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CNBC's Goldman: Vonage's Patent Woes Raise Concern About Service

Thursday, 12 Apr 2007 | 2:14 PM ET

Vonage customers could see service disruptions should the Internet-phone service provider’s patent problems escalate, CNBC’s Jim Goldman reports.

Vonage has said in the past that it has a technological “workaround” in place that would continue service while not infringing on Verizon’s patents, Goldman said, but that no longer seems to be the case. The company, which has some three million customers, said it’s still working on its workaround.

Meanwhile, the company is undertaking a massive restructuring plan to try to survive, and investors seem to approve. Shares are trading higher Thursday on news CEO Michael Snyder resigned, with founder and chairman Jeffrey Citron reassuming the top job in the interim. Citron had given up the position just before the company’s IPO because of a pending fraud investigation, which was later settled.

Vonage CEO Out
Vonage CEO Michael Snyder resigned today, and the company's founder, Jeffrey Citron is returning to the company as CEO. CNBC's Jim Goldman, Silicon Valley bureau chief, has the whole story.

Vonage also announced plans to fire 1,800 workers, or about 10% of its workforce and implement a hiring freeze, Goldman said.

Vonage executives said they are determined to keep fighting after losing a key patent infringement case to Verizon, which claims to have lost 600,000 customers to the VoIP provider. Last Friday, Vonage was ordered to stop signing up new customers if it continues to use the disputed technology. That injunction was stayed pending Vonage’s appeal.

“Vonage will have to make strides to cut their subscriber acquisition costs to reduce subscriber turn if they’re going to survive as well as successfully accomplish a workaround for their patent problems,” said Sally Cohen, an analyst with Forrester Research. “If not, then their survival is at risk.”

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