Vonage Puts Fans on Hold

Worse yet, some customers believe they were shortchanged in the IPO. Some people who bought shares thorough the allocation process are threatening not to pay. Others have complained of technical glitches that led them to mistakenly believe that they didn't own shares.

Then their disappointment turned to anger. Earlier this week, Vonage indicated that it might be willing to buy back shares of customers who lost money in the IPO. Securities attorneys questioned whether that was legal, because it would have treated one class of investors differently from another.

Late Wednesday, Vonage moved to "clarify" its position, saying that it wouldn't let clients get out of buying shares even though it indemnified its underwriters against such a possibility.

Vonage in some ways a victim of its own success. A plethora of large cable, Internet and cable companies have entered the market with low-cost and in some cases free offerings. Some rivals say they are seeing some benefits from Vonage's missteps.

"Last week was our best week ever for orders," says Verizon spokeswoman Bobbi Henson, whose firm has recently cut prices for its Internet phone service. Vonage customers, she said, "are coming to us."

Verizon, the No. 2 local phone company after AT&T (T), doesn't disclose how many customers have signed up for its broadband phone service, which also is known as VoiceWing.

Comcast also has seen an influx of Vonage customers, says Jeanne Russo, a spokeswoman for the Philadelphia-based cable giant.

Though it may be too early to say whether Vonage's brand has been damaged by the publicity, there are some potentially worrisome trends.

Investors have already noted that Vonage's monthly churn rate, which measures how many customers quit, rose to 2.1% in the first quarter from 1.7% a year earlier. Vonage blamed the increase on problems with its customer-service operations.

Also, people seem to either love or hate Vonage, according to a survey of how consumers talk and think about different brands done by Keller Fay Group.

"Vonage has both more negative and more positive talk than other brands in the telecom industry," says Brad Fay, a principal in the New Brunswick, N.J.-based firm, adding that the results are unusual. "They have nobody in the middle."

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