Vonage CEO steps down as patent dispute continues

April 13, 2007|By Cox News Service

NEW YORK -- The chief executive officer of leading Internet phone provider Vonage Holdings Corp. resigned yesterday amid a continuing patent dispute that has threatened the company's business and phone service for 2.4 million customers.

Michael Snyder stepped down as chief executive and was replaced temporarily by Jeffrey A. Citron, the former CEO and current chairman.

Vonage, offering a preview of first-quarter results, also said that to save $140 million it would slash 10 percent of its more than 1,700-person work force, freeze new hiring and cut $110 million from planned marketing.

"We believe these initiatives will strengthen the company's financial position," Citron said during a conference call.

Last month, a jury found that Vonage infringed on three technology patents related to Internet-based calling and awarded Verizon Communications Inc. $58 million and future royalties. Vonage is appealing.

A week ago, a federal judge in Virginia issued an injunction blocking Vonage from signing up new customers. Hours later, the company won an emergency reprieve, giving it time to seek a permanent stay.

Oral arguments on that request before a federal appeals court are scheduled April 24. Vonage attorney Sharon O'Leary said she is confident the request will succeed, as will the larger appeal, which could take up to two years.

In case the injunction goes into effect, Citron said, Vonage is developing a technical workaround to sidestep the Verizon patents and continue service.

While the patent issue has broad implications, the ripples from the case have not spread to other providers of Internet calling, said Jeff Kagan, an Atlanta telecommunications analyst. "This is a Vonage problem we are watching, not an industry problem," he said.

A separate patent challenge filed against Vonage by Sprint Nextel Corp. likely will be settled with a "business arrangement," O'Leary said.

Since 2002, Vonage has been a leader in consumer phone service that sends calls over high-speed Internet connections. While cable and phone companies were late to start, they now compete aggressively.

Snyder became Vonage CEO in February last year, not long before the company's disastrous initial public offering in May. Vonage's stock has tumbled from $17 to a low below $3 last month.

While it is not officially reporting earnings because of the continuing legal situation, Vonage said it grew by 166,000 subscribers in the first quarter and brought in $195 million in revenue.

Vonage, saying it spent $275 for each subscriber it added, announced a greatly reduced 2007 marketing budget of $310 million.

"We will be disciplined in our spending and investing additional marketing dollars," Citron said.

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