Telus Corp (TU) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the TELUS first conference 2008 earnings conference call.

I would like to introduce your speaker, Mr.

John Wheeler.

Please go ahead.

Thank you, and welcome to the first quarter 2008 conference call and webcast.

Let me introduce the TELUS Executives online with us today.

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

Also in attendance today are Joe Natale, the President of Business Solutions, and Karen Radford, President of Partner Solutions and TELUS Quebec.

We will start with the introductory comments by Bob, this will be followed by a question and answer session with both executives.

The call is scheduled for one hour or less.

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

This was released prior to our annual meeting here in Calgary.

Darren's presentation to the shareholders this morning is also available on our website at TELUS.com/AGM.

For those with access to the Internet, the first quarter slides are posted for viewing at TELUS.com/investors.

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

Let me now direct your attention to slide two.

The forward-looking nature of the presentation, answers to questions, and statements about future events are subject to risks and uncertainties and assumptions.

Accordingly, actual results could differ materially from statements made today, so do not place undue reliance on them.

We also disclaim any obligation to update forward looking statements, except as required by law.

I ask you that you read our legal disclaimers, and refer you to the risks and assumptions outlined in our public disclosure and filings with Securities Commissions in Canada and the United States.

Now over to Bob on slide three.

Great.

Thanks.

Thanks, John for the introduction, and thanks to everyone for joining us on the call today.

Starting on slide four, our first quarter results were encouraging.

Wireless revenues were up 10%, in line with subscriber growth, as revenue per customer remained relatively stable.

EBITDA as adjusted, increased just over 8%.

We did see increases in certain network operating expenses due to a very strong growth in data usage and roaming, as well as higher retention costs.

However, cost of acquisition was lower, which I'll discuss in a moment.

While CapEx decreased more than 40% year over year, if you look back several years, $65 million is a seasonally normal level.

CapEX in the first quarter 2007 was higher due to network upgrades for EVDO Rev A, which has since been completed, as well as expenditures to implement wireless number portability incurred this time last year.

Turning to slide five, at 88,400 net additions, TELUS had a good quarter of wireless subscriber loading with a higher proportion of post paid net loading then in the past four quarters.

Post paid net additions were 72,400, representing 82% of TELUS' total net adds in the quarter.

Slide six shows that total quarterly ARPU remained essentially flat, down by only $0.15 to $61.88, as the declining voice ARPU was substantially offset by growth in data.

Voice ARPU continued its declining pattern experienced in recent years, due to lower per minute rates, increased price competition in the business and discount segments of the market, and a slight decrease in voice roaming.

Offsetting the voice decline was data ARPU, which increased by $2.45 to $8.72, and now represents over 14% of total ARPU.

Data service revenue increased by $51 million or 53% year-over-year, from strong growth in text messaging, increased browsing and Internet use, with smart phones in both the consumer and business areas, as well as mobile computing.

We remain very bullish at TELUS for continued strong wireless data growth, given the increasing penetration of EVDO capable devices in our subscriber base.

The expected introduction of higher band width applications and devices, given the deployment of EVDO Rev A, as well as the successful ongoing migration of non-dispatch mic users to PCS smart phones.

However, the strong data roaming growth experienced in the first quarter of 2008 may not be sustainable.

Notably, this is resulting in higher overall ARPU for these customers after migration.

Now, slide seven shows the key metrics that focus on our wireless marketing efficiency in this quarter.

Growth additions improved significantly in both pre- and post-paid.

Churn also increased to 1.53%.

Importantly, this is the last quarter of year-over-year comparison of post- versus pre-wireless number portability.

Churn declined slightly on a sequential basis versus the fourth quarter of 2007, and represents about the average churn rate in the three quarters since the introduction of WNP.

COA or cost of acquisition per gross add, decreased 27% year over year to $319 per gross addition, reflecting lower advertising and promotions costs on a per unit basis, due to the strong increase in gross additions, a higher proportion of new subscriber loading from lower cost channels, and lower equipment subsidies, in part due to a Canadian dollar appreciation.

So, a pretty effective quarter for wireless marketing with overall marketing expenses stable, even with the start-up costs related to the launch of our new value brand.

We continue to focus on investing in retention.

The cost of retention increased by $22 million to support handset upgrades, including emphasis on upgrades to smart phones to support data growth and the ongoing mic to PCS conversion program for non-push to talk centric users, which I mentioned earlier.

Please move to slide eight.

In the latter part of March, TELUS began the launch of a new value wireless brand and service called kudo mobile.

While kudo mobile benefits from the use of TELUS' national network, it is a separate brand with its own innovative marketing and sales approach and distribution.

The new initiative strengthens our marketing effort and the potential benefits in the investment include more flexibility in serving various customer segments, augmenting our wireless distribution, increasing customer adds and complementing our premium TELUS brand.

Distribution consists of mall kiosks and national retailers, and self service directly over the Internet.

Clearly it's early days for this new brand.

Most analysts have already noted and we can confirm, that the estimated financial impact of this ongoing launch was reflected in the 2008 wireless segment targets we shared with you last December.

Let me now turn to our wireline business, starting with a look at a revenue breakdown on slide nine.

Total wireline revenue rose nearly 4% but there were the usual moving parts.

Local revenue declined reflects a continued competitive environment and substitution from wireless and voip, as well as impacts from the deferral account, which I will outline shortly.

Long distance revenue only declined 4.5%, a better result on a relative basis to prior periods as a result of continued lower-minute volumes but an improvement in average per-minute rate erosion.

Local and L.D.

revenue declines were fully offset by the 19% increase in data revenue.

A major factor in the data growth were revenues from the Emergis acquisition, plus growth in high-speed Internet, increased managed data revenues from the business side, and regulatory impacts recorded a year ago.

The next slide provides a better indication of the normalized quarter-over-quarter growth rates for local and data revenue.

In the first quarter of 2007, TELUS recognized $15 million in local revenues, as a drawdown from the price cap deferral account where the revenue was previously reduced in setting up the price cap deferral account.

This drawdown offset CRTC directed unfavorable retroactive data rate adjustments, and covered recoveries for previously incurred expenses for local number portability and start-up costs.

Adjusted for this deferral account drawdown for Competitor Digital Network Services or CDNS Discounts, local revenue declined a more modest 3.3%.

Data revenue growth was impacted by the acquisitions of Emergis and to a much smaller extent, Fastvibe in January 2008, and by retroactive rate adjustments in both periods for CDNS Discounts.

Excluding these factors, normalized data growth was about 8%.

Turning to slide 11, we can see that wireline profitability fell 5.6% due to increased cost.

Total operating expenses, including the net cash settlement of options expense, increased 10% mainly due to cost of sales for increased data equipment sales with lower margins, expenses from the acquired companies that I just referred, and higher costs for the provisioning of TELUS TV.

External labor costs also increased to improve service levels and to implement services for new enterprise customers related to a number of significant contract wins in recent periods.

Of course it was leap year so, believe it or not, there was an extra payday in first quarter relative to prior first quarters, and that contributed to higher compensation costs as well.

I should note that cost control must be a key management focus to protect wireline margins better than experienced in this particular quarter.

CapEX decreased 6% as expenditures for the ADSL 2 plus build declined from 2007 levels, as well as lower demand in 2008 for network access builds, resulting from a more moderate residential construction activity in B.C.

and Alberta.

Also lower was the CapEX related to the new residential integrated billing and client care system, which peaked in Q2, 2007, prior to the implementation in Alberta in the second quarter of 2007.

These decreases were partially offset by increased up front expenditures to provide services to new enterprise customers.

Slide 12 provides an update on the Emergis integration, strategically focused on the important health care vertical.

Immediately upon closing, TELUS began implementing its post merger integration plans to ensure a seamless transition for team members and customers, while maintaining a continued focus on delivering business goals.

Emergis' complementary expertise, applications, and customer base, are expected to strengthen TELUS' industry-leading health care solutions.

The sales teams are now focused on working together on cross-selling opportunities and successfully completing implementations on contracts already won.

Of note, TELUS was recently recognized by Brandon's recent survey of I.T.

companies, as the number one and most influential player in Canadian health care.

Let's move to slide 13 and examine briefly our Internet results.

High-speed net adds in the quarter were 20,300, down 37% due to competitive dynamics as well as market maturity.

The high-speed Internet subscriber base was up 10% year-over-year, and we are striving to build better execution, including an increase in TELUS home bundle offers to maintain or increase our share in the balance of 2008.

Slide 14 highlights our wireline resilience in network access line performance, compared to peers.

TELUS experienced increased network access line losses of 3.6% year-over-year, as residential losses climbed to 7.2% due to competition from Voip competitors, particularly cable TV companies, as well as ongoing technological substitution to wireless services.

This is being partially offset by continued healthy business line growth, especially in central Canada, reflecting our success in non [ARLAC] markets.

Slide 15 illustrates the robust growth trajectory in changing mix of TELUS' total customer connections, which is consistent to our value creating growth strategy.

Growth and wireless and high-speed Internet is significantly outpacing declines of residential network access lines and dial-up Internet.

Wireless and Internet now account for 61% of total connections, and we have generated nearly 1 million more connections in the past two years.

So, putting it all together, let's look at TELUS on a consolidated basis starting on slide 16.

Consolidated revenue in the first quarter grew by 6.6%, while EBITDA as adjusted increased at a lower 1.3% rate, due to the wireline results just outlined.

Reported EPS increased 55%, mainly due to the net cash settlement feature expense of $0.32 recorded in Q1, `07.

When excluding this expense, as well as a positive $0.05 tax adjustment for tax-related matters this quarter, and a $0.01 tax adjustment in the same period a year ago, underlying EPS decreased by 4.5%.

I'll elaborate on the various drivers behind the EPS on the next slide.

Meanwhile, CapEX was seasonally low, and this is not the expected run rate.

CapEX should increase in future quarters, consistent with our full-year guidance.

This next slide shows the detailed breakdown of the components of reported EPS.

Underlying EBITDA growth generated $0.02 in growth, incremental tax-related adjustments, as mentioned earlier, totaled $0.04 more than last year, total shares outstanding due to our NCIB share repurchase program, contributed $0.04, while lower financing expenses contributed $0.02 to the improvement.

Higher depreciation and amortization impacted EPS by $0.11, and this reflects the reduction in estimated useful service slides for circuit switching network assets, the new Alberta consumer billing system that went into service in the second quarter last year, as well as additional amortization from acquisitions.

Slide 18 summarizes our share repurchases in the quarter since December of 2004, when we commenced the program.

We remained active in the market in the first quarter of `08, repurchasing a total of 2.9 million TELUS shares for about $123 million.

This brings TELUS' aggregate share repurchases, since inception of the NCIB program, to nearly 56 million shares for $2.6 billion.

For investors, this has led to a 10% or 37 million reduction in the total shares outstanding since the start of these four programs, with some partial offset or dilution for shares issued on option exercises.

Notably, TELUS has moved to the tax-efficient net cash settlement method for past options beginning in 2007, has accelerated the impact of share repurchases by reducing share dilution.

Outstanding shares were lower by 3.9% on a year-over-year basis.

Slide 19 provides a financing update for the quarter.

In March, TELUS closed the previously announced $700 million, 364-day credit facility to provide substantial liquidity for TELUS following the cash acquisition of the Emergis organization.

In April, TELUS demonstrated its financial strength by successfully completing and offering a $500 million of 5.95% seven-year notes despite difficult capital markets.

The proceeds of this offering increased available liquidity and effectively refinanced for the long term, the short-term bank borrowings and commercial paper used to acquire Emergis in January.

So our overall effective debt did not change post issuance.

It increases the strength of our balance sheet and notably in advance of the May wireless spectrum auction.

Now as shown on slide 20, there were a number of regulatory developments in the quarter, including the clarification of the guidelines for roaming and other items in advance of the wireless AWS spectrum auction.

The auction is to commence on May 27, and TELUS is interested in acquiring non-set-aside AWS spectrum.

In addition, the CRTC reduced the scope of wholesale services that will be subject to mandatory supply obligations, including a phase-out period.

The new rules give all carriers market-based incentives to continue to invest in their networks.

And finally, the use of proceeds from the deferral account issue remained in limbo pending another set of appeals from both sides.

Now, to conclude on slide 21, we are reaffirming TELUS' consolidated and segmented wireless and wireline targets for `08 as announced in mid-December with no changes.

So, to wrap up on slide 22, TELUS saw good wireless revenue, EBITDA and cash flow growth.

In wireless, we are pleased with the progress we are making on several key initiatives, including the start of the value brand rollout across the country, and our targeted mic to PCS migration.

We are looking forward to actively participating as mentioned in the upcoming wireless spectrum auction.

Meanwhile, wireline had a more difficult but active quarter with 4% revenue growth but a decline in EBITDA.

The integration of Emergis is underway.

I should mention that we have moved to mass market advertising of our TELUS TV product starting in Edmonton, indicating the expansion of our ADSL 2 plus coverage footprint.

H.D.T.V.

is also starting to roll out.

The competitive nature of our industry, and the margins in our growth businesses make it incumbent on TELUS management to focus on cost discipline for the remainder of 2008.

And finally, we are reaffirming our consolidated and segmented guidance for '08.

So, with that, Darren and I would be pleased to answer your questions.

So I will turn the call back over to John to start the Q and A session.

Thanks, Bob.

And just before I turn the call over to Ron to conduct the Q and A session, can I ask your cooperation please in one question at a time.

Ron, please proceed.

Great, thank you.

(OPERATOR INSTRUCTIONS).

The first question is from Greg MacDonald from National Bank Financial.

Go ahead please.

Thanks.

I am going to ask a strategic question on wireless.

We saw a pretty big deal this past week with Sprint and Clearwire, includes a number of potential strategic backers, or not potential, real strategic backers, including cable co's.

One could argue that post this deal, WiMax could actually accelerate wireless broadband trends.

TELUS has no WiMax hedge like Rogers and Bell.

I'm not sure that that's important or not, but I was surprised in conjunction with that, that TELUS was one of the lower deposits in the spectrum auction.

I wonder if you just might comment on whether the company feels at risk with respect to its ability to offer wireless broadband if, in fact, demand ends up going in that direction a lot more than we currently think.

Well, Greg, really, I think you introduced two concepts.

I firstly, disagree directly, we've deposited letters of credit sufficient to acquire the spectrum that we're looking to acquire, and I'm advised by council that we are not supposed to talk much more about intentions, etc.

in this so-called quiet period leading up to the actual auction, but suffice to say, we have a sincere intent, and desire to acquire some non-set-aside spectrum.

And we believe that will be consistent with our strategy to date, and we look forward to being successful in that regard.

In respect of the Sprint Clearwire announcement, which is real new news, a seven-way joint venture, so that's an interesting dynamic.

But the participation of cable co's there, or some of them in any event, is interesting because you may recall that the cable co's had participated in the joint venture to acquire more conventional spectrum in the past, which they haven't deployed on.

So, there seems to be a bit of a fragmentation on the cable side in regards to which technology path to pursue in the United States.

Clearly in Canada, we have the incumbent Rogers organization, which is operating on the conventional cellular bands as well as partner with Bell and Inuk-shuk.

Certainly, in terms of technology paths, I think the evolution in the past three, four months, if it's made one thing clear, it's that long-term evolution or L.T.E.

is more likely to be the overwhelming choice of most carriers globally, whether they are on the CDMA path currently or the GSM path currently.

So that's where most of the industry is going to involve to, which really raises the question as to what is going to be done with WiMax as Sprint has been troubled to deal with a strategy in evolution in that regard.

So rather than go it alone, they brought in some other partners.

But it remains to be seen as to what the success of the WiMax deployment in business is going to be.

Certainly the overwhelming view in the industry is that L.T.E.

in the long-term, is where the vast majority of global carriers are going to go.

Next question please.

Okay, thank you.

The next question is from Scott Malat from Goldman Sachs.

Go ahead, please.

Good evening.

Thanks so much.

I was just wondering if you could talk a little bit about your mic customers.

I know the flattened ARPU is pretty encouraging to us.

I would assume that the mic customers not using the push to talk functionality have higher churn rates, probably as well as lower ARPU.

I wanted to make sure that's the case.

And then Sprint talks about a quarter of their iDEN customers as having little to no usage of the push-to-talk functionality.

Just wondering if that's anywhere near your levels.

Thanks.

Thanks for the question, Scott.

Yes, first of all, I think we are encouraged by our ARPU overall essentially being flat.

There is always gives and takes but given that we remain the highest ARPU, I think that's good going in the Canadian scene.

In respect of mic, I wouldn't say that those that use PTT are necessarily the highest ARPU users.

It really depends on the profile.

The handicap of the mic service is high-speed data, and so as some of the users who are more voice and data-intensive users, as their needs have involved, really, the solution that's appropriate for them is on our PCS service.

So that's why we have been doing an orderly, measured conversion program as contracts expire with retention incentives, and what we've found is that has been a very positive program as on conversion, they have really taken typically a P.D.A.

device, taken a data subscription along with that, and even though there's a voice reprice net net, we found the ARPU to go up for those users.

The PTT centric users generally are lower ARPU than the average overall for mic.

But you're correct to say because of the nature of that service, because of the workgroup aspect of how hit works, a collaboration as well as the advantages of the technology, they tend to have attractive churn rates.

Overall, you may have noticed with our results that we have maintained a steady churn rates over the past three quarters.

We did have a bit of bump after wireless number portability, that would not be a specific factor and so, in that regard I think we've had good going for the organization.

I think one of the big differences in our situation as it relates to say, Sprint in the U.S.

is the fact that we did not, or Nextel, its predecessor, we did not emphasize iDEN for consumer markets.

We have always, from the get-go, had a PCS capability, which had higher capacity, more mass marketing poll, and etc.

And so we did not direct consumer loading onto our iDEN service and therefore, we really don't have the situation where we have a large embedded base of consumers looking to migrate and shopping around, which seemingly is a bit of the circumstance with Sprint United States.

What we have is a business-centric base and we are basically saying those that are likely to want higher-speed data solutions, let's be proactive, let's be responsive and convert them in an orderly way over to our PCS service, and so in that sense, that's why here we are in the first quarter and we led the industry in subscriber growth in Canada.

And that's certainly in complete contrast to the unfortunate situation that Sprint has been experiencing in recent periods.

Okay, next question please.

Great.

Thank you.

The next question is from Vince Valentini from TD Newcrest.

Go ahead, please.

Thanks very much.

Question on the EBITDA contribution from Emergis.

I don't assume you'll give us the figure for Q1, but can you give us some indication what margins there have been in line with historical for Emergis?

And how do you see this phasing over the course of the year, are there some up front integration projects that are depressing EBITDA at Emergis and then it will swing up as those projects get finished and you start to generate synergies?

Well, in respect to Emergis, you're right, Vince, we are not and do not intend to give specific disclosure with respect to their results but in a general sense, yes, on the integration front there are some costs.

I think we gave a rough ballpark of $10 million of integration cost that are budgeted for that integration over time.

They certainly weren't all in the first quarter but over the course of this year.

And given that entity only came into the TELUS family on January 16, it was an entity where there were outstanding analyst expectations, etc., for 2008.

And so, there's really been no change in the business, as you can imagine.

We acquired it during the quarter, and they've continued trucking along, so to speak.

Things have gone well, but there has been no dramatic changes in their business, so I would just refer you to the public estimates that existed prior to the acquisition.

Okay, next question please.

Thank you.

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

Go ahead, please.

Yes, thanks very much.

I was really amazed by how low the C.O.A.

was in the quarter on the wireless side, especially something like 60% of your gross additions were post-paid generally generating relatively high C.O.A.

Were there any one-time hand set credits or any other items in the quarter, and is this number sustainable, especially with the launch of kudo, which was very, very much at the end of the first quarter and I assume there will be a lot more expense in the second quarter?

Okay, a couple of comments there.

As I mentioned in the presentation, the new brand launch, because it was so late in the quarter, it really didn't affect our results notably, whether you're referring to subscribers or the like.

There were some start-up costs that affected our expense line, which we mentioned, but other than that, it was really a very negligible impact in the first quarter.

When you look at the C.O.A.

number, clearly one thing you have to conclude is the fixed spend for advertising and promotions was effective or efficient, depending on how you want to describe it, as that fixed spend was spread over a quite a good increasing gross loading and therefore, dividing that denominator gave a good ratio.

Secondly, in terms of one-time effects, what comes to mind Dvai, there were no credits or anything like that.

But on a year-over-year basis, we did experience a significant appreciation of the Canadian dollar relative to the U.S.

dollar, which is the primary currency that we buy the hand sets.

And that contributed, roughly $25 of the change, so that would be, whether that happens in the future or not is certainly -- is difficult to predict but it was a notable factor on a trailing basis.

The other thing that comes to mind is, we had been expanding over the past while, our investment and corporate-owned distribution and we had an increased percentage of loads for those channels.

And they are more cost effective for us in third party, so the mix, in terms of the commission and comp structure in the channels, was more favorable than the mix in prior quarters, so that helped the number.

But at the end of the day, it was good going on the marketing front.

Okay, thank you.

Ron?

Okay, thank you.

And the next question is from Jeffrey Fan from UBS.

Go ahead please.

Thank you very much.

I have a question on your wireless margins.

When we look at a lot of your headline metrics like ARPU and COA as other speakers -- it all looked very good across the board.

But when we look at some of your expenses, one item kind of stuck out.

It was the higher network operating expense.

It looks like it's related to some of your data revenue growth and related to some of the data content and licensing cost.

Maybe, specifically in the quarter, can you talk about some of the impact and more longer term, you have great ARPU on data, but are these ARPU coming in at lower margin because of some of these other costs?

Okay.

Let me parcel through that.

On the roaming front, we did have an uptick in roaming on the data roaming, particularly, and in part -- so, on that front we also incurred through our network sharing arrangement what the Bell organization where we roam onto their network, a roaming cost.

So both the revenue went up for roaming as well as we had costs that went up.

We do make margin on either way, so from a profitability perspective we are okay, but certainly when you look at the OpEx line network expense, that was one of the dynamics.

You may recall that there's some flat-rate pricing that was introduced by our peer and that drove significant data growth for a period of time, although that has been trundled back.

In terms of content, which you referenced, yes, absolutely, as the mix goes away from, say, traditional messaging, that has driven much of the data growth of the past years, you're getting into more content applications on data growth.

There is a higher cost associated with that, most definitely, and so that's part of it.

And so at the end of the day, I think on the network expense side, we are okay with that regard.

When you are going to the overall EBITDA flow through margin, which I think you're really try to garner, and we had a good C.O.A.

But the COA is per gross add, and we had great gross loading growth, etc .

But on a year-over-year basis, we never had a higher churn rate so we, therefore, didn't have the flow through from gross to net, as much as we would have otherwise and consequently, that impacts our profitability margins, at least the growth rate on a year-over-year basis.

The second material element in this area is cost retention, so I have already referenced -- we had a question on a transition program, mic to PCS, but more broadly than that, we also had efforts as we have people just on PCS, they're maturing, they're asking for smart phones, asking for P.D.A.'s, which have a higher subsidy cost associated with them.

That's the right thing to do, so we have been making investments in that area, in the retention, so consequently that investment has led to some increased expenses.

Now, in the long run, we think it's the right thing to do.

We think that it mitigates against churn, it mitigates against ARPU erosion, keeps our customers happy, so on and so forth, and reacts to the competitive realities out there but there's no doubt it has a short-term margin impact at the same time.

Net net, it's a good quarter in wireless so, don't want to lose sight of that.

But that would be the two notable items that would explain the flow through being not as good as it might first appear when you look at our ARPU and our C.

O.

A.

Okay, and our next question is from Randal Rudniski from Credit Swiss.

Go ahead, please.

Thanks.

A question on the migration of the mic customers who are migrating over to CDMA to take advantage of the better data functionality.

The question is, how far through the migration process are you at the present time?

And how long do you think it will take to complete the heavy lifting?

Hi, Randall.

In terms of the migration program, I sort of use the words orderly, measured.

And really what we're doing is, as the contract base comes up, nearing maturity of their contracts, we're contacting them and encourage them to convert, etc.

So in that sense, if you think we have contracts that go up to three years, you tend to transition over a couple of year period, and we have been doing this for about a year now.

So that gives a broad idea of the time frame involved.

Thank you.

And the next question is from Simon Flannery from Morgan Stanley.

Go ahead, please.

Thank you very much.

Good afternoon.

I think you mentioned in your comments, Rob, that you were seeing some impact in slower housing starts benefiting your capital spending.

Can you just talk about some of the macroeconomic conditions you're seeing and to what extent that might have some impact as the year goes on.

Thanks a lot.

Sure.

And I know it has been a big, big topic, particularly in the United States.

The Canadian economy continues to grow, certainly is a much different situation in Canada.

On a national basis, the GDP growth rate by the Conference Board has been re-estimated to be 1.8%, and really, our guidance was predicated and factored that in.

Now, 1.8% is the average.

We don't have a housing crisis or subprime crisis in Canada.

There really has not been the emergence really of a material subprime element.

Different culture, different lending practices.

People tend to have equity in their homes.

Prices are appreciating across the country still, so it's quite a different dynamic in that respect.

However, there are certain sectors of the economy that are export orientated, such as manufacturing, that depend on demand in the United States, and so the slowdown U.S.

economy is having a secondary effect with respect to their production levels.

And so the manufacturing industry in Canada is largely -- not totally -- but largely present in the Ontario, Quebec, central Canada region.

We are present, we're a national company, but our relative degree of exposure is much more in western Canada.

And eastern Canada, Alberta remains quite a boom region with G.D.P.

growth even this year to be in excess of 5%, British Columbia with resource industry, etc., is expected to have GDP growth of over 2.5%.

So, our home territory, if you will, is certainly higher than the average for GDP growth this year.

So when we have -- talk about housing slowdown in a Canadian context, it's really going from record housing construction rates to more moderate levels, as opposed to what is being experienced in the U.S.

where there basically is a complete shutdown of new construction and a significant overhang of product in the marketplace.

So consequently in our bad debt line, really hasn't changed notably.

We are still seeing growth, and quite frankly, in western Canada, there has been such hyper-growth and labor shortage from a broader labor perspective, balancing against market opportunity, moderation in growth is probably a healthy thing, although certainly we are seeing in Ontario where we are less exposed, that there is a relative slowdown in that particular region.

So the net of it is a completely different dynamic than there is in the U.S.

, and we are to date, well insulated, probably anywhere in North America, happened to be located and dependant on the faster growing areas of the

Thank you.

The next question is from Bob Bek from CIBC World Markets.

Thanks.

Good afternoon.

My question is on wireline, specifically on the residential line losses.

They seem to have accelerated recently, certainly in the quarter.

Are there any changes in the competitive environment?

I know you mentioned the cable co competition, the ongoing, and also some wireless substitution.

But have there been any changes as far as the bundling policies or programs from the cable co's.

And related to that, are there any thoughts to perhaps accelerate the IPTV roll out or are you really looking to see how Edmonton plays out before you can make such a decision?

Thanks.

Yes, thanks Bob.

Yes, basically setting the context, you have in right in your question, we experienced an increase in the erosion rate on our network access lines.

That's one way of looking at it, which is appropriate.

Another way is, we probably have the lowest erosion rate in North America, of telco's and by a significant margin, so that's good going, certainly one that has urban competition.

Basically we continue to do well but why has the trend worsened somewhat?

It's in the consumer side as we continue to do quite well in the business side, with roughly 2% year-over-year now growth in the business segment, so whether it's the continued wins in central Canada that we are reporting, or whether it's out playing good defense, actually, in western Canada where on the business front overall that's blending into a 2% growth rate and so we are doing quite well there.

On the consumer side, we've got the 7% erosion rate that therefore leads to the blended 3.5% negative.

What is really going on is the further roll out of the Shaw digital phone service where there are -- through continued geographic expansion on a year-over-year basis, they are certainly covering and marketing in much broader territories in Alberta, B.C.

incumbent territory than they were in previous periods.

So that's one dynamic.

The other one combined with that specific to the first quarter of this year is, they did lower pricing in the marketplace on their bundled offerings, and so that was a dynamic and so clearly we believe that we lost incremental share to the Shaw organization in the quarter.

Ron?

Okay, thank you.

And the next question is from John Henderson from Scotia Capital.

Go ahead please.

I am just gong to follow up on the second part of the question around the I.P.T.V.

and I wonder if you could, or are prepared yet, to share any details on the dilutive impacts on EBITDA and earnings and any other updates in terms of coverage by year end `08 or `09.

Okay.

Well, respective, our TELUS TV branded I.P.T.V.

service, we did continue to build out more coverage and therefore increase our marketing activities in new geographies or more intensely where we were previously marketing only neighborhoods.

We broadened that out in the case of, for example, the city of Edmonton.

They did add incremental cost, so if you look at the wireline side, data costs increase year over year due to cost of acquisition, etc.

on our TELUS TV service.

Yes, they did.

We do not give specific numbers in that regard, but I would say it was one, but just one, of the minor contributors to a long list of items on the wireline side.

And I think Bob referred to the prior question -- which I may not have completed my answer to -- but clearly it's part of TELUS' strategy to continue to roll out our TELUS TV service, to invest in our network, to increase speeds, offer H.D.

as we are rolling that out in our geographies over the course of this year and next.

And so we believe that's an important strategic thrust of the company and so I don't know about going faster.

We are kind of going at the right speed, giving the resources that the organization has, consistent with the guidance we have previously given for CapEX, all within the window but it does reflect a significant investment in our internet network to bring the connections closer, the fiber closer to the premise.

And therefore, have the dual bang of increasing our Internet speeds significantly, which means the fundamental connectivity offering of TELUS is improved while at the same time, thereby allowing applications like TV to be sold and to be bundled into our offerings.

So we do believe that's an important element in our strategy going forward.

Ron?

Thank you.

The next question is from Glen Campbell from Merrill Lynch.

Go ahead please.

Thank you very much.

Is Darren on the line there?

Glen, he has stepped out of the room so if you have something for me --

Sure.

I had one for you.

You mentioned in this last answer and also in the introduction about your concern about seeing wireline operating expenses stay on track.

I was just wondering if you could give us a little bit more color and context around that.

Is this a concern, where you are relative to guidance, which you reaffirmed, or are there some expenses in there that didn't need to be in there, or are there objects to changes within the year?

Could you just give us a bit of an elaboration on that, please?

Sure.

Let me start off by saying that we do reaffirm our guidance for wireline as well as wireless, so we do belive we'll be on track for our guidance ranges for wireline for the full year.

One thing we are not counting on in the subsequent quarters is an extra day on the calendar that we did experience.

And I don't want to make too much of it, but that did contribute about $6 million of extra cost in the quarter that were not there a year ago.

What we did have in the quarter was a concentration of large data type of implementations, the large-scale Calgary Courthouse insulation was completed and booked in the quarter.

So, and these large sort of equipment orientated implementations, the margins are much thinner than they are in our other services so that was certainly an element.

The other thing, Glen, as you know, we have been quite successful in central Canada in terms of landing a number of high-profile, large-complex deals and that we are in implementation mode currently.

Now as a result, the revenues that are generated by these transactions is rather limited to date because in some cases, hasn't even started.

Whereas, obviously we are incurring some expenses putting those services and capabilities in place.

That's consistent with the business plan.

It's a classic hockey stick.

What makes it different than the norm is when you think of government Ontario, Department of National Defense, government of Canada, and city of Montreal transactions in aggregate, there's the concentration that is lending a bit of an unusual effect in terms of expense line.

Finally, what I can say is that we -- I think we can do better.

Some discretionary cost control and we certainly have programs in place with that, so I think it's our responsibility to improve the margins and as mentioned, our guidance reflects our confidence in doing so over the balance of the year.

And Glen, the question for Darren, do you want to go ahead, please?

Yes.

I was wondering if we could have an update on the TV deployment in Edmonton.

Not looking for numbers so much but just a sense of how it is going relative to your expectations, what are the gating factors on the speed of deployment and so on.

Thanks.

Thanks for the question, Glen.

The deployment in Edmonton with the mass marketing, given the strong footprint coverage that we have in Edmonton, is certainly meeting our expectations.

We are pleased with demand and we are pleased with our execution in terms of fulfilling that demand.

Okay, thank you.

The last question is from Peter Rhamey from BMO Nesbitt Burns.

Great.

Thank you for taking the question.

I am in under the wire, I see.

I want to switch back over to wireless.

Bob, in your script you mentioned increased penetration, obviously, of smart devices, EBDO enabled devices.

I was wondering if you could add some color on to where you are on that.

I know you had some heavy promotions at the end of Q4, and I'm just wondering what the adoption has been thus far, and what the uptake by customers has been of data plans.

Do they tend to get these devices and nibble away on plans and then start to use more over time?

Just to give us a sense of where we are on that curve for data adoption.

Is it accelerating, is it steady state?

Anything you could add to that.

I also notice that you're promoting PC cards for the first time in mass market press, which I thought was a departure from your previous strategy.

Well, I think generally, Peter, we are encouraged by the trends that we have experienced.

It was -- I remarked before but maybe it deserves repeating that we have observed a significant trend evolve over the past year in the consumer segment that really largely ignored the P.D.A.

segment and then woke up to the likes of BlackBerry and other devices.

So that trend has been ongoing in the Canadian marketplace over the past year and certainly with our product lineup having, world edition BlackBerry, that is on EVDO, etc., we have had leading product in the marketplace, which hasn't been the case in some periods over the past number of years, and so we have done well in that regard.

In terms of, the investment we give P.D.A.'s or subsidize them on a retention program, we do tie that into a data subscription, so if someone is wanting a P.D.A.

on a contract renewal, we just don't say, here's the P.D.A.

and continue on a voice service.

We tie the incentive to a data subscription and therefore, lock in the economics associated with that retention investment, and I think that's the prudent way to do it, so we are seeing significant data uptake.

You have seen the growth, 56% growth rate here in data year-over-year, so it is working and it's really across the board.

The business segment has continued to grow, and the consumer segment is, there's an acceleration there and so we are getting both cylinders firing.

Okay.

Thank you very much, everybody, for taking the time to join us today.

We certainly appreciate your interest and continued support of TELUS.

Have a good day.

Thank you.

And this concludes the TELUS first quarter 2008 earnings conference call.

Thank you from TELUS.