By Justin Grant

NEW YORK, May 7 (Reuters) - Growing pressure from powerful rivals and a sea of red ink have analysts sending mixed signals about Vonage Holdings Corp.'s initial public offering, set to price later this month.

Last week, the Internet phone service company predicted it could raise $493 million through an IPO, nearly twice the $250 million it forecast after filing for a public listing in February.

"They've gotten preliminary indications of a lot of interest, and that interest is reflecting itself in the lead underwriter increasing the offering," said Fred Lipman, a securities lawyer at Blank Rome in Philadelphia, who specializes in mergers.

"The fact that they're showing a loss doesn't mean anything. They are attracting subscribers at a faster rate than ever before," Lipman said.

Since its inception in 2001, Holmdel, New Jersey-based Vonage has incurred losses in every quarter, a deficit that reached a total of $455 million on March 31, according to a filing with the U.S. Securities and Exchange Commission.

Most of those losses were driven by start-up costs and aggressive marketing, which shouldn't scare off investors, said Francis Gaskins, president of independent research firm IPO Desktop.

"They're in control of their losses," Gaskins said. "It's a conscious decision to lose money to gain subscribers. All the money from the (IPO) proceeds is going back to the company, which is very good."

Vonage specializes in Internet telephony, also known as voice-over Internet protocol, or VoIP. Its Internet telephone service offers an alternative to traditional home phones by allowing subscribers to make calls using a phone connected to a high-speed Internet line.

Vonage will use the IPO proceeds to fund expansion and marketing, and to pay back debt. The IPO could push the company's value to $2.6 billion.

Strong subscriber growth helped Vonage rake in revenue of $118.9 million for the first quarter of 2006, up from $40.7 million during the year-earlier period.

The company has grown rapidly in the last two years, more than tripling its subscribers since 2004. Vonage reported 1.6 million subscribers on April 1.

However, the company concedes in the filing that it doesn't expect to sustain that level of growth, citing increased competition as the chief culprit, and analysts say this will keep the IPO from being a slam-dunk.

"There's much talk about how the rest of the telecom companies have other revenues that will allow them to support expansion," said David Menlow, president of IPOFinancial.com, an independent research firm based in Millburn, New Jersey.

"Demand is not going to be quite as sharp as everybody believes," he said. "The competition is really going to step up the pressure."

Industry analysts estimate the market for Internet phone service in North America will peak at 15.3 million consumers by the end of 2007, and Vonage will be competing for a slice of the pie against larger rivals with deeper pockets.

As consumers abandon traditional phone lines for cell phones and broadband, telecommunications companies are increasingly relying on wireless and high-speed Internet services for growth.

This pits the relatively diminutive Vonage against industry behemoth Verizon Communications Inc. (VZ.N: Quote, Profile, Research), the largest U.S. phone company in terms of revenue.

Vonage must also contend with the likes of Internet-based phone and video phone service Skype, which is owned by online auctioneer eBay Inc. (EBAY.O: Quote, Profile, Research).

Cable companies have also jumped into the fray. Leading U.S. cable operator Comcast Corp. (CMCSA.O: Quote, Profile, Research), Time Warner Inc. (TWX.N: Quote, Profile, Research) and Cablevision Systems Corp. (CVC.N: Quote, Profile, Research) are all jockeying for home users with digital phone services.

"It's going to be very difficult for a company like Vonage to continue as a separate entity without teaming up with key partners," said Forrester Research analyst Lisa Pierce.

"Vonage is going to need to think about partnering with either wireless providers or a managed service provider who has access to wireless services as a recognized customer."

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