Court ruling frees VoIP provider to continue signing up customers during appeals process.
Suddenly time is back on Vonage's side. Only yesterday, people were talking about how to find an alternative phone service in case an appeals court ruling today put the VoIP provider on a rapid road to bankruptcy. Today, the court cleared Vonage to continue business as usual while it appeals the patent infringement verdict Verizon won against it March 8. That could take a year or more, given that all Vonage has done so far is file a notice of appeal. In short, it's free to keep fighting the odds for quite a while longer.
A loss today would have crippled Vonage. The judge in the case originally had imposed a $58 million fine, as 5.5 percent royalties on revenues, following the verdict that found Vonage guilty of infringing three of Verizon's VoIP patents. The judge subsequently ordered Vonage to stop acquiring new customers, though he allowed it to continue serving existing ones. That amounted to a compromise, given that the alternative was to order the VoIP operator to shut down completely. Still, it would have strangled Vonage, given the pace at which it tends to lose customers.
The appeals court immediately stayed that ruling until today, when it made the stay permanent. That lets Vonage continue to do business as usual, which means to keep trying to outrun some scary numbers. For example, it will be able to continue spending what most observers consider too much money for each new customer it acquires, which is one reason it blew through significant private investments not long before its May 2006 IPO. It will also be able to keep dealing with a reported customer turnover rate of 2.5 percent a month. At its current customer base of 2.4 million, that number means it has to find some 2,000 new users a day just to break even.
It will similarly be able to continue coping with a slowing growth rate that by some accounts will soon see it overtaken for the first time by a cable VoIP provider, Comcast, with all the disadvantages in terms of marketing muscle that implies. And it will be free to deal with its plunging stock price, which has dropped dramatically from its $17 opening level. This last, at least, has gotten temporarily easier, as shares shot up as much as 53 percent, to nearly $4.50, following today's ruling. In short, the ruling means Vonage will be free to battle back against some pretty strong odds for quite a while longer. The reprieve might even be permanent. Vonage believes the message of today's ruling is clear: that the appeals court thinks there's a significant chance the carrier will be able to prove it didn't infringe any patents. If it can, then all it will have to do is prove that its business model works.Vonage Laughs off Patent Verdict - Analysts Disagree
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