Vonage Puts Fans on Hold

Until this past week, I. MacDougall Harper was happy with his Vonage (VG) Internet phone service.

But having watched the company botch its initial public offering, the Newport Beach, Calif., resident says he is considering switching to a rival.

"I have enjoyed their service to date but cannot believe how they are handling all this," says Harper, who owns an apartment investment and management company with offices in Orange County, Calif., and Denver, in an email. He says he has been a Vonage client since 2004.

Investors are going to be keenly interested to see how many Vonage customers like Harper end up standing by the company. Vonage, which held the IPO in part to pay for its hefty marketing costs, was already spending a ton to draw subscribers. Now rivals such as Comcast (CMCSA) and Verizon (VZ) claim to have gained Internet phone users at Vonage's expense, though they decline to provide numbers.

"It's going to be more expensive to get customers," says Internet phone consultant Jon Arnold of J Arnold & Associates. "Plus, it's going to be less profitable to keep them."

Loyal customers like Harper were exactly who Vonage intended to reward when it set aside 15% of its initial public offering. The company raised $531 million last week by selling shares to the public. About 10,000 people purchased Vonage's shares though the special program, according to media reports. A company spokesman didn't respond to a request for comment.

But customers' enthusiasm for Vonage has been put to the test. First, the stock had the worst first-day performance of any public offering in two years. Shares of Vonage have continued to drop since. They fell 40 cents Thursday to $11.62, after starting trading last week at $17.