Verizon/Vonage: Now Things Get Interesting

Carl Weinschenk

This very good CNET piece does two things: It offers detailed information on the precise patents over which Verizon and Vonage are battling and puts forward a theory -- an unconvincing one, in my opinion -- on what the next step may be.


By far the most important element in the piece is the patent discussion. There are three patents in play. One involves the mapping of IP addresses to domain names and phone numbers, a process that the writer, Marguerite Reardon, says is necessary for a VoIP subscriber to call someone on a legacy network. The second patent involves an advanced calling feature and the third focuses on wireless and cordless connectivity between gateways and the Internet.


Such background is vital to an understanding of what is going on. The next steps will happen at two highly interrelated levels. Vonage, at least publicly, insists that it has a good chance to win on appeal because of the broad manner in which the trial judge settled some fundamental issues, according to Reardon's story. Of course, losers in court usually have solid-sounding reasons that they will prevail on appeal. Its view is backed, however, by an attorney with knowledge of the patents. The story doesn't say if his familiarity with the patents has anything to do with working for either side.


What happens in the Vonage/Verizon appeal will have a big impact on who, if anyone, Verizon goes after next. If its claims are upheld in the appeal, the carrier would be in strong position to go after even bigger fish, such as cable VoIP providers.


Even if the judge's ruling does stand, we think that it's a reach that Verizon will pick a fight with the cable industry. Of course, there is a chance that such a battle could come to pass. Two things must occur for that to happen, however. The first is that cable must fail to find a viable workaround to the patents. Perhaps there isn't one. But, if there is, the cable industry -- which is well financed and knows that a lot of its future rests on VoIP -- has the brains to find it.


The other variable in the equation is Verizon itself. Strategic decisions don't happen in a vacuum. It seems unlikely that attacking a popular service from the cable industry would endear it to legislators at the local, state and federal levels. Indeed, such suits more often are generated by small players seeking to make a few quick bucks. Of course, Verizon did lodge just such a suit against Vonage, but that may have been part of a different strategy.


Perhaps the goal is to soften up the VoIP provider in anticipation of an acquisition attempt. This possibility -- which has been raised by analyst Jon Arnold -- seems to make more sense than a massive, expensive and undoubtedly unpopular lawsuit against the cable industry.

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