Ruling May Be End for Vonage / Judge Enjoins Use Of Key Technology good financial analysis of

[David Farber <dave () farber net>]

Begin forwarded message:

From: Daniel Berninger <dan () danielberninger com>
Date: March 26, 2007 7:54:52 AM EDT
To: dave () farber net
Subject: Re: [IP] Ruling May Be End for Vonage / Judge Enjoins Use Of  
Key Technology
Reply-To: Daniel Berninger <dan () danielberninger com>

Dave,

The injunction has zero prospect of killing Vonage.  People confuse  
threats
to stock valuation with threats to the company.  Stock valuation  
threatens
Vonage only to the extent the company needs to raise new capital.   
Vonage
has sufficient cash reserves to reach cash flow positive status.

With respect to the permanent injunction, there does not exist a  
patent on
VoIP itself.  There exist a myriad of patents on aspects of  
implementation.
Judge Hilton may interpret everything in Verizon's favor, but the  
nature of
our legal system allows Vonage appeal to other judges.

I wrote up these arguments in the GigaOm column below.

Dan

...................................................
Daniel Berninger
VP, Sr Analyst
Tier1 Research
www.tier1research.com
dan () tier1research com
202.250.3838

> > > > > > > > > > > > > > > > > > > > > > > > > > >
http://gigaom.com/2007/03/16/vonage-rocky-road-not-road-kill/

Vonage: Rocky Road, not Road Kill
Written by Daniel Berninger

The remarkably uniform pessimism regarding Vonage's prospects,  
reflected in
the share price, would lead you to believe that Vonage is on the  
death bed,
gasping its last breath. The $58 million potential payout to Verizon  
has the
gravediggers out in full force. The B-word is being thrown around.  
However,
Vonage's reported results and financials do not support a conclusion of
imminent demise.

The supply and demand mechanism of the stock market reflects investor
sentiment, not company performance. Vonage fan club meetings have become
increasingly lonely affairs, as investors discount for the fact Verizon
wants Vonage to die. That is ironic, because Vonage is less than 1  
percent
the size of Verizon.

Anyway, the loss of this patent case is not as desperate a situation  
as most
think. In the most recent quarter, Vonage used only $28 million of  
its $500
million cash reserve; so paying Verizon $58 million (if the companies  
don't
settle for less) does not threaten bankruptcy.

Secondly, Vonage gets $16 per month of incremental margin from each  
subscrib
er addition, so an injunction requiring payment of 5% or $1 per month  
per
line does not destroy the prospects for profitability.

In a quick-to-judge reaction, many have forgotten that the successful
imposition of E911 requirements on VoIP companies in 2005 cost Vonage  
more
than the worst-case scenario outcome of the patent dispute. And the
application of Universal Service obligations in 2006 added another  
$1.25 per
line to Vonage's costs.

.....

<snip>



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