Tuesday, April 3, 2007

V is for very little

In light of its patent problems with Verizon, Vonage will be late filing its 2006 annual report. Certainly the damages potentially due to Verizon are material to its statements.

What will it do about its patent problems? Ars Technica (and later CNET and other outlets) carried this breathless story:

Vonage has signed an agreement with a VoIP network services provider to carry calls placed by Vonage customers, giving the troubled VoIP provider an out on two of the three Verizon patents it was found to have infringed. According to a Form 8-K filing with the Securities and Exchange Commission, Vonage and VoIP, Inc. have inked a two-year contract under which VoIP, Inc.—likely under its VOICEONE brand—will provide network services for Vonage customers.
While there is a deal with VOIP Inc., Vonage denies that patents are the motivation:
After the story ran, Ars was contacted by a Vonage spokesperson that claimed that the agreement with VoIP, Inc. has "nothing to do with the patent situation." She described the deal as another termination deal similar to those Vonage has signed with other carriers, reiterating that the agreement was unrelated to the Verizon agreement. However, an unnamed source at VoIP, Inc. suggested to TelecomWeb that Vonage would indeed be using its network to carry its calls, while refusing to speculate about the patent dustup.

Here is the SEC filing by VOIP Inc.:
Effective March 28, 2007, the Company’s wholly owned subsidiary Voice One, Inc. entered into an agreement with Vonage Network Inc. (the “Vonage Agreement”) whereby Voice One will provide certain network services to Vonage for their domestic customer base. The Vonage Agreement is for a term of two (2) years and is month to month thereafter. Under the Vonage Agreement, the Company will receive revenues based upon the amount network services provided.

So is Vonage denying they have a patent problem? Denying they have a patent solution? Denying this is their patent solution?

With only minor digging, it’s pretty clear here that a small company (VOIP Inc.) is trying to get publicity off of the Vonage name and its highly visible problems. The 8-K wasn’t filed by Vonage (either with the SEC or its IR website) because the deal with VOIP is not material to its business. Instead, VOIP Inc. has a habit of filing 8-Ks to give the impression of impeding good news. The VOIP Inc. 2006 10-K shows that they are badly losing money — revenues of $14.7 million, cost of sales of $14.7 million, and operating expenses of $31 million.

Vonage’s last quarterly statement indicates that they are also losing lots of money, but are a $500+ million/year company — nearly 40x as big as VOIP Inc. Or at least they were, until they started losing customers over the patent uncertainty. Perhaps now they’re only 30x as big.

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