Telus Corp (TU) 2007 Q3 法說會逐字稿

Good morning ladies and gentlemen.

Welcome to the TELUS Third Quarter 2007 Earnings Conference Call.

I would like to introduce your chairperson, Mr.

John Wheeler, Vice President of TELUS Investor Relations.

Go ahead please.

(Inaudible) 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 Darren on slide three.

Thanks, John.

Good morning, and thank you for joining us today.

I am pleased to report that TELUS' third quarter of 2007 was a marked improvement compared to the second quarter, although still not to the standard that I expect from our organization.

Our improved performance this quarter is due to a more deliberate operating focus that I promised investors three months, and I am encouraged that TELUS is making significant progress in returning operations to normal.

Let me being with TELUS' wireline results on slide four.

TELUS' revenue performance continued to demonstrate resilience in the competitive wireline market.

Notably, data revenue continued to be strong, up 9% this quarter, across an array of services.

Once again, TELUS experienced only moderate network access line losses at 3%.

I'm also pleased to note that TELUS made good progress in the third quarter with the continued implantation of our major IT investment in Alberta that consolidates multiple order entry and billing systems down to one customer care platform.

As you may recall from last quarter -- certainly, I do -- the full-scale transition of more than one million residential customers to this new system resulted in difficulties that seriously reduced our ability to process new orders.

Not withstanding this, TELUS has remained successful in the critical function of processing and issuing client bills.

In the third quarter, we made significant strides in overcoming TELUS' temporary challenges on the IT front, as evidenced by the 50% sequential reduction in our extra billing system costs to $8 million this quarter.

Moreover, the remediation of our order fulfillment difficulties allowed us to renew our marketing efforts in the Province of Alberta.

As a result, we doubled the number of net customer additions for high-speed Internet services in the third quarter, as compared to the second.

It is important to note that TELUS is the first telco in North America and a global leader in consolidating multiple Legacy systems down to a unified customer care platform.

The long-term benefits of this new innovative IT system include greater consumer satisfaction and retention, as well as faster and more efficient product development.

With the challenges of the Alberta implementation largely behind us, we are focused on learning from this experience and smoothly rolling out the system in British Columbia next year.

Turning to our wireline EBITDA, our quarterly performance also improved.

However, EBITDA was still down 3% on a year-over-year basis.

As you know, my goal is to keep wireline EBITDA stable over the course of the years ahead, thereby maximizing TELUS' significant exposure to the growth dynamic of the Canadian wireless industry.

To achieve this goal, TELUS must deliver continued growth in wireline data, accelerate profitability in Central Canada, augment the realization of cost efficiencies, and leverage bundling and loyalty programs and product development from our enhanced IT systems in a forborne environment.

Turning to slide five, let's examine TELUS' wireless results for the third quarter.

The continued strength in our data applications, combined with improved marketing and retention efficiencies, are the key drivers for the sequential improvement in our wireless operations.

TELUS experienced revenue growth of 9% this quarter, compared to a year ago, based on a 11% increase in the wireless customer base, as well as a 56% increase in data revenue.

TELUS continues to generate higher than normal gross customer additions, which were up 9%, and strong wireless net additions this quarter, which were based on moderate costs of customer acquisition and retention.

Notably, as a result, on a sequential basis, these costs were reduced by $29 million this quarter.

Moreover, TELUS' stronger customer retention is reflected by a solid churn rate of 1.43% this quarter, with the settling in of number portability at a business-as-usual feature of our industry.

Finally, TELUS' wireless EBITDA margin of 47% represents a recovery of 4 basis points from the second quarter of 2007.

Obviously, TELUS did face one disappointment this quarter with respect to the 1% decline in ARPU to $64.80.

This is the first decrease in quarterly ARPU following a remarkable 18 consecutive quarters of year-over-year growth, and it can be attributed to the very competitive pricing we are facing in a 15-brand wireless industry in Canada.

Bob will provide more details of the many factors that have impacted TELUS' ARPU in his part of this morning's presentation.

Whilst the wireless business is on sound footing, TELUS is paring back our 2007 outlook for the year based on the challenges that we faced in the second quarter and our inability to overachieve in the second half of the year to ameliorate fully this short fall.

Let me know turn to some significant regulatory developments, beginning with wireline, as set out on slide six.

First, on August 3rd, the CRTC issued a decision on local forbearance, eliminating the regulation of residential phone services in six of our large urban markets in British Columbia, Alberta and Eastern Quebec.

Second, the CRTC also eliminated the regulation of business services in the same six markets, affecting approximately two-thirds of TELUS' total business lines.

Third, an essential services hearing is underway that has the potential to reduce uncompetitive and restrictive regulations for our wholesale business, and a decision in this regard is expected in the first half of 2008.

These recent moves reinforce Industry Canada's policy direction to foster sustainable competition.

Fundamentally, deregulation is providing TELUS with a more level playing field and the competitive tools not formally in our repertoire which will enhance competition and benefit customers and shareholders alike.

Specifically, through forbearance this year, we have gained pricing flexibility, the increased ability to bundle win back rule parity, and an ability to operate more efficiently and effectively by simplifying our wireline product portfolio and enhancing the overall client experience.

The next slide shows clearly the magnitude of the impact of deregulation on TELUS' wireline revenue composite.

As illustrated, the deregulated revenue portion, now subject to competitive flexibility, has almost doubled to 72%.

Let's now turn to slide eight for a look at regulatory developments on the wireless front.

While the Canadian government has made significant strides in liberalizing the regulatory framework for Canada's wireline industry, we find it curious that the government is even considering taking the opposite approach in the lightly regulated wireless industry, specifically in respect of the impending decision for the rules for the advanced wireless spectrum auction expected to be held in 2008.

As many observers have noted, the Canadian wireless industry is indeed a remarkable success story.

The three national players have significantly invested in the industry that is characterized by vibrant competition and, as well, constant innovation.

Let me make three clear observations.

One, the government issued a directive last year to the CRTC to rely on market forces to the maximum extent feasible and to ensure technological and competitive neutrality in their actions.

Two, the competition bureau in 2004 ruled that having three national facilities-based wireless carriers was appropriately competitive for Canada.

This view has since been reaffirmed by the CRTC in the years that ensued.

Finally, ongoing declining voice ARPU demonstrates clearly the competitive intensity of the Canadian wireless market.

Taken into account these three points, my view, clearly, is that the government does not need to deviate from their established policy direction, but rather embrace its own doctrine and proceed with a fair and open auction process with the same rules applying to all participants.

Turning to slide nine, let's examine our consolidated results for the third quarter.

In the third quarter, TELUS delivered revenue growth of 5%, demonstrating the strength of our business strategy that focuses on the growth tenants of wireless and data in the Canadian domestic market.

EBITDA was up 3% to $980 million, driven in principle by our wireless operations which generated 8% growth.

Focusing on TELUS' bottom line, earnings per share were up 32% due to lower financing charges, an increase in income tax recoveries and, as well, lower shares outstanding as a result of our continuing NCIB programs.

If we normalize EPS for tax recoveries, TELUS still generated a healthy 11% increase in EPS on a year-over-year basis.

This quarter, we experienced an improving trend from a difficult second quarter.

However, the year-to-date results have required us to adjust our full-year consolidated guidance.

We are revising slightly downward our annual revenue range by up 1%.

In addition, we are narrowing the EBITDA guidance towards the lower half of our original target range.

On a more positive note, based on the tax recoveries, TELUS is increasing the estimated EPS range up to $3.65 for the 2007 financial year.

Consistent with our robust cash flow position and with over $500 million of cash being generated this quarter, we continue to execute on our long-standing commitment to invest in our core business and, as well, simultaneously, to return cash to investors.

As shown on slide 10, we executed on our normal course issuer bid in the third quarter and repurchased 4.3 million TELUS shares at $232 million.

Since December 2004, TELUS has repurchased and cancelled nearly 50 million shares, some one-seventh of the shares outstanding, for $2.4 billion in totality.

I am pleased to announce today a 20% increase in the quarterly dividend to $0.45 per quarter payable on the 1st of January, 2008.

This is the fourth successive double-digit increase under our dividend growth model and payout guideline.

In conclusion, I am encouraged that TELUS addressed the short-term operating challenges we faced at the mid-point of 2007.

The third quarter results demonstrate, unequivocally, our improved execution, but they also demonstrate the challenges that we still need to answer if we are to continue advancing our gross strategy at the pace investors have come to expect from this organization.

TELUS remains determined to take the actions necessary that create value and value growth for investors in the years ahead.

Let me now turn the call over to Bob to provide additional details for you.

Great.

Thank you, Darren, and -- excuse me -- good morning, everyone.

Let me begin the financial results review with our wireless segment, beginning on slide 12.

As Darren mentioned, third quarter results were a marked recovery from the second quarter.

Wireless revenues were up 9.4% as growth in subscribers was partially offset by slightly lower revenue per customer.

Reported EBITDA increased by 8% due to higher network revenue growth, partially offset by increased net worth operating expenses, resulting, in part, from higher revenue sharing with third-party data content providers.

Improved trends were experienced with cost of acquisition and cost of retention as they were sequentially lower, which lead to a rebound in EBITDA margins to 47% of total revenue.

The increase in CapEx this quarter was mostly due to network enhancements in capacity and coverage.

Our EVDO Rev A high-speed network now covers roughly two-thirds of Canada's population.

Turning to slide 13, wireless net additions were stable year-over-year.

TELUS added 135,000 total subscribers in the quarter, generated by 9% growth in gross additions despite reporting, as just mentioned, sequential and year-over-year reductions in marketing and retention costs.

Prepaid net additions increased 27% to 36,000 from a year ago, while postpaid net additions of 98,000 were down 10% year-over-year.

Postpaid additions represented 73% of TELUS' total net adds in the third quarter, and the overall subscriber mix remains at 80% postpaid, 20% prepaid.

Slide 14 shows the change in wireless ARPU year-over-year.

Overall ARPU decreased by $0.87, or 1.3%, year-over-year to $64.80 due to a decline in voice ARPU, which I'll elaborate on in a moment.

TELUS' wireless data ARPU increased by more than $2 to $7.20, now representing 11% of total ARPU.

The potential for continued strong wireless data growth remains very positive, given the increasing penetration of EVDO-capable devices in our subscriber base, as well as the expected introduction of higher band with applications and devices, given the recent deployment of EVDO Rev A.

Now, let's look at the factors affecting ARPU on the next slide.

While data revenues are growing strongly, voice ARPU continued to reflect the realities of today's competitive market.

On the positive side, data is being driven by increased usage and adoption, and the migration of formally voice-centric subscribers to more fully featured PDAs and EVDO-capable handsets.

However, TELUS' voice ARPU is facing headwinds from several directions.

First, is a function of our product mix, given our successful prepaid loading, and our maturing Mike subscriber platform, both of which generate lower data ARPUs than postpaid PCS subscribers.

Voice ARPU is also declining as consumers use more in-bucket plan minutes.

So, while minutes of use, or MOU, were -- excuse me -- relatively flat year-over-year, we experienced lower chargeable minutes, which reflects competitive pricing pressures, especially in the business and discount markets.

Roaming growth, on a per unit basis, also decreased, partially as a result of fewer American visits to Canada due to the U.S.

dollar exchange rate.

So, taking a take step back to look at the broader picture, despite the fist year-over-year ARPU decrease in four-and-a-half years, total wireless network revenue growth continued to be strong at close to 10% in quarter and 12% year-to-date.

Slide 16 provides a review of churn levels against our industry peers.

Although third quarter blended monthly churn increased slightly by 7 basis points on a year-over-year basis to 1.43%, churn has stabilized post-WNT introduction in March and actually decreased a couple of points sequentially.

Postpaid churn was 1.05%, or as prepaid churn was 2.95%.

As shown, TELUS continues to achieve near best-in-class wireless churn levels when compared to our North American peers.

Slide 17 summarizes the sequential improvements in our wireless operating metrics.

TELUS management is focused on restoring growth to targeted levels following the commercial shutdown of Amp'd earlier this year.

Demonstrating improved efficiency in our wireless marketing spending, we achieved a 9% increase in gross subscriber additions, despite cost of acquisition for gross addition, or COA for short, being down 2% year-over-year and down 11% sequentially to $379.

Retention spending as a percentage of network revenue decreased both year-over-year and sequentially by .4 points and 1.9 points, respectively, to 6.3% of network revenues.

All the while, TELUS maintained a low churn rate and continued to contract high-value clients.

As a result, EBITDA margins improved by [4.1.] sequentially to 47% of total revenues.

As shown on slide 18, we are tweaking our original 2007 wireless annual targets to reflect year-to-date results and/or outlook for the rest of the year.

The wireless revenue guidance range has been narrowed and adjusted lower by 1% to 2% to $4.275 to $4.3 billion.

EBITDA guidance has also been narrowed and lowered slightly by $25 and $50 million to $1.925 to $1.95 billion.

Again, as a reminder, for apples-to-apples comparability purposes, EBITDA targets continue to be adjusted to exclude the impact of the accounting expense for the net cash settlement of pre-2005 options.

With the EDVO Rev A rollout largely complete, we're on track to meet our annual wireless CapEx guidance of approximately $550 million.

Wireless subscriber net adds has also been lowered by 20,000 to approximately $530,000, reflecting year-to-date additions and consistent with last year's results.

Now, let's turn to a review of the wireline side of our business starting on slide 19.

Revenues remained relatively stable, and we'll analyze this in more detail in a moment on the next slide.

EBITDA, as adjusted to exclude the impact of share compensation expenses and recoveries related to our net cash settlement program, was negative 2.7%.

In this quarter, we recorded an expense recovery for wireline of $9.5 million in the third quarter of 2007 in respect of a catch-up for reversing previously booked share compensation expense on options that subsequently were forfeited.

Meanwhile, capital expenditures were slightly lower in the third quarter of 2007, reflecting a decrease in capitalized billing and client care system development expenditures.

We continue to invest up front to support new enterprise customer wins in Central Canada, as well as make investment in enhanced broadband and network access growth.

Slide 20 looks at the components of wireline revenue growth.

Local and long distance revenue declines are reflective of the continued competitive environment and substitution from wireless and voice, as well as reduced revenues from moves, adds and changes.

These revenue declines were fully offset by increases in data and other revenues.

Strong year-over-year growth in high-speed Internet plus increased managed data revenues on the business side led to nearly 9% data revenue growth.

Favorable decisions by the CRTC on quality-of-service exclusion applications and increased equipment sales contributed to other revenue growth.

Now, let's turn to slide 21 and take a deeper look at wireline EBITDA, in this case EBITDA-adjusted foreign expense recovery due to the poor picture of previously expensed cash-settled options.

As mentioned, the new billing and client care system had a reduced impact this quarter.

Encouragingly, backlogs have been shortened significantly, and extra resources to support IT operations were reduced.

And as Darren mentioned earlier, we continue to have accurate and timely bills with no long-term issues that companies often experience with such major system conversions.

Having said that, expenses in the third quarter included $8 million of incremental labor expenses related to the new system in order to maintain provisioning and service levels.

This is an approximate 50% reduction from Q2, so we're making substantial progress in returning to business-as-usual levels.

Adjusting further for a reduction in the provision for quality-of-service rate rebates of approximately $5 million recorded in other revenue due to favorable decisions by the CRTC, underlying wireline EBITDA would have been down 2.1%.

Clearly, profitability in the wireline business remains challenging, as we expected, and we must continue to take initiatives to address it.

Let's move to slide 22 and examine high-speed Internet.

As you may recall, the order backlog issues in the IT system implementation in Alberta had a big impact on high-speed Internet adds in Q2 '07 when we had negative additions in the Province of Alberta, and only 14,000 positive additions on a consolidated basis.

However, the progress in returning to business-as-usual with our new billing system allowed a return to marketing DSL service in Alberta over the course of the third quarter.

So, overall net additions rebounded to 31,000 and, under the circumstances, we are pleased with this renewed momentum.

Nevertheless, we need to lower our full-year 2007 high-speed net addition guidance to reflect the slowdown experienced year-to-date.

Our high-speed Internet subscriber base stood at 994,000 at the end of the quarter, up 14% from a year ago.

The next slide highlights our network access line performance trend.

Residential line losses in the third quarter were 42,000, a decrease of 5.9% year-over-year.

This reflects continued competitive activity, including the rollout of cable telephony service in many of our markets over the past year, as well as wireless substitution.

However, this decline in residential lines was partially offset by a 1.7% increase in business lines, resulting in a consistent overall line loss of 3% annually.

Now, to conclude wireline, on slide 24, we have made minor updates to TELUS' 2007 wireline guidance to reflect our results to date and our outlook for the rest of the year.

Revenue has been tightened towards the lower end of our previous range.

EBITDA has also been tightened towards the higher end of the range, reflecting our continued focus on efficiency, and partly as a result of lower-than-expected restructuring costs.

CapEx guidance is unchanged and due in part to the impact of the IT system in Alberta unloading.

As mentioned, we're lowering our high-speed Internet net adds to approximately 110,000.

So, putting it all together, let's look at TELUS on a consolidated basis starting on slide 25.

Consolidated revenue in the third quarter grew 4.5%, and EBITDA, as adjusted, rose almost 3%.

EPS increased 31%, which includes a positive $0.28 adjustment for tax-related matters this quarter.

When excluding the positive tax adjustments in this period, as well as the $0.09 impact in the third quarter of 2006, underlying EPS increased 11% year-over-year.

CapEx remained stable as there was only a small increase of just over 2% due to increased wireless investment.

So, as you can see, TELUS has rebounded from the disappointing second quarter results.

And let me elaborate on the drivers behind EPS growth on the next slide.

This slide provides a detailed breakdown of the components of the $0.30 year-over-year increase in reported EPS.

Underlying adjusted EBITDA growth generated $0.06 in earnings growth.

Higher depreciation and amortization expenses, primarily related to the new Alberta consumer billing system that went into service in Q2 '07, as well as the reduced asset lives for certain other assets, reduced EPS by $0.04.

Continuing down the income statement, lower financing expenses contributed $0.03 to the improvement.

Incremental tax impacts were the largest contributor to EPS growth and were a net $0.19 when accounting for the $0.28 positive contribution this quarter, as compared to the $0.09 positive adjustment in the same quarter of last year.

Other items added $0.05, including a lower average number of outstanding shares due to our share repurchase program.

To get to reported EPS, we add an additional $0.01 for expense recoveries due to the forfeitures and previously expensed net cash-settled options.

Taken together, both reported and underlying EPS growth were strong this quarter.

Slide 27 summarizes our total share repurchases in the quarter and historically since we first began buying back shares in December 2004.

We remained active in the market in the third quarter repurchasing a total of $4.3 million TELUS shares for $232 million.

This brings TELUS' aggregate share repurchases since inception of the NCIB program to nearly 50 million shares for $2.4 billion.

Importantly for investors, this had led to an 8.7%, or 31 million, reduction in the total shares outstanding over this period despite shares issued for option exercises and other dilution in previous years.

Notably, TELUS' innovative move to the tax efficient net cash settlement method for past options beginning in 2007 had accelerated the impact of share repurchases on reducing the number of shares outstanding.

Outstanding shares are now down 3.9% year-over-year.

The next slide, which many of you may be familiar with, highlights our strong record of returning capital to shareholders expressed on a per share basis.

And this continued today.

As Darren mentioned, the TELUS board has approved a 20% increase in the quarterly dividend to $0.45.

This represents the fourth consecutive substantial annual increase, and it's consistent with our targeted payout ratio guideline.

Turning back to 2007, we can see that, this year, the combination of our $1.50 dividend and estimated share repurchases for the year, based on annualizing our existing buyback run rate, puts us on track to return almost $4 per share of capital to shareholders.

What is clear on this slide is that TELUS' strong free cash flow profile is allowing TELUS to deliver on our continuing commitment to invest for the ongoing growth in our core businesses, while returning excess capital to investors in significant amounts.

Now, to conclude, on slide 29, today, we're making minor changes to our consolidated guidance to reflect the revisions to our outlook for the wireless and wireline segments.

Our consolidated revenue guidance range has been tightened and lowered slightly.

We're also tightening our EBITDA guidance towards the lower end of the original guidance range set in December of last year.

Our EPS guidance range has increased by $0.20 to $0.30 to reflect, amongst other items, the 28% positive tax impact recognized this quarter.

Again, for comparability purposes, EBITDA and EPS targets continue to be adjusted to exclude the impact of the accounting expense for the net cash settlement of pre-2005 options.

Consolidated CapEx remains unchanged at $1.75 billion.

In summary, as shown in the right-hand column, we continue to expect good year-over-year revenue and earnings growth.

So, with that, we would be pleased to answer your questions.

So, I'll turn the call back over to John Wheeler to start the Q&A.

Thanks, Bob.

Just before I turn the call over to Ron to conduct the Q&A session, can I ask your cooperation, once again, for one question at a time, please, so we can get through the people in the queue.

Ron, please proceed.

Great, thank you.

(OPERATOR INSTRUCTIONS.) Peter MacDonald, GMP Securities.

Go ahead please.

Thanks.

I'm looking for some more clarity on the ARPU.

You pointed to greater prepaid mix, lower iDEN and a greater mix of included minutes in pricing.

So, I guess what I'm looking for is some sort of waiting between those lines.

And also, the prepaid/postpaid mix, is that a pricing mix?

Because when you look at the year-over-year total number of prepaid versus postpaid, that number stays pretty consistent.

And then, last, is there a way that we can quantify the iDEN contribution?

What's happening on the subloading?

And is there a way that we look at the impact over the next couple of years from that?

Thanks.

Thanks, Peter.

In terms of a weighted type of comp set, clearly, I think, for competitive reasons, it wouldn't be prudent for us to provide that.

In respect to the prepaid/postpaid, I think the point there goes to prepaid subscribers, everyone knows, carry a lower ARPU and, in our case, roughly $25, which is quite good going in respect to prepaid subscribers.

And so, there is value added in adding those subscribers.

But, clearly, they generate a lower ARPU.

They also generate a lower data ARPU.

It's part of why it's a lower total ARPU.

And the data ARPU, in terms of increase, is increasing less than it is for postpaid.

I think that probably makes intuitive sense.

So, in a quarter, such as in the third quarter, where the proportion of prepaids that we added, 27% total net adds, was greater than the 20% in accumulative base, I think there was an impact, as well, on terms of overall ARPU.

In terms of iDEN, we don't give the specific numbers on that.

I would say that it continues to be a positive product and service for our company.

Certainly, we are in a significantly different situation than the Sprint Nextel organization in the United States in that we never really marketed the Mike-branded iDEN service in Canada towards the consumer segment, quite in contrast to what has been done in some strategies down South.

So, we really don't have that same dynamic occurring here.

We certainly don't have the spectrum capacity issues and other issues that are confronting the Sprint organization in that respect.

Having said that, it certainly isn't a growth segment for our organization.

And because of the data upgrade path not being similar to that of EVDO, or EVDO Rev A, the more data-centric subscribers are more on our postpaid system.

So, given that data is the real growth element in the market for overall ARPU and data is a less relevant growth are for iDEN, therefore that maturing aspect is a factor in terms of influencing our overall ARPU, particularly as analysts like to express wireless data as a percent of overall consolidated ARPU, ours at 11%, certainly, it's been increasing.

But, one of the reasons it would be lower than certain other competitors would be the fact that we do have a Mike subscriber base that doesn't generate a similar data ARPU as PCS postpaid would.

Having said that, of course, they do generate significant push-to-talk revenues, which postpaid don't provide either.

So, before you look at the glass being half empty, it's also half full.

Okay, the next question please.

Thank you.

Greg MacDonald, National Bank Financial.

Go ahead please.

Okay, thanks.

I think I'll try to add on to that one.

I wonder, Bob, if I just drill into this issues on ARPU out of the Mike product a little bit more.

Can you say where you're actually experiencing ARPU decreases in that segment, and give us a sense of what that is?

I'm getting the sense that the Mike issue, relative to total ARPU, is the issue.

And I can appreciate that you don't want to share too much with your competitors, but we're all trying to get a better sense of what the real ARPU risk is here, what the recurring nature of the negative 1.3% was on a year-over-year basis.

Is there anything more that you can give us on what's actually happening with Mike ARPU?

Greg, what I can say is -- and we show it on the slide.

I've forgotten the exact number, but the ARPU with the split between the voice and the data component.

So, you can see in the disclosure the voice ARPU going down.

So, I think if you look at it from a service perspective, component perspective, voice going down is the reason our overall ARPU went down because the voice exceed the data.

The voice is down regardless of platform, whether it's Mike or whether it's PCS.

So, that I can tell you.

The data is up much more on PCS than it is on Mike.

So, from that perspective, the tradeoff is more generous in terms of PCS.

But, that's about as far as I'll go on that.

Okay, next question please.

Great, thank you.

Peter Rhamey, BMO Capital Markets.

Go ahead please.

Yes, I just wanted to change tact here.

You did a good job of reducing retention spend below my expectations off a higher spend in Q2, and COA is down.

And I'm wondering whether this represents the new running rate for the company on a go-forward basis, or should we be expecting that it could be quite volatile here, depending on what's going on in the marketplace?

Thank you.

Well, Peter, I think -- let's go back just to this Q2.

And at the time of Q2, you may recall, when we were having similar conversations on our results at that time, people noted that the retention and COA were up, and churn was up, as a matter of fact, as well.

ARPU was up, so no one talked about ARPU, as I recollect.

So, it's funny how things change in three months.

The first two questions are ARPU, not on COA and retention, so thank you for turning it to that topic.

But, back in the second quarter, we said, look, WNP has just been implemented.

It was a dramatic change in the industry, and people didn't want to be caught flat-footed.

And so, we were aggressive in terms of retention and acquisition activities.

And unfortunately, that did impinge on the margins in that quarter.

I recollect Darren saying that we felt we could do better in that regard, be more productive or more efficient, if you will, on a go-forward basis.

Lo and behold, the third quarter's come in and not only did we improve on the second quarter, we improved on the prior year in that regard.

And the subscriber adds were consistent overall with last year, despite the lower stem.

So, from that standpoint, you have to conclude that, gee, that's pretty good going.

I mean, if we lowered our COA and our sub-adds fell through the floor, that would be a different situation.

That's not the case here.

So, I think that worked well, and we delivered upon an objective of improving our margins.

On a go-forward basis, in respect of the fourth quarter, clearly -- fourth quarter is generally 40% net adds of a year for the industry, so it's the big selling season.

And to signal to our competitors what we're going to do in the last two months of the year when, in fact, about 35% of the annual adds are done in the final two months, I don't think would be prudent.

But, suffice to say, this organization has always prioritized profitable growth, but at a reasonable market share.

And so, we'll be looking to see how the splits turn out.

And I think there's certain implications for the industry, and we'll what our competitors' actions are as to how greedy or responsible they are in the fourth quarter.

Okay.

Thanks, Bob.

Next question please, Ron.

Great, thank you.

Vince Valentini, TD Newcrest.

Go ahead please.

Yes, thanks very much.

Sorry to come back to ARPU for you Bob, but one thing that really stands out for me, and I'm hoping you can shed some light on it, is the minutes of use.

Even though you have bigger buckets, the overall minutes of use, as you said, were just flat.

Rogers reported yesterday an 8% increase in minutes of use.

It seems to be a bit night and day.

Can you comment on what may be happening in terms of your subscriber base to drive the lower usage?

And just a clarification on the data ARPU, if you do back out the Mike and back out the prepaid, you guys report your data ARPU a little differently than some of your peers.

And if you look at just postpaid data ARPU, do you think your ARPU would be more comparable to peers in the sort of $10 range versus the $7 figure you reported?

Boy, I thought we disclosed a lot but, it only goes to show you, you can never satisfy everyone all the time when it comes to disclosure.

What I can say on the data ARPU is, directionally, you're correct.

It is significantly higher than our average.

That is, the data ARPU on the postpaid PCS is clearly significantly higher and would be comparable with some other firms.

Although, having said that, I do believe that there is still a great opportunity for improvement, whether it's PCS pre/post or Mike.

I think we certainly have opportunities to raise the bar, and I think we have a good outlook in that regard.

In terms of MOUs, it's hard for me to comment about a competitor's.

What I can say is that, in terms of MOUs driving ARPU, there's really a couple of considerations to keep in mind.

It's not just your total MOU.

It's your billable MOU.

And so, the extent to which they're included in a bucket, if you will, doesn't drive, incrementally, the variable.

It usually depends upon the ratio relative to the fixed fee you're charging for that bucket.

Secondly, we are experiencing industry-wide some substitution from data for ARPU, as messaging, obviously, is substituting, to an extent, for local and LD calls, actually.

So, it's hard for me to comment about the competitor's but, clearly, in our case, the real driver, in terms of the voice ARPU being down, is reprice due to competitive actions in the marketplace and the increased number of minutes are included in bundles.

Thanks, Bob.

Next question please.

Glen Campbell, Merrill Lynch.

Go ahead please.

Yes, thanks very much.

A question for Darren, you've got a trial going on fiber to the home, over-billed in eight communities on a very small scale.

Could you talk a little bit about what you're hoping to learn there, and whether you think there's a possibility that the economics might look better for that project than, say, what we're hearing from Verizon with their fiber to the home?

Thanks.

Yes, I think it's incumbent upon us to always trial new technologies and new access network topologies.

And so, in terms of our GPON trial, it is a learning exercise for us to determine can we deploy fiber efficiently and effectively to a new neighborhood, and can we do the same as it relates to apartment buildings?

We also need to become proficient at the deployment of equipment as it relates to light-to-electrical conversation.

It's also important to deploy, from a trial perspective and from a learning perspective, new technologies where standards are not yet established.

And you should be aware that, on the GPON front, standards are not yet established.

So, for us to get ahead of the curve from a learning perspective, I think it's something worth doing for this organization, and it's no different than our approach on the wireless front.

Just it is incumbent upon this organization to remain on top of new technologies, the manner in which they're deployed, what they can deliver in terms of a functionality and product set to customers, and whether we can do that in a way that allows us to realize a decent payback and economic ramp in that particular overall solution.

So, nothing surprising here.

It is a learning exercise for this organization.

It is a technology which has not matured.

And we are anxious to see standards developed in this area, so that manufacturers can get behind fiber to the home and, as a result of manufacturers getting behind these standards, hopefully, in the fullness of time, improve the economies of scale associated with this type of access network technology and topology.

But, we have been curiously watching what Verizon has been doing in the U.S.

Some things, I think, are very relevant from a learning experience for TELUS, particularly as it relates to the technology.

Some things are different here.

The fiber to the home program in Verizon's territory is principally an aerial program.

And part of the thesis behind the deployment was, of course, to enjoy regulatory freedoms, or escape regulatory constraints.

For us, of course, we now have a forborne regulatory environment that we should be able to avail ourselves out.

And of course, our build is a hybrid-type build that includes both in-ground and aerial.

So, that's what we have been up to in that regard.

I think the only thing to say is that, as it relates to access network technologies on the wireline front, there is not a one-size-fits-all solution.

It is very clear to me that we're going to need to take a hybrid approach in the years ahead, and this is for the medium, even the longer-term, where we'll have a heterogeneous aspect to our access network technology, where you'll see, sometimes, we'll be leveraging opportunities in new builds to deploy new technologies.

In other areas, we will be doing overbuilds, where we've got Legacy technology, and we'll go through a progressive technology program, moving from ADSL2(+) to a VDSL2 and, maybe over the very, very long-term, fiber into the neighborhood and eventually to the home.

So, that's kind of our approach.

And I think when it's not a one-size-fits-all approach, it behooves you to make sure that you've got learning, as it relates to all the types of technology that you're deploying, before you deploy them in earnest, to make sure that you can derive the type of returns that investors would expect.

And we are very focused on the right economics, as it relates to the right technology, to support the right product portfolio.

Okay, Ron.

Thank you.

The next question?

Great, thank you.

Dvai Ghose, Ingenuity Capital Investments.

Go ahead please.

Yes, thanks very much.

Clearly, you have some structural issues when competing against Rogers.

Their wireless average lifetime revenue per sub was up 24% year-over-year in this quarter.

Yours was down 6%.

The good news is you have a very strong balance sheet, and perhaps some of your structural issues are fixable.

So, that being said, what are your balance sheet priorities for '08 in terms of issues such as GSM overlay, flanker brand, migration of iDEN, fiber to the home, as mentioned by Glen, versus returning cash to shareholders and acquisitions?

Okay, Dvai.

I really appreciate that particular fulsome question.

Our priorities for 2008, I think, will be very similar to the priorities that we demonstrated in 2007, 2006, 2005, going back, where we have effectively balanced our appropriate desire to invest in the future and invest in growth areas, like wireless and data services and, at the same time, simultaneously, returning cash to shareholders through two well established mechanisms.

And as I indicated in my remarks today, when we announced our dividend growth model four years ago, people were wondering whether it would it be a recurring or nonrecurring event.

And here we are, four years later, with our fourth double-digit increase in the dividend.

Three of those increases, the percent increase on a year-over-year basis, was in the 30% zone, and the most recent one in the 20% zone.

And of course, we bought back and cancelled some 50 million shares for $2.5 billion.

So, in terms of what you can expect from us, on a go-forward basis into the future, is the continued balance of returning cash to shareholders from successful investment programs that we've been able to leverage effectively and, at the same time, use our cash to appropriately invest in the continuation of the growth pieces around data and around wireless.

As it relates to your specific question on things like a flanker brand, for example, obviously, it's not appropriate for us to discuss any development of that sort on the marketing front within an open form such as this.

It's clearly, in doing so, to the benefit of our competitors rather than our shareholders.

We have not been an organization that has come out and said, unequivocally, no, we're not doing things that potentially could add value in the future.

But, I think we need to examine this particular development in the marketplace and come up with the appropriate decision for TELUS.

There are differences here that I think are worth noting for our competitors, as it relates to a flanker brand or discount brand.

For them, it was a situation they inherited, one, as a result of a new administration coming board, the other as a result of an acquisition.

That's a different decision making paradigm than what we face at TELUS in terms of whether, organically, this would be something that we would want to pursue.

Also, unlike some of our competitors, it's pretty clear to me that the TELUS brand does, indeed, have the elasticity to address a range of markets within the Canadian context.

It's got the elasticity on a national front.

It's got the type of elasticity that extends across the languages that we, of course, embrace within our country, the ethnic constituencies that we embrace within our country, particularly given the language that we use for our branding vehicle.

And it's got the elasticity to extend to the used segment.

So, I think that's a pretty strong endorsement of our existing brand.

That having been said, we'll continue to watch what's happening in respect to the evolution of the existing discount brands that are out there -- and there's lots of them -- and make the right choice at the right point in time to maximize value for shareholders at the TELUS organization.

In terms of GSM upgrade, I'm not going to discuss that, as well.

But, as I've said previously, there's two sides to every technology upgrade, and technology upgrades are not something that are new to the TELUS organization.

We've done a myriad of technology upgrades over the last seven years.

Indeed, just over the couple of years, not only have we deployed EVDO, but we've upgraded EVDO to Rev A.

And the DOrA footprint now covers almost two-thirds of the Canadian population.

So, for us, this is business as usual, and it's really a decision making paradigm that says we want to make the right technology move at the right time, so that we grow economic value rather than erode it, and that we don't lose our competitiveness, but we rather gain points of competitive advantage.

And any time we make a technology upgrade, we always say to ourselves what do we get for it?

And whether it's DOrA, where we get a network that's seven times faster than the EVDO network to support what we want to get done on mobile commuting, or music downloads, or Internet services and the like.

It's got to have a business rationale.

And when you talk about things like a GSM upgrade, there's certain advantages that would be associated with that, that I think are well known to the people on this call.

And whether that's time to market advantages, or mitigating disadvantages as it relates to form factors, or cost of device, and infrastructure as it relates to economies of scale, or in-roaming revenues with lucrative margins, there's always opportunities to go with the investment.

I think, from our perspective right now, we're satisfied with the technology that we have because we do think the technology that we've deployed provides us with the fastest, most powerful network in the country.

We're very, very pleased with the fact that we've got the 8830 out there within the business market.

We've got the World Phone.

And we now, of course, today, are launching the Pearl devise, in terms of delivering e-mail functionality to consumers.

The only thing I would say is that, if you look at our operational results, they're still best-in-class holistically.

And in terms of where we're going over the very long-term, I think you'll see conversion, certainly, at the LTE level in the 2011 to 2012 timeframe.

What happens in between now and then is down to judicious, balanced decision making at organizations like TELUS, and all I can tell you is we have a belief that what we do, as it relates to branding, what we do as it relates to technology upgrades, whether it's wireless or GPON or ADSL2(+) on the wireline front, we balance those investment decisions with our continuing desire to still return significant amounts of cash to shareholders to established vehicles.

Okay, Ron, next please.

Thank you.

Rob Goff, Haywood Securities.

Go ahead please.

Thank you very much.

Can we turn to wireline for a moment, and look at the pressure on the voice local revenues, where it was $22 million on the quarter, $33 million down on the year-to-date?

You mentioned both lines and optional features.

Could you give us a view on the pressure you're seeing there on the optional features?

One of the things we referred to, Rob, was we had reduced revenue from both fads and changes.

And so, this relates to -- as you may recall, we had an application with the CRTC wherein we'd file to reduce the charge for people being hooked up and returned for being able to increase a service charge to the whole base, that the service charge increase was denied by the CRTC.

But, we did process with the reduced -- or avoiding of the charge to hook up a new subscriber.

If you think about it, to charge someone to hook up to you is a bit counter in the face of competition.

So, while it did reduce revenues in this line, I think, from a competitive standpoint, it's a great move to make.

Okay, thank you.

Ron?

Okay, thank you.

John Henderson, Scotia Capital.

Go ahead please.

Yes, thank you.

I was just wondering if you could give an update on your TV services, in terms of what kind of service subscription, what you're evolution is looking like there.

I just wanted to make a bit of a comment about how Verizon and AT&T are disclosing a fair bit of information on their TV services, and seemed to have benefited handsomely in the last year with share price increases while the cables have suffered South of the border.

I just wonder when we might expect to see some metrics from TELUS on subscribers, footprint, earnings, EBITDA, that sort of thing.

Well, John, that's an interesting question, at this point, in the public Canadian telecom market, from the standpoint that, of course, one of our competitors, the largest telecom in Canada, Bell, is being privatized.

I noticed they're not even holding an investor.

I guess their disclosure is pretty forthright on IPTV.

They're not doing it, from what I just read.

But, in any event, I find it hard-pressed to expect that the Bell organization is going to start disclosing all sorts of detailed metrics on a go-forward basis since they're being privatized.

And therefore, I think we need to be reflective of what is appropriate for our shareholders in order to value and measure performance of this organization relative to competitive disclosure.

And so, at this juncture, we are doing fine in the marketplace, but one of the advantages of the tact that we've taken is we have freed our operation from the quarterly type of microscope where one month it's ARPU, last month it's COA.

And on a year-to-date basis, we're on track.

So, I think that that would be my main point, that the lack of disclosure is not reflective of any lack of performance.

Rather, it has to do with a gauging of what is appropriate to disclose in the marketplace, given what our competitors do, the competitive sensitivity of that information.

And I think, in this case, given it's a nascent business, the healthy aspect of avoiding near-term quarter-to-quarter focus that, unfortunately, the public markets often impose upon organizations.

To answer your question, John, in terms of how is TELUS TV doing, TELUS TV is looking up in full to the expectations of this organization, as it relates to the product, the functionality of the product, the performance of the product, the content that we've been able to secure, the quality of the picture.

And of course, right now, we're going through the trials on high-definition which, hopefully, if things continue to go well, we will be launching commercially into the marketplace over the course of 2008.

The infrastructure is performing well, from a technology perspective, and we're very pleased.

And I think it's always a good situation when demand exceeds your ability to supply.

And I can tell you right now that, chronically, we're in a situation where the demand for the service exceeds our ability to supply.

And the key governing on TELUS TV -- and this is an answer that's going to remain true for several quarters to come, to say the very least, in the years ahead.

The key governing factor right now is just the ability to expand our footprint.

It takes time to expand our footprint.

Deploying new technologies on the wireless can be done much more expeditiously than deploying new technologies where you've got Legacy wireline technology in the access network.

And so, for us, we just have to work our way through it, and we want to do it in a judicious way.

And as I said previously, it's really important for people to appreciate the hybrid approach that we're taking on the technology front because I think that should resonate well with investors.

We're not saying, from a homogeneous perspective, we're going to go fiber to the home everywhere and do a massive rip of our access network.

That would be prohibitively expensive.

We're saying that we're going to look at every single digital serving area within TELUS and make the right decision.

Whether it's a Greenfield new housing development that's going in, in the Province of Alberta, or a new condo building that's going up in the lower mainland in B.C., or it's an overlay of existing infrastructure in key urban or semi-urban development, we will take an approach where the technology is customized to the solution, so that we can maximize the cost efficiencies associated with the technology deployment at the same time as supporting a very, very strong and differentiated product portfolio.

And again, I'll conclude with the statement that I've made repeatedly, our desire in TELUS TV is to compete on product-based differentiation rather than price.

We don't want to come into this market in amortized value by being aggressive on the price front.

We want to come into this market and offer something new and different from the incumbent that certain constituencies that will target will find attractive, so that we have balanced, sustainable and sensible competition.

And that's what we want to proliferate in Western Canada.

So, there are the two bookends -- smart technology choices that fit the footprint, and smart marketing that look to grow value rather than pull the price lever.

Thanks, Darren.

Ron, given where we are in the call and having gone through, we're going to take one more question please.

Great, thank you.

Jeffrey Fan, UBS Securities.

Go ahead please.

Thanks very much.

This is a question for Darren.

And Darren, I understand you don't want to discuss too much about some of your tactical moves, especially in the near term.

But, conceptually, if you can just entertain us by -- given the spectrum auction and the spectrum auction rules coming up in the very near term, conceptually, as you look out to next year and even beyond, how important are these rules in terms of how TELUS behaves or acts in the market, and the strategy you want to employ?

I think, Jeff, if we have a weak strategy, we would always be adjusting it for exogenous events as they transpire within the marketplace.

I think we've got a very robust strategy.

The strategy that we set out back in 2000, one that was quite revolutionary at the time -- it seems quite obvious today, in retrospect -- was a strategy that said we're going to focus on two growth areas.

One was wireless, and the other was data; data as it relates to both wireline and wireless services.

We were going to expand from regional to go national, and we were going to bring cost efficiencies out of the heritage services of our business to fuel our growth.

And that's exactly what we continue to do today.

And I think we're pretty resilient to exogenous developments in the marketplace.

If you look at the hit that we've taken over the last seven years, whether it's equity market implosions, or credit market downturns, or adverse regulatory decisions, or work stoppages -- I could go on and on and on -- we've been able to absorb those particular developments and drive on, execute our strategy, and grow value.

The other thing that I think is important is that, if you look on average over the last seven years, the market in the Canadian wireless industry has been characterized by four players at the network level rather than three.

So, it's not like a four-player industry is unfamiliar territory to us.

It is familiar territory to us, and we have generated very good results within a four-player market.

And I'll highlight the fact that ARPU leadership that we established was within a four-player market.

It's also interesting to note that, in that era, people thought that there was going to be ARPU convergence.

The unanimous view back in those days was that our ARPU was going to lose $10 and converge with our competitors.

And we said, well, why can't we hope for the opposite to happen, where the competitors actually raised their ARPU and join us in terms of our marketing philosophy of creating economic value for our shareholders?

The other thing I think you can expect from this organization is to continue to lobby that we have an appropriate regulatory environment.

I don't subscribe to the rationale for the government to set out or facilitate or subsidize four players going to three because I think the government's already applying, in terms of their view as to how the market should be managed and how they should not interfere with the proper development of the market.

The competition bureau signed off, endorsed wholeheartedly, the Rogers acquisition of Microsoft, for the market to go from four to three in the first place.

And that's an aluminous document.

That particular development was well analyzed.

And they gave the signoff on the resulting competitive dynamic being healthy and robust.

The telecom policy review panel came out and said that we should rely on market forces, and the CRTC has opined repeatedly on the quality of competition in the cane wireless industry, in writing, as public statements, saying that the market is more than sufficiently competitive, and that they see no reason, no need, to interfere or intervene in the market whatsoever.

That's one of the reasons we don't have regulated EVDOs in Canada because the CRTC has espoused that particular view.

The other thing, I guess, that's important to point out is, if you look at the overall health of the wireless industry, it's pretty damned solid.

We've got the lowest prices for consumers and businesses, amongst the G7 countries, as it relates to economic value of wireless for subscribers.

If you look at the meaningful level of penetration, the percentage of people over the age 15 in Canada having a cell phone, it's 75%.

And that's growing at 475 basis points of penetration year-in and year-out.

So, I think that's pretty good going.

I can remember my early days involved in wireless, and the models tapped out at 40% penetration over the very long-term.

So, I think the wireless industry has exceeded everyone's expectations, to say the very least.

And I'd like to ask people what's so magical in a number?

What is the preoccupation with four versus three?

And why do we define the quality of competition based on a number like four?

I think the quality of competition should be determined by affordability, the degree of innovation in the marketplace from a product development perspective, the competitive intensity, making sure that we have fair rates.

And I think the voice ARPU decline is a tangible example of the degree of intensity in the marketplace.

And just how sustainable is the competition?

I can tell you back in the wireline days, when competition was introduced, we had eight or nine players in the marketplace.

But, of course, that was not a sustainable competitive model, and we saw a lot of rationalization transpire as a result.

So, what's so magical in a number?

Why don't you look at high-speed Internet access in Western Canada?

High-speed Internet access in Western Canada is effectively a duopoly, yet we have the second highest penetration rate in the world as it relates to Internet coming into people's homes.

And that, effectively, is in a two-player market.

So, I think it's the quality of competition and the innovation and the sustainability that matters.

And so, if four does come to fruition, I think what you can expect from us effectively is more of the same.

We'll push hard on wireless.

We'll push hard on data across wireless and wireline.

We'll invest prudently for the future to support those growth tenants.

We've got to keep one eye gainfully occupied in wringing efficiencies out of this business.

And we will continue to honor our commitment to balance our ability to invest, so that we have future J-curve opportunities.

And growth is not a nonrecurring story at TELUS, but something that we pursue in perpetuity and, simultaneously, make sure that the fruits of our labor get continued to be returned to shareholders in the form of NCIB programs and the dividend growth model.

Okay.

Thank you very much, Darren.

And on that note, I think we'll just thank you very much for taking the time to join us today.

We know it's a very busy reporting season for you, and we appreciate your interest and continued support of TELUS.

And we look forward to working with you in the coming weeks and months.

Thank you.

This now concludes the TELUS Third Quarter 2007 Earnings conference Call.

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