Telus Corp (TU) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the TELUS Q4 earnings conference call. I'd like to introduce your chairperson, Mr. John Wheeler, Vice President of TELUS Investor Relations.

Thank you very much, Pat. I'd like to welcome everybody to our conference call and webcast for the quarter. I'd like to first of all introduce the TELUS executives online with us today. In Vancouver, we have Darren Entwistle, President and CEO, and Bob McFarlane, our Executive Vice President and Chief Financial Officer. In Toronto, we have George Cope, President and CEO, of TELUS Mobility.

We will start with introductory comments, followed by a question-and-answer session. You should also note that we have a news release on our fourth-quarter financial and operating results, and there's also a detailed supplemental investor information posted on our Web site at TELUS.com. For those with access to the Internet, the slides are there for viewing at TELUS.cominvestorcall. You'll be in listen only mode during the executive comments.

Let me now direct your attention to slide 2. The forward-looking nature of the presentations, answers to questions and statements about future financial results are subject to risks and uncertainties. Accordingly, TELUS' actual results could differ materially from the 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 also disclaims any obligation to update any forward-looking statements.

Now I will turn things over to Darren.

Good morning and thank you for joining us today.

Let me begin by noting that, almost a year ago, we issued our annual report with the ambitious theme of "leading the way." As we report today on TELUS' fourth-quarter year-end results and highlights, we clearly delivered on the theme. Building upon the industry-leading results TELUS generated in 2003, TELUS has again delivered a number of leadership initiatives and achievements for all stakeholder groups in 2004.

For shareholders, this included meeting or exceeding 5 out of the 6 public targets for TELUS Corporation, including producing best-in-class financial results relative to our global peer group. It also included executing well on the Verizon secondary offering of TELUS shares, the fourth-largest equity issue in Canadian history. Additionally, it included increasing the dividends significantly by 33 percent with the implementation of our dividend growth model. Finally, it included kicking off a share buyback program for 25.5 million shares. As a result, for the second consecutive year, shareholders enjoyed an increase in our share price of 40 percent or more.

Additionally, for debtholders in 2004, TELUS met our deleveraging targets 15 months early, reduced net debt by $1.1 billion and experienced upward momentum on our debt ratings with 2 credit agency outlooks on TELUS moving to positive recently. Finally, for the communities where we live, work and serve and in the area of social responsibility, our 2-year-old intent to become Canada's premier corporate citizen continues to gain significant traction. Indeed, for the fourth consecutive year, TELUS was included in the Dow Jones Sustainability Index. TELUS is the only telecommunications company in North America to earn this distinction.

Now, let's turn to slide 4 and the fourth-quarter highlights. TELUS Mobility has led the way all year in exceeding external expectations and continuing to create value for securities holders and customers alike. The fourth quarter was no exception with a record quarter of wireless net additions of 186,000 that also translated into record full year subscriber additions of 512,000 customers. TELUS Mobility has remained true to its goal of achieving profitable subscriber growth with the record fourth-quarter EBITDA and cash flow, results that are well ahead of our major competitors.

Turning to slide 5, you can see that, while capturing one-third of industry net additions, a focus on profitable growth through disciplined product pricing allowed TELUS Mobility to capture 41 percent of the $800 million increase in EBITDA generated in the healthy Canadian wireless industry. Moreover, TELUS is also benefiting from material scale efficiencies, including unsurpassed network coverage, advantageous network roaming agreements, a best-in-class spectrum position, and the execution of our IT roadmap where the bulk of the capital investment is behind us. As a result, TELUS was able to capture 50 percent of the incremental industry cash flow.

We compare not just well in Canada but globally on another cash flow indicator, as shown on slide 6. Notably, TELUS Mobility generated leading cash flow yield measured in terms of network revenue.

On slide 7, it is encouraging that our success is not limited just one of our business segments. Importantly, our differentiated strategy at TELUS Communications has produced 3 quarters of sequential revenue growth. This achievement was led by a 14 percent increase in revenue in our non-ILEC operations in Ontario and Québec and overall wireline data growth of 9 percent in the fourth quarter of 2004. This is attributed in part to the implementation and ramp up of large, multi-year national contracts, as previously foreshadowed. Particularly noteworthy, this quarter was our first-ever positive EBITDA result for our non-ILEC operation.

Also of note was long distance revenue with a modest decline of only 1 percent this quarter. This was our best performance in more than 4 years and a reflection of our differentiated approach to pricing and bundling, compared to our competitors.

Finally, TELUS' consistent execution and solid momentum going into 2005 is evident in our achievement of 5 of 6 annual public targets. Of particular note is free cash flow, where we exceeded our original 2004 target by $117 million to generate $1.3 billion for our securities holders.

As mentioned earlier, a major corporate highlight is shown on slide 8. This slide illustrates the well-executed divestiture of Verizon's 20.5 percent equity interest in TELUS for $2.2 billion in December of 2004. This move was consistent with Verizon's strategy to focus on investing in this core U.S. market, and by extension, to vesting its portfolio of international assets.

TELUS shareholders benefited from the Verizon divestiture in a number of ways, including the receipt of a $148 million cash payment, the reduction of $97 million in future contractual payments and updated software and related technologies and services agreement, and an enhanced and formalized long-term wireless roaming agreement with Verizon Wireless.

The secondary offering was substantially oversubscribed, leading to a strong share price performance in the aftermath with a 15 percent depreciation in TELUS shares since the mid-December closing. In addition, the transaction provided TELUS with a more diverse Canadian and global shareholder base and increased our public share float by 26 percent. Clearly, this offering was a success for all involved.

With a strong 2004 now behind us, let us turn to 2005 and the TELUS corporate priorities listed on slide 9. Notwithstanding our accomplishments in 2004, I want to assure you TELUS is not proceeding as an overoptimistic organization. This will not be the case on my watch. All team members are acutely aware of the industry and company challenges we face and are aligned and focused on addressing them. Our track record demonstrates that an unwavering commitment to an effective strategy with a (indiscernible) for action focused on clear priorities has driven our success through the changing dynamics and indeed fortunes of the telecommunications industry. TELUS' priorities this year extend and enhance our efforts in 2004 and once again, you can see the direct linkage to our national wireless and data growth strategy, our focus on improving the customer experience, and our efforts to institutionalize continual productivity improvements for our organization.

One priority I would like to address for a moment on slide 10 is the most recent developments on TELUS' goal of reaching a new collective agreement. In February, the Canadian Industrial Relations Board overturned its year-old ruling that imposed binding arbitration on TELUS. We are pleased that this now allows the parties the opportunity to reach a settlement through the established negotiations process. It should be noted, however, that a narrow communications ban (ph) has been reinstated that covers labor relations activities and negotiations. Therefore, TELUS must continue to be circumspect in its communications, including this investor call. We are hopeful that the process of negotiations that has been enabled by the recent CIRB decision, which upheld our appeal, will arrive expeditiously at a new collective agreement that underpins the future competitiveness of your company and the welfare of customers, employees and shareholders alike.

Let's now move to slide 11 by highlighting our strategic framework and operating model. The diagram on slide 11 illustrates the dynamics of our industry, including the challenges, the opportunities, and our game plan to maintain ongoing share value-creation.

The wireline business in Canada is experiencing certain challenges, as shown on the right-hand side of the diagram from technology substitution, including picks to wireless, to competitive intrusion, mainly from BellWest and Shaw, and finally, lower local revenue from ongoing price gap (ph) regulation. It should be noted that, in respect of wireless substitution, TELUS overall is a net beneficiary, given that in the more populous parts of Canada, we are not the incumbent and therefore capture 100 percent net gain from anyone who chooses TELUS Mobility as their primary phone line. Moreover, on the regulatory front, any adverse regulatory rulings, in respect of our incumbent operations, usually provide relief to our nonincumbent operations in central Canada. Our national wireline infrastructure and footprint spanning our ILEC and non-ILEC operations acts as a natural hedge relative to regulatory decisions.

Indeed, this was the case recently with the released regulatory decision for Competitive Digital Network Access, or CDNA. TELUS views this as a balanced decision, given the competing interests that are involved. TELUS is pleased to see the facilities-based framework, which encourages real investment, being affirmed by the CRTC. TELUS, of course, would like to see the CRTC address Voice-over-IP regulation with an expedient ruling, given Shaw's launch of Voice-over-IP service in Calgary earlier this week. Our view is that we should be able to offer access (ph) independent Voice-over-IP services with the same regulatory rules as our competitors and see the CRTC choose regulatory neutrality in this clearly competitive business.

TELUS is executing a clear wireline game plan to offset these challenges, as shown on the left-hand side of the diagram, again on slide 11. The most significant near-term opportunity is our non-ILEC operations focused on the business and public sectors. In this regard, TELUS is leveraging our distinct leadership position in managed data and IP solutions and is deploying its Next Generation IP network to competitive advantage. To this end, TELUS successfully implemented a number of long-term managed data network contracts in Ontario and Québec, such as the one with the TD Bank Financial Group, where the network migration is now complete. In 2005, TELUS expects to generate over $600 million in non-ILEC revenue, an increase of 40 to $90 million over 2004. We expect to deliver positive EBITDA for the full year for the first time.

On the consumer side of our business, the TELUS future-friendly home in our incumbent regions is another growth opportunity that we are pursuing. TELUS has begun to offer a suite of integrated, advanced digital and wireless services that leverage our significant investment in broadband infrastructure. The first 2 services, TELUS Home Networking and TELUS HomeSitter, were launched late in 2004. This year, we will be launching new retail consumer solutions, which will include Voice-over-IP services and potentially TELUS TV.

The third opportunity we are progressing is to bolster profitability in our wireline business by delivering continued improvements in our operational effectiveness, building on the success of our past operational efficiency programs. To this end, TELUS has set aside up to $100 million for select restructuring and productivity-enhancing initiatives in 2005. Our mid-term goal is to deliver on these 3 opportunities and to hold wireline EBITDA stable. Realizing this achievement therefore allows the significant growth in our wireless business to flow through to the bottom line, in respect of our consolidated results.

As slide 12 through 15 illustrate simply, TELUS is well-positioned amongst global telecom companies to create value for investors. TELUS is unique in that it expects more than 40 percent of our total revenue and EBITDA in 2005 to be generated by our fast-growing wireless operations, whereas many of our Telco peers have significantly less exposure to the wireless business.

Going forward, I see opportunities for growth in the Canadian data and wireless markets that should benefit our investors, customers, and team members. Nonetheless, TELUS must be adept at mitigating the challenges presented by advancing competition, new technologies, and the ever-present regulator. Once again, TELUS enters a new financial year from a position of strategic clarity, financial strength and momentum and with a commitment to ensure that we live up to our brand promise of delivering a friendly future for all of our stakeholders.

I'd like to thank all of you for joining us today, especially all the new investors from the recent secondary offering. I will now turn the call over to George for his report on TELUS Mobility. George, over to you!

Good morning, everyone.

I'm actually on slide 16. The fourth quarter was excellent, as Darren has indicated, for TELUS Mobility. The Company exceeded the Street and our own expectations on every major wireless financial metric.

Turning to the next slide, you can see that TELUS Mobility had a strong quarter of growth with net additions up 12 percent to 186,000 from 166,000 last year.

Turning to slide 18, more important than the overall growth was the excellent mix we achieved as postpaid additions went up 21 percent to 145,000 from 120,000 last year and prepaid as a percent of our net adds was down from 27 percent to 22 percent. Clearly, we led industry in value creation in the fourth quarter.

Turning to the next slide, I am pleased to report that we maintained our industry-leading Average Revenue Per User. Our ARPU increased for the eighth quarter in a row and in Q4 actually improved from $59 last year to $61 this year. Of note, our postpaid ARPU increased to $69 in the fourth quarter from $66 last year. The ARPU increase was driven by growth in both consumer and business data services, increased usage, an improving postpaid versus prepaid mix, and continued pricing discipline at TELUS Mobility.

Turning to the next slide, you can see that our profitable growth strategy continues to pay dividends, as all metrics moved in the right direction. I indicated already our improvement in ARPU. I'm also happy to report that our churn reduced year-over-year from 1.58 percent to 1.45 percent. Even more importantly was that our postpaid churn reduced from 1.29 percent to 1.17 percent in the fourth quarter.

Our COA also improved year-over-year by $42 a unit or a little over 9 percent. This is a very encouraging outcome, as we are able to lower our cost of acquisition and increase our market share at the same time.

Turning to slide 21, our improving metrics led to an outstanding financial -- (technical difficulty) -- as we received 50 percent EBITDA growth and 8.6 percent EBITDA margin expansion while increasing our gross and our net adds. In fact, in the quarter, 87 percent of network revenue flowed to the EBITDA line. This EBITDA growth established TELUS Mobility as the most profitable wireless carrier in Canada for the first time ever with an industry-leading $285 million in EBITDA and free cash flow growth of over 180 percent.

Turning to slide 22, for the year, TELUS Mobility's network revenue growth of 19 percent, EBITDA growth of 40 percent, margin expansion of over 6 percent to 44 percent and reducing CapEx intensity resulted in free cash flow growth of 73 percent or $332 million on the year.

Turning to slide 23, I believe the prospects for profitable growth in the Canadian wireless industry have never been better. Penetration in Canada is still low on a relative basis. Data usage is exploding, and the industry structure has now stabilized. I am confident we can deliver over 20 percent EBITDA growth and over 25 percent free cash flow growth in 2005.

With that, I'd like to now turn the call over to Bob McFarlane, our CFO. Bob, over to you.

Thanks, George, and good morning, everybody.

To continue on the theme from George, on slide 25, let me briefly recap TELUS Mobility's outstanding results across the board. Revenue was up 18 percent due to increased average revenue per unit, combined with very strong subscriber loading and improved retention. This topline growth, combined with continued cost containment and operating economies of scale, led to an impressive 50 percent increase in EBITDA. Notably, the DA (ph) growth has been more than 30 percent for 10 straight quarters and over 40 percent for 8 of those. In fact, it has seen in excess of 30 percent EBITDA growth in all but 1 quarter ever since the Clearnet acquisition. These results, combined with the 7 percent decline in CapEx, translated into an increase in cash flow, defined as EBITDA less CapEx, of more than $100 million -- (technical difficulty) -- mobility.

Although our focus continues to be on profitable subscriber growth, as Darren clearly illustrated, TELUS Mobility enjoyed a record quarter for subscriber net additions. Consistent with our strategy of prioritizing profitable growth, we are particularly pleased with the strength of postpaid, up 20 percent year-over-year, while prepaid net additions were actually 9 percent lower in spite of a significant increase in overall loading. The result was that TELUS Mobility maintained its industry-leading postpaid mix of 82 percent. In total, we added 186,000 net new subscribers in the fourth quarter and 512,000 for all of 2004, both representing record loading levels for TELUS Mobility.

The next slide, on slide 27, recaps TELUS Mobility's annual performance relative to our original public targets set in December, 2003. As you can see, Mobility significantly exceeded targets for revenue, EBITDA and subscriber net additions, while CapEx was consistent with plans. Clearly, this was a tremendous year of economic value-creation at Mobility.

Now let's turn to a recap of TELUS Communications' results on slide 28. Wireline posted positive year-over-year revenue growth for the second consecutive quarter. You may recall that, in the third quarter, TELUS Communications reported year-over-year revenue growth for the first time since the first quarter of 2002. Notably, this was also the third quarter of sequential revenue growth. EBITDA, which is after restructuring and after pension costs, totaled $482 million, an $11 million or 2.2 percent decline. Restructuring costs this quarter totaled $20 million, up 4 million from a year ago. Excluding these restructuring costs, the year-over-year EBITDA decline was lower at 1.4 percent.

CapEx decreased 27 percent year-over-year due in part to higher fourth-quarter 2003 spending resulting from the catch-up that occurred following the operational efficiency program constraints in early 2003. Fourth-quarter '04 CapEx investment equated to a 17.9 percent intensity ratio. As a result, TELUS Communications' fourth-quarter cash flow increased 38 percent to $261 million, although for the full year it was down.

Relative to the general industry trend of declining traditional revenues, the Communications segment performed well again in the quarter with positive 2.3 percent revenue growth. Referring to slide 29, we see that voice long distance revenue continued to decrease but the rate of decline in the fourth quarter at only 1.1 percent was the lowest since the merger of TELUS and BCTEL more than 4 years ago. This was primarily a result of increased nonincumbent traffic. While we are pleased with this performance, especially compared with our peers, price competition remains intense and substitution -- (technical difficulty) -- technologies is expected to continue to likely increase in 2005.

Data service revenues increased by 32 million, or 9 percent, driven by higher Internet and enhanced data service revenues and by an increase in data equipment sales. This number also includes 4.6 million of revenue from TELUS' November acquisition of videoconferencing provider ADCOM. Normalized for this acquisition and the divestiture of certain application and development assets last year, data revenue growth would have been still a solid 8 percent. While we are optimistic, following 2 quarters of solid data growth, we remain cautious about projecting similar results into the future, given general industry softness and expected future competitive activity.

On slide 30, you can see that TELUS added 35,000 high-speed Internet subscribers in the fourth quarter. This brings our 2004 total to 128,000, meeting our original 125,000 target. During the year, we increased our estimated high-speed market share by 2 points to 40 percent. TELUS now has 690,000 high-speed Internet subscribers, a 23 percent year-over-year increase, representing 71 percent of our total Internet base of 971,000.

Slide 31 shows the performance for our nonincumbent business in central Canada for the last 12 quarters. The reorientation increased focus and quality recurring revenues that we undertook in the first part of 2004 contributed to a strong second half of the year. We recorded our highest quarter of non-ILEC revenue, $156 million, and reached an important milestone with our first-quarter positive EBITDA at $4 million. On a run-rate basis, we estimate the normalized nonincumbent EBITDA was about $2 million in the fourth quarter. We are pleased with this momentum, which bodes well for executing on our 2005 target of 600 to 650 million in revenues and positive EBITDA of up to $10 million.

Turning to slide 32, we also continue to focus on our corporate priority to deliver enhanced operational efficiency. With respect to our 2001 to 2003 operational efficiency program, we achieved year-end cumulative annual savings of $538 million. The success of the past program serves as a platform for continued necessary cost improvements at TELUS Communications in our efforts to protect Wireline margins. In the fourth quarter, we incurred an additional $20 million in restructuring costs, bringing the 2004 total to 53 million. For 2005, we have allocated $100 million to support further restructuring initiatives.

On slide 33, we've provided a recap of Wireline performance relative to our original public targets set in December, 2003. While our performance was generally favorable compared to the Canadian and North American Wireline industry, especially in the second half of 2004, for the full year, we did not meet 5 of 6 of these targets, which in hindsight were clearly very aggressive.

As you can see on slide 34, our TELUS Wireline performance compares very favorably to Canadian industry performance on 6 of the 7 indicators shown. TELUS also generally compares quite well with overall U.S. industry performance with the exception of long-distance and high-speed Internet subscriber growth. This is caused by the U.S. RBOCs new entrance into the LD market and their later entrance into the high-speed Internet market relative to Canada. Of course, when you include Sprint, MCI, AT&T, the long-distance revenues in the U.S. are actually declining in aggregate as well.

TELUS' results measure up very well compared to overall North American industry performance, and we are encouraged by the momentum we saw in the latter part of the year. However, we remain cautious in regards to 2005, given the commercial rollout of cable TV, telephony and our western Canadian ILEC markets, as well as the continuation of other competitive and technological pressures.

Having commented on both our Wireless and Wireline operating segments, let me now turn my attention to a recap of consolidated results in the quarter, starting on slide 35. This slide highlights the strong consolidated revenue growth of almost 8 percent revenue growth at each of TELUS Mobility and TELUS Communications, coupled with scale economies at Mobility and efficiency enhancements resulted in strong EBITDA growth of 12 percent and net income of 136 million, an increase of 184 percent. Reported EPS of 38 cents was up significantly year-over-year, and I will talk a little more about it in a moment. Notably, in spite of semiannual interest payments during the quarter, TELUS also produced 122 million of free cash flow, a remarkable 70 percent improvement over last year.

Now, taking a close look at EPS, we can see the growth rate for the fourth quarter normalized for a number of items. Interest related to favorable tax settlements contributed approximately 4 cents per share this quarter. Normalizing for this, the 1 cent impact from shared-based compensation not recorded last year and adjusting for increased restructuring and workforce reduction costs, normalized EPS was up 23 cents or 144 percent. According to our tracking, consensus Street expectations were 31 cents, so no matter how you look at it, TELUS again produced excellent bottom-line earnings growth.

This next slide shows how our free cash flow was generated this quarter and for all of 2004. As mentioned, TELUS generated 122 million in free cash flow in the fourth quarter. After factoring in shares issued, deducting cash dividends and positive changes in working capital primarily due to the receipt of the Verizon payment, TELUS had $351 million in cash available for debt repayment and share redemptions. In the last 10 days of the quarter when we had regulatory approval, TELUS used $78 million to repurchase some voting and non-voting shares as part of our normal course issuer bid, or NCIB, announced in October. No significant debt maturities until 2006, TELUS continued to build its cash position by another 274 million in the quarter and 890 million for the year to total 897 million as of December 31. However, we did announce yesterday our intention to redeem early about 150 million in convertible debentures in mid-June this year.

As you can see in slide 38, TELUS continues to reduce leverage and is well within its deleveraging targets, which were achieved last quarter, 15 months ahead of plan. Reflecting our success in this regard, Moody's and S&P have moved their outlooks to positive in the past few months. Last night, I was advised that DBRS (ph) confirmed our triple-B rating in advance of waiting to review today's release of our excellent results, and interestingly, viewed our credit outlook as only stable.

In any event, turning to slide 39, this ahead-of-plan deleveraging allowed us to pursue a comprehensive program of increasing the return of capital to shareholders as announced in October. This included a 33 percent increase in our quarterly dividend and the establishment of a dividend payout ratio guideline. We received regulatory approval to repurchase up to 25.5 million shares over a 12-month period on December 28. In the last 10 days of the year, TELUS repurchased for cancellation 2.2 million shares. As Darren commented a few minutes ago, we believe the very successful secondary offering of the 73.5 million shares previously owned by Verizon was a positive event for shareholders as well. It not only increased our public float and liquidity but also significantly broadened both our Canadian and international shareholder bases.

Slide 40 provides a recap of TELUS consolidated performance relative to our original targets. As you can see, we exceeded the high side of the target range for 5 out of 6 of our consolidated targets, including all of those pertaining to revenue, profitability, cash flow and deleveraging. We are encouraged but strong end-of-year results which bode well for executing on the corporate priorities which Darren outlined earlier, as well as the 2005 public targets set in December.

Now let me comment briefly on the recent CRTC regulatory decision with respect to competitive digital network access, or CDNA. As Darren mentioned, this decision reaffirmed the CRTC's facilities-based approach to competition. It also reaffirms the appropriateness of TELUS' conservative accounting policy treatment of the deferral account. In terms of impact to TELUS, our analysis to date indicates a neutral to slightly positive impact to overall earnings and cash.

Now, turning to slide 42 for a review of our key public targets for 2005, which were established on December 17, for 2005, we are targeting the revenue growth to increase 4 to 6 percent, EBITDA to increase 4 to 7 percent, EPS to increase 4 to 17 percent or even higher on a normalized basis, given the tax swings in 2004, CapEx to be flat to an increase of 6 percent and free cash flow, after restructuring payments, to remain healthy at more than $1.2 billion. These reflect continued solid revenue and profitability growth with robust cash flow generation.

Finally, slide 43 provides some summary highlights for TELUS in 2004, and there were quite a few. TELUS Mobility again reported outstanding operational financial results across the board. Strong sub additions, increased ARPU, low churn and continued cost efficiency generated the excellent financial results. TELUS Communications performed very well, and we had very low long-distance erosion and a third straight quarter of sequential revenue growth led by solid data and nonincumbent revenue, along with achieving a milestone of our first-ever quarter of positive EBITDA in our nonincumbent operations. With outstanding consolidated revenue, earnings and cash flow growth, we are leading the way into 2005, ready to face the challenges that increased competition will bring.

With that, I will hand the call back to John to open the lines up for questions for either Darren, George or myself. John, over to you.

Thanks very much, Bob.

Just before I turn the call over to Pat to conduct the Q&A session, can I please just ask for your cooperation for one question at a time, please? However, if you do need a follow-up question related to the answer of your first question, that obviously is appropriate. So please proceed, Pat.

(OPERATOR INSTRUCTIONS). Greg Macdonald, National Bank Financial.

Good morning, guys. The question goes to George on the wireless margin more -- actually, wireless margin potential. You commented a little bit on the fact that the trends are still going in your favor. I would note both on top line and on bottom, COA is coming down, ARPU is going up, those 2 in particular. I also recognized, in the fourth quarter, that the improvement in margin was better than what the average was for the year. I Know there were some unique impacts in Q4 but I wonder if you might comment on what you think the potential margin is, going forward. You commented a couple of quarters ago. Have things improved in terms of your assumptions looking at 2005? Just indicate what you think the major swing factors are there.

Thanks for the question, Greg. Yes, we obviously have been pleased with the margin expansion and I mentioned, on previous calls, that it exceeded our own and I know most of the analysts' expectations. In this particular quarter, the margin expansion -- we really benefited on the reduction of our costs of acquisition. In fact, in absolute dollars, we spent less on subscriber COA than the year before, yet we were able to increase our net adds.

Then the other key contributor from our end to margin expansion is if we can see stability or even some improvement in ARPU, then we may again continue to see some expansion in EBITDA margin.

In terms of forecasts beyond that, I don't think that would be appropriate. I think our guidance on revenue and on EBITDA sort of implies margins that maybe the analysts can take a look at but clearly, we continue to be encouraged by the new structure in the Canadian wireless industry.

George, maybe as a quick follow-up, can you just give us a sense of what you think the major risks are? Let me pick one -- ARPU. What's the major risk to your ARPU guidance?

Well, the major risk to ARPU guidance for us is always competitive pricing in the marketplace. We have a fundamental believe at TELUS Mobility that the Canadian wireless industry will move, continue to penetrate at levels we've seen in U.S., which is generally 2 to 3 years ahead of us. That would happen through creative packaging and programs but not through any requirement for lower pricing in the industry. That's a strategy we've continued to pursue. But we will also remain competitive as the markets evolve. So obviously, the price really has an important impact on ARPU.

Offsetting that benefit would be continual expansion of data services, which we and -- based on reporting our competitors -- continue to see that benefit. So that hopefully can offset any voice reductions we may see in a competitive environment.

Do you feel that you have any lack of ability to compete when it comes to youth services? There's a lot of increasing focus on that recently.

No, not at all. We have continued to have the highest usage of prepaid in the country. Our ARPU is the highest because we have our full suite of data services and have since Day One available in the prepaid category and our branding has continually been recognized, particularly in the youth market, as very year-friendly. Recently in the fourth quarter, based on some independent results just recently released, that our brand was chosen in the wireless as the one Canadians most recognize of the other carriers. So we feel very well positioned for a competitive environment, which sounds like it may be more competitive going forward.

Richard Talbot from RBC.

Good morning. Congratulations on the results. For those of us who have followed the company for some time, it really is tremendous to see the improvement over the last 4.5 years. The question is for Darren. It's a bigger picture question. In your comments, Darren, you referred to the stretch targets for the Company. I haven't heard you use that term before. That would include clearly what you outlined in terms of the targets for '05 but I'm wondering if it also implies a direction for the Company beyond then end of this year. Specifically, I wondered if you might be able to comment on areas where you think the Company could continue to improve on? Specifically, are there areas of the overall network, particularly in the non-ILEC areas, that you'd like to bulk up on?

Also, you've now got the opportunity to go and operate in the U.S. Does that have any appeal for you?

Then finally, as you implement the plan, going forward, how would you characterize the volatility of CapEx? Do you think that it's something that you've clearly got some things on the video front that you might like to do? But after that, do you see the CapEx level becoming more stable? Thanks.

Okay. Wow! All right. Richard, I wouldn't get too bent out of shape about my quote. It was something that I put together at midnight last night, so I think focusing in on any particular word would not necessarily be the right thing to do in terms of indications as to where this organization is heading. I do feel quite strongly that it's my job for shareholders and debtholders alike to set stretch targets that are exactly -- (technical difficulty) -- the management team of this organization, and that's a responsibility that I take very seriously.

Let me also state, for the avoidance of doubt, that I remain very confident in the 2005 targets and target ranges that we have set out. Richard, it would be a mistake to interpret that particular word, a single word, as any diminishment in my confidence in our ability to realize the targets that we've set out for this organization in 2005.

I do think it's important to say, however, that, for investors, we do not want investors to become desensitized to the excellence of our results and the significant challenges inherent in achieving those results of the TELUS organization. Also, over the last 5 years, we have set what I believe were stretch objectives for this organization and of the 28 targets that we set publicly with the Street, we've achieved 24 of them. I think that's a good track record. That should engender confidence amongst investors in terms of our ability to deliver against our forward-looking aspirations, which we provide to the Street in some granular detail and have been recognized for doing just that.

Perhaps maybe to give you a flavor, an insight into the organization -- because this comes up frequently at one-on-ones with investors -- an insight into target setting at the TELUS organization. Let me just give you some flavor on that. If you took our 2003 results and washed them through our 2004 corporate balance scorecard that is approved by the TELUS Board, it would result in a 50 percent reduction in our corporate multiplier that has been determined into variable pay for the management team. So that gives you some flavor of the raising of the bar in terms of targets in 2004 over 2003.

Additionally, the raising of the target in '04 over '03 takes into account the pressures that we've been facing on the wireline side of the business. Perhaps to give you a little bit more of a granular feel again, we set out a goal for ourselves of flat revenue growth on the Wireline side of the business in 2004. Despite the fact that our Wireline results compare very favorably to our peers on a global basis, we actually missed that target coming in at a revenue reduction of 0.4 percent. As a result, we will not be paying out any variable pay to management based on that particular parameter, because we missed that particular stretch objective.

In terms of, I guess, the bigger picture issues, why don't I perhaps illustrate where I see opportunities by giving you a flavor of what I worry about. Let me give you a sense of some of the anxieties that I share with the Board on a regular basis. There are 5 particular areas perhaps that are worth thinking about. I worry about TELUS Mobility. I think we've got excellent momentum; we are generating excellent financial and operational results and it would be hard for me to envisage how we could actually improve upon the excellence of our performance. As a result, I'm anxious, in terms of what may transpire at the Mobility organization that could fetter our progress in that regard in terms of industry developments. George has given you a sense, in terms of any concerns, in respect of irrational pricing and the impact that that could have on the strong performance that we are generating.

Number two, I think about our non-ILEC business. For us, that is all about operational execution. We have an excellent strategy in place right now, but we've got to execute against it. I also think about how do we get scale in that operation? We generate almost $1 billion of Wireline revenue out of Ontario and Quebec today. I focus on getting scale. How do you take that billion to 2 billion? Because getting scale will improve the return on the investment that I think I'm obligated to generate for shareholders.

Number three, I think the future-friendly home strategy presents a lot of opportunity for growth. I think, if I look at the PowerPoint slides that set out that particular strategy, I'm excited. How we operationalize those PowerPoint slides is really going to be the proof of the pudding and the eating, taking those concepts and making them work in the marketplace for customers, differentiating ourselves from the competition in a non-price manner and doing so to generate a decent economic ramp (ph) for shareholders.

I also think about opportunities insofar as cost reductions are concerned. Clearly, within the TELUS organization, we've done very well in the past as a result of the operational efficiency programs that we've implemented as an organization. I think there are more things we can do in that regard. That's why we've set out a $100 million investment in 2005. But I would say we have harvested a lot of the low -hanging fruit at TELUS over the last few years, and it becomes progressively more difficult to realize additional cost savings from our business.

Lastly, I think about labor. It's a difficult subject right now, given the communications ban that we are focused on, but I'm very desirous of putting the labor situation behind us in a fashion that works well for shareholders, customers and employees alike.

I guess you asked the last question in terms of CapEx. I think we have a fairly stable situation from a CapEx intensity perspective. We've projected, on the Mobility front, CapEx intensity over the course of 2005 of 11 to 12 percent. I think that is a figure that compares favorably with our global peer group. We're looking at a (indiscernible) 20.5 percent midpoint of the range in terms of CapEx intensity for our Wireline business, taking into account the things that we want to do in terms of investments in our access infrastructure in support of the future-friendly home strategy.

What I can tell you is that I'm not a big believer in lumpy CapEx; I'm a believer in smooth CapEx. So, in terms of the technology upgrades that we want to drive in '06, '07, '08 and '09, we are beginning the investment in '05. That's true for both the Wireless side of the house and the Wireline side of the house, so that we can have a smooth and reasonable CapEx profile and an operational strategy that this management team is capable of digesting. So that's what you can expect from us.

Pat, could we have our next question please? Could I just please remind people to 1 question at a time. It's very difficult to have 4 questions all at once. Thank you.

Rob Voss (ph) from Hayward (ph).

Thank you very much and good morning. My question would be for George. It's a question that we've had in years gone by. Do you expect that there will be a significant positive pricing move in the Wireless market? Do you think that you'll be a leader, a follower or an observer?

Well, I think our strategy on pricing -- we've tried to be consistent and as clear to the investment community as we can be. That is, again, as I reiterated a few minutes ago, our belief that the market has huge opportunity for growth and to enhanced services, and that we want to catch that -- our piece of the fair share of that market growth. Our strategy consistently has not been to be a price leader and pull the price lever in the market and that will be continuing to be our strategy going forward.

In terms of price announcements, this would be clearly an inappropriate place to do that, given the purpose of the call and the investment environment.

The question was just, in the past, there have been different levers available, i.e. changing the clock and things such as that.

Yes, I believe there are other opportunities in the industry to go forward with new services to make sure we are mindful of tracking those opportunities. We also spend time looking around the globe and also, in all Wireless markets, looking at various people have seen (ph) as they brought new services to market and make sure we're looking at the right pricing opportunities. I think you'll see us continue to do that going forward as annually as we can make it happen.

Vincent Valentini from T.D. Newcrest.

The question is on the enterprise data market. If we back out the acquisition -- and you mentioned equipment revenues -- I don't know if you can quantify those -- but if you back those out, it looks like -- and back out consumer DSL too -- it looks like the underlying corporate data revenues are still relatively flat. Can you talk about the trends you are seeing in that market in terms of volume and pricing? Is there any signs (sic) of improvement or is it still pretty brutal out there?

I'm not sure what calculator you are using, Vince, but we calculated a much different result. We had strong enterprise data growth as well as consumer Internet. When you normalize for the acquisition, it only changes the data growth 9 to 8 percent, so that's hardly that significant. So we were actually pleased with enterprise demand, which is principally driven by successful rollout and implementation of certain large contracts in our nonincumbent operations.

Equipment revenues -- can you quantify that, Bob?

Not off the top of my head but suffice to say you can look at the other line for TELUS in aggregate. Data equipment tends to be a distinct small subset of that total line and doesn't materially change the interpretation of data traffic growth being a distinct positive (indiscernible).

Dvai Ghose from CIBC World Markets.

Yes, thanks very much. Darren, congratulations on the results. A question on your TV strategy -- you said in the past there are 3 major considerations regarding TV deployment -- quality, differentiation and profitability. Shaw has now launched cable telephony. You are yet to launch TV. I'm wondering which one or if all of these considerations are still issues for you. Are you waiting for a greater perfection with ADSL 2Plus? Is MPEG-4 still not a primetime compression technology? What are the gating factors? Why haven't you launched TV yet?

I think probably the only thing I am more confident in, relative to our 2005 target, is confidence that you were going to ask me a question about TV and what the gating process was going to look like on the course of this call!

So you are well-prepared then!

I have to tell you that, again, I made the comment previously that taking a concept and operating it effectively in the marketplace, such as moving into a new industry like entertainment and distribution, is a non-trivial undertaking and I'm highly conservative in our approach. I would just ask you to juxtapose our entry into entertainment/distribution versus the competitive dynamic in respect to high-speed Internet access. High-speed Internet access, as a competitive dynamic of TELUS versus Shaw, was a footrace for virgin customers. That is not the case in terms of entertainment/distribution. It is our progression into what is a fairly sedentary market. So as a result, I'm being cautious and I just want to make sure that we have every single parameter covered off in terms of excellence and operational execution. Indeed I'm still focused on making sure that the economics are accretive for shareholders, that the technical robustness is as good or better than the incumbent from network performance sort of picture quality, and then finally, that we differentiate ourselves on a series of non-price-based differentiating factors, that we compete as a result of our innovation rather than a price discount mentality. I think absolutely that's the right way for us to go forward and I would say that we've made progress in this particular area and we have significant employee trials that are currently taking place with circa 1500 TELUS employees participating in this trial and (indiscernible) in Calgary. But as of yet, I have not given the green light, nor do I believe it is appropriate for shareholders to foreshadow a particular launch date.

I can tell you, in terms of Shaw's entry into cable telephony you asked about that, our response on this I think is fairly interesting if you put aside entertainment/distribution and TELUS TV for one second. I would ask you to reflect upon my response in 3 parts. The first part, I would ask you to think about some macro factors. Number one, our Wireline business as been no slouch. We have been very resilient to competitive intrusion in the past, and I think we have generated financial and operational results that compare favorably with our global peer group. Number two, we have significant air cover afforded TELUS on a consolidated basis as a result of our disproportionate exposure to Wireless at the revenue level, at the EBITDA level and at the cash flow level. That's a unique attribute of the TELUS organization. Then lastly, I would say the silver lining, in terms of cable telephony competition, is regulatory relief.

Now let me just give you some granularity on that divide. A 100 basis point alleviation or leniency in the X factor in the price cap RPI minus formula delivers $100 million of EBITDA improvement over a 4-year price cap period. That's a 100 basis point alleviation or leniency in the X factor and RPI minus X delivers $100 million of EBITDA improvement over the impending 4-year price gap period. So that's sort of part one of the response.

Part two looks at things on more of an operational level. I would ask you, in terms of competition on Voice-over-IP, IP is core to our business, IP solutions and IP networking, where it's an ancillary consideration for some of our competitors. I think we should be able to lead in both innovation and robustness in terms of the service that we're going to afford both businesses and consumers. Indeed, that leads me to another point of positive differentiation, and that's the fact that we're capable of levering significant economies of scope. We don't just develop Voice-over-IP solutions for consumers on a regional basis; we do it for businesses and we do it for consumers and we do it on a national basis. I think it would be fair to say that the IP solutions that we develop for businesses today get simplified and cascaded down into the consumer market tomorrow, so we can leverage significant economies of scope and research and development on a product front.

Lastly, we have to inject IP capabilities into our own network operations and software to take costs out of the business and to preserve margins that are under pressure as a result of competitive intrusion.

Then finally, I make a move over to look at our high-speed Internet access infrastructure. Again, putting aside entertainment distribution, we've got a lot of positive differentiators. The way that we bake in our wireless capability into the home solutions suite, again, is a positive differentiator that's difficult for a competitor to replicate. Home networking, leveraging our 100-year-old tradition on the networking front, taking what we've done for businesses on a Local Area Network basis and driving that into the home is again another differentiator that's not easy to replicate from the competition. Our home security product is an area where I think we can leverage both our technical capability and our brand strength. Finally of course, looking to launch our own Voice-over-IP service.

I think it's important to point out, though, in respect of all these services and should the eventuality present itself for us to enter the entertainment distribution market, you can expect us to be very, very sensible and economic in terms of our price behavior in the marketplace to focus on nonprice-differentiate factors rather than discount, rather than demonstrate rather a price discount mentality (sic). So there you go from soup to nuts, Dvai. I'm sorry that I can't give you a more specific date but there's always the next conference call.

No, I think it's very useful and I'm looking forward to it! Thank you.

The next question comes from Jeffrey Fan, UBS Securities.

Thank you very much and good morning. A question for George on the Mobility side -- Mirant recently talked about migrating their Aidan (ph) customers over to CDNA (ph) by 2008. Can you talk a little bit about your development there and maybe just your thoughts on their move and sort of the timeframe if you have anything along that front? Thanks.

I don't really want to -- won't comment on comments that other companies have made. I guess I will just make a comment from our perspective. We've been in the CDMA and Aidan (ph) business, as everyone knows here, really since the beginning of both technologies. We are encouraged by the development in the U.S. in that Nextel is partnering with a CDMA carrier, let's say versus it being a GSM carrier. We think that's a positive going forward. We are already in the CDMA push-to-talk business today and we continue to invest in the Aidan (ph) business and we continue to see the Aidan (ph) push-to-talk solution is clearly the superior push-to-talk solution in the market today. As there is a coming together of those services going forward, we would look to opportunities to take advantage of that as those developments happen. So we will follow the developments in U.S. but at the moment, we will continue to invest as we have in Aidan yet (ph) . We've also launched the CDMA push-to-talk. I think there is more news to come out of the U.S. as things develop and we will follow those carefully and take as best advantage as we can of those developments. I think we're very well-positioned.

John Henderson from Scotia Capital.

Thank you. A question on data revenues -- I wasn't sure. It was probably asked before but I wonder. Is the revenue growth you're seeing in data and in enterprise, is that an improving trend for the industry, or do you see it more as a share grab with your recent contracts, cooperator in TV (ph)? On the wireless data side, could you share with us what your percentage of ARPU is previous coming from data and how that has grown year-over-year?

George, why don't you go first and maybe make a comment on Wireless data. Then we will pick it up here on the Wireline front.

Sure, great. Thanks for the question. I'm not going to disclose our revenue line to the marketplace because quite frankly, we think that's more competitive intelligence than value to the investment community at this point in time.

Having said that, we continue to see great data revenue growth consistent with some of the numbers announced in both the U.S. and Canada. We see it in 2 areas, the consumer market in the SMS side and business market, particularly for us last year in the Blackberry market, where we were in a position with both CDMA and Aidan (ph) products to have competitive products to our competitor (indiscernible) where, in fairness, prior to last year, we were not in that position. They had clearly an early lead in that segment. So both segments for us continue to grow rapidly and I do think they, as I mentioned earlier, can help mitigate if -- any sort of reduction in voice pricing in the market, as we see a continual rapid adoption of both those types of data services. Hopefully that's helpful.

Thanks, George.

Okay, on the Wireline front, I think what you have seen from this organization is 2 consistent quarters of strong data performance. I think, if you have a look at the full year and compare us with some of our major competitors, there is about a 500 to 600 basis point delta in our favor in terms of our data performance.

In terms of your specific question, is this is a share grab, I would have to say that we do not think about growing our business in Ontario and Quebec in that fashion. It's not about a share gain; it's about getting the right economic return for our shareholders. But that having been said, I think it's very clear that we, in certain instances, have displaced our supplanted incumbents in going after managed data networks solutions with the likes of the TD Bank or the cooperators. We also have a range of other contracts as well that we're not at liberty to disclose. So I would say it would be a balance of both, both us displacing incumbents and as a result of that, being able to grow our national data network revenue, as well we've seen some improvement in terms of corporate IP spending, which is encouraging, but we remain cautious in that particular area.

It would also be fair to say that, in terms of the implementation of those major data network contracts, implementations like the TD Bank or the cooperators really only came to fruition at the conclusion of the 2004 financial year, so this organization now is just progressing through to the full billing cycle on those managed data network contracts. We have other contracts that we've secured where we have not yet concluded the network implementation. As a result, we're not yet at the full billing run-rate.

So again, it's a combination of both displacing the incumbent and as well seeing some improvement in terms of IT spending. But we are not share-orientated in our growth; we are more focused on securing the right business with the right customers where we win the business based on innovation and as a result of the innovation of our solution, we create a stickiness in a platform with that customer from which we can pursue additional growth opportunities, even on the voice side. Thank you.

Vance Edelson from Morgan Stanley.

Congrats on the quarter. George, just a quick follow-up on your comments about pricing risks -- has Rogers integration of Microcell had any impact so for, either positive or negative, on the competitive dynamics of the marketplace?

Yes, I think, from recent announcements in the market on some pricing changes March 1, we find encouraging and adding, as I mentioned in maybe my closing comments, some stability to the industry price -- (technical difficulty) -- so I think that's a positive element.

I think, prior to March 1, starting from the time of the acquisition until March 1, I really hadn't seen any real change that we would have counted as material or significant. But a public announcement of what's coming on March 1 by our competitor in terms of pricing on some of the previous Microcell products we think will be encouraging for the investment committee and are encouraging for TELUS Mobility.

Okay, that's great. Thanks.

We have time for one more question, Pat.

Peter Rhamey from BMO Nesbitt Burns.

Thanks very much and good morning. I'm going to make my question probably a simple one here. I (indiscernible) whole topic of share consolidation and perhaps, Darren, you could comment and Bob as well. From the Board perspective, what other criteria do you need to consolidate the shares, the non-votes into the votes? As well, where is your foreign ownership by each class? Can you get a sense for that, particularly on the non-voting side? Thank you.

Well, Peter, I think your questions are related to the existence of the 2 classes of shares -- and listeners to remind in Canada our foreign ownership restrictions with 33 percent cap or sealing on foreign ownership (sic). And so, the advantage of our non-voting class of shares clearly is that they can be held by an unlimited number of foreigners without giving rise to any concerns on approaching or exceeding the cap. Now, obviously, it is not the same issue on voting shares, and so to the extent that we ever approach the cap on voting shares, there will be full liquidity and ability to invest in TELUS for foreigners through the non-voting shares, hence their utility in our structure.

In terms of overall foreign ownership, I'd can say that it does vary significantly from month to month, and you can experience 3 or 3 percent changes in a period of a month. In that context, while we started with roughly just under 20 percent foreign ownership of the voting class following the Verizon issuance, it can change dramatically from period to period. So in the context of a 33 percent cap, that would suggest some continued utility to the maintenance of the 2 classes of shares. So I think that should really cover the question that has been asked.

So Bob, is that fair to say that, without a change in foreign ownership to some higher level, this isn't really an actionable item for you?

I think the way we look at things at TELUS on all topics is we are open to input and consideration but the logic thus far doesn't suggest merits of any change.

Thank you very much. There was actually one part of Richard Talbot's question that we didn't cover, which is on our U.S. plans. I just will have Darren finish up on that.

Effectively, Richard, we have no plans for direct investment in the U.S. That would be off-strategy for the TELUS organization. I think it would be fair to say that we like the competitive dynamic in the Canadian market, we like the structure in the Canadian market, and we like the potential for growth that remains resident within the Canadian market. So certainly for the foreseeable future, we are going to be pursuing growth within the confines, if you will, of the Canadian market, whether that's national expansion on the Wireline front, whether that's the future friendly home strategy within our incumbent region, or whether that's taking Wireless or helping take, if you will, Wireless penetration from 45 percent up to U.S.-based levels or indeed European levels. There's still significant latent potential for expansion and certainly, in a number of our business, such as Wireless, we are already enjoying scale and maturation economies and seeing the financial and operational results that come from that.

I think it would be fair to say as well we've recently made an offshore investment in terms of a call center operation in the Philippines. I think this perhaps serves to illustrate my point -- what we would be interested in doing, in terms of any touch in the U.S. or touch with Canadian customers, to say that when we go and approach a Canadian corporate customer, it would be nice for us to have, within our solution set, an offshore capability. So for example, if we were looking to sell a call center solution to a Canadian-based corporate, it would be nice for us to have a capability where we could offer them, in addition to our core business services, an offshoring capability where they could take advantage of those efficiencies.

Additionally, in terms of a touch into the U.S., we would be interested in approaching U.S.-based corporates that might look to outsource something from hosting to the call center operations and locate them in Canada and put them on the back of our infrastructure and our technology. So that's very different than making a direct investment in the U.S. It's a situation where we are leveraging our leadership, from a technology and an infrastructure perspective and perhaps our cost base in the Canadian market, to offer solutions to U.S.-based corporates where they can outsource a portion of their operation to us or indeed, in terms of our international capability set, including that in the bag of solutions that we would take to Canadian-based domestic corporates.

Okay, thank you very much, everybody, for joining us, and on behalf of the executive and the Investor Relations team, thank you for taking the time to join us today. We appreciate your interest and continued support of TELUS.

Thank you for participating in the TELUS Q4 earnings conference call. On behalf of myself and the rest of our teleconference team, thank you for choosing TELUS.