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Vonage Customers Chafe Under Stock Purchase Plan





June 1, 2006

Vonage
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Vonage Customers Chafe Under Stock Purchase Plan
Vonage IPO Fails To Meet Expectations
Vonage 911 Caller Put On Hold While House Burns Down
Consumer Complaints

Some Vonage customers are learning about the stock market the hard way. The Internet phone company, hoping to boost sales of stock in its initial public offering, invited customers to be among its early investors.

Vonage set aside 4 million shares for customers and about 10,000 of them signed up, presumably hoping to cash out if the stock took off.

But far from taking off, the stock promptly tanked, falling 29% from its initial price of $17 to close at $12.02 yesterday.

Some customers say they'll withhold payment for the stock -- behavior that is considered very bad form in investor circles. After initially soft-pedaling the issue, Vonage now says it will hold customers' feet to the fire.

"If they don't pay, we will reserve our right to pursue payment," said Brooke Schulz, a company spokeswoman. Wall Street analysts expressed concern that forcing customers to follow through with the stock purchase could further tarnish the company's sagging image.

Widespread consumer dissatisfaction with Vonage's service is blamed by many analysts for the IPO's poor showing. A few days before the stock went on sale, the Wall Street Journal ran a lengthy article quoting complaints aired on ConsumerAffairs.com.

"If you have to choose between two cans and a string and Vonage, take the cans and string. You'll be happier with the service," Erick Loss of Chino Valley, Ariz., said in one of the postings quoted by the Journal.

Message boards and consumer forums are filled with complaints of poor sound quality, dropped calls and other glitches, the Journal noted.

The company's huge losses don't help. Although first-quarter revenue nearly tripled to $118.9 million from the same period in 2005, Vonage's accumulated deficit now stands at $467 million.

Since its founding, Vonage has spent heavily on marketing. It is by most measures the biggest Internet advertiser. In its prospectus, it warns it will continue to focus on growth rather than profitability and may never become profitable.



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