Vonage Boots CEO For ‘Disappointing’ Results

Vonage , shaken by a dangerous patent lawsuit with Verizon, today booted CEO Mike Snyder over what chairman and new interim CEO Jeffrey Citron termed “disappointing” results.


The Holmdel, N.J.-based VoIP  broadband voice carrier will
attempt to reboot its operations, principally by slashing its marketing
budget by $110 million.


Vonage stock rose almost 11 percent to $3.33 in midday trading after the news broke during an investor conference call this morning.

“The whole entire marketing strategy is going to be under review over the
next few days,” Citron said on the call.


While Citron admitted that reduced spending on marketing will result in
fewer new subscribers, he said that the company will acquire customers at
better margins, thus “enhancing the value of the additional lines” that are
added.

Gross customer acquisition costs were $275 per new line for the quarter
ended March 31, 2007, compared with $306 for the previous quarter. Citron
did not specify a new target for that number but said “there is room for
additional improvement.”

Vonage will also reduce general and administrative expenses by $30 million
this year, in part by consolidating its operations and reducing its
workforce.

Citron noted that the churn rate of 2.4 percent, and average revenue per
user, were both flat sequentially, which he termed “promising signs of
improvement.”

The company also addressed its ongoing litigation with Verizon , which last week won its
patent infringement suit against Vonage in federal court.


Vonage attorney
Sharon O’Leary said the company is appealing the ruling on the grounds that the court improperly interpreted Verizon’s
patents.


“The court construed coverage [of the patents] beyond what was
intended by the patent office,” she said.


Verizon has until tomorrow, April 13, to respond to Vonage’s appeal, and
Vonage will then have until Tuesday April 17 to reply to Verizon’s response,
after which the court will hear arguments.

O’Leary said the appeals process is likely to take between a year-and-a-half
and two years. If Vonage wins its appeal, the whole case will go back to the
lower circuit court and be retried using the appeals court’s new, presumably
more limited, construction of the patent.

In the interim, Vonage has to pay a 5.5 percent royalty on revenue from
infringing activity and post a $66 million bond to cover damages awarded
Verizon by the jury.

Vonage is also designing technological workarounds in the event that its appeal fails, which it will discuss in detail
during its quarterly earnings report in May.


O’Leary took a swipe at Verizon’s true motivation for the lawsuit, which she
contrasted to Sprint’s  approach.


According to O’Leary,
Sprint’s lawsuit attacks very specific components of the technology, as
opposed to what she termed Verizon’s broader attack on VoIP services
generally.

She added that, also in contrast to Verizon, Sprint has approached Vonage
about negotiating a settlement. She said the companies are likely to “enter
into a business arrangement.”

“There are other motivations in the Verizon patent infringement case,” she
said.

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