27 October 2007
Stepping on high-profile upstart counters accusations of obsolescence.
AT&T just reported its revenue for Q3 of 2007: $30.1 billion. Vonage reported revenue of $206 million for Q2, the VoIP company's latest numbers. AT&T is suing Vonage for patent infringement, after Sprint Nextel and Verizon did the same thing. And while it might seem like an uneven match, every company has the right and even duty to protect itself and what belongs to it. Still, AT&T is hardly in danger of going bankrupt — or even losing a dollar or two in share price — as a result of losing customers to Vonage. So it makes you wonder what the giant telephone company is protecting itself from.
The obvious explanation is that AT&T is worried about losing control of its intellectual property. If a business doesn't defend its property from even the most minor misuse, the theory goes, it might lose its right to defend it. It's not unlike protecting a trademark by pouncing on every instance of improper or generic use. Anything less could be a betrayal of management's responsibility to shareholders.
If that's what it's about, though, one might expect AT&T to also pursue its patent rights with every small VoIP provider in the land. It's hard to believe that all providers would be free of at least some such infringements; most have fewer engineering resources than Vonage and undoubtedly less ability to develop their own technical approaches. The only independent VoIP provider, in fact, with a solid foundation of self-developed technology is 8x8 Inc., provider of Packet8 hosted VoIP.
Of course, AT&T might even now be pursuing such small VoIP providers behind the scenes. The company had reportedly negotiated with Vonage for two years before filing suit, but the first news of this broke in mid-October 2007, when AT&T said that it had no choice but to sue because the talks were going nowhere. So the company may be negotiating with smaller providers and may conceivably have already settled with some of them. If so, though, you'd wonder why AT&T kept it quiet, as releasing such news would be a great way to pressure Vonage to settle.
TeleGeography analyst Paul Brodsky finds the timing of the suit "suspicious." It came shortly after Vonage settled with Sprint for $80 million and after an appeals court sent one of the verdicts in Verizon's suit against Vonage back to a lower court for reconsideration, while affirming two others. Whatever the official reason, the timing was certainly bad for Vonage. "I think there was a little optimism that they may have finally cleared themselves of some of these patent issues," Brodsky said. "Then AT&T comes along and kicks sand in their face again."
The damaging timing reinforces the possibility that the suit was mainly about image and posturing. While Vonage was never a direct financial threat to AT&T, it was a symbolic threat. It was the most famous and self-promoting harbinger of the inevitable downfall of the traditional phone companies and represented the new breed of IP telephony challengers that were supposed to turn the traditional telephone companies into dinosaurs.
Being labeled obsolete is more than unpleasant for a telephone company or any other technology-dependent enterprise. It can convince investors that the company isn't flexible and forward-thinking enough to survive. Thus, it can actually drag down a company's stock price, among other things.
A good way to counter such accusations is to knock down the highest-profile newcomers, thus raising doubts about the challengers' own abilities to survive. That shows people that there's plenty of life left in the old T. Rex. Enough, at least, to step on something that is, in terms of revenue, less than a hundredth of its size.
VoIP-News
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