8x8 2007 Annual Report Download - page 23

We charge our subscribers a USF fee equal to the USF contribution amounts we must contribute based upon our subscribers'
retail revenues. The impact of this price increase on our customers or our inability to recoup our costs or liabilities in remitting
USF contributions or other factors could have a material adverse effect on our financial position, results of operations and cash
flows.
On May 31, 2007, the FCC extended the disability access requirements of Sections 225 and 255 of the Communications Act,
which applied to traditional phone services, to providers of interconnected VoIP services and to manufacturers of specially
designed equipment used to provide those services. Section 255 of the Communications Act requires service providers to
ensure that its equipment and service is accessible to and usable by individuals with disabilities, if readily achievable, including
requiring service providers to ensure that information and documentation provided in connection with equipment or services be
accessible to people with disabilities, where readily achievable and that employee training account for accessibility
requirements. In addition, the FCC said that interconnected VoIP providers were subject to the requirements of Section 225,
including contributing to the Telecommunications Relay Services, or TRS, fund and that they must offer 711 abbreviated
dialing for access to relay services. At this time, until the formal release of the FCC order, we cannot predict the impact of
these obligations on our business or our ability to comply with these disability obligations. We will likely pass these additional
costs on to our customers and the impact of this price increase or our inability to recoup our costs or liabilities or other factors
could have a material adverse effect on our financial position, results of operations and cash flows. 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 these new disability requirements.
The Federal Communications Commission, or FCC, and various state commissions are considering the imposition of additional
fees on interconnected VoIP providers, like us. The FCC is currently considering subjecting interconnected VoIP providers to
regulatory fee recovery obligations. Several states are either considering extending or have imposed state USF, state TRS fees,
and other taxes and fees on interconnected VoIP providers like us. If we pass through the taxes, fees and surcharges that may
be applied to our service, the impact of this price increase on our customers or our inability to recoup our costs or liabilities in
remitting such taxes, fees and surcharges could have a material adverse effect on our financial position, results of operations
and cash flows.
If we are unable to improve our process for local number portability provisioning, our growth may be negatively
affected.
We support local number portability, or LNP, for our customers, which allow our customers to retain their existing telephone
numbers when subscribing to our services. Transferring numbers is a manual process that in the past has taken us 20 business
days or longer, although we have taken steps to automate this process to reduce the delay. A new customer of our services
must maintain both the new Packet8 service and the customer’s existing telephone service during the number transfer process.
By comparison, transferring wireless telephone numbers among wireless service providers generally takes several hours, and
transferring wireline telephone numbers among traditional wireline service providers generally takes a few days. The
additional delay that we experience is due to our reliance on third party carriers to transfer the numbers, as well as the delay the
existing telephone service provider may contribute to the process. Local number portability is considered an important feature
by many potential customers, especially our business customers, and if we fail to reduce related delays, we may experience
increased difficulty in acquiring new customers or retaining existing customers.
Our success also depends on our ability to handle a large number of simultaneous calls, which our network may not be
able to accommodate.
We expect the volume of simultaneous calls to increase significantly as the Packet8 subscriber base grows. Our network
hardware and software may not be able to accommodate this additional volume. If we fail to maintain an appropriate level of
operating performance, or if our service is disrupted, our reputation could be hurt, we could lose customers, all of which could
have a material adverse effect on our business, financial condition and results of operations.
We could be liable for breaches of security on our web site, fraudulent activities of our users, or the failure of third-
party vendors to deliver credit card transaction processing services.
A fundamental requirement for operating an internet-based, worldwide voice and video communications service and
electronically billing our Packet8 customers is the secure transmission of confidential information and media over public
networks. Although we have developed systems and processes that are designed to protect consumer information and prevent
fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches may adversely affect
our operating results. The law relating to the liability of providers of online payment services is currently unsettled. We rely on
third party providers to process and guarantee payments made by Packet8 subscribers up to certain limits, and we may be
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