Like a video game of a ceaseless series of obstacles thrown at a hapless hero, Vonage (NYSE: VG) is jumping hurdle after hurdle, struggling to turn itself into a profitable enterprise; but there are major obstacles yet for the Internet telephony provider to leap.

Vonage reported progress in narrowing its losses in the first quarter of 2008 -- the company saw revenue rise 15% to $225 million, leading to a GAAP net loss of $9 million. Operating losses improved but still remained to the tune of $4.5 million this quarter.

Monthly churn shot even higher to a 3.3% rate this quarter, and Chairman Jeffrey Citron again noted that getting this metric under control is one of the biggest operational challenges the company faces. Despite employing all of the usual tricks to do so, the churn continues to surge -- even in light of flowery management commentary and improvements in other statistics, such as customer service metrics and "adjusted operating metrics with certain charges factored out."

I've noted before that investors should stay away from Vonage until we can see meaningful and consistent improvement in churn. The company blamed this quarter's increase on "vendor capabilities," which is a euphemism for an outsourced, offshore customer-service call center that was creating more problems than it fixed by making customers angry. Vonage referred to this event as a temporary blip in January, but churn still remains higher than during any past reported level.

I remain dubious because the company faces no letup in competition. eBay (Nasdaq: EBAY) recently launched unlimited international-call plans for Skype, and wireless companies such as AT&T (NYSE: T) and Verizon Wireless -- joint venture of Verizon Communications (NYSE: VZ) and Vodafone (NYSE: VOD) -- are luring customers away from landline phones with new unlimited wireless plans. Cable companies such as Comcast (Nasdaq: CMCSA) and Time Warner Cable (NYSE: TWC) are also making great strides in capturing digital-phone-service customers.

Another major obstacle ahead for Vonage is managing its debt. Even though Vonage inked a letter of intent in April to refinance its $253 million in convertible notes, the deal still remains squarely in the "intent" area, with no definitive agreement in hand.

As long as the churn and debt issues create static on the line, it's hard to put any confidence in Vonage.

For more Foolishness:

eBay is a Motley Fool Stock Advisor selection that has helped the service outpace the market by 43 points. To see what stocks Tom and David Gardner are recommending today, take a free 30-day trial.

Fool contributor Dave Mock learned the hard way that you shouldn't assume that the "consume by" date has some fluff built in. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. The Fool's disclosure policy never spoils.