Vonage may have to hang it up

Lisa Napoli Apr 12, 2007
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Vonage may have to hang it up

Lisa Napoli Apr 12, 2007
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KAI RYSSDAL: Everybody knows you’ve got to spend money to make money. Especially if you’re in a business nobody had ever heard of until just a couple of years ago. Like maybe a high-tech way of making phone calls. Today, one of the companies that put VOIP on the map let loose what might be its death rattle. Marketplace’s Lisa Napoli has more.


SOUND: Vonage commercial music (“Woo-oo, woo-oo-oo . . .”)]

LISA NAPOLI: You aren’t going to hear Vonage’s signature tune from its commercials so much anymore. The company says it’s cutting back its marketing budget by $100 million — around 25 percent. Ten percent of Vonage’s workforce is on the chopping block, too.

You could blame today’s cutbacks on the legal battle Vonage is locked in with Verizon, which says it stole some of its patents.

But Analyst Dave Lemelin of InStat Research says Vonage had problems even before a court slapped it with a $58 million fine for patent infringement.

DAVE LEMELIN: They had explosive growth early on, but their growth rate has slowed. And a lot of that growth in VOIP has been taken up by the cable providers — and even by the phone companies that now have voice over IP as part of their portfolios.

And as often happens with new technologies, the innovators wither as the big guns muscle their way in.

Industry expert Jonathan Askin says Vonage’s success is likely what caught the attention of rival Verizon.

JONATHAN ASKIN: I think Verizon was laying lowing, waiting for its moment to strike when it could do the most harm to its in-region competitor.

Vonage has had nothing but trouble since it went public last year. The stock has dialed down more than 80 percent since then.

The next step in this ongoing saga takes place on April 24, when an appeals court will rule whether Vonage can keep adding new subscribers.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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