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Holding Breath for Vonage

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April 05, 2007

Holding Breath for Vonage

Olga Kharif

Ok, miracles do happen. But pretty much everyone agrees that, tomorrow, Vonage is not going to have a great day. Chances that a judge will grant the Web-calling provider a 120-day stay on a previously-issued injunction to use Verizon's technology to provide service are slim.

More likely, the judge will refuse to grant Vonage a stay out right. Or, he may accept Verizon's, alternative proposal submitted this week, according to analysts at Stifel. The proposal offers Vonage a stay to continue providing services to its current customers. But it explicitly prohibits Vonage from signing up new users. Basically, Vonage won't be able to recruit any new users, unless it implements a work-around around Verizon's patents the court ruled Vonage had infringing, or unless Vonage starts paying Verizon royalties.

Clearly, that's not a great option: Many investors bet on Vonage, which is still in the red, because of its fast customer growth. With that gone, it will be really hard to see much to like about the stock. That's why Vonage's shares fell another 6.91% today, to $3.37. (Oh, and a Vonage board member just resigned -- and that's clearly not a vote of confidence.)

However, I believe that if the Verizon proposal is adopted, that's far from being the worst-case scenario (that's when the service shuts down immediately, or starts paying Verizon prohibitively high royalty fees).

06:34 PM


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