Rogers Communications Inc (RCI) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications and Rogers Wireless Communications fourth quarter 2002 year end earnings release conference call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. At that time if you have a question please press the 1 followed by the 4 on your telephone. As a reminder this conference is being recorded Friday, February 14th, 2003. I would now like to turn the conference over to Mr. Bruce Mann, Vice President Investor Relations, with Rogers Communications. Please go ahead sir.

Thank you very much, Shane and good morning everyone, we appreciate you joining us I'll start off by saying, we'll spend the first portion of the call discussing and taking questions around Rogers Wireless and then second portion around Rogers Communications, including cable media corporate et cetera.

I'm here in Toronto, it is a beautiful sunny Valentines Day. I've got Ted Rogers and Nadir Mohamed. In addition to Ted and Nadir we have John Gossling, the CFO at Wireless, Rob Bruce the marketing side, Bob Berner on the technology side and also with me is Alan Horne our Chief Financial Officer and Lorraine Daly our treasurer at RCI.

Just briefly, we put the full releases which are quite comprehensive out on both PR Newswire and First Call and for Rogers Communications and Rogers Wireless. If you don't have a copy, please have a chance to review them in the context of this call. They have cautionary safe harbor language that applies equally to the discussion this morning. We'll keep our comments brief so we can focus on your questions. As I said the releases are fairly lengthy. I'm not sure there is any additional information that we're going to go over as far as details that weren't included so with that let me turn it over to Ted Rogers. I'll just turn the call over to Mr. Rogers and then over to Nadir for brief comments. Go ahead Mr. Rogers.

Good day everyone and thank you for joining and for your interests in Rogers Communications and Rogers Wireless.

Rogers had a strong fourth quarter across all of our businesses. Solid performance to close out a great year. Revenue up more than 12%, operating profit up 26%. Closed the year with strong available liquidity of $2.2b dollars.

Rogers Wireless once again delivered impressive results across all of their key operating metrics. Putting out first class subscriber revenue churn and operating results. Wireless delivered the best year in the history of company and well over a $.5b of EBITDA. The workups of Nadir and his team is certainly reflective of this and recent quarters and I have tremendous confidence in the Wireless team to deliver another great performance in 2003.

Tony Viner and his team at Rogers Media delivered a exceptional performance in 2002 given the soft economy and advertising market. Cutting cost is never fun but the management at Rogers Media have my tremendous respect for the job they did in the course of 2002, leveraging their category leading brands and generating nearly $90m EBITDA in one of the toughest markets in many years. The work that Media has done during the past year with sports nets, the multicultural television stations, with our portfolio of top radio stations and with restructuring of our publishing combined to position Media for very good growth and operating leverage in 2003. I think you're seeing the beginnings of that this morning with media's operating profit guidance increase in our release.

In the fourth quarter cable continued its trend of solid sales performance driving good levels of high speed Internet and digital cable subscriber additions. As well as the addition of nearly 10,000 net new basic cable subscribers. Cable's off to a good start so far this year, and is well on track to deliver on their 2003 plan. I know that many of you are aware that last week, John Tory announced his intention to run for mayor of Toronto. I can't think of a better person to run Canada's largest city. Although we will miss his leadership and proven abilities and the tremendous contribution he has made throughout his work at cable and before that at Media he has the full support of us all. Over the next few months John will be working closely with the senior management team at Cable and myself to make sure we have an orderly transition and don't miss a beat. I have every confidence that we will have a terrific management team in place at Cable to take the company forward.

Last week we announced that Everett Rogers will be assuming the position of co-chief Executive Officer, and Dean McDonald will assume the Chief Operating Officer. These two leaders have both grown up in the cable business. They have tremendous operating experience both in Canada and the United States. And I think that as you have a chance to watch their progress, that over time, this confidence will be shared. Edward and Dean have a solid team under them to take the company forward, industry and company veterans like Bob Barker, Dermott O'Carroll, Tom Berry, Don Hough, Mike Lee, Mike Alan, Greg Granson(ph), Dave Purdy, Pam Dinsmore, Ken Marshal and many, many others.

At the consolidated corporate RCI level we are making good progress coordinating and integrating the use of assets across the whole of the Rogers' crew, so that all of the Rogers companies can leverage our strong collection of distribution channels. Can share common infrastructure like call centers, billing platforms and purchasing, as well in many cases our network assets as well. Things like the common call centers and the common bills and product bundles we introduced in 2002, as well as an intensified level of cross-promotion of products. So not only do each of the businesses have solid opportunities in their own rights, but an opportunity and a commitment to leverage the strengths of our unique set of very strategic assets across the Rogers group as well. It's a unique collection of assets. Each of our businesses are well positioned strategically and financially to continue our progress of this past year into 2003.

We're committed in 2003 at RCI to delivering double digit top line and EBITDA growth and with a corresponding 25% decline in capital spending. A powerful and deleveraging combination. We've got a solid funding and liquidity position. We've got terrific leadership teams with plenty of bench strength in all of our companies to continue driving the tremendous growth potential in front of them. Speaking of leadership I'd like to turn it over to Nadir Mohamed to talk about the results at Rogers Wireless.

Thank you Ted and good morning everyone.

In the fourth quarter, we remain focused on our core objective of profitable growth. Delivering our fifth consecutive quarter of double-digit year over year operating growth. 36% in the quarter, and 29% for the full year. Our release is relatively comprehensive so I'll just highlight a few key points.

In Q4, we were again successful in significantly shifting the mix of our loads towards higher revenue postpaid customers, even in a quarter that is traditionally heavily prepaid quarter for the industry. The Q4 post paid net loads of 123,000 represents a 66% increase over last year and contributed to the 12% year-over-year growth in our voice subscriber base.

On the top line, year over year network revenue growth of over 13% is our strongest quarterly performance in over two years, has led to a healthy 11.9% full-year increase over 2001. This was enabled by our higher postpaid mix throughout the year and the success we had in managing our customer base, as reflected in our stable postpaid ARPU and our reduced churn. In Q4, our churn dropped to 2.1% from 2.4% last year, and we finished the full year with churn down to 1.98%.

On the customer acquisition front, the blended cost of acquisition of $398 per gross add excluding retention costs reflected a couple of things that were particular to Q4 of this year. The very significant year-over-year shift in mix from prepaid to postpaid was clearly a key factor. But importantly and what may not be obvious on the surface of the results was the change in our mix of ready for you box product that is targeted at the holiday shopper. In Q4 2001, non-contract ready for you customers accounted for 20% of our postpaid loads. Whereas in Q4 of this year, only 5% of our loads were non-contract ready for you. We were clearly successful in going after higher value postpaid customers on term contracts. Of the postpaid subscribers we added in Q4, fully 90% of them were on contracts of at least 12 months versus approximately 70% in the fourth quarter of last year.

The COA numbers of Q4 of this year represents our decision to deliver a strong Q4 with the premium customer mix, versus the more traditional lower value holiday loads, and we think this will pay dividends in higher ARPU and lower churn as we go forward. On the Capex side we stated previously that our plan for the year was back end loaded. In fact, nearly half of those sites we built in the year were put in during the last quarter. This was reflected in the $188m spending this quarter. About half of the capital spending in Q4 was in response to success we had loading nearly half a million postpaid customers on our new GSM, GPRS network.

The combination of greatly expanded 850 hand set available and the extremely favorable network infrastructure deal we inked with Erickson also allowed up to accelerate our deployment of capacity of850. The 850 megahertz deployment will give us superior end building and rural coverage to our customers with favorable incremental cost to us. We're pleased with the GSM GPRS rollout and seen strong growth since we launched the network across the country in early 2002.

Our capital spend of $565m for the year is down 14% from 2001, and our guidance calls for Capex to be lower by 25% at $400m to $425m in 2003. Let me summarize then by saying that we go into 2003 well positioned and with a well defined game plan. The priorities I've outlined in the past for driving profitable growth through optimizing our customer mix, managing ARPU growth in our existing base, reducing churn and aggressively kick-starting SMS and data products remains unchanged. Our team is also firmly committed to the Capex reduction in 2003, through sharply focused network investment. And we expect to continue executing on our targets consistently as we go forward.

With that, I'll turn it back to you, Bruce.

Thanks Nadir and Ted. Operator we will be ready to take questions in just a second on Rogers Wireless. Before we do that I'll quickly remind people that we'll cover cable media and RCI corporate in the second portion of the call. So focus the questions in this first part on wireless that would be appreciated by everybody. Operator if you want to take a moment and explain how you want to do the polling for questions we're ready to go.

Thank you. If you would like to register a question press the 1 followed by the 4 on your telephone. You'll hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration please press the 1 followed by the 3. If you are using a speakerphone lift your hand set before entering your request.

One moment please for the first question. Our first question comes from David Lambert with TD Newcrest. Please proceed with your question.

Good morning. Despite your EBITDA margin improvement this year, if you look at a measure that encapsulates your churn and your COA, that being COA per net add, it went up from about $1,000 last year to about $1600 this year. Is there something that you can do to improve that measure in 2003, and if there is, can you tell us how you're going to do that? Thanks.

David, as far as the metrics that you referred to, I think you would need to break it apart into two. One is the COA and the other is the churn factor.

Look at churn, clearly, 2002 for us was a much better year. We made some progress. If you recall we were at 2.24% the year before. And you saw a consistent improvement throughout the year. Q4 was obviously better, 2.1 versus 2.4. So I think we're making inroads. We still have work to do to improve that and we think there's opportunities. But having said that, I think at least in the short term we've made is some great strides. There's no question when you look at the financials of any wireless company, churn is a big lever. And that's something we're constantly focused on.

As far as the cost of acquisition is concerned, one thing that you have to look at this year, and that is, the, you know, very strong strides we made in shifting the mix to postpaid. If you look at us, throughout the year we've been running over 60% net load increase year over year. So pretty dramatic. And when you do that and you see the way it's going to change because clearly COA for the higher value postpaid customers very different from prepaid. Which I can't let go by saying -- without saying that in fact even on prepaid we basically dropped the COA down to virtually nil, nil on subsidy and some marginal marketing in sales cost. So I think the mix has an impact but it's actually good quality subs and it's the kind of customer growth that we want. So going forward with that kind of mix it's about looking at all of the elements and seeing if we can get reduction.

So can I use my model then $1600 per net add, is that where you're --

Unfortunately, I'm not running your model nor do I know exactly how your model works. But I can only answer in terms of the metrics that we work with. And I think we'll probably move on and perhaps offline, we can certainly talk if you have any more specifics on definition of your metric.

Thanks.

Thank you.

Next question comes from Glen Campbell with Merrill Lynch. Please proceed.

Looking at your position in the market it seems to me you have got two opportunities that aren't available to your bigger competitors. One is to go after the wire line replacement market in an aggressive way and the second would be to go after more U.S. rooming business, perhaps the voice stream contracts or higher rates from the others. Could you comment as to whether you agree with that assessment and what actions if any you know you might be taking in that direction.

Sure, thanks, Glen. I'll try and answer both aspects of it. One in terms of wire line replacement, I think what you are already seeing in market is the fact that in many cases now, if you looked at how the penetration of second line no question would be going down. And I think large piece of that reason is based on people picking up wireless as opposed to a second line. So I think that will continue.

The other piece, if you look at segmented view of the market, there's no question that in the youth market, university students and so on, wireless is becoming the primary line. That's their life line. That's the one they use. That's the one they've grown up using. So I think in the short term those are the two markets. Over time, I think the more customers are used to the idea that that's their personal line, that's the choice media for communications for them, by definition, it means good things for wireless, and clearly if your phone company you need to think through that.

As far as the rooming is concerned, there's two aspects. One is the U.S. rooming that you talked about. The other one I want to highlight is international rooming. Now that we're fully deployed on GSM, GPRS, we've really started to see the fruit of that decision in terms of roaming revenues. We got our rooming agreement with AT&T Wireless and Cingular; they're building out their network so I see good news on rooming. In fact, it was one of the reasons for our margin improvement was roaming. But the other piece of international rooming. We are stating to see some revenue lift, roughly speaking and Bob can correct me from a technical perspective, to a large extent the way GSM rooming works, if a customer or an individual with a GSM shows up in Canada, his signal with would hone in on the strongest network signal that's received. And I do say we're feeling pretty good about that in terms of the ability to get international GSM roaming revenue.

Just to clarify are you taking any specific actions in terms of plan design to go after that wire line replacement market, heavily discounted LD and is there a near term opportunity that you see to kind of win maybe the voice stream contract or bump up rates of Cingular?

As far as specifically, I think the thing we have to be careful Glen, one of the things we're looking at is rational pricing and trying to get revenues up per customer. And the fact that we would not want to go down is actually putting out more minutes that we don't get revenue for. So the balance is trying to get that ARPU lift with the right kind of segment view but not get into a track where it is an extra bucket of minutes without incremental revenue. We're sensitive to that, having said that I think clearly if you do this right there's a great opportunity for us. As far as roaming, there are some plans, you know, really targeting more of the international, Rob you want to add anything?

Just building on Nadir's point, clearly, we're interested in winning a very significant share of that inbound international roamer. We have taken some definite actions that where people jump off our signal is the strongest, as well taken some other actions to expedite the ease of access back to people's voice mail at home in other countries, and build welcome messages so that they're warmly received by the Rogers AT&T network.

Thank you.

Our next question comes from Dvai Ghose with CIBC World Markets. Proceed with your question.

The market looks steady across the board with steady ARPUs, churn coming down, and very good EBITDA growth. It does look as though the potential risks are pricing and particularly MicroCell(ph) coming back recapitalized. How much is pricing erosion will be a factor in 2003 and if it remains steady like it has through end of 2002, do you believe you will be able to reach free cash positive or neutral towards the end evident year because your guidance is pointing to slightly negative I think.

Nicely worked in the second part of that question. Let me come back to pricing. I think you're absolutely right. When you look back on 2002, no question in my mind, and I've been in and out of wireless since 1984, '85, it has to be one of the most positive environments as far as the pricing stability is concerned.

The other interesting thing that's happened over the course of last year is frankly the three large players I think are working a very different pricing regime from MicroCell. We have not chosen to follow any of the MicroCell pricing strategies. We are committed to what we consider is sanity in the wireless business and that's stable pricing. We are looking for how can we get more revenue, whether it is through services, optimizing plans and so on. So I'm definitely committed to a discipline approach in market. And I think as long as the big three, are, you know, disciplined, we have a very good chance of having another great year in wireless in terms of pricing stability.

The last part of the free cash flow question, I think in the past we've talked about towards the end of 2004, and clearly, when you look at our guidance, in terms of Capex, and earnings for next year, we get close, but our view is free cash flow positive would be something we target for 2004.

Thank you, Nadir.

Our next question comes from Peter Rhamey with BMO Nesbitt Burns. Please proceed with your question.

Okay, two questions. Nadir, I was wondering if you could talk about your operating efficiency you have, $14.56 per customer, I was wondering, that is quite an improvement year on year. Can we look forward to further improvements on a going-forward year over year basis; are you under covering additional ways to drive that down? And an unrelated question but nonetheless I'd like to ask it is on AT&T, they are going -- that's AT&T Canada they have to change their name. And I just wanted to get clarification that your contract for your name brand, the use of the AT&T, is entirely separate as well. If you could discuss if there's any potential impacts on your brand position in the marketplace. Thank you.

I'll get John to answer the first part of your questions and then I'll cover the at that time.

On the OPEX improvement you saw in the quarter compared to last year's fourth quarter, you will also see in the release a $15m reduction in contribution expense year over year. That's driving approximately half of the reduction. Another quarter of the reduction is actually coming from our improvements in roaming cost and that's a blend of traffic patterns as well as rates. So there's another quarter left over which is basically operating efficiency. The fourth quarter we were quite slide in almost all of our areas of OPEX. So I think there are areas that we can improve certainly with the numbers continuing to ramp up on subscribers you'll see the metric continue to move in that direction. There is no big hitters like the $15m of contribution but certainly we are looking to ramp the efficiencies everywhere we can. We have made some good progress now that the billing has stable, that's helped quite a bit this year, we are seeing improvements in call centers and credit and collections. So yes, it's definitely a focus and we'll keep driving that.

No further improvements of roaming expected contractually next year?

Likely not as big as we saw this year. We are always working it day to day but the big improvements come from increasing the size of footprint of some of the big roaming operators we deal with and we got nice one time rate reductions this year that I don't think we will see quite as much in '03.

Thank you.

Second part of your question with respect to the AT&T Canada situation, just to be very clear, our brand agreement is with AT&T Corp. in the U.S. so the two are not related in that we continue with our brand agreement. Second, obviously our relationship is with AT&T Wireless and that's our strategic partner. That's who we're working with in terms of going to market now with joint solutions to customers requiring North American or global solutions. So right from the customer in to in fact looking to work with them on new products. That's the party that we have the strongest relationship with. And that will obviously continue.

And you have no obligations to roll out 3G as they do?

No obligations to roll out 3 G, did I get that right Peter?

They're obligated under their agreement with Dogomo(ph) to spend a few hundred million dollars. I assume that doesn't apply to you.

I assume you're referring to UMTS, no we have no such agreement.

Thank you very much.

John Grandy with Yorktown Securities. Go ahead.

I have a couple of questions. One relates to the prepaid revenues. They're down quite significantly and there doesn't seem to be a floor. Do you have strategies to try to boost prepaid revenues and do you have any guidance and do you have any guidance as to the prepaid ARPU will look like this year?

John, you probably noticed in Q3 we had a relatively strong ARPU, it definitely dropped up in Q4. We saw usage fall amongst our users. As we move into next year, we've just recently launched GSM prepaid, as well the inclusion of SMS on prepaid is one of the key things we think will continue to drive the attractiveness to youth. The one other thing I would remind people on the call is the way we treat our prepaid ARPU is we show it on a net basis, where others show it on a gross basis. So again, you can add about 15% to our number to make it comparable to our competitors.

That's helpful thanks. Could I have another very big questions. It relates to MicroCell's GSM customers. Let's assume you had a large number of MicroCell's customers wanting to mover to your network. How much would it cost to transition them to technically get their cell phones to work in your network or do you have to give them new cell phones entirely?

That is a hype hypothetical question that would lead to all kinds of speck lake speculation so I'm not going to answer that. I will go back to your first question to add one piece of color around it. I think it's important. We had issued our guidance earlier in terms of customer net additions for next year and one of the things that we talked about a lot on this call was the mix of postpaid prepaid. Our view in 2003 would be that, we would see continued focus on postpaid, but I do think the reference that Rob made to GSM prepaid and the notion of and the idea that we have where we can see in the next few quarters, actually, getting some hand sets at a lower price that can actually get deeper into that prepaid base, that we might be able to see a little bit of a lift in terms of penetration of prepaid that would shore up that these of piece of the business a little bit in 2003.

The other thing that's exciting and Nadir mentioned it earlier, there is a commitment on our side not to subsidize prepaid phones opening up the universe of GSM phones on prepaid gives us an access of much bigger pool of less expensive phones. So we may be able to hit a more favorable price point and at this still be unsubsidized. This is very much a pool product. To be able to hit those price points like $99 is instrumental in bringing those loads on and getting the incremental revenue that prepaid provides.

Thank you.

Our next question comes from Richard Talbot of RBC. Please proceed.

Thanks very much. Nadir, when you think about churn it is coming down, no question, but still higher than the two biggest competitors. Wonder if you could comment on tradeoff of increasing the cost of retaining customers in return for getting a lower driven down churn rate? Thanks.

Richard, no question, our churn rate, 2.2%, and best in class is 1.5 depending on the quarter range. So I think there's a couple of pieces of this. One is in the short term, continue to do things that we've started with and really built on this year, which is to really have a better relationship with our customer right from point of sale through the customer service experience. And then the back end, if you will, looking at programs like hardware upgrade and other factors that do tend to have a relationship with spin if not churn. So we'll continue to dig away at that and look for improvement.

The other piece of it is really around customer mix. One of the things that highlighted last year was our drive to getting more of the business customer. No question, business customers give us much higher ARPU but the other piece is much better churn profile. So I think over the next 12, 24 months that we'll make more inroads in the business market, you will see that reflected in churn improvement as well. So I think that's where the big lever is beyond the day-to-day improving, you know, all the touch points around customers. The last piece I'll add, it's sort of an NOA perverse thing but I think you know when you look back on 2002, one of the things that the three large players did was to go to permanent pricing. And if you recall, Tellus(ph) led with that. I think an initiative has an impact which is obvious, raising revenues. Flip side of it is you start seeing an improvement in churn. What you end up doing is really rewarding your existing customer base and it serves as a bit of a retention tool. So the more the up front pricing environment stabilizes the better churn will be.

Just as a follow-on can you comment on roughly what percentage of your base would be on contracts at this point?

Richard, it's Rob Bruce again. About 60%, although in quarter we added more than 90% of our postpaid customers were on contract. While it's 60% today we look to increase that on an ongoing basis.

Thank you.

Sorry, 60% of our postpaid base, and 90% in the quarter.

We have time for a last question which comes from Robert Goff with Credit Suisse First Boston. Please proceed with your question.

Thank you very much. When you look in your postpaid category would you see a significant shift towards the business user within 02, and in '03, could you give us an assessment of the business versus consumer mix for postpaid?

Obviously we haven't given share numbers with respect to different segments but I can tell you that whereas we had, you know, if you look at the quarter by quarter, it wasn't until sort of mid to second quarter that we started getting some traction and had some positive momentum on the business market. For the most part that's continued. The reason I say for the most part is the back end of Q4 tends to be a gift giving period. So realistically you sort of know that that was more of a consumer quarter. But I'm definitely encouraged, we're starting to make good inroads both in terms of capabilities as well as starting to see success in market. And I think it's one of those journeys where we continue to go at after these couple of years. The big factor that has helped us is strength in data side. If you look at products and services that we've launched on the consumer end you've got the SMS ring tunes and picture phones.

But on the business side between Rim, Treo and some of these products, we have a bit of an edge. The announcement we made just recently with Microsoft I think it is a big part of next year. One of the things you spend time with business customers, you realize that something that is just striking, and that is the penetration of people that have Microsoft Office as their software operating system of choice is huge. And the ability of taking that and extending that to a wireless PDA , I think is about taking wireless mainstream. To me that is a big part of what will be next year's core offering and will help us on the business market.

Great, thank you.

Thank you. Operator?

Yes, sir.

It's Bruce Mann here. What we'll do is shift people around in the room really quickly, go on mute and come back and introduce who we've got it from cable and Media and RCI and jump into questions for the second half. Just a moment. Thank you.

You may proceed.

Thank you very much. We've got with us today most of the senior management from Cable and Media and also some of the folks from Roger Communications. What we'll do is focus the second half of the call on Cable, Media, RCI corporate in general.

And in that direction with me today in addition to Alan and Lorraine are John Tory, Edward Rogers, co CEOs of Rogers Cable, Don Huff, Cable's VP of Finance, Mike Lee who is Cable's VP of marketing and products, as well as Tony Viner and Laura Nixon, CEO and CFO of Rogers Media. Tony has joined us on the phone. And then Greg Henderson our corporate controller. So with that I think we're ready just to dive into the second half of the call and take whatever questions you might have on those group of companies. The release is fairly extensive so we won't take your time and run through the details of it.

Ladies and gentlemen if you have questions at this time press the 1 followed by 4.

Our first question comes from Benjamin Swinburne with Morgan Stanley. Go ahead.

Thank you for the disclosure on the Capex by the way. On your '03 guidance for cable spending, reduction of $100m, $150m. If you look at the buckets, rebuild and upgrade doesn't go to zero at some point, scalable infrastructure, you've got spending as you continue to grow the business but what is a realistic recurring Capex number down the road as data digital slows down?

John speaking. We've said I think fairly consistently low 300s is the kind of number so I think nothing has changed there.

Okay. And on the basis of subscriber front, I think you've got it to negative 1% for '03.

That was a nice segue into an entire different set of questions. Congratulations.

Look, our objective for this year is the same as it was last year, to hang on to every basic customer that we can and we've given the guidance that we've given, the results of the fourth quarter are heartening and indeed into this year things are going very well.

Thank you very much.

Our next question comes from Tim Casey with BMO Nesbitt Burns. Please proceed with your question.

Thanks. I wanted to follow up on comments Mr. Rogers made at the beginning of the call with respect to media. And Tony, can you walk us through what the strategic plan is to really drive profitability at Sportsnet, because you -- clearly it's not coming through in the margins yet and based on the guidance it sounds like it's improving but not going to be normalize. When do you expect to see Sportsnet throwing off a more industry average margin and related to that the Capex seemed a bit high at $40m this year. What's a more normalized, so we can determine where the free cash flow out of Media is going?

Thanks Tim. To put this in context Sportsnet was launched in late October 1998. So it's not still in its infancy as a cable channel, and still very much we believe in its growth phase. Just as a reminder, Sportsnet is sort of one of the two national sports events channels. And the only one licensed to provide regional feeds to different parts of Canada, not unlike Fox regional sports channels, Fox is a 20% investor or owner than of Sportsnet.

Since we've assumed over the last couple of years the ownership of Sportsnet, we signed a bunch of regional deals. Canucks, Oilers, Flames, Leafs, Senators, Raptors, so forth. And our audience has grown and obviously so have two of our revenues, our revenues have grown by about 30%, our advertising revenues, over the past two years. But we all know that the business model for cable channels relies more heavily on subscriber fees. And our deals with the distributors expire in August of '03. And that will really be the first opportunity that we have to renegotiate the distribution deals. Now, to put this in context, in many parts of the country, we are at the same level or exceed the level of TSN in terms of audience delivery. TSN, we believe TSN wholesale rate on the tier is about $1.45 and ours is around $1.02. So you know, you can speculate as to the increase that we might be looking for. But we believe it will be substantial. And we believe it's reflective of the kind of audience delivery that we've had, and the investment that we've made in those regional sports contracts. So the full impact of that won't be felt until '04. But that's when you can begin to see I think the tremendous value that we will create at Sportsnet when our margins begin to approach those that you would, that you would expect from a service such as this.

And on the Capex side, Tony?

Capex was unusually large this year because we built a -- a number of issues, really. Omni was -- there was about $9m for Omni. We expanded our facilities at the shopping channel. You know, I think that you've found -- that our, you know, our normal levels are substantially below that. We still have to face the relocation of our publishing group, and the eventual move of Sportsnet out where it currently resides in the nest of CTV. But ultimately, you know, you can expect that our Capex, depending on the negotiations, but should level out sort of in '04 or '05 to be, you know, $5m to $10m as it normally is.

Thank you.

Our next question comes from Paul Pew with Griffiths McBurney. Please proceed with your questions.

Strategic questions if I could. At the RCI Level, could you put into priority a couple of things with regard to what you're driving towards, one I guess free cash flow, where does that rank in your priorities. The second, where does re-obtaining the investment grade ratings on your debt rank, and the third, where would growth through acquisition rank?

I'll start off on that. In times of free cash flow, free cash flow is obviously up there as one of our top priorities. I think it's -- that fact is reflected in the fact that both cable, management team and wireless management team, cash flow fairly significant component of short term incentive side bonuses. We understand the environment that we're working in and I think we have the programs, the Capex programs that we've set out in our guidance that people know about in terms of finishing the 750, 760, the fiber rebuilt in cable which should be substantially if not fully complete this year, so we're falling through on that, on that program, once we're through that, then you know we can see Capex is not falling off significantly at Cable and also at Wireless. So free cash flow somewhere up there is one of the key priorities.

And in terms of obviously that feeds into the second part which is the investment grade aspect of it. I think maintenance of our BS or attendance to our BS is also a key component of our strategy and it's reflected in our focus on free cash flow, as I had indicated, free cash flow together with increasing operating income performance as a powerful leveraging tool and that's what we're focused on.

And on the third one, in terms of acquisitions, acquisitions I think will, you know, there is nothing on the plate at present or in the horizon at present, clearly in the past we've been opportunistic on that. I think as was shown in the past, and you know, the situation a couple of years ago, is the case in point, the acquisitions are done with our BS in mind as well. So that in terms of leveraging up the BS to make an acquisition, I don't think that's on the cards at present.

And if I could just go back to the free cash flow for a second, and you mentioned that there is a component of compensation tied is a that. Could you just give us a sense for what percentage of compensation is senior management being geared to deliver on free cash flow objectives?

I think that's probably getting into too much granularity but that will be a component of short term incentive.

Thank you.

Next question comes from John Grandy with Yorktown securities. Please proceed with your question.

Thank you very much. I'd like to talk a little bit about, you just said you're not looking at any acquisitions. But are there any other strategic moves that you might consider are, are there any assets that are not required for your business or any lines of activity you're involved in right now that you might consider divesting in order to as you just said strengthen the BS somewhat?

John, I think in terms of the assets that we have, we're very -- the companies that we're involved in we're clearly very comfortable with those. All the companies are performing well. All the companies are going in the right direction in terms of growth, in terms of going towards free cash flow. I think there are in some areas within the group that we can sort of -- we can improve upon. Clearly. And those are the ones that we're going to focus on. But in terms of the assets that we currently have, our intention is to manage these assets and to improve the performance on it.

One as set Alan is the Blue Jays. I have seen that you have given new guidance for significantly reduced loss this year. Where you expect revenue to come from, whether it's revenue driven, cost driven or exchange rate driven?

The last time I spoke on the Blue Jays I should be careful what I say. But I should say from a finance performance you will see year over year improvements both in terms of the losses and also in terms of the funding requirement. That is a -- that's come I think from a focus from both Paul [inaudible] and in terms of the business model that makes sense for you know for the Blue Jays. I think we are encouraged by the stats that Paul and JP have taken. I think the performance of the team in the back end of the year was very encouraging and clearly the performance, the on field performance is a big driver of revenue both in terms of attendance and broadcast revenues. We're headed in the right direction and we've got a team in place there that we would think are making the right moves as well.

Thank you.

Our next question comes from Richard Talbot of RBC. Please procedure question.

Versus the last 12 months we have seen the shift in the way pricing for satellite and cable services has been done. I wonder if you could comment on what further opportunity you see out there for pricing increases. Thanks.

Well, I think we -- you know, you'll look at the fact that we took fairly significant rate increases out of most of the base last year, when we got deregulated. And I think we're heartened by the fact that there is greater pricing discipline that's setting into the satellite world. But I think our plans for this year looked to continue with our work to sort of make the rates sort of homogeneous across the areas so we could move to a standardized basic rate. But other than the increase we have announced to the new light customers to $29.95, we don't have any other plans at this time to look at significant changes in pricing.

Okay. John, if I could also ask you, there has been a comment earlier in the quarter I guess from another company about relatively limited VOD content, that is one potential driver for ARPU going forward. Are you feeling the same way in terms of being constrained by the amount of content that's out there and that people are essentially capping out in terms of their buy rates or do you have a different view?

I'll ask Mike Lee to answer that question.

So we ended up -- we have moved to disclose this for the [inaudible] represent the 30% of Hollywood output and from buy rate perspective we had initially thought that would be -- have significant impact on buy rates on our [inaudible]. But we ended up the year at two and a half buys per user and January is rounding out to 3.4 buy rates per user. We are continuing to see increasing buy rates [inaudible]. We are negotiating with the studios and expect to actually conclude a couple of deals in the upcoming period.

Any sense as to how many titles you would be going from and what your target would be?

It's difficult to say because it is all really measured against the amount of library content you actually acquire from each of these studios, so from studio to studio perspective you're probably speaking between one to two major releases on a month to month basis. In terms of new Hollywood output it isn't a significant amount. But somewhere in the range of 15 to 25 library titles rotating on a regular basis, it contributes probably in the range of 50 to 60 titles to the overall base.

Okay, thank you.

Next question comes from Glen Campbell of Merrill Lynch. Please proceed.

Thank thanks very much. I wanted to talk about the economics of the Internet service. When the at-home relationship ended you moved over your backbone supply to the lease services. I'm wondering, are you still able to take costs out there? I know that all had to be done in quite a hurry, or are we now at a situation where costs are just fairly steady state and we shouldn't expect significant further reductions?

I think the answer to your question is yes. And there were bigger opportunities obviously that presented ourselves when we were which we were able to sign our own details with respect to transport costs and the guidance we gave to you was met and in fact exceeded. Obviously there are opportunities going forward to continue to do that work, private arrangements other things can help us to continue to bring those costs down but I think the degree of reduction will not be as significant as we experienced last year. And I think the other thing that really happened last year I think there was almost as significant was the decrease, we began to see in our operating costs in the latter part of the year just because the network was operating better and it meant significant reductions in churn, call center costs, so on which are really almost as significant as the cost reductions we had in disaffiliation AtHome in terms of what they used to do for us.

Could you give us a sense of what heads count may be at cable at the end of '03 as opposed to '02?

We planned on being the same, maybe a tiny increase, non-measurable, customer activity driven, headcount increase so if we needed a few more people in the call centers in order to handle increased numbers of calls from Internet or digital customers but we are looking at holding the line following the decreases we took. The other place where in our total headcount you see some increases as we open new video stores and change over to these Rogers plus stores which have more sophisticated salespeople in them. But in the core business it is relatively flat.

Good luck in the election. Thanks.

Robert Goff of Credit Suisse First Boston. Go ahead.

Question on VOD? Could you address your availability or our schedule for availability to VOD and then on the high speed could you address your attack on the Smead(ph) high speed data?

I'll take the VOD question. Right now we are available in the central Toronto market which represents 570,000 households. We had set financial and technical performance measures that we need to surpass to continue deployment and we've exceeded that on both fronts quite handily. We are going to continue to deploy and probably end up approximately 60% of the network by the end of this year. For competitive reasons we are not releasing where we're going to make the expansion but it will be 60% of the network.

Thank you.

I guess on the business internet question, suffice it to say we tripled the number of customers we had over the past year and we are substantially incursions into that this year. We got the management, you know, I think organized, we sort of you know really focused in on attacking the markets where there was cable service present in the buildings and so on and we've had quite a bit of success with the telecommuter products, selling it to large companies who can hook their employees up via high speed network to their office as it were. So I think we're very heartened at the progress we made this year after a rocky start.

Could they represent as much as 20% of net adds for the year?

No, they won't but it will not be an insignificant contributor to the overall Internet business.

John Henderson with Scotia Capital Markets.

Two part question, one is on the margin expansion this quarter in your core cable was a nice turn around from previous quarters where it had been down year-over-year in each of the prior three quarters and just wondering if you could give some of the core reasons for the nice turn around there. And then secondly, I just wondered if Edward could make a comment on what his priorities for the year ahead would be, in terms of focus of attention.

I think as we -- we had said at the beginning I'll deal with the first part and Edward will handle the second. I think we said at the beginning of the first quarter we would see some improvements on a number of factors. Obviously the impact of the second [inaudible] of rate increases coming in October, the cost savings measures across the board that we put in, some reduction that we saw in the customer support costs per -- across the board and per revenue generating unit. So I think that all of these things obviously the rate increases are still there as we enter the new year, and still producing additional revenues for us. The cost saving measures are still in place and we're continuing to work perhaps most importantly again at optimizing the performance of our network so that we can drive down customer support costs, truck rolls and so forth and we're continuing to have success with that. That is really the key to containing our cost of is to contain these activity driven costs we have in call centers and technical support and we're working hard to continue to do that.

So John, would you say this is fair to assume this is the beginning of a margin improvement drive that will continue for a few more quarters and that will settle out a little later in the year?

We're obviously doing everything we can to improve margins over the course of the year. We said that we were going to stabilize them in the fourth quarter of last year; we actually did a bit better than that. We are now going to have to work away at you know making sure we show you consistent performance that hopefully improves margins as best we can and as quickly as we can.

Great.

John, thank you. In 2003, we're going to work hard to execute on the plan that we've given, to hit the targets that we've put, that we put forward of which Cable's got a good track record of doing over the last few years. I think we're going to concentrate on growth, on continuing to bring in the customers and winning our share of net adds on the high speed Internet side, to concentrate on the quality of customer that we're bringing in on the Internet, try to maximize the percentage of customers that are on high speed plans and up. We'll be launching the pro product later in the year, on the digital side, concentrating on obviously getting more customers using our digital service but also in the parallel concentrating the average revenues on the customers that we have and every month we're concentrating on selling more services to each one of those customers in a parallel path to getting new customers. I think we're doing a good job and going to concentrate on the network platforms that we have. To make sure that our products and services work for our customers. We saw a great improvement in 2002, especially on the Internet side. But we're going to continue to work there as well. We're going to continue the improvements in the costs and margin. We're going to finish off the rebuild that we have and concentrate on a stronger financial picture for Rogers cable. It will include free cash flow and financial picture and hopefully not too long improving and bringing back our credit rating. So I'd say, I mean, over all hitting the plan that we have for 2003 we're always looking to do better.

Thanks very much.

Our final question for today comes from Tim Newington with Goldman Sachs. Please proceed with your question.

Thanks very much. Just very quick accounting question. Working capital at the RCI level there was pretty significant swing quarter over quarter and if you also look at the numbers 2002 versus 2001, just a significant swing there. I was just wondering what kind of made up that swing, and you know, is that going to turn back in early 2003?

I think Tim, just a couple of things. In the RCI figures some non-cash items in the accounts payable and accrued liabilities related to the AT&T investment I would say one of the changes there in terms of the working capital it's an area that you know, as a group of companies we've spent a lot of time focusing on, you know, clearly the -- some of the accounts payable and accrued liabilities of the year reflect the capital programs that were there at the -- in Q4. And as those capital programs decline as we go into '03 and '04 you'll see accounts payable starting to decline as well. You can rest assured that the company will continue to progress on working capital management. It's one of our key metrics.

There's not going to be a big swing the opposite way of Q1 or Q2 of 2003?

There will be swings, the fact of buildup for accounts payable for Capex.

Thank you.

Operator?

Yes, sir.

First, thanks very much for conducting the call. It he went well. Everyone on the call, the management teams of all the Rogers companies thank you for participating and we appreciate your ownership and participation. The number is on the release we put out on January 15th for the replay. It should be loaded on our Website as well, the web cast. We want to thank you very much for joining us. This concludes our call and remember to get something nice for your spouse for Valentine's Day. Thank you very much.

That concludes the conference call today. We Thank you for participating and ask you to please disconnect your lines.