8x8 2006 Annual Report Download - page 23

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The failure of IP networks to meet the reliability and quality standards required for voice and video
communications could render our products obsolete.
Circuit-switched telephony networks feature very high reliability, with a guaranteed quality of service. In addition,
such networks have imperceptible delay and consistently satisfactory audio quality. Emerging broadband IP
networks, such as LANs, WANs, and the Internet, or emerging last mile technologies such as cable, digital
subscriber lines, and wireless local loop, may not be suitable for telephony unless such networks and technologies
can provide reliability and quality consistent with these standards. We periodically experience outages during which
our customers are unable to make or receive calls. Generally, these outages are of a very short duration. A
prolonged outage could have a material adverse effect on our business, financial condition or operating results.
Our products must comply with industry standards, FCC regulations, state, local, country-specific and
international regulations, and changes may require us to modify existing products and/or services.
In addition to reliability and quality standards, the market acceptance of telephony over broadband IP networks is
dependent upon the adoption of industry standards so that products from multiple manufacturers are able to
communicate with each other. Our VoIP telephony products rely heavily on communication standards such as SIP,
H.323, MGCP and Megaco and network standards such as TCP/IP and UDP to interoperate with other vendors'
equipment. There is currently a lack of agreement among industry leaders about which standard should be used for a
particular application, and about the definition of the standards themselves. These standards, as well as audio and
video compression standards, continue to evolve. We also must comply with certain rules and regulations of the
Federal Communications Commission (FCC) regarding electromagnetic radiation and safety standards established
by Underwriters Laboratories, as well as similar regulations and standards applicable in other countries. Standards
are continuously being modified and replaced. As standards evolve, we may be required to modify our existing
products or develop and support new versions of our products. We must comply with certain federal, state and local
requirements regarding how we interact with our customers, including marketing practices, consumer protection,
privacy and billing issues, the provision of 911 emergency service and the quality of service we provide to our
customers. The failure of our products and services to comply, or delays in compliance, with various existing and
evolving standards could delay or interrupt volume production of our VoIP telephony products, subject us to fines or
other imposed penalties, or harm the perception and adoption rates of our service, any of which would have a
material adverse effect on our business, financial condition or operating results.
Our ability to offer services outside the U.S. is subject to the local regulatory environment, which may be
unknown, complicated and often uncertain.
Regulatory treatment of VoIP telephony outside the United States varies from country to country. We currently
distribute our products and services directly to consumers and through resellers that may be subject to
telecommunications regulations in their home countries. The failure of these consumers and resellers to comply with
these laws and regulations could reduce our revenue and profitability. Because of our relationship with the resellers,
some countries may assert that we are required to register as a telecommunications carrier in that country. In such
case, our failure to do so could subject us to fines or penalties. In addition, some countries are considering subjecting
VoIP services to the regulations applied to traditional telephone companies. Regulatory developments such as these
could have a material adverse effect on our international operation.
In many countries in which we operate or our services are sold, the status of the laws that may relate to our services
is unclear. We cannot be certain that our customers, resellers, or other affiliates are currently in compliance with
regulatory or other legal requirements in their respective countries, that they or we will be able to comply with
existing or future requirements, and/or that they or we will continue to be in compliance with any such requirements.
Our failure or the failure of those with whom we transact business to comply with these requirements could have a
material adverse effect on our business, operating results or financial condition.
Future legislation or regulation of the Internet and/or voice and video over IP services could restrict our
business, prevent us from offering service or increase our cost of doing business.
At present there are few laws, regulations or rulings that specifically address access to commerce and
communications services on the Internet, including IP telephony. We are unable to predict the impact, if any, that
future legislation, legal decisions or regulations concerning the Internet may have on our business, financial
condition, and results of operations. Regulation may be targeted towards, among other things, assessing access or
settlement charges, imposing taxes related to internet communications and imposing tariffs or regulations based on