Telus Corp (TU) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the TELUS first-quarter 2005 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded, Thursday, May 5, 2005.

I would now like to turn the conference over to Mr. John Wheeler, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Don. Welcome to the TELUS first-quarter 2005 conference call and webcast. Let me first introduce the TELUS executives online with us here today in Edmonton. With me is Darren Entwistle, President and CEO and Bob McFarlane, 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. The news release on the first-quarter financial and operating results in detailed supplemental investor information are posted on our website at TELUS.com. For those with access to the Internet, the slides are there for viewing at TELUS.com investor call. You will be in listen-only mode during executive comments.

Let me direct your attention to slide 2. The forward-looking nature of the presentations answer to questions and statements about future financial results are subject to risks and uncertainties. Accordingly, TELUS' actual results could differ materially from statements made today. I asked that you read legal disclaimers and refer you to the risks outlined in our public disclosures in Canada and the United States. TELUS also disclaims any obligation to update any forward-looking statements. Now, over to Bob on slide 3.

Thanks, Don, and good morning everyone. Given my AGM presentation yesterday, I'm going to summarize our first-quarter results, in particular, try to provide some additional color rather than just repeating yesterday's presentation. So with that, let us begin on slide 4, which recaps the financial results released yesterday.

TELUS's first-quarter results were simply outstanding -- would be fair to say. Consolidated revenue was up nearly 10%, notably driven by revenue growth in both wireless and wireline. Revenue strength across both segments and continued expense control led to an outstanding 19% growth in consolidated EBITDA. Reported EPS rose by 139% in part due to a $0.15 per share incausidant (sic) act from a tax settlements, and I will return to that topic in a few moments.

TELUS again delivered strong free cash flow with a 28% increase over last year. And it should be noted that there are a number of non-recurring or unusual items in the quarter, and I will try to elaborate on them as we go through this presentation.

Turning to slide 5. Firstly, TELUS benefited from the settlement of tax matters in the first quarter, which led to a favorable impact of $54 million in net income or about $0.15 per share. This reflects a change in tax estimates for available temporary differences, a tax rate differential on consequential adjustments from the favorable reassessment of prior year's tax issues and related interest income. The majority of these positive adjustments relate to the termination of payments to Verizon as a result of the restructuring of a former Verizon relationship agreement. Please note that in the corresponding period last year, TELUS also had favorable tax settlements totaling about $0.04 per share.

Turning to slide 6. Secondly, there were regulatory decisions during the quarter that impacted financial results. Given the past conservative -- and as it turns out, appropriate -- accounting treatment adopted by TELUS, I will expect a positive consolidated impact in 2005 as a result of mandated wireline discounts. Mandated CDNS discounts in our ILEC territories are offset by deferral account adjustments recorded in local revenue, which I will detail in a moment. Furthermore, as these discounts are now available to us on leased facilities for both our non-incumbent operations as well as TELUS Mobility, we anticipate a net favorable impact on EBITDA of about $25 million in 2005. Of this amount, approximately 18 million is expected in the communications segment and $7 million in TELUS Mobility. The positive impact for the CDNS decision to EBITDA in Q1 '05 was $5 million.

Separately, TELUS Québec benefits from the finalization of the subsidiary requirement for high-cost serving areas in its eastern Québec territory. The positive impact EBITDA for TELUS Québec and therefore in our communications segment is about $10 million in 2005.

Turning to slide 7. Normalizing for the previously described positive income tax settlements in both periods and the 6.5 million retroactive portion of the positive impact in Q1 '05 of the TELUS Québec Portable Subsidy decision as well as a $0.5 million positive retroactive portion of the CDNS regulatory decisions benefiting Q1 '05, EPS was still up $0.27 to $0.51 in the quarter or an impressive growth rate of 113%.

Turning to slide 8. Before I get into our segmented results, slide 8 shows how the $567 million in free cash flow was generated this quarter. After factoring in shares issued and a reduction in working capital primarily due to the payment of 2004 variable pay, the payment of mobility license fees to Industry Canada and a cash outlay associated with an acquisition, TELUS had $510 million in cash available for debt reduction and share repurchases. Keep in mind that cash interest on our $5.3 billion of long-term notes is payable in the second and fourth quarters, which therefore is not a cash item in the first quarter of 2005. Also, dividends were payable but not paid out as of March 31, 2005; whereas, the Q4 dividend was paid out by December 31st. So the $42 million payment was not a use of cash in the first quarter of 2005.

During the quarter, TELUS used $158 million to repurchase voting and non-voting shares under a Normal Course Issuer Bid. With no significant debt maturities until 2006, we continued to build our cash position by $351 million in the quarter to total $1.2 billion at March 31st.

Now turning to slide 9. In our wireless segment, slide 9 briefly recaps TELUS Mobility results, which were outstanding across the board. Mobility clearly continues to deliver impressive revenue, earnings, and cash flow growth that are best-in-class. Not only is this reflective of the growing wireless market, but it is also due to performance, which is greatly superior to that being reported elsewhere in the wireless industry. While CapEx was up slightly, it actually remained flat at 8%, which is a very low ratio on a global basis. Consequently, wireless EBITDA less CapEx grew at an outstanding 41% year-over-year.

Turning to slide 10. TELUS Mobility net additions led the Canadian industry and were up over 5% year-over-year. Importantly, our good subscriber growth results were dominated by post-paid subscriber additions, which bodes well for our ARPU and revenue growth profile going forward. In fact, post-paid net adds were 16% higher than for the first quarter of 2004. As a result, our subscriber mix remains industry-leading at 83% post-paid.

Turning to slide 11. This strong subscriber mix contributes to TELUS Mobility's significant 20% ARPU premium relative to our closest competitor. TELUS's $1.00 ARPU increase year-over-year for the quarter was driven by continued pricing discipline, increased usage, and particularly, with significant growth in data and Internet products, as our wireless customers continued to use their phones more and more. As you can see, ARPUs in the industry have been up year-over-year. However, the increase has not been uniformed. So while we have a significant 20% ARPU premium, we see Rogers is improving significantly, and they should be commended for that improvement. However, that does not extend to the far right side of the bar, which is evidence of price discounting that unfortunately is still taking place in the market.

Slide 12. Mobility's continued profitable growth strategy is evident on slide 12. Our already low churn reduced by 4 basis points, it now leads the industry. While at the same time, costs of acquisition per gross addition again improved to $355. This is important, as it means our industry-leading subscriber growth was achieved at a lower marketing cost than ever before. Clearly with increasing ARPU and decreasing cost of acquisition per gross add and a lower churn rate, TELUS Mobility is garnering its leading subscriber growth results through superior execution and not by means of rudimentary tactics of either price discounting or expensive promotion.

Turning to slide 13. While TELUS attracted 44% of the net additions in the first quarter of 2005, our focus on profitable subscriber growth is paramount. And it is evident, as we look at the cash flow this year of 40% of the industry in the far right hand pie. That is really our primary objective. And our objective isn't necessarily to increase the size of our slice of the pie. But hopefully, the pie will expand and therefore be a win-win for all industry participants.

Turning to slide 14. Based on TELUS Mobility's first-quarter results and our outlook for the rest of the year, we made positive revisions to our public guidance for 2005 yesterday, as outlined on this slide. However, we should remain cautious, given it is only early May and the fourth quarter has a dominant impact on annual wireless results.

Turning now to our wireline business segment, TELUS Communications is shown on slide 15. What was particularly encouraging was that in addition to TELUS Mobility's strength, our wireline business contributed its best quarter in 3 years. First-quarter revenue rose 4.4%, the highest wireline result in North America this quarter. This was led by double-digit growth in data revenues and continued expansion of our non-incumbent operations in Central Canada, offset in part by continued competitive pressures in our local and long distance operations. Strong EBITDA growth of nearly 10% reflects the ongoing focus on enhanced efficiency and cost containment. CapEx fell by 18%, resulting in a CapEx intensity ratio of 17% of sales. EBITDA growth combined with lower CapEx resulted in a strong 43% improvement in wireline cash flow.

Slide 16 provides TELUS Communications' revenue profile by component product. The regulatory impact of the CDNS decision had somewhat distorted reported local and data revenues, which we will look at it in just a moment. However, once again, we have experienced very modest long distance revenue erosion in the quarter at only 1.4%. This contrast with substantially higher decline rates reported by other telcos and clearly reflects TELUS's differentiated strategy to protect legacy long distance revenues.

As I alluded to earlier, TELUS Communications' revenues were affected by some positive non-recurring items, which we outlined in slide 17. Normalizing for the non-recurring retroactive impact of the regulatory decision affecting TELUS Québec, revenue growth was closer to 3.8%. In addition, acquisitions including one made midway in the first quarter of 2005 added roughly $19 million to revenues. Excluding these items, affecting a year-over-year comparison, TELUS's underlying wireline business still generated growth about 2.2%, which was the most impressive in 13 quarters, particularly given the relative growth in the industry.

Slide 18 highlights the underlying growth rates for local and data revenue components. Given that TELUS employs a liability method in accounting for price cap deferrals, an $18 million recovery from the price cap deferral count was recorded in local revenue in the first quarter of 2005 related to the CDNS decision. This favorable recovering offset the newly mandated additional discounts for competitor digital network services. So, local revenue was basically flat, excluding the positive CDNS impact as well as a retroactive impact of the TELUS Québec regulatory decision. The additional discounts for CDNS mandated by the CRTC coincidentally almost offset the increased data revenues coming from acquisitions. As a result, TELUS's reported and normalized data revenue growth were both 11%.

Slide 19 highlights our network access line, or NAL for short, performance during the quarter, where we saw improvement in total network access line erosion. At -1.1% this quarter, TELUS experienced the strongest result in 5 quarters, dating back to the fourth quarter of 2003. TELUS is benefiting from the strong economies in B.C. and Alberta and some temporary gains, as lines were added in advance of the May provincial election in British Columbia. The result is believed to be the best of any telco in North America. However, while we are pleased with this performance, given Shaw's launch of cable telephony in March in Calgary and roll out to other markets subsequently, we expect it will be difficult to maintain similar results in the future in light of the increasing competitive situation.

Turning to slide 20. The EBITDA impact of these non-recurring items and acquisitions is shown. You can see that on a normalized basis, excluding the year-over-year impact of acquisitions, the underlying organic EBITDA growth rate was still an impressive 5.7%.

Another notable strength for TELUS in the first quarter of 2005 was our non-incumbent operations in Central Canada, shown on slide 21. Our focus on quality recurring revenues is continuing to pay off. For the first quarter, we reported record revenue of 160 million and recorded our second quarter of positive EBITDA at $8 million. In looking at the EBITDA run rate, Q1 is a seasonally strong quarter for one of the acquisitions we made last year. The first quarter was also impacted positively by the CDNS decision, and there were a number of smaller non-recurring items. Taking these factors into consideration, we estimate our normalized non-incumbent EBITDA was about 3, perhaps $4 million in the quarter.

We are pleased with this momentum and yesterday announced positive changes to our non-incumbent guidance. We now expect 625 to $650 million in revenues for the full year 2005, yielding EBITDA between 15 and $20 million. The extent of the improvement may ironically be held back to the extent that we win other new large business contracts, which typically are dilutive during their start-up phase.

Turning to slide 22. About the only disappointment in the first quarter, it is a relatively weak 22,000 net high-speed Internet additions. While the market is maturing and our churn rates are encouraging, we obviously lost share in the market, and we will have to do better in the future. In any event, the 22,000 net high-speed adds represent an 18% growth from last year. And Internet subscribers now total 982,000.

Turning to slide 23. Revitalizing wireline growth remains a priority with a number of major initiatives in both the residential and business markets. We have discussed progress at our non-incumbent operations in Central Canada, so I won't repeat those. But also on the business side, in April, we renewed a 7-year contract for $245 million for the province of B.C. to consolidate existing telecommunications service contracts for the province and related Crown Corporations. This agreement will also bring TELUS Internet access to many more rural communities in British Columbia.

Meanwhile, we continue our roll out of Future Friendly Home initiative. We launched wireless home networking and home security monitoring services in 2004 and continue to trial IPTV with employees for a possible future commercial launch. We believe that the Future Friendly Home initiative provides TELUS with new and attractive revenue streams that reflect a natural extension of our existing DSL investments and products and at the same time enhances our differentiation and competitive position. In addition, our differentiated strategy with regard to bundling is designed to protect our legacy revenues rather than cannibalize them. In this regard, you can see the impact of the strategy on our long distance revenue erosion rate, which is about one-tenth of the Canadian industry average.

We also, referring to slide 24, we also continued to focus on our corporate priority of driving continual improvements in productivity. The success of past programs is serving as a platform for continued cost improvements at TELUS Communications in our efforts to protect wireline margins. We have allocated $100 million to support further restructuring initiatives in 2005. Although we recorded only $9 million of restructuring and workforce reduction costs in the first quarter, we continue to expect these costs to ramp up, as Avrick (ph) said on the last conference call, for the remainder of the year, as we identify opportunities and approve new initiatives -- total $100 million for the full year.

Based on positive regulatory developments and year-to-date results, we have announced positive revisions to our full year guidance, as shown on slide 25. Although we are encouraged by the quarter, we remain somewhat cautious due to the competitive uncertainties in our businesses and the heightened state of labor relations challenges.

Turning to slide 26, I would now like to update you on a couple of key developments before I wrap up, beginning with the current labor situations. In summary, we tabled our comprehensive offer on April 13th to the TWU. However, we have reached an impasse. TELUS undertook an escalating sequence of lawful measures provided for by the Canadian Labor Code to bring pressure to bear and encourage the parties to negotiate. Although certain law code measures were implemented on April 25th, our business continues to operate normally, and we continue to negotiate with the TWU and are hopeful of the near-term settlement.

Next, in regard to our share buyback program, in the first quarter, we were active in the market purchasing 4.1 million TELUS shares for $158 million. Under our buyback program, TELUS is permitted to repurchase up to 25.5 million shares. As of the end of the first quarter, TELUS has repurchased for cancellation a total of approximately 6.3 million shares, since we began the program in December, representing 25% of the authorized annual program total. TELUS believes that these share repurchases constitute an attractive investment opportunity and a desirable use of TELUS's cash that should enhance the value of remaining shares.

Turning to slide 28, yesterday, we announced that TELUS has entered into new credit facilities totaling $1.6 billion. The facilities consist of two tranches -- one $800 million, 5-year revolving term facility expiring on May 4, 2010 and a 3 year, $800 million revolving term facility expiring on May 7, 2008. These facilities replace TELUS's existing $1.6 billion of committed credit facilities. Our 364-day facility was replaced with a 3-year term facility. And our previous 3-year facility was replaced with a 5-year term facility at favorable prices, which substantially the same terms with improved pricing and extended terms. Notably, these facilities mature subsequent to the '06, '07 debt maturities. The renewal of the credit facilities reflects TELUS's very strong financial position and reinforces our solid liquidity position.

As you can see on the last slide, slide 29, which summarizes revised consolidated guidance, TELUS expects 2005 to be another strong year. Reflecting year-to-date results as well as regulatory and tax settlement impacts, we are making positive revisions to consolidated guidance. We are revising our ranges for consolidated revenues upward by 50 million, EBITDA upward by 25 million, EPS upward by $0.20, free cash flow guidance upward by 50 million, and narrowing our CapEx guidance range toward the upper end.

The theme of our recently released Annual Report is "The Future is Friendly," which most of you know, as our long-standing brand promise. With outstanding first-quarter results and positive outlook for the year, the future does indeed look friendly.

With that, Darren, George and I would be happy to take questions. So Don, I will turn the call back over to you to begin the Q&A session.

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

A question is on the wireline side, margins relative to guidance. And I'll ask a clarification first. Bob, you talked about the 9 million in restructuring costs you saw go through the P&L; I'm assuming the P&L in the first quarter and then the 91 million for the rest of the year. First, is that full expense? Or does that include cash costs?

You're correct. In terms of first quarter, 9 million flowed through the P&L as an expense. And therefore, let's ballpark the 91 because we have a $100 million budget for the year. So we expect the additional 91 million to be spread out for the balance year going through the income statement as a GAAP expense. And given the ramp-up phase from a -- while I don't have precise modeling guidance, clearly you should be modeling that as a ramp-up rather than dividing by 3 for the remaining 3 quarters.

In terms of the cash portion, I forget the note number, but there is a note to our financial statements. Maybe my colleagues can just remind me of that number. And in there, we outlined what we reconciled the restructuring expense and pointed out it is note number 4 to the consolidated statements. And in that note, it reconciles the accounting expense to the cash outflow. And you will note in there, there is some interesting disclosure because of the columns break out -- well, what were the outlays that related to programs initiated prior to 2005, as compared to outlays that are in year. And so you can kind of see what is the break out therefore of the cash related to charges taken in prior periods, as opposed to the charges taken at current period, as well as what is the liability for restructuring -- i.e., the accrued payments that are yet to be made. So there's a real comprehensive disclosure of that, and I would point or encourage you to read through that note number 4.

I will. Thanks very much Bob for that. Now, this is obviously the major difference between what you put up in the first quarter with respect to EBITDA growth on the communication side and where the guidance lies. So, obviously, I'm going toward '06 here. I'm wondering if you might give us just an idea of -- number one, a description, a general description, of what the 90 -- or let's say the 100 million for full year is focused on? Is it labor? Is it sort of moving away from labor toward other? And if you can give us a sense of whether any movement on the employee base that is baked into that number is contingent on a new labor agreement, that would be helpful. Thanks.

Well, Darren has mandated to me with responsibility for competitive efficiency program, which is the project name for this. I didn't see in my score card objective any contingency for a labor settlement to achieve this. So the short answer is no; it is not contingent on that. Examples would be for example a program that we commenced in the latter part of last year but is flowing through to this year, which is the combination of our business and client solutions business units. So obviously, there is duplication and overlap. And through the combination, we are streamlining those operations. So that would be an example.

Other examples relate to consolidation of physical locations and other IT consolidation, where we essentially had over a dozen physical locations with IT employees, which did not lend itself very well to effective and efficient project management. And so, we are in the process of consolidating those two primary campus locations. And so therefore, you have a combination of costs -- those from lease terminations to moving costs to deploying some new systems to -- some personnel are traveling or relocating; other personnel are choosing not to relocate. So there is a broad combination of these costs.

I do want to point out though that there is no major change in our guidance as it relates to the restructuring. We have consistently said 2005 would have $100 million. I was asked last quarter whether we had already moved and embarked on improved projects totaling 100 million. I answered by saying no. In fact, we had very few projects approved at that point. And we were really through the -- in the assessment phase and anticipated these initiatives to ramp up over the course of the year. And therefore, the $100 million would be back-ended through the course of the year.

Richard Talbot, Royal Bank of Canada.

My question is for Darren on the non-ILEC business. Darren, I wondered if you could characterize for us what you are seeing in terms of the pipeline of new non-ILEC inquiries, RFPs and the like. And if you could help us characterize what you are seeing in terms of the success rate and whether you think that the recent regulatory decisions are likely to impact the strategy one way or the other. Thank you.

Thanks, Richard. I think the performance in Q1 for the non-ILEC is commendable. Clearly, when you post a result, where you achieve 24% revenue growth underpinned 26% data growth on a normalized basis, and post your second positive earnings quarter in a row, you can be very pleased with that. And certainly, the data growth is underpinned with the implementation of some of the deals that we have articulated previously on the large corporate national deal front. And of course, those deals are very much in their orientation of data solutions. The pipeline for us on the non-ILEC front continues to be healthy.

As Bob indicated in his remarks, one of the dilutive factors of course that we have to anticipate over the remainder of the year that impact the EBITDA is that -- as we secure those large deals, then the near-term, as we implement those solutions, they are dilutive to EBITDA. On a regulatory front, certainly the CDNA or now CDNS decision is both favorable to TELUS Mobility and our non-ILEC operation. Benegeren (ph) Québec lost its neutral because of the conservative and prudent accounting that we've undertaken in respect to the deferral of capital over the last several years. And of course, that is helping underpin the results. And you will recollect that one of the strategies of expanding nationally from the outset was that natural expansion actually act as a regulatory hedge so that decisions that impacted us negatively in the ILEC would be fortuitous for us in entering Québec. And of course, as well, the reverse is true.

So we are pleased with what we are achieving in terms of the pipeline or indeed the funnel for new deals, as they are coming to fruition. It doesn't matter much as to the AGM I talked about with a couple of the new deals that we have brought forth. And now, we are now in the process of implementing, and then that is going to take place on a fairly regularized fashion going forward. But you can expect this particular management team to be conservative in a way that we drive the business forward.

We are not pursuing a non-ILEC operation to have great quarterly results over the next couple of quarters. We are building a business for the longer-term. So we are going to stick to the discipline of our strategy. We are not going to be price-focused in terms of what we drive forward into the marketplace but rather focus on certain select segments of the private sector and the public sector. We are going to continue to adhere to our focus on data in a very disciplined front. And in so far as data is concerned, not data CPE solutions but data-managed network solutions. And again, the focus is not just doing well on a quarterly basis but building a business for the longer-term based on a healthy pipeline that reflects the discipline of our strategic focus and our adherence towards strategy and its well pricing discipline.

Thanks. If I could just follow-up. In February, I asked Bob if there was any interest in CallNet in terms of increasing the depth of your national footprint. And he was fairly clear in his answer on that. But since that time, we've had a number of regulatory decisions. And I wonder if any of those would have changed your view?

I think the only thing that the regulatory decision is changing is -- in respect of our capital expenditures that the footprint that we are driving forward with -- that was previously predicated upon a regulatory environment of infrastructure-based competition -- now needs to be moderated to reflect the advantageous access terms within the CDNS agreement so that we can leverage the facilities of the incumbent operator in Ontario and Québec rather than deploy our own capital to build our infrastructure. And that has a positive economic impact on our business in Ontario and Québec. The previous view that Bob expressed in respective comment currently stands.

Thanks very much, and congratulations on the results.

Glen Campbell, Merrill Lynch.

I'm just looking at your consumer business in region on the wireline side. And we are seeing sort of contrasting trends on the long distance side, where revenue performance has been very strong and on DSL. So I wondered if you could talk a little bit about what the market trends are there. And if you could clarify whether the rate of revenue growth for long distance overall is fairly representative of what you're seeing in region. I am not asking you to break it exactly growth rate but just get a general sense of what the end regionality (sic) of revenue gross rate was. Thanks.

Okay, Glen, let me try and tackle that question. Insofar as long distance is concerned, there are three particular parameters that are underpinning our results, both in an absolute sense and our results relative to our peers within the industry.

Firstly, in terms of our marketing and pricing philosophy on LD, we are exceedingly disciplined. This is an organization that does not believe in big bucket flat rate LD plans. We do not think that that is prudent. And it is particularly inappropriate if you're an incumbent because of the re-pricing effect on your base. So from our prospective, you can expect us to be very disciplined on LD pricing and to avoid big bucket, high-volume, flat rate LD plans that have a re-pricing impact on the base.

Number two, our bundling strategy is also differentiated from some of our peers within the North American telecommunications industry. When we construct a bundle and put forth a value proposition around that bundle, it is structured in a fashion to protect our high-margin services, such as long distance rather than expose them to competitive intrusion or margin erosion. So insofar as our integrated solutions for bundles are concerned, we've put forth value proposition such that they protect the high-margin services and the base that we enjoy in that particular products area from a margin prospective rather than expose it.

Lastly from an LD perspective, given the reality that we face in terms of revenue and margin pressures, we have a philosophy at TELUS that if you can't fix it, let's feature it. So we have a very, very vibrant wholesale business that allows certain retail carriers to leverage our national and international carriage facilities from a long distance front, as they deliver long distance solutions into the marketplace. So that, we have a view that if you want to ameliorate some of the retail pressure on LD that you face in both the revenue and the margin front, one particular response is to have a very effective wholesale business and a cost structure that supports that wholesale business.

So those are three of the reasons, if you will, that underpin our results on the LD front. And again, I believe those to be reasons that are differentiated than from some of the marketing philosophies pursued by our peers.

Lastly on the ADSL front, that is an area of disappointment for us. As Bob has correctly indicated, that is one of the areas of the very strong results in Q1 that we are not particularly pleased with. And it is an interesting story in this area because we are posting some of our best customer retention results that we have ever experienced in terms of ADSL, but we are not satisfied with the net adds. And if you do the simple mathematics, you'll know that if we are experiencing good churn and we're not experiencing good net adds, then we've got a problem on the growth adds front. And that comes down to simply getting the right distribution strength in place, putting in place effective channels to market, to take DSL into Western Canadian customers' homes. And to do it in a fashion that is not predicated upon price.

But in fact, as Bob has indicated today, what is leveraging our future family home strategy on some of the advanced applications that are bringing to bear that leverage our ADSL infrastructure, our high-speed Internet infrastructure that we have put in place. So one of the areas that we got to work on is improving our distribution strength to improve our gross adds, given that we're making good progress on the churn front.

And of course, as you are well aware from a market perspective, the market is maturing in Western Canada without a doubt. We have one of the highest penetration rates in the world of this region compared to other countries on an international level. So you know that is one of the factors as well that is impacting our distribution strength. But I think we can do a little bit better in that particular area, as we get more effective channels to market to deliver our ADSL solutions into households.

Peter MacDonald, GMP Securities.

I know you went through this in pretty good detail on the call, but just the one time or normalized impacts on revenue and EBITDA in communications and in the national business -- will you just go through those? And probably the easiest way is to just to go back to slide 18. When I look at CDNS, I thought in the release that you sent out yesterday there is also a $6.4 million non-recurring benefit. Is that also in the local revenue?

Okay, so on slide 18, you see the disclosure there of the $18 million. I guess their first point of this slide was to let people understand that one of the impacts of the CDNS decision was -- I don't know if you would call it a distortion -- but certainly a transfer of revenue between two of our categories. So you see the deferral account benefit in the local revenue line, and the data line had the corresponding 18 million taken out of it. And then the irony or coincidence was that the acquisition impact was a similar number, so it didn't change our overall data growth rate.

Now, I think the second part of your question related to $6.5 million. Let's round that to $7 million related to the TELUS Québec Portable Subsidy. So that is not data revenue; that is a local revenue. And the 6.5 million relates to the non-recurring portion.

Okay, and then so the $18 million would be the recurring portion that gets transferred between the local and the data going forward on a quarterly --?

Well, I think there are two different things here. Yes, the 18 million is related to CDNS. The rounded 7 million is related to the TELUS Québec Portable Subsidy decision. So the point here is to the extent that we have discounts that we are obligated to provide on our facilities, we are recovering a similar amount through the deferral account. And therefore, there is not a negative impact on our incumbent operations.

The other side, I think we've already referenced is that from a -- I know Darren referenced -- from a non-incumbent prospective in Ontario, Québec, where we are the one leasing the lines, we are clearly a net beneficiary both on wireline as well as on our TELUS Mobility cost because we lease facilities from carriers to carry traffic and sell aphates (ph) back to switches.

Yes, I think I understand that portion. What I am trying to get at is there is a retroactive portion, which you talked about in your press release from CDNS that was 6.4 million. Then you have the offsetting 18 and 18 between the 2. I'm wondering, that 6.4 is not shown on this. Should I also add that to normalized -- back to my number if that's what I want to do?

Yes, I think perhaps the confusion is that roughly 6.5 million is not CDNS; it is portable subsidy. Right? So, in the first quarter, the true-up of their rates over the past 3 years or so was around $11 million. So that's the total retroactive amount. And then, there was 7 million related to CDNS in February and March. Notice how it is the 7 million -- is where the confusion. Because there's 7 million related to portable subsidy. And then, there is a 7 million in-period CDNS, just happens to be the same amount. In addition to the in-period CDNS, there was a retroactive $11 million portion. That's what -- 11 plus 7 gets you the 18.

Okay, I see now.

I think it is the coincidence of 7 million being both the portable subsidy as well as the in-period CDNS. It is confusing people.

Okay, that is helpful. And then when we look forward, you talked about $5 million. And so I look at that 5 million and the 11 plus 7 -- or however you want to look at it -- when I look at this quarter for the national business, what is the total regulatory impact on the revenue and EBITDA line in this quarter? And then how does that flow forward just for comparison purposes?

Could you repeat the question for me?

Yes, you talked about the -- there's a couple of things you said. But if I just go back and make it sample. If I just go back to your 11 plus 7 in the CDNS deferral account less out on the data side, is that fully reflected in the revenue and EBITDA of the national business? So is national actually 18 million lower on revenue and EBITDA than what is reported from regulatory? Or is that split between, somehow split between something else?

The answer is, there would be a combination of incumbent, non-incumbent, but we don't give that split.

Okay. And then the acquisitions as well. Did you give a split on the acquisitions on the impact that it would have on the non-ILEC business?

Did we disclose the impact acquisitions on the non-ILEC business? Not specifically. Only there are two -- one was primarily incumbent; the other was primarily non-incumbent. The one that was primarily non-incumbent was relatively minor in it.

Daniel Henriques, Goldman Sachs.

Good morning, and congratulations for the great performance. My question is in terms of prepaid. The mixture of your subscriber base is superior to your peers' with more postpaid. But what do you think about the opportunity for the prepaid market in Canada? In the U.S., some carriers are increasing the focus on the prepaid. But obviously, here, the penetration is higher. And in Canada, you probably have much more postpaid growth left. So you think it's a bit early to think more increased focus on prepaid? How do you think about the opportunity for the market in Canada? And how do you want to be positioned for that market opportunity in the future? Thank you.

George, over to you, please.

Thanks for the question. First of all, just to remind everyone on the call that the Canadian market was really -- been the prepaid market well ahead of the U.S. market. And actually for a number of years, about 2 or 3 years back, it was a bigger share of the net adds than we have seen over the last few years.

In addition, one of the other impacts we've seen on the prepaid market at TELUS Mobility is the growth in family plans. And what we find is the youth wants to choose the phone clearly and sort of choose a phone that they think is appropriate for them. But it can actually be more economical for the parents to add the phone to the family plan and necessarily prepaid. So it is one of the things we've seen. Of course, our preference is that because then we get a postpaid relationship and have a relationship directly with the client and frankly the family. So that's one of the pieces we've seen that has had some impact on prepaid.

Having said that, with the introduction of Virgin and then the subsequent lowering of price in the prepaid market by Bell Mobility on the airtime side and by their lowering their handset prices in the fourth quarter, we certainly -- ourselves and Rogers -- did some responding to that and have seen some increase in growth year-over-year in prepaid. And as the market penetrates further out, you could see that category reignite again. That remains to be seen, and we'll follow it carefully. The one nice part now about prepaid in Canada is because of where handset prices are, we generally do it in a non-subsidized basis, and we have been able to achieve in the low 20s ARPU on prepaid -- about double that of our competitors with a real focus on data services within the youth market. So that's really been how we focus and continue to obviously make sure we are competitive in that space.

If I just could follow-up, you mentioned some price discounts. When you look at EVDO -- and you mentioned you are going to launch in the first quarter of '06 -- you already have an ARPU that is superior to your peers. Do you see EVDO as an opportunity to increase this lead? Or it is just something that will allow you to maintain this ARPU lead versus your peers?

Well, I think we see data as an opportunity for continual maintaining and hopefully some increases in ARPU. We certainly have been very impressed with the execution of one of our competitors in that space on the DSM side and want to as quickly as we can get to those sort of rates of growth we've seen. And we are beginning to see huge acceleration growth ourselves in that area. And so we are really bullish on that sector, both business and consumer side.

One of the things I just want to caution investors -- we have had 9 consecutive quarters of increasing ARPU at a time where one of our largest competitors having a decreasing ARPU. That gap can only get so large before it starts to truly impact our market shares. We have to be careful of that. And so although I am very optimistic that we will continue with our price of leadership strategy, the idea of constantly seeing dollar increases quarter-over-quarter going forward on ARPU, I think is hard to forecast or bet on if you will as investors in light of the fact that one of our competitors is seeing a declining ARPU.

So I think that data could be stabilized and hopefully accretive to ARPU. But we are building our cost structures, as we have told people in the past, on the basis that ARPU doesn't increase. And when it does, it flows through to our investors as a benefit.

Vince Valentini, TD Newcrest.

I have another question for George. So can I just clarify -- you have mentioned twice about how new contracts in the non-ILEC business could drag EBITDA. Is it fair to say you have reflected what you see in the pipeline now in the revised guidance for EBITDA for the year?

And the question for George is just -- another new competitive product in the market is the Bell 10-4 service. And they claim it is being very successful, and they have added 10,000 subs. Can you talk about what impact if any that may be having on your overall business and specifically your Mike business? Thanks.

Darren, do you want me to take the second one first, and then I will pass it back over to you?

Yes, George, why don't you do that?

Sure. We have seen the 10-4 launched by Bell in the marketplace. And as you know, we launched also CDMA Push-To-Talk. They've done a significant amount of marketing on that program. I continue to be a believer that the category will grow as a result of their growth in that sector and their investment in that sector.

We typically would not talk about a next quarter, but it really is April that we saw Bell in that space. And they have reported yesterday, I think some positive numbers there, which we believe frankly as good news because April was certainly one of our best in years Push-To-Talk month on both on our iDEN side and of course with the added PCS Push-To-Talk. So it looks like that category is growing. That is similar to what we saw in the U.S. And our only wish is that our competitor uses the quality of the service and not price point as a way to grow their market share. And if we see that, that will be a benefit to all investors.

In terms of the -- I think the first portion of your question related to non-incumbent. I think the essence, Vince, is you are trying to understand what are the non-recurring items that may take 8 million EBITDA down to 3 to 4 million run rate that we show on the slide.

And first point is there will a couple million dollars of retroactive credits relating to the regulatory decision of CDNA. And so, you have to normalize for that. There's also sort of 2 to $3 million of sales, which were bona fide. They are more one time in nature or is seasonally high in respect to one operation. So they would not be indicative of the ongoing throughput from those operations. So when you adjust for those two factors, that brings down what a true underlying run rate is. It is closer to the 3 to $4 million EBITDA level.

That's great disclosure, one I wouldn't have actually asked, so I am glad you answered it. But I was just referring to the fact that twice in the presentation, both yourself and Darren mentioned that there is a risk to EBITDA in the non-ILEC business if you sign up more contracts and therefore have a start-up cost dragged. So I just wanted to clarify that you probably have reflected what you see in the pipeline in your revised EBITDA guidance for the year for that segment.

And the answer is yes because if you take the 3 to $4 million run rate and multiply that by 3, you're into sort of a circa $10 million. And add that to the 8 million EBITDA in the first quarter, you are at 18. Our guidance for the year is 15 to 20. You may say, well, wouldn't you naturally ramp up and therefore go over 20? And the caution is that with large contracts and diluted impact, that would hold that back from transpiring.

John MacKay, Desjardins Securities.

It is Joe MacKay. The question is for George. The industry is, George, has been proactive in starting to work towards a number of portability. I wonder if you -- based on what you are seeing across the globe in the areas -- normal portability has been put in -- if there's any aspects that you see that maybe you would like to see implemented in Canada? And maybe aspects that you would not like to see implemented in Canada? And then ,also if you could just comment on when you expect portability to arrive in Canada as well? That would be great.

Just to make sure all investors are aware, there was an announcement by the industry that we are working towards an implementation of LNP. And we are working to try to get a timeline put together sometime in the September timeframe of this year for the marketplace.

In terms of execution, I think one of the things we have seen in the United States is -- frankly, churn has come down. And it has had in one sense a fairly minimal impact on the industry in the U.S.

In terms of what we'd like to see as a carrier and I think also our competitors would we want to make it as -- in our brand term, as friendly and experienced as we can and that is unencumbered for the client as we possibly can. And so those are the things we strive to do. I know there has been some countries where it was very, if you will, convoluted and created quite frankly a lot of problems. So we want to make sure we put in place a timeline amongst all the carriers that lets us execute this in a way that is friendly to the user.

In terms of timing -- there really isn't an official timing yet. Having said that, to see it any earlier than in the '07 timeframe, it would be highly unlikely given the amount of work required by the carriers to do this. But we will know more and share more with the market, as we complete our studies through the next 4 months or so. Hopefully, that is helpful.

Dvai Ghose, CIBC World Markets.

First of all, compliments to Bob for the thoroughness and clarity of his presentation. I hope your peers follow suit in the future. But a couple of questions, if I may. First of all, on the dividend -- clearly generating a lot of cash. I know there was unusual items in the earnings in the quarter. But nonetheless, you seemed to be veering towards the high $1.90, $2.00 sort of level even on a recurring basis. Your payout ratio guidance is around 45 to 55%, and your current dividend is $0.80.

So I am wondering, at what point does the Board review the dividend? Has it been reviewed? Are you looking for certain landmarks this year before you take a decision as to whether to increase or not?

The second question is to Darren on the labor situation. What are the next steps here in terms of what we can expect, assuming that there's no progress in terms of negotiations, as there haven't been for such a long period of time. Is there any opportunity for the rank-and-file, do you think to force a vote on the offer that you have presented? And at what point will you be talking about the savings from the offer? You have certainly talked about the upfront cash costs of 200 million.

And last but not least, a real quick one on Shaw and access lines. Do you have any idea how many of your customers ported access lines to Shaw either in the quarter or to-date?

Thanks Dvai for that last real quick question that you put forth. And so far as the dividend is concerned, as we have indicated previously, given that we have chatted about this subject in the past, that is the providence of the Board. You asked how regular we consider the dividend, it is done at the Board on a quarterly basis. We are serious in respect to the dividend payout ratio range in respect of net earnings of between 45 and 55%.

I think Bob was clear in terms of what we declared yesterday in respect to the dividend, and that remains our current position. And we'll review it on a quarterly basis as a board going forward.

Insofar as labor is concerned, you are right that this has been a protracted process, which has been frustrating for the Company, and it is certainly frustrating for our unionized employees. There is a fluid process and somewhat unpredictable given certain legalities that continued to be pursued by the Union. And it is a complex process and not easy to manage as a result. I believe that TELUS is currently on the right path. I think we have a good cadence in respect of the labor relations process at present. It is fair to say right now that this management team is intent on expediting the labor relations process and labor relations matters. So that we can expeditiously reach a positive outcome that is beneficial for TELUS, that is beneficial for our shareholders, and that is beneficial for our employees.

And then of the upside in respect to securing a new collective agreement in terms of improve flexibility, in improved productivity and the introduction of a more effective meritocracy within the TELUS organization is presently endogenous in our forecast. Although certainly we have contemplated the investment considerations for implementing a new collective agreement -- and as well realizing or harvesting some of the flexibility of productivity gains that would be inherit in the new collective agreement.

From an employee prospective, certainly our thought in issuing the offer to employees on a unilateral basis was to allow the employees base after such a protracted period an opportunity to review our offer in a granular fashion and to review that offer in consultation with their Union representatives and under the direction of the leadership team at the TWU. How that transpires within the Union is something for the unionized employees and the TWU to consider for themselves. Hopefully, we'll get to a situation where we proceed past the consideration phase, and employees have the opportunity to formally adjudicate on the offer at its attributes. (Multiple speakers)

And the Shaw question?

Sorry, Dvai, I missed part seven of your question. From a Shaw perspective, I think at this particular juncture, it is too early to tell. Clearly their launch of telephony is nascent at the present point in time.

So in so far as the erosion impact is concerned, I think we are at the early stages of the competitive game on that front. I do think it is noteworthy than in terms of network access line erosion, the erosion that we experience with the best in the last 5 quarters at 1.14%. That certainly that was mitigated by certain factors that Bob articulated from the strength of the economy in the West to some of the access lines that we're putting in place in support of the provincial election that is transpiring in B.C.

But nevertheless, it is a solid result for our organization. It speaks to our competitive posture and the resiliency of the relationship that we have with customers in the West and the strength of our brand. At the end of the day, our customers don't subscribe to technology; they subscribe to a value proposition. And I think if you look at our current offer for consumers, it compares very favorably with what has been proffered by Shaw in terms of the affordability of our current solution. It compares favorably from a robustness perspective. And of course, the richness of the feature set I think surpasses anything that our competitors are putting forward.

And of course, there's also a cost to the customer to switch to an alternative. And when you look at the TELUS offer, and we have got a kick in the box and affordability, the richness of the feature set and robustness, certainly that is a factor in their decision-making.

Thanks very much, congratulations.

John Henderson, Scotia Capital.

I have two questions. One quickly for George on subscriber growth in the industry, in Q1 -- I know it's just one quarter -- but the net additions appear to be down about 30% year-over-year when you add up the three players. And I just wonder if you have any concern about the outlook of subscriber growth rates in the industry?

Well, we have increased, John as you know, our guidance this quarter on net adds for us for the year. And I think you're correct. And I got to watch because I don't get into talking about how everyone else did. I think part of that may have to do with the one-time issue one of the carriers talked about yesterday. And maybe it is worth people looking at gross adds for the quarter to see how that gross compared to the previous year as well because it sounded maybe like part of that was an effect of clients from not necessarily this year. So maybe that would be more normalized to see how the industry did in totality.

Having said that, I've said it before, we have been expecting, as most of the analysts have, in that sort of 4 to 5% penetration rate, growth rate, in the industry this year in Canada. And also, I indicated that but with consolidation, you could see some momentum in the marketplace impacted by that. And maybe that's what we are seeing a little early on. Having said that, we see no lack of new things going on, such as Push-To-Talk conversion that I think will help offset that. And so with that, we felt comfortable taking our guidance up albeit not that significantly.

And a quick follow-up for Bob. I just wonder if you could comment on the degree to which the Verizon sale agreement may have helped the cost savings in first quarter?

Well, the Verizon agreement really impacts from two standpoints, CapEx and operating expense. And top of mind here, we are talking ballpark 9,$10 million perhaps on a year-over-year basis of reduced expenses. That would relate to the absence of Verizon payments this year.

On combined CapEx and OpEx?

No, that would be the OpEx specifically. The CapEx by quarter, I really can't recall top of mind.

Jeffrey Fan, UBS.

A couple of very quick ones. One, Darren, you talked about your bundle and your philosophy there in trying to maintain the high margin businesses, which is encouraging to hear. One of the things I want to ask is -- you introduced last year sort of a contract option for consumer features -- on call features in your bundles. Can you talk about whether you have had any success there in terms of locking people up on these contracts?

And then secondly, I just wanted to understand the rationale for the investment or the acquisition in Ambergris -- I guess, if I am pronouncing it properly. Thanks.

You're quite right. Our philosophy in terms of the way that we construct our bundles and put forward our value proposition is to do it in a fashion that protects our high-margin service, services that prevents re-pricing of our base. It makes those services less susceptible to competitive intrusion and margin erosion.

In terms of the contracts, which we have been progressing within our consumer base, I think that has gone from being very good to excellent in terms of the operational traction that we are experiencing in that area. We are exceedingly pleased with that. Our customer retention is going very well. One example that I gave that is indicative of the satisfaction that we feel with our performance in this area is our churn management on high-speed Internet access services. It is particularly strong. As I indicated, where we got work required, it is on improving our channels to market and our distribution strength.

So that's an area for us that we're very pleased with. And you can look for more of the same in that area going forward in terms of improving our customer retention traction. But to couple that (technical difficulty) or complement that with improvements on the distribution strength front as well. So kicking the box in that particular area.

In terms of Ambergris -- our investment in the call center operations in the Philippines, the rationale behind that investment was three-fold. Number one, it is an excellent investment opportunity in support of TELUS International. We have had the TELUS International asset for well over 10 years now. This is an opportunity for us to materially enhance that asset. It is an on-strategy investment. And it provides us with a lot of growth opportunities to advance the value of TELUS International. So for us, it was a very, very good deal. And it complements the strategy and the evolution of TELUS International.

Secondly, in terms of both our retail and our wholesale business solutions in Canada, when we approach a lot of the domestic customers in Canada on the business front -- be it retail or wholesale -- one of the things that they're looking for when we are discussing call center solutions with them is to consider certain offshore opportunities. So they may be very interested in our domestic call center capabilities, but they want to have a conversation about what we can bring to bear from an offshore perspective in a modular fashion.

So to have this particular asset within our portfolio within our capability set, when we are advancing call center solutions with Canadian corporates (sic), is a nice differentiating feature for us. And hopefully, we will be able to drive a lot of business for TELUS International by the domestic call center solutions that we sell in Canada.

And lastly in terms of examining a limited set of efficiency opportunities in support of our core operation here in Canada, that's something that we will necessarily need to consider from time to time -- given that operational efficiency is not a non-recurring activity, but it's a way of life for a wireline business, given the challenges inherent in that industry.

Rob Goff, Haywood.

My first question would be for George. Do you see the relative success that you and Rogers realized on both gross adds and net adds within the quarter, leading to any competitive changes in pricing or handset subsidies in the market?

And then my second question would be one on the election impact. We thank you for the reference to the positive impact on lines, but I don't know what sort of impact that would be in the quarter. Thanks.

Maybe I will all try to answer the first question. In a market as competitive as ever, I certainly -- so should everyone should understand that. Our strategy will continue to be focused on profitable growth and not necessarily leading in net adds in the marketplace. And that will continue to be our strategy going forward.

In terms of the market, the thing that I think may have been lost a little bit is our gross adds were less than both the large competitors as well. So to assume somehow that in the first quarter, something was done the marketplace to pull market share back is inconsistent. What really happened was there was a churn issue with one of carriers yesterday, not a gross issue. So I think that seems to -- what I have read this morning and generally not discussed by the analysts.

So having said that, we have seen some competitive action in April, more aggressive than we had seen in the past in the consumer space. We had already seen the reduction of prepaid with the Virgin entry by Bell. So to us, it is business as usual. We will keep focusing on profitable and ARPU growth, and we'll respond to our competitors and try to get a fair share of the net adds with no intention of all -- of trying to lead the market in net adds. Because anytime we do that, we find the return to our investors is not justified because we see price reductions in the markets.

Rob, in terms of your question in respect to the election impact. Let me make a general comment first. Hopefully, you'll note from our continued disclosure and reporting that we are particularly prudent in identifying for investors non-recurring benefits that are reflected in our results. So we try and break out in terms of our normalization any benefits that we have experienced from say tax for example or benefits that we have experienced in terms of a regulatory gain or indeed non-recurring benefits in respect of an acquisition -- or the fact that an acquisition is now in our results, and that was not the case in the previous reporting year.

So in terms of the access lines, the election impact is not material in nature. But given that we experienced such a strong result in terms of network access line erosion. We just wanted to be cautious in terms of the guidance that we're affording investors. The highlights that we did have a benefit from the provincial election that is about to transpire in B.C. We have had a benefit, which is retraining nature in terms of the strength of the economy.

But as yet, we don't really know what the full impact is of the cable telephony launch from Shaw. That is nascent in its orientation. We don't have a lot of empirical evidence to draw inference from. So we just want to be a bit cautious and temper expectations and identify for investors certain areas of benefit that we are currently enjoying that will not recur in the quarters on a go-forward basis. And certainly, we're going to experience over the near, medium and longer term, the competitive impact of the Shaw organization. And we need to plan and guide for that.

Peter Rhamey, BMO Nesbitt Burns.

The first question would be for Darren. On the DSL front, I'm just wondering, you noted 22,000 subscriber additions. And you have pointed out market penetration is very high. So does that mean you have to actually change your strategy to shifting share in the marketplace? Or could you give us more color on any particular activities that Shaw might have done in the quarter that would have increased their cake of the flow share during the quarter?

Not to take anything away from the Shaw organization -- they are a solid competitor -- I think the fault in this particular area lies with TELUS and our operational execution in the marketplace. So you can lay this one at my door, rather than necessarily credit our underperformance to the competition. I do fundamentally believe that we have room for improvement, considerable room for improvement, in terms of improving our distribution strength and having more effective channels to market in Western Canada. I believe sincerely that there is opportunities for us to harvest in that area that will deliver net add benefits when coupled with our good traction that we are experiencing on the customer retention front.

Insofar as our strategy is concerned, yes, indeed the market is maturing in Western Canada. And what we want to do in respect of the evolution of our value proposition is to drive differentiation. And I think the best example of that is what you have seen over the last secession of quarters from the TELUS organization. We have launched wireless home networking, which gives the value attributes of both mobility and the ability to integrate various computer devices in the home from an affordability perspective. That is in essence taking that wireless LAN philosophy that we have been driving in the business market and putting that forward into the consumer market. That is a differentiated solution that is somewhat unique to TELUS in the Western Canadian market.

Similarly, on the home monitoring front in terms of security solutions, that's another application that we have launched. So the evolution, if you will, of our marketing strategy is to drive differentiation in terms of new applications that we can deliver over the ADSL infrastructure.

And from an economics perspective, I think I have been at pains to point out that the base case economics on ADSL were not particularly salivating from the outset. And I think it is the responsibility of this management team having spent hundreds of millions of dollars rolling out ADSL across Western Canada to come up with new meaningful economic applications that we can deliver over that infrastructure into the consumer market in Western Canada that not only differentiates us from the competition but increases our wallet share.

So that is what you can expect from us going forward is to develop new applications that are resident on the ADSL infrastructure that differentiates us from the competition and gives us a good economic rent and improve the base case economic of ADSL in the first place.

The second question I have is for Bob. I was wondering if you can give us some color with regards to fully diluted share trends going forward. Your stock has appreciated an awful lot, putting a lot of your options in the money, which is good news for investors as well as the people holding those options. But I'm wondering, was your share buyback in place and how you look at options in RSUs going forward? Can you keep the diluted share count to a constant? Or should it decline going forward over the next little while? Obviously, you have to make an assumption on share price and assume at least $40 here.

You know, Peter, it certainly has been an interesting development from a budgeting perspective. We budgeted or assumed, if you will, our higher number of share option exercises. But it's really not a predictable item because it is left to the individual discretion. And I think certainly our contemplation was a reduced number of shares over time and that share repurchases would significantly exceed option exercises. However, from period to period given for example last year for executives at least, Mike for example 10.5 months, almost 11 months the entire year, I was blacked out from trading. So then, you tend to have some exercises occur in concentrated periods of time, solely because of the consequence of blackout policy.

One thing I would point out Peter that might not be on radar screens is our convertible debentures. I'm not sure where we are trading right now, but they are very close to being in the money. So we have an intention to redeem those notes. But to the extent that they cross over to in the money, then it is quite possible that we would have conversion of those notes occurring prior to redemption. So that will play itself out over the next month, but I think that is something to watch.

A lot of moving pieces, thank you very much.

Don, can we have the last question?

Peter MacDonald, GMP Securities.

Just a question -- on your labor relations update, you mentioned the $200 million cost to the offer. And I just want to know is that just for the signing bonuses? Or is that an all-in cash costs for pensions, accruals and the rest of it?

And then also in the past, you have been pretty confident about your expense provisioning for the potential raises for the employees. Are you still confident with that?

And then last on that is, is there an actual accrued liabilities somewhere on the balance sheet that reflects your expected cost?

In terms of the amount that has been communicated publicly just for the avoidance of doubt, we communicated up to $200 million rather than a specific amount. That effectively is a fallen amount. We have -- thanks to the conservatism within our financial team -- accounted for those in a prudent fashion. And that continues to be the guidance that we are proffering to the street. We have been conservative and prudent. And certainly from a cash component perspective, we have a very robust position right now in our balance sheet. As Bob indicated in yesterday's remarks, our net debt to EBITDA has dropped below 1.9 times net debt to EBITDA, 1.89 to be precise.

So from an affordability perspective, we think right now that we are in a sanguine position. And we can push forward a solution that is appropriate to the circumstances that is attractive to employees and that is affordable for our shareholder base.

And let me just augmenting to Darren's comments by saying that the up to $200 million would be obviously the cash impact of a settlement. So that's the adjustment from a cash position that you should make. And as Darren mentioned, it is fully accrued and sitting in our accrued liabilities on the liability side of our balance sheet. So hopefully, that helps you.

Well, thank you everybody on the call that has participated. And we look forward to the Investor Relations team and your executive -- look forward to working with you in the coming quarter, as the year progresses. Thank you very much for joining us today.

And ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.