TKO for Vonage?, ATandT sues Vonage

Could this be a TKO for Vonage?

I am not saying that they in fact have been knocked down by Sprint and Verizon, but will they last because of these jealous, whinny incumbents? Despite Vonage getting hit twice they have managed to survive, with dignity I must say. Any other VoIP Provider would have crumpled under the gripping hands of the major Telcos. So why is AT&T jumpoing on the "LETS GET VONAGE" Band-wagon?

One Blogger wrote. "The obvious explanation is that AT&T is worried about losing control of its intellectual property. If a business doesn't defend its property from even the most minor misuse, the theory goes, it might lose its right to defend it. It's not unlike protecting a trademark by pouncing on every instance of improper or generic use. Anything less could be a betrayal of management's responsibility to shareholders." - I completely agree but when did telephone companies begin to forget about what Communications is all about. Is it not about the consumer, IT IS!! Every Incumbent Telco has one way or another, taken advantage of their power, where are we Mexico? And all this about intellectual property, it is VoIP. Have you read some of these patents, they are bullshit. They are so confusing so that they don't make any sense, they ILECS don't even understand them.

If it is about Businesses trying to protect their intellectual property, however, one might expect ATandT to also pursue its patent rights with every small VoIP provider in the world. It's hard to believe that all providers would be free of at least some such infringements; most have fewer engineering resources than Vonage and undoubtedly less ability to develop their own technical planning and configurations.

Of course, ATandT might even now be pursuing such small VoIP providers behind the scenes. The company had reportedly negotiated with Vonage for two years before filing suit, but the first news of this broke in mid-October 2007, when ATandT said that it had no choice but to sue because the talks were going nowhere. So the company may be negotiating with smaller providers and may conceivably have already settled with some of them. Damn BULLIES!

TeleGeography analyst Paul Brodsky finds the timing of the suit "suspicious." It came shortly after Vonage settled with Sprint for $80 million and after an appeals court sent one of the verdicts in Verizon's suit against Vonage back to a lower court for reconsideration, while affirming two others. Whatever the official reason, the timing was certainly bad for Vonage. "I think there was a little optimism that they may have finally cleared themselves of some of these patent issues," Brodsky said. "Then ATandT comes along and kicks sand in their face again."

Wake up and smell the coffee, obviously ATandT has timed this dangerously for Vonage, right after going up against Verizon and Sprint. Again this is perfectly demonstrating that Dinosaur phone companies are more concerned with public image, throwing their weight around and money, not the comsumer. Honestly, does Vonage pose that big of a threat to ATandT?

Your thoughts?

vonage patent lawsuit, finally settled???

Vonage Holdings Corp., the, ahem, provider of Internet-based telephone service, said Thursday it has settled a patent lawsuit brought by Verizon Communications Inc. for a maximum of $120-million.
The lawsuit, along with two filed by other phone companies, had weighed heavy on Vonage's future. The company's service enables subscribers to connect their phones to their broadband connections for about $25 a month using a "Vonage" adapter - I think I smell another lawsuit coming on unless anyone has not patented the adapter yet :)
After setbacks in the litigation with Verizon, which began in June 2006, Vonage put $88-million in escrow. The settlement caps any payouts Vonage will make on top of that amount at $32-million. If Vonage wins a rehearing on either of the two patents in question, its total payout will be $80-million.
The settlement was announced just after the 4 p.m. stock market close, which saw Vonage shares fall 7 cents to $1.53. In after-hours trading, the shares jumped 70 per cent to $2.60.
“We believe that the settlement terms may allow Vonage to avoid bankruptcy — at least for now,” the telecom analyst team at brokerage Stifel Nicolaus wrote in a research note Thursday.
In March, a jury held that Vonage had infringed on three patents and awarded Verizon $58-million in damages, plus a royalty on future revenues. In September, an appeals court sent the remaining two patents in dispute back to the lower court for retrial.
“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,” said Sharon O'Leary, Vonage's chief legal officer.
The settlement is a major step forward for Holmdel, N.J.-based Vonage, which earlier this month settled another patent dispute with Sprint Nextel Corp. for $80-million.
The settlement does not put Vonage's legal troubles in the past, however. AT and T Inc. sued Vonage last week, also for patent infringement. Way to go incumbents, I am so disgusted. There is enough to go around, STOP WHINNING!!!
“There's always something coming out of the woodwork in terms of lawsuits,” said analyst Stephan Beckert at TeleGeography Research. “That probably says more about the patent system than it does about Vonage.” - I couldn't agree more.
He said Sprint's and Verizon's success in their suits may have encouraged AT and T to get into the "game".
“I guess it's good to settle a lawsuit and get it behind you, but (Vonage) settled for really big numbers,” Beckert added.
Vonage had a substantial war chest, thanks to an initial public offering last year at $17 per share that drew in more than $500-million but quickly turned into an embarrassment when the stock plummeted.
The legal challenges have scared off customers and stalled Vonage's growth. It now has about 2.45 million subscribers. The attractiveness of Voice over Internet Protocol, or VoIP, provided by independent companies shrank further this summer, when Vonage rival Sunrocket suddenly shut down, stranding subscribers. But cable companies have had great success signing up their video customers to VoIP (Galaxy Telecom, I know, shameless plug)
Vonage subscriber Randy Borow in Lisle, Ill., said he hasn't really worried that the company would founder because of the lawsuits, but he's heard of subscribers who have fled.
Borow said he's pleased to have cut his phone bill by more than half by switching to Vonage from AT&T a year and a half ago.
“The biggest threat these landline companies is obviously VoIP service,” Borow said. “They look upon Vonage as a huge threat ... so they try to sue them out of existence.”
In court, Verizon argued that Vonage, while using Verizon's patented technology, had taken hundreds of thousands of its customers.Of the $120-million maximum payment from Vonage under the settlement terms, $117.5-million would go to Verizon and $2.5-million to charities.

US VoIP Market still soaring...Europe even more!

The number of US consumer VoIP subscribers soared from 6.5 million in mid-2006 to 11.8 million by the 2nd quarter of 2007, according to TeleGeography's US VoIP Research Service. TeleGeography projects that the number of US VoIP subscribers will rise to 23.3 million by 2011, driven chiefly by the strong growth of cable providers' IP telephony offerings. Nevertheless, US VoIP subscriber growth is falling well behind the blistering pace set by European VoIP service providers. Both markets experienced similar growth patterns over the first few years of development, but began to diverge in 2006. Several factors help account for Europe’s much more rapid VoIP service growth, including freer access to incumbents’ local copper loops, more aggressive competition and pricing, and the active participation of incumbent operators such as France Telecom, Deutsche Telekom and BT in the VoIP market. In Europe, incumbent service providers accounted for 26%of VoIP subscribers, while in the US, AT&T, Verizon and Qwest have remained largely on the sidelines. If these factors remain in place, TeleGeography projects that by 2011, VoIP penetration in Europe will be approximately twice as great as in the US.

Google takes another baby step into the mobile market

Google (GOOG) has bought Jaiku, a Finland-based mobile IM and presence company. The news just broke, where else, but on Jaiku. The terms of the deal were not disclosed.

The details of the deal are on the Jaiku blog, and the company has put up FAQ for current users. This is indeed good news for the small Jaiku team, and another piece of the Google Phone Puzzle. Activity streams and mobile presence are important areas where we believe Google can add a lot of value for users. Jaiku’s technology and talented team are a great addition to Google’s current application and mobile teams

At first glance, this is an excellent acquisition on the part of Google. It is obvious that Google is trying to enter the mobile and VoIP Space, I am just trying to figure out why. I can't wait to see what happens next, by that I mean, what company they will buy next.

John Shapiro sells out to Network Engines

If you haven't been in the telecommunications industry for awhile you might not know Jon Shapiro, the founder of Alliance Systems. Alliance Systems was responsible for building bullet-proof communications servers and has great industry partnerships with vendors like Interactive Intelligence, Audiocodes and Dialogic. Based in Plano, Texas, Alliance Systems provides server appliances and enhanced support services for wireless, VoIP, contact center and enterprise communications solutions. Similar to Network Engines, the majority of Alliance Systems' revenue comes from services to OEM customers. In its fiscal year ended December 31, 2006, Alliance Systems had more than 250 active customers, only two of which contributed 10% or more of revenue, one at 15% and the other at 10%. For the 2006 fiscal year, revenue was approximately $102 million and operating income was approximately $3.2 million. For the nine months ended September 30, 2007, Alliance Systems had unaudited revenue and operating income of approximately $79 million and $2.0 million, respectively. Its largest customer contributed only 10% of its revenue for the nine-month period.

Network Engines, Inc. (NASDAQ: NENG), a leading provider of storage and security server appliance products and services, today announced it has entered into a definitive agreement to acquire privately-held Alliance Systems, Inc., a leading provider of server appliances and computer infrastructure supporting telecommunications and enterprise communications solutions. Valued at approximately $40 million, the transaction will be funded through a combination of approximately $35 million in cash, which includes the payment of certain of Alliance's debt obligations, and approximately 2.7 million shares of Network Engines' common stock.

Through the acquisition of Alliance Systems, Network Engines enters new vertical markets and anticipates leveraging a broader range of capabilities to address market needs for converged solutions. Network Engines also expects to realize economies of scale based on similarities between the two companies' business models, their compatible approach to development of system solutions, and their complementary focus on OEM customers. Furthermore, it is expected this transaction will diversify Network Engines' customer base and accelerate its progress toward achieving its financial objectives.

Greg Shortell, President and Chief Executive Officer of Network Engines says, "We are pleased to partner with an established, profitable company that is highly complementary to Network Engines' business, Alliance Systems' strong position in telecommunications complements Network Engines' expertise in storage and security. These markets are experiencing a convergence of technologies, which creates new applications. We believe that Network Engines is well positioned to meet the industry's needs in this exciting growth opportunity, and expect the acquisition will allow us to better serve customers, while creating significant value for our shareholders."

Alliance Systems is expected to add approximately $100 million to Network Engines' annual revenue and significantly diversify its customer base.

Voange and Sprint finally settle dispute

Internet phone company Vonage Holdings Corp. and Sprint Nextel Corp. have settled their long-running patent argument and inked a licensing deal under Sprint's Voice-over-Packet portfolio.

A jury in the U.S. District Court in Kansas City, Kansas, on Sept. 25, found that Vonage infringed six Sprint patents, and Vonage was ordered to pay Sprint Nextel 69.5 million U.S. dollars in damages. Vonage said at the time it didn't expect the decision to have an adverse effect on its business because it had deployed workarounds for the two patents in question for some time.

Today Sprint Nextel and Vonage announced that they have settled their patent dispute and are ready to move onward and upward. Not only have they settled their dispute, but they will start working together! The companies entered into a licensing arrangement under Sprint’s Voice over Packet (”VOP”) patent portfolio. Additionally, Sprint will license Vonage their VOP portfolio, which consists of over ”100 patents covering different methods, components and systems that efficiently connect telephone calls between a regular telephone network and a packet-switched network such as the Internet.”

Monday's settlement agreement resolves all claims related to this dispute, the companies said.

“We are pleased to resolve our dispute with Sprint and enter into a productive future relationship,” said Sharon O’Leary, Vonage chief legal officer.

“We view this settlement and licensing agreement as a validation of the strength and breadth of our patent portfolio,” said Harley Ball, Sprint Nextel’s vice president of intellectual property. “This is an affirmation of Sprint’s research and development and a testament to the rich history of innovation at Sprint Nextel.”

Sprint also agreed to license Vonage its VOP portfolio, which includes more than 100 patents covering different methods, components and systems which connect telephone calls between a regular telephone network and a packet-switched network such as the Internet.

The companies’ new agreement is valued at $80 million, which includes a one-time payment of $35 million for the past use of license, $40 million for a fully paid future license, and $5 million in prepayment for services. Given Vonage’s headaches in the past, it will be nice for them to at least put this behind them and move on to the business of providing services.....well until something else happens....

I finally joined Technorati, what the hell took me so long?!

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"Vonage" - Does that mean bad news for other residential VoIP providers?

Vonage, already struggling from a series of setbacks, has just taken another two huge body blows — one by the U.S. Court of Appeals on behalf of Verizon, and the other by Sprint Nextel. At first glance, it looks like the old-school phone companies are not only fighting back, but winning. But is that really the case, and if it is, what does that mean for other VoIP providers?

First, the news. The U.S. Court of Appeals upheld a previous decision to award an injunction against Vonage's use of technology based around two patents held by Verizon. A third patent was also involved, and in that case, the verdict is not yet final — it has been sent back to the original court for further clarification and a recalculation of awards and damages associated with the verdict. That last part, at least, is a little good news, since it suggests that the $58 million in damages plus 5.5 percent royalties on future sales that was originally awarded may be reduced. This came one day after a New York court reached a similar decision in a suit brought by Sprint Nextel, in which it awarded the company damages of $69.5 million and 5 percent royalties on future Vonage sales. This award is being appealed, and it may yet be set aside.

The result was a drop in stock price for Vonage to just more than $1, as well as a suspension of trading. Less than 18 months ago, Vonage went public with an initial share price of $17. That's a huge drop and a huge blow to the company. In addition, if both lawsuits end up where they stand right now, Vonage is going to be paying 10 percent of everything it makes to two of its biggest rivals, not exactly a recipe for success.

What Next?

Despite a giant customer base, a well-known brand and, yes, even some loyal customers, it is hard to imagine Vonage recovering from these blows. Instead, it is likely that its customers will drift away over the next two years. The big question: Where will they go? Probably in the short term, the most likely answer is to their local cable provider. One of the reasons for Vonage's early success was simply that cable companies weren't in the game. Now that they are and are offering VoIP service in combination with Internet and TV service (usually in the popular "triple-play" package, in which voice, Internet and TV service cost $100 per month), it is hard to see customers looking much beyond that easy, one-stop shopping. For the Cable companies that are not currently offering voice, they can start here - www.galaxytelecom.net (Please choose Tino Fenotti in the "Referred by" drop down menu). Yes, I know, a shameless plug :) Unfortunately, most cable companies have not yet gotten into the VoIP game, which in my opinion, they are not taking care of their clients. Smaller Cable Co's ought to step up to the plate and not have their base taken over. This is very serious and although you might not believe me I have heard this one before, "Well, I don't think I can compete with the incumbents." Are you insane???!?! Sure, just throw your business away, give it to the "big guys", just give up. Is that what you want me to say? How did you even start a business in the first place? Pull up your sleeves and get to work!! Sorry, I went off on a little bit of a tangent there.

The other question that has to be troubling the other (smaller) residential VoIP companies is whether or not these telco and cable giants are going to come after them next.

But there are two other groups that could see some success. One is the more edgy VoIP players that offer basic free services while charging for extras. This group is led, of course, by Skype but include tens — even hundreds — of niche players. And Skype, despite some recent bad publicity, is clearly making inroads. It now has 20 million registered users in North America, up from 10 million a year ago. Since the company makes the concurrent numbers of users at any one time public, it is easy to see that it now has more than 9 million callers actively using Skype at any moment. And Skype, like other client-based VoIP services and several cell-phone VoIP enablers like Truphone spring to mind), is moving relatively fast in terms of adding functionality and features.

Wifi VoIP

The other group is far less obvious — it's the mobile-phone providers. As more and more people abandon landlines altogether, mobile-phone companies are also stepping in to IP-based services to expand their offerings and reduce their costs. The previously mentioned Truphone is an example, having just demonstrated true VoIP calling on the Apple iPhone.

All of these players are just itching to step in and grab chunks of the lucrative residential phone pie. In fact, they already have much of it. So what's left for VoIP?

The simple answer is business. Business VoIP is a whole other kettle of fish. That market is changing rapidly, and PBX (Private Brach eXchange) services in particular are letting small companies look like big companies while still operating at small-company prices.

The more complex answer is in interconnecting everything. VoIP isn't going away; in fact, VoIP is rapidly being put inside every form of voice calling — from traditional telco to mobile phone to business PBX to voice services — if it isn't already there. It isn't VoIP that's in danger from a Vonage collapse — it's the idea that just changing from traditional telephone circuits to VoIP is all that it takes to make a new phone company.