Mr. Guy Laurence reports

ROGERS COMMUNICATIONS REPORTS THIRD QUARTER 2014 RESULTS

Rogers Communications Inc. has released its unaudited consolidated financial and operating results for the third quarter ended Sept. 30, 2014.

Highlights:

• Continued to deliver healthy margins and operating cash flow;
• Completed companywide reorganization announced under the Rogers 3.0 plan to enhance customer experience and reaccelerate growth;
• Launched groundbreaking NHL video experience to Rogers customers;
• Announced exciting new shomi subscription video on-demand service.

"During the third quarter, we completed the customer-centric structural reorganization we announced in May under Rogers 3.0 and are now up and running. The business is gaining momentum with the recent unveiling of our awesome new NHL experiences and with the launch in the coming days of our shomi subscription video on-demand service," said Guy Laurence, president and chief executive officer of Rogers Communications. "While it will take time to fully execute on our multiyear plan, Q3 results are where we expected them to be. Wireless revenue and postpaid ARPU profiles improved again this quarter and we continue to generate strong margins and operating cash flow."

Financial highlights

Operating revenue:

• Consolidated revenue increased 1 per cent this quarter, reflecting revenue growth of 2 per cent year over year in Wireless and 3 per cent in Business Solutions, while revenue in Media was steady, and was partially offset by a decline of 1 per cent in Cable. Wireless revenue increased from higher equipment sales and moderate growth in service revenue. Cable revenue decreased as a result of television subscriber losses over the past year, partially offset by continued Internet revenue growth and the impact of pricing changes. Media revenue was stable as growth at Sportsnet, the Shopping Channel and the Toronto Blue Jays was offset by continued softness in conventional television and print advertising.
• Activated 614,000 wireless smart phones, of which 31 per cent were new subscribers, with higher-value smart phone customers growing to represent 77 per cent of Wireless postpaid subscribers.

Adjusted operating profit and net income:

• The 2-per-cent decrease in consolidated adjusted operating profit reflects decreases in Cable of 4 per cent year over year and in Media of 58 per cent, partially offset by an increase at Wireless of 1 per cent and Business Solutions of 10 per cent. Wireless experienced continued growth in the subscriber base and higher data revenues combined with lower operating costs. Cable results were impacted by a one-time cumulative CRTC fee adjustment and investments in NHL-related advertising. Media results were impacted by lower advertising revenues, investments in Toronto Blue Jays player salaries, programming costs, Next Issue Canada costs and the launch preparation for Rogers's NHL initiative.
• Consolidated adjusted operating profit margin was 40.3 per cent this quarter with margins at Wireless of 51.3 per cent and at Cable of 47.3 per cent.
• The reductions of 19 per cent in adjusted net income and 28 per cent in net income are mainly the result of the 2-per-cent decrease in adjusted operating profit and 12-per-cent increases in both depreciation and amortization and finance costs.

Maintained strong balance sheet and available liquidity:

• Generated $370-million of consolidated quarterly free cash flow, including cash provided by operating activities of $1,057-million;
• Approximately $2.7-billion of available liquidity at Sept. 30, 2014, including $104-million of cash, $2.5-billion available under the bank credit facility and $113-million available under the accounts receivable securitization program;
• Returned $235-million of cash to shareholders by paying out a quarterly cash dividend of 45.75 cents per share, which was 5 per cent greater than in the same period of 2013.

Strategic highlights

Overhaul the customer experience:

• Rogers completed a structural reorganization under the Rogers 3.0 plan to enhance service, accountability and agility by structuring teams around the company's customers and removing management layers to ensure that senior leadership is closer to front line employees and to customers;
• Launched Device Tune-Up, a free service available to all Rogers and Fido wireless customers in retail stores. The service provides easy, on-the-spot diagnostics and device support, including helping customers get their phones running faster, back up or restore their information, and fix their batteries;
• Announced Rogers Talks, a series of free events across Canada for small businesses in conjunction with Small Business Month (October). Experts in social media, marketing and sales were on hand to talk about how technology can help grow their business.

Focus on innovation and network leadership:

• PCMag for the second straight year in September, 2014, has recognized Rogers's LTE network as the fastest downstream mobile network in Canada and was recommended as the best network for streaming media, especially video. Rogers's cable network was also again recognized by PCMag as Canada's fastest broadband Internet service provider.
• Deployed recently acquired 700-megahertz spectrum in rural and urban communities in Ontario, British Columbia, Alberta, Quebec and New Brunswick, delivering the ultimate mobile video experience to Rogers customers.

Deliver compelling content everywhere:

• Launched Rogers NHL GameCentre Live with more than 1,000 regular season games available on smart phones, tablets and computers, and significantly enhanced features -- available free to Rogers wireless data and Internet customers until Dec. 31, 2014, and to all Canadians at retail pricing;
• Launched GamePlus, available exclusively to Rogers customers as an exciting new dimension of Rogers NHL GameCentre Live that brings unique camera angles, more interviews, and on-demand replays to tablets and smart phones. Customers can choose to watch from several camera feeds and can review the big plays from up to seven different angles;
• Sportsnet kicked off its 2014-2015 NHL national broadcast schedule on Oct. 8, 2014, setting a record for the most watched broadcast in network history, and was the No. 1 program of the night across the country with eight million Canadians tuned in to the three NHL games that were aired. Approximately 55,000 fans live streamed their favourite team using Rogers NHL GameCentre Live on-line at home or using their mobiles and tablets and experienced exclusive access to GamePlus camera angles and features for an incredible second screen viewing experience;
• Announced shomi, a new subscription video-on-demand service available on-line and through cable set-top boxes launching in early November, which ups the ante in entertainment with the latest shows, a significant selection of sequel library content, together with an easy-to-use interface and more personalized selections for customers. shomi is a joint venture equally owned by Rogers and Shaw Communications;
• Reached a three-year broadcast rights agreement with the Montreal Canadiens, becoming the official English-language regional television rights holder. When combined with Rogers's current national package of 40 Canadiens games, the NHL on Sportsnet will now deliver to fans all 82 Montreal Canadiens regular season games and playoffs;
• Announced a 10-year multiplatform agreement making Rogers the exclusive distributor of WWE's flagship programming in Canada.

Consolidated financial results

Operating revenue

Wireless network revenue was moderately higher this quarter and decreased on a year-to-date basis primarily because of pricing changes made that were associated with the company's customer-friendly simplified pricing plans and the introduction in 2013 of lower-priced roaming plans.

Cable operating revenue decreased this quarter and year to date primarily because of TV subscriber losses over the past year and a more competitive pricing environment, partially offset by Internet revenue growth and the impact of pricing changes across all product types.

Business Solutions operating revenue increased this quarter and year to date primarily because of continuing growth in on-net and next-generation services and increased revenue from the company's data centre businesses, partially offset by a reduction in low-margin, off-net legacy revenue. Media operating revenue was unchanged this quarter and increased year to date primarily because of revenue growth at Sportsnet, the Toronto Blue Jays and the Shopping Channel, offset by continued softness in conventional and print advertising.

Adjusted operating profit

Wireless adjusted operating profit increased this quarter and year to date primarily because of the network revenue changes described above and cost reductions, partially offset by higher volumes of subsidized smart phones.

Cable adjusted operating profit decreased this quarter and year to date primarily because of a one-time cumulative CRTC fee adjustment and investments in NHL-related advertising, in addition to revenue changes discussed above.

Media's adjusted operating profit decreased this quarter and year to date as the increase in Media's operating revenue was more than offset by investments in player salaries at the Toronto Blue Jays, increased programming costs, and ramp-up costs associated with the launch of Next Issue Canada and the NHL licensing agreement which became effective July 1, 2014.

Results of business segments

Wireless

                       WIRELESS SUBSCRIBER RESULTS (1, 2)
        (Subscriber statistics in thousands, except churn and ARPU)

                                       Three months            Nine months 
                                     ended Sept. 30,        ended Sept. 30,
                                     2014      2013          2014     2013
Postpaid
Gross additions                       336       359           941    1,052
Net additions                          17        64            57      194
Total postpaid subscribers          8,131     8,040         8,131    8,040
Churn (monthly)                     1.31%     1.23%         1.21%    1.21%
ARPU (monthly)                    $ 68.32   $ 68.77       $ 66.65  $ 68.22
Prepaid
Gross additions                       165       161           369      405
Net additions (losses)                 41        16          (63)    (133)
Total prepaid subscribers           1,366     1,458         1,366    1,458
Churn (monthly)                     3.12%     3.33%         3.53%    3.99% 
ARPU (monthly)                    $ 16.47   $ 16.84       $ 15.18  $ 15.70
Blended ARPU                      $ 60.96   $ 60.81       $ 59.23  $ 59.91

Notes:
1. Does not include subscribers from the wireless home phone product.
2. Average revenue per user, subscriber counts and subscriber churn are 
key performance indicators. 

Network revenue

Network revenue was moderately higher this quarter and decreased year to date as a result of:

• Higher data revenue related to an increase in postpaid subscriber levels and higher usage of wireless data services;
• Offset by the continued adoption of customer-friendly simplified pricing plans, which generally bundle in certain features such as voice mail, caller ID and domestic long-distance, for which Rogers has charged separately in the past;
• The introduction over the past year of lower-priced U.S. and international roaming pricing and plans which offer consumers more value.

Excluding the decline in roaming revenue, network revenue would have increased by 2 per cent this quarter and 1 per cent year to date. Postpaid ARPU would have increased by 1 per cent this quarter and would have been consistent year to date.

Postpaid churn increased eight basis points this quarter to 1.31 per cent, compared with 1.23 per cent in the same period last year due to competitive intensity and a heightened focus toward migrating customers to current price plans to optimize subscriber value.

Gross postpaid subscriber additions of 336,000 this quarter were 6 per cent lower, which, combined with churn, reduced net postpaid subscriber additions to 17,000.

Rogers activated and upgraded approximately 614,000 smart phones for new and existing subscribers this quarter, compared with approximately 574,000 in the same period last year. This 7-per-cent increase was primarily due to a 19-per-cent increase in hardware upgrades by existing subscribers this quarter which coincided with the recent launch of the iPhone 6, partially offset by the 6-per-cent reduction in postpaid gross additions.

The percentage of subscribers with smart phones this quarter was 77 per cent of the company's total postpaid subscriber base, compared with 73 per cent in the same period last year. Smart phone subscribers typically generate significantly higher ARPU and are less likely to churn than customers on less advanced devices.

With the evolution to simplified price plans, which include both voice and data, the delineation between voice and data revenues is increasingly made by allocation versus by direct assignment. Data revenue increased by 9 per cent this quarter and 10 per cent year to date primarily because of the continued penetration and growing use of smart phones, tablet devices and wireless laptops, which are increasing the use of e-mail, Internet access, social media, mobile video, text messaging and other wireless data services. Data revenue exceeded voice revenue and represented approximately 52 per cent of total network revenue this quarter, compared with approximately 48 per cent in the same period last year.

Equipment sales

Revenue from equipment sales increased by 23 per cent this quarter and 7 per cent year to date primarily because of a shift in the sales mix of smart phones sold at higher prices. In addition, there were higher existing subscriber upgrades, partially offset by the lower number of gross activations. During this quarter, Rogers activated 38 per cent more iPhones and customers choosing to upgrade wireless devices represented approximately 5 per cent of the postpaid subscriber base, compared with 4 per cent in the same period last year.

Operating expenses

The cost of equipment sales increased by 12 per cent this quarter primarily because of the shift in the mix toward higher priced smart phones as well as higher existing subscriber upgrades to new devices. Year-to-date cost of equipment sales decreased by 5 per cent as a result of fewer subscriber hardware upgrades and fewer gross activations, as described above.

Total customer retention spending (including subsidies on handset upgrades) increased to $219-million this quarter compared with $192-million in the same period last year as 19 per cent more existing subscribers upgraded their hardware in the current quarter. Year-to-date retention spending decreased to $640-million from $647-million last year as 3 per cent fewer existing subscribers upgraded their hardware.

Other operating expenses (excluding retention spending) decreased by 5 per cent this quarter and 2 per cent year to date as a result of improvements in cost management and efficiency gains.

Adjusted operating profit

Adjusted operating profit increased by 1 per cent this quarter and 2 per cent year to date as a result of:

• Continued growth of wireless data revenue and cost-efficiency gains;
• Partially offset by changes in volumes of hardware sales and upgrades;
• Pricing changes associated with the company's simplified plans and the introduction of lower-priced and higher-value roaming plans.

Cable

                             CABLE SUBSCRIBER RESULTS(1)
                                  (in thousands)

                                       Three months              Nine months 
                                     ended Sept. 30,          ended Sept. 30,
                                     2014      2013           2014      2013

Cable homes passed                  4,025     3,956          4,025     3,956
Television
Net (losses)                          (30)      (39)           (83)      (99)
Total television subscribers(2)     2,044     2,155          2,044     2,155
Internet
Net additions                          16        18             38        50
Total Internet subscribers(2)       1,999     1,948          1,999     1,948
Phone
Net (losses) additions                 (7)        3              4        37
Total phone subscribers(2)          1,157     1,148          1,157     1,148
Total service units(2, 3)
Net (losses)                          (21)      (18)           (41)      (12)
Total service units                 5,200     5,251          5,200     5,251

Notes:
1. Subscriber count is a key performance indicator. 
2. On May 1, 2013, Rogers acquired 40,000 television subscribers, 38,000 
digital cable households, 34,000 cable high-speed Internet subscribers and 
37,000 cable telephony lines from the acquisition of Mountain Cable. The 
acquisition also increased homes passed by 59,000.
3. Includes television, Internet and phone subscribers.

Operating revenue

Over all, Cable revenue decreased by 1 per cent this quarter and remained consistent year to date as a result of:

• Television subscriber losses over the past year and retention-related discounting;
• Partially offset by continued growth in subscribers to the company's Internet products combined with the impact of pricing changes implemented over the past year.

Year to date, operating revenue was also impacted by the May, 2013, acquisition of Mountain Cable.

Television revenue

Revenue from television decreased this quarter and year to date as a result of:

• The decline in television subscribers over the past year; and the impact of promotional and retention pricing activity associated with heightened pay TV competition;
• Partially offset by the impact of pricing changes implemented over the past year.

The digital cable subscriber base represented 87 per cent of Rogers's total television subscriber base at the end of the quarter, compared with 83 per cent at Sept. 30, 2013. The larger selection of digital content, video on-demand, HDTV and PVR equipment, combined with the continuing analog to digital conversion initiative, continue to contribute to the increasing penetration of the digital subscriber base as a percentage of the company's total television subscriber base.

Internet revenue

Internet revenue increased by 6 per cent this quarter and 8 per cent year to date as a result of:

• A larger Internet subscriber base;
• General movement to higher-end speed and usage tiers;
• Changes in Internet service pricing.

Phone revenue

Phone revenue decreased by 6 per cent this quarter and 3 per cent year to date as a result of:

• Increased promotional discount pricing activity for new subscribers on multiproduct bundles and competitive activity;
• Partially offset by a higher phone subscriber base and the impact of pricing changes.

Operating expenses

Operating expenses increased by 2 per cent this quarter and 3 per cent year to date as a result of:

• $5-million of one-time cumulative local program improvement fund adjustment relating to a CRTC ruling this quarter;
• Investments in NHL-related advertising;
• Partially offset by various cost-efficiency and productivity initiatives.

Additionally, year to date Cable results in 2013 benefited from an $8-million positive adjustment in the first quarter of that year to licence fees payable to match the CRTC's billing period.

Adjusted operating profit

Adjusted operating profit decreased by 4 per cent this quarter and 3 per cent year to date as a result of the revenue and expense changes discussed above.

Other Cable developments

In October, 2014, subsequent to the end of the third quarter, the company signed an agreement to acquire Source Cable Ltd., a cable, Internet and phone service provider with approximately 26,000 homes passed and 43,000 total service units situated in Hamilton, Ont., for approximately $160-million. The Source Cable subscriber footprint is situated adjacent to existing Rogers cable systems and should enable numerous synergies. This transaction is expected to close in the fourth quarter of 2014.

Business Solutions

Business Solutions continues to focus primarily on next-generation IP-based services, leveraging higher margin on-net and near-net service revenue opportunities, and using existing network facilities to expand offerings to the medium and large-sized enterprise, public sector and carrier wholesale markets. Business Solutions is also focused on data centre co-location, hosting, cloud and disaster recovery services. Next-generation services in this quarter represented 73 per cent of total service revenue. Revenue from the lower margin off-net legacy business generally includes local and long-distance voice services and legacy data services which often use facilities that are leased from other carriers rather than owned.

Operating revenue

Service revenue increased by 3 per cent this quarter and 6 per cent year to date as a result of:

• Growth from the acquisitions of Pivot Data Centres and Blackiron in October and April, 2013, respectively;
• Continuing execution of the company's plan to grow higher-margin on-net and next-generation IP-based services revenue;
• Partially offset by the continuing decline in the legacy off-net voice and data business. The company expects this trend to continue as it focuses the business on on-net opportunities and customers move to more advanced and cost-effective IP services.

Excluding the Pivot Data Centres acquisition, total services revenue this quarter would have decreased by 6 per cent and next-generation services revenue would have increased by 11 per cent. Equipment sales were unchanged this quarter and decreased year to date as the first quarter of 2013 included a non-recurring equipment sale.

Operating expenses

Operating expenses remained unchanged this quarter as a result of:

• Higher on-net and next-generation service costs associated with higher volumes;
• Incremental expenses related to the company's data centre acquisitions;
• Offset by lower legacy service costs related to planned lower volumes and customer levels, and continuing initiatives to improve costs and productivity.

In addition, operating expenses decreased by 1 per cent year to date as the comparative period included cost of sales associated with a non-recurring equipment sale.

Adjusted operating profit

Adjusted operating profit increased by 10 per cent this quarter and 14 per cent year to date as a result of the continued growth in higher-margin on-net and next-generation business, the contribution of acquired data centres, and productivity improvements.

Media

Operating revenue

Operating revenue remained unchanged this quarter and increased by 2 per cent year to date as a result of:

• Higher subscription revenue generated by the company's Sportsnet properties;
• Higher revenue associated with the Toronto Blue Jays;
• Higher sales at the Shopping Channel, and Next Issue Canada, which launched in late 2013;
• Offset by continued softness in conventional television and print advertising.

Operating expenses

Operating expenses increased by 8 per cent this quarter and year to date as a result of:

• Higher player salaries of approximately $10-million this quarter and $20-million year to date at the Toronto Blue Jays;
• Higher programming costs;
• Costs of approximately $6-million this quarter and $17-million year to date associated with the growth of Next Issue Canada;
• Ramp-up costs of approximately $6-million this quarter and $9-million year to date associated with the NHL licensing agreement which became effective July 1, 2014, in advance of the current NHL season.

Adjusted operating profit

Adjusted operating profit decreased this quarter and year to date, reflecting the revenue and expense changes described above.

Total property, plant and equipment additions this quarter and year to date was higher than in the same periods of 2013, as the company expected, reflecting a heightened focus on deploying the company's capital in a way that better spreads the work more manageably throughout the year.

Wireless

Wireless property, plant and equipment additions in 2014 reflect LTE capacity investments and site build activity to further enhance network coverage and quality. Rogers's continued deployment of the LTE network reached approximately 79 per cent of Canada's population at Sept. 30, 2014.

Cable

The changes in Cable property, plant and equipment additions on a quarterly basis are primarily due to the timing of undertaken initiatives. Investments year to date were made to improve the capacity of Rogers's Internet platform, improve the reliability and quality of the network, and continued development related to the next-generation IP based video service. Rogers also invested in customer equipment related to the continued rollout of the company's next-generation NextBox digital set-top boxes and for subscribers migrating from analog to digital.

Business Solutions

Business Solutions property, plant and equipment additions increased this quarter and year to date as a result of expanding customer networks and investments made by Blackiron and Pivot Data Centres, which the company acquired last year.

Media

Media property, plant and equipment additions increased this quarter and year to date as a result of investments made to company's IT infrastructure and NHL broadcast facilities.

Financial guidance

Rogers is reaffirming its 2014 annual consolidated guidance ranges for adjusted operating profit, additions to property, plant and equipment, and free cash flow that it provided on Feb. 12, 2014. At this point three-quarters through the year, Rogers believes that full-year actual results will likely fall toward the low end of the guidance ranges provided for adjusted operating profit and free cash flow, and which is dependent on fourth-quarter Wireless device volumes.

                                INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                 (In millions of dollars, except per share amounts)
                                                                          
                                             Three months ended Sept. 30,                  Nine months ended Sept. 30,
                                             2014                   2013                   2014                  2013

Operating revenue                      $    3,252             $    3,224             $    9,484            $    9,463
Operating costs                             1,949                  1,890                  5,723                 5,703
Restructuring, acquisition and other           91                     38                    130                    61
Depreciation and amortization                 533                    477                  1,584                 1,390
Finance costs                                 202                    180                    615                   546
Other expense (income)                         12                      3                     11                   (67)
                                       -----------            -----------            -----------           -----------
Income before income taxes                    465                    636                  1,421                 1,830
Income tax                                    133                    172                    377                   481
                                       -----------            -----------            -----------           -----------
Net income for the period              $      332             $      464             $    1,044            $    1,349
                                       ===========            ===========            ===========           ===========
Earnings per share
Basic                                  $     0.64             $     0.90             $     2.03            $     2.62
Diluted                                      0.64                   0.90                   1.97                  2.60

Quarterly investment community teleconference

The third-quarter 2014 results teleconference will be held on Oct. 23, 2014, at 8 a.m. Eastern Time. A webcast will be available on Rogers's website. A rebroadcast will be available on the company's website on the events and presentations page for at least two weeks following the teleconference. Additionally, investors should note that from time to time Rogers management presents at brokerage sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers's website and are placed there generally at least two days before the conference.

We seek Safe Harbor.