Vonage World versus Skype Unlimited World

Below is a run down of what’s different between the Skype “Unlimited World” plan compared to the new “Vonage World” plan.

This table only lists the countries where there are differences between the plans (specifically, where the Skype plan lacks coverage, since there are no countries included in the Skype plan that are not also included in the Vonage plan). For instance, the “Vonage World” plan includes landlines and mobiles in Puerto Rico whereas the Skype “Unlimited World” plan only includes landlines in Puerto Rico. Likewise, the Vonage plan supposedly includes all landlines in Mexico, while the Skype plan includes only landlines in Mexico City, Guadalajara and Monterrey.

Both plans include the following countries with (apparently) equal coverage: Argentina, Australia, Austria, Belgium, Bulgaria, Canada*, Chile, China*, Colombia, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong*, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore*, Slovakia, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand*, United Kingdom, United States*

Both plans have hidden limits. For the Vonage plan, the limit is 5,000 minutes per month (section 5.4 of the TOS http://www.vonage.com/tos/index.php). For Skype,  the limits on this so-called “unlimited” plan are “10,000 minutes per user per month, with a maximum of 6 hours per day. Also, no more than 50 different numbers in total can be called per day” (see http://www.skype.com/legal/terms/fair_usage/).

The Vonage World plan is $24.95/mo while the Skype plan is $12.95/mo. They are apples and oranges to a degree, as the Vonage service includes a phone number and hardware box and is used with a regular phone (no need to leave your computer on all the time to receive calls and no need to use your computer to place calls). The Skype service requires that you place calls using your computer and it does not include a number for receiving calls. Vonage is meant to replace a standard landline and work with a regular telephone while Skype is just for use on your computer. But that’s not the topic of this post, which simply compares the countries included in the two plans for outbound calling.

If you’re calling the countries listed above, you probably know how much those countries cost to know whether this plan would benefit you. I would guess that India and Mexico would be the big draws, as there are few flat-rate plans offered to these countries and per-minute rates are significant.

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Oh yeah, Vonage – forgot about them

Vonage recently expanded its $24.99 plan (approx. $33/mo. with fees) to include unlimited calling to landlines in 60 countries, including India and Mexico (subject to normal residential use restrictions).

The news of this reminded me that Vonage was still in business. I’ pretty sure I bet that they would be out of cash by now – so it looks like I lost that bet.  It wouldn’t be the first time (and it won’t be last, I’m sure).

So how are they doing? In February of this year, the NYSE gave Vonage a “Notice of Delisting”. Prior to this “Vonage World” announcement the stock was hovering around $0.40 per share. After the announcement, the stock hit a new 52-week high at $2.63. Since then, it has fallen back a little, but it’s still trading today at $1.35.  I guess investors like this new plan.

However, to me, the metrics don’t look all that great, so I don’t know what this rally is based on. In their recent 10-Q filing, Vonage reported customer acquisition costs of $363.01 per new subscriber for the second quarter of 2009, while it was $282.89 for the same quarter a year ago. Vonage lost 88,643 customers in the quarter, compared to adding 2,080 customers a year ago in the same quarter. On the plus side, ARPU and churn are holding steady.

Vonage still has an ugly balance sheet with only $56 million in cash and $203 million in debt.

The 10-Q reads:

We are facing increasing competition from other companies that offer multiple services such as cable television, video services, voice and broadband Internet service. These competitors are offering VoIP or other voice services as part of a bundle.

And goes on to say:

In addition, we believe several of these competitors are working to develop new integrated offerings that we cannot provide and that could make their services more attractive to customers. For example, as wireless providers offer more minutes at lower prices and companion landline alternative services, their services have become more attractive to households as a replacement for wireline service.

The new “Vonage World” plan is clearly an attempt to lower customer acquisition costs and reduce churn. However, it will increase costs and lower gross margin too. It’s competitive offer and I bet they will sign up a lot of customers (lot of India ex-pats, for example) – but with the lower margins will it work? The trends still don’t look good to me, but VoIP appears somewhat hot again, so maybe they will last long enough to (finally) be acquired.

UPDATE: country-by-country calling area comparison between Vonage World and Skype Unlimitied World plans.

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