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Optical/IP

Vonage CEO Leaves; Job Cuts Begin

Michael Snyder is stepping down as CEO of Vonage Holdings Corp. (NYSE: VG) effective immediately. Chairman Jeffery A. Citron will step in as acting CEO while the company begins a search for a replacement. [Ed. note: Phone interviews will probably not be conducted via Vonage.] The company did not give a specific reason as to why Snyder would step down nor whether he was forced out.

This is the latest in what has been a string of bad news for the VOIP service provider. The company had been ordered to pay $58 million to Verizon Communications Inc. (NYSE: VZ) in a patent infringement case and may also have to post nearly $250 million in bonds to cover further damages sustained during the appeals process.

Vonage has a cash balance of about $420 million, so being hit with a penalty like this would surely be crippling, according to Vonage's attorney, Roger Warin.

During an investor call this morning, Vonage executives (including new CEO Citron) outlined the current legal status of the case and reaffirmed their confidence that they would win their appeal. They contend that Verizon's patents were interpreted by the District Court far more broadly than they were originally intended and that certain terms critical to the case were blatantly ignored.

Verizon has until tomorrow to respond to the appeals court's temporary stay, and then Vonage will have until Tuesday, April 17, to file its response. The appeals court will hold oral (as opposed to mental) arguments on the case at 10 a.m. on Tuesday, April 24.

In addition to the company's legal woes, Vonage also provided an update on its financial status and updated its forecasts for the quarter ended March 31.

The company estimates that revenues will be $195 million, compared to the $197.4 million that analysts were expecting. Vonage also announced a net subscriber addition figure of 166,000 and an average monthly customer churn of 2.4 percent. Vonage will try to cut costs by reducing marketing expenditures by $110 million. It will also implement a hiring freeze and reduce its workforce by 10 percent. These changes are expected to affect the bottom line as early as the second quarter of 2007.

— Raymond McConville, Reporter, Light Reading

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