8x8 2006 Annual Report Download - page 6

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• They may experience difficulty in providing new or differentiated services or functions, such as video
communications, that the network was not originally designed to accommodate.
Until recently, traditional telephone companies have avoided the use of packet switched networks for transmitting
voice calls due to the potential for poor sound quality attributable to latency issues (delays) and lost packets which
can prevent real-time transmission. Recent improvements in packet switch technology, compression and broadband
access technologies, as well as improved hardware and provisioning techniques, have significantly improved the
quality and usability of packet-switched voice calls.
Historically, packet-switched networks were built mainly for carrying non real-time data, although they are now
fully capable of transmitting real time data. The advantages of such networks are their efficiency, flexibility and
scalability. Bandwidth is only consumed when needed. Networks can be built in a variety of configurations to suit
the number of users, client/server application requirements and desired availability of bandwidth, and many
terminals can share the same connection to the network. As a result, significantly more traffic can be transmitted
over a packet switched network, such as a home network or the Internet, than a circuit-switched telephony network.
Packet switching technology allows service providers to converge their traditionally separate voice and data
networks and more efficiently utilize their networks by carrying voice, video, facsimile and data traffic over the
same network. The improved efficiency of packet switching technology creates network cost savings that can be
passed on to the consumer in the form of lower telephony rates.
The growth of the Internet in recent years has proven the scalability of these underlying packet switched networks.
As broadband connectivity, including cable modem and digital subscriber line, or DSL, has become more available
and less expensive, it is now possible for service providers like us to offer voice and video services that run over
these IP networks to businesses and residential consumers. Providing such services has the potential to both
substantially lower the cost of telephone service and equipment costs to these customers and to increase the breadth
of features available to our subscribers. Services like full-motion, two-way video are now supported by the
bandwidth spectrum commonly available to broadband customers, whether business or residential.
Our Strategy
Our objective is to provide reliable, scalable, and profitable worldwide Internet communication services with
unmatched quality. Our goal is to achieve this objective by delivering innovative technologies and services and
balancing the needs of our customers with the needs of our business. We foster an environment that empowers our
employees to provide the best service to our customers and partners in every way that they interact with us. We
intend to bring the best possible voice and video products and services, at an affordable price, to residential
consumers and businesses and enhance the ways in which these customers communicate with each other, and with
the world.
Specific strategies to accomplish this objective include:
• Focus on our Packet8 Virtual Office product line. Towards the end of fiscal 2006, we began to shift
the focus of our sales and marketing efforts to growing the Packet8 Virtual Office services and
applications. Packet8 Virtual Office generates higher margins for us as compared to the residential
consumer service. The businesses that subscribe to the service pay for the premise equipment and
generate higher monthly service revenues. In addition, they are more likely to subscribe to our
additional services and are less likely to leave the service.
• Capitalize on our technological expertise to introduce new products and features. Over the past ten
years, we have developed or acquired several core technologies that form the backbone of our video
and voice over IP service and which we intend to use to develop product enhancements and future
products. We developed the endpoint technologies used to provide video and voice service at the
customer premise, and control the embedded software that run these endpoint devices. As a result, we
are able to update the software functionality of our customers’ endpoints without any third party
assistance. We are the only voice over IP service provider shipping two-way video-enabled hardware,
and the features in our Packet8 Virtual Office services are unique in the industry.
• Offer the best possible service and support to our customers with a world class customer support
organization. We have established a call center and customer support group at our headquarters in