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Internet Phone Start-Ups Look Past Low Prices

SunRocket has about 80,000 subscribers, making it a leading Internet phone service company in the Washington area. But its success is dwarfed by that of Vonage Holdings Corp., a Holmdel, N.J., firm with 1.5 million business and household Internet phone lines in service.

Dorris and Paul Erickson, veterans of the telecom industry who spent more than a decade together at MCI Inc., founded SunRocket in 2004. To get the company off the ground, the two attracted more than $34 million in venture capital from funds like Baltimore-based Anthem Capital Management and BlueRun Ventures of Menlo Park, Calif.

The company has tried to differentiate itself from the pack partly through its pricing, offering a year of local and long-distance service for $199, or more limited monthly service for about $10.

Hook said she was introduced to SunRocket as a potential board member but agreed to lead the firm after trying the service and meeting with some of its 125 employees.

The company's mission now is to snap up new customers willing to trade in their traditional land lines for Internet phone service. It's an effort that does not come cheap -- to build its customer base, rival Vonage spent $232.4 million in marketing its brand during 2004 and the first three quarters of 2005. That company has raised $394.5 million in venture funding from investors including Baltimore-based New Enterprise Associates and in February filed to raise as much as $250 million through an initial public offering.

Forrester Research Inc. estimates that about 1.5 million homes are using Internet phone service today, but the number is expected to grow to 12.3 million by 2010.

Despite the rapid growth, some analysts say it could be tough for companies like SunRocket and Vonage to compete against brands like Comcast, Verizon and AT&T Inc. with their packages of services.

"They're all going to offer that killer bundle, and that's what people are going to buy because the pricing is better," said Jeff Kagan, a telecom analyst.

Kagan added that independent Internet phone companies like SunRocket will have a chance to succeed, "just in a smaller universe" than previously perceived.

Hook believes that universe will be large enough to build a thriving company.

"Obviously there will be people who choose buy their services in bundles, but there have always been people who will purchase best-in-class service from stand-alone providers as well," Hook said. "I'm voting with my feet by climbing out of my swimming pool and coming to SunRocket."

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