1043769--2/26/2008--COVAD_COMMUNICATIONS_GROUP

related topics

{product, market, service}

{customer, product, revenue}

{system, service, information}

{acquisition, growth, future}

{property, intellectual, protect}

{product, candidate, development}

{competitive, industry, competition}

{control, financial, internal}

{regulation, change, law}

{personnel, key, retain}

{financial, litigation, operation}

{stock, price, operating}

{cost, contract, operation}

{cost, operation, labor}

{regulation, government, change}

We regularly evaluate the strategic value of our business operations and, where appropriate, invest further in certain business operations, and reduce investment in or divest other business operations. Our services are subject to government regulation, and changes in current or future laws or regulations and the methods of enforcing the law and regulations could adversely affect our business. Charges for network elements are generally outside of our control because they are proposed by the ILECs and are subject to costly regulatory approval processes. Our business will be adversely affected if our interconnection agreements are not renewed or if they are modified on unfavorable terms. We depend on a limited number of customers for the preponderance of our revenues, and we are highly dependent on sales through our resellers. The markets in which we operate are highly competitive, and we may not be able to compete effectively, especially against established industry competitors with significantly greater financial resources. New competitors in the market for VoIP services and improvements in the quality of VoIP service provided by competitors over the public Internet could increase competition for our VoIP services. Failure to complete development, upgrades, testing and introduction of new services, including VoIP services, could affect our ability to compete in the industry. We may need to raise additional capital under difficult financial market conditions, and our substantial leverage may negatively affect our operating results. In order to become cash flow positive and to achieve profitability, we must add end-users and sell additional services to our existing end-users while minimizing the cost to upgrade and expand our network infrastructure. Our end-user disconnection rate reduces our revenue and end-user growth. We may experience decreasing margins on the sale of our services, which may impair our ability to achieve profitability or positive cash flow. If we detect material weaknesses in our internal controls over financial reporting under the requirements of the Sarbanes-Oxley Act, our business, reputation and stock price could be adversely affected. Some of our resellers are facing financial difficulties, which makes it more difficult to predict our revenues. The existence of our direct business poses challenges and may cause our resellers to place fewer orders with us or may cause us to lose resellers. The communications industry is undergoing rapid technological changes and new technologies may be superior to the technology we use. A system failure could delay or interrupt service to our customers, which could reduce demand for our services. Our use of fixed broadband wireless technology presents several challenges. A breach of network security could delay or interrupt service to our customers, which could reduce demand for our services. Our success depends on our retention of certain key personnel, our ability to hire additional key personnel and the maintenance of good labor relations. We depend on a limited number of third parties for equipment supply, software utilities, service and installation and if we are unable to obtain these items from these third parties we may not be able to deliver our services as required. We use third-party vendors offshore for tasks that were previously done by our employees. We have made and may make acquisitions of complementary technologies or businesses in the future, which may disrupt our business and be dilutive to our existing stockholders. We must pay federal, state and local taxes and other surcharges on our services, the applicability and levels of which are uncertain. We are a party to litigation and adverse results of such litigation matters could negatively impact our financial condition and results of operations. Our intellectual property protection may be inadequate to protect our proprietary rights. Third parties may claim we infringe their intellectual property rights. The price of our common stock may continue to fluctuate significantly.

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1043769--2/26/2008--COVAD_COMMUNICATIONS_GROUP_INC