Pray for Vonage

By May 14, 2007

Verizon is trying to use legal maneuvers to put Vonage out of business. In other words, my old phone company is trying to kill my new phone company. As you might imagine, this is cause for someconsternation. My last story about these two characters discussed my personal history with both. In brief, I was a longtime Verizoncustomer until my dial tone went away and never came back. So I switched to Vonage and lived happily ever after. Well, almost. Verizon has dragged Vonage into court claiming that the upstartis using technology patented by the old grey Telco giant. This has led to a series of cliffhangers with Vonage as the party hanging from the cliff. I am on the edge of my seat. Courtroom Drama The first round of Verizon vs. Vonage has gone to Verizon. A jury in federal court agreed withthe plaintiff that the defendant violated at least three patents. The court ordered Vonage to pay Verizon $58 million, plus future royalties, and the money has been put in escrow. The judge alsobarred Vonage from making any further use of Verizon’s technology. Far worse for Vonage is the court’s order forbidding Vonage to sign up any new customers. Like any phone company, Vonage loses customers on a regular basis, and the churn rate isdoubly severe for VoIP providers. With no new customers, the company would bleed to death in less than a year. “It’s the difference of cutting off oxygen as opposed to the bullet in thehead,” lawyer Roger Warin told the Associated Press. This order was actually a “compromise” helpfully suggested by Verizon’s lawyers. The alternative was an immediateshutdown of Vonage. Fortunately, an appeals court has stayed the injunction, effectively letting Vonage continue signing up new people while it appeals the verdict. That’s a good thing forVonage and its 2.4 million customers—up from 1.6 million a year ago. Vonage is now seeking a retrial in light of a precedent recently established in a similar patent-infringement case. Verizon: Hero and Villain Do I have it in for Verizon as a former customer? Not at all. Verizon is in fact one of the heroes of the telecom business. I visited Verizon lastyear to be briefed on its FiOS technology and have written regularly—and more often than not, favorably—about the company ever since. Both Verizon and AT&T are buildingfiber-optic networks to deliver high-quality triple-play service to consumers. But whereas AT&T is building a hybrid fiber/copper system that uses conventional wiring for the last mile, Verizonis laying in an all-fiber network that brings it right up to a box on the side of your house. If you live in an apartment building, you may get some copper after all, but Verizon is doing everythingit can to deliver high bandwidth to the consumer. The benefits include HDTV at a high data rate, and thus with few artifacts, plus lightning-fast Internet service. Verizon has invested heavilyin its FiOS network. And it’s about to get even faster with the implementation of GPON (gigabit passive optical network) technology. This will increase the amount of data delivered by four toeight times. Verizon’s vision is expansive, ambitious, and way cool. Where Verizon fell down, in my case, was on customer service. When my dial tone went silent, I was confronted with amercilessly automated system that simply would not let me discuss the problem with a live human being. This is in sharp contrast to Time Warner Cable, which puts a human on the phone within a fewminutes every time I call with a problem. I haven’t needed to call Vonage—the service, at least for me, has been reasonably reliable—but the company is responsive to emails. Now I get regular U.S.-mailings from Verizon practically demanding that I return to the mothership. These mailings invariably have a brassy, confident, somewhat arrogant tone. I laugh and throw themin the garbage. The most recent one offered phone service for $19.99 a month, a lot less than the $55 I used to pay for two unlisted land lines. But that offer was good only for six months and didnot include taxes and fees. My monthly Vonage bill for a package nominally priced at $14.95 is just over $20, all inclusive. What Happens If Vonage Dies? If Verizonsucceeds in killing Vonage, the future makes me tremble. Switching phone carriers is not a big issue for me—I have a cell phone and do most of my business by email. But Vonage is the custodianof something almost as dear to me as life itself. And that’s my 212 area-code phone number—the one my employer, friends, and family members know by heart. Switching the number fromVerizon to Vonage took weeks. And switching it from Vonage to someone else may prove impossible. The reason is that Vonage is regulated by our feckless federal government not as a telephone providerbut as a data provider. A phone provider is required to let you move your phone number; a data provider is not. Ouch. If I’m lucky, Vonage will either survive or get bought out byanother company. A leading prospect is Sprint, which is going into court with Vonage soon on yet another patent-infringement claim. Taking over Vonage would give Sprint an entree into the VOIPmarket—not to mention deeper pockets for fighting Verizon. Vonage has also made arrangements to have its network taken over byanother VOIP network to avoid the alleged patent infringement. The Need for Patent Reform Nearly all press reports have accepted Verizon’s (and the jury’s)assertion that Vonage violated Verizon’s patents. But an analysis by Timothy B. Lee of ArsTechnica suggests otherwise. He calls Verizon’s claims, as parroted inthe press, “deeply misleading.” He continues: “There have been no allegation that Vonage’s VoIP applications are in any way based on Verizon’s designs. Moreover,the ‘technology’ at issue in these patents are not specific algorithms, data structures, or chip designs, but broad concepts: ‘translating IP addresses to phonenumbers’ in one case, and ‘connecting a wireless device to a VoIP service’ in the other. It doesn’t even make sense to talk about Vonage’s products being ‘builton’ this type of ‘technology’.” This analysis concludes that Verizon is using vague patents not to protect a particular kind of technology but merely to claim dominanceover an entire category, in this case VOIP. While this might provide Verizon with a significant symbolic victory, is it in the consumer’s best interest to let a deep-pocketed player bully anewcomer out of existence on the thinnest of legal claims? Or, as Lee suggests, does this case illustrate “the need for patent reform”? The latter, methinks. Verizon’scampaign against Vonage boils down to a big fat corporate dirty trick. Mark Fleischmann is the author of the annually updated book PracticalHome Theater.

Editors' Recommendations