SunRocket shuttered; 8x8 named as ‘preferred’ replacement

* SunRocket bites the dust

On Monday last week, SunRocket abruptly ceased business operations leaving more than 200,000 VoIP customers without service. The company had already laid off about a quarter of its work force two weeks before it closed the doors. SunRocket started offering services in November 2004 and had secured $80 million in venture capital funding since beginning operations.

By Wednesday, 8x8, the provider of Packet8 residential VoIP, business VoIP, and video services, announced in a statement that it had signed an agreement with “an organization managing the wind down of SunRocket … to present SunRocket subscribers with a specially-priced offer to transition their Internet phone service to Packet8.”

SunRocket customers who convert to Packet8 service can buy a similarly priced annual unlimited calling plan without any start-up costs, retain their existing phone number with an abbreviated local number portability process arranged by 8x8, and receive a month of free service. The organization managing the customer transition for SunRocket has agreed to notify customers about the arrangement.

8x8 has offered residential VoIP service over the Internet for nearly five years, with about 100,000 residential and 8,000 U.S. businesses. According to Huw Rees, 8x8’s vice president of sales and marketing, SunRocket had and still uses Level 3 and Global Crossing as CLECs to provide phone numbers and PSTN gateway connectivity. 8x8 is working with Level3 and Global Crossing to abbreviate the normal time needed to transfer numbers to 8x8, minimizing service disruptions.

SunRocket’s former customers will still need to pay 8x8 for a new plan since any money paid to SunRocket is likely lost. Customers will also need to make arrangements with 8x8 both to keep their existing phone number and to secure and install a new Packet8-compatible gateway in order to get Packet8 service.

Our analysis: Customers should understand the difference between bad technology and bad financial management and not fault VoIP just because SunRocket couldn’t service 200,000 customers with $80 million in VC funding. 8x8 does seem to have more solid financials than did SunRocket (with $11.9 million in the bank and a quarterly cash burn rate just under half-a-million per quarter) and 8x8 is growing its business customer base with VoIP offers to broaden its revenue opportunities. However, we still doubt that standalone consumer VoIP services delivered over the Internet make for long term financial success. Rather we think that “bring your own broadband” (BYOB) consumer VoIP providers like Vonage, 8x8, and others will continue to face difficulty when competing against the double and triple play bundled services offered by telcos and cable companies.

Further reading: Another consumer VoIP provider faces hard times; VoIP woes: Losing service without warning; SunRocket Largely A Management Failure.

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Copyright © 2007 IDG Communications, Inc.