S
elected
F
inancial Data” and our consolidated
f
inancial statements and the
r
e
l
ate
d
notes
i
nc
l
u
d
e
d
e
l
sew
h
ere
i
nt
hi
s
A
nnua
lR
e
p
ort on
F
orm 10-K. This discussion contains forward-lookin
g
statements
,
which involve risks and uncertainties. Our actual results may diffe
r
m
aterially from those we currently anticipate as a result of man
y
factors, includin
g
the factors we describe under “Item 1A—Ris
k
F
actors,” and elsewhere in this Annual Report on Form 10-K.
OVERVIEW
W
e are a leading, pure-play provider o
f
broadband telephone
se
rvi
ces
t
o
r
es
i
de
nti
a
l
a
n
ds
m
a
ll
o
ffi
ce a
n
d
h
o
m
eo
ffi
ce cus
t
o
m
e
r
s
with over 2.6 million subscriber lines as o
f
December 31, 2008
.
W
hile customers in the United States re
p
resented 95% of our
s
u
b
scr
ib
er
li
nes
i
n 2008, we cont
i
nue to serve customers
i
nterna
-
t
ionally with services in Canada and the United Kin
g
dom
.
Our service is portable and we enable our customers to make
and receive phone calls with a telephone almost anywhere
a
b
r
oadba
n
dI
nt
e
rn
e
t
co
nn
ec
t
io
n
is a
v
ailable
.
We
tr
a
n
s
m
i
tt
hese
calls usin
g
Voice over Internet Protocol, or VoIP, technolo
g
y
,
which converts voice signals into digital data packets
f
or trans
-
mission over the Internet. At a cost effective rate, each of our call
-
i
ng plans provides a number o
f
basic
f
eatures typically o
ff
ered by
traditional telephone service providers, plus a wide range of
e
nh
a
n
ced
f
ea
t
u
r
es
th
a
tw
ebe
li
e
v
ed
iff
e
r
e
nti
a
t
eou
r
se
rvi
ce a
n
d
off
er an attractive value proposition to our customers. We als
o
o
ffer a number of
p
remium services for additional costs
.
V
onage has developed both a direct sales channel, as repre-
s
ented by web sites and toll free numbers, and a retail distributio
n
ch
anne
l
t
h
rou
gh
nat
i
ona
l
reta
il
ers
i
nc
l
u
di
n
gB
est
B
uy an
d
Wal-Mart. The direct and retail distribution channels are supported
t
h
roug
hhi
g
hl
y
i
ntegrate
d
a
d
vert
i
s
i
ng campa
i
gns across mu
l
t
i
p
le
me
di
asuc
h
as on
li
ne, te
l
ev
i
s
i
on,
di
rect ma
il
,a
l
ternat
i
ve me
di
a,
telemarketing, partner marketin
g
and customer re
f
erral programs
.
O
ur primar
y
source of revenue is subscription fees that we
c
harge customers
f
or our service plans, primarily on a monthl
y
basis. We also
g
enerate revenue from the sale of devices that
c
onnect a customer’s phone to the Internet,
f
or international call
s
c
ustomers make that are not included in their service
p
lan,
f
or
a
dditional features that customers add to their service
p
lans and
throu
g
h activation
f
ees we char
g
e customers to activate thei
r
service
.
T
rends in
O
ur Industry and Key
O
peratin
g
Dat
a
A
number of trends in our industry have a si
g
nificant effect on our results of
operations and are important to an understandin
g
o
f
our
f
inancial statements. Also, the table below includes key operatin
g
data that our
m
anagement uses to measure the growth and operating performance of our business
:
F
or t
h
e
Y
ears
E
n
d
e
dD
ecem
b
er
3
1
,
2008 2007 200
6
G
ross subscriber line addition
s
9
5
2,014 1,1
5
3,218 1,4
7
0,138
N
e
t
subsc
ri
be
r lin
e add
iti
o
n
s
26,929 356,116 955,073
Subscriber lines
(
at
p
eriod end
)
2
,
60
7,
1
5
62
,5
80
,
22
7
2
,
224
,
111
A
verage mont
hl
y customer c
h
urn
3
.1
%
2.8
%
2.5
%
A
vera
g
e monthly revenue per lin
e
$
28.92 $ 28.73 $ 28.9
8
A
verage monthly telephony services revenue per line
$
27.82
$
27.87
$
27.7
6
A
vera
g
e monthly direct cost of telephony services per line $ 7.27 $ 7.52 $ 8.20
Marketing costs per gross subscriber line addition $ 266.14 $ 246.24 $ 248.51
Employees
(
excludin
g
temporary help
)(
at period end
)
1,491 1,543 1,790
B
roa
db
an
d
a
d
o
p
t
i
on
.
T
he number of
U
.
S
. households wit
h
b
roadband Internet access has
g
rown si
g
ni
f
icantly. We expect thi
s
t
rend to continue. We bene
f
it
f
rom this trend because our service
r
e
q
u
i
res a
b
roa
db
an
dI
nternet
c
onnect
i
on an
d
our
p
otent
i
a
l
addressable market increases as broadband adoption increases.
C
han
g
in
g
competitive landscape
.
W
e are facin
g
increasin
g
competition
f
rom other companies that o
ff
er multiple services
s
uch as cable television
,
video services
,
voice and broadband
I
nternet service. These competitors are offerin
g
VoIP or other
v
oice services as part o
f
a bundle, in which the
y
o
ff
er voice serv-
i
ces at a lower price than we do to new subscribers. In addition
,
we believe several of these competitors are working to develo
p
n
ew inte
g
rated o
ff
erin
g
s that we cannot provide and that could
m
ake their services more attractive to customers. For example, a
s
w
ireless
p
roviders offer more minutes at lower
p
rices and com
-
p
an
i
on
l
an
dli
ne a
l
ternat
i
ve serv
i
ces, t
h
e
i
r serv
i
ces
h
ave
b
ecom
e
more attractive to households as a replacement
f
or wireline serv
-
i
ce.
W
ea
l
so compete aga
i
nst esta
bli
s
h
e
d
a
l
ternat
i
ve vo
i
c
e
c
ommun
i
cat
i
on prov
id
ers an
di
n
d
epen
d
ent
V
o
IP
serv
i
ce pro-
v
iders. Some of these service providers ma
y
choose to sacrific
e
revenue in order to gain market share and have offered their serv
-
i
ces at lower prices or for free
.
G
ross subscriber line additions.
G
ross subscriber line addi-
tions for a particular period are calculated by takin
g
the net sub
-
s
criber line additions during that particular period and adding t
o
that the number of subscriber lines that terminated during that
p
er
i
o
d
.
Thi
s num
b
er
d
oes not
i
nc
l
u
d
esu
b
scr
ib
er
li
nes
b
ot
h
a
dd
e
d
a
nd terminated during the period, where termination occurre
d
27