Rogers 2013 Annual Report Download - page 50

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Business Solutions generates revenue from services and equipment
sales.
Next generation revenue is generated by the provision of high-speed,
high-reliability data and voice communications, provided on Rogers
advanced IP and Ethernet and Cloud platforms and mainly over the
extensive Rogers fibre, cable and wireless networks. Next generation
revenue also includes Data Centre services revenue from the 2013 dates
of business acquisitions.
Legacy revenue is generated mainly by long distance, switched voice
services and lower speed data communications, provided over TDM and
end of life data platforms with client access primarily delivered through
the use of third-party networks and tariffed ILEC services.
Business Solutions continues to focus mainly on next generation IP-
based services, and on leveraging higher margin on-net and near-net
service revenue opportunities, using existing network facilities to
expand offerings to the medium and large sized enterprise, public
sector and carrier markets. Next generation services now represent 59%
of total service revenue.
Revenue from the lower margin off-net legacy business generally
includes local and long-distance voice services and legacy data services
which often use facilities that are leased rather than owned.
Following our recent data centre business acquisitions, Business
Solutions is now also focused on data centre colocation, hosting, cloud
and disaster recovery services.
Higher Operating Revenue
Operating revenue was 7%higher this year compared to last year, the
net result of:
• higher revenue from next generation services, which grew by 31%,
reflecting the impact of our acquisitions of Blackiron and Pivot Data
Centres
• continued execution of our plan to grow higher margin on-net and
next generation IP-based services revenue
• partially offset by ongoing decline in the legacy voice and data
business, a trend management expects to continue as customers
move to faster and more reliable IP services.
Higher Operating Expenses
We assess Business Solutions operating expenses in two categories:
• the cost of operating and maintaining telecom and data networking
equipment
• all other expenses involved in day-to-day operations, to service
existing subscriber relationships and attract new subscribers.
Operating expenses were higher this year, the net result of:
• higher expenses related to our data centre acquisitions
• partially offset by expected lower legacy service-related costs related
to lower volumes and customer levels and ongoing initiatives to
improve costs and productivity.
Higher Adjusted Operating Profit
Adjusted operating profit was 19%higher this year because of the
contribution of new data centres, the ongoing growth in the higher
margin on-net next generation business and cost efficiencies.
Excluding the impact of the Blackiron and Pivot Data Centres
acquisitions:
• operating revenue would have been 3%lower this year compared to
last year, instead of 7%higher as reported
• adjusted operating profit would have been 11%higher this year
compared to last year, instead of 19%higher as reported
We continue to work on data centre business integration and the
optimization of Business Solutions’ overall cost structures.
(IN MILLIONS OF DOLLARS)
BUSINESS SOLUTIONS ADJUSTED OPERATING PROFIT
2013
2012
2011
$106
$89
$86
46 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT