Cogeco 2006 Annual Report Download - page 11

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Management’s Discussion and Analysis COGECO CABLE INC. 2006 9
TIGHT CONTROL OVER COSTS, BUSINESS PROCESSES
To maximize the Corporation’s profi tability and shareholders value, Cogeco Cable maintains a strict control over its
spending. This strategy enables the Corporation to become more effi cient and reduce its costs while making its offer more
attractive to customers. In addition, tight control over business processes is integral to Cogeco Cable’s way of doing
business and ensures that shareholders receive timely information on the Corporation’s development.
CABOVISÃO INTEGRATION
The above strategies will also be applied to the new Portuguese subsidiary and are part of the plan overseen by the
Integration Committee of Cogeco Cable comprised of its President and CEO; Vice President, Finance and Chief Financial
Offi cer; Vice-President Marketing; Vice President, Corporate Affairs and Vice President, Portugal. Once the integration
process is complete, Cogeco Cable will ensure that its Portuguese subsidiary’s practices and business processes have
been reviewed and applied consistently between the different operating units of the Corporation.
ANTICIPATED RESULTS OF THESE STRATEGIES
The successful implementation of the above-described strategies should result in heightened profi tability and reduced
Indebtedness that will be measured based on the following criteria (these criteria are described in greater detail on page 35
in “Fiscal 2007 Financial Guidelines”):
• Cogeco Cable expects to increase its operating income before amortization by 32.4% to $335 million as compared
to $253 million in 2006 as a result of the full-year impact of the operating results of the Portuguese acquisition, improved
penetration of the various services offered as well as tariff increases.
• The Corporation expects to generate free cash fl ow of $20-25 million compared to $30 million in 2006. This decrease
will stem essentially from capital expenditures increasing at a faster pace than cash fl ow from operations. The lion’s
share of the generated free cash fl ow will be used to reduce Indebtedness.
• In Canada, RGUs are expected to grow between 138,000 to 156,000, an increase of 9% to 10% to compared to August 31,
2006 as a result of the increase generated by the bundled service offerings. In Portugal, RGUs should grow by
75,000, an increase of 12% compared to 2006 RGUs.
CABLE NETWORKS
CANADA
Digital and VOD services are available to 98% and 90% of homes passed, respectively, and 93% of homes passed are served
by a two-way cable plant. Cogeco Cable’s optical fi bre network extends over 8,300 kilometres and includes 79,389 kilometres
of optical fi bre. Cogeco Cable has deployed optical fi bre to nodes serving clusters of typically 1,300 homes passed, with
many fi bres per node in most cases, which allows the Corporation to further extend the fi bre plant to smaller clusters of
500 homes passed rapidly with relative ease if and when necessary. Node splitting leads to further improvement in the quality
and reliability of services and allows for increasing traffi c of two-way services such as HSI, VOD and Digital Telephony.
Cogeco Cable currently acquires DOCSIS 2.0 equipment and continues to use the DOCSIS 1.1 standard (Data Over Cable
Service Interface Specifi cations) for its IP platform. DOCSIS allows the prioritization of the signal packets that must be
transmitted in real time, such as those of Digital Telephony service, so as to ensure a continuous transmission fl ow. When
appropriate, the DOCSIS 2.0 transmission mode can be activated to increase the speed and capacity of the return path,
thus making it possible to provide very high speed symmetrical services, which are particularly well suited for commercial
customer applications. It is also more robust, allowing for the use of portions of the return path spectrum that are normally
not useable in a DOCSIS 1.1 mode. In addition, the cable industry, in collaboration with CableLabs, is in the process of
developing a new standard, DOCSIS 3.0, compatible with the earlier versions, which will make it possible to increase
IP transmission speeds even more, up to 200 Mbps.
Cogeco Cable has implemented an infrastructure with 550 MHz or 750 MHz capacity, depending on the cable system. An
infrastructure with 550 MHz capacity allows for the transmission of up to 80 analog channels, while an infrastructure of
750 MHz allows for the transmission of up to 110 analog channels. As a reference, each analog channel (representing 6 MHz
of bandwidth), with the current compression, multiplexing and modulation technologies used by the Corporation, allows
for the transmission of up to 13 standard defi nition digital television signals, or of up to 3 HD digital television signals.