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Internet Phone Start-up Goes Belly-Up
westlake writes "The New York Times has a short piece on the failure of SunRocket, the second-largest internet phone service after Vonage, with 200,000 customers. Start-ups like SunRocket are under enormous pressure from the telcos and cable, which have marketing muscle and can bundle VoIP with Internet, TV, home security services, and so on. The start-up has only one product, and since they don't own the lines, they can't control the quality of service. Attracting subscribers can put a start-up deep into the red. Vonage added 166,000 subscribers in the first quarter of 2007, but lost $77 million."
I am/was a Sunrocket subscriber. Everything was really great, one year and 9 months of everything just working for $200 a year. Right now the phone still works, I can call and be called by people. However, the voice mail is gone both the message box on the website and the ability to leave messages when calling me (it just rings forever). I'm guessing all my old messages are toast too. When calling customer service (800-786-0132) you get a message the last part in an almost robotic voice,
... We are no longer taking customer service or sales calls. Goodbye."
"Sunrocket! The no Gotcha phone company!
Well I am out 2.5 months service, I guess they learned how to "get" me.
They aren't stuck with any of the same problems if the traffic never leaves their own network. The cable outfit's VoIP packets may never leave the cable network itself, if they designed it so the VoIP->PSTN switch-over happens before their network edge. Ditto for the telcos. And quite a few of the telcos (Verizon and AT&T come to mind) are Tier 1 providers in their own right -- and could easily have end-to-end QoS for their own VoIP traffic.
Note: I'm not defending them or advocating for their service over Vonage or anybody else. Just pointing out the obvious. And for what it's worth, using T-Mo's @Home service (which isn't strictly VoIP, it's closer to GSM over IP), I haven't had any problems with my internet connection.
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
Look at T-Mobile's HotSpot @ Home service. It's basically GSM over IP (voice, data, SMS, etc), with the added advantage that you can do seemless handoffs between IP and GSM, i.e: start a call at home, walk out the door and it switches to GSM. I'm loving it. $39.99 for 1,000 cellular minutes (with nights & weekends), + $9.99 for the HotSpot add-on. I basically have unlimited calls. Plus I can use wi-fi in any area where there isn't a good GSM signal.
T-Mobile doesn't have landline business in the United States so they don't have any reason to undercut their own offerings to keep a dying landline industry alive. And the best part is not giving your money to AT&T or Verizon.
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
So what little I've been able to figure out about them, it's a standard recipe startup. They got a management team put together. Their idea wasn't really an innovation, they just changed the price structure and payment schedule for phone service. They banged out a moderately flashy website and a brand. Technically they are about average at best. The scheme seems to be if you can grow fast enough, you can either survive or bail out. I simply cannot see how they were building a long term company. So they have 200,000 subscribers, most aren't married to long term contracts so the value isn't as high as it could be for selling the company. Assuming they are all at the cheapest subscription, that's $40m a year in revenues which is no laughing matter. you can sustain a fairly large group of people on $40m a year. How were they burning that?
Could they not get more VC? I mean a $40m stream of revenue is compelling. How much more do they need to profit? It seems like if they were in it for the long term, they could have burnt less or shut the burn down and continued to grow more slowly. I've worked at a handful of startups and you won't believe the amount of work we did to make a few million dollars a year. We're they selling service cheaper than they were buying it? I don't know the numbers for telcos but at 200,000 users, they should be able to work intelligently and at least sustain, maybe not get rich but if you can't stay cash flow even at that point something seems wrong, what do you need? 10% of the US subscribing?
It won't automatically connect to an open one unless you add it to the list of saved networks. You can use any open hotspot with a DHCP server though.
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
Actually, according to TFA, it was $73 million, but what's $4 million between friends?
And the answer is obviously "no." But, the real question is will the company continuously sustain losses in the millions? And the answer again, is "no." That's because the ratio of their net losses to total revenue dropped last year. It was 0.89 in 2004, 0.98 in 2005, but last year it dropped 0.52. See for yourself. It means that they've been losing less money. (Comparing the actual net loss figures doesn't make sense because the total revenue for each year grew exponentially, so you really need to compare their losses as a ratio to the total revenue). It also means that they are likely to continue losing less money as they add more subscribers.
So, based on what I know about business economics, I would say that it's most likely that Vonage will continue to be around, so long as they don't lose their pending litigation against Verizon.
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