Here're some back-of-the-envelope calculations. Vonage will have to pay some $69.5 billion in damages to Sprint. In addition, since spring, it's placed into escrow or issued a bond for some $90 million related to a patent-infringement case it lost to Verizon (a decision on an appeal is expected any day now). That adds up to $159.5 million. Plus, Vonage is obviously paying lots of legal fees. And Vonage is still losing money: It lost $34 million in the second quarter alone.

So, let's look at Vonage's cash. At the end of the second quarter, the company's cash and equivalents totaled $344 million, which included $66 million of restricted cash used as collateral for the Verizon bond. If we subtract from that the various royalty payments and jury awards/restructed cash, Vonage has about $184.5 million in cash and equivalents to work with.

Assuming Vonage continues to lose money at the current rate of $34 million per quarter, the company can last for a little over five more quarters.

This is a very rough estimate, of course: Vonage's expenses will rise as it starts making royalty payments to Sprint. The outcome of the Verizon case can tip the scales one way or another. Thanks to recent staff cuts, overall expenses may fall. But one thing is clear: Vonage will have less financial flexibility now, after the Sprint loss.

More delinquencies and foreclosures can be expected in the subprime, adjustable-rate mortgage market as borrowers face interest-rate resets, Federal Reserve Chairman Ben Bernanke said Thursday.

In testimony to the House Financial Services Committee, Bernanke also said the market for those mortgages has "adjusted sharply," and that markets "do tend to self-correct."

He outlined steps the Fed is taking to help reduce the risk of foreclosure and stressed the need to beef up underwriting practices.

Just two days after the Fed lowered the federal funds rate by 50 basis points, Bernanke also said the central bank stands ready to foster price stability and sustainable economic growth.

"Recent developments in financial markets have increased the uncertainty surrounding the economic outlook," Bernanke said. "The [Federal Open Market] Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth," he said.

Bernanke said the recent surprise half-percentage point rate cut was designed to forestall potential effects of tighter credit conditions on the broader economy.

"We took that action to try to get out ahead of the situation," Bernanke said.

Bernanke said the central bank's economists would constantly review their internal forecast.

"There is quite a bit of uncertainty, so we're going to have to continue to monitor how the financial markets evolve and how their effects on the economy evolve and try to keep reassessing our outlook and adjusting policy to meet" the Fed's twin goals of price stability and low unemployment.

Still, he said, the global financial system is "in a relatively strong position" to work through the recent credit and market turbulence.

The Federal Open Market Committee was set to announce a decision at 1815 GMT.

The committee was widely expected to cut interest rates in a bid to ease stress in the housing and credit markets, and head off a potential recession.

Most analysts say they expect the FOMC, which has held its federal funds rate at 5.25 percent since June 2006, to cut the benchmark rate by 25 or 50 basis points, which could lead to lower borrowing costs for many consumers and businesses.

A rate cut "would reflect an effort to contain the downside risks to growth associated with the swift tightening in financial conditions this summer in an already subpar economy," said Citigroup economist Robert DiClemente, who predicts a half-point cut.

DiClemente says the current rate of 5.25 percent is "higher than neutral," or holding back economic growth, and that a failure to cut rates "could risk an undesirable breach in investor confidence and broader damage to the expansion."

"The sooner we get to 4.5 percent or thereabouts, the better the chances of stabilizing the economic outlook and the financial system that supports it," DiClemente said.

Rod Smyth at Wachovia Securities said he expects a quarter-point cut, with the possibility of more cuts later.

"We believe Fed chairman (Ben) Bernanke's reluctance to cut rates aggressively is based partly on his preference that markets work out their own problems," he said.

"Furthermore, we think he wants to discourage the view that the Fed will always come to the rescue during periods of financial turmoil."

Some analysts say that if the Fed fails to take bold action such as a half-point cut, it could trigger more turmoil in financial markets, causing more failures of home lenders and mortgage defaults and prompting a freezing up of broader credit markets.

"We strongly believe that if the Fed only cuts rates by 25 basis points even with a strongly worded FOMC statement to commit to more easing if need be, there could be a significant disappointment trade in the financial markets, especially in stocks," said Deutsche Bank economists Joseph LaVorgna and Carl Riccadonna in a note to clients.

"If policymakers move too slowly now, they run the risk that more considerable damage will be inflicted on the financial markets and the real economy, and resultantly they will have to cut rates more aggressively in the long run."

Others claim that economic conditions do not warrant a rate cut, and that such a move would simply be providing more of the easy money that fueled the boom-and-bust cycle.

"The US economy is not booming ... However, the economy is not collapsing either," argued Eugenio Aleman, senior economist at Wells Fargo, who says it would be wrong for the Fed to buckle to market pressure.

"A fed funds cut will not bring back the US housing market. A fed funds cut will not bring back the commercial paper market," he said.

The US economy expanded at a robust 4.0 percent pace in the second quarter, but many experts view that as a statistical fluke that belies soft conditions. The loss of 4,000 jobs in August, say some, point to deep problems as the housing slump and credit problems drag on growth.

Of key importance is the message sent to financial markets. Chairman Ben Bernanke wants to ease economic stress while avoiding the impression that he is bailing out speculators and hedge funds.

"As I see it, the media hype over whether the first move will be 25 or 50 basis points is overblown," said Morgan Stanley economist Richard Berner.

"What matters more than the first move is the future path for monetary policy, and both camps at the FOMC will likely agree that more is needed because like us, they've significantly lowered their sights on future growth."

The FCC last night, after a daylong struggle to reach consensus, took several actions of significance to cable operators and programmers.  First, the FCC adopted rules that it characterized as necessary to ensure that cable subscribers with analog televisions will be able to view local broadcast signals after the February 17, 2009 digital transition and a related further notice of rulemaking to address the economic impact of these rules on small cable operators.  Second, the agency also approved an order that extended for five years the ban on exclusive affiliation agreements involving satellite-delivered, vertically integrated programming and modified certain procedural rules for resolving program access complaints.  Third, the FCC announced a new rulemaking proceeding to consider further substantive and procedural changes to the program access rules, such as closing the so-called “terrestrial loophole” and barring broadcasters and cable programmers from “tying” two networks (i.e., forcing an MVPD to agree to carry one network in order to obtain the right to carry another network or broadcast station).   Although the Commission had been expected also to adopt an order extending to incumbent cable operators certain of the franchise reforms that were adopted for new entrants late last year, action on that item was postponed.

I. DUAL CARRIAGE

According to the FCC, analog-only cable subscribers constitute approximately 35 percent of the nation’s television homes (i.e., do not have a television or cable converter capable of receiving a digital signal).  Citing statutory provisions that were adopted prior to the development of digital television that require cable operators to provide subscribers with “viewable” local broadcast signals, the FCC adopted rules under which local broadcast signals are entitled to both analog and digital carriage unless the cable operator goes “all digital” prior to the transition deadline.  This “dual carriage” obligation will sunset in three years (February 18, 2012) unless the FCC acts affirmatively to extend it. 

In addition, the FCC provided potential relief to systems with limited channel capacity (552 MHz or less) by allowing them to request a waiver of the viewability requirement.  This action prompted a dissent from Commissioner Adelstein, who argued that limited capacity systems should have been automatically exempted from the rules.  The FCC also confirmed that cable systems must carry high definition (“HD”) broadcast signals in HD format and reaffirmed the current “material degradation” standard under which the picture quality of retransmitted broadcast signals must be equal to or better than the quality of non-broadcast video programming carried by the system.

The FCC’s action on dual carriage is generally regarded as a victory for the cable industry in that the proposal pushed by Chairman Martin would have established a permanent “dual carriage” obligation and would not have provided any relief for limited capacity systems.  Chairman Martin’s proposal also called for the adoption of a material degradation standard under which cable operators would have had to retransmit all of the “bits” in a broadcast digital signal – a requirement that would have prevented operators from using bandwidth-conserving compression technologies and could have easily been stretched into a multicast carriage obligation.

Finally, the FCC indicated that it would issue a further notice of rulemaking seeking comment on additional ways of minimizing the economic impact of the dual carriage requirement on small cable operators.  This further notice may also raise other questions.  It is not clear how long it will be before the staff releases the full text of the dual carriage order and further rulemaking, since changes were being made up until the last minute.

II. PROGRAM ACCESS

Section 628 of the Communications Act bars cable operators from entering into exclusive distribution agreements with vertically-integrated, satellite-delivered programming networks.  This prohibition originally was scheduled to “sunset” in 2002, but was extended for five years.  As was expected, the FCC yesterday decided to extend the exclusivity ban for another five years, finding that despite the growth of competition, cable operators continue to have the ability and incentive to withhold “essential” programming from other multi-channel video distributors. 

The FCC also adopted certain modifications to its program access complaint procedures, particularly with respect to the production of information relevant to the resolution of a complaint.  Although the FCC indicated that it would take steps to ensure that the confidentiality of sensitive business information is protected, Commissioners Adelstein and Copps expressed concern that this expanded “discovery” provision could go too far in requiring cable operators and programmers to provide complaining multichannel video providers with extensive information about other program affiliation agreements.

The new rulemaking that the FCC started in connection with the program access rules seeks comment on a pair of procedural issues: (1) whether the filing of a program access complaint in connection with proposed changes to an existing contract should trigger an automatic stay of the new provisions and (2) whether an arbitration-type step should be added to the complaint resolution process. 

Even more significantly, the notice of proposed rulemaking also addresses substantive issues, including whether the FCC can and should apply the program access rules to DBS, whether program access restrictions should apply to vertically-integrated services that are distributed terrestrially as well as to satellite-delivered services, whether the FCC should require programmers to deal with entities that provide service through a shared headend, and whether broadcasters and cable programmers should be required to offer their services on a “stand-alone” basis rather than forcing multichannel video distributors to purchase “undesired” programming in return for the right to carry desired programming.  As described, this latter proposal is directed at the wholesale distribution of programming and does not directly propose to require programmers to make their services available for retail distribution on an a la carte basis.

III. INCUMBENT CABLE OPERATOR FRANCHISE REFORM AND OTHER ISSUES.

Late last year, as part of the order adopting franchise reforms for new video entrants, the FCC commenced a proceeding to extend similar reforms to incumbent operators.  At the time, statements were made promising that action on this proceeding would be completed by September 2007.  And in fact, consideration of an order in the franchise reform proceeding originally was originally included on the agenda for yesterday’s meeting.  However, the franchise reform item was pulled from the agenda and, while it still could be adopted before the end of the month, its exact status is uncertain.  In addition, two other items of interest to cable are circulating among the Commissioners and could be decided in the near future.  One is an order that reportedly would deny a request by Comcast for a declaratory ruling that The America Channel is not a regional sports network for purposes of applying certain conditions imposed on Comcast and Time Warner as part of the FCC order approving the Adelphia transactions.  The other pending item is an order that would ban existing and future exclusive contracts between cable operators and the owners of multiple dwelling unit buildings.  This item raises several difficult legal issues (including whether the FCC has jurisdiction to void such contracts and whether it can only bar such contracts prospectively). 

http://fw-law.com/news.html

The Court of First Instance of the European Communities ruled that the Commission had committed an infringement by forcing Akzo and subsidiary Akcros Chemicals to allow investigators a cursory look at documents and by not allowing them to contest the action.

However, it added: "The Court concludes that the infringements on the part of the Commission ... did not result in unlawfully depriving them of (lawyer-client) protection in respect of those documents, since, as has been held, the Commission did not err in deciding that none of those documents in fact fell within the scope of that protection."

The firms can appeal against legal points of the ruling.

A spokesman for Akzo said it would study the ruling and could not say whether it would appeal.

CNET Networks said Tuesday that the Securities and Exchange Commission ended an inquiry into the company's stock option grants.

Regulators won't take any action against San Francisco-based CNET, which is a media company.

CNET's founder Shelby Bonnie quit as chairman and CEO last October -- on the same day the company said it had back dated some stock options grants between its 1996 IPO and 2003.

The costs of the ensuing stock options investigation and related litigation cost CNET Networks $2.9 million in the second quarter, ended June 30, and pushed it to a $76,000 loss.

CNET's loss would have been greater but for a $1.6 million gain on private investments, which partially offset the costs of its stock options investigation.

Neil Ashe, Bonnie's replacement as CEO, said it was a "transition year" for his company.