Net Phone Firm Vonage Plans a Public Offering

Vonage Holdings Corp., the nation’s biggest provider of Internet-based phone service, said Wednesday that it planned to raise as much as $250 million through an initial public stock offering.

A Vonage IPO has been rumored for more than a year, but analysts said this could be the right time for the Homdel, N.J., company to go public because the market for first-time stock offerings is enjoying its biggest boom in six years.

Still, Vonage, which has rung up $310 million in cumulative losses since its founding five years ago, is a risky bet. The company, which pioneered so-called voice over Internet protocol, or VOIP, and currently has 1.4 million customers, is facing increasing competition from conventional phone companies and cable operators, as well as free providers of Internet phone service such as Skype Technologies, Google Inc. and Yahoo Inc.

In addition, Vonage’s business relies on the light touch that federal regulators so far have applied to VOIP companies. The Federal Communications Commission is considering whether to classify VOIP as an information service, which would free it from most of the onerous rules that telecom firms must follow.

“From a historical perspective, this is a very important company,” said analyst Blair Levin at Stifel, Nicolaus & Co. But over the long term, “it’s not clear what niche they are going to be in.”

The company has raised about $400 million in private funding and investors are getting impatient to see a return on their money, analysts said.

“This IPO comes at a time when they need to repay their investors,” said Maribel Lopez, telecommunications analyst for Forrester Research Inc. consulting firm. “And they need to get out while the getting’s good.”

In its filing Wednesday with the Securities and Exchange Commission, the company said founder Jeffrey A. Citron, 35, recently resigned as chief executive. He will remain as chairman. Michael Snyder, who headed Tyco International’s ADT Security Services Inc., will take over Feb. 27 as chief executive.

The filing didn’t reveal how many shares it plans to sell or at what price, on which exchange the company plans to list, or when the IPO will take place.

The filing said Citron, who earned $400,000 in salary and a $540,000 bonus last year, holds options totaling 17 million shares, as well as an unspecified amount of stock.

Vonage’s IPO plans come amid the rapid growth of voice over Internet protocol technology and VOIP’s effect on conventional phone companies.

Voice over Internet protocol breaks voice signals into packets like e-mail and sends them over high-speed lines. Phone calls made using VOIP are typically cheaper than conventional calls.

Last year, the number of Internet phone service subscribers grew by more than 200%, increasing from 1.3 million to an estimated 4.4 million, according to research firm TeleGeography Inc. Vonage controls 28% of the market, the firm said.

Although Vonage is still the single biggest provider of VOIP services, analysts said bundled services offered by cable and phone firms and the free voice features that are being embedded in instant messaging programs will make it tougher for Vonage to compete.

Lopez said Vonage’s hopes of selling itself were dashed when EBay Inc. spent $4.1 billion to acquire Skype, the world leader in free Internet phone service.

In its filing, Vonage said it had spent “significant amounts” of money on marketing and that it intended to continue a strategy of “pursuing growth, rather than profitability.”

A total of 26 companies have gone public this year, the fastest start to any year since 2000. And some of this year’s deals have rocketed from their IPO prices, which has the effect of drawing more investors to the market.

Times staff writer Tom Petruno contributed to this report.