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SIPphone's Suit Against Vonage Is Short On Merit

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SIPphone's Suit Against Vonage Is Short On Merit

October 1, 2004

By Ellen Muraskin

The red-hot competition for the Voip residential consumer's dollar got hotter on Thursday, when AT&T and Vonage both lowered their prices for consumer service. AT&T dropped CallVantage domestic, all-you-can eat service in the United States and Canada from $34.99 to $29.99, and Vonage followed up immediately with a similar drop from $29.99 to $25.00; a 500-minutes plan is $15.

In an even hotter development the same day, a new front opened up in the fight–in San Diego County Superior Court. Voip provider SIPphone filed a lawsuit against the biggest Voip provider, Vonage, for what it called misleading advertising.

SIPphone claimed that the company unfairly locked purchasers of its Vonage-labeled router/terminal adapter–now sold on retailers' shelves, in catalogs and in online stores–into the Vonage service. SIPphone also accused Vonage of not disclosing required monthly payments to use the equipment it sells, and it demanded that the provider make disclosures to customers.

The lawsuit looked like a straw man to me, a desperate marketing gambit played on the chessboard of public opinion. I talked to Vonage and became even more convinced of the open-and-shut nature of the case. I visited Best Buy and nailed it down. I talked to SIPphone and pried the case back open, but just a crack.

I say the lawsuit hinges on customer expectations, and those expectations are formed by standard consumer Voip practice and also by the standard practice of the cell phone service providers and hardware vendors who also inhabit Best Buy, Circuit City and the like. The Cingulars, Verizons and Sprints that sell you wireless phone service also sell you phones. Nobody expects to be able to take their Verizon Nokia phones to Sprint if they get mad at Verizon.

The counter-argument is that customer expectations are set not by the other phone-service providers one sees at electronics stores, but by the networking hardware vendors you also find there, and on online sites and in catalogs. The modem and router guys haven't typically committed you to any particular ISP. They may insert offers in the box, but they leave the choice up to the purchaser.

Vonage understands this counterpoint very well, which is why Brooke Shulz, the company's vice president of corporate communications, is very clear when she says, "It's not marketed as a router. It's marketed as phone service. When you go into the store, you're buying Vonage. It says Vonage all over the box."

Furthermore, as with cell phones, the price the consumer pays for the device is not its true cost, but something the service provider subsidizes for the chance to sell service on it. As Shulz says, "Why would we subsidize an adapter to be used with another service? Let's be frank. If SIPphone could get the competitive pricing that we get on those boxes, I guarantee you, there would not be a lawsuit." She went on to suggest that the lawsuit is really about getting the courts to equalize adapter pricing for SIPphone, which cannot buy in Vonage's volumes.

A quick lunch-hour jaunt to my local Best Buy appeared to support Shulz's claims: I asked for Vonage, and I was led to a shelf where a box with a Motorola TA inside was labeled "Vonage Starter Kit" six ways to Sunday. It was $79 with a $50 Vonage rebate upon signup. Next to it, an AT&T CallVantage box with a $79 D-Link TA (terminal adapter) inside it was similarly labeled CallVantage, and went far enough to say explicitly, in small print on the bottom, that it would only work with CallVantage.

SIPphone's lawsuit specifies the Linksys PAP2 adapter, however, which was not on the shelf. For a screen shot of the box, you can go to SIPphone's Web site. For my money, though, that Linksys is still pretty clearly labeled as a Vonage sale, and it would certainly not surprise me to find that it worked with Vonage only.

It could be that Vonage, in a quick response to the suit, has already pulled those boxes from the shelves. It's with online purchases, though, that SIPphone president Jeff Bonforte's case becomes a little stronger.
He tells me that customers who have bought the Linksys PAP2 router from Fry's Electronics online site, where no mention of Vonage was made, have been stuck, once opening the box, with the Vonage service. He says SIPphone bought Linksys PAP2 routers from more than four different stores, and every one was locked into Vonage. Don't they say Vonage anywhere on the box? "Some do, some don't," Bonforte says.

His suit, which demands no monetary damages, wants to the court to make Vonage e-mail all customers "of offending hardware," telling them that unlocked versions of these routers are available and offering a one-for-one exchange for such a router.

But during the course of my interview with him, we browsed over to, Fry's Electronics online store, and saw that a change had been made to the product description. Search on PAP2, click on the item, and you'll find, in red letters, wording making it plain that the product is configured to carry only Vonage VOIP.

So, it may be that SIPphone has caught Vonage in an early marketing gaffe–or perhaps even a noncompetitive practice–in not alerting customers to the lock-in on some Linksys adapters sold online and in catalogs. If so, Vonage is hurrying to correct this. I can't say whether the oversight was deliberate or just the typical packaging inconsistencies of a rushed launch.

Two things persuade me to dismiss this lawsuit, though. One is that what SIPphone's site claims to be standard Voip service provider practice–selling an agnostic adapter–is simply not. SIPphone says on its site that its adapters can work with other Voip services–but that does not appear to be the rule.

David Epstein, CEO of Voip provider BroadVoice, says, "The equipment that we send out is part of the business model, and in doing so we reserve the right to require that it be used with our service." It's also worth noting that the cheapest router/phone adapter sold by SIPphone is $59.99–presumably an unsubsidized, or less subsidized, price.

The other thing that persuades me to dismiss this suit is SIPphone's righteous indignation at the fact that Vonage doesn't say, on the box, that the TA won't work unless you pay the monthly fee. They say Vonage must stop saying "no contracts" on its box.
Hello? Does anyone expect a phone or a modem to work without paying some service provider something? Bonforte reminds me that some Voip services are indeed free between subscribers, and so customers may have reason to expect this purchase to be all they need to use VOIP. But I think that's a very rare and clueless sort of customer, if the box is labeled Vonage.

You want free? Download Skype or Free World Dialup. Get a softphone, even SIPphone's, but make sure you only call other Skype/FWD/SIPphone subscribers. Otherwise, you're paying someone something.

And Vonage's "no contract" claim seems fair to me; Vonage does not hold you to any sort of yearly contract. Neither does BroadVoice or AT&T, or probably most of the Voip consumer carriers. Vonage's Shulz assures me that any month you get tired of Vonage, you're outta there with no penalty. (Although there is one little devilish detail in there ... that's only if you return the adapter. Don't return the adapter, and you're socked with a $39.99 cancellation fee. BroadVoice and AT&T do the same.)

Finally, if you're shocked and horrified to see, once you get it home, that the Vonage-labeled router/adapter only works with Vonage, you can just march right back to Best Buy or Fry's and get your money back.

Voip consumers smart enough to avoid commitment to any one provider probably already have routers, and can simply buy a service's terminal adapter—for typically $30 or less—and plug it into that. They know and expect it to be limited to the service, and if they want to switch, they can send back the item, pay no penalty and get another $30 adapter with someone else's plan.

Or they can go to the router shelf in the store, not the Vonage shelf, and look for a nonlocked, SIP-enabled router. They will pay a little more for having no provider to subsidize the device. They will save that money in a waived startup fee when they sign up for service.

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