Vonage 2010 Annual Report Download - page 19

i
ntro
d
uce next generat
i
on pro
d
ucts on t
h
esc
h
e
d
u
l
et
h
at we pre
-
fer and could result in increased costs to enhance our existin
g
orderin
g
and billin
g
systems or procure replacement systems. A
s
a result, our
g
rowth, system of internal controls, or results of
operations could be materially and adversely affected.
We rel
y
on third
p
arties to
p
rovide a
p
ortion of ou
r
customer service representatives, provide aspects o
f
ou
r
E-911 service, and initiate local number portability
f
or ou
r
customers. If these third
p
arties do not
p
rovide our cus-
tomers w
i
t
h
re
li
a
bl
e,
hi
g
h
-qua
li
ty serv
i
ce, our reputat
i
on
will be harmed and we ma
y
lose customers
.
We offer our customers support 24 hours a da
y
, seven da
ys
a week throu
g
h both our comprehensive online accoun
t
mana
g
ement website and our toll free number.
O
ur customer
s
upport is currently provided via United
S
tates based employee
s
as well as third party partners located in the United
S
tates, Philip
-
p
ines,
C
osta Rica,
C
hile, and India. We offer support in En
g
lish
,
S
panish, and French
C
anadian.
O
ur third-party providers
g
en
-
erally represent us without identi
f
yin
g
themselves as independen
t
p
arties. The ability to support our customers may be disrupted b
y
natural disasters, inclement weather conditions, civil unrest, an
d
other adverse events in the locations where our customer su
pp
ort
i
s
p
rovided.
We also contract
f
or services required to provide E-911 serv
-
i
ces
i
nc
l
u
di
ng ass
i
stance
i
n rout
i
ng emergency ca
ll
s, term
i
nat
i
ng
E
-911 ca
ll
s, operat
i
ng a nat
i
ona
l
ca
ll
center t
h
at
i
s ava
il
a
bl
e24
h
ours a
d
ay, seven
d
ays a wee
k
to rece
i
ve certa
i
n emergency
calls, and maintaining PSAP databases for the purpose of deploy-
i
ng and operating E-911 services. Interruptions in service
f
rom ou
r
v
endor could cause
f
ailures in our customers’ access to E-911
s
erv
i
ces an
d
expose us to
li
a
bili
ty an
dd
amage our reputat
i
on.
W
ea
l
so
h
ave agreements w
i
t
h
compan
i
es t
h
at
i
n
i
t
i
ate ou
r
l
oca
l
num
b
er porta
bili
t
y
,w
hi
c
h
a
ll
ow new customers to reta
i
nt
h
e
ir
existin
g
telephone numbers when subscribin
g
to our services.
I
f
any o
f
these third parties do not provide reliable, hi
g
h-
quality service, our reputation and our business will be harmed. In
addition, industry consolidation amon
g
providers o
f
services to u
s
may impact our ability to obtain these services or increase ou
r
ex
p
ense
f
or these services
.
Flaws in our technolo
g
y and systems, our failure to adapt
our systems to any new
I
nternet
P
rotoco
l
,or
h
ac
k
er
attacks could cause delays or interruptions o
f
service
,
which could dama
g
e our reputation, cause us to lose
customers, an
dli
m
i
t our growt
h.
Althou
g
h we have desi
g
ned our service network to reduc
e
t
he possibility o
f
disruptions or other outa
g
es, our service may b
e
disrupted by problems with our technolo
g
y and systems, such a
s
mal
f
unctions in our so
f
tware or other
f
acilities and overloadin
g
o
f
our network. As we attract new subscribers, we ex
p
ect increase
d
call volume that we need to mana
g
e to avoid network inter
-
r
u
p
tions. In
p
articular, as we have marketed to di
ff
erent interna
-
t
ional lon
g
distance markets, we have seen international cal
l
v
olumes to tar
g
eted countries increase. Durin
g
the next
f
ew year
s
we expect wide-spread industry adoption o
f
a new Interne
t
Protocol, which is a set o
f
standard communications and routin
g
mechanisms. Customers may experience periodic delays of serv
-
i
ce cause
dby
t
h
e
i
n
d
ustr
y
trans
i
t
i
on to t
hi
s new
I
nternet
P
rotoco
l
.
Interruptions have caused and ma
y
in the
f
uture cause us to los
e
customers and o
ff
er substantial customer credits, which coul
d
adversely a
ff
ect our revenue and pro
f
itability. Network inter
-
r
uptions may also impair our ability to si
g
n-up new customers
.
Durin
g
2010, we had multiple outa
g
es that a
ff
ected
g
roups o
f
customers at various times, some o
f
which a
ff
ected lar
g
e
g
roup
s
o
f
customers
f
or several hours. In addition, because our systems
and our customers’ ability to use our services are Internet
-
dependent, our services may be subject to “hacker attacks”
f
rom
t
he Internet, which could have a si
g
ni
f
icant impact on our system
s
and services. I
f
service interruptions adversely a
ff
ect the per
-
ceived reliability o
f
our service, we may have di
ff
iculty attractin
g
and retainin
g
customers and our brand reputation and
g
rowt
h
may su
ff
er
.
Third
p
arties ma
y
fraudulentl
y
use our name to obtain
access to customer accounts an
d
ot
h
er persona
l
in
f
ormation, use our services to commit
f
raud or steal ou
r
services, which could dama
g
e our reputation, limit ou
r
growt
h
,an
d
cause us to
i
ncur a
ddi
t
i
ona
l
expenses.
O
ur customers have been subject to “phishin
g
,” whic
h
occurs when a third party sends an email or pop-up messa
g
eto
a
customer that claims to be
f
rom a business or or
g
anization that
p
rovides services to the customer. The purpose o
f
the inquiry i
s
t
ypically to encoura
g
e the customer to visit a bo
g
us websit
e
desi
g
ned to look like a website operated by the le
g
itimate busi
-
ness or or
g
anization. At the bo
g
us website, the operator attempt
s
t
o trick the customer into divul
g
in
g
customer account or other
p
ersonal in
f
ormation such as credit card in
f
ormation or t
o
i
ntro
d
uce v
i
ruses t
h
rou
gh “
tro
j
an
h
orse
”
pro
g
rams to t
h
e custom
-
ers’ computers. This has resulted in identit
y
the
f
t
f
rom ou
r
customers and the unauthorized use o
f
Vonage services. Third
p
art
i
es
h
ave a
l
so use
d
our commun
i
cat
i
ons serv
i
ces to comm
it
f
raud. Although we have engaged a third party to assist in the
s
hutdown o
f
purported phishing sites, i
f
we are unable to detec
t
and prevent “phishing,” use o
f
our services
f
or
f
raud, and similar
activities, our brand reputation and growth may su
ff
er and we
may
i
ncur a
ddi
t
i
ona
l
costs,
i
nc
l
u
di
ng costs to
i
ncrease secur
i
ty, o
r
b
e required to credit significant amounts to customers
.
T
hird
p
arties also have used our communications services
without payin
g
, includin
g
by submittin
g
fraudulent credit card
i
nformation. This has resulted in our incurrin
g
the cost of provid-
i
n
g
the services, includin
g
incurrin
g
call termination fees, withou
t
any correspondin
g
revenues. We have implemented anti-
f
raud
p
rocedures in order to limit the expenses resultin
gf
rom the
f
to
f
s
ervice, which were not material in 2010. I
f
our
p
rocedures are no
t
e
ff
ective, the
f
to
f
service could si
g
ni
f
icantly increase our expense
s
and ne
g
atively impact our pro
f
itability.
Our business ma
y
be harmed if we are unable to maintain
data security and meet Payment
C
ard Industry data secu-
rit
y
standards
.
We are dependent upon automated in
f
ormation technolog
y
p
rocesses. An
y
failure to maintain the securit
y
of our data and ou
r
employees’ and customers’ confidential information, including vi
a
t
he penetration of our network securit
y
and the misappropriation
of confidential information, could result in financial obligations to
t
hird parties, fines, penalties, regulatory proceedings, and private
l
itigation with potentially large costs. Any such failure also could
p
ut us at a compet
i
t
i
ve
di
sa
d
vantage an
d
resu
l
t
i
n
d
eter
i
orat
i
on
in
our emplo
y
ees’ and customers’ confidence in us, which ma
y
hav
e
a material adverse impact on our business, financial condition
,
and results of operations
.
12
VO
NA
G
E ANN
U
AL REP
O
RT 2010