Sunrocket Drives a Stake Into The Heart of VoIP

If the instability with Vonage wasn't enough, now Sunrocket has gone ahead and done a world of hurt to VoIP as a consumer product. For those who have not heard (such as people living in a cave with a goat somewhere in central Asia), Sunrocket has abruptly shut down. The consumer VoIP service sent out a message a couple of weeks ago saying it would cease operations. Another one arrived a few days ago declaring that all service will be off-line by August 5^th at the latest. In the meantime, expect service disruptions. Nice.

Now keep in mind, they took my renewal in April. Late April at that. There is no way that they did not know that they were having severe financial troubles. I admit, businesses on the downward spiral will often delude themselves into thinking that they will somehow survive when it's not possible. However, to make a year long commitment at a time like that is unconscionable.

This will hurt the nascent VoIP industry because it will literally crush confidence in the very idea of VoIP. People will say “First Vonage runs into trouble. Now Sunrocket does a meltdown. No way am I putting my money into that.” It is for exactly this reason that early phone companies were allowed to be monopolies for awhile. It was necessary that they have the time to build their infrastructure and create critical mass in the marketplace before having to compete on price. Without that luxury, it will be very hard for any VoIP company to succeed.

Here's the big problem: though it costs less to deploy a VoIP system then a traditional land line or cellular system, the costs aren't zero. The capital costs can still be significant even if future operating costs are lower.

Even that assertion is unproved. In a consumer business, technology costs can often pale in comparison with marketing and customer service costs. So, even if the cost of deploying and maintaining the system is less, the cost of acquiring and maintaining the customers is not that different. In order to maintain their organizations and make money, VoIP companies will have to charge nearly as much money as a traditional provider such as Verizon. Yet, they can't begin to offer the service Verizon offers.

The Sunrocket implosion will drive a stake into the heart of VoIP. The cost differential for most VoIP services is not enough to put up with the uncertainty, difficult installations, poor service, and relatively lousy call quality. VoIP is a technology, not a business. As a technology, it will continue to exist within major providers' or corporate networks. It may eventually lead to the elimination of long distance in North America. As a business, it's doomed to die.

So, what's in store for consumer VoIP? First, the dozen or so standalone VoIP phone companies won't survive. All the clever advertising won't restore consumer confidence. Second, some of the better companies will sell their networks to traditional phone companies as a way of providing cheaper service than a land line. Finally, the only service to have that wonderful combination of critical mass, low cost, and marketing cachet, namely Skype, will evolve into a more important and ubiquitous utility. That is assuming they can get a cheap Skype phone out.

Other than that, I think that Sunrocket is striking the death knell for consumer VoIP services.

VoIP Has a Way To Go But It's On The Way

I've been watching the Vonage IPO fiasco with great interest. The company is becoming memorable as one of the worst IPOs in history. It opened to lackluster interest and dived almost immediately. Ever since, it has continued to trade in a narrow but ever decreasing band. Today it sits just a bit over $12, down roughly 25% from its opening. Yowzer!

Vonage deserves it, in a way. They don't make money. Instead they lose tremendous amounts of money. That's the problem with an IPO. Once public, you're not judged on your potential, concept, or technology. Just on your numbers. Their numbers stink, so there you have it.

My hope is that all VoIP doesn't get painted black because of this. Perhaps VoIP will be judged by the Skype experience instead. Perhaps, but life and business are cruel. Memories are short and folks usually remember the last stupid thing they heard. That's too bad because VoIP is a truly revolutionary technology. It is already transforming the way we communicate and holds the promise of finally bringing about communication convergence.

The hold up is that VoIP, unlike the PC or Internet, is really a bunch of technologies wired together and pushed to their limits. That means that the various technologies don't always play nice together. You have broadband networking (one set of providers), usually a bunch of SIP servers, and the traditional phone system (another set of providers) that all must work together. This creates all kinds of interface and provisioning problems. The result is that the call quality can vary from better than a land line to worse than a bad cell phone connection.

I've been experiencing this first hand over the course of the last month. I decided to finally drop my traditional landline in favor of a VoIP providers. The benefits were certainly there. What I got was:

• costs less than half of traditional phone service;
• network services like caller id and voice mail for free;
• long distance in North America that is free and international calling that's cheap and;
• did I mention it's half the cost of traditional service?

I also get the warm and fuzzy feeling that my expensive broadband connection is being used for something other than low bandwidth e-mail or small stuttering renditions of 30 year old TV shows. Welcome Back Kotter! It's like you never left.

There are tradeoffs however. VoIP is not as plug and play as vendors make it appear. Hooking up the adapter to the network is a no brainer but getting it to work right is not. A couple of calls to tech support at least got the connection stable enough to use.

I'm still trying to find a way to get the call quality to be consistently good. I'm making progress and new friends in my provider's tech support department (as well as a few enemies I think). I say "progress" because call quality is no longer consistently bad. It's now inconsistently good or bad, depending if you are a "glass is half empty or half full" type. I still experience drop outs, echoes, and static. Just not all the time. So, sometimes the connection is good and sometimes it's lousy.

The problem seems to be a misunderstanding between my ISP and VoIP provider. The latency in my ISP's network is more than the VoIP system can handle. I don't usually notice it since Internet applications are engineered for high latency and are more concerned with bandwidth. VoIP is apparently more like storage and sensitive to latency. This is the killer problem that must be overcome. If VoIP needs low network latency or even a predictable latency, then it will have problems in the the very SOHO market it targets. Cable ISPs don't guarantee quality of service, especially to a home. DSL providers don't guarantee QoS. Yet, VoIP needs a guaranteed minimum QoS. That's a problem that needs fixing before they lose the market.

All in all, I'm quite happy with the VoIP experience. It has dramatically cut my costs while giving me services that I never could have afforded before. Time will tell but I'm betting that VoIP providers will work out the call quality problems. It just might take awhile.