DBRS Upgrades Rogers Wireless to BB (high), Trend Remains Positive

Dominion Bond Rating Service (DBRS) has today upgraded the ratings of Rogers Wireless Inc. (Rogers Wireless or the Company) to BB (high) and BB, respectively, while maintaining the Positive trend. This rating change follows DBRS’s placing the Company on a Positive trend on May 16, 2006, given the expectation of improvements in both its business and financial risk profile. DBRS has also upgraded the ratings of Rogers Cable Inc. (Rogers Cable) and the parent of both companies, Rogers Communications,Inc. (RCI). (See separate press releases on both Rogers Cable and RCI.)

The upgrade reflects Rogers Wireless’ improvement in its business risk profile driven by improved EBITDA margins, good EBITDA growth and strong free cash flow generation. These factors are a result of (1) a reduction in churn levels (now below 2% per month on a blended basis) with improved coverage and service and as most new subscribers are signed up under multi-year contacts; (2) strong growth in ARPU with voice and data growth; and (3) a focus on adding high-value post-paid subscribers. Further supporting Rogers Wireless’ EBITDA margin improvement has been the completed integration of Microcell at the end of 2005, along with the majority of its subscribers now operating on its national GSM network. These factors have driven EBITDA margins to nearly 40% for the latest 12-month period, which has significantly closed the gap with its peers in Canada, who are among the leaders in EBITDA margins in North America. While the operating fundamentals in the Canadian wireless industry continue with three rational national players, the introduction of wireless number portability in early 2007 could further accelerate competition. However, DBRS notes that Rogers Wireless could potentially be a net benefactor of wireless number portability given its lower mix of business customers and its GSM platform (handsets, roaming, etc.)

Rogers Wireless has also improved its credit metrics as its improved free cash flow generation (over $400 million in the latest 12 months) has been directed toward reducing its debt levels, in addition to providing support to other businesses under RCI that continue to require financing. With both debt reduction and growth in EBITDA and cash flow from operations, Rogers Wireless’s credit metrics have improved since 2004, with gross debt-to-EBITDA nearly halving to 2.72 times and cash flow-to-debt improving to 0.23 times. Furthermore, DBRS expects Rogers Wireless EBITDA margins will be more in-line with its peers by the end of 2007, with margins in the low 40% range.

Finally, DBRS has maintained the Positive trend on Rogers Wireless’s ratings given the expectation that EBITDA growth will continue accompanied with a further improvement in EBITDA margins. The Company is expected to further improve its free cash flow levels in 2007 (to over $500 million expected on a fully taxed basis), which could be used to further reduce debt at Rogers Wireless and/or debt levels at other RCI operating companies. DBRS expects to continue to view Rogers Wireless’ credit profile in conjunction with that of Rogers Cable and RCI on a consolidated basis. RCI, on a whole, is expected to generate good levels of free cash flow (roughly $600 million expected in 2007), with Rogers Cable further reducing its free cash flow deficits.

Note:
All figures are in Canadian dollars unless otherwise noted.
This rating is based on public information.