Oct. 8 (Bloomberg) -- Vonage Holdings Corp., the Internet phone-service provider, had its biggest single-day advance since going public last year after it settled one of two patent suits that threatened its survival.

Vonage shares more than doubled. Sprint Nextel Corp., the third-largest U.S. phone company, agreed to license more than 100 Internet telephone patents to Vonage, which will pay $80 million to end the case and use the technology.

The settlement removes one hurdle for Holmdel, New Jersey- based Vonage, allowing it to connect Internet calls to standard phone lines. Vonage still faces a cash shortfall that may leave the money-losing company struggling to cover its expenses next year, Stanford Group Co. analyst Clay Moran said.

``It's good in that things could have gotten worse in the Sprint legal situation, but it's not entirely positive because of the financial obligations,'' Moran said. He rates Vonage ``sell'' and doesn't own the shares.

Vonage will pay $35 million for past use of Reston, Virginia-based Sprint's patents, $40 million for future use and a $5 million fee for services, according to a statement today.

The company has $248.2 million in debt, with a put option that may mean it is due as soon as December 2008, and reported $276.8 million in cash at the end of the second quarter. Moran estimates that the company uses $22 million to $23 million in cash every quarter.

Shares Rose

Vonage shares rose $1.42 to $2.57 in New York Stock Exchange composite trading. The stock traded as high as $17.25 in May 2006 after the initial public offering at $17. Sprint fell 51 cents to $18.50.

``There are likely to be ongoing expenses associated with the Sprint agreement that will add to their loss,'' said Moran. Vonage already doesn't have ``an abundance of cash.''

The company's subscriber growth slowed in the second quarter. Chairman Jeffrey Citron cut the workforce by 10 percent and reduced spending on marketing by $110 million for the year.

The Sprint settlement ``is good news for Vonage, our customers and our shareholders,'' said Sharon O'Leary, Vonage's general counsel. ``It allows us to put this litigation behind us and continue to focus on our core business.''

A federal jury in Kansas City, Kansas, decided Sept. 25 that Vonage violated six Sprint patents and awarded $69.5 million in damages. The verdict meant Sprint, which initially asked for $103 million, could have sought an order blocking Vonage from using the technology.

Agreeable Terms

``We were able to reach terms that were agreeable to both parties,'' Sprint spokesman Matt Sullivan said.

Sprint also agreed in August 2006 to license the patents to two other companies originally named in the Vonage complaint, Tglo.com Inc. and Theglobe.com Inc., Sullivan said.

Vonage also lost a $58 million patent verdict to New York- based Verizon Communications Inc., the second-largest U.S. phone company, in March. That decision was mostly upheld on appeal the day after the Sprint verdict. Vonage is still obligated to pay a 5.5 percent royalty to Verizon as part of the verdict.

Verizon spokesman David Fish declined to comment on whether Sprint's licenses may be used in place of the disputed Verizon patents.

Vonage is using technological workarounds to Verizon's patents. Vonage spokesman Charles Sahner declined to comment on whether the inventions included in the Sprint agreement may be applied as alternatives for Verizon's patents.

AT&T Inc., in San Antonio, is the biggest U.S. phone company.

The case is Sprint Communications Co. v. Vonage Holdings Corp., 05-2433, U.S. District Court, District of Kansas (Kansas City).

To contact the reporters on this story: Jeff St.Onge in Washington at jstonge@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: October 8, 2007 16:42 EDT