Exhibit 99.2
Excerpts from pages 14-19 and 23 of the Rogers Wireless Inc. Report on Form 20-F
for the Year Ended 2001, filed with the SEC on June 28, 2002
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
The financial information presented has been prepared on the basis of Canadian
GAAP. Please refer to Note 18 of the consolidated financial statements for a
summary of differences between Canadian and United States GAAP. This discussion
is supplemental to and should be read in conjunction with the consolidated
financial statements and notes thereto provided with this Form 20-F.
For purposes of this discussion, revenue figures have been divided into the
following categories: (1) wireless voice, (2) data and messaging services and
(3) equipment sales. Wireless generates its wireless voice revenues from (a)
monthly fees; (b) airtime, usage and long-distance charges; (c) optional service
charges; (d) system access fees and (e) roaming charges. Wireless generates data
and messaging revenues from monthly fees and usage charges. Equipment sales
revenue is generated from the sale of hardware and accessories to independent
dealers, agents and retailers.
Wireless' operating expenses comprise (1) sales and marketing expenses, (2)
network operating expenses, (3) customer care expenses, (4) costs of delivery
and (5) general and administrative expenses including management fees paid to
RCI. Sales and marketing expenses consist primarily of (a) subscriber
acquisition costs, including dealer commissions and costs associated with
providing handsets, (b) subscriber retention costs, including costs related to
handset upgrades for qualified subscribers, (c) residual payments to Wireless'
sales channels, (d) advertising costs and (e) remuneration costs. Network
operating expenses comprise primarily (a) rent, maintenance and utility costs
associated with cell sites, (b) Industry Canada licensing fees associated with
radio channels and (c) remuneration costs for network support. Customer care
expenses consist of (a) general costs associated with customer care, billing,
credit and collections and (b) additional costs associated with the
implementation of Wireless' new customer care and billing system. Cost of
delivery expenses consist of (a) intercarrier payments to roaming partners and
long distance carriers and (b) CRTC contribution levy.
SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION
(In millions of dollars)
2001 2000 Chg. % Chg.
---- ---- ---- ------
Revenue (1)
Wireless voice $1,515.3 $1,376.8 $ 138.5 10.1
Data and messaging 56.5 60.7 (4.2) (6.9)
-------- -------- -------- -----
Network revenue 1,571.8 1,437.5 134.3 9.3
Equipment sales 181.3 201.6 (20.3) (10.1)
-------- -------- -------- -----
Total 1,753.1 1,639.1 114.0 7.0
-------- -------- -------- -----
Operating expenses
Sales and marketing, excluding retention 399.8 364.7 35.1 9.6
Other 952.0 873.8 78.2 8.9
-------- -------- -------- -----
1,351.8 1,238.5 113.3 9.1
-------- -------- -------- -----
Operating profit (2) 401.3 400.6 0.7 0.2
Operating profit margin as a % of revenue (2) 22.9% 24.4% (1.5%) (6.1)
Depreciation and amortization 391.8 334.6 57.2 17.1
Interest expense 184.3 128.0 56.3 44.0
Other (income) expense (2.0) 0.6 (2.6) --
Income taxes 6.9 4.5 2.4 53.5
-------- -------- -------- -----
Loss for the year $ (179.8) $ (67.2) $ (112.6) --
======== ======== ======== =====
Capital expenditures (excludes spectrum license
acquisition costs of $396.8 million) $ 654.5 $ 526.0 $ 128.5 24.4
(1) Revenue has been restated to record gross roaming revenue in accordance
with recent accounting guidance and industry practice. Subscriber roaming
expenses are now reported as operating expenses. Previously, these
expenses and the associated revenue generated from such roaming services
were netted against one another and recorded in revenues. As a result,
revenue for the years ended December 31, 2001 and 2000 has been increased
by approximately $109.4 million and $107.0 million, respectively, and
operating, general and administrative expenses have increased by the same
amounts. Operating profit for all periods presented is
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unaffected by the change. All references to revenue (including average
revenue per user) and operating expenses (including average monthly
operating expenses before sales and marketing costs per subscriber)
reflect this change.
(2) Operating profit, defined herein as operating income before depreciation
and amortization, interest, income taxes and other non-recurring and
non-operating items, is a standard measure that is commonly reported and
widely used in the wireless communications industry to assist in
understanding and comparing operating results within the industry.
Operating profit is not a defined term within either Canadian or U.S. GAAP
and this measure should not be considered as a substitute or alternative
for net income or cash flow, in each case as determined in accordance with
Canadian GAAP and U.S. GAAP.
OPERATING HIGHLIGHTS
The operating highlights in 2001 included the following:
- - The net addition of over 465,000 wireless voice subscribers, representing
an increase of 24.7% from 373,300 net additions in 2000;
- - An 18.4% increase in total wireless voice subscribers, to end the year at
2,992,000 subscribers;
- - The total number of voice subscribers on digital service at December 31,
2001, was approximately 67%, as compared to approximately 58% at the end
of 2000;
- - Reduced average monthly postpaid wireless voice subscriber churn to an
average monthly rate of 2.24% in 2001 as compared to 2.30% in 2000;
- - Successful participation in Industry Canada's spectrum licensing auction
in January 2001 resulted in the acquisition of 23 licenses of 10 MHz of
spectrum in various regions across Canada;
- - Launched GSM/GPRS wireless voice and data services to 85% of the Canadian
population, with plans to match Wireless' analog coverage of 93% by
mid-2002;
- - Completion of the implementation of Wireless' new Amdocs billing and
customer care system with the integration of its data and messaging
customers, creating an important building block for new revenue
opportunities and operating efficiencies;
- - Nadir Mohamed assumed the role of President and CEO of Wireless and RWCI
in the second quarter of 2001. The sales, marketing and service leadership
teams were subsequently enhanced with the addition of experienced wireless
industry operating executives;
- - On September 11, 2001, RWCI's minority shareholders voted not to approve
the proposed transaction by RCI to acquire all of RWCI's outstanding Class
B Restricted Voting shares owned by the public. Accordingly, the proposed
transaction did not proceed and RWCI continues to go forward as a public
company;
- - Completion of three financing transactions (refer to Notes 9, 10 and 14 of
the consolidated financial statements for full details):
- On April 12, 2001, Wireless amended its bank credit facility which
provides it with a revolving credit facility of $700 million with no
reduction until April 30, 2006, and a final maturity on April 30,
2008;
- In February and March, 2001, Wireless issued an aggregate $393.5
million Class A Common shares to RWCI to fund its spectrum license
auction payment;
- On May 2, 2001, Wireless closed a debt issue in an aggregate amount
of US$500 million (approximately C$770.4 million) of 9.625% Senior
(Secured) Notes due May 1, 2011. Wireless has hedged the full amount
of the US$500 million with respect to foreign exchange.
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WIRELESS VOICE REVENUE AND SUBSCRIBERS
Year Ended December 31,
-----------------------
(Subscriber statistics in thousands except ARPU, churn and usage) 2001 2000 Chg. %Chg.
- ----------------------------------------------------------------- ---- ---- ---- -----
Total - Postpaid and Prepaid
Gross additions 1,221.1 1,053.4 167.7 15.9
Net additions 465.4 373.3 92.1 24.7
Total subscribers 2,991.8 2,526.4 465.4 18.4
ARPU (blended) (1) $ 46.60 $ 50.02 $ (3.42) (6.8)
Postpaid
Gross additions 800.2 732.7 67.5 9.2
Net additions 197.5 198.4 (0.9) (0.5)
Total subscribers 2,257.3 2,059.8 197.5 9.6
ARPU $ 56.39 $ 57.25 $ (0.86) (1.5)
Average monthly usage (minutes) 302 263 39 14.8
Churn (%) 2.24 2.30 (0.06) (2.6)
Prepaid
Gross additions 420.9 320.7 100.2 31.2
Net additions 267.9 174.9 93.0 53.2
Total subscribers 734.5 466.6 267.9 57.4
ARPU (1) $ 10.29 $ 10.08 $ 0.21 2.1
Churn (%) 2.75 3.55 (0.80) (22.5)
(1) Prepaid ARPU calculated on the retail price of the card less
approximately 20% distribution commission cost.
Wireless voice revenue in 2001, which accounted for 86.4% of Wireless' total
revenue, totaled $1,515.3 million, a $138.5 million or 10.1% increase from 2000.
This increase reflects an 18.4% increase in the number of wireless voice
subscribers over fiscal 2000 and a $41.9 million increase in contribution
revenues collected in the form of increased system access fees, partially offset
by a 6.8% decline in blended monthly average revenue per user ("ARPU"). Monthly
ARPU in 2001 was $46.60, down $3.42 from $50.02 in 2000. This trend in monthly
ARPU is primarily attributable to an increase in the proportion of Wireless'
subscribers that subscribe to its prepaid wireless service, from 18.5% of the
total wireless voice subscriber base in 2000 to 24.6% at the end of 2001.
Prepaid wireless voice net additions of 267,900 in 2001, accounted for 57.6% of
the total net additions in the year as compared to 46.9% in 2000. Prepaid
monthly ARPU averaged $10.29 in 2001 compared to $10.08 in 2000. Monthly
postpaid ARPU was $56.39, down $0.86, or 1.5%, from $57.25 in 2000. Higher
system access fees had the effect of improving postpaid ARPU by approximately
$1.29 for the year. Average monthly airtime usage per postpaid subscriber
increased to 302 minutes in 2001 from 263 minutes in 2000.
Average monthly postpaid churn improved to 2.24% as compared to 2.30% in 2000.
Wireless took a number of steps in 2001 to facilitate improved churn
performance, including refocusing customer retention programs to reduce churn
levels through segmented and focused management of the subscriber base. Wireless
also made significant progress in improving the implementation difficulties and
certain process deficiencies related to the deployment of its customer care and
billing system.
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DATA AND MESSAGING SERVICES AND EQUIPMENT SALES
(Subscriber statistics in thousands except Year Ended December 31,
-----------------------
ARPU, churn and usage) 2001 2000 Chg. % Chg.
---------------------- ---- ---- ---- ------
Gross additions
Data and two-way messaging 36.7 20.2 16.5 81.7
One-way messaging 104.7 131.6 (26.9) (20.4)
-------- -------- -------- -----
141.4 151.8 (10.4) (6.9)
Net additions
Data and two-way messaging 27.9 17.7 10.2 57.6
One-way messaging (44.4) (25.7) (18.7) (72.8)
-------- -------- -------- -----
(16.5) (8.0) (8.5) (106.3)
Total subscribers
Data and two-way messaging 54.7 26.8 27.9 104.1
One-way messaging 372.7 417.1 (44.4) (10.6)
-------- -------- -------- -----
427.4 443.9 (16.5) (3.7)
ARPU
Data and two-way messaging $ 27.54 $ 21.97 $ 5.57 25.4
One-way messaging $ 9.34 $ 10.90 $ (1.56) (14.3)
Data and two-way messaging services revenue was $12.9 million in 2001, an
increase of $8.2 million or 174.5% from 2000. Wireless ended the year with
54,700 data and two-way messaging subscribers, an increase of 27,900, or 104.1%,
from 2000 due to increased subscriptions to the two-way BlackBerry Wireless
Handheld(TM) messaging service. Monthly data and two-way messaging ARPU was
$27.54, an increase of $5.57 or 25.4% from 2000, attributable to increased usage
and a higher average ARPU being received on new activations on the two-way
BlackBerry messaging service.
One-way messaging (paging) revenues of $43.6 million declined $12.4 million, or
22.1%, from 2000 as a result of a 44,400, or 10.6%, decline in subscribers as
compared to 2000. Wireless believes this decline was due to a continuing decline
in the one-way paging market as customers transition to wireless voice or
two-way messaging services.
EQUIPMENT SALES REVENUE
In 2001, revenue from wireless voice, data and messaging equipment sales was
$181.3 million, down $20.3 million, or 10.0%, from the prior year. Equipment is
sold to independent dealers, agents and retailers generally at cost. The
decrease in equipment revenue reflects declining per unit costs and does not
materially impact Wireless' operating income.
OPERATING EXPENSES
(In millions of dollars, except per subscriber statistics. Year Ended December 31,
-----------------------
Subscriber gross additions in thousands) 2001 2000 Chg. % Chg.
---------------------------------------- ---- ---- ---- ------
Operating expenses before sales and marketing costs $ 668.8 $ 570.2 $ 98.6 17.3
Average monthly operating expenses, before
sales and marketing costs, per average wireless subscriber $ 17.76 $ 17.34 $ 0.42 2.4
Sales and marketing costs, including retention costs $ 501.8 $ 466.8 $ 35.0 7.5
Total wireless gross additions (wireless voice, messaging and data) 1,362.5 1,205.2 157.3 13.1
Sales and marketing cost per wireless gross addition $ 368 $ 387 $ (19) (4.9)
Sales and marketing cost per wireless gross addition
excluding retention costs $ 293 $ 304 $ (11) (3.6)
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SALES AND MARKETING
In early 2001, Wireless reorganized its sales and marketing groups to
concentrate on three market segments: business, consumer and youth. This
organizational structure focuses on attracting and retaining subscribers within
each segment by providing product and service offerings that are developed,
priced and promoted specifically to meet the demands of that segment. An example
of this is Wireless' "ready4U" product, launched in late 2001 and designed to
attract the large consumer market in the fourth quarter. "ready 4U" offers
customers a wireless handset and a specified number of months of airtime for a
combined upfront price. This product was designed for easy gift giving for the
holiday season and Wireless plans to continue to market this convenient offer in
2002. Also in 2002, Wireless intends to leverage the capabilities of its new
GSM/GPRS network and Amdocs billing system by offering customers a number of new
products, features and price plans.
Sales and marketing expenses, net of equipment margin and excluding retention
costs, were $399.6 million, an increase of $33.7 million or 9.2% from $365.9
million in 2000. The increase in total sales and marketing expenses was due to
increased gross additions over 2000 resulting in higher subscriber acquisition
costs related to activation commissions paid to Wireless' distribution. Total
gross additions increased 157,300, or 13.1%, to 1,362,500 from 2000. Sales and
marketing costs per wireless subscriber gross addition, excluding subscriber
retention costs, were $293, a decrease of $11, or 3.6%, from $304 in 2000. This
decline was partially due to a greater percentage of gross additions being on
Wireless' lower cost prepaid service. Prepaid gross additions represented 34.5%
of total gross voice additions in 2001 as compared to 30.4% in 2000.
CUSTOMER RETENTION
Wireless' existing wireless voice, messaging and data subscriber base, which
numbers in excess of 3.4 million, represents a key asset. The cost to acquire a
new subscriber is much higher than the cost of retaining an existing subscriber
relationship. As such, Wireless focuses extensively on retaining its subscribers
through customer satisfaction, loyalty programs and the proactive renewal of
subscriber contracts. Sales and marketing costs per wireless subscriber gross
addition, including retention costs, was $368, a decrease of $19, or 4.9%, from
$387 in 2000. Total retention program costs for 2001 were $102.2 million, $1.3
million, or 1.3%, higher than 2000. This increase was driven by an increase in
the subscriber base, offset by more efficient retention spending due to
redesigned programs and lower handset costs.
Initiatives surrounding retention are now focusing on customer segments to
increase subscriber satisfaction, reduce churn and control costs. A key aspect
of Wireless' retention program allows a subscriber, based upon certain
eligibility criteria, to obtain a newer model handset at a price as good, or
better than, current offers for new subscribers. Churn for digital subscribers
continues to be significantly lower than that of analog subscribers;
accordingly, substantially all retention focused handsets upgrades are to
digital handsets. Wireless believes the retention handset program is an
effective way to cost effectively migrate its subscriber base from analog to
digital service as well as reduce deactivations, and, partially as a function of
this program, Wireless now has approximately 67% of its subscriber base on
digital service.
OPERATING EXPENSES, EXCLUDING SALES, MARKETING AND RETENTION
Total operating expenses, before sales, marketing and retention costs, were
$668.8 million, $98.6 million or 17.3%, higher than 2000. Average monthly
operating expense per subscriber, excluding sales and marketing and retention
costs, increased $0.42, or 2.4%, to $17.76 per subscriber per month in 2001,
compared to $17.34 in 2000. The CRTC regulatory mandated contribution subsidy
regime implemented by the CRTC on January 1, 2001, accounted for $47.3 million
of the total operating expense increase. Excluding these contribution payments,
average monthly operating expense per subscriber was $16.38, a decrease of $0.82
or 4.8% from $17.20 in 2000. Customer care expenses increased 13.2% due to an
18.4% increase in the subscriber base. In addition, Wireless experienced
increased customer care costs in the first half of 2001 due to higher call
volumes on billing and other issues encountered in the conversion to its new
billing and customer care system. Network costs increased 5% year-over-year as a
result of increased cell sites and maintenance costs related to
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increased usage.
OPERATING PROFIT
Operating profit was $401.3 million in 2001, an increase of $0.7 million, or
0.2%, from $400.6 million in 2000. Operating profit as a percentage of revenue,
or operating profit margin, declined in 2001 to 22.9% from 24.4% in 2000.
FIXED CHARGES
Year Ended December 31,
-----------------------
(In millions of dollars) 2001 2000 Chg. % Chg.
- ------------------------ ---- ---- ---- ------
Depreciation and amortization expense 391.8 334.6 57.2 17.1
Interest expense 184.3 128.0 56.3 44.0
Depreciation and amortization expense totaled $391.8 million in 2001, an
increase of $57.2 million, or 17.1%, from $334.6 million in 2000 due to the
increase in the fixed asset base, which is more fully discussed in the
subsection entitled "Capital Expenditures". In addition, as a result of the
introduction of new network technology, Wireless reduced the estimated useful
lives of certain network equipment, which resulted in an increase in
depreciation expense in 2001 of $20.8 million.
Interest expense was $184.3 million in 2001, an increase of $56.3 million or
44.0% from $128.0 million in 2000, due to higher average long-term debt balances
arising from increased debt primarily to fund the construction and deployment of
Wireless' new GSM/GPRS network. (See subsection entitled "Financial Position -
Liquidity and Capital Resources" for further details and description.)
LOSS
Year Ended December 31,
-----------------------
(In millions of dollars) 2001 2000 Chg. % Chg.
- ------------------------ ---- ---- ---- ------
Loss for the period (179.8) (67.2) (112.6) --
Relatively unchanged operating profit, combined with higher depreciation and
amortization expense and higher interest expense, resulted in a loss of $179.8
million compared to a loss in the prior year of $67.2 million.
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CAPITAL EXPENDITURES
Year Ended December 31,
-----------------------
(In millions of dollars) 2001 2000 Chg. % Chg.
- ------------------------ ---- ---- ---- ------
Capital expenditures (excluding spectrum license costs (1)) 654.5 526.0 128.5 24.4
(1) Spectrum licenses across Canada for the deployment of next
generation wireless services were acquired in February 2001 at a
total cost of $396.8 million, including expenses.
Capital expenditures, excluding spectrum license costs, totaled $654.5 million
in 2001, an increase of $128.5 million, or 24.4%, from $526.0 million in 2000.
Network related capital expenditures in 2001 totaled $518.1 million, of which
approximately $272.3 million related to Wireless' new GSM/GPRS network,
approximately $106.9 million related to technical spending, and approximately
$58.9 million related to capacity expansion of the TDMA digital network. The
remaining $80.0 million of network capital spending pertained primarily to (1)
the construction of new cell sites, including "in-fill" sites for improved
coverage in existing coverage areas and sites for new coverage and (2) various
network optimization and upgrade projects. Wireless added 233 new cell sites to
the network in 2001. With these additional sites, Wireless has continued to
construct the infrastructure necessary for higher quality digital coverage and
lower cost incremental capacity, in most cases by adding channels on existing
sites. The remaining capital expenditures of $136.4 million represent
expenditures of (1) $85.9 million on information technology initiatives and (2)
$50.5 million relating to the construction of new call centres and retail
stores, and the expansion and upgrade of existing office facilities, including
Wireless' primary facility in Toronto.
Spectrum Acquisition
In January 2001, Industry Canada conducted an auction for 62 wireless licenses
in the 1900 MHz frequency band in 16 regions across Canada. Wireless acquired an
additional 20 MHz of spectrum in eastern and northern Ontario, southern Quebec,
Alberta, British Columbia, the Midwest and the Atlantic provinces, and 10 MHz of
spectrum in southern Ontario. The aggregate cost of the spectrum licenses was
$396.8 million, including related expenses.
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