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Poor Vonage Sued Again

The poor guys at Vonage seem to be sued almost every month. In the lastest news, Nortel filed a suit against Vonage in the US district court, in Delaware. In the suit, Nortel alleges that Vonage infringes on 12 of its patents that deal with click-to-call system, the management of archtecture of VOIP system resources, and with call-tracing methods in packet-switched networks.

This comes on the heals of Vonage announcing last month that it had reached a settlement with AT&T, only a month after AT&T accused Vonage of violating patients for systems that let users make VOIP

AT&T accused the VoIP provider of violating its patents for systems that let users make VoIP calls using standard telephone devices.

Additionally, Vonage also recently reached settlements with Sprint Nextel Corp., for $80 million, and with Verizon Communications Inc., in a settlement that could be worth as much as $120 million.

So where does this leave Vonage’s customers?

According to the latest financial reports Vonage is still hemorrhaging money like it was made on trees. They reported, “a net loss for the quarter of $65 million”. In that same time period they were only able to add, “166,000 net subscriber lines in the quarter, down from 204,591 in the third quarter and 256,000 in the second quarter”. Their marketing costs are still ballooning out of control, and have jumped to nearly, “$306, from $254 in the third quarter and $239 in the second quarter”. If you combine those loses, with the new patent infringement money they will have to pay out you could be looking at a lot of trouble for investors and customers.

More on patents

If Vonage were smart they would have done what their competitor in the 3rd party VOIP landscape, Packet8 did. Over the last 20 years they’ve been building up a collection of patents with which they can leverage the big guns. They also use their own propriatary ATA (the device that converts your phone conversation into digital packets to travel over the internet) instead of using off the shelf products. If Vonage had a few of these lying around they could perhaps leverage it against some of these other companies.

It’s the Marketing

I have to wonder why on earth does Vonage need such a huge marketing budget to get people to use their service. Small companies like Skype have become almost a home name (especially outside the US) without spending huge amounts of money on marketing. Vonage being a tech based company could start a grassroots internet organization to promote their services. Instead they are turning to traditional media and to users that probably don’t understand the ins and outs of VOIP and network set-up, and thus are seriously disappointed when it’s not as simple as a landline (ie plug-and-play). Without the huge costs per subscriber weighing them down, this ship would have left port a long time ago.

Think twice

I think people have to be careful before investing or signing up with Vonage. Look at what happened to Sunrocket a lot of seasoned VOIP users predicted their downfall because they were growing exponentially, but were also losing subscribers like flies. They closed shop almost overnight and left a lot of people without phone service. The people that finally got phone service had the nightmare of trying to port their 20 year old landline numbers out of the ether, and to their new service providers. Although Vonage is a much bigger company, and hopefully any shut down would have more notice, and be a lot more orderly I still wouldn’t trust my primary phone service with a company that’s losing money. Hopefully Vonage gets it’s act into gear soon.

*Update*

Thanks to the power of the internet, less then an hour after I wrote this post the two commentators below have provided a link that shows that the patent dispute has been settled. I wonder however if this will be their final dispute - somehow I find it unlikely.