Vonage flotation in US sinking fast

It was supposed to be the most exciting technology company float since Google, but the Wall Street debut of Vonage, the internet telephony pioneer, was not so much a flotation as a shipwreck. And the story descended further into farce yesterday when it emerged the company has told some small investors they need not honour pledges to buy stock.

Vonage hoped that by reserving 13.5 per cent of its new shares for customers, it would bolster their loyalty to the company and increase the buzz around the flotation. However, the estimated 9,000 customers who said they would buy in are already sitting on a 25 per cent loss.

Now, the company is telling those who have not already paid that they could decide to pull out of their purchase, leaving the stock with the underwriters. It is believed that around 7,000 customers have yet to pay for the stock.

Vonage raised $531m (£282m) at $17 per share, valuing the company at $2.6bn, but its shares were down more than 13 per cent on the first day's trading and have continued to slide. The debacle was a blow to the reputation of Citigroup, the investment bank which led the flotation and advised on pricing.

Vonage has attracted 1.6 million subscribers to its phone service offering voice calls over the internet, known as voice-over-internet protocol, or VoIP. But it spends as much on marketing as it gets in revenue, and investors fear it may never turn a profit. Cable companies have begun to embrace internet telephony and are fighting back with cheap deals combining television, internet and phone services. Vonage has also been undermined by Skype, owned by eBay, which offers internet calls for free.