Vonage (VG) Settles With Sprint (S), But Can It Last?


One of Vonage’s expensive patent wars with two of the biggest U.S. telcos is over. Still unknown: whether the Internet phone company can resurrect its battered image, fend off competition from cable companies, and eventually turn a profit.

Today, Vonage (VG) said it settled its patent dispute with Sprint Nextel (S) for $80 million. Vonage will pay Sprint $35 million for past use of its patents, $40 million for future use, and a $5 million prepayment for future services like bandwidth. By settling, Vonage escapes rather cheaply, without having to pay Sprint a 5% royalty on all future revenue, which a jury had ordered last month.

Next step: figuring out how much Vonage will have to pay Verizon (VZ) in a second patent suit. On Sept. 26, a Federal appeals court upheld most of a March verdict against Vonage, saying it infringed two patents owned by Verizon. That case is going back to district court for more proceedings on a third patent and a recalculation of how much Vonage will have to pay Verizon. Earlier this year, Verizon was awarded damages of $58 million plus a 5.5% royalty on Vonage’s future sales.

The good news: it looks like Vonage will survive its patent battering. Around 3 p.m. on Monday, shares more than doubled from Friday’s close, trading around $2.35. (They’re still down almost 90% from their all-time high — the day the stock went public in May, 2006.)

But Vonage’s Q3 results, expected in November, should give a better picture of the company’s longer-term health. Vonage must work to keep its current customers loyal (about 7.5% of its subscribers leave the service every quarter), grow by fending off competition from cable companies like Comcast (CMCSA), which bundle cheap Internet phone service with their TV and high-speed Internet service, and manage its marketing costs to eventually turn profitable.

See Also: Vonage In Flux, Another Court Battle Looms, Vonage On The Ropes Again; Violated Sprint Patents, Owes $70mm Damages, Facing Injunction, Vonage: About That Churn Problem, Struggling Vonage Stumbles With “Visual Voicemail”