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28 ROG ERS COM MUN ICAT I ONS INC . 2006 ANN UAL RE P ORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reclassification of Wireless Equipment Sales and Cost of Sales
During 2006, Wireless determined that certain equipment subsidies
paid to third party distributors with respect to handset upgrade
activities were historically recorded as cost of equipment sales rather
than as a reduction of equipment revenue. Wireless determined
these subsidies should be reflected as a reduction of equipment rev-
enue and have reclassified current and prior year figures to reflect
this accounting. This resulted in a $206 million reduction in both
equipment revenue and cost of equipment sales in the year ended
December 31, 2006 and reductions of $147 million, $94 million,
$56 million and $48 million for the years ended December 31, 2005,
2004, 2003 and 2002, respectively. There was no change to previously
reported net income (loss) or operating income as a result of this
reclassification. Also, there is no impact on reported cash flow, the
balance sheet, or any Wireless key performance indicators, including
network revenue, ARPU, cost of acquisition, average monthly oper-
ating expense per user or operating profit margin as a percentage of
network revenue. Included in the supplemental information section
is a schedule which presents reclassified results for each quarter of
2005 and 2006 conformed to the current presentation. Reclassified
annual results for the last five years are also included in the supple-
mental information section.
Summarized Wireless Financial Results
Years ended December 31,
(In millions of dollars, except margin) 2006 2005 % Chg
Operating revenue
Postpaid $ 4,084 $ 3,384 20.7
Prepaid 214 210 1.9
One-way messaging 15 20 (25.0)
Network revenue 4,313 3,614 19.3
Equipment sales (1) 267 246 8.5
Total operating revenue 4,580 3,860 18.7
Operating expenses
Cost of equipment sales (1) 628 625 0.5
Sales and marketing expenses 604 604 –
Operating, general and administrative expenses 1,376 1,240 11.0
Integration expenses (2) 3 54 (94.4)
Total operating expenses 2,611 2,523 3.5
Operating profit (3)(4) $ 1,969 $ 1,337 47.3
Operating profit margin as % of network revenue (4) 45.7% 37.0%
Additions to property, plant and equipment (“PP&E”) (4) $ 684 $ 585 16.9
(1) Certain current and prior year amounts related to equipment sales and cost of equipment sales have been reclassified. See the “Reclassification of Wireless Equipment Sales and Cost of Sales” section.
(2) Expenses incurred relate to the integration of the operations of Fido.
(3) Operating profit includes a loss of $25 million and $5 million for the years ended December 31, 2006 and December 31, 2005, respectively, related to the Inukshuk fixed wireless initiative.
(4) As defined. See the “Key Performance Indicators and Non-GAAP Measures” section.
Wireless Operating Highlights for the Year Ended December 31, 2006
• Operating revenue increased by 18.7% to $4,580 million in 2006
from $3,860 million in 2005.
• Strong subscriber growth continued in 2006, with net postpaid
additions of 580,100 and net prepaid additions of 30,200.
• Postpaid subscriber monthly churn was 1.32%, the lowest in
Wireless’ history, compared to 1.61% in 2005.
• Postpaid monthly ARPU (average revenue per user) increased 5.8%
from 2005 to $67.27, aided by strong increases in wireless data
revenue.
• Revenues from wireless data services grew approximately 54.5%
year-over-year to $459 million in 2006 from $297 million in 2005,
and represented approximately 10.6% of network revenue com-
pared to 8.2% in 2005.
• Operating profit grew 47.3% year-over-year.
• The Fido integration was essentially completed entering 2006,
with the two GSM networks now fully integrated and all postpaid
and prepaid retail Fido subscribers migrated onto the Wireless
billing platforms.
• Wireless successfully launched its HSDPA network in the Golden
Horseshoe markets of Ontario. This next generation broadband
wireless technology, which Wireless continues to deploy across
other major markets, is the fastest mobile wireless data service
available in Canada.