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Reports Say Vonage Has Selected Banks for IPO; Some Financiers Advocate Sale of Net Phone Service Provider

Posted on: Friday, 30 September 2005, 15:00 CDT

By MARTHA McKAY, STAFF WRITER

Internet phone service provider Vonage is reportedly lining up investment banks to handle a possible initial public offering.

But sources told Light Reading, a telecommunications online trade publication that first reported the news this week, that some bankers are leaning toward offering Vonage for sale to another company.

Citing unnamed sources, the publication said Edison-based Vonage has selected Citibank, UBS and Deutsche Bank to handle a possible deal.

Vonage spokeswoman Brooke Schulz declined to comment Thursday.

The Wall Street Journal reported in Thursday's edition that Bear Sterns has also been hired as an underwriter and that other banks may participate as well.

Vonage, which has 1 million paying customers under the leadership of CEO Jeffrey Citron, sells deeply discounted flat-rate Voice over Internet Protocol phone service (VoIP) to anyone with a broadband connection.

The company's decision to go public - or be acquired - comes as Internet-based phone calling appears poised to go mainstream.

Other high-profile deals involving VoIP have been sealed in recent weeks, possibly increasing the pressure on privately held Vonage to capitalize on its growth.

This month, eBay, the online auctioneer, paid $2.6 billion to purchase Skype, a Luxembourg VoIP company that provides users a free software download that allows free calls over the Internet to other Skype users. More than 51 million people have downloaded the Skype program.

Other large companies, including Google, Yahoo and Microsoft have also recently announced plans to enter the Internet-based phone business in some capacity. They join a range of cable providers selling their own VoIP-style phone service to their customers; Cablevision reported more than 478,000 phone customers as of June 30.

Some analysts are skeptical about Vonage's prospects for future growth, given that many traditional phone companies, including Verizon and AT&T (being acquired by SBC Communications) all offer VoIP services to consumers and can package that service with a wide range of other communications and entertainment products. Vonage sells only voice service.

Jeff Kagan, an independent industry analyst, said he believes Vonage's growth "will slow dramatically once the telephone and the cable television companies get into the same business with a bigger bundle of services."

Vonage has raised more than $300 million in venture capital since it launched service in 2002.

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E-mail: mckay@northjersey.com

Source: Record, The; Bergen County, N.J.

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