eBay 2007 Annual Report Download - page 39

and other charges. In addition, such fees may be assessed by governments retroactively or prospectively. Skype may
be required to meet various emergency service requirements, disability access requirements, user protection
requirements, number assignment and portability requirements, and interception or wiretapping requirements, such
as the Communications Assistance for Law Enforcement Act in the U.S. and similar laws in other jurisdictions.
Such regulations could result in substantial costs depending on the technical changes required to accommodate the
requirements, and any increased costs could erode Skype’s pricing advantage over competing forms of commu-
nication. Regulations that decrease the degree of privacy for users of Skype’s products could also slow its adoption.
The increasing growth and popularity of the VoIP telephony and Internet communications market heighten the risk
that governments will seek to regulate VoIP and Internet communications, and Skype has received an increasing
number of inquiries from regulators about its products and services. Competitors, including the incumbent
telephone companies, may devote substantial lobbying efforts to seek greater protection for their existing
businesses and increased regulation of VoIP. In the United States, various state legislatures and regulatory agencies
are beginning to impose their own requirements and taxes on VoIP. Some countries have prohibited Skype. In many
countries in which Skype products are available, the laws that may relate to its offerings are unclear. We cannot be
certain that Skype or its customers are currently in full compliance with regulatory or other legal requirements in all
countries in which Skype is used. Skype’s failure or the failure of those with whom Skype transacts business to
comply with these requirements could materially adversely affect our business, financial condition and results of
operations. In addition, increased regulatory requirements on VoIP would increase Skype’s costs, and, as a result,
our business would suffer.
New rules and regulations with respect to VoIP are being considered in various countries around the world, and
at least some of these rules and regulations are likely to be adopted and to be applicable to Skype. Such new rules
and regulations are likely to increase our costs of doing business and could prevent us from delivering our products
and offerings over the Internet, which could adversely affect Skype’s customer base, and thus its revenue.
Skype depends on key technology that is licensed from third parties.
Skype licenses technology underlying certain key components of its software from third parties it does not
control, including the technology underlying its peer-to-peer architecture and firewall traversal technology, and the
video compression/decompression used to provide high video quality. Although Skype has contracts in place with
its third party technology providers, there can be no assurance that the licensed technology or other technology that
we may seek to license in the future will continue to be available on commercially reasonable terms, or at all. The
loss of, or inability to maintain, existing licenses could result in a decrease in service quality or loss of service until
equivalent technology or suitable alternatives can be developed, identified, licensed and integrated. While we
believe Skype has the ability to either extend these licenses on commercially reasonable terms or identify and obtain
or develop suitable alternative products, the costs associated with licensing or developing such products could be
high. Any failure to maintain these licenses on commercially reasonable terms or license or develop alternative
technologies would harm Skype’s business.
Our businesses depend on continued and unimpeded access to the Internet. Internet service providers
may be able to block, degrade, or charge us or our users additional fees for our offerings.
Our customers rely on access to the Internet to use our products and services. In many cases that access is
provided by companies that compete with at least some of our offerings, including incumbent telephone companies,
cable companies, mobile communications companies, and large Internet service providers. Some of these providers
have stated that they may take measures that could degrade, disrupt, or increase the cost of customers’ use of our
offerings by restricting or prohibiting the use of their lines for our offerings, by filtering, blocking, delaying, or
degrading the packets containing the data associated with our products, or by charging increased fees to us or our
users for use of their lines to provide our offerings. Some of these providers have contractually restricted their
customers’ access to VoIP offerings (which would include Skype) through their terms of service with their
customers. These activities are technically feasible and may be permitted by applicable law. In addition, Internet
service providers could attempt to charge us each time our customers use our offerings. Worldwide, a number of
companies have announced plans to take such actions or are selling products designed to facilitate such actions.
Interference with our offerings or higher charges for access to our offerings, whether paid by us or by our customers,
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