Rogers 2013 Annual Report Download - page 78

MANAGEMENT’S DISCUSSION AND ANALYSIS
RISKS AND UNCERTAINTIES AFFECTING OUR BUSINESS
This section describes the principal risks and uncertainties that could
have a material adverse effect on our business and financial results.
GENERAL RISKS
Economic Conditions
Our businesses are affected by general economic conditions and
consumer confidence and spending. Recessions, declines in economic
activity and economic uncertainty can erode consumer and business
confidence and reduce discretionary spending. Any of these factors can
negatively affect us through reduced advertising, lower demand for our
products and services, decreased revenue and profitability, higher churn
and bad debt expense. A significant portion of our broadcasting,
publishing and digital revenues come from the sale of advertising.
Poor economic conditions can also have an impact on our pension plans
because there is no assurance that the plans will be able to earn the
assumed rate of return. Capital market volatility may result in changes
in the discount rates and other variables, requiring us to make
contributions in the future that differ significantly from current
contributions and assumptions being used in the actuarial valuation
process.
Substantial Competition
There is no assurance that our current or future competitors will not
provide services that are superior to ours or at lower prices, adapt more
quickly to evolving industry trends or changing market requirements,
enter markets we operate in, or introduce competing services. Any of
these factors could reduce our business market share or revenues, or
increase churn.
We expect to have ongoing re-pricing of products and services with our
existing subscribers as we extend lower wireless pricing offers to attract
and retain customers. As such, wireless penetration of the population
deepens, new wireless customers may generate lower average monthly
revenue and this could slow revenue growth.
Wireless could face increased competition due to recent changes to
foreign ownership and control of wireless licences.
• Foreign telecommunication companies could enter the Canadian
market by acquiring wireless licences or a holder of wireless licences.
If companies with significantly greater capital resources enter the
Canadian market, it could reduce our wireless market share. See
“Foreign ownership and control” in “Regulation in Our Industry” for
details.
• Industry Canada’s new policy regarding the transfer of spectrum
licenses, combined with 2012 legislation that allows foreign
ownership of wireless providers with less than 10%market share,
could make it harder for incumbent wireless carriers to acquire
additional spectrum, including the completion of our previously
announced arrangements with Shaw and Videotron, while making it
less expensive for foreign wireless carriers to enter the Canadian
wireless market. This could increase the intensity of competition in
the Canadian wireless sector.
In addition, the CRTC Broadcasting Distribution Regulations do not
allow cable operators to obtain exclusive contracts in buildings where it
is technically feasible to install two or more systems.
TECHNOLOGY RISKS
Competing Technologies
Several technologies may affect the way our services are delivered,
including:
• broadband
• IP-based voice, data and video delivery services
• increased use of optical fibre technologies to businesses and, or
residences
• broadband wireless access and wireless services using a radio
frequency spectrum that we may have limited access to.
These technologies may also lead to significantly different cost
structures for users and therefore affect the long-term viability of some
of our current technologies. Some of the new technologies may allow
competitors to enter our markets with similar products or services at
lower costs, and they may be larger and have greater access to financial
resources than we have.
Improvements in the quality of streaming video over the Internet,
coupled with the increasing availability of television shows and movies
online are anticipated to increase competition for Canadian cable
television systems. If changes in technology are made to any alternative
Canadian multi-channel broadcasting distribution system, our cable
services may face increased competition. In addition, wireless Internet is,
in some instances, replacing traditional wireline Internet as the
technology for wireless Internet continues to develop.
The growing use of PVRs could affect our ability to generate television
advertising revenues because viewers can skip advertising aired on the
television networks. The emergence of subscriber-based satellite and
digital radio products could change radio audience listening habits and
have a negative effect on the results of our radio stations. Certain
audiences are also migrating to the Internet as more video and audio
content becomes available.
Dependence on Information Technology Systems
Our businesses depend on information technology systems for day-to-
day operations. If we are unable to operate our systems or make
enhancements to accommodate customer growth and new products
and services or our systems go down, it could have an adverse effect on
our ability to acquire new subscribers, service customers, manage
subscriber churn, produce accurate and timely subscriber invoices,
generate revenue growth and manage operating expenses. This could
have an adverse impact on our results and financial position.
Most of our employees and critical elements of our network
infrastructure and information technology systems are concentrated in
various physical facilities. If we cannot access one or more of these
facilities because of a natural or manmade disaster or otherwise, our
operations may be significantly affected to the extent that it may be
difficult for us to recover without a significant interruption in service or
negative impact to our revenue or customer base.
Information Security Risk
Security is essential to maintaining efficient, reliable business processes
and to enabling sustained business growth. Technology advancements
and the people using these technologies introduce new information
security risks. Cyber threats are maturing with time and their
sophistication and effectiveness are increasing. A security breach could
result in loss of revenue, reputation, and resources, or handing
74 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT