Telus Corp (TU) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the TELUS Q4 2008 earnings conference call.

I would like to introduce your speaker, Mr.

John Wheeler.

Please go ahead.

Welcome and thank you for joining us today for our fourth quarter 2008 investor call.

The call is scheduled for one hour or less.

The news release on fourth quarter financial and operating results and detailed supplemental investor information are posted on our website.

In addition, for those with internet access, the presentation slides are posted for viewing at telus.com/investors.

You'll be in a 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, and 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 disclaimers and refer you to the risks and assumptions outlined in our public disclosure in filings with Securities Commissions in Canada and the United States.

Turning to Slide three for an outline of today's agenda, we will start with introductory comments by Bob McFarlane, Executive Vice President and CFO.

Bob will review both segmented and consolidated results, give updates on the issues outlined and end with TELUS's 2009 corporate priorities.

This will be followed by a question-and-answer session.

Darren Entwistle, President and CEO, will be participating in this part of the call.

Let me turn the presentation over to Bob, starting on Slide four.

Thanks, John, and good morning, everyone.

Let's begin with a summary of the wireless highlights on Slide four.

Wireless revenues were up 7%, based on 10% growth in the wireless customer base, partially offset by lower revenue per subscriber.

EBITDA is adjusted and, excluding $6 million in restructuring costs, increased by 1.4%, squeezing wireless margins due to the impact of record fourth quarter gross loading, higher COA expense, as well as retention efforts focused on upgrades to Smartphones.

We also saw increases in certain network operating expenses due to very strong growth in data usage in roaming, as well as higher content and licensing costs from the excellent 55% increase in data revenues.

CapEx investments increased by $101 million, reflecting the new HSPA network buildout.

Turning to Slide five, net adds for the quarter were $148,000.

Importantly, while loading was lower than expected, post-paid net adds remain strong and increased 11% year-over-year and represented 80% of total new subscribers.

After strong loading gains for the first nine months, we were impacted by new competitor pricing in response to the continued success of our Koodo post-paid basic service brand.

Also impacting subscriber loading was late delivery of the BlackBerry Storm which missed much of the holiday shopping season.

Overall, our cumulative subscriber base, up 10%, totals more than 6.1 million with the more valuable post-paid customers representing a strong 80% of the total.

The next slide shows that 2008 was a tremendous year for wireless subscriber growth on a gross and net adds basis, particularly when looking back over the last seven years.

TELUS has consistently produced more than 500,000 net adds in each of the last five years.

We achieved record subscriber loading this year as gross adds increased by 15% and digital net adds shown in purple reached 588,000, up 14% year-over-year.

Our 2008 results reflect the successful launch of Koodo Mobile, our efforts to build our distribution strength and strong Smartphone adoption.

The graph on the left-hand side on Slide seven shows TELUS's total wireless ARPU for the fourth quarter declined by about 2% to $62.

The decrease was the result of voice ARPU declining more than data ARPU increase.

The largest contributor to the decrease in ARPU for TELUS in the fourth quarter and for 2008 has been our MIKE product.

MIKE does not exhibit the same kind of upside from data or other wireless services and therefore more exposed to voice reprice.

This was compounded in the fourth quarter by the economic downturn in the manufacturing, construction, oil and gas sectors which MIKE has a significant subscriber base in.

Also impacting ARPU is continued pricing competition, increased use of included minute rate plans, increased penetration of our basic service brand and a slight decrease in voice roaming.

Partially offsetting the voice decline, was the strong growth of data ARPU which increased by more than $3 to more than $11 overall.

Slide eight shows two of our newest Smartphones, available from TELUS including the BlackBerry Storm touch screen as well as the new BlackBerry Curve MIKE, MIKEBerry, as we affectionately refer to it here at TELUS.

While we expect to continue our active MIKE migration program, this new MIKE handset will give users who utilize MIKE's push to talk capabilities, a full suite of data applications including access to corporate e-mail at speeds comparable to EVDO and Wi-Fi enabled areas.

While fulfilling a need of a segment of our MIKE subscriber base, the addition of the BlackBerry Curve MIKE may also help stem the ARPU erosion on our MIKE product.

We continue to enjoy considerable success in the important Smartphone category and see it as continued growth area even as the economy is slowing down.

Slide nine shows our fast growing wireless data revenue as well as percentage of network revenue.

Data revenue growth for the fourth quarter increased by 55% year-over-year to reach more than $200 million and now represents 18% of network revenue, compared to only 12.5% a year ago.

It is important to note that the 18% is an average of total subscribers and impressive when considering this includes our MIKE service, which generates only a small amount of data revenue.

We remain very bullish at TELUS for continued strong wireless data growth, given the increasing in sales of 3G capable devices, the ongoing introduction of higher bandwidth applications as well as the continued orderly migration of non-dispatch MIKE users and higher value pre-paid subscribers to Smartphones.

Slide 10 reflects the continued focus on our wireless marketing retention efforts in the fourth quarter.

Gross additions, a fourth quarter record increased by 5% with post-paid gross adds increasing 16% year-over-year.

Digital churn increased slightly by three basis points to 1.62%, due to an increase in competition and the impact of higher prepaid churn.

COA per gross add increased 10% year-over-year to $388 reflecting a combination of higher advertising expenses, lower gross adds due to the late arrival of the Storm than expected, a handset inventory valuation adjustment, and higher subsidies in Smartphones as a result of pricing competition.

In aggregate, COA expense increased 16% to $172 million due to higher subsidies to support the adoption of Smartphones and higher marketing costs for reasons I just mentioned.

Cost of retention increased by 10%, but was relatively flat on a percentage of network revenue basis.

Wanted to give you a quick update on the ongoing progress of our HSPA network overlay as shown on Slide 11.

As announced in October, we've selected and are working with Nokia Siemens networks and Huawei Technologies for the core and radio access network equipment.

TELUS's planning is complete and the network build commenced at the beginning of the fourth quarter.

We reached notable milestones in completing our first HSPA mobile phone call, video telephonic call and data call back in December.

The beginning of the HSPA network deployment boosted CapEx in the fourth quarter.

And as a reminder, is included in our 2009 consolidated CapEx target of slightly more than $2 billion.

These costs of course are being shared with Bell.

We remain on track for service launch by early 2010 to bring the benefits of this investment to our customers and investors.

The HSPA network overlay provides TELUS with an optimal upgrade path to long term evolution or LTE for a fourth generation of wireless networks.

Before reviewing our wireless result -- wireline results, excuse me -- I want to take a moment to update you on our operating efficiency program on Slide 12, which predominantly impacted our wireline segment but is also an area of focus in wireless.

During the fourth quarter, efficiency initiatives significantly accelerated restructuring costs in the quarter were $38 million, compared to $6 million a year ago.

In total, $59 million for all of 2008 compared to only $20 million in 2007.

The vast majority of these restructuring costs were incurred in the wireline side, due to the legacy nature of many wireline services that are in decline and to insure resources or to redeploy to the growth areas of our business.

TELUS has multiple efficiency initiatives underway including a compensation freeze for management in 2009.

Other initiatives have included business unit consolidation, reduced management layers, and optimized bans of control, as well as tightened expense control on items like travel being substituted by increased video conferencing.

As previously announced we've assumed a sizeable $50 million to $75 million in restructuring costs as operational efficiency remains a key priority for 2009.

Turning to the wireline financials, starting with revenue on Slide 13.

Local and LD revenue declined moderately, reflecting the continued competitive environment and substitution effects from wireless and VoIP.

When adjusting for CRTC credits in the fourth quarter of 2007, local revenue was lowered by about 4.6%.

Strong wholesale growth and long distance revenues partially offset the retail erosion with a 3.4% drop overall.

Data revenue increased by 13% due to revenues from the Emergis acquisition, increased managed data revenues in business and continued growth in broadband revenues from high speed internet and TELUS TV subscribers.

Underlying data revenue grew approximately 3%, adjusted for acquisitions and regulatory impacts.

Total wireline revenue rose nearly 4%.

Turning to Slide 14, we can see that wireline profitability, when excluding for $32 million of restructuring costs, actually increased by nearly 2%.

Notably, salaries, benefits and other employee related costs declined 1% this quarter.

Also impacting profitability were higher expenses associated with the increased 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 implement services for new enterprise customers related to a number of significant contracts, such as the Department of National Defense and the Government of Ontario.

Capital Expenditures increased 17%, mainly from increased up front expenditures to provide support to large new enterprise customers, healthcare, and financial service solutions, and broadband services.

Let's move to Slide 15 and briefly examine our internet results.

High speed net adds improved sequentially in the fourth quarter of 19,000 new subscribers.

This result compares favorably to the loading experienced recently by other Canadian operators.

A combination of factors lead to the year-over-year decline including in maturing market, the emphasis on deep discounted bundling prices across the home phone and internet products, and lower household formation due to the economy.

The improvement on a sequential basis is due to better operational execution in the fourth quarter, while the third quarters typically better due to the back-to-school phenomenon.

As well, we're seeing better high speed results where we have TELUS TV bundled offerings in the marketplace.

This reinforces the increasing importance of consumer bundles and our strategy to continue to invest in expanding our broadband speed and coverage including the TELUS TV and Hi-Definition footprints.

Overall, our high speed internet subscriber base is up 7.5% year-over-year.

Let's turn to Slide 16 for a business solutions wireline update.

Late in December, TELUS was selected by the Government of Quebec to deliver and manage the province's data network.

This was a significant milestone for other reach and expansion, and focus on key industry verticals, notably the public sector.

Network planning is under way, and although this is a long-term up to 10-year agreement, it's likely to be a typical enterprise investment that's dilutive to earnings in the near term before the revenues ramp up and cash flow turns positive.

In addition, our TELUS health solutions unit which is integrated with the operations of Emergis now, is well positioned to exploit the projected growth in healthcare IT spending for the next few years.

This includes the federal governments recently announced $500 million program to have 50% of Canadians with an electronic health record by 2010.

TELUS has the expertise and solutions to compete for this business as well.

Slide 17 highlights how our wireline network access line performance compares favorably to our peers across North America.

Business lines were up 36,000 or 2%, reflecting the success for out of region expansion as just discussed, partially offsetting continued residential line erosion.

Residential line losses totaled 42000 in the fourth quarter, a sequential improvement in TELUS's best quarterly results since the third quarter of 2007.

On a year-over-year basis, overall, consolidated line losses were stable at negative 3.6% due to losses of residential lines to VoIP competitors, particularly cable TV companies as well as ongoing technological substitution to wireless services.

Putting it all together, let's quickly look at TELUS on a consolidated basis starting on Slide 18.

Consolidated revenue in the fourth quarter grew by 5%, while EBITDA is adjusted when excluding for restructuring costs increased by nearly 2%.

Reported EPS decreased by 27%, but when favorable income tax related adjustments which were recorded in both periods are backed out, EPS was actually slightly higher by just over 1%.

I'll elaborate on the various drivers behind EPS on the next slide, but in the meantime, CapEx increased by $159 million, driven as already mentioned, by the new HSPA wireless network buildout and wireline investments in broadband infrastructure and new enterprise customer deployments.

This next slide shows the detailed break down of the components of reported EPS when we exclude the positive income tax related adjustments in both quarters represented by the green bars.

Underlying EBITDA growth generated $0.03 of growth while lower 2008 tax rates also added $0.03 of growth this quarter.

Lower outstanding shares and lower depreciation and amortization contributed $0.04 of growth.

Higher restructuring costs contributed $0.06 to the decline.

Meanwhile, higher financing costs associated with higher debt levels which exceeded a lower interest rate cost, following the Emergis and AWS spectrum outlays, were partially offset by reduced interest rates.

This combined with other items negatively impacted EPS by about $0.03.

Slide 20 shows TELUS's scorecard on a consolidated results, compared to our original 2008 target which were set before the year began in December 2007.

Consolidated revenue and capital expenditure guidance were achieved, but amid some wireless EBITDA caused a small miss in consolidated EBITDA and a 4% shortfall in EPS.

Not shown on the slide are our segmented targets for 2008.

TELUS achieved three of the four segmented targets as well as two of the four original consolidated [ones].

To conclude our financial review, TELUS's consolidated and segmented targets for 2009, as announced in mid-December, remain unchanged.

TELUS recently announced it will be opening a call center in Clark County, Nevada to provide bilingual Spanish/English service.

In addition to internal offshore work, TELUS international currently provides call center BPO support for some of the world's largest IT communications, consumer electronics, financial services and energy and utility companies which have contracted that work to TELUS.

For certain clients especially our US-based clients, we need Spanish language agents in the new center will allow us to provide that capability.

Adding a contact center in the US, along with a recent central American investment, will give TELUS important geographic business disruption back-up and multiple language capabilities when bidding future call center outsourcing opportunities.

As the contact center industry evolves, companies are starting to consolidate their contracts with fewer providers and the expansion of TELUS's international capabilities should help insure we're well positioned to compete for that business.

In light of the continued capital market volatility, I'll take a moment to review TELUS's funding position as shown on Slide 23.

TELUS has a committed $2 billion credit facility with a syndicate of 18 financial institutions that does not expire until May 2012.

As announced in December, TELUS extended its 364-day credit facility for $700 million to March 2010 with a syndicate of Canadian banks.

This ability to extend our $700 million credit agreement in the current credit markets demonstrates TELUS's capability to finance itself in a challenging environment.

As a result of our long track record of setting and living up to our clear transparent and prudent financial policies, TELUS has maintained a strong balance sheet, supporting our healthy investment grade credit ratings.

Given the recent trend in our industry for others to set similar policies, it's clear we set the standard for capital structure optimization in the Canadian telecom industry.

As I've noted in recent conference calls, an array of traditional sources of capital has consistently been open and available to TELUS during the past six months, a period of capital market volatility.

As stated previously, if conditions become advantageous, TELUS would consider terming out some short-term financing.

Slide 24 outlines our 2008 actuals and an update to our pension assumptions for 2009.

Yet again, TELUS pension investment management team, lead by Bob Camp, beat the benchmark in 2008 which is one way to look at a negative 15.8% return on assets.

In any event, over the past 15 years, TELUS has achieved a rate of return greater than our 7.25% accounting assumption.

The impact of reduced pension asset values in 2008 will be partially offset by an increase in the discount rate for '09 to 7.25%.

We now estimate a pension accounting expense of $18 million in 2009, an increase of approximately $118 million over 2008.

We also expect an increase in cash pension contributions in '09 of approximately $109 million.

TELUS pension contributions will be tax deductible, partially offsetting the funding requirement impact on an after-tax basis.

Before I conclude with a review of our '09 corporate priorities, let me quickly recap the quarter.

TELUS's consolidated revenue growth was driven by data revenue in both wireless and wireline.

In wireless, post paid net adds remain strong and represented 80% of new customers.

We continued to build momentum in winning and implementing large public sector contracts, including a recently announced contract with the Government of Quebec.

TELUS health solutions is also well positioned for the opportunities in the healthcare IT sector.

We demonstrated operating cost control with restructuring investments significantly accelerating in the fourth quarter and continuing into 2009.

TELUS continues to invest to fund strategic growth initiatives as shown by our CapEx increase.

TELUS has maintained its access to capital, extended its 364-day credit facility and has kept its access to liquidity at greater than $1billion.

Finally, our 2009 consolidated and segmented targets are unchanged.

Consistent with our 2008 corporate priorities, Slide 26 outlines our '09 corporate priorities guiding TELUS this year as we strive to achieve our strategic imperatives.

First, we will continue to advance our broadband strategy by enhancing broadband access for wireline and wireless clients.

For example, we will continue to expand our broadband infrastructure in our incumbent territories to advance our future friendly home strategy.

In addition, we'll be focused on quality implementations and service delivery for a significant large complex solutions.

Second, we'll build off the momentum of our efficiency initiatives in the back half of 2008 into '09 to continue to improve our cost structure and productivity.

Lastly, we'll focus on outpacing the competition and fostering enhanced loyalty for our clients through an engaged TELUS team.

This will entail continued focus on training, for example, which will not sacrifice to the temptation of short-term thinking.

In these three ways, we aim to build on our considerable strengths to create future growth and value for investors despite the challenging times.

Let me turn the call back to John.

Darren and I will be pleased to respond to your questions.

Thanks, Bob.

I'd draw attention to two slides in the appendix on certain financial definitions and a reconciliation of our free cash flow schedule.

The free cash flow definition has been amended to now include employer contributions to employee defined benefit plans.

Before we start the Q&A, I would ask for your cooperation in asking one question at a time, please.

Please proceed.

Thank you.

(Operator Instructions).

And our first question today from National Bank Financial, we have Greg MacDonald.

Go ahead, please.

Thanks.

Good afternoon or good morning, guys.

Questions on dividend policy.

This has been -- or the end of 2008 at least, a pretty tough year for pension solvency trends, prospect of a rough economy is out there, arguably companies looking at higher than normalized CapEx because of the HSPA spending.

I would argue and some might also that this is as bad as it gets for the free cash flow outlook of this company, yet you're still putting up a pretty nice buffer between what the free cash is and what the dividend is.

The question I would have on the dividend policy is what really is the Company looking for, before it's comfortable increasing the payout on the dividend, particularly given the delta of I would say, roughly 20% difference between what your target pay out ratio is and what most of the other telcos out there are paying out in terms of a percentage of earnings or percentage of free cash flow?

Thanks.

I think the first thing is usually dividend policies are also set, reflecting not only the profitability of the Company and its current state, but what its growth prospects are.

If we have a higher growth prospects, and then all of the telcos are unfamiliar with, then consequently our dividend policy reflects the future free cash flow expectations.

Which in our case involve some investment in future growth as well.

Our policy which we've been compliant with is very transparent.

It's linked to five consecutive dividend increases over the past five years which certainly is not being replicated in the telecom industry in Canada and by others.

We have a very strong record of building dividend growth.

We've repurchased a significant amount of shares over the last four years.

We've returned -- like the industry, in terms of returning capital in combination with growth.

That's a pretty good track record.

We're going to continue that going forward, so from that standpoint, we are comfortable with our ratio.

We've been very clear in terms of our leverage policies as well.

Here we're at a position, right on the back of a significant outlie per spectrum of buying a strategic investment last year which is being integrated very successfully, and positioning ourselves extremely well in what's turning out to be one of the highest growth sectors in the Canadian economy.

We have the room to invest in a significant wireless network buildout as our path to 4 G, and at the same time raise our dividend in the midst of a recession.

From that standpoint, I think our financial policies are serving us well and has served our shareholders well so we're going to continue to do that going forward.

Thanks.

Next question?

Thank you.

Our next question from National Bank Financial is Greg MacDonald.

Please go ahead.

I don't have a second question and so I'll let it go to someone else.

Thanks.

And the next question from Goldman Sachs is Scott Malat.

Go ahead with your question please?

Thanks.

Just my question is on wireless flanker brand strategy.

I just wanted to understand a little bit more on the differentiation strategy for Koodo versus TELUS.

As you think about the flanker brands from some of your competitors, some are offering smart phones in [Imodo-Q) and then the Pearl on Fido.

I just want to understand if this dilutes a little bit of differentiation in the flanker brands and what other differentiation you look at between the two.

I think the philosophy that we have in terms of bringing our flanker brand to market this past year, was one of making sure that it was structurally distinct from the core brand.

I think that particular strategy has been somewhat unique to TELUS, and not always apparent across our industry.

If you look at the Koodo brand, we would call a basic brand; you could call it a no frills brand if you want.

Essentially the attribute that we wanted to embody within our value proposition was one of simplicity and affordability, as it relates to routers which is effectively talking and texting.

That's the value prop that we instilled within the Koodo offering.

That is significantly different than the full feature rich content and form factors that typically we push out through our main TELUS brand.

The other things that I think are worth noting is that we chose not to intermingle our channel strategy as it relates to the direct TELUS brand.

We very purposely insured that as it relates to TELUS stores, the TELUS stores were focused on moving forward, the TELUS brand, from feature rich handsets right through to TELUS smart phones.

Whereas we build a distinct distribution channel to support Koodo, and invested in that accordingly.

At the same time as leveraging other retail relationships that have been traditionally strong for the TELUS organization.

Are there geographical differences in where you're focusing your efforts for Koodo versus TELUS?

No, it's national in its orientation.

I think there is some geographic difference in the sense that the distribution for Koodo is not as pervasive as the TELUS distribution.

But no, it's national in its orientation and no typical geographical constraints.

Although I'd say for the market that Koodo really attracts, it's more of an urban market so to speak, but that's not a purpose full limitation as it relates to the service.

The other thing that we chose to do with Koodo is to try and focus on ARPU.

The sale went well for bringing a brand into the marketplace that's core in its orientation from no frills perspective.

Let's make sure there's no frills in the cost perspective as well.

If we're going to think about a flanker brand, let's think about the AMPU as something that takes predominance over the ARPU so that we get a meaningful marching contribution from the service.

I would say that mentality has extended into our selection of handsets to make sure that the economics on the COA are as attractive as possible, in addition to the Koodo support infrastructure where we've leveraged business process outsourcing from a contact center perspective and various other mechanisms to insure that we had the lowest cost base possible in respect to Koodo.

You've also not seen us as of yet -- I'm not going to say never that this is going to be the case, but effectively we've focused on simple talk and text and have not extended yet into the smart phone market in respect of Koodo.

That's currently still our strategy.

How the future evolves will be somewhat contingent upon how we respond to competition in the marketplace.

It would be fair to say that the competition that we have experienced this far, I think has been overtly responsive to the attractive attributes of the Koodo product itself as it went through its [nason] stage this year.

Thank you.

Next question please?

Thank you.

Our next question from Canaccord Adams, David Lambert.

Go ahead please.

Thank you.

I'm trying to get back to maintenance CapEx.

I was wondering if you could break down your CapEx for the quarter.

How much was dedicated to the TD initiative/FTDN?

And how much was dedicated to the HSPA and how much was dedicated to the newest enterprise contracts that you guys have won in the last few quarters?

We don't provide a breakdown on a detailed basis of our CapEx.

I don't think maintenance CapEx is [particularly relevant], given the status of our firm.

I don't think that's particularly relevant thing to go and answer.

Obviously, we're doing significant expenditures.

One can look at the historic CapEx pattern of the Firm, can look at the depreciation and amortization rate where our CapEx is in excess of our rate at the current juncture, given the significant buildouts we got going on.

I think that's probably the most relevant thing I can guide you to.

Okay.

Thanks.

Next question?

Thank you.

Next question from Genuity it Capital Markets, Dvai Ghose.

Thanks very much.

Now that Bell is staying public, obviously our clients have to make a choice, in large part between Bell and TELUS.

Clearly the two things which seem to be favoring sentiments towards Bell today, are number one, cost cutting and number two, capital intensity.

I'm wondering that on the cost cutting side, you've given a bunch of restructuring charges.

You've never really told us what benefits these are expected to bring in '09 and onwards, and what headcount reductions.

I think that would give a lot of comfort to your investors.

The other issue is capital intensity.

Your capital intensity is 20% and 16% -- the key difference is the select strategy.

You've given us big picture numbers about contracts and costs, but can you give us an idea as to what the profitability and outlook is and whether it's generating cash at the moment?

What margins we're looking at?

Because really you've given us all the bad news without any of the good news in my opinion.

Dvai, I wouldn't characterize it that way.

I'm pretty sure we gave you guidance for 2009 that reflected growth for TELUS, in terms of our revenue and operating profitability, that is reflective of everything from our growth initiatives through to the efficiency measures that we have talked about previously.

I don't think cost cutting is an area where TELUS historically has been deficient by any stretch of the imagination if I look back over the last nine years.

We have given you I think some considerable detail, in terms of what is effectively being a 195% increase in our restructuring costs in 2008 versus the previous year, which is I think indicative of the efficiency focus that we have going on within the organization.

We've earmarked up to another $75 million in 2009.

I think we've been reasonably explicit in terms of what we are doing as it relates to the efficiency activities themselves in terms of spans and layers being maximized within the organization, which means we are looking to reduce our staffing levels.

We have been doing that within our organization, not in a broad based expensive fashion from a bioperspective, but something more strategic and prudent.

We continue to pursue offshoring BPO activities to further compliment the reduction in our cost base.

We've talked about the rationalization of products and as well, procurement arrangements within the TELUS organization.

We of course, as Bob indicated in his comments, implemented a management compensation freeze proactively in Q4 of 2008 for the 2009 financial year.

I also think we've exhibited a reasonably positive payback on our activities in this area.

Our activities in this area now I think importantly, are not just relegated to the wireline side of the business, but we're also equally concerned with EBITDA flow through on the wireless side of the business.

Of course we have activities going on in that particular area.

To provide you additional disclosure beyond what we have framed out for you as it relates to the major financial parameters of this organization for 2009, is not something that we would intend to do.

As it relates to the CapEx intensity, yes, we have a higher CapEx intensity because we think we have better growth prospects as it relates to the asset mix of this organization.

I think we, over the last nine years, have proven that time and again, quite categorically, that we can invest money in our core business effectively in our domestic market on areas that are precisely on strategy and get a very decent return from those investments and allow shareholders to participate in those returns by the amount of cash that we return to them.

If you look as it relates to both your question and Greg's earlier question, since December of 2004, TELUS has returned approximately $4.4 billion worth of cash to shareholders, circa $2.7 million being returned through our success of NCIB programs.

And the remainder, up to the $4.4 billion through the success of five-time increases that we've affected in respect of our dividend growth model and the fact that we have been able to incrementally increase our dividend.

I think, Dvai, as well as it relates to the CapEx intensity, because of the numbers that I've just referenced, it hasn't come at the cost of returning money to shareholders.

We have been able to both invest for the future and simultaneously, which frequently in many organizations is mutually exclusive both invest for the future and continuously return money to shareholders through the two mechanisms that I've articulated .

If you look at where we're spending our money right now, I think it makes darn good sense to spend the money on our broadband initiatives holistically, both in support of the wireless deployment, and we have set out the rationale for that activity quite explicitly.

And I thought it would be well understood by the marketplace, as well as our broadband wireline activities within our ILEX franchises to insure that, as it relates to the wireline side of our business not only do we protect the margin inherent in our legacy services, but we pursue growth paths from HSIA to the GB servers that we've in inaugurated that is doing very well for this organization.

Then the last area for CapEx, again, to give you some detail -- to color it in, would be the large complex deals that we have been successful on.

First thing to point out is the CapEx there is not fixed, but it's variable.

It's contingent upon success.

We only incur it if we are successful in the RFP.

And of the 20 large complex deals that we have secured, 17 of the 20 are cumulative cash flow positive.

They are accretive to cash and are cumulative cash flow positive, indicating that we've recouped the investment that we made putting the infrastructure in place in the first place.

The three that are not yet cumulative cash flow positive are those that are just being implemented or have just been implemented, and will be becoming cash flow accretive over the next 12 months.

That's been a very good area economically for us.

I would say when you look at our growth prospects, a substantiated CapEx intensity difference from some of our peers is well justified by the growth that we are capable of delivering, the fact that that doesn't come at a cost of returning cash to shareholders.

I think is something consistent with the track record that we've been out to establish over the

Thanks for the additional color.

Appreciate it.

Thank you.

And our next question from Morgan Stanley, we have Simon Flannery.

Go ahead please.

Thank you very much.

Good morning.

I wonder if you could talk a little bit about the macro environment.

You talked a little bit about the impact on MIKE.

Are you seeing an impact on things like bad debts, long distance minutes of use, and then any difference between the consumer and the business patterns and any regional differences you're seeing?

Thank you.

Since we talked in December, the economy has worsened in Canada and so generally economies are expecting negative growth overall.

We have a greater than normal concentration of activity in western Canada which has been more buoyant.

I think of all regions probably BC is the most buoyant.

The Alberta economy which was on hyper growth six months ago is now just on a normal growth, as the result of the oil [path].

On the enterprise price level, it is somewhat specific to industries.

But if you look at the four verticals that we tend to focus on; energy and financial services, you're seeing some more deferrals of projects than formerly was the case.

In the case of our healthcare focus and public service focus, I would say those opportunities are expanding.

Sectors such as manufacturing have not been and are not a significant focus or exposure to our organization on the wireline side.

I did reference MIKE in respect of wireless, of course MIKE is a relatively small component of our overall subscriber base, but nevertheless, contributed and was the reason why our ARPU declined year-over-year.

There was a noticeable change in some demand in the fourth quarter in the MIKE area.

I think that reflects the fact that of all our products, MIKE is most exposed to the manufacturing sector in the central Canadian economy which we otherwise really do not focus on.

That's probably why it showed up more there.

Our days outstanding and like have really not changed whatsoever.

In terms of bad debt experience, one has to segregate what maybe say, economy driven bad debt versus certain credit policy strategies.

In that regard, certainly on the large corporate side, we really have not seen any defaults that I can think of of any materiality.

Whereas we are seeing some softening in the small business and medium size business sector.

Although again, overall, we have not had any noticeable increase in bad debts on the business side.

On the consumer side, it is somewhat reflective of the productline.

Certainly you go to wireless, prepaid is a different category than post paid.

We are, as you know, 80% or more post paid focus in our subscriber base.

We are seeing some increased bad debts, et cetera, but we're managing those with certain deposit requirement programs.

We're going to continue to monitor that area to make sure that the return on all segments we're focusing on, after taking into account possible adverse developments in bad debt, still justify the returns that we're looking for.

That's very helpful.

Thank you.

Next question please?

Thank you.

Next question from Scotia Capital, John Henderson.

Go ahead, please.

Thank you.

I'm trying to understand your branch into the call center outsourcing business in central America and the US..

Can you just spend a bit of time on that please?

Sure, a few things I think are worth highlighting on that.

One is the vertical focus that's been the hallmark of our national expansion of business wireline services is once again, evident here.

One of the verticals that we've elected to focus on through our partner solutions wholesale business is the US telecom and IT industry, and in particular IT companies and tier 2 US telecom companies that are interested business process outsourcing opportunities.

Which is quite a vibrant market right now as the telecom industry has been under duress and telcos, particularly tier 2 telcos that don't always have access to economies of scale, go in pursuit of efficiency initiatives particularly as it relates to contact center activity.

If you're going to address that market effectively, really what you have to have is an onshore capability to compliment your offshore contact centers that provide the bulk of the efficiency gains.

It's that two site [depology], the onshore component which can be politically obedient, particularly for US telco and IT companies which can act as a gateway for increased offshoring activities where they can avail themselves of lower cost markets.

That for us effectively is the primary strategy behind it.

Secondarily, clearly if you're going to address the US market in a effective fashion, then you need Spanish language capabilities without a doubt.

That's what has driven our minority investment in APPO operation in Latin America -- three cities within Latin America for the purposes of geographic and political diversity so that when we go to serve those US telcos as they serve their clients, we have both English and Spanish language capabilities.

Of course the selection of Las Vegas helps support that because of a Spanish language market that we can access there as well.

Third thing that I think that's important to point out -- one of the things that has concerned us in the past is the concentration of our BPO activities within the Philippines.

From a risk management perspective, we have not been satisfied that we have the degree of diversification that would make good sense if you want to run a robust BPO policy and mitigate geopolitical considerations.

Having two additional sites now compliments the TELUS international portfolio, one in Latin America and one in Nevada.

It's helpful in that regard.

Lastly, you have to remember that as it relates to BPO activity for TELUS, it's both insofar as the offshoring component is concerned and this is offshoring insight of North America, yes, it's a go to market opportunity to address key verticals such as the ones that I've just identified.

It's also some things that TELUS can avail itself of internally to make a contribution to the cost efficiency initiatives on wireless and wireline.

It's important that when you think about improving productivity in areas like wireless, you'll be able to tap into offshoring given that the wireless business is so contact center intensive.

It's important when you think about products with a rather steep CAGR from a cost perspective, like TELUS TV, to be able to a vail yourself of lower cost wafer markets, and when you're launching new products like Koodo where the focus being very much on AMPU from a contribution perspective -- again to put it in optimal cost infrastructure to support those initiatives.

There's a duality of what we do in these places in terms of both go to market, but also to support the continued efficiency improvements of the TELUS organization.

That's the strategy, soup to nuts.

I wonder if I could have a quick follow-up with Bob on wireless COA and the FX impact on inventory there.

The question is what is the APEX impact on our wireless inventory?

You mentioned your COA was up in part because of the FX swings on handset inventory.

I think I was referring to the COA was up because of a valuation adjustment so that would be unrelated obsolescence as opposed to FX.

Oh, okay.

Got it.

Thanks.

Next question is from Merrill Lynch, Glen Campbell.

Go ahead, please.

Thanks very much.

Darren, you sounded enthusiastic about the progress at TELUS TV.

I was just wondering if you could give us a bit of an update there as to the product geographic scope, any metrics on how it's progressing.

Thanks.

Glen, it's a difficult area for us to discuss in detail, but I think you're desirous of having given that we don't provide disclosure as it relates to the direct metrics attributable to TELUS TV.

We are positive about both the progress that we're making on the TELUS TV front.

If I think about the product itself, I think it's a very competitive product that delivers a very positive client experience.

We worked hard to bring both HD and personal video recorders to the marketplace which is a very meaningful development for the service that transpired over the course of 2008.

We've enjoyed strong resonance within our addressable footprint within that regard.

Clearly in our view, we don't see ourselves as having a demand issue, but we do have supply side challenges as it relates to the addressable footprint that I just articulated.

For us, as we've expanded our coverage from key urban markets like Edmonton and Calgary, and we're now investing to expand our footprint in the lower mainland, that takes time to come to fruition.

It's not a question of money per se, but rather the resources to effectively deploy that money in a competitive fashion, to give the clients a type of experience that we think makes good sense.

We're also judicious about how quickly we go.

This is not a new market in the same way that HSIA was a new market where effectively, speed counts because it's a foot race for virgin customers.

It matters effectively who gets to the customers door first.

This is a well established marketplace and so I don't think we need to rush.

There are decisions that we have to make that bridle our speed.

For example, if you rush too quickly in the era of standard definition in terms of rolling out subsidized set top boxes, knowing that HD is just around the corner, well of course you got to be cognizant of the fact that when you do rollout HD, you'll have to swap out set-top box.

Again, you want to do things that economically are optimal for your shareholders while remaining competitive in the marketplace.

Next consideration, if you think about the comments I've made previously, I believe fundamentally from a technology perspective, we're going to permanently live in a hybrid world as it relates to high speed technology.

Right now within the TELUS infrastructure, we've got ADSL 2 plus deployed.

We've got ethernet to the suite deployed, as it relates to apartments and condos which is a fact of life very much reflective of the lower mainland territory.

Of course we're deploying fiber directly to new premises in areas where new housing developments are coming to fruition.

When you think about the ADSL 2 plus buildout, you need to make decisions like, how aggressively do we go with that buildout.

When do we think the VDSL 2 cards will be ready to be dropped into the ADSL 2 plus chassis?

Where should we be supplanting brownfield copper with fiber to the home?

It's a balancing act if you will, to make sure that you're sweating each technology stage before you upgrade to the next.

Also at the same time, you're remaining competitive from a bandwidth and applications perspective in the marketplace.

One of the areas of course that we've highlighted for 2009 is that the broadband investment strategy is not one just relegated to the HSPA deployment on wireless, but one that of course we're going to take forward on the wireline front as well with the investments in ADSL2 plus, and hopefully on the back of the AT&T deployment in the US on the elevation of ADSL2 plus to VDSL 2 by dropping cards into the ADSL 2 plus chassis.

Which economically would be -- for example, in going from EVDO to EVDO Rev A, being a very cost efficient upgrade and not too resource intensive.

That's something that we're looking to undertake over the course of 2009.

That should elevate our competitiveness in the marketplace and support an expanded footprint.

The last comment is our mentality on TV is somewhat different than the mentality that we see in other areas which is is very aggressive price competition.

Certainly we have seen that on bundled internet and telephony pricing from our competitor.

Our mentality on TV is to compete on value, to focus on differentiation, and build value in the entertainment market, rather than amortize value through unsharingly aggressive pricing strategies.

I think the significant, unique attributes of IPTV and its digital and dedicated nature support a lot of positive differentiating factors that will have good resonance and good client take-out without TELUS having to be aggressive on price.

Thanks very much.

Thank you.

Next question is from UBS Securities Canada, Jeffrey Fan.

Go ahead please.

Thanks very much and good afternoon.

Just want to follow-up on the previous question, regarding the expansion into the US of the call centers.

Darren, you eloquently described the strategy of BPO, but I'm more curious about why you feel the need to address the US based clients.

With all of the telcos trying to revert back to their core and focus on where they think they have a competitive advantage, I'm just wondering what is the opportunity here in terms of servicing US-based clients with this type of service?

We're already servicing US-based clients with this service.

I'm not sure from a confidentiality perspective whether I have the right to disclose the client's identity, but in Manilla, IT companies that would be very well known to you, we serve.

Gaming companies that would be very well known to you, we serve.

Utility companies that would be very well known to you, we serve.

We already serve significant brand name US-based clients out of Manilla.

What our US-based clients have told us is that if you guys can't compliment your low cost English-speaking service with a low cost Spanish-speaking service, your growth prospects with us are going to become significantly truncated, and not only will we not grow with you, but we may not keep the business with you that is already in place.

For us to keep the clients that we've got, grow our relationship with them, and secure new clients, we have to have a Spanish language capability which was the primary thesis behind our investment -- our minority investment in Latin America.

The secondary consideration was, as I had indicated, geopolitical diversity is quite key, given the number of people that we have in a single geographic location in Manilla.

The other area of our business that has been exceedingly successful for TELUS, and we were just ranked number one in North America as it relates to operator services, call that our global contact solutions business.

But we have done very well as it relates to wholesale operator services.

Although that's a mature business, as people exited the mature business, we developed quite a cottage industry taking their business on board and leveraging our rather significant economies of scale, and the superior performance and cost infrastructure that we have been able to secure from that business.

Our wholesale business does extend into the US with relationships across a range of US telcos, with a particular focus on tier 2 US telcos that don't have economies of scale of some of the tier 1 players that are very desirous of having economies of scale, particularly during this period where efficiencies are necessary.

To the extent to which they want to look to us to provide contact center solutions for them, one of the things that they TELUS is that we would like to do the business with you, we liked your model, we liked your performance, but you need to have Spanish language capability if we're going to do something like hand you our operator services business because a number of the people who call in are Spanish speaking.

The other thing that they TELUS is, it would be a lot easier to do some offshoring with you if you had a onshore footprint to act as a gateway if you will, and smooth out some of the political challenges they would typically have to confront.

That's a growth market for us that we've been doing very well in.

This rather minor investment, if you look at it from a dollars perspective, is just to help facilitate the continued growth of that strategy.

It's nothing more expansive than what I've just articulated.

Thanks.

We're through the hour so we'll take one last question.

And the last question is from Credit Suisse and we have Randall Rudniski.

Please go ahead.

Thanks.

You've outlined, in terms of capital strategy, CapEx and dividends pretty well.

I was hoping you could update us on how you view share buybacks in the current environment.

Sure.

Randall, we of course had the NCID.

I think it was our fourth edition of the NCID renewed back in mid-December so we have that capability.

We've published a very clear leverage guidelines that remain unchanged.

And you had the pay out ratio and we got forecasts for 2009 out there.

Essentially, we're in a really good position from the standpoint of having a strong balance sheet, being able to fund the increase in the CapEx, the minor increase in the pension outlays.

In terms of NCIBs, I think we'll moderate to market.

You can see we're in a market in a small way in the fourth quarter.

As to what we might do going forward, I think we'll be prudent, but I can't say exactly what the level of activity will be.

It will be a function -- the lower the share price is, the more the activity.

The higher the share price, the less the activity.

Those are some of the frameworks, but it's not something that I can pre-commit to.

Okay.

Thank you.

Thank you very much, everybody online with us today for joining Bob and Darren and our team.

We'll look forward to working with you in the coming quarter.

Thank you.