Sprint suit vs. Vonage expected

On heels of Verizon loss, Sprint lawsuit looms.

Could Sprint Nextel be the next shoe to drop for Vonage?

On the heels of the ruling that Vonage infringed on three Verizon patents for provisioning VoIP, a suit that Sprint Nextel filed against Vonage over a year ago is expected to go to trial in September.

In October 2005, Sprint Nextel filed a suit against Vonage and two other VoIP providers claiming the companies violated seven patents on technology for processing and delivering packetized voice and data, including VoIP. Its suit in U.S. District Court for the District of Kansas, in Kansas City, Kan., seeks an injunction against further infringement and unspecified monetary damages.

In addition to Vonage, the original suit named Voiceglo Holdings Inc. and its parent company, theglobe.com Inc. They settled with Sprint in August 2006, a Sprint Nextel spokesman says.

Last week, a federal jury ordered Vonage to pay Verizon $58 million in damages plus 5.5% royalty rates for future use of Verizon technology in a suit brought against Vonage in June 2006. Vonage said it would appeal the ruling.

Shortly after the ruling, Vonage released a statement that it was confident in the strength of its appeal. The company also said it was not going out of business, nor will customers experience change or loss of their phone service.

"We are confident in Vonage's future health, growth prospects and longevity," said Jeffrey A. Citron, Vonage's chairman and chief strategist, in that statement.

Analysts are a little less optimistic.

“If Vonage loses the suit with Sprint in addition to the recent loss with Verizon, this causes us to wonder whether Vonage will be able to survive,” says Jeff Kagan, an independent telecom analyst. “Part of it depends on what fines and fees they have to pay. Part is their competition which is gearing up to compete very heavily.”

That competition is the local phone company and cable company, Kagan says. He expects most customers to stick with the phone or cable company for bundled services others to seek out VoIP players like Vonage, as well as wireless operators.

Under that scenario, Vonage’s importance and influence will diminish, Kagan says.

“Vonage was an important company in a changing industry, but as the industry continues to change the company becomes less important,” he says. “Other larger companies offer a more compelling bundle of services.

“The companies that are in the headlines that change the perspective on existing and future services are not usually the companies that are around as the big competitors going forward,” Kagan says. “Usually they bring the idea to the table. They ride the wave for a few years. Then the existing providers dig in leaving the new competitor to survive, but at a much smaller scale.”

Vonage declined additional comment, saying only that it expects the Sprint Nextel trial and decision to stretch into 2008.

Copyright © 2007 IDG Communications, Inc.

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