Vonage 2010 Annual Report Download - page 21

O
ur credit card processors have the ability to take sig
-
nifi
ca
nt h
o
l
dbac
k
s
in
ce
rt
a
in
c
ir
cu
m
s
t
a
n
ces
.Th
e
reinstatement o
f
such holdbacks likely would have
a
material adverse e
ff
ect on our li
q
uidit
y
.
Hi
stor
i
ca
lly
, our cre
di
t car
d
processors
h
ave esta
bli
s
h
e
d
r
eserves to cover an
y
exposure t
h
at t
h
e
y
ma
yh
ave as we co
ll
ec
t
r
evenue in advance of providing services to our customers, whic
h
i
s a customar
y
practice for companies that bill their customers in
advance of providing services. During 2010, our credit card pro
-
cessors released all reserves which consisted of cash reserves o
f
$
23
,
101 and a cash-collateralized letter of credit for
$
10
,
500.
U
n
d
er our cre
di
t car
d
process
i
ng agreements w
i
t
h
our
Vi
sa
,
M
aster
C
ard, American Express, and Discover credit car
d
p
rocessors, t
h
e cre
di
t car
d
processor
h
as t
h
er
i
g
h
t,
i
n certa
i
n
circumstances, including adverse events affecting our business
,
t
o impose a holdback of our advanced payments purchased using
a Visa, Master
C
ard, American Express, or Discover credit card, as
applicable, or demand additional reserves or other securit
y
.I
f
circumstances were to occur that would allow an
y
of these pro
-
cessors to re
i
nstate a
h
o
ldb
ac
k
,t
h
e negat
i
ve
i
mpact on our
li
qu
id
-
i
ty likely would be significant. In addition, our Visa and
M
aster
C
ard credit card processin
g
a
g
reement may be terminate
d
by
the credit card processor at its discretion if we are deemed t
o
b
e financially insecure. As a si
g
nificant portion of payments to u
s
are made throu
g
h Visa and Master
C
ard credit cards, if the credi
t
card processor does not assist in transitionin
g
our business t
o
another credit card processor, the ne
g
ative impact on our liquidity
l
ikely would be si
g
ni
f
icant
.
The success o
f
our business relies on customers’ con-
t
i
nue
d
an
d
un
i
mpe
d
e
d
access to
b
roa
db
an
d
serv-
ice. Providers of broadband services ma
y
be able to bloc
k
our services or charge their customers more
f
or also usin
g
our services, which could adversel
y
affect our revenue
an
d
growt
h
.
O
ur customers must have broadband access to the Interne
t
i
n order to use our service. Some
p
roviders of broadband access,
i
ncludin
g
outside of the United States, may take measures that
a
ff
ect their customers’ ability to use our service, such as de
g
rad-
i
n
g
the quality o
f
the data packets we transmit over their lines,
g
ivin
g
those packets low priority,
g
ivin
g
other packets hi
g
her
p
riority than ours, blockin
g
our packets entirely or attemptin
g
to
char
g
e their customers more
f
or also usin
g
our services
.
In the United States, it is not clear whether su
pp
liers o
f
b
roadband Internet access have a le
g
al obli
g
ation to allow thei
r
cus
t
o
m
e
r
s
t
o access a
n
d use ou
r
se
rvi
ce
with
ou
t int
e
r
fe
r
e
n
ce
.A
s
a result of recent decisions by the United States Supreme Cour
t
and the FCC,
p
roviders of broadband services are sub
j
ect to rela-
t
ively li
g
ht re
g
ulation by the FCC. Consequently, federal and stat
e
r
e
g
ulators mi
g
ht not prohibit broadband providers
f
rom limitin
g
t
heir customers’ access to VoIP or otherwise discriminatin
g
a
g
ainst VoIP providers. In Au
g
ust 2008, however, the FCC foun
d
th
at
i
t
h
a
d
t
h
e aut
h
or
i
ty to or
d
er a ma
j
or ca
bl
e operator to ceas
e
usin
g
network mana
g
ement practices that inter
f
ered with it
s
b
roadband service users’ abilit
y
to use certain t
y
pes o
f
applica
-
t
ions. The cable operator sou
g
ht judicial review of the FCC’
s
decision and the United States Court of Appeals for the District o
f
C
olumbia Circuit granted the cable operator’s appeal finding tha
t
t
he FCC had not adequately justified its authority to regulate th
e
ca
bl
e operator
’
s con
d
uct.
M
ore recent
ly i
n
D
ecem
b
er 2010, t
h
e
FCC adopted new net neutralit
y
rules that would protect services
l
ike ours from interference. Several providers have already sou
g
h
t
judicial review of the FCC’s new net neutrality rules. Interferenc
e
with our service or hi
g
her char
g
es
f
or also usin
g
our service coul
d
cause us to lose existin
g
customers, impair our ability to attrac
t
new customers, and harm our revenue and
g
rowth. These prob
-
le
m
s cou
l
da
l
so a
ri
se
in int
e
rn
a
ti
o
n
a
lm
a
rk
e
t
s.
Re
g
ulation of VoIP services is developin
g
and therefor
e
u
ncertain, and
f
uture legislative, regulatory or judicial
actions could adversely a
ff
ect our business and expose us
to liabilit
y.
O
ur business has developed in a relatively li
g
htly re
g
ulated
environment. However, the United States and other countrie
s
have be
g
un to assert re
g
ulatory authority over VoIP and are con
-
t
inuin
g
to evaluate how VoIP will be re
g
ulated in the
f
uture. Both
t
he application o
f
certain existin
g
rules to us and our competitors
and the e
ff
ects o
ff
uture re
g
ulatory developments are uncertain
.
I
nterconnecte
dV
o
IP
prov
id
ers, suc
h
as
V
ona
g
e, are su
bj
ec
t
t
o certain FCC rules. For example, on August 5, 2005, the FC
C
r
eleased an Order extending the obligations of the Communica
-
t
ions Assistance for Law Enforcement Act (“CALEA”) to inter-
connected VoIP providers. Under CALEA, telecommunication
s
carriers must assist law en
f
orcement in executing electronic sur
-
v
eillance, which include the capability o
f
providing call content
and call-identi
f
ying in
f
ormation to a local en
f
orcement agency, o
r
LEA, pursuant to a court order or other lawful authorization. To
date, we have taken significant steps towards
C
ALEA compliance.
We could be subject to an enforcement action b
y
the F
CC
if our
C
ALEA solution is deemed not full
y
operational.
Effective Februar
y
2, 2011, another F
CC
order reduced t
o
one business da
y
the amount of time that a telecommunications
p
rov
id
er suc
h
as
V
onage
h
as to port a te
l
ep
h
one num
b
er t
o
another provider. If we, or third parties we rely upon for porting
,
have difficulty complying with the new one-day porting require-
ment, we could be subject to F
CC
enforcement action
.
Future le
g
islative, judicial or other re
g
ulatory actions coul
d
have a ne
g
ative effect on our business. If we become subject t
o
t
he rules and re
g
ulations applicable to telecommunications pro
-
v
iders in individual states, we may incur si
g
nificant liti
g
ation and
compliance costs, and we may have to restructure our servic
e
offerin
g
s, exit certain markets, or raise the price of our services
,
any o
f
which could cause our services to be less attractive to
customers. In addition,
f
uture re
g
ulatory developments coul
d
i
ncrease our cost o
f
doin
g
business and limit our
g
rowth
.
A
s we expan
d
our
i
nternat
i
ona
l
operat
i
ons
i
nto new geog
-
raphies, we will be increasin
g
ly subject to risks that ar
e
i
n
h
erent
i
n operat
i
ng a
b
roa
d
,
i
nc
l
u
di
ng
i
ncrease
d
gov-
ernmental re
g
ulation, currency restrictions, and other
r
es
tr
a
int
sa
n
dbu
r
de
n
so
m
e
t
a
x
es.
O
ur services are in use in countries outside of the
U
nited
S
tates, Canada, and the United Kin
g
dom where we have re
g
ula
r
operations includin
g
countries where providin
g
VoIP services is
i
lle
g
al. It is possible that
g
overnments outside o
f
the United
S
tates, Canada, and the United Kin
g
dom may try to subject ou
r
s
ervices to
g
overnmental re
g
ulations, includin
g
tele
-
communications, data retention, privacy, consumer protection
,
f
inancial, and other laws and re
g
ulations. In addition, i
f
these
g
overnments believe that we are providin
g
unauthorized service i
n
14
VO
NA
G
E ANN
U
AL REP
O
RT 2010