Vonage Loses Appeal; Verizon Owed $120 Million

Billosaur writes "Things do not look good for Vonage. Yesterday, they lost their request for reconsideration of their settlement with Verizon. This means Vonage owes Verizon $120 million to end the patent lawsuit filed against them. The costs associated with defending the case have cut into Vonage's bottom line, and despite attempts to cut costs by laying off 10% of their workforce, they may be unable to make a payment against their debt come December. According to the settlement, Vonage will pay $117.5 million to Verizon and another $2.5 million dollars to charity. Vonage's shares have dropped 87% since their IPO, now hovering around $1.50 per share."

I've Got Their Number

[Doc Ruby]

So will I be able to buy my Vonage phone#, that they've refused to let me port to my own SIP server, when they have the firesale? Or will they sell me to Verizon to pay for their patent infringement?

not good

[Anonymous Coward]

This is not good. I've been using Vonage for years. They provide decent service at good rates, specially for international calls, which I use a lot. What is the option now here in North Carolina? Time Warner? Bellsouth? Their service sucks and they are more expensive. Customer support is worse than non-existent. How is the current patent system serving the people? I understand free enterprise and all that, but lately just feel we the people get always screwed. Is this just me?

Vonage Stockholders?

[RobBebop]

Vonage's shares have dropped 87% since their IPO, now hovering around $1.50 per share.

Seriously, anybody who didn't see Vonage's failure coming before the IPO deserves this. They were an unprofitable company in a saturated market with a product (Voice-Over-IP) that doesn't appeal to most folks.

Sure, $20-25 per month for phone service is a wonderful deal but the major players with rock solid products have similar prices ($30-40 per month). And in effect, they will be de-listed soon and become another ghost in the great halls of technology company who never made it.

Re:Vonage Stockholders?

[Anonymous Coward]

anybody who didn't see Vonage's failure coming before the IPO deserves this

Maybe I'm just not as smart as you, but I don't think the demise of Vonage was quite so obvious.

...with a product (Voice-Over-IP) that doesn't appeal to most folks. Sure, $20-25 per month for phone service is a wonderful deal but the major players with rock solid products have similar prices ($30-40 per month).

I don't know about that. Vonage's $25 includes just about everything you can imagine (voicemail with web-access and emailing of messages, caller ID, conference calls, unlimited long-distance, etc.). To get the same services from conventional phone companies costs considerably more (especially if you actually use long-distance). Monthly bills of $60-$100 are not uncommon in those cases.

And, really, I've seen lots of people interested in the lower prices and better packages that VoIP has to offer. However what seems to be happening are that cable companies are cleaning up in the VoIP space, because they already have the infrastructure, and can offer packages (TV/Internet/phone) that are actually a good deal.

Vonage, really, was a pretty good business with reasonably satisfied customers. In fact, I imagine they would have stood the test of time were it not for two things: (1) the incumbent monopolies are rich, and (2) patent law gives anyone with enough money the ability to exclude competitors.

Re:patent reform

[dynamicdesign]

So I'm confused why can't companies sue Verizon or AT&T for making customers pay $50/month for unlimited data plans when you don't even use their respective networks while using a phone that has built in WiFi capabilities?

Sad to see them go...

[andyring]

Granted, as in Monty Python and the Holy Grail, "I'm not dead yet!" but it's sad to see this happen. I was a customer of Vonage almost since they started, and have been quite happy with their service. I only recently canceled on account of simply not needing a home phone and having a company-provided cell phone that I can use for personal calls.

Re:Vonage Stockholders?

[cdrguru]

Vonage sold its service to tons of DSL customers. DSL customers who were using the ILEC wires. This pretty much means the ILEC was supplying their competitor so the competitor could beat them over the head.

Not that this isn't an attractive situation. If the government forced you to rent your car out for 50% less than it cost you to rent it, would you be happy about the deal? Probably not. What could you do about it? Maybe nothing directly. But if you could find a loophole like requiring renters to have a million dollar liability insurance policy, maybe you wouldn't have to rent it out as much.

Or, if McDonalds had a deal that if you bought 100 hamburgers at a time they would sell them for $0.10 each. So you go there, by 100 hamburgers and set up a stand on the corner reselling them - right in front of McDonalds. And your sign is saying how cheap your "McDonalds" hamburgers are compared to the store behind you. Would McDonalds sell you another 100? Maybe not.

This is the sort of situation that Verizon found itself in. They do not have to support their competitors, but they had to support Vonage. The government and state regulators won't let them stop supporting Vonage directly. So we dust off an old patent and find it can be used to beat up Vonage. If it wasn't for the patent, there would be something else.

Best stick with one of the under-the-radar VOIP providers that just resells some bulk service from Sprint. Lingo is one of those. Cheaper than Vonage and a lot less visible.

Re:Vonage Stockholders?

[Penguinisto]

Okay...

1. $25 is not "comparable" to $30-40 per month. The $30-$40 prices represent a 20% to ~60% mark-up over Vonage, and you end up with less features (and according to some, less reliability).
2. VoIP for the masses was not a "saturated" market when Vonage first hit the scene - at least not to Joe and Jane Sixpack.

IMHO, this little patent spat was Verizon's way of fucking-over a competitor without actually having to compete on merit to do so. (IIRC, the patent is basically a bogus "On teh Intarwebs!" rig-up of existing tech, folks).

Also, up until this lawsuit, Vonage was actually beginning to turn a profit. Not anymore.

That said, I honestly doubt that anyone saw it coming, up until Verizon decided they didn't like the competition anymore.

/P

Re:Vonage Stockholders?

[websitebroke]

As a former Verizon customer who is now a Vonage customer, I can tell you that Vonage is definitely a better deal. POTS service through Verizon cost me about $35-$40 on paper when I first signed up, but the price would always creep up to the $40-$50/month range over the next few years. Then I'd call the bastards up, and we'd be back down to $35-$40. Then the process starts all over again.

Once I switched to Vonage, that problem went away, I've been with them for 3 years, and no price increase. I can call all of USA, Canada, and most of Europe as much as I want for the $27/month I pay, and it never changes. It was really freaking cheap for my wife to call me while I was in Pakistan last year too.

One other thing that POTS doesn't do is send you your phone messages via email.

Ch 11, but not Ch 7

[bxwatso]

Vonage may not have the cash to make debt payments and they may go bankrupt, but they should still operate and not dissolve.

1. The Vonage name has excellent recognition due to their heavy investment in advertising.

2. Vonage has a paid up license to use the patents required to implement Voip.

3. The various patent holders (Verizon, ATT, one other) should probably go after other Voip providers like Packet 8 who don't have nearly the cash on hand to survive the suits. Therefore, the VOIP consumer marketplace may have only one competitor soon.

Don't buy their stock, for it may go to zero, but also don't expect Vonage to go out of business. Someone will likely want their assets at a reduced (below book cost) price.

Re:I've Got Their Number

[lzed]

What do you mean when you say they refused to let you port your number to "my own SIP server"? Was your SIP server a Class 5 Softswitch connected to the SS7 network? Have you registered yourself as a CLEC and have the ability to have other carries TCAP query an LNP database to route to your LRN? Do you know how Local Number Portability works in the United States? If this is an Asterisk box that would be funny.

Re:not good

[gatzke]

They are really great. Including all those features at a lower cost is awesome.

I love getting email when I have a message at home.

I like being able to listen to it online.

I like having all my incoming and outgoing call information available.

I like having forwarding for free.

I like low cost international and free national.

I would probably pay a good bit more for this quality of service. TimeWarner offered less at a higher cost, so forget them...