SunRocket Goes Out of Business, Leaving Customers in the Lurch

By Kim Hart
Washington Post Staff Writer
Wednesday, July 18, 2007

SunRocket, an Internet phone provider, abruptly ceased operations Monday and is looking to sell its assets, after two rounds of layoffs and the departures of top executives.

Some customers reported being left without service, while others said they planned to transfer to other providers. Customers already in the middle of the company's two-year contracts may forfeit some of their money.

The closing caps a tough run for independent Internet phone companies. The Vienna start-up, with about 206,000 customers, was the second-largest provider, behind Vonage. But growth at both companies has slowed in recent months as they battle giant cable companies selling phone service in bundled packages. Vonage's legal battle with Verizon, which sued it over patent infringement, has further decreased its market share.

The three-year-old SunRocket is looking to sell its existing contracts, said Martin Pinchinson, a spokesman for Sherwood Partners of Palo Alto, Calif., which is handling the closing of SunRocket.

Former employees say SunRocket had searched in past months for a fourth round of financing, to add to $80 million it received from investors since March 2005. On June 29, the company laid off 30 to 40 employees -- a quarter of its local workforce -- to lighten its payroll and attract potential investors, said three former employees who spoke on the condition of anonymity because they still have business ties to SunRocket executives.

Last Wednesday, chief executive Lisa Hook held a company-wide meeting and told employees that buyers had approached the company but that bankruptcy was a possibility, the former employees said. On Friday, SunRocket laid off most of its remaining employees, keeping a skeletal staff of about 20 to maintain operations for subscribers. Hook, who came to SunRocket in March 2006 after a long stint at AOL, resigned the same day. Remaining employees, including 200 in a Springfield, Mo., call center, were let go Monday morning.

Callers to the customer-service line are greeted with a simple message: "We are no longer taking customer service or sales calls. Goodbye."

The company did not return calls or e-mails seeking comment. Pinchinson said customers will be notified when the company's assets are liquidated or sold.

Meanwhile, customers like Jacqueline Fairclough of San Antonio are left without phone service. Fairclough, who was lured from Vonage by SunRocket's prices, said she was satisfied with SunRocket's service but is disappointed that she was not informed when it closed.

"I don't see why they couldn't have sent out an e-mail," she said. "It's not like we don't all have Internet access."

Unlike Vonage customers, who are billed monthly, SunRocket subscribers prepay for two years of service.

Other Internet phone companies have announced special deals to lure SunRocket customers. Vonage, which has 2.4 million subscribers, is letting SunRocket customers move their phone numbers at no cost and get two months of free service under a premium calling plan. McLean-based Primus offered a free month for its Lingo service; Kansas-based Nuvio Corp. is offering a rate similar to SunRocket's.

SunRocket's demise will "create some uncertainty" for independent Internet-phone providers, said Stephan Beckert, research director with TeleGeography Research.

"It's a black eye," he said. "It's astonishing the disservice they've done to customers, disappearing with no warning and no way of dealing with it."

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