Vonage (VG) settles a patent dispute with a larger company about once a month. The latest one was with Nortel (NT), a broken telecom equipment supplier which has plenty of problems of its own.
According to The Wall Street Journal "the contemplated settlement involves a limited cross license to three Nortel and three Vonage patents, and dismisses claims relating to past damages and the remaining patents." This can be added to deals with Verizon (VZ), AT&T (T), and Sprint (S). Each IP contest could have scuttled that small VoIP company.
The news caused a 15% spike in Vonage shares taking them to $2.30, but the move is premature.
VG’s cash position is now well under $275 million. With one-time items backed out, the firm is probably losing about $70 million a quarter. Its revenue is still growing, but at $210 million last quarter, it is still small.
The things that are likely to kill Vonage have nothing to do with patent lawsuits. Vonage had a "first mover" advantage in the VoIP business, but now that all major cable companies offer the same service bundled with broadband and TV, there is no reason to get voice service elsewhere.
The run at Vonage is over, almost before it began.
Douglas A. McIntyre
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