Vonage Drops its Prices…Again

Looks like Vonage is starting to feel the heat amid news it is dropping prices by US$5 to US$25 for its premium plan. Vonage's move was matched by AT&T Corp., which made Internet telephony a priority after announcing plans in July to get out of the traditional residential telephone business.
There are a couple ways to look at Vonage's decision: competition is clearly getting more intense as carriers and cablecos enter the Internet telephony market so Vonage wants to make sure it maintains some kind of edge; or the company thinks it can attract more customers with cheaper and simpler packages.
I suspect it's a combination of the two. Given Vonage's aggressive fund-raising activity, it needs subscriber growth to provide investors with confidence it's on the right path. If the company can get bigger – even on the back of lower prices – there is a better chance Vonage will be able to do an IPO or be acquired by someone looking for a quick and significant foothold into the telephony market.
The big fear out there for all Internet telephony players is a price war will cause prices to continue to tumble due to the large number of service providers and the need to win over reluctant consumers. This does bode well for start-ups who will likely disappear without more funding. Vonage, however, has plenty of cash so it will be able to stick around for awhile. The big question is whether Vonage can maintain its momentum, or whether it has already peaked.