August 10, 2005

Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 3561
100 F Street, NE
Washington, D.C. 20549
Attention: Inessa Berenbaum
                Kyle Moffat

Ladies and Gentlemen:

1. We refer to your statement that you have offered incentives to customers who purchase terminal adapters in your retail channels to offset the cost of the equipment purchased from a retailer. In accordance with EITF 00-21, a portion of Packet8 revenues is allocated to product revenues, but these revenues are less than the cost of the terminal adapters. With regard to this statement;
• Tell us the nature of incentives offered and how you account for them.
• Tell us in more detail why the product costs exceed product revenue.
• Provide us with examples showing journal entries for both the product revenue and product cost.
• Refer to the accounting literature you relied upon.

The majority of our revenue transactions are attributable to sales processed directly on our Packet8 web site. The retail channel represented approximately 5% of our recognized revenue in fiscal 2005. Incentives offered to retail customers included:

• Rebates that provide for free months of service;
• Rebates that provide for a return of all or a portion of the equipment price paid; and
• Rebates that provide for free activation.

The rebates were granted to incentivise a retail customer to enter into a service agreement that included the purchase of a desktop terminal adapter (DTA) at a retail location or a retailer's on-line web site. At the retail location, the customer is provided with a rebate form and directed to an 8x8 web site to purchase the Packet8 service. The rebate is used to ensure that a customer who purchases a DTA in a retail location pays approximately the same amount as a customer who signs up for service on the Packet8 web site. For example, a retail customer might pay $60 plus sales tax for a DTA at a retail store, but when they purchase the Packet8 services on our web site, they would not to have to pay an activation fee or shipping charges. All rebates processed are recorded as reductions of revenue when the revenue is recognized. If revenues allocated to the DTA product are insufficient to cover the incentive, service revenue is reduced accordingly.

Product costs exceed product revenues because we subsidize the cost of the hardware provided to a subscriber. In direct sales to customers made from the Packet8 web site, we do not separately charge subscribers for the DTA product. We charge an activation fee and this amount is allocated to the elements of the arrangement based on relative fair values. However, the cost of the DTA exceeds the amount of new subscriber revenues allocated to product revenue. Accordingly, product costs exceed product revenues.

Our journal entries to record product sales are set forth below, assuming the following:

• Direct sale to the new subscriber from our web site;
• DTA standard cost is $100;
• Subscriber is charged $50 when they subscribe to the service on our web site, consisting of:
• $20 - First month's service; and
• $30 - Activation fee.

JE #	Account	Debit	Credit	Description
1	Deferred COGS	100		To record the shipment of the product to
	Inventory		100	the new subscriber
2	Accounts Receivable	50		To record the billing to the new subscriber
	Deferred Revenue		50
3	Deferred Revenue	50		To recognize new subscriber revenue upon
	Product Revenue		30	expiration of the thirty day trial period.
	Service Revenue		20
4	Cost of Good Sold - Product	100		To recognize cost of goods sold upon
	Deferred Cost of Good Sold		100	expiration of the thirty day trial period.

The basis for our accounting for new subscriber sale transactions is Staff Accounting Bulletin (SAB) No. 104 and Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 00-21. This accounting is based on example no. 1 of EITF 00-21, as that example portrays a cellular company conducting a similar transaction.

2. We note that for the year ended March 31, 2005, you reversed $75,000 of write-downs related to semiconductor product inventory and reversed approximately $120,000 of royalty and $103,000 of warranty reserves related to your former video semiconductor and PSTN videophone products as a result of changes in estimates. In this regard provide us and disclose in future filings;
• A roll-forward reconciliation of your inventory valuation account. Tell us in more detail why inventory reserves for the semiconductor product inventory were reversed in the years ended March 31, 2005 and 2004.
• A tabular reconciliation of changes in product warranty liability in accordance with paragraph 14 of FIN 45. Tell us in detail why you reversed warranty reserves in the years ended March 31, 2005 and 2004.
• Tell us the nature of royalty reserves and how you account for them. Refer to accounting literature used.

Inventory Valuation

Upon completion of last time purchases in connection with the end of life of our semiconductor products, we had excess inventory for which we had no forecasted demand. We wrote-down the value of the excess semiconductor inventory to zero by recording a full reserve against the value of the inventory. We note the guidance that the Staff has provided in SAB No. 99, which states: "the staff believes that a write-down of inventory to the lower of cost or market at the close of a fiscal period creates a new cost basis that subsequently cannot be marked up based on changes in underlying facts and circumstances." The inventory write-down recorded for our semiconductor products was reversed when we sold the excess inventory to third parties (the reserves were reversed in the period in which the revenue was recognized).

A roll-forward reconciliation of our inventory reserve account is set forth below. In accordance with Accounting Research Bulletin No. 43, as interpreted by SAB No. 99, we write-down inventory to the lower of cost or market when circumstances indicate that a write-down is warranted. We maintain a reserve account solely for bookkeeping purposes to avoid having multiple standard costs for the same product and thus do not believe that presentation of a reserve roll- forward is appropriate.

Balance at April 1, 2004	$	(868)
Increase in inventory reserve		(276)
Scrapped inventory		739
Sale of inventory		55
Balance at March 31, 2005	$	(350)

Warranty Reserves

During the year ended March 31, 2004, we reversed approximately $220,000 of warranty reserves related to our video monitoring product line, which we had sold to Interlogix, Inc. (Interlogix) during the year ended March 31, 2001. Under the terms of the transaction, we had warranty obligations to repair product that we had sold to Interlogix or that we had previously sold to customers and was under warranty at the closing of the transaction. Our video monitoring products had warranty terms which ranged from twelve to twenty-four months. Under the transaction agreement, Interlogix was to notify 8x8 of any warranty claims monthly and submit an invoice for payment. We calculated an estimated exposure of approximately $222,000, based on our past experience, arising from the video monitoring products for which Interlogix could seek reimbursement. Subsequently, Interlogix did not follow the monthly submission procedure outlined in the agreements, and grouped the claims together and submitted documentation quarterly. The last invoice received from Interlogix was in fiscal 2002. In fiscal 2003, Interlogix was acquired by General Electric, and we received no further correspondence after the notice of assignment of our agreement with Interlogix. In fiscal 2005, we determined that the likelihood of Interlogix presenting a claim was significantly reduced and the accrual was no longer required under Statement of Financial Accounting Standards (SFAS) No. 5. Accordingly, we reversed the amount recorded and disclosed this in the Cost of Product Revenues section of the MD&A in our Form 10-K.

During the year ended March 31, 2005, we reversed approximately $103,000 of warranty reserves related to our former video semiconductor and PSTN videophone products. The majority of the $103,000 reversal was comprised of an $84,000 reversal attributable to our Audacity T2U semiconductor product. The $84,000 accrual was reversed due to the expiration of the warranty periods for prior sales of the Audacity T2U product, for which we announced the end of life of in the fourth quarter of fiscal 2004. The remaining $19,000 warranty reserve reversal was attributable to our DV324 PSTN videophone product and was also reversed due to the expiration of the warranty periods for prior sales of the product. As both of these products were end-of-lifed by us, no additional product sales were made that would require warranty reserves.

With respect to the tabular reconciliation of changes in product warranty liability in accordance with paragraph 14 of FIN 45, we respectfully inform the Staff that we have provided such disclosure in footnote no. 9 of our fiscal 2005 Form 10-K.

Royalty Reserves

We record royalty reserves based on contractual agreements with third parties that require us to pay royalties, generally on a per-unit basis for units shipped to customers. In addition, we record royalty reserves for royalty exposures, which we believe satisfy the criteria of paragraph 8 of SFAS No. 5. There has been substantial litigation in the communications, semiconductor, electronics, and related industries regarding intellectual property rights, and third parties claim infringement by us of their intellectual property rights. We have had experience where third parties have asserted patents against us or our customers. We believe that it is probable that we will be required to pay a royalty and the amount can be reasonably estimated.

The royalty reserves reversed in fiscal 2005 related to an exposure identified in fiscal 2002, where we became aware that we had provided a third party's technology to our customers before we had obtained the appropriate license. We determined the exposure based on unit quantities we had shipped. The licensor did not exercise its audit rights under the technology license agreement, and did not request payment of prior period royalties. During fiscal 2005, we determined that the likelihood of the licensor asserting a claim was significantly reduced and, in accordance with SFAS No. 5, we reversed the $120,000 accrued royalty amount.