Vonage 2010 Annual Report Download - page 17

may not
b
ea
bl
e to esta
bli
s
h
or ma
i
nta
i
n strateg
i
ca
lli
ances t
h
at
will
p
ermit enhancement o
pp
ortunities or innovative distribution
methods for our
p
roducts and
p
lans. New
p
roducts based on new
technolo
g
ies or new industry standards could render our existin
g
p
roducts obsolete and unmarketable.
T
o succeed, we believe that we need to ex
p
and into ne
w
market se
g
ments, develop new sources o
f
revenue
f
rom new an
d
existin
g
customers, enhance our current products and plans, and
develop new products and plans on a timely basis to keep pace
with market needs and satis
f
y the increasin
g
ly sophisticated
r
equirements o
f
customers. VoIP and messa
g
in
g
technolo
g
yi
s
com
p
lex, and new
p
roducts and
p
lans and
p
roduct and
p
lan
enhancements can require lon
g
development and testin
g
periods.
Any delays in developin
g
and releasin
g
new or enhanced prod-
ucts and plans, includin
g
as a result o
f
any limitations with ou
r
internal systems or the inte
g
ration o
f
our new orderin
g
and billin
g
p
lat
f
orms, could cause us to lose revenue o
pp
ortunities and cus
-
tomers. Any technical
f
laws in products we release could diminis
h
the innovative impact o
f
the products and have a ne
g
ative e
ff
ect
on customer ado
p
tion and our re
p
utation.
I
f
we are unsuccess
f
ul at retaining customers or attractin
g
new customers, includin
g
customers who pay for our serv-
ices
f
or mobile and other Internet connected devices, w
e
ma
y
ex
p
erience a reduction in revenue or ma
y
be re
q
uire
d
to spend more money to
g
row our customer base.
O
ur rate of customer terminations, or avera
g
e monthly cus
-
t
omer churn, was 2.4
%f
or the year ended December 31, 2010
.
Durin
g
2010, we added 607,772 customers while 617,234 o
f
ou
r
customers terminated. In Se
p
tember 2010, we eliminated th
e
minimum service
p
eriod re
q
uirement for new customers. Ou
r
c
h
u
rn r
a
t
e cou
l
d
in
c
r
ease
in th
efu
t
u
r
e
i
f cus
t
o
m
e
r
sa
r
e
n
o
t
sa
t-
i
s
f
ied with the quality and reliability o
f
our network, the valu
e
p
roposition o
f
our products, and the ability o
f
our customer serv
-
i
ce to meet the needs and ex
p
ectations o
f
our customers. In addi-
t
ion, increased competition
f
rom other providers, increasin
g
w
i
re
l
ess su
b
st
i
tut
i
on,
di
srupt
i
ve tec
h
no
l
og
i
es, genera
l
econom
ic
con
di
t
i
ons, an
d
our a
bili
ty to act
i
vate an
d
reg
i
ster new customers
on the network
,
also in
f
luence our churn rate
.
Because o
f
churn, we have to acquire new customers on a
n
ongoing basis just to maintain our existing level o
f
customers an
d
r
evenues.
A
s a resu
l
t, mar
k
et
i
ng expense
i
s an ongo
i
ng requ
i
re-
ment of our business. If our churn rate increases
,
we will have t
o
acqu
i
re even more new customers
i
nor
d
er to ma
i
nta
i
n our ex
i
st-
i
ng revenues. We incur significant costs to acquire new custom
-
ers, and those costs are an important factor in maintainin
g
p
rofitability. Therefore, if we are unsuccessful in retaining
customers, are required to spend significant amounts to acquir
e
new customers
b
eyon
d
t
h
ose
b
u
d
gete
d
, or our mar
k
et
i
ng an
d
advertising efforts are not effective in targeting specific customer
s
egments, our revenue cou
ld d
ecrease an
d
our net
l
osses cou
ld
i
ncrease
.
In August 2010, we introduced Vonage Mobile for Facebook
,
which is a free service. In the future, we ma
y
introduce other fre
e
s
ervices for mobile and other connected devices. As an optiona
l
feature of these free services, we may offer and charge for pre
-
mium services such as international calling plans, alternatives fo
r
hi
g
h
pr
i
ce
di
nternat
i
ona
l
roam
i
ng serv
i
ces, an
dl
ower cost text
messaging. If we are unable to attract users of these premium
s
ervices, our net revenues may fail to
g
row as we expect
.
W
e may
b
esu
bj
ect to
d
amag
i
ng an
ddi
srupt
i
ve
i
nte
ll
ectua
l
property liti
g
ation that could materially and adversely
a
ff
ect our business, results o
f
operations, and
f
inancial
condition, as well as the continued viabilit
y
o
f
our com
-
p
an
y
.
T
here has been substantial liti
g
ation in the VoIP and relate
d
i
ndustries re
g
ardin
g
intellectual property ri
g
hts and,
g
iven th
e
r
apid technolo
g
ical chan
g
e in our industry and our continual
develo
p
ment of new
p
roducts and services, we and/or ou
r
commercial partners may be subject to in
f
rin
g
ement claims
f
rom
t
ime to time. For example, we may be unaware o
ff
iled patent
a
pp
lications and issued
p
atents that could include claims cover
-
i
n
g
our pro
d
ucts an
d
serv
i
ces.
W
e were su
bj
ect to paten
t
i
n
f
rin
g
ement claims in the past, includin
g
suits that we settled i
n
2007 and 2008 for a total of $243,825 with Verizon, Sprint, AT&T
,
N
orte
lN
etwor
k
s, an
d
ot
h
ers.
W
e are a
l
so current
ly
name
d
as
a
de
f
endant in a suit that relates to patent in
f
ringement and
f
rom
t
ime to time we receive letters
f
rom third parties initiating an
opportunit
yf
or us to obtain licenses to patents that ma
y
be rele-
v
ant to our business. See “Item 3. – Legal Proceedings—I
P
M
atters.
”
P
arties making claims of infringement may be able to obtai
n
i
njunctive or other equitable relief that could effectivel
y
block our
a
bili
t
y
to prov
id
e our serv
i
ces an
d
cou
ld
cause us to pa
y
su
b-
s
tantial royalties, licensing fees, damages or settlement fees. The
defense of any lawsuit could divert management’s efforts and
attention from ordinar
y
business operations and result in time
-
consuming and expensive litigation, regardless of the merits of
s
uc
h
c
l
a
i
ms.
Th
ese outcomes ma
y
:
>
r
esult in the loss o
f
a substantial number o
f
existin
g
custom-
e
rs or
p
rohibit the ac
q
uisition o
f
new customers
;
>
lead to an event o
f
de
f
ault under the terms o
f
our credi
t
f
acilit
y
, which could permit the lenders to declare due an
d
p
a
y
able immediatel
y
all amounts due under the credit facilit
y,
i
nc
l
u
di
ng pr
i
nc
i
pa
l
an
d
accrue
di
nterest, an
d
ta
k
e act
i
on t
o
f
oreclose upon the collateral securing the indebtedness;
>
c
ause us to accelerate expenditures to preserve existin
g
r
evenues
;
>
c
ause ex
i
st
i
n
g
or new ven
d
ors to requ
i
re prepayments or
letters o
f
credit
;
>
c
ause our cre
di
t car
d
processors to
d
eman
d
reserves or
l
et-
ters of credit or make holdbacks
;
>
r
esult in substantial employee layo
ff
s
;
>
materiall
y
and adversel
y
affect our brand in the market place
a
nd cause a substantial loss of goodwill;
>
c
ause our stock price to decline si
g
nificantly or otherwis
e
c
ause us to fail to meet the continued listin
g
requirements of
the New York
S
tock Exchan
g
e, which could distrac
t
mana
g
ement and result in the delistin
g
o
f
our common stoc
k
f
rom the exchan
g
e
;
>
materially and adversely a
ff
ect our liquidity, including our abil
-
i
ty to pay
d
e
b
ts an
d
ot
h
er o
bli
gat
i
ons as t
h
ey
b
ecome
d
ue;
>
c
ause us to c
h
ange our
b
us
i
ness met
h
o
d
s or serv
i
ces;
>
r
equire us to cease certain business operations or o
ff
erin
g
c
ertain
p
roducts and services; an
d
>
l
ea
d
to our
b
an
k
ruptc
y
or
li
qu
id
at
i
on
.
1
0
VO
NA
G
E ANN
U
AL REP
O
RT 2010