Vonage: Smartphone Apps for International Calls

Vonage (VG) hopes to tap new markets by putting its service onto mobile phones. On Oct. 5, the provider of Internet calling began selling software that lets users place international calls on the Apple iPhone (AAPL) and Research In Motion's BlackBerry (RIMM).

Users who download the applications will be able to make calls from the U.S. to overseas locations using Vonage's Internet-based technology. Rates will vary based on the country called, but Vonage says the calls will be cheaper than its own landline per-minute rate. The service is also meant to be much cheaper than plans for international calling via wireless and less than it costs to place calls over traditional landline connections. The company hopes to attract many of the estimated 15 million people in North America that are expected to place calls over the mobile Web by 2013 (compared with about 36,000 last year) according to consultant In-Stat.

Beset by customer losses, Vonage also hopes that making its service available on smartphones will slow the pace of defections or even restart the company's growth. Rival Comcast (CMCSA) has picked up Internet-calling customers by offering a wider range of services than Vonage can provide. In the second quarter, Comcast's customer base jumped 24% to 7 million, while Skype, another provider of Internet calling, grew its user base by 42%, to 480.5 million. In the same period, Vonage lost 88,643 subscriber lines, ending the period with 2.49 million lines.

Surging Beyond Wi-Fi and Its Limits Vonage is striking back with mobile features geared toward international callers, which competitors such as Comcast and Skype don't yet offer. "It's a good way that they can defend their customer base against cable and grow their customer base," says Jon Arnold, principal with telecom consultant J. Arnold.

For instance, Comcast doesn't offer a Web-calling app at all; its iPhone app lets users check home voice mails and forward calls from home to the iPhone. Skype doesn't have a BlackBerry app yet, though one is in the works. Skype's app for the Apple iPhone offers calling via Wi-Fi networks while Vonage's new software can place international calls over Wi-Fi and AT&T's (T) cellular network. "Wi-Fi alone is probably not going to be good enough [for many users]," says Frank Dickson, an In-Stat analyst.

The new apps could also help Vonage tap into a pool of users who have yet to sign up for home Web calls with anyone. Today about 25% of the U.S. population has cut its landlines, using cell phones exclusively for all calls. About 10% of U.S. households make international calls. "We think the market is enormous for people who are not with Vonage today," Vonage CEO Marc Lefar tells BusinessWeek.com. As more people cut the cord and look to reduce phone bills, the market for mobile Web calling services should grow from $51 million last year to $2.9 billion by 2013 in North America alone, according to In-Stat. The global market will be even bigger, at around $32 billion.

Aggressive Pitches at Home and Abroad To make its offer more attractive, in the fourth quarter Vonage will start offering discounts to customers who buy both its home and mobile service bundle. The package will offer Vonage World for home, which offers unlimited international calls to more than 60 countries, including India and Mexico, for a flat rate of $24.99 a month, as well as the same flat-rate World plan for mobile. Until then, users of Vonage mobile apps pay for international calls on a per-minute basis.

A marketing campaign will help get the word out. In the U.S., Vonage will soon begin marketing the apps in TV ads. Eventually, the media campaign and apps could make their way to Canada, Britain, and other countries. "We want to market in multiple countries," says Lefar, who wouldn't provide any specifics on Vonage's international plans. Because the mobile apps will come with a free trial, they could help market Vonage's services as well.

Both applications will be free and customers who download them will receive a $1 credit to test calling features. On exhausting the dollar, users will be prompted to enter credit-card information and set billing terms. The apps will also allow users to log in and follow posts on Twitter.

Whenever BlackBerry users dial international calls, the Vonage app will automatically take over. On the Apple devices, users will have to launch Vonage's app for the calls to be routed via its network.

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