Friday, July 25, 2003

Vonage CEO's past leads to questions about Vonage's stability

Looks like Vonage is run by a pretty shady guy, check out the article below I copied from the NY Post. I guess I don't care if Vonage is run by a shady guy or not, but if they can't raise money because of his past I don't think Vonage will be around too much longer.


VONAGE DIALS UP JITTERY INVESTORS

By BEN SILVERMAN
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June 16, 2003 -- JEFFREY Citron has the telecommunications industry scared - which is a good thing for the founder and chief executive officer of telephony firm Vonage.
Unfortunately, Citron also has the investment community scared.

"Vonage is a hard sell because of Citron's involvement," said one investment banker who has taken a look at the company. "Everyone knows Citron can build a successful business, but you also know he has a big black spot on his resume."

Citron's black spot comes in the form of a $22.5 million fine, levied by the Securities and Exchange Commission earlier this year for making unlawful trades while heading brokerage firm Datek Online.

It was the largest fine ever against an individual. And although Citron admitted no wrongdoing, the publicity surrounding the fine is weighing down his current efforts.

But even so, Citron has the telecommunications industry taking notice.

Vonage has already garnered 25,000 customers for its cheap, unlimited long-distance service, which uses existing high-speed Internet connections and allows consumers to ditch their local telephone lines.

But getting investments for Vonage has, according to insiders, been difficult.

Because of Citron's background, fundraising is "near impossible" unless he becomes a minority shareholder and gives up his position as CEO, a source close to the company told The Post.

Vonage would not comment on any issues surrounding investment or its strategy.

Vonage announced deals with two small cable operators last week; it already has a pact with EarthLink, the nation's third-largest Internet service provider. During an industry briefing in May, Citron said the company was also conducting a trial with a major cable operator.

"The company is going to have to do more deals with broadband providers," said Joe Laszlo, an analyst at Jupitermedia. "That is going to be critical for Vonage to create a sustainable, long-term business."

While Vonage's $25.99 monthly rate blows away anything traditional telephone companies offer, the company has already been undercut by competitor Packet8 - which recently lowered its monthly rate to $19.99.

"Vonage can't cut its rates that low without losing money - and potential investors know both facts and are showing less interest in investing," said a source close to Vonage.

So if it's not Citron's past that is a problem for potential investors, is it the company's business plan?

"The telecommunications companies are doing battle over bundling - combining local, long distance and Internet access," said Dana Tardelli, senior analyst in Aberdeen Group communications services. "Vonage is sitting in the middle and will get squeezed by that."

An investment analyst who researched the company says Vonage's long-term strategy is most likely for the company to be acquired by a cable company.

"It looks like they want to come in, shake up the space, scare some people and then get out," the analyst said.

There's not doubt that Vonage is scaring people. But it remains to be seen if that's a good thing or a bad thing for the company.

* Please send e-mail to:

bsilverman@nypost.com

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