Deal Propels SunRocket to Mainstream

SunRocket Inc., an Internet phone upstart from Vienna, has struck a joint marketing deal with electronics giant Thomson Inc. to roll out GE-branded cordless phones capable of making calls over the Internet.

The deal announced Friday is an important one for the two-year-old SunRocket, which will provide the Internet service for the new phones.

Providers of Internet phone service, such as Vonage, SunRocket and 8x8, have been steadily attracting customers with unlimited calling plans and lower rates than traditional telephone service. But to break out, they must tap the mainstream market. All three have been trying to do that by partnering with telephone manufacturers to boost their brands' name recognition and credibility.

"It's exciting to work with a company that has such a major presence in landline phones," said Lisa Hook, SunRocket's chief executive. "The GE brand is iconic. It's like the really nerdy girl being picked to dance by the quarterback."

Other providers are taking the same approach. Vonage, the largest Internet-calling service provider, has partnered with VTech Holdings Ltd. to produce Internet-compatible telephones. Similarly, 8x8 has entered an agreement with Uniden America Corp.

The fact that major telephone manufacturers have invested in enabling handsets with Internet-calling devices is a sign of their confidence in the technology, said William Stofega, an Internet-calling analyst for market research firm IDC.

"Early adopters and technology geeks are already using it," he said. "The challenge is to get it out in the mainstream. Customers want it to work, and they want it to be easy to use."

Until recently, customers making calls over the Internet had to plug standard phones into special adaptors that connected to high-speed Internet lines. By embedding the technology directly into the telephone, providers and manufacturers are hoping to simplify the transition from traditional phones to the new technology.

"Over the next few years, this will certainly be the fastest-growing type of voice communications for residents," predicted Tom Bratton, vice president for marketing and sales for Thomson. "It will be driven by cheap voice but also by adding other features you can't get on regular landlines."

Some of those new features, such as internal address books and text messaging, will start to appear in the next year, although a formal timeline is not yet in place, Hook said.

Since its founding in 2004, SunRocket has grown rapidly, becoming one of the major players in the residential Internet phone market. In the past year, the company has more than tripled its subscriber base, which is now at about 170,000, and it has received a total of $80 million in venture capital funding. SunRocket's service costs about $200 a year for unlimited local and long-distance calling and up to 100 free international minutes every month.

Over 8.2 million U.S. households subscribed to Internet phone services at the end of September, up from 3.5 million at the same time last year, according to TeleGeography Research. About 38 percent of the subscribers get their service from stand-alone providers like SunRocket and Vonage.

The number of residential subscribers is expected to reach about 19.3 million by 2008, according to IDC's projections.

Internet calling "is still very young," Hook said. "It's great validation for the technology and its potential growth when such big companies want to play in a branded way."