Optical/IP Networks

Vonage Loses Less

Vonage Holdings Corp. (NYSE: VG) was able to improve its financial health slightly in the first quarter, but the company's legal fight with Verizon added some $11 million to its tally of losses.

For the quarter, Vonage lost $72 million, or $0.42 per share, on record revenues of $196 million. In the same quarter a year ago it lost $85 million on revenues of $120 million.

Had it not been for the royalties that Vonage has been placing into escrow as a result of the patent infringement case with Verizon Communications Inc. (NYSE: VZ), losses would have narrowed even further to $61 million. During the call, Vonage chairman Jeffery Citron also pointed out that the company had reached a viable workaround for two of the patents it had violated -- numbers 574 and 711 (oh thank heaven) -- and was close to achieving a workaround for the wireless patent number 880.

The workarounds would be software updates, with rollouts occurring within the next few weeks, and would require little interaction with the customer in order to be implemented.

Despite all the bad publicity that Vonage has endured, its key strength remains its ability to sign up new customers. The company added 166,000 new subscribers in the first quarter and now has close to 2.4 million total.

Recall that Vonage came close to losing that one competitive edge in new subscribers when a U.S. District Court had banned it from signing up new customers. (See Vonage Dissed at Injunction Junction.) Had the decision not been overturned by a Federal Appeals Court, Vonage would be a dead man walking. (See Appeals Court Lifts Vonage Injunction.)

Both Vonage and Verizon are currently filing their respective arguments with the court, and oral arguments will take place on June 25.

In response to the company's improving situation, shares of Vonage are trading up $0.31 (10.16%) to $3.36 in late afternoon trading.

— Raymond McConville, Reporter, Light Reading

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