8x8 2007 Annual Report Download - page 22

On August 5, 2005, the FCC unanimously adopted an order responsive to a joint petition filed by the Department of Justice, the
Federal Bureau of Investigation, and the Drug Enforcement Administration asking the FCC to declare that broadband Internet
access services and VoIP services be covered by the Communications Assistance for Law Enforcement Act, or CALEA.
The FCC, in a subsequent order released on May 12, 2006, required all interconnected VoIP providers to become fully CALEA
compliant by May 14, 2007. The FCC allowed VoIP providers to comply with CALEA through the use of a solution provided
by a trusted third party with the ability to extract call content and call-identifying information from a VoIP provider’s network.
While the FCC permits carriers to use the services provided these third parties to become CALEA compliant by the deadline,
the carrier remains ultimately responsible for ensuring the timely delivery of call content and call-identifying information to
law enforcement, and for protecting subscriber privacy, as required by CALEA.
We have selected a partner to work with us to develop a solution for CALEA compliant lawful interception of communications
and, as of May 14, 2007, we had installed this solution in our network operations and data centers, but had not yet completed
testing of all required intercept capabilities of this equipment. We are diligently working to complete the testing of this
equipment in order to achieve full compliance with the FCC’s order, but there are no guarantees that full compliance can be
achieved. We could be subject to an enforcement action by the FCC or law enforcement agencies if our CALEA solution does
not become fully operational. We may be subject to enforcement actions including, but not limited to, fines, cease and desist
orders, or other penalties if we are not able to comply with CALEA. Our failure to achieve compliance with any future
CALEA orders, rules, filings or standards, or any enforcement action initiated by the FCC or other agency, state or task force
against us could have a material adverse effect on our financial position, results of operations or cash flows.
There may be risks associated with our ability to comply with the requirements of federal and other regulations related
to Customer Proprietary Network Information (CPNI).
On April 2, 2007, the FCC released an order extending the application of the customer proprietary network information, or
CPNI, rules to interconnected VoIP providers. VoIP providers have six months from the effective date of the order to
implement all the CPNI rules. CPNI includes information such as the phone numbers called by a consumer; the frequency,
duration, and timing of such calls; and any services/features purchased by the consumer, such as call waiting, call forwarding,
and caller ID, in addition to other information that may appear on a consumer’s bill.
Under the FCC’s existing rules, carriers may not use CPNI without customer approval except in narrow circumstances related
to their provision of existing services, and must comply with detailed customer approval processes when using CPNI outside of
these narrow circumstances. The new CPNI requirements are aimed at establishing more stringent security measures for access
to a customer’s CPNI data in the form of enhanced passwords for on-line access and call-in access to account information as
well as customer notification of account or password changes.
At the present time we do not utilize our customer’s CPNI in a manner which would require us to obtain consent from our
customers, but in the event that we do in the future, we will be required to adhere to specific CPNI rules aimed at marketing
such services. By December 8, 2007, we will be required to implement internal processes in order to be in compliance with all
of the FCC’s CPNI rules. Our failure to achieve compliance with any future CPNI orders, rules, filings or standards, or any
enforcement action initiated by the FCC or other agency, state or task force against us could have a material adverse effect on
our financial position, results of operations or cash flows.
There may be risks associated with our ability to comply with funding requirements of the Universal Service Fund, or
USF, Telecommunications Relay Service, or TRS, fund, federal regulatory recovery fees and similar state or federal
funds, or that our customers will cancel service due to the impact of these price increases to their service.
On June 21, 2006, the FCC expanded the base of Universal Service Fund, or USF, contributions to interconnected VoIP
providers. The FCC established a safe harbor percentage of interstate revenue of 64.9% of total VoIP service revenue. We were
allowed to calculate our contribution based on the safe harbor or by preparing a traffic study. We began contributing to the
federal USF on October 1, 2006. For a period of at least two quarters beginning October 1, 2006, we were required to
contribute to the USF for its subscribers' retail revenues as well as through its underlying carriers' wholesale charges. The FCC
order applying USF contributions to interconnected VoIP providers was appealed and on June 1, 2007, the U.S. Court of
Appeals for the District of Columbia ruled that the FCC was within its authority when it required interconnected VoIP service
providers to contribute to the Universal Service Fund, though it struck down the provision of the order which required pre-
approval of traffic studies by the FCC and the provision that required double contributions to the fund for two quarters from
our underlying carriers’ wholesale charges. There is also a risk that state USF organizations may attempt to assert state USF
and other state and local charges. At this time, at least one state contends that providers of interconnected VoIP services, like
us, should contribute to its USF fund.
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