Telus Corp (TU) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for holding for the TELUS fourth quarter conference call. I would like to introduce your chair person, Mr. John Wheeler, Vice President of TELUS Investor Relations.

Thank you. And welcome to the TELUS fourth quarter 2003 conference call and webcast. Let me introduce the TELUS executives on line with us today. In Vancouver Darren Entwistle, President and CEO, and Bob McFarlane, Chief Financial Officer. In Toronto we is George Cope, President and CEO of TELUS Mobility.

We will start with introductory comments followed by a question and answer session. The news release on the fourth quarter financial and operating results and detailed supplemental investor information are posted on with our website www.telus.com. For those on the internet the slides are there for viewing at www.telus.com investor call. You will be in a listen only mode during the executive comments.

Let me direct your attention to slide two. Given the forward-looking nature of the presentation, comments and answers to questions, statements made about future events and future timely 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 both this outline and our public disclosure in Canada and the US. TELUS also disclaims any obligation to update any forward-looking statements.

Now, over to Darren on Slide 3.

Good morning, and thank you for joining us for our fourth quarter and 2003 review. Let me begin by giving you a recap of the full year 2003 financial highlights commencing with slide four.

As shown here the consistent strategy and operational execution is translating into excellent financial results. The continued strong performance of TELUS Mobility when combined with our operational efficiency program on the wireline side of the business generated 13% growth at the consolidated EBITDA level and a margin improvement of 400 basis points for 40%.

At the bottom line TELUS delivered in 2003 substantial net income of $332 million and 92 cents of earnings per share, which is well in excess of the annual dividend of 60 cents. Note worthy for both equity and debt investors this year has been a significant increase in free cash flow to $961 million. We've used the cash to reduce the debt by $872 million, which has been reflected by all four credit rating agencies upgrading the debt rating outlooks.

Slide five shows a significant increase in cash generation from both our communications and TELUS Mobility business segments. As you can see, each business has generated a $400 million increase in cash flow as measured simply by EBITDA less Cap Ex.

The next three slide serve to highlight how we have driven superior financial results for our share and debt holders alike. Slide six shows that TELUS's actual EBITDA growth in 2003 of 13% puts us in the top cortile of global telecom companies. Which has been consistently the case as we released our successive quarterly results this past year.

Slide seven illustrates that our growing EBITDA coupled with the reduced capital expenditures drove a world leading 94% increase in cash flow last year.

Starting on slide eight, let me now update you on three of the corporate priorities that we set out in 2003. First, is telecommunication operational efficiency program. We finished 2003 with a 1500 person net reduction in the staffing level exceeding the 1300 target. The conclusion of this program has allowed us to achieve your cumulative operating savings target with $454 million saved. This staff reduction puts us on track for ongoing annual savings of $550 million in 2004 and beyond.

Slide eight also highlights the second priority which was to enhance TELUS Mobility's leading operating and financial performance. TELUS Mobility now represents a full third of our consolidated revenue base which is growing strongly at 17% per year due to double digit subscriber growth increasing ARPU and industry leading customer retention. There is immense value being driven in the Canadian wireless sector that is heartening to long-time investors in the industry.

Today the Canadian wireless industry is characterized by growing rather than declining ARPU combined with reducing churn. This means that the lifetime value of each customer has increased, and this is especially true at TELUS Mobility. Our lifetime revenue per wireless subscriber is currently calculated at $3900, up $800 or 28% higher than a year-ago. This is greater growth than our major competitors and it is 14% above the lifetime revenue at BCE Mobility, and 71% above that at Rogers Wireless.

The strong revenue growth at TELUS Mobility combined with disciplined cost control contributed to a significant 53% year-over-year increase in EBITDA to total $815 million. This represents an impressive 800 basis point increase in margin to 34%. This is the second year in a row that we have grown EBITDA at TELUS Mobility by 50% or better. And our operating margins have expanded 1500 basis points over the last 24 months. This EBITDA growth and margin expansion is the highest of any major North American wireless provider that we are aware of.

Slide nine provides an update on the third priority. To reach a collective agreement with our unionized employees.

I would like now to give a short report on the outcome of the flurry of labor relations development that transpired during the the month of January. As you may we aware TELUS communications offered binding arbitration to the TWU and on January 30th the union accepted the offer of arbitration. Binding arbitration has been used successfully in Canada in the past with this unions and companies to implement major contract changes due to evolving industry circumstances.

The parties are now negotiating with assistance from federal mediators the choice of one or more third-party arbitrators, the terms of reference for arbitration, and an agreed timeline for the process. We will keep you updated on developments as we follow the process to a conclusion this year.

Rest assured that I will honor my commitment so our investors, customers and employees to realize the changes necessary in our collective agreement to enshrine the future competitiveness of TELUS and the welfare of our employees for the benefit of our shareholders and customers alike.

Turning to slide 10. Let me update you and IP telephony, a top of mind issue for investors in telecom recently.

To begin, let me point out that IP telephony has been a focus of the data growth strategy since 2000 and is the reason we were able to launch in this business in a meaningful way in 2003. IP telephony is a core business and expertise for us nationally in business and in residential. TELUS has been making investments in infrastructure and people for three and a half years to support this technology excalation and deliver the benefits of a reduced operating costs and has the functionality and more robust service management for our customers to enjoy.

First, let's look at the business side. TELUS with our next generation network now operational and with business IP applications in the cases in the marketplace has a sizeable head start over our peers in North America and, indeed, around the world. We are today providing carrier grade IP telephony with quality, reliability and security that far surpasses internet telephony being offered by others. TELUS IP one provides customers with cost and productivity efficiencies but most importantly compelling applications that deliver tangible business benefits. IP one provides a future friendly web portal including visual voice mail, ADHOC teleconferencing, integrated messaging, and find me and follow me services.

Turning to slide 11 and consumer IP telephony. Lets asses both the competitive threat and the opportunities that IP telephony presents for TELUS. TELUS is ready and able to leverage our lead business IP telephony into the consumer market. TELUS welcomes the current competition and understands that the offerings may become more robust over time.

We firmly believe we are differentiated from the emerging competitors. IP is core to our operations for the business and consumer markets which is not true for many of the new entrance.

Telephony is a complex business that TELUS knows well and will take others time to perfect as they realize that ongoing success will require more than leveraging a development in technology but rather the provisioning maintenance and billing of a customer solution over the longer term including the significant Cap Ex required to make this happen, a hallmark of life in the telephony world. TELUS's IP telephony offering will be available both on primary lines and secondary lines and will quality of service features that our customers demand and a functionality set that differentiates us from the competition.

On a different thing, observers need to consider that Canada has some of the lowest local prices combined with some of the best core telephony services in the world. It has regulated and declining prices with flat to declining margins. Hardly a mouth watering market entry opportunity for an emerging player.

It is interesting to contrast this with let's say the Canadian cable TV market in terms of available margins and over all market growth. On the regulatory front, we think there should be symmetry between established telco's's and new entrants. We also note that there is just two years left on the current price cap regime. To the extent that new entrants leverage new technology to enter the local access market including internet telephony, cable telephony or indeed for that matter, fixed wireless substitution we believe the regulator will look more favorably on deregulation. By definition, this would he be favorable to TELUS with the wide customer base we serve and future opportunities on price flexibility under a more lenient regulatory regime.

Let me conclude on slide 12 and 13 with two outlook views that bode well for on ongoing improvements in the valuation of TELUS in 2004 and beyond. As a precursor let me note that we take the setting and attaining of the public targets seriously as we recognize that they provide increased certainty and transparency for investors. TELUS has a strong track record of honoring our commitments. Last year we exceeded five of six consolidated financial targets. Looking back over the last three years we hit 19 of 22 consolidated financial targets.

The chart on slide 12 compares our 2004 targets for operating earnings growth against our global peers. So not only in 2003, but again in 2004 TELUS at 7% EBITDA growth is expected to be at the the forefront of global telecom companies.

The second investor consideration is cash flow growth for 2004. Again, our targeted 14% increase in cash flow places TELUS in a leading position amongst global telecom companies. Let me assure you that the TELUS team continues to work hard on delivering on all of our priorities and public targets. This effort is based on the clear and consistent national growth strategy that underpins our performance.

Now, over to George to review TELUS Mobility strong quarter and recent developments in the wireless industry.

Thank you, Darren. Good morning, everyone.

I'm on page 14 and let me start which saying I'm proud to report TELUS Mobility Q4 and year end financial results this morning to investors. Let me now turn to page 15. The slide will show you that our net ad at 166,000 for the fourth quarter were up 27% year-over-year consistent with over all growth in the industry. Important to us as well is that our post paid net ads are actually up 48% year-over-year. I'm particularly pleased with this given the environment in Canada. We were able to avoid offering competitive programs such as buy one phone get four free and also obviously we're competing in Vancouver with City Fido.

I'm also pleased that our camera phone positioning seemed to work well for us. Our campaign was well recognized in the marketplace and we were able to provide this increased growth with the declining CO -- cost of acquisition year-over-year.

Turning to slide 16. One of the continual highlights for TELUS Mobility this year is that our ARPU again increased year-over-year. Our ARPU, in fact, was up to $59 from $56 last year. Both our prepaid category and post paid categories were up. Prepaid up approximately $2. Post paid up north of $3 for an over all increase of 5%.

Our month --MOU is up 23%. We are clearly attracting the right clients to our network. If fact, our post paid MOU was over 400 minutes per month.

Turning to slide 17. An important development for the industry in Canada is that the three major carriers again not just TELUS saw the ARPU increase with both Bill and Rogers seeing an increase and Microcell seeing a decrease in an increasing market. Important from a TELUS perspective is we have been able to maintain our premium over our competitors even as their ARPU has increased.

As you can see on the chart that our ARPU moved up in absolute dollars similar to Bell and actually outreached Rogers. We also continue to plan to -- plan to continue to focus on price in the marketplace, trying to maintain ARPUs and as such recently we announced that on July 1st the price for calling line ID in Canada for new clients on TELUS will go from 4 to $5. Our voice mail services depending on which one will increase from 3 to $5 or 5 to $8 and the E911 charges, which will include some locations services, will go from 25 to 50 cents, and those will be, again, consistent with our other pricing strategies which will generally grandfather our current client base which has the effect of lowering churn in the in entire industry.

Turning to slide 18. The combination of the ARPU and strong subscriber growth has resulted in a 20% increase in network revenue, industry leading in Canada and possibly North America. Not all carriers have yet reported. Most importantly for us also leading in Canada in absolute dollar growth with $97 million increase in network revenue year-over-year in the fourth quarter.

Turning to slide 19. You will see that our churn is down year-over-year. Which I am pleased with. But it is important to note that it is up over both Q2 and Q3.

Important for investors to note is that our post-paid churn was 1.3% in the quarter versus 1.5% last year, the primary issue for us in churn in the fourth quarter was pre-paid where we saw an increase in churn particularly from aggressive pricing from Microcell where we saw the pre-paid rates drop dramatically in the second half the year and, I guess, was indicated yesterday by their decrease in ARPU and prepay.

We also did see some increase in post paid churn in Vancouver because of City Fido, but over all, as I mentioned, our post pay churn stayed, or was at 1.3%. I still believe it is prudent for analysts to forecast a blended churn rate of 1.5% going forward and we will continue to focus very hard in trying to maintain that as our blended churn rate with an absolute focus on maintaining post paid as low as we can.

Turning to slide 20. Very pleased to see that our cost of acquisition was reduced year-over-year in the fourth quarter. I know some of our competitors commented on our branding program and as a result our COA would actually go up year over year will incourse these numbers, so that wasn't the fact. Our net ads went up as our COA came down. And importantly, our lifetime revenue in the fourth quarter went up and the cost of acquisition over the lifetime revenue of our client was 12% in the fourth quarter, down from 14% last year and clearly industry leading in Canada taking our COA over our lifetime revenue.

Turning to slide 21. No doubt the highlight of the quarter for investors will be seeing that we are able to increase our net ads 27% but still drive the consistent EBITDA growth we were able to achieve throughout the year by [inaudible] actually a 48% EBITDA growth in the fourth quarter. This is driven by two things. First of all, revenue. Which I have talked about being a combination of subscribers in ARPU. But on top of that, it also comes in very tight expense control.

Our COA, as I mentioned, is down. But more importantly, if you look at the expenses excluding COA you will see they were up only $8.4 million year-over-year versus a revenue increase of $97 million. That is 91% of ever incremental dollar flowed to the EBITDA line. We are now seeing ratios such as one new employee required for every 2,000 subscribers which would be a ratio of about a million four incremental revenue for every $80,000 investment in employee side.

You will also note in the MD&A that our G&A line which is $512.8 million in 2002 is also $512.8 million in 2003. That is on a year-over-year basis, not quarter over quarter. So cost control is just -- has been just as important as revenue growth.

Turning to slide 22. It illustrates that our strategy of focusing on profitable subscriber growth as opposed to subscriber growth is working well. We did achieve a reasonable market share of 30% of net ads, but most importantly consistent with our strategy, we achieved a dominant share of the incremental EBITDA created in the industry this year. In fact, we captured 45% of the $630 million of incremental EBITDA in Canada this year in the wireless industry.

Turning finally to slide 23. It was a tremendous year for TELUS Mobility as you can see here. All metrics moved the right way. Net ads were up. Churn was down. ARPU was up $2. Network revenue up 18%. EBITDA as Darren mentioned for the second year in a row up over 50%. EBITDA margins on network revenue to 37% with an objective this year to try drive that to 40. Cap Ex down dramatically and free cash flow up 500%. Our objective in 2004 is to continue to be one of the leaders in North America in the wireless industry in profitable subscriber growth.

Thank you, and with that I will turn the presentation over to Bob McFarlane.

Thanks, George. And congratulations on the excellent results for the quarter and the year.

Turning to slide 25. I'll begin my comments with the review of our Q4 results before discussing some recent developments and a brief review of the 2004 targets. Consolidated operating revenue increase 1.7% for the fourth quarter of 2003 when compared with the same period last year. Consolidated EBITDA excluding restructuring work force reduction costs increased over 8%. In the case of both revenue and EBITDA, the driving engine behind the growth has been in the mobility segment.

Of particular note fourth quarter profits grew to $50 million in the quarter and earnings per share were up 54 cents. Both sharp turnarounds from 2002's negative numbers. I return to this in terms of a discussion on EPS in a few moments.

Turning to slide 26. It shows the strong margin expansion evident across both business segments. In communications our ongoing operational efficiency program, or OEP for short, has boosted margins to 42%. Our mobility or EBITDA margin over total revenue has increased by 6 points to 29% in the past year. Benefiting from strong revenue growth coupled with discipline cost containment and scale efficiencies. In terms of network revenue, mobility posted a strong 32% margin even in the traditionally heavy fourth quarter selling season representing a 6 point year-over-year expansion.

On a consolidated basis TELUS delivered a solid 2 point increase on EBITDA margin from 36% in the same period last year to 38% this quarter.

Turning to slide 27. We can see that EPS measure for the fourth quarter of 2002 and 2003 normalized for certain one-time items. After backing out the impacts of the restructuring and work force reduction costs, receipt of investment tax credits in Q4 of 2002 and increased price cap expense, normalized EPS was up 17 cents. If you then include the impact of increased pension expense normalized EPS growth would have been 19 cents on a base of 3 cents in the fourth quarter of last year. Any way you slice it, TELUS had significant improvement in earnings in 2003.

Slide 28 depicts an over all downward trend in both consolidated Cap Ex and capital intensity. What a difference two years makes. 2002 represent the peak investment period for a number of major capital programs such as national network expansion, ADS sale of network deployment, analog to digital wireless network conversion, Wireless PCS spectrum acquisition, and so on. As a result the ratio of Cap Ex to sales reached over 36%. TELUS ended 2003 at a 17.5% Cap Ex intensity level. Even after excluding the spectrum auction purchases of approximately $356 million made in 2001, annual Cap Ex have still decreased by approximately a billion dollars fueling a significant element of our free cash flow expansion.

Now, to slide 29. Given the significant decline that annual Cap Ex experienced in 2003 and the similar level of Cap Ex inherent in our 2004 targets the increase in Q4 Cap Ex was a natural byproduct of catchup from earlier in the year and not indicative of expected future run rates. Regardless we enjoyed yet another quarter of significant free cash flow growth with $164 million improvement in Q4's free cash flow generation relative to that a year earlier. When one looks at the free cash flow generated after deducting restructuring payments incurred in both quarters which is the way that TELUS will be reporting this figure going forward. Free cash flow increased a tremendous $250 million year-over-year.

Slide 30 shows the components of the sizeable free cash flow generated in the three and 12 months ended December 2003. In Q4, the receipt of $130 million portion of a previously disclosed income tax settlement helped the generation of $84 million in positive free cash flow before restructuring payments. We've also modified our presentation in order to highlight cash restructuring payments as we transition to a definition of EBITDA in 2004, that is after deducting restructuring costs.

Regardless of which definition of free cash flow is used we are clearly generating significant cash flow well ahead of plan. In 2003, TELUS generated about a billion dollars in cash, of which approximately $175 million was applied to a reduction in securitized accounts receivables.

Turning to slide 31. You see that free cash flow generation has led to a reduction in the net debt EBITDA ratio from 3.3 times at Q4 2002 to 2.64 times at Q4 2003. Our significant cash flow generation enabled us to deliver results well ahead of our original and revised leverage targets for 2003.

Slide 32 illustrates that we exceeded all five of the profitability and cash flow related targets for 2003. First set on the December 16th 2002 targets call. While we did not meet the targeted revenue range, it should be noted that after normalizing for $21 million of revenue related to non-ILEC asset dispositions in 2003, we were close to the lower end of our consolidated revenue target range of 7.2 to $7.3 billion. But, we will resist the temptation to round up for a check mark.

On slide 33, you can see the results for wireline segment TELUS communications. During the fourth quarter we continued to experience softness in wire line demand. Reported revenue is down 5%. After normalizing for the negative impacts, price cap decision and reduced application development revenues as a result of the asset dispositions I previously mentioned.

Revenue declined 2.8%. This organic decline was due primary to lower voice equipment sales and lower long distance revenues. Notwithstanding the fact that operational expenditures were down 7.2% over the same period, communications reported EBITDA decreased 1.5% as the revenue declined more than offset the Op Ex benefit.

Cap Ex increased 4% year-over-year largely due to the delayed timing of expenditures resulting from the OEP implementation and various [inaudible] events experienced earlier in 2003. Therefore, the Q4 Cap Ex intensity ratio as mentioned is not indicative of over all going forward annual rates. As a result of slightly lower EBITDA and shifting of Cap Ex in the Q4, cash flow was measured by EBITDA less Cap Ex for communications declined 8.7%.

Slide 34 attempts to provide a better understanding of the underlying organic EBITDA improvements in our communications business. On a reported basis our communications EBITDA decreased by 1.5%. However, normalizing for the $11 million in ITCs received in Q4 of 2002, and for about $21 million in negative impacts from the price cap decision, our underlying EBITDA growth rate was actually 4.7%. If one normalizes further for the increase in pension expense in Q3, in 2003 we with see that the underlying EBITDA year-over-year growth rate driven largely by the operational efficiency program was 6.8% which corresponds to a five point normalized EBITDA margin improvement.

Slide 35 provides a summary of the OEP. During the fourth quarter we reduced a further 700 positions and closed or consolidated an additional five customer contact centers. Since the program's inception in July of 2001, we have reduced 7500 positions, that is 200 more than most recently targeted. And closed and/or consolidated 44 customer contact centers and 33 phone stores respectively.

During the quarter, we achieved incremental savings of $25 million, bringing our total cost base improvement for 2003 to $304 million, and $454 million since inception which is about $4 million more than targeted. As a result we have clearly matter exceeded all of our OEP targets for 2003.

Slide 36 shows the labor productivity of our TELUS communications segment as measured by annual EBITDA per full-time equivalent employee. As you can see in the past year, communications segments annual labor productivity has improved by a dramatic 23% as a result of the OEP program's success.

Now, on to slide 37. Let's look at our non-ILEC operations. The focus for 2003 for Ontario Quebec non-ILEC operations was profitability improvement. That was a good news story if 2003 and the fourth quarter added to the progress made throughout the year as it represented the ninth consecutive quarter of profitability improvement. In the fourth quarter of 2003 non-ILEC negative EBITDA was only $2 million on $138 million of revenue.

The non-ILEC revenue growth rate is some what understated due to the asset dispositions earlier in the year which I mentioned which reduced quarterly revenues by approximately $7 million. The negative $2 million EBITDA result in Q4 was actually close to negative $4 million after including the impact of some favorable one-time items. Even so, this still represents a healthy improvement in the underlying non-ILEC EBITDA sequential run rate and puts the non-ILEC operations on track to achieve positive EBITDA in 2004.

Slide 38 illustrates that the communications segment exceeded four of its six initial targets while over all communications revenues fell short of target after normalizing for $21 million in non-ILEC asset dispositions reported revenues would have been $576 million, just ahead of our $575 million target. Similarly, over all communications EBITDA fell short of target despite EBITDA at the non-ILEC segment of negative $29 million being substantially better than the negative $60 million initially targeted. Despite the slight increase in Q4, communications Cap Ex were $150 million favorable to the initial 2003 target.

Turning to slide 39. TELUS' 46,000 high speed net ads in the fourth quarter of 2003 marked an acceleration in quarterly loading reflecting strong overall market demand. This brought TELUS' high-speed internet subscriber base to 562,000 at year end and for the second straight year TELUS captured the majority of high speed, shall I say high and low speed, or light speed net additions in 2003 by exceeding those of our cable competitor.

Next on slide 40 you can see that TELUS Mobility continued to perform well across the board. Total revenue, as George mentioned up 17% a year-ago. Network revenue up 20%. EBITDA increased an impressive 48% and so on and so forth. I won't repeat George's achievements. I think they are obvious when you look at the results.

Turning to slide 41. We observed mobility significant contribution to TELUS' consolidated results for both EBITDA and EBITDA less Cap Ex over the past two years. Mobility's increase in EBITDA of over $280 million in 2003 means that this growing segment comprised 29% of 2003 consolidated EBITDA. Combined with net mobilities $100 million decrease in capital expenditures over the same period, its EBITDA less Cap Ex contribution if you will also increased to 29% of consolidated cash flow for 2003.

I believe this has important valuation implications. The high growth mobility business is now also generating meaningful cash flow after Cap Ex and since a represents such a high and increasing proportion of TELUS' overall business this should logically attract a higher valuation multiple for TELUS relative to other telco stocks.

Turning to slide 42. Mobility exceeded all three of its initial financial targets as well as achieving the initial subscriber target. Of particular notice is the substantial $815 million of EBITDA, approximately $165 million or 25% higher than the top end of our initial target range.

On slide 43, I summarized 2003 results. During the fourth quarter of 2003, despite revenue softness, TELUS communications attained a 7% normalized EBITDA growth rate driven by a successful OEP. TELUS Mobility continued to post excellent results across the board well ahead of plan. A significant value creator for shareholders and strong consolidated profitability increases were reported in terms of both operating margins and for bottomline EPS.

During of the fourth quarter of 2003 we met or exceeded all 2003 OEP, profitability, cash flow, and leverage targets. A good record of achievement that bodes well for our prospects in 2004.

Now, skipping to slide 45. I'll finish by summarizing TELUS' key 2004 consolidated financial targets as publicly disclosed this past December. As previously announced we are targeting revenue to increase by 4 to 6%, EBITDA to increase 5 to 8% EPS to increase between 14 and 36% to $1.05 to $1.25 per share. Cap Ex to remain flat to down slightly. And in terms of free cash flow, we have restated our 2004 free cash flow guidance to hence forth be defined prior to dividend payments which is a more traditional shareholders focused definition. The underlying targeted cash flows remain unchanged from prior guidance.

On our December 18th targets call dividends were estimated at $180 million for the year. We have added this back to our initial range of $950 million to $1 billion 50 million on in order to more probably reflect cash available to all security holders. The resulting range of 1.13 to $1.23 billion implies an increase of 34 to 46% over the prior year after making a similar adjustment for the $172 million in dividends paid in 2003.

That closes my comments and back to John Wheeler.

Thanks very much. Bob. Just before I turn things over to our operator I just like to remind you that as we go through the q-and-a session, I would like to get as many people through, and I will cycle back if there are more questions. And if I could just ask everyone for one question only. However, if you need a followup question related to your first question, that is okay.

So at this point, I will turn it over to our operator Cindy. Thank you.

Thank you. Ladies and gentlemen if you have a question please press one on your touchtone keypad. If you are calling from a speaker phone, if possible pick up your handset before pressing one. If you wish to leave the question queue press the number sign. When I announce your name, please ask your question.

The first question from Richard Talbot, RBC Capital Markets. Please proceed with your question.

Thank you very much and good morning. My question has to do with demand, particularly on the wire line side of the business. I note that the revenue was off about 2%. You're forecasting flat to slightly up 2% in '04. Also note that the Cap Ex in the fourth quarter increased a fair amount and I think Bob you talked a little about that.

I'm wondering if you could comment on the over all demand levels. Are you seeing signs out there that point to an improvement beginning in '04 and is that what may be behind the some of the increase in Cap Ex and also if you could link that in with the non-ILEC business where revenue growth seems to have plateaued. If you could comment on what the main drivers will be that you look for in '04 that we will see some positive revenue growth there. Thanks.

Richard, I need to compliment you on the way that you have couched your several questions into one particular paragraph. Very adept of you. Let me try and reverse my way through your questions starting with the non-ILEC revenue growth.

I think it is important to point out if you do normalize for the dispositions that transpired over the course of 2003 we delivered roughly 10% revenue growth going from 527 in the preceding year to 576 on a normalized basis. I think we are clear from the outset in reflect to the non-ILEC business that was focus for this year was going to be on profit and the fact that we came in at less than $30 million negative EBITDA versus a negative $60 million original target I think it is pretty good going for your business.

I would also point out that if you look at revenue base the $555 million that we are generating from the non-ILEC wireline business, the quality of that revenue is very strong. Over half of that revenue is coming from data solutions and managed data solutions and that is the type of foundation that we want to have to build a very sound business on a go-forward basis.

One of things that has hurt us in terms of year-over-year revenue growth in the non-ILEC business has been the weakness in corporate IT spend that we have seen reflected in less than appealing CBE sales. One of the big impacts year-over-year is that they are CBE sales are down because corporates are not opening up their purse strings and pursuing certain IT strategies. We would expect to see that recover going forward as we see the economy improving.

The other thing that I think is pretty key for us and you will see it is again reflected in 2004 is moving to EBITDA positive for our non-ILEC wire line business. Currently, I think if you look the the valuation of TELUS as an organization, there is very little value ascribed to the wire line operations in Ontario and Quebec and the extent to which can go EBITDA positive in 2004 and cash flow positive in 2005 then I think we can start earning a value you for our wire line business if central Canada and hopefully start to see it reflected in our stock price.

Lastly, I think we secured some very attractive deals over the course of 2003, the most notable of which, of course, is the TD bank deal. None offered TD bank deal revenues occurred in 2003 and they will only start to come online as we implement that solution over the course of 2004 and that bodes well for our recurring revenues going forward given that that is a 7 year $160 million deal. And I think as well, the extent to which we have been investing in IP technology in the business market since 2000 and we have come forward with our IP1NGS type solution we can offer a very ,very, very differentiated data offering in terms of the cost of the offering, the functionality of the offering, and the robustness and security of the offering and that I think bodes well for our competitiveness and future success in Ontario and Quebec and indeed Alberta and B.C. going forward.

So, I feel pretty positive about that business and I think that is a highlight for us on the wire line front over the past year.

On the ILEC side, you correctly point out that we did have revenue softness. I would say first and foremost, Richard, it is not easy to take out on a gross basis 7300 employees essentially over the last 18 months and simultaneously have revenue growth in the ILEC business. I think priority number one for us was to deliver on the operational efficiency program, hit our net staffing reduction target of 6500 employees. We beat that, delivering a net reduction of, circa 6700 and delivering the step change improvement in the Op Ex base and by extension the margin expansion that goes along with it.

I think now that the OEP program has come to conclusion we can begin again trying to revitalize the wire line growth in the ILEC region and we have a number of new product launches that we have scheduled within the ILEC business particularly within our consumer market over the next 12 months that I think bode well for underpinning revitalized revenue growth that I have just referred to.

Does that answer your question?

Thank you very much.

So over all you have a positive bias towards the economy outlook in '04 and you would see that positive revenue growth also being fueled with new revenue from new services and potentially some market share that you expect to take as well.

I think you have the tail of two provinces in Alberta and B.C. Richard, but over all I think the economy is sufficient to support the revenue growth that we are postulating. Having been alleviated from the focus on the staffing level reductions and knowing what the new product development road map looks like for the course of 2004. I feel that in terms of the targets that we have set out for revenue growth for the ILEC business this they are reasonable.

Thanks for your answer.

Thank you. Next question.

Our next question comes from John Henderson with Scotia Capital. Please proceed with your question.

Thank you. A number of one-time sort of one-time items in the quarter. I wonder if you could help go through them. Those related how much would be related to conciliation or negotiation with union costs.

You did highlight the $8 million of over time costs. Are those recurring or are they pretty well completed? And then increased call center costs as you outsource or you insource from a third-party are those -- are those costs insource costs now or I guess the third-party costs now going away going forward? And then on the in the other direction bad debt expense decreased by $12.5 million. Is that sort of a one-time thing in the quarter?

Okay. John. Well, again, I guess going reverse.

On the bad debt side which I'm fairly close to responsibility in that area, I think we are reducing to more normal levels so I think that is a -- we are trending towards sustainable levels so that we should be able to hold on to. In terms of impact from the labor situation on the results, I think that is difficult to quantify precisely. Certainly you're quite correct, we incurred low extra over time expenditures. And that was'nt solely due to the labor situation. That emanates back from the time frame that we experienced concurrent natural disasters particularly out here in western Canada with the forest fires with the largest cable accidental cut in the history of BC telecom TELUS as well as you may recall the power failures in central Canada and the United States.

From that time on we had over time resources deployed and we did have over time resources deployed in terms of the customer service and to improve our service levels towards the end of the year. So I think that is an opportunity for some reduction. I -- I guess I have learned after the past six months not predict that there won't be any natural disasters so hard to say that those aren't recurring one-time events but selfish it to say, one would expect that to trend back to normalized levels.

As for the service level impact maybe I can hand it over to Darren.

Just to underpin the contrast that Bob was alluding to, a stat that may be of interest to you in evaluating recurring versus nonrecurring events over the course of 2001 and 2002 we did not in vogue in a singular instance our emergency operations procedures. We invoked them eight times over the course of 2003 as result of the natural disasters and indeed the third party cable cut that transpired in the downtown Vancouver corridor. We also had some systems implementations that did not go as well as what was desired that had service impacts which again generated costs as we responded with manpower to deal with the deficiencies on the systems side.

If terms of this particular organization, I feel that there are nonrecurring costs that are reflected in 2003 that we hope can be avoid is as we go forward into 2004.

In from a labor perspective in respect to the negotiations, the cost in respect to that particular activity I would say the [inaudible]. There are nonrecurring costs that are associated with our emergency operation to planning to make sure that we are at a state of operational readiness to deal with any labor eventuality that may present itself. To the extent at which the labor situation is remedied, then of course those costs would not be repeated in 2004 and beyond.

Thank you. Next question.

Your next question comes from Greg MacDonald. National Bank Financial. Please proceed with your question.

Thanks, good morning guys. A question for Darren.

More after broader issue. When you look at some of the ILEC and I'll note particularly Bell, Verizon, SBC have made some announcements recently releasing details on the issue of voice over IP and in particular, their plans to migrate in markets or other current circuit switch plans to migrate toward IP I guess as a way of not only responding to competition but looking at decreasing the current cost base of the way that they deliver voice, it is clear to me that you have an out of market product if your IP1 telephony service which I'm assuming is also used or focused in market.

But I wonder if you might comment, have you made the investments that the other companies are talking about, is this a case of where they are playing catch up or is this something in terms of investments in soft swish, gateway, even further fiber deployment end market. Is this something that you anticipate you would also have to be looking at and is that something impacting Cap Ex going forward?

Thank you, Greg.

This is an area obviously that I feel pretty strongly about and alluded to no the course of my remarks. TELUS has been making an investment in IP telephony since 2000 when we commenced the next generation network. We are a world leader in IP telephony at the back bone layer at the access layer and respect to the customer premises and applications associated with it. We are way out in front in this particular area, and indeed, most of our peers are playing catchup with us. That is not because we have a stranglehold on any intellectual property. It is a reflection of the efficacy of our strategy.

You have to reflect that back in 2000 most of our peers were diversifying away from the core businesses and investing internationally. We were focused on core business, focused on two tenants: data and wireless, and we were focused on Canada in respect of the national rollout or national buildout of our infrastructure to support that focus on data and wireless. So, it is the fact that we have been that the particular thing since the outset that I think has bestowed upon us a leadership position in this particular area.

Next thing I would say for this organization is that what we do in terms of data and wireless we do nationally. So, I think it is obvious in terms of launching our NGNIP type one solutions to have a cost disruptive model to enter a market, to offer a functionality set that is highly differentiated, and indeed, a robustness of a service management offering in the security associated with that, obviously the focus for us initially is going to be in the out of market Ontario and Quebec region where we have no voice base to cannibalize.

But I think it is important to point out that we have repeated on many occasions that what we do on the NGNIP1 front will be done nationally. I think for us what is positive in the ILEC region is the opportunity to reduce our operating costs. I think IP telephony can make that happen. I think the challenge for this organization is going to be to make sure that what we can deliver from a functionality set as a result of computer telephony integration and fact that customers are willing to be willing to pay for that value proposition more than offsets the erosion that transpires in our core business. That will be the challenge for us in terms of solutions development and the way that we market that to our customer base.

Finally in respect of our Cap Ex, we have been spending the capital all the way along. We operationalized the NGIP1 solution so when you look at the 2001, 2002, 2003 Cap Ex base the IP investment is already in it. For us right now the investment is going to be on maintaining the capital that we put in place, evolving the capital that we put in place and nurturing that particular infrastructure so we can keep that lead-time advantage that we have over our competitors which I would say is roughly 18-24 months.

Okay.

Does that answer your question, Greg.

It does. I guess by way of sticking stakes in the stand though, it is always tough for us to understand where companies stand on these issues and if Bell comes out and says we can have a full suite of IP products to 90% of our customers by '06, am I to assume that that something that you can do equally? Is there a measurement that we can use to indicate that you are 18 months or a year ahead of everyone else?

I think you should come and have a tour of our operations, I think you should come and see those IP customers that we have operational today so you can see first hand the functionality, you can see first hand the real time deployment of that capability, and you can see that in terms of TELUS, it is not lip service in terms of what we will have come 2006, it is about what we have in terms of functionality today that is operational in the market. That is why I say we have an 18-24 month lead time advantage.

I'll take that invitation. Thanks Darren.

Cheers.

The next question comes from David Lambert. TD New Crest. Please proceed with your question.

A question for George. Just trying to figure out how many City FIDO subscribers moved over to Microcell. They mentioned about 25,000 subscribers were switchers out of the City FIDO subscribers they got out of Vancouver. What percentage of that would you have taken?

And you also said in the last core conference call you are taking more subscribers from them in eastern Canada. I don't know if you can quantify that compared to how much would have switched over from TELUS in the fourth quarter. And then I have a follow-up on that.

Sure. I will answer some of what you asked me.

Let me start by saying as I said three months ago, City FIDO does not add value to the wireless industry. And clearly I believe Microcell financials yesterday showed that to the market place.

Having said that, we initiated a very tactical strategic response the day they launched the program. We have had four phases rolled out. Phase one ran from October 9th to January 31st. We launched a program in Ontario Quebec the day they launched City FIDO, which offered Microcell clients the opportunity to switch to TELUS and receive a free phone for signing a contract and received FIDO's rate plans. I won't give you a number but I can tell you that we converted well in excess of the new City FIDO clients that FIDO reported yesterday. Their net new, not their conversions. Well, in excess of that number.

Phase two rolled out on February 2nd in the east. We will run with full advertising again until March 31st. Offering 50% off Microcells rates to client in Ontario and Quebec until June 30th. Free phone. Full branding. And matching rate plans after that.

Phase three rolled out on February 9th and will run until March 31st in Vancouver and lower mainland. Which offers new clients 700 minutes plus evening and weekends for $45 plus our $7 license fee. No other was services included. Full long distance rates, et cetera, zero phone with contract and that is in the market until March 31st.

Phase four in Vancouver launched by our retention team on February 10th where 100 people full-time will be reattracting and remarketing two clients who have left us, and in the first three days roughly a third of those clients have indicated a willingness to return. And we will roll out other tactics as required to protect value for your shareholders. Meanwhile we did this in an environment where we were able to increase ARPU and drive EBITDA 48%.

Okay. My follow-up is actually when you look at the COA, most of the decline came from [inaudible] and actually marketing expenses went up by $25 million in the quarter --$24 million in the quarter. Reading from these promotions you are looking to offer, it seems like that $25 million is going to be at least $25 million is going to be recurring every quarter. Am I reading this right?

Well, you clearly would be reading our financials , right. Our COA is down year-over-year. We definitely spend more than branding than ever before. Our campaign actually was just recognized TELUS was actually recognized as the number one brand recently by a marketing magazine in the fourth quarter. So, you are correct on that.

If in terms of going forward we just stand by our guidance that we have given the investment community for our wireless for the year and that will obviously be a mix of promotions, et cetera. There is no doubt that something like we ran in the fourth quarter had more marketing dollars in it and will continue to be reflective in those sort of competitive responses. However our financial disciplines and guidance for the street hasn't changed.

Thanks.

Operator next question, thank you.

The next question is from Peter Ramey with BMO Nesbitt Burns. Please proceed with your question.

Just a follow on to that, George if I may. There were comments made by Microcell with regards to a national rollout and different pricing, higher pricing to be used and I'm wondering what your take is on some threshold where you feel -- how much is Microcell underpricing where you feel discomfort and where it would start to add value to the industry?

In the U.S. there are some unlimited plans I think north of $120. But we wouldn't be -- we won't be launching unlimited plans in the Canadian marketplace. Nobody that I know of has ever shown an unlimited wireless plan, unfortunately with the cost structures of our industry infrastructure is free cash flow positive, and so it won't be something you will be a seeing from TELUS.

Were you encouraged by the remarks made yesterday in.

In what context?

Well, that in they were to rollout nationally the pricing plans would be higher or are they so far out of the money in terms of price points [inaudible].

I will leave the analyst to determine whether or not that can be free cash flow positive. The most encouraging thing I saw was someone thinking, at lease not even considering it again in another market until 2005.

Great.

But I will leave the analysts to do their own free cash flow calculation.

Thanks very much, George.

Thank you. Next question, operator.

Next question from Rob Goth with Haywood Securities. Please, proceed with your question.

That would be on the long distance. Could you give us your outlook on LD pricing across the residential and business markets and what the IP may be on those prices.

Okay thank you. Rob.

In term is of long distance pricing what we have -- what we have seen really there is in the business sector we have seen volume and rate decreases that is reflective of competitive activity. And so the product of that obviously is the combined revenue reduction. At this juncture we don't see those trends changing distinctly one way or the other in term is of our ILEC area. Of course, we have a bit of a different twist at TELUS in that we have non-ILEC operations are growing and therefore really the over all result in terms of long distance can be a product, if you will, of the growth in the non-ILEC area versus the -- versus the decrease we have experienced in the ILEC area.

Having said that, as you know, is much more on the data side, the IP side, that is the focus of our growth in the non-ILEC operations. So while we are growing long distance it has certainly not been a focused area for us in expansion of that market.

In terms of the residential side, of course experience, substitutions of facts from e-mail from wireless, et cetera, and also on the -- there were come competitive activity so again, don't really see any significant trend changes in that regard. We are working hard to mitigate it and we will have to stay tuned this year to see how the trends emerge.

I guess as well, Rob, it depends on how [inaudible] the competition is. So, we were encouraged by remarks recently from one of our competitors that they intend to be disciplined in terms of price competition. We think that is an encouraging signal. So, it id down again not to the technology but to the relative IQ of the leadership and marketing teams of the competitors to position that particular service appropriately so that we grow value for the entire industry.

I think it is also important to point out that as an organization we don't have a big exposure long distance as I think you know. [inaudible] accounts for only about 14% of our revenue composite. As well, I think in terms of our resiliency over the past four years to competitive intrusion in the LD market has been pretty good. We have maintained the market share at roughly 77% and I think it has been fairly good going in the face of competition that has come to true fruition for us in western Canada.

I think key going forward is going to be not what we do on LD but how will we deliver a bundle into the home. And to the extent to which we can have an integrated offering for residential consumers that includes more telephony, call management services, high speed internet access, wireless, home security, a wireless LAN, perhaps even entertainment and bundle that together that is one of the ways to maintain price stickiness and margin protection in respect of our long distance service and that is the type of bundle that you can expect to see this organization promoting going forward.

Two other things that are probably worth noting for you. As Bob alluded to, the biggest impact in LD right now is substitution on the e-mail front. But, of course, the other area is fixed wireless substitution, and again, that speaks to the efficacy of having a national mobility business because we do not have a consumer voice base in Ontario and Quebec on the wire line front to cannibalize so that having that national wireless capability with fixed wireless substitution and what that denotes from a long distance prospective is a net positive for this organization and, of course, one that we continue to leverage going forward.

The other thing that I think is important about touch tone it is for investors to recognize that our expansion to Ontario to Quebec is not going to perfectly offset the competitive erosion that we face in Alberta and BC on the LD front because a tenant of our expansion in Ontario and Quebec on the wire line front is not selling LD. The focus if Ontario Quebec in respect to the wire line value compositions is first and foremost on managed data solutions because we think that is the way that you build a great business, a sustainable business on a go-forward basis and this will continue to be the focus of this organization because if you just sell LD you don't differentiate yourself. If you sell data management solutions you build a business for tomorrow.

Thank you.

Thank you.

Next question.

Next question comes from Dvai Ghost with CIBC World Market.

I would like to ask you about the use of excess cash it looks like even with your [inaudible] share announcement your debt maturities and the accounts receivable securitization, you are looking at something like 3 to 400 million in cash at the end of the year. I am wondering what your thoughts are about buybacks potential dividends and most aggressively purr sewing the video stage which Darren gave us as a teaser in his prepared remarks but didn't really talk further about.

There is nothing to divide that that make is me enjoy an IR call more than an opportunity to tease you, so I'm glad to see that we hit that remark in that particular regard. Before handing it over to Bob, let me answer the dividend questions because as you know that this is the prove providence of the board of the organization. We are in a strong cash flow position? Why are we in a very strong cash flow position? Because we have been implementing the same strategy for the last three and a half years, a strategy focused on core business, a strategy focused on data and wireless growth within the context of Canada and certainly over the course of 2000 and 2001 and 2002 that differentiated us from most of our peer group.

We are clearly now in the harvest mode for the [inaudible] investments that we made over the last few years which is being reflected in the strong cash generation and the margin expansion that we are currently enjoying. I think the first priority for this organization and this management team is focused if nothing else is to realize our deleveraging objective, our credit rating improvement objects, and as well importantly, our objective of ensuring that the debt equity mix or capital structure if you will is as low as possible on as a positive differentiator for this organization. We are focused on minimizing the weighted average cost of capital. I think once the credit objectives have been realized in full we will then on a disciplined evaluate a range of objectives for using a strong cash flow growth including a possible increase to the dividend. As I said, any increase to the dividend is the province of the board of directors of this organization and it is our desire to insure that if we do increase the dividend, it will be done prudently and keeping with a dividend growth model that will we can adopt and keep in place on a go-forward basis at TELUS.

I would hand over to Bob and see if there is other things that he would like to do with our cash.

I think you handled it adequately, Darren.

I guess my -- my response Darren is that you don't have enough debt maturing to pay off as aggressively as you would like so then you do have to think of alternatives.

I disagree with that analysis. That would suggest that you should go in -- you know, you have to work towards the long-term capital structure minimize your long-term average cost of capital. The fact that we don't have any near term maturities has been an actual strength of the liquidity structure of this organization over the past number of years. Suddenly that we are in a significant free cash generation mode I don't think that we should suddenly wish we had maturities or much earlier or else we may have had an issue as opposed to a perception issue of the credit.

In terms of the use of cash the fact that we may be building up cash resources after paying down the securitization program after redeeming the [inaudible] shares, et cetera I think is a prudent thing to do and won't be that long until we have a size of maturity as you know 2006 so to say that we going to suddenly use the cash in some other purpose to lever outside of our credit objectives only to come ratcheting back down somehow through I don't know a share issue isn't exactly a steady stream management of our capital structure. I think I'm quite comfortable to the extent to which we -- we stockpile our cash to -- to fund a redemption or maturity of the bonds when they come due.

Fair enough, and on the TV, Darren.

On the TV front, Davi, a couple of things. I don't want investors to be left with the wrong perception. As I said repeatedly this are three tics and three boxes that need to transpire for this particular activity to get the green light in the TELUS organization.

One is that we want to make sure that the economics are good and sound. We is spent, circa $800 million deploying ADSL across western Canada and eastern Quebec, we want to make sure we can leverage the economies of scope to improve the ROI in that investment.

Number two, we want to make sure that we got strong commercial nonprice differentiation so that if we do enter that market we grow the over all value of the market rather than amortized value within the market and I think you can expect from this organization should we go forward a lot of pricing discipline in terms of how we would take an entertainment solution suite into the consumer market of Alberta, BC and potentially even eastern Quebec, and then finally make sure that the robustness of the technical feasibility of the solution is as good or better than the competition so those three things are going to have to transpire before we move forward in respect of any entertainment delivery into the household. And, of course, right now I have been purposeful in not giving it the green light and we need to satisfy ourselves that this is the right thing for the organization to do from a shareholder value perspective.

Lastly and importantly, given your comments, Dvai should we decide to go forward with something of this nature it will be done within the existing capital envelope and that is an important consideration for 2004 and going forward. In terms what what we postulated from a capital intensity perspective that would reflect doing an entertainment solution delivery within that capital envelope within that capital intensity metric so this will not be treated as a a supplemental to the guidance that we have already provided the street.

Thanks very much. Congratulations on a strong 2003.

Thank you very much.

Operator, next question, thank you.

The next question is from Glen Campbell with Merrill Lynch. Please proceed with your question.

Yes, thanks very much. Darren I wanted to follow up on the last question regarding DSL TV opportunity. You did make mention to product launches over the next 12 months and I'm only assuming that this perhaps this could be one of them. Now, that Shaw has basically said what their time table is and talked about pricing and the time is clearly short, and so am I right to conclude that TELUS' decision to go ahead will not be linked to what Shaw might do or where they might launch voice services? Are you saying effectively that you are happy to have them out there marketing voice over IP services without being in sort of a position to launch TV in those markets?

I think what we have done in this area and we have had a discussion on it for quite some time. Perhaps the efficacy can best be judged by the fact what woo he have done on TELUS TV and when we commenced it it was very clear almost 18 months ago at that particular juncture, comments were coming to the Shaw organization, indeed, in an RBC conference that they would not be getting into they telephony for four or five years to come and clearly that has been accelerated but it just speaks to the in independence of what we are doing.

Our desire to make a move into that particular area is driven by a value creation opportunity and independent of what Shaw is doing on the voice over IP front and again for us the three tic in the box are economics, technical robustness, and commercial differentiation. One of the negating factors is not Shaws's entry into the they telephony market.

The extent to which Shaw's entry into the telephony market makes it a more appealing competitive dynamic from the perspective of the regulator then give me competition any day of the week over regulation. And to the extent to which Shaw comes into the market and perhaps the regulator wakes up to the fact that there is more competition in local access than their current definition if you look not just at IP telephony but what is happening on the fixed wireless front and that provides a more lenient regulatory regime going forward I think that bodes well for the evaluation of an incumbent like TELUS' and that should should be taken into account when analysts and investors assess the threat of IP telephony being delivered into the ILEC market.

Okay, thanks very much.

The next question.

The next question comes from John Grandy with Orion Securities. Please proceed with your question.

Thanks a lot. My question relates to the labor issue. For those of us that aren't too familiar with labor law I would like to dig down a bit into the binding arbitration and what that might mean. You did say in your press release you expect a resolution within 2004. Wonder if you can give us a little bit more clarity on how early you would hope to have that resolved?

Secondly, if you can give us any color on what you are hoping will come -- what the out come would be I presume would be your flexibility in labor rules remains a key objective for you.

And thirdly, once this binding arbitration process is finished does the union still have the option of going out on strike or is that off the table entirely.

Okay. Let me try and answer your question completely.

Number one, in terms of the timeline, as I indicated in my remarks we will know that better once we have agreed, the terms and conditions, the slate of arbitrators, and the time bound of process with the TWU with the assistance of the federal mediators in respect to the binding arbitration process, so you are going to have to wait to get a little color on that.

Typical binding arbitration process if we look at past precedent would last anywhere from 3-6 months from the point that it is initiated. The binding arbitration process generically if you look back at other instances it was applied, CN is an example and Canada Post, is another, it is characterized by four parameters in terms of the terms and conditions.

First parameter is that binding arbitration necessarily needs to take account of the economic viability and growth of the entity concerned on a go-forward basis and as well, the competitive market within which thy operate, and the flexibility that is required to serve the customer base.

Number two, it necessarily needs to take into account the operational efficiency and productivity requirement is of the entity. Once again to remain competitive.

Number three, binding arbitration will by definition necessarily take a look at the collective agreements that are in place within the industry between other entities and their unions, so that it is going to look at the comparable in terms of the collective agreements in place with the likes of Bell and their union MTS and, and indeed the collective agreement that Shaw has in place with the TWU today and I think that bodes well for the TELUS organization in terms of the change that we are seeking.

The fourth parameter is of course to ensure good labor management relations. I think if you look at those four parameters, the economic viability, the competitiveness, the operating efficiency and productivity and the industry comparable in terms of the collective agreements that are in place amongst our peers and competitors that bodes very, very, very well for the type of change that we are seeking within the TELUS organization, the type of change that we think we need to be competitive going forward and to continue it drive value creation for debt and shareholders alike.

Lastly in terms of binding arbitration, you asked can the union still go on strike. The answer is know no. Once the binding arbitration process has formally commenced then that is a ridge legal process that will be followed and the outcome of that which will be rendered by the arbitrator is imposed upon both parties and there is no opportunity to opt out or to invoke work action whether is a strike by the union or a lock out by management. And that is the case once binding arbitration is entered into.

So overall, the referral to binding arbitration appears to be quite positive for the company.

I think on a net basis it is positive. I mean obviously in binding arbitration there is no guarantees but when you look at the generic parameters that I articulated and by the way, those are not subjective, those are drawn directly from the instances of Canada post and CN. So, they are generic parameters if you apply those parameters to our particular instance here then it bodes well for TELUS obtaining the type of change that we feel that we need to be very successful on a go-forward bay basis. To be quite clear, will we get everything that we are looking for. The answer is no, obviously not. There has to be an element of compromise associated with the process itself. But the BC tell collective agreement is such an outliar amongst industry comparables that inevitably, we are going to get to some degree the significant change that we require. I think that is a positive thing for TELUS, I think it is a positive thing for our employees, I thing it is a positive thing for our customers, and it is a positive thing for our shareholders.

Good. Thank you.

Okay. Thank you very much, operator. We will take one more question, please.

Thank you. Our last question comes from Robert Barry with Goldman Sachs. Please, proceed with your question.

Hi, guys. Thanks for taking the question. My question is on the DSL business. I was curious what the outlook is for pricing in DSL especially considering the promotional periods seem to be getting longer and longer, and a question also on churn in DSL.

Wondering what the churn in the DSL business and if there is a stepup when the proportional periods end. I know we have seen in the U.S. a lot of Bells saw stepups in churn after the initial promotional periods were over. Thanks.

Thank you, Robert. In terms of your questions about pricing and pricing discipline and opportunity for pricing increase they would be best posed to the market leader. Shaw has 60% of the market share in terms of high speed internet access, so from a price leadership prospective, in this particular instance, first and foremost I think that question is best posed to that organization. I think TELUS has a history of pricing discipline.

Clearly we have certain market share goals to make sure we have a competitive balance in our whole market of western Canada and that will be very much front of mind for us. We don't disclose our churn rate in respect of ADSL so it is not something that I can do on the call. We already have best in class disclosure in terms of the comprehensiveness and forward-looking nature of our disclosure so to go any further than that I think is just handing a leg up to the competition so I will have to stop there.

As I said in the past however, I think that provides an infrastructure in terms of the investment that we have made over which we can deliver new solutions whether they are IP telephony or home security or wireless LAN or, indeed, entertainment. This organization in terms of pricing is very much focused on a bundled position leveraging the $800 million that we spent rolling out ADSL so that we can have a solution suite in the home that ranges from core telephony that ranges to LAN features that may or may not in the future include an entertainment element to it.

Great, thank you.

Thank you everybody for joining us today. I would like to for follow-up questions direct them to myself and the Investor Relations team at TELUS and we again appreciate your it interest and continued support.

Thank you, ladies and gentlemen. This concludes the TELUS fourth quarter conference call. We thank you for participating and ask that you, please, disconnect your lines now. Thank you from TELUS.