23		MANAGEMENT’S DISCUSSION AND ANALYSIS
25		Executive Summary
		25		About Rogers
		25		2017 Highlights
		27		Financial Highlights
29		Understanding Our Business
		29		Products and Services
		31		Competition
		33		Industry Trends
34		Our Strategy, Key Performance Drivers, and Strategic Highlights
		34		Our Strategic Priorities
		35		2017 Objectives
		35		Key Performance Drivers and 2017 Strategic Highlights
		37		2018 Objectives
		37		Financial and Operating Guidance
39		Capability to Deliver Results
		39		Leading Networks
		40		Powerful Brands
		41		Widespread Product Distribution
		41		First-Class Media Content
		41		Customer Experience
		42		Engaged People
		42		Financial Strength and Flexibility
		42		Healthy Trading Volumes and Dividends
43		2017 Financial Results
		43		Summary of Consolidated Results
		44		Key Changes in Financial Results This Year Compared to 2016
		45		Wireless
		47		Cable
		49		Business Solutions
		50		Media
		51		Capital Expenditures
		52		Review of Consolidated Performance
		55		Quarterly Results
		58		Overview of Financial Position

59		Managing Our Liquidity and Financial Resources
		59		Sources and Uses of Cash
		62		Financial Condition
		64		Financial Risk Management
		67		Dividends and Share Information
		68		Commitments and Contractual Obligations
		68		Off-Balance Sheet Arrangements
69		Governance and Risk Management
		69		Governance at Rogers
		70		Social Responsibility
		71		Income Tax and Other Government Payments
		72		Risk Management
		72		Risks and Uncertainties Affecting Our Business
		78		Controls and Procedures
80		Regulation In Our Industry
		81		Wireless
		83		Cable
		85		Media
86		Other Information
		86		Accounting Policies
		91		Key Performance Indicators
		93		Non-GAAP Measures
		95		Summary of Financial Results of Long-Term Debt Guarantor
		96		Five-Year Summary of Consolidated Financial Results

 

This Management’s Discussion and Analysis (MD&A) contains important information about our business and our performance for the year ended December 31, 2017. This MD&A should be read in conjunction with our 2017 Audited Consolidated Financial Statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

All dollar amounts are in Canadian dollars unless otherwise stated. All percentage changes are calculated using the rounded numbers as they appear in the tables. Charts, graphs, and diagrams are included for reference; however, they do not form part of this MD&A. This MD&A is current as at March 8, 2018 and was approved by RCI’s Board of Directors (the Board). This MD&A includes forward-looking statements and assumptions. See “About Forward-Looking Information” for more information.

We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. Rogers also holds interests in various investments and ventures.

We are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).

In this MD&A, the first quarter refers to the three months ended March 31, 2017, the second quarter refers to the three months ended June 30, 2017, the third quarter refers to the three months ended September 30, 2017, the fourth quarter refers to the three months ended December 31, 2017 , this year refers to the twelve months ended December 31, 2017, and last year refers to the twelve months ended December 31, 2016. All results commentary is compared to the equivalent periods in 2016 or as at December 31, 2016, as applicable, unless otherwise indicated.

ABOUT FORWARD-LOOKING INFORMATION

This MD&A includes “forward-looking information” and “forward-looking statements” within the meaning of applicable securities laws (collectively, “forward-looking information”), and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the date of this MD&A. This forward-looking information and these assumptions include, but are not limited to, statements about our objectives and strategies to achieve those objectives, and about our beliefs, plans, expectations, anticipations, estimates, or intentions.

Forward-looking information:

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typically includes words like could , expect , may , anticipate , assume , believe , intend , estimate , plan , project , guidance , outlook, target , and similar expressions, although not all forward-looking information includes them;

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includes conclusions, forecasts, and projections that are based on our current objectives and strategies and on estimates, expectations, assumptions, and other factors, most of which are

confidential and proprietary and that we believe to have been reasonable at the time they were applied but may prove to be incorrect; and

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was approved by our management on the date of this MD&A.

Our forward-looking information includes forecasts and projections related to the following items, some of which are non-GAAP measures (see “Non-GAAP Measures”), among others:

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revenue;

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total service revenue;

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adjusted EBITDA;

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capital expenditures;

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cash income tax payments;

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free cash flow;

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dividend payments;

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the growth of new products and services;

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expected growth in subscribers and the services to which they subscribe;

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the cost of acquiring and retaining subscribers and deployment of new services;

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continued cost reductions and efficiency improvements;

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traction against our debt leverage ratio; and

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all other statements that are not historical facts.

Specific forward-looking information included or incorporated in this document includes, but is not limited to, our information and statements under “Financial and Operating Guidance” relating to our 2018 consolidated guidance on revenue, adjusted EBITDA, capital expenditures, and free cash flow. All other statements that are not historical facts are forward-looking statements.

Our conclusions, forecasts, and projections (including the aforementioned guidance) are based on the following factors, among others:

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general economic and industry growth rates;

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currency exchange rates and interest rates;

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product pricing levels and competitive intensity;

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subscriber growth;

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pricing, usage, and churn rates;

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changes in government regulation;

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technology deployment;

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availability of devices;

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timing of new product launches;

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content and equipment costs;

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the integration of acquisitions; and

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industry structure and stability.

Except as otherwise indicated, this MD&A and our forward-looking information do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations, or other transactions that may be considered or announced or may occur after the date on which the statement containing the forward-looking information is made.

 

RISKS AND UNCERTAINTIES

Actual events and results can be substantially different from what is expressed or implied by forward-looking information as a result of risks, uncertainties, and other factors, many of which are beyond our control, including but not limited to:

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regulatory changes;

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technological changes;

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economic conditions;

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unanticipated changes in content or equipment costs;

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changing conditions in the entertainment, information, and/or communications industries;

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the integration of acquisitions;

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litigation and tax matters;

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the level of competitive intensity;

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the emergence of new opportunities; and

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new interpretations and new accounting standards from accounting standards bodies.

These factors can also affect our objectives, strategies, and intentions. Many of these factors are beyond our control or our current expectations or knowledge. Should one or more of these risks, uncertainties, or other factors materialize, our objectives, strategies, or intentions change, or any other factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans could vary significantly from what we currently foresee.

Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and caution them that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or

plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any statements containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events, or otherwise, except as required by law. All of the forward-looking information in this MD&A is qualified by the cautionary statements herein.

BEFORE MAKING AN INVESTMENT DECISION

Before making any investment decisions and for a detailed discussion of the risks, uncertainties, and environment associated with our business, fully review the sections in this MD&A entitled “Regulation In Our Industry” and “Governance and Risk Management”, as well as our various other filings with Canadian and US securities regulators, which can be found at sedar.com and sec.gov, respectively.

FOR MORE INFORMATION

You can find more information about us, including our Annual Information Form, on our website (investors.rogers.com), on SEDAR (sedar.com), and on EDGAR (sec.gov), or you can e-mail us at investor.relations@rci.rogers.com. Information on or connected to these and any other websites referenced in this document does not constitute part of this MD&A.

You can also find information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business at investors.rogers.com.

 

Rogers is a leading diversified Canadian communications and media company that’s working to deliver a great experience to our customers every day. We are Canada’s largest provider of wireless communications services and one of Canada’s leading providers of cable television, high-speed Internet, information technology, and telephony services to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, sports, televised and online shopping, magazines, and digital media.

Almost all of our operations and sales are in Canada. We have a highly skilled and diversified workforce of approximately 24,500 employees. Our head office is in Toronto, Ontario and we have numerous offices across Canada. We report our results of operations in four reporting segments. See “Understanding Our Business”.

 

FINANCIAL HIGHLIGHTS

HIGHER REVENUE

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Revenue increased by 3% this year, primarily driven by Wireless service revenue growth of 7%.

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Wireless service revenue increased largely as a result of subscriber growth and a greater number of subscribers on higher-rate plans from our various brands, including Rogers Share Everything plans. Overall, we achieved our best Wireless financial results this year since 2009.

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Cable revenue increased marginally as a result of the 7% increase in Internet revenue, due to the general movement of customers to higher-end speed and usage tiers and a larger subscriber base, partially offset by lower Television and Phone revenue, primarily due to Television subscriber losses over the past year and the impact of Phone pricing packages. We continue to see an ongoing shift in product mix to higher-margin Internet services, with 54% of our residential Internet base now on plans with download speeds of 100 megabits per second or higher compared to 46% at the end of last year. Excluding the impact of the Canadian Radio-television and Telecommunications Commission’s (CRTC) decision (effective October 2016) that reduced wholesale Internet access service rates, Cable revenue would have increased by 1% this year and Internet revenue would have increased by 9% this year.

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Media revenue increased marginally as a result of higher sports-related revenue driven by the strength of Sportsnet, increased sales at TSC, Today’s Shopping Choice (TSC), and higher conventional broadcast TV advertising revenue, partially offset by lower publishing-related revenue due to the strategic shift to digital media announced last year.

 

 

HIGHER ADJUSTED OPERATING PROFIT

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Adjusted operating profit increased 6% this year, with a consolidated adjusted operating profit margin of 38.0%, an expansion of 80 basis points. This increase was primarily driven by Wireless, with a 50 basis point expansion to 45.8%, and Cable, with an 80 basis point expansion to 49.3%.

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Wireless adjusted operating profit increased 8% this year as a result of strong flow-through of the service revenue growth described above, partially offset by higher expenditures associated with increased subscriber volumes and costs of devices.

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Cable adjusted operating profit increased 2% this year as a result of strong Internet revenue growth, the ongoing product mix shift to higher-margin Internet services, and various cost efficiencies. Excluding the impact of the CRTC decision that reduced wholesale Internet access service rates, adjusted operating profit would have increased by 4% this year.

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Media adjusted operating profit decreased 18% this year primarily as a result of higher Toronto Blue Jays player payroll (including the impact of foreign exchange) and higher TSC merchandise costs, partially offset by lower publishing costs due to the strategic shift and the increase in revenue as described above.

 

 

HIGHER NET INCOME AND ADJUSTED NET INCOME

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Net income increased 105% primarily as a result of the impairment and related charges we recognized last year as a result of our decision to discontinue developing our legacy Internet Protocol television (IPTV) product (instead, we are moving forward with the deployment of Comcast Corporation’s (Comcast) X1 IP-based video platform as Ignite TV), along with prior year equity losses associated with the wind-down of shomi, and higher adjusted operating profit and lower depreciation and amortization this year. The increase was partially offset by higher income tax expense consistent with higher earnings. See “Review of Consolidated Performance” for more information.

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Adjusted net income increased 23% this year as a result of higher adjusted operating profit and lower depreciation and amortization, partially offset by higher income tax expense.

 

 

 

 

 

SUBSTANTIAL FREE CASH FLOW SUPPORTS FINANCIAL FLEXIBILITY

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Our substantial cash flow generation enabled us to reduce outstanding debt, continue to make investments in our network, and return substantial dividends to shareholders. We paid $988 million in dividends in 2017.

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Our cash provided by operating activities was stable this year as the increase in net income was offset by an increase in income taxes paid and an increased investment in non-cash working capital items. Free cash flow increased 2% this year to $1,746 million as a result of higher adjusted operating profit, partially offset by higher cash income taxes and higher capital expenditures.

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Our debt leverage ratio improved to 2.8 as at December 31, 2017 from 3.0 as at December 31, 2016, driven by lower adjusted net debt and higher adjusted operating profit.

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Our overall weighted average cost of borrowings was 4.70% as at December 31, 2017 (2016 – 4.72%) and our overall weighted average term to maturity on our debt was 9.9 years as at December 31, 2017 (2016 – 10.6 years).

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We ended the year with approximately $2.7 billion of available liquidity (2016 – $2.7 billion) including $2.3 billion available under our bank and letter of credit facilities (2016 – $2.4 billion), and $0.4 billion (2016 – $0.25 billion) available under our $1.05 billion accounts receivable securitization program.

 

Rogers is a leading diversified Canadian communications and media company.

FOUR REPORTING SEGMENTS

We report our results of operations in four reporting segments. Each segment and the nature of its business are as follows:

 

Segment		Principal activities
Wireless		Wireless telecommunications operations for Canadian consumers and businesses.
Cable		Cable telecommunications operations, including Internet, television, and telephony (phone) services for Canadian consumers and businesses.
Business Solutions		Network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the enterprise, public sector, and carrier wholesale markets.
Media		A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, digital media, and publishing.

We intend to redefine our reporting segments effective January 1, 2018 as a result of technological evolution and the increased overlap between the various product offerings within our Cable and Business Solutions reporting segments, as well as how we allocate resources amongst, and the general management of, our reporting segments. Effective January 1, 2018, the results of our existing Cable segment, Business Solutions segment, and our Smart Home Monitoring products will be presented within a redefined Cable segment. Financial results related to our Smart Home Monitoring products are currently reported within Corporate items and intercompany eliminations. We will retrospectively amend our 2017 comparative segment results in 2018 to account for this redefinition.

 

See “Capability to Deliver Results” for more information about our extensive wireless and cable networks and significant wireless spectrum position.

During the year, our Wireless, Cable, and Business Solutions reporting segments were operated by our wholly-owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain other wholly-owned subsidiaries. Our Media reporting segment was operated by our wholly-owned subsidiary, Rogers Media Inc., and its subsidiaries.

PRODUCTS AND SERVICES

WIRELESS

Rogers is a Canadian leader in delivering a range of innovative wireless services. Our postpaid and prepaid wireless services are offered under the Rogers, Fido, and chatr brands, and provide consumers and businesses with the latest wireless devices, services, and applications including:

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mobile and fixed high-speed Internet access;

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wireless voice and enhanced voice features;

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wireless home phone;

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device protection;

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text messaging;

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e-mail;

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global voice and data roaming, including Roam Like Home and Fido Roam;

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bridging landline phones with wireless phones through products like Rogers Unison;

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machine-to-machine solutions; and

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advanced wireless solutions for businesses.

CABLE

Our cable network provides an innovative and leading selection of high-speed broadband Internet access, digital television and online viewing, phone, and advanced home Wi-Fi services to consumers in Ontario, New Brunswick, and on the island of Newfoundland. We also provide services to businesses and enterprises across Canada that aim to meet the increasing needs of today’s critical business applications.

With the forthcoming launch of Ignite TV, our new Cable Television product, we plan to reinvent how our customers experience TV. Ignite TV will deliver a high-value, premium service with advanced features and video experiences, along with a robust product roadmap of innovation leading to a truly connected home service. First on the innovation roadmap, we intend to adopt Comcast’s

 

new Digital Home solution. This whole-home networking solution will provide customers with a simple, fast, and intuitive way to control and manage their connected devices. The cloud-based platform will link to the new DOCSIS 3.1 Wi-Fi gateway devices to deliver fast, reliable connectivity in the home and will allow customers to easily add or pause devices, pair Wi-Fi extenders that boost signal strength, and use voice controls to see who is on the network, all in a safe and secure manner.

Internet services include:

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Internet access (including basic and unlimited usage packages), security solutions, and e-mail;

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access speeds of up to one gigabit per second (Gbps), covering our entire Cable footprint;

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Rogers Ignite and Fido Internet unlimited packages, combining fast and reliable speeds with the freedom of unlimited usage and options for self-installation; and

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Rogers Smart Home Monitoring, offering services such as monitoring, security, automation, energy efficiency, and smart control through a smartphone app.

Television services include:

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local and network TV, including starter and premium channel packages along with à la carte channels;

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on-demand television;

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personal video recorders (PVRs), including Whole Home PVRs and a 4K PVR;

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linear and time-shifted programming;

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digital specialty channels;

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4K television programming, including all 2017 and 2018 regular season Toronto Blue Jays home games and select marquee National Hockey League (NHL) and National Basketball Association (NBA) games; and

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Rogers Anyplace TV, televised content delivered on smartphones, tablets, and personal computers.

Phone services include:

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residential and small business local telephony service; and

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calling features such as voicemail, call waiting, and long distance.

Enterprise services include:

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voice, data networking, Internet protocol (IP), and Ethernet services over multi-service customer access devices that allow customers to scale and add services, such as private networking, Internet, IP voice, and cloud solutions, which blend seamlessly to grow with their business requirements;

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optical wave, Internet, Ethernet, and multi-protocol label switching services, providing scalable and secure metro and wide area private networking that enables and interconnects critical business applications for businesses that have one or many offices, data centres, or points of presence (as well as cloud applications) across Canada;

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simplified information technology (IT) and network technologies with security-embedded, cloud-based, professionally-managed solutions; and

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extensive wireless and cable access networks services for primary, bridging, and back-up connectivity.

MEDIA

Our portfolio of Media assets reaches Canadians from coast to coast.

In Sports Media and Entertainment, we own the Toronto Blue Jays, Canada’s only Major League Baseball (MLB) team, and the Rogers Centre event venue, which hosts the Toronto Blue Jays’ home games, concerts, trade shows, and special events.

Our NHL Agreement, which runs through the 2025-2026 NHL season, allows us to deliver unprecedented coverage of professional hockey, with more than 1,200 regular season games per season streamed across television, smartphones, tablets, and the Internet, both through traditional streaming services as well as Rogers NHL LIVE. Our NHL Agreement also grants Rogers national rights on those platforms to the NHL playoffs and Stanley Cup Final, all NHL-related special events and non-game events (such as the NHL All-Star Game and the NHL Draft), and rights to sublicense broadcasting rights to Groupe TVA and the Canadian Broadcasting Corporation (CBC) and to use the Hockey Night In Canada brand through a sublicense agreement.

In Television, we operate several conventional and specialty television networks:

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Sportsnet’s four regional stations, Sportsnet ONE, Sportsnet 360, and Sportsnet World;

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City network, which, together with affiliated stations, has broadcast distribution to approximately 85% of Canadian individuals;

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OMNI multicultural broadcast television stations, including OMNI Regional broadcast television stations, which provide multilingual newscasts nationally to all digital basic television subscribers;

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specialty channels that include FX (Canada), FXX (Canada), and Outdoor Life Network; and

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TSC, Canada’s only nationally televised shopping channel, which generates a significant and growing portion of its revenue from online sales.

In Radio, we operate 55 AM and FM radio stations in markets across Canada, including popular radio brands such as 98.1 CHFI, 680 NEWS, Sportsnet The FAN, KiSS, JACK FM, and SONiC.

As part of our strategic change to focus on digital media, our services and products include:

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our digital sports-related assets, including Rogers NHL LIVE (formerly Rogers NHL GameCentre LIVE) and Sportsnet NOW;

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many well-known consumer brands, such as Maclean’s, Chatelaine, Today’s Parent, and Hello! Canada; and

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a broad digital presence that continues the extension of content across new and existing platforms.

OTHER

We offer the Rogers Platinum MasterCard and the Fido MasterCard, credit cards that allow customers to earn cashback rewards points on credit card spending.

OTHER INVESTMENTS

We hold interests in a number of associates and joint arrangements, some of which include:

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our 37.5% ownership interest in Maple Leaf Sports & Entertainment Ltd. (MLSE), which owns the Toronto Maple Leafs, the Toronto Raptors, Toronto FC, the Toronto Argonauts, and the Toronto Marlies, as well as various associated real estate holdings; and

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our 50% ownership interest in Glentel Inc. (Glentel), a large provider of multicarrier wireless and wireline products and services with several hundred Canadian retail distribution outlets.

 

COMPETITION

Competition in the telecommunications industry continues to intensify, with national, regional, and reseller players giving consumers a broader choice in service providers and plan offerings. This puts downward pressure on pricing, potentially reducing profit margins, and could also affect our subscriber churn.

Traditional wireline telephony and television services are now offered over the Internet. This has allowed more non-traditional providers to enter the market and has changed how traditional providers compete. This is changing the mix of packages and pricing that service providers offer and could affect churn levels.

In the media industry, there continues to be a shift towards digital and online media consumption by consumers, which in turn drives advertisers to direct more advertising dollars to digital and online versus traditional media. In addition, the number of competitors has increased as more digital and online media companies, including large global companies, enter the market.

WIRELESS

We compete on customer experience, quality of service, scope of services, network coverage, sophistication of wireless technology, breadth of distribution, selection of devices, branding and positioning, and price.

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Wireless technology – our extensive long-term evolution (LTE) network caters to customers seeking the increased capacity and speed it provides. We compete with Bell, Telus, Shaw, Videotron, SaskTel, and Eastlink, all of whom operate LTE networks. We also compete with these providers on high-speed packet access (HSPA) and global system for mobile communications (GSM) networks and with providers that use alternative wireless technologies, such as Wi-Fi “hotspots” and mobile virtual network operators (MVNO), such as President’s Choice Mobile and Primus.

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Product, branding, and pricing – we compete nationally with Bell, Telus, and Shaw, including their flanker brands Virgin Mobile (Bell), Lucky Mobile (Bell), Koodo (Telus), Public Mobile (Telus), and Freedom Mobile (Shaw). We also compete with various regional players and resellers.

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Distribution of services and devices – we compete with other service providers for dealers, prime locations for our own stores, and third-party retail distribution shelf space.

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Wireless networks – consolidation amongst regional players, or with incumbent carriers, could alter the regional or national competitive landscapes for Wireless.

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Inbound roaming – we compete with other major national carriers to provide service to international operators who have customers who roam while in Canada.

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Spectrum – Innovation, Science and Economic Development Canada (ISED Canada) has announced a future 600 MHz spectrum auction, expected to take place in the next one to two

years. The outcome of this auction may increase competition. See “Regulation In Our Industry” for more information.

CABLE

Internet

We compete with other Internet Service Providers (ISPs) that offer residential high-speed Internet access services. Rogers and Fido high-speed Internet services compete directly with:

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Bell and Bell Aliant’s Internet services in Ontario, New Brunswick, and on the island of Newfoundland; and

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various resellers using wholesale telecommunication company digital subscriber line (DSL) and cable Third-Party Internet Access (TPIA) services in local markets.

A number of different players in the Canadian market also compete for enterprise network and communications services. There are relatively few national providers, but each market has its own competitors that usually focus on the geographic areas where they have the most extensive networks. In the enterprise market, we compete with facilities- and non-facilities-based telecommunications service providers. In markets where we own network infrastructure, we compete with incumbent fibre-based providers. Our main competitors are as follows:

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Ontario – Bell, Cogeco Data Services, and Zayo;

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Quebec – Bell, Telus, and Videotron;

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Atlantic Canada – Bell Aliant and Eastlink; and

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Western Canada – Shaw and Telus.

Television

We compete with:

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other Canadian multi-channel broadcast distribution undertakings (BDUs), including Bell, Shaw, other alternative satellite TV services, and IPTV;

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over-the-top (OTT) video offerings through providers like Netflix, YouTube, Hulu, Apple, Amazon Prime Video, Google, and other channels streaming their own content; and

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over-the-air local and regional broadcast television signals received directly through antennas, and the illegal reception of US direct broadcast satellite services.

Phone

We compete with:

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Bell and Bell Aliant’s wireline phone service in Ontario, New Brunswick, and on the island of Newfoundland;

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incumbent local exchange carrier (ILEC) local loop resellers and voice over IP (VoIP) service providers (such as Primus and Comwave), other VoIP-only service providers (such as Vonage and Skype), and other voice applications riding over the Internet access services of ISPs; and

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substitution of wireline for wireless products, including mobile phones and wireless home phone products.

 

MEDIA

Television and specialty services compete for viewers and advertisers with:

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other Canadian television stations that broadcast in their local markets, including those owned and operated by the CBC, Bell Media, and Corus Entertainment;

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other specialty channels;

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distant Canadian signals and US border stations, given the time-shifting capability available to subscribers;

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other media, including newspapers, magazines, radio, and outdoor advertising; and

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content available on the Internet, such as web-based streaming services.

Our radio stations compete mainly with individual stations in local markets, but they also compete with:

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other large, national radio operators, including the CBC, Bell Media, Corus Entertainment, and satellite radio operator SiriusXM;

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broadcast and Internet radio platforms, such as iHeartRadio, which combine free, on-demand music services with the availability of live radio broadcasts and podcasts;

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iTunes Music, Spotify, Radioplayer Canada, and comparable apps, which allow free or paid music and radio streaming directly from users’ smartphones;

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other media, including newspapers, magazines, television, and outdoor advertising; and

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new technologies, such as online web information services, music downloading, and portable media players.

TSC competes with:

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retail stores;

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catalogue, Internet, and direct mail retailers;

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infomercials that sell products on television; and

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other television channels, for channel placement, viewer attention, and loyalty.

Our digital media and publishing products compete for readership and advertisers with:

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other Canadian magazines, both digital and printed;

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foreign, mostly US, titles that sell directly into Canada, both digital and printed;

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online information and entertainment websites, such as news services and streaming services; and

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other traditional media, such as TV and radio.

Competition in Sports Media and Entertainment includes other:

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televised and online sports programming;

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Toronto professional teams, for attendance at Toronto Blue Jays games;

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MLB teams, for Toronto Blue Jays players and fans;

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local sporting and special event venues; and

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professional sports teams, for merchandise sales revenue.

 

INDUSTRY TRENDS

The telecommunications industry in Canada and our reporting segments are affected by various overarching trends relating to changing technologies, consumer demands, economic conditions, and regulatory developments. See “Risks and Uncertainties Affecting Our Business” and “Regulation In Our Industry” for more information. Below is a summary of the industry trends affecting our specific reporting segments.

WIRELESS TRENDS

More sophisticated wireless networks and devices and the rise of multimedia and Internet-based applications are making it easier and faster to receive data, driving growth in wireless data services. Consumer demand for mobile devices, digital media, and on-demand content is pushing providers to build networks that can support the expanded use of applications, mobile video, messaging, and other wireless data.

Wireless providers are investing in the next generation of broadband wireless data networks, such as LTE, Licensed Assisted Access, 4.5G, and future 5G technologies, to support the growing data demand.

Wireless market penetration in Canada is approximately 87% of the population and is expected to grow at an estimated 0.8% annually over the next four years, per International Data Corporation.

The CRTC Wireless Code has limited consumer wireless term contracts to two years from three years, which has resulted in a greater number of customers completing and renewing contracts at any given time. Shorter-term contracts allow less time for carriers to recover subsidies.

Subscribers are increasingly bringing their own devices or keeping their existing devices longer and therefore may not enter into term contracts for wireless services. This may negatively impact our subscriber churn, but may create gross addition subscriber opportunities as a result of increased churn from other carriers. This also may negatively impact the monthly service fees charged to subscribers.

Wireless providers are collaborating with OTT services to offer their customers unique, value-added benefits and service options.

Mobile commerce continues to increase as more devices and platforms adopt secure technology to facilitate wireless transactions.

CABLE TRENDS

Technology advancement, non-traditional competitors, consumer behaviours, and regulatory advancement are key areas influencing Cable. The Internet and social media are increasingly being used as a substitute for wireline telephone services, and televised content is increasingly available online. Downward Television tier migration (cord shaving) and Television cancellation with the intent of substitution (cord cutting) appear to be on the rise with increased adoption of OTT services, such as Apple TV, Netflix, and Android-based TV boxes. The CRTC’s decision to lower wholesale Internet access rates may also adversely affect companies that wholesale Internet services.

Broadcast television technology continues to improve with 4K TV broadcasts, and high dynamic range (HDR) for higher resolution and improved video image colour and saturation.

The CRTC Basic Telecommunications Services decision established several criteria to improve Internet access for Canadian residents and businesses. As a result, the CRTC believes fixed broadband subscribers should have access to speeds of at least 50 Mbps download and 10 Mbps upload, and access to a service with an unlimited data allowance.

Our digital cable and VoIP telephony services compete with competitor IPTV deployments and non-facilities-based service providers, respectively, which continue to increase competitive intensity that have and may continue to negatively impact the industry.

Cable and wireline companies are expanding their service offerings to include faster broadband Internet. Canadian companies, including Rogers, are increasingly offering download speeds of 1 Gbps and Internet offerings with unlimited bandwidth. Consumers are demanding ever-faster speeds for streaming online media, playing online video games, and for their ever-growing number of connected devices. In order to help facilitate these speeds, cable and wireline companies are shifting their networks towards higher speed and capacity Data Over Cable Service Interface Specifications (DOCSIS) 3.1 and fibre-to-the-home (FTTH) technologies. These technologies provide faster potential data communication speeds, allowing both television and Internet signals to reach consumers more quickly in order to sustain reliable speeds to address the increasing number of Internet-capable devices.

Our enterprise customers use fibre-based access and cloud computing to capture and share information in more secure and accessible environments. This, combined with the rise of multimedia and Internet-based business applications, is driving exponential growth in data demand.

Enterprises and all levels of government are transforming data centre infrastructure by moving toward virtual data storage and hosting. This is driving demand for more advanced network functionality, robust, scalable services, and supportive dynamic network infrastructure.

Canadian wireline companies are dismantling legacy networks and investing in next generation platforms and data centres that combine voice, data, and video solutions onto a single distribution and access platform. As next generation platforms become more popular, our competition will begin to include systems integrators and manufacturers.

Our enterprise customers are using third parties to increase security for their data and information to address cyber threats and other information security risks.

Devices and machines are becoming more interconnected and there is more reliance on the Internet and other networks to facilitate updates and track usage.

MEDIA TRENDS

Consumer demand for digital media, mobile devices, and on-demand content is increasing and media products, such as magazines, have experienced significant digital uptake, requiring industry players to increase their efforts in digital content and capabilities in order to compete. This trend is also causing advertisers to shift their spending from conventional TV and print publishing to digital platforms.

Competition has changed and traditional media assets in Canada are increasingly being controlled by a small number of competitors with significant scale and financial resources. Technology has allowed new entrants and even individuals to become media players in their own right.

Some players have become more vertically integrated across both traditional and emerging platforms. Relationships between providers and purchasers of content have become more complex. Global aggregators have also emerged and are competing for both content and viewers.

Access to live sports and other premium content has become even more important for acquiring and retaining audiences that in turn attract advertisers and subscribers. Therefore, ownership of content and/or long-term agreements with content owners has also become increasingly important to media companies. Leagues, teams, and networks are also experimenting with the delivery of live sports content through online, social, and virtual platforms, while non-traditional sports are also growing in mindshare.

 

Our refocused strategy builds on our many strengths, including our unique mix of network and media assets. Our focus is clear: deliver a best-in-class customer experience, grow the core business, and deliver industry-leading shareholder value.

To achieve these goals, our strategic priorities are as follows:

•

Create best-in-class customer experiences by putting our customers first in everything we do;

•

Invest in our networks and technology to deliver leading performance and reliability;

•

Deliver innovative solutions and compelling content that our customers will love;

•

Drive profitable growth in all the markets we serve;

•

Develop our people and a high performance culture; and

•

Be a strong, socially responsible leader in our communities across Canada.

CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO

Everything starts and ends with our customer, so improving their experience is core to our strategy. We obsess over our customers’ end-to-end service experiences by listening carefully to the voice of our customers and the voice of our front-line. We will continue to focus on making things clear, simple, and fair for our customers while we continue building our digital capabilities so our customers have reliable and consistent experiences across our channels.

INVEST IN OUR NETWORKS AND TECHNOLOGY TO DELIVER LEADING PERFORMANCE AND RELIABILITY

We believe that networks are the lifeblood of our business and world-class performance is critical to our future. Our plan is to deliver high-performing, worry-free network services with a focus on core performance and reliability. Our investments in our cable network will allow us to continue to improve Cable Internet performance and reliability. Accelerated investments in our wireless network will ensure we keep up with our customers’ growing data demands while accelerating our move to 4.5G and setting the stage for a smooth evolution to 5G.

DELIVER INNOVATIVE SOLUTIONS AND COMPELLING CONTENT THAT OUR CUSTOMERS WILL LOVE

Innovation has always been a part of our DNA. We strive to deliver compelling products and innovative solutions to our customers that make their lives easier. We will do this by leveraging proven technologies and remarkable innovations from across the globe, making them more cost-effective for us.

Rogers has some of the most sought-after media assets in Canada, with a deep roster of leading sports assets, top radio stations, iconic magazines, and award-winning television programming. Canadians expect to be able to consume the content they want, when and where they want. We will continue to invest in delivering the content our audiences value and want most, delivered on their screens of choice.

DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE SERVE

The overarching goal of our strategy is to accelerate revenue growth in a sustainable way and translate it into strong margins, profit, free cash flow, an increasing return on assets, and returns to shareholders. Therefore, we will focus on our core growth drivers while developing a strong capability in cost management to support investments that will fuel our future.

DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE CULTURE

Our people and our culture are the heart and soul of our success, and their passion for our customers and our company is truly incredible. Our strategy is to invest more in our people through training and development programs and to establish clear accountabilities for all employees. We are working to strengthen our employment brand and to make Rogers a top employer known for attracting and retaining the best talent. This means fostering an open, trusting, and diverse workplace grounded in accountability and performance.

BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR COMMUNITIES ACROSS CANADA

Giving back where we live and work is an important part of who we are. Our goal is to be a relevant and respected community leader in each region of our country. This means leveraging our strong local teams to become active and engaged volunteers in our communities and to deliver a strong, regionally empowered program.

 

CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO

•

Attracted our highest number of postpaid net additions and realized our lowest annual postpaid churn rate since 2010.

•

Introduced Data Bytes for Fido mobile, giving new and existing Fido Pulse plan customers an additional hour of data, five times per billing cycle, at no extra charge. With this feature, customers can activate their data session and start streaming, searching, and sharing, worry-free.

•

Launched Stream Saver, part of our worry-free data management objective that allows users to get more out of their data plan by switching video streaming settings between high definition and standard definition.

•

Launched Social Media Security by Rogers, a cloud-based solution that allows Canadian businesses to better safeguard their social media accounts.

•

Announced we are tying 50% of our 2018 company-wide bonus plan to the achievement of certain customer metrics.

INVEST IN OUR NETWORKS AND TECHNOLOGY TO DELIVER LEADING PERFORMANCE AND RELIABILITY

•

Augmented sections of our existing LTE network with 4.5G technology investments that are designed to migrate to a 5G environment.

•

Initiated a program to upgrade our hybrid fibre-coaxial infrastructure with additional fibre deployments and further DOCSIS technology enhancements. This program will lower the number of homes passed per node, will incorporate the latest technologies to help deliver more bandwidth and an even more reliable customer experience, and will lay the foundation to evolve to FTTH.

•

Launched LTE-Advanced (LTE-A) service in many communities in Manitoba, including Winnipeg, Brandon, Portage La Prairie, Churchill, and more. We also expanded other cellular services in Manitoba.

•

Expanded LTE wireless service in Alberta; expanded LTE wireless service and implemented network improvements in several communities across British Columbia.

•

Extended our 700 MHz LTE network reach to 92% of Canada’s population and extended our overall LTE coverage to 96% of the population.

•

Recognized as the fastest ISP in both Ontario and Canada between July 2016 and May 2017, according to PCMag’s Speed Index.

 

DELIVER INNOVATIVE SOLUTIONS AND COMPELLING CONTENT THAT OUR CUSTOMERS WILL LOVE

•

For the third consecutive year, Sportsnet was ranked Canada’s number-one sports media brand and Canada’s number-one specialty network.

•

Successfully completed the third year of our exclusive 12-year national NHL Agreement while bringing the NHL to more Canadians than ever before, with our 2016-2017 NHL season being our most successful NHL season to date.

•

Extended, for seven additional years, our sublicensing arrangement with CBC for English broadcasts of Hockey Night in Canada and the Stanley Cup playoffs, beginning with the 2019-2020 season. CBC will continue to broadcast nationally-televised regular season games on Saturday night, plus all four rounds of the Stanley Cup playoffs.

•

Achieved excellent radio ratings across Canada, including 98.1 CHFI and 680 NEWS in Toronto, where they were the city’s number-one radio and news stations, respectively, for the key demographic between ages 25 and 54.

•

Added four new 4K services to our existing lineup, allowing our customers to watch some of the world’s biggest artists, concerts, movies, and events in 4K, in addition to more than 100 Toronto Blue Jays, NHL, and NBA games.

•

Launched OMNI Regional across the country, a new television service providing Canada’s diverse language communities with access to vital news and information programming.

•

Launched CityNews in Edmonton and Winnipeg, and announced upcoming CityNews launches in Vancouver, Calgary, and Montreal, offering a fresh approach to local news that provides viewer-based content with original stories that reflect these communities.

DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE SERVE

•

100% achievement of our 2017 guidance on selected full-year metrics. See “Financial and Operating Guidance” for more information.

•

Adjusted operating profit margin expansion of 80 basis points. This increase was primarily driven by Wireless, with a 50 basis point expansion, and Cable, with an 80 basis point expansion.

•

Achieved our best annual Wireless service revenue growth and adjusted operating profit growth since 2009.

DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE CULTURE

•

Achieved an employee engagement score of 79%.

•

Recognized in November 2017, for the fifth year in a row, as one of Canada’s Top 100 Employers for 2018, and in January 2017, for the eighth year in a row, as a Top Employer for Young People, by the editors of Canada’s Top 100 Employers.

•

Selected as one of Canada’s Best Diversity Employers for 2017, for the fifth year in a row, in a report released by Mediacorp Inc. in March 2017, in recognition of our efforts to promote diversity and inclusion in the workplace.

•

Named one of Canada’s Greenest Employers for 2017, for the fifth year in a row, by the editors of Canada’s Top 100 Employers in April 2017.

•

Named one of the 50 Best Corporate Citizens in Canada by Corporate Knights in June 2017, an award that recognizes employers that incorporate social, economic, and ecological benefits and costs in their normal course of business.

BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR COMMUNITIES ACROSS CANADA

•

Invested $64 million in our communities through cash and in-kind donations to various charitable organizations and causes.

•

Launched the Ted Rogers Scholarship Fund and awarded 307 scholarships through our community partners and to dependents of our hard-working employees. This program also included 65 grants to community organizations across the country that provide innovative and educational programs for youth.

•

Released Rogers’ 2017 Transparency Report, which outlines how we share customer information in response to requests from legal authorities. We are committed to protecting our customers’ privacy and fulfilling our obligation as a good corporate citizen to follow the law and contribute to public safety.

•

Launched a new annual employee giving campaign, Give Together Month, where Rogers matched employee donations to the charity of their choice, up to $1,000 each. In total, $2.2 million was raised.

•

Expanded Connected for Success, a program offering access to affordable, high-speed Internet to 150,000 low-income Canadian households through 200 subsidized housing partners across our cable footprint.

 

2017 ACHIEVEMENTS AGAINST GUIDANCE

The following table outlines guidance ranges that we had previously provided and our actual results and achievements for the selected full-year 2017 financial metrics.

 

(In millions of dollars, except percentages)

2016 Actual

2017 Guidance Ranges

2017 Actual

Achievement

Consolidated Guidance 1

Revenue

13,702

Increase of 3% to 5%

14,143

3.2%

✓

Adjusted operating profit 2

5,092

Increase of 5% to 6%

5,379

5.6%

✓

Capital expenditures 3

2,352

2,350 to 2,450

2,436

n/m

✓

Free cash flow 2

1,705

Increase of 2% to 4%

1,746

2.4%

✓

 

n/m	– not meaningful

1	The table outlines guidance ranges for selected full-year 2017 consolidated financial metrics provided in our January 26, 2017 earnings release and subsequently updated on October 19, 2017. Guidance ranges presented as percentages reflect percentage increases over 2016 actual results.

2

Adjusted operating profit and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

3	Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.

2018 FULL-YEAR CONSOLIDATED GUIDANCE

For the full-year 2018, we expect steady growth in revenue and adjusted EBITDA to drive higher free cash flow, despite higher capital expenditures. In 2018, we expect to have the financial flexibility to maintain our network advantages, to further reduce debt, and to continue to return cash to shareholders.

Effective January 1, 2018, the Company will commence using adjusted earnings before interest, tax, depreciation, and amortization (adjusted EBITDA) as the key measure of profit for the purpose of assessing performance for each segment and to make decisions about the allocation of resources. As such, we plan to introduce adjusted EBITDA as a new non-GAAP measure in our financial reports commencing January 1, 2018. This measure will replace our existing adjusted operating profit non-GAAP measure. We believe adjusted EBITDA better reflects segment and consolidated profitability. The difference between adjusted operating profit and adjusted EBITDA is that adjusted EBITDA will include stock-based compensation expense. We also believe that our decision-making processes will not be significantly affected through the use of adjusted EBITDA. Additionally, use of this measure will change our current definition of free cash flow. For detailed reconciliations, please see “Non-GAAP Measures”.

 

WIRELESS

Rogers has one of the most extensive and advanced wireless networks in Canada, which:

•

was the first LTE high-speed network in Canada;

•

reached 96% of the Canadian population as at December 31, 2017 on our LTE network alone;

•

is supported by voice and data roaming agreements with international carriers in more than 200 destinations, including a growing number of LTE roaming operators; and

•

includes network sharing arrangements with three regional wireless operators that operate in urban and rural parts of Canada.

We are continuously enhancing our IP service infrastructure for all our wireless services. Advances in technology have transformed the ways in which our customers interact and use the variety of tools available to them in their personal and professional lives. Technology has also changed the way businesses operate.

We are augmenting our existing LTE network with 4.5G technology investments that are designed to migrate to a 5G environment. We

will increase our 5G-related trials across key applications and multiple frequencies in 2018. A number of investments will be required to successfully launch a 5G network, including:

•

refarming spectrum currently used for 2G and 3G to LTE;

•

densifying our wireless network with macro and small cells in key markets; and

•

purchasing 5G-ready radio network equipment with lower unit and operational costs, the ability to aggregate more radio carriers, and greater spectral efficiency.

Significant spectrum position

Our wireless services are supported by our significant wireless spectrum holdings in both high-band and low-band frequency ranges. As part of our network strategy, we expect to continue making significant capital investments in spectrum to:

•

support the rapidly growing usage of wireless data services;

•

support the launch of a 5G-capable network; and

•

introduce new innovative network-enabled features and functionality.

 

CABLE

Our expansive fibre and hybrid fibre-coaxial infrastructure delivers services to consumers and businesses in Ontario, New Brunswick, and on the island of Newfoundland. We also operate a transcontinental, facilities-based fibre-optic network that extends over 48,000 route kilometres and is used to service enterprise customers, including government and other telecommunications service providers. We also use our extensive fibre network for backhaul for wireless cell site traffic. In Canada, the network extends coast-to-coast and includes local and regional fibre, transmission electronics and systems, hubs, points of presence, and IP routing and switching infrastructure. The network also extends to the US from Vancouver south to Seattle; from the Manitoba-Minnesota border through Minneapolis, Milwaukee, and Chicago; from Toronto through Buffalo; and from Montreal through Albany to New York City and Ashburn, allowing us to connect Canada’s largest markets, while also reaching key US markets for the exchange of data and voice traffic.

The network is structured to optimize performance and reliability and to allow for the simultaneous delivery of video, voice, and Internet over a single platform. It is generally constructed in rings that interconnect with distribution hubs, providing redundancy to minimize disruptions that can result from fibre cuts and other events.

Homes and commercial buildings are connected to our network through hybrid fibre-coaxial (HFC) nodes or FTTH. We connect the HFC node to the network using fibre optic cable and the home to the node using coaxial cable or fibre. Using 860 MHz and 750 MHz of shared cable spectrum in Ontario and Atlantic Canada, respectively, we deliver video, voice, and broadband services to our customers. Hybrid fibre-coaxial node segmentation increases bandwidth per home passed by reducing the number of customers that share the cable spectrum.

We continually upgrade the network to improve capacity, enhance performance and reliability, reduce operating costs, and introduce new features and functionality. Our investments are focused on:

•

further segmenting our network nodes to reduce the number of homes sharing spectrum in each node;

•

improving video signal compression by moving to more advanced video protocols;

•

improving channel and on-demand capacity through switched digital video; and

•

increasing the FTTH footprint by connecting more homes directly to fibre.

In early 2016, we completed the transition of customers receiving television signals over our analog broadcast channels to all-digital services, freeing up significant cable network capacity for additional features and services. This migration strengthened the customer experience and, in addition to allowing us to reclaim significant amounts of network capacity, enabled us to reduce future network operating and maintenance costs.

Broadband Internet service is provided using a DOCSIS CCAP 3.0/3.1 platform, which combines multiple radio frequency channels onto one access point at the customer premise, delivering exceptional performance. The bandwidth of our Internet service offerings has increased 55-fold in the last 10 years as we bring new technologies to market when they become available.

This track record of investing in our networks and demonstrating the capability to deploy best-in-class service is one of our key strategies for ensuring that we stay competitive with other service providers that provide Internet service into homes and businesses over copper facilities. By the end of 2016, 100% of our cable network had been upgraded to DOCSIS CCAP technology supporting DOCSIS 3.1 and Ignite Gigabit Internet.

In 2018, we will begin evolving our cable network to a passive HFC architecture with nodes serving small groups of customers. This architecture will provide the foundation for subsequent generations of DOCSIS, including Remote PHY and Full Duplex DOCSIS, both of which will continue to expand the capabilities and capacity of our cable HFC network. Over time, this next generation architecture is expected to support synchronous upload and download speeds of up to 10 gigabits per second.

We continue to invest in and improve our cable network; for example, with technology to support gigabit Internet speeds, Ignite TV, Rogers 4K TV, our 4K PVR set-top box, and a significant commitment to live broadcasting in 4K, including all regular season Toronto Blue Jays home games for 2018 and numerous NHL and NBA games.

Voice-over-cable telephony services are currently provided over a dedicated DOCSIS network. Our offerings ensure a high quality of service by including geographic redundancy as well as network and customer premise backup powering. Our phone service includes a rich set of features, such as TV Call Display, three-way calling, and advanced voicemail features that allow customers to be notified of, and listen to, their home voicemail on their wireless phone or over the Internet.

We own and operate some of the most advanced networks and data centres in Canada. We leverage our national fibre, cable, and wireless networks and data centre infrastructure to enable businesses to deliver greater value to their customers through proactive network monitoring and problem resolution with enterprise-level reliability, security, and performance. Our primary and secondary Network Operation Centres proactively monitor Rogers’ networks to mitigate the risk of service interruptions and allow for rapid responses to any outages.

Our data centres provide guaranteed uptime and expertise in collocation, cloud, and managed services solutions. We own and operate 16 state-of-the-art, highly reliable, certified data centres across Canada, including:

•

Canada’s first Tier III Design and Construction certified multi-tenant facility, opened in 2012 in Toronto;

•

Alberta’s first Tier III certified data centre, opened in 2014; and

•

a third Tier III certified data centre in Ottawa, opened in 2015.

POWERFUL BRANDS

The Rogers brand has strong national recognition through our:

•

established networks;

•

extensive distribution;

•

recognizable media content and programming;

•

advertising;

•

event sponsorships, including the Rogers Cup;

•

community investment, including the Ted Rogers Scholarship Fund; and

•

naming rights to some of Canada’s landmark buildings.

 

We also own or utilize some of Canada’s most recognized brands, including:

•

the wireless brands of Rogers, Fido, and chatr;

•

25 TV stations and specialty channels, including Sportsnet, FX (Canada) and FXX (Canada), OMNI, and City;

•

publications, including Maclean’s, Chatelaine, Today’s Parent, Flare, and Hello! Canada;

•

55 radio stations, including 98.1 CHFI, 680 NEWS, Sportsnet The FAN, KiSS, JACK FM, and SONiC;

•

major league sports teams, including the Toronto Blue Jays, and teams owned by MLSE, such as the Toronto Maple Leafs, the Toronto Raptors, Toronto FC and the Toronto Argonauts;

•

an exclusive 12-year agreement with the NHL, which runs through the 2025-2026 season, that allows us to deliver unprecedented coverage of professional hockey in Canada; and

•

TSC, a premium online and TV shopping retailer.

WIDESPREAD PRODUCT DISTRIBUTION

WIRELESS

We distribute our wireless products nationally using various channels, including:

•

an extensive independent dealer network;

•

company-owned Rogers, Fido, and chatr retail stores;

•

major retail chains and convenience stores;

•

other distribution channels, such as WOW! mobile boutique, as well as Wireless Wave and TBooth Wireless through our ownership interest in Glentel;

•

customer self-serve using rogers.com, fido.ca, chatrwireless.com, and e-commerce sites;

•

our call centres; and

•

outbound telemarketing.

CABLE

We distribute our residential cable products using various channels, including:

•

company-owned Rogers and Fido retail stores;

•

customer self-serve using rogers.com and fido.ca;

•

our call centres, outbound telemarketing, and door-to-door agents; and

•

major retail chains.

Our sales team and third-party retailers sell services to the enterprise, public sector, and carrier wholesale markets. An extensive network of third-party channel distributors deals with IT integrators, consultants, local service providers, and other indirect sales relationships. This diverse approach gives greater breadth of coverage and allows for strong sales growth for next generation services.

FIRST-CLASS MEDIA CONTENT

We deliver highly sought-after sports content enhanced by the following initiatives:

•

an exclusive 12-year agreement with the NHL, which runs through the 2025-2026 season, that allows us to deliver unprecedented coverage of professional hockey in Canada across television, smartphones, tablets, and the Internet;

•

Rogers NHL LIVE, an online OTT destination for enhancing NHL action on any screen;

•

GamePlus, an innovative and interactive experience within Rogers NHL LIVE that includes enhanced camera angles, exclusive interviews and analysis, and original video-on-demand content;

•

Rogers Hometown Hockey Tour, which brings hockey-themed festivities and outdoor viewing parties to 24 communities across Canada over the 2017-2018 NHL season;

•

the MLB Network, a 24-hour network dedicated to baseball, brought to Canada for the first time on Rogers digital cable;

•

an 8-year, multi-platform broadcast rights agreement with MLB Properties and MLB Advanced Media to show live and in-progress games and highlights within Canada through 2021;

•

a 10-year, multi-platform agreement that commenced in August 2014, which makes Rogers the exclusive wholesaler and a distributor of World Wrestling Entertainment’s (WWE) flagship programming in Canada; and

•

exclusive broadcasting and distribution rights of the Toronto Blue Jays through our ownership of the team.

CUSTOMER EXPERIENCE

We are committed to providing our customers with the best experience possible. To do this, we have invested in several areas to make it easier and more convenient for customers to interact with us, such as:

•

contact centres located throughout Canada;

•

an innovative Integrated Voice Response (IVR) system that can take calls in four languages, including English, French, Mandarin, and Cantonese;

•

voice authentication technology across all of our call centres that automatically identifies our customers by their voice, increasing security and protecting customers from potential fraud;

•

self-serve options, including:

•

the ability for Fido and Rogers consumer customers to complete price plan changes and hardware upgrades online;

•

simplified login, allowing Fido customers to log in to their accounts online or through the Fido MyAccount app using their Facebook login credentials, eliminating the need to remember multiple login credentials and making self-service easier to access;

•

the ability for customers to install their Internet and TV products at their convenience, without the need for a technician visiting their residence; and

•

Rogers EnRoute, a tool that gives customers the ability to track on their phone when a technician will arrive for an installation or service call;

•

customer care available over Facebook Messenger, Twitter, and online chat through our websites;

•

Family Data Manager, a data manager tool, and Data Top Ups, both of which allow Wireless customers to manage and customize their data usage in real-time through MyRogers;

•

Fido Data Bytes, which grant Fido Pulse customers an additional hour of data, five times per billing cycle, at no extra charge;

•

a simple mobile bill, making it easier for customers to read and understand their monthly charges; and

•

Roam Like Home and Fido Roam, worry-free wireless roaming allowing Canadians to use their wireless plan like they do at home when traveling to included destinations.

 

ENGAGED PEOPLE

For our team of approximately 24,500 employees, we strive to create a great workplace, focusing on all aspects of the employee experience, which include:

•

engaging employees and building high-performing teams through initiatives including engagement surveys and leadership development programs;

•

aiming to attract and retain top talent through effective training and development, performance-driven employee recognition programs, and career progression programs for front-line employees;

•

maintaining our commitment to diversity and inclusion; and

•

providing a safe, collaborative, and agile workplace that provides employees the tools and training to be successful.

FINANCIAL STRENGTH AND FLEXIBILITY

We have an investment-grade balance sheet, conservative debt leverage, and substantial available liquidity of $2,650 million as at December 31, 2017. Our capital resources consist primarily of cash provided by operating activities, available lines of credit, funds available under our accounts receivable securitization and US dollar-denominated commercial paper (US CP) programs, and issuances of long-term debt. We also own approximately $1,465 million of marketable equity securities in publicly-traded companies as at December 31, 2017.

The following information is forward-looking and should be read in conjunction with “About Forward-Looking Information”, “Financial and Operating Guidance”, “Risks and Uncertainties Affecting Our Business”, and our other disclosures about various economic, competitive, and regulatory assumptions, factors, and risks that could cause our actual future financial and operating results to differ from those currently expected.

Similar to 2017, we anticipate generating positive free cash flow in 2018. We expect that we will have sufficient capital resources to satisfy our cash funding requirements in 2018, including the funding of dividends on our common shares, repayment of maturing long-term debt, and other financing activities, investing activities, and other requirements. This takes into account our opening bank advance balance, cash provided by operating activities, the amount available under our $3.2 billion bank credit facility, our accounts receivable securitization program, our US CP program, and funds available to us from the issuance of other bank, publicly issued, or private placement debt from time to time. As at December 31, 2017, there were no significant restrictions on the flow of funds between RCI and its subsidiary companies.

We believe we can satisfy foreseeable additional funding requirements by issuing additional debt financing, which, depending on market conditions, could include restructuring our existing bank credit and letter of credit facilities, entering into new bank credit facilities, issuing public or private long-term or short-term debt, amending the terms of our accounts receivable securitization or US CP programs, or issuing equity. We may also opportunistically refinance a portion of existing debt depending on market conditions and other factors. There is no assurance, however, that these financing initiatives will or can be done as they become necessary.

HEALTHY TRADING VOLUMES AND DIVIDENDS

Our RCI Class B Non-Voting common shares (Class B Non-Voting Shares) actively trade on the TSX and NYSE with a combined average daily trading volume of approximately 1.2 million shares in 2017. In addition, our RCI Class A Voting common shares (Class A Shares) trade on the TSX. Dividends are the same, at the discretion of the Board, on both classes of shares. In 2017, each share paid an annualized dividend of $1.92.

 

See “Accounting Policies” in this MD&A and the notes to our 2017 Audited Consolidated Financial Statements for important accounting policies and estimates as they relate to the following discussion.

We use several key performance indicators to measure our performance against our strategy and the results of our peers and

competitors. Many of these are not defined terms under IFRS and should not be considered alternative measures to net income or any other financial measure of performance under IFRS. See “Key Performance Indicators” and “Non-GAAP Measures” for more information.

 

KEY CHANGES IN FINANCIAL RESULTS THIS YEAR COMPARED TO 2016

REVENUE

Wireless service revenue increased this year primarily as a result of a larger subscriber base and a greater number of subscribers on higher-rate plans from our various brands, which includes the continued adoption of higher-blended-ARPU-generating Rogers Share Everything plans.

Cable revenue increased marginally this year as the increase in Internet revenue, due to the general movement of our Internet customers to higher-end speed and usage tiers and a larger subscriber base for our Internet products was partially offset by Television subscriber losses over the past year.

Business Solutions revenue increased this year primarily as a result of the growth in on-net next generation services, including our data centre businesses, which more than offset the continued reduction in lower margin, off-net legacy revenue.

Media revenue increased marginally as a result of higher sports-related revenue driven by the strength of Sportsnet, increased sales at TSC, and higher conventional broadcast TV advertising revenue, partially offset by lower publishing-related revenue due to the strategic shift to digital media announced last year.

ADJUSTED OPERATING PROFIT

Wireless adjusted operating profit increased this year primarily as a result of the strong flow-through of service revenue growth as described above, partially offset by higher costs associated with increased subscriber volumes and costs of devices.

Cable adjusted operating profit increased this year as a result of higher revenue as described above and lower operating expenses.

Business Solutions adjusted operating profit increased this year as a result of revenue growth as described above and lower operating expenses.

Media adjusted operating profit decreased this year primarily as a result of higher Toronto Blue Jays player payroll (including the impact of foreign exchange) and higher TSC merchandise costs, partially offset by lower publishing costs due to the strategic shift and the increase in revenue as described above.

NET INCOME AND ADJUSTED NET INCOME

Net income increased this year primarily as a result of losses incurred last year related to the discontinuation of the development of our legacy IPTV product and the wind-down of shomi, higher adjusted operating profit, and lower depreciation and amortization expense, partially offset by higher income tax expense.

Adjusted net income increased this year as a result of higher adjusted operating profit and lower depreciation and amortization expense, partially offset by higher income tax expense.

 

WIRELESS

ROGERS IS CANADA’S LARGEST PROVIDER OF WIRELESS COMMUNICATIONS SERVICES

As at December 31, 2017, we had:

•

approximately 10.5 million subscribers; and

•

approximately 33% subscriber and revenue share of the Canadian wireless market.

WIRELESS FINANCIAL RESULTS

 

		Years ended December 31
(In millions of dollars, except margins)		2017				2016				% Chg
Revenue
Service revenue			7,775				7,258				7
Equipment revenue			568				658				(14	)
Revenue			8,343				7,916				5
Operating expenses
Cost of equipment 1			2,033				1,947				4
Other operating expenses			2,749				2,684				2
Operating expenses			4,782				4,631				3
Adjusted operating profit			3,561				3,285				8
Adjusted operating profit margin as a % of service revenue			45.8%				45.3%				0.5 pts
Capital expenditures			806				702				15

1	Includes the cost of equipment revenue and direct channel subsidies.

 

 

 

WIRELESS SUBSCRIBER RESULTS ¹

 

(In thousands, except churn, postpaid ARPA, and blended ARPU)		Years ended December 31
		2017				2016				Chg
Postpaid 2
Gross additions			1,599				1,521				78
Net additions			354				286				68
Total postpaid subscribers 2, 3			8,704				8,557				147
Churn (monthly)			1.20%				1.23%				(0.03 pts	)
ARPA (monthly)		$	124.75			$	117.37			$	7.38
Prepaid
Gross additions			782				761				21
Net additions			61				111				(50	)
Total prepaid subscribers 3			1,778				1,717				61
Churn (monthly)			3.48%				3.32%				0.16 pts
Blended ARPU (monthly) 2		$	62.31			$	60.42			$	1.89

 

1	Subscriber counts, subscriber churn, postpaid ARPA, and blended ARPU are key performance indicators. See “Key Performance Indicators”.

2

Effective October 1, 2017, and on a prospective basis, we reduced our Wireless postpaid subscriber base by 207,000 subscribers to remove a low-ARPU public services customer that is in the process of migrating to another service provider. We believe adjusting our base for a customer of this size that migrates off our network provides a more meaningful reflection of the underlying organic performance of our Wireless business.

3	As at end of period.

 

 

REVENUE

Our revenue depends on the size of our subscriber base, the revenue per user, the revenue from the sale of wireless devices, and other equipment revenue.

Service revenue

Service revenue includes revenue derived from voice and data services from:

•

postpaid and prepaid monthly fees;

•

data usage;

•

airtime;

•

long distance charges;

•

essential services charges;

•

inbound and outbound roaming charges; and

•

certain fees.

The 7% increase in service revenue this year was a result of:

•

larger postpaid and prepaid subscriber bases; and

•

higher blended ARPU, primarily as a result of the increased mix of subscribers on higher-rate plans from our various brands, which includes the customer-friendly Rogers Share Everything plans, and increased data usage. Our higher-rate plans typically generate higher ARPU, may allow users to pool and manage their data usage across multiple devices, and provide access to some of our other offerings, such as Roam Like Home, Fido Roam, Rogers NHL LIVE, Fido Data Bytes, and Spotify.

 

The 6% increase in postpaid ARPA was primarily a result of the continued adoption of Rogers Share Everything plans and the increasing number of lines per customer account. Customers on Share Everything plans have increasingly utilized the advantages of premium offerings and access their shareable plans with multiple devices on the same account.

 

 

The 3% increase in blended ARPU this year was primarily a result of increased service revenue as discussed above.

We believe the increases in gross and net additions to our postpaid subscriber base and the lower postpaid churn this year were results of our strategic focus on enhancing the customer experience by providing higher-value offerings, such as our Share Everything plans, improving our customer service, and continually increasing the quality of our network.

 

Equipment revenue

Equipment revenue (net of subsidies) includes revenue from sales to:

•

independent dealers, agents, and retailers; and

•

subscribers through fulfillment by Wireless’ customer service groups, websites, telesales, and corporate stores.

The 14% decrease in revenue from equipment revenue this year was a result of:

•

larger average investments in higher-blended-ARPU-generating customers who purchased devices under term contracts; and

•

a 3% decrease in device upgrades by existing subscribers; partially offset by

•

higher gross additions.

OPERATING EXPENSES

We assess operating expenses in two categories:

•

the cost of wireless devices and equipment; and

•

all other expenses involved in day-to-day operations, to service existing subscriber relationships, and to attract new subscribers.

The 4% increase in the cost of equipment this year was a result of:

•

a continued shift in the product mix of device sales towards higher-cost smartphones as we continue to invest in higher-blended-ARPU-generating customers; and

•

higher gross additions; partially offset by

•

the decrease in device upgrades by existing subscribers, as discussed above.

The 2% increase in other operating expenses this year was a result of:

•

higher service costs, as a result of our growing subscriber bases; and

•

higher commissions, as a result of our higher postpaid gross additions; partially offset by

•

various cost efficiencies and productivity initiatives.

ADJUSTED OPERATING PROFIT

The 8% increase in adjusted operating profit this year was a result of the strong flow-through of service revenue growth, partially offset by higher operating expenses, as discussed above.

 

 

 

CABLE

ONE OF CANADA’S LEADING PROVIDERS OF HIGH-SPEED INTERNET, CABLE TELEVISION, AND PHONE SERVICES

As at December 31, 2017, we had:

•

approximately 2.2 million high-speed Internet subscribers;

•

approximately 1.7 million Television subscribers –approximately 30% of Canadian cable television subscribers;

•

approximately 1.1 million Phone subscribers; and

•

a network passing approximately 4.3 million homes in Ontario, New Brunswick, and on the island of Newfoundland.

CABLE FINANCIAL RESULTS

 

		Years ended December 31
(In millions of dollars, except margins)		2017				2016				% Chg
Revenue
Internet			1,606				1,495				7
Television			1,501				1,562				(4	)
Phone			353				386				(9	)
Service revenue			3,460				3,443				–
Equipment revenue			6				6				–
Revenue			3,466				3,449				–
Operating expenses
Cost of equipment			2				3				(33	)
Other operating expenses			1,755				1,772				(1	)
Operating expenses			1,757				1,775				(1	)
Adjusted operating profit			1,709				1,674				2
Adjusted operating profit margin			49.3%				48.5%				0.8 pts
Capital expenditures			1,172				1,085				8

 

 

CABLE SUBSCRIBER RESULTS ¹

 

		Years ended December 31
(In thousands)		2017				2016				Chg
Internet
Net additions			85				97				(12	)
Total Internet subscribers 2			2,230				2,145				85
Television
Net losses			(80	)			(76	)			(4	)
Total Television subscribers 2			1,740				1,820				(80	)
Phone
Net additions			14				4				10
Total Phone subscribers 2			1,108				1,094				14
Cable homes passed 2			4,307				4,241				66
Total service units 3
Net additions			19				25				(6	)
Total service units 2			5,078				5,059				19

 

1	Subscriber count is a key performance indicator. See “Key Performance Indicators”.

2	As at end of period.

3	Includes Internet, Television, and Phone subscribers.

 

REVENUE

Internet revenue includes:

•

monthly subscription and additional use service revenue from residential, small business, and wholesale Internet access subscribers; and

•

modem rental fees.

Television revenue includes:

•

digital and analog cable services – comprised of:

•

basic cable service fees;

•

tier service fees;

•

access fees for use of channel capacity by third parties; and

•

premium and specialty service subscription fees, including pay-per-view service fees and video-on-demand service fees; and

•

rentals of digital cable set-top boxes.

 

Phone revenue includes revenue from residential and small business local telephony service from:

•

monthly service fees;

•

calling features, such as voicemail, call waiting, and caller ID; and

•

long distance calling.

The marginal increase in revenue this year was a result of:

•

general movement of customers to higher speed and usage tiers of our Ignite broadband Internet offerings; and

•

a larger Internet subscriber base; partially offset by

•

Television subscriber losses over the past year; and

•

lower wholesale revenue as a result of a CRTC decision that reduced wholesale Internet access service rates. Excluding the impact of the CRTC decision, Cable revenue would have increased by 1% this year.

Internet revenue

The 7% increase in Internet revenue this year was a result of:

•

general movement of customers to higher speed and usage tiers of our Ignite broadband Internet offerings;

•

a larger Internet subscriber base, with 54% of our residential Internet base on plans of 100 megabits per second or higher (2016 – 46%); and

•

the impact of changes in Internet service pricing; partially offset by

•

more promotional pricing provided to subscribers; and

•

lower wholesale revenue as a result of a CRTC decision that reduced wholesale Internet access service rates. Excluding this impact, Internet revenue would have increased by 9% this year.

 

 

Television revenue

The 4% decrease in Television revenue this year was a result of:

•

the decline in Television subscribers over the past year; partially offset by

•

the impact of Television service pricing changes, net of promotional pricing.

Phone revenue

The 9% decrease in Phone revenue this year was a result of the impact of pricing.

Equipment revenue

Equipment revenue includes revenue generated from the sale of digital cable set-top boxes and Internet modems. Equipment revenue this year was in line with 2016.

OPERATING EXPENSES

We assess Cable operating expenses in three categories:

•

the cost of programming;

•

the cost of equipment revenue (cable digital set-top boxes and Internet modem equipment); and

•

all other expenses involved in day-to-day operations, to service and retain existing subscriber relationships, and to attract new subscribers.

The 1% decrease in operating expenses this year was a result of:

•

various cost efficiency and productivity initiatives; and

•

relative shifts in product mix to higher-margin Internet from conventional Television broadcasting; partially offset by

•

higher costs related to increased revenue, as discussed above.

ADJUSTED OPERATING PROFIT

The 2% increase in adjusted operating profit this year was a result of the revenue and expense changes described above. Excluding the impact of the CRTC decision that reduced wholesale Internet access service rates, adjusted operating profit would have increased by 4% this year.