Cogeco 2014 Annual Report Download - page 17

16 COGECO CABLE INC. 2014 MD&A
will also improve its First Call Resolution and Mean Time to Repair program in order to help employees isolate and quickly address customer
issues, without escalation.
KEEPING A SOUND CAPITAL MANAGEMENT AND STRICT CONTROL OVER SPENDING
Cost containment is a core element of our financial performance and remains a key factor to maintain operating margins. We intend to continue
executing our strategy of tight operating and capital cost controls and rigorous customer-related processes, including customer credit controls,
which generate increased free cash flow.
Progress in fiscal 2014
As a result of reducing borrowings under its variable interest rate Revolving Facilities and the issuance of $US175 million Senior Secured Notes
Series A and B in the last quarter of fiscal 2014, we increased fixed rate debt from 66% in fiscal 2013 to 78% of total indebtedness in fiscal 2014.
We benefit from significant economies of scale by utilizing, in many cases, centralized procurement, engineering, information systems, human
resources and accounting systems throughout our operating segments. Principally as a result of cost reduction initiatives in the Canadian cable
services segment, this segment was able to increase its operating margin from 49.9% for the year ended August 31, 2013 to 51.1% for the year
ended August 31, 2014.
We significantly reduced our capital intensity ratio from 24.1% in fiscal 2013 to 21.3% in fiscal 2014. The increased free cash flow was used to
reduce our indebtedness and further invest in our Enterprise data services segment.
Focus in fiscal 2015
We are entirely focused on optimizing the operating results of our existing operating segments and reducing our leverage ratio.
We expect further opportunities to achieve synergies and improve business efficiencies between our operating units.
CABLE SERVICES NETWORKS AND INFRASTRUCTURE
Cogeco Cable Canada and Atlantic Broadband provide Television, VOD services, HSI, Telephony services and Business telecommunications
services through advanced fibre optic and two-way broadband distribution networks. Cogeco Cable Canada and Atlantic Broadband deliver these
services through ultra-modern long distance fibre optic systems, advanced hybrid fibre-coax ("HFC") broadband distribution networks, point to
point fibre networks and Fibre-to-the-home ("FTTH") network technologies.
Cogeco Cable Canada distribution network expands over 39,000 kilometres of which over 28% is pure optical systems while Atlantic Broadband
distribution networks expands over 17,000 kilometres of which 23% is purely optical systems. The leading-edge inter-city optical transport networks
extend for a distance of over 10,000 kilometres and 800 kilometres in Canada and the United States, respectively. The broad reach of Cogeco
Cable Canada and Atlantic Broadband core transport network is designed to easily interconnect, at very high speed, its many local distribution
systems to video content providers, public telephony networks, software application providers and to the world-wide Internet.
For residential services, Cogeco Cable Canada and Atlantic Broadband are deploying optical fibres to nodes serving clusters of typically 400 and
345 homes passed, respectively, with multiple fibres per node in most cases to rapidly extend the capacity of the system with smaller clusters when
necessary. This just in time process, known as “node splitting,” leads to further improvement in quality and reliability while increasing the capacity
of two-way services such as HSI, VOD and Telephony while maximizing the efficiency of capital investments. The HFC distribution infrastructure
is designed with Radio Frequency ("RF") capacity of 450 MHz, 550 MHz, 750 MHz, 860 MHz or 1 GHz of bandwidth capacity, depending on the
market served and customer needs.
In each market, the signals are transferred from the optical network to the coaxial cable network at the node for delivery to its customers. Cogeco
Cable believes that active use of fibre optic technology in combination with coaxial cable plays a major role in expanding channel capacity and
improving the performance of the systems. Fibre optic strands are capable of carrying hundreds of video, data and voice channels over extended
distances without the signal amplification typically required for coaxial cable. Cogeco Cable will continue to deploy fibre optic cable as warranted
to further reduce amplifier cascades which improve system reliability and reduce system maintenance cost. This hybrid combination of fibre optic
and coaxial cable is the most efficient choice when it comes to deliver high quality networks with judicious capital investments.
In order to increase distribution system capacity further, Cogeco Cable Canada is completing the following network enhancement programs:
(a) second phase of the conversion of video services from analogue to digital with the deployment of Digital-To-Analog ("DTA") converters
to its customers having older analogue television equipment which is expected to be completed by the end of 2014 calendar year in
major systems and within the next two years in smaller systems. This significant capacity enhancement will replace each analogue
channel by up to four HD channels or sixteen SD channels; and
(b) conversion to Switched Digital Video ("SDV") technology. This technology allows Cogeco Cable Canada to selectively broadcast the
digital television channels that are currently being viewed by customers, effectively allowing it to offer a greater selection of digital
channels over the same network infrastructure. Conversion is completed in Ontario and technology will be extended in Québec over
the next two fiscal years.