TeleNav 2010 Annual Report Download - page 23

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decline proportionately. These costs include third party map and other data costs and internal costs to provide our
services. Many of these costs increase as the number of end users increases, and also increase based on
incremental usage by end users, both of which could have a negative effect on our gross margins. Although we
have taken action to increase the predictability of certain of our third party map and other data costs for Sprint
bundles, we may not have adequately aligned our cost of providing our LBS and may not be successful in
maintaining or reducing the decline in our gross margin.
Our success depends on significantly increasing the number of end users that purchase our LBS from our
wireless carrier partners.
Our revenue is derived almost exclusively from subscription fees that we receive from our wireless carrier
partners for end users who subscribe to our service on a stand alone basis or in a bundle with other services.
Depending on the wireless carrier contracts, we receive revenue per end user as a fixed fee or a revenue sharing
arrangement. To date, a relatively small number of end users have subscribed for our services in connection with
their wireless plans compared to the total number of mobile phone users. Our near term success depends heavily
on achieving significantly increased subscriber adoption of our LBS either through stand alone subscriptions to
our services or as part of bundles from our existing wireless carrier partners. Our success also depends on
achieving widespread deployment of our LBS by attracting and retaining additional wireless carrier partners. The
use of our LBS will depend on the pricing and quality of those services, subscriber demand for those services,
which may vary by market, as well as the level of subscriber turnover experienced by our wireless carrier
partners. If subscriber turnover increases more than we anticipate, our financial results could be adversely
affected.
If our current and future wireless carrier partners do not successfully market our LBS, particularly GPS
Navigator, to their customers or if we are not successful in maintaining and expanding our relationships with our
wireless carrier partners, we will not be able to maintain or increase the number of end users that use our LBS
and our business, operating results and financial condition will be materially adversely affected.
If our wireless carrier partners lose net subscribers, such as the losses Sprint has experienced, or if their
subscribers do not continue to purchase service plans that include our LBS and we are unable to develop
relationships with other significant wireless carriers, we will lose end users and our revenue and operating
results will be adversely affected.
Wireless carriers’ relationships with subscribers have been threatened by several factors, including strong
competition, lack of subscriber loyalty and the development of direct relationships between mobile phone
manufacturers and mobile phone operating system providers and consumers. A loss of net subscribers by one or
more of our wireless carrier partners could harm our business as we rely on our wireless carrier partners to
market our products. For example, one of our key wireless carrier partners, Sprint, has been experiencing losses
in net subscribers. If Sprint continues to lose net subscribers or if Sprint subscribers do not continue to purchase
service plans that include our LBS, we may also lose end users and experience a decline in revenue to the extent
we are unable to develop similar relationships with other significant wireless carriers which include our services
in attractive bundled or other LBS offerings that generate comparable revenue. A significant decrease in the
number of our end users will adversely affect our revenue and operating results.
Our ability to increase or maintain our end user base and revenue will be impaired if mobile phone
manufacturers do not allow us to customize our services for their new devices.
We typically deliver our services through client software that has been customized to work with a given
mobile phone’s operating system, features and form factors. Wireless carrier partners often insist that mobile
phone manufacturers permit us to customize our client software for their devices in order to provide the end user
with a positive experience. Wireless carriers or mobile phone manufacturers may enter into agreements with
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