8x8 2008 Annual Report Download - page 36

Service revenues consist primarily of revenues attributable to the provision of our Packet8 services and royalties earned under
our VoIP technology licenses. We expect that Packet8 service revenues will continue to comprise nearly all of our service
revenues for the foreseeable future.
The increase in fiscal year 2008, compared with fiscal year 2007, was primarily attributable to a $11.8 million increase in
Packet8 service revenues attributable to the growth in the Virtual Office subscriber base and an increase in the price of our
service instituted on March 1, 2007. The Packet8 Virtual Office subscriber base grew from approximately 7,000 customers at
the end of fiscal 2007 to approximately 11,000 on March 31, 2008. Our residential customer base did not significantly change
between the end of fiscal 2007 and 2008 as the decline in our existing customer base was offset by the transition of a
competitor’ s former customers to the Packet8 residential service. We also recognized a $0.6 million one time increase in
revenue due to a ruling by the U.S. Court of Appeals for the District of Columbia that eliminated a requirement that we obtain
pre-approval of traffic studies in determining the portion of revenues subject to federal universal service contributions. By
retroactively applying our traffic study contribution rate to the historical subscriber retail revenues, we were able to reduce the
related accrued liability and recognize a corresponding amount of revenue in the first fiscal quarter of 2008. The increase in
service revenues during fiscal 2008 was offset by a reduction of $1.3 million reduction to our wholesale service and royalty
revenues primarily due to the termination of the agreement with Bellsouth in the fourth fiscal quarter of 2007 in connection
with its merger with AT&T.
The increase in fiscal year 2007, compared with fiscal year 2006, was primarily attributable to a $17.3 million increase in
Packet8 service revenues attributed to the growth in the Packet8 Virtual Office subscriber base. In the second half of fiscal
2007, we redirected our marketing from targeting residential customers to marketing our Packet8 Virtual Office services to
small businesses. The Packet8 Virtual Office subscriber base grew from under 4,000 customers at the end of fiscal 2006 to
approximately 7,000 customers on March 31, 2007. Our residential customer base did not increase during that period in part
because effective March 1, 2007, we increased the monthly service fees on our unlimited residential service and unlimited
business service for existing customers by $2 and $5, respectively, and by $5 and $10, respectively, for new customers who
subscribed to the service after March 1, 2007. License and royalty revenues associated with our technology licensing and
hosted iPBX product decreased by $0.4 million from $0.7 million to $0.3 million. In addition, we recognized $1.8 million
wholesale service revenue in fiscal 2007 compared to $0.1 million in fiscal 2006 related to the Bellsouth agreement.
2008 2007 2006
Product revenues $ 5,469 $ 8,084 $ 5,779 $ (2,615) -32.3% $ 2,305 39.9%
Percentage of total revenues 8.9% 15.2% 18.1%
Year Ended March 31, Year-Over-Year Change
(dollar amounts in thousands)
2007 to 2008 2006 to 2007
Product revenues consist of revenues from sales of VoIP terminal adapters, telephones and videophones, primarily
attributable to our Packet8 service. For fiscal year 2006, product revenues also included sales of VoIP semiconductors and
other system products of $0.2 million.
The decrease in fiscal year 2008 from fiscal year 2007, was primarily attributable to a $3.4 million decrease in product revenue
attributable to residential customers as we redirected our marketing away from residential customers to marketing our Packet8
Virtual Office services to small businesses. In addition, we waived the regular start-up costs, which include the equipment cost
associated with residential service plans, as part of the transition of a competitor’ s former customers to the Packet8 service.
The decrease in residential customer product revenues during fiscal 2008 partially was offset by an increase of $0.8 million in
product revenue attributable to the growth in the Packet8 Virtual Office subscriber base.
Product revenues increased in fiscal year 2007 from fiscal year 2006 because of the shift in marketing from residential
customers to small businesses which resulted in an increase in new subscriptions to the Packet8 Virtual Office service.
Residential customers were not charged for terminal adapters but paid a $29.99 activation fee. For the Virtual Office service
we charged $99.99 for each telephone plus a $39.99 activation fee.
No single customer represented more than 10% of our total revenues during fiscal 2008, 2007 or 2006.
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