Internet phone service provider Vonage Holdings Corp. on Tuesday priced an initial public offering worth about $531 million, according to an underwriter.

The 31.25 million share offering priced at $17 per share, at the midpoint of $16 to $18 forecast, in a test of investors' willingness to accept risk amid growing market volatility.

Vonage has acknowledged it may never be profitable and is viewed with skepticism by many analysts, who cite the growing competition it faces in providing voice-over-Internet protocol (VoIP) services.

We haven't liked the offering since we first saw the registration, said David Menlow, president of IPOFinancial.com. There are so many other companies out there that can deploy this strategy or this product in a heartbeat.

VoIP offers an alternative to traditional home phones by allowing subscribers to make calls using a phone connected to a high-speed Internet line.

The Holmdel, New Jersey-based company said it plans to use the proceeds to fund expansion and marketing, and to pay back debt.

Since its inception in 2001, 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.

The company aims to list its shares on the New York Stock Exchange using the symbol VG (NYSE:VG - news).

Not only does Vonage face pressure from similar services by eBay Inc.'s (Nasdaq:EBAY - news) Skype and Google Inc. (Nasdaq:GOOG - news), it also competes with telephone and cable television giants offering all-in-one packages of voice, Internet and entertainment.

I don't believe they have anything that is so unique, and I don't know that their customer base is strong enough to stay with them through good times or bad times, Menlow said.

Analysts have said that while Vonage would likely add customers for the next few years due to a rise in high-speed Internet subscriptions, it may have a harder time ahead as cable and telecom companies' bundled services take hold.

The company has grown rapidly in the last two years, more than tripling its subscribers since 2004, but the company concedes in the filing that it doesn't expect to sustain that level of growth.

Some skeptics say Vonage likely chose to go public because it was desperate for capital and no company came up with an adequate takeover offer.

It is also unclear if the IPO will be impacted by Vonage's decision to reserve a portion of the offering for its customers.

It's not viewed necessarily as a positive, Menlow said of the customer placement plan. It's more about public relations.

Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. are the lead underwriters on the deal.

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