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Ben Charny

Staff Writer, CNET

Three years after opening for business, Vonage has become the largest provider of voice over Internet Protocol services in the United States. Much of the credit goes to CEO Jeffrey Citron, an acerbic-tongued Staten Island native whose rough edges have shaped the public persona of this fast-growing start-up.

Along the way, however, the scrappy company has earned its fair share of rivals. Some competitors speculate (sotto voce, of course) that Vonage’s 15 minutes of fame are about up and that the company is doomed to be elbowed aside by far larger cable and telephone companies. Whether that’s an accurate prediction or just wishful thinking, there’s no question the industry is evolving fast. More-established companies are finally getting aggressive with their own Net phone services–and that’s likely to raise challenges for Vonage.

CNET recently spoke with Citron about the changing face of the VoIP industry and what it might portend for his company.

Q: Some estimates say there will be 1 million total VoIP subscribers in the U.S. by January 2005. What’s your guess?
A: I expect 1 million for the year, maybe a little more. If we just add the numbers up, everyone’s on track to tap out over 1 million. I’ve read some projections for 2005, and most come in at 2.7 million total lines by the end of the year. That’s also a pretty reasonable expectation.

There are 112 million residential phone lines in the United States that we can all look forward to going after.

That’s a pretty aggressive figure.
People might have thought it’s aggressive at first. But in light of really good numbers coming from Time Warner Cable, Cablevision and Vonage, that data now looks conservative. How conservative remains to be seen.

Where are the 1.7 million new VoIP customers coming from?
VoIP is starting to cross a chasm into something resembling a mass-market product. With a million users, it’s become a mass-market product quickly. Vonage is going to be a big beneficiary; so will cable operators.

Lots of new competition for you guys lately. Do you think Vonage will end up getting swept under in 2005 by the major cable companies?
No, we’re not going to get “swept under.” There are 112 million residential phone lines in the United States that we can all look forward to going after.

But cable companies are getting closer to Vonage in terms of subscriber totals; are you feeling some footsteps behind you?
They won’t roll over us. Cablevision has been doing this as long as Vonage has, and they are, I admit, doing well. In the third quarter, they added what I estimate to be 74,000 subscribers. Vonage added 80,000. They’ll probably have around 275,000 for year. Vonage will be a lot higher.

What about Time Warner Cable, which planned to end the year with 200,000 telephone subscribers?
Time Warner has been rather quiet on data, actually. They entered this year with 35,000 subscribers. They say they’ve grown quickly; I estimate they’ve added 100,000 lines; we think we’ll (have added) more than 100,000.

We have reselling partnerships with some cable operators…It’s just a nice, informal partnership.

AT&T has yet to report the number of their VoIP subscribers. What do you think that number is?
If what I’ve read and seen about what they’ve done (in 2004) is true, AT&T is still struggling and continues to struggle. The industry rumor is they are still sub-50,000.

What is your opinion of Verizon’s residential VoIP service and the other efforts from the traditional local phone companies?
It’s interesting to talk about VoiceWing, (Verizon’s residential VoIP product), but it’s a small play. Maybe it’ll be bigger one day. AT&T…it’s hard to predict what’s going to be happening (in 2005).

What is the relationship like between Vonage and cable providers? Do you do any business with your competitors?
We have reselling partnerships with some cable operators. Other than that, we all work together on social policy obligations and lots of regulatory elements. We do discuss and share data about how things are going, like what’s working well, what’s not, where there have been issues. It’s just a nice, informal partnership.

What’s going to happen in New York this month, when state utility regulators will try to overturn a judge’s ruling keeping them from imposing their rules on Vonage and other VoIP providers?
It’s very hard to say what will exactly occur. We got a great decision from (the) Federal Communications Commission saying that Vonage is off-limits to state regulation. But the New York Public Service Commission has a lot of options. But they did say, publicly, in the past, they would adhere to the FCC decision.

When do you expect portable phones that have Wi-Fi connections will show up and start turning hot spots into giant VoIP phone booths?
Manufacturers are now working out the kinks, and a lot of them are finding out it’s not as easy as first thought. They have to solve issues of battery life, usability and authentication onto Wi-Fi networks. But I think Wi-Fi phones are definitely a first-quarter item.