Item 1. Business
Item 1. Business
Overview
A global communications transformation is underway, and we believe Bandwidth is at the center. Our mission is to develop and deliver the power to communicate. Through the Bandwidth platform, we enable innovative organizations—from startup app developers to the world's largest enterprises—to engage their end-users and deliver exceptional experiences everywhere people live, learn, work and play. Backed by our global network of more than 60 countries reaching over 90 percent of global gross domestic product (“GDP”), innovative enterprises use Bandwidth’s Application Programming Interfaces (“APIs”) to easily embed voice, messaging and emergency services capabilities into software and applications. Bandwidth was the first CPaaS provider to offer a robust selection of APIs built on our own network. Our award-winning support teams help businesses around the world solve complex communications challenges every day.
Our business benefits from multiple global megatrends, including the enterprise migration to the cloud, the adoption of Contact Center as a Service platforms, the need to be able to work from anywhere, the reinvention of customer experience and the growth in messaging and video applications to engage directly with consumers. We believe these megatrends, which have created sizable total addressable markets, are secular, long-lasting and still early in the adoption curve.
With the combination of our software APIs and our global network, we believe the Bandwidth platform is well-positioned to deliver mission-critical communications for the enterprise. In fact, Bandwidth powers all the 2021 Gartner Ⓡ Magic Quadrant Leaders in Unified Communications as a Service (“UcaaS”), Contact Center as a Service (“CcaaS”) and Meeting Solutions.
Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation. We will seek to do this in three ways: (1) by cross-selling and up-selling within our existing customers as they benefit from our global footprint and powerful APIs to automate and scale their cloud communications platforms; (2) by focusing on enterprise growth to become the best platform for large enterprises seeking best-of-breed communications solutions for their tech stack and (3) to win in the Software and Applications space by becoming the best global platform for large app developers focused on digital engagements that revolutionize the enterprise customer experience. These three strategies are the foundation of the durable business we are seeking to build.
Operating Segments
We have two reportable segments, CPaaS and Other. Segments are evaluated based on revenue and gross profit. We do not allocate operating expenses, interest expense or income tax expense to our segments. Accordingly, we do not report such information. CPaaS segment revenue is derived from reoccurring sources such as per-minute voice usage and voice calling, per-text message usage and other usage services and fees and from monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services. The remainder of our revenue not classified in our CPaaS segment is generated by our Other segment. Other segment revenue is derived from various communications services and products, indirect revenue and messaging surcharge revenue. See Note 10, “Segment and Geographic Information” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for additional information about our segments.
Go-to-Market Strategy
Bandwidth’s go-to-market strategy is designed around the global shift from on-premises based technology to cloud-based communications software. Bandwidth’s enterprise-grade communications platform serves and benefits from two phases of digital transformation:
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• Phase 1: Powering the platforms at the forefront of the communications transformation in categories including Unified Communications as a Service Platforms, Contact Center as a Service Platforms, and Digital Engagement Platforms.
• Phase 2: Powering Global Fortune 2000 adoption of these cloud communications platforms.
Phase 1: Powering Cloud Communication Platforms
Our most long-term, strategic customer relationships are those in the Cloud Communications space, including Microsoft, Google, Zoom, RingCentral, Genesys, and Five9. These companies rely on Bandwidth’s platform to deliver the voice, messaging, and emergency services that are central to their own user experiences. The bottom line: when Bandwidth innovates, the cloud communications space moves forward.
In addition, many brands choose to build their own applications—we believe Bandwidth’s unique combination of network expertise, coverage, and API-first mentality create a best-in-class platform for SaaS and consumer app product owners, particularly those looking for a partner that can deliver mission-critical, scalable communications.
Work Communications Platforms
In a world of remote and hybrid work, the Unified Communications market has never been more critical. Bandwidth powers all the major Unified Communications platforms, giving them access to platform-centric voice, emergency, and messaging capabilities. We believe Bandwidth is a key partner in enabling the entire industry to innovate, particularly with areas like customer onboarding and troubleshooting, where our APIs expedite customer onboards with real-time number ordering and porting,
These platforms are global in nature, and expect a communications partner who can deliver direct global coverage and regulatory insight around the world. Bandwidth’s platform is built with these customers in mind, delivering global reach where it matters most. Our APIs also help their enterprise customers comply with E911 requirements in the United States for dynamic address provisioning and SMS alerting. Bandwidth’s network architecture prioritizes owned and operated coverage wherever possible, to deliver cost and qualitative benefits as well as a seat at the regulatory table.
One of Bandwidth’s key UCaaS customers is a long-standing, global leader for team collaboration, agnostic of industry verticals and across multiple continents. This customer uses Bandwidth’s suite of APIs to programmatically deliver voice and E911 services, along with the programmatic onboarding and provisioning of new phone numbers, to enable a seamless customer experience through its native calling plans–available direct from their platform. Bandwidth’s APIs eliminate the need for manual number management, allowing them to provision services for their all-in-one solution in real-time. Our strategic partnership has led to new developments in dynamic location routing through E911 technology. These Bandwidth-led E911 innovations are scalable across our other UCaaS customers to enable compliant emergency solutions for their customers as well.
Contact Center Platforms
Bandwidth is a driving force of communications innovation behind the dominant global contact center platforms, powering all of the leaders in Gartner’s 2021 Magic Quadrant for CCaaS. These CCaaS providers compete to create the best software platform and portfolio of offerings to enable exceptional customer experience (CX). That competition drives the need for highly resilient and reliable core capabilities like toll-free voice and messaging, which are powered by software and delivered on a global scale.
We believe Bandwidth’s toll-free voice solution is a major reason these contact center platforms build with Bandwidth for their North American traffic. Offering 5X redundancy, our own toll-free voice network is directly peered with four additional network partners, offering customers greater peace of mind. Whenever possible, Bandwidth keeps calls on its own network to enable excellent quality and better ROI. Our four additional peered networks further enable best-in-class coverage as well as resilience—if one network experiences quality-impacting
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issues, calls can be routed to a different network seamlessly, before impacts are even felt. In addition to utilizing Bandwidth’s toll-free services, these platforms also find that Bandwidth’s global number availability and National Operator status is an invaluable asset to them as they expand their services across EMEA, LATAM, and APAC.
Bandwidth’s competitive strength isn't just limited to carrier infrastructure. Our suite of APIs is leveraged by CX-focused customers to power innovation for their end-users—offering CCaaS platforms instant access to programmable number management (ordering, porting, provisioning) so they can customize their customer journeys, embed our global communications into their world-class platforms and reduce friction to achieve near-real time onboards. Forward-leaning contact centers are also leveraging our programmable voice, messaging and video APIs to craft a more mobile and digital-centric experience.
A long-time CCaaS customer initially chose to work with Bandwidth because we were the cloud-native carrier they needed to digitally transform their own platform. Utilizing our software-powered network capabilities, this customer created calling plans for their cloud customers. This customer was also a pioneer in programmatic Bring Your Own Carrier (“BYOC”), co-marketing with us since 2018, and laying the groundwork for more success with large enterprises down the road, via our Duet TM portfolio.
Brand-to-Customer Engagement
The rules of how consumers engage with the brands they trust have been re-written in a new era of digital customer experience. Preferred communication channels, expected reliability and ease of interactions are driving an increased focus on customer engagement and loyalty for businesses of all types and sizes across the globe. This is where a high-growth category of brand-to-consumer engagement platforms has emerged, which we call our Software-as-a-Service and Application (SaaS/Apps) customers. These digital-native innovators are transforming customer engagement, unleashing new channels, enabling automation and simplifying interactions for their own customers who operate across a wide range of industries—including healthcare, fintech, hospitality, transportation, e-commerce and retail. Bandwidth’s robust messaging, emergency, and voice APIs help these platforms and applications build better digital experiences for the brands that rely on them.
Messaging, the main product leveraged by this segment of customers, accounted for about 13% of our CPaaS revenue in 2021. We continue to see growth here as big brands use our customers’ applications to communicate directly with their own consumers, building engagement and loyalty. Bandwidth offers developers a full suite of business Application to Person (A2P) messaging solutions, supporting both SMS and MMS on Local Numbers (10DLC), Toll Free Numbers, and Short Codes. All our solutions support bi-directional unicode, including emojis.
An example customer in this category is our steadily-growing relationship with one of the world’s leading decentralized finance and digital payment companies. In 2018, this company turned to us for enterprise-grade, toll-free messaging to enable digital receipts, promotional notifications, appointment reminders, and payroll notifications for their customers. Based on Bandwidth’s proven success delivering these mission-critical communications, a year later, they asked us to enable a new use case in a separate business unit: messaging related to peer-to-peer payments, fractional stock purchases, and other notifications. More recently, as this company rolled out yet another new channel of communication, it once again turned to Bandwidth as its trusted provider. This new channel allows for multiple forms of two-way messaging engagement between merchants and customers, spanning sales, marketing, and support communications. Our growth with this customer—powering new use cases across business units—shows how the Bandwidth Platform can drive communications innovation for the world’s most innovative companies.
Phase 2: Powering enterprise adoption of cloud communications platforms
While small and medium sized businesses were quick to adopt new cloud platform technology, the largest enterprises have lagged behind because of their inherently complex migration path. This complexity has resulted from a mixture of different service providers, legacy infrastructure, critical integrations and proprietary technologies. These large enterprises (Global Fortune 2000) often find they have new needs like better cost
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structure, access to a global footprint, or help tackling complex integrations that can't be met by either their legacy telephony partners or the platforms themselves.
Bandwidth addresses these migration challenges by enabling enterprises to unbundle telephony from their UCaaS or CCaaS platforms and choose Bandwidth as their underlying communications partner. Bandwidth utilizes software-driven tooling alongside the power of its open cloud communications platform for real-time access to phone numbers around the world, carrier-grade SIP-trunking, business text messaging and emergency services delivered via our unique Duet TM solutions.
By partnering with Bandwidth, global enterprises can reduce complexity, gain greater control of their employees’ workstations (both knowledge workers or contact center agents), centralize communication resources and operational workloads, and better prepare for future scale as they move business communications to and around the cloud. We believe Ba ndwidth’s history as an enabler to the cloud communications platforms creates additional competitive benefits such as deep automation of communications services, enterprise-grade quality and support, as well as deep operational relationships with some of the largest UCaaS and CCaaS platforms.
Key Global Enterprise Use Case: UC for the Global, Dynamic Workforce
Unbundling telephony and deploying a BYOC solution such as Bandwidth’s Duet TM solutions enables IT leaders to centralize their communications across their CCaaS and also UCaaS platforms, making it easier to manage emergency services, phone numbers, employee station set-up and tear-down, platform migration, and connectivity across multiple platforms and geographies. E911 and emergency connectivity can be a particular challenge to these companies—especially as the workforce becomes increasingly dynamic and remote. Bandwidth’s dynamic emergency location routing is intelligent and allows for a real-time location pull, enabling more effective emergency call routing, at the most important times.
One key enterprise customer is a $16 billion, Fortune 500 U.S. managed care provider. This company is on the front lines of patient communication and chose Bandwidth because it was uniquely able to power both their UCaaS and CCaaS communications stack—Microsoft Teams and Genesys CX. Bandwidth’s tools and automation enable the customer to manage their entire organization, including dynamic workers across multiple locations, without the need for specialized telecom expertise, including a user-friendly interface to make real-time number changes on the fly.
Key Global Enterprise Use Case: The Integrated Cloud Contact Center
Big brands recognize that the war for customer loyalty will be fought by providing an elite customer experience. To that end, there is no shortage of specialized enterprise applications catering to these big brands. They need to customize their CX to the specific needs of their business and their customers’ demands—and everyone wants to help. To truly reap the benefits of this new “best of breed” ecosystem and build the contact center of the future, enterprises demand flexibility and cloud-native capabilities. Because of all of the complexities these large enterprises face in moving their contact center to the cloud, many have resisted the move. To connect their disparate, global infrastructure with their contact centers, most enterprises have been relying on multiple carriers, each with different contracts, uncertain redundancy, and traffic limitations. For the largest global companies, trying to migrate these systems to a modern, cloud-based solution can move slowly, or even be blocked by the need to retain critical call data to power third-party integrations such as voice authentication, fraud detection, artificial intelligence (AI), and other services essential to a better customer experience. Bandwidth’s global, cloud-native carrier architecture, paired with our software platform, has helped Global Fortune 2000 brands navigate telecomplexity as they migrate, and maintain flexibility as they stay agile in responding to new and evolving CX demands.
One of Bandwidth’s key multi-country BYOC customers in the contact center space is a global leader in electronic agreements. In an innovative effort to modernize its contact center while improving customer experience
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and efficiency, this customer chose Bandwidth as its communications platform as they migrated their 15-location global contact center stack to the cloud. This also eliminated the complexity of existing on-premises equipment and consolidated legacy carrier agreements from several different global providers into one singular vendor.
With our two-phased digital transformation strategy, Bandwidth is a critical enabler for both enterprises and rapidly growing cloud communications platform providers, creating a virtuous circle of innovation and information. We believe the combined power of our software platform and cloud-native global network allows our customers to future-proof their strategy for all the integrations of today, and new services to come.
The Bandwidth Platform
The Bandwidth Platform is designed for digital transformation. Customers today expect clear, real-time communication. But as enterprises rely on an increasing number of communications tools, they become increasingly dependent on the ability to integrate these tools. Bandwidth’s universal communications platform (CPaaS) simplifies how enterprises deliver integrated global experiences. The Bandwidth Platform can be viewed in three layers: CX, core products and global network and infrastructure. Our core product domains (such as Phone Numbers, Voice, Emergency, Video, Analytics & Insights, as well as Integrations with major UCaaS & CCaaS platforms) are all enabled and made accessible by a Customer Experience layer. This CX layer includes our Developer Experience, Portal, as well as Accounts & Identity groups. Underpinning both our CX layer as well as our core product domains are our global network and infrastructure layers.
The Bandwidth Platform empowers both product leaders and enterprises to build and integrate communications services at scale, around the world. The platform is open where it matters most, with optionality and control, so our customers can benefit from added flexibility where their businesses demand it. The platform’s connectivity makes it easier to unbundle telecom and integrate directly into applications like collaboration tools (ex: Duet TM for Teams) or contact center platforms (ex: Duet TM for Genesys). Its automation simplifies orchestration, and its API library offers global use cases companies can start with and scale.
By operating much of our own capital-efficient, cloud-native, global network, we are able to offer advanced monitoring, reporting and analytics, superior customer service, dedicated operating teams, personalized support and flexible cost structures.
Bandwidth’s Modern Carrier Network
Bandwidth’s all-IP voice network, messaging network and public safety-grade network serve as the foundation for the entire Bandwidth platform. It is a custom-built network, with coverage around the world. Direct control over our network assets allows Bandwidth to expose greater automation possibilities to our customers, while delivering best-in-class quality and support. Deep and actionable insights to quality allow our teams to act faster on behalf of our customers. Our platform's command over our own numbering resources enables real-time porting, provisioning and number ordering en masse:
• coverage in more than 60 countries, serving 90 percent of global GDP;
• owned and operated network paired with peering relationships with major global networks ensure our customers are never more than one hop away from the PSTN;
• 5x resilient U.S. toll-free network, with interconnections to four toll-free networks in addition to our own, designed for best-in-class resiliency from a single provider;
• public safety connectivity purpose-built for today’s dynamic, increasingly remote workforce, interconnected with emergency calling networks worldwide;
• A2P messaging aggregator network is deeply connected into the messaging ecosystem, designed to support best-in-class deliverability and insight; and
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• extensive regulatory experience, allowing us to advocate on behalf of our customers around the world.
Core Product Domains
Bandwidth is continually investing in new domains of our platform. This overview gives a briefing on a few of the major product offerings and use cases supported.
Voice. We offer customers the ability to interact with our voice services through SIP or programmable voice API. Our voice services are used to build voice calling in applications and platforms, orchestrate call flows between users or machines, record and bridge calls, initiate text-to-speech for interactive voice response and more. Enterprises can customize high-quality call routing for business voice use cases and global reach. Some of the common use cases are:
• Powering calling plans within cloud communications platforms (UCaaS, CCaaS, Meetings Solutions): Our platform empowers cloud communications leaders to connect their enterprise end-users with local and toll-free connectivity at global scale.
• Embedding ‘click-to-call’ feature : We enhance our enterprise customers’ ability to connect with consumers instantly. Our programmable voice API enables many use cases including call notifications and surveys, advertising campaigns, etc.
• Transitioning from traditional premise focused communications to cloud based services: As enterprises kick their on-premise PBX to the curb, Bandwidth can fuel their digital transformation with our software-driven SIP trunking services designed to integrate in hybrid or full cloud deployments.
Messaging API. Our software APIs for messaging deliver a full suite of A2P messaging capabilities, designed to help brands engage with their customers. Bandwidth’s North American messaging services are enabled for local and toll-free phone numbers as well as short codes. While we provide a wide range of functionalities, some of the common use cases are:
• Automated real-time notification and alerts : Our APIs empower product leaders and enterprise developers with predefined functionalities to send and receive A2P messages, uniquely integrated with their own business processes or tech stacks.
• Two-factor authentication : We enable enterprises to verify the identity and maintain security of end users through our software-based, multi-channel verification service that sends unique codes to end users to log in to mobile and web applications.
• Group messaging : Product owners utilize our platform to build messaging applications that enable their end-users to share SMS and MMS messages, videos, carry out polls and surveys amongst other uses without leaving the application.
Emergency Services. We are the only software platform that provides complete communications solutions (full PSTN replacement) with integrated local emergency services in 38 countries around the globe. We can instantly connect numbers, devices or applications to emergency services with reliable and accurate emergency routing.
• Dynamic Location Routing : Enables real-time, geocoded routing based on X,Y coordinates of the caller and defined Public Safety Answering Point boundaries. This helps enterprises meet compliance requirements and enable increasingly remote workforces.
• Emergency Calling API: Connects apps to the public safety infrastructure without the need for on-premise technology or telephony expertise.
• Emergency Notification API : Enables a multi-channel notification sent to on-site security personnel when an emergency call takes place within a large enterprise.
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Video API. Our API for video easily combines with our programmable voice API to create an integrated collaboration experience, and enables users to join calls by video or by voice calling. Easily deployed with mobile, browser, and server SDKs, our Video API provides such features as multi-party conferencing, support for VP8, H.264 video codecs, screen sharing, connection to the PSTN, and detailed call records.
• PSTN, SIP and browser-based endpoints: We allow customers to easily connect to PSTN, SIP and browser-based voice and video endpoints to create a multi-party communication experience, and enable users to make and receive calls around the globe.
• Improve the impact of direct in-application communications: Our API allows applications that depend on making a real connection, such as telehealth, the ability to do so without leaving the context of the application, allowing them to connect face-to-face with consumers with a quick, easy and trackable video.
Phone Numbers. The Bandwidth Dashboard is Bandwidth’s user-friendly interface for a comprehensive number management solution. Every function within The Bandwidth Dashboard has an accompanying API, allowing our customers’ product leaders and developers to integrate Bandwidth’s functionality within their own user interfaces or web applications.
• Global Number Management : Order, provision, and activate local and toll-free phone numbers around the world, in real-time, allowing customers to search and sort by availability, geographic region, city/state, country/area code and many other options.
• Programmatically port up to 20,000 numbers simultaneously : Gain control over the confusing carrier landscape and automate number porting across all major carriers. This allows for a more reliable end-user experience with controlled scheduling and triggered porting activation.
Insights. Bandwidth Insights gives customers a detailed view of their voice and messaging performance to make data-driven decisions and ensure quality of service.
• Understand and solve for deliverability issues: Real-time error codes and alerting allows enterprises to understand and solve for SMS deliverability challenges in an ever-changing text messaging environment.
• Real-time call quality analytics: We provide our customers with real-time call analytics including data such as call duration, customer sentiment and other attributes to better understand call performance and customer experience.
• Track trends, benchmarks and usage : Our Insights API shows trends, delivery rates and usage patterns by product and carrier.
CCaaS and UCaaS Platform Integrations. Bandwidth’s platform integrates with several leading UCaaS and CCaaS platforms under the Duet TM solutions portfolio, to provide a holistic solution that's seamlessly aligned with the organization, and allows enterprises to move communications to the cloud at their own pace. Once numbers are on the Bandwidth network, they can be moved from platform-to-platform without leaving the Bandwidth network, decreasing cloud migration risk and complexity.
• Duet TM for Microsoft Teams
As mentioned earlier, we have a Duet partnership with the leading CCaaS platform. We also have Duets in the UCaaS space, including Duet for Microsoft Teams. This includes:
• Direct routing & dynamic e911 Consolidate SIP globally with meaningful direct access to the telephony, and solve for an increasingly dynamic workforce from a single provider.
• Hosted session border controllers (SBCs) Connect telephony without another piece of on-premise equipment. A hosted SBC eliminates complexity and allows for a truly cloud deployment.
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• Send-to SMS web application Allows enterprises the ability to send text messages in and outside of the organization from within the Teams environment, built to work seamlessly with a direct routing or BYOC strategy.
Competitive Strengths
We believe that successful companies win by optimizing customer experience – : engaging and exciting their customers, and earning their trust over time. And to win on customer experience, companies must communicate across continents, time zones and cultures, using a variety of technology tools and platforms. As the communications ecosystem grows, so does complexity. In our 20 years of business, we have prided ourselves on solving these most critical business challenges with great innovation. Our innovation-rich culture, customer-centric solutions and track record of successful execution provide us with the following competitive strengths:
A full-stack, open platform : We built our communications platform as an enterprise-grade cloud platform. As a result, our deployment is fast, our software APIs are flexible and we enable enterprises to launch and scale quickly. The scale and quality of our platform allows us to serve large-scale Internet companies and cloud service providers. Our platform also allows us to provide enterprises with one of the broadest, most complete communications services solutions in the industry--solutions that are ready to integrate with leading UC and contact center platforms to create customized, best-of-breed solutions. Our large library of APIs (including voice, messaging, numbers, emergency services, insights and integrations) allow customers to incorporate a broad range of capabilities into their products and services that would be otherwise unattainable.
Global reach from a single source : Our global voice network provides coverage in more than 60 countries covering more than 90 percent of global GDP. This means our customers can consolidate their communications vendor relationships with Bandwidth, while gaining global reach, resiliency and efficiency for their communications stack. We offer greater levels of quality and delivery assurance than providers offering aggregated services across the public Internet or through resold partnerships. We believe that the control we have over our IP voice network and communications platform gives us distinct competitive advantages that include: enabling our customers to deploy cloud-native services, consistent high quality, in-depth enterprise support, real-time network visibility and economies of scale.
CPaaS based emergency calling capabilities : We believe we are one of the only CPaaS software providers with full stack emergency service capabilities. In many countries, it’s a legal obligation to ensure on-premise access to local emergency services. Our customers can meet compliance commitments using a single provider in multiple markets where they do business—across North America, Europe and Asia-Pacific. Moreover, our dynamic geospatial routing capability routes emergency calls based on a real-time location of the caller to produce industry-leading results.
Experience & Expertise : Our senior leadership team has a combined 100+ years of industry experience and a long average tenure with Bandwidth. W e maintain direct relationships with the local regulators in more than 30 countries , and we currently power all the 2021 Gartner Magic Quadrant Leaders in UCaaS, CCaaS, and Meeting Solutions. We seek to bring this body of experience and knowledge to our customer engagements.
Growing Relationships with Low Customer Churn : We address the complex needs of the customers we serve, and as a result, these enterprises have continued to innovate and grow with our platform over many years. A number of our largest enterprise customers have been on our platform for more than ten years. Our relationship with each of the enterprises we serve often spans product suites, divisions and use cases over time. Based on surveys conducted after customer interactions in 2021, our customers have expressed a 97% satisfaction rate.
A unique culture focused on people: At Bandwidth, we are mission first. To accomplish that mission, we’ve created a unique, service-oriented culture, centered on meaningful work, lifting each other up, and investing in the bodies, minds, and spirits of our Bandmates. For our customers, this means there’s always a smiling, world-class Bandmate on the other end of the line who will go the extra mile for them. We often hear from our customers that Bandwidth just cares more. For our employees, this means we make a “whole person promise” to offer
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meaningful work and programs that ensure Bandmates can find the work/life balance necessary to enjoy a healthy and fulfilling life. Our culture is focused on helping each other succeed in our mission and makes work-life balance possible isn’t just something to feel good about. It drives real results. Our Bandmate engagement and satisfaction scores are consistently ranked higher than our peers. We have been recognized as a top place to work by the Today Show, Fast Company, Forbes, The Wall Street Journal and The Triangle (North Carolina, USA) Business Journal, among others.
While we are exceptionally proud of the team we have assembled, we also acknowledge that there is important work for us to do to continue developing a more diverse and inclusive team. We believe diverse and inclusive teams are more innovative and make better business decisions.
At Bandwidth, we say, “Your music matters to the BAND.” We celebrate differences and encourage our team members to be their authentic selves. No matter what music a team member makes, we support each team members’ unique gifts and needs with our programs that deliver on our Whole Person Promise. The real masterpiece is in the music we make together with the strength and ingenuity to lift up all those we serve.
Our Your Music Matters program builds outreach programs and initiatives to fill our recruiting funnel with diverse candidates who possess the “Bandwidth Edge”—smart, common sense, hardworking, honest, competitive energy and emotional intelligence. We build external and internal campaigns to fill the recruiting funnel using our talented team members, creative local and non-local outreach partnerships, and virtual platforms to connect with talent who come from different backgrounds, skills, abilities and experiences.
We believe the benefits that we offer each of our team members are an important component of our Whole Person Promise. These benefits, which vary based on country location and applicable laws, include: robust medical benefits in which we pay 100% of the premiums for medical, dental and vision insurance; 401(k); industry leading parental leave; and access to mental health resources.
Bandwidth’s compensation philosophy embraces transparency and educates all Bandmates on our benchmarking process, pay structure design and logical approach to compensation strategy. Research has shown that rigorously-designed compensation strategies like ours are one of the best ways to combat pay disparity and ensure fairness for every team member.
Our Customers
We have a broad and diversified customer base. We benefit from longstanding relationships with some of the largest hyperscale tech companies, well-recognized enterprise customers, as well as small and medium-sized businesses. Many of our customers have multi-year contracts, with no single customer representing 10% of total revenue for the year ended December 31, 2021.
Our management is highly focused on creating and maintaining strategic partnerships beyond standard transactional customer relationships. We seek to empower enterprises to create, scale and operate voice, messaging, and emergency services across any mobile application or connected device, and this capability reinforces our customer relationships.
The majority of our customers sign master service agreements (“MSAs”) that contain standard terms and conditions, including billing and payment, default, termination, limitations of liability, confidentiality, assignment and notification, and other key terms and conditions. Customers order specific services in separate service order forms that incorporate the applicable MSA. Each service order form details the minimum contract duration, any applicable monthly recurring charge and applicable non-recurring charges. The terms and conditions for each order are also specified in the applicable service order form.
Sales and Marketing
Our sales and marketing teams work closely together to identify and establish relationships with prospects, acquire new enterprise customers, expand relationships with existing enterprises, and integrate them with the
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Bandwidth platform. Our marketing team generates leads and pipeline for sales through a number of demand-generating channels, including our website, online marketing campaigns, webinars, sponsored events, white papers, public relations, social media, analyst relations and other outbound lead development efforts. These marketing initiatives enhance awareness, preference and adoption of our services, and help us cross-sell opportunities with existing customers.
We engage potential customers and existing customers through an enterprise sales approach. Our sales executives often directly engage C-level executives and other senior business, product and technical decision makers responsible for the end-user experience and financial results at their enterprises. Our sales executives work to educate these decision makers and their teams about the benefits of using the Bandwidth platform to engage their end-users and deliver exceptional experiences everywhere people live, learn, work and play. Our sales team includes a full stack of sales development, inside sales, field sales and sales engineering functions.
Research and Development
Our ability to compete depends in large part on our continuous commitment to research and development (R&D). We seek to continuously enhance our existing offerings and develop new products and services. Our product and network teams are responsible for the design, development, testing and release of the Bandwidth platform. These teams closely coordinate with our executive management, which is responsible for creating a vision for the platform, and with our sales and marketing teams, which relay customer insights, enterprise demands and possible new use cases or enhancements. Our development efforts focus on the availability and resiliency of our communications platform and our network, including infrastructure, ease-of-use and flexibility, end-user experience and ability to integrate with other enterprise systems.
Competition
The CPaaS market is rapidly evolving and increasingly competitive. We believe that the principal competitive factors in our market are:
• platform scalability, reliability, deliverability, security and performance;
• network control and quality;
• global reach;
• completeness of offering;
• ease of integration and programmability;
• product features;
• customer support;
• ability to deliver measurable value and savings;
• the cost of deploying and using our service offerings;
• the strength of sales and marketing efforts;
• brand awareness and reputation; and
• credibility with product executives and developers.
We believe that we compete favorably based on the factors listed above and believe that none of our competitors currently compete directly with us across the combination of all our global scale, platform and product offerings.
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Our competitors fall into two primary categories:
• CPaaS companies that offer a narrower set of software APIs, more limited global reach, less robust customer support and fewer other features while relying on third-party networks and physical infrastructure; and
• Network service providers that offer limited developer functionality on top of their own networks and physical infrastructure, such as AT&T, Colt, Lumen and Verizon.
Some of our competitors have greater financial and technical resources, geographic reach, name recognition or intellectual property portfolios than we do. In addition, some competitors may offer a greater number and variety of products and services than we do, or may offer services in geographies in which we do not operate. We expect competition to intensify in the future. See “Risk Factors–Risks Related to Our Business” elsewhere in this Annual Report on Form 10-K, for additional information on the competitive environment in which we operate, and risks related thereto.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual protections, to protect our proprietary technology. We also rely on registered and unregistered trademarks to protect our brand.
As of December 31, 2021, we had twenty U.S. patents and five U.S. patent application pending. In addition, as of December 31, 2021, we had twenty-one registered trademarks in the United States and elsewhere.
We seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law. See “ Risk Factors–Risks Related to Our Business ” elsewhere in this Annual Report on Form 10-K for additional information on our intellectual property rights and risks related thereto.
Employees
As of December 31, 2021, we had approximately 1,100 employees, who are primarily located in the United States, Europe and Asia Pacific. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Regulatory
General
We and the communications services that we provide through our software APIs are subject to many U.S. federal and state and foreign laws and regulations. These laws and regulations may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects. Many of the laws and regulations to which we and the communications services that we provide through our software APIs are subject are still evolving and being tested in courts and could be interpreted or applied in ways that could harm our business. We describe below certain material components of the regulatory framework in which we operate. See “ Risk Factors–Risks Related to Our Business ” elsewhere in this Annual Report on Form 10-K for additional information on the regulatory framework in which we operate and risks related thereto.
Federal Telecommunications Regulation
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The Federal Communications Commission (“FCC”) has jurisdiction over interstate and international telecommunications services in the U.S. We have obtained FCC authorization to provide services on a facilities and resale basis.
Under the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (the “1996 Act”), any entity, including cable television companies and electric and gas utilities, may enter any telecommunications market, subject to reasonable state regulation of safety, quality and consumer protection. The industry continues to evolve toward new services built upon IP technologies. With these technological advances, there have been challenges to the traditional regulatory structure under the 1996 Act. Among the challenges that have arisen is fraud and abuse in the form of illegal robocalling and unwanted text messaging. In an effort to address these challenges, Congress recently adopted new federal legislation called the Telephone Robocall Abuse Criminal Enforcement and Deterrence (“TRACED”) Act. Among other things, the TRACED Act directs the FCC to conduct a number of different rulemaking proceedings and increases the FCC’s enforcement authority. As a result, the FCC is conducting several proceedings to understand and address fraud and abuse in the form of illegal robocalling. Separately, the FCC and other governmental agencies work to thwart illegal robocalling through the Telephone Consumer Protection Act of 1991 (the “TCPA”), which restricts telemarketing calls and the use of automatic text messages without the recipient’s proper consent. The Federal Trade Commission and state attorneys general also have the authority to enforce compliance with the TCPA. Moreover, the TCPA also allows aggrieved private parties to directly seek civil remedies and seek statutory-defined damages for calls or text messages received without recipients’ proper consent. VoIP Regulation . Some of our communications services provided through our software APIs may qualify as Voice-over Internet Protocol (“VoIP”). The FCC has imposed various regulatory requirements on VoIP providers that previously applied only to traditional telecommunications providers, such as obligations to provide 911 functionality, to contribute to the federal universal service fund, to comply with regulations relating to local number portability, to abide by the FCC’s service discontinuance rules, to contribute to the Telecommunications Relay Services fund and to abide by the regulations concerning Customer Proprietary Network Information, outage reporting, access for persons with disabilities, the Communications Assistance for Law Enforcement Act and expanded obligations with respect to the transmission of emergency calls. In some instances, these regulations indirectly affect us because they directly apply to our customers. Additionally, several state public utility commissions are conducting regulatory proceedings that could affect our rights and obligations, or the rights and obligations of our customers, with respect to IP-based voice applications. Specifically, some states have taken the position that the “local” component of VoIP service is subject to traditional regulations applicable to local telecommunications services, such as the obligation to pay intrastate universal service fees and other state-related telecommunications taxes, fees and surcharges. We cannot predict whether the FCC or state public utility commissions will impose additional requirements, regulations or charges upon our provision of services related to IP communications.
Universal Service . Some of our services are subject to federal and state regulations that implement universal service support for access to communications services in rural and high-cost areas and to low-income consumers at reasonable rates; and access to advanced communications services by schools, libraries and rural health care providers. In some instances, these regulations indirectly affect us because they directly apply to our customers. The FCC assesses us a percentage of interstate and international revenue we receive from certain customers as our contribution to the Federal Universal Service Fund, which assessments we generally pass on to our customers. Additionally, the FCC has ruled that states may assess contributions to their state Universal Service Funds on VoIP providers’ intrastate revenue. Any change in the assessment methodology may affect our revenue and expenses, but at this time it is not possible to predict the extent we would be affected, if at all.
Intercarrier Compensation. Telecommunications carriers compensate one another for traffic carried on each other’s networks. Interexchange carriers pay access charges to local telephone companies for long distance calls that originate and terminate on local networks. Local telephone companies historically have charged one another for local and Internet-bound traffic terminating on each other’s networks. The methodology by which carriers have compensated one another for exchanged traffic, whether it be for local, intrastate or interstate traffic, has been under review by the FCC for over a decade and continues to be subject to on-going reform efforts.
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In its November 2011 Universal Service Fund/Intercarrier Compensation Transformation Order (the “USF/ICC Transformation Order”) and subsequent related FCC orders, most terminating switched access charges and all reciprocal compensation charges were capped at then-current levels, and were reduced to zero over, as relevant to us, generally a six-year transition period that began July 1, 2012.
Pursuant to the USF/ICC Transformation Order, VoIP, while remaining unclassified as either an information or a telecommunications service, was prospectively categorized as either local or non-local traffic. On December 17, 2019, t he FCC issued an order that concludes that local exchange carriers (“LECs”) may assess end office switched access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user. If neither the LEC nor its VoIP partner provides such a physical connection, the LEC may not assess end office switched access charges because it is not providing the functional equivalent of end office switched access. The FCC also decided to give its order retroactive effect. We cannot predict the impact on our business, including whether other carriers will agree with our legal interpretations and treatments, at this time.
In a Report and Order released on October 9, 2020 the FCC adopted new rules governing various aspects of the intercarrier compensation structure applicable to toll free (8YY) calls (“8YY Originating Access Reform Order”) . The new 8YY originating access rules took effect on December 28, 2020. The new rules are generally intended to shift most switched access charges for 8YY calls to a bill-and-keep framework over a three-year period.
Emergency Services. Pursuant to Federal legislation called Ray Baum’s Act and Kari’s Law, the FCC adopted new emergency calling regulations that began to take effect in early 2020 continuing through January 2022. These new regulations address the obligations of communication service providers and software providers, like us, as well as equipment installers, managers and operators of a variety of different types of communications systems, and generally require uniformity in dialing patterns for contacting emergency operators, implementing central notification functionalities. The rules also require the transmission of more precise location information in enterprise or campus environments. The granularity of the location information depends on the type of service. There is some ambiguity in the rules as to the specific obligations of each party involved in the service delivery chain and the rules have not yet been interpreted by the FCC or a court.
State Telecommunications Regulation
The 1996 Act was intended to increase competition in the telecommunications industry, especially in the local market. With respect to local services, incumbent local exchange carriers (“ILECs”) such as AT&T are required to allow interconnection to their incumbent networks and to provide access to network facilities, as well as several other pro-competitive measures.
State regulatory agencies have jurisdiction when our facilities and services are used to provide intrastate telecommunications services. A portion of our traffic may be classified as intrastate telecommunications and therefore subject to state regulation. We are authorized to provide competitive local exchange telecommunications services in 49 states and the District of Columbia, and thus are subject to these additional regulatory regimes. Changes in applicable state regulations could affect our business.
In addition, we need to maintain interconnection agreements with ILECs where we wish to provide service, which are subject to approval by individual states and subject to state arbitration in the event of disputes. We expect that we should be able to negotiate or otherwise obtain renewals or successor agreements through adoption of others’ contracts or through arbitration proceedings, although the rates, terms and conditions applicable to interconnection and the exchange of traffic with certain ILECs could change significantly in certain cases.
International
As we have expanded internationally, we have become subject to telecommunications laws and regulations in the non-US jurisdictions where we offer our services. Prior to our November 2020 acquisition of Voxbone, we concentrated our efforts in Europe, including the United Kingdom.
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The European Electronic Communications Code. In 2002, the European Council adopted a set of six directives to create the framework for telecommunication laws in Europe (the “2002 Directives”). The directives are binding upon the European Union (the “EU”) member states, which must adopt implementing national laws consistent with the directives. The European Council adopted the European Electronic Communications Code (the “EECC”), which contemplated a December 2020 deadline for each of the EU member states to implement national laws consistent with the EECC, but to date, 18 EU member states have not adopted implementing legislation.
Part I of the EECC – The Framework . Part I of the EECC describes the European regulatory framework and defines terms. Part I of the EECC also mandates the independence of the national regulatory authorities (the “NRAs”) to ensure the proper administration and exercise of power. Part I of the EECC also foresees the rules governing the provision of electronic communications networks and services.
Part II of the EECC – Networks . Part II of the EECC establishes a uniform framework for the regulation of access to and the interconnection of electronic communications networks, including spectrum licensing. Part II of the EECC also outlines the relationships among suppliers of network and services, including principles to govern contractual relationships and regulatory involvement by the NRAs as necessary. Part II of the EECC effectively governs the relationships among service providers at a wholesale level and defines the principle of market analysis and significant market power, and related termination rates.
Part III of the EECC - Services . Part III of the EECC governs universal service obligations and the provision of electronic communication networks and services to end users. Part III of the EECC seeks to ensure that end users have access to a minimum set of services, including access to emergency services. However, the minimum set of services is not required to be provided by all providers. Instead, the applicable NRAs may designate one or more companies to achieve the universal service in each country. It also establishes the principles governing the management of telephone numbers and the licensure requirements for the allocation of telephone numbers.
Part III of the EECC - Services . Part III of the EECC governs universal service obligations and the provision of electronic communication networks and services to end users. Part III of the EECC seeks to ensure that end users have access to a minimum set of services, including access to emergency services. However, the minimum set of services is not required to be provided by all providers. Instead, the applicable NRAs may designate one or more companies to achieve the universal service in each country. It also establishes the principles governing the management of telephone numbers and the licensure requirements for the allocation of telephone numbers.
The E-Privacy Directive . The E-Privacy Directive seeks to ensure privacy and confidentiality in the processing of personal data in electronic communications. The E-Privacy Directive requires providers of publicly available electronic communications services to take appropriate technical and organizational measures to safeguard the security of services. These measures must: ensure that personal data can be accessed only by authorized personnel for legally authorized purposes; protect personal data stored or transmitted against accidental or unlawful destruction, accidental loss or alteration, and unauthorized or unlawful storage, processing, access or disclosure; and ensure the implementation of a security policy with respect to the processing of personal data. The E-Privacy Directive also requires notification of any breach or loss of personal data to the applicable NRA.
Implementing National Legislation . The directives of the European Council ensure substantial similarities among nations, but not absolute uniformity. Each of the EU member states must adopt national legislation to implement the directives of the European Council.
United Kingdom . The United Kingdom (“U.K.”) departed from the EU in January 2020. We understand that the transition period contemplated by the withdrawal agreement governing the U.K.’s departure from the EU provided that EU law applied in and in relation to the UK only through December 2020. Thereafter, the EECC will no longer directly apply in the U.K. We do not anticipate considerable changes, however, since the EECC has been transposed into U.K. law as of December 2020.
Other Non-US Jurisdictions. Following our acquisition of Voxbone, we became subject to telecommunications laws and regulations in other non-US jurisdictions where we offer our services. These laws and
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regulations may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
Corporate Information
Bandwidth Inc. was founded in July 2000 and incorporated in Delaware on March 29, 2001. Our principal executive offices are located at 900 Main Campus Drive, Raleigh, NC 27606, and our telephone number is (800) 808-5150. Our website address is www.bandwidth.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K.
Available Information
The following information can be found, free of charge, on our corporate website at https://www.bandwidth.com/:
• our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”);
• our policies related to corporate governance, including our Code of Business Conduct and Ethics applicable to our directors, officers and employees (including our principal executive officer and principal financial and accounting officer), that we have adopted to meet applicable rules and regulations; and
• the charters of the Audit and Compensation Committees of our Board of Directors.
In addition, copies of our annual report will be made available, free of charge, upon written request.
We intend to satisfy the applicable disclosure requirements regarding amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics by posting such information on our website. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.