As SunRocket Dies, VoIP Providers Must Differentiate Themselves

In the VoIP industry, the FUD is winning as message board threads spiral out of control in the wake of SunRocket's sudden demise.

by Alex Goldman ISP-Planet Managing Editor [July 18, 2007]

As ISP-Planet prepares to update our quarterly VoIP rankings (we'll release them tomorrow), we're finding that the independent VoIP providers are dying and the cable companies' digital phone offering are thriving. You cannot compete purely on price, and a corporate death this week has proven the point.

Vienna, Va.-based SunRocket is gone, but you wouldn't know it from the company's website.

On Tuesday, Reuters reported that SunRocket, "appeared to have shut down its business on Monday without notifying its customers, which total more than 200,000."

Reuters tried to contact SunRocket but its e-mails and phone calls were not returned. Reuters also found an ominous message on the company's customer support line, "We are no longer taking customer service or sales calls. Goodbye."

Message boards lit up across the internet, with DSL Reports' forums issuing the first warning, which was then a rumor (a rumor that garnered over 80 pages' worth of replies and over 50,000 page views).

Now, it's no longer a rumor. This is one of the most poorly handled bankruptcies the internet has seen (and the internet has had many bankruptcies). On his blog, Karl Bode of DSL Reports blames a former AOL executive. All too often, if you fail at a large company, you get to fail again at a smaller company. Bode wrote:

I don't think anyone is getting any severance. Customers also haven't been told squat officially, which borders on criminal.

CEO Lisa Hook was let go from AOL when their broadband adaptation struggled, and is so far getting the lion's share of blame for this implosion as well. At least from the employees I've spoken to, who suggest she isolated herself with a dozen-plus yes men & women she brought in as pals from AOL. One employee tells me four of them did the job one employee did previously.

The poorly run company and its dreadful bankruptcy may provoke a backlash against innovative, small companies. Even technophiles seem wary. Om Malik wrote, "I would stay away from independent VoIP providers—you don't want a repeat of the SunRocket story."

Last evening, DSL Reports said that Palo Alto, Calif.-based debt consulting firm Sherwood Partners would be handling the disposal of the company's assets. Sherwood's spokesperson, Martin Pichinson, e-mailed us the company's official statement, which reads exactly as printed on DSL Reports:

Palo Alto, CA – SunRocket, one of the largest VoIP providers has shut down its service. An affiliate of Sherwood Partners, LLC is managing the process as the Assignee for the benefit of creditors.

Sherwood expects to enter into agreements with other service providers to transition the customers of SunRocket to such providers. The customers of SunRocket will be informed of this opportunity to transition to another provider via email as soon as an agreement is reached.

Creditors will receive a notice within the next 30 days in regards to the general assignment and for the filing of claims in the liquidation process of SunRocket.

The Springfield, Mo.-based News-Leader reported that the shutdown hit the town hard, as all 197 employees, many earning $8 per hour, were laid off without warning when SunRocket's only call center closed.

Meanwhile, SunRocket itself has said nothing.

An opportunity for service providers
But many service providers see an opportunity and are issuing special offers to SunRocket customers of a full year's service for $199, far below most companies' regular pricing. ViaTalk posted a special offer with instructions on how to switch providers.

Some comments online noted that ViaTalk is owned by Clifton Park, N.Y.-based HostRocket and can therefore cross-subsidize its service, as the cable companies can.

Commenters also noted that it's easy to switch service.

Malik explained that it's easy to switch because the phone numbers were registered with the upstream providers, not with SunRocket, writing, "saving your phone number is not that difficult, because the numbers are not residing with SunRocket, but with one of their service provider partners such as Broadwing and Qwest. All you have to do is print out SunRocket's statement, and tell the company you want to switch to, why you are doing it and use the statement as a proof."

The same information was available on numerous other websites. A posting at DSL Reports (a rumor, not a confirmed fact) warned that invoices were being deleted from the system, which would make it impossible for switchers to keep their phone number.

Dropping prices
Even premium services were dropping rates to SunRocket's to lure the company's numerous customers to switch. Overland Park, Kans.-based Nuvio, a premium small business voice provider whose regular service is priced at over $40 per month, was offering Nuvio service to SunRocket customers for $199.99 per year or $24.99 per month (with a $9.99 setup fee. Part of the price difference is the equipment: SunRocket uses Gizmo equipment and Nuvio uses top of the line business-grade stuff from Pleasonton, Calif.-based Polycom.

Joe Woodbury, Nuvio's director of marketing, said the phone calls and e-mails were streaming in at the rate of dozens of subscribers per hour. "We're developing a script for the Gizmo box that SunRocket gave out to its customers. We port them to a temporary number for 24 hours and then after the ported number goes through, we switch them back."

So how long have you been offering this? "We started last night," said Woodbury. "We've had a ton of responses. We're getting requests every couple of minutes."

Having read the message boards, we believe that customers fleeing SunRocket are looking for stability and are willing to pay for it. We believe that Nuvio could have charged more.

For example, Lingo, which already had a special offer for Vonage customers posted on its website, was offering full service to SunRocket customers for $21.95 per month. The company, a wholly owned subsidiary of McLean, Va.-based Primus Telecommunications Group, also has a $195 per year plan offering national service to the U.S., Canada, and Puerto Rico.

This is different from its Chatterbox service, which offers free calls to 21 additional countries and the ability to have a local phone number in one of those countries.

"In addition to U.S. phone numbers, we offer global phone numbers," said Srinath Narayan, the company's vice president of marketing. "For example if you've got family in the UK, you could get a local number from Lingo and that family member could call it and reach you here in the U.S. We offer this service for 22 cities in over 14 countries."

We pointed out that the website and promotional materials we've seen do not promote the Primus Telecommunications connection, but that this connection is frequently noted on message boards.

"Lingo is a 100 percent wholly owned subsidiary of Primus Telecommunications," said Narayan. "We're backed by a billion dollar company that's been in business since 1994 and has 2.5 million customers. When Lingo was launched in 2004, it was a separate product and brand, not necessarily linked with Primus Telecommunications, by design."

That changed with yesterday's press release, which was titled, "Lingo VoIP Phone Service for the Long Haul."

The first bullet point read, "Backed by a $Billion global telecom provider, Lingo delivers local and long distance internet phone service that consumers and small businesses can count on."

Conclusion
Companies need to differentiate their VoIP service, and if the SunRocket murder mystery plays out the way that Karl Bode thinks it will, VoIP companies will soon be touting their finances as well as their service. Customers will want to know that their provider will still be there next year.

We've seen this drama before, and the death of the DSL providers was ugly. Those that survived the DSL die-off and the erosion of competition survived by providing premium service, not by cutting prices.

— End