TELUS Reports Second Quarter 2011 Results

Growth of six per cent in revenue, five per cent in EPS and 20 per cent in free cash flow
Accelerating smartphone adoption and Optik TV sales drive up data revenue

VANCOUVER, Aug. 5, 2011 /PRNewswire/ - TELUS Corporation reported second quarter 2011 revenue of $2.55 billion, an increase of 6.4 per cent over the same period last year. This increase was generated by nearly 10 per cent growth in wireless revenue and three per cent growth in wireline revenue, both driven by strong data growth.

The company added 94,000 new wireless subscribers in the quarter. Smartphone adoption continued to accelerate causing wireless data revenue to surge by 49 per cent, which more than offset declining voice revenues, resulting in wireless average revenue per unit (ARPU) growth of 2.5 per cent. This is the third consecutive quarter of year-over-year ARPU growth. In the wireline segment, the company added 46,000 TV customers to surpass the 400,000 subscriber milestone. Combined with 13,000 new high-speed Internet subscribers this performance helped generate wireline data revenue growth of 14 per cent.

Consolidated second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of $950 million increased by almost three per cent due to revenue growth, offset in part by higher costs to acquire and retain wireless customers and to support Optik TV growth.

Aided by reduced financing costs, reported net income and earnings per share (EPS) for the second quarter were $324 million and $0.99, representing year-over-year increases of 7.3 and 5.3 per cent, respectively. Reported net income and EPS included positive income tax-related adjustments of $11 million or three cents per share in the current quarter and $10 million or three cents per share in the same period a year ago.

Free cash flow this quarter increased by 20 per cent to $286 million, primarily due to lower interest payments, lower contributions to defined benefit pension plans, and higher EBITDA, partially offset by higher capital expenditures.

FINANCIAL HIGHLIGHTS

Darren Entwistle, TELUS President and CEO said, "TELUS' strong second quarter results were clearly evidenced by the healthy operating metrics we generated across our broadband wireless and wireline businesses. Robust wireless postpaid customer additions of 92,000 reflected a record level of smartphone sales. Notably, TELUS' smartphone penetration within our postpaid base is at 42 per cent and growing, driving wireless data revenue growth of 49 per cent and higher average revenue per client, coupled with superior loyalty and retention."

Mr. Entwistle added, "Similarly, TELUS' broadband wireline business exhibited continued strong operational performance with data revenue expanding by 14 per cent this quarter. This growth is supported by solid TELUS TV and high speed Internet customer additions of 59,000 on a combined basis, up 84 per cent year over year.  Importantly, TELUS' TV client base surpassed 400,000 customers this quarter while our voice business yielded the lowest level of consumer line losses in five years."

Mr. Entwistle noted, "Net income growth of seven per cent and free cash flow growth of 20 per cent this quarter support our declaration of a 55 cent quarterly dividend. This is 10 per cent higher than the dividend a year ago and is consistent with TELUS' dividend growth model. Our strategy for the past 11 years of focusing on data and wireless growth continues to position TELUS favourably as is clearly evident in these latest results and updated 2011 annual guidance issued today."

Robert McFarlane, TELUS Executive Vice-President and CFO, said, "Over an 18 month period, TELUS successfully completed three debt issues totalling $2.6 billion repaying U.S. dollar debt due in June 2011 that carried an effective interest rate of 8.5 per cent . With the new long term debt issues having interest rates of 5.05 per cent and most recently in May at 3.65 per cent, and with even lower rates on commercial paper, TELUS is expected to continue to benefit from lower financing costs in future quarters."

Based on TELUS' strong year to date actual results and expectations for the remainder of 2011, the company is revising its original 2011 targets issued last December. Guidance for consolidated revenues is increased by $200 to $300 million based on increases in both the wireless and wireline business segments. In addition, expected capital expenditures are increased from approximately $1.7 billion to approximately $1.8 billion, primarily reflecting an increase in this year's investment in  the next generation urban Long Term Evolution wireless network. See section 9 in the MD&A for updated details on guidance, status and assumptions.

OPERATING HIGHLIGHTS 

TELUS wireless

• External wireless revenues increased by $117 million or 9.6 per cent to $1.33 billion in the second quarter of 2011, compared to the same period a year ago, driven by a 5.9 per cent increase in the subscriber base and higher average revenue per customer.
• Data revenue growth continued to accelerate, increasing by $132 million or 49 per cent to $402 million this quarter, while data ARPU increased by $5.45 or 39 per cent to $19.25. These increases were due to accelerated adoption of smartphones and related data plans, growth of mobile Internet devices and tablets, and higher roaming revenues.
• Blended ARPU per month increased by $1.41 or 2.5 per cent to $58.88 as data growth offset voice declines. This is the third consecutive quarter of year-over-year ARPU growth.
• Wireless net additions of 94,000 included 92,000 postpaid customers. Net additions declined by 24 per cent from a year ago, reflecting the loss of a federal service contract to a competitor - responsible for approximately 32,000 postpaid subscriber net deactivations in the quarter.
• Smartphones represented 61 per cent of postpaid gross additions in the second quarter, as compared to 30 per cent last year. Smartphone subscribers now represent 42 per cent of the total postpaid subscriber base as compared to 25 per cent a year ago.
• Cost of acquisition per gross addition increased year over year by 8.2 per cent to $370, reflecting higher per-unit subsidies from more smartphones sales and competitive dynamics.
• Cost of retention of $149 million increased by 31 per cent, primarily reflecting higher retention volumes and equipment subsidy costs from increased migrations to higher cost smartphones.
• Blended monthly subscriber churn increased by 22 basis points (bps) year over year to 1.67 per cent, reflecting the loss of the federal contract, which contributed 16 bps, plus an increased number of competitors and more price-based promotions.
• Wireless EBITDA of $565 million increased $45 million or 8.7 per cent. EBITDA margin of 42 per cent was stable.
• Simple cash flow (EBITDA less capital expenditures) increased by $37 million to $458 million in the quarter due to EBITDA growth partially offset by slightly increased capital spending.

TELUS wireline

• External wireline revenues increased by $37 million or 3.1 per cent to $1.22 billion in second quarter of 2011, when compared with the same period a year ago, driven by growth in data and equipment revenues, partially offset by continued declines in local and long-distance revenues.
• Data service and equipment revenues increased by $78 million or 14 per cent, reflecting growth in Internet and enhanced data services, strong TELUS TV subscriber growth, increased data equipment sales, and newly consolidated managed workplace revenues.
• TELUS TV additions of 46,000 increased by 59 per cent over same period last year, due to the success of Optik TV brand, increased installation capabilities, enhanced features and expanded service coverage. TELUS TV subscriber base of 403,000 is up 77 per cent from a year ago.
• Optik High Speed Internet net additions of 13,000 increased by 10,000 from a year ago due to the pull through effect of Optik TV sales, as well as continued broadband service expansion.
• Total network access lines (NALs) declined 4.2 per cent to 3.68 million from a year ago due to competition and wireless substitution. Residential NAL losses of 31,000 improved by 20,000 year over year, reflecting the positive pull-through effect of bundling offers with Optik services. Business NALs increased by 7,000 due to increases in wholesale lines.
• Wireline EBITDA of $385 million decreased by $20 million or 4.9 per cent due to ongoing declines in higher margin legacy voice services that were not fully offset by growth in lower margin data services. Wireline EBITDA margins were 30.5 per cent as compared to 33 per cent in the same period last year.
• Simple cash flow decreased by $71 million to $36 million due to a $51 million increase in capital spending and lower EBITDA.

CORPORATE AND BUSINESS DEVELOPMENTS

Government of Ontario extends TELUS contract to manage province-wide telecommunications network
In May, TELUS strengthened its relationship with the Government of Ontario through a five-year extension of its original 2006 Ministry of Government Services contract to provide, manage and supply its portfolio of telecommunications services. Under the contract, TELUS will continue to provide the Government of Ontario with fully managed services including network components and a leading edge IT security solution suite that recognizes the importance of information security to the public sector and to the citizens of Ontario.

TELUS issues $600 million of long-term debt
In May, TELUS successfully completed a public offering of 5-year 3.65 per cent Canadian dollar notes, raising $600 million. The net proceeds of the new bonds, combined with commercial paper issuance, were used to repay the remaining TELUS 8 per cent June 1, 2011 U.S. dollar notes and accrued interest and associated cross currency interest rate swaps. This was the final of three tranches of refinancing of these notes, undertaken since December 2009, which reduces TELUS annual financing costs going forward.

TELUS to build Intelligent Internet Data Centre in Rimouski, Quebec
In May, TELUS announced the construction of a new $65 million Tier III* Intelligent Internet Data Centre in Rimouski. This new green facility, the first TELUS Internet Data Centre to be built to LEED (Leadership in Energy and Environmental Design) Gold Standards, will enhance TELUS' IT management services to businesses in Quebec, the rest of Canada and internationally. The project supports TELUS' position as Canada's leading provider of managed hosting solutions, as noted in a recent report by NBI/Michael Sone Associates. The Centre will be a cornerstone in TELUS' strategic shift to support next-generation cloud computing and unified communications solutions. TELUS provides clients with enhanced world class IT facilities and managed services to allow them to focus on their core business and boost their competitiveness.

* The Uptime Institute's classification system, an internationally recognized benchmark to assess the reliability of data centres.

New collective agreement ratified
In June, the Telecommunications Workers Union (TWU) membership accepted a new negotiated collective agreement that covers approximately 11,500 active TELUS team members nationally. The agreement took effect June 9 and expires on December 31, 2015.

Highlights of the agreement, include competitive wage increases of 1.5 per cent on July 1, 2011, 2.0 per cent on July 1, 2012, 2013 and 2014, and 2.5 per cent on July 1, 2015. Cost of living protection is provided should inflation exceed 3 per cent in 2014. The agreement includes modifications to scheduling processes that improve staffing efficiencies to better align to customer needs. Agreement on two work-at-home programs - At-Home-Agent and Work Styles - continues to demonstrate TELUS' adoption of innovative and leading human resource practices.

Stockwell Day appointed to TELUS' Board of Directors
TELUS is pleased to announce that Stockwell Day has been appointed to the TELUS Board of Directors. This appointment furthers the Company's ongoing program to recruit high-calibre individuals that strengthen the Board through a wide range of experience from all parts of Canada. Mr. Day has served at the municipal, provincial and federal levels of government for over 25 years and brings a wealth of knowledge and experience to the TELUS Board. Mr. Day will serve on the Audit Committee of the Board, drawing on his extensive understanding of the national and Western Canadian economies.  Mr. Day shares TELUS' commitment to supporting local communities and will help advance TELUS' philosophy - we give where we live.

TELUS offers new customer friendly wireless device ownership
In June, TELUS achieved another milestone in its commitment to make wireless client experience friendlier for Canadians by further simplifying device ownership and sweeping away high cancellation fees.

TELUS' new and improved device ownership program enables consumers and business customers to see the difference between what they paid for their device on a term contract and how much it would cost without a service term commitment. The remaining device balance is displayed on their monthly bill and goes down every month until their service agreement expires. Customers can now upgrade at any time to a new handset at the price new clients pay by simply paying back their outstanding device balance. If customers want to leave TELUS, they no longer pay costly termination charges, but instead merely pay back their remaining device balance, plus a modest administrative account closure charge of $50 (except in Quebec).

TELUS cuts customers' international wireless roaming rates up to 60 per cent
In time for the beginning of the summer travel season, TELUS lowered roaming voice and data rates by up to 60 per cent, with no minimum purchase. With the launch of TELUS' new clear and simple international travel pricing, all customers get the same low roaming rates when traveling in over 200 countries. Separate bundles and passes are no longer required, making it easy and hassle-free for customers to use TELUS wireless services when roaming outside Canada.

Skype and TELUS to offer best customer experience for on-the-go Skype users
In June, TELUS and Skype announced that they had signed an agreement that revolutionizes how TELUS smartphone customers use Skype. Now they can purchase Skype credits through their existing TELUS accounts, making it more secure and convenient for them to stay connected with friends and family in Canada and abroad while taking advantage of Skype's low-cost calling rates. TELUS also launched in July the first Skype edition smartphone in the Canadian market, the Skype edition LG Optimus Black.

Rdio and TELUS partner to take social music experience to next level
TELUS and Rdio announced that they intend to enter into an agreement that will give TELUS smartphone customers subscription access to Rdio, an unlimited, on-demand social music service, via their existing TELUS account. Rdio, founded by the creators of Skype, is the first service in Canada to bring social music discovery to mobile devices, and provides users anywhere, anytime access to a growing catalogue of over ten million songs. Direct carrier billing will provide TELUS customers with a secure, convenient, and easy way to subscribe to Rdio, and to play and share their music on the go.

TELUS introduces Future Friendly Office for small and medium-sized businesses
In May, TELUS announced an economical, end-to-end, communication solution designed for small and medium-sized businesses. The TELUS Future Friendly Office is a complete suite of products and services that gives customers a communications system that is easy to manage and easy on the pocketbook. The suite is built in collaboration with Cisco and features Cisco Unified Communications technology that is designed for companies with less than 100 employees.

BC Lions and TELUS announce multiyear partnership
In July, the BC Lions Football Club announced TELUS has become a premier partner and the club's official wireless, television service, and Internet provider in a multi-year deal. TELUS will launch the team's first advanced mobile application later this season. Through the power of smartphones and tablets fans will be able to connect with their Lions like never before, from wherever they are - in the stands, on the go, or at home enjoying the game.

TELUS partners to establish Innovation Centre for Enterprise Cloud Services
Huawei, TELUS and Carleton University signed a $1.4 million deal in June to establish a research lab dedicated to enterprise cloud services. Located in Carleton University's new Canal engineering building, the Huawei-TELUS Innovation Centre for Enterprise Cloud Services will give students, faculty and industry an opportunity to research real-world problems associated with cloud computing such as security and performance issues.

The lab will be used to drive student interest in cloud services with Huawei equipment leveraging TELUS services to benefit their course work, senior-year projects and graduate research. The lab will be directed by a member oversight committee led by representatives from Huawei, TELUS, and Carleton University.

Génération INC., powered by TELUS
The TV business show Generation INC., powered by TELUS, became so successful during its first season in 2010 that a second season is planned. Generation INC. is a TV business show starring 12 local businesses from the province of Québec who are visited by multidisciplinary experts to help propel them to reach their full potential. As well as being a successful business TV show, Generation INC. is an elaborate web platform with a mission to stimulate entrepreneurship in Québec. The recruitment process created so much enthusiasm amongst the small and medium business market in Québec that more than 500 businesses applied to be part of the television show. The second season will air during the 2011 fall season on channel V.

TELUS Talks Business wins Best in Class "Voice of the Customer" Award
In June, TELUS Talks Business won the Best in Class "Voice of the Customer" Award, which recognizes excellence in creative customer response. Chad McDaniel, president of Execs in the Know, said TELUS Talks Business was chosen for creating meaningful conversations with customers and improving the overall customer experience every time they interact with TELUS. Telustalksbusiness.com is TELUS' own social media hub, offering valuable information about the latest technology and trends from industry experts, small and medium-sized business owners and their peers. The site also encourages customers to talk to each other by posting daily blogs and promoting the site and its content on Twitter and on telus.com.

TELUS, Black's and Caya receive three retailing awards from Retail Council of Canada
TELUS won three of eight Retail Council awards this year. TELUS received the Community Outreach Award for its milestone Go Pink campaign. Thanks to the support of TELUS customers, team members and the general public, Go Pink raised nearly $2.5 million to purchase digital mammography equipment for hospitals across Canada.

Black's won the E-Retailing Award in recognition of its innovative website, which enables customers to capture, print, share and store digital photography, as well as buy everything from cameras to photo frames.

Caya, a trend-setting retail experience, powered by TELUS and Black's, won the esteemed Retail Store Design Award by encouraging customers to "come as you are" to three new lifestyle concept stores in downtown Vancouver. Caya extends TELUS' rich spectrum of community, diversity and inclusiveness strategies into the marketplace through a sophisticated new brand, attitude and award-winning store design.

The Retail Council of Canada is a not-for-profit, industry-funded association representing more than 43,000 store fronts of all retail formats across Canada. It is an advocate for retailing in Canada and works with all levels of government and other stakeholders.

TELUS recognized for leadership in emergency preparedness
In June, TELUS accepted the 2011 Award of Excellence from the Disaster Recovery Institute (DRI) CANADA, the leading continuity management and certification organization in Canada. The award recognizes Canadian organizations that have achieved excellence in the fields of continuity management, technology recovery, and crisis management. TELUS has a dedicated Corporate Business Continuity team that focuses exclusively on business continuity. This team has evolved its mandate over the years by taking on new challenges and integrating emergency preparedness more fully into TELUS operations.

TELUS recognized for corporate social responsibility
In June, TELUS was named among the Top 50 Socially Responsible Corporations in Canada by Jantzi-Sustainalytics and one of the Top 50 Corporate Citizens in Canada by Corporate Knights. Both rankings are based on Canadian corporations' governance, social and environmental performance. The Jantzi-Sustainalytics group recognizes companies that demonstrate strong performance in areas such as environmental initiatives, impact on local communities, treatment of employees and supply-chain management. According to the editor of Corporate Knights, its awards program, which started with corporate social responsibility, has evolved and now centres on clean capitalism, rewarding companies that pursue profit concurrently with social and ecological prosperity.

In 2011, TELUS announced a new climate change strategy, developed a company-wide waste management plan, transitioned its office paper to 30 per cent post consumer recycled content, improved its Global Reporting Initiative declaration to an A level, and continued efforts to improve transparency in the company's reporting In 2010, TELUS also became a signatory to the United Nations Global Compact (UNGC) and its 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption. The Company's first Communications on Progress has been recently put on the UNGC website.

TELUS CTO recognized as one of Alberta's 50 Most Influential People
In June, TELUS chief technology officer (CTO), Ibrahim Gedeon, was selected as one of Alberta's 50 Most Influential People for 2011 by Alberta Venture magazine. The list is comprised of individuals who, through their professional and personal accomplishments, have made a positive impression on Alberta's political, economic or cultural landscape. The members of the 2011 list are from varied backgrounds and industries, but one thing they share in common is that they are compelling others to follow their lead, to get involved and make a difference. As CTO of TELUS, Mr. Gedeon is responsible for envisioning the company's technology, network, and service strategy and architecture. He has received many awards in Canada and internationally that demonstrate his reputation as a technology thought leader.

TELUS Day of Giving making a difference in our communities
The sixth annual TELUS Day of Giving took place on May 28 when 11,000 TELUS team members, retirees, their families and friends came together to serve local communities and help citizens in need. TELUS Day of Giving volunteers participated in 300 activities in 34 regions across Canada, which included:

• sorting food at local food banks across the country,
• preparing and serving meals to people less fortunate,
• planting trees and plants in parks and gardens, and
• tying cancer ribbons for the Canadian Breast Cancer Foundation.

TELUS responds to Slave Lake residents during fire disaster
A major forest fire burned through Slave Lake, Alberta, overnight on May 15 with an estimated 30 per cent of the community destroyed by fire, including major buildings such as the police department and city hall. Thanks to the Slave Lake Fire Department, throughout the emergency, TELUS' landline and wireless networks in and around the community continued to operate. TELUS' Emergency Management Operations Centre (EMOC) was activated, and worked around the clock to manage the situation. TELUS worked with emergency services on the ground to ensure they had sufficient communications services. The Company immediately offered free wireless long distance calling to all residents in the community and provided free temporary wireless devices through its Slave Lake wireless dealer for customers who lost their homes.

TELUS World Skins Game returns to Fairmont Banff Springs, Alberta
Five years after hosting one of the most successful events in Skins Game history, the Fairmont Banff Springs once again hosted the world's best golfers at the TELUS World Skins Game. This year's event on July 25 and 26 featured Nike Golf athletes Stephen Ames, Jhonattan Vegas, Lucas Glover, Anthony Kim and Paul Casey. As part of TELUS' ongoing commitment to 'give where we live', and the TELUS World Skins Game's long-standing tradition of benefiting local charities, the Alberta Cancer Foundation was selected. The event supported the funding of new technology and applications in clinical trials for patients undergoing cancer treatment, and the use of cancer applications and devices for patient monitoring, tracking and health records to enhance treatment and care. A total of $375,000 was raised this year.

Optik TV cause marketing campaigns recognized by Halo award
In June, TELUS was recognized for its innovation by empowering socially conscious consumers to make purchasing decisions that directly benefit charities they care about. The Cause Marketing Forum named TELUS' Community TELUS TV campaign promotion as 2010's Best Transactional Campaign through its Halo Awards. The campaign provided a $100 donation to local charities for every purchase of TELUS TV (Optik TV or satellite TV) made during a 12-month period. Last year, the cause marketing campaigns were available in 22 communities in British Columbia, Alberta and Eastern Quebec, and generated donations of more than $3.8 million. Campaigns eligible for the Halo awards are those that benefit the interests of both a business and a non-profit partner or cause.

Dividend Declaration
The Board of Directors has declared a quarterly dividend of fifty-five cents ($0.55) Canadian per share on the issued and outstanding Common shares and fifty-five cents ($0.55) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on October 3, 2011 to holders of record at the close of business on September 9, 2011.

This quarterly dividend represents a five cent or 10 per cent increase from the 50 cents paid a year earlier on October 1, 2010.

Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings news release, management's discussion and analysis, quarterly results slides, audio and transcript of investor webcast call, supplementary financial information and our full 2010 annual report on our website at telus.com/investors.

Full quarterly earnings release available at: http://www.newswire.ca/en/releases/archive/August2011/05/c8834.html

TELUS' second quarter conference call is scheduled for August 5, 2011 at 11:00 am ET and will feature a presentation followed by a question and answer period with analysts. Interested parties can access the webcast at: telus.com/investors. Also, a recording will be available on August 5 until August 15, 2011 at: telus.com/investors or by telephone (1-403-699-1055 or 1-877-353-9587, reservation no. 548305#). A transcript will be posted on the website within several business days.

About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $10.1 billion of annual revenue and 12.4 million customer connections including 7.1 million wireless subscribers, 3.7 million wireline network access lines and 1.2 million Internet subscribers and more than 400,000 TELUS TV customers. Led since 2000 by President and CEO, Darren Entwistle, TELUS provides a wide range of communications products and services including data, Internet protocol (IP), voice, entertainment and video.

In support of our philosophy to give where we live, TELUS, our team members and retirees will, by year-end 2011, have contributed $245 million to charitable and not-for-profit organizations and volunteered 4.1 million hours of service to local communities since 2000. Ten TELUS Community Boards across Canada lead TELUS' local philanthropic initiatives. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

For more information about TELUS, please visit telus.com.

SOURCE TELUS Corporation

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