Finance & Business World

Vonage Holdings Corp., which provides phone service over broadband lines, reported a narrowed fourth-quarter loss Wednesday as it scaled back on marketing and cut other costs.

Keeping customers happy is turning out to be the company’s biggest challenge: 3% of its customers cancel service every month, a figure chief executive Jeff Citron called "unacceptable."

The percentage of subscribers canceling, also known as churn, was up from 2.3% in the same period a year ago.

"Most of the churn is self-inflicted as a result of the poor user experience," Citron said in an interview. He said the company was focused on improving customer care, and hired a new head of that department last week.

Vonage’s (VG) fourth-quarter loss totaled $11.1 million, or 7 cents per share. Excluding charges for litigation and severance payments, the loss was 6 cents. Analysts polled by Thomson Financial had predicted a loss of 10 cents.

In last year’s fourth quarter, the company lost $117.1 million, or 76 cents.

Revenue rose 19% to $215.9 million, up from $181.5 million last year. Analysts were looking for $219.4 million in revenue.

Shares fell 4 cents, about 2 percent, to $1.99 in pre-market trading.

Vonage added 56,000 net subscriber lines during the quarter to end the year at nearly 2.6 million lines.

The Holmdel, N.J.-based company spent $63 million on marketing, up slightly from the third quarter but down 34% from a year ago payday loans. Vonage has been an aggressive advertiser online and on television, but has been trying to make its efforts more selective and effective, which appeared to be working in the fourth quarter: The marketing cost of acquiring one new subscriber line was $223, down from $306 a year ago.

Vonage also said it would restate its results for the second and third quarters of 2007. Stock compensation expenses were overstated by $14 million because of the departure of its chief executive and other personnel.

For all of 2007, Vonage lost $265 million, or $1.70 per share, down from a loss of $339 million, or $3.59, in 2006. Revenue was $828 million, up 36% from $607 million. 

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