Verizon's Price Cut: Raising the Stakes for Vonage

May 06, 2006 | Inside: Business Strategies

Verizon’s price cut for VoIP can’t be anything but bad news for Vonage, and you knew it was just a matter of time until the RBOCs—well, all two of them at this point—played the price card to put tacks on the road as Vonage speeds along towards its IPO.

In all fairness, Vonage started this game back in 2004 when the threat of them being the RBOC-killer was more perceived than real. However, they succeeded in baiting AT&T into a costly price war that slowed up their CallVantage roll out. I would even surmise that this episode played no small part in AT&T’s rapid demise and takeout by SBC a year and some later.

If you buy into that school of thought, Verizon’s price cut is simply payback for the pain Vonage has inflicted on the RBOCs. I don’t think VZ is so benevolent to be doing AT&T such a favor, but it sure makes things more interesting. So, now the question must be asked of AT&T—will they now jump in the ring and match VZ? You could call this collusion—the way the oil companies are always accused of fixing pump prices. It’s probably more the case that AT&T would do so just to keep pace with VZ since they do compete against each other.

The Business Week article does a nice job of telling the story, and they were nice enough to quote me in a few places.

Bottom line—this move will be a real test for Vonage. Do they blink first, and drop their price—which will hurt their valuation, or do they hold fast and focus on quality and features? I’m sure I’m not alone in being concerned that the RBOCs will use the power of pricing to quash Vonage and basically retain control over the landline market, bringing us ever closer—and back—to the pre-1984 monopoly world.

This has been a featured post from Jon Arnold, Principal, J Arnold & Associates. To visit the weblog maintained by Jon Arnold click here.

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