SunRocket Crashes

When SunRocket Inc. abruptly shut down this summer, the news seemed to come out of nowhere. But there were signs pointing to the young companys demise that were easily overlooked by an industry mad for VoIP.

Numbers from research firm TeleGeography show that SunRockets decline was steady. Nobody really knew for sure what was going on though, since SunRocket was privately held. So, attentive suppliers and customers had to gauge SunRockets state based on press coverage and direct interaction with the company. The latter is exactly what prompted phone maker American Telecom Services Inc. (ATS) to cancel its agreement with SunRocket.

Earlier this year, in March, the two companies had struck a deal wherein VoIP phone maker ATS would distribute its devices with SunRocket subscriptions in retail stores. But the more ATS met with SunRocket, the more it uncovered management, directional, and billing and process problems, says Bruce Hahn, ATS CEO. We saw some difficult times coming and, therefore, minimized any exposure we had by redirecting our efforts, he says.

ATS now works with Primus Telecommunications Lingo Inc. division, which also happens to be a public company.

Another sign of trouble was that SunRockets growth had slowed considerably. TeleGeography research shows SunRocket only recorded 10 percent growth in the first quarter of 2007, compared to 400 percent two years earlier. Even so, this spring, SunRocket was crowing that it had signed a total of 200,000 customers; that number looked paltry when compared to Vonage Holdings Corp.s 2.4 million. The competitor that once looked formidable enough to challenge Vonage fell to the bottom of the heap a descent compounded by cable companies refined VoIP technologies and marketing. From the first quarter of 2006 through the first quarter of 2007, SunRockets market share never budged from 2 percent, according to TeleGeography.

Finally, the end was obvious when, in the space of two weeks, Vienna, Va.- based SunRocket fired all of its C-level executives, except for president and CEO Lisa Hook, and a quarter of its workforce. The next week, Hook, a former AOL head, quit. That was on a Friday. On Monday, July 16, news spread that SunRocket was done for, although its Web site still allowed new users to subscribe.

A few days later, the providers home page featured a letter to customers. It explained very little, only that SunRocket had shut down and Sherwood Partners LLC was handling liquidation matters. Creditors also remained in the dark. They were to receive notice within the month about how to get their money from SunRocket.

Former employees have told various media since SunRocket closed that the company was seriously behind in its payments to suppliers. The Washington Post said SunRocket owes millions to underlying providers including Level 3 Communications Inc. and Global Crossing.

Its ironic that SunRocket crashed and burned. As recently as April, the VoIP provider told PHONE+ sister magazines xchange and New Telephony it would introduce enhanced applications such as multimedia emergency calling and even video sometime in 2007. It said it wanted to avoid problems and stigma associated with being a pure-play VoIP provider.

SunRocket also seemed promising because it wasnt embroiled in legal problems like rival Vonage, which lost a nasty patent infringement case to Verizon Communications Inc. As speculation increased earlier this year that Vonage would collapse, industry insiders touted SunRocket as a solid model that companies such as Vonage should emulate.

Other VoIP providers now are rescuing SunRocket customers stranded by the shutdown. 8×8 Inc. and TeleBlend have signed official contracts to take over SunRockets subscriptions while other companies, such as Vonage and Nuvio Corp., are offering attractive one-time incentives to stranded SunRocket customers.

SunRocket was founded by two former MCI Inc. executives and came to market backed by one of the largest venture capital deals the industry had ever seen. The company made its name as a provider of unlimited VoIP calling to and from the United States, Canada and Puerto Rico for $199 per year, paid up front. SunRocket did run an affiliate program, but its work with channel partners was minimal.