Vonage chairman Jeffrey Citron presented at Citigroup’s annual media and telecom conference. Key points:
- Vonage hasn’t felt any impact from any economic downturn (which has caused some pain at AT&T and Comcast). If anything, he thinks Vonage’s “save $300 a year on phone service” message may resonate with consumers when they’re looking for ways to cut costs.
- After a 2007 full of legal drama (patent settlements with Verizon, AT&T, Sprint Nextel, and Nortel), Citron will spend 2008 fixing Vonage’s customer service problems and focusing on profitability. Big goal: cut churn — the percentage of customers who leave the service each month — to 2% someday, from 3% now.
- How will Vonage cut churn? Making its technology simpler, ditching gadget partners for Vonage-designed/branded equipment, and fixing customer service — including better customer care call routing, “workforce management” (training/firing), and new CRM software.
- How will Vonage move beyond commodity Internet phone service and/or grow? Features like visual voicemail, calling packages tailored to individuals, a push toward small business customers, and perhaps expanding beyond the US/UK/Canada.
4:05 Presentation begins.
4:06 Over 2.5 million lines currently in service. Vonage’s low prices favourable in unfavorable economy?
4:08 Expect $1 billion revenue in 2009. How to fix company? Marketing, product, cost control.
4:09 Rolled out beginnings of local marketing strategy. In terms of cost management: streamlined ops in last 2Q, increased partnerships. Big item we’ve struggled with: IP litigation. Now having 4 lawsuits behind, company can move forward.
4:10 Customer experience: along with refinancing debt, one of two big focus points. Need to fix customer service problems.
4:11 Have slowed down revenue growth in past few quarters. Not stepping on gas until customer experience is fixed.
4:12 SG&A declined several quarters in a row. Approx. 60% is fixed, good leverage when adding new users. Customer care really drags here.
4:14 Cash cost per line dropping too.
4:14 How is business doing? We look at pre-marketing operating income (PMOI). Record high in Q3; expect steady growth in future quarters.
4:16 $206 customer acquisition cost in Q3, expect $225 – $250 in 2008. TV is biggest spend.
4:17 Comfortable with business: narrowing losses. Generated positive operating cash from ops for first time in Q3, expect positive cash from ops in Q4.
4:18 Fixing quality issues important. 70% of churn is caused by Vonage.
4:19 Must-do: fix problem during first customer service call. No second calls. Company hasn’t invested in the right tech: investing in CRM, call routing, workforce management. Will get the right call in front of the right agent.
4:20 Vonage has also released its own device, the V-Portal. Finally in control of entire experience — no more router partners.
4:21 Must also fix churn. Customers at highest risk in first 3 months and at month 13. Want to return churn to 2% or lower.
4:23 New plans and features: international calling, like offering Asia plan to Seattle residents, etc. Also stuff like visual voicemail (25 cents per message gross revenue), good cost structure, good margins. Also virtual phone numbers, 800 phone numbers.
4:24 Next: V-Portal launch, whole-house solution (3 handsets), and forthcoming Vonage Desk Mate.
4:25 Subscriber portal at alpha.vonage.com, new features like call blasting — send a voice message to a bunch of people.
4:26 2009 strategy ideas: push to small/medium businesses, enterprise, other bundles (mobility/broadband), expand beyond US/UK/Canada.
4:27 2007 had strong revenue growth despite legal issues. Will not step on gas pedal until customer care issues resolved. Generating cash from ops. Clear strategy to obtain profitability. Expects 2008 full year of adjusted operating profits.
4:28 Q&A: Do you need to invest more money on per-sub basis to get customer service quality up? Yes. Will also be monitoring every call to help diagnose issues: ISP, equipment, partner, etc.
4:30 Cost associated with enhanced services like visual voicemail? Visual voicemail has about 50% margin associated with it. Lot of cost, that’s why we charge 25 cents per message. (Humans are actually doing QA for these transcriptions.)
4:32 How long to get to 2% churn? It’s going to take time. Took time to get bad, should see some improvement immediately, but won’t know for a while how long it will take.
4:34 How to get incremental margin higher to get stock price moving? Today, generate $15 of income on $28 of revenue. Part of variable cost is to fix customer care.
4:35 Churn: where to? Overall, evenly spread out. Some go back to phone company, some to another VoIP provider, some all-cellular. All-cellular the lowest. Anything else on drawing board to take VoIP away from being a commodity? Citron: That’s the “My Vonage” strategy to put together customised packages.
4:37 No impact from slowdown of economy from churn or bad debt. We charge in advance so unlikely we’d see those problems. If economists are accurate about slowing economy, people are going to look to save money. One of the messages we’ve been successful with is “save $300 a year on your phone service”. Seen good and relatively gross ads. Churn dragging on net-add growth. Can get them in the door, gotta keep them. That’s where customer care comes into the picture.
4:38 Session over.
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