Rogers 2014 Annual Report Download - page 49

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATING EXPENSES
We assess operating expenses in two categories:
• the cost of wireless handsets and equipment; and
• all other expenses involved in day-to-day operations, to service
existing subscriber relationships and attract new subscribers.
The cost of equipment sales decreased by 3% this year as a result of
fewer subscriber upgrades and fewer gross activations as described
above, partially offset by the shift in the mix towards higher cost
smartphones.
Total customer retention spending (including subsidies on handset
upgrades) increased modestly to $946 million this year compared to
$939 million last year because of the shift in mix described above,
partially offset by fewer hardware upgrades by existing subscribers.
Other operating expenses (excluding retention spending) decreased
by 2% this year as a result of improvements in cost management and
efficiency gains.
OTHER DEVELOPMENTS
In late December 2014, we announced an agreement with BCE under
which Rogers will purchase 50% of Glentel for cash consideration of
approximately $392 million. As part of the agreement, Rogers and BCE
intend to divest all Glentel operations located outside of Canada
(International Operations). The terms of the agreement provide that
BCE is entitled to the first $100 million and Rogers is entitled to the
subsequent $195 million of the divestiture proceeds from International
Operations. Divesture proceeds in excess of $295 million are to be
shared evenly between both parties. Glentel is a large multicarrier
mobile phone retailer with several hundred Canadian wireless retail
distribution outlets. The outlets operate under banner names such as
Wireless Wave and TBooth Wireless. The transaction is expected to
close in the first half of 2015 and is subject to regulatory approval and
completion of BCE’s acquisition of Glentel.
ADJUSTED OPERATING PROFIT
Adjusted operating profit was 3% higher this year as a result of:
• continued growth of wireless data revenue and continued adoption
of higher ARPU-generating service plans; and
• higher equipment revenue; partially offset by
• higher unit costs of equipment sales and upgrades; and
• pricing changes associated with our roaming plans.
Adjusted operating profit margin as a percentage of network revenue
increased to 48.1% this year from 46.8% in 2013.
(IN MILLIONS OF DOLLARS)
WIRELESS ADJUSTED OPERATING PROFIT
2014
2013
2012
$3,246
$3,157
$3,063
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 45