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Vonage shares dip after IPO

Marguerite Reardon CNET News.com

Published: 24 May 2006 12:10 BST

The shares of Internet phone service provider Vonage Holdings fell more than 4 percent in the company's market debut on Wednesday in a sign of investor scepticism about its long-term prospects.

Vonage shares dropped 75 cents, or 4.4 percent, to $16.25 (£8.6) in morning trading on the New York Stock Exchange.

On Tuesday Vonage priced its initial public offering at $17 per share, for a total value of about $531m (£283).

The company offered 31.25 million shares, which started trading Wednesday on the New York Stock Exchange. In April the company set the range for its offering between $16 to $18 per share. The company also said it would use the proceeds of the IPO to expand its business and cover its operating losses, which have mounted as a result of an aggressive marketing campaign.

Earlier this month, the company set aside about 13.5 percent of the shares being offered to its customers. The company's shares will trade under the ticker symbol "VG".

Many on Wall Street are watching the Vonage IPO closely to see how investors receive it. Because the company is not yet profitable and has racked up a high level of debt, some analysts wonder if investors will bite.

Vonage sells an Internet telephony service that allows people to turn their broadband connections into telephone lines. The company, which has about 1.6 million subscribers, has marketed itself as an inexpensive replacement for traditional telephone service from companies such as Verizon Communications and AT&T. So far, it has built a strong following.

But Vonage now faces stiff competition from a slew of other telephony services, including mobile phones, cable telephony from companies like Comcast and Time Warner, and free Internet calling services from companies such as Yahoo, AOL and eBay's Skype.

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Could it be that ISP’s are making this out to be a bigger problem than it actually is? We’re a small country with an internet penetration of less than 60%, for every Youtuber there’s someone who only uses the internet to check their emails, more people surf on their mobile handsets than a few years ago. Surely things should even themselves up.