Vonage Holdings, the leading independent VoIP (Voice over Internet protocol) service provider reported a reduced quarterly loss on Thursday after cutting back on advertising designed to attract new subscribers.

The New Jersey-based company, which has also seen customer churn rates climb after the courts ruled in March it had violated patents held by Verizon Communications, has now deployed "workaround” technology that replaces two of the patents in dispute, and has finished developing the third.

Vonage is appealing against the Verizon patent ruling but also faces a legal challenge from Sprint which is due to be heard early next month.

Vonage’s net loss in the second quarter fell to $34m, or 22 cents per share, from a loss of $74m, or $1.16 a share, a year earlier. The company, which has posted heavy losses and seen its share price plunge almost 90 per cent since its initial public offering in May 2006, said its loss excluding special times was 12 cents per share. Revenues grew by 43 per cent to $206m.

Jeffrey Citron, Vonage’s chairman and interim chief executive, said he was pleased with the results and added that the company was ”ahead of schedule” to achieve an adjusted operating profit by the end of the first quarter of 2008. “We have made substantial progress,” he said, “I believe we’ve turned a corner on one of the most difficult periods in Vonage’s history.”

Vonage, which had been targeting subscriber growth until late last year, switched track and cut costs and marketing spending in the second quarter in an effort to shore up investor confidence further undermined by the patent dispute.

The company announced plans in April to cut 10 per cent of its workforce and reduce its advertising budget by $110m for the year.

In the latest period it cut its marketing spending to $68m, or 33 per cent of revenues, from $90m, or 62 per cent, a year earlier. Inevitably the lower marketing spending took a toll on subscriber growth.

Vonage added just 57,000 net subscribers in the latest period compared with 166,000 in the first quarter and ended the second quarter with 2.45m subscriber lines. Overall, Vonage spent $287 to gain each new customer in the second quarter, but Mr Citron said customer acquisition costs fell to $260 per subscriber in the final month of the quarter – similar to the year ago figure.

Average monthly customer churn, a key measure of customer loyalty, increased to 2.5 per cent from 2.4 per cent in the first quarter – an increase that Mr Citron said partly reflected customer uncertainty over the impact of the Verizon patent case.

Shares of Vonage gained 9 cents, or 4.1 per cent, to $2.29 in early New York Stock Exchange composite trading. The shares were priced at $17 each in the IPO last year.

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