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VoIP Provider SunRocket Abruptly Ceases Service

SunRocket, the second largest pure-play VoIP provider, shut down its telephony service without warning earlier this month.

SunRocket laid off a large portion of its workforce on July 3 and its assets are being liquidated by Sherwood Partners. Calls to the company were not returned. The VoIP firm’s customer service line says it is no longer accepting sales or customer service calls.

In April, SunRocket announced it had reached the 200,000-subscriber mark. The firm was the first to promote an annual calling plan, charging users for a full year’s worth of unlimited calling for one upfront fee.

“We saw problems a mile away,” said Adam Somer, president, American Telecom Services (ATS). His firm marketed a DECT cordless phone designed to work on SunRocket’s VoIP network. “There were problems with the new management and their systems. When we saw that, we began to transition our inventory over to our Lingo product line, so our exposure to this is minimal.”

SunRocket fell victim to a common start-up malady, spending more than they were making, said Stephan Beckert, TeleGeography research director.

“They were looking for more funding and the investors stayed away this time,” Beckert said. While SunRocket had the second highest number of subscribers in the pure-play category — which excludes cable companies — they were one-tenth the size of Vonage, the market leader, Beckert observed. In the total VoIP market, including cable companies, SunRocket had a mere 2 percent market share.

A large part of the problem was the company’s “nonsensical” offers to consumers for two years worth of phone service for $199, said Huw Rees, sales and marketing VP, 8×8. “We know the economics of this business, and it’s impossible to make money if you have [extravagant] offers or very high customer acquisition costs,” he said.

“SunRocket’s growth had really begun to slow down since last year,” Beckert said. The company peaked in the second quarter of 2006, adding 46,000 lines vs. 19,000 in the first quarter of 2007, according to Beckert.

As for the company’s 200,000 or so stranded subscribers, Beckert expected most to stay within the pure play voice camp. “These are very price-sensitive and tech-savvy customers, so I don’t expect them to go to a Verizon.”

According to Telegeography there are currently 10.8 million VoIP subscribers in the United States of which 3.5 million use a pure-play service like Vonage.