Vonage may pay as much as $120m to settle with Verizon, the second-largest telecommunications company in the US.
The news sent Vonage shares up nearly 40% to close at $2.13 on the New York Stock Exchange on Friday. The share price is still a far cry from the $17 list price when the company went public in May 2006.
The Verizon resolution will follow an $80m settlement to end a separate patent-infringement lawsuit filed against it by Sprint Nextel, the No 2 US telco, earlier last month. A week after the Sprint deal, Vonage settled yet another patent dispute for an undisclosed amount with voice-messaging company Klausner Technologies and agreed to license technology from the company.
However, Vonage must still content with a separate patent suit from the country’s leading telco AT&T. Vonage said it was currently negotiating with AT&T, but the suit may still go to trial.
All of the three big carriers said Vonage violated their respective patents relating to VoIP technology.
Vonage, which has about 2.5 million subscribers, in its most recent quarter, reported a $33.4m loss, or 22 cents a share, on revenue of $205.9m. It also had about $344m in cash, and about $253m in debt. The company is scheduled to report its latest results on November 8.
The settlement with Verizon follows a federal jury ruling in March that ordered Vonage to pay $58m in damages to Verizon, as well as hefty royalty fees, for allegedly infringing on Verizon patents. Verizon initially claimed, in June 2006, that Vonage violated three of its patents.
Vonage on Friday said it had already earmarked $88m for the Verizon deal, and may pay an additional $32m, depending on the final verdict by a court of appeals. Depending on whether Vonage wins a rehearing on two of the contested patents, the company may pay as little as $80m to Verizon.
We’re pleased to put this dispute behind us and believe this settlement is in the best interests of Vonage and its customers, said Sharon O’Leary, Vonage chief legal officer, in a statement. This settlement removes the uncertainty of legal reviews and long-term court action and allows us to continue focusing on our core business and customers.
Our View
Despite Wall Street’s relative enthusiasm over the Verizon deal, Vonage’s worries are far from over. Aside from the AT&T lawsuit that’s looming, Vonage faces increased competitive threats from these larger telcos as well as cable companies that are bundling VoIP in with other services.
There is also the trend of more consumers giving up their home phone entirely and relying solely on mobile service.
