Low End Theory: The Last Throes of Vonage?


By Brendan I. Koerner

Ordinarily there'd be no good reason to get worked up about the new Motorola VT2542 router, which Vonage is now selling for $59.99. Voice-over-data prioritization? VPN pass-through support? Puh-leez. Wake me when it can make cinnamon toast.

But these are by no means ordinary times at Vonage. America's most visible VoIPer announced the new router mere days after suffering a serious gutpunch: Verizon won a longstanding patent infringement suit against Vonage, to the tune of $58 million. A second suit brought by Sprint Nextel is winding its way through the courts, as well. As much as Vonage is trying to spin these legal woes as no big whoop, and continue on with its innovation as if all was cool, you've got to think the company's executives are none too thrilled about the situation.

The most obvious question to arise from all these suits, as well as Vonage's other troubles, is whether the company will survive. But the bigger issue for us cheapskates is what all this hullabaloo portends for the future of VoIP, the technology that rescued us from the Baby Bells' cold, brutal grip. After the jump, ruminations on who you'll be paying for phone service in 2010. PLUS: Prizes en route to my beloved beta testers.

First off, journalistic ethics mandate that I should lay bare my ties: I am a Vonage customer, though not a particularly enthusiastic one. I use their VoIP service for my home office; if number portability hadn't been a priority, I would have been happy enough sticking with my mobile and Skype (of which I'm a fan). That said, my complaints about Vonage's service mostly boil down to little things—hiccups in the connection, long stretches where I can't surf and talk at the same time. I'm by no means a member of this disgruntled clique, and Vonage has surely saved me hundreds of dollars over the last two-plus years. I was previously with Talk America (now Cavalier Telephone), and those copper-wire taxes were killing me.

The lawsuit loss to Verizon is just the latest inkling that all's not going swimmingly for Vonage. My first tip-off came last year, when I got a recorded phone call inviting me to buy into the company's IPO. When you're asking the folks who use your service to prop up your Wall Street offering, yikes, that ain't good. Then came an e-mail offer, declaring that I could save $60 by pre-paying for a year's worth of service—again, a classic sign of, if not desperation, at least distress.

It's not hard to see why Vonage is struggling: they're a classic victim of the first-mover disadvantage. When they rolled out wide, they way undercut the copper-wire alternatives. But the traditional providers have caught up, especially with those bundled phone-cable-Internet packages. Yeah, those deals still rip you off on phone service a bit, but they're easy—no worries about number portability, and a service guy will actually come to your house and install the router(s). Installation may be easy for those of us who frequent Gizmodo, but a lot of people are still freaked out by Ethernet cables, as well as by the prospect of having to deal with yet another monthly bill. Never underestimate the prevalence of both technophobia and financial anxiety.

If Vonage goes—and, in fairness, they seem pretty insistent that they're gonna fight tooth-and-nail to stay alive—I can see the VoIP market splitting one of two ways. You could see cable-based VoIP services like AT&T CallVantage win out, even going so far as buying Vonage's entire customer list. Or Vonage's rebellious mantle could be seized by a bunch of now-miniscule upstarts like Packet8 and Jajah—assuming the Baby Bells won't slap them around with patent infringement suits, too. (Since it's based abroad, Skype might be a tougher legal target. But until they can introduce number portability in the U.S., I don't think they can step it up to that next level—remember, Joe Q. Consumer still loves his phone number! It's part of his identity.)

Low End Theory: The Last Throes of Vonage?

As a low-ender, all I really care about is paying as little as possible for phone service. (I confess to once being a client of a long-distance service that made you listen to ads in exchange for free talk time.) And I'm cautiously optimistic that the broadband wars will keep pressing fees down, as phone service becomes more of an inducement than anything else. In 2002, I wrote a Wired piece about Japan's Softbank, which was then offering 12-Mbps DSL plus VoIP for around $21 per month. (They were also spending roughly $250 to acquire each new customer, but let's shove that fact aside for now.) The VoIP was the deal's most alluring bait, but I also discovered that it cost Softbank next-to-nothing—I believe it was Joi Ito who first opened up my eyes to the fact that voice really should be free.

The future cash cow for broadband providers has to be more pipe-hungry content, especially video. Voice? A drop in the bucket, a throw-in on the deal. But getting the providers to acknowledge that will require competition—between each other, of course, but also from the VoIP indies like Skype, Jajah and myriad others. I encourage our pals in Washington D.C. to make sure that competition continues, by making number portability simpler (mandating a 48-hour turnaround time?) and guarding against Big Telco shenanigans. Meanwhile, the VoIP upstarts might need to rethink their ease-of-use—Americans may be getting more comfortable with technology, but they still need their hands held from time to time. (One ad idea: rip off Geico's ingenious tagline, stating something akin to, "10 minutes could save you $200 a year. Call us to find out how." No more Vonage yodeling, please!)

The most important thing is that skinflints like me should someday enjoy haypenny-an-hour calls to mobiles in Ouagadougou. Anything short of that will be a travesty against Man and Nature.

WINNING FEELS GOOD: Two weeks ago, I appealed for y'all to help me beta test my new site. As a little carrot, I offered two copies of Best of Technology Writing 2006, edited by your humble narrator.

Happy to report that I drew for the books last night (supervised by my wife in lieu of PriceWaterhouseCoopers, and we have two winners—David Hunt and Kris LeMoine, your books will be in the mail next week. For the rest of y'all, thanks and don't fret—you can read the book's contents (for free!) here.

Brendan I. Koerner is a contributing editor at Wired and a columnist for both The New York Times and Slate. His Low End Theory column appears every Thursday on Gizmodo.

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