Vonage Sinking

Joseph Laszlo | April 06, 2007, 12:26 PM

Sinking, strangling, quicksand rising...pick whatever dire metaphor you want, the partial stay granted [WSJ, subscription required, sorry] in Verizon's patent case against Vonage today means the beginning of the end for Vonage.

Yes there's an appeals process, but when your own lawyer says of the partial stay, as opposed to a full one, "It's the difference of cutting off oxygen as opposed to the bullet in the head," how much can grinding things out in the courts really help?

Sharks (like Charter) are circling, and if they're smart the other cable operators--and telcos, and the other, hopefully non-infringing Over The Top providers like Sunrocket--will all explicitly start targeting worried Vonage customers with special offers. And if you're a Vonage customer, at some point the prospect of months of legal uncertainty, combined with special offers from the competition, has got to wear down whatever loyalty you've got left. Vonage's churn was high before the patent case, it's only going up.

And now due to the stay, Vonage can't sign up any new subs until it's clear of infringing Verizon's patents, something that doesn't seem likely to happen anytime soon.

How does this affect the overall VoIP market? Fortuitously, we're just in the process of updating our VoIP forecast--but I think the answer's going to be 'not too much,' given that the cable operators are emerging as the dominant VoIP providers in the US. Jup clients should keep an eye on our Broadband research, a new report should be posted there in the next couple of weeks.