By Sharla Sikes

By now everybody’s heard about SunRocket’s collapse last week. With 200,000 former VoIP users scrambling to find new phone service, it’s not surprising that some of them are returning to a traditional land line.

Whether it’s a portent of things to come is anyone’s guess, but those who like to play it safe might decide to bail out now.

SunRocket was second in the VoIP industry right behind lawsuit-embattled Vonage. Are these companies’ travails indicative of the whole industry, or simple growing pains? Not to flog an overused cliché, but only time will tell.

“I don’t think (SunRocket’s closure) is a death knell, but it’s become a less attractive market,” said Dan O’Connell, a Gartner research director. “Those companies that don’t reinvent themselves quickly to reduce their cost structure and marketing campaigns don’t stand much of a chance.”

Combined with phone offerings from broadband companies like Qwest and Comcast—which are immersed in their own battles—the VoIP road is a little rocky right now. Certainly, lower rates lure customers away from big-name cable and DSL providers, but when things are more uncertain, those on the fence choose the “safer” option. Cable companies have added 1.1 million VoIP customers and claim 70 percent of the Internet phone market, compared to 259,412 new subscribers for smaller VoIP-only providers, according to Telegeography, a telecommunications consultancy.

VoIP providers shouldn’t be surprised to see new regulations to define and govern exactly what are the responsibilities that a VoIP provider owes its clients—and key there is emergency calling. A sudden collapse like SunRockets’ wouldn’t

So, what is the recipe for disaster that SunRocket followed? Vonage spokesman Charles Sahner, who’s no doubt enjoying the business boom after SunRocket’s demise, attributes the crash to SunRocket’s failure to provide attractive features and customer support.

“We were the leader from the very beginning and we have that critical mass and the scale,” Sahner said. “We helped put (SunRocket) out of business. They had a cheap product and they couldn’t compete.”

Not that life is all peaches and cream for Vonage, either. We’ve detailed its battle with Verizon and will continue to keep an eye out for more developments there.

In the end, analysts say, it boils down to more than just cheap minutes. Video calling and mobile VoIP are two of the things that could keep small VoIP companies competitive. Staying competitive is key, and SunRocket’s fall is just another sign of a healthy free market at work, some say. 

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