Vonage 2008 Annual Report Download - page 22

t
hird-part
y
service providers
f
ail to maintain these
f
acilities prop
-
erly, or fail to respond quickly to problems, our customers ma
y
ex
p
er
i
ence serv
i
ce
i
nterru
p
t
i
ons.
I
nterru
p
t
i
ons
i
n our serv
i
ce
caused b
y
third-part
yf
acilities have in the past caused and ma
y
i
n
t
he future cause us to lose customers
,
or cause us to offer sub-
s
tantial customer credits, which could adversely affect our rev-
enue and pro
f
itabilit
y
.I
f
interruptions adversel
y
a
ff
ect th
e
p
erceived reliability o
f
our service, we may have di
ff
iculty attract
-
i
n
g
new customers an
d
our
b
ran
d
, reputat
i
on an
dg
rowt
h
w
ill be
n
e
g
atively impacted.
We rely on third parties to provide a portion o
f
our
customer serv
i
ce representat
i
ves,
i
n
i
t
i
ate
l
oca
l
num
b
e
r
portability
f
or our customers and provide aspects o
f
our
E-911 service. If these third
p
arties do not
p
rovide our
customers with reliable, hi
g
h-quality service, our reputa-
t
i
on w
ill b
e
h
arme
d
an
d
we may
l
ose customers
.
W
eo
ff
er our customers support 24 hours a da
y
, seven da
ys
a week through both our comprehensive online accoun
t
m
ana
g
ement website and our toll free number. We rely on multi
-
p
le third parties outside of the U.S. to provide a portion of the
customer service re
p
resentatives that res
p
ond to customer
i
nqu
i
r
i
es.
Th
ese t
hi
r
d
-party prov
id
ers
g
enera
ll
y represent us w
i
t
h-
out identi
f
yin
g
themselves as independent parties. A si
g
ni
f
ican
t
p
ortion o
f
customer service re
p
resentatives that res
p
ond to our
customers’ inquiries are based in the Philippines. The ability o
f
t
hird part
y
providers to provide these representatives ma
y
b
e
disrupted by natural disasters, civil unrest and other advers
e
events t
h
at may
i
mpact t
h
e
Phili
pp
i
nes.
W
ea
l
so ma
i
nta
i
nana
g
reement w
i
t
h
an
E
-911 prov
id
er t
o
assist us in routin
g
emer
g
ency calls directly to an emer
g
ency
s
ervice dis
p
atcher at the P
S
AP in the area of the customer’s
r
e
gi
stere
dl
ocat
i
on an
d
term
i
nat
i
n
gE
-911 ca
ll
s.
W
ea
l
so contrac
t
with a provider
f
or the national call center that operates 24 hours
a day, seven days a week to receive certain emergency calls and
with several com
p
anies that maintain P
S
AP databases for th
e
p
urpose o
f
deployin
g
and operatin
g
E-911 services. Interruption
s
i
n service
f
rom these vendors could cause
f
ailures in our custom-
ers
’
access to
E
-911 serv
i
ces an
d
expose us to
li
a
bili
ty an
d
dama
g
e our reputation
.
W
e also have a
g
reements with companies that initiate our
l
ocal number portability, which allow new customers to retain their
ex
i
st
i
n
g
te
l
ep
h
one num
b
ers w
h
en su
b
scr
ibi
n
g
to our serv
i
ces
.
I
f any of these third parties do not provide reliable, hi
g
h
-
qualit
y
service, our reputation and our business will be harmed. In
addition, industry consolidation among providers o
f
services to us
m
ay
i
mpact our a
bili
ty to o
b
ta
i
nt
h
ese serv
i
ces or
i
ncrease our
expense
f
or these services.
Fl
aws
i
n our tec
h
no
l
ogy an
d
systems cou
ld
cause
d
e
l
ay
s
or interruptions o
f
service, damage our reputation, caus
e
us to
l
ose customers an
dli
m
i
t our growt
h
.
Al
t
h
ou
gh
we
h
ave
d
es
ig
ne
d
our serv
i
ce networ
k
to re
d
uc
e
t
he possibility o
f
disruptions or other outa
g
es, our service may b
e
disrupted by problems with our technology and systems, such a
s
m
alfunctions in our software or other facilities and overloadin
g
o
f
our network. Our customers and potential customers subscribin
g
t
o our services have ex
p
erienced interru
p
tions in the
p
ast and
ma
y
experience interruptions in the
f
uture as a result o
f
thes
e
types of problems. Interruptions have in the past and may in th
e
future cause us to lose customers or
p
otential customers and
off
er substantial customer credits, which could adversel
y
a
ff
ect
o
ur revenue and profitability. During 2008, we had multiple out-
ag
es that affected
g
roups of customers at various times, some of
w
hich a
ff
ected lar
g
e
g
roups o
f
customers
f
or several hours. I
n
a
ddition, because our systems and our customers’ ability to use
o
ur serv
i
ces are
I
nternet-
d
epen
d
ent, our serv
i
ces may
b
esu
bj
ec
t
to “hacker attacks”
f
rom the Internet, which could have a si
g
-
ni
f
icant impact on our systems and services. I
f
service inter-
ruptions adversely affect the perceived reliability of our service,
w
e may have di
ff
iculty attractin
g
and retainin
g
customers and ou
r
b
rand reputation and growth may su
ff
er
.
O
ur business ma
y
be harmed if we are unable to maintain
d
ata security and meet Payment
C
ard Industry data secu-
ri
ty stan
d
ar
d
s
.
We are dependent upon automated information technolo
g
y
p
rocesses. An
yf
ailure to maintain the securit
y
o
f
our data and ou
r
e
mployees’ and customers’ confidential information, including vi
a
the penetration of our network security and the misappropriation
of
con
f
idential in
f
ormation, could result in
f
inancial obli
g
ations t
o
third parties, fines, penalties, regulatory proceedings and privat
e
l
iti
g
ation with potentially lar
g
e costs. Any such failure also coul
d
p
ut us at a competitive disadvanta
g
e and result in deterioration in
o
ur employees’ and customers’ con
f
idence in us, which may hav
e
a
material adverse im
p
act on our business, financial condition and
results o
f
operations
.
We recently completed the process o
f
up
g
radin
g
our net-
w
ork, systems and procedures to meet Payment Card Industry
(
“P
C
I”
)
data security standards, which requires periodic audits
,
i
nc
l
u
di
n
g
an
i
n
i
t
i
a
l
au
di
tt
h
at
b
e
g
an
i
n
l
ate 2008,
b
y
i
n
d
epen
d
ent
third parties to assess compliance. PCI data securit
y
standards
a
re a comprehensive set of requirements for enhancing paymen
t
a
ccount data securit
y
that was developed b
y
the PCI Securit
y
S
tandards Council including American Express, Discover Finan-
c
ial
S
ervices
,
J
C
B International
,
Master
C
ard Worldwide and VI
SA
Inc., to help
f
acilitate the broad adoption o
f
consistent data secu
-
rit
y
measures. Failure to compl
y
with the securit
y
requirements as
i
dentified in the initial audit or subsequent audits or rectify a secu-
rit
y
issue ma
y
result in fines. While we believe it is unusual
,
restrictions on accepting payment cards, including a complet
e
restr
i
ct
i
on, may
b
e
i
mpose
d
on compan
i
es t
h
at are not comp
li
ant
.
O
ur credit card processors have the ability to take si
g-
n
ificant holdbacks or increase existin
g
reserves in certai
n
c
ircumstances. The initiation o
f
such holdbacks o
r
i
ncrease
d
reserves
lik
e
l
y wou
ld h
ave a mater
i
a
l
a
d
verse
e
ffect on our li
q
uidit
y.
O
ur credit card
p
rocessors have established reserves t
o
c
over an
y
exposure t
h
at t
h
e
y
ma
yh
ave as we co
ll
ect revenue
i
n
a
dvance o
f
providing services to our customers, which is a cus-
tomary practice for companies that bill their customers in advanc
e
o
f providin
g
services. As such, we have provided our credit car
d
p
rocessors with cash reserves of
$
22,023 and a cash collateral-
i
zed letter of credit for
$
10
,
413 as of December 31
,
2008. Under
o
ur credit card processin
g
a
g
reements with our Visa
/
Master
C
ard,
American Express, Barcla
y
s and Discover credit card processors
,
t
h
e cre
di
t car
d
processor
h
as t
h
er
i
g
h
t,
i
n certa
i
nc
i
rcumstances
,
14
VO
NA
G
E ANN
U
AL REP
O
RT 2008