Vonage in Trouble with Verizon Communications

Vonage Holdings Corporation has been in a lot of trouble as of late. Vonage Holdings Corporation is a company that offers their customers cheap phone calls, by way of the VoIP using the Internet. VoIP stands for Voice over Internet Protocol. It takes a conversation

and runs it through an Internet based source, then routes it to the recipient. Vonage promised to provide millions of customers with this service at low cost. Now it is costing Vonage.

Verizon Communications’ recent lawsuit against Vonage seems to be taking the largest toll. On April 7, a judge declared that Vonage must cease its services to new customers. This is only if they do not continue to infringe upon Verizon’s patents. In essence, the federal judge has not shut down Vonage for the crime, but still dealing the corporation a heavy blow. Roger Warin, Vonage lawyer, says, “It’s the difference of cutting off oxygen as opposed to the bullet in the head.”

Vonage’s lawyers argued that Verizon’s predecessor, Bell Atlantic, always intended to use its patents as a weapon against competitors. Vonage pointed on one occasion to records of meetings from the late 1990s in which Bell Atlantic executives and lawyers said the legal “objective” for one patent was to define it as broadly as possible so that competitors would be “screwed,” according to a court transcript. (Ultimately Vonage wasn’t found to have infringed that patent.) The judge noted that “a lot of us make smart-mouthed remarks from time to time.” Most recently, a jury ruled in favor of Verizon on three of the five patents in question, ordering Vonage to pay damages, plus ongoing royalties for any further infringement at a rate of 5.5% of sales. On Friday (April 7, 2007), Judge Hilton rejected Vonage’s request for a full stay of the ruling, and said the company must lodge an appeal bond of more than $60 million, which would be held in an account pending the outcome. The bond is not affected by the higher court’s stay of Judge Hilton’s ruling.

Verizon is not the only pain in Vonage’s side. Vonage is strictly a phone service. Its competitors include every phone company that offers land lines, and every mobile carrier. Nowadays, major companies are providing packages to consumers that allow them to receive the internet, cable, and phone service all together. According to In-Stat, a market-research firm, cable companies account for 10.6 million subscribers with Internet phone hook ups (Boles). The problems do not stop here.

Big corporations providing phone service have had to charge their customers surcharges thanks to the government. Vonage, not being large or traditional, avoided these government taxes. Then, the government caught on. Now Vonage has to tax just like the big dogs (2006 2). Vonage was once reliable and cheap. It seems as though the service is about to get flipped 180 degrees.

Vonage has more problems. Initially, Vonage phone service caught like wildfire. The company then decided to go public via the NYSE. It went public less than a year ago. Since its debut in the NYSE, Vonage’s stock has plummeted by 80%. Vonage and its 2.2 million customers may soon be looking elsewhere. 2.3% of the customers are deactivating service monthly (Boles). The company’s future remains in the balance.

Vonage, as it seems, is headed down the dumps. The company exploded with success in the first year it debuted. After about the third year, the government caught on. They began setting regulations and taxing customers. After the government caught on, so did

Verizon Communications.
Verizon obtains patents that prevent companies like Vonage from providing the services it wants. It makes one wonder how it took three years for Verizon to catch on and file a law suit. Verizon, along with every other phone provider, is prepared to wipe Vonage out of business. As mentioned previously, Vonage’s stock has dropped 80% since going public. This does not reflect the company’s revenue. Rather, it reflects what the everyday investor thinks about Vonage. In other words, investors see Vonage going out of business, and fast.
Cable providers realized the business that Vonage was obtaining through Internet phone service. In return, they started to create packages that allow customers to have internet, cable, and phone service from one entity. This cut Vonages customer and profit share in sizeable portions.

In conclusion, if the Verizon’s lawsuit does not end up going Vonage’s way, people are going to sell their stock until the stock cannot be sold anymore. Vonage had an amazing product, but failed to obey the necessary laws it takes to run a successful business. Vonage has a good product. Yet, it seems like the best has already come.

Works Cited
(2006, June 5). Vonage Facing Trouble: Falling Shares, Possible
Lawsuits, and Fierce Competition. Retrieved April 11, 2007 from
Web site: http://www.associatedcontent.com/article/37273/vonage_facing_trouble_falling_shares.html?page=2

Boles, Corey, & Sharma, Amol (2007, April 7). A Blow in Court Adds
to Threats Facing Vonage. Retrieved April 11, 2007 from , Web