Tuesday, February 20, 2007

Vonage-Verizon Showdown Starts Wednesday

Very interesting story in yesterday's USA Today about tomorrow's hearings regarding Verizon's charges that Vonage has been infringing on its patents for VoIP.

This one actually goes back to June, just after Vonage's IPO. Around this time, there was a suspicious raft of moves, offerings and challenges from all types of providers that seemed designed to get in Vonage's way. Collectively, I think they had the desired effect, and Vonage certainly hasn't been the same since.

Most of the recent attention on Vonage focused on last week's quarterly numbers, and their deal with Earthlink to get into WiFi. These have been covered to death by now, and I'm not going to go there.

The USA Today piece hasn't received any attention that I have seen so far in the blogs, although some of the trades like CNET News picked up on it this afternoon.

I suspect it's gotten little attention because the story ran on President's Day, so the news coverage has been thin. You really have to wonder about the timing, following on the heels of Vonage's quarterly numbers which were so-so, and simply confirm the continuing trend of slowing growth and rising competition. If I was Vonage, I'd probably want this story to stay as quiet as possible.

Most of the market momentum is going against them right now, especially with rising tide of cable, which has clearly wrested control of the residential market away from Vonage for good. Vonage may have the largest share of any one VoIP provider - well, just about everybody - but remember, Vonage can sell VoIP anywhere, whereas the cablecos have regional footprints.

I still think Vonage has a fighting chance, especially if they can survive this legal onslaught from Verizon, who seem bent on trying anything to get Vonage out of the way. When you look at what Verizon is alleging, you have to scratch your head and ask - does Verizon think they invented VoIP? They're talking about violations of 48 patent claims, including "gateway interfaces". I'm no patent expert, but it sounds like IBM when they tried to trademark the "@" symbol. IP is about open standards, and I find it hard to believe they could really have this degree of ownership about things like this. Especially since they have practically zero percent market share in VoIP.

And even if they did, is Vonage the only culprit? I'd have to think that if they're guilty, probably almost everyone else in this space is too. If so, then why doesn't Verizon just issue a VoIP fatwah to take everybody out?

Vonage doesn't have much of a legal leg to stand on since they don't own any patents, and my guess is their hopes hinge on the argument that if Verizon shuts them down on this basis, it's an excessive show of anti-competitive force. While this is not an FCC decision, advocates of balance and fairness would contend that the big guys got their way in letting AT&T/BellSouth go through, so now it's time for the little guys (well, that's a relative term for Vonage) to win one. I for one, hope it goes that way. If this went heavily in Verizon's favor, I think it could be an 8-count knockdown punch.

Finally, I have to mention the very last part of the article - it's the most interesting. Mr. Vonage himself, Jeff Citron has been subpeonaed to testify, but not for Vonage. He's actually being called to be a witness for Verizon - against Vonage. How bizarre is that?

Is all this worth it? I guess we'll find out soon enough. And you also have to wonder if Verizon doesn't get its way, will they just go straight for the jugular and buy Vonage out? Stranger things have happened. Very appropos for the Chinese New Year, as we're certainly living in interesting times.

Hat tip to my friend and colleague, Ari Rabban on this one.

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