A few days ago, I signed up for Vonage's Internet-based telephone service. Simply enough, I was tired of paying high phone bills. Why not pay only $24.99 per month?
With such prices, it's no surprise that Vonage is growing at breakneck speed. Apparently, the company has in excess of 1 million subscribers and, of course, a strong consumer brand.
But in order to maintain any sort of competitive edge, Vonage needs a strong infrastructure. So yesterday, the company announced a deal with Sonus Networks (NASDAQ:SONS).
Sonus specializes in building the complex "guts" for Internet protocol (IP) communications networks, for both wireless customers, such as Sprint (NYSE:S) and Cingular, and wireline carriers, like AT&T (NYSE:T).
One key reason for Vonage's choice is Sonus' deep experience in managing billions of VoIP minutes per month. Sonus ensures quality in calls transmitted, providing carrier-class reliability (99.99% reliability) and voice quality.
Right now, Vonage is using Sonus technologies only in New York and Los Angeles, but the company intends to expand that use into other metropolitan U.S. cities, as well as foreign markets.
Sonus' stock price was up only $0.12 to $4.23 on the news. Then again, the company has had choppy performance. In the third quarter, for example, Sonus lost $2.7 million, or $0.01 per share, which compares to a profit of $10.3 million, or $0.04 per share, in the year-ago period. During this period, revenue fell from $46.8 million to $45.7 million.
Basically, Sonus is in a fiercely competitive sector. Rumors are that its major customer, Cingular Wireless LLC, is thinking of switching over to Lucent (NYSE:LU).
So while snagging Vonage is a big coup, it appears that investors are still more concerned about existing customers going to the competition.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
