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Vonage: On the road to recovery?

Vonage has greatly reduced its losses and has just announced a new deal to resell broadband service from Covad as it tries to get its business back into shape.

Internet telephony company Vonage is getting back on track with improved quarterly earnings and a deal, announced Thursday, to resell broadband service from Covad, a DSL service provider.

The new service, called Vonage Broadband, will offer speeds of 3 megabits per second to 6 Mbps to residential and small-business customers. It will allow Vonage to bundle its Internet telephony services with broadband services. Until now, customers using Vonage would get their own broadband service from a cable company or phone company and then add the Vonage service on top.

The news of the deal comes as Vonage announces first-quarter 2008 earnings. The company, which has been struggling to reduce its losses, said it lost $9 million. This was a huge improvement from the year before, when the company lost $72 million during the same quarter.

Revenue for the quarter was $225 million, up about 15 percent from the previous year.

A year ago, Vonage looked to be dying a slow death. It was still battling Verizon Communications in a lengthy and expensive patent infringement lawsuit. And its losses were mounting as customers dumped its service. But now it looks like the company has begun turning things around.

Of course, it isn't out of the woods yet. With a greatly reduced marketing budget, it is still having trouble attracting new customers. And it continues to lose a lot of customers every month.

For the first quarter, it added a total of 30,000 new subscribers, down from 56,000 new subscribers in the previous quarter and 166,000 during the first quarter of 2007. And it's still losing customers. The monthly churn rate, or cancellation of its service, rose to 3.3 percent from 3 percent during the previous quarter.

That said, Vonage seems more focused on surviving. And with its legal troubles out of the way, the company looks like it's refocusing its strategy. CEO Jeffrey Citron said the company will likely increase marketing spending in the latter part of the year, which should spur more customer growth.