Telus Corp (TU) 2006 Q1 法說會逐字稿

Good morning ladies and gentleman. Welcome to the TELUS first quarter conference call. I would like to introduce your chairperson, Mr. John Wheeler, VP of TELUS Investor Relations. Please go ahead, sir.

Thank you. Welcome to the call and let me introduce the TELUS executives on line with us today. They are Darren Entwistle, President and CEO and Bob McFarlane, EVP and CFO.

We’ll start with introductory comments by Bob, followed by a question and answer session with Darren and Bob. The news release on the first quarter financial and operating results and detailed supplemental investor information are posted on our website at TELUS.com. In addition, the presentations and webcast of the TELUS Annual Meeting held yesterday in Vancouver are posted on the same website.

For those who have access to the Internet, the slides are posted for viewing at TELUS.com Investor Calls. You will be in listen-only mode during the opening 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 and guidance are subject to risks and uncertainties and assumptions. Accordingly, TELUS’ actual results could differ materially from statements made today, so do not place undue reliance on them. I ask that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosure and filings with Securities Commissions in Canada and the United States. Now over to Bob on slide 3.

Thanks, John. Good morning everyone. Since Darren provided a comprehensive overview of our strategic plans in progress, in addition to my review of the Q1 results or AGM yesterday, today I’ll review results in order to provide additional color and detail, and provide an update and some operational developments before turning the call over for questions.

Overall results were again driven by excellent wireless performance, so let me begin with our wireless operations on slide 4. Wireless revenues were up an impressive 17% in the first quarter from strong subscriber growth and high ARPU. EBITDA also increased 17% despite higher gross additions and higher costs of acquisitions. The stable capital expenditures have led to a notable 20% increase in wireless cash flow.

As shown on slide 5, wireless net adds were up 15% to 93,000, our highest first quarter result in 5 years and our overall subscriber mix remains industry leading at 81% postpay.

Continuing the multiyear trend, ARPUs been up across the Canadian industry as shown on this slide. The $2.00 year-over-year increase in TELUS’ ARPU was driven by increased customer usage including significant growth in wireless data. Wireless data accounted for $3.71 of our ARPU in the first quarter, up an outstanding 85% from $2 flat a year ago.

TELUS continued its profitable growth strategy as evidenced on slide 7. Our already low churn rate declined 12 basis points to 1.33%. A good 4 points of this change was the result of the one-time impact from a change in postpay deactivations policy. Regardless of this, underlying churn, what’s seen an 8 point improvement, even more impressive our postpaid churn declined under 1% at 0.99% to be exact.

Coupled with increased ARPU, the average lifetime revenue per TELUS subscriber was up 13% to $4500.

As shown on the next slide, this compares very favorably to our peers. Cost of acquisition per gross addition did increase to $429 due to increased advertising by TELUS but, more importantly, due to continued intense competitive activity across the industry especially in handset pricing, particularly in regard to the RASR handset; however, in order to address increased handset subsidies, TELUS raised the price on our Motorola RAZR by $50 effective last week.

Despite higher acquisition costs, TELUS’ wireless marketing efficiency, as shown by COA, at 9.5% of lifetime revenue remains very attractive, demonstrating TELUS’ proximal growth focus strong postpaid positioning and healthy prepaid franchise.

Now, let me turn to our wireline operations on slide 9. Wireline revenue declined slightly reflecting industry-wide trends of increased competition, rate regulation, and long distance revenue erosion. Wireline EBITDA decreased 10% as a result of lower revenue, higher costs associated with increased high-speed Internet additions, and expenses related to clearing backlogs and improving customer care.

We continue to progress on the transition stemming from the labor disruption, which ended late last year and our plans entail improvement in wireline financial performance during the rest of the year consistent with our guidance.

Notably, efforts in this quarter led to improved CRTC quality of service metrics which are in nearly all cases now better than prior to the labor disruption. Capital expenditures were 21% higher this quarter as TELUS incurred investments deferred in 2005 due to the labor disruption. This also reflects our resolve to invest in broadband capabilities for new applications such as TELUS TV as well as the conversion and inspiration of Legacy billing systems. As a result, cash flow in our wireline segment declined over the previous year.

Slide 10 provides TELUS wireline revenue profile by component product. Data revenue growth of 4% is the highlight here, although this is lower than recent quarters due to a decline in data CPE sales and slower growth during the quarter and our non-incumbent or non-ILEC regions.

The impact of the CDNS Regulatory decision has somewhat distorted reported local and data revenues, which we’ll look at on the next slide. Other revenues continued to be pressured by lower CPE sales.

Slide 11 gives the better indication of the underlying growth rates for local and data revenue components normalizing for one-time regulatory items in the first quarter of 2005 and the recovery from the price cap deferral account offsetting mandated discounts for competitor digital network services, or CDNS for short. Local revenues would have declined only slightly. Normalizing data revenues for the impact of the regulatory CDNS impact, data revenues were up just over 2% for the reasons previously mentioned.

Turning to slide 12, building offers success in the fourth quarter. TELUS added 39,000 high-speed Internet subscribers, up a notable 74% from last year due to strong marketing programs, increased distribution, and reduced churn. Our high-speed Internet subscriber base is up 13% from a year ago to 18,002 bringing our total Internet base including dialup to more than 1 million.

This was a key element of our data growth strategy and Future Friendly Home initiative. With a strong quarterly achievement, we were pleased to announce yesterday that we’re revising our 2006 annual high-speed Internet net additions guidance upwards by 25,000 to more than 125,000 acquisitions.

So, overall, on a consolidated basis, TELUS exhibited good revenue growth in the first quarter up 5%. EBITDA increased 1%, which was much lower than our annual target and driven by wireless but negatively impacted by the challenging wireline environment. And, although earnings per share or EPS was down 10% on a reported basis, when normalized for one-time items as detailed on the next slide, the underlying EPS growth was actually 20%.

Free cash flow was 640 million, up 13% in the quarter benefiting from 122 million in cash tax recoveries. And, for those of you who may want more detail on cash flow, please refer to the slide detailing the various items of free cash flow in the appendix to today’s presentation.

Slide 14 shows that while EPS was down 10% on a reported GAAP basis, when normalized for the $0.15 positive one-time impact in the first quarter of last year per tax settlement, and the $0.02 cent positive impact for retroactive regulatory decisions. The underlying EPS growth was actually 20%.

Next, in regards to our share buy-back program, in the first quarter, we are again active in the market purchasing 5.1 million TELUS shares for $232 million. By the end of Q1, TELUS had repurchased for cancellation a total of approximately 6.4 million shares representing 27% of our updated NCIB program.

Separately, effective May 1, TELUS has implemented a net equity settlement feature. This means that we will issue shares only for the ”in the money” portion of management options rather than the full amount, which will, of course, reduce the number of shares issues and, hence, limit the dilution caused by option exercises.

As you can see on slide 16, our robust cash flow and subsequent debt repayment has put us well within our debt policy targets. In fact, since Q1 of last year, we have received credit upgrades from all four debt rating agencies. In February, TELUS took advantage of interest rates by entering into forward starting interest rate swaps. The locking interest rates were up to 300 million of future replacement debt.

We are in the advantageous position where we are considering refinancing all or a portion of our U.S. dollar notes due June 1, 2007, in advance of the scheduled maturity.

With regards to other areas, the past few months have been busy on a regulatory front. In February, the CRTC determined that the majority of the accumulated liability in the deferral account be used to partially fund initiatives to expand broadband services to rural and remote communities. In addition, no additional amounts are to be added to the deferral account beginning June 1 and are instead to be dealt with the prospective rate reductions.

In March, the Telecom Policy Review, or TPR for short, panel presented its recommendations to the Minister of Industry in a 350 page report. Some of the key points are highlighted on this slide. TELUS is generally satisfied with recommendations and reforms recommended and encourages the Federal government to move quickly to implement the major recommendations in this report.

Turning to slide 18, in April, the CRTC set the criteria for deregulation of local exchange telephony services. While there should not be any winback restrictions, at least they were immediately reduced to 90 days from 1 year; however, the process put in place for achieving forbearance is, in TELUS’ view, a cumbersome and lengthy one. TELUS believes the complexity and heavy-handed regulation inherent in this decision is in sharp contrast to the recommendations of the Telecom Policy Review.

And, finally, in April, the CRTC ruled that mobile television broadcasting will not be regulated as such services are delivered over the Internet and fall under the existing New Media Exemption Order. This exemption order means that TELUS has the flexibility to continue to develop its mobile TV service to meet market demands without regulatory impediments.

In terms of other operational developments, turning to slide 19. During the first quarter, TELUS focus and efforts to clear service backlogs and improve our quality of service metrics as defined both by the CRTC and, perhaps more relevantly, our own internal standards. This was a logical move following the end of the labor disruption and formed part of our successful back to work program.

Turning to slide 20, we continued to make progress towards our efficiency goals with the closure of some offices in B.C. as well as a contracting out of specific non-core functions as set out as part of new collective agreement. The integration of our wireline and wireless operations continued and TELUS’ legal entities were merged into a single entity on March 1.

In April, TELUS acquired Assurant Secure Technologies, a Toronto-based electronics security provider and Canadian leader in IP security technology. This was a tuck-under and augments our capabilities in the growth areas of data and IP security.

Assurant’s 55 employees are now a key part of TELUS Business Resiliency Services within TELUS Business Solutions.

Turning to slide 21, in terms of other growth areas, TELUS expanded its wireless high-speed service to a total of 12 communities; newly launched areas include Whistler, Fort McMurray, Hamilton, Ontario’s Golden Horseshoe, Ottawa, Quebec City, Mont Tremblant, and Saint-Jovite.

We also continued the gradual phase launch of TELUS TV and we now have a large library of first-run movies and offer more than 200 digital channels. Interestingly, in our Alberta phase launch, we recently surpassed a key milestone with more commercial subscribers than employee customers.

In January, we began the construction of our B.C. head end to join the existing center in Edmonton, both servicing customers in the two Provinces and providing redundancy to each other. And we’ve now announced that team members in B.C.’s lower mainland are set to begin trialing TELUS TV with a commercial rollout in select cities targeted for later this year.

To conclude on slide 22, TELUS’ guidance for 2006 reflects strong growth across the board revenue, EBITDA, EPS, and free-cash flow. Originally set in mid December of 2005, we were pleased to reiterate our financial guidance yesterday; however, as mentioned, reflecting our Q1 success, we made one upward revision to our guidance in respect to our high-speed Internet net adds, and now expect more than 125,000 in 2006 reflecting positive year-to-date results. And, with that, Darren and I would be pleased to answer your questions, so I will turn the call back over to John Wheeler.

Thanks, Bob. Just before I turn the call over to Alice to conduct the Q & A session, can I ask your cooperation for one question at a time please. If you do need a follow up question related to that answer to your first question, that is appropriate. So I will have Alice please proceed with the Q & A.

Thank you, Mr. Wheeler. [OPERATOR INSTRUCTIONS] And we have Greg MacDonald of National Bank Financial. Go ahead, please.

Thanks. Good morning guys. Bob, I’m aware of your comments historically on the appropriateness for trust structures for this industry, but some things have changed. I mean Alliant announcing a trust conversion -- potentially indicating a greater willingness on the part of the government to accept this structure. I wonder, given the fact that the Company’s approaching a cash tax situation at some point soon, have you given any thought to or have you changed your mindset at all on this type of structure and I’m not even necessarily referring to a full trust conversion, but how appropriate is this type of structure perhaps for rural access lines in your view?

Greg, I’ll take the question and then I will hand over to Bob if he wants to add additional color. The very explicit in terms of a hybrid trust structure, we don’t think that that’s the right operating model to proceed with. We think it drives undue complexity into the organization from an operational perspective, which would frustrate our ability to realize our strategy in full and it would turn this organization more towards a holding company structure but those are dynamics that, again, we are not particularly well disposed to.

The next thing I think would be appropriate to say is that whilst an income trust by the Board is not presently under contemplation and I do not see that changing for the foreseeable future, I think it is important to point out that this is a leadership team and a Board that, of course, will always be open to opportunities to maximize shareholder value, we do not take a myopic view of the future and we are not arrogant that, in terms of our disposition, so we think it’s incumbent upon us to always evaluate opportunities to enhance returns to shareholders.

The other thing that I think is worth pointing out is the track record of this organization. We, in terms of the way we spend cash, do not have the track record of spending our money or shareholder’s money off strategy or outside of our core business.

The other thing that I think is worth pointing out is that, to the extent that we have surplus cash over our uses for cash, I think we have an excellent track record of returning cash to shareholders through a variety of mechanisms that are quite attractive.

The other thing that I think should be also pointed out that, whilst the rationale for merging our wireline and wireless businesses, was entirely strategic and operational. There is an ancillary benefit that, through that legal merger, we will enjoy the benefit of being able to defer TELUS moving into a cash tax payable situation until 2008. Again, that is an attribute of the trust that we are achieving operationally and legally within the TELUS fold. So, again, our position is as stated but, again, as we go forward and as our strategy evolves, it is incumbent upon the management team and the Board to always review future opportunities.

Sorry, Bob. Did you want to -- ?

Well, I concur Darren’s with comments, I think just to maybe put a little different twist on it, certainly we have a very coherent and while performing strategy that we’ve executed towards and so we’re certainly in no need of financial engineering type of approaches in order to stir our stock price up, we’ll get that just thorough executing against our plan. So I think that lends further support to Darren’s position that a hybrid type of approach certainly is off strategy and would be inconsistent with TELUS’ approach.

Having said that, of course, I support Darren’s position that management should always be aware of alternatives from a long-term perspective and [incon] trust conversion certainly is an evolving trend in the community market we’ll keep our eye on.

Thanks, guys. Those are all valid views. If I could just add one quick follow on, is it the case now that you are cash taxable in mid ’07 and then that now gets delayed to 2008 in terms of the cash -- the actual payment of the cash tax –that’s the double taxation now in ’08 in terms of payable? Is that how it works?

Yes, that’s right Greg, and that’s because like an individual, you can elect to pay on your current or prior year, so next year, we will elect to pay on the prior year basis, which means we don’t pay in ’07 and we make those installments in ’08 along with the regular ’08 installment.

And is it mid ’07? Can you give us a timeline as to when you actually start becoming cash taxable?

I won’t give an exact date, but it’s during the year.

Thank you. Next question is Vince Valentini, TD Newcrest. Go ahead please.

Thanks very much. Wondering if you can provide any color or quantify the cost for clearing the backlog in the customer service improvements in the first quarter and in addition do you expect those costs to recur into the second quarter?

Vince, what really showed up with was an unusually high level overtime and so we incurred the significant overtime cost our ILEC territories, which was principally related to two things. One was catching up, clearing two backlogs and on service orders and the like that were remnants of the labor disruption and then, secondly, as you can imagine, there is a lot of work activities in terms of whether it be maintenance or otherwise that are noncapitalizable that were deferred, if you will, from the third and fourth quarters, so that showed up in the first quarter. I think that a measure of that and you can look for yourself is when you go to the CRTC quality service indicators we’re operating at exceedingly high levels now and we’re very pleased with the level of customer service. So that was a priority for us, obviously, in terms of coming out of the labor disruption, our back to work program.

We are also are doing a fair bit of insourcing where we had some large contracts such as the Hamilton Health Region start to come on board in the first quarter and so in -- in those types of situations, you tend to incur the cost up front and business outsourcing and as you work through the process you move cost downstream for the benefit of the client as well as ourselves. So that was also showing.

And the last point, I guess, which hopefully is a nonrecurring, although we seem to have a stream of weather-related things. If you lived on the West Coast, you would have lived through the wettest winter that I can recall, certainly setting a record for rainfall, etc. So we had a significant number of weather related repairs, etc., out particularly in the British Columbia during the December, January, and early February period.

Okay just to follow-up though, the portion of my question on Q2 that maybe put a finer point on it. Did the wireline EBIDA as you noted was down 10% in the first quarter are the guidances is for flat minus 3%, so are you assuming in your guidance that some of these cost pressures in the first quarter start to diminish in future quarters?

Yes, potentially by reinforcing or reiterating our full year guidance we’re sending the message is we still believe we’ll achieve, in this respect, the wireline guidance for the year, and therefore you’re going to see improving revenue and profitability profiles through the balance of the year.

Thank you. And the next question will be [Devine Gauche] Genuity Capital Markets. Go ahead please.

Yes, thanks very much, good morning. Just following on from Vince’s question about impacts on margins and what’s recurring and what’s not. If I look at the COA both of wireless, and you don’t break it for DSL, but it seems to have increased in both cases as you mentioned, and in the case of wireless, while it’s true that the lifetime revenue per sub has increased the actual COA to lifetime revenue per sub has actually increased as well, which is probably not the best thing. So, I’m wondering from extent is the COA in wireless a temporary issues associated with the launch of Spark with the aggressive way the RAZR hand sets across the market in the quarter and to what extent should that come down? And similarly on the DSL side, to what extent will the initiatives, in terms of free IPods and flat screen panels and so on, related to post-strike activities to relaunch the product versus the recurrent drag on margins going forward?

Well, Devine, in terms of COA, you are obviously correct that COA went up. You’re also correct that COA as a percent of lifetime revenue increased modestly, I might add. However, at 9.5%, if you calculate it for the rest of the industry or even on a North American basis, you’ll find that if that isn’t the best ratio, it’s one of the best ratios. So, it’s significantly superior to our competitors. So from that prospective, if you look at COA as an investment, we certainly are reaping a high return on that investment. I think that’s the relevant point.

Having said that, the first quarter was usual. Typically in the wireless arena, you have one major campaign, a mass market campaign, if you will, that we’re emphasizing. And in Q1 we had two. We had broadband on the fly and we had Spark. And so to an extent, what’s a little bit different about these campaigns is that they’re promoting the adoption of data services and that doesn’t necessarily, particularly if you look at broadband, the fly, it’s creating an awareness and adoption of services, which may lead to PDA purchases for sure, but to a significant extent it leads to adoption of data services or awareness outside or independent of the purchase of a new handset device or a new subscriber. So, it isn’t so much new subscriber oriented, it’s service adoption orientated. And consequently, when we look at COA divided by subscriber unit addition, it leads to a higher inflated result than otherwise. So, I think another measure of success, at least in those campaigns since they were data related, is our data ARPU, which of course being up over 80% year-over-year, certainly we’re starting to get some good traction and we have a lot of room to improve, I’m sure you would add relative to other carriers, but we’re certainly making progress in that regard.

So, to really sum up here, we think that the COA was justified in ROI approach. There were some unusual elements that would be atypical, in terms of having two campaigns for the wireless [indiscernible] in one quarter, so one would expect to see some moderation. But the other principal element to it, that being handset subsidies, quite frankly relates to an interplay between the carriers. And there has been significant competitive action in regards to handset subsidization, which as you know, we did not lead. And when Roger’s has differentiated product like the RAZR in the fourth quarter and they lead that as a discounted product, it obviously forces Bell and TELUS to respond in a certain fashion. So, we tried to show some leadership last week by raising the price of the RAZR, but lo and behold Roger’s has arrived with a new handset with a significant discount leading that as well. So, it is difficult. We’re trying to be responsible at the end of the day for investors. They want higher returns than we’re already getting on wireless and NPS. We’ve had some conservations with the GSM provider who has had a discount brand and fido out there leading with handset subsidies that may benefit all carriers. But until that behavior changes, you can see TELUS as being aggressive in response.

And what about the Internet sale rate, Bob? Was that even material really in the quarter and does that comes down? Do you just continue to offer IPods and so on going forward?

In terms of the Internet, if you go back from point of context to labor disruption, we’re clearly inhibited in our marketing. We came out of that with a surprisingly good fourth quarter, which was quite back ended, as you can imagine, to the period after labor disruption. And it’s a strategic area for us where it is the forerunner of being able to provide other applications, such as TELUS TV. And we have been very clear that is our objective and fair right to obtain the majority of the growth in market given that we, through a later start enjoy a minority of the cumulative base, and that is not a normal situation. And we are going to rectify that. And we have been rectifying that since December and that’s also reflected in the first quarter. So to that extent, the promotions that we have pursued, whether it be the IPod promotion or flat screen TV’s has been quite successful. And I think also quite encouragingly, we’ve seen our customer loyalty, our return rate if you will, on high speed Internet improved drastically over the past year. So, we aim to continue to capture of the majority of the share of the growth in the high-speed area.

Thank you. And our next speaker will be Peter MacDonald, GMP Securities. Go ahead with your question please.

I’m [beginning] to really feel the whole industry, so I’m basically looking from some more color separated from residential and business, so each one separately, on what some of the impacts were and what was the impact from each of them?

Just to clarify was the question with respect to access lines? We got cut off just at the front end of your questions.

No, sorry, it was on long distance revenue.

Okay, so the question is what are the trends for residential contrast with business markets for long distance revenue?

Yes, basically on the declines and just trying to see where is it coming from residential or business, and than what are some of the impacts that are driving it down?

Okay, well the principal component of, well, the driver of the decline in long distance revenue is on a residential side. In our case, while we do have some erosion on the business side as well, we also have some growth out of region that tends to offset, as well as in our wholesale operation. On a residential side, of course you’re having the double barreled of the fact of reduced usage or volume of minutes and that is because existing customers are using less, as you have email substitution, and you’re also losing share as some are adopting to use a [void] or other alternate carries, and you’re also having a price per minute, just from the competitive pressures out there decline. And so the combination of reduced minutes and lower pricing is really what’s driving that. Now, we have from time to time done promotions to stimulate long distance and also do some integrated offerings, and I think that our approach to it should preserve and mitigate the decline in long distance has been fairly successful. And while our long distance erosion now over 8% is certainly higher than what it has been in recent periods, it’s a superior result to almost all Telco’s that have reported. So some solace is that we seem to be doing a lot better than others, but it is certainly a declining segment.

I think, Peter, that it would be worth, I think, adding as well is that one of the things that had been a successful activity to stave off, to a certain extent, long distance erosion in the past, had been win back campaigns instituted by TELUS, which of course was frustrated when we were challenged by the labor environment and we had to redeploy resources towards more critical activities. I think as we go through the aftermath of the work stoppage and ramp up win-back activity up again, that will assist us in mitigating, to a certain extent, long distance erosion. I think it would be fair to say that the truncation of the win-back activity as set out in the forbearance decision by the CRTC should also augment our win-back capacity.

And the last thing that is probably worth saying is that we do take a very bifurcated view of long distance, because when we talk about long distance we’re talking about just wireline, but of course half of our business today is wireless, and we do generate a good revenue stream and a good profit stream from long distance as it relates to the wireless service, which is of course national, whereas the majority of our LD erosion coming for our consumer is ILEC related.

Thanks for that. Just as a follow-up to it, should the inclusion of 1000 minutes and Shaw’s pricing for its local telephony impact you in coming quarters? Is that going to have a material impact? And if you can also tell me on the subscribers or the customers that you are losing to Shaw on the telephony side, what’s the percentage of those customers that take long distance from you right now?

Well, in terms of Shaw’s 1000 minute campaign, I think it’s suffice to say, our line losses have been superior or better than those of most other carriers, and I think that’s reflecting some that competitive resiliency that we have, and certainly not having a labor disruption underway puts a completely different color on the dynamics in the marketplace in the first quarter going forward as compared to what we experienced last year. So, I think price reduction from Shaws is a predictable thing, a predictable response, and I think this reflects the resiliency that we have.

The specific impact of that campaign’s hard to project. I think at the end of the day there’s so many major trends or only one competitor with one program there, so it tends to bore out in the aggregate affect. So, I wouldn’t think that specific program itself would have a tangible impact that would be discernible.

It also speaks, Peter, to the efficacy of our TELUS TV undertaking whilst the region for the TELUS TV undertaking is strategic and operational and to our view towards long-term value creation, in extent to which we have a good footprint for TELUS TV. It does allow us to make sure that there is the appropriate price discipline behavior being injected into the market because we have a reciprocity mechanism versus Shaw.

That’s a good point. Thank you.

Thank you. Jonathan Allen, RBC Capital. Go ahead please.

Thanks very much. First, Bob, just a follow-up question from earlier. About the head count reductions, I believe there was about 500 or so, what was the timing on that? Where those employees, had then departed in the first quarter? I noticed something in the MD&A about selecting the voluntary departure plan as of April. Could you just clarify that for me?

Well, on a couple of points, Jonathan, in terms of staff counts. The first is what makes it a little unusual, look at our aggregate numbers for employees, clearly the wireless side is growing. That’s pretty straightforward, the adding of employees there. On the wireline side, of course, we have significant insourcing activities, or as we market it, externally outsourcing activities, in the sense that whether it be our operation of Philippines or TELUS Sourcing Solutions here domestically in Canada, we are taking employees onto our payroll as we streamline costs and improve efficacy and effectiveness for other organizations, such as Hamilton Health Region, Calgary Health Region, etc. And so, the nature of that business is to add employees for new lines of business, if you will, that weren’t previously part of TELUS. So when you normalize for that, the actual staff count in the wire line operations decreased by 2% year-over-year. So, I just want to give that overall context.

Now, if you go specifically to the restructuring efforts you’re referring to where we were as part of the collective agreement settlement, we had agreement on how to conduct the outsourcing of some non-core activities and consolidation of a couple of activities in British Columbia, which amounted to approximately 450 or so bargain unit employees. In this area we have proceeded on that; however, as part of that agreement, the employees are offered a buyout, if you will, but they can choose to elect to remain at a similar wage rate for up to a year before being, even though they may be moved to another position, etc. So, there’s a delayed effect, if you will, to the people reduction and the cost reduction. There’s still payback associated with it, but the actual commencement of when you would reach the synergies is delayed in many cases by upwards to one year, and I think you’re seeing part of that.

So, yes we had some of those activities. We did incur some of the accounting restructuring costs associated with that, but some of the savings associated with it have yet to commence.

A question on wireless data revenues. As you pointed out, it seems like it is lower than where Bell and Roger’s is and appears to be quite an opportunity. I’m curious though within the wireless data trends, the trend between consumer and business usage, and curious what the biggest drivers are right now, in terms of SMS, enterprise blackberries, or what have you.

Well, in terms of what we’re seeing in terms of principal drivers, messaging is continuing to increase on an exponential basis essentially sparked, if you will, pardon the pun, from back when the industry got together and allowed interoperable messaging. And ever since that date, we’ve seen exponential increases. So, that’s a primary driver. And that’s principally consumer related, obviously. I would think that would be the same for all carriers.

We’ll also seeing music downloads start to take off and, really we were probably a little late into that category, but the Spark program has really positioned us well and we’re seeing good uptake in that regard. So, from the consumer side, those would be two of the major categories.

On the business side, where we’re seeing quite the attraction is with the EVDO cards and these are primarily CR wireless cards in fact. And so we have a competitive advantage for the time being in respect of speed, technology, and coverage, and we’re seeing some good traction.

In our case, if you call is the blackberry type of messaging certainly is an important revenue stream, but part of why we’re at 371 and some others, Rogers being higher, is the GSM technology has as advantage in respect to some of the applications that have been available on devices in the past, and most notable blackberry was available the rim product on GSM for over a year in advance of CVMA, including roaming capability in the US. So, I think they did quite well in exploiting that advantage going back two years or so ago. It remains a strength from them. We’re doing a bit of catch-up, and that would be part of the explained in terms of the differential between existing ARPU’s. But as you can see, we’re certainly growing significantly year over year. We’re trying to take a more transparent approach to the market and show you what our data ARPU is and we’ll continue to report that on a quarterly basis so you can see and track our performance in that area.

We appreciate the extra disclosure. I’m curious though, other carries the mix between business and consumer data has been, I guess on average about 50%. Would that be similar for TELUS?

I wouldn’t say that that’s the case. I don’t necessarily think it’s healthy to get into that level of detail. What I would say is if you look at those advertising programs that I mentioned to I think to Devine’s question earlier, broadband on the fly clearly was a business orientated marking of EVDO and Spark is a consumer oriented application. So it’s a duel barrel thrust and we’re seeing a significant take up on both elements and both are important part of market scores. Darren, would you like to augment?

Yes, I would. I think three points are worth triangulating, Jonathan. Number one, you’re rightly picked up on the upside opportunity in our ARPU as is relates to the nascent nature of the progress on data and upside opportunity to increase data revenues within our wireless revenue stream to the benefit of our ARPU and certainly relative to the other carriers. That is an upside opportunity for us.

I would also say it is worth triangulating the upside opportunity on the business front. If you look at the market share of wireless business customers, you would frequently have a look at TELUS being a distant third in terms of business market share on the wireless front, particularly when you look at the Ontario and Quebec markets where a disproportionate of the Canada business base is placed.

And when you add the third element to the triangulation ,in terms of upside opportunity, of course is the advent of wireless network portability, which should come to fruition in the first quarter of 2007. And clearly, if you were looking at data upside opportunity and our disproportionately low market share within the business wireless market, a significant opportunity for us once a level playing field is established would be the advent of network portability in fact gives TELUS some good upside opportunity to pursue on a profitable basis. I think if you look at the strength of our operation, whether its customer retention and loyalty or the performance of our network, which has frequently been rated number one in all of North America, and as well the extensiveness of our network coverage from a footprint prospective, we have all the operational tools and certainly the brand to do very well within the wireless business market. And certainly, we have been frustrated in the past as a the number three player by the lack of network portability. So, while network portability is a double edged sword, it would be fair to say that from our position, in terms of upside opportunity, one edge is sharper than the other and that is in our favor as we are leveraging our brand and our operational competencies to bear to capture our fair profitable share of the business wireless market going forth.

Thank you. Marje Soova, Goldman Sachs. Go ahead with your question please.

Thank you. My question is on wireless guidance. In terms of net adds, you net adds in 1Q were up 15% year over year, whereas you kept your wireless net add guidance from the year over 550,000, which compares to in 2005 full year reported 584,000. I’m just wondering if you could talk a little bit about what you expect the trends to be, is there a threat of a slow down in net adds for the rest of the year or are you just being conservative given one quarter does not necessarily make a trend? Thank you.

Yes, I think this relates to your last comment. In the wireless arena typically, in our experience, the first quarter corresponds to somewhere between 18 and 20% of annual net adds. So, from that prospective it was a very good quarter in terms of loading for us, but to extrapolate that performance throughout the entire year probably is a little premature. In wireless, it is so back ended into the fourth quarter that that can make or break a year. So, I think it’s maybe a conservative approach. And we do have a greater sign there, so we’re not saying it’s 550 on the nose, but we’re also not saying necessarily that we’re going to maintain this pace.

Thank you. John Henderson, Scotia Capital. Go ahead please.

Yes, thank you. For Darren I would like to circle back to this income trust question. I think it’s a very important issue and would lead to substantial upside in your share price. I think street estimates are in the $70-80 range for TELUS as a trust. And I just wanted to see why you wouldn’t consider, clearly there is value upside there, why you wouldn’t consider conversion in as early as ’07, as that’s when the tax liability really gets started?

John, in the past, as in the present, I don’t think people are well served elaborating on responses to income trust questions. I feel comfortable with the response that I have provided thus far, so with respect, I do not mean to be evasive on your question. I think I would like to draw a line under it there if you do not mind. I think there is significant growth still to be realized with the organic strategy that we are pursuing. It is quite a contrast to other organizations that have to try and augment their ship right through more financial engineering. We still have an excellent strategy with late and potential yet to be mind. And I think will just draw the response to a close here. Bob wants to add any additional color I will let him do so.

My color would be, maybe John out of CFO of Scotia Bank why he should or should not convert to an income trust I am sure he could educate you in some of the pros and cons.

Thanks Bob. I will try that. I will just follow up then, if I struck out with that one on just a quick one here though, your costs for the backlog. Is it fair to say that the overtime costs are kind of dealt with now that the backlog has disappeared? And that Q2 we should see the recovery?

So John the question was regards to, to backlog of what?

Strike related backlog.

Yes.

Costs that were occurred in Q1 and resulting in higher overtime costs and outsourcing and so on. Is that behind us?

Yes, that certainly that -- that is behind us. I think the, we clearly aim to maintain our service levels at high levels, so that is not a onetime thing. But the rush or intensity of activity to get there certainly should be behind us. I think said that, we certainly are facing cost pressures that are pervasive I guess in the wireline business so incumbent upon us is to pay attention to efficiency opportunities and to renew the portion on our competitive efficiency programs. So I think that’s maybe an implication if you will, so while there is a bit of a onetime or aberration there in the first quarter there is a sustainable pressure there, that we need to as managers pay mention too. And take actions against and so we aim to do that.

I think John that one of the things that investors should take away from the call is that both yesterday and again today, Bob did an excellent job of repeating the fact that we stand by our guidance for the full year of 2006. And you should draw inference from that in terms of the cost profile for this organization going forward. The other thing that is worth pointing out is that the one element that will be recurring in terms of the efficiency of the organization is the implementation of our Operational Efficiency Program. Which of course one component of that Operational Efficiency Program is the new labor contract that we were able of instituting. I think it would be fair to say that, we discussed this previously with investors, that in terms of the investments that we made to reduce costs through out Operational Efficiency Program they typically have a pay back profile of 18-24 months. So clearly the money has to go in first in terms of investment to realize the cost of production. And then thereafter down the line the cost efficiency comes to fruition. So we do have a staggered or a deferred profile to that. And it is going to happen on a recurring basis. As we draw efficiency principally through the new labor contract.

Thank you. Next question Jeffery Fan, UBS Securities. Go ahead please.

Yes, thank you very much. I just want to follow up on the wireless cost question. And I think Bob you alluded to this. That Rogers is serving and discipline out there with the RAZR and some of the promotional efforts. I guess my question is that if we compare the results that your COA when up a lot more than theirs. Yet, you know it looks that they are getting a fare share of the postpaid subscribers in the quarter as well. So can you help us understand where, what we are missing here? Are they - is it the GSM versus CDMA advantage that you see go through these numbers? And that is causing some of the promotional efforts on their front?

Sure. Well, essentially if you go through the handset, typically the GSM has had a handset price advantage on the case of Rogers, they’ve chosen to take a product uniquely differentiated advantage, and to have it as a discount. That of course forces [veil] on TELUS to respond and order the remain competitive in the marketplace. The second aspect of shall we say, market competitive dynamics goes to your pricing on your time revenue. And so essentially what Rogers is doing is discounting on postpaid basis to drive postpaid adds. One simple calculation that one can make is just take the respective carriers ARPU and divide it by their minutes of use. If you do that calculation you know who the discount operator is in the marketplace. So the extension of the footprints by Rogers to the Fido brand and then the attempt by them to say we are in a capture marketshare and by, by virtue of having two brands is something that I think is ill-founded and as I have met with competitive response that certainly by ourselves. And in it when you look at the COA at percentage lifetime revenue. Under 10% and that is outstanding result and that is where we are and that is not where our competitors are, so two metrics look at COA percentage of lifetime revenue and a, and your average price per minute. Which is ARPU divided by MOU I think that’ll tell you who is leading the price charge, and who is the value-added operator. So we certainly have nothing to shy away from and at the end of the day when you do increase COA and absolute dollars like we did you should see some good loading. And we had great loading. So I think we are going to take more comfort, through the fact that our advertising promotion efforts have been quite successful.

On the minutes, of you, on the price per minute, just to follow up, yeah, I mean if you look at their numbers I guess it is down quite significantly. But we are seeing pretty significant increase in usage as well, which is kind of offsetting the price decline. In your case, we are seeing now usage not picking up that quickly. So I mean is there any elasticity potential here for you to take as well, to get usage of and even though they might drive prices down you getting voice ARPU net increase?

Well I do not want to turn it into a debate, but I have a tough time understanding the other side of the argument, in the sense that we are by far and away the highest ARPU by a country mile. And we are increasing ARPU by two bucks year-over-year, that certainly to say the other party is having higher minutes and driving ARPU means we’re throwing away minutes. And in so in the Rogers organization to my calculation has a price per minute that is about 1/3 lower than out that of TELUS, that is one hell of a differential. So from that perspective I am certainly —I think there is an opportunity for the industry to do much better in terms of - for benefit of all shareholders and, but that has to start with, with an organization other than ours.

Thank you. Glen Campbell, Merrill Lynch. Please go ahead.

Yes, thank you very much and good morning. Darren I had a question on the outer region strategy. You had said a few conference calls ago that getting significantly bigger there, would be very useful for TELUS. And since then we have seen Rogers and Bell launch with the [Enuckshuck] data offering potentially a voice offering in your region. What is your thinking about the potential and merit of getting into the consumer market and central Canada? And could you comment as well as using wireless as a way of differentially driving wireline, substitution wireline placement outside your own region? Thanks.

Okay, presently Glen we think that organically there is more than sufficient potential still to be realized in addressing the business wireline market in Ontario and Quebec. And that is where we want to concentrate our focus. We do not want to dilute that focus by expanding into the consumer market and in Ontario, Quebec in this particular juncture.

I can tell you historically and globally if you want to be a successful competitor against a strong incumbent, then you have to be very focused on your approach and make sure that you differentiate yourself on factors other than price. And of course, we have a non-trivial technology advantage as part of our new entrance strategy and our focus on data solutions into the business market. I think trying to compete against a strong incumbent across all product lines, across all geographies and across all markets is not a particularly well-founded strategy. So I am not ruling out going into the consumer market in Ontario and Quebec. But at this particular juncture I think the first priority for organization is to carry on with our data strategy into the business market. And as you said I did not describe it as getting significantly bigger, but to be exact my words were ‘we are still desirous of achieving greater scale’, because in the world of telecom economics scale means that we can improve the ROI for our investors.

In terms of what we would do on the wireless front, we would see that potentially as a complimentary component to both our out-of-region strategy and we might like to do in-region. So to give you an example, I will give you three examples on how we may use it. Number one, clearly one of the market opportunities that is available for us in Ontario and Quebec where the competitive intensity is less, is in the medium business market where they have enjoyed, probably the least amounts of benefits from liberalization and competition, a market that is not always been traditionally well served. So I think that there is an opportunity for us to make a good economic gain-addressing small to medium enterprises in Ontario and Quebec. And to the extent we can use wireless technologies to expand our footprint, our economic footprint. What part of market is economically addressable for us, in terms of our access technologies. That of course could compliment the wireline investments we have made in terms of infrastructure in Ontario and Quebec.

Second element that wireless that I think is also complimentary to our strategy would be to assist with our on-net connectivity to branches of Canadian corporations that are strewn across this country. So as we implement deals like the TD bank or the Cooperators, or Imperial Oil, or anything else that we do of that ilk, where we are contracting with a corporation that has a multiplicity of sites across Canada to the extent to which we can use the economic advantages of point to multi-point wireless technology to put more of the branches on net and improving economics of the deal then, that’s another advantageous situation for us.

Then the third area for us in terms of fixed wireless, that is what I would call it, that would be within our region to the extent to which we can expand our coverage of high-speed internet more rural and remote communities, perhaps leveraging some of the dollars that are now available for us for the deferral accounts. We may want to use the access technology of fixed wireless point to multi-point with its cost characteristics as the mechanism for expanding our high speed internet footprint into the more rural areas of Alberta, B.C. and Eastern Quebec and to drive down on the funds from the deferrable account too help bring that particular development to fruition.

Okay, thanks. Just one follow-up. I just, I was also curious about the potential use of your mobile wireless with the differentiated pricing strategy out of reason. I would seem that there was logic to doing that, given that you have no wireline consumer business and right now, if I am not mistaken, your pricing is similar in-region and out-of-region. Is there any, do you have any thoughts that, that might change?

Yes I do not think disclosing anything on that Glen that would be appropriate way to go forward. I think that suffice to say that in terms of our national pricing profile right now we are satisfied with it. And again, in terms of the consumer market in Ontario and Quebec, we are not saying never. And it may take the form of a variety of approaches. But I think we would be well served to remain focused and concentrate on the wireline business opportunity that we still have to bring fully to fruition.

Thank you. Vance Edelson, Morgan Stanley. Please go ahead.

Thanks. Could you comment on your progress getting wireless subscribers on contracts, two-year contracts, three-year contracts, the percent of base that is on contract and maybe the percent of gross adds that are agreeing to sign? Thanks.

Well in the post-base variety all our subscribers that are come on, are on contract, the vast majority being the 2 to 3 year timeframe. In terms of the percentage for existing base, I do not have that at hand because it has not been an issue for us for some time. I believe it is in excess of 90%.

Okay and as a higher percentage of the base gets on contract, I mean your churn is already quite low do you see potential to move it even lower?

I think that the impact from contracting has really been taken, or has affected the numbers over the past 2-½ years. So the decline that was experienced and churn in the past for some years was somewhat kind of an important factor in driving that, was increased contracting efforts. As well, we have seen a reduction in churn rate in our prepaid base. So that is a non-contracted base and in that front, I think we’re experiencing some progress, but there is still some potential upside there. When our postpaid churn and it is under 1%, just under at .99 I am not sure one can count on that getting much better than that. But we do have the opportunity to continue to improve the churn on prepaid which would land some upside potential, although it would be modest in respect of our 1.33 overall blended rate today.

Okay, and just a quick follow up on and earlier question, the overall ARPU is strong. It’s actually driven by data. Is the IDEN customer base experiencing similar trends, is IDEN participating in the ARPU strength or is that kind of holding you back from an ARPU data related expansion perspective?

We are seeing similar increases in ARPU. Interestingly we have increases in ARPU on prepaid on postpaid and whether that might be mike or PCS. So it is across the board, clearly on the data front we are seeing more, more of a bump on the CDMA product. One reason is that the consumer element that we referred to earlier really is a PCS or orientated dynamic, as opposed to IDEN. And secondly the EBITDO deal push in terms of broadband on the fly, it has been more PTS orientation building off of EBDO. But what we continue to benefit from is the, the greatest of all base and unique and more advanced functionality in the PTT on IDEN that continues to reap some gains there. But I would say the trend has been more towards PCS than IDEN are up.

Alice, we are well through the hour here, so we will take one more question and then that will be it. Thank you.

Thank you and our last question will be Peter Rhamey, BMO Nesbitt Burns. Go ahead sir.

Good morning and thanks for taking my call. A follow up to a previous question and then my, another question. First off, Darren you talked about your out of market strategy longer-term conceptually I recognize, but to do fixed wireless you need spectrum. I was wondering could comment on, do you have sufficient spectrum to contemplate this or do you have to go out and secure it some other way?

I will answer that question. Yes we have spectrum for fixed wireless purposes.

Out of region?

Yes.

Yes.

Okay, thank you. Now my other question has to do with your out of region performance in the quarter. It came in below my expectations and I recognize that within the non-ILEC revenue you have CPE and obvious some up front service revenue that you recognize causing some volatility. Can you give us some sense of recurring revenue stream trend is for that business and the recurring profitability trend? And how that might be proceeding? Thank you.

Peter it came in below my expectations as well. So if you look back historically on a non-ILEC business it is not been a linear path of success to say the very least. And it is reflective of the fact that when you are going after business customers you experienced business cycles and certain contracts come up at certain times. And that really dictates the degree of the competitive intensity. I think it would be fair to say that this quarter we were a little bit softer than what we wanted to be on both the revenue growth front and on the EBITDA front. I think it would be also fair to say that best describe it as growing pains. You know, as you establish a significant presence in the market with north of $600 million of revenues over a 6-year period, certain of those contracts start to come up for renewal. And in this particular instance when you are facing contract renewals and customers are very aggressive from a pricing perspective that is a factor that begins to get reflected in your base and that is a challenge of the future growth that you want to bring to fruition. But I would say in the terms of the East for us it goes in fits and spurts and I am still confident that of course that our data strategy and our focus, our strong concentration and focus on the business market will pay dividends, but certainly it’s not going to be a linear track to success for this organization in that particular area. There are certain contracts that are coming up for bid going forward where TELUS again will take a strong and a prudent position and hopefully we can secure some of those contracts both the revenue and the profitability going forth.

Without getting into quarterly forecasting on this component of your business and longer-term the growth outlook does look. Is this a one-quarter event, or do you -- when you look at these new contracts that you could bid on, obviously you cannot recognize the revenue for another 6 months after that?

When you look at your company --

Peter I think your answer to that, the contracts that come up for bid clearly they will not have an impact on terms of revenue, that is all part of the longer-term growth story in getting into some of our scale term objectives to improve the ROI. I think the best answer to your question, to avoid sort of giving quarterly guidance, if you will, is the hard fact of the fact that once again we are reiterating our full year guidance across the board. So we are standing by the revenue and the EBITDA projection that we have set out for non-ILEC business. And I think that is the best element or best set of perimeters for you to draw imprints from that as to how we feel about Q2, Q3 and Q4.

Okay, I think that is it.

I would like to thank investors for joining us today and I would say perhaps one positive indication of the future for this organization from a labor perspective is that we had a well-orchestrated AGM yesterday that went exceedingly well and for the first time since my tenure back in July in 2000 we had an AGM where labor was not a feature of the AGM and hopefully that abodes well for a constructive and healthy relationship on that front going forward. Thank you.

Thank you everybody.

And this concludes the TELUS’s First Quarter Investor Conference Call. On behalf of myself and the rest of the conferencing team thank you from TELUS.