Internet Phone Subscriptions Soar Despite Vonage Woes

U.S. subscribers to Internet-based telephone services grew 21 percent to 6.9 million in the second quarter, with cable TV companies expanding their lead in market share compared with Vonage and other pure-play providers, the research firm TeleGeography reported Wednesday.

The latest tally on the market for Voice over Internet Protocol, better known as VoIP, marks a 153 percent increase compared with mid-2005. But the second-quarter gain was slightly slower than in the first quarter, when it grew by 28 percent, TeleGeography said.

VoIP revenues for the second quarter were up 173 percent at $607 million across the United States, compared with a year-ago level of $221 million.

The report also added some credence to the worries that have bedeviled the stock price of Vonage Holdings Corp. (VG), the biggest VoIP provider, whose share price has tanked since an initial public offering in May.

Cable TV companies now account for 60 percent of VoIP subscribers, up from 52 percent in mid-2005. Vonage and other pure-play VoIP providers serve the remaining 40 percent, or about 2.8 million subscribers.

"Even more significantly, [cable companies] accounted for 68 percent of new subscribers added in the second quarter, a sign that [their] aggregate consumer VoIP market share will continue to grow in coming months," the report said.

Vonage raised about $500 million in badly needed capital with its IPO. But its share price has fallen 60 percent amid fears the company spends too much on marketing for new customers, and subscriber losses may accelerate as the cable players and phone rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ) introduce competitively priced bundles of TV, Internet and phone services.

While the cable companies entered the market after pure-play VoiP companies, "their superior financial resources and established customer relationships have provided them with a significant marketing advantage," the TeleGeography report said.

Vonage Holdings Corp., its quarter sullied by the embarrassing stock performance since its IPO, remained the industry leader with 1.8 million subscriber lines.

Time Warner Inc.'s (TWX) cable TV business was second again at nearly 1.6 million. The companies added roughly the same number of accounts, with 243,000 for Vonage and 234,000 for Time Warner.

While Cablevision Systems Corp. (CVC) remained the nation's third-largest provider, growing by 122,000 subscribers to 987,500, No. 4 Comcast Corp. (CMCSA) is now on track to surpass it by year-end, TeleGeography said.

Comcast, which launched VoIP more slowly than most of its cable rivals, posted a 73 percent jump in users during the second quarter, finishing with 721,000.