1292653--2/19/2010--Neutral_Tandem

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{property, intellectual, protect}

{acquisition, growth, future}

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{personnel, key, retain}

{stock, price, share}

{condition, economic, financial}

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Risk Factors Related To Our Business We face competition from the traditional ILECs and increasing competition from certain other providers such as Level 3 Communications, Peerless Network and Hypercube and expect to compete with new entrants to the tandem services market. Regulatory developments could negatively impact our business. The market for our services is competitive and increased adoption of IP switching technologies could increase the competition we face from direct connections. Our top five customers represent, in the aggregate, a substantial portion of our revenue. During the year ended December 31, 2009, we delivered 63.0% of our terminating transit traffic to five carriers. Carriers may refuse to directly interconnect with us and consequently, we would be unable to terminate our customers traffic to them. If we are unable to manage our growth strategy, our business, prospects, financial condition and operating results could be adversely affected. Consolidation in the industry, such as AT T-BellSouth-Cingular, Verizon-MCI and SBC-AT T, reduces the need for intercarrier transit services and may limit our growth opportunities. If we are not able to obtain and enforce patent protection for our methods and technologies, or prevail in our pending patent infringement action against Peerless Network, competitors may be more easily able to compete with us, our ability to successfully operate our network may be disrupted and our ability to operate our business profitably may be harmed. If we are unable to obtain approval of any tariff, or any provision of a tariff is held to be invalid or suspended, we could be unable to enforce the relevant provisions of the tariff, including the right to collect money for delivered services. Failures or interruptions of our tandem network or the loss of, or damage to, a tandem network switch site could materially harm our revenues and impair our ability to conduct our operations. Our failure to achieve or sustain market acceptance at desired pricing levels could impact our ability to maintain profitability or positive cash flow. We have a limited operating history as a company and as a tandem network for communications services providers. If we are unable to overcome the difficulties frequently encountered by early stage companies, our business could be materially harmed. Economic conditions could cause a material reduction in the amount of traffic we carry on our network. We could experience material variances in our revenues due to events outside of our control. We may be unable to complete suitable acquisitions, or we may undertake acquisitions that could increase our costs or liabilities or be disruptive to our business. Our ability to sell our services depends in part on the quality of our support and service offerings, and our failure to offer high quality support and services would have a material adverse effect on our sales and operating results. Security breaches could also adversely affect our business and our customers confidential information, which could result in us being subject to legal liability and our reputation could be harmed. The failure of the third-party software and equipment we use in our tandem network could cause interruptions or failures of our systems. Our business could be harmed by prolonged electrical power outages or shortages, increased costs of energy or general availability of electrical resources. There are no minimum revenue requirements in our contracts, which means that there is no limit to the potential adverse effect on our revenues from a decrease in the volume of traffic we handle. Failure to comply with neutrality positioning could result in loss of significant business. Our senior management is important to our customer relationships, and the loss of one or more of our senior managers could have a negative impact on our business. We must recruit and retain skilled employees to succeed in our business. We depended upon equity financings, as well as borrowing under our credit facility, to meet our cash requirements after we commenced operations in February 2004, neither of which may be available to us in the future on favorable terms, if at all. We may require substantial additional funds to execute our business plan and, if additional capital is not available, we may need to limit, scale-back or cease our operations. If we do not maintain or generate significant revenues, we may not remain profitable. A substantial portion of our cash at December 31, 2009 was invested in two money market mutual funds. Our investments in auction rate securities are subject to risks which may cause losses and affect the liquidity of these investments. If we do not adapt to rapid technological change in the communications industry, we could lose customers or market share. Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Others may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, the outcome of which would be uncertain. Any unfavorable outcome of such litigation could have a material adverse effect on our business, financial position and operating results. Risk Factors Related To Our Common Stock Our common stock has only traded since November 2, 2007 and our stock price is likely to be volatile. Changes in our capital structure and level of indebtedness and the terms of such indebtedness could adversely affect our business and liquidity position. Anti-takeover provisions under Delaware law and in our amended and restated certificate of incorporation and bylaws could diminish the value of our common stock and could make a merger, tender offer or proxy contest difficult or could impede an attempt to replace or remove our directors.

Full 10-K form ▸

1292653--2/19/2010--Neutral_Tandem_Inc