Does SunRocket's Shutdown Signal a VoIP Shakeout?

If we go by its official figures, business users should see little immediate effect from the closing of SunRocket, the second-largest independent VoIP carrer. It marketed exclusively to consumers, so all of its 200,000 now cut-off customers ought to be home users. But SunRocket's demise will leave many potential VOIP customers fearful that the same might happen to other providers such as Vonage and Packet8, which do target businesses.

SunRocket was particularly vulnerable because it competed on price, consistently offering lower-cost connections than its competitors. However, larger rival Vonage is losing money too (its stock is down more than 80% since its IPO last year) thanks to its expensive marketing and a patent lawsuit from Verizon. Though Vonage may benefit from SunRocket's demise in the short term --- like smaller competitor ViaTalk, it is already offering former SunRocket customers a discount and number portability --- the whole home VOIP sector is being squeezed by the phone and cable companies. Both incumbents have deep pockets and existing customer relationships that the independents find it hard to match.

Pure-play VOIP in the home market probably won't last, which is bad news for all telephony users as the result will be less competition and higher costs. However, service providers that sell mainly to businesses are much less risky. Their sales pitch is often based on quality of service and uptime guarantees rather than cost, and they're less dependent on cable and DSL connections to reach their customers.