SIPphones Suit Against Vonage Is Short on Merit

Opinion: SIPphone's one good point is that Vonage-only router/terminal adapters must say Vonage on the box-and Vonage seems to be hurrying to do that consistently. The rest is promotional posturing.

The red-hot competition for the VOIP residential consumers 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.

/zimages/2/28571.gifRead more here about AT&Ts VOIP rollout.

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 havent 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 companys vice president of corporate communications, is very clear when she says, "Its not marketed as a router. Its marketed as phone service. When you go into the store, youre 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? Lets 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 Vonages volumes.

A quick lunch-hour jaunt to my local Best Buy appeared to support Shulzs 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.

SIPphones lawsuit specifies the Linksys PAP2 adapter, however, which was not on the shelf. For a screen shot of the box, you can go to SIPphones 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.

Next Page: Where the merit lies.