It is yet another blow to Vonage, which is the leading independent VoIP vendor in the US. The Holmdel, New Jersey-based company has already been sued by Sprint Nextel and Verizon over intellectual property issues.
And the bad news is beginning to take its toll: Vonage’s share price fell more than 7% yesterday to close at $1.42 on the Nasdaq. It has fallen a long way from the $17 flotation price of the company’s May 2006 initial public offering.
The latest suit from AT&T, the leading telco in the US, was filed late last week. AT&T alleges that Vonage infringed on its patent that relates to a method of making VoIP calls using traditional PSTN gear. AT&T said, in its filing with the courts, that it attempted to reach a license agreement with Vonage but was unsuccessful.
Earlier this month, Vonage settled with Sprint for $80m. It did not admit to any wrongdoing in the case. The company was ordered by a federal jury in September to pay Sprint $69.5m for allegedly infringing Sprint patents related to the VoIP calls are connected.
And in March, another federal jury ruled it violated three Verizon patents and ordered it to pay $58m in damages to Verizon, as well as royalty fees. Vonage has appealed the ruling. The patents in the case relate to voicemail and the handing off of VoIP calls to traditional PSTN phone networks.
Last week, Vonage settled yet another patent-infringement lawsuit with voice-messaging technology company Klausner Technologies. The amount of the settlement was not disclosed, but Klausner originally sued for $200m. As part of the settlement, agreed to license technology from Klausner.
At the end of the second calendar quarter, Vonage had 2.3 million subscribers, about $344m in cash, and about $253m in debt.
Our View
It is curious that AT&T is filing its suit against Vonage almost immediately after Vonage settled infringement claims with Sprint. Was this strategic timing by AT&T to kick Vonage while it was down? If so, it seems to be an effective strategy already; AT&T’s suit seems to have eroded the small recovery by Vonage’s share price following the Sprint settlement earlier this month.
If Vonage’s stock continues to fall and hits below $1, the company will be in danger of having its shares delisted from the Nasdaq for failing to have the minimum share price.
Also, Vonage has already lost two cases in jury trials, with Sprint and Verizon, and that does not bode for its legal battle with AT&T, which has more money than either Sprint or Verizon.
Vonage hopes to turn itself around with a new marketing strategy, which, by the way, costs less than its previous one. According to the company, its earlier marketing strategy was designed to build brand recognition while its latest strategy is attempting to target customers more directly. This argument could very well be construed as Vonage’s attempt to make sense of its earlier marketing tactics, which proved ineffective and over-priced. In the second quarter, the company trimmed marketing expenses to $68m, or 33% of revenue, from $91m, or 46% of its revenue, in the first quarter and from a whopping 62% of revenue, or $90m, a year ago.
The company is also cutting costs elsewhere, including jobs. But perhaps the company’s best hope at this point is to be acquired. Its subscriber base could be attractive to, say, a cable company looking to expand its VoIP reach.
