Vonage (VG) Is Toast

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When word came though that Vonage (VG) had settled its patent suit with Verizon (VZ), the VoIP company’s shares moved up 70% to over $2. The small company has settled another action with Sprint (S) and has one pending with AT&T (T). So, its legal problems are not over.

Vonage has about $250 million in cash at the end of the June quarter. The Verizon settlement will probably cost $100 million. AT&T is going to want something. And, in the most recently reported period, Vonage had an operating loss of $33 million.

But, that is not the worst news for the internet telephone pioneer. The large phone companies like Verizon are beginning to get dividends from all of the fiber they have put in the ground. Numbers out of Comcast (CMCSA) show that its growth in digital cable subscribers and VoIP customers slowed last quarter. The phone companies can not offer solid services with voice, broadband, and TV. That means that the competitive market has changed considerably for cable companies and Vonage.

Vonage had a large pricing advantage over its competition when it first came to market. That is gone now. And, with little cash left, so is Vonage.

Douglas A. McIntyre