VOIP industry will survive Vonage ruling

Verizon's patent infringement triumph over Vonage will not stop new technology or competitors, analyst says
  • Jim Duffy (Network World)
  • 12 March, 2007 09:27

The ruling that Vonage must pay Verizon tens of millions of dollars for patent infringement should not deter other VOIP providers from staying the course.

Indeed, analysts say the ruling -- in which Vonage was found to have infringed on three of five Verizon patents for provisioning VoIP, costing Vonage US$58 million and 5.5 percent of sales in future royalties -- is a step in the maturation of the VOIP market.

"This is an important event, but it will not stop the new technology or new competitors from going forward," says Jeff Kagan, an independent telecommunications analyst. "It just tightens the workings of an industry in transition."

The ruling is more injurious to Vonage specifically than it is in general to the VOIP industry and other smaller players, like 8x8 and Skype , says Bob Rosenberg, president of Insight Research.

"A company that has had a lukewarm reception in the stock market and now has got this makes it more difficult to do business on a daily basis," Rosenberg says. "I don't think it matters at all to the VOIP industry."

Smaller VOIP players may be forced to look over their shoulders but it will not deter them from conducting and growing business, he says.

Kagan says more of these situations will arise as smaller companies enter the markets of longstanding incumbents. It's all part of the natural progression of new technology and new markets, he says.

"As a new company rolls out a new technology, they are small, unknown and not very important in those early days," Kagan says. "Then as the technology becomes more important and the company grows, it impacts traditional service providers, and everyone takes a closer look to see what makes the company tick.

"Telecom, as an industry is in the middle of a massive 20-to-30-year transformation," he says. "The technologies, the competitors, the regulations, they are all changing. This is one speed bump of many we will see unfold as the industry continues to change."

Verizon, meanwhile, is predictably encouraged by the ruling.

"Patents encourage and protect innovations that benefit consumers, create jobs and keep the economy growing," said John Thorne, Verizon senior vice president and deputy general counsel, in a statement. "Verizon's innovations are central to its strategy of building the best communications networks in the world.

"We are proud of our inventors and pleased the jury stood up for the legal protections they deserve."