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The FCC adopted orders reforming the system of payments between regulated carriers that we partner with to
interface with the public switch telephone network. The rates we pay for the services performed by these carriers may
increase as a result of the FCC's reform order. As a result, we may increase rates for service, making our offerings less
competitive with others in the marketplace, or reduce our profitability.
The FCC reformed the system under which regulated providers of telecommunications services compensate each other for
various types of traffic, including VoIP traffic that terminates on the PSTN and applied new call signaling requirements to
VoIP and other service providers. The FCC's rules concerning charges for transmission of VoIP traffic could result in an
increased cost to terminate the traffic absent specific agreements that provide the appropriate rate to be charged for such traffic
when passed between us and other carriers. For VoIP traffic that terminates on the PSTN, the Order establishes a transitional
framework that: (1) establishes default intercarrier compensation rates for "toll" VoIP-PSTN traffic that are equal to interstate
access rates applicable to non-VoIP traffic; (2) establishes default intercarrier compensation rates for other VoIP-PSTN traffic
that will be the applicable reciprocal compensation rates; and (3) allows regulated providers of telecommunications services to
tariff these default charges in the relevant federal and state tariffs that apply in the absence of an agreement. The rules then
provide for a multiyear transition to a national "bill-and-keep" framework as the ultimate end state for all telecommunications
traffic exchanged with a local exchange carrier. Under bill-and-keep, providers do not charge an originating carrier for
terminating traffic and instead recover the costs of termination from their own customers. To the extent that the company
transmits traffic not subject to a specific intercarrier compensation arrangement and another provider were to assert that the
traffic we exchange with them is subject to higher levels of compensation than we, or the third parties terminating our traffic to
the PSTN, pay today (if any), our termination costs could initially increase, but ultimately will be reduced as the intercarrier
compensation system transitions to a bill-and-keep framework. Accordingly, in the near term, our costs to terminate traffic to
the PSTN may increase which could result in either us increasing the retail charges for our service offerings or reducing our
profitability. But, over the longer term, we expect our costs to terminate traffic to the PSTN to decline.
Recently, the FCC clarified its intercarrier compensation order with respect to the compensation arrangements for the
origination of VoIP traffic. Pursuant to the clarification order, local exchange carriers will be able to tariff default charges,
which are charges imposed in the absence of commercial agreements between parties exchanging traffic bound for the PSTN,
equal to intrastate originating access for originating intrastate toll VoIP traffic. The order makes clear that VoIP traffic includes
traffic that originates or terminates in IP, or both, and also without regard to whether the traffic originates in time-division
multiplexing or Internet protocol format. Local exchange carriers will have the ability to tariff default charges for the
origination of intrastate toll VoIP traffic at intrastate rates until June 30, 2014. Starting July 1, 2014, local exchange carriers
will be permitted to tariff default rates equal to interstate originating access. For all interstate VoIP traffic, interstate access
rates continue to apply, consistent with the original order. At this time, we cannot predict what, if any, impact the FCC’s
clarification order will have on our business.
The FCC's Order reforming payments for carrier exchange services for various type of traffic also imposes call
signaling requirements on VoIP providers like us. To the extent that we cannot comply with these rules, we may be
subject to fines, cease and desist orders, or other penalties.
The FCC Order reforming the system of compensation for various types of traffic also included rules to address calls for which
identifying information is missing or masked in ways that impede billing for such traffic. The FCC's new rules require, among
other things, interconnected VoIP providers, like us, that originate interstate or intrastate traffic destined for the PSTN, to
transmit the telephone number associated with the calling party to the next provider in the call path. Intermediate providers
must pass calling party number or charge number signaling information they receive from other providers unaltered, to
subsequent providers in the call path. While we believe we are in compliance with this rule, to the extent that we pass traffic
that does not have appropriate calling party number or charge number information, we could be subject to fines, cease and
desist orders, or other penalties.