8x8 2009 Annual Report Download - page 25

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interconnected VoIP providers like us. If we pass through the taxes, fees and surcharges that may be applied to our service, the
impact of this price increase on our customers or our inability to recoup our costs or liabilities in remitting such taxes, fees and
surcharges could have a material adverse effect on our financial position, results of operations and cash flows. We may also be
at a competitive disadvantage to other providers who choose not to comply with these payment obligations.
If we are unable to improve our process for local number portability provisioning, our growth may be negatively
affected.
We support local number portability, or LNP, for our customers, which allows our customers to retain their existing telephone
numbers when subscribing to our services. Transferring numbers is a manual process that, in the past, has taken us 20 business
days or longer, although we have taken steps to automate this process to reduce the delay. A new customer of our services
must maintain both the new 8x8 service and the customer’ s existing telephone service during the number transfer process. By
comparison, transferring wireless telephone numbers among wireless service providers generally takes several hours, and
transferring wireline telephone numbers among traditional wireline service providers generally takes a few days. The
additional delay that we experience is due to our reliance on third party carriers to transfer the numbers, as well as the delay the
existing telephone service provider may contribute to the process. Local number portability is considered an important feature
by many potential customers, especially our business customers, and if we fail to reduce related delays, we may experience
increased difficulty in acquiring new customers or retaining existing customers. Moreover, the FCC now requires
interconnected VoIP providers, like us, to comply with industry standard timeframes and a new order shortens the timeframe
for certain types of ports considerably, although the new order will not be effective for at least nine months. If we are unable to
process ports within the requisite timeframes, we could be subject to fines and/or penalties. Additionally, both customers and
carriers may seek relief from the relevant state public utility commission, the FCC, and/or in state or federal court. During
fiscal 2008, the FCC required interconnected VoIP providers to remit regulatory and local number portability fees.
The rates we pay to underlying telecommunications carriers may increase which may reduce our profitability and
increase the retail price of our service.
The FCC has several open proceedings considering new rules that may impact charges that regulated telecommunications
carriers assess each other for originating and terminating traffic. It is possible that the FCC will adopt new rules that subjects
interconnected VoIP traffic to increased charges. Should this occur, the rates that we pay to our underlying carriers may
increase which may reduce our profitability and may also increase the retail price of our service making our service less
competitive with other providers of similar calling services. We cannot predict either the timing or the outcome of these
proceedings.
Our success also depends on our ability to handle a large number of simultaneous calls, which our network may not be
able to accommodate.
We expect the volume of simultaneous calls to increase significantly as the 8x8 subscriber base grows. Our network hardware
and software may not be able to accommodate this additional volume. If we fail to maintain an appropriate level of operating
performance, or if our service is disrupted, our reputation could be hurt, we could lose customers, all of which could have a
material adverse effect on our business, financial condition or operating results.
We could be liable for breaches of security on our web site, fraudulent activities of our users, or the failure of third-
party vendors to deliver credit card transaction processing services.
A fundamental requirement for operating an Internet-based, worldwide voice and video communications service and
electronically billing our 8x8 customers is the secure transmission of confidential information and media over public networks.
Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent
credit card transactions and other security breaches, failure to mitigate such fraud or breaches may adversely affect our
operating results. The law relating to the liability of providers of online payment services is currently unsettled and states may
enact their own rules with which we may not comply. We rely on third party providers to process and guarantee payments
made by 8x8 subscribers up to certain limits, and we may be unable to prevent our customers from fraudulently receiving
goods and services. Our liability risk will increase if a larger fraction of our 8x8 transactions involve fraudulent or disputed
credit card transactions. Any costs we incur as a result of fraudulent or disputed transactions could harm our business. In
addition, the functionality of our current billing system relies on certain third-party vendors delivering services. If these
vendors are unable or unwilling to provide services, we will not be able to charge for our 8x8 services in a timely or scalable
fashion, which could significantly decrease our revenue and have a material adverse effect on our business, financial condition
and operating results.