Rogers 2006 Annual Report Download - page 35

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RO GER S CO MMU NIC AT ION S IN C . 20 0 6 ANN UA L RE POR T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additions to Wireless PP&E
Years ended December 31,
(In millions of dollars) 2006 2005 % Chg
Network – capacity $ 159 $ 286 (44.4)
Network – other 89 117 (23.9)
HSDPA 264 – n/m
Inukshuk 60 – n/m
Information technology and other 112 90 24.4
Integration of Fido – 92 n/m
Total Wireless additions to PP&E $ 684 $ 585 16.9
The $684 million of additions to PP&E for the year ended December 31,
2006 reflect spending on Wireless’ UMTS/HSDPA deployment as well
as GSM/GPRS network capacity and quality enhancements. There
were no additions to PP&E in the year ended December 31, 2006
related to the Fido integration as the integration has been completed.
On February 9, 2006, Wireless announced that it intended to begin
deploying a 3G network based upon the UMTS/HSDPA standard which
provides data speeds that are superior to those offered by other
3G wireless technologies and which enable us to add incremental
voice and data capacity at significantly lower costs. UMTS/HSDPA is
the next generation technology evolution for the global standard
GSM platform which provides broadband wireless data speeds. Since
UMTS/HSDPA technology is fully backwards compatible with GSM,
subscribers with UMTS/HSDPA enabled devices are able to receive
voice and data services everywhere that Wireless offers wireless
service across Canada, as well as when roaming in other countries
around the world where GSM/GPRS service is available and Wireless
has roaming agreements in place.
The $585 million of additions to PP&E for the year ended December 31,
2005 reflect spending on network capacity and quality enhance-
ments. Network-related additions to PP&E in the year ended 2005
primarily reflect capacity expansion of the GSM network and trans-
mission. The remaining network-related additions to PP&E relate
primarily to technical upgrade projects, including new cell sites,
operational support systems and the addition of new services. Other
additions to PP&E reflect information technology initiatives and
other facilities and equipment. Additions to PP&E in the year ended
December 31, 2005 also include $92 million of expenditures related
to the Fido integration.
Fido Integration
The integration of Fido was substantially completed during the
year ended December 31, 2005 and was finalized during 2006. Prior
to completion of the Fido acquisition, Wireless developed a plan to
restructure and integrate the operations of Fido and $129 million
was originally accrued as a liability assumed on acquisition in the
allocation of the purchase price as at December 31, 2004. This liability
included severance and other employee-related costs, as well as
costs to consolidate facilities, systems and operations, close cell sites
and terminate leases and other contracts. During 2005, management
revised the restructuring and integration plan for finalization of the
costs for terminations of certain leases and other contracts, finaliza-
tion of severance-related items related to employees identified in
the restructuring plan and finalization of the costs to close duplicate
facilities and cell sites. As a result, a reduction of $56 million was
made in 2005 to the amount of liabilities assumed on acquisition
and the purchase price allocation was adjusted to reflect the final
valuations of tangible and intangible assets acquired as well as final
restructuring and integration plans. Payments of $52 million and
$17 million were made in 2005 and 2006, respectively, against the
adjusted liability of $73 million, and at December 31, 2006 an amount
of $4 million remains outstanding. Wireless expects this amount will
be paid out over the course of 2007.
As part of the acquisition, Wireless incurred certain integration costs
that did not qualify to be included as part of the purchase price
allocation as a liability assumed on acquisition. Rather, these costs
are recorded within operating expenses. These expenses include
various severances, consulting and other incremental restructuring
costs directly related to the acquisition. During 2006, Wireless
incurred $3 million of these expenses related to the Fido acquisition.
During the years ended December 31, 2006 and December 31, 2005,
integration expenditures were made as follows:
Integration Expenditures
(Years ended December 31, in millions of dollars) 2006 2005
Payment of liabilities assumed
on acquisition $ 17 $ 52
Integration expenses included in
operating expenses 3 54
Integration related additions to property,
plant and equipment – 92
Total integration expenditures $ 20 $ 198
2006 WIRELESS ADDITIONS TO PP&E
(%)
HSDPA 39%
Network 36%
Other 16%
Inukshuk 9%