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Static on the line for Vonage

Lisa Napoli Jun 1, 2006

KAI RYSSDAL: If you want to make cheap phone calls, VOIP is one of the ways to do it. Using the Internet instead of a regular phone line. One of the pioneering companies in that business started trading on the New York Stock Exchange last week. But Marketplace’s Lisa Napoli reports there’s some static on the line for Vonage.

LISA NAPOLI: Usually, only big fat-cat investment banker types can get their mitts on an IPO. Vonage wanted to be all populist and create excitement for its debut. And so it offered its customers a rare opportunity: a chance to get in on the ground floor and buy stock before it traded.

With visions of big, fat, Google-esque dollar signs in their eyes, customers signed up. And then, when the stock started tanking right after its debut, they refused to pony up the cash.

Tom Taulli of USC’s Marshall School of Business says that’s why you don’t usually open up the IPO to the masses:

TOM TAULLI: That’s why you have investment bankers. Their job is to get investors. Vonage’s job is to get customers and have a great phone product. It’s not to go out and sell stock to the public, it’s not to go out and enforce trades.

An already not-very-good situation got worse when it seemed like Vonage said it would buy back the stock from unhappy customers. That left other investors screaming foul. Last night, Vonage clarified in a statement. It said it won’t do a buyback, and said people who promised to buy had better come through.

Chris Nolter of the Daily Deal says Vonage has other problems to worry about besides its botched IPO:

CHRIS NOLTER: Their product had some very unique characteristics when they introduced it, but larger companies are going to be able to offer it at comparable prices.

The story of Vonage went from Cinderella to Big Bad Wolf as fast as you can dial the phone.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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