For SunRocket Customers, Sounds of Silence

Lisa Hook, former CEO of SunRocket, the Vienna Internet-phone firm that folded Monday.
Lisa Hook, former CEO of SunRocket, the Vienna Internet-phone firm that folded Monday. (By Jeff Carlick -- Bloomberg News)
By Kim Hart
Washington Post Staff Writer
Thursday, July 19, 2007

Thousands of SunRocket subscribers found their phone lines disconnected this week after the start-up Internet-phone service provider abruptly shut its doors Monday.

One of them was Kirsten Apple, who depended on her phone line to run her photography business. She's also nine months pregnant and does not get cellphone reception in her Falls Church home.

"I'm supposed to go into labor any day, and I have no way of making a phone call from home," said Apple, who had been a SunRocket customer for nearly two years and resorted to stepping outside her house to make calls on her cellphone. "I was such a big advocate of SunRocket, but this is more than disappointing. They could have given us warning before shutting down service."

The meltdown of SunRocket is one of the biggest recent business flameouts in the region. Many of SunRocket's 200,000 customers, who bet on a relatively new technology offered by a new company, are scrambling to get hooked up with alternate phone service. In some cases, customers who had prepaid for service simply lost money on the remaining time on their contracts. SunRocket owes millions of dollars in unpaid bills to some of its vendors -- including Level 3 Communications and Global Crossing -- who may have pulled the plug on their connections, according to former managers who had knowledge of SunRocket's billing problems.

Level 3 did not return calls, and Global Crossing declined to comment.

The three-year-old Vienna start-up had been struggling financially and laid off most of its workers during the past two weeks. Chief executive Lisa Hook, a former AOL executive, resigned Friday, just before SunRocket turned out the lights.

Packet8, the third-largest independent Internet-phone service provider with 181,000 customers, said yesterday that it entered an agreement with SunRocket's liquidator, Sherwood Partners of Palo Alto, Calif., to accept SunRocket subscribers. Customers can transfer their phone service at no charge and will receive one month free.

Customers should be able to keep their phone numbers, although it may take two or three days to get their phones up and running, said Huw Rees, vice president of sales and marketing for Packet8, also known as 8x8. Packet8 will not honor prepaid SunRocket contracts, he said.

SunRocket is expected to notify customers of their options via e-mail today, Rees said.

Other Internet-phone companies such as Vonage, Nuvio, Primus and ViaTalk are trying to lure SunRocket customers with special offers. But some customers are now questioning the reliability of other start-up providers. Vonage, for example, has been fighting Verizon in a patent suit and warned earlier this year that it may not survive if it loses the case.

"It is just a rather uneasy feeling to be blind-sided like that," said Melinda Foster of York, Pa., who was a SunRocket customer for two years. "Now I'm a little leery about all VoIP [Internet phone] service."

Yesterday, she switched to Lingo, the service offered by Primus Telecommunications of McLean, because of its low price. But she considered signing up with one of the more-established cable companies that offer telephone service bundled with Internet and cable service.

Cable giants Cox, Comcast and Cablevision serve two-thirds of the country's Internet-phone subscribers, according to TeleGeography Research.

SunRocket was one of the largest venture capital deals in the Washington region, accumulating $80 million over the past two years, according to figures compiled by PricewaterhouseCoopers and the National Venture Capital Association. Its sudden collapse may discourage investors from funding similar start-ups that have to compete against giant cable and phone companies with large customer bases and deep pockets.

"Most of the other independent companies have been a lot more conservative in their capital spending than SunRocket," said Stephan Beckert, research director at TeleGeography. "I'm still shocked SunRocket burned through that much cash."

The skeptical investors include Ginger Lew of Amplifier Venture Partners, a McLean firm that did not invest in SunRocket.

"The best bet for these companies may be to partner with bigger, established players," because it's hard and expensive to lure customers away from the phone and cable giants, Lew said.

SunRocket's investors, which include Mayfield Fund, Doll Capital Management and Anthem Capital Management, did not respond to calls requesting comment.

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