Vonage chief quits as group plans cuts

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Mike Snyder has quit as head of Vonage, the struggling broadband telephony pioneer, as the US-based group announced a series of cost-cutting measures to shore up business after its bruising patent battle with Verizon Communications.

Jeffrey Citron, Vonage chairman, will take over as interim chief executive. “It was mutually agreed that Mr Snyder should step down,” he said. “We think this is in the best interests of both parties.”

Mr Citron declined to give further details of the reasons for Mr Snyder’s departure in a call with investors and analysts. But he noted that marketing operations designed to attract new customers had been less effective than expected.

A search for a new chief executive would begin immediately, he said.

The upheaval comes at a crucial time for the company. Vonage faces a potential ban on signing up new customers following a jury ruling last month that it had infringed three patents held by Verizon.

An appeal against that ban, which has been temporarily suspended, is due to be heard next week.

In the call with investors on Thursday, Vonage said it remained confident that it would eventually prevail in the patent case. It was also working on a technology “work-around” that would enable it to continue serving customers should the US courts impose an injunction.

Meanwhile, the loss-making company gave a preliminary estimate for revenue of $195m for the quarter ended March 31 and said it had added 166,000 net subscriber lines, which was somewhat below expectations.

Underscoring the substantial costs of acquiring new customers, Vonage said the average marketing cost per gross subscriber addition was $275 during the period.

The company would lower its marketing expenses by about $110m this year in an effort to bring down overall costs, it said. Previously Vonage, which has about 2.39m lines in service, had said it expected to spend as much as $425m this year on marketing.

The company also plans to save about $30m during the rest of this year by consolidating its international operations and job cuts believed to represent about 10 per cent of Vonage’s workforce.

Mr Citron, who had been chairman and chief executive of Vonage from January 2001 to February 2006 before the company’s disastrous initial public offering, said the cut in marketing spending would probably lead to fewer customer additions this year.

“We believe these initiatives will strengthen the company’s financial position and bring us to positive adjusted operating income,” he said.

Vonage’s shares, which have lost more than 80 per cent of their value since the company went public at $17 a share in May last year, rose 20 cents to close 6.7 per cent higher at $3.20 in New York.

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