Vonage 2008 Annual Report Download - page 38

Total Direct cost o
f
telephony services
.
T
otal direct cost o
f
t
elephony services primarily consists of fees that we pay to third
p
art
i
es on an on
g
o
i
n
gb
as
i
s
i
nor
d
er to prov
id
e our serv
i
ces
.
Th
ese fees
in
c
l
ude:
>
A
ccess c
h
ar
g
es t
h
at we pay to ot
h
er te
l
ep
h
one compan
i
es t
o
t
erminate domestic and international calls on the publi
c
switched tele
p
hone network. These costs re
p
resente
d
approximately 42% and 40% of our total direct cost o
f
t
elephon
y
services
f
or 2008 and 2007, respectivel
y
, with
a
portion o
f
these payments ultimately being made t
o
i
ncum
b
ent te
l
ep
h
one compan
i
es.
Wh
en a
V
ona
g
esu
b
scr
ib
er
calls another Vona
g
e subscriber, we do not pay an acces
s
charge.
>
The cost of leasin
g
internet transit services from multiple inter
-
n
et service providers. This internet connectivit
y
is used t
o
carry VoIP session initiation signaling and packetized audio
m
e
di
a
b
etween our su
b
scr
ib
ers an
d
our re
gi
ona
ld
at
a
ce
nt
e
r
s
.
>
The cost o
f
leasing
f
rom other telephone companies the tele-
ph
one num
b
ers t
h
at we
p
rov
id
e to our customers.
W
e
l
ease
th
ese te
l
ep
h
one num
b
ers on a mont
hly b
as
i
s.
>
The cost o
f
co-locating our regional data connection point
equipment in third-party facilities owned by other telephone
companies, internet service providers or co-location
f
acilit
y
providers.
>
The cost of providing local number portability, which allow
s
customers to move their existin
g
telephone numbers
f
rom
another provider to our service. Only regulated tele-
commun
i
cat
i
ons
p
rov
id
ers
h
ave access to t
h
e centra
li
ze
d
n
umber databases that
f
acilitate this process. Because w
e
are not a regulated telecommunications provider, we mus
t
pay ot
h
er te
l
ecommun
i
cat
i
ons prov
id
ers to process our
l
oca
l
n
um
b
er porta
bili
t
y
requests
.
>
The cost of complying with the FCC regulations regarding
V
o
IP
emergency serv
i
ces, w
hi
c
h
requ
i
re us to prov
ide
en
h
ance
d
emer
g
ency
di
a
li
n
g
capa
bili
t
i
es to transm
i
t 911 ca
ll
s
f
or all o
f
our customers
.
>
Taxes that we pay on our purchase of telecommunications
services from our suppliers or imposed by
g
overnment a
g
en-
cies such as Federal USF
.
>
R
oyalties for use of third-party intellectual property
.
D
irect cost o
f
goods sold
.
Direct cost o
f
goods sold generall
y
consists of costs that we incur when a customer first subscribes
to ou
r
se
rv
ice
.
These cos
t
si
n
clude:
>
T
he cost o
f
the e
q
ui
p
ment that we
p
rovide to customers who
su
b
scr
ib
e to our serv
i
ce t
h
rou
gh
our
di
rect sa
l
es c
h
anne
lin
excess o
f
activation
f
ees. The remainin
g
cost o
f
custome
r
e
q
ui
p
ment is de
f
erred and amortized over the estimated
avera
g
e customer re
l
at
i
ons
hi
p per
i
o
d
.
>
T
he cost o
f
the equipment that we sell directl
y
to retailers
.
>
T
he cost o
f
shipping and handling
f
or customer equipment,
t
o
g
et
h
er w
i
t
h
t
h
e
i
nsta
ll
at
i
on manua
l
,t
h
at we s
hi
pt
o
cus
t
o
m
e
r
s.
>
T
he cost o
f
certain products or services that we give custom
-
ers as
p
romot
i
ons.
S
ellin
g
,
g
eneral and administrative expense
.
S
ellin
g
,
g
eneral
a
nd administrative expense includes:
>
Compensation and benefit costs for all employees, which i
s
t
he lar
g
est component of sellin
g
,
g
eneral and administrativ
e
expense and includes customer care, research and develop-
m
ent, network engineering and operations, sales and market-
i
n
g
, executive, le
g
al, finance, human resources and business
development personnel.
>
Share-based ex
p
ense related to share-based awards t
o
emp
l
oyees,
di
rectors an
d
consu
l
tants
.
>
Outsourced labor related to customer care and retail in-stor
e
s
u
pp
ort activities
.
>
Transaction fees
p
aid to credit card, debit card and E
CP
companies, which include a per transaction char
g
e in addi-
t
ion to a percent o
f
billings charge
.
>
R
ent an
d
re
l
ate
d
ex
p
enses
.
>
Pro
f
essional
f
ees
f
or le
g
al, accountin
g
, tax, public relations
,
l
obbying and development activities.
>
Li
t
ig
at
i
on sett
l
ements.
Marketin
g
expense. Marketin
g
expense consists o
f:
>
A
dvertising costs, which comprise a majority o
f
our marketin
g
e
x
p
ense an
di
nc
l
u
d
eon
li
ne, te
l
ev
i
s
i
on,
di
rect ma
il
,a
l
ternat
i
ve
media, promotions, sponsorships and inbound and outbound
telemarketing
.
>
C
reative and
p
roduction costs.
>
The costs to serve and track our online advertisin
g.
>
Certain amounts we pay to retailers for newspaper insert
ad
vert
i
s
i
n
g
, pro
d
uct p
l
acement an
d
act
i
vat
i
on comm
i
ss
i
ons.
>
The cost associated with our customer re
f
erral pro
g
ram
.
De
p
reciation and amortization ex
p
enses. De
p
reciation an
d
a
mort
i
zat
i
on ex
p
enses
i
nc
l
u
d
e
:
>
Depreciation o
f
our network equipment,
f
urniture and
f
ixtures
a
nd employee computer equipment.
>
A
mortization of leasehold im
p
rovements and
p
urchased and
d
eveloped so
f
tware.
>
A
mortization of intangible assets (patents and trademarks).
>Loss on disposal or impairment of property and equipment
.
OTHER INCOME (EXPENSE)
O
ther Income (Expense) consists of
:
>
I
nterest
i
ncome on cas
h
, cas
h
e
q
u
i
va
l
ents an
d
mar
k
eta
ble
secu
r
i
t
ies.
>
Interest expense on notes pa
y
able, the Verizon patent liti-
g
at
i
on
j
u
d
gment an
d
cap
i
ta
ll
eases.
>
A
mortization o
f
de
f
erred
f
inancin
g
costs.
>
A
ccretion o
f
convertible notes
.
>
Debt conversion expense relating to the conversion of note
s
p
a
y
a
bl
e to equ
i
t
y.
>
Loss on extinguishment o
f
notes.
30
VO
NA
G
E ANN
U
AL REP
O
RT 2008