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4/12/2007
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Vonage Founder Replaces Departing CEO, Prepares To Cut Workforce 10%

The company reported revenue of $195 million for the quarter, but said it needs to cut costs and plans to lay off 10% of its 1,800 employees.

Embattled Vonage reported Thursday that it added 166,000 net new subscribers in the quarter ended March 31. But new cracks appeared in the firm's executive suite as chief executive Michael Snyder left, to be replaced by company founder and chairman Jeffrey Citron.

The company reported revenue of $195 million for the quarter and an average customer churn rate of 2.4, which Citron said was too high. The company also announced cost-cutting measures, including a plan to layoff 10% of its 1,800 employees.

"The whole strategy top to bottom will be under review for the next 30 days," Citron said at an investor conference call Thursday. "We're reducing a large amount of spending that is adding a marginal amount of customers."

Vonage has been scrambling to stay afloat since a federal jury ruled against the VoIP provider in a patent lawsuit with telecommunications colossus Verizon Communications. Vonage has been seeking to add new customers and is operating under a temporary order issued by an appellate court.

The departure of Snyder, who also left Vonage's board, was just another in a series of rapid-fire developments -- mostly negative -- that have hit the VoIP company in recent weeks. Citron called Snyder's departure a "mutual decision" and added that the company is seeking a replacement. Snyder had joined Vonage just before the launch of the company's IPO last year; Vonage stock has dropped about 80% since the offering and has hovered around $3 a share in recent days. The stock was up slightly in early trading Thursday morning.

Although the company did not release final financials for the quarter -- it said previously that the numbers would be delayed because of the Verizon litigation -- it did release a few numbers, including reporting that its marketing cost per gross subscriber line addition was $275. At the investor conference, Citron said the number was too high, but he added that he expects new cost-cutting measures will improve the firm's position in the marketplace.

Separately, an informal poll by The Associated Press of VoIP providers found that Vonage's troubles haven't caused a flood of Vonage customers to seek alternate VoIP calling plans.

"I would suggest that average consumers are unaware of the [Vonage] ruling, and that many may not understand the role of VoIP architectures in the delivery of their phone services," a spokesman for Cox Communications, which offers a VoIP service, told the AP.

Indeed, a recent Forrester Research study found that VoIP is still way too complex for most mass-market consumers to understand.

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