Vonage Struggles in Wake of Verizon Suit

Vonage is still solvent, although its continued fight with Verizon is hurting the company's bottom line.

During the past quarter, the company only managed to add 57,000 customers, far less than the 166,000 it added in the year ago quarter. Worse yet, Comcast has overtaken it as the nation's largest VOIP provider, and still appears to be growing quickly: it ended the quarter with 3 million subscribers.

Vonage has managed to find workarounds for two of the three main patents the courts have said it infringes on. The company gave no timeframe for the completion of the final workaround, although it expressed confidence in its business going forward.

Regardless of the legal problems, Vonage has still managed to cut its losses, posting a $34 million loss on $206 million in revenue, up from a $74 million loss on $144 million in revenue in the year ago quarter.

"We made significant strides this quarter in reducing costs and narrowing our losses. Despite the continued challenges associated with the Verizon litigation, the Company maintained its focus on achieving adjusted operating profitability," Vonage interim CEO Jeffrey Citron said in a statement.

Marketing expenditures decreased in the quarter, which may have also contributed to the falling subscriber additions. The company spent $68 million in advertising, down about a third from the previous quarter. However, the company plans to ramp up advertising again this quarter.

Citron told a conference call of analysts he also planned to work on Vonage's customer service problems, which he claims is causing as many as 7 in 10 customers who left the service to cancel. The quarterly churn rate was 2.5 percent, up slightly from the previous quarter.