Rogers 2009 Annual Report Download - page 61

ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
Operating expenses are segregated into three categories for
assessing 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
• 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, network maintenance costs,
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 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 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.
Operating Profit and Operating Profit Margin
We define operating profit as net income before depreciation and
amortization, interest expense, income taxes and non-operating
items, which include impairment losses on goodwill, intangible
assets and other long-term assets, foreign exchange gains (losses),
loss on repayment of long-term debt, debt issuance costs, change
in fair value of derivative instruments, 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 us 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,
5. ACCOUNTING POLICIES AND NON-GAAP MEASURES
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
We measure the success of our strategies using a number of key
performance 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
alternative 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
identifiable 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 considered 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
prepaid. Postpaid includes voice-only and data-only subscribers,
as well as subscribers with service plans integrating both voice and
data, while prepaid includes voice-only subscribers.
Internet, Rogers Home Phone and RBS subscribers 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.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any
particular month, subscriber churn for Wireless represents the
number of subscribers 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.
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 to identify trends and to indicate
whether we have been successful in attracting and retaining higher
value subscribers.