Standalone VoIP's Long Goodbye Continues

Carl Weinschenk

Vonage may have had a nice summer, but its spring and fall clearly have left much to be desired.


In March, a federal jury found that the company had violated VoIP patents held by Verizon. The award was $58 million and 5.5 percent royalties on future revenues. On Wednesday, the U.S. Court of Appeals in Washington, D.C., upheld the findings on two of the three patents. It sent back the third patent -- which involves Wi-Fi technology -- for further review. The award of $58 million and 5.5 percent of royalties also is being reviewed, since it was based on the breaching of all three patents.


These days, losing on two of three counts and having the third reconsidered -- not reversed -- qualifies as the good news for Vonage. The bad news came on Tuesday, when a federal court in Kansas City ordered the company to pay another hefty chunk of change -- $69.5 million -- for infringement on patents held by Sprint Nextel. The company now is trading for less than $1 per share on the New York Stock Exchange.


The obvious question is whether this sounds the death knell for Vonage. The company obviously was struggling with the ramifications of the March decision. It is difficult to see a scenario in which it can continue operations much longer in light of a decision that more than doubles the penalties from the earlier finding.


Russell Shaw at ZDNet sifts through industry thinking on what the decisions mean. The first two reactions cited are from Om Malik at GigaOM and a blogger at Techdirt. Both observers think that the company may not be able to survive. The TechDirt observer adds that it's unfortunate, since Vonage is better at marketing VoIP than the companies that hold the patents.


However, Shaw clearly puts the most stock in the opinion of Richard Doherty, the research director of the Envisioneering Group. Doherty, whose opinions appeared in The Washington Post, thinks that Sprint will be more interested in Vonage's customers than the judicial award. Thus, the decision may lead the companies to make a deal -- one that is highly favorable to Sprint, of course -- or the cellular company may acquire Vonage outright.


The other big question, of course, is what this means for VoIP as a whole. The unfortunate reality is that the death of Vonage, along with the sudden demise this summer of Sunrocket, further marginalizes the standalone sector of the VoIP industry.


Patents may not be the only reason that the sands of the hour glass are running out for standalone VoIP providers. This commentary at New Telephony says that the biggest trend at the Internet Telephony Conference & Expo was the convergence of voice and data applications -- with an emphasis on data -- under the general VoIP label. While there is no conceptual reason that standalone VoIP providers can't offer unified communications, the reason is that the greater complexity and breathe of applications in unified communications scenarios favors companies that are broader and have more services to offer.


This commentary at Tom's Technology Take was posted at about the time that Sunrocket ceased operating. It suggests that the twin meltdowns will be fatal to the standalone VoIP category. The blogger says that the best of these companies will be sold to incumbent phone companies, who will use them to provide corporate and low cost consumer services.


In other words, the technology -- but not the business niche -- will survive.

Add Comment      Leave a comment on this blog post
Sep 27, 2007 9:06 AM Julio Diaz Julio Diaz  says:
VOIP is a very good example on how big companies shutdown new technology initiatives for their own benefits. Reply
Jan 16, 2009 2:21 AM s larsen s larsen  says:
what about MAJICJACK Reply

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