Vonage 2010 Annual Report Download - page 16

ITEM
1
A.
Risk Fac
t
o
r
s
You should carefully consider the risks below, as well as all of th
e
other information contained in this Annual Report on Form 10-K
a
n
dou
r fin
a
n
c
i
a
l
s
t
a
t
e
m
e
nt
sa
n
d
th
e
r
e
l
a
t
ed
n
o
t
es
in
c
l
uded e
l
se-
where in this Annual Report on Form 10-K, in evaluatin
g
ou
r
compan
y
and our business. An
y
of these risks could materiall
y
a
dversel
y
affect our business, financial condition and results o
f
operations and the tradin
g
price of our common stock.
F
or the
f
inancial in
f
ormation discussed in this Annual Re
p
ort on
F
orm 10-K, other than
p
er share and
p
er line amounts, dolla
r
a
mounts are
p
resented in thousands, exce
p
t where noted
.
If we are unable to com
p
ete successfull
y
, we could los
e
mar
k
et s
h
are an
d
revenue.
T
he telecommunications industry is hi
g
hly competitive. We
face increasin
g
ly intense competition from traditional telephone
com
p
anies, cable com
p
anies, wireless com
p
anies, and alternative
communication
p
roviders.
O
ur com
p
etitors include the traditiona
l
t
elephone service providers, includin
g
AT&T,
Q
west
C
ommunica
-
t
ions, and Verizon
C
ommunications, which
p
rovide tele
p
hon
e
s
ervice based on the
p
ublic switched tele
p
hone network.
S
ome o
f
t
hese traditional
p
roviders also have added VoIP services to thei
r
existin
g
telephone and broadband o
ff
erin
g
s. We also
f
ace com
-
p
etition from cable com
p
anies, such as Cablevision, Charter
C
ommunications, Comcast Cor
p
oration, Cox Communications
,
and Time Warner Cable, which have added VoIP services to thei
r
existin
g
cable television and broadband o
ff
erin
g
s. Further, as
wireless providers, includin
g
AT&T, Sprint, T-Mobile, and Verizon
Wireless, o
ff
er more minutes at lower prices, better covera
g
e, and
companion landline alternative services, includin
g
throu
g
h prod
-
ucts such as dual mode
p
hones and
f
emtocells, their services
have become more attractive to households as a re
p
lacement
f
or
wir
e
lin
ese
rvi
ce.
M
ost tra
di
t
i
ona
l
w
i
re
li
ne an
d
w
i
re
l
ess te
l
ep
h
one serv
i
ce pro-
vid
ers an
d
ca
bl
e compan
i
es are su
b
stant
i
a
ll
y
l
arger an
db
etter
capitalized than we are and have the advantage o
f
greater name
an
db
ran
d
name recogn
i
t
i
on an
d
a
l
arge ex
i
st
i
ng customer
b
ase.
Because most o
f
our target customers are already purchasin
g
communications services
f
rom one or more o
f
these providers
,
our success
i
s
d
epen
d
ent upon our a
bili
ty to attract target
customers away from their existing providers.
O
ur competitors
’
financial resources ma
y
allow them to offer services at prices
b
elow cost or even for free in order to maintain and gain market
s
hare or otherwise improve their competitive positions.
O
u
r
competitors also could use their greater financial resources t
o
d
eve
l
op an
d
mar
k
et te
l
ep
h
ony an
d
messag
i
ng serv
i
ces w
i
t
h
more
attractive features and more robust customer service. In addition
,
b
ecause of the other services our competitors provide, the
y
ofte
n
choose to offer VoIP services as part of a bundle that includes
ot
h
er pro
d
ucts, suc
h
as v
id
eo,
hi
g
h
spee
dI
nternet access, an
d
wireless telephone service, which we do not offer. This bundle
ma
y
enable our competitors to offer VoIP service at prices wit
h
which we ma
y
not be able to compete or to offer functionalit
y
that
i
ntegrates VoIP service with their other offerings, both of whic
h
ma
y
be more desirable to consumers. An
y
of these competitiv
e
factors could make it more difficult for us to attract and retai
n
customers
,
re
d
uce our mar
k
et s
h
are an
d
revenues
,
or cause us t
o
l
ower our prices or offer additional features that ma
y
result i
n
a
ddi
t
i
ona
l
costs w
i
t
h
out commensurate pr
i
ce
i
ncreases
.
We also compete against established alternative communica
-
t
ion providers, such as
S
kype,
G
oo
g
le Voice, ma
g
icJack, and
i
ndependent VoIP service providers, some of which are lar
g
e
r
t
han us, have
g
reater name and brand reco
g
nition, and have th
e
ability to devote
g
reater resources to their communications serv
-
i
ces.
S
ome of these service providers, includin
g
Internet product
and software companies, have chosen to sacrifice telephon
y
revenue in order to
g
ain market share or attract customers to their
p
lat
f
orm and have o
ff
ered their services at low
p
rices or
f
or
f
ree.
A
s we continue the introduction o
f
applications that inte
g
rate di
f
-
f
erent
f
orms o
f
voice, video, and messa
g
in
g
services over multipl
e
devices, we are likely to
f
ace competition
f
rom emer
g
in
g
com-
petitors
f
ocused on similar inte
g
ration, as well as
f
rom establishe
d
alternative communication
p
roviders. In order to com
p
ete wit
h
such service providers, we may have to reduce our prices, which
w
ould impair our pro
f
itability, or o
ff
er additional
f
eatures that ma
y
cause us to incur additional costs without commensurate
p
ric
e
i
n
c
r
eases.
As a result o
f
increasin
g
competition, domestic and interna
-
t
ional telephony and messa
g
in
g
rates have
g
enerally decreased
durin
g
the past
f
ew years, and we expect this trend to continue
.
We also pass throu
g
hre
g
ulatory
f
undin
g
obli
g
ations to customer
s
and these costs are ex
p
ected to increase
f
or certain customers a
s
a result of a November 2010 order by the Federal Communica
-
t
ions Commission
(
the “FCC”
)
that
p
ermits states to im
p
ose state
u
niversal service
f
und obli
g
ations on VoIP providers. We also
receive inquiries or demands
f
rom state and municipal taxin
g
authorities seekin
g
payment o
f
taxes or similar
f
ees, which taxes
and fees are char
g
ed to customers. Continued rate pressures or
i
ncreas
i
n
g
cost to use our serv
i
ces cou
ld l
essen or e
li
m
i
nate t
h
e
pr
i
c
i
ng a
d
vantage t
h
at we ma
i
nta
i
n over certa
i
n compet
i
tors an
d
cause customers or potent
i
a
l
customers to se
l
ect a
l
ternat
i
ve pro
-
v
id
ers or cause us to
l
ower our pr
i
ces, w
hi
c
h
wou
ld
a
d
verse
ly
i
mpact our revenues and pro
f
itabilit
y.
We also are subject to the risk o
ff
uture disruptive tech-
n
ologies. I
f
new technologies develop that are able to deliver
compet
i
ng vo
i
ce an
d
messag
i
ng serv
i
ces at
l
ower pr
i
ces,
b
ette
r
or more convenientl
y
, it could have a material adverse e
ff
ect on
us.
T
here is a continuing trend toward consolidation o
f
tele-
communications companies, including the acquisition o
f
alter-
n
ative communication providers b
y
Internet product and so
f
twar
e
compan
i
es, w
hi
c
h
may create compet
i
tors w
i
t
h
greater resources.
I
n addition, certain o
f
our competitors have partnered and ma
y
in
t
he future partner with other competitors to offer products an
d
serv
i
ces,
l
everag
i
ng t
h
e
i
rco
ll
ect
i
ve compet
i
t
i
ve pos
i
t
i
ons, w
hi
c
h
m
akes it more difficult to compete with them and could affect ou
r
profitabilit
y.
If we fail to adapt to rapid chan
g
es in the market for voice
an
d
messag
i
ng serv
i
ces, t
h
en our pro
d
ucts an
d
serv
i
ce
s
cou
ld b
ecome o
b
so
l
ete.
T
he market for our products is constantl
y
and rapidl
y
evolv
-
i
ng as we an
d
our compet
i
tors
i
ntro
d
uce new an
d
en
h
ance
d
p
ro
d
ucts an
d
serv
i
ces an
d
react to c
h
anges
i
n
V
o
IP
an
d
messag-
i
ng tec
h
no
l
ogy an
d
customer
d
eman
d
s.
W
e may not
b
ea
bl
et
o
d
eve
l
op or acqu
i
re new pro
d
ucts an
d
p
l
ans or pro
d
uct an
d
p
l
a
n
enhancements that compete effectively with present or emergin
g
VoIP and messaging technologies or differentiate our products
and plans based on functionalit
y
and performance. In addition, w
e
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