What do Vonage's legal woes mean for its customers?

In March, a jury found VoIP provider Vonage guilty of infringing on three of Verizon Communications' patents. What does this mean for Vonage customers? Deb Shinder explores the possible repercussions, and she discusses what VoIP users can learn from the situation -- even if you're not a Vonage customer.

Vonage is probably the best known of the consumer and small business VoIP providers. As of the end of 2006, the company boasted more than 2.2 million subscriber lines. You've probably seen its advertising on national TV, and you can purchase its services through retail outlets such as Best Buy, Circuit City, Wal-Mart, and Target. Established in 2001, its revenue more than doubled in 2006 over the previous year, and the company was riding high.

Then, Verizon Communications sued Vonage for patent infringement. In March, a federal jury found Vonage guilty of infringing on three of Verizon's patents -- and ordered it to pay $58 million.

That's bad enough, but the judge then ruled that Vonage couldn't sign up any new customers. An appeals court stayed that decision, but it's still up in the air.

And last week came the worst news of all: Vonage confirmed that it doesn't have any type of workaround that would allow it to operate without infringing Verizon's patents. Company spokespeople said "removal of the allegedly infringing technology, if even feasible, could take many months to fully study and implement."

So, where does this leave you if you're a Vonage customer? In a difficult position, to be sure -- although perhaps not as difficult as if you're a Vonage investor. Vonage reportedly loses approximately 2.5 percent of its customers per year. If it doesn't receive a permanent stay that allows it to add new customers -- the company heads back to court April 24 -- things could go downhill fast. Undoubtedly, some customers will be switching providers in the coming weeks and months in anticipation of that possibility.

Even though it was growing, Vonage was already losing market share as more VoIP provider competitors emerged. According to BusinessWeek, Vonage's share of the market had fallen from 31 to 27 percent over the year in 2005.

Earlier this month, in the midst of the patent infringement verdict, CEO Michael Snyder resigned. And as if all this weren't enough, disgruntled shareholders are also suing in a class action case because of the big drop in stock value last year when the company went public.

Will Vonage survive? Maybe, maybe not -- but Vonage customers need to have a plan just in case.

Develop a backup plan

This situation illustrates the importance of establishing a backup plan when it comes to the services that are critical to your business. In fact, it's a good idea to build that redundancy into your business continuity plan regardless of whether the company you use might be in trouble.

My small business is completely dependent on communications technology; we conduct 99 percent of business over the Internet or by phone. If those services go down, we lose money -- and maybe even business relationships.

So, small as our budget is, we spend a little extra to try to prevent that from happening. We have both a T-1 line and FiOS Internet service. In addition, we have VoIP service, a landline, and multiple cellular accounts.

Vonage customers who are agonizing over whether to stay with Vonage or look for another provider might consider that the smartest and safest option is to do both.

Considerations for making a switch

If you do decide to drop Vonage and go with a different VoIP provider, there are a few issues you'll want to consider. First on many customers' minds: If you switch to a different VoIP company, will the same thing happen to you again? Are other companies using Verizon's technology and subject to the same sort of lawsuit?

So far, there have been no indications that Verizon plans to sue other VoIP providers, and most of them say they use a different technology from that of Vonage, but nobody's sure just how far these patent issues go. If you want to be absolutely sure, you could go with Verizon itself for your VoIP service.

Verizon offers both consumer and business-level VoIP services. The cost of its VoiceWing broadband VoIP service is similar to Vonage's services: $24.95 per month for unlimited calling in the United States. Vonage, on the other hand, includes calls to Canada and some western European countries free with its unlimited plan. (For information about Verizon's business VoIP services, which include managed IP PBX and hosted IP Centrex, check out its Web page.)

Another possibility for small businesses is to use Skype for VoIP calls. Skype's technology is very different from that of Vonage and most other VoIP providers; it uses proprietary protocols with a peer-to-peer model. A big advantage of Skype is its low price, considerably lower than that of the more traditional VoIP services.

You can even make calls to other Skype users at no cost, and there's no special equipment required (such as an ATA box). On the downside, Skype is a "soft phone," so you have to install the software on your PC or handheld computer and go through a computer to use it.

If you do decide to switch to one of Vonage's "peer" competitors (e.g., Lingo, Packet8, SunRocket), you'll probably find that the Vonage box doesn't work with them. However, that's not really a problem; VoIP providers generally furnish you with a box as part of the service.


Vonage may be down, but industry experts aren't counting it out yet. Meanwhile, customers who use Vonage for their VoIP provider should follow the old adage: Hope for the best, but prepare for the worst.

When it comes to essential services and products, it never hurts to check out the competition every year or so anyway. You might find that there are better deals out there. Switching ahead of the deluge (if there is one) or acting now to add a second VoIP line with a different provider could prevent you from having to scramble for phone services later on.

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Deb Shinder is a technology consultant, trainer, and writer who has authored a number of books on computer operating systems, networking, and security. She currently specializes in security issues and Microsoft products, and she has received Microsoft's Most Valuable Professional (MVP) status in Windows Server Security.