Cogeco 2008 Annual Report Download - page 7

6 COGECO CABLE INC. 2008 Management’s Discussion and Analysis
CONTINUOUS IMPROVEMENT OF NETWORKS AND EQUIPMENT
To make sure that it can support the development of new quality services, Cogeco Cable keeps a close eye on technological
advancements and continually invests to improve its network and to purchase technologically advanced equipment.
Cogeco Cable continuously seeks advanced digital compression and multiplexing techniques in order to deliver a growing number
of channels with the best possible signal quality to its customers while providing better bandwidth management. The HSI platform is
constantly adapted to support subscriber growth and the increased need for higher speed.
TIGHT CONTROL OVER COSTS AND IMPROVED BUSINESS PROCESSES
The Corporation maximizes profitability and shareholder value by maintaining strict controls over spending. In order to achieve this,
Cogeco Cable has to become more efficient with its processes making its offer more attractive to customers. In addition, tight
controls over processes ensure that shareholders receive timely information on the Corporation’s development.
ANTICIPATED RESULTS FROM THESE STRATEGIES
The successful implementation of the above-described strategies should result in heightened profitability and reduced Indebtedness
that will be measured based on the following criteria (these criteria are described in greater detail on page 37 in “Fiscal 2009
Financial Guidelines”):
• Cogeco Cable expects to increase its operating income before amortization(1) by approximately 14% to $508 million compared
to $445.4 million in fiscal 2008 as a result of improved penetration of the various services offered, the rate increases
implemented in fiscal 2008 and the recent acquisitions completed in fiscal 2008.
• The Corporation expects to generate a free cash flow(1) of $90 million compared to $98.9 million in 2008 as a result of an
increase in capital expenditures and an increase in current income taxes, partly offset by an increase in operating income
before amortization. The majority of the free cash flow will be used to reduce Indebtedness.
• RGU are expected to grow by approximately 100,000, an increase of 3.7% compared to August 31, 2008. The lower growth
compared to the prior year is mainly a reflection of the difficult economic environment in Portugal. Canadian operations’ growth
in RGU will stem from continued deployment of the Telephony service and expanded penetration of HSI and Digital Television
services.
CABLE NETWORKS
CANADA
Cogeco Cable provides its residential and business customers cable, data and telecommunication services in Canada through
state-of-the-art fibre optic and broadband distribution networks. It is the Corporation’s general policy to fully own its distribution
networks, head-ends and data centres as well as its transmission equipment and access facilities. As at August 31, 2008, Digital
Television and VOD services were respectively available to approximately 98% and 92% of homes passed, and approximately 94%
of homes passed were served by a two-way cable plant. Including the acquisitions of assets from MaXess Networx® and
FibreWired Burlington Hydro Communications as well as the acquisition of all the shares of Cogeco Data Services Inc. (formerly
known as Toronto Hydro Telecom Inc.), the Corporation’s inter-city optical fibre network now extends over 9,126 kilometres and
includes 96,173 kilometres of optical fibre. The Corporation has deployed optical fibre to nodes serving clusters of typically 1,000
homes passed, with multiple fibres per node in most cases, which allows the Corporation to further extend the capacity of the fibre
plant to smaller clusters of 500 homes rapidly if and when necessary. This process known as “Node Splitting” leads to further
improvement in the quality and reliability and an increase in the capacity of two-way services such as HSI, VOD and Telephony.
Cogeco Cable currently acquires DOCSIS 2.0 equipment and continues to use the DOCSIS 1.1 standard for its IP platform.
DOCSIS allows the prioritization of the signal packets that must be transmitted in real time, such as those of the Telephony service,
so as to ensure a continuous transmission flow. 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. DOCSIS 2.0 is also more robust, allowing for the use of portions of the
return path spectrum that are normally not usable in a DOCSIS 1.1 mode. In addition, the cable industry, in collaboration with
CableLabs, has created a new standard, DOCSIS 3.0, compatible with the earlier versions, which will make it possible to further
increase IP transmission speeds up to 160 Mbps. The Corporation plans to gradually deploy DOCSIS 3.0 head-end and customer
premise equipment in 2009.
The Corporation has implemented an infrastructure with 550 MHz and 750 MHz capacity, depending on the cable system. The
infrastructure with 550 MHz capacity allows for the transmission of up to 80 analogue channels, and the 750 MHz infrastructure
(1) THE INDICATED TERMS DO NOT HAVE STANDARDIZED DEFINITIONS PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR
MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 33.