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Vonage tentatively settles AT&T patent lawsuit, reports loss

VoIP company to pay out $39 million

By Grant Gross
November 8, 2007 12:00 PM ET

IDG News Service - WASHINGTON -- Voice over IP service provider Vonage Holdings Corp. said it has tentatively agreed to settle a patent infringement lawsuit filed by rival AT&T Inc., with the smaller company paying about $39 million.

Vonage's tentative agreement with AT&T follows patent settlements last month with Verizon Communications for $80 million to $120 million, depending on the results of its appeal of a court ruling on two patents, and with Sprint Nextel Corp. for $80 million.

"With most of the litigation behind us, let me say we're excited to refocus on running our business," Jeffrey Citron, Vonage chairman and interim CEO, said during a conference call regarding the company's quarterly financial results.

The AT&T patent infringement lawsuit was over technology called "packet telephone system" that allows VoIP to work. The two companies will "work diligently" to finalize the settlement, Vonage said in a statement. "If negotiations of a definitive settlement agreement fail, then Vonage intends to vigorously defend itself in this matter," the company said.

For its fiscal third quarter, which ended Sept. 30, Vonage reported a net loss of $161.8 million, compared to a loss of $62.2 million for the third quarter of 2006. Excluding legal charges, such as the payments to Verizon and Sprint Nextel, the company's net loss was $16.2 million.

Vonage's revenue for the quarter was $210.5 million, up from $161.8 million in the third quarter of 2006. Vonage added 78,000 subscriber lines during the quarter, compared to 57,000 in the second quarter of this year. Vonage said it now has 2.5 million lines in service.

The company is working to improve its marketing efforts and customer experience, Citron said. Vonage's customer "churn" -- or turnover -- rate of 3% is "simply unacceptable," he said.

Customers calling Vonage to report problems often have had long hold times and sometimes have had to call several times to get their problems resolved, he said. Those situations are also "unacceptable," Citron said.

Vonage is launching a comprehensive plan to improve customer service. Among other things, it is taking steps to simplify the installation of the Vonage service, implementing new call-answering technology, and adding new customer relationship management software, Citron said.

"While churn remains a problem, we know from our survey data that this issue is poor execution on our part," Citron said. Therefore, he noted, the company believes that the problem is "fixable." But the company doesn't expect a turnaround in the customer service area for "a quarter or two," he added.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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