Vonage Rolls Out Flash-Drive-Based VoIP Phone

NEW YORK – Internet phone company Vonage Holdings Corp. (VG) said on Wednesday it aimed to expand its customer base to businesses with a new device that can be carried and plugged into computers for making phone calls.

Analysts, however, said the product was not enough to change their dim outlook for Vonage, which saw its shares tumble around 50 percent since its May initial public offering (IPO) on worries about increasing competition and persistent losses.

Vonage is one of the U.S. leaders in Web-based telephone services, or Voice-over-Internet Protocol (VoIP), which are usually cheaper than traditional phone services and are popular among younger tech-savvy consumers.

But with a growing number of telecoms, cable and Internet firms competing in the same market, Vonage is trying to expand its services.

"We definitely want to diversify," Vonage Chairman Jeffrey Citron told reporters at an event to introduce the V-phone, an orange memory stick that can be plugged into a computer's USB slot to make phone calls.

The V-phone, which is preloaded with software and therefore requires no computer set-up, will cost $39.99 plus a $9.00 activation fee, and comes with an earpiece. Customers would also need to sign up for calling time.

Vonage is offering business users unlimited calls for $34.99 a month, and a $24.99 unlimited plan for residential customers. It also offers a 500-minute plan for $14.99.

"Most employees do a lot of work on the road and at home," Citron said. "The only way they do that is racking up large phone bills."

Citron said he did not expect the latest device to replace other Vonage products or cell phones.

But companies could eventually use it instead of their current phone networks once workers grew accustomed to using headsets and dialing from keyboards rather than traditional phones, he said.

Richard Greenfield, an analyst at Pali Research, said he was keeping his "sell" rating on Vonage shares and that he did not see many companies replacing their existing phone networks with the V-phone.

"I'm not convinced exactly which market segment will go for this. I struggle to imagine that companies would get rid of their existing [phones] ... and replace it with a little corded headset," he said.

Vonage shares rose 5 cents to $8.89, up 0.6 percent for the day but down 48 percent from the $17 IPO price.

Citron did not comment on the shares' weak performance since the IPO — the worst so far this year. He said on Monday that Vonage would not change its business strategy despite the sell-off, and that it would keep investing heavily in advertising.

The company has consistently bled red ink since its start in 2001, and said in its IPO prospectus that it may never be able to turn a profit.