Rogers 2006 Annual Report Download - page 64

60 ROG E RS COM MUN I C ATIO NS I NC. 2 0 0 6 A N NUAL R EPO R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5 ACCO UNTI NG POLICIES AND NON-GAAP
ME ASUR ES
KEY PERFORMANCE INDICATORS AND NON- GAAP MEASURES
We measure the success of our strategies using a number of key per-
formance indicators, which are outlined below. The following key
performance indicators are not measurements in accordance with
Canadian or U.S. GAAP and should not be considered as an alter-
native to net income or any other measure of performance under
Canadian or U.S. GAAP.
Subscriber Counts
We determine the number of subscribers to our services based on
active subscribers. A wireless subscriber is represented by each iden-
tifiable telephone number. A cable subscriber is represented by
a dwelling unit. In the case of multiple units in one dwelling, such
as an apartment building, each tenant with cable service, whether
invoiced individually or having services included in his or her rent, is
counted as one subscriber. Commercial or institutional units, such as
hospitals or hotels, are each considered to be one subscriber. When
subscribers are deactivated, either voluntarily or involuntarily for
non-payment, they are considered to be deactivations in the period
the services are discontinued. Wireless prepaid subscribers are con-
sidered active for a period of 180 days from the date of their last
revenue-generating usage.
We report wireless subscribers in two categories: postpaid and pre-
paid. Postpaid includes voice-only and data-only subscribers, as well
as subscribers with service plans integrating both voice and data.
Internet, Rogers Home Phone and Rogers Business Solutions subscrib-
ers include only those subscribers with service installed, operating
and on billing and excludes those subscribers who have subscribed to
the service but for whom installation of the service was still pending.
Effective August 2005, voluntarily deactivating cable subscribers are
required to continue service for 30 days from the date termination
is requested. This continued service period, which is consistent with
the billing and subscriber agreement terms and conditions, had the
impact of increasing net basic cable, Internet and digital household
subscriber net additions by approximately 9,500, 5,200 and 3,800,
respectively, in the twelve months ended December 31, 2005.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any particular
month, subscriber churn for Wireless represents the number of sub-
scribers deactivating in the month divided by the aggregate number
of subscribers at the beginning of the month. When used or reported
for a period greater than one month, subscriber churn represents
the monthly average of the subscriber churn for the period.
Net work Revenu e
Network revenue, used in the Wireless segment, represents total
Wireless revenue less revenue received from the sale of hand-
set equipment. The sale of such equipment does not materially
affect our operating income as we generally sell equipment to our
distributors at a price approximating our cost to facilitate competi-
tive pricing at the retail level. Accordingly, we believe that network
revenue is a more relevant measure for Wireless’ ability to increase
its operating profit, as defined below.
Average Revenue per User
The average revenue per user (“ARPU”) is calculated on a monthly
basis. For any particular month, ARPU represents monthly revenue
divided by the average number of subscribers during the month.
In the case of Wireless, ARPU represents monthly network revenue
divided by the average number of subscribers during the month.
ARPU, when used in connection with a particular type of subscriber,
represents monthly revenue generated from those subscribers
divided by the average number of those subscribers during the
month. When used or reported for a period greater than one month,
ARPU represents the monthly average of the ARPU calculations for
the period. We believe ARPU helps indicate whether we have been
successful in attracting and retaining higher value subscribers. Refer
to the “Supplementary Information – Non-GAAP Calculations” sec-
tion for further details on this Wireless and Cable and Telecom
calculation.
Operating Expenses
Operating expenses are segregated into three categories for assess-
ing business performance:
• Cost of sales, which is comprised of wireless equipment costs,
Rogers Retail merchandise and depreciation of Rogers Retail rental
assets, as well as cost of goods sold by The Shopping Channel;
• Sales and marketing expenses, which represent the costs to acquire
new subscribers (other than those related to equipment), such as
advertising, commissions paid to third parties for new activations,
remuneration and benefits to sales and marketing employees, as
well as direct overheads related to these activities and the costs of
operating the Rogers Retail store locations and the retail opera-
tions of Wireless stores; and
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and service existing subscriber relationships, including
retention costs, inter-carrier payments to roaming partners and
long-distance carriers, programming related costs, the CRTC
contribution levy, Internet and e-mail services and printing and
production costs.
In the wireless and cable industries in Canada, the demand for ser-
vices continues to grow and the variable costs, such as commissions
paid for subscriber activations, as well as the fixed costs of acquir-
ing new subscribers are significant. Fluctuations in the number of
activations of new subscribers from period to period and the sea-
sonal nature of both wireless and cable 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.