Internet-Phone-Service Provider Drops a Fourth of Its Staff

SunRocket founders Joyce Dorris and Paul Erickson left in February. The company has been growing, but cable companies now serve two out of every three Internet-phone customers.
SunRocket founders Joyce Dorris and Paul Erickson left in February. The company has been growing, but cable companies now serve two out of every three Internet-phone customers. (By Preston Keres -- The Washington Post)
By Kim Hart
Washington Post Staff Writer
Tuesday, July 3, 2007

SunRocket, an Internet-phone-service provider in Vienna, laid off about a quarter of its workforce -- about 30 employees -- on Friday in an effort to reduce expenses as its subscriber growth shows signs of tapering off.

The three-year-old start-up was one of the pioneers of Internet phone technology and quickly attracted customers with its inexpensive calling plans. With 206,000 customers, SunRocket is the second-largest stand-alone Internet-phone-service provider behind better-known Vonage. But SunRocket's growth has slowed in recent months as it battles giant cable companies.

"We're lowering expenses in order to execute our business plan," said Chris Mannella, SunRocket's chief marketing officer, who confirmed the staff reductions but would not give specific numbers. "We're on the same path . . . we've just reduced operating expenses in light of the competitive environment."

Mannella would not comment on the possibility of being acquired by another firm but said SunRocket is "looking at a number of financing alternatives and considering a variety of different structures," including raising a new round of funding. Since March 2005, privately held SunRocket has received $80 million in venture capital from several firms, including Nokia Growth Partners and Mayfield Fund, both of Menlo Park, Calif., as well as Baltimore-based Anthem Capital Management.

The layoffs include at least four executive positions, according to two sources close to the company who spoke on condition of anonymity because they were not authorized to speak publicly.

SunRocket was founded by telecom veterans Joyce Dorris and Paul Erickson, who departed in February to pursue other ventures, leaving chief executive Lisa Hook, a former AOL executive, at the helm. Several new hires have come on board over the past year, including former higher-ups from companies such as Qualcomm and Sprint Nextel.

While Vonage has pumped money into quirky television ads to attract customers, SunRocket has tried to differentiate itself in the market by offering aggressively priced calling plans. It has also rolled out cheap international calling plans, charging between 1 and 13 cents a minute for calls to Asia.

SunRocket has benefited from the growing Internet-phone-service market, which claimed 11 million subscribers and $1 billion in revenue by the end of the first quarter, increases of 93 percent and 117 percent, respectively, over the same period a year ago, according to TeleGeography Research.

But cable giants Comcast, Cox, Time Warner and Cablevision now serve two-thirds of all residential Internet phone customers in the United States. Phone companies such as Verizon and AT&T have also begun offering their own Internet-calling plans.

Vonage's legal battle with Verizon, which has sued the start-up over patent infringement, may also be scaring off potential customers and investors from Internet-phone-service providers, analysts said.

Stephan Beckert, research director at TeleGeography, said SunRocket tends to attract younger, more tech-savvy customers than its cable rivals, making it "more difficult to get a strong and deeply loyal customer base."

"It's not that SunRocket is hemorrhaging customers; they're just not adding as many customers as cable companies," he said. Stand-alone providers like Vonage and SunRocket "are in a difficult position, but there is a definite business there."

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