8x8 2005 Annual Report Download - page 37

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In July 2004, we received a letter from the Arizona Corporation Commission, or ACC, stating that it was conducting
a competitive analysis of the various telecommunications markets in Arizona. The letter requested that we provide
answers to a listing of questions as well as certain data. On August 26, 2004, after executing the ACC's standard
protective agreement governing the submission of commercially sensitive information, we sent to the ACC answers
to some of the questions posed in the initial letter, together with information responsive to certain of the data
requests. Inasmuch as the ACC proceeding is a generic docket opened for the purpose of gathering information
regarding VoIP, additional information requests are possible, but none has been received to date.
In late 2004 and early 2005, we received notices from multiple municipalities in California that the Packet8 service
is subject to utility user taxes, as defined in the respective municipal codes. The notices require that we begin
collecting and remitting utility user taxes no later than January 1, 2005. We have responded to these municipalities
and disputed their assertions.
In January 2005, we received a letter from an association representing multiple municipalities in South Carolina
asserting that we are subject to a business license tax applied to telecommunications companies. We have
responded to this association and disputed their assertion.
In May 2005, we began charging a Regulatory Recovery Fee, currently an additional $1.50 per month, on each
telephone number that is used by our customers, including toll free and virtual numbers. The Regulatory Recovery
Fee is charged monthly to offset costs incurred by us in complying with inquiries and obligations imposed by
federal, state and municipal regulatory bodies/governments and the related legal and billing expenses. This fee is not
a tax or charge required or assessed by any government.
In May 2005, we received a notice from the City of Chicago that we were being investigated for non-compliance
with Chicago tax laws as we are not collecting and remitting Chicago’s Telecommunications Tax. We are working
with counsel to formulate a response to dispute the applicability of this tax to the Packet8 service.
We may be subject to liabilities for past sales and our future sales may decrease.
In accordance with current industry practice, we do not collect state and federal telecommunications taxes, other
than federal excise tax, or FET, or other telecommunications surcharges with respect to our Packet8 service. We do
not collect Value Added Tax, or VAT, for services that we provide to customers in European Union, or EU, member
countries. Future expansion of our Packet8 service, along with other aspects of our evolving business, may result in
additional sales and other tax obligations. One or more states or foreign countries may seek to impose sales or other
tax collection obligations on out-of-jurisdiction companies that provide telephone service. A successful assertion by
one or more states or foreign countries that we should collect sales or other taxes on the sale of merchandise or
services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional
telephone companies, and could have a material adverse effect on our business, financial condition or operating
results.
Potential regulation of Internet service providers could adversely affect our operations.
To date, the FCC has treated Internet service providers as information service providers. Information service
providers are currently exempt from federal and state regulations governing common carriers, including the
obligation to pay access charges and contribute to the universal service fund. The FCC is currently examining the
status of Internet service providers and the services they provide. If the FCC were to determine that Internet service
providers, or the services they provide, are subject to FCC regulation, including the payment of access charges and
contribution to the universal service funds, it could have a material adverse effect on our business, financial
condition and operating results.
There may be risks associated with the lack of 911 emergency dialing or the limitations associated with E911
emergency dialing with the Packet8 service.
In May 2005, the FCC unanimously adopted an Order and Notice of Proposed Rulemaking, or NPRM, that requires
VoIP providers to provide emergency 911, or E911, service. On June 3, 2005, the FCC released the text of the First
Report and Order and Notice of Proposed Rulemaking in the VoIP E911 proceeding, or the VoIP E911 Order. As a
result of the VoIP E911 Order, VoIP service providers that interconnect to the PSTN, or interconnected VoIP
providers, will be required to mimic the 911 emergency calling capabilities offered by traditional landline phone
companies. All interconnected VoIP providers must deliver 911 calls to the appropriate local public safety