- Consolidated Revenue Grows 15.8% to $2.3 Billion and Consolidated Operating Profit Increases 34.3% to $798 Million; TORONTO, May 1 /PRNewswire-FirstCall/ -- Rogers Communications Inc. today announced its consolidated financial and operating results for the three months ended March 31, 2007. Financial highlights are as follows: > "This was another solid quarter across the board for Rogers and a strong start to 2007 both operationally and financially," said Ted Rogers, President and CEO of Rogers Communications Inc. "While many challenges lie ahead in the coming quarters, we are well on track to deliver another year of strong growth in both revenues and operating profit. Our focus as 2007 unfolds remains disciplined execution of our strategy of profitable growth while continuing to deploy innovative products and services to add value to our customers' lives." MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2007 This management's discussion and analysis ("MD&A") should be read in conjunction with our 2006 Annual MD&A and our 2006 Annual Audited Consolidated Financial Statements and Notes thereto. The financial information presented herein has been prepared on the basis of Canadian generally accepted accounting principles ("GAAP") for interim financial statements and is expressed in Canadian dollars. Please refer to Note 26 to our 2006 Annual Audited Consolidated Financial Statements for a summary of the differences between Canadian GAAP and United States ("U.S.") GAAP for the year ended December 31, 2006. This MD&A is current as of May 1, 2007. In this MD&A, the terms "we", "us", "our", and "the Company" refer to Rogers Communications Inc. and our subsidiaries, which are reported in the following segments: Wireless Network Revenue The increases in network revenue for the three months ended March 31, 2007 compared to the prior year period was driven by the continued growth of Wireless' postpaid subscriber base and improvements in postpaid average monthly revenue per user ("ARPU"). The year-over-year increase in postpaid ARPU reflects the impact of higher data revenue. Wireless' success in the continued reduction in postpaid churn largely reflects proactive and targeted customer retention activities as well as the increased network density and coverage quality resulting from the completion of the integration of the Fido GSM network in mid-2005. Prepaid churn and net losses have improved over 2006 due to marketing changes and investments in retention programs. Prepaid revenue increased significantly as a result of increased ARPU. This year-over-year improvement is a result of recent changes in Wireless' prepaid offering, including unlimited evenings and weekend plans and increased data usage. During the three months ended March 31, 2007, wireless data revenue increased by 45.9% over the corresponding period in 2006 and totalled $144 million. This increase in data revenue reflects the continued rapid growth of text and multimedia messaging services, wireless Internet access, BlackBerry devices, downloadable ring tones, music and games, and other wireless data services and applications. For the first quarter of 2007, data revenue represented approximately 12.3% of total network revenue compared to 10.3% in the corresponding period last year. Wireless Equipment Sales The year-over-year increase in revenue from equipment sales, including activation fees and net of equipment subsidies, reflects the increased volume of handset upgrades associated with subscriber retention programs combined with the generally higher prices of handsets and devices. Wireless Operating Expenses > Cost of equipment sales remained relatively unchanged for the three months ended March 31, 2007 compared to the corresponding period of the prior year. This is a result of slightly lower gross additions and handset subsidies offset by higher retention activity. The increase in sales and marketing expenses for the three months ended March 31, 2007 compared to the corresponding period of the prior year was primarily related to marketing efforts targeted at acquiring higher postpaid value customers on longer term contracts, as well as marketing related to the Rogers VISION suite of services including the unveiling of wireless video calling that turns a mobile handset into a webcam for face-to-face calling. Wireless is the first and only wireless carrier in North America to offer video calling. The Rogers VISION suite of services operates on Rogers' new High Speed Downlink Packet Access ("HSDPA") network, the fastest wireless network in Canada. This powerful 3G technology significantly improves download speeds on wireless devices, providing a user experience similar to broadband hi-speed wireline services. The increased operating, general and administrative expenses were primarily due to increases in retention spending, and costs to support data and roaming services, partially offset by savings related to operating and scale efficiencies across various functions. Total retention spending, including subsidies on handset upgrades, has increased to $99 million in the three months ended March 31, 2007 compared to $78 million in the corresponding period of the prior year due to a larger subscriber base which resulted in higher volumes of handset upgrades. Retention spending also increased due to the transition of customers to Wireless' more advanced GSM service from our older generation TDMA and analog networks which will be turned down in May 2007. Retention spending, on both an absolute and a per subscriber basis, is expected to grow as wireless market penetration in Canada deepens. (See the section entitled "Caution Regarding Forward-Looking Statements" below.) The increase in average monthly operating expense per subscriber, excluding sales and marketing expenses is primarily due to the increase in retention spending, and costs to support data and roaming services. Wireless Operating Profit The strong year-over-year growth in operating profit was the result of the significant growth in network revenue. As a result, Wireless' operating profit margins increased to 49.4% for the three months ended March 31, 2007 compared to 42.3% in the corresponding period in 2006. The operating loss related to the fixed wireless initiative, which includes the Inukshuk joint venture, and our internal spending on the initiative, is included in Wireless' operating profit. During the three months ended March 31, 2007, the fixed wireless initiative recorded an operating loss of $7 million, compared to an operating loss of $3 million for the three months ended March 31, 2006. Wireless Additions to Property, Plant and Equipment Wireless additions to property, plant and equipment ("PP&E") are classified into the following categories: > The $232 million of additions to PP&E for the three months ended March 31, 2007 reflect spending on network capacity and technology enhancements. The year-over-year increase in additions to PP&E relates primarily to the deployment of Wireless' next generation HSDPA network to major markets in Ontario, Quebec, B.C and Alberta. Other network-related additions to PP&E in the three months ended March 31, 2007 primarily reflect capacity expansion of the GSM/GPRS network, and technical upgrade projects, consisting primarily of new cell site build and operational support systems. Other additions to PP&E reflect information technology initiatives such as office system upgrades and other facilities and equipment. Additions to PP&E during the three months ended March 31, 2007 also include $5 million of expenditures related to the Inukshuk wireless broadband initiative. This significant reduction from $37 million in the corresponding period of the prior year is a result of start-up costs incurred in 2006 for new systems to deploy infrastructure in the largest Canadian geographic markets. CABLE AND TELECOM ----------------- Reorganization of Cable and Telecom Group Effective January 2007, the Rogers Retail segment acquired the assets of approximately 170 Wireless retail locations. The combined operations are reported in the Rogers Retail segment. In January 2007, we completed a previously announced internal reorganization whereby the Cable and Internet and Rogers Home Phone segments were combined into one segment known as Cable Operations. As a result, beginning with the results for the three months ended March 31, 2007, the Cable and Telecom operating segment is comprised of the following segments: Cable Operations, Rogers Business Solutions and Rogers Retail. Comparative figures have been reclassified to reflect this new segmented reporting. > Core Cable Revenue The increases in Core Cable revenue for the three months ended March 31, 2007 reflect price increases, the growth in basic subscribers and the growing penetration of our digital products. The price increases on service offerings, effective March 2006 and March 2007, contributed to Core Cable revenue growth by approximately $14 million for the three months ended March 31, 2007. The remaining increase in revenue of approximately $17 million for the three months ended March 31, 2007 is primarily related to the impact of the growth in basic and digital subscribers. The digital subscriber base has grown by 24.9% from the corresponding period of 2006. This represents a 52.8% penetration of basic cable customers. Strong demand for high definition and personal video recorder digital equipment combined with Cable & Telecom's Personal TV marketing campaign were contributors to the growth in Cable & Telecom's digital subscriber base of 69,600 households in the three months ended March 31, 2007. Internet (Residential) Revenue The increase in Internet revenues for the three months ended March 31, 2007 from the corresponding period in 2006 primarily reflects the 13.8% year- over-year increase in the number of Internet subscribers and certain price increases for Cable & Telecom's Internet offerings. The price increases on Cable & Telecom's Internet offerings, effective March 2006 and March 2007, contributed to the Internet revenue growth by approximately $8 million for the three months ended March 31, 2007. The remaining increase in revenue of approximately $13 million for the three months ended March 31, 2007 is largely the result of the impact of the growth in subscribers. The average monthly revenue per Internet subscriber has increased in the quarter compared to the corresponding period in 2006 given the price increases and partially offset with the change in product mix to more Lite and Ultra-Lite subscribers. With the Internet subscriber base now at approximately 1.3 million, Internet penetration is 58.8% of basic cable households, and 38.3% of homes passed by our cable networks. Rogers Home Phone Revenue The growth in Rogers Home Phone revenue for the three months ended March 31, 2007 compared to the corresponding period in 2006 is mainly a result of incremental revenues from Rogers Home Phone voice-over-cable telephony service, which added almost 75,000 net new lines in the three month period ended March 31, 2007. Partially offsetting the increase in voice-over-cable telephony lines is a decline in the number of circuit-switched local lines of 16,300 for the three months ended March 31, 2007. During the quarter, there were 18,400 migrations from circuit-switched lines to cable telephony lines within Cable & Telecom's cable territory. The overall net growth in the Rogers Home Phone subscriber base contributed to incremental local service revenues of approximately $26 million for the three months ended March 31, 2007 over the corresponding period in 2006. The growth of the Rogers Home Phone service revenue was partially offset by a decline of approximately $3 million in long distance revenues for the three months ended March 31, 2007 compared to the corresponding period in 2006, reflecting ongoing declines in long distance only customers, pricing and usage. Cable Operations Operating Expenses The increase in Cable Operations sales and marketing expenses of $14 million for the three months ended March 31, 2007 compared to the corresponding period of 2006 reflects the significant growth and expansion of the cable telephony service as well as the timing of promotional activities. The increases in operating, general and administrative costs for the three months ended March 31, 2007 compared to the corresponding period of 2006 were driven by the increases in digital cable, Internet and Rogers Home Phone subscriber bases, resulting in higher costs associated with programming content, customer care, technical service, network operations and administration associated with the support of the larger subscriber bases. Cable Operations Operating Profit The Cable Operations operating profit for the three months ended March 31, 2007 increased by 14.9% from the corresponding period in 2006, reflecting the growth in revenue which outpaced the growth in operating expenses. > Rogers Business Solutions Revenue The decrease in Rogers Business Solutions revenues reflects a decline in long distance and data revenues partially offset with growth in local service revenue. During the three months ended March 31, 2007, long distance and data revenues (including hardware sales) declined by $5 million and $3 million, respectively, compared to the corresponding period of 2006. Local service revenue grew by $4 million during the three months ended March 31, 2007 compared to the corresponding period of 2006. Rogers Business Solutions ended the quarter with 208,500 local line equivalents and 31,700 broadband data circuits in service at March 31, 2007, representing year-over-year growth rates of 16.2% and 35.5%, respectively. Net additions for both local and data for this quarter were not as strong as the corresponding period of 2006 due to higher disconnects. The decrease in long distance revenue resulted from the decline in the average revenue per minute by 7.3% this quarter versus the same period last year. Total minutes were relatively consistent versus the same period last year, however a higher mix of North American minutes versus international minutes resulted in a decrease in long distance revenue. The increase in minutes resulting from the sale of long distance minutes to Wireless and the increase in minutes sold to retail customers was offset by a decline in minutes sold to wholesale customers. The decline in the data revenue is a result of the decline in hardware sales compared to the corresponding quarter in 2006. Rogers Business Solutions Expenses Carrier charges, which are included in operating, general and administrative expenses, increased by $2 million for the three months ended March 31, 2007. Carrier charges represent approximately 59.0% of revenue in the three months ended March 31, 2007, compared to 56.6% of revenue in the corresponding period of 2006. Sales and marketing expenses increased by $5 million in the current period compared to the same period last year due to current year initiatives targeting the small and medium business markets. The increase in other operating, general and administrative expenses of $11 million for the three months ended March 31, 2007 compared to same period last year are a result of the severance of certain executives in the quarter related to the realignment of Rogers Business Solutions within the Cable organization, increased support costs related to assets acquired from Bell/GT in December 2006 and an increase in overall network maintenance costs. Rogers Business Solutions Operating Profit Given the decline in revenue and the increase in costs, Rogers Business Solutions operating loss was $7 million for the three months ended March 31, 2007, compared to an operating profit of $13 million in the corresponding period of 2006. > Rogers Retail Revenue In January 2007, Rogers Retail acquired approximately 170 Wireless-owned retail locations. This segment provides our customers with a direct retail channel featuring all of our wireless and cable products and services. The increase in Rogers Retail revenue of $10 million for the three months ended March 31, 2007 compared to the same period in 2006 was the result of the acquisition of 170 Wireless-owned retail stores in January 2007 partially offset by a decline in video rental and sales revenues of $1 million resulting from lower transactions and customer visits. Rogers Retail Operating Profit The Rogers Retail operating profit of $1 million in the current period is consistent with the corresponding period in 2006 as increased revenue was offset by higher sales and marketing expenses. CABLE AND TELECOM ADDITIONS TO PP&E The nature of the cable television business is such that the construction, rebuild and expansion of a cable system are highly capital- intensive. The Cable Operations segment categorizes its additions to property, plant and equipment ("PP&E") according to a standardized set of reporting categories that were developed and agreed to by the U.S. cable television industry and which facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories: > Media Revenue The increase in Media revenue for the three months ended March 31, 2007 over the corresponding period in 2006 reflects growth across all of Media's divisions as well as the impact of new initiatives. Publishing revenue was positively impacted by the launch of Chocolat and the Canadian edition of Hello! in the third quarter of 2006. Revenues also increased due to the acquisition of five new radio stations in Alberta in January 2007 and a higher subscriber base at Sportsnet. The Shopping Channel continued to generate increased consumer demand for products. Sports Entertainment revenue grew through higher spring training revenue and more events at the Rogers Centre. The consolidation of the Biography Channel and G4TechTV as a result of increased ownership in the second quarter of 2006 also contributed to the increase in revenue. Media Operating Expenses The increase in Media operating expenses for the three months ended March 31, 2007 compared to the corresponding period in 2006 is primarily due to costs associated with the launch of new magazines in the third quarter of 2006, the five new radio stations and the consolidation of the Biography Channel and G4TechTV. Cost increases were partially offset by lower general and administrative costs across all divisions. Media Operating Profit The changes discussed above drove the year-over-year increase in Media's operating profit for the three months ended March 31, 2007 from the corresponding period in 2006, as well as the corresponding increase in operating margins. Media Additions to PP&E The majority of Media's PP&E additions in the three months ended March 31, 2007 reflect renovations and enhancements to the Rogers Centre and building improvements related to the planned relocation of Rogers Sportsnet. CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES Operations For the three months ended March 31, 2007, cash generated from operations before changes in non-cash operating items, which is calculated by removing the effect of all non-cash items from net income, increased to $683 million from $460 million in the corresponding period of 2006. The $223 million increase is primarily the result of a $204 million increase in operating profit and a $12 million decrease in interest expense. Taking into account the changes in non-cash working capital items for the three months ended March 31, 2007, cash generated from operations was $415 million, compared to $547 million in the corresponding period of 2006. The cash flow generated from operations of $415 million, together with $522 million aggregate net advances drawn under our bank credit facilities and the receipt of $14 million from the issuance of Class B Non-Voting shares under the exercise of employee stock options, resulted in total net funds of approximately $951 million raised in the three months ended March 31, 2007. Net funds used during the three months ended March 31, 2007 totalled approximately $1,009 million, the details of which include the following: Dividends and Other Payments on Equity Securities On October 30, 2006, we declared a quarterly dividend of $0.04 per share on each of our outstanding Class B Non-Voting shares and Class A Voting shares, which was paid on January 2, 2007 to shareholders of record on December 20, 2006. On February 15, 2007, we declared a quarterly dividend of $0.04 per share on each of our outstanding Class B Non-Voting shares and Class A Voting shares. This quarterly dividend totalling $25 million was paid on April 2, 2007 to shareholders of record on March 15, 2007. COMMITMENTS AND CONTRACTUAL OBLIGATIONS Our material obligations under firm contractual arrangements, including commitments for future payments under long-term debt arrangements, capital lease obligations and operating lease arrangements, are summarized in our 2006 Annual MD&A, and are further discussed in Notes 15, 23 and 24 of our 2006 Annual Audited Consolidated Financial Statements. There are no significant changes to our material contractual obligations since December 31, 2006. GOVERNMENT REGULATION AND REGULATORY DEVELOPMENTS The significant government regulations which impact our operations are summarized in our 2006 Annual MD&A. The significant changes to those regulations since December 31, 2006, are as follows: Local Telephone Forbearance On April 4th, 2007, the Federal Cabinet overturned the CRTC's 2006 Local Forbearance Decision. Effective April 4th, 2007, the CRTC rules on winback (which prohibited the incumbent phone companies from contacting customers for three months after they chose an alternate telephone provider) and promotions (which imposed competitive safeguards for temporary pricing changes) were removed. In addition, the incumbent phone companies will be able to apply for deregulation by simply showing that they compete with a wireline facilities- based provider and a wireless facilities provider in a telephone exchange. As long as the competitive wireline facilities provider's service is available to 75% of the subscribers in an exchange and the incumbents meet quality of service tests (which were reduced by the Cabinet), the incumbents will be deregulated within 120 days of application to the CRTC. Diversity of Ownership In light of recent acquisition announcements in the Canadian broadcasting industry, the CRTC has launched a public proceeding in which it will review its approach to ownership consolidation and the availability of a diversity of voices in the broadcasting system. As part of its in-depth study, the CRTC will examine issues such as common ownership; concentration of ownership; horizontal and vertical integration; the benefits policy; licence trafficking; as well as the CRTC's relationship with the Competition Bureau. Written comments are to be provided by July 18, 2007, with a public hearing scheduled for Fall 2007. The CRTC's objective is to establish clearly articulated policy guidelines going forward. As a result, major transactions (and their stated divestitures) that have already been announced will be examined within the context of the rules already in force when the transactions were announced. Their consideration will not be delayed by the CRTC's diversity of voices hearing, and will instead be heard and processed in a timely manner. UPDATES TO RISKS AND UNCERTAINTIES Our significant risks and uncertainties are summarized in our 2006 Annual MD&A. There were no significant changes to those risks and uncertainties since December 31, 2006. KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES We measure the success of our strategies using a number of key performance indicators that are defined and discussed in our 2006 Annual MD&A. These key performance indicators are not measurements under Canadian or U.S. GAAP, but we believe they allow us to appropriately measure our performance against our operating strategy as well as against the results of our peers and competitors. They include: > See "Supplementary Information" section for calculations of the Non-GAAP measures. RELATED PARTY ARRANGEMENTS We have entered into certain transactions in the normal course of business with certain broadcasters in which we have an equity interest as detailed below: