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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
38 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
RBS Revenue
The increase in RBS revenues reflects the increase in long-distance
revenue, which includes higher volumes by both carrier and internal
customers, and the acquisition of Blink, partially offset by the ongoing
decline in the legacy portions of the business. RBS is focused on
leveraging on-net revenue opportunities utilizing Cable’s existing
network facilities to launch on-net services while maintaining its
existing medium enterprise customer base. Excluding the acquisition of
Blink,revenuefor2010wouldhaveincreasedby7%insteadofthe11%
as reported, compared to 2009. Further, excluding internal customers
within the Rogers group of companies, revenue for 2010 would have
declinedby3%,comparedto2009.For2010,long-distancerevenue
increased by $50 million and data and Internet revenue increased by
$21 million, which was offset by a decline in local revenues of $14
million, compared to the corresponding period of 2009.
RBS Operating Expenses
Sales and marketing expenses increased for 2010, compared to 2009,
and reflect increased marketing within the medium and large
enterprise and carrier segments associated with RBS’s launch of a new
suite of Ethernet services.
Operating, general and administrative expenses increased for 2010,
compared to 2009. This reflects the increase in long-distance costs due
to higher call volumes and country mix and the inclusion of the Blink
operating costs.
RBS Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was due in part
to the Blink acquisition and higher revenue. As a result, RBS adjusted
operatingprotmarginsincreasedto7.1%for2010,comparedto7.0%
in 2009. Excluding the acquisition of Blink, adjusted operating profit for
2010 would have been approximately $30 million, versus $40 million as
reported. RBS is focused on growing future revenue streams from
on-net IP services and is incurring incremental operating costs to
support that growth, and therefore offsetting the cost declines from
the legacy services portion of the business. (See the sections entitled
“Acquisition of Blink Communications Inc.” and “Acquisition of Atria
Networks LP”).
(1) The operating results of Blink are included in RBS’s results of operations from the date of acquisition on January 29, 2010.
(2) As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(3) See the section entitled “Stock-based Compensation”.
(4) For the year ended December 31, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base; and ii) acquisition transaction costs incurred and the integration of
acquired businesses. For the year ended December 31, 2009, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses
into a communications organization; and ii) the integration of acquired businesses.
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin) 2010(1) 2009 %Chg
RBS operating revenue $ 560 $ 503 11
Operating expenses before the undernoted
Sales and marketing expenses 40 26 54
Operating, general and administrative expenses 480 442 9
520 468 11
Adjusted operating profit(2) 40 35 14
Stock-based compensation expense(3) –(1) n/m
Integration and restructuring expenses(4) (13) (3) n/m
Operating profit(2) $ 27 $ 31 (13)
Adjusted operating profit margin(2) 7.1% 7.0%
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands) 2010 2009 Chg
Local line equivalents(1)
Total local line equivalents 146 169 (23)
Broadband data circuits(2)(3)
Total broadband data circuits 42 36 6
(1) Local line equivalents include individual voice lines plus Primary Rate Interfaces (“PRIs”) at a factor of 23 voice lines each.
(2) Broadband data circuits are those customer locations accessed by data networking technologies including DOCSIS, DSL, E10/100/1000, OC 3/12 and DS 1/3.
(3) On January 29, 2010, RBS acquired 2,000 broadband data circuits acquired from its acquisition of Blink, and are reflected in the total amounts shown.