VOIP Gets Going in Canada

There has been so much written about Internet telephony in Canada, it's hard to believe there are only about 25,000 consumers actually using the service. The market, however, could get a jump-start now that Vonage has launched an aggressive marketing campaign to mark its “official” entry into the market. If Vonage spends a small part of the US$105-million it raised earlier this year on marketing in Canada, it could educate the market enough to spark some serious growth. NRI/Michael Sohn Associates expects there will be 1.1 million residential households using an Internet telephony service by 2007. That's an ambitious number but Michael Sone believes it's achieveable once the technology gets easier to use and people learn more about it. I've got my reservations about whether this optimism is realistic – mostly because local phone service in Canada is so inexpensive it leaves little room for VOIP players to come in under the competition on price.
Speaking of Vonage, some back of the napkin calculations suggest it may be worth as much as US$2-billion. It makes some sense if you consider 8×8 Inc. has 28,000 subscribers, third-quarter revenue of US$2.5 million and a market capitalization of $144-million. Compare that with Vonage's annual revenue of US$120-million, 300,000 customers and a takeover/IPO premium, and the idea of US$2-billion is not that much of a reach. When this figure was thrown at Vonage CEO Jeff Citron, he declined to comment but had a smile on his face much like a cat looks like after he's swallowed the canary. Citron is well on his way to scoring yet another start-up jackpot. He may not be the best company builder around but he sure knows a fertile investment opportunity.