VoIP service provider Vonage plans to use the huge funding round to roll out its services overseas in pursuit of its ambition to become a billion dollar business. While the firm has enjoyed rapid growth recently, there are a number of regulatory and competitive clouds on the horizon.
Vonage has raised $105 million of additional capital.
Canada, the Pacific rim, the UK and Latin America are amongst Vonage’s target markets and it goes onto the attack against legacy phone service providers overseas using the same business model that has built up its user base to more than 240,000 lines in the US. It claims to be adding 25,000 users every month.
Vonage CEO Jeffrey Citron commented that with the latest infusion of capital, the company was poised to achieve its goal of becoming a billion dollar business, leading the industry through its next phase of growth.
The latest investment, which brings the total amount raised by the company to $208 million, will be the last funding round before the company’s planned IPO in 2005. With services priced between $14.99 a month to $49.99 for SME users, Vonage’s annual revenue could already be around the $50 million mark.
The New Jersey-based start-up, which claims to own half of the US residential VoIP market, earlier this week announced OEM and distribution deals with Cisco Systems and NetGear to broaden its sales channels.
However, regulatory moves could yet threaten the VoIP industry’s growth prospects. While the Federal Communications Commission has an informal policy that information service providers, including internet telephony providers, are not telecommunications carriers for regulatory purposes, this stance has been challenged.
Tax collectors also see VoIP as a source of new revenue. The IRS and the US Department of Treasury have issued a notice of proposed rulemaking suggesting that VoIP calls may be subject to a 3% federal excise tax.
Moreover, incumbent carriers outside the US have been alert to the threat of VoIP for some time. In the UK, for example, BT Group [BTA.L], which is transforming its network into a wholly VoIP network, already offers a VoIP phone service. This service is not heavily promoted at present but this is likely to change when Vonage launches direct competition.