Vonage: Your Cable Company 'Sure Is Sneaky'

Voice Over Internet Protocol Provider Returns to Scrappy Roots with Spots Dissing Bundling

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Vonage is going after cable in two hard-hitting TV spots created by TBWA/Chiat/Day, New York, that question cable company practices and pricing with lines like, "Our cable company sure is sneaky," and "This bundle of yours is costing us a fortune."

The spots, directed by Phil Morrison, who is well-known for his Mac vs. PC ads for Apple, veer in approach from the voice over internet protocol company's recent testimonial ads and instead turn back to the company's challenger roots. "We found that a lot of people are in bundles, but they don't really know what they're paying (for each component)," said Leesa Eichberger, Vonage VP-marketing. "We wanted to raise that question in consumers' minds."

Vonage is focusing the new ad campaign on the domestic consumer market, which makes up half of its business -- international long-distance accounts for the other half -- with the break-the-bundle gambit. Ms. Eichberger said the company's research found that seven out of 10 people could save money if they break their bundles and switch to Vonage voice service.

The campaign will run in a heavy cable rotation, Ms. Eichberger said, across a wide variety of channels including ESPN, Discovery and the History Channel. A social-media plan is also in the works, she said.

Vonage spent $51 million on marketing in the third quarter, according to its most recent financials, up from $49 million in the same quarter a year before. IBISWorld analyst David Grimes said advertising accounts for about three-quarters of that total.

"I can see why they're going after the cable companies, they're in the pure voice space (in the voice over the internet industry), but most of the growth has been in the cable companies' success in getting people to bundle up," he said.

Vonage has about 2.4 million subscribers, while the entire VoIP industry in the U.S. is about 26 million, according to broadband researcher Point Topic. The company estimated in a June report that more than 20 million of those are subscribed through cable companies including Comcast, Time Warner , and Cablevision. And now there is even more competition with telecom companies such as AT&T and Verizon also entering the "triple play" bundling race and marketing those all-in-one deals where Vonage can't compete.

Mr. Grimes projects that the entire VoIP industry will continue to grow from $14.1 billion this year to $31.5 billion in 2016, or an annual growth rate of about 17%. Still, the growth rate pales in comparison to the 35% annual growth the industry enjoyed from 2006 to 2011. He said Vonage's annual growth rate during the period from 2006 to 2011, "is expected to be 9.4%."

But Charles Golvin, an analyst at Forrester Research, said Vonage's biggest enemy may not be cable at all. "Home-phone service has been a declining business for a number of years. Probably in the long term, it's a dying business. A dying business that just so happens to be making billions of dollars now, but eventually will be displaced as mobile continues to rise and the barriers to adopt go away. … Vonage's problem is the fact that fewer and fewer people want a home phone line."

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