Rogers 2015 Annual Report Download - page 75

MANAGEMENT’S DISCUSSION AND ANALYSIS
products and services on a timely basis, it could have a material
adverse effect on our business, financial condition, and results of
operations. Any interruption in the supply of equipment for our
networks could also affect the quality of our service or impede
network development and expansion.
Apple has introduced soft SIM technology to its latest iPads
launched in the US, allowing customers of certain carriers to switch
between carriers without the use of a carrier-provided SIM card. If
Apple or other major handset vendors introduce soft SIM to their
mobile products in Canada, this could have an adverse effect on
our business, churn, and results of operations as many customers
without subsidized devices are under no contractual obligation to
remainwithRogers.WeexpectthatsoftSIMwillbecomingtothe
Canadian market in the next few years.
INCREASE IN BRING YOUR OWN DEVICE (BYOD)
CUSTOMERS
With the CRTC’s Wireless Code limiting wireless term contracts to
two years from three years, the number of BYOD customers with
no-term contracts has increased. These customers are under no
contractual obligation to remain with Rogers, which could have a
material adverse effect on our churn.
INVENTORY OBSOLESCENCE
Our inventory balance mainly consists of wireless handset devices,
which generally have relatively short product lifecycles due to
frequent wireless handset introductions. If we cannot effectively
manage inventory levels based on product demand, this may
increase the risk of inventory obsolescence.
INCREASING PROGRAMMING COSTS
Acquiring programming is the single most significant purchasing
commitment in our Cable television business and is a material cost
for Media television properties. Programming costs have increased
significantly over the past few years, particularly with the recent
growth in subscriptions to digital specialty channels. Increased
competition for programming rights to popular properties from
both traditional linear television broadcasters and digital
competitors continue to increase the cost of programming rights.
Higher programming costs could adversely affect the operating
results of our business if we are unable to recover programming
investments through subscription fee increases that reflect the
market.
CHANNEL UNBUNDLING
CRTC-mandated programming package unbundling and the
required implementation of flexible channel packaging by BDUs
could negatively affect the tier status, subscription levels, and
results of certain of Media’s channels, including TSC, Sportsnet,
Sportsnet 360, Sportsnet ONE, Sportsnet World, and our specialty
channels, including Outdoor Life Network, FX (Canada), FXX
(Canada), and G4 Canada. Certain channels are currently included
in favourable channel packaging with BDUs. This could adversely
affect our results and some industry specialty networks may not
survive in such an environment. See “Television Services
Distribution” for more information.
MIGRATING FROM CONVENTIONAL TO DIGITAL MEDIA
Our Media business operates in many industries that can be
affected by customers migrating from conventional to digital
media, which is driving shifts in the quality and accessibility of data
and mobile alternatives to conventional media. We have been
shifting our focus towards the digital market to limit this risk.
Increasing competition for advertising revenue from digital content
providers such as search engines, social networks, and Internet
video content alternatives have resulted in advertising dollars
migrating from conventional television broadcasters to digital
platforms. The impact is greater on conventional over-the-air
broadcast networks such as CityTV and OMNI that do not have a
second revenue stream from subscription revenue. Our Media
results could be adversely affected if we are unsuccessful in
anticipating the shift in advertising dollars from conventional to
digital platforms.
OUR MARKET POSITION IN RADIO, TELEVISION, OR
MAGAZINE READERSHIP
Advertising dollars typically migrate to media properties that are
leaders in their respective markets and categories, particularly when
advertising budgets are tight. Although most of our radio,
television, and magazine properties currently perform well in their
respective markets, this may not continue in the future. Advertisers
base a substantial part of their purchasing decisions on ratings and
readership data generated by industry associations and agencies. If
our radio and television ratings or magazine readership levels
decrease substantially, our advertising sales volumes and the rates
that we charge advertisers could be adversely affected.
FINANCIAL RISKS
CAPITAL COMMITMENTS, LIQUIDITY, DEBT, AND INTEREST
PAYMENTS
Our capital commitments and financing obligations could have
important consequences including:
• requiring us to dedicate a substantial portion of cash provided
by operating activities to pay interest, principal, and dividends,
which reduces funds available for other business purposes
including other financial operations;
• making us more vulnerable to adverse economic and industry
conditions;
• limiting our flexibility in planning for, and/or reacting to, changes
in our business and/or industry;
• putting us at a competitive disadvantage compared to
competitors who may have more financial resources and/or less
financial leverage; or
• restricting our ability to obtain additional financing to fund
working capital and additions to property, plant and equipment
and for other general corporate purposes.
Our ability to satisfy our financial obligations depends on our future
operating performance and economic, financial, competitive, and
other factors, many of which are beyond our control. Our business
may not generate sufficient cash flow in the future and financings
may not be available to provide sufficient net proceeds to meet
these obligations or to successfully execute our business strategy.
2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 73