Listing might value Vonage at $2.6bn

The rapid growth of internet telephony providers came sharply into focus on Friday as Vonage doubled the size of its planned stock market listing and Skype announced that it had 100m registered users.

The emergence of web-based telephone companies is being closely watched across the cable and telecoms industry, where it is viewed as a potential competitive threat as it drives down prices for calls.

New Jersey-based Vonage, whose revenues have soared in recent years but continues to lose money, had initially planned to raise up to $250m in an initial public offering.

On Friday, however, the company changed its filing with US regulators to say it was seeking up to $531m. At an estimated price range of $16-$18 a share, Vonage would be worth about $2.6bn in market capitalisation.

The doubling of the size of Vonage’s IPO signals a belief among the underwriters – Citigroup, Deutsche Bank and UBS – that investor appetite for the company’s shares will be strong despite many analysts’ scepticism about the business model.

“On one hand, internet telephony is very hot,” said Craig Moffett, analyst at Sanford Bernstein. “On the other hand, the cable operators are unquestionably taking market share,” he said, adding that the regulatory environment for web-based telephone companies might also become less favourable.

In particular, a battle is looming in Washington over “inter-carrier compensation”, or “net neutrality”. The fight is about whether the largest telephone companies such as AT&T should be allowed to charge rivals higher rates for faster broadband connections, a move that could increase the cost for groups such as Vonage.

Also on Friday, Skype Technologies, another internet telephony provider, reported that its registered users had jumped from 54m in September 2005 to 100m around the world.

Skype, which was acquired by Ebay in a $4.1bn deal last year, has a different business model in that its users are not charged fees and can make free calls among themselves. Vonage charges a fixed monthly fee for its telephone service and has about 1.6m subscribers.

A successful IPO of Vonage, which had revenues of $269.2m and incurred a loss of $261.3m last year, would represent a big win for 3i and Bain Capital, the two private equity groups that backed the company through its growth and expansion.

Over the past two years, the market for new listings in the US has been particularly strong for companies with strong brands, such as Google in technology and Lazard in financial services. In the IPO pipeline currently is Burger King, the fast-food chain.