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Vonage reserves IPO shares for customers

Company, which turns broadband connections into phone service, plans to set aside common stock shares for customers.

Internet telephony provider Vonage said Monday that it will set aside shares of common stock for eligible customers participating its initial public offering.

Customers must meet strict eligibility criteria to participate in the Directed Share Program, including the following: They opened accounts with Vonage on or prior to Dec. 15, 2005; maintained their accounts in good standing through Feb. 1, 2006; are U.S. citizens; reside in the U.S. when the offering closes; and have a valid Social Security number.

Vonage on Monday sent e-mails to its customers notifying them of the Directed Share Program and directing them to a Web site for more information.

"Because much of our success is attributable to our customers, we have asked the underwriters of the IPO to reserve shares of common stock for sale to certain Vonage customers," the company said in the letter.

Interest among institutional investors for shares in the Vonage IPO appears to be strong. In February, the company had said it hoped to raise about $250 million from the IPO. Then in April, Vonage more than doubled that expected amount to between $575.2 million and $647.1 million.

In total, Vonage is hoping to offer 31.25 million shares at a price between $16 and $18 each. At the $18 offering price, Vonage would be valued at about $2.8 billion.

Vonage offers a service that turns broadband connections into telephone lines by chopping voice signals into Internet protocol packets and sending them over the Internet. Its Internet telephony service, which now has 1.6 million subscribers, gives people an alternative to traditional home phone lines from Verizon Communications or AT&T.

Not only is Vonage competing against traditional phone companies, but it also competes with a slew of other telephony services, including cell phones, cable telephony from companies like Comcast and Time Warner, and free Internet calling services from companies such as Yahoo, AOL and eBay's Skype.