& cplSiteName &

Could Vonage Sprint to an Exit?

Raymond McConville
News Analysis
Raymond McConville
4/16/2007
50%
50%

Vonage Holdings Corp. (NYSE: VG) is in talks with Sprint Corp. (NYSE: S) about a way to resolve that carrier's patent lawsuit against the VOIP provider, Light Reading has learned. And one source says a Sprint buyout of Vonage is on the table.

Vonage addressed its Sprint lawsuit last Thursday in an investor conference call. That call was intended to focus on Vonage's more publicized patent fight with Verizon.

During that call, Vonage's Chief Legal Officer Sharon O'Leary said: "I feel very strongly we'll be able to enter into a business arrangement or agreement to resolve that matter," when addressing a question about Sprint's patent lawsuit, which is set to go to trial in September. Our sources confirm Sprint and Vonage have been in talks about the patent issue, and one source says Vonage is considering selling itself to Sprint.

The date Sprint and Vonage are currently focused on, sources say, is April 24. That's the day a federal appeals court judge will decide if Vonage's temporary stay in the Verizon patent case should become permanent.

Some background: In the Verizon vs. Vonage case, a U.S. District Court judge ordered Vonage to pay upward of $66 million to Verizon for patent infringement and imposed an injunction that would bar the company from signing up new customers. A federal appeals court judge later granted Vonage a temporary stay and set a hearing date for April 24. (See Vonage Dissed at Injunction Junction and Appeals Court Lifts Vonage Injunction.)

So why would Sprint want Vonage?

The logic for the deal is simple: Vonage's shrinking share price has made it more of a bargain, sources say. Financial analysts peg the enterprise value at $354 million, which is arrived at by taking the $514 million in market capitalization, subtracting cash equivalents, and then adding back the value of debt and preferred stock. At this number, an acquirer could pick up Vonage's 2.4 million customer subscriber base for approximately $150 per subscriber. In the VOIP industry, anything at $250 per sub or less is considered a bargain.

Another reason Vonage might sell to Sprint is that, if a permanent stay of the court's injunction is not granted, Vonage would likely be forced to put itself on the market anyway, just to survive.

"Although it is possible that Vonage could win its appeal, it is also entirely possible that the company's appeal is denied or ultimately lost. In our opinion, absent a functioning 'work around' or a reversal of the District Court's ruling, we cannot envision how Vonage continues operations unimpeded," writes Deutsche Bank AG analyst Greg Miller in an April 9 research note.

Either way, April 24 will be a catalyst that could result in a deal being announced within 90 days, according to sources familiar with the situation.

Some Wall street analysts, who spoke on the condition of not being named, are skeptical about the possibility of a Sprint-Vonage deal. One said the deal makes sense for Vonage, but it doesn't make sense that Sprint would want to enter the retail VOIP market.

Other analysts say the 2.4 million VOIP subscribers would be a nice compliment to Sprint's wireless and mobile broadband businesses. It would then remain to be seen if a Sprint-led Vonage would have the technology necessary to work around Verizon patents in question.

Representatives for Sprint, Vonage, and Verizon would not comment for this story.

Shares of Vonage closed down $0.15 (4.42%) to $3.24 in late afternoon trading, after surging up 13 percent on Thursday and Friday last week.

— Raymond McConville, Reporter, Light Reading

(2)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
rgaz
50%
50%
rgaz,
User Rank: Light Beer
12/5/2012 | 3:10:16 PM
re: Could Vonage Sprint to an Exit?
Could somebody explain me how an acquisition cost of $250 per VoIP sub could profit a VoIP service provider? With an average monthly revenue of less than $30 and an optimistic 10% ($3) net profit it would take about 7 years to brake even.
This is an over-simplified Gǣback-envelopeGǥ approach omitting some important financial (tax) and business (GǣbundleGǥ, up-selling) considerations, but stillGǪ
rjmcmahon
50%
50%
rjmcmahon,
User Rank: Light Beer
12/5/2012 | 3:10:16 PM
re: Could Vonage Sprint to an Exit?
Could somebody explain me how an acquisition cost of $250 per VoIP sub could profit a VoIP service provider?

There is more than one way to skin a cat.

Let's say you get 1M subscribers and convince 10% of them that your company is worthy of Wall Street financing. Next tell them they can get an inside deal of $15 per 500 shares or so. They'll believe you and take the bait if they see lots of advertising in mass media and will even overlook past SEC transgressions of insiders. Now it costs you $250 per sub to raise $750 per sub. That's a gross margin of 67%. What's wrong with that? The trading market is the most efficient allocator of capital humans can come up with. It must be right, must'nt it?
From The Founder
Either we perform a complete 'factory reset' on the way the telecom industry creates and deploys virtualization, or we face the consequences.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Custom TV
Infinera Introduces Instant Network

4|20|17   |     |   (0) comments


Mike Capuano, vice president of marketing at Infinera, discusses the advancement from Instant Bandwidth to new Instant Network capabilities, which include Bandwidth License Pools, Moveable Licenses and Automated Capacity Engineering (ACE).
Women in Comms Introduction Videos
Vodafone's Eubank on Sponsors, Mentors & Moving On Up

4|19|17   |   4:25   |   (0) comments


Vodafone America's Head of Operations Kimberly Eubank breaks down the difference between a sponsor and a mentor and shares why both made a big difference in her career.
LRTV Custom TV
NYC Auto Show: Are We Smart Yet?

4|18|17   |     |   (0) comments


The auto industry is facing some big transformations as electric vehicles, autonomous technology and connected cars are seen as the future of the industry. During the much-anticipated NY international auto show, there was an emergence of new technology and mobility service on the show floor. Aside from performance, brands like Lincoln, Hyundai, Honda, Mercedes and ...
LRTV Huawei Video Resource Center
The Impact of Video

4|18|17   |     |   (0) comments


David Mercer from Strategy Analytics discusses the impact of video on current strategies.
LRTV Custom TV
Pardeep Kohli Discusses Network Transformation & the Market Opportunity for the 'New' Mavenir Systems

4|13|17   |     |   (0) comments


In a brief discussion at MWC 2017, Heavy Reading analyst Adi Kishore talks to Pardeep Kohli, CEO, Mavenir Systems about the creation of the 'new Mavenir' and some of the key challenges facing operators in today's market. A key theme of the discussion centers around operator need for software-only, virtualized solutions and how they will need to adapt to ...
Women in Comms Introduction Videos
Tech Maverick Shares Her Tips for Gender Inclusivity

4|12|17   |   7:28   |   (0) comments


Wendy Hall Bohling, a corporate escapee, author and gender exclusivity consultant, tells her story of sexism, bias and progress along the road to gender equality in the workforce.
LRTV Huawei Video Resource Center
Huawei at MWC 2017

4|11|17   |     |   (0) comments


At Mobile World Congress 2017, the biggest mobile industry gathering of the year, Huawei showcased its new innovations and solutions with the theme "Open Road," which focuses on cloud, 5G, operation transformation, videos and consumer-oriented products. Its campaign has been recognized by three awards given by GSMA.
LRTV Custom TV
China Telecom NFV Infrastructure on RSD

4|6|17   |     |   (0) comments


Lynn Comp, senior director of market development of Intel, is joined by Chong Zhang, storage engineer at Inspur and Ou Li Yan, architect for technology strategies of China Telecom on what NFV brings.
LRTV Custom TV
Nokia's IMPACT Software Demo

4|6|17   |     |   (0) comments


Khamis Abulgubein of IoT market development at Nokia demonstrates IMPACT (intelligent management platform for all connected things), a software solution with a horizontal approach to managing any device on any application.
LRTV Custom TV
Nokia Introduces Virtual Service Router for More Rapid Service

4|6|17   |     |   (0) comments


James Cumming, product line manager for virtualized service routers at Nokia, demonstrates how the virtual router based off the Nokia ecosystem changes the network function experience.
LRTV Custom TV
The Keys to SD-WAN Success

4|6|17   |     |   (0) comments


Versa Networks CEO Kelly Ahuja talks about the key requirements for service provider-managed SD-WANs.
LRTV Custom TV
Intel & Cisco on Joint 5G Solutions

4|5|17   |     |   (0) comments


Dave Ward, SVP and CTO of Cisco, is joined by Sandra Rivera, corporate VP and general manager of network platforms group of Intel, on the revolutionary 5G technology that changes networking and computing fundamentally.
Upcoming Live Events
May 15-17, 2017, Austin Convention Center, Austin, TX
May 15, 2017, Brazos Hall - Austin, TX
May 15, 2017, Austin Convention Center - Austin, TX
June 6, 2017, The Joule Hotel, Dallas, TX
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Time for a Telecom Reboot
Steve Saunders, CEO and founder, Light Reading, 4/19/2017
Comcast Ready for Clash With Hulu
Mari Silbey, Senior Editor, Cable/Video, 4/18/2017
Unlicensed: It's What's Next for US Mobile Operators
Dan Jones, Mobile Editor, 4/19/2017
Verizon's Fiber Spend Won't End With Corning
Mari Silbey, Senior Editor, Cable/Video, 4/19/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
TEOCO Founder and CEO Atul Jain talks to Light Reading Founder and CEO Steve Saunders about the challenges around cost control and service monetization in the mobile and IoT sectors.
Animals with Phones
Now That's an Ad Campaign Click Here
Meerkats to the rescue!
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.