8x8 2008 Annual Report Download - page 21

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tariffing and other common carrier regulations. This ruling was subsequently appealed by several states. On March 21, 2007,
the United States Court of Appeals for the Eighth Circuit affirmed the FCC’ s declaratory ruling.
There is risk that a regulatory agency will require us to conform to rules that are unsuitable for IP communications technologies
or rules that cannot be complied with due to the nature and efficiencies of IP routing, or are unnecessary or unreasonable in
light of the manner in which Packet8 offers service to its customers. It is not possible to separate the Internet, or any service
offered over it, into intrastate and interstate components as we currently have no means to automatically identify the physical
location of one of our subscribers on the Internet. While suitable alternatives may be developed in the future, the current IP
network does not enable us to identify the geographic nature of the traffic traversing the Internet, or dynamically pinpoint or
update the location of our customers’ telephony devices. In the United States, the FCC as well as our competitors have made
statements in the past suggesting that we should be required to automatically determine the physical location of our customers’
equipment as a precondition for offering telecommunications services to them.
Taxes will increase our customers’ cost of using our service and we may be subject to liabilities for past sales and
additional taxes, surcharges and fees.
Until 2007, we did not collect or remit state or municipal taxes, such as sales, excise, and ad valorem taxes, fees or surcharges
on the charges to our customers for our services, except that we have historically complied with the collection of California
sales tax and financial contributions to the 9-1-1 system and universal service fund. We have received inquiries or demands
from a number of state and municipal taxing agencies seeking payment of taxes, fees or surcharges that are applied to or
collected from customers of providers of traditional public switched telephone network services. Although we have
consistently maintained that these taxes, fees or surcharges do not apply to our service for a variety of reasons depending on the
statute or rule that establishes such obligations, a number of states have changed their statutes as part of streamlined sales tax
initiatives and we are now collecting and remitting sales taxes in those states. The collection of these taxes, fees or surcharges
will have the effect of decreasing any price advantage we may have over other providers who have historically paid these taxes
and fees. Our compliance with these tax initiatives will also make us less competitive with those competitors who choose not to
comply with these tax initiatives. We have established an accrued tax liability of $2.1 million as of March 31, 2008, to account
for the claims by some states that we should have collected and remitted sales taxes in the past. If our ultimate liability exceeds
that amount, it could result in significant charges to our earnings.
Our emergency and E-911 calling services are different from those offered by traditional wireline telephone companies
and may expose us to significant liability. There may be risks associated with limitations associated with E-911
emergency dialing with the Packet8 service.
Both our emergency calling service and our E-911 calling service are different, in significant respects, from the emergency
calling services offered by traditional wireline telephone companies. In each case, the differences may cause significant delays,
or even failures, in callers’ receipt of the emergency assistance they need.
Traditional wireline telephone companies route emergency calls over a dedicated infrastructure directly to an emergency
services dispatcher at the Public Safety Answering Point, or PSAP, in the caller’ s area. Generally, the dispatcher automatically
receives the caller’ s phone number and actual location information. While the E-911 service we have deployed in the United
States is designed to route calls in a fashion similar to traditional wireline services, our E-911 capabilities are not yet available
from all locations. In addition, the only location information that our E-911 service can transmit to a dispatcher at a PSAP is
the information that our customers have registered with us prior to the 9-1-1 call. A customer’ s registered location may be
different from the customer’ s actual location at the time of the call because customers can use their Packet8 equipment to make
calls from any broadband connection anywhere in the world.
We are currently deploying E-911 service that is similar to the emergency calling services provided to customers of traditional
wireline telephone companies in the same area. For those customers located in an E-911 area, emergency calls are routed,
subject to the limitations discussed below, directly to an emergency services dispatcher at the PSAP in the area of the
customer’ s registered location. The dispatcher will have automatic access to the customer’ s telephone number and registered
location information. If a customer moves their Packet8 service to a new location, the customer’ s registered location
information must be updated and verified by the customer. Until that takes place, the customer will have to verbally advise the
emergency dispatcher of his or her actual location at the time of an emergency 9-1-1 call. This can lead to delays in the
delivery of emergency services.
The emergency calls of customers located in areas where we are currently unable to provide E-911 service as described above
are supported by a national call center that is run by a third-party provider and operates 24 hours per day, seven days per week.
These operators still receive the customer’ s registered service location and phone number automatically, and coordinate
connecting the caller to the appropriate PSAP or emergency services provider and providing the customer’ s registered service