Vonage shares fall on ruling
Vonage Holdings Corp.’s shares hit their lowest level since the Internet phone company went public in May, as investors worried that a patent suit would stunt the company’s customer growth.
The stock fell as low as $2.88 a share during trading Monday before rebounding to close at $3.03, down 34 cents. Vonage went public at $17 a share.
On Friday, with stock markets closed, a federal judge banned Vonage from using three Verizon Communications Inc. patents to serve new customers but allowed it to continue providing service to its 2.2 million current subscribers. Hours later, an appeals court stayed the lower court order, but the original ruling still sent jitters through Wall Street on Monday.
“The general sentiment is that the ban on new customers is now more likely than not to be upheld by the appeals court once it looks at it,” said analyst Clayton F. Moran at Stanford Group.
Albert Lin, an analyst at American Technology Research, said so many technology firms were winding up in patent disputes that the affected stocks were fluctuating less with each legal conflict.
“But it doesn’t help that Vonage is a small company,” Lin said. “A court battle can be disruptive and costly, so the stock would naturally trend down.”
Holmdel, N.J.-based Vonage was a pioneer in developing mass-market appeal for the technology known as voice over Internet protocol, which transmits voice phone calls over high-speed Net connections.
The company has spent heavily on promoting its brand and acquiring customers. Through the end of last year, Vonage had been able to attract more customers than it lost.
But its churn rate, the percentage of customers leaving the company, rose this year from the 2.3% average for the last three months of 2006. The company said it was losing about 55,000 customers a month, up nearly 5,000 from its year-end figures.
Without the ability to attract customers, the largest independent Internet phone company would gradually waste away.
The legal predicament stems from a jury’s finding March 8 that Vonage had violated three of five Verizon patents, including one on a key technology that connects Internet calls to the public telephone network.
Vonage’s trial lawyer, Roger E. Warin, said in court Friday that a ban on serving new customers would hurt the company as much as a total ban would.
“It’s the difference of cutting off oxygen as opposed to the bullet in the head,” he told the court.
