Vonage May See Lines Permanently Cut

Verizon Communications Inc. may permanently cut the lines of Vonage Holdings. The telecom giant filed a lawsuit for copyright infringement against the VoIP provider last year and recently won the case. The news leaves over 2.2 million Vonage customers on hold while the company scrambles to find ways to continue to operate.

Voice over Internet Protocol services have been consistently growing. The technology, which is accessed via internet broadband connections, saves consumers hundreds, and even thousands, of dollars in phone charges. It also offers mobility by allowing them to use their service from any digital network. Vonage has received high praise for their operations. PC World rated it as the top digital phone service in 2006.

The acclaims were not enough to convince the jury. In early March, they found the company guilty and ordered it to pay $58 million, plus royalties, for the violations against Verizon. Even though Vonage has $500 million in cash and cash equivalents, it may still go down. There is a ban against the company adding any new subscribers until they cease the infringements. It is doubtful that current accounts will be enough to sustain Vonage while new technology is developed and implemented. Although the company has appealed the ban, the website still offers sign-up options for new customers.

In its 10-K report to the U.S. Securities and Exchange Commission yesterday, Vonage admits that they may not be able to continue to operate if the Court upholds the new customer ban. (The report is available at their website.) It also mentions the effect that developing new technology may have on the organization. Even one of their quirky commercials is not enough to raise the spirits of the company right now.

Just last week, the CEO, Michael Snyder, resigned. In 2003, the SEC. accused his temporary replacement, Jeffrey Citron, of stock fraud. The combination of events may cause customers to drop their service before the litigation ends. Investors may not be confident, either. As of midday Wednesday, stock prices are down. There is a possibility that Vonage could be purchased, but nothing has been decided.

The news does not have the competition celebrating either. Other VoIP providers fear similar suits since most of the patents related to the communication industry belong to big businesses like Verizon. Experts point out that patents may be so vast that competitors may violate them no matter what they do. New technologies are always on the horizon but takes time to perfect. In 2004, the FCC supported VoIP services and issued many decisions to allow the technology to move forward. It has remained relatively silent about this case.

The legal team for Vonage has made their fight about the consumer. They hope to convince the court that Verizon, and other telecom giants, are attempting to head back to the days of monopolies. The argument may grab some attention considering the recent merger between Cingular and AT&T. Will it be good enough to save the company?

For more on this story, see:
www.sciencedaily.com/upi/index.php?feed=Business&article=UPI-1-20070417-22305000-bc-us-vonage.xml
www.internetnews.com/wireless/article.php/3614516
www.businessweek.com/technology/content/mar2007/tc20070309_887320.htm
www.reuters.com/article/idUSN1230460320070412