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Vonage Goes Courting For Cable

Broadband telephony leader Vonage is looking to partner with a major cable operator in order to expand its service, an executive with the Edison, N.J., company said at a conference Tuesday.

"We'd love to crack a top-10 cable operator this year." Vonage CFO John Rego told analysts at Oppenheimer & Co.'s VoIP conference in Boston Tuesday.

Such a deal would give Vonage a new pipeline to offer millions of cable broadband subscribers its service, which requires a high-speed connection.

Vonage already has pacts with some smaller cable outfits. Rego suggested that larger players may have quality of service concerns about VoIP, or may simply be unwilling to relinquish control of the service to a third party. For example, Time Warner Cable has developed its own VoIP service as it rolls out the service to its high-speed Internet customers.

Even if they remain cool to a partnership, large cable operators would not be able to block their customers from signing up for Vonage's service on their own. Although blocking the service is technically possible, Comcast and others have signalled that they would not do so. Vonage's service "helps them sell broadband," Rego said. And freezing out VoIP service would likely invite unwanted attention from regulators.

Regardless of whether a cable partnership develops, Vonage continues to build a customer base through its Web site, direct sales, and through marketing deals with national electronics retailer Circuit City and Internet service provider EarthLink .

It offers unlimited flat-rate local and long-distance service cheaper than traditional carriers because voice traffic over the Internet isn't subject to regulatory fees (at least for now).

In all, the privately held firm has 124,000 lines in service. By year's end, Vonage expects to be in all 50 states (it's in 40 now), Canada, the United Kingdom and Switzerland. The expansion will be funded with $6 million from the company's recent venture capital windfall.

A couple of factors are driving the growth, Rego said. First, broadband adoption in the United States is soaring and access providers are moving it into new areas. Vonage's hardware -- a box supplied by Motrolola that plugs into an ethernet cable line and phone jack -- works with cable modems and DSL broadband.

It will also work with emerging high speed Internet offerings such as broadband over power lines and fiber-to-the-home, which are currently in trials.

In addition, the company's is in the midst of an aggressive marketing campaign, which includes TV, radio, print and online spots.

Looking forward, Rego expects to see 802.11-based cordless phones working on Vonage's service. The phones will not replace cell phones but would likely appeal to customers who alread have a Wi-Fi network in their home or small office, Rego said. About 80 percent of Vonage customers are residential users.



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