Vonage 2010 Annual Report Download - page 22

their countries, they may pursue fines, penalties, or other gov-
ernmental action, includin
g
criminal action, that may dama
g
eou
r
b
rand and re
p
utation.
As we expand our international operations into new
g
eo
g-
r
a
p
hies, we ex
p
ect to become sub
j
ect to numerous additional
g
overnmental re
g
ulations, includin
g
telecommunications, dat
a
r
etention, privacy, consumer protection,
f
inancial, and othe
r
applicable laws and re
g
ulations. Some of these re
g
ulations may
b
e complicated or unsettled. Any
f
ailure to comply with
g
ov
-
ernmental re
g
ulation could result in
f
ines, penalties, or other
g
ov
-
ernmental action, includin
g
criminal action, and may dama
g
eou
r
b
rand and reputation. In addition, chan
g
es in le
g
islation or re
g
u
-
lations and actions by re
g
ulators, includin
g
chan
g
es in admin
-
istration and en
f
orcement policies, may
f
rom time to time require
modi
f
ications to our o
ff
erin
g
s or the payment o
ff
ines and penal
-
ties, or both. In the United States, Canada, and United Kin
g
dom
,
we are not a re
g
ulated telecommunications business. We ma
y
need to chan
g
e our service o
ff
erin
g
s to avoid re
g
ulation as a tele
-
communications business in a
j
urisdiction or i
f
we are treated as
a
r
e
g
ulated telecommunications business, we may be required t
o
incur additional ex
p
enses. I
f
we use a local
p
artner to
p
rovide
s
ervices in a country and the local partner does not comply wit
h
applicable
g
overnmental re
g
ulations, we may
f
ace additiona
l
r
e
g
u
l
at
i
on,
li
a
bili
t
i
es, pena
l
t
i
es or ot
h
er
g
overnmenta
l
act
i
on, an
d
our
b
ran
d
an
d
reputat
i
on ma
yb
e
h
arme
d
.
As a United States-based company, any foreign subsidiary
that we use
f
or international operations ma
y
be subject to
a
v
ariety o
f
governmental regulations in the countries where we
market our products, including tari
ff
s and taxes. For example
,
distributions of earnings and other payments, including interest
,
r
eceived from our foreign subsidiaries may be subject to with
-
h
o
ldi
ng taxes
i
mpose
db
yt
h
e
j
ur
i
s
di
ct
i
on
i
nw
hi
c
h
suc
h
ent
i
t
i
e
s
are formed or operating, which will reduce the amount of after-ta
x
cash we can receive. In general, as a United
S
tates corporation,
we may claim a foreign tax credit against our federal income ta
x
expense for such foreign withholding taxes and for foreign incom
e
taxes paid directly by foreign corporate entities in which we ow
n
10% or more of the voting stock. The ability to claim such foreig
n
tax credits and to utilize net foreign losses is, however, subject t
o
numerous
li
m
i
tat
i
ons, an
d
we ma
yi
ncur
i
ncrementa
l
tax costs a
s
a result of these limitations or because we are not currentl
y
in
a
tax-paying position in the United
S
tates. We may also be require
d
to include in our income for
U
nited
S
tates federal income tax
p
urposes our proportionate share of certain earnings of those
foreign subsidiaries that are classified as “controlled foreign
corporations” without regard to whether distributions have bee
n
actuall
y
received from such subsidiaries.
A
sweex
p
and international o
p
erations we will become mor
e
de
p
endent on the economies of the markets in which we hav
e
o
p
erations. These markets are ex
p
ected to be in countries wit
h
economies in various sta
g
es of development or structural reform
,
and our operations in such markets also could be a
ff
ected by
:
>
political, social and economic instability
;
>
w
ar
,
civil disturbance or acts o
f
terrorism
;
>
taking of property by nationalization or expropriation withou
t
f
air compensation
;
>
imposition o
f
limitations on conversions o
ff
orei
g
n currencie
s
into United States dollars or remittance of dividends an
d
o
ther payments by
f
orei
g
n subsidiaries
;
>
h
yperin
f
lation; an
d
>
impositions or increase of investment and other restrictions
o
r requirements by foreign governments.
O
ur international operations involve transactions in a variety
of currencies. Our financial results may be si
g
nificantly affected b
y
f
luctuations o
f
currency exchan
g
e rates. To the extent that
f
orei
gn
subsidiaries distribute dividends in local currencies in the
f
uture
,
t
he amount o
f
cash to be received by us will be a
ff
ected by
f
luctuations in exchan
g
e rates, and such shi
f
ts in the currency
exchan
g
e rates may have a material adverse e
ff
ect on us. We do
n
ot maintain derivatives
f
or mana
g
in
gf
orei
g
n currency exchan
ge
r
a
t
e
ri
s
k
s
.
A number of our agreements are governed by the laws of
,
and subject to dispute resolution in the courts of, or through arbi
-
t
rat
i
on procee
di
ngs
i
n, t
h
e country or reg
i
on
i
nw
hi
c
h
t
h
e oper-
at
i
ons are
l
ocate
d
.
W
e cannot accurate
ly
pre
di
ct w
h
et
h
er suc
h
forum will provide us with an effective and efficient means of
resolving disputes that may arise in the future. Even if we are abl
e
t
o obtain a satisfactory decision through arbitration or a court
proceeding, we could have difficulty enforcing any award o
r
j
udgment on a timely basis.
O
ur ability to obtain or enforce relief
i
n the
U
nited
S
tates is uncertain.
I
f
customers do not accept the di
ff
erences between ou
r
service and traditional tele
p
hone service, the
y
ma
y
choos
e
to rema
i
nw
i
t
h
t
h
e
i
r current te
l
ep
h
one serv
i
ce prov
id
er or
ma
y
choose to return to service
p
rovided b
y
traditiona
l
tele
p
hone com
p
anies
.
F
or certain users, aspects o
f
our service are not the same a
s
traditional telephone service.
O
ur continued growth is dependen
t
on the adoption of our services b
y
mainstream customers, so
these differences are important. For example
:
>
B
oth our E-911 and emer
g
ency callin
g
services are different
,
in si
g
nificant respects, from the 911 service associated wit
h
traditional wire line and wireless tele
p
hone
p
roviders and, i
n
c
ertain cases, with other VoIP
p
roviders.
>
O
ur customers ma
y
experience lower call qualit
y
than the
y
a
re used to from traditional wire line telephone companies
,
i
nc
l
u
di
ng stat
i
c, ec
h
oes, an
dd
e
l
ays
i
n transm
i
ss
i
ons
.
>
Our customers may experience hi
g
her dropped-call rate
s
than they are used to
f
rom traditional wire line telephone
c
om
p
anies
.
>
C
ustomers who obtain new
p
hone numbers from us do not
app
ear in the
p
hone book and their
p
hone numbers are no
t
a
vailable throu
g
h directory assistance services offered b
y
traditional tele
p
hone com
p
anies
.
>
O
ur customers cannot accept collect calls.
>
Our customers cannot call
p
remium-rate tele
p
hone number
s
suc
h
as
1-
900
n
u
m
be
r
sa
n
d9
7
6
n
u
m
be
r
s.
>
I
n the event of a
p
ower loss or Internet access interru
p
tion
e
xperienced by a customer, our service is interrupted. Unlik
e
some of our com
p
etitors, we have not installed batteries a
t
c
ustomer premises to provide emer
g
ency power for our
c
ustomers’ equipment if they lose power, althou
g
hwed
o
have backup power systems for our network equipment and
service
p
lat
f
orm.
I
f
customers do not acce
p
t the di
ff
erences between our serv
-
i
ce and traditional telephone service, they may choose to remai
n
15