Vonage 2008 Annual Report Download - page 40

2008 com
p
ared to 2007
Telephony services revenue.
T
he increase in telephon
y
serv
-
i
ces revenue of
$
62,243, or 8%, was primarily due to an
i
ncrease of $30,632 in monthly subscription fees resultin
g
fro
m
an increased number o
f
subscriber lines, which grew
f
ro
m
2
,
580
,
227 at
D
ecem
b
er 31
,
2007 to 2
,
607
,
156 at
D
ecem
b
er 31
,
2008. Also, the
g
rowin
g
number of subscriber lines
g
enerated
additional revenue from activation fees of
$
13
,
516
,
whic
h
i
ncluded
$
8,393 for the change in our customer life from 6
0
m
onths to 48 months in the first quarter of 2008, increase
d
r
evenue of
$
19,190 from a higher volume of customers on inter-
n
at
i
ona
l
p
l
ans an
d
an
i
ncrease
i
n
i
nternat
i
ona
l
ca
lli
ng
b
ysu
b-
s
cribers and increased revenue of $13,323 in re
g
ulatory fees we
collected from customers, including
$
9,662 of USF. Additionally,
add-on features to our service plans generated an increase of
$
1,454 as well as an increase of $3,172 in the fees we char
g
e for
disconnecting our service. This was offset by a
$
6,356 increas
e
i
n credits we issued and a
$
12
,
963 increase in bad deb
t
expense part
i
a
lly
attr
ib
uta
bl
etot
h
e extens
i
on to our customer
g
race period
f
or non-payment in the second quarter o
f
2007
.
D
irect cost of telephon
y
services
.
The i
n
c
r
ease i
n
di
r
ect
cost of telephon
y
services of
$
9,379, or 4%, was primaril
y
due
t
o an increase in U
S
F and E911 fees imposed by government
a
g
encies of $9,662 and $518, respectively. Our network costs
,
which includes costs
f
or co-locatin
g
in other carriers’
f
acilities,
f
or leasing phone numbers, routing calls on the Internet, and
t
ransferrin
g
calls to and from the Internet to the public switched
t
elephone network, increased b
y
$2,938. Also, we had an
i
ncrease in other cost of services of
$
1,184, mainly for new fea-
t
ures. This was offset by a decrease of $4,501 in fees that we
p
ay other phone companies
f
or terminatin
g
phone calls and a
decrease of
$
707 in the cost of porting phone numbers for ou
r
cus
t
o
m
e
r
s.
R
oyalty. There was a decrease in royalty of
$
32,606 sinc
e
n
o royalty was required subsequent to our
O
ctober 200
7
I
P-liti
g
ation settlement with Verizon
.
2007 com
p
ared to 2006
Telephony services revenue.
T
he increase in telephon
y
serv
-
ices revenue of
$
221,716, or 38%, was primarily due to an
increase of $165,120 in monthly subscription fees resultin
g
from
an increased number o
f
subscriber lines, which grew
f
ro
m
2,
224
,
111 at
D
ecem
b
er 31
,
2006 to 2
,
580
,
277 at
D
ecem
b
er 31
,
2
007. Also, the
g
rowin
g
number of subscriber lines
g
enerated
additional revenue from activation fees of
$
5
,
251
,
increase
d
r
evenue of
$
8,358 from a higher volume of international calling
,
increased revenue of $2,836 from customers exceedin
g
thei
r
p
lan minutes and increased revenue of
$
51,977 in regulator
y
f
ees we collected from customers, including
$
36,798 of USF
which we be
g
an collectin
g
on
O
ctober 1, 2006. Additionally,
add-on
f
eatures to our service plans generated an increase o
f
$
4,803. We also had a
$
5,273 increase in the fees we charge fo
r
disconnectin
g
our service, offset by a $4,258 increase in credit
s
we issued and a
$
18,274 increase in bad debt expense partiall
y
attributable to the extension to our customer grace period for
n
on-pa
y
ment in the second quarter of 2007
.
D
irect cost of telephony services
.
T
he increase in direc
t
cost of telephony services of $44,873, or 26%, was primarily
due to the increase in USF fees imposed by
g
overnment a
g
en-
cies of
$
36,798, which we began collecting on October 1, 2006.
O
ur network costs, which includes costs for co-locatin
g
in othe
r
carriers’
f
acilities,
f
or leasin
g
phone numbers, routin
g
calls on
t
he Internet, and trans
f
erring calls to and
f
rom the Internet to th
e
p
ublic switched telephone network, increased by $7,670. Also
,
f
ees that we pay other phone companies
f
or terminatin
g
phone
calls increased by
$
4,898. This was offset by the decrease in th
e
cost of portin
g
phone numbers for our customers of $2,560 and
a reduction in USF of $2,611.
R
o
y
a
l
t
y
.
T
he decrease in royalty of $18,739 was related t
o
n
ot havin
g
to pay a royalty in the quarter ended December 31,
2
007 since the settlement our patent litigation with Verizon
occurre
di
nt
h
e same
p
er
i
o
d
.
Customer Equipment and Shipping Revenue and Direct Cost of
G
oods
S
ol
d
F
or t
h
e
Y
ears
E
n
d
e
dD
ecem
b
er
3
1
,
Dollar
C
han
g
e
2
008 vs.
2007
Dollar
C
han
ge
2007 vs
.
2006
Pe
r
ce
n
t
C
han
ge
2008 vs
.
200
7
Pe
r
ce
n
t
C
han
g
e
2
007 vs.
2006
(in thousands, except percenta
g
es
)
2008 2007 2006
Customer equipment and shippin
g
$ 34,355 $ 24,706 $ 25,591 $ 9,649 $ (885) 39% (3%
)
Direct cost of
g
oods sold 79,382 59,117 62,730 20,265 (3,613) 34% (6%)
Customer equipment and shippin
gg
ross loss (45,027) (34,411) (37,139)
2008
compare
d
to
200
7
C
ustomer equipment and shippin
g
revenue
.
O
ur custome
r
equipment and shippin
g
revenue increased by $9,649, or 39%
,
p
rimarily due to an increase in the dollar value o
f
customer
equipment sales of $19,791 includin
g
sales in the retail channe
l
f
or replacement devices or up
g
rades that do not yield a ne
w
activation offset by the increase in customer rebates of
$
8,49
3
and the decrease in customer shippin
g
revenue of $1,649 due t
o
l
ess period over period customer additions
.
D
irect cost of
g
oods sold. Th
e
in
c
r
ease
in
d
ir
ec
t
cos
t
o
f
g
oods sold of $20,265, or 34%, was due to an increase in th
e
cost of customer equipment of
$
9,072, which included
$
7,606 of
amortization costs on deferred customer e
q
ui
p
ment due to th
e
chan
g
eo
f
our customer li
f
e
f
rom 60 months to 48 months in th
e
f
irst
q
uarter of 2008. In addition, there was a decrease in activa-
t
ion fees for new customers of $10,447 due to lower
g
ross line
additions which contributed
$
5
,
085 and an increase in waived
activation fees for new customers of
$
5
,
363.
200
7 compare
d
to
2006
C
ustomer equipment and shippin
g
revenue
.
O
ur custome
r
equipment and shippin
g
revenue decreased by
$
885, or 3%,
p
rimarily due to fewer period-over-period subscriber line addi-
t
ions and a free shippin
g
promotion to attract former
S
unRocket
cus
t
o
m
e
r
s
t
o subsc
ri
be
t
oou
r
se
rvi
ce.
D
irect cost of
g
oods sold
.
T
h
e dec
r
ease
in
d
ir
ec
t
cos
t
o
f
g
oods sold of $3,613, or 6%, was due to the decrease in period
-
over-
p
eriod subscriber line additions
.
32
VO
NA
G
E ANN
U
AL REP
O
RT 2008