Telus Corp (TU) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the TELUS First Quarter 2007 Earnings Conference Call.

I would like to introduce your chairperson, Mr.

John Wheeler, Vice President of TELUS Investor Relations.

Please go ahead.

Thank you very much, Gabriel, and welcome to the TELUS First Quarter and Webcast, coming to you from Montreal.

Let me introduce the TELUS executives on line with us today.

They are Bob McFarlane, Executive Vice President and CFO, and Darren Entwistle, President and CEO.

Hopefully you've had the opportunity to see Darren's presentation of our annual general meeting this morning, either in person or by the online webcast.

His slides and audio are available for post-viewing on our website.

We will start this investor call by a presentation by Bob.

This will be followed by a question and answer session with both Darren and Bob.

This call is scheduled for one hour.

The news release on first quarter results and detailed supplemental investor information are posted on our website at TELUS.com.

For those with access to the Internet, Bob's slides are posted for viewing at TELUS.com investors.

You'll be in listen-only mode during the opening comments.

Let me please direct your attention to slide two.

The forward-looking nature of the presentations, answers to questions, and statements about future financial results, guidance, and financings are subject to risks and uncertainties and assumptions.

Accordingly, there is a significant risk that the predictions and other forward-looking statements will not prove to be accurate, so do not place undue reliance on them.

I ask that you read our legal disclaimers and refer you to the Risks and Risk Management sections outlined in our public disclosure and filings with securities commissions in Canada and the United States.

Now over to Bob on slide three.

Thanks, John, and thanks to everyone for joining us today online.

Let's begin by turning to slide number four.

The results represent a good start to the year.

In summary, they're characterized by overall operating strength, with continued profitable wireless growth and sound resilience in the wireline business.

Given the strong consolidated operating results posted, we're reiterating all of our 2007 annual targets, which we initially set back in December.

The quarter was marked by some notable positive developments, including large and very successful debt financings for TELUS and newly enacted rules for the deregulation of local phone markets, which I'll discuss in a few moments.

Now moving on to slide five, before we review the quarter, let me remind you that the impact of the introduction of a net cash settlement feature for substantially all share option awards that were granted to prior to 2005.

As we had previously announced and estimated, first quarter results were impacted by a large, upfront, non-cash pre-tax operating expense of CAN $173.5 million associated with this beneficial change.

We recorded CAN $153 million in wireline and CAN $20 million in wireless.

This impacted first quarter EPS by CAN $0.32.

There are important advantages associated with this innovative new approach.

Settling the [in-the-money] value of options for cash when exercised in the future avoids shareholder dilution.

In the first quarter, 1.5 million options were cash settled without dilution.

In addition, it's also more cash-efficient.

The cash payment will be tax deductible for TELUS, yielding potential cash tax savings of up to CAN $70 million over three years.

For the full year, we now expect the negative impact on reported accounting figures to be approximately CAN $180 million on EBITDA and CAN $0.33 on EPS, broken down by approximately CAN $155 million on wireline and CAN $25 (million) on wireless.

I would also remind you that last December we set all of our 2007 targets for consolidated and business segments to exclude this largely one-time, non-cash charge.

Now let's turn to slide six and a review of our wireless results.

Wireless revenues and EBITDA continued to deliver strong, double-digit growth.

Revenue growth of 13%, to CAN $1 billion, was generated by continued subscriber growth along with higher RPU.

While reported EBITDA increased 12%, when adjusted to exclude the options expense, underlying growth was up a significant 17%, to CAN $464 million, reflecting and underlying margin expansion.

The increase in CapEx this quarter is mostly due to network enhancements, investment in our EVDO network, and the successful provisioning of wireless number portability.

Notably, wireless CapEx intensity remained moderate, at 11%.

Slide seven shows that TELUS added 91,000 wireless subscribers in the first quarter.

Pre-paid net additions increased 34%, to 30,000, while post-paid net additions of 61,000 were down roughly 10,000 from a year ago and represented 67% of TELUS's total quarterly net adds.

Although net adds declined slightly, it was one our highest first quarter loading results in the Company's history.

Our total subscriber base is up 12% year over year, to over 5.1 million, and the overall subscriber mix is now 80% post-paid.

Slide eight shows that wireless revenue and EBITDA gains were driven by more than just subscriber growth.

RPU continues to increase, up nearly $2 year over year, driven by significant growth from adoption of new wireless data services, which has exceeded the continued erosion in traditional voice service RPU.

TELUS's wireless data RPU increased by an outstanding 69% to CAN $6.27, which accounted for over 10% of total RPU for the first time.

We're clearly catching up to our peers after a slower start than some.

This is evidence that in the very competitive reserves voice market, we've introduced new value-added high-speed data applications that have met with success.

The tremendous adoption of these services is driving our overall RPU increase despite reduced voice RPUs.

Our potential for continued strong wireless data growth in the future is very positive, given the increasing penetration of EVDO-capable handsets and devices in our subscriber base, as well as the introduction of even higher bandwidth applications when EVDO Rev A, or ``Dora,'' as it's become to be known, for short, devices start to become available later this year.

Slide nine shows TELUS's RPU performance on voice and data relative to our North American peers.

While we had a later start than some, we've been experiencing tremendous growth and have been catching up to our peers.

The line across this bar chart shows that TELUS's Q1 year over year wireless data RPU growth rate was the highest recent result of the major operators on this chart.

This momentum illustrates the opportunity for continued wireless growth expansion at TELUS.

To further illustrate some successes in this area, we believe that TELUS is Canada's top mobile music provider, both in terms of devices and volume of songs.

Slide ten shows that the economics of our profitable subscriber growth philosophy and execution remains on track, with very healthy operating metrics.

The complex operational processes to introduce wireless number portability on March 14th went very smoothly for TELUS and generally for the industry.

With only two weeks left in the quarter, there was very little impact on our first quarter results.

Our blended pre-paid and post-paid churn rate remained low, at 1.35%, with post-paid churn just under 1%.

With higher RPU and stable churn, the average lifetime revenue per TELUS subscriber has again increased year over year to an industry-leading CAN $4,595.

Although COA per gross addition increased slightly, up 2%, our best-in-class marketing efficiency metric, that being COA over lifetime revenue, remained unchanged, at 9.5%, as shown on the last line.

So we continue to generate attractive economic returns from our COA investment.

Now let's turn to a review of the wireline side of our business, starting on slide 11.

Notably revenues increased slightly, which I'll expand upon, on the next slide.

Reported EBITDA was significantly impacted by the non-cash charge for the net cash settlement method for past options, which I've already covered at the outset.

The underlying EBITDA, adjusted for this charge, increased 1.5%, reflecting revenue growth and relatively stable operating expenses.

Capital expenditures were higher in the first quarter of 2007, reflecting increased investment to support new enterprise customers in central Canada, as well as increased investment in broadband and network access growth.

As a percentage of revenue, CapEx for the wireline segment remained relatively stable, at 22%.

Slide 12 looks more closely at the components of wireline revenue growth.

Local and long distance revenue declines are reflective of the increased competitive environment from wireless and VoIP, but were offset by the increase in data revenues.

Strong growth in high-speed internet and a pricing increase in the spring last year, plus increased managed data revenues on the business side, led to recorded data revenue growth of 7.9%.

In fact, the underlying growth rate for data was even higher.

Two recent CRTT decisions resulting in recoveries from the price cap deferral account and the impact of retroactive competitor rate adjustments distorted reported local and data revenues in the first quarter of 2007, as shown on the next slide.

The table on slide 13 provides a truer indication of the underlying quarter over quarter growth rates for local and data revenue.

TELUS recognized $15 million as a drawdown from the price cap deferral account in local revenues, from where the revenue was previously reduced in setting up the price cap deferral account in prior periods.

This drawdown offset on favorable retroactive data rate adjustments, and covered recoveries for previously incurred expenses for local number portability and startup costs.

Adjusted for the deferral account drawdown, local revenue would have declined 3.5%.

In contrast, data revenue growth was understated, due to the unfavorable impact of the retroactive rate adjustments for [compatitor] digital network services, or CDNS discounts.

With those as adjustment, underlying data revenue growth was nearly 11%, a very strong result indeed.

Moving to slide 14, we can see one of the big drivers of data growth--continued solid high-speed Internet addition.

Net adds were lower at 32,000, but still at a very healthy level.

This reflects a less intensive promotional effort by TELUS this quarter, where--while our cable competitor ramped up marketing for its lower-priced, so-called light telephone and Internet offerings.

Our high-speed Internet subscriber base now totals 949,000, up 18% from a year ago.

It represents 84% of our total 1.13 million Internet connections.

The next slide highlights our network access line performance trend.

Residential line losses in the first quarter were 34,000, a decrease of 5.5% year over year, reflecting continued competitive activity such as the geographical rollout of residential cable telephony services in our markets over the past year, as well as wireless substitutions.

However, this decline in residential lines was partially offset by a 1.3% increase in business lines, resulting in a relatively stable overall line loss of 2.9% versus a year ago.

These results continue to highlight TELUS' relative resiliency to competitive intrusion as compared to our peers across the world.

Slide 16 shows robust growth trajectory and changing mix of TELUS' overall total subscriber connections.

This shows that on a consolidated basis, continued growth in wireless and high-speed Internet subscribers is significantly outpacing declines in residential network access lines and dial-up Internet.

Interestingly, TELUS has again this quarter posted a total of 1 million more total connections than it did two years ago, and this is in spite of the many competitive pressures in wireline and wireless.

This slide clearly shows the continued successful execution of our strategy, focus on growth in wireless, and data that continues to create value for our investors.

So putting it all together, now let's look at TELUS on a consolidated basis, starting on slide 17.

As you can see, TELUS had strong revenue and earnings growth.

Consolidated revenue in the first quarter grew 6% and adjusted EBITDA increased 9%.

Most significant is the adjusted EPS increase of 50% to $0.90.

Let me elaborate on the drivers behind this EPS growth on the next slide.

This slide provides a detailed breakdown of the contributors to the large, $0.30 increase in EPS.

Please note that consistent with our 2007 target definition, this excludes the $0.32 negative impact from upfront charge taken for the change to the net cash settled method for pre-2005 options.

Underlying EBITDA growth generated the biggest impact, of $0.15, which included $0.02 of lower restructuring costs.

A decrease in depreciation and amortization contributed $0.07 in the quarter, aided by the recognition of $5 million of investment tax credits, as well as several software assets becoming fully amortized.

Analysts should note that, for modeling purposes going forward, as we operationalized our new billing system starting in Alberta this past quarter, a meaningful asset will begin to be amortized in future quarters, so this current depreciation expense trend should reverse in future quarters.

Other items, including a lower average number of outstanding shares due to share repurchases and lower tax expense, added another $0.06.

Lower financing costs added a further $0.02.

This trend is expected to accelerate in subsequent periods, when the $1.5 billion of notes due in June are repaid.

All in all, we remain on track to achieve our targeted EPS for 2007, which contemplated these items.

Slide 19 summarizes our total share repurchases since we first began buying back shares in December of '04.

We remained active in the market this quarter, repurchasing a total of 3.5 million TELUS shares, for $201 million.

This brings TELUS' aggregate share repurchases since December of '04 to 42.9 million shares, for nearly $2 billion.

Importantly for investors, this has led to a 7%, or 24 million, reduction in the total shares outstanding in the past two years, despite shares issued for option exercises and other related dilution.

Notably, TELUS' decision to move to the net cash settlement method for past options beginning this year had an immediate positive impact in the first quarter by reducing dilution.

The 3.5 million shares repurchased this quarter flowed directly to a 3.5 million like reduction in the number of shares.

Now, if you follow TELUS closely, you've likely seen slide 20 before.

It clearly highlights our strong track record of returning capital to shareholders, expressed on a per-share basis.

In 2007, the combination of a 38% higher dividend of $1.50 and estimated significant share repurchases for the year, based on annualizing our buyback level this quarter, would result in a total return of capital to shareholders of approximately $3.88 per average share outstanding.

Ironically, you may remember that this is very close to the level of cash distributions per share previously announced when TELUS was considering converting to an income trust last fall.

While I put up the 2007 figures for illustrative purposes only, what is clear is that TELUS's strong free cash flow profile is allowing TELUS to deliver on our continuing commitment of returning a significant and growing amount of capital to our investors.

Before concluding, I wanted to take you through a couple of significant developments as shown in slide 21.

In Q1, TELUS closed a very successful $1 billion debt offering, consisting of $300 million of 4.5% coupon 5-year notes, and $700 million of 4.95% coupon 10-year notes.

Now, proceeds of the offering, in combination with a potential commercial paper program, and accounts receivable securitization proceeds, are expected to be used for the redemption of TELUS' 7.5% coupon US dollar notes due on June 1, 2007.

This $1.5 billion refinancing at lower rates is expected to result in annualized interest savings of approximately $33 million, on an annualized basis.

And as previously disclosed, in the first quarter, TELUS closed a new $2 billion credit facility with a syndicate of 18 financial institutions, that can be used, amongst other purposes, to back [soft] a commercial paper program.

In the last month, several positive developments have transpired for Canadian telcos on the regulatory front, as summarized in slide 22.

First, Phase I of wireless number portability was successfully introduced and implemented on March 14.

This included not only wireless to wireless, but also wireless to wireline, and wireline to wireless porting.

Second and most significantly, on April 4, the federal government confirmed the criteria for deregulation of local exchange telephone services.

The changes include needing to have sufficient facilities based competition in the market, meeting nine competitor quality of service standards averaged over six months, eliminating the 90-day restriction on win-back activities, and a definitional change of local market area to be forborne.

Applications to the CRTC for forbearance are to be handled within a 120-day period.

TELUS has applied for deregulation in six cities--Victoria, Vancouver, Calgary, Edmonton, Ft.

McMurray, and Rimouski, and more applications can be expected over time.

Most recently, on Monday, April 30, yesterday the CRTC announced its decision for the next price cap, which comes into effect on June 1.

This confirms TELUS' assumption of no further mandated consumer local price reductions, while also allowing for greater consumer price flexibility.

Now, to conclude on slide 23.

We have summarized TELUS' 2007 consolidated targets.

We're pleased today to reiterate all of our existing annual guidance, which remains unchanged from that initially set in mid December.

And again, as a reminder, for an apples to apples comparability, EBITDA and EPS targets are adjusted to exclude the impact of the accounting expense for the net cash settlement of pre-2005 options.

So regardless of the amount recorded for the cash settled option expense this year, there will be no impact on our normalized EBITDA and EPS guidance.

When looking at these growth rates on an organic basis, it is evident that we continue to expect solid performance in the upcoming year, as we build on our track record of operational excellence.

And with that, Darren and I would be pleased to answer your questions, so I'll turn the call back over to John Wheeler to open it up.

Thanks, Bob.

Just before I turn the conference call operator to start the question period, I once again ask for your cooperation in asking one question at a time, please.

Gabriel, would you please proceed?

Thank you.

Ladies and gentlemen, to ask a question, please return to your handset and press the number 01.

If you wish to withdraw your question after you've joined the question queue, press the # sign.

If you have any questions, please press 01 now.

Okay.

We've got questions in the queue.

The first question is from Peter MacDonald at GMP Securities.

Go ahead, please.

Thank you.

We've seen a pretty big divergence in the wireless results between yourself and Rogers compared to Bell over the last couple of quarters, and I guess we can highlight a number of challenges at Bell that can explain their troubles.

But their losses haven't really translated into proportionately higher results for you and Rogers.

And I guess what I'm wondering is, should we be concerned about the slowing of subscriber penetration in the Canadian market?

And second, if you're actually managing your growth within the quarters, what are the profitability implications when Bell reestablishes its proportionate market share?

Thanks.

Well, thanks, Peter, for the question.

In terms of the overall aggregate market growth, I think the first quarter is a very unusual quarter, because it--most of it preceded the March 14 launch of local number portability.

So I think we can certainly say with hindsight there was some purchase deferral trends going on in the marketplace, particularly, I think, in the post paid space, where it was quite competitive.

So I think we really need to see, if you will, to normalize the market for having LNP being about there and in place for a period of time.

And I think we really won't see that normalized trend, really, until Q3 and Q4, because Q2 is really a substantive quarter of the initiation of LNP.

So I think that's a factor that sort of clouds it to a certain extent.

Secondly, I guess as it relates to our share and the profitability for the industry, certainly we've been pleased with our results.

They've--we've continued to increase our margins overall, and in spite of that, I note today, I guess, we led in terms of total wireless net adds--not that that's necessarily our goal, but certainly we're not getting a disproportionate share of the overall growth.

Our share rates remained relatively constant--we certainly have not led the industry in price discounting, that's for sure.

So I think from our perspective, it's steady as she goes.

As to what Bell may do and what impacts that may have, I think that's best for them to comment on.

But clearly, in respect of our results, we're satisfied.

Okay, next question, please, Gabriel?

Thank you.

The next question is from Vince Valentini at TD Newcrest.

Go ahead, please.

Yeah, thanks very much.

A question on, I guess, your balance sheet and free cash flow deployment.

I've certainly heard your strategy in the past, and it makes sense, and I know you've returned good value to shareholders.

But I'm wondering if--in this environment, you're scared at all that given the company's widely held, there's no multiple voting structure a la Rogers or something, that if you maintain debt leverage where--you may think it's comfortable, 1.5 to 2, but a lot of the equity market these days thinks that's too low.

Do you think you're going to become somewhat vulnerable to pressure from activist shareholders, or private equity interest?

Do you think there's any need to think about pre-empting that with a more aggressive use of your balance sheet, or at this time, do you think status quo is good?

Vince, I think the first point to make is, this company has had a sterling record of creating value, whether actually through shareholders or for debt holders.

In that respect, we certainly enjoy a strong confidence in the marketplace, and our shareholders continue to show that support in all of their comments to us.

So I certainly reject the notion that we're vulnerable, or certainly--we're not scared.

That is for sure.

In respect of leverage policies on a go-forward basis, I think the policies that the company has followed to date have benefited the--our shareholders significantly.

And we're really in the--right in the midst of unleashing a significant refinance savings for the organization as it relates to refinancing at lower rates, particularly once we refinance the notes, the $1.5 billion notes next month.

Having said that, as you know, every year we review our policies.

We're not rigid in stone.

But we do look at what our weighted average cost of capital is, and pick a policy that is appropriate with that.

And so we're certainly in no need, under no pressure, to be reactionary to any developments that are going on in the marketplace, and in particular, those that relate to balance sheet items.

And to the extent to which we're generating a lot of free cash flow, that just translates into a lot of value for TELUS, and certainly there is the potential to lever the balance sheet.

That doesn't mean necessarily that one should do it, but I think the market recognizes the underlying cash flow generation and the financial strength of our balance sheet, and that's creating advantage for us, I think, both competitively and strategically at this time.

Next question, please.

Next question is from Glen Campbell at Merrill Lynch.

Go ahead, please.

Yes, thanks very much.

A detail question--the deferral account drawdown in local revenues--you gave a good explanation on the impact on the organic growth rate.

Can you talk about how long that's likely to continue, and what we might expect in terms of the quarterly run rate there, going forward?

Glen, I'd love to help you with the modeling, but the reality is, it's quite uncertain and it is a function of some of the rulings.

It's also a function of what we do in terms of CapEx.

Certainly there's some outstanding determinations on qualifying CapEx, etc., and so unfortunately, I can't give you a trend line.

And I think, given that it's really just from one pot to another, I know you like to know the underlying growth rates.

But it's really just in one pot or the other.

It doesn't affect our overall growth rates or performance.

So I think from that perspective--keep in mind that it doesn't distort the overall results.

Unfortunately, there's no basis for me to give you any clarity on a quarter-to-quarter basis for the particular revenue categories.

Okay, thanks.

Gabriel?

Thank you.

The next question is from Jeffrey Fan at UBS.

Go ahead, please.

Thanks very much, and good afternoon, guys.

I wanted to ask you a quick question on the wireline EBITDA trends.

I know you've essentially reiterated all of your guidance that you set out a few months ago, but when we look at your wireline guidance, it looks like you're implying a--there's still a decline of about 1% to 3.5% on EBITDA.

On Q1, when we look at the ex option settlement impact, it looks like you generated growth of about 1.5%, so my question is, were there any one-time items on the cost side that helped this quarter?

And looking forward, are there any reasons for more costs to be coming in, and as a result, see the trend kind of going to the negatives in the next three quarters?

Jeff, I think a couple of points.

Firstly, it is only one quarter--one quarter doesn't a year make.

And traditionally, we don't revise guidance after the first quarter, so that's the first point I would make.

Secondly, as it relates to wireline, while seasonality is more of a dynamic or factor with respect to wireless, it's also an important factor with respect to wireline because of the cost of acquisition associated with our broadband activities, which tend to peak in the latter part of the year--certainly, much greater than the first part of the year.

So that's a bit of a dynamic there.

But I don't want to get too specific.

As you know, we really avoid quarter-to-quarter type of forecasting.

We've had a good start to the year, but it doesn't a year make.

And we'll relook at our estimates after the second quarter.

Okay, thanks.

Thank you.

The next question is from Robert Schiffman at Credit Suisse.

Go ahead, please.

Thank you for taking my call.

I know this is going to be a hard question to answer, but I've got to ask it anyway.

There's been a tremendous amount of chatter in the press about what your thoughts may or may not be with regards to M&A and consolidation.

So if I could just throw out a couple, and see if you can just put them on the table for us.

The first thing is, are you interested in joining a group to make a bid for BCE?

Secondly, have you been approached by either private equity or any other investors to make an acquisition in yourself, and has the board gotten together, whether formally or informally, to review what the firm's strategic alternatives are?

Thanks.

Thanks for the question.

Let me respond explicitly.

This company has not and will not comment on corporate development activities within the public forum.

That includes acquisitions, mergers, divestitures, or any form of financial engineering whatsoever.

What I can tell you is that this is an organization that does not need to do anything on the corporate development front to see its strategy through to fruition in full.

We've got the entirety of assets that we need to organically see our strategy through to conclusion, whereby we can generate excellent results, and by extension, create value for shareholders and carry on with our current methods of returning cash to shareholders through our dividend growth model, and the continuation of our NCIB program.

Okay, thank you.

Good luck.

Thank you.

Thank you.

The next question is from Dvai Ghose at Genuity Capital Markets.

Go ahead, please.

Yes, thanks very much.

I guess, three of the wireless developments you didn't refer to in your prepared remarks were the winning of the federal contract, which obviously--Bell even this morning suggested you gave away, in terms of margin, the launch of Amp'd and the heavy advertising that we've seen, and the Spectrum white paper.

I'm just wondering, on the federal contract, could you give us some idea as to why you bid what you did?

On the Amp'd, could you tell us whether there was any impact on the quarter expense, or--I've seen revenues relatively low.

And what your views are on the Spectrum auctions.

Well, Davi--or is that Dvai?

In terms of the winning the federal contract, I think that's distinctly a positive event for our organization.

It would be misconstrued if it was to be characterized as a contract where we're not going to make money.

Most definitely, it is one where we will.

Remember that we were number three in terms of supply, as a supplier to the federal government, and so from that standpoint, becoming the primary supplier--not the sole supplier, by the way.

The primary supplier is an incremental win for our organization, and it really will translate into net additions in the second half of the year, because it's really just getting underway now.

And I guess in relation to local number portability, while maybe not explicit, it certainly was time to coincide with that, so from that standpoint I guess, LNP is looking positive for our organization at the outset.

Really, the government's decision was very transparent.

In terms of their procurement approach, they have a quantified approach to criteria on the purchase.

I think that's for public consumption, to my knowledge.

And if people care to go and look at that, they'll find that quality in the network experience--the coverage, the customer satisfaction, as well as capabilities and services that we can offer.

And to the extent they're different than competitors, those are all heavily weighted criteria, more so than price.

So to say that it's a contract that was won solely on price would be inconsistent with even the methodology the government used to award the contract.

In terms of Amp'd, I think that's relatively minor.

We launched that in the first quarter, as you know.

That's--we do own those customers, and really operate that service in Canada.

It's very early days for us, but certainly that is a service, as you know, which--based on U.S.

results is a very high RPU, very targeted offering in the use space, and certainly is very consistent with the value-added differentiated approach to the marketplace.

So on the Amp'd, Bob, there wasn't much expense?

Because I must have seen the ad about a thousand times, and I'm ready to shake my junk at the moment, but I'm just wondering how much it cost you.

That must mean you watch the Spike TV channel a lot, Dvai, which may reveal a few things about you.

But in any event, I think we're quite comfortable.

You know, you're launching a new product and service, so if people don't know about it, they're not going to buy it, so--

But did it have any material impact on the quarter, in terms of expense?

No.

Okay.

And on the Spectrum auction?

Any comments?

I guess--you know, it's only a white paper, but--

I think, Dvai, suffice to say that our view is that the Canadian wireless industry right now has a very robust competitive model that's driving significant investment, that's driving significant innovation in terms of new product launches.

And if you need an empirical piece of evidence as to the competitive intensity, you only have to look at the voice RPU diminution to illustrate that there's a degree of pricing pressure out there that's non-trivial, and thankfully, been overcome by what we're doing in terms of data services growth.

Number two, I just got with the program, whereby the federal government was moving towards relying on market forces to the maximum extent feasible, and I think what's good for wireline in that regard is also good for wireless.

So I think any Spectrum auction should be done from a level playing field, allowing people to build accordingly, and pursue Spectrum of their own volition, but not certainly on a subsidized basis.

And I don't think subsidized competition, or managed competition from a regulatory perspective, is a sustainable model, and of course, the past is pressing it in that regard, because we have a lot of new entrants that were facilitated by the regulatory model, that did not prove out to be sustainable competitors, because effectively, the competitive model was being subsidized, or was being ordained by a regulator.

I think it's better to let free market forces determine competitive outcomes.

And I think there's two very interesting pieces of evidence on the table.

Number one, the competition bureau spent six months adjudicating on the efficacy of the market going from four players to three players, and the robustness of the ensuing competitive dynamic, and they signed off on it.

Number two, the telecom panel review came out and determined that the right way forward for the telecommunications industry in Canada was to pursue deregulation and rely on market forces, and thankfully, that's been embraced by the government and in particular, industry Canada, and the foresight that the minister has had on this particular area, I think, is directly applicable to what happens within the wireless domain.

So I'd say, let's have a free and open competition, and let's let the Spectrum, the bandwidth, follow according to a competitive process.

And at the end of the day, I think that's a healthy thing, and if you want to see continued investment within the Canadian wireless industry, in terms of technology and infrastructure and bringing new services to market, which are good for the lifestyles of consumers and the competitiveness of Canadians--Canada's businesses, then I think that's facilitated by a light regulatory touch.

Let's let the market determine the outcomes that are suitable to our industry.

Thanks very much.

I very much agree.

Cheers.

Thank you.

The next question is from Peter Rhamey at BMO Capital Markets.

Go ahead.

Great.

Thanks very much.

Very solid wireline performance, and I was wondering if you could chat about your Enterprise segment.

You don't disclose anything on the eastern operations anymore, but I was hoping that you could give some idea of the pricing environment in the Enterprise, perhaps whether you're growing the market, or whether you're experiencing the 10% data growth through share gains, or at the expense of your competitors.

Thank you.

Peter, in terms of the wireline, we were pleased with the results.

And specifically, in the Enterprise segment, there's really two dimensions to look at.

One is in western Canada, where--if you want to characterize it, we're on defense, so to speak.

And in that regards, we're doing extremely well.

In fact, I think if you took the past 12 months on a trailing basis, there would be an all-time record revenue profile for the Enterprise segment in our incumbent markets, and that's despite, obviously, a lot of competitive intrusion.

So in a way, that's reflective of not only that we're doing--you may want to go on mute there, Peter, there's a lot of noise coming from your end.

But--

I'll do that.

I think that's reflective of not only TELUS doing well, and differentiating itself, but also, I think we're enjoying a buoyant economy, most particularly in western Canada, and certainly we've been a beneficiary of that.

In terms of central Canada, and Ontario and Quebec, where we're on the offense, so to speak, things are going quite well.

We continue to differentiate our offerings through capability, and vertical market focus.

We continue to successfully obtain major contracts such as the Government of Ontario contract that was talked about at the AGM earlier today, and a number of other wins.

So in that respect, we're very positive in terms of not only the current results, but the outlook for both our revenue and our EBITDA profile going forward.

Having said that, there will be some incremental CapEx relating to those deals that we're winning, because there is some success-based CapEx related to those major contract wins in central Canada.

But that's the kind of CapEx we love to incur.

But in terms of pricing, is there--do you see a stabilization in pricing, or is it still quite aggressive out there?

Peter, it's always very competitive out there.

It really is a function of the extent to which you can differentiate from your competitors, whether you have a capability set which they can't match, and is the client looking for that differentiated capability, or are they just looking for plain vanilla commodity service?

We are at our best--we target and are most successful when there's a differentiated service offering that the client is seeking, and a value added approach.

And in those situations, whether--for example, when security considerations come into play, or a managed infrastructure--managed networks.

Those are areas where we have capability sets that, at least in our view, are compelling.

And so we've done quite well.

And other contracts have come up.

For example, with some financial institutions in the past year, all they were looking for was the low cost provider, interestingly enough, despite being major banks--I'd think it would be the opposite.

But unfortunately for us, that wasn't the case, and we didn't win those contracts.

So the point is, I think in terms of executing our strategy, which is to take a value added approach to the market, not via competing with just price, we're being successful.

But that doesn't lead you to necessarily win all deals, and therefore, I think we're happy with the share that we're obtaining.

Thanks, Bob.

Gabriel, please?

Thank you.

We have the next question from Rob Goff at Haywood Securities.

Go ahead, please.

Thank you very much.

My question is on the wireless, and it's a question on whether or not you have plans in place to expand on your wireless distribution network, and/or change your dealer compensation?

Okay, that's rather specific.

In terms of compensation to the distribution channels, we certainly are not going get into talking what we might do in the future.

Otherwise, I might as well just mail a letter to our direct competitors and tell them what we're going to do.

It was more of a structural reference, Bob, given Bell's comments on they're making a change.

That's all.

Well, I think in our case, we have a mix of all distribution channels, and we continue to see it as we make investment into distribution that's been paying off for ourselves.

If you notice a COA per lifetime revenue metric, which remained stable and attractive levels, certainly then--and I know that distribution costs are one component of that, but obviously, it affects that overall number.

And the return we're getting on that COA is very, very attractive.

So what we're doing is working.

And where we have made incremental investments in distribution, it's paid off in dividends, almost literally, for our organization.

So I think that's about all I can say on that topic.

Okay.

Thank you.

Gabriel?

Thank you.

The next question is from Michael Rollins at Citigroup.

Go ahead, please.

Hi, good afternoon.

I was wondering if you can give us an update on the iDen segment of your business.

How important is that in terms of your product portfolio today in generating market share?

And what are your plans on the technology front, to either use the hybrid phone or move to a CDMA packet approach?

That would be great.

Thank you.

I think we started to say that we're very bullish on the iDen business, and we've made those comments in the public forum, Michael.

Indeed, most recently at your particular conference.

I think any time you've got a product where the RPU is between $75.00 and $80.00, the churn is between 1% and 1.1%, and the CapEx intensity is in the circa of 5% zone--those are economic parameters that are decidedly attractive for us.

Number two, we're long-term believers in the iDen network and technology.

We don't face the same type of bandwidth or Spectrum constraints that you would see, let's say, south of the border.

I think rather than looking south of the border, Nextel International is a better example in terms of what can be achieved in respect of the growth of that particular business.

From an evolution path perspective, it would be fair to say that we're very interested in developments as they related to CDMA iDen interoperability, either at the network level or at the handset level.

CDMA iDen interoperability is always important to us, when we've got a significant push to talk base already established on the iDen front, and to the extent to which we can complement that with CDMA iDen interoperability, then for us, that's a very attractive thing.

Two additional points.

Number one, your management team here at TELUS has not been as adept as what we should have been in terms of bringing data services online within the iDen domain.

Perhaps we've been a little bit too focused in the past on voice wireless services, or a little bit too focused on the consumer front.

Clearly, there are applications that are resident on the iDen network for business customers that have a lot of resonance, including security applications, but perhaps more in particular, location-based services.

And we will be investing in product development initiatives in that regard, which I think can make a tidy contribution to the EBITDA that we derive from iDen.

And then lastly, here is a technology, given the vertical focus that you see coming out of Joe Natale's business solutions team, that can have a lot of resonance with the public sector and the public safety component within the public sector.

And I think if you look at--you know, a long-term home for iDen, so to speak, I think if we manage this particular technology adeptly with the vertical focus that we already have inculcated within TELUS, moving it towards security, dispatch, push to talk applications for the public safety component within the public sector, is another area of development that we can aspire to in terms of what we do with this product.

Thank you very much.

Thank you.

The next question--

Michael Rollins?

Sorry Gabriel, we'll take one more question.

Okay.

This last question is from John Henderson at Scotia Capital.

Go ahead, please.

Thank you.

Nice quarter.

I wanted to ask about your--

I'm sorry.

It looks like Mr.

Henderson's line just dropped out.

We're going to take the last question from Glen Campbell.

Go ahead, please.

Thanks very much.

I wanted to circle back on the question of capital structure.

I mean, we've seen the--we've seen, interestingly in Canada here, how much value could have been created through income trust conversion, with two companies announcing it.

We're now seeing the kind of value that, I guess, investors are thinking can be created through re-leveraging.

And what's interesting is, there's even more value being created that way, or to say, potentially lower costs of capital.

Not to take away from what you've achieved for shareholders--the record's fantastic.

But can you argue with the observation that you get a lower cost of capital in fact through re-leveraging than you might have even got through income trust conversion?

Well, an income trust conversion actually raises your cost of capital, for starters, Glen, because you don't have tax shelter benefits for interest expense.

The difference is, that an income trust--your business case, your business in-flows don't have tax being deducted from them.

So anyway, we want to get precise on the top if we can go there.

I don't--I've already really addressed one question on this topic, and I'm really not going to get into a debate, other than to say, I think the real question is, what optimizes your WACC on a sustained basis rather than merely at a point in time.

Okay, thanks.

Okay, thank you very much for joining us today, and thank you all for taking the time.

We truly appreciate your continued interest and support of TELUS.

Thank you very much, and have a good day.

Thank you.

This now concludes the TELUS first quarter 2007 earnings conference call.

On behalf of myself and the rest of the conferencing team, thank you from TELUS.