MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS RISKS Higher Handset S ubsidies National Wireless Tower Policy Revenue Expectations from New and Advanced S ervices Acquisitions, Divestitures or Investments Radio Frequency Emissions Inventory Obsolescence Obtaining Access to S upport S tructures and Municipal Rights of Way Complexity of Our Business Reliance on Third Party S ervice Providers Dependence on Facilities and S ervices of ILECs Dependence on Certain Key Infrastructure and Handset Vendors Copyright Tariffs 76 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT Pressures on copyright tariffs continue to affect our services. Any increase in fees could negatively affect our results of operations. If one of our network infrastructure suppliers fails, it could delay adding network capacity or new capabilities and services across the business. Handsets and network infrastructure suppliers can extend delivery times, raise prices and limit supply due to their own shortages and business requirements, among other things. If these suppliers do not develop handsets that satisfy customer demands, or deliver products Our wireless business has relationships with a relatively small number of essential network infrastructure and handset vendors. We do not have operational or financial control over them, and only have limited influence on how they conduct their business with us. Business telephony operations that are outside our cable territory highly depend on the availability of facilities and services acquired from incumbent telecom operators, according to CRTC rules. Changes to these rules could significantly affect the cost of operating these businesses. We have outsourcing arrangements with third parties to provide certain essential components of our business operations to our employees and customers, including payroll, certain facilities or property management functions, call centre support, certain installation and service technicians, certain information technology functions, and invoice printing. Interruptions in these services can adversely affect our ability to service our customers. The Supreme Court of Canada ruled in 2003, however, that the CRTC does not have the jurisdiction to establish the terms and conditions of accessing the poles of hydroelectric companies. As a result, we obtained access under orders from the Ontario Energy Board and the New Brunswick Public Utilities Board. We must have access to support structures and municipal rights of way for our cable facilities. We can apply to the CRTC to obtain a right of access under the Telecommunications Act in areas where we cannot secure access to municipal rights of way. Failure to obtain access could increase Cable costs and adversely affect our business. Our businesses, technologies, processes and systems are operationally complex and increasingly interconnected. If we do not execute properly, or if manmade or natural disasters impact them, customers may have a negative experience, resulting in increased churn and lower revenue. Our inventory balance mainly consists of wireless handset devices, which generally have relatively short product life cycles due to frequent wireless handset introductions. If we cannot effectively manage inventory levels based on product demand, this may increase the risk of inventory obsolescence. It is also possible that future regulatory actions may result in more restrictive standards on radio frequency emissions from low-powered devices like wireless handsets. We cannot predict the nature or extent of any restrictions. From time to time the media and other reports have highlighted alleged links between radio frequency emissions from wireless handsets and various health concerns, including cancer, and interference with various medical devices, including hearing aids and pacemakers. This may discourage the use of wireless handsets or expose us to potential litigation even though there are no definitive reports or studies stating that these health issues are directly attributable to radio frequency emissions. Services, technologies, key personnel or businesses of companies we acquire may not be effectively assimilated into our business or service offerings, or our alliances may not be successful. We also may not be able to successfully complete any divestitures on satisfactory terms, if at all. Divestitures may reduce our total revenues and net income by more than offset by the sales price. Acquiring complementary businesses and technologies, developing strategic alliances and divesting portions of our business are often required to optimally execute our business strategy. Certain types of antenna installations, however, are excluded from the consultation requirements with local authorities and the public. The policy affects all parties that plan to install or modify an antenna system, including PCS, cellular and broadcasting service providers. The policy requires, among other things, that antenna proponents consider using existing antenna structures before proposing new structures and those owners of existing systems respond to requests to share antenna systems. Antenna proponents must follow a defined process for notifying the public and addressing local requirements and concerns. We expect that a substantial portion of our future revenue growth may come from new and advanced services, and we continue to invest significant capital resources to develop our networks so we can offer these services. It is possible, however, that there may not be sufficient consumer demand, or that we may not anticipate or satisfy demand for certain products and services, or be able to offer or market these new products and services successfully to subscribers. If we do not attract subscribers to new products and services profitably or keep pace with changing consumer preferences, we could experience slower revenue growth and increased churn. This could have a materially adverse effect on our business, results of operations and financial condition. Our wireless business model is based substantially on subsidizing the cost of subscriber handsets, similar to other North American wireless carriers. This attracts customers and in exchange they commit to a term with us. We also commit to a minimum subsidy with the supplier of certain smartphone devices.