Vonage tentatively settles AT&T patent lawsuit, reports loss

VOIP provider Vonage has tentatively agreed to settle a patent infringement lawsuit filed by rival AT&T, with the smaller company paying about US$39 million, Vonage announced.

Vonage's tentative agreement with AT&T follows patent settlements last month with Verizon Communications for US$80 million to US$120 million, depending on the results of its appeal of a court ruling on two patents, and with Sprint Nextel for US$80 million.

"With most of the litigation behind us, let me say we're excited to refocus on running our business," Jeffrey Citron, Vonage chairman and interim CEO, said during a conference call on the company's quarterly financial results.

The AT&T patent infringement lawsuit was over technology called "packet telephone system" that allows VOIP (voice over Internet Protocol) to work. The two companies will "work diligently" to finalize the settlement, Vonage said in a news release. "If negotiations of a definitive settlement agreement fail, then Vonage intends to vigorously defend itself in this matter," the company said.

For the third quarter, ended September 30, Vonage reported a net loss of US$161.8 million, compared to a loss of US$62.2 million for the third quarter of 2006. Excluding legal charges, such as the payments to Verizon and Sprint Nextel, the company's net loss was US$16.2 million.

Vonage's revenue for the quarter was US$210.5 million, up from US$161.8 million, in the third quarter of 2006. Vonage added 78,000 subscriber lines during the quarter, compared to 57,000 in the second quarter of this year. Vonage now has 2.5 million lines in service, the company said.

The company is working to improve its marketing efforts and customer experience, Citron said. Vonage's customer turnover, or churn, rate of 3 percent was "simply unacceptable," he said.

Customers calling Vonage to report problems often have long hold times and sometimes have to call several times to get their problems resolved, he said. Those situations are also "unacceptable," Citron said.

Vonage is launching a comprehensive plan to improve customer service, including simplifying the installation of the Vonage service, implementing new call-answering technology, and adding new customer relationship management software, Citron said.

"While churn remains a problem, we know from our survey data that this issue is poor execution on our part, and therefore, we believe, a fixable one," Citron said. But the company doesn't expect a turnaround in the customer service area for "a quarter or two," he added.