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Vonage struggles to attract new customers

Cutbacks on advertising and marketing helped Vonage narrow its losses for the second quarter of 2008, but the cuts ran deep, hurting the company's ability to attract new subscribers.

Internet telephony provider Vonage is struggling to attract new customers, as the company is forced to spend less on advertising.

For the second quarter, Vonage reported it had lost $6.9 million, compared with a whopping $23.2 million loss during the same quarter a year ago. The company also increased revenue about 11 percent to $227.5 million.

But the positive gains in the company's financials came at a price. During the quarter, Vonage added only 2,080 new subscribers. A year ago, when the company was still marketing heavily on TV, it added 56,691 during the quarter. In total, Vonage has 2.6 million subscribers as of the end of the second quarter.

On the positive side, the company slightly reduced its churn, or the rate at which people leave its service, to 3 percent from 3.3 percent the previous quarter. This is an important metric as Vonage must hold onto every customer it can.

When it comes to churn, Vonage is near the bottom compared with other service providers, such as wireless operators. It's better than low-cost wireless operator MetroPCS, which had about a 4.5 percent rate of turnover during the second quarter. But it's not even as good as beleaguered wireless operator Sprint Nextel, which had a churn rate of 2 percent during the second quarter. And it's much worse than strong wireless carriers, such as AT&T, which has a churn rate of 1.6 percent and Verizon Wireless, which has a churn rate of 1.1 percent.

In an interview with The Wall Street Journal, Marc Lefar, the company's newly appointed CEO, said the top priority for the company is to push the churn rate even lower. He told the Journal he is reviewing the company's customer relations operations to see where it needs to improve.

"A 3 percent churn rate is not something we're happy with," he told the Journal.