TELUS Reports Third Quarter 2010 Results

Positive trends continue with strong wireless results, record TV additions
and cash flow growth
Five percent quarterly dividend increase to 52.5 cents per share

VANCOUVER, Nov. 5 /PRNewswire-FirstCall/ - TELUS Corporation reported third quarter 2010 revenue of $2.46 billion, an increase of two per cent, as continued growth in wireless revenues and wireline data revenues more than offset declines in traditional voice services. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 1.5 per cent due to revenue growth, lower restructuring costs and ongoing benefits from efficiency initiatives.

Over the last 12 months, total customer connections increased by 347,000 generated by a 6.8 per cent increase in wireless subscribers and 94 per cent growth in TELUS TV customers, partially offset by continued declines in landline connections. 

Reported net income and earnings per share (EPS) for the second quarter were $247 million and 77 cents, representing year-over-year decreases of 12 and 13 per cent, respectively. The declines were due to an after-tax impact of approximately $37 million or 12 cents per share from the costs of the early partial redemption of 2011 Notes financed with the proceeds of the successful $1 billion Note issue in July 2010. This redemption will result in future interest cost savings.

Third quarter net income and EPS also included an after tax regulatory financing charge of approximately $11 million or three cents per share and favourable income tax-related adjustments of approximately $9 million or three cents per share (compared to $14 million or four cents in the same period a year ago). Excluding these three items, normalized net income and EPS this quarter were $286 million and 89 cents, up 7.5 per cent and 6 per cent, respectively.

Free cash flow of $339 million this quarter increased by 27 per cent from a year ago as capital expenditures were $109 million lower, which partially offset by higher interest costs that primarily arose from the early partial redemption of the 2011 Notes.

FINANCIAL HIGHLIGHTS

"These results once again demonstrate the foresight and effectiveness of TELUS' significant investment over recent years in advanced broadband infrastructure, both wired and wireless," said Darren Entwistle, TELUS President and CEO. "The consistent pursuit of our strategy is resulting in increasing growth in wireless and wireline data revenues, while capital expenditure levels decrease from last year's peak investment phase. That has led to a 27 per cent growth in free cash flow this quarter."

Mr. Entwistle noted, "TELUS added 22 per cent more wireless customers this quarter compared to a year ago and added 53,000 TV and High-speed Internet subscribers, which was driven by the successful launch of the Optik TV brand in June."

"Reflecting our positive financial outlook and aligned with our dividend growth model, we are pleased to announce a second five per cent increase this year in the TELUS quarterly dividend," said Mr. Entwistle. "This reflects our confidence in the prospect for continued earnings growth and strong cash flow in 2011 and beyond."

Robert McFarlane, TELUS Executive Vice-President and CFO, said "during the quarter we again demonstrated our ability to efficiently access capital markets by successfully raising $1 billion of 10 year debt with a 5.05 per cent coupon used to early redeem June 2011 notes with an 8.5 per cent effective cost. This will generate interest expense savings positively impacting future earnings and cash flow, while extending our debt maturity profile."

Mr. McFarlane added, "Reflecting strong wireless profitability growth despite the dilutive short term effects of strong subscriber loading, TELUS is updating its 2010 annual guidance to reflect an increase of the wireless EBITDA range, which positively impacts consolidated EBITDA and EPS ranges. Reported EPS guidance is now $3.10 to $3.30, compared to $2.90 to $3.30 previously."

See section 9 in MD&A for updated details on guidance, status and assumptions.

OPERATING HIGHLIGHTS 

TELUS wireless

• External wireless revenues increased by $76 million or 6.3% to $1.28 billion in the third quarter of 2010, compared to the same period a year ago, driven by a 5.4% increase in network revenue, as well as a 19% increase in equipment and other revenue, which included revenue from Black's Photo acquired in September 2009.
• Data revenue increased by $65 million or 29% to $291 million due to increased adoption of smartphones and related data plans and applications, increased sales of mobile Internet keys, and higher in-bound volumes of data roaming, partly offset by lower roaming rates.
• Blended ARPU (average revenue per subscriber unit) per month declined by 1.2% to $58.75 from the same quarter a year ago reflecting a sequential improvement from the 1.9% decline in the second quarter of 2010 and from the 4.4% decline experienced in the first quarter of 2010. The improving trend is due to a lower rate of decline in voice ARPU and a higher rate of increase in data ARPU, which increased by 21% to $14.53.
• Total net subscriber additions of 153,000, including 132,000 postpaid, increased by 22% over the same period a year ago. Smartphones represented 38% of postpaid gross additions in the third quarter of 2010, as compared to 22% in same period last year. Higher valued smartphone subscribers represent 28% of total postpaid subscribers compared to 18% a year ago.
• Cost of acquisition per gross addition increased by 6% year-over-year to $339, reflecting a higher per-unit subsidy caused by a higher smartphone mix, partly offset by a favourable U.S. dollar exchange rate and reduced advertising and promotion expenses per gross addition.
• Cost of retention of $127 million increased by $11 million, reflecting higher retention volumes and equipment subsidy costs from increased migrations to higher cost smartphones, partly offset by a reduction in spend per retained subscriber from commission efficiencies and a favourable U.S. dollar exchange rate.
• Blended monthly subscriber churn was stable at 1.54%, reflecting improved economic conditions, availability of new HSPA handsets including the iPhone, and successful retention efforts despite increased competition.
• Wireless EBITDA of $535 million increased by 3.5% despite strong subscriber loading and related increase in cost of acquisition and retention expenses. This was achieved due to improved data revenue growth, lower voice ARPU erosion and lower bad debt expense.
• Simple cash flow (EBITDA less capital expenditures) increased by $98 million or 30% to $422 million in the quarter due to higher EBITDA and a $80 million reduction in capital spending due to the November 2009 substantial completion of the national HSPA+ wireless network.

TELUS wireline

• External wireline revenues decreased by $32 million or 2.7% to $1.17 billion in the third quarter of 2010, when compared with the same period in 2009, primarily due to continued declines in traditional local and long-distance revenues.
• Data revenues increased by $38 million or 7.3%, reflecting strong TELUS TV subscriber growth, higher managed workplace revenues and increased Internet, enhanced data and hosting services.
• TELUS high-speed Internet net additions of 15,000 increased by 67% from a year ago due to the launch of Optik TV and Optik high-speed Internet service in June 2010, as well as the continued broadband footprint expansion and speed enhancement.
• TELUS TV net additions were a record 38,000, an increase of 73% over the same period last year, due to the launch of the Optik TV brand in June, as well as improved installation capabilities, enhanced service including PVR Anywhere and expanded broadband coverage. The record TELUS TV net additions were accomplished despite installation resources being used to migrate existing subscribers on legacy TV platforms to the new Microsoft Mediaroom platform. The TELUS TV subscriber base totals 266,000, up 94% over last year.
• Total network access lines (NALs) declined by 51,000 to 3.79 million, down 5.6% from a year ago. Residential NAL losses of 39,000 were 4,000 less compared to the same period last year and 12,000 less than the previous quarter, but continue to be affected by cable-TV competition and wireless substitution. Business NALs declined by 12,000 primarily from competitive factors and slower growth in data lines from the completion of certain large enterprise deals.
• Wireline EBITDA of $402 million decreased by $4 million or 1.0% due to continued declines in traditional local and long-distance revenues, and start-up costs associated with growth services such as Optik TV and large enterprise contracts, partly offset by data revenue growth, lower restructuring costs and operational savings from efficiency initiatives.
• Simple cash flow (EBITDA less capital expenditures) increased by $25 million to $66 million largely due to the $29 million reduction in capital spending.

CORPORATE AND BUSINESS DEVELOPMENTS

TELUS expands networks and its Optik TV footprint
TELUS continued to expand its wired and wireless networks to bring new services to even more Canadians. During the quarter, TELUS added broadband infrastructure required to introduce its Internet-based Optik TV and faster Internet service to additional neighborhoods in dozens of communities across British Columbia and Alberta. In Victoria, B.C., the infrastructure rollout reached the critical mass required to start significant mass market advertising and sales.

On the wireless front, TELUS continued to install new cell sites to bring wireless service to additional rural communities and highway corridors, while adding the capacity required to meet growing demand for wireless data services in urban centres. By the end of this year, TELUS anticipates offering wireless service to 99 per cent of B.C. and Alberta's population.

Also in the quarter, the CRTC granted TELUS deregulation of traditional residential phone services in 60 communities across B.C. and Alberta. The deregulation allows TELUS to better compete for customers' business by offering them compelling bundles of residential services equal or similar to those available in urban communities deregulated since the CRTC began loosening regulatory rules in 2007.

TELUS fires up consumers with new BlackBerry Torch
In September, TELUS launched the BlackBerry Torch 9800 smartphone, designed especially for socially-connected consumers and packed with the tools to support business consumers. The BlackBerry Torch is the first device with BlackBerry 6.0, RIM's newest operating system and the world's first smartphone to combine a BlackBerry keyboard with a full touchscreen experience. Elegantly styled, the BlackBerry Torch offers top-of-the-line features such as GPS location-based applications, geo-tagging and a 5 megapixel camera.

TELUS to offer Windows Phone 7 devices
TELUS has announced it will offer two devices operating on the new Windows Phone 7 platform in November, the HTC Surround 7 and the LG Optimus 7. Windows Phone 7 offers an operating platform for increasingly sophisticated and demanding consumers, making every-day tasks faster by doing more in fewer steps and providing timely information in an easy to read format. With Windows Phone 7, things that matter most to people like games, music & video, photos and office productivity are organized through integrated experiences known as Windows Phone Hubs.

Go Pink until end of the year
TELUS announced its "Go Pink" campaign in support of breast cancer is being extended to the end of 2010. Since May, TELUS has donated $25 from the sale of its latest exclusive pink BlackBerry devices to go to local breast cancer organizations across the country in order to raise funds to bring leading breast cancer detection equipment to communities across Canada. TELUS also launched a campaign on Facebook, where fans were asked to turn their profiles pink in support of the cause. With over 700,000 fans making the switch, an additional $200,000 was donated to the campaign. 

Funds will be directed to support organizations including; BC Women's Hospital & Health Centre Foundation, Alberta Cancer Foundation, Saskatchewan Cancer Agency, CancerCare Manitoba, Princess Margaret Hospital Foundation in Toronto, The Ottawa Hospital Foundation, Segal Cancer Center at the Montreal Jewish General Hospital, Quebec City's CHUQ and QEII Health Sciences Centre in Halifax.

TELUS ranked among Canada's Top 100 Employers
In October, the Globe and Mail ranked TELUS among Canada's Top 100 Employers. The 11th annual list was compiled by the editors of Mediacorp Canada Inc., who reviewed more than 2,750 employers and analyzed each applicant's operations and Human Resource practices. There were eight key areas of focus: physical workplace; work atmosphere and social events; health, financial and family benefits; vacation and time off; employee communications focused on how employers capture feedback from their employees; performance management; training and skills development; and community involvement.

Annual Report on Annual Reports global ranking honours TELUS
TELUS has again received international recognition for its financial reporting. In the prestigious global Annual Report on Annual Reports, produced by e.com, TELUS' 2009 annual report was ranked the sixth best in the world and given an "A" rating. Since 2004, TELUS has placed in the top 10 every year. This year, TELUS received the top rating for financial review and analysis; the information provided on goals, targets and outlook; and risks and risk management. In developing the ranking, an independent panel evaluates 500 annual reports shortlisted from an even wider selection of publicly listed corporations. The comprehensive survey looks at 10 key evaluation criteria: packaging, highlights, strategy, business, financials, investors, governance, accounting, responsibility and communication.

Darren Entwistle named Canadian Business Leader of the Year by University of Alberta
In October, the University of Alberta's Alberta School of Business selected TELUS President and CEO Darren Entwistle as its 30th Canadian Business Leader Award recipient. Recipients are selected by the school's international Business Advisory Council. In announcing Mr. Entwistle as its 2011 honoree, the council highlighted that the TELUS team has delivered the highest total shareholder returns amongst incumbent telecom companies globally since 2000 while also contributing significantly to Canadian communities, culminating in TELUS being recognized as the most outstanding philanthropic corporation in the world for 2010 by the U.S.-based Association of Fundraising Professionals.

Darren Entwistle honoured with fellowship of The Royal Conservatory
In October, TELUS President and CEO Darren Entwistle was named an Honorary Fellow of The Royal Conservatory. Dr. Peter Simon, President of The Royal Conservatory, said of Mr. Entwistle: "Darren strongly believes in the transformative power of the arts. As a respected business leader, he also understands the long-term economic benefits of the arts and their critical role in fostering creativity and encouraging innovation." TELUS has partnered with the Royal Conservatory since 2004, helping children to connect with the arts in new and innovative ways through supporting the Building National Dreams Campaign, creation of the TELUS Centre for Performance and Learning, and creation of the TELUS Virtual Learning Centre, the Virtual Music program, and Learning Through the Arts programs.

TELUS partners with University of Winnipeg
In October, TELUS and the University of Winnipeg announced a new partnership to help the university take advantage of new communications technology and support military families. TELUS announced the creation of a $150,000 TELUS Technology Fund allowing UWinnipeg to invest in leading technology to support the University's operation. The fund will significantly enhance UWinnipeg's Information and Communications Technologies (ICT) infrastructure. TELUS also launched the TELUS Military Families Scholarship Fund to support military members and their families with a $15,000 donation. Scholarships will be awarded each May to assist sons and daughters of Canadian Forces personnel to attend the University of Winnipeg. Canadians can contribute to the fund by donating at www.uwinnipegfoundation.ca/choose.

TELUS named a Carbon Disclosure Leader in Canada
In October, the Conference Board of Canada and the Carbon Disclosure Project (CDP) named TELUS a 2010 Carbon Disclosure Leader for excellence in climate change reporting. TELUS is the only Canadian telecommunications company to receive the honour and one of only 15 Canadian companies recognized.

TELUS buildings awarded LEED certification
In September, TELUS House Ottawa was awarded the LEED Gold certification for new construction, while TELUS House in Quebec City was awarded LEED Silver certification for existing construction. Both honours were granted by the Canadian Green Building Council.

Adopting the LEED rating system for new and existing buildings is part of TELUS' commitment to reducing environmental impact across its operations.

Gold certification of the Ottawa building that houses over 500 TELUS team members is a significant upgrade from the silver rating that was targeted by TELUS when the project began five years ago. The building is the largest in Ottawa to receive LEED certification to date. To reach this rating, TELUS reduced energy consumption by 40 per cent from the national energy code level, reduced water usage by 40 per cent, and placed the building directly on a public transportation route so that 80 per cent of its occupants come to work by transit, on foot or by bicycle. The structure makes maximum use of natural lighting, collects rainwater and during construction more than 75 per cent of debris was recycled.

TELUS House Quebec recently underwent extensive renovations and is now home to 300 TELUS team members in the city. To achieve the silver rating, TELUS House in Quebec City was rebuilt from an existing building, with 15 per cent of the existing materials being re-used and more than 40 per cent of its construction materials coming from local suppliers. Energy and water consumption were reduced by 30 per cent using cutting-edge technology and practices.

TELUS to change dividend reinvestment program to open market purchases at full price
Commencing March 1, 2011, TELUS will change its current practice of issuing shares from treasury at a three per cent discount for reinvested dividends under the dividend reinvestment and share purchase program (DRISP) and switch to purchasing shares from the open market with no discount. Non-voting shares acquired with optional cash payments at 100 per cent of the average price under the DRISP program will also change from treasury issuance to market purchase and will come into effect on March 1, 2011. Shares from the reinvestment of dividends payable on January 4, 2011 will continue to be issued from treasury at a three per cent discount from the average market price. Full details of the plan are available at telus.com/drisp.

Dividend Declaration - 5 per cent increase
The Board of Directors has declared a quarterly dividend of fifty-two and a half cents ($0.525) Canadian per share on the issued and outstanding Common shares and fifty-two and a half cents ($0. 525) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on January 4, 2011 to holders of record at the close of business on December 10, 2010.

This new quarterly dividend represents a two and one half cent or five per cent increase from the fifty cents paid on July 2 and October 1, 2010, and a 5 cent or 10.5 per cent increase from the forty seven and a half cents paid on January 4 and April 1, 2010. This is the seventh increase in the TELUS dividend over the last six years.

Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings release, management's discussion and analysis, quarterly results slides, supplementary financial information and our full 2009 annual report on our website at telus.com/investors.

Full quarterly earnings release available at: http://www.newswire.ca/en/releases/archive/November2010/05/c8153.html

Quarterly conference call and webcast presentation
TELUS quarterly conference call is scheduled for November 5, 2010 at 11:00 am ET and will feature a presentation about our third quarter results. It will be followed by a question and answer period with analysts. Interested parties can access the webcast at: telus.com/investors. A transcript will be posted on the website within several business days. Also, a recording will be available on November 5 until November 15, 2010 at: telus.com/investors or by telephone (1-403-669-1055 or 1-877-353-9587, reservation no. 388962#).

About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $9.7 billion of annual revenue and 12.1 million customer connections including 6.9 million wireless subscribers, 3.8 million wireline network access lines and 1.2 million Internet subscribers and 266,000 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 have contributed $185 million to charitable and not-for-profit organizations and volunteered 3.5 million hours of service to local communities since 2000. Nine 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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