Vonage World Mobile Launches

Users of the iPhone, BlackBerry and iPod touch can subscribe to Vonage World Mobile, a new global calling feature available for "Vonage Mobile," Vonage's mobile calling application. Vonage World Mobile provides customers with unlimited mobile international calls to over 60 countries for one flat monthly rate when calling from their mobile device.

The service works on cellular or Wi-Fi (iPhone), just Wi-Fi for the touch and only using mobile spectrum for the BlackBerry.

Current Vonage World residential customers will receive a 40 percent per month discount on their home service when they buy Vonage World Mobile.

Vonage World Mobile costs $24.99/month and is available as a free download at www.vonage.com and the iTunes App Store.

Vonage Not a Telecommunications Service, Apppeals Court Says

The 8th U.S. Circuit Court of Appeals has upheld a lower court ruling that Vonage is not a telecommunications service provider, and is not required to contribute to the Nebraska Universal Service Fund.

The logic, of course, is that independent VoIP companies such as Vonage provide an “information service” rather than a “telecommunications” service. But the regulatory regime has to be considered unstable.

Cable companies do pay into the USF fund, for example. Also, the time is coming when lots of portals, Web sites and other providers will be offering such information services.

At some point, the typical regulator test--if it walks like a duck, and talks like a duck, it's a duck--will have to be addressed. The regulatory wall between "information services" and "communications services" is going to be hard to maintain, long term.

Vonage Churn: Not an Issue if it Survives

Should Vonage survive, it might be able to get its churn rates under three percent a month. But it would be a surprise if, even under the best of circumstances, it got churn below two percent a month.

That's a big "if," but history suggests lower churn is possible, if not easy. The reason is that, over time, customers learn the value of a new type of service or application, and gradually come to have a better understanding of why it is they actually need and use a service. There always is lots of churn at first.

The U.S. cable industry struggled precisely with churn at the same levels Vonage grapples with, in the late 1980s and 1990s. Today's churn levels are far below that, but not much below two percent a month. And there's a reason even for that level of churn.

People move. That's called "uncontrollable" churn because there isn't a heck of a lot most providers (except those with a huge footprint) can do about people moving. Wireless providers used to have three percent a month churn as well. These days, most save Sprint Nextel are down just a hair under two percent a month.

They don't necessarily have the "customer is moving" problem so much with the advent of continental U.S. calling buckets that mean local calls cost the same as long distance. A new dwelling in a new area doesn't necessarily mean any change in calling rates and charges, so there is less "uncontrollable" churn.

Still, even the largest of the wireless carriers have just a bit under two percent a month churn. So far, in the consumer markets, that's about as good as it gets.

In the commercial markets, guess what the monthly churn rate is for many smaller independent service providers? Three percent.

That's not great, but the point is that it is hardly unusual, especially for new services, smaller providers and any service tethered to a location. The good news for Vonage is that, like a mobile provider, its service is not tied to a physical location. Over time, and should it survive, it can expect, with diligence and the passage of time, to get its churn down to about two percent a month.

The issue is simply to stay in business long enough for the learning effects to kick in.

Vonage Shifts Tactics

In its efforts to control marketing cost, Vonage has been targeting geographic regions where it has a greater chance of signing up customers with high need to call international destinations. For the most part that means urban areas with large immigrant populations.

So although Vonage's marketing up to this point has been able replacing other landline services, the new value pitch is more nearly the "cheaper long distance" segment whose buyers might otherwise be looking at calling cards, dial-around or other ways of calling globally for less money.

The move highlights a perhaps under-appreciated aspect of the voice communications business. Though most executives think "voice is a commodity," and are right in most respects, an argument can be made that voice is not actually a "commodity" in a classic set, but rather a set of "commodities," or perhaps not a classic commodity at all.

Sugar, salt and flour generally are classic commodities. But sugar is not a substitute for salt or flour. In that sense, mobile communications is not generally a substitute for landline voice, a business phone system, PC-to-PC communications or texting, though in some ways each of these modes is partially a substitute for each of the others.

Even email, surely something most people would say is a commodity, is not completely so. Mobile email is a different product than Gmail, or else everybody would be using mobile email. The point is that the mode of consumption, the cost of consumption, the places and time where consumption occurs, as well as the essential required features for successful use, are not so substitutable as to make all of them fully interchangeable commodities.

And the point of that observation is that industry proponents sometimes do not work hard enough at understanding the real differences that make each of these modes and use cases "different products." Which is to say, no commonly interchangeable commodities.

The point at hand is Vonage's new marketing pitch. True, for some users Vonage is a substitute for legacy wired voice service. For others, it is a substitute for long distance calling, calling cards, callback service or dial-around.

To say voice is a scale or volume business, a low-margin business or even a "bulk" business is one thing. To say it is a "commodity" business might be more correct within a single segment or use case. It is wildly incorrect across the full range of use cases that "voice" now represents.

Some might point out that short message service (text messaging) is a distinct business. Others will say it is part of the mobile voice business. Some might say it sometimes is part of the mobile business, and sometimes a "PC-initiated" and "mobile terminated" business.

If such opinions can exist, it is confirmation of the "non-commodity" (in the sense of non-interchangeability) nature of the business.

That isn't to say differentiate is easy. It is hard. But to argue it cannot be done, because voice is a commodity, is off the mark. That isn't to say it is easy to differentiate without obtaining scale. Providers might rationally choose not to differentiate. But that is different from arguing "they cannot."

Four More VoIP Patent Infringement Suits

As many of us had feared, if Vonage is infringing patents, why aren't other independent VoIP providers doing so as well? Well, we now have a possible answer. Sprint Nextel Corp. is suing four competitive VoIP providers for the same patent infringements Vonage has been found to infringe. Sprint has sued NuVox Communications, Broadvox Holdings Paetec and Big River Telephone Co.

On the heels of Verizon's new lawsuit against Cox Enterprises for VoIP patent infringement, we might be seeing the materialization of the threat. Executives in the competitive VoIP community have privately worried about just such a turn of events for some time. It now looks as though those fears are justified.

Justin McLain, Endeavor Telecom CEO, partly in jest (but only partly) recently said at a panel at the Internet Telephony Expo that any independent, "over the top" VoIP provider had better have all the funding they need for 24 months, because if not, the companies will fold within that period. "You might want to look for another job," McLain said, again partly in jest, but only partly.

Competing against well-established providers who own their own access facilities and have huge customer bases, plus the ability to bundle entertainment video and broadband access or mobile services simply is going to be too tough, at least in the consumer market segment.

"No bring your own broadband provider really is successful," McLain said. In fact, a good part of any independent provider's success in the consumer market is driven to a large extent by customers who recently have immigrated to the United States and have high needs for international calling back to their home countries, McLain says.

Some other part of the market is composed of price-conscious callers, but the problem is that the average revenue per user a provider can generate from that segment is not enough to support a business, says Sanford McMurtree, RNK Communications VP.

Among the other possible changes in strategy are a shift to multi-level marketing on the Amway pattern, says Gary Coben, deltathree director. "For all the money spent marketing VoIP services, there aren't that many customers," Coben says. "That means people aren't comfortable buying."

It looks to be a tough year for independent VoIP providers who cannot reposition from a consumer focus to serve smaller business customers.

Uh Oh. Verizon Sues Cox Communications

Verizon Communications has sued Cox Communications Inc., claiming infringement of eight patents for providing telephone services on a data network. So far, only Vonage has had to face lawsuits over VoIP intellectual property. What isn't clear is what happens if Verizon wins the lawsuit, either outright or through a negotiated settlement.

After Vonage was found to infringe patents Verizon, Sprint, Nortel and at&t, many of us have wondered whether lots of other service providers might be found to infringe the same patents. Many independent VoIP providers and even some technology suppliers apparently have wondered the same thing, even if they won't say so in public.

Apparently we might find out relatively soon. The wider implications are pretty clear: it is not clear what Cox might be doing that any other cable company affiliated with Cable Television Laboratories is not doing. So the damage conceivably would not be limited to independent providers of VoIP services but possibly every leading cable company operating in the U.S. market.

And since Cox does not create its own technology but buys it from the same suppliers thouse other cable operators are using, one has to wonder whether there might not be exposure even on the supplier side of the business, though it is extremely unlikely Verizon or other telcos would bother their own suppliers.

Granted, any damage would be annoying, not a grave danger to any leading U.S. cable company. It isn't so clear what the damage might be at a smaller cable company, though arguably the potential size of the infringing revenues wouldn't be that great, so the penalties would be commensurate.

Atlanta-based Cox, the third-largest U.S. cable TV company, should be ordered to pay cash compensation for using the inventions, Verizon says in a complaint filed in federal court in Norfolk, Va.

Vonage's troubles, it appears, might not be confined there alone.

Vonage, Nortel Settle Patent Dispute

Vonage Holdings Corp. and Nortel Networks Corp. have settled their intellectual property dispute by cross licensing their VoIP patents.

The settlement involves a limited cross-license to three Nortel and three Vonage patents, and dismisses claims relating to past damages and the remaining patents. The settlement is subject to final documentation.

The licensing concerns technology used to make emergency calls or dial 411. Neither company will pay the other anything for any alleged unauthorized use of its technology.

The settlement points up the increasing importance patent portfolios seem to be assuming in the service provider space, mirroring the enhanced importance such portfolios have assumed in the hardware and software space, where cross-licensing deals are a standard way suppliers settle such disputes.

This year Vonage has faced--and lost--several suits from other service providers over use of VoIP-related patents. At some level, one has to wonder whether any independent service providers using anything other than standard hardware and software sold by the largest providers is protected from similar threats. Vonage appears to have placed itself at greater risk precisely because it developed at least some of its own technology, instead of buying it.

In December Vonage agreed to pay AT&T Corp. $39 million as part of its settlement. Vonage has also agreed to pay Sprint Nextel Corp. and Verizon Communications Inc. a total of $200 million to settle their respective lawsuits.

Vonage sued Nortel in August, claiming three patents Nortel held were mistakenly granted to the company. Nortel counter-sued, claiming Vonage is violating a total of 13 of Nortel's patents, and asked that Vonage be kept from using the technology.

Vonage, AT&T Settle VoIP Patent Dispute

Vonage and at&t have finalized the settlement of a dispute between the companies. No details were released. But $39 million had been mentioned earlier.

Vonage Outage

Users of Vonage's internet telephone service have been reporting a major service failure, ongoing since Friday. In some cases, it appears that incoming calls are not connecting. Vonage is forwarding the attempted calls to subscriber landlines and cellphones, but repeatedly, and late, some customers report.

An anonymous administrator of Vonage Forum, the independent discussion board where gripes were aired, reports that Vonage claims to have resolved the issue this morning, but users continue to report problems.

Vonage can ill afford such lapses, to say the least. Not when its advertising emphasizes how reliable the service is. Not when it faces yet another patent infringement fracas, this time with Nortel. Unfortunately, nobody in the VoIP space benefits much (competitors might enjoy Vonage's travails to an extent) when VoIP has these sorts of issues. Sooner or later, everybody is going to do VoIP, and the residue is going to cling to all the other providers when that happens.

Mobile Carriers Will Dominate VoIP

Who will massively introduce mobile VoIP? Mobile carriers themselves, says Dean Bubley, Disruptive Analysis president. In fact, some 250 million VoIP over mobile accounts will be in service by 2012, he argues. Conversely, dual-mode mobile devices that work both on wireless networks and Wi-Fi will have been eclipsed, he argues. As for independent providers of VoIP over third generation mobile networks, get ready for something of the same thing that has happened to Vonage, he essentially argues.

In other words, as the mobile carriers increasingly move to provider VoIP as an alternative to legacy Time Division Multiplex services, it will increasingly be tough for independents to make a go of it, much as competition from cable has squeezed Vonage and other independents in the U.S. market.

Independents don have a window of opportunity, though, since the majors haven't yet moved.

Though some will find the analysis disturbing, Bubley's predictions fit well with the past history of technology innovations in the global telecom industry. That is to say, innovations at first are brought to market by upstarts. At some point, it becomes crucial for the majors to adopt, and they do.

Bubley's analysis rests on a couple of simple assumptions. Since mobile carriers are migrating to all-IP networks, voice necessarily will be in the form of VoIP. Either that, or keep running a parallel TDM voice network. The coming IP networks also will operate in more bandwidth-efficient mode than a circuit-switched network, possibly in the range of 100 percent to 200 percent, he argues. Given demands for more data bandwidth, that will be compelling.

Then there's the attraction of IP-enabled features not possible with TDM. Also, mobile providers will want to collapse multiple networks and switching fabrics. Just as wireline networks are moving to IP Multimedia Subsystems, so wireless operators, who initially were the impetus for the creation of IMS, will do so. And that means IP-based voice.

Do Patents Retard Innovation?

Is the patent system broken? Supposedly a way to protect genuine intellectual property and spur innovation, patents these days seem most likely to wind up being used as a weapon of business warfare, and may actually retard innovation in many cases. Vonage and Research in Motion come to mind, as many observers think the patents Vonage is said to have infringed should not have been granted in the first place, and RIM had to pay what amounts to greenmail so its carrier and enterprise partners would not suddenly have to make all BlackBerry services "go dark."

In fact, it seems to be common these days to attempt to patent common business practices, obvious to anyone in the field. That leads to patent "trolls" buying up intellectual property and then suing companies as a business model.

Suing is a repugnant business model. And most patents seem trivial or--to a layman--overly broad. It is important to foster innovation and reward effort, and some innovations fit that bill. But isn't it obvious we ought to encourage people to work on really hard problems, and reward them, rather than encouraging lots of trivial stuff? Sure, it sometimes is hard to distinguish between an idea of significance and "prior art."

Now there's a big, socially useful problem that Google ought to be able to help with.

Whether it is the patent system or the way it gets used in business, something is out of whack. One might argue it is a necessary evil. Perhaps it isn't so necessary (at least the way currently practiced), though perhaps it often is evil.

Vonage at&t Patent Settlement for $39 Million?

Vonage and at&t are discussing settling the patent infringement suit at&t has filed against Vonage for $39 million, to be paid over five years. In October, it settled with Sprint Nextel Corp. for $80 million. Vonage will settle with Verizon Communications Inc. for between $80 million and $120 million, depending on the outcome of a final court hearing.

As a result of all the patent settlements, Vonage's available cash has been reduced from $356 million to $194 million, a dip of $162 million, of 46 percent.

It isn't clear whether other VoIP providers might be liable as well. And if they are, it isn't clear Sprint, at&t and Verizon will really want to make an issue of the infringements. It wouldn't look good, for one thing. Sprint won't want to sue its own customers, the cable companies. And though th giants might be able to cripple just about all the remaining VoIP independents, the regulatory harm would outway any potential short term financial gains.

Vonage Settles Verizon Lawsuit

Vonage has settled a patent lawsuit brought by Verizon Communications Inc. for an amount yet to be determined but not in excess of $120 million. Vonage already has put $88 million in escrow and the settlement caps any payouts Vonage will make on top of that amount at $32 million. Having settled a suit filed by Sprint, and nearing closure on the Verizon patent infringement lawsuit, Vonage still faces a patent lawsuit filed by at&t. The Verizon settlement is the third Vonage has had to make so far.

VON Unconference is Where the Action Will Be

If you are attending the VON Show in Boston, be sure to check out the VONCamp Unconference. Tired of attending sessions where the same people you have been hearing from are giving the same presentations you already heard? The whole idea is to let whomever shows up select the topics, shape the discussions and share what they know.

"Think of it as constructive anarchy," says Iotum CEO Alec Saunders. "Amazing things can come out of these sessions."

Tom Howe will kick the day off with an "agenda bashing" session, where all attendees will decide on the agenda for the day. After that, 12 sessions of 25 minutes each area available. Anyone can present and everyone is expected to participate in some way.

I'd be willing to bet this is the best use of time most of us could commit at the whole meeting, no offense to the organizers of the more traditional show.

http://5thtrack.pbwiki.com/ is the link.

How Much More Can Vonage Take?

And what is the exposure for other independent providers of VoIP services? Not to mention software and hardware providers, though the dominant carriers are unlikely to sue their suppliers.

AT&T filed a lawsuit against VoIP provider Vonage Oct. 19 seeking damages for alleged patent infringement.

The lawsuit comes on the heels of a Vonage settlement with Sprint Nextel over patent infringement as well, and against an as-yet-unresolved patent infraction case filed by Verizon. Vonage also appears to have settled another legal dispute with Klausner Technologies, a small company with patents on voice mail technology, for an undisclosed sum.

In a filing with the U.S. District Court for the Western District of Wisconsin, at&t says Vonage willfully infringed an at&t patent related to telephone systems that allow people to make VoIP calls using standard telephone devices.

So far, Vonage's patent-related payments are north of $80 million, as Vonage announced on Oct. 8 that it settled its suit with Sprint Nextel for $80 million. As part of that agreement, Vonage agreed to license VoIP patents from Sprint, including more than 100 patents covering technology for connecting calls from a traditional phone network to an IP network. And then there is the Klausner settlement.

Vonage is also in the process of resolving a patent infringement dispute with Verizon. Unfortunately, of course, the Sprint Nextel settlement and the ultimate Verizon settlement will set a precedent likely requiring Vonage to settle with at&t as well. That will likely bump Vonage's patent payments well above $100 million in total.

And if Vonage is infringing patents held by all three giants, what are the odds other VoIP providers are immune? As for the giants, they'll simply cross-license. For everybody else, the warning is pretty clear: get too much success and you will be sued. So one wonders when the assault against cable companies will come. After all, if one wishes to slow down competitors, messing around with Vonage is okay if it creates the foundation for the bigger assault against cable. But Vonage isn't a telco incumbent's big problem in any case.

It is a sobering thought: all the other independent VoIP providers other than cable are much smaller than Vonage. What chance do they have if any conceivable profit goes to pay lawyers and settlement fees?

Vonage Settles with Sprint

Vonage has settled its Sprint Nextel Corp. patent infringement lawsuit for $80 million. As part of the settlement, all claims are resolved and Sprint has licensed to Vonage the Sprint portfolio of more than 100 patents covering the connection of calls between a regular telephone network and a packet-switched network such as the Internet.

The $80 million Vonage agreed to pay consists of $35 million for past use of the patents, $40 million for a fully paid future license, and $5 million in prepayment for services.

Vonage has maintained it has sufficient reserves to pay both the Verizon and Sprint Nextel patent infringement awards without long-term damage to its business model. There has been some speculation that the patent infringement damage awards would push Vonage over the edge into bankruptcy. The countervailing point of view has been that the patent disputes were a serious financial distraction but not alone capable of damaging Vonage's long-term prospects. More dangerous by far is the threat posed by cable providers bundling VoIP with video and broadband access services.

In that sense, EarthLink faces much the same problem. It has a reasonably-sized Internet access business that has to contend with triple play bundles as well, though EarthLink arguably has made better progress in creating a double play offering of broadband plus voice.

The settlement of the Sprint lawsuit is helpful primarily in removing a huge distraction and source of uncertainty.

Skype Valued at $1.7 Billion

Skype is worth $1.7 billion, based on charges EBay has taken both for the Skype acquisition and payments to outgoing CEO Niklas Zennstrom, who has left EBay.

Since the second quarter, EBay CEO Meg Whitman has made clear its concern that Skype is not delivering financial results on the scale EBay had expected.

At the time of the acquisition, eBay and analysts trumpeted the move as a way to increase higher end auction sales by making it simple to connect buyers and sellers by voice. So far, it appears the synergies haven't materialized in any significant way.

Skype also has more competition these days from alternate providers offering calling from mobile handsets and standard analog telephones that provide a reasonable alternative for some applications.

PC-based calling remains the Skype mainstay, despite the availability of Skype-compliant phones, as probably had to be expected. There's nothing wrong with that. But the consumer electronics industry has proven the difficulty of getting mass adoption of specialized appliances of all sorts.

Then again, unified communications and messaging now have the attention in the business space, while video and audio get the attention in the consumer space. VoIP also is a victim of its own success. Now that it has become a mainstream product, it is, well, just a product.

Also, beyond obvious cost savings in the enterprise, small, medium business and consumer spaces, it might be hard to argue that VoIP has had the impact of text messaging, instant messaging, simultaneous ring, visual voice mail or "presence." True, some of those features are enabled by or enriched by VoIP, but the value is harder to convey in a marketing message, at least in the North American market.

We seem to have moved beyond the simple "cheap calling" stage and into a much more complex "new capability" stage in some sense. But that's a harder, more complex sell with a longer adoption cycle.

On the other hand, the market for IP-based replacement of voice lines is quite large, in comparison.

In its most recent quarter, Skype booked $90 million in revenue. Assume Skype does not worse than that for a whole year, generating $360 million in revenue. Attributing just $20 a month in revenue for U.S. digital voice accounts, and assuming just four million U.S. subs, the U.S. cable industry is earning $960 million a year selling VoIP services.

Even beleaguered Vonage, at its present pace, will book revenue of $784 million over a year.

Vonage Doesn't Have to Pay $58 Million, 5.5% of Revenue to Verizon: Appeals Court

At least, not yet. The U.S. Court of Appeals says the U.S. District Court has to take another look at one of the three Verizon patents Vonage is said to have violated, though it upheld two of the three decisions as originally made.

Further, the Court of Appeals vacated the entire award of $58 million in damages and the 5.5 percent royalty. The Court of Appeals sent the case to the U.S. District Court and directed that the court retry those aspects of the original case.

Vonage has work-arounds in place, and argues none of the patents should have been granted in the first place, though it seems unlikely to an untrained observer that Vonage can get the courts to agree.

Still, it is a partial victory. Perhaps the damage award and royalty payments will be lowered, ultimately. And, at this point, a partial victory is about the best news Vonage has had on the patent front this year.

Vonage Loses Sprint Lawsuit, Has to Pay $69.5 Million

A federal jury has ordered Vonage Holdings Corp. to pay $69.5 million in damages for infringing on six telecommunications patents owned by competitor Sprint Nextel Corp.

Vonage also will have to pay a 5 percent royalty on future revenues. If neither this decision nor Vonage's Verizon patent infringement decisions are overturned, 10.5 percent of Vonage's recurring revenue will have to be paid out in damages to Verizon and Sprint together.

The upfront damage awards are hefty enough. The recurring 10.5 percent of gross revenue that will be lost might be more significant.

Vonage says it would appeal the decision but would also begin developing technological workarounds that it said would skirt the disputed technology.

Earlier this year Vonage also was ordered to pay Verizon $58 million in damages plus 5.5 percent royalties on future revenues. That decision also is under appeal.

Between the distractions (getting the work-arounds into place; the cost of further appeals), vigorous competition from cable companies and the damage payments, I suppose one now has to wonder whether Vonage can pull out of a dangerous spiral.

Fred Pitts Back in Service with TeleBlend

It took 10 days, but TeleBlend customer Fred Pitts FINALLY is back in service.
"My first try to call home this morning continued with the "fast busy" signal; by midmorning, however, it was working," Pitts says. "So, while disappointed to have been without incoming service for such a length of time, I am thankful today that I am back up. I hope everyone else will be back in service soon as well."

A gracious comment, I'd say. At least some disgruntled SunRocket customers who picked TeleBlend as a replacement say they have churned to other providers such as Packet8 and Vonage.

A harrowing experience, to be sure. Perhaps it is only fair to note, though, that of the 60,000 transitioned customers, nearly all made the flash cut without much apparent disruption. Call it 99 percent. But one percent of 60,000 is still 600 customers, and it will be scant comfort to know that (hypothetically) 54,000 customers had no real issues.

That's the devil with mass market services, though, isn't it? Getting 99 percent of things right still generates thousands of trouble tickets (I'm not suggesting TeleBlend had issues with as many as one percent of its accounts, by the way. Just making the point that a very small failure rate in a mass market application or service can result in huge trouble ticket queues.)

Skype apparently still is having a major outage itself today, and as older posts today note, at&t and Cisco have had issues this month as well. S*** happens even to companies as large and sophisticated as Cisco and at&t.