MANAGEMENT’S DISCUSSION AND ANALYSIS Higher Cable Telephony Revenue and Growing Subscriber Base Lower Equipment Sales Discontinued Operations Higher Operating Expenses 20 1 3 2012 2011 1 , 1 53 1,074 1,052 29% 28% 28% (IN THOUSANDS) CABLE TELEPHONY SUBSCRIBERS AND CABLE TELEPHONY  PENETRATION OF HOMES PASSED %  (IN MILLIONS OF DOLLARS) CABLE ADJUSTED OPERATING PROFIT  AND CABLE ADJUSTED PROFIT MARGIN %  20 1 3 2012 2011 $ 1 ,7 18 $1,605 $1,549 49.4% 47.8% 4 6 .8% Higher Adjusted Operating Profit Adjusted operating profit was 7 % higher this year mainly the net result of higher service revenue, partially offset by higher operating expenses. The increase in the adjusted operating profit margin reflects a continued shift in product mix to the higher margin Internet and phone products combined with efficiency gains. This increased our adjusted operating profit margin to 49.4 % , compared to 47.8 % in 2012. Excluding the results of Mountain Cable which we acquired in the second quarter of 2013: In 2012, we closed our Video store operations, which offered DVD and video game rentals of equipment and sales in many of our corporate- owned retail locations. The results of the Video business were treated as discontinued operations for accounting and reporting purposes. See “Review of Consolidated Performance”. We assess Cable operating expenses in three categories: Equipment sales include revenues generated from the sale of digital cable set-top terminals and Internet modems. Lower equipment revenue this year compared to 2012 reflects the reduction of cable boxes sales versus rentals. Phone revenue was 4 % higher in 2013, compared to last year, the net result of: Overall operating expenses increased slightly this year compared to last year mainly due to: GLYPH<129> higher phone subscriber base GLYPH<129> partially offset by higher promotional pricing activity. GLYPH<129>5 4 % of our television subscribers, compared to 49 % last year GLYPH<129>2 9 % of the homes passed by our cable network, compared to 28 % last year. Phone subscribers grew 7 % in 2013, compared to last year and represent: GLYPH<129> the cost of programming GLYPH<129> all other expenses involved in day-to-day operations, to service existing subscriber relationships and attract new subscribers. GLYPH<129> operating expenses generated by Mountain Cable which we acquired earlier this year GLYPH<129> higher investments in customer care and network GLYPH<129> partially offset by savings from improvements in our cost structure and productivity and lower subscriber additions. GLYPH<129> revenue would have been 2 % higher this year compared to last year, instead of 3 % higher as reported GLYPH<129> adjusted operating profit would have been 5 % higher this year compared to last year, instead of 7 % higher as reported. GLYPH<129> the cost of equipment sales (cable digital set-top box and Internet modem equipment) 44 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT