Cogeco 2006 Annual Report Download - page 22

20 COGECO CABLE INC. 2006 Management’s Discussion and Analysis
Since the markets for data transport and connectivity remain very competitive in Canada and Portugal, Cogeco Cable and
Cabovisão have negotiated cost effective arrangements in the past for voice and data traffi c. However, as overall traffi c
increases and capacity on existing broadband telecommunications facilities becomes more widely used, the Corporation
may not be able to secure further cost effi ciencies in the future.
In Portugal, the offering of new digital audio and television services by Cabovisão will require the negotiation of suitable
arrangements with existing or new program suppliers. Although affi liation arrangements and program service bundling
and retailing are less constrained by regulations in Portugal than in Canada, the negotiation of such new arrangements has
not yet taken place.
RISKS PERTAINING TO INFORMATION SYSTEMS
Flexible, reliable and cost-effective information systems are an essential requirement for the handling of sophisticated
service options, customer account management, internal controls, provisioning, billing and the roll-out of new services.
The Corporation uses different customer relations management tools and databases for its operation respectively in Ontario,
Québec and Portugal. The agreement with the main third-party supplier of information systems in Ontario will expire in 2008,
and the terms that would apply for the continued use of the relevant information systems in Ontario are under negotiation.
RISKS PERTAINING TO DISASTERS
The Corporation has a disaster recovery plan for dealing with the occurrence of natural disasters, quarantine, power failures,
terrorist acts, intrusions, computer hacking or data corruption, but the operations and facilities of Cabovisão are not yet
integrated into this plan, given the fact that Cabovisão became a subsidiary of Cogeco Cable only on August 1, 2006.
Cabovisão’s insurance coverage has been integrated in Cogeco Cable’s insurance coverage. The emergency plans
and procedures that are in place cannot provide the assurance that the effect of any disaster can and will be mitigated as
planned. Cogeco Cable is not insured against the loss of data and relies on data protection and recovery systems that
it has put in place with third-party service providers in Canada.
RISKS PERTAINING TO THE FINANCING OF THE CABOVISÃO ACQUISITION
The acquisition of Cabovisão has been fi nanced through corporate credit facilities of Cogeco Cable. The major part of the
purchase price for Cabovisão (approximately €465.7 million) was borrowed directly in euros and a second tranche of $150 million
was borrowed in Canadian dollars and subsequently converted into euros (€104 million). The remainder of the purchase
price is assumed liabilities. There are no fi nancial hedging arrangements in effect at this time for interest fl uctuation risks
on interest payments resulting from these borrowings, but there is a natural hedging effect between the borrowings in
euros and the inter-corporate debt interest payments and cash distributions in euros originating from the European
subsidiaries. Also, for the purposes of this acquisition, Cogeco Cable has set up a structure involving one of its operating
Canadian subsidiaries and intermediate holding and fi nancing entities located in Luxembourg with a view to maximizing
returns. The Corporation is presently considering fi nancial arrangements to extend the term with alternate sources of
fi nancing and to set the interest rate of the Term Facility.