May 10 (Bloomberg) -- Vonage Holdings Corp. said it may have technology that could rescue its Internet-phone service, after a jury found the company infringed patents that allow customers to call standard telephones.

``We will begin rolling these workarounds out shortly, hopefully in the next few weeks, and we believe they will work,'' Chief Executive Officer Jeffrey Citron said on a conference call today as the Holmdel, New Jersey-based company reported a narrower first-quarter loss.

Vonage shares have plunged 80 percent since the company went public a year ago. Citron's remarks pushed the stock up 11 percent today on optimism that Vonage can stay in business if the new technology eliminates future patent fights with Verizon Communications Inc.

``They're saying they're well under way, but still not making any guarantees that they'll be successful,'' said Clayton Moran, an analyst at Stanford Group Co. in Boca Raton, Florida. He rates the shares ``hold'' and doesn't own them. ``Investors should remain skeptical.''

Shares of Vonage rose 33 cents to $3.38 at 4:01 p.m. in New York Stock Exchange composite trading. They were first sold to the public for $17 apiece in May 2006.

Vonage's new technology can be installed through software downloads and shouldn't be costly to deploy, Citron said. The company will continue to appeal the court decision that requires it to pay Verizon damages for infringing patents on technology that translates Internet-based calls to standard lines.

Narrower Loss

The first-quarter net loss shrank to $72.3 million, or 47 cents a share, from $85.2 million a year earlier, Vonage said today. Excluding some items, the loss was 39 cents, better than a 44-cent average of analyst estimates compiled by Bloomberg.

Sales rose 64 percent to $195.9 million, in line with the preliminary figures released last month. Growth slowed as the company won 166,000 subscribers in the first quarter, compared with 328,000 a year earlier.

Legal bills and spending to acquire customers contributed to the loss. Vonage reported sales and subscriber numbers early when announcing the resignation of CEO Michael Snyder. Founder Citron took over as his interim replacement at that time.

Vonage will give an update on the CEO search on its next earnings call, Citron said, adding it is unlikely a new leader will be named before the Verizon case is completed.

`Very Aggressive'

``Citron can be very aggressive, and I think he is the best person for that job right now,'' said Yankee Group analyst Patrick Monaghan, who is based in Boston and doesn't own Vonage shares. He spoke before the announcement. ``He's willing to take on the AT&Ts and Verizons of the world.''

Vonage spent an average of $275 to acquire each new customer in the quarter. The rate of customer defections rose to 2.4 percent from 2.3 percent three months earlier. The company wouldn't say what it expects churn to be in the second quarter.

Last month, Vonage also said it would cut its advertising budget by $110 million to $310 million for 2007 and reduce its workforce by 10 percent. Vonage will have costs of $5 million in the second quarter, mainly related to firings, Citron said today.

``The first five months of this year have obviously been very difficult. We have made some very hard choices as a company,'' he said in an interview. ``We made those hard choices because we don't want to do this again.''

Lower Sales

The smaller ad budget will reduce customer additions and hurt sales in 2007, Chief Financial Officer John Rego said on the conference call. He wouldn't confirm Vonage's previous forecast for sales of as much as $900 million in 2007, saying the patent lawsuit and spending cuts are making the year unpredictable.

A U.S. district court judge ruled in March that Vonage must pay Verizon more than $58 million in damages and 5.5 percent of future revenue from phone lines. Vonage has said in court filings it may need to seek bankruptcy protection if it loses the use of the technology.

Yesterday Vonage filed written arguments with the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law. Vonage said the trial judge's interpretation of Verizon's patents was erroneous and the jury's verdict, as well as its determination the patents are valid, should be thrown out. Verizon's reply is due May 23, and the appeal will be argued before a three-judge panel on June 25.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: May 10, 2007 16:13 EDT