Rogers 2005 Annual Report Download - page 80

76 ROGERS 2005 ANNUAL REPORT . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the wireless and cable industries in Canada, the demand for services continues to grow and the variable costs, such
as commissions paid for subscriber activations, as well as the fixed costs of acquiring new subscribers are significant.
Fluctuations in the number of activations of new subscribers from period to period and the seasonal nature of both
Cable and Wireless subscriber additions result in fluctuations in sales and marketing expenses and accordingly, in the
overall level of operating expenses. In our Media business, sales and marketing expenses may be significant to promote
publishing, radio and television properties, which in turn attract advertisers, viewers, listeners and readers.
SA L E S A ND MA R K ET I NG CO S T S ( OR CO S T O F A C QUI S IT I ON ) PE R S U BS C RIB E R
Sales and marketing costs per subscriber, which is also often referred to in the industry as cost of acquisition per subscriber
(“COA”), “subscriber acquisition cost”, or “cost per gross addition”, is calculated by dividing total sales and marketing
expenditures, plus costs related to equipment provided to new subscribers for the period, by the total number of gross
subscriber activations during the period. COA is a measure used most commonly in a Wireless context and varies depending
on the level of the subscriber’s monthly revenue and term of a subscriber’s contract. Total gross subscriber activations
include postpaid and prepaid voice and data activations and one-way messaging activations. Refer to “Supplementary
Information – Cost of Acquisition per Gross Addition” for further details on this Wireless calculation.
OP E R AT I NG EX P E NS E P E R S U BS C RI B ER
Operating expense per subscriber, expressed as a monthly average, is calculated by dividing total operating, general
and administrative expenses, plus costs related to equipment provided to existing subscribers, by the average number of
subscribers during the period. Operating expense per subscriber is tracked by Wireless as a measure of our ability to lever-
age our operating cost structure across a growing subscriber base, and we believe that it is an important measure of our
ability to achieve the benefits of scale as we increase the size of our business. Refer to “Supplementary Information –
Operating Expense per Average Subscriber” for further details on this Wireless calculation.
OP E R AT I NG PR O F IT AN D O P E RA T IN G P R O FI T M A RGI N
We define operating profit as net income before depreciation and amortization, interest expense, income taxes and non-
operating items, which include foreign exchange gains (losses), loss on repayment of long-term debt, change in fair value
of derivative instruments, non-controlling interest, gain on sale on investments, write-down of investments, income (loss)
from investments accounted for by the equity method and investment and other income. Operating profit is a standard
measure used in the communications industry to assist in understanding and comparing operating results and is often
referred to by our peers and competitors as EBITDA (earnings before interest, taxes, depreciation and amortization)
or OIBDA (operating income before depreciation and amortization). We believe this is an important measure as it allows
us to assess our ongoing businesses without the impact of depreciation or amortization expenses as well as non-operating
factors. It is intended to indicate our ability to incur or service debt, invest in PP&E and allows us to compare our business
to our peers and competitors who may have different capital or organizational structures. This measure is not a defined
term under Canadian GAAP or U.S. GAAP.
We calculate operating profit margin by dividing operating profit by total revenue, except in the case of Wireless.
For Wireless, operating profit margin is calculated by dividing operating profit by network revenue. Network revenue
is used in the calculation, instead of total revenue, because network revenue better reflects Wireless’ core business
activity of providing wireless services. This measure is not a defined term under Canadian GAAP or U.S. GAAP. Refer to
“Supplementary Information – Operating Profit Margin Calculation” for further details on this Wireless, Cable, Telecom
and Media calculation.
AD D I TI O NS TO P P& E
Additions to PP&E include those costs associated with acquiring and placing our PP&E into service. Because the commu-
nications business requires extensive and continual investment in equipment, including investment in new technologies
and expansion of geographical reach and capacity, additions to PP&E are significant and management focuses continually
on the planning, funding and management of these expenditures. We focus on managing additions to PP&E than we do
on managing depreciation and amortization expense because additions to PP&E have a direct impact on our cash flow,
whereas depreciation and amortization are non-cash accounting measures required under Canadian GAAP.