Is cable in Verizon's crosshairs?

The cable industry may be Verizon's next target in defending its VoIP patents.

A judge's broad interpretation of patents in Verizon's lawsuit against Internet telephony provider Vonage could give the phone company enough firepower to go after cable operators and other voice over Internet Protocol providers.

It's clear that Verizon may soon file suits against other stand-alone VoIP service providers, such as 8x8 and SunRocket, as it defends its VoIP patents. But some experts say it might also take on Internet companies like Skype, EarthLink and Yahoo, which offer VoIP services, or cable companies, which also sell telephony services using VoIP technology.

"I believe that anyone offering a VoIP service could be a potential Verizon target," said Joel Rosenblatt, a Florida-based patent attorney who has reviewed the patents in question. "These patents appear to be so broad that an argument could be made against just about any service that allows people to make calls from the Internet to a regular phone network."

"The cable industry must certainly have their eye on this case."
--Tim Wu
law professor, Columbia University

Verizon declined to comment on any future litigation.

It makes sense that Verizon would target cable companies, because they represent the largest threat to Verizon's business. The reason is simple: stand-alone VoIP services from companies like Vonage have had little impact on the total telephony market.

Vonage and others have signed up only about 5 percent of all U.S. households for their services as of the third quarter of 2006, according to Forrester Research. Meanwhile, cable operators such as Comcast, Time Warner and Cox Communications, which have been offering service for only about 18 months, have been adding subscribers at a much higher rate. In the third quarter of 2006, roughly 6 percent of American households said they were using a cable VoIP service, according to Forrester.

Cable companies are also considered much bigger threats because, like Verizon, they can offer entire packages of service to consumers that include TV, broadband, telephony and, very soon, wireless.

The cable telephony offering is also considered comparable to Verizon's traditional phone service in terms of quality, because cable operators are able to segment their voice traffic to carry it over dedicated Internet pipes, allowing them to guarantee quality of service. Companies such as Vonage do not own any piece of the broadband network, so their traffic must travel over the same pipes as other Internet traffic, like that generated by Web browsing or e-mail. When broadband pipes are congested, voice service can suffer.

"The cable industry runs their service differently than Vonage does," said Tim Wu, a law professor at Columbia University who closely follows legal issues involving the Internet. "But these patents appear to be very broad. The cable industry must certainly have their eye on this case."

Comcast, which is the largest cable operator in the U.S. and has more than 2 million voice customers, declined to comment for this story.

The legal battle
Last month, a jury in Virginia found that Vonage infringed on three of Verizon's patents and it ordered the company to pay $58 million in damages. Last week, the judge in the case ordered an injunction that would bar Vonage from signing up new customers, but the company was granted a temporary stay of the injunction by a federal appeals court.

Vonage, which plans to appeal the lower court's decision that it is infringing on the three patents, is hoping to get a permanent stay on the injunction that will last as long as the appeals process.

Vonage's legal team says it's confident it will win its case on appeal, but the process could take two years or more.

Meanwhile, Vonage's business is already suffering. For one, the recent legal troubles have not helped the company retain customers, who had already been fleeing before the court's decision. On Thursday, Vonage executives said they were changing course, cutting the company's hefty marketing budget and about 10 percent of its work force to reduce costs to help pay for the ongoing legal bills. The company also announced that CEO Michael Snyder has resigned, effective immediately.

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