VoIP provider SunRocket's troubles and subsequent collapse are well known, leading many to wonder if it's a warning sign for Vonage's prospects. Of course, Vonage (unwisely) decided to dance on SunRocket's grave, celebrating that it had caused SunRocket to go out of business. Perhaps they should have waited until SunRocket was really, totally dead. The whole taking credit for SunRocket's demise might come back to bite them as the ghost of SunRocket is now suing Vonage for emailing SunRocket's customer list. Apparently, the two companies had discussed, under a confidentiality agreement, Vonage buying SunRocket's customers or customer list, but talks never went very far. Soon afterwards Vonage emailed SunRocket's customers asking with an offer to move over to Vonage's service. The liquidation firm handling the SunRocket shutdown (incidentally, it's Marty, the dot com cleanup guy's firm) potentially saw this as an easy lawsuit to try to recover some cash for SunRocket, and sued Vonage for violating the confidentiality agreement. Vonage insists that it acquired the list legally, outside of the discussions with SunRocket. Neither party comes out of this looking very good, but that seems to be pretty typical in the independent VoIP space lately.

Vonage has been having a rough go of it lately, so apparently the company has to take whatever small victories it can. A spokesman for the company recently bragged that it was responsible for the demise of Sunrocket, the #2 independent VoIP operator. In a sense, the company is correct in that the cutthroat price competition in this space is what killed Sunrocket. But Vonage is struggling itself for the same reasons. From a business model perspective, there wasn't much of a difference between Vonage and Sunrocket, except that Vonage seemed to spend way more on advertising. By going out of its way to highlight Sunrocket's woes, the company is pretty much reminding everyone that it's in the exact same boat.

Last week, VoIP provider SunRocket pulled the plug, and it looks like it will be joined on Tuesday by mobile virtual operator Amp'd. But in addition to out of work employees and unpaid creditors, there's another group of affected people here that seem to have gotten lost in the shuffle: these companies' customers. As the comments to one of our posts about SunRocket attests, the company's customers were left hanging in the wind, with no real information about what would happen to their service, or their phone numbers. Amp'd users got a helpful text message ("AMPD MSG: Your svc may be disconnected on 7.24 @ 12:01am. Go to http://www.ampd.com or contact the location where you activated your service for further info.") and a hastily written FAQ. It's not like these companies will really care about their ex-customers, and acting in the name of morality, or even just being decent, won't pay their bills. But the bigger issue here is what this means for other upstart companies, particularly in entrenched industries like telecom. For all their faults and downsides compared to VoIP providers, it's unlikely that companies like AT&T or Verizon will go out of business and leave their customers in the lurch -- and that could make it harder for newer, smaller companies to pull in users.

The buzz of the day is about new VoIP company Ooma, which promises free phone calls forever if users shell out $399 for its piece of hardware. The technology sounds interesting, as it handles some of the switching of calls in the boxes themselves, rather than in the network, but outside the hype, there's plenty to be skeptical about. On the tech side, Ooma needs users with local phone service, since that's what it uses to terminate calls. Essentially what happens when an Ooma user makes a long-distance call to a non-Ooma user is that the call is routed to an Ooma box in the corresponding area code that's connected to a standard landline, which is then used for the call to the standard phone network. While this lets the company avoid setting up some network infrastructure, it seems counterintuitive to rely on people buying Ooma for long-distance calls, but keeping their local phone service -- particularly when many VoIP services offer unlimited local and long distance for little premium, if any, over the cost of traditional local service. Ooma's timing isn't great either. It's asking people to make a considerable upfront investment for lifetime service, just a few days after the collapse of SunRocket, which had lots of users on $200 per year prepaid plans, and whose money (and phone numbers) are in limbo. Other companies have made similar lifetime calling offers as Ooma's, but given the upheaval in the VoIP space caused by falling call costs, consumers will be hesitant to shell out large upfront fees for service, lest the provider disappear.

The slow death of SunRocket (which has now been confirmed), has prompted a lot of discussion about how to move to a new service if you're a SunRocket customer. Obviously, any SunRocket customer is going to have a few inconvenient days as they try to make the switch to another VoIP operator, if they do so at all. Also, just as Vonage's woes made it harder for SunRocket to raise funds, SunRocket's collapse could end up hurting Vonage. If Vonage customers start to freak out that they could lose their phone service as well (a prospect made more likely by the ongoing litigation against the company), then they may preemptively flee, looking for a more stable service. The phenomenon, whereby doubts about some sellers end up hurting more reputable services, is what economists would call a market for lemons, and this would seem to be a classic example. Meanwhile, Vonage investors have fled the scene long ago, as Vonage shares languish at all-time lows.

Late last month, we reported that SunRocket, the second-biggest independent VoIP company was having some problems as the fundamentally poor economics of the the VoIP business caught up to it, and VoIP patent issues hindered its ability to attract further funding. Now, Broadband Reports says it looks like the company could be finished, as a poster in their forums said it's no longer taking new users. While BBR is treating this as a rumor, the folks there were unable to get the company's order system to work, so it doesn't look good. The burgeoning VoIP patent thicket doesn't help things, but the real issue is the falling cost of voice calls. While companies that can tack VoIP into a bundle -- like cable companies, which are seeing a lot of success with their VoIP offerings -- can make this work, it's not going to get any easier for independent companies. Update: BBR has another report that SunRocket may have laid off all but 20 to 25 of its employees in advance of a sale to the owner of another small VoIP company. Such a deal would, in all likelihood, merely postpone SunRocket's demise rather than prevent it.