By Matt Richtel
The New York Times
Waiting for an important phone call can be stressful. As Marshel Emery can attest, it is doubly so when your phone company has just ceased to exist.
Emery, 33, low on funds and with three children to support, recently applied for jobs at several law enforcement agencies in Tennessee. But his phone service is provided by SunRocket, an Internet telephone company that went out of business without warning last week, leaving its roughly 220,000 customers in the lurch.
Some have no service. Others still do, but like Emery they have been told that it could be cut off at any moment.
Although SunRocket was tiny by the standards of the telecommunications industry, it has ensured itself a place in the history of the digital era by being the first significant Internet telephone provider to go out of business. Its collapse raises questions about what responsibility such companies have to their customers–and about how they should be regulated, given how essential many people consider phone service to be.
“It’s your lifeline. It’s your food line,” said Emery, who lives in Lawrenceburg, Tenn. “If you’re going to pull somebody’s phone line, they should know about it.”
The SunRocket meltdown was further complicated because many customers paid $199 upfront for a year of unlimited service, and it is not clear if any of them will receive a refund.
The sudden disappearance of a phone company would have been unthinkable in the past, when telephone service was treated as a veritable unalienable right, like electricity, and being a phone company usually meant owning a physical network of switches, cables and poles.
By Matt Richtel
The New York Times
Waiting for an important phone call can be stressful. As Marshel Emery can attest, it is doubly so when your phone company has just ceased to exist.
Emery, 33, low on funds and with three children to support, recently applied for jobs at several law enforcement agencies in Tennessee. But his phone service is provided by SunRocket, an Internet telephone company that went out of business without warning last week, leaving its roughly 220,000 customers in the lurch.
Some have no service. Others still do, but like Emery they have been told that it could be cut off at any moment.
Although SunRocket was tiny by the standards of the telecommunications industry, it has ensured itself a place in the history of the digital era by being the first significant Internet telephone provider to go out of business. Its collapse raises questions about what responsibility such companies have to their customers–and about how they should be regulated, given how essential many people consider phone service to be.
“It’s your lifeline. It’s your food line,” said Emery, who lives in Lawrenceburg, Tenn. “If you’re going to pull somebody’s phone line, they should know about it.”
The SunRocket meltdown was further complicated because many customers paid $199 upfront for a year of unlimited service, and it is not clear if any of them will receive a refund.
The sudden disappearance of a phone company would have been unthinkable in the past, when telephone service was treated as a veritable unalienable right, like electricity, and being a phone company usually meant owning a physical network of switches, cables and poles.
Standard telephone companies are required to give customers notice if they plan to stop service. But companies like SunRocket that use the infrastructure of the Internet to transmit calls do not have to give such notice. They fall into a bit of a regulatory no man’s land in which they are required to adhere to some traditional requirements, such as building their systems so customers can get 911 service and law enforcement can get easy access to data, but they are free of many other regulations, particularly at the state level.
Many industry analysts and former policy makers said the absence of broad regulations was, to a large extent, desirable because it would allow the emerging Internet phone industry to develop. While these experts said the SunRocket shutdown was clearly a big problem for customers, they said it might not justify a spate of new regulation. One important difference between the current telecommunications era and years past is that most people now have a cell phone as a backup.
The SunRocket shutdown “does point out that there’s some need for either protection or education–I’m not sure which is the right one,” said John Nakahata, former chief of staff for the Federal Communications Commission and now a Washington lawyer focusing on telecommunications.
Nakahata said the FCC may have its own uncertainty, given that it has not made a clear decision about whether to lump Internet telephone providers in with traditional companies.
Ultimately, the consumer has to learn to factor in, how stable is this entity I’m entrusting with my phone service?” he added, noting that nevertheless, for SunRocket, “there was a much more socially responsible way to handle this.”
Blair Levin, also a former FCC chief of staff and now a Washington-based telecommunications analyst, agreed that the shutdown was unfortunate but said that policies aimed at increasing competition had made company failures more likely.
There are many small telephone companies like SunRocket that are delivering low-cost voice communications over the Internet. Unlike the large regional Bell companies, these start-ups do not control the lines over which communications are sent, which allows them to be smaller and more nimble but also makes them more susceptible to failure.
“Competition has risk, and the risk of a telco going under increases,” Levin said. In terms of highlighting these risks, he added, the SunRocket situation “is a little bit of a shot across the bow.”
The SunRocket collapse comes as small Internet phone companies are struggling but as the broader industry is enjoying explosive growth. At the end of March, there were 10.8 million Internet phone subscribers in the United States, nearly double the 5.7 million a year earlier, according to TeleGeography Research, a market research firm.
But cable companies are enjoying the biggest growth in the market. In the first quarter of this year they added 1.1 million subscribers, compared with 255,000 by start-up companies. The biggest stand-alone provider is Vonage, which has about 2.4 million subscribers, but it has faced its own challenges, and a steadily falling stock price, in the face of marketing pressure by the deep-pocketed cable companies.
SunRocket, which was founded in 2004 and had headquarters in Vienna, Va., announced last Tuesday that it had pulled the plug. Earlier there were rumors circulating among industry analysts and journalists, but no concrete warnings. In April, the company announced that it had attracted 200,000 customers.
SunRocket’s chief executive, Lisa Hook, had not answered e-mail messages or phone calls since the collapse. Mayfield Fund, one of the venture capital firms that backed the company, did not respond to an e-mail message seeking comment about whether customers should have been notified earlier.
Martin Pichinson, a partner with Sherwood Partners, which is managing SunRocket’s liquidation, said the company was closed because it did not reach profitability soon enough. He said that helping SunRocket’s customers was his first priority, and that SunRocket was striking deals to move subscribers to other providers of phone service.
A handful of Internet telephone companies have been pursuing SunRocket subscribers, and SunRocket has begun directing customers to two providers, TeleBlend and 8×8, which markets its service under the Packet8 name.
The TeleBlend offer in particular has raised concerns among some former SunRocket customers since TeleBlend appears to be a new company that offers little background information on its Web site, and has a phone number similar to that of SunRocket. Pichinson did not return a call seeking more information about the company.
The way that SunRocket handled its shutdown enraged many customers, some of whom vented online. Some customers said they were having trouble moving their phone numbers to another service, raising fears that they might lose numbers they had been using for years.
“To think that a company like SunRocket, without any notice or warning, can leave 200,000 customers high and dry is just unacceptable,” Art Tedeschi of DeSoto, Texas, said in an e-mail message last week. “Let’s face it: the demise of SunRocket didn’t just happen between last Friday and today. And the people who knew this was coming should be called in to account for their despicable behavior.”
More broadly, some customers said the biggest lesson of SunRocket was not to pay for service in advance.
“I never again want to give upfront money to corporate America,” said Larry Egan, 68, a retiree who lives outside Orlando, Fla. Already a SunRocket customer for a year, he was charged about $220 (the annual fee plus taxes) last month for a second year of service.
Now, Egan said, he plans to move his service to AT&T or some other traditional company. “I want to avoid anything that has to do with growth technology companies,” he said.