April 3, 2007 1:43 PM PDT

Vonage's lucky break?

Internet telephony provider Vonage, which is facing a possible shutdown of its service this week because of a patent dispute, may have gotten a stay of execution.

According to a filing with the Securities and Exchange Commission, the company has signed a deal with a wholesaler of voice over Internet Protocol services called Voiceone, owned by a company called VoIP Inc., that could provide it with a work-around for at least two of the three patents owned by Verizon Communications. Voiceone also offers wholesale voice over IP service to several large companies including Broadwing Communications, iBasis and Google.

Details of the contract between Vonage and VoIP Inc. have not been released. But according to a form that VoIP Inc. filed with the SEC on March 30, the duration of the Vonage contract is two years. After that time, the companies can continue their relationship on a month-to-month basis.

Vonage did not return phone calls seeking comment on the deal with VoIP Inc.

In March, a federal jury found that Vonage's IP telephony services infringed on three patents owned by Verizon. Two of the patents deal with how VoIP calls connect to the regular public switched telephone network, and the third one is about making VoIP calls via Wi-Fi phones.

While the jury found that Vonage did not willfully infringe on Verizon's patents, it did award Verizon $58 million in damages. On March 23, U.S. District Judge Claude Hilton said he would issue an injunction barring Vonage from using the technology included in the three patents. But he said he would not issue the injunction until April 6, which is this Friday.

Since the judge announced he would issue an injunction, the IP telephony service provider and its more than 2 million subscribers have been living under a cloud of uncertainty. On the one hand, the judge could issue a stay on the injunction that would last a couple of weeks or until Vonage has had time to appeal the court's decision. On the other hand, the judge could also require Vonage to stop service immediately to ensure it is not infringing on the Verizon patents. That would mean a catastrophe for Vonage and its customers, who would be without phone service.

Vonage's recent deal with VoIP Inc. could help convince the judge to give Vonage more time.

"I think it's very unlikely that Vonage's service will be cut off on Friday," said Joel Rosenblatt, a patent and intellectual attorney in private practice in Florida. "The judge will be fair. The court didn't find Vonage willfully abusing the patents, and now that it is looking for a work-around, it shows that Vonage is working in good faith to find a solution."

But even though Vonage avoids a complete network shutdown this week, the company's troubles have hardly evaporated. First, it's still unclear whether the deal with VoIP Inc. will offer an arrangement that does not infringe on the Verizon patents.

A spokesman for Verizon declined to comment on the implications of the VoIP Inc. deal with regard to the case. But legal experts, such as Rosenblatt, said it's likely that Verizon is already evaluating the VoIP Inc. network and technology.

"I'm sure Verizon's legal team is already looking into their own patents to see how they line up with VoIP Inc.'s network and technology," he said. "And if they infringe, Verizon will be ready to sue VoIP Inc. and Vonage for infringing on them."

'Crisis mode' for Vonage
The threat of a permanent injunction has already taken its toll on Vonage. The company, which has yet to turn a profit, has steadily been losing customers. And the recent uncertainty hasn't helped matters, as customers try to figure out if they will have service next week or even a few months from now.

"Vonage is in crisis mode," said Clayton Moran, a stock analyst with the Stanford Group. "The uncertainty is impacting operations. We expect many existing customers to cancel service. And it will also make it more difficult for Vonage to attract new customers."

Moran said he has lowered his expectations for Vonage for 2007. While he had earlier projected the company would end the year with more than 3 million subscribers, he's now predicting it will fall short of the 3 million mark. Previously he had forecast Vonage reaching profitability by the end of the first quarter of 2008. Now the best-case scenario is that Vonage could reach profitability in the second quarter of 2008, he said. But even that is uncertain, he added.

Meanwhile, Vonage is facing stiff competition from cable operators that are bundling voice services similar in price and functions to its own service. Competition is also increasing from Internet companies like Skype, Google and Yahoo that are offering IP telephony services. While Moran doesn't believe that Vonage is in danger of going out of business anytime soon, he said the continuing legal troubles coupled with the increased competition could make it difficult for the company to compete in the future.

"I don't see the company dissolving completely in the near term," Moran said. "But I can't rule it out for the future either."

Even with the VoIP Inc. deal, Moran said he is unconvinced that Vonage will be able to get around the Verizon patents so easily.

"The agreement with VoIP Inc. is still unclear," he said. "But at this point it doesn't change my view that a work-around will be challenging for Vonage."

CONTINUED: Increased competition…
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16 comments

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Hello.....Hello?
Hello.....Hello? <no dialtone>

Darn, I was going to order some courier pigeons...but my phone got cut off.
Posted by smarty_pantz (15 comments )
Reply Link Flag
ALIEN TALK
I GOT A DIALTONE, BUT ALIENS SOMETIMES TRANSLATE MY LANGUAGE.
Posted by psyshoholic (1 comment )
Link Flag
I bought low baby!
Got it all at around 3.75 and this new deal should shield them from future problems I think. About the competitors. No one will offer as low a price as Vonage unencombored since Yahoo IPHONE etc. all have higher prices because of extras. And when Wi Max from ATT comes next year look out. If Vonage went down so would Sun Rocket and Skype.

So I hope they get the sat and get the appeals quickly and quietly on Friday.
Posted by Blito (436 comments )
Reply Link Flag
Ridiculous
Skype is much cheaper that Vonage and just about anything else out there. Also, Skype's technology is fundamentally different from a typical voip service, so they'll be immune to two of the three patent disputes. They do market voip enabled wifi phones so that could be an attack vector for verizon. But if Vonage falls. . .it will be falling alone.
Posted by zboot (168 comments )
Link Flag
Let me get this right!
Verizon does not offer VOIP, is that correct?
But they want to put Vonage out of business?
If this is correct, anyone who subscribes to Verizon must be brain dead! In fact, anyone who supports a patent troll should his head examined.
Posted by marc_90292 (59 comments )
Reply Link Flag
Get your facts straight
Verizon does offer VOIP service. A simple browse of their website or spending a couple seconds typing verizon AND voip in a search engine would have revealed that tidbit.
Posted by zboot (168 comments )
Link Flag
Glad I got out when . . .
the gettin' was good. I hate Vonage now after finding my current service that has ten times the features at a fraction of the cost. I always knew something wasn't right. It's been continuously said that their CEO has always spent too much money on stupid advertising and not concentrating on infrastructure. Guess he finally got bit and can barely afford the antidote.

Serves ya right. You go Judge!
Posted by SandFarmer (29 comments )
Reply Link Flag
vonage... cheaper!!!
had Charter my cable company call me with there prices for VOIP service, and all i can say is that Vonage beats them "hands down" in price and services! way to go Vonage! hang in there!!!
Posted by PyRO_sTEVO (46 comments )
Reply Link Flag
VONAGE SUCKS
I really wish they could put them out of business. We signed up with Vonage in November. IT WAS TERRIBLE. The person on the other end of the phone couldn't understand me at all! I called tech support a million times, they ended up having me do a bunch of stuff that fried my wireless router; so I had to have that replaced. I am stuck with them until next November, because I did the circuit city deal, but since I can not really use the phone I lowered my plan to the $9.95/mo plan and now have my phone through my cable company. Can't wait to cancel in Novemer, Here's hoping they will be put out of business before then!
Posted by shutterbug9278 (1 comment )
Reply Link Flag
Verizon not your friend,
Sorry you had a bad time with Vonage. I signed up and had no trouble at all. It couldn't have gone better. Except one thing. I brought my tel number with me and Verizon did everything they could to drag their feet.The only thing that will lower their outrageous prices is competition. Go Vonage and good luck.
Posted by bossnme (4 comments )
Link Flag
Tech services non existent
THis is why VOIP sucks.
1-when I have my wireless router connected 95% of all incoming calls -when I go ROH- shuts down the system. I must physically reboot everything.
2-Took the wireless router off network and it started working fine.-for 1 week. Now 50% of all incoming calls force a reboot of everything.

I may as well be speaking Chinese to the EXPERTS in the far east. No one has ever heard of this problem. So I guess if no one has heard of this problem it would follow the problem doesn't exist. I like the price and am willing to put up with this inferior service until something better comes along
By the way Verizon owns 80% of the internet.
Posted by Zooboo Blotsky (1 comment )
Link Flag
Well, offshoring and patent disputes....seek an alternative!
Unia Telecom - sounds like they're the good guys. at least they try. visited the site <a class="jive-link-external" href="http://www.uniatelecbsi.com" target="_newWindow">http://www.uniatelecbsi.com</a> and also called them and was surprised to learn their whole operation is US based, unlike the other providers quick to run to India. they seem to be very well footed and reliable..tested the service too.
Regardless, the fact that they give a percentage of their earnings to humane / humanitarian causes will definitely serve them very well in the future...thinking of signing up for the service....

Shelly G.
Posted by Astonct (12 comments )
Reply Link Flag
Vonage alternative, Unia Telecom perfecting the art of service delivery
Vonage alternative Unia Telecom is perfecting the art of service delivery by capping annual subscriber base in ensuring quality service delivery. <a class="jive-link-external" href="http://www.uniatelecbsi.com" target="_newWindow">http://www.uniatelecbsi.com</a> They've kept their operations 100% in the US which will help them greatly in the long run..in addition to being a socially responsible operation.
Looked'em up and have read some really good things.....
Hope they keep up the momentum
Posted by Superdad66 (2 comments )
Reply Link Flag
Vonage Alternative
I don't think that Vonage problems will disappear when it will join Voip.com.
However, there also is UniaTelecom, a VOIP provider with better service and great service. Everyone who wants to switch from Vonage should research about UniaTelecom. <a class="jive-link-external" href="http://www.UniaTelecbsi.com" target="_newWindow">http://www.UniaTelecbsi.com</a>
Posted by VoipUser (1 comment )
Reply Link Flag
After finally ditching Vonage (the worst! the horror!)I signed up, probably like a lot of people, with Vonage-alternative touted Unia (good marketing) in April of 08 and went with the 500 minutes/month 2 year prepaid plan... kind of a gamble in the oft short lived VOIP world, but on the flipside, the pay-off being a very low bill (about $8/mo) and not having to deal with it for two years. At least that's what I thought... One year later I get an automated bill for $167 for the next year - - a year I'd already paid for.

I wrote several e-mails addressing this issue of double billing, none of which Unia Telecom even had the dignity of answering. Very frustrating. I know they received them because one of them addressed a separate issue, which they answered, while completely ignoring the issue of double billing in the same e-mail.

Then yesterday, Memorial Day, I pick up my phone to make a call and instead of making the call a message comes on declaring
"in honor of memorial day phone support will be unavailable for the remainder of the day..."
every number I try, same message. very respectful of the dead. Except I'm living and I want to communicate with other living humans...

I could hardly believe it. I even made a recording of the message.

Today, every number I call connects me with viaTalk. They claim to be clueless...

I did some research. Turns out Unia Telecom is just another viaTalk reseller. Which means they're just another middle man jacking up the price (and providing lousy service while they're at it). You or I could be viaTalk resellers -
http://www.vtwhite.com/
or
http://www.dslreports.com/forum/r21349102-I-am-ViaTalk-Reseller-Not-Getting-Any-Support
You just put up a front, like Unia is doing, and rake in the money. Double billing: good=more money. Service: bad=less money.

Time to ditch Unia, pronto.
Posted by VOIPblues (1 comment )
Reply Link Flag
 

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