Local startup company SunRocket, the second-largest independent broadband telephone provider behind industry leader Vonage, is well positioned to grow as its New Jersey-based competitor stumbles in the stock market.
Vienna-based SunRocket, one of a handful of companies offering Voice over Internet Protocol or VoIP technology, has about 135,000 subscribers to Vonage’s nearly 2 million. But Vonage left an opening for competitors when it had a disappointing performance after going public in February.
“Service quality and customer support have been a real challenge for Vonage and that has hurt them in the marketplace,” said Bob Egan, director of emerging technologies with the Massachusetts-based research firm TowerGroup. “I don’t think this is the unraveling of Vonage, but part of what we’re seeing is the over-hype of the IPO.”
Despite Vonage’s subscriber lead and strong brand recognition, its stock dropped from an initial offering price of $17 to a low of $6.30 this month. On Monday, the company announced the departure of board member Hugh Panero, CEO of D.C.-based XM Satellite Radio.
Vonage competes head-to-head with major cable and telephone companies such as Comcast and Verizon — who jumped into broadband phone service after seeing VoIP’s growth.
Vonage also helped second-comers like SunRocket by spending millions to educate the public on VoIP technology — something SunRocket didn’t have todo.
“There have been a number of benefits from coming in behind the market leader,” said Brian Lustig, a SunRocket spokesman. “We’ve been able to watch how Vonage has executed various initiatives.”
SunRocket expects to have 300,000 subscribers by the end of the year and plans to break even by 2007, he said.
But even with Vonage slipping, SunRocket is more focused on potential new customers — not taking Vonage’s. There are about 50 million U.S. households that have broadband service and only about 7 million using VoIP technology.
In the end, it may be companies such as SunRocket that provide the biggest payoff if they are acquired by one of the major players, rather than trying to become one, Egan said.
“Vonage may have gone public too soon,” he said. “But their end game is really to become a major player. … Is a Vonage or a SunRocket going to become the next AT&T or Cingular? None of them have enough money or marketing prowess to make that happen.”
Bloomberg contributed to this report.
