MESSAGE
| DATE | 2007-04-13 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [NYLXS - HANGOUT] Bad news for VoIP
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Vonage CEO quits; firm will cut jobs, costs The company, whose survival
is threatened by a patent case, seeks a path to profitability. By James
S. Granelli, Times Staff Writer April 13, 2007
Vonage Holdings Corp., its survival threatened by a court loss in a
patent case, said Thursday that its chief executive had quit and that
it would cut jobs and costs by $140 million this year to help put the
Internet phone company on a path toward profitability.
Ahead of its full first-quarter report in May, the pioneering but
money-losing company also said it took in $195 million in revenue and
netted 166,000 new subscribers during the first three months this year
to reach 2.4 million.
Those results disappointed many industry analysts, who believe that the
company's problems run deeper than what basic cost cuts can fix and go
beyond the battle with Verizon Communications Inc. over such patents
as the technology to deliver Internet phone calls. Vonage is finding
itself muscled aside by bigger, better-armed cable TV companies, the
analysts said.
Former CEO Michael Snyder agreed late Wednesday to leave, Chairman
Jeffrey A. Citron told analysts. Citron, the company's co-founder and
original chief executive, took over Snyder's post for what he said would
be a short interim basis while Vonage directors search for a replacement.
Citron would not say how many of Vonage's 1,800 employees would be fired,
but experts predicted that as many as 10% would go. Spokeswoman Brooke
Schulz said the cuts would be across the board, including the technology
and consumer service divisions.
The departure of Snyder had been expected. He was brought in as CEO
shortly before Holmdel, N.J.-based Vonage went public in May, but had
failed to meet some major goals the company had set, analysts said.
"With the stock tanking and pressure from cable TV operators entering
the [Internet phone] space, people felt Mike was not able to turn the
company around, at least not fast enough," said analyst Albert Lin at
American Technology Research.
Vonage shares rose 20 cents to $3.20, having fallen steadily since they
fetched $17 in last spring's initial public offering.
The resignation and other changes, although significant, aren't meaningful
when a court order in the patent case could bar Vonage from signing up
new customers, said Clayton F. Moran, an analyst at Stanford Group Co.
A federal jury last month found that Vonage had infringed three Verizon
patents and ruled that Vonage must pay Verizon damages of $58 million
plus future royalties of 5.5%. Verizon then won a court order halting
Vonage from using its technology to serve new customers.
Vonage won a temporary reprieve from a federal appeals court, which has
scheduled a hearing for April 24.
"It's crucial for the company to get a permanent stay pending appeal,"
Lin said. Otherwise, he said, Vonage won't grow and the business won't
be viable.
Citron said the company, meantime, was designing technology to get around
Verizon's patents, which include one that connects Internet calls to
the public phone network. He promised more information when quarterly
results were released.
Vonage lowered its huge cost to acquire each new customer by $31 in
the first quarter, but the $275 price tag is still too high, Citron and
analysts said.
Worse, the churn rate — the percentage of customers quitting the
service — rose to 2.4% from 2.3% in the fourth quarter. The company
added a total of 332,000 new subscribers, but lost 166,000, or half the
number it had gained.
The company's patent loss and operating and marketing issues aren't the
real problem, said Blair Levin, an analyst at Stifel, Nicolaus & Co.
"The real problem is their business model," he said. "The market is
changing significantly to where people are bundling services from one
provider and where cable TV firms already have relationships with large
groups of customers."
james.granelli-at-latimes.com -- http://www.mrbrklyn.com - Interesting
Stuff http://www.nylxs.com - Leadership Development in Free Software
So many immigrant groups have swept through our town that Brooklyn, like
Atlantis, reaches mythological proportions in the mind of the world -
RI Safir 1998
http://fairuse.nylxs.com DRM is THEFT - We are the STAKEHOLDERS -
RI Safir 2002
"Yeah - I write Free Software...so SUE ME"
"The tremendous problem we face is that we are becoming sharecroppers
to our own cultural heritage -- we need the ability to participate in
our own society."
"> I'm an engineer. I choose the best tool for the job, politics be
damned.< You must be a stupid engineer then, because politcs and
technology have been attacted at the hip since the 1st dynasty in
Ancient Egypt. I guess you missed that one."
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