Telus Corp (TU) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TELUS Q4 earnings conference call.

I would like to introduce your speaker, Mr.

John Wheeler.

Please go ahead.

Welcome, and thank you for joining our fourth-quarter investor conference call.

I apologize for the slight delay.

This call is scheduled for up to one hour.

The news release on fourth-quarter financial and operating results and detailed supplemental investor information are posted on our website, telus.com, Investors.

For those with Internet access, the quarterly presentation slides are also available on our website.

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

Let me now direct your attention to slide 2.

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

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

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

I ask that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosures and filings with securities commissions in Canada and the US.

Turning to slide 3, for an outline of today's agenda, we will start with a brief opening comment by President and CEO, Darren Entwistle, followed by a review of the quarter by Executive Vice President and CFO, Bob McFarlane.

Joe Natale, our Chief Commercial Officer, will comment on several key operating highlights, including our launch of 4G LTE service today.

We will then conclude with a question and answer session.

Let me now turn the call over to Darren.

Good morning, everyone, and thank you for joining us.

As Bob and Joe will highlight, these fourth-quarter and full-year results are clearly the direct outcome of our strategic investments in broadband technology and the client experience across our wireless, TV, and high-speed Internet services.

Notably, TELUS surpassed the CAD10 billion revenue milestone for the year, and achieved 15.5% growth in net income to CAD1.2 billion.

We also achieved healthy increases in sales of postpaid wireless, TELUS TV and Internet, as well as reduce access line losses in Q4 and throughout 2011.

Accordingly, we substantially increased new customer connections in 2011 by 26%, to 475,000 additions.

Consistent with our strategic approach is the launched today of our 4G LTE network and service coverage across Canada.

Indeed, by the end of 2012, our LTE coverage will reach circa 25 million Canadians.

The strategic timing and scale of this launch will empower customers with the full capabilities of the network, using emerging devices that will provide a positive LTE experience consistent with our clear and simple approach.

Turning to slide 4, I am pleased to share with investors our 2012 corporate priorities.

These priorities fully support the continued progression of TELUS's winning strategy launched back in 2000.

These priorities are designed to focus the TELUS team on our current opportunities and challenges in our industry, while striving for ongoing success through relentless focus on enhancing the client experience.

This is a remarkable time for our Company, as we continue to realize excellent financial and operating results.

Indeed, TELUS is focused on achieving our targeted 2012 growth in revenue and earnings, and, by extension, double-digit free cash flow growth that we are working towards.

Our operational results combined with the high engagement of our team members are providing tremendous momentum at TELUS.

Accordingly, our leadership team is confident that we will continue to achieve strong results for investors in this highly competitive industry.

Let me turn the meeting over to Bob.

Great.

Thanks, Darren, and good morning, everyone.

Before we review our fourth-quarter results, let's begin with a quick review of our 2011 consolidated scorecard on slide 5.

As we close the year, I'm pleased to highlight that we achieved three of our four original consolidated targets, and all four segmented targets that we set back in December 2010.

EBITDA and EPS were slightly favorable to the midpoint of our original target, which reinforces the veracity of these original targets.

In addition, the revenue, EBITDA, EPS results are all very consistent to the guidance we provided on our target call two months ago, while CapEx was slightly higher than we expected.

Capital expenditures exceeded the target, due to a combination of success-based capital spending resulting from strong growth of Optik TV, and accelerating the timeline to build our next generation 4G LTE wireless network.

Let's start our review of the fourth quarter, beginning with wireless on slide 6.

Total wireless revenue increase by 6.5%, including network revenue growth of 6.4%.

This was driven by both continued ARPU and subscriber growth.

In addition, equipment and other revenues grew by just over 7%, from higher sales and upgrade volumes of more expensive smartphones.

Wireless EBITDA growth of over 6% was in line with revenue growth.

EBITDA margins on total revenue remained essentially flat at 35% or 39% of network revenue.

We were pleased with this result, given our record gross loading, along with significantly increased smartphone adoption and associated cost of our acquisition and retention expenses.

In fact, gross additions and retention units surpassed 1 million, reaching a new all-time loading record.

The combination of record loading and high smartphone adoption with steady profit margins stands out in stark contrast to our US peers, who saw significant margin dilution from increased smartphone-related sales.

Capital expenditures of CAD168 million decreased by over 13%, despite increased capital expenditures for urban LTE network buildout.

Simple cash flow increased by 19%, from strong EBITDA growth and reduced CapEx.

Turning to slide 7, TELUS generated wireless net adds of 129,000, up more than 8% year over year.

This is a great result, particularly considering that it was a very competitive holiday quarter in the marketplace, and we had 10,000 low ARPU postpaid DX from the Federal government contract.

They are now only approximately 10,000 government Canada subscribers left for transitioning.

Wireless postpaid net adds of 148,000 increased by an impressive 36% year over year, despite these two factors.

Notably, TELUS's smartphone base increased by 71%, to 53% of our postpaid base, a very significant 20-point increase from 33% last year.

Once again, our postpaid net adds represented greater than 100% of total net adds, given prepaid subs decreased by 19,000.

Consequently, the higher-value postpaid mix of the total subscriber base increased by 1.7 points to 83.5%.

All in all, a very satisfying quarter for TELUS subscriber results.

Slide 8 shows the metrics related to our wireless marketing and loyalty efforts in the quarter.

Gross adds of 491,000 increased by over 3%, with postpaid up nearly 10% while prepaid was down 10%, as we focused on the higher-value and lower-churn customers.

TELUS reported blended churn of 1.67% this quarter, lower by 5 basis points year-over-year.

This is a very important result, as it reflects success with respect to our corporate priority of putting customers first.

The loss of the Federal government contract contributed 7 basis points to churn.

So, on a normalized basis, churn would have been even lower, at 1.60%.

In addition, fourth-quarter churn is usually seasonally higher, due to heightened competitive intensity.

As a result, we are pleased to achieve an improved year over year in churn rate.

Consistent with industry trends, cost of acquisition per gross add increased by more than 8% to CAD421, due to higher per-unit subsidies from the higher mix of smartphone sales, including price competition, and to a lesser extent, the higher commissions on more expensive smartphones.

Retention expense increased by only 1%, though, despite this record retention volume, where 85% of postpaid retention loading was on higher cost smartphones.

The combination of healthy ARPU and low churn has led to our COA to lifetime revenue ratio holding at 11.9%, while COR to network revenue ratio actually improved to 13.6%, despite these pressures associated with a high subsidy smartphone loading.

Slide 9 shows the breakdown of TELUS's total ARPU between voice and data for the fourth quarter.

Wireless ARPU increase by 1%, and this represents the fifth consecutive quarter of ARPU growth.

This increase in overall wireless ARPU was driven by increased postpaid ARPU, as well as the higher mix of postpaid subscribers.

Data ARPU growth was 35% year over year, exceeding the revenue impact of the voice ARPU decline of 12%.

Voice continues to reflect competitive intensity and some substitution of voice MOUs by data usage.

Data ARPU now represents 37% of total ARPU, up 10 points from last year.

Turning to slide 10, wireless data revenue increased by 43% year over year to CAD466 million.

This growth is driven by strong smartphone service revenues and increasing text messaging due to higher penetration of smartphones and associated adoption of data plans, and more devices that provide an Internet connection, including tablets, and higher data roaming volume.

Data now represents 36% of network revenue compared to 27% a year ago.

The fourth quarter wireless ARPU result is consistent with my comments made on our December guidance call, wherein I said wireless ARPU growth was expected to slow down in 2012, and remain slightly positive.

Turning to slide 11, let's review our wireline segment results.

Revenue increased by 4%, caused by strong data revenue growth of 15%, which offset ongoing declines in traditional voice, local and LD revenues, down 7% and 12%, respectively.

Reported wireline EBITDA increased by 1%, due to primarily lower restructuring costs.

EBITDA margins decline slightly due to ongoing declines in higher-margin legacy voice services, offset by the dilution from lower margin data services.

Wireline capital expenditures decreased by 7.5% to CAD344 million, due to lower investments for broadband expansion, partly offset by investments for Optik services and Internet data centers.

Simple cash flow increased to CAD30 million, due primarily to lower CapEx.

Slide 12 shows results for continued success of rolling out Optik TV.

The Company added a record 56,000 new TV customers, an increase of 17% year over year, while the TV base increase by 62% to surpass 500,000.

We continue to be pleased with the momentum in this business, including improved customer churn, good ARPU growth, and the pull-through benefits for a bundled Internet and local access services.

This last point is demonstrated on the next 2 slides.

So, turning to slide 13, TELUS generated strong high-speed Internet loading of 24,000 for the quarter, an increase of 33% from a year ago, and the best quarterly result in over three years.

For the year, high speed net additions were an impressive 75,000, an increase of 92,000(Sic-see presentation slides) year over year.

This was due to strong gross adds and declining churn.

This is the best yearly result since 2008, and a notable feat, given the high penetration in Western Canada, which is estimated to be at nearly 80%, as well as the ongoing intense competitive rivalry.

Slide 14 shows our residential and business NAL performance for the quarter, as well as our total NAL losses for the year.

Residential NAL losses of 37,000 remains stable compared to a year ago, in the face of renewed cable promotional discounting, and countered since November.

Business lines declined by 11,000, reflecting continued competition in the SMB market and technological substitution.

For the year, total NAL losses of 146,000 represented a 36% reduction from a year earlier.

The total NAL base was down 3.9% year over year, and this is the best result since 2006.

Slide 15 demonstrates the success of bundling Optik services since mid-2010.

Total wireline net adds for the year were 107,000, as TELUS TV and high-speed additions handily offset dial-up Internet and network access line losses.

This is the first time since 2004 that wireline has achieved positive subscriber growth for the year.

This reflects the power of our strategy to make ongoing major investments in our broadband networks that support delivery of innovative services such as Optik TV.

Putting this all together, let's look at TELUS on a consolidated basis, starting with slide 16.

Revenue in the fourth quarter increased by over 5% over the same period a year ago, while recorded EBITDA was up nearly 4%.

Reported EPS increased by 8.6% to CAD0.76, and I will explain the drivers in a moment.

Capital expenditures were lowered by more than 9%, for reasons discussed earlier.

Free cash flow before dividends increased by 77% to CAD204 million.

The factors generating the increase were lower CapEx, lower interest paid, and higher EBITDA, partially offset by higher cash restructuring payments.

Slide 17 provides a detailed breakdown of the components of reported EPS including CAD0.03 of positive income tax related adjustments recognized in both periods.

Lower pension and restructuring costs contributed CAD0.06 to EPS growth.

Lower financing costs, due to the lower interest rate from our recent debt refinancing, added CAD0.04 to the upside.

Normalized EBITDA growth and lower tax rates each contributed CAD0.01 to the upside.

Higher depreciation and amortization expenses associated with the larger asset base as a result of recent CapEx and acquisitions, as well as including investments in assets with shorter lives, negatively impacted EPS by CAD0.03.

The write-down of our investment in TELSK, a South Korean subsidiary, lowered EPS by CAD0.02.

More on this on the next slide.

And, lastly, a slightly higher number of outstanding shares lowered EPS by about CAD0.01.

Turning to slide 18 to discuss our planned divestiture of TELSK, a joint venture in Korea created in 2001 between TELUS International and SK C&C, a large Korean conglomerate.

TELSK is a specialized IT outsourcing company which provides desktop support and IT management to the SK group of companies in Korea, including SK Tel, as well as other large Korean companies.

TELUS's decision to divest TELSK is born out of our desire to focus on core outsourcing contact center businesses in the Philippines, Central America and the United States.

In addition, a divestiture at this time allows TELUS to efficiently repatriate cash from this JV.

Before reviewing the financial impacts of the write-down, it is important to highlight that TELUS's investment in TELSK has been a very profitable and successful investment for TELUS.

In 2011, TELUS generated revenue of over CAD40 million and contributed nearly CAD10 million to EBITDA.

In addition, since the initial investment of approximately CAD14 million in 2001, TELUS will have realized a cumulative investment rate of return of approximately 26% after closing the divestiture in the first quarter of 2012.

In expectation of the sale, goodwill will be impaired by approximately CAD19 million, with an offsetting credit of CAD9 million to non-controlling interest, to arrive at a net loss of CAD10 million or CAD0.02 per share.

As announced last week, and as highlighted on slide 19, TELUS is committing to the physician electronic medical record market with the acquisition of Wolf Medical Systems, and creation of TELUS Physicians Service Solutions.

The addition of Wolf Electronic Medical Records for physicians expands TELUS's portfolio of world-class health record solutions, including TELUS health space and Oacis.

Wolf is a small, fast-growing company with annualized sales of less than CAD15 million.

With the acquisition, TELUS is now uniquely positioned to facilitate the integration of health records from the home to the doctor's office and to the hospital, insuring critical health information is available over secure broadband networks.

Slide 20 highlights defined benefit pension accounting assumptions for 2012.

For accounting purposes, the defined benefit discount rate has been set at 4.5%, which is unchanged from our preliminary estimate provided in December.

We have also set the expected long-term rate of return at 6.75%, 25 basis points higher than our preliminary assumption.

Based on these assumptions, and total fund returns in 2011, the defined benefit pension recovery estimate is now expected to be about CAD12 million in 2012.

Our total estimated pension funding in 2012 is expected to be CAD126 million lower at CAD172 million.

This includes the CAD100 million discretionary contribution we made toward the defined benefit pension plan in January of 2012.

Let me conclude on slide 21.

Overall, the fourth quarter reflected continued strong operating performance across the board.

Consolidated revenue and EBITDA growth of 5.3% and 3.9%, respectively, was driven by both wireless and wireline operating segments.

The Company closed the year with strong subscriber results across major product lines in both reporting segments.

In fact, as mentioned earlier, wireline had net positive subscriber additions for the first time since 2004.

We also continued to experience good wireless subscriber growth.

Our bottom line EPS grew by 9%, while free cash flow this quarter was higher by 77%, due primarily to the lower CapEx, lower interest payments, and higher EBITDA.

Finally, we have reaffirmed TELUS's 2012 full-year target.

So now, over to Joe to make some final comments.

Thanks, Bob.

Good morning, everyone.

I'm going to provide some color around some operating trends and talk about recent product launches announced earlier this week, starting on slide 22.

Building on TELUS' strong wireless momentum, on Wednesday we announced the launch of our national 4G LTE network.

The network launched today, with broad coast-to-coast urban coverage of 14 Metropolitan areas across Canada, from Vancouver to Halifax.

The evolution to LTE leverages previous investments in our 4G network.

We will continue to invest in rolling out our 4G LTE coverage to more regions across Canada, with 15 million pops to be covered by the end of Q1, and plans to reach more than 25 million Canadians by the end of 2012.

Beyond that, rural coverage will be dependent on TELUS on acquiring spectrum in the upcoming 700 megahertz spectrum auction.

With TELUS' 4G LTE network, customers will enjoy even faster typical download speeds of 12 to 25 megabits per second.

Importantly, when traveling outside of TELUS's 4G LTE network, customers will be able to move seamlessly from 4G LTE to TELUS's 4G HSPA plus network.

We are very pleased to be launching with a complete range of device types.

This includes the LG Optimus LTE smartphone; the Samsung Galaxy Note Tab 8.9 LTE tablet; the Novatel Ovation 4G LTE Mobile Internet key; and the Samsung Galaxy Note smartphone, which is coming very soon.

These devices are backward-compatible, but will work on HSPA plus in areas where LTE coverage is yet to be built.

LTE is in the early days, with device ecosystems still being formed.

But we do expect to introduce more new 4G LTE-capable devices as they become available.

TELUS has been evolving our clear and simple data pricing with the launch of LTE in mind.

TELUS customers on our 4G LTE dual-cell HSPA plus, and coast-to-coast HSPA plus networks, have access to the same range of TELUS clear and simple data rate plans on any device anywhere in the country.

As previously discussed on past calls, we have been listening to our customers and evolving our clear and simple approach and pricing.

For instance, particularly relevant to our launch of LTE, flex data plans automatically adjust to customers' data usage, helping avoid unexpected overage fees.

And TELUS also provides customers with free data notifications to help them manage their daily usage and avoid surprise overages.

Our clear and simple initiatives are continuing to help us win and retain customers as we leverage 4G LTE to drive further wireless data growth.

Turning to slide 24, we are very pleased with the continuing strong momentum and demand for Optik TV, with net adds of 56,000 in the quarter.

Optik TV continues to drive leading North American IPTV penetration gains.

We are seeing momentum across Optik's operating metrics.

ARPU continues to expand on a larger base, as customers come off introductory pricing, as well as the impact of rate increases on the TV essentials package and high-speed Internet, both implemented in 2011.

We remain very happy with the pull-through effects of TV.

As shown on the slide, combined TV and high-speed Internet additions of 80,000 exceeded flat residential now losses of 37,000 by a factor of more than 2 times.

This was the sixth consecutive quarter we have seen this extremely encouraging trend, and the best loading for high-speed Internet in over three years.

Notably, 2011 represented the first increase in total wireline customers since 2004.

We remain excited about our TV momentum, as well as the service roadmap ahead for Optik TV on the Microsoft media platform.

Earlier this week, we announced two new innovations that continue to increase the value proposition of Optik TV.

TELUS became the first TV provider in the world to offer voice and gesture navigation on both live and recorded TV, via an advanced version of Optik TV for Xbox 360, taking advantage of Xbox Kinect sensor capability.

We also announced that Optik TV subscribers can now enjoy a new application called Optik on the go.

This allows customers to view a selection of TV on demand shows and movies on the mobile devices, tablets and laptops, at home and on the move.

Our pipeline of innovations is robust.

Look for TELUS to continue to add compelling features and functionalities going forward on a regular basis to sustain our competitive advantage in TV.

With that, I will turn the call back to John.

Thanks very much, Joe.

Matthew, can you please proceed with questions from the queue for Bob, Joe and Darren?

(Operator Instructions).

Phillip Huang, UBS.

Phillip, your phone may be on mute.

Okay, we'll go back to him.

Jeff Fan, Scotia Bank.

My question is on the data ARPU and data revenue.

The growth continues to be very strong, but it looks like the trend -- the growth trend slowed in Q4, from 53% to 43%.

I'm just wondering what caused that in the quarter, whether it is driven by competition, whether it is usage, smartphone ARPU.

I was wondering if you could just elaborate on that.

Sure, Jeff.

I think the first thing to note is that we have had five good quarters of ARPU growth.

We are starting to get into the year over year, which creates the harder challenge on a better base on the prior year.

But essentially we are seeing continued growth, good data growth, but also some accelerating voice erosion.

In part, there is the substitution effect occurring here, as messaging seems to be substituting for some voice, which is understandable.

Our data growth still remains very positive for us.

We are enjoying some growth on the international roaming side, which should continue for the foreseeable future, really as a byproduct of the HSPA network launch.

And it's not an immediate effect then, of course, because it is a function of the proportion of HSPA phones that are coming to Canada.

And, of course, we are picking up a share of that.

But we did really enjoy any share of that back in the CDMA world.

So I think that is something that we are confident should continue for the foreseeable future.

And, of course, in the past quarter -- there is a lot of competition in the market.

It is very difficult to project what conditions are going to be quarter to quarter.

And that is why, from a guidance perspective, back in December, we essentially said, look, expect a declining trend in ARPU growth to a slightly positive result.

And I think the exit rate out of 2011 is entirely consistent with that.

So you may be familiar with some recent pricing actions we have taken in the marketplace.

And maybe what I will do at this juncture -- if Joe, perhaps you want to jump in and maybe highlight what we have done there.

I think it is fair to say, overall, that the organization is strongly focused on leveraging the opportunity in front of us on data growth.

We still have 47% of our base that is not on a smartphone, and therefore will afford us an opportunity to continue to drive growth in absolute and specific terms.

The other thing you will see from us is a push for higher quality subscribers.

We have been looking very hard to drive the highest value subscribers to TELUS in a world were penetration is growing overall.

And there is competitive intensity at key parts of the year.

And those higher value subscribers come with better ARPU characteristics.

We have been also actively driving growth in the value segment.

Koodo has done very well for us.

And Koodo -- on one hand, Koodo customer come with a lower overall lower ARPU.

But it's important to note that the Koodo customer comes with a very different AMPU profile.

And I think it is worthy of a comment to say that our focus at TELUS is not just ARPU but, emphatically, it is also AMPU, or average margin per unit.

The Koodo customer comes with a fixed subsidy of CAD103.

And the Koodo customer comes with a very different operating intensity, in terms of the cost, to serve that customer within TELUS.

Bob mentioned the roaming opportunity ahead of us, both voice roaming inbound and outbound.

But also, data roaming is beginning to grow.

Data roaming is becoming an important fact of life.

And we have been really pushing to drive affordability around data roaming, and driving clear and simple approaches to voice and data roaming, which we believe will help tap a market opportunity for us that has not existed in the past in the industry.

We continue to drive other service opportunities, whether it is device protection; data protection; bill-on-behalf relationships that we have with the likes of RDO or Skype or others.

And Bob just alluded to a move we made just last week, in driving the simpler structure around Koodo rate plans and driving a CAD5 price increase across all rate plans -- Koodo, with a philosophy around offering more for more with customers on those plans.

So, holistically, what is happening is, we have been driving a portfolio of ideas.

I have mentioned just a small handful of them right now, a portfolio of ideas that are really aimed at driving ARPU, but also AMPU.

And you can see for yourself in the results, with respect to our margin profile and the overall growth that we have had as a business.

We will continue to drive these types of actions and initiatives through the course of 2012 and beyond.

I think there is still great growth opportunity in many parts of the market -- the tablet market, as an example, is a place where I think there is a great AMPU opportunity.

Certainly tablet ARPU is lower, but it's a great product because there is no subsidy and the promotional cost are much lower.

As a result, there is an opportunity to continue to drive data growth in revenue there.

I hope that gives a bit of a view, Jeff, with respect to where we are at on data growth and ARPU.

Phillip Huang, UBS.

It is great to see the wireline EBITDA return to growth this quarter.

I think you said in December that you don't expect margin improvement until the second half of the year.

But I was wondering if you could begin -- if we could begin to look forward to positive the EBITDA growth, going forward from this point on?

Yes, I think we are quite pleased with the results that we saw with respect to.

I mean it has been most of the past decade throughout North America, at least, and beyond, where wireline has transitioned its reliance on legacy voice services.

And as a result, typically that has been a declining segment for carriers.

With the notable exception of TELUS, here, as you can see from our results.

So of course, it does depend upon competitive activities and a lot of other dynamics.

But there are some identifiable ongoing trends that should be positive contributors to that segment.

One in particular that is driving topline growth for us, of course, is the Optik TV, and the strong results you saw again this quarter.

And it is sort of like wireless, when you have these really good loading quarters -- you do, in the short term, depress your near-term EBITDA impact, at least on the positive side.

But you are building up a nice ramp for subsequent quarters.

So we see that is a service where the contribution to EBITDA should be improving quarter to quarter in 2012, and crossing the positive mark by early 2013.

So that is a nice source of, formerly, revenue growth -- but as we look at 2012 and going forward, both revenue and year-over-year EBITDA improvement.

So that is a nice trend.

Of course, you have seen the stabilization improvement on line losses so -- and a strong Internet loading -- so, clearly, our strategy of integrated offers is working in the marketplace.

But, of course, there is re-price that occurs as an element of retention.

And so that has been --that's an offsetting impact, in terms of EBITDA.

So, in any event, on balance, it is possible to have EBITDA growth in wireline.

That is certainly something that we are targeting.

But it is a very competitive marketplace.

And this is not an organization that is built upon the necessity to have to have a quarter of wireline growth.

And if it is important, from a competitive standpoint, to take actions to defend ourselves, we are certainly capable of doing that.

And that means we are in a fantastic position of strength with which to pursue growth and to defend ourselves as appropriate.

Thanks for the color on that.

If I could ask a follow-up on the SMS, I was wondering if you could give us maybe some color on the proportion of your smartphone subscribers that have unlimited SMS included as part of their plan.

Because I think you said SMS revenue increased in the quarter.

I'm just trying to assess the potential risk of the SMS revenue, given the applications such as WhatsApp and MimeMessage can do the job using data revenues.

Because we have seen an impact in Europe, but I suspect that Canada -- we have all moved towards, I guess, bundling SMS as part of your smartphone plans already.

And I just wanted to see if that was, in fact, the case.

Yes, I think this is the first thing.

You have really sort of answered, in a way, that question at the end.

Certainly we have -- our smartphone subscribers are on data plans.

And we tend to have the bundled inclusion of the messages, as opposed to being reliant solely on per message usage charges.

Joe, did you want to add anything onto this question?

No, I think you have hit it, Bob.

That is the fundamental difference between our market and the European market.

The European market still has a significant pay-per-use component to it.

The lion's share of our customers are bundling text plans into their service offerings when they acquire or upgrade their services.

Matt Niknam, Goldman Sachs.

My question is on wireline.

I'm wondering if you can give us any color on how subscriber activity trended through the quarter, with your cable competitor launching some more aggressive promotions back in December?

And then, how has the level of promotional activity trended into the early part of the year?

I would be happy to answer that.

I think it is fair to say that aggressive behavior from our cable competitor is a long-standing fact of life for us, not something that happens in any particular quarter.

If you look over the last number of years, the last couple of years, we have seen toggling between below-the-line and above-the-line activity.

Below the line, in the sense of direct marketing campaigns aimed at our customer base.

Above-the-line activity, with respect to mass advertising on billboards, print and TV.

And, once again, we saw some activity over the Christmas holidays, with the CAD100 Visa cards being offered as a bounty, if you will, for TELUS customers coming over to Shaw.

And if you recall, a couple of years ago we talked on this call about the 10/10/10 offer, the triple-play CAD10 for each of TV high-speed and home phone being offered by a cable competitor.

I think if you look at it holistically, aggressive price discounting is a meaningful risk to our cable competitor's P&L.

And it is, for us, in many ways, an opportunity.

Whenever there is a rate price consideration for our customer in the market place, where they are looking at potential offers that are available -- given they are being screamed out loud on billboards and on TV, you all of a sudden turn that customer into a shopper.

And when that customer is turned into a shopper, they start looking around for what has happened in the world of TV, and what is new and exciting in the world of TV and the Internet.

And, if anything, it kind of creates more of a shopper category in entertainment, whereas in wireless, we have always been used to it being a shopper category.

Wireline -- we often go to great lengths to wake up the base, and get them a tune to what is in the marketplace.

And as the new entrant in this market, it is a clear advantage to us.

We have got a great product.

For those of you who have had a chance to see Optik TV firsthand, I think you will conclude it is a world-class differentiated TV product.

And we will just keep adding more function and capability to it.

Optik on the go, as an example, just recently really firmly cements the integration of wireless and wireline coming together in a solution and offering for our customer.

So it is not just about leveraging our strength as a wireless player to bundle wireless in with TV.

Now we have integrated capabilities and solutions where you get the best of both worlds in the product itself.

We have seen no significant impact from Arris, the gateway solution from our cable competitor.

We are very pleased with our Q4 additions.

We are very pleased with the pull-through effects on high-speed and home phone protection.

We are seeing great improvement in ARPU, not just as the base comes off of discount.

But also as customers are looking at buying more theme packs and more content.

We now have the best and most South Asian content, the best and most Chinese content, Filipino content, overall HD content; and, therefore, we have a lot to talk about with our customers, as we look to drive their consumption in their ARPU in the right direction for us.

And we have got 2.3 million homes in our addressable market.

And with VDSL2, we will have access to both higher speeds and more live streams.

So at the end of the day, we are ready for the growth in this marketplace, and feel we are very well-equipped.

Peter Rhamey, BMO Capital Markets.

I wanted to tag my questions along with the previous caller.

Internet adds of 24,000 -- a very strong number, and I think, historically, a pretty strong number for the last few years.

And you talked about tag along.

Could you talk a little bit, Joe or Bob, with regards to most companies' experience Internet broadband losses in their DSL footprints, and gains, obviously, where they have upgraded the network like you have.

And maybe we can talk about it, if you are doing 56,000 Optik TV customers adds, should we think that you are -- for every Optik TV add you are getting, you are getting the DSL as well?

So that would give us some sense of your losses in DSL.

Thank you.

Okay, Peter, I will take a shot.

But I'm not sure I understood the full grasp of the question.

Yes, so in terms of TV adds -- some of those are new to TELUS who did not previously have an Internet subscription with us.

And, therefore, that's a pull-through.

Many of them are subscribers who already had an Internet subscription with TELUS.

And so they are adding TV onto that bundled suite of services.

So that is obviously why the number of net adds for TV is significantly greater than the net adds for Internet.

With respect to your observation that our results for both on a per capita basis but, funny enough, even on an absolute basis, given our size being smaller than many of the large North American telcos, is a better result for us.

Certainly I can speak to our side with confidence, that yes, we are having success in that bundled pull-through effect.

And Joe just talked about some aspects of repurchase activity in the marketplace.

And we benefit from a superior differentiated product that is doing that.

When you look at what is the criteria for a bundled person, it is that the Internet being a few dollars cheaper or a few megs faster?

Or is it the content that they want in a delivery package that is more modern, more features, more capabilities?

I think it is pretty obvious, people will make the purchase decision more on that differentiated side of TV than on the Internet side.

So that is what we have experienced.

That is why we are, I think, doing well on the marketplace.

As to US or other carriers -- where they are having a different result, I am hesitant on the call to use up a lot of time going into that space, which is not directly relevant to us.

But, clearly, in the market that we are competing in, our strategy is very effective.

Dvai Ghose, Canaccord Genuity.

If I look at your ARPU growth of about 1% -- it, on the surface, compares quite unfavorably to Bell, who reported 4% ARPU growth in wireless.

And that is despite the fact that you reported a 35% increase in data ARPU versus only 27% of Bell from a lower base.

So I'm wondering if you could go through some of these drivers here.

Obviously it is not just voice and data.

There is always changes in mix as well.

And I think I heard that Bell's postpaid ARPU is only 1%.

So it was mainly mix that grew their ARPU.

I'm wondering if you could give us some idea as to how that drove your ARPU?

And on a related point, I was interested that your LTE pricing is very much in line with your HSPA pricing, despite the incremental bandwidth, and the fact that, for the foreseeable future, you probably only have three incumbents who offer LTE without any new entrant participation.

So I was wondering if you could tell me why the pricing is not at a premium?

Okay, wasn't there a six-year-old rule about multipart questions that John Wheeler enforced?

I waived that, Bob.

He has a permanent exemption, I gather.

Okay.

Well, how about I tackle the first one, and then maybe Joe can tackle the second part.

So, in respect of -- you pointed out that our ARPU, of course, went up 1%.

I think you mentioned Bell at 4%.

I will speak to the TELUS side of that.

In respect of TELUS we, as mentioned, we had good mix, in terms of postpaid to prepaid.

But really relatively consistent with past trends.

And so the overall mix between postpaid and prepaid just changed slightly in our case.

And yes, postpaid have higher ARPU, profiles, but we had a postpaid ARPU increase, just as we had an overall ARPU increase of 1%.

So we had strength in our postpaid base for sure.

So there is really no mix effect that you are referring to of any materiality or significance that drives our ARPU up.

So, in our case, that explains the 1% being pretty straightforward.

Perhaps it is different with others.

In respect of what is driving that growth, I think we touched on that a little bit, in terms of -- certainly, first and foremost, it is data subscriptions that are coming with a smartphone device.

And I think there was a question with respect to messaging.

Yes, messaging revenues is growing, but the overall data bulk subscription package is really the primary driver of growth in the data space for our organization.

And as mentioned from the roaming side, international roaming is a good source of ongoing long-term growth that, quite frankly, we were very under-penetrated in, as you know, going back because of the CDMA heritage.

So that should be a good -- is and should be a continued good source of growth for us.

So maybe that gives us some color.

Now as we introduce new technology with the LTE, there is more opportunities there, and maybe I will hand over to Joe just to comment about our pricing.

Thanks, Bob.

Just one more quick comment on the mix topic.

We sometimes get the question about, how much of your loading is coming from pre- to post-migration within our base.

And at the end of the day ,there is no question that there is an opportunity in the marketplace at large to drive migration from prepaid customers at the high-end -- there a number of prepaid customers that are creditworthy, that are fully targeted for postpaid.

And we are actually going after those customers, whether they are currently with one of our competitors or within our own base.

But if you want a general number, it has not really changed on a pro-rata basis from a year ago.

Roughly about 10% of our postpaid nets a year ago came from pre-to-post migration, it is roughly about the same this year.

So it is really -- our growth and success in loading has really come from success in the marketplace.

Postpaid nets are 148.

Bob mentioned that if you normalize 148 for the government Canada, it is roughly 158.

And if you look at our residual iDEN base from our Mike business, and look at the -- we are actually trying to migrate those customers -- but along the way, it certainly is a negative drag from that part of our business.

You can normalize that, and that would be another 13,000 postpaid nets.

A normalized number, overall, would have been 171 for the quarter on postpaid.

And, hopefully, that provides some color around mix and other factors.

On your question on LTE, I would say there's sort of one headline reaction to that.

And that is that, in our view, offering tiered speeds for mobile broadband, and managing those tiered speeds, is a false economy.

You may, for a period of time, be able to charge a premium.

But when you look at a number of factors, you quickly decide that it really is not clear and simple.

And let me give you my view on that.

So, tiered speeds will give rating complexity, and will give billing complexity, will create customer care complexity.

There is a variation in the actual speed that is connected to a number of factors, as many would know, whether it is proximity to a tower, whether it is congestion on the radio access network, whether it is the type of backhaul connected to that tower.

So you get into a place where there is a variability around the band.

And at CAD10 to CAD12 a phone call, we are going to spend far too many phone calls explaining to customers where they sit in that particular band, and where they may have gone from LTE coverage to HSPA coverage as a result, and therefore their bill will become even more complex.

So we then looked at it and said, you know, this business has grown up as a pay per use model.

Faster speeds will actually encourage greater use, because of the ability to download music and download videos more effectively, more quickly.

And why not have data rate plans that flex automatically based on that conception, and don't tax the organization with respect to complexity, nor drive frustration for customers.

If there is one huge source of frustration for mobile customers in the industry, it has been around simplicity and clarity in data rates and data billing.

And we all have the horror stories around overage and shock in the bill et cetera, and the complexity in the bill.

So our view is that we will get the growth based on adoption, and based on faster and easier use of higher speeds.

Thanks very much.

That was very well thought out.

I appreciate it.

Maher Yaghi, Desjardins Securities.

This is just, more, a bigger question in terms of your dividend policy and how you see the organization growing in the next few years.

When I look at your EBITA, you exited the year at minus 4% on wireline, excluding restructuring -- and up 6% on wireless.

At 60/40 split, it is about 2% of growth.

That is about what you are growing at, in terms of your guidance -- 3% growth in 2012, that is your guidance.

But when I look at your dividend policy, you have a dividend policy right now of 10%.

I'm trying to maybe just bridge the gap between what needs to take place for that 10% to be sustainable.

Does it need a change in your payout ratio, or are you expecting an inflection in your earnings power in the next few quarters?

Well, it is difficult to know where to start.

First of all, our policy is to pay out 55% to 65% of our net earnings.

Our net earnings grew around at 9%.

Our dividends went up 10%.

That is pretty well in alignment.

And I think you referenced EBITDA.

But our policy is on EPS, so that goes into things such as interest and taxes.

Of course, we have been having declining interest payments, et cetera.

So that 10%, circa 10% objective for the three years ending 2013, we are well in the middle of that, and then tracking along, and slightly ahead of that.

So in respect of what enables one to pay dividends, that is a function of one, starting with the balance sheet that's the right zone, where ours is.

It is right in alignment with our policies with respect to leverage.

And then, secondly, the ongoing cash generation of the organization, which, as you saw here, was very strong on a year-over-year basis.

So I don't think there are many companies in the world that provide as much clarity with respect to dividend policy as TELUS does.

We not only have a dividend payout range for our policy, but we also have given three-year target.

We also have been in identifiable track record of those increases.

So I think there is not much more to be said about it.

It is as clear as day.

On your EPS, your guidance for 2012 is a growth of 5%, if I take the middle ground.

But when you look at your dividend policy, do you include 2013?

Because if you include 2013 and you continue to grow at 5%, you are going to be hitting a ratio of 64% in 2013 -- about a place where you either have to change the policy, the distribution ratio, or you need that earning power to increase -- to sustain that dividend policy growth rate of 10%.

I have answered the question.

If you want to engage in an education session with me, I would be pleased to do that off line.

Glen Campbell, Merrill Lynch.

So my question was on the strategy on TV.

You have had great success there, clearly, and the flow-through on the triple play has been great.

If we think about Shaw's latest moves on pricing, we can probably agree that they may hurt them a lot more than they will hurt you.

But, that said, is there a point at which your growth might be too fast, where it is not good for stability of market share or pricing?

And if so, do you think you are near that point?

Alright, so I just have to fast-forward my mind from a few years ago.

Now our challenge is, we are growing too fast.

That is -- Joe, do you mind slowing down a bit?

Over to you on that one.

I just missed calling the guys and say stop selling.

No, kidding.

I think at the end of the day, we are involved in the marketplace, and driving -- as I said earlier, Glen -- a great product and a great solution.

Our addressable market is 2.3 million homes, and by the end -- well, with VDSL2 coverage, we will have 25 megabits of bandwidth to those homes and four live streams.

So, we have worked so hard to get to this place where we can drive TV growth and drive the bundling around our home solutions.

Market share of the home, and share of wallet in the home, is a very important focus for us.

At the end of the day, our goal is to maintain value in the marketplace.

But, at this moment in time, with this great window of competitive advantage, we have to drive very hard.

We have to drive very, very hard.

And we have got a great product.

We have got a well-trained team.

Our installation track record is terrific, both in terms of effort and time but quality -- quality of that installation, and the feedback we're getting from customers is terrific.

The roadmap is something that is exciting at every turn, in every capability drop.

Is it getting scrappy, with respect to aggression from our cable competitor?

Yes, but as I said earlier, it has been scrappy for the last couple of years.

At the end of the day, if you look at the overlap in our EBITDA between ourselves and our cable competitor, roughly about 72% of the EBITDA overlaps with our services.

If you look at it the other way, and you look both for the consumer business and SMB, it is roughly about 20% of our EBITDA.

So the pressure is asymmetrical, completely asymmetrical.

And, therefore, we have an opportunity now to push hard on this point, and continue to drive the growth and get to the type of market share that we think is appropriate for our business, and strengthen the quality of the product.

And our installation and our support will get us there.

Okay, well that concludes the call for this quarter.

Thank you, everybody, for joining us.

And we look forward to working with you over the coming months.

Thanks a lot.

Ladies and gentlemen, this concludes the TELUS Q4 earnings conference call.

Thank you for your participation, and have a great day.