Telus Corp (TU) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TELUS second quarter 2008 earnings conference call.

I would like to introduce your speaker, Mr.

John Wheeler.

Please, go ahead, sir.

Thank you very much.

And let me introduce the TELUS executes online with us today.

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

We'll start with introductory comments by Darren and Bob.

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

This call is scheduled for one hour or less.

The news release on second quarter financial and operating results and detailed supplemental investor information are posted on our website at telus.com.

For those with access to the internet, the second 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 risk and uncertainties and assumptions.

Accordingly, actual results could differ material 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 that you read our legal disclaimer and refer you to the risks and assumptions outlined in our public disclosure and filings with the Security Commissions in Canada and the U.S.

Now over to Darren on slide three.

Thanks, John.

Good morning and thank you for joining us today.

I will first speak to what was satisfactory by TELUS' second quarter results.

Second, I will discuss what was less than satisfactory.

And third, I will highlight what to watch for from our Company in the second half of the year.

Let's start with slide four.

TELUS' strength and execution in a competitive market delivered positive results in the second quarter as evidenced by strong wireless net additions of 176,000 customers, a 7% decrease in the total costs of acquisition, reflecting efficient and effective marketing.

A year-over-year improvement in churn to 1.43%, the first decline since the introduction of wireless (inaudible) portability in early 2007.

Moreover, satisfactory results in the Wireline business were reflected by solid Wireline revenue growth, driven primarily by data revenue from both the acquisition of Emergis in January, and 7% organic growth.

Also on the Wireline front, we saw resilient long distance revenue and a small sequential improvement in network access line losses due to the success we're effecting in the business market in Central Canada.

Also positive, we saw 70% increase in high-speed Internet Client additions plus, solid progress on TELUS TV.

Regaining momentum from temporary order processing constraints a year-ago caused by the major IT conversion to a new billing and client care system in Alberta.

And finally, we saw the successful extension of the same major IT initiative to British Colombia as we cut over 1 million Wireline residential customers to the integrated billing and client care platform, clearly benefiting from lessons learned in Alberta last year.

As a result of our solid operational execution thus far this year, TELUS' revised upward our full-year 2008 revenue guidance range whilst narrowing the ranges for EBITDA and EPS to reflect higher than expected costs of increase customer additions and the implementation of new Enterprise contracts.

As shown on slide five, the second quarter also presented certain challenges for TELUS that were less than satisfactory.

These include a 92% decline in wireless ARPU that can be attributed to the competitive voice pricing we're facing in the Canadian market, which is offsetting our strong 54% growth in wireless data.

Also despite the fact that since 2001 TELUS' ongoing investment in restructuring and workforce reduction totaled $1 billion.

I am less than satisfied with the revision of our restructuring expense target from $50 million to $30 million.

Clearly, we need to realize improved traction on our efficiency initiatives.

Before I turn the call over to Bob to brief you in detail on TELUS' second quarter results, it's is important for investors to take note of what to watch for in the second half of the year as set out on slide six.

First, TELUS will stay the course on our 2008 corporate priorities.

These include; driving profit from our strategic services with the focus on data and wireless to enhance our competitiveness, which will be more important than ever given new entrants are poised to enter the market next year as a result of the recent AWS auction.

Our priorities also include, continuing to build scale in our chosen vertical markets including leveraging Emergis acquisition in the healthcare sector.

And importantly, exacting elevated productivity gains from existing and new efficiency improvement initiatives.

This is key if we are to absorb the endemic challenges of the telecom industry, including price commoditazation, new competition, and dilution from new technologies.

This also includes absorbing the near-term challenge of progressing through the J curve economics from significant Enterprise contract implementations and broadband service deployments, such as adds D and TELUS TV.

Second, TELUS will continue to exercise our fiduciary responsibility to make technology evolution decisions that underpin the future growth of our wireless business.

Our current deliberations include, evaluating the various technology evolution paths, [Dip 4-G] gathering real data on technologies, costing, and the timing of their implementation.

And as well, importantly, ensuring a complex decision such as this is made in the best interests of our customers, our investors, and our Company.

In conclusion, TELUS' focus for the remainder of the year is to take action to advance our national growth strategy and enhance our competitive position in Canada's telecom industry.

Now over to Bob to brief you in detail on TELUS' second quarter results.

Thanks, Darren.

And good morning, everyone.

Let's begin with the wireless highlights on slide number eight.

TELUS reported strong wireless results that were positively affected by introduction of a post fade value-oriented brand and strong execution in the Smartphone space.

Gross and net adds were a TELUS second quarter record with high proportion of postpaid subscribers combined with low COA per addition.

The success bodes well for TELUS' ongoing revenue growth in the very attractive future economics that this growth should generate.

Clearly we're still did in the early days of postpaid value brand, but we're pleased with the results to date.

This new initiative strengthens our marketing effort against competitors who already had multiple brands.

We're also encouraged with the recent trend of declining wireless churn, which is down 10 basis points sequentially, and 2 basis points year-over-year.

Our wireless churn rate remains the best amongst major Canadian carriers and clearly demonstrates that our retention efforts are paying off.

Wireless data revenues increased by 54% due to an accelerated adoption of Smartphones which is driving increased use of data services, increased messaging, data roaming and continuing migration of existing clients, including Mike to full functioning Smartphones, helped drive data revenue.

Wireless guidance for the year was revised modestly to reflect improved revenue growth in the cost of acquisition associated with the record level of loading.

Now let's turn to slide nine and review our wireless financial results.

Wireless revenues were were up 9% based on 11% growth in the wireless customer base, as well as a 54% increase in data revenue, while overall revenue per customer declined slightly.

EBITDA as adjusted increased by more than 7%, in addition to the costs associated with record loading.

We also saw increases in certain network operating expenses due to very strong growth in data usage and roaming, as well as higher content and licensing costs from the strong increase in data.

CapEx was down year-over-year, capital expenditures in the first half of last year were higher due to cell site capacity and coverage spending, including network upgrades for EVDO Rev A, which has since been completed, as well as expenditures to implement wireless number affordability.

Turning to slide ten, for second quarter in a row, TELUS led in net adds in the Canadian wireless industry.

Net adds this quarter of [176,000] also notable for having a high proportion of post day subs.

This bodes well for future revenue and profit growth.

The loading was positively effected by the late March introduction of our postpaid value brand, resiliency of the Mike service, and continued good PCS results.

In aggregate, postpaid net adds were $157,000, an increase of 59% compared to last year, and represented 90% of TELUS' total net adds in the quarter.

Gross additions increased 19%, also TELUS second quarter record, despite a disciplined marketing effort, which I will cover in more depth on a later slide.

Overall, our cumulative subscriber base remained at 80/20 postpaid/prepaid mix.

Slide 11 shows that total quarterly ARPU declined by 1.4% to $62.73.

As the declining voice ARPU is not fully offset by the growth in data.

Voice ARPU continued its declining trend experienced in recent years due to an increase in the prepaid subscriber base in prior periods, increased use of included minute rate plans, lower pricing and a slight decrease in voice roaming.

Partially offsetting the voice decline was data ARPU which increased by $2.59 to $9.17, and now represents 15% of total ARPU.

We remain very bullish at TELUS for continued strong wireless data growth given the increasing penetration of EVDO capable devices in our subscribe base, the ongoing introduction of higher band width applications and devices, given the deployment of EVDO Rev A, as well as the successful continued migration of non-dispatch Mike users and higher value prepaid subscribers to PCS Smartphones.

Slide 12 reflects the continued focus on our wireless marketing efficiency in the second quarter.

Gross adds increased 19% with 66% derived from postpaid.

Churn improved by two basis points to 1.43%, a favorable trend.

Notably this is the first year-over-year comparison post the introduction of WNP.

COA decreased 22% year-over-year to $332 per gross addition, reflecting lower advertising and promotions cost on a per unit basis, due to the strong increase in gross adds.

A higher proportion of new subscriber loading from lower cost channels and lower equipment subsidies reflecting the efficient and effective marketing for both our core and new value brands.

Overall marketing expenses only increased 5.8%, due to higher advertising and promotion costs in support of strong gross adds, in the first full quarter of costs related to the launch of our new value brand.

Slide 13 highlights just a handful of Smartphones available from TELUS, including the newly announced HTC Touch Diamond on the far right.

We continue to enjoy considerable success in this important category.

We also continue to focus on investing and subscriber retention with costs increasing by $20 million, or 25%, in part to support handset upgrades to full function Smartphones and for ongoing Mike migration programs mentioned early earlier.

This is contributing to good churn results while resulting in higher overall ARPU for these customers post their migration.

TELUS remains bullish on the future of Smartphone adoptions to drive revenue growth, and with with the launch of ATC Touch Diamond next week, TELUS remains an industry leader, offering the largest selection of Smartphones on Canada's largest high-speed network.

To conclude the wireless section, as shown on slide 14, we're tweaking our original 2008 wireless annual guidance to reflect year-to-date results and our outlook for the back half of the year.

The wireless revenue range is being tightened by $25 million towards the upper end of the range, reflecting stronger subscriber and data revenue growth.

EBITDA guidance is being tightened with both the low and high-end being lowered by $25 million and $50 million, respectively, based on the strong subscriber loading and data growth in the first half of 2008.

Now let's turn our attention to slide 15, TELUS' Wireline segment highlights.

Second quarter revenue was solid driven primarily by data revenue growth that included the revenue from the Emergis and FastVibe acquisitions that closed in the second quarter.

High-speed net adds were strong as we continued to regain momentum in B.C.

and Alberta.

(Inaudible) losses improved slightly and remain largely consistent with previous quarters.

In July we converted more than $1 million B.C.

residential customers over to our new converse Wireline billing and client tier, and we're very encouraged by the successful experience to date.

Expenses this quarter were impacted by implementation in advance of revenue generation of certain large, complex deals, such as the Government of Ontario contract and the strong Internet and TELUS TV loading.

Turning to the Wireline financials starting with revenues.

Total Wireline revenue rose nearly 7%.

The local revenue decline reflected the continued competitive environment and substitution effects in wireless and voice.

LD revenue increased by 4%, mainly due to a negative one-time adjustment made in the second quarter last year.

Data revenue increased by 20%, major factors 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 increased revenue from TELUS TV.

The next slide provides a better indication of the normalized year-over-year growth rates for long distance and data revenue.

The second quarter of 2007, TELUS recognized a $13 million negative one-time adjustment of the LD revenues associated with last year's implementation of the new billing and client care system for residential customers in Alberta.

Excluding this item recorded last year, long distance revenue decreased by $6 million, or 3.5%, which is still one of the better results in many years.

Data revenue growth was positively impacted by the acquisition of Emergis, and to a much smaller extent, FastVibe in January of this year.

Excluding these factors data growth was still a healthy 7%.

Turning to slide 18, we can see that Wireline profitability fell slightly due to increased costs.

Total OpEx increased 10.5%, mainly due to cost of sales for increased data equipment sales with lower margins, expenses from the acquired companies, and higher costs for the provisioning of TELUS TV, due to increased loading.

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, including the Government of Ontario and the Department of National Defense.

As Darren discussed, cost control remains a key ongoing management focus to preserve Wireline margins.

CapEx increased 4%, mainly from increased upfront expenditures to provide services to large, new Enterprise customers.

Slide 19 provides an update on the Emergis integration.

Strategically focused on the important healthcare vertical.

TELUS continues to implement its post merger integration plans to ensure a seamless transition for team members and customers while maintaining a continued focus on delivering its business goals.

Emergis' complimentary expertise, applications and customer base are strengthening TELUS' industry leading healthcare solutions.

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

During the quarter, TELUS and Emergis successfully aligned a number of functions internally, including finance, human resources, marketing, and information technology.

Let's move to slide 20 now and examine briefly our Internet results.

High-speed net adds continued to regain momentum in B.C.

and Alberta at which TELUS added 24,000 net subscribers, an increase 70% over the same period a year ago.

High-speed Internet subs were temporarily constrained a year ago due to reduced order processing following the implementation of the new billing and client tier system for residential customers in Alberta.

The overall cumulative high-speed Internet subscriber base was up more than 10% year-over-year.

Similar to our positive Internet momentum, slide 21 highlight ours Wireline resilience in network access line performance,compared to our peers across North America.

In the second quarter, residential line losses improved and business growth remains stable.

So on a sequential basis, now losses improved by 20 basis points.

On a year-over-year basis, overall line losses increased slightly to 3.4% due to competition of residential lines from competitors, particularly cable TV companies, as well as ongoing technological substitution to wireless services.

residential line losses are being partially offset by continued healthy business line growth in Central Canada.

Turning to slide 22, TELUS has successfully migrated residential customers in B.C.

to the new converge billing and client care system.

This is the first time most customers in Alberta and B.C.

have been on the same, converged system.

During the B.C.

conversion we applied the key learnings from the Alberta conversion in 2007, such as conducting a significantly larger trial in advance of the full launch to help ensure successful migration of our customers.

We're very encouraged by the successful experience to date in terms of data accuracy, billing integrity, as well as customer service and fulfillment.

Unlike last year no financial charges are expected to be incurred as a result of the B.C.

system conversion.

The converse system will allow TELUS to provide customers a higher level of service with streamlined and standardized processes, and allow for the elimination of multiple legacy systems over time, leading to improved expense efficiency and customer service capabilities.

Now to conclude Wireline in slide 23, we have revised TELUS' 2008 Wireline guidance to reflect our results to date and our outlook for the rest of the year.

Revenue has been raised and tightened with the low-end of the range increasing by $50 million and the high-end increasing by $25 million.

EBITDA has also been tightened by $25 million towards the high-end of the range.

Both revenue and EBITDA are being revised upwards as the up front diluted effect of large complex contracts are expected to begin to subside in the back half of the 2008.

Slide 24 illustrates the robust growth trajectory and changing mix with TELUS' total customer connections, which is consistent with our value creating growth strategy.

Growth in wireless and high-speed Internet continue to significantly outpace declines in residential network access lines, and dialup Internet.

Wireless and Internet now account for 62% of total connections and we've generated a million more connections in the last two years.

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

Consolidated revenue in the first quarter grew by nearly 8%, while EBITDA as adjusted increased at a lower 3.5% rate due in large part to increased customer acquisition expenses in both wireless and Wireline as I've already outlined.

Reporting EPS increased 9%, and I will elaborate on the various drivers behind EPS on the next slide.

Meanwhile, CapEx was down and is expected to increase in future quarters consistent with our full-year guidance.

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

Normalized EBITDA growth generated EPS growth of $0.02, lower shares outstanding due to our NCIB program contributed $0.03 more than last year.

While lower financing expenses contributed $0.03 to the improvement.

Meanwhile, higher depreciation amortization impacted EPS by $0.07.

This reflects the reduction in estimated useful lives for circuit switching network assets, growth in capital assets, plus additional amortization from acquisitions.

Increased cost of acquisition and cost of retention in our wireless and Wireline segment contributed $0.04 to the decline.

The combined revenue and expense impacts the Alberta IT system implementation with operating and capital write-offs related to mobile last year together totaled $0.10 to the year-over-year to the EPS gain.

Not presented on the slide is a $0.03 positive impact for 2007 tax related adjustments, which was a wash with lower 2008 tax rates which contributed $0.03 of growth this quarter.

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

We remained active in the market in the second quarter repurchasing a total of 1.7 million shares for $77 million.

This brings TELUS' aggregate share repurchases since inception in NCIB program to nearly 58 million shares, for $2.7 billion.

For investors this has led to 11%, or $39 million reduction in total shares outstanding since the start of these four programs.

To some partial offset or dilution for shares issued on option exercises.

Notably TELUS' move last year to the tax efficient net cash settlement method for past auctions has accelerated the impact of share repurchases by reducing share dilution.

Outstanding shares were lowered by 3.6% on a year-over-year basis due to the NCIB.

In combination with these share buybacks and our dividend, TELUS returned $221 million to shareholders this quarter.

This clearly highlight our strong and ongoing record of returning capital to shareholders.

As shown on slide 28, today we're making changes to consolidated guidance to reflect revisions to our outlook for the wireless and Wireline segments.

Our consolidated revenue guidance range is being raised and tightened in the low and high-end of the range increased by $75 million, and $25 million respectively.

We're also narrowing our EBITDA guidance with the high-end of the range being lowered by $50 million, our EPS range has been tightened from $0.30 to $0.20 with a lower high-end of $3.70 to reflect strong customer loading.

Consolidated CapEx remains unchanged at $1.9 billion, which excludes the $880 million of AWS Spectrum auction payments.

In summary, we continue to expect good year-over-year revenue and earnings growth driven by the strong customer loading that we have seen in the first half of 2008.

As highlighted on slide 29, AWS Spectrum auction concluded on July 21, after a marathon 331 rounds, stretching almost two months, raising $4.25 billion for the Canadian government.

A total of 282 licenses have been conditional assigned to 15 companies.

TELUS bid $880 million for Spectrum and the amount will be recorded as a capital expenditure in the third quarter of 2008.

Consistent with our national growth strategy, focused on data and wireless, TELUS successfully acquired 59 additional valuable Spectrum licenses or an average of $16.2 megahertz nationally.

This increases TELUS' strong Spectrum position and is expected to provide capacity for the eventual introduction of the future fourth generation services.

Before concluding, I would like to highlight that TELUS has announced an increase to its commercial paper program by $400 million to $1.2 billion.

DBRS confirmed the rating on our CP program on August 7th.

This program provides increased cash management flexibility and more attractive short-term rates for TELUS treasury operations, including funding AWS Spectrum, wireless Spectrum and recently concluded auction.

TELUS is currently, excuse me, current $2 billion bank facility provides sufficient back-up for the full commercial paper program.

At the end of the second quarter there was $800 million outstanding on our CP program, demonstrating strong demand for TELUS securities in the Canadian market.

To conclude, on slide 31, TELUS experienced solid second quarter consolidated revenue growth.

In wireless we're encouraged by the excellent loading, improved trends in churn and strong data growth as Smartphone adoption accelerates.

In line with TELUS' national growth strategy focused on data and wireless, the Company acquired valuable Spectrum across Canada, the AWS Spectrum increases the depth of our strong position and is expected to provide capacity, as mentioned, for future 4-G offerings.

While still in the early stages we're pleased with the initial success of migrating more than a million residential customers in B.C.

to our new converged IT system that Alberta customers converted to last year.

While also experiencing positive momentum in the Wireline consumer space with good Internet and TV loading, while our now losses remain well below that of the industry peers and are stabilizing.

We made minor revisions to our '08 guidance to reflect stronger than expected subscriber loading and the current periods of (inaudible) effect of upfront investments for large complex deals in Central Canada.

TELUS recognizes that the competitive nature of our industry makes it incumbent on TELUS' team to focus on cost discipline for the back half of 2008 and ongoing.

Overall, TELUS had a successful quarter of operational execution with great loading, has begun a successful IT system implementation and made minor revisions to our guidance to reflect positive year-to-date operating results.

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

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

Thanks, Bob.

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

So over to Alice.

Thank you.

(OPERATOR INSTRUCTIONS)

And from National Bank Financial, Greg McDonald.

Please go ahead with your question.

Thanks.

Good morning, guys.

The question I have is on the buyback itself, 12% executed on what would be your maximum.

Didn't see a dividend increase this quarter, 12% executed on the buyback.

I can appreciate that you wanted to hold cash in the second quarter in particular, as there was still some uncertainty at that time on the Spectrum auction.

But with that complete looking at a little more clarity on your capital requirements in the second half.

Are we to expect that the Company's now revisiting a focus on returning shareholders - - cash to shareholders.

In particular given how weak the stock is - - has been?

I wonder if you could give us some insights on what you are thinking of there.

Well, I think the real story in the news today is operational execution and that certainly what management concentrates on.

I have responsibilities certainly for leading our strategies with regard to capital structure, but while creation is first and foremost created through operational execution.

So we are looking forward to questions on what really matters here.

In terms of dividends, we have had four consecutive annual increases and that is it annual.

We never do them in the third quarter.

So we have never communicated that we would contemplate doing an off, off-cycle increase.

So I think that is extraneous to the quarter.

In terms of the NCIB, obviously we had significant repurchases, we also had some blackout periods as related to Spectrum auction, et cetera.

So in any event we continue with the NCIB program.

I think the important thing is that we've got a lot more fire power here given the share price.

Maybe the only people around to cheer when the share price goes down, but the people in the treasury group are very excited about the low share price right now.

Okay.

Thanks.

That is helpful.

Thank you.

Our next question from GMP Securities, Peter McDonald.

Go ahead, please.

Thanks.

There was a pretty strong rumor in the market that you would make an announcement on your GSM strategy today.

That would have made sense given you have had plenty of time to review it, and the Spectrum auction is behind you.

And the benefits decline with the passage of time, but from your comments, Darren, it sounded like you are still considering the option.

So unless I misunderstood your comments, maybe you can highlight what the remaining factors are that you are reviewing, and given that timing and competition of - - the timing of competition and 4-G is getting closer.

Is there a drop-dead date when it doesn't make sense to pursue it any further?

Thanks for the question, Peter.

I would say our perspective is that it's more important to make the right decision than to synchronize it with our quarterly release.

As I said previously, technology evolutions are a way of life for the Wireline and wireless front and we consider them carefully and deliberately, always with a view to augmenting economics of the organization.

I think what is clear is that as it relates to 4-G, we will be going LTE and of course, that was enabled by our securing of Spectrum in the recent AWS auction.

We're currently evaluating prospective paths to get to LTE at 4-G and we are, of course, looking to select the path that maximizes our economics.

I think it's pretty clear that when evaluating the prospective paths that these paths come with new revenue and competitors positioning opportunities that enhance the economics of the organization.

So we're continuing to review it and review it very carefully.

I think what is perhaps interesting for investors is that any decision in this regard will be made from a position of strength, as evidenced by the operational execution in the second quarter of this year predicated upon our CDMA network.

I think if you look at our strength, whether it's our ability to deliver new client additions, whether it's the strength of our CDMA value proportion as it relates to data services delivering data growth, whether it relates to our leadership on the Smartphone front, or the way that we've successfully leveraged the economics of our Bell network sharing agreement.

And clearly we're doing very well in that regard.

As soon as we have made a decision in that particular arena, we will communicate it the way that we have done in the past.

Okay.

Thank you.

Alice, next question please.

Thank you.

And from RBC Capital Markets, Jonathan Allen.

Please go ahead.

Thanks very much.

First, congratulations on the wireless adds.

Very impressive for the quarter.

I'm curious though about the staying power of the Kudo brand.

I imagine it must have had a fairly material impact on the net adds for the quarter.

But I'm curious what your experience has been since the launch?

Was it a big launch and a big subscriber grab at the beginning and things have tapered off.

Or has subscriber additions been quite steady month-to-month going into summer?

And on a similar note, I'm curious about the COA on the Kudo customers.

Is the subsidy substantially lower for Kudo versus the traditional TELUS and hence, the lower COA we have seen the last couple of quarters?

Is that something had a is sustainable for the Company?

Jonathan, I will open it up and hand it over to Bob.

Actually, the staying power on the Kudo brand is quite short.

The brand is called "Koodo," and it's important that we provide that clarification.

Number two, our approach as it retails to a value-based brand is not short-term in nature, but rather investing for longer term success.

We think having a multiplicity of brands in the marketplace is the right thing to do in terms of creating economic value.

And I would say that that particular decision has improved in respect of its efficacy with the likelihood of new entrants coming to fruition post the AWS auction that transpired recently.

As it relates to your question, in respect of the cost structure.

I think if you are managing a value-based brand effectively.

Looking for a market that is complimentary to the TELUS market, where people really are value - - seekers.

Then you need to make sure that the cost infrastructure that you built to support that brand is very effective to support what you want to achieve in the marketplace from a pricing perspective.

I will hand it over to Bob if he wants to make any additional comments.

Yes.

The only thing I would add is consistent with tradition we're not providing brand-specific results or analysis.

If I could just clarify then from what Darren was saying.

Was there a big push at the beginning of the quarter than with subscriber additions for Koodo and then it tapered off?

Or have you seen things that have been pretty consistent?

I'm not going to comment because we're not breaking out how the brand is doing.

Clearly you launch a brand and that entails certainly activities, but what I tried to emphasize, Jonathan, is that this isn't an approach that is to deliver a result in 2008.

It's a longer term strategy.

I also think trying to draw inference from to month's worth of results is a highly statistic event.

All I can tell you is that our approach and our mentality as it relates to the value-based brand is long-term in orientation.

Clearly it takes effort to introduce it into the marketplace and, as well as per your last question.

We want to build a cost infrastructure for that brand that supports the fact that we want to have value-based priced proposition in the marketplace and I think that is the smart thing to do.

Thank you, Darren.

Congratulations again.

Thank you.

Alice.

Thank you.

Thank you.

And our next question, Goldman Sachs, Scott Malat.

Go ahead please.

Thanks for taking the question.

On the retention spending it was a little bit higher that we thought.

It just seems like you are subsidizing the Smartphones more aggressively.

Could you just give us the mix of your Smartphones, maybe the usage patterns on these devices versus Company averages?

We don't disclose the specific composition of Smartphone's in our subscriber base.

But I think it would be widely believed that we're leading the market by wide margin and respective adoptions.

And clearly our retention efforts have been quite successful in that regard.

So not only in terms of our product offering attracting new users to that category, but also internal migration to Smartphones.

Most particularly, perhaps, contrast with the U.S.

experience with our Mike [Guidant] brand.

We've been quite successful in on ongoing program of migration of more mobile phone centric users over to our PCS offering where they adopt a Smartphone with the associated data.

Revenue subscription which they didn't enjoy as Mike subscribers.

So that program entails not only a retention side, but a revenue enhancement in terms of getting the data converse subscribers.

Which really leads the Mike brand over time more and more to a centric service.

You can see in the overall churn rate that leave the industry, that has certainly been a successful program to date and contrasts markedly with the experience in the United States.

Okay.

Next question.

Thank you.

And our next question from Merrill Lynch.

We have Glen Campbell.

Go ahead please.

Yes.

Thanks very much.

Darren, I wanted to ask a little bit more about your cost reduction efforts.

You expressed - - I guess it's fair to say, some frustration in not being able to move faster there.

You've trimmed your - - restructuring budget from $50 to $30 and yet it's a stated target for the second half.

Can you talk a little bit about perhaps what is holding you back?

Is it internal factors, just execution, competitors, et cetera.

And what you are hoping to do there?

Thanks.

Thanks for the question, Glen.

I think one of the things I tried to point out in my remarks that if you go back to 2001, this organization has invested upwards of a billion dollars in efficiency initiatives that have been very significant in nature.

I guess what I am a bit frustrated with is that despite the continuity on that front and the significant gains that we have realized, we have tapered off in the last 12-18 months as it relates to those activities.

And I think we need to get back on track as an organization.

I am indeed disappointed to be revising downwards from $50 million to $30 million, our workforce restructuring charges.

And what I tried to highlight in my comments is that we're going to get back on track with our existing efficiency initiatives and we have a portfolio of those at tell us.

And I think it behooves us to find additional efficiency initiatives.

It's particularly true when you think that on the wireless and Wireline front, we have got all the challenges that - - are common to our industry as it results to marching compression from competitive intrusion or technology substitution.

But we also have to absorb the near-term dilutive impacts of some of our key strategies for success over the longer term.

Which is of course the J curves that are related to investing in the new value brand, investing in new data applications, trying to augment our performance on high-speed Internet access, supporting TELUS TV.

Also the very significant dilution that's associated with implementing some of the large wins we secured in the Enterprise market.

I think one of the things that has hindered us we have had a lot on our plate as an organization.

Trying to materially improve your productivity from a performance perspective at the same time you are going through a major IT initiative on the (inaudible) and the client care front.

Those two things are not always easily done being mutually inclusive.

And I think to the extent to which we can add a little more stability rather than have distractions as it relates to major M&A events, as it relates to Spectrum auctions and regulatory events and or course, get some stability with the new IT initiative.

I think having a little bit more of a regularized platform at TELUS will allow us to get back on track it as relates to what we need to achieve on the efficiency front.

And also source out additional efficiency initiatives that I hope I can communicate to the market in the quarters ahead.

And I think it' imperative that we do so given the dynamics of our industry, which are now impacting wireline and wireless.

Just to follow-up on that.

Is one of the possibilities on the table the possibility of a deeper network sharing arrangement with B.C.?

I know there has been a lot of talk about a joint network build - - and the technology aspect of it - - but is one the opportunities that is possibly there to move to a more of a network-sharing arrangement?

I think discussing specific programs, Glen, in a format such as this is not always in the best interest of our shareholders.

What I can say is that the network sharing agreement that we have had with Bell effectively since 2001 has allowed us to improve the economics of our wireless business.

It has also allowed us to introduce new technologies more expeditiously as we went through 1X and EVDO, and EVDP Rev A.

And I think those two characteristics of our network sharing agreement, the improved economics that it gives us through capital avoidance and the ability to bring new technologies to market more expeditiously.

I think those things have served us well in the past and I would hope that that arrangement would continue to serve us well in the future as we make the strategic choices in respect to technology.

Thank you very much.

Our next question from UBS Securities, Jeffrey Fan.

Go ahead, please.

Thanks very much.

I want to ask you a question on ARPU, on the non-data ARPU.

It looks like the decline was about 6% this quarter.

I know you gave us some reasons on what that was driven by.

But I was wondering if there were any sort of measures that you intend to take just on the voice alone to help stem that decline?

And as a quick follow-up, just to help us forecast your ARPU more accurately, I am wondering if you could at least provide us with some color on how the Koodo sales would impact your ARPU with everything else being equal?

Thanks.

All right, Jeff.

I think on the first part, again, reflecting Darren's comments on the prior questions.

I don't think this is really the forum to talk about future pricing in any respect.

But suffice it to say fundamentally it reflects the significant competitive rivalry that exists in the wireless industry to the benefit of the consumers and TELUS will price accordingly.

Having said that, the question is phrased from the standpoint of what are you going to do about voice ARPU going down?

TELUS has had a leading ARPU for many, many years now, and we're glad to see someone else has gotten up to our level that is a healthy thing.

I think with respect to future pricing dynamics in the Canadian industry.

In terms of the Koodo impact, again, we're not giving specific disclosures as it relates to Koodo.

But I think if you do some rough mathematics, given the size of our subscriber base.

The fact that we only launched the product in the last week of March.

And therefore, the results related to that would be only have a partial impact in terms of ARPU in the quarter, I think you would find it would be incidental.

Thank you.

Alice, next question please.

Thank you.

And our next question from Janus Capital.

Devi Gill, go ahead please.

Thank you very much.

If I could follow up on two points.

Number one on the Koodo, it seemed like it added a lot of subscribers in the quarter, in part, because there is no system activation fee or contract.

Are you concerned that it will canabalize your core - - TELUS Mobility brand.

On on the HP VA, is there a legal issue in as much as a 30 day cool off period post auction from industry Canada.

Does that preclude you from making an announcement visa VHA until I think it's September 3rd?

Well, the first question, I think, related to in terms of the lack of it on Koodo and whether there is canabalization we're concerned on our core brand.

All I would say is we have reported statistics today with very low turn rate for the organization, good subscriber adds.

So you can impute from those the answer.

In terms of the legal question, I don't know what exactly you are referring to.

I think Darren talked about this not being the forum to speculate about agreements and negotiations in terms of legal restrictions that relates to collusion for AWS.

So I don't so see how that relates to - - if you are referring to a network sharing relationship that we have with Bell or an amendment to that, but I'm not really familiar with the concern that you have.

That was the question.

Thank you.

Next question, Alice.

(OPERATOR INSTRUCTIONS)

Now and our next question is from BMO Capital Markets, Peter Rhamey.

Yes.

Thanks for taking my question.

I would like to talk a little bit about wireless.

Wireless has been earmarked by a balance between growth and profitability.

And I note in this quarter that fantastic net adds is another color that I complimented you on.

Should we see this as investors as a change in the balance that you are taking ahead of competition - -new competition coming into the market?

Or is this more or would you take a look at your ARPU trends and say perhaps you got a bit too aggressive in the quarter.

And I do note also that your total COA costs were not up that much, so maybe it's a bit of a surprise for you.

Any color you could add, Darren or Bob, that would be fantastic.

I think if you reflect on our COA whether it's nominally or on a per gross ad basis.

It underscores very strongly the fact that our marketing was both efficient and effective in the quarter.

Number two, as per Bob's comments to correlate the $0.92 reduction in ARPU with our value brand launch is a mathematically incorrect thing to do as it relates to our second quarter results.

I think it's important to note as an organization, the focus at TELUS has not been on client sales, but rather generating profitability.

The heritage of this organization has been a Company putting more emphasis on revenue and EBITDA growth than subscriber additions.

We have brought a value-based brand in the marketplace for competitive positioning reasons.

We want to make sure that that value-based brand is complementary to the focus that we have with the core TELUS brand and it's nice to see that we experienced some traction in the second quarter.

But we have a long way to go yet and to draw inference from only effectively four month's worth of results.

I just don't this is an accurate thing to do.

If you look at ARPU delusion, there are really three driving factors that are independent of what we have done on the value-based brand front.

As Bob has indicated the wireless market in Canada, despite conjecture to this effect is a very competitive market place.

And we're experiencing outprice commoditaztion on the voice side.

Which is indicative that the market is healthy, robust and the competitive dynamic is very strong.

In addition, to that we have been working hard, as Bob indicated in his comments, as it relates to our Eident base to transition some of our Eident consumers who are not heavy users of Push To Talk, over to our PCS technology where they can avail themselves about voice and data applications.

And I think that is an economically-positive thing to do and we're looking hard to purify our Eident base down to a true Push To Talk base that values the dispatch capabilities of Eidentt.

Another factor in a hasn't been discuss, as well as you are well aware, we won the Government of Canadian contract and that Government of Canada contract has come with a lower ARPU.

So as we ramped up our position with the Government of Canada and brought more of those clients onboard.

They have come on board with a lower ARPU, and we're work hard as an organization to try to try and put additional features into that relation that are good for the government to improve the ARPU.

But that too has had a dilutive impact and contributing, as well to as it relates to the $0.92 reduction.

I guess the last thing is - - we always talked about efficiency as a Wireline initiative.

And I think what the future entails for us is to think about efficiency from both a wireless and Wireline initiative and make sure that we build a cost structure on the wireless front that allows us to be very resilient to the inevitable pressures we'll face on ARPU over the longer term.

And that is exactly what the Company is up to.

Thanks very much, Darren.

Thank you.

From Morgan Stanley we have Simon Flannery.

Please go ahead with your question.

Quick question on the Mike to PCS conversion.

I was curious if you were evaluating any strategies to transfer heavy Push To Talk users over to PCS.

And if so what are your thoughts on the (inaudible) technology?

No, is answer to the question.

I think people that are heavy Push To Talk users are exceedingly well-served by Eidentt.

I would say the Eidentt position has strength in the market as we haven't really seen competition from the likes of CDMA Push To Talk with the (inaudible) platform, or Kodiak really come to fruition.

So I would say Eidentt is stronger than ever.

We have got the best handsets that are appropriate to the type of market that we're seeking to address.

They are when you are addressing the transport industry - - the construction industry, the oil and gas industry, and the like.

They value the rugged that are unique tot Eidentt.

We still lead a by significant margin when it comes to mitigating call latency and comes to being first in class as it relates to speed of call set up.

I have to tell you when you are a heavy PTT user, mitigating call latency, and having quick call setup, are the characteristics that you value greatly.

So that is the base that we're going to continue to nurture.

The economics are very attractive when you look at the type of ARPU that we can generate, a relatively low churn rate on a CapEx intensity that is in the single-digit figures.

After that makes for a very tidy economic profit and from our Eidentt business and we should continue to be responsible and nurture the business and economics associated with it.

What we are doing is within the Eidentt base of customers not heavy users of Push To Talk particularly, and these are more consumer oriented client.

Taking the opportunity to migrate them over to PCS, which is MP VD positive because they go from being essentially voice customers to people that can now be voice and data customers given how rich the application portfolio is within our CDMA and that is why I made the comments seeking to purify our Eidentt base, down to the heavy Push To Talk users.

On the (inaudible) front that is a technology area we're continuing to evaluate and have discussions with our U.S.

counterparts in that regard.

No comment beyond that to make at this particular juncture.

Thank.

Alice we're through our questions in the queue.

So I would like to thank everybody that has joined us today and we look forward to working with you in the coming months and quarters as we go forward.

So thank you very much for joining us today.

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

Thank you from TELUS.