8x8 2001 Annual Report Download - page 32

CONTINUED REDUCTIONS IN LEVELS OF CAPITAL INVESTMENT BY TELECOMMUNICATION SERVICE PROVIDERS MIGHT
IMPACT OUR ABILITY TO INCREASE REVENUE AND PREVENT US FROM ACHIEVING PROFITABILITY
The market for the services provided by telecommunication service providers who compete against traditional telephone companies has only
begun to emerge, and many of these service providers are still building their infrastructure and rolling out their services. These
telecommunication service providers require substantial capital for the development, construction, and expansion of their networks and the
introduction of their services. Financing may not be available to emerging telecommunication service providers on favorable terms, if at all.
The inability of our current or potential emerging telecommunication service provider customers to acquire and keep customers, to successfully
raise needed funds, or to respond to any other trends such as price reductions for their services or diminished demand for telecommunication
services generally, could adversely affect their operating results or cause them to reduce their capital spending programs. If our current or
potential customers are forced to defer or curtail their capital spending programs, sales of our hosted iPBX and SCE products to those
telecommunication service providers may be adversely affected, which would negatively impact our business, financial condition, and results
of operations. In addition, many of the industries in which telecommunication service providers operate have recently experienced
consolidation. The loss of one or more of our current or potential telecommunication service provider customers, through industry
consolidation or otherwise, could reduce or eliminate our sales to such a customer and consequently harm our business, financial condition, and
results of operations.
THE FAILURE OF IP NETWORKS TO MEET THE RELIABILITY AND QUALITY STANDARDS REQUIRED FOR VOICE
COMMUNICATIONS COULD RENDER OUR PRODUCTS OBSOLETE
Circuit-switched telephony networks feature very high reliability, with a guaranteed quality of service. The common standard for reliability of
carrier-grade real-time voice communications is 99.999%, meaning that the network can be down for only a few minutes per year. 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, DSL, and wireless local loop, may not be used for telephony unless such
networks and technologies can provide reliability and quality consistent with these standards.
OUR PRODUCTS MUST COMPLY WITH INDUSTRY STANDARDS AND FCC REGULATIONS, AND CHANGES MAY
REQUIRE US TO MODIFY EXISTING PRODUCTS
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. IP telephony products rely heavily
on standards such as H.323, SIP, SGCP, MGCP, H.GCP, and Megaco 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. 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. The failure of our products to comply, or delays in compliance, with various
existing and evolving industry standards could delay or interrupt volume production of our IP telephony products, which would have a material
adverse effect on our business, financial condition and operating results.
FUTURE REGULATION OR LEGISLATION OF THE INTERNET COULD RESTRICT OUR BUSINESS OR INCREASE OUR
COST OF DOING BUSINESS
At present there are few laws or regulations that specifically address access to or commerce 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,
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