November 16, 2009 / 8:53 PM / 9 years ago

UPDATE 1-Vonage to pay $3 million in AG probe settlement

* 32 states participating in settlement

* Says changing business practices, refunding customers

* Texas AG: Vonage failed to tell users broadband needed

* Vonage shares fall 1 cent to $1.30 (Adds Texas AG comment, background details)

NEW YORK, Nov 16 (Reuters) - Vonage Holdings Corp (VG.N) said on Monday that it would pay $3 million to settle a previously disclosed investigation of its business practices in 32 states by state attorneys general.

In its advertising, Internet telephony provider Vonage failed to say clearly that customers signing up for its service needed a high-speed Internet connection, according to a statement from the Texas Attorney General Greg Abbott.

According to the Texas AG, Vonage made customers pay activation, cancellation and return shipping fees for equipment even when those customers, particularly senior citizens, were not aware of the need for high-speed Internet.

Abbott also said customers said they thought they had canceled the service but continued to get monthly bills from Vonage, while others said Vonage debited funds from their checking accounts even after they tried to cancel the service.

A representative for Vonage was not immediately available for additional comment.

Vonage said in a statement that while there was no finding of any violation or wrongdoing by the company, it has promised to give refunds to affected customers and to change its business practices as part of the settlement.

Vonage said it had made a reserve in the second quarter of 2009 for the amount of the payment to the states and the customer refunds, and in September, it said it had placed into escrow the $3 million payment to the states.

It said it would file for court approval for the settlement where this is needed.

Vonage has struggled with high costs and competition from rivals such as cable and telephone providers and Internet telephony rival Skype, which is owned by eBay (EBAY.O) .

The case was started by the state of Wisconsin in November 2007 before it become multi-state inquiry.

Vonage shares were down 1 cent at $1.30 on New York Stock Exchange after the news. (Reporting by Sinead Carew; Editing by Steve Orlofsky)

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