Rogers 2004 Annual Report Download - page 17

DELIVERING VALUE RIGHT NOW
15
Rogers Communications Inc. 2004 Annual Report
TO OUR SHAREHOLDERS,
During the past several years, we at Rogers have worked
hard to provide Canadians new and innovative ways of staying
informed, in touch and entertained. We are working just as
hard to turn a great company into an exceptional investment
for our shareholders.
By almost any measure, 2004 was an exceptional year for
Rogers Communications.
While certainly challenging, we delivered on our commit-
ments. A 17% increase in revenues to $5.6 billion and a
20% increase in operating profit to $1.7 billion reflected sound
growth in just about every aspect of our business. These
excellent growth rates, combined with several strategic trans-
actions, were reflected in the 47% increase in the value of the
RCI Class B shares on the Toronto Stock Exchange during 2004.
We successfully completed three key strategic transactions
during the year: the purchase of the 34% interest in Rogers
Wireless held by AT&T Wireless; the acquisition of Microcell;
and the acquisition of the remaining 11% minority interest in
Rogers Wireless from the public. While our debt leverage
increased as a result of these transactions, we expect it to
decline steadily and relatively quickly given the cash flow
characteristics of the wireless assets we acquired.
ONE POWERFUL COMPANY, ONE POWERFUL BRAND
With the privatization of Rogers Wireless, each of our core
businesses – Wireless, Cable and Media – is now wholly-owned
and this has simplified our capital structure. We have in many
ways transformed Rogers Communications from a holding
company into an operating company, while at the same time
increasing our exposure to the rapidly growing wireless
sector. For 2005, reflecting our wireless acquisitions and con-
tinued strong organic wireless growth, we expect that Rogers
Wireless’ contribution to Rogers’ operating profit will increase
by approximately 50% to represent more than 60% of Rogers’
total operating profit in 2005.
Beyond capturing the benefit of sharing infrastructure,
distribution channels and corporate services, we are increas-
ingly approaching the customer with bundles of Rogers
services, and servicing them with a single bill and single point
of customer contact. The whole point is to continue to make
the Rogers group of companies stronger and more competitive
for the long term by stimulating demand, strengthening
customer relationships and reducing churn, while at the same
time making things simpler and easier for our customers. It’s
why we compete on value, not price. It’s why we introduced
Better Choice Bundles in 2004 where our customers have the
flexibility to easily mix and match combinations of Cable,
Internet and Wireless services.
THE LEADER IN WIRELESS
While strong and disciplined organic growth has characterized
our wireless business for the past few years, we have always
been alert to opportunities to extend our scale and scope. In the
fall of 2004, we seized a unique opportunity to acquire Microcell,
Canada’s fourth largest wireless communications provider.
As a result of the acquisition, Rogers Wireless became
Canada’s largest wireless provider, and the country’s only
carrier operating on the world standard GSM/GPRS technology
platform. In addition to 1.3 million wireless subscribers and
a GSM network, our purchase of Microcell brought valuable
spectrum capacity, as well as significant opportunities for
cost savings and capital efficiencies. It also brings the well-
recognized FIDO brand and an increased number of wireless
distribution channels.
We are taking the integration of Microcell very seriously
and have allocated the best resources to ensure it is as seam-
less as possible to our customers and that we capitalize on
every possible synergy. We have made significant progress
in the first few months and we expect the integration to be
substantially complete by the end of 2005.
Even without our acquisition of Microcell, Rogers Wireless
outperformed our expectations in 2004. Top line growth
was excellent driven by a double-digit increase in high-value
subscribers, lower levels of customer churn, and growth in
postpaid ARPU from both rational pricing and continued
strong growth in wireless data. We maintained our position at
the forefront of the wireless industry by rolling out the fastest
nationwide wireless data network with EDGE, a software
enhancement to our GSM/GPRS network. And we continued
to be first-to-market, launching the latest wireless phones,
devices and services.
Yet we have not begun to exhaust our ability to grow.
With Canada’s wireless penetration rates among the lowest
in the developed world, Rogers Wireless looks forward to
significant opportunities ahead.
GREAT SERVICES MEAN GREAT BUSINESS AT ROGERS CABLE
Rogers Cable continued to outpace its Canadian cable
peers in 2004, delivering strong revenue growth while at the
same time accelerating its digital and Internet subscriber
growth and continuing to generate meaningful growth in
operating profit.
During 2004, we continued to position Rogers Cable
strategically and technologically for continued strong growth.
With more than 85% of our cable network now upgraded to
860 MHz, we have the necessary capacity for delivering the
broadest range of advanced TV and data services – now and
well into the future.
We invested heavily in the deployment of our advanced
broadband IP multimedia network to deliver digital voice-
over-cable telephony and other new voice and data services.
We expect our local cable telephony service to be available in
the second half of 2005. While we could have introduced a