Friday, March 9, 2007

Vonage/Verizon - Business Week's Take

Just a quick post to pass along Business Week's take on the Vonage/Verizon story. There will be lots of mainstream press about this today, and I wanted to add this to the mix as a starting point, plus, they were nice enough to cite me in the article.

The article is a good read, and provides more of the basic detail around the decision and what it means for both companies. I'm also citing it here because the article raised 3 points that I meant to bring up in my post....

1. One has to wonder if the "Verizon tax" - as I'm calling it - will actually set the stage to soften Vonage up for a TKO via acquisition. The boxing analogy came to mind right away when posting yesterday, but Andy Abramson beat me to the punch (ughh!), and used it very effectively in his post, which I recommend you read. So I had to come up with a different angle.

Anyhow, I'm glad BW picked up the acquisition idea, as it looks very plausible to me. Just keep sucking margin away from Vonage with the tax, and use that money (all profit too) to help fund the buyout. How hard will that be? VZ picks up 2+ million subscribers, they take out the only VoBB threat that matters, and they're ready to take on AT&T and the cablecos.

After all, the Voicewing offering is going nowhere, and believe it or not, Vonage is still the #1 residential VoIP offering in terms of subscribers last I looked. Together, the cablecos passed them a long time ago, but no individual MSO has more subs than Vonage. So, VZ could effectively become #1 with this deal. What's not to like if you're VZ?

2. Vonage has been looking into wireless service - good point. Sure, that could help them bypass Verizon, so in theory, this could help them survive. But in reality, this will be a hard market to crack, and nobody has really been able to do it yet. So - possible, yes - but not likely the answer.

3. In the summer, Vonage acquired Digital Packet Licensing - forgot about that. That move helped fend off patent issues from Sprint/Nextel, so that it looked to be a good idea. It also gives Vonage some patents of their own, so they at least have some terra firma in case they need to build something that's truly in their control. I really don't know how far those particular patents will take them - probably not very - but I at least wanted to draw attention to the point made in the article that Vonage does have some patents.

I'm sure this is just the beginning...

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