Telus Corp (TU) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the first quarter conference call for TELUS Corporation first quarter results conference call. During the presentation, all participants will be in a listen-only mode and afterwards you will be invited to participate in a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded, Thursday, May 1st, 2003. I would now like to turn the conference over to John Wheeler, Vice President Investor Relations at TELUS Corporation. Please go ahead, sir.

Welcome to the call and our webcast.

Let me introduce the TELUS executives on line with us today. In Calgary, we have Darren Entwistle, President and CEO and Bob McFarlane, our Chief Financial Officer. And in Toronto, we have George Cope, President and CEO of TELUS Mobility.

We'll start with an introductory comment followed by question and answer session. The time of the call today is to be an hour.

The news release on the first quarter financial and operating results and detailed supplemental investor information are posted on our website, at TELUS.com. For those with access to the internet, the slides are there for viewing at TELUS.com investor call. You'll be in listen-only mode during executive comments.

Let me direct your attention to Slide 2. Given the forward-looking nature of the presentations, comments and answers to questions, statements made about future events and future financial results are subject to risks and uncertainties. Accordingly, TELUS' actual results could differ materially from statements made today.

I ask that you read our legal disclaimer and refer you to the risks outlined in our public disclosure in Canada and the United States. TELUS disclaims any obligation to update any forward-looking statements.

Now over to Darren.

Good morning and thank you for joining us.

I think that you're all familiar with our priorities for 2003, so let's move on quickly to Slide 5. Our first priority for 2003 is delivering on our operational efficiency program, where we continue to make good progress.

We reduced our staffing levels in the first quarter of 2003 by a further of 600 people. Bringing our overall staff reductions to 5800 positions, or roughly 89% of our 6500 target by the end of 2003.

By 2004, we are intent on achieving the $550 million of ongoing savings, resulting from our operational efficiency efforts. And we are clearly on track to achieve this goal, with $245 million achieved in cost reductions thus far.

We are also dedicated to driving a further $300 million in cost reductions in 2003, and we are clearly on track with $95 million cost savings realized in the first quarter of this year alone.

Turning to Slide 6, I thought I would show you a chart reflecting the true, positive impact of the operational efficiency program on TELUS Communications, underlying EBITDA growth. When one backs out the price cap, and the increased pension expense, you can see that the 6% EBITDA increase equates to a 13.6% increase in the EBITDA of our traditional wireline business reflecting the margin expansion eminating from the operational efficiency program.

As we reduce our costs, we are also committed to our second priority, which is reflected on Slide 7, which is, of course, driving improved levels of customer service. Despite the challenges we faced last year, our performance thus far in 2003 is equal to or better than it was two years ago, when we first embarked on our operational efficiency initiatives.

We are now turning our focus to improving systems and processes, eliminating bureaucracy, increasing training and putting more decision making power into the hands of the employees at the front line.

The third priority for TELUS is to enhance our leadership position in the North American wireless industry by delivering significant margin expansion and accelerated cash generation. We clearly delivered in the first quarter with TELUS Mobility generating a 46% increase in EBITDA and an impressive 7 point increase in margin from 29% to 36%.

Moreover, cash flow increased $99 million, almost five-fold this quarter. to $124 million George will give you a little bit more color on the performance at TELUS Mobility in a few minutes.

On to Slide 8 which reflects our fourth priority which is to strengthen our credit position. We have three investment grade credit ratings and we intend to make it four as we increase our cash flow and work to reduce our debt.

Just two weeks ago, Moody's changed its outlook on TELUS from negative to stable, which of course is a pre-condition to any future upgrade. Bob will provide you with more detail on the strengthening of our financial position in just a second.

Our fifth priority is to continue focusing on improving the operating and economic fundamentals of our business expansion into Ontario and Quebec. Investors can watch for a two-step approach, developing our wireline operation in central Canada.

First, we are intent on driving the EBITDA breakeven by 2004 at the latest. And to that end, we have now recorded now six consecutive quarters of improved EBITDA. Our next step of course, is to have central Canada as a financial self sufficient operation, with the funding and our expansion reliance solely on the cash generated from our incumbent operation in the province of Quebec.

Our sixth, and final priority is shown on Slide 9. And it relates to labor relations. This quarter we agreed to and extended conciliation process with our union that is currently scheduled to run through the third quarter of this year.

TELUS is committed to achieve in it's settlement in 2003 with our unionized employees in Alberta and B.C. that reflects the competitive marketplace, balances the needs of all employees and provides the flexibility to meet the evolving needs of our customers. We will continue to keep you fully updated on the process development in this regard.

In conclusion, I'd like to say that given our progress to date on these priorities, I am fully confident in TELUS's position to build on the valuation momentum we enjoyed in the second half of 2002 and early 2003. And that we will continue to generate value for both equity and debt holders in the years ahead.

Over to you, George.

Thanks, Darren. And good morning, everyone.

Let me turn from Slide 10 over to Slide 11. Before I begin the presentation, just to remind investors that our strategy laid out when TELUS Mobility, Clearnet and Quebec Tel-Mobility came together in the year 2000 was to focus on profitability, rather than trying to be the leader in net adds. That strategy has continued and I think is evolving successfully.

Our objective is to be a leader in revenue and EBITDA growth. And clearly if we lead in subscriber growth, that's a bonus, but that is not a focus of our organization.

I would say we've added one objective here at TELUS Mobility beyond revenue and EBITDA growth. And that is also being one of the leaders in free cash flow growth in the wireless industry in Canada.

Turning now to Slide 12, just to set the context from investors in terms of our industry in Canada, today, we are expecting this year that the industry will surpass the 40% penetration mark. We believe it will represent about a 3 to 3.5% penetration gain.

We have, however in that number, revised down. Therefore, our net adds for the industry, we believe the industry will be closer to 1 million net adds this year, versus our initial view that it would be closer to 1.2 million.

As a result, Bob will comment in a few minutes, as we have also reduced our own guidance, consistent with the industry overall reduction we expect and experienced in the first quarter. We expect our market share will maintain where we expected it would be at 1.2 million adds. But our 350,000 new guidance reflects a lower overall expected penetration growth this year than we had initially planned.

Turning to Slide 13, you can see that our net adds, position in terms of market share continue to be strong, although our net adds were down year-over-year, consistent with the industry, our share of net adds at 33% is approximately where we were last year in the first quarter. In fact, maybe slightly up, but hard to know yet as one of the competitors has not yet reported and I understand will report later today.

Turning to Slide 14, obviously very significant for investors was the increase in our RPU from $52.00 to $54.00 for the first quarter of this year. One of the major contributors to that was the move last year to one minute-billing from one-second billing. And also a continual increase in data revenue for our organization.

Another interesting milestone for us, that revenue growth actually outstripped subscriber growth at 19% revenue growth versus 15% net add growth. And also, our postpaid, and prepaid RPUs both went up. So this isn't a reflection of mix and fact. Both went up.

And I was looking this morning trying to remember, I believe it's the first time in the 18 years I've been in the industry that we've seen quarter-over-quarter increases in RPU.

And if you go to Slide 15, it's been a positive for the industry as each of our major competitors also reported an increase in RPU. And I guess obviously very significant for TELUS Mobility even as they increased their RPU, our ability to increase ours meant that we maintained our premium leadership of approximately 20% over our competitors.

We have also seen an increase of our minutes of use, up to 315 minutes a month, versus 250 minutes last year. That bodes well, we think, for the fact that people are using their phones more and more in their daily lives and probably bodes well for RPU for the industry going forward.

Whether or not we can see increases throughout the remainder of the year is very hard to call, but certainly seeing the decline come to a halt is very important in terms of the profitability of our industry as a whole.

Turning to Slide 16, I'd like to announce this morning that TELUS Mobility will be following our two major competitors in changing our evening and weekend clock. We currently sell an evening and weekend package that starts at 6:00 in the evening.

As of June 1st, those packages will start at 8:00 in the evening. We will grandfather all of our current clients, just as we did with the move to permitted billing.

We will also though, enable clients who want to purchase the old clock, they will be able to do that for a price of $5.00. That is consistent with what one of our other competitors has done.

That way, if there is some demand for that time frame, we will be getting paid for either through the clock changing or through people paying the $5.00. The impacts, we believe, will be positive for RPU again, similar to what we saw last year as we moved to one-second billing.

One-minute billing should have a positive impact on industry churn as all the major competitors I understand will be grandfathering current clients, such the incentive to move will be less. And what hasn't been mentioned is this change will also help capital in the industry because the 6 to 8 time period is a very busy time period and taking away the free availability over time will help in terms of capital.

So another significant move for the wireless industry in terms of stabilizing any decline in RPU.

Turning to Slide 17, there's a lot of positive this quarter. I think the one that's most valuable for investors would be the reduction in our churn rate. Our churn is now as we reported at 1.5%, down from 1.9% last year.

We have taken the expected life of our client base from 52 months a year ago to 66 months today. These improvements have come from a lot of effort at the organization.

I mentioned already the move to permitted billing. We have had a dramatic improvement in our client service levels as we've consolidated the organization under one billing platform.

Our networks across Canada in some cases are enjoying dropped call rates under 1%. And according to one of our suppliers, the lowest dropped call rates they've seen anywhere in North America.

Our network coverage in eastern Canada was dramatically improved through the roaming agreement.

We've made a significant investment in retention. We generally are spending $2.00 to $2.50 per month per subscriber in retaining our clients. And we will continue to do that going forward.

And we are the only carrier in Canada that offers three-year contracts, as opposed to just two-year contracts. And such our cost to retail clients will only come up every three years, versus every two for our competitors. And we think that will help drive our retention costs over time lower that that of our competitors.

Obviously we'd love to see them move to three-year contracts because that helps deal with subsidies in the industry in a more profitable way. Hopefully we'll see something like that in the future from them.

Turning to slide 18, I think there's two messages from this chart. One is TELUS's has clearly positioned themselves as one of the world leaders in churn. Certainly North American leaders in churn.

And also the Canadian wireless industry in total, the churn rates are dramatically lower than that in the U.S. And that should bode well for the industry going forward.

And obviously for investors looking at not just TELUS Mobility but the Canadian wireless industry. I would mention that that is a blended churn rate for TELUS Mobility includes both our postpaid and our prepaid clients.

Turning now to Slide 19, you can see here the true benefits of our increase in RPU and our decrease in churn. As the lifetime value of our subscribers has gone from $2800 last year to $3500.

And although we've had a slight increase in our cost of acquisition, in fact, our cost of acquisition, you take that over the expected life of our clients has in fact gone down. And I would argue at 12% over lifetime revenue is one of the lowest of any carrier in North America today, if not the lowest.

Clearly we spend a little more on COA on the mike network than some of our competitors that would, given that functionality that we get. But at 12%, we fundamentally believe we have one of the lowest cost of acquisition over the expected life of our client in the industry.

Turning to Slide 20, this is really the outcome of all the metrics I've chattered about. We had an excellent growth in EBITDA of 46%.

In fact, many investors may remember that last year's $123 million EBITDA number included a $122 million one-time tax win on PSD. So if you actually look at that, our EBITDA growth was 76%.

I think that's not really the relevant point. The relevant point is how are we controlling our costs as revenues grow?

And in fact, if you look, you will see that our revenue growth of about 78 to $79 million of network revenue is almost identical to our EBITDA growth. It normalized. We had approximately 100% flow-through of revenue.

Our head count has been roughly flat year-over-year. And we continue to see great deficiencies in the organization.

Our margin expansion to 36% now puts us in best in class in North America. Our EBITDA margin is now higher than AT&T Wireless, Cingular, T-Mobile and Sprint.

And we're nipping at the heels of both Nextel and Verizon. And they obviously have much more skill advantage over TELUS Mobility As a result of that, Bob will comment in a moment.

We've upped our guidance for TELUS Mobility this year. And I believe that at the end of this quarter we were second only to Nextel in terms of EBITDA growth. And we'll work on seeing if it's possible to surpass them.

Turning to Slide 21, we generated significant cash flow. As Darren had indicated, CAPEX was $54 million in the quarter down 44% from $97 million last year. You can see the significant expansion here that increase in our cash flow five-fold.

And I will tell you that our internal goal is to make sure that our CFO is happy with the cash flow we generate. And we are certainly going to target or try to generate anywhere from 250 to $350 million in cash flow this year for TELUS this year, TELUS Mobility. If we can hold the capital tight and grow the EBITDA, we think it is, indeed, a possibility.

In summary, on Slide 22, we captured a solid share of the net add growth. Obviously very pleased with the 19% revenue growth in terms of being industry leading.

We continue to see financial discipline and focus on profitability amongst all of our competitors, our major competitors. As we've seen another price change in the industry that's the second in two years, with the movement of the EW clock.

Churn is clearly a great benefactor to the organization in our flow-through. And we've had excellent EBITDA growth.

And we believe we are providing a return that's consistent with our objectives set out a number of years ago when we pulled together TELUS Mobility, Clear-Net and Quebec Tel.

Thank you. And I'll turn it over to Bob McFarlane.

Great. Thanks, George. And congratulations on a great quarter.

Turning to Slide 24, you can see on a consolidated basis in the quarter, revenues were up 2.5% and EBITDA was up 14%. So clearly a significant margin expansion occurred in the quarter.

On a net income basis, we reported $91 million of net income. That's a $92 million increase year-over-year. That corresponds to a 26% share EPS, up 27 cents.

Now, 15 cents of the EPS in the first quarter is due to a favorable tax element with CCRA. But even excluding that settlement, the normalized EPS, if you will, of 11 cents still corresponds to a 12 cent year-over-year increase and significantly ahead of plan.

So very positive quarter financially. As reported yesterday, we have declared the dividend of 15 cents per share payable to [INAUDIBLE].

Turning to Slide 25, on the CAPEX front, a significant decrease of almost 50% year-over-year. That corresponds to a 12% CAPEX intensity level in the first quarter. However, we do expect that CAPEX will ramp up over the balance of the year, closer to the original 20% or less annual target.

On a free cash flow basis, we reported a healthy $376 million of free cash flow. And let's turn the page to Slide 26 to get a breakdown of that.

Starting with EBITDA of $670 million, as Darren mentioned, that is net of pension expense in that line. The EBITDA as reported is before restructuring and workforce cost reductions, so they are shown separately on this slide, in terms of the cash impact, or the cash paid, as opposed to the original provision.

Second line, CAPEX at $208 million. And cash interest at $36 million.

As you may recall, our larger public bonds have interest payable on a semi-annual basis. And therefore, the second and fourth quarter of the years, we tend to have a jump in the cash interest paid.

Nor in those quarters, the interest paid is somewhere in the neighborhood of $180 million, as compared to the $36 million in this quarter.

The cash tax line is an interesting development in this quarter as a result of a very favorable settlement that we have reached. So on a net basis, there's $6.5 million of cash taxes for the quarter.

Now, that, if you refer to the statement of cash flows, you'll see that for that purpose, we included the ITCs in that line. Of course, ITCs are already in the EBITDA line. So to put an apple-to-apple basis, we [INAUDIBLE] this year.

Cash dividends of $45 million reflect the 17% dividend reinvestment plan participation rate. Please to see that increase in the 14% area last quarter. So the reported free cash flow of $376 million is the resulting figure.

Now, to reconcile that to a change in that debt, you can see that a change in working capital and some other miscellaneous items amount to both $47 million. A big chunk of that change in working capital is a result of $21 million of reduced accounts receivable through a sale into a securitization program.

On public share issuance, as you know, we have significant employee shareholder and participation in our employee plan. And about $20 million came into the treasury during the quarter.

Cash restructuring charges were $154 million. This, again, relates principally to severance being paid out in the quarter. Therefore, the net reduction in debt in the first quarter was approximately $195 million.

Turning to Slide 27, highlights in the Communications segment. While we have experienced revenue softness with revenues down 4%, the largest reason for that was due to the price cap, normalizing for that, revenues would be down 1.5%.

EBITDA still grew at 5.5%, so exceeding or more than offsetting the revenue decline. And as Darren already mentioned, that EBITDA growth rate of 5.5% is net of a $22 million price cap effect as well as $16 million of pension expense change.

So normalizing for the price cap the EBITDA expansion was approximately 10%, and if one adds pension expense, it's over 13%. CAPEX down by 50%.

So the story, as it is, with ability, significant cash flow expansion, with $339 million, and up 115% year-over-year.

Turning to Mobility in Slide 28 , George touched on this with revenues up 19%, EBITDA up 46%. Of course, as George mentioned a year ago, the first quarter included a $21 million preventual sales tax credit. So if one normalizes for that, the EBITDA growth rate was 76% year-over-year.

The first quarter of 2003 did benefit from a $5 million favorable industry Canada license fee credit. So that helped network expenses be flatter than otherwise.

The revenue, 87% of revenue growth of EBITDA before COA -- sorry, for every dollar of revenue growth, EBITDA before COA increased by 87 cents. So that's the flow-through before cost of acquisition from revenue growth.

And of course, as George inferred, if one normalizes for the PFC a year ago, it would be over 100%. The point here tremendous economy of scale being experience as margin expansion is occurring from the revenue growth. So 36% is the network margin or 33% on total revenues, and that's a 6-point gain year-over-year.

Turning to Slide 29, the significant cash flow expansion of both Communications and Mobility is resulting in the debt being reduced and with EBITDA going up, consequently our net debt EBITDA ratio continues to improve. It decreased from 3.5 last year to 3.2 times at the end first quarter this year.

Of course, we believe we are on track to achieve the target of 3.0 or less by the end of this December and less than 2.7 by December 2004.

That reflects the credit enhancement that's occurring at TELUS and if one turns to Slide 30, you'll see the bond performance over the past 12 months. And that is quite the story, there's a bit of a "V" there, I don't know that this has occurred elsewhere.

Perhaps unprecedented to see an investment grade bond drop as much as it did upon the credit downgrades that occurred in the July timeframe 2002. But the main point -- I don't think that's the unusual part. I think the unusual part is that it came back even more since.

And so you can see that we are actually trading at levels higher than that, which prevailed prior to the rating cuts a year ago. Of course, we have not had a rating change other than an outlook change from one agency. So I think this says that the market is viewing ourselves as a credit that is stronger than it even was before we had the downgrades.

It's a relatively unusual situation, but that's what has occurred. In fact, on various days in the past 10 days, have had the spreads in our public bond issues actually trade underneath the spreads when they were originally issued in 2001. Again, very healthy reflection of how the bond market is viewing the credit worthiness of TELUS.

Turning to Slide 31, yesterday I announced that we will be renewing our bank credit facility in the amount of approximately $600 million for the 364 date portion, which added to the existing $1.5 billion term facility, means that we have a vote of $2.1 billion aggregate facility of which we're born $500 million or less currently. We have no material changes to the terms, and so it's essentially a straightforward renewal for us.

I think the positive story is that we have received commitments in the past week well in excess of $750 million, even though we're only looking to renew at $600 million. And in this environment of tightened credit availability, I think that's an important testimony to the strength of TELUS and its reputation and ability to access capital in the market.

Turning to Slide 32, we set financial targets for 2003 in my December 16th guidance call. You can refer to those in Slide 32.

Of note, you see that the free cash flow target was set at 300 to $600 million, reflecting the fact that there is about a $200 million estimate range in respect of cash taxes from cash taxes of $25 million to a credit position of $175 million. That variance was largely due to the uncertainty over the potential settlement with CCRA over certain disputed matters.

Turning to Slide 33, you'll see an update on those negotiations. During the quarter, we reached a settlement that will result in approximately $200 million of taxes to be refunded.

In addition to that, there's about $9 million of accrued interest, which after tax is $6 million. So approximately $206 million on a combined basis.

Now the income statement impact which results principally because of historical tax rates being higher than current tax rates. So when you apply the settlement back to the past where there is an income statement positive impact of approximately $47 million. That corresponds to the 15 cents per share EPS pickup as a result of this settlement.

Now, from a cash flow perspective, we have yet to receive the cash payments in this settlement. And therefore, you'll note that the taxes receivable in the balance sheet have increased by approximately $200 million in accordance with this settlement.

In terms of our cash flow implications to this calendar year, we expect to receive somewhere in the neighborhood of $150 million of cash, of this $200 million settlement, which combined with approximately $50 million of loss carrybacks that we expect to receive later in the year, coincidentally totals the similar $200 million number.

That is why we have revised our free cash flow range at least narrowed the range as the lower end of 300 has been raised to 500. And therefore, as you can see on Slide 34, we have revised the free cash flow range now to the 500 to $600 million range. The EPS was boosted by 15 cents, again reflecting the income tax settlement.

In terms of Mobility, as George referenced in accordance with revised industry growth expectations, and a continuation of similar shares, we expect approximately 350,000 net additions for TELUS Mobility. Because of the margin expansion and in part the subscriber estimate reduction, we have revised guidance for the Mobility EBITDA, by about $50 million, so the increased range is now 675 to $700 million.

On the Communications segment, we've experienced some revenue softness. And at this juncture, there isn't sufficient clarity and visibility on revenues for us to with certainty, revise guidance in that segment.

Clearly on our operating expenses driven by our OEP program, we seem to be achieving, if not exceeding our expectations in that regard. However, at this juncture, it's unclear whether the positive story here to date on OEP and projected for the rest of the year will offset or not potential revenue weaknesses.

So therefore, we felt it's more appropriate to defer a revision of guidance in the Communications until we have more data points in the second quarter. Accordingly, we have left the consolidated guidance unchanged and the Communications segment unchanged.

However, additively, obviously if you add the two segments together, it will be higher than the consolidated guidance.

In summary, on Slide 35, TELUS Communications clearly was a very positive story this quarter as we drove significant efficiencies and for Teleco North America 5.0 % on the waterline side, EBITDA growth is truly a very positive story.

On the TELUS Mobility front, obviously excellent results that we've covered. And so on a combined basis, very positive financial results reported. Which reduced CAPEX intensity, we're driving significant cash flow generation, which is reducing debt and leverage and translating into an enhanced credit profile.

And lastly, as just referenced, we've raised our earnings guidance for the year in part because of the tax settlement. So we have a very positive outlook for our earnings and other financial targets for the remainder of 2003.

With that, I'll hand it back to John Wheeler for Q&A.

Operator, do you want to give the Q&A instructions one more time and I'd just remind people on the call, if you can please limit your questions to one with a possible supplemental so we can go through the list of people standing by. Thank you.

Thank you, sir. Ladies and gentlemen, if you would like to register a question, please press the 1, followed by the 4 on your telephone. You will then hear a three toned prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speaker phone, if possible please lift your handset before entering your request. One moment for the first question. Our first question comes from the line of John Henderson, Scotia Capital. Please proceed with your question.

Yes, good morning. And congratulations on some very strong results. I'd like to ask questions on your union relationships and how they have responded to your lawsuit. First question. And then second question is on any kind of ambitions, intentions toward AT&T Canada?

Thanks, John. I'll handle this one. Given that we have a lawsuit underway, I don't think it is appropriate that I comment on it. I guess I could give you some overarching perspective as to what the rationale was behind originating the lawsuit. I can tell you categorically it was not our preferred course of action.

But I think when you have a situation where a union is making remarks in the marketplace, i.e., in a very public manner regarding the quality of your service, or the quality and integrity of your accounting, then I think you are obligated as an organization to move to thwart that type of behavior, which is clearly not in the best interest of shareholders.

And so far as the union situation is concerned, from a labor relations perspective, as I indicated in my remarks, we expect the conciliation process to go into the autumn of this year. I am hopeful that we can reach a settlement, as I indicated in my remarks, that does work for TELUS, our employees, and our shareholders. I do believe that the employees of the organization do appreciate the rationale for change. That is very evident within today's competitive environment.

The other thing that I think is worth noting is a lot of people look at this situation from a negative perspective. I would ask that perhaps people look at it from a different orientation in that, when we achieve the changes that are required within the collective agreement to improve our competitiveness, I do believe that that will release a material productivity gain into this organization that is not yet reflected in our financial results.

So when you look at the situation with the union and the risks, I ask that you also look at the return from driving the change that is necessary.

Your second question was in respect of AT&T Canada. Our position has not changed on AT&T Canada. This is not an active file within the TELUS organization, we have stated that previously. I see no need to further update the market in that regard.

That's great.

Our next question comes from the line of Greg MacDonald of National Bank Financial. Please proceed with your question.

Thanks. Good morning, guys. Question goes to George. George, really good numbers on the wireless side. And 19% growth is certainly peaking on the industry where the competitors are much lower than that. I understand it is a relatively easy comp based on the timing of per-minute billing last year. But I wonder, given your top-line guidance for wireless for the year, I'm calculating something like an assumed 11% growth. I wonder if you might comment on what concerns you have in the industry right now? In not increasing the guidance, given the fact that you seem to imply that RPU stability is to be expected throughout the rest of the year. So I wonder if you just might comment on what the risks are and what it might take for the company to look at increasing revenue guidance for the wireless going forward?

Okay. Thank you for the question. I think probably the guidance, I guess I'm most focused on is EBITDA to be clear to the investment community. Seeing an RPU increase as I mentioned, is the first time in 18 years I remember seeing it. So I think it would be imprudent of me to ask the investment community or even for our management to plan for that sort of continual RPU increase throughout the year, until we see something more solid there, I guess would be my answer.

I think secondly, as Bob has mentioned, given that we have reduced our guidance on subscribers, but generally kept our revenue guidance, and haven't changed it, Greg, you can see on your model that obviously we're implying that our RPU is going to be a little better than we thought it would be, otherwise we would have been forced to reduce our revenue guidance. So those would be the two answers.

In terms of what concerns me in the industry, I think as I mentioned on the call before that we continue to see reasonable penetration growth. And that as penetration has declined over last year, that all of us including TELUS have the discipline to not spend so much money trying to chase a pie that's growing but not at the same rate it was.

Another way to think about it is, it's very clear to us that the 12 million clients that the industry has today are more valuable than the next million clients we're going to add. And therefore, it's not intelligent to reprice the 12 million base trying to chase the 1 million. And that is very much a discipline at TELUS Mobility is trying to lead with.

And I am very encouraged by developments from our other two major competitors. One is in Roger's leadership of the change of EW clock and secondly is the very quick response by Bell in saying that they will also follow that. So there are signs that we are all finding the balance between subscriber growth and EBITDA growth and free cash flow growth to the benefit of all investors. Yet our pricing in Canada is still aggressive enough to attract a million new clients a year.

Just as an add on. The re-emergence of the third competitor, with 51,000 plans out there, does that indicate any concern for you going forward?

Well, it would be the fourth, first of all. So the other two keep me up. Yeah, I think any sort of pricing that's off the page, quite frankly, is something we have to watch. But it hasn't forced us to change our outlook here in terms of EBITDA. I think we obviously recognize that they're a competitor, but we are competing, we think pretty strong against them at the moment. Those sort of pricing things can have a detrimental effect. But so far we seem to be able to market against them.

Thanks for your response.

Our next question comes from the line of Rob Goff, Haywood Securities. Please proceed with your question.

Good morning. My question is for Bob. Bob, could you address the provisions taken for any retroactively salary change on the labor force?

Thanks, Rob and congratulations on the move.

Thank you.

I think essentially your question would be in regards to the potential settlement. Is that correct?

Yes.

Okay. Well, of course we have been prudent in accruing for anticipated settlement in regards to the labor negotiation. The actual outcome of that labor negotiation is indeterminate. But we feel we have made appropriate and sufficient accruals to date in terms of income statement impacts.

And that's made against the entire employee base applicable or not?

Yes. Of course this only really applies to the collective bargaining element of our workforce in Alberta and B.C. That's approximately 17,000 individuals. As you may know, there are multiple contracts that governed those -- or those bargain units. They're being collapsed into one negotiation now that the TWU represents those people on an aggregate basis. And those contracts did expire towards the end of 2000.

So we're into our third year of no new contract and throughout that entire period, we have been making the appropriate accruals. I don't think it's in shareholders interest for me to go through much further than that given we're currently under negotiations with the contract.

Okay. Thank you very much, Bob.

Rob, there's just one thing to add that I think might be important for your understanding of this situation. In terms of the severance packages that were put in place for the voluntary and early retirement programs, there is no legal requirement for us to make a retroactive payment to those bargaining unit employees who have departed the organization.

Okay, great. Thanks.

Our next question comes from the line of Peter Ramie with [INAUDIBLE]. Please proceed with your question.

Yes. Thanks very much. And good morning. Good performance on wireless. And good cost reduction. That's where I want to focus my question if I can, and I guess this question probably goes to Bob. If I've got these numbers right, and I may not, but nonetheless, you've reduced cost around $66 million in communications quarter-on-quarter and a little bit of that came from cost reduction or lower cost, I think, at -- in the east, the non-ILEC business. I understand that you took, recorded $95 million of your operational efficiency program savings on a comparable basis. So it looks like you're achieving 70% of the benefit of the operation of your programs, benefiting you right now. And I look at the year that Darren talks about $550 million cumulative benefit. That's $300 million incremental. Does that mean that towards the, as we see the quarters progress here, can you talk about the pattern of cost reduction on a quarter-on-quarter basis and what that might look like? It looks like it will be decelerating trend, or am I missing something here? Thanks very much.

Peter, I think it's fair to say that there's a decelerating trend from the standpoint -- if you think of it from this fashion, the bulk of the OEP departures transpired in the latter part of 2002. And therefore, it wasn't until the fourth quarter that we had a sizable savings that occurred from, directly from OEP. Now, we continue to have reductions, as you know, we're targeting approximately 1300 additional reductions for the entire 2003 calendar year.

In the first quarter of 2003, we have disclosed 600 of these have already left on a net basis. So therefore, 600 of 1300 is approximately 40% of the annual total that occurred in the first quarter alone. And therefore, we're sort of locking in, if you will, an accelerated recovery of labor cost savings. And so it therefore will decelerate over time as each quarter represents a higher and higher proportion of the total run rate savings that we achieved on the departure of all 6500 individuals.

Right. And that does help. So in the Q1, the 600, you didn't get the full impact obviously.

That is correct. I mean, they did transpire over the course of the quarter. But I would say fairly equally over the quarter.

Nonetheless, when you report in the future quarters, and hopefully you do disclose the operational efficiency program savings, as basically it will add up to $300 million incremental as we look at the numbers going forth?

That's right. We will continue to report on that, Peter. That's a good point. And at this juncture, we're sticking to our annual $300 million number.

Essentially, how one manages this program, it's not so much on a net basis, although we do disclose on a net basis. We know our gross departures because it's a voluntary and early retirement settlement program. And then we monitor at customer service levels and we will hire back in staff as necessary to maintain a sufficient customer service levels. And accordingly, that is somewhat of a variable. And we manage that very intensefully at TELUS.

And accordingly, we believe that based on what we believe will be sufficient to maintain levels that the net reductions, therefore, will end up being 1300 for the year. Obviously we'll manage that line. It could be 1100 or it could be 1500. It depends on what's necessary to maintain service levels. At this juncture, we're believe we're sticking to our original expectation of 1300 net. Now it translates given the math of people already left plus that 1300 to about $300 million savings this calendar year.

Thanks, Bob.

Our question comes from the line of Vince Valentini from T.D. Newcrest. Please proceed with your question.

Thanks very much. Two casual questions. One just follow-up on what Rob was asking about accruing the expenses for retroactive pay increase on the union deal. I wonder what the cash flow impact is there if you have to pay back over the past two or three years, that will be a cash [INAUDIBLE] I assume when the new deal is struck?

To the extent that there is a financial cost due to the settlement and therefore there are payments, if that was the case, it would have a cash flow impact.

And is that incorporated in your free cash flow guidance that you provided? Or would that be more an '04 event in your opinion?

No comment. Second thing is just on the taxes to clarify, you say you will get $200 million in total from this settlement? You expect to get 150 of that this year, but you received none of it in the first quarter. Is that right? That's correct. And with supplemental being that there is the $9 million accrued interest that's also owed to us. And that $9 million doesn't show up in the tax line. It shows up in the financing cost line as a credit if you were offset. And tax effective that had a $6 million, after-tax impact.

Okay. And last, the 150 received this year, can you give us any sense of the timing? Or does that all come in one lump sum soon, or is that sort of spread out over time?

It's not definitive. But we do expect it to occur either in the third or fourth quarter.

Thanks very much.

Our next question comes from the line of David Lambert, T.D. Newcrest. Please proceed with your question.

I have a question for George. You changed your guidance on subscriber additions for this year and raised your EBITDA. My question is, what do you plan to do with your marketing budgets going forward? It seems like on a, if you start calculating your cost of subscriber acquisition per net add, they're going up quite quickly. So I was wondering if you could comment on things that you can do with your marketing budget to try to stop that increase?

In terms of our marketing COA, we're always, frankly, all over that constantly, trying to drive it down. I guess what investors need to know, the way we look at it, is the cost to get a client is our gross cost. And we look at the expected life of that client. And as I mentioned on the Slide 19, if you look, our expected life of $3500 of revenue on a COA of 425, 12% of revenue, is, we think, North American, if not world class, in terms of our cost.

In terms of trying to drive it down, the sort of things that help are obviously if the handset prices -- and they have continued to come down. That can help us strengthen in currency. Certainly can help a wireless carrier in Canada because we import our phones. So I'm, quite frankly, never comfortable. We always want the numbers to be lower.

But in terms of our investment [INAUDIBLE] to our return has never been better for our organization in terms of our cost of acquisition. We did squeeze prepaid margins down earlier this year, on some of the retail channels. We have our commission residuals tied more and more to longer term and churn metrics. So we are seeing some of those things flow through. But that's probably maybe as much color as I can give on it today.

On the other side, RPU is doing quite well. And I was wondering if it was possible to sort of breakdown sort of the RPU increase that's coming from pricing from changes in subscriber mix and from increase in minutes of use? Is there a way to --

I don't think I would go to that granular level. I think -- my opinion is that the floor on RPU became possible because of the move to permitted billing. I think without it, you may have seen a decline this year in the industry. I think things helping it move north are things like data revenues starting to grow in the industry and to your points, the minutes of use growing in the industry are helping offset, if you will, the fact that the next incremental subscriber probably spends less than the current client.

The other thing you see as the industry matures, the longer people have their phone, the more they begin to use it. And it's just a fact we've seen. Because they start to use more and more of the functionality. So as the client base in the industry matures, and the number of new clients are lower than previous years, simply by the math, I think that's the other reason we're seeing a stability. And RPU it's also a reason we're seeing a decline of churn in the industry in Canada. Because the churn rate on clients after the first six months drops dramatically. And therefore, as a proportion of new clients becomes less, you see a churn decline.

And many of you will know that I have said for years not to model below 2% churn in your models. I definitely think I'm comfortable in sort of the 1.6, 1.7 range now given what I'm seeing in the industry.

Thanks.

Our next question comes from the line of Glen Campbell of Merrill Lynch. Please proceed with your question.

Yes, thanks. First, I wanted to just clarify, Bob, your answer regarding the accruals for possible labor settlements. I want to understand. When you say you have provided for it, is that in terms of a balance sheet provision? Or can we look at the revenue and expense run rates and sort of infer that you're booking expenses at a level consistent with where you think you might end up? In other words, what my concern is that we might see a bump in cash operating expenses if there's any sort of settlement, you know, due to a catch-up in the contract. And I had the same issue with respect to CRTC deferral account on the revenue side. Are you reflecting and currently booked revenues expenses or is it sort of being handled more through a balance sheet account?

In both cases, we've appropriately matched expenses to the period which they relate. And therefore, to the extent that there is incremental costs, they have been accrued over the past three years in the income statement.

As it relates to the price cap, as you will note from our disclosure in our notes going back to when the price cap was issued, we have expensed the full impact up front and not treated it as a contingent liability. So that is somewhat at variance with other treatments. And obviously we're at the conservative end of that accounting approach.

And I'd agree with that. And just to be clear, it's being expensed out above EBITDA line rather than below?

That is correct.

Okay. Excellent. The question, the main question I had was for Darren. And we've seen just a phenomenal improvement in the wireless market generally, and in your wireless performance. And as we look across the segments of the business, the segments that's really challenging for everybody is the enterprise segment. And my question to you is, is this sort of an inevitable fact of life in the enterprise segment? Or is it reasonable to think that in the future conditions there might improve so that we get the same kind of improvements in pricing and margins and profitability there? And what might it take to do that?

Thanks for your question, Glen. I think it is reasonable to think that we can have improvement in that part of our business. I think that it's clear that one of the things that has challenged our organization right now is the mass of transformation that we've undertaken over the last three years.

I think it's been fairly acute in respect of trying to institutionalize the cost savings, including the facilities rationalizations, trying to work more effectively with 5800 fewer people, and at the same time contemporaneously raise our level of customer service. It has clearly had an impact on our ability to reinvigorate our top-line revenue growth. And I would say in respect of TELUS over the course of 2003, we'll remain challenged as a result of the cost reduction program in terms of what we can do, effort and intellect that we can deploy to improve our top-line revenue.

But going forward into 2004, I would look for that area to improve. We have a number of initiatives that are under way that I think will improve our competitiveness in the enterprise market on a national basis. And we've got a lot transpiring right now within the service development part of our organization in terms of new product development that I think will again improve our competitiveness, improve our revenue, and contribute to our margins in that regard.

But over the course of 2003, we really do remain occupied with the first priorities set out for 2003. And that's, let's have the discipline to see the cost reduction program right through to conclusion. It's not just about hitting the target of 6500 employees. It's about operating more effectively with fewer people. And that requires a lot of process change, a lot of systems change, ripping up bureaucracy from this organization and so on and so forth. So that really is our primary focus right now.

I also indicated in my remarks that we wanted to improve the level of service that we afford our customers this year. Currently, we're surpassing historical levels in that regard. I would like to get up into best in class performance. Those are the top two things, I think over the course of 2004 you can expect to see us improve our performance in the enterprise segment.

Thanks. My starting point was that this seems to be a tough market, not just for TELUS, it's tough for everybody in Canada and the U.S.. I guess what I'm wondering is there any reason to think that the market might get better?

The economy has had an impact on our organization. I think you can see within our results the softness on the data front particularly within the IT component. But I do look for improvements.

And I think you gotta recognize that in terms of the corporate market, we don't have a huge share of that market. That market is principally resident within Ontario and Quebec. That's a market that we're looking to address through our national expansion. We want to be very prudent in our approach to that market. I think that we have the financial wherewithal to take a very disciplined approach entering that market.

I think you can see that reflected in this year's targets looking only to grow our top line revenue by about 10%. We've taken a much more modest approach, must more considered approach to entering that marketplace. But I think over the fullness of time, we will make good progress in terms of being very competitive in that enterprise market and we're moving forward from a position where we don't right now have a considerable point of market share.

Thanks very much.

Our next question comes from the line of Richard Talbot, RBC. Please proceed with your question.

Thanks very much. Good morning. George, your numbers are obviously very strong. I wondered, you've pointed out a number of factors that you are looking towards. I wonder if you could just bring it all together for us. You've seen margin expansion here from 30% last year to now 36%. What do you feel the business is capable of delivering in terms of margin? And perhaps you could also put that relative to the wireline business. Is the wireless one where you would expect to generate a higher degree of profitability than the core wireline?

Thanks for the question. Maybe what I'll try to do, Richard, I'm not going to obviously I can't give specific numbers going out, in terms of the wireless. I will say that the dynamic in industry in Canada and the behavior has certainly given the management team of the Mobility group to very much focus on how quickly over the next number of years can we drive the industry to 40% EBITDA margins, on network revenue.

I will tell you that I thought it would be very, very difficult to get to in Canada, historically, given the behavior, given some of the changes in behavior. You know, we are really trying to target models that go out to generate 40% EBITDA margins, and 25% free cash flow margins, with 15% to CAPEX to revenue ratios over time. That's not next year. It goes out further than that. But we think it is, indeed possible if the growth profile we see in Canada, and the disciplines we're seeing in the marketplace and the maturing of the industry.

Relative to the landline business, that's not really an area of my expertise. I could defer to Bob. Ask I don't know again, is it specifically relevant to investors? Maybe. Maybe the real thing you're trying to get at is, has the wireless model improved in Canada? And I think the answer to people should be, yes, it has. And as we have now matured on our CAPEX side because a lot of our work in Canada was adding coverage.

And with the arrangement we entered into two years ago with Bell, I think the benefits of that are starting to be seen in our CAPEX, and probably, although we're not sure because it's not disclosed in Bell's CAPEX.

So if I could just follow-up on that, George, it would appear that the market is maturing in aggregate. And therefore, that the upside is going to come from cost efficiencies and RPU increases. Would you, if you were to look forward, let's say 12 to 24 months, the kind of growth that you've seen in the EBITDA margin, would you -- can you put it in context of what you've seen in the last 12 months? If you were to add another 600 basis points then?

Well, let me, first of all on the growth I think I agree with two. Maturing is different when we're adding 1million subs versus 2 million. But I think it's quite conceivable to add a million net adds over the next number if years. If you look at the demographics in Canada.

And so that will still continue to be a significant driver of the revenue growth. Because of a million net adds at even at incremental revenue, you know, if you took $45.00 for the industry, you can see the revenue flow off of that. And we're seeing, in the industry in the U.S. and in Canada, anywhere from 65 to 75% of incremental revenue flowing to EBITDA. And what's been unusual about TELUS Mobility is we've been able to see 95 to 100% flow through. Those are constant efficiencies from the integration.

I think the rate of our margin expansion is obviously going to not continue at the rate it's been at. And that's why if we're at 36% this quarter, and I talk about 40 going out a number of years, you can see that we don't expect to get north of 40%. Ask that's based on a competitive marketplace, worldwide benchmarks on wireless. I'm not familiar with many that are in consistently north of 40%.

I think what's positive, though, for investors is the CAPEX investment is declining and has really matured. And that allows for significant free cash flow off the wireless assets in Canada, that up until now, I would have to agree at some points had to be frustrating for investors. The amount of CAPEX we had to keep throwing at the industry.

Okay, George. Well, congratulations. Thank you.

Thank you.

Our next question comes from the line of DeVy Goss, CIBC World Markets. Please proceed with your question.

Thanks very much. George FYI Microcell I think lost about 40,000 subs in the quarter. Just reported. So I think your market share and everyone else's was higher. My question is for Darren. And it's to do with broadband. Darren, it seems that you've lost some of your traction against Shaw in the quarter. I know they have a larger footprint and they don't breakdown geographically. Is that true and would you attribute it to their cable light product or what's happening there in terms of competition? And as a follow-on in terms of broadband, can you give us an update regarding video in light of NTS and [SASTEL's] video rollouts in the recent past?

Thanks for the question, DeVy. I would say overall, one of the things that you need to do to insure that you've got a fair comparison between our performance and the performance of our competitor on the broadband front is to recognize the fact that TELUS does not offer light products. So all of our net adds are high speed, internet access customers, whereas within the composition of the competition base, in terms of net adds, you'll see a mix of high-speed and light.

I would say over the course of this quarter, if you compare our performance with Shaw, we're relatively on a par. Perhaps Shaw is slightly ahead but difficult to decide. They were very aggressive on the marketing front in Q1 of this year.

I would also say that TELUS could stand some improvement in respect to its operational execution on the DSL front. I was not satisfied with our performance in the fourth quarter. And I'm not satisfied with our performance in the first quarter. We've got some execution issues to wok through. And I think we can pull up our socks in that regard.

I think as well, you need to recognize when you're comparing it, year-over-year, we have about 440,000 net adds now. And if you strip out Manitoba, Saskatchewan from Shaw, you know, they're in the 600, 650 zone so we're getting up to be about 1 million, in terms of households penetrated.

And if you assume that the penetration tops out at about 60% of households, well, you've got about 2.7 million households across Alberta and B.C. So penetration will top out around 1.6 million households. So roughly speaking, two-thirds of the market is now penetrated so the final third is going to be a little bit more challenging to reach, let's say, than what the first two-thirds were. And of course, Shaw does have a coverage advantage over us in Alberta and in B.C..

On the broadband front, I think suffice to say that we are or we feel obligated, I guess, is a better way to put it. Having deployed 700 to 750 million on [INAUDIBLE] cell infrastructure across Alberta and B.C. to look at what we can do to improve the return on that investment. And I think it is incumbent upon this management team to leverage the economies of scope and the economies of scale that we can recognize or realize from that infrastructure investment. So we are looking at ancillary services beyond high-speed Internet access.

We are looking at services such as, home security and home monitoring, and indeed, the delivery of entertainment services into the household. I think, you know, saying anything too much beyond that right now, I think, is probably tipping our hat to the competition.

I guess what I'd say for investors is that we will not push the button on that particular service unless we feel that we've got a strong commercial offering, one where we don't have to go out and compete strongly on price. But we've got a differentiated offering. So we enter the market creating value rather than the eroding value.

We will want to make sure that in terms of the technical efficacy of our solution that it's very resilient, very robust. And finally, and perhaps most important, at the end of the day, that the economics of the proposition looks salient.

So those are the three ticks in the box that we're trying to work through at this particular juncture. But again, the desire for us is to say, we now have a high-speed connectivity into a home. How can we put more services down that connectivity, improve the economy as a scope and improve the ROI on the initial ADSL investment? And that's really the thesis behind our strategy in that area.

Makes sense. On your DSL comments, Darren, the markets [INAUDIBLE] has penetrated are you attempting to come out with your own light product and rethink that? Or do you still see it as an unnecessary cannibalization?

At this particular junction we don't intend to go forward with the light product. We are working to convert our dial-up customers to our high-speed offering. I think one of the things that's interesting, if you want to look to our philosophy on this particular front, instead of launching a light product, we went in the other direction and launched a super high-speed product that delivers 2.5 meg of bandwidth plus which we have priced at a premium to our basic high-speed Internet access service. So at this particular juncture, we're not looking to go down the light path. But, you know, we need to continually reassess things as the market evolves.

Thanks, Darren. Strong quarter. Congratulations.

Thank you very much, DeVy.

Our next question comes from the line of Ryan Langdon, AIG Global Investment Corporation. Please proceed with your question.

Yes. You talk about your comments on the wireline business. I thought you said that maybe it would be a little soft there. But I was looking back at my notes from your '03 guidance. And you had commented that you thought you would continue to see line losses possibly as high as 1%. And looks like they actually went up in the first quarter. Although that's apparently a mix issue with the C-Lag. And if you can could talk about the C-Lag, you know, if you're seeing that business scale at all, and if that's going to breakeven or what you expect from that business.

Thanks, Ryan. It's Bob McFarlane here. You are correct that the NELs did increase in the first quarter as compared to the fourth quarter. However, on a year-over-year basis, the consolidated NELs decreased by 0.7%. Now, when we're towards the end of 2002, we were at a negative 1% rate. So obviously that decrease is slowing down. So that's a favorable development.

As you're possibly aware, in Canada, it's been around negative 1%, whereas in the United States, many of the [INAUDIBLE] reporting significantly higher decreases. So I think that reflects a more favorable situation here in Canada. In terms of the non ILEC operations, I'll hand that over to Darren Entwistle.

Hi, Ryan. I don't think yet we're at the point in terms of our non ILEC operation where we're enjoying economies of scale. As I indicated in my earlier remarks, this year we've taken much more of a decided focus in respect of EBITDA improvement for the non ILEC operation. We took a much more modest view in respect of revenue growth. And we're looking to significantly improve the profitability of that operation.

As you might have noted from the remarks at the opening of this conference call, we have now enjoyed six consecutive quarters of EBITDA improvement. And clearly for this organization, we're on a march to break through at the EBITDA level to surpass EBITDA breakeven probably sometime during the juncture over the course of 2003. And we have commitment to be EBITDA positive in 2004.

I would say as well, it's clear to us that if you look at the performance of our operations right now, I think we've seen some significant improvement. Particularly strong is the performance in Quebec, where really the Quebec non ILEC operation is already EBITDA breakeven and performing very strongly. So it's important for us now to improve the performance on the Ontario front, which we're working very seriously to achieve.

Can you give me sort of an overview, Darren, or snapshot of sort of the macroeconomic or business formation environment and your core wireline market? I sounds like it's weak but is it weak getting better or weak getting worse? What's your sense?

My sense is that the wireline side of our business is pretty stable. We have seen some softness on the revenue front, but to be very truthful, Ryan, that was anticipated. We knew that when we were going to consume ourselves with the OEP program, that that particular activity would have a cost that would manifest itself in some softness on the revenue front. And indeed, we have seen that transpire. But all in all, I think the wireline side of our business is exceedingly stable. It has proven itself to be very robust to competition.

If you look at our market share resilience on the long distance front or on the local front, it has been very strong over the last three years. You look at the EBITDA margin expansion, we're up about 380 basis points to an EBITDA margin right now on our wireline business at 38.5%. That's on a base of $5 billion of revenue. So you need to put that 380 bips improvement into perspective to say that's over a base of $5 billion on the revenue front. And that's despite the softness that we have seen in respect of our top line revenue performance.

I'm confident that as we embed the cost reduction program and begin to put it behind us, we will see better strength in terms of the revenue performance of our base wireline business. And I'm also confident that with the improvements that we are now realizing in respect of our Ontario and Quebec expansion, that that part of our business as well will make an increasing contribution in terms of top line revenue and as well an increasing contribution at the EBITDA level and eventually at the net income level for this organization.

I think one other thing that is important on the wireline front is the investment required to roll out our national wireline infrastructure is ramped down significantly. We've spent quite a bit of money in terms of the organic investment to deploy national wireline capabilities over the last three years. We've cut the capital investment that we have made previously over the course of 2002 in half from about 200 million to about $100 million this year.

And I think that's not a reduction to improve cash flow. That's just a reflection of the maturation of our wireline investment to build out those national capabilities. Now it's down to this management team to look to deliver an ROI on that investment that I think impresses investors.

Thanks a lot.

Our next question comes from the line of Robert Hastings, Raymond James and Associates. Please proceed with your question.

Yes, the -- wondering just the status of the tax deferrals that you've talked about before, Bob. Where are they now? Rob, what do you mean by where are they now? Sorry. In terms of we talked about the value of your tax position, to be able to defer taxes down the road or not pay taxes down the road. That seems to be $500 million. I'm just wondering how that's shaping up at this point. On top of my head, the NPV as a remaining loss carry forwards would be in the neighborhood of $600 million that would exclude the settlement that I've referred to in this quarter. So that comes out of the 600? No. It would exclude. So that would be supplemental to the 600. Okay. That's what I was wondering if it was drawing down. Thank you very much. Great quarter.

Our next question comes from the line of Dragos Stefanascu, Ontario Teachers Pension Plan. Please proceed with your question.

I have a question for Bob, if I may. If you will help me reconcile the debt here, Bob. I see that you paid down $200 million in the quarter. But the amount in the balance sheet, it's missing, I don't know, about 300?

Right. Without going into the specifics, the numbers, unfortunately, GAAP has now made it very confusing. And that's because one must separately recognize the in or out of the money swap position on debt. So formerly, if you go back more than a year ago, you see it as netted into the debt line. Because we're fully hedged on a U.S.dollar debt.

Uh-huh.

But to the extent that let's say it's in the money, you've got an asset shown separately, but of course you have less, you have more debt owing. If you have -- if it's out of the money, then, you know, again you have the offset of the debts. So your net debt is not changing. But how it's reported changes.

What I would encourage you to do is if you go into the notes the financial statements, you'll see the deferred charges that we have approximately $130 million, as I recollect, sitting there as a deferred hedging asset. And then in terms of the -- in terms -- and that was -- let me see. That was at December. So it would be at the end of December. Then with the foreign exchange change, we're now sitting at a deferred hedging liability somewhere around $200 million. So you have to basically combine that with our long-term debt to get what the effective long-term or net-debt position that we report.

Okay. That's quite clear. Can you guide me to the amount of interest that you're going to pay this year? An approximate number?

I think, unfortunately, I don't have that number right at hand. So I'll have to give you a call after this call ends.

Thank you very much.

Operator, we been fully through our list once, and we're well over. So I'd like to conclude the call if we could at this point. And I'd like to thank everybody for being on line today and good set of questions. And the Investor Relations department looks forward to answering any follow-up questions you have that were not dealt with and over to Darren for just one closing comment. Thank you.

On behalf of the management team at TELUS, I would like to thank debt and equity investors for their support. Clearly the last 12 months has been a challenging period for this organization. And hopefully, as a result of the targets and performance that we have been posting over the last little while, the efficacy of the strategy is becoming apparent. But I would be remiss if I didn't close this call by thanking people for their continued confidence and support.

Thank you.

Thank you, ladies and gentlemen. That does conclude today's conference call. We thank you very much for your participation and ask that you please disconnect your lines. Have a good day.