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Summary:

Vonage (VG), the Holmdel, NJ-based VoIP service provider has been on the ropes for so long that you think it can’t get any worse. But it does! Earlier this year the company lost a patent infringement case to Verizon, and was asked by the courts to […]

von_6395_59661jpeg.jpgVonage (VG), the Holmdel, NJ-based VoIP service provider has been on the ropes for so long that you think it can’t get any worse. But it does! Earlier this year the company lost a patent infringement case to Verizon, and was asked by the courts to pay Verizon, $66 million in back payments and 5.5% in royalties.

Vonage got some more bad news yesterday: the jury ruled in favor of Sprint (S) and found that Vonage infringed upon six Sprint patents. This time around Vonage has been asked to pay $69.5 million in damages. The stock promptly tanked 33% and closed at about $1.30 a share. Vonage plans to contest the jury’s decision, the company said via a press release.

What can one say about this situation: it speaks for itself. It is only a matter of time before Vonage goes the way of SunRocket. By better fiscal management and with enough cash in the bank, it can prolong the agony, but ultimately something dramatic needs to happen for the company to dig itself out of this hole. As I said earlier this week, playing the cheap voice game is fraught with risk.

By Om Malik

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  1. Om,

    I often detect a tone of critical glee when you write about failures in the VoIP world. It is actually a little sad when VoIP companies fail while trying to give us what will be the undoubted future – very very cheap or almost free phone calls. Just like sending emails today is very cheap or almost free. It is even more sad when VoIP companies are in trouble due to the strangle-hold of the incumbent telcos on the industry.

    When VoIP companies try to give us free or very cheap calls, they are not being naive businessmen who don’t know how to take care of their financial health. They are rather being pioneers, harbingers of what will undoubted be the future state of voice calls – free or very very cheap. As such, they deserve our sympathy and encouragement.

    LL

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  2. The jury was probably right. It’s just the patents that are fishy.

    I’d buy the stock now, if I were that kind of guy. There’s an off chance that the Supremes will take a look at the validity of Sprint’s patents. The Court has been sassy with bad patents recently, and if I remember one of them, Sprint basically claims to have patented interconnection with a phone network.

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  3. Critical glee… maybe not. Sometimes it is maddening to see these companies not prepare for the worst, especially Vonage which was all hype all the time. I am cheering for a lot of the tiny start-ups, and often write about the ones who have their game-on.

    Vonage refused to address the patent issues for the longest time, while SunRocket didn’t want to discuss economics.

    As a VoIP fan, I just get frustrated by people making the same mistakes and not moving the ball forward. We keep seeing the same movie played again and again. There is so much potential – just unmet.

    Check out this post. link

    Glee… not the right word. Little frustrated.

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  4. [...] Vonage stock’s all-time low closing price of $1.30 a share yesterday, Om thinks it is only a matter of time before Vonage disappears, going the way of SunRocket. Mike at Techdirt [...]

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  5. Libran, being a pioneer doesn’t excuse poor business planning. Entering the market at the wrong time with no sustainable differentiation is naive. As a class, all overlay VoIP service providers have failed. You can blame the carriers, the MSO’s, the mobile operators, the FCC, Congress, or the Courts, but all of these risk variables already existed when the companies were founded and should have been accounted for.

    It’s very hard to be sympathetic toward companies that inflict their own injuries, even though they may benefit society by pushing down prices.

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  6. I am saddened by the verdict because the big picture reflects a consumer base crying out for change to their traditional carriers.
    I am one of the millions of customers using Vonage and I have been thouroughly satisfied by not only the service, but my low monthly bill, and for Joe Blow out there that is what it ulimately boils down to. Telco companies need to stop shoving services down our throats we don’t need and the recent trend of bundled services is a prime example of what I am talking about.
    Consumers should have the right to choose what services they want, who they want it from and how much they should pay!
    Consumers ultimately lose here, as the big boys of the telco world flex there muscle to maintain their stranglehold on any and all competition.

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  7. “Entering the market at the wrong time with no sustainable differentiation is naive.”

    Huh? When is the right time!?

    This has little to do with Vonage’s business model lacking sustainability. In fact, one could argue that Vonage indeed DID develop and successfully market a competitive and sustainable service offering… and that’s why all these suits came out.

    The incumbents (both mobile and wireline) are experts at playing this game. They use our tragically broken patent and legislative system to block competition. After all, if they had to fight on the merits of service offerings… they’d be toast.

    Next up, FCC 700 auctions. Just watch the big guys mangle this opportunity for competitive entrants, that or they’ll just buy the spectrum as insurance and park it.

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  8. I was an early adopter of Vonage @ $29.95/mo, and saw it drop to $24.95/mo. When have you seen that happen? I’m extremely satisfied, love the features and think that compared to Comcast VOIP, it’s a bargain. I was able to say adios to Qwest, and that was a red-letter day. VOIP will probably end up in the control of the big boys, but until then, I intend to hang in there with Vonage. They’ve treated me well, saved me a ton of money and provided good service. Things that Qwest & Comcast were and still are unable to do. Once Vonage is gobbled up, or dies, I’ll just use my cell phone.

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  9. I lived through the wild west days of trying to get lower cost telecom services with competitive local exchange companies and was burned badly. Now I feel like this is a déjà vu – as I have Vonage service . I am tired of going with service providers who are either not well funded or in this case not well endowed with technology that is actually their own. The alternatives seem to be limited as many other providers are small or going under (just look at Sunrocket). I hear there are some good providers that are stable because they are well funded and have been around a long time, e.g. Net2Phone. I may be gun shy, but hopeful that this won’t cause a total category meltdown. What a mess!

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  10. Well, today it went lower. They lost the Verizon appeal and the injunction is to be back in place within a month. Vonage says that they have a workaround, but previously in court they said they didn’t (of course after telling the media a week prior that they did.)

    These patent lawsuits are not what will kill Vonage. Their business plan did that. The bad part about this is that the investors who bought the stock during the IPO will have nothing left to split up when their lawsuits finally take place.

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