Canadian Network Gets a Debt Rating Upgrade

Fitch Ratings has changed the Rating Outlook on Canada's Rogers Wireless from Negative to Stable. The Stable Outlook applies to RWI's senior secured debt rating of 'BBB-' and senior subordinated debt rating of 'BB'. This rating action affects approximately US$2.4 billion of debt.

The Stable Outlook reflects Fitch's view that favorable financial and operating trends will continue over the near future based on the positive momentum created from the solid operating results in 2002. With the expected increase in cash flow and the reduced capital spending in 2003, cash flow from operations less capex should improve by at least US$200 million over 2002 and potentially achieve a break-even result, absent any considerations from working capital changes. While the Canadian wireless industry is clearly price sensitive and competitive, the industry fundamentals in Canada are much more favorable than in the United States.

During 2002, RWI steadily executed on its strategic initiatives of improving the overall customer mix, growing ARPU in the existing customer base and retaining customers through improved customer relationship management. RWI significantly improved its ability to attract higher-valued postpaid customers in 2002 with 320,000 postpaid subscribers added compared with 198,000 in 2001. More importantly, these results reflect the shift away from lower-valued prepaid subscribers as the percentage of new postpaid subscribers to total (prepaid + postpaid) subscribers increased from 43% in 2001 to 88% in 2002.

Postpaid ARPU was relatively unchanged year-over-year with RWI gaining traction over the last two quarters with attracting a greater proportion of high-valued postpaid subscribers combined with select pricing increases. Postpaid churn improved to 1.98% in 2002 from 2.24% in 2001, although these totals are approximately .3%-.5% higher than either Telus or Bell Mobility. Higher churn levels result primarily from a higher mix of consumer customers. RWI has undergone several steps to improve churn performance through focused management of its subscriber base, enhanced customer service operations and improved levels of contract offers for new subscribers.

Remaining challenges for RWI include improving its customer mix, improving its distribution channel mix and continuing to execute on its strategic goals to reach positive FCF. RWI has a lower share of higher-valued corporate and business customers compared with its two main competitors, Telus and Bell Canada, due to their position as the incumbent local exchange provider. While RWI has made some inroads on increasing its business subscribers through new pricing initiatives, the mix change will be a slow process in the longer-term as the company develops the necessary distribution channel and support network to effectively target higher-valued business subscribers. Additionally, RWI will need to decrease its reliance on the higher-cost dealer distribution channel and shift volume to its lower-cost direct distribution channel, reflecting the opportunity to better manage the customer experience and reduce churn. RWI did make some strides in 2002 but will need to continue its efforts through several initiatives over the next few years."

Posted to the site on 16th April 2003