Telus Corp (TU) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the TELUS 2013 Q4 earnings and 2014 guidance conference call.

I would like to introduce your speaker, Mr. Darrell Rae, please go ahead.

Welcome and thank you for joining us today.

The news release for our fourth-quarter financial and operating results and 2014 targets and detailed supplemental investor information are posted on our website at www.telus.com/investors.

This call is scheduled for up to one hour.

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

Let me now direct your attention to slide 2. This presentation, answers to questions, and statements about future events such as 2014 targets, intentions for dividend growth, and future share purchases are subject to risks and uncertainties and assumptions.

Accordingly, actual performance could differ materially from statements made today.

So do not place undue reliance upon 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 and filings with the Securities Commissions in Canada and the United States.

Slide 3 outlines today's agenda.

We will start with opening comments by President and CEO, Darren Entwistle, followed by a review of operational highlights by Joe Natale, our Chief Commercial Officer.

John Gossling, our CFO will provide a review of fourth-quarter financial results, and take you through our 2014 targets.

We will conclude with a question and answer session.

Let me now turn the call over to Darren, starting on slide 4.

Thank you, Darrell.

2013 was an exceptional year for TELUS as we continued to deliver strong operational and financial results while creating significant value for our investors.

TELUS' robust performance is the direct realization of our ongoing strategic investments in broadband data technology, our innovative services and solutions, and our team's collective commitment to putting customers first in every aspect of our business.

This unwavering focus will continue to be reflected in our 2014 targets, which I will discuss momentarily.

Our differentiated, client-centric culture continues to attract new customers as evidenced by our fourth-quarter additions of 113,000 new postpaid wireless customers, 38,000 new TV clients, and 21,000 new high-speed internet connections.

Indeed, for the fourth quarter, TELUS led the industry in TV and high-speed internet net additions and did so for the full year of 2013.

Further reinforcing our commitment to our valued customer, TELUS reported an industry-leading monthly postpaid wireless subscriber turn rate of 0.97%, our lowest result in seven years.

Moreover, our consolidated revenue grew by 3.4% in the quarter, buttressed by higher revenues in both our wireless, and importantly wireline segments.

This progress is a result of sustained growth in our customer connections, and continued data consumption that is contributing to increases in our average revenue per customer, offsetting declines in wireless and wireline voice services, and equipment revenues.

Our fourth-quarter EBITDA, excluding restructuring costs, increased 5% year over year, including growth of 6% in wireless, and 3.5% in wireline.

This represents our fifth conservative quarter of wireline EBITDA growth supported by our lowest residential network access line erosion in eight years.

Our continued emphasis on cost efficiency initiatives contributed to a consolidated normalized EBITDA margin improvement of 50 basis points to 33.4% for the quarter.

This was led by a 90 basis point improvement in our wireless margins.

Overall in 2013, normalized EBITDA margins were up 30 basis points to 36.1%.

Despite an increase in cash income taxes, our robust free cash flow enabled our Organization to further invest in growth while providing superior investment returns to our shareholders.

TELUS generated strong fourth-quarter earnings per share with growth of 17.5%, or 22.5% excluding restructuring and tax related items.

Impressively, our shareholders have realized for the fourth consecutive year double-digit total shareholder returns.

Indeed, thanks to our continued focus on creating shareholder value, we returned to TELUS a record CAD1.85 billion to our shareholders in 2013 through our dividend growth and share purchase programs.

It is our intention to continue our share purchase programs for up to CAD500 million each year from 2014 through 2016, for a total of up to CAD2.5 billion when including the CAD1 billion program we executed against in 2013.

Already in January we purchased 590,000 shares for CAD22 million.

Furthermore, as you will recall in May, I announced the extension of our dividend growth program targeting two dividend increases each year and growth of circa 10% annually for three additional years to 2016.

These two initiatives are certainly consistent with TELUS' goal of providing ongoing and superior investment returns to our shareholders.

Guided by our 2014 corporate priorities, as shown here on slide 5, and combined with our fourth-quarter and annual results in 2013, our Company is indeed well positioned to achieve our 2014 financial targets and to continue advancing our national growth strategy.

Our priorities once again include putting customers first and earning our way to industry leadership in the likelihood of our client to recommend our products, our services, and our people.

Further, strengthening our operational reliability is also a Corporate priority.

Including building our speed and resiliency for our broadband services, thereby building our capacity to enhanced efficiency and effectiveness and invest for future growth across both lines of business, wireline and wireless.

Accordingly, we are targeting consolidated revenue growth of up to 6% and EBITDA growth in both wireless and wireline of up to 8% for 2014.

Moreover we are targeting earnings per share growth between 11% and 21%.

Notably, our 2014 targets demonstrate that we expect robust growth in both our wireline and wireless segments, which clearly differentiates TELUS.

For the coming year, we are targeting industry-leading growth rates and consolidated revenue and earnings, as well as capital expenditures of approximately CAD2.2 billion.

These capital investments reflect our continued focus on wireless and wireline broadband infrastructure, including our 4G LTE network expansion, small cell deployments, and Optik TV footprint expansion, pushing fiber deeper into the access layer of our wireline network.

Importantly, this supports our customers-first strategy, buttressed by the strength of our industry-leading balance sheet.

Certainly with our sustained focus on capital infrastructure to elevate the client experience and deliver excellent financial results, and driven by the most highly engaged team on a global basis, our Company will continue to build on our extraordinary momentum through 2014 and beyond.

Before I conclude, I want to express my sincere gratitude to our committed shareholders for their overwhelming support of the TELUS Organization and our strategy.

We are undoubtedly well poised to continue successfully advancing our national growth strategy, focused on data and wireless to deliver leading value to our investors.

I would like to now invite Joe to take you through a review of our key fourth-quarter operating results before John covers the financial highlights and our 2014 targets explicitly.

Thank you, Darren.

TELUS reported healthy fourth-quarter postpaid wireless net additions of 113,000.

The mix continued to shift toward smartphones as we maintain our strategic focus on quality, high value subscribers.

Postpaid net additions were down slightly year over year, reflecting slower market growth and continued competitive intensity.

Our strong share of industry net additions in 2013 led to 3% expansion of our postpaid subscriber base.

As shown on slide 7, TELUS reported a low fourth-quarter blended churn rate of 1.41%, a 10 basis point improvement over last year.

Postpaid churn improved 15 points to an industry low of 0.97%, the lowest in seven years, and achieved in another intensely competitive quarter.

This clearly demonstrates the continued success of our relentless efforts to differentiate TELUS through a superior customer experience.

Low churn allows us to take a measured approach in acquiring new customers.

As a result we are not compelled to match every promotion or aggressively pursue some of the more expensive gross loading.

Notably, we lowered churn while spending less on cost of retention as a percentage of network revenues, which was down 50 points to 12.9%.

Moving to slide 8. We reported a 13th consecutive quarter of year-over-year blended ARPU growth.

As a result of industry leading ARPU, TELUS led the industry in share of service revenue growth in the fourth quarter.

We remain very confident in the economics of our SharePlus plans, and the ongoing prospects for future growth from increased data penetration, enhanced speeds, and an expanded range of services and applications.

Our smartphone subscriber base increased to 77% of our postpaid base, an 11 percentage point increase in 2013, up from 66% last year.

This is being supported by the continued expansion of our 4G LTE network, now covering more than 81% of the Canadian population.

Turning to slide 9, our low churn rate and healthy ARPU are supporting TELUS' continued industry leadership in lifetime revenue per subscriber, up again this quarter to almost CAD4,400, the highest fourth-quarter result in seven years, and up to 24% better than that of our peers.

Cost of acquisition per gross addition was flat in spite of intense competition and our focus on smartphone loading.

TELUS' marketing efficiency measured as a ratio of cost of acquisition per gross addition to lifetime revenue remains industry-leading at 10.3%, a 90 basis point improvement.

Our superior wireless operating metrics continue to be underpinned by our strategic focus on high quality market share gains, smartphone additions, and leading customer experience capability.

Turning to wireline on slide 10, we continue to build increased scale in TV and high-speed internet and recorded our best quarter of 2013.

TV subscribers were up 38,000, with the base growing by 20% over last year as we continue to expand market share.

The demand for our premium differentiated Optik TV and our share of the available markets remains very strong.

There continues to be good pull-through growth in the demand for higher margin, high-speed internet with an increase of 21,000 subscribers in the quarter.

Our base grew by more than 5% year over year.

Through our continued broadband investments in pushing fiber deeper into the network, including directly to the home, we now offer 50 megabits per second internet to 89% of the more than 2.7 million Optik capable households.

We continue to see improvements in Optik TV and internet metrics with ARPU increasing for both products.

Our successful focus on winning the home is illustrated by the lowest residential NAL losses we have seen in eight years, down close to 30% in spite of increasing wireless substitution in the marketplace.

Combined TV and high-speed net additions of 59,000 exceeded residential NAL losses by 2.4 times.

This was the 14th consecutive quarter we have seen this key trend and the highest ratio we have seen in more than two years.

Looking at our new Optik TV customers in the quarter, 79% were new to TELUS, 83% added either home phone or high-speed internet or both at the same time they added TV.

Notably, 98% have at least one other future-friendly home products.

Our Triple Play product has never been more competitive.

As a result we have seen an 8% increase in Triple Play ARPU over the last year as we expand coverage and speeds and add new content.

We continue to enhance the Optik TV customer experience as we build our HD leadership with increased functionality.

In the fourth quarter we launched live streaming TV for Optik On-the-Go in addition to our on demand service already available.

Optik TV customers can now watch live TV on their smartphone and tablets, complementing the over 6,000 Video on Demand titles already available on Optik On-the-Go.

In 2013 TELUS added 52 new HD channels, bringing the total to 188, almost 50% more than our cable competitor.

Our HD leadership now extends to our VOD service, which includes approximately 13,000 on demand titles, of which 68% or 8,800 are HD.

In the fourth quarter we introduced a recommendation engine, as well as Rotten Tomatoes ratings on our VOD storefront.

For the 2014 Winter Olympics we launched 10 additional CDC HD feeds in both French and English, providing TELUS Optik TV customers the most comprehensive coverage of Sochi 2014.

With Optik On-the-Go, live and on demand Olympic coverage is available any time, anywhere on smartphones or tablets.

Finally, we remain extremely focused on initiatives aimed at enhancing efficiency to mitigate substitution and competition impacts.

As I have noted on these calls previously, our ongoing focus on efficiency is, at the same time, helping us to enhance effectiveness in delivering a superior customer experience to our customers.

With that, I will turn the call over to John to take you through the financial results generated by our continued strong operating performance and our 2014 targets.

Thanks Joe.

Good morning, everyone.

I am on slide 12.

Fourth-quarter wireless results continue to demonstrate our strong operational execution.

Network revenue was up an industry-leading 4.1% due to subscriber growth and increased data usage from continued smartphone adoption while equipment revenue declined.

EBITDA for the quarter increased by 4.4% or up 6% excluding higher restructuring and other like costs, reflecting a market-leading margin of 41.7% of network revenue, up 60 basis points year over year.

This is our eighth consecutive quarter of year-over-year margin expansion.

We should also point out that the Q4 wireless results include CAD9 million of revenue and EBITDA reduction of CAD10 million, including CAD8 million of restructuring costs for Public Mobile.

Capital expenditures increased by 11.5% due to investments that expand coverage, enhance capacity, supporting systems and backhaul facilities of our networks.

For the year, wireless capital intensity remains stable year over year at 12%.

Slide 13 shows the combined impact of our data ARPU growth, plus the increase in our subscriber base, which resulted in wireless data revenue increasing by CAD78 million or 14% in the quarter.

As Joe mentioned, this growth was driven by higher penetration of smartphones, and associated take up of data plans as well as higher data roaming volumes.

Data now represents 45% of network revenue compared to 41% in the same period a year ago.

Slide 14 shows our wireline financial results.

Revenue increased by over 3% due to data revenue growth from TV and high-speed internet subscriber growth combined with higher ARPU, as well as higher revenue from TELUS Health and TELUS International.

Wireline EBITDA increased by 2% despite being impacted by higher restructuring and other like costs of CAD21 million, CAD6 million higher over last year.

EBITDA excluding restructuring and other like costs in both periods was up 3.5%, reflecting a stable margin of 27%.

The improvement reflects positive momentum in Optik TV and internet margins, helped by continued subscriber and ARPU growth as well as ongoing operating efficiency initiatives.

Wireline capital expenditures increased by 10% to support ongoing investments in broadband infrastructure, including connecting more homes and businesses directly to fiber-optic cable, large enterprise service growth, as well as investments in network and systems resiliency and reliability.

Slide 15 shows we're generating strong wireline data revenue growth of 10.5%.

In addition to TV and high-speed internet subscriber and ARPU growth, this result was also driven by increases from TELUS International and TELUS Health services.

Data revenue represents 62% of external wireline revenues, up 4 points from a year ago.

Putting it all together on slide 16, revenue increased by 3.4%, driven by 12% growth in total data revenue, which now accounts for more than 50% of consolidated revenue.

Reported EBITDA increased by 3.6%, and when excluding restructuring and other like costs in both periods, was up 5%.

This represents an EBITDA margin of 33.4%, which is higher by 50 basis points year over year.

Basic earnings per share of CAD0.47 was higher by 17.5%, while excluding higher restructuring costs, EPS was up a further 500 basis points to 22.5%.

I will discuss the puts and takes on the next slide.

CapEx increased by 10.7% due to higher capital expenditures in both wireless and wireline as discussed previously.

Slide 17 provides a breakdown of EPS drivers this quarter.

Strong EBITDA growth was the primary driver, adding CAD0.05 to the upside.

Lower depreciation and amortization added CAD0.02 of growth, while lower shares outstanding reflecting our share purchase programs also added CAD0.02 to the upside.

Higher financing costs from a higher debt balance and inclusion of Public Mobile each contributed CAD0.01 to the downside.

Overall EPS is up an impressive 17.5%, or 22.5% excluding restructuring costs.

Let's now move on to out review of the 2014 targets and assumptions.

Slide 19 outlines our segmented targets for 2014.

In wireless it is worth highlighting that for the first time we are providing guidance on network revenue versus external wireless revenue.

It is also important to highlight that our wireless targets and growth rates as well as consolidated targets for 2014 exclude the impact from Public Mobile.

For 2014, TELUS network revenue is targeted to increase between 5% and 7% from modest subscriber growth and modest ARPU growth due to increasing data usage and the benefit of TELUS SharePlus data sharing plans.

We assume it will continue to benefit from our 4G LTE network investments, resulting in continued growth in data and roaming revenues, helping offset lower voice revenues.

Wireless EBITDA is targeted to be higher by between 4% and 8%.

Wireline revenue is targeted to increase between 3% and 5%, reflecting continued data revenue growth from Optik TV and high-speed internet, as well as business services, including TELUS Health.

This is expected to be partially offset by continued decreases in legacy voice revenues from ongoing wireless substitution and competition.

Uniquely, the wireline EBITDA range is targeted to increase by between 1% and 8%; the Company is seeing EBITDA improvements from Optik TV, high-speed internet, and business services, including TELUS Health, as well as ongoing efficiency initiatives, partially offset by the ongoing industry trend of revenue losses from higher-margin legacy voice services.

Combining the business segments on slide 20, TELUS is targeting strong revenue and EBITDA growth driven by both wireless and wireline, which reflects the benefits of our ongoing major strategic network and service-related investments, combined with customer-focused operational execution.

Earnings per share is expected to be higher by 11% to 21%, reflecting strong EBITDA growth combined with a reduction in shares outstanding, reflecting our share purchase programs.

As Darren referenced, consolidated capital expenditures in 2014 are targeted to increase modestly to approximately CAD2.1 billion excluding the purchase of spectrum licenses.

Capital intensity as a percentage of consolidated revenue is targeted to be approximately 18%.

Slide 21 reviews some other notable assumption for 2014, total declined benefit pension expense for 2014 is estimated to be approximately CAD87 million, of which approximately CAD85 million will be in operating expenses and CAD2 million in financing costs.

Defined benefit pension plan funding is expected to be CAD105 million, compared to nearly CAD200 million in 2013.

Our continued focus on operational efficiency is expected to result in restructuring and other like costs of approximately CAD75 million.

Cash taxes are expected to increase to a range of CAD540 million to CAD600 million due to higher income levels, a large final payment due for 2013 in the first quarter of 2014, and higher installment payments based on 2013 income.

Separate from our target, the integration of Public Mobile in 2014 is expected to have an impact to consolidated and wireless EBITDA and EPS.

Consolidated wireless EBITDA is expected to be negatively impacted by approximately CAD40 million, while EPS is expected to be negatively impacted by approximately CAD0.06.

Other key assumptions and sensitivities are also listed in Section 1.5 in the fourth-quarter Management's review of operations.

Before I conclude on slide 22, I would like to take a minute to reiterate how our strong balance sheet is helping to position us to continue returning capital to shareholders while at the same time investing in our businesses for the future.

At the end of 2013, our net-debt-to-EBITDA ratio of 1.8 times remains well within our long-term policy guideline.

Our excellent debt maturity schedule reflects no maturities in 2014, and our successful debt issued in 2013 increased our average maturity to 9.4 years at the end of 2013, compared to 5.5 years at the end of 2012.

Meanwhile, our average cost of debt is now at approximately 5%, compared to approximately 5.3% at the end of 2012.

We have over CAD2 billion of available liquidity, and given our investment-grade credit ratings, TELUS has ready access to capital market funding.

With that, let me pass the call back to Darrell to start the Q&A.

Thanks John.

Before we start the Q&A session, I would like to reiterate that once the 700-megahertz spectrum auction concludes and the results have been announced, we will be able to provide more information.

Until such time please limit your questions to our Q4 results and our 2014 targets.

Peter, can you please proceed with questions from the queue for Darren, Joe, and John.

Our first question comes from Glen Campbell.

So question on capital spending.

Can you give us a bit of a sense of how the CAD2.2 billion is likely to be split?

And maybe on the wireline side, you described a really impressive footprint with 50 megs to I think 80% of your coverage area.

What is the push in 2014 and beyond?

I mean, one would think perhaps an opportunity to take it lower, but you have done well with what you have invested so far.

Where are you hoping to take it from here?

Glen, I will handle this.

In terms of the CapEx program for 2014 building off of 2013, I am not going to give you the exact splits from the segmentation perspective, but I will tell you what all the money is being spent on exclusively and exhaustively.

Number one, we are using the cash for the continued expansion of our LTE network from both a coverage perspective in terms of augmenting our footprint, but also, importantly, from a cell densification perspective; particularly areas where we've got high data consumption within urban markets, we are driving both overall footprint expansion, but also the densification of our network.

The second thing that we are doing is coming out of this spectrum option, we will look to expeditiously and diligently operationalize the 700 megahertz spectrum that we've secured.

We intend to do so because it is the right thing to do for our customers and our customers-first strategy, but our goal here is to expeditiously surpass the build requirements set up by the Canadian government, because bridging broadband digital device in Canada is a social outcome and a commercial outcome that this Organization is desirous of driving, and we think it is the right thing to do.

Next area, in terms of use of that capital will be the judicious expansion of our smallcell topology.

That is exclusively within the ILEC footprint right now of the TELUS organization in terms of both Western Canada and Eastern Quebec.

The goal there is pretty simple, we want to build a complementary microcell underlay network to sync with, in a meshed basis, the macro wireless overlay network that we have and getting those two things working in harmony.

Again, that is a data-centric undertaking; that's a long-term goal for the Organization, but something that we are focused on in 2014.

The third area that we are focused on is something that you alluded to, which is pushing fiber deeper into the access layer of our wireline network, supporting not just Optik TV and the expansive services that Joe made reference to, but also supporting smallcell backhaul.

And on a modularized basis as I discussed previously, over multiple years, we are beginning our fiber to the home program.

It is modest in nature.

It is segmented out in many modules over many years, but it is something that we need to tackle on a progressive basis, and that looks like part of our focus for 2014, as well.

I think it's important to highlight that despite the exclusive focus on these broadband data investments, both wireless and wireline, this is an Organization that has the cash and the balance sheet to carry on with another CAD1.5 billion in successive NCIB programs through 2016.

And of course, we have fixed dividend increases on the come where the annual goal is a 10% growth rate, and we are extremely intent on achieving that, certainly in the aftermath, as well, of the spectrum auction that just transpired.

The other thing I would ask in terms of investors is to reflect on the fact that, unlike some of our peers -- and I am not commenting on what works, what doesn't work in terms of an effective strategy, but TELUS is not an Organization that has used capital for significant acquisitions.

Instead, our strategy has been fueled by organic capital investment, and I think 2014 is reflective of that.

We don't see large acquisitions on the horizon to accelerate our strategy, but we do see smart, incremental organic capital investments that will fuel our success in terms of broadband data for both wireline and wireless, and support the significant results that we are realizing in wanting to lead the world according to the voice of the customer, a likelihood to recommend and putting customers first.

You see that in our loyalty and retention rates.

And then finally, Glen, in terms of hard figures for 2014, I did some back-of-the-envelope calculations not in our disclosure, but if I look at what we are intending to deliver in 2014 supported by our EBITDA expansion, we are looking to deliver simple cash flow of circa CAD2 billion, and up to 10% growth on a year-over-year basis, or free cash flow of circa CAD1.1 billion, which is a growth rate year over year of circa 12%.

I think when you look at that holistically, TELUS is being very judicious in balancing investments for the future with delivering strong shareholder returns.

Terrific, thanks.

Maybe just a quick clarification then.

As you deploy on 700, will you be able at the same time to do the refarming on 850 and the iDEN build that you alluded to in the release, or does that come through in a separate wave later?

I think that is on the come for us without a doubt, Glen.

That is something for the future.

We still have a client base that we need to support on iDEN.

We have a free and unencumbered spectrum that we're securing through the auction process.

It is very attractive spectrum given its propagation characteristics and in-building penetration within the urban centers.

The first order of business for us is to use that, because if you want to take your LTE network footprint from 81% of the population to 95% of the population, better to do that with the quickly available 700 megahertz frequencies that we secured through this spectrum auction if we get that particular outcome from Industry Canada.

That is the most efficient way for us to do things, and also to do that within the urban areas to support our densification practices.

But also importantly for clients is client services front of mind in-building penetration is increasingly a concern and a requirement, and again, the penetration characteristics of those radio frequencies will help us achieve that particular goal.

That is first items down the line.

Terrific.

Thank you.

Thank you.

Next question from Vince Valentini.

A couple things just to clarify, you mentioned the small cells building out just in your ILEC territory.

I'm wondering if your network sharing deal with Bell allows you to leverage any of the small cells they build outside of your ILEC footprint.

Second clarification, Public Mobile I didn't quite understand what you said, John.

This loss from Public Mobile that you expect, is that included in your consolidated guidance that you provided, or are you saying that is an extra item?

And the last thing just real quick on Public Mobile, is I thought there were some tax losses you were going to pick up with them.

I'm wondering if you can give any color on what those are and when you could achieve them?

The tax losses are CAD100 million, they're targeted for 2014.

Public Mobile is outside the -- 2015.

It is outside of our guidance.

And the logic of network sharing on a small cells topology is readily apparent, but that is not a bridge that we've crossed thus far with the Bell's organization.

Okay, thanks.

Next question, Peter?

The next question comes from Dvai Ghose.

Thanks very much.

Darren, it was very good to hear you reiterate your NCIB and dividend growth targets.

There is some concern nonetheless on the market, that with this auction now entering its fifth week, the valuations may be excessive compared to expectations and derail that process.

While I understand you can't talk about the auction itself, is that a legitimate risk in your mind?

And I have a quick follow-up on wireline if I may.

I understand the investor concern as it relates to the auction for a number of reasons.

One, is the information remains embargoed.

Number two, it is an ongoing process.

Number three, it is a significant event.

So how much is going to be spent and have people been able to secure the spectrum that they need for their future requirements and how has that unfolded?

So I am pretty sensitive to and empathetic in respect to that particular issue for investors.

Unfortunately right now we are under a disclosure embargo and confidentiality undertakings.

It is important for us to respect.

What I can tell you, having been a participant in this auction process is that it is important for me to convey, as I did in my remarks, that the NCIB programs that we've got scheduled for the next three years and the dividend growth model that we've got scheduled for the next three years will not be affected by the outcome of the spectrum auction.

So TELUS remains confident that we will achieve the outcome that we want from the auction, because certainly spectrum is a strategic necessity for this Organization.

That we will achieve that outcome at what investors would construe as a reasonable, economic cost, and I can commit now that I do not see anything as it relates to the auction that will undermine our ability to return cash as stipulated within our NCIB and dividend growth model forecasts.

And again, if you look at the 2014 guidance that we have provided and do some calculations from a cash flow perspective, this Organization remains in a very strong position.

And I think our sources of capital are really buttressed by fact that we make investments for tomorrow in the uses of our capital.

And we've done very well focusing exclusively on broadband data.

I would expect that to continue.

I would also expect us to continue deriving significant returns for shareholders from those investments.

Thanks very much.

Having the strongest balance sheet entering the auction is obviously a clear advantage.

In terms of your wireline EBITDA guidance for the year, it's a very wide range as you know, of 1% to 8%.

Your wireless is much of a narrower range.

What would get you nearer the 8% growth as opposed to the 1% in terms of variables?

Dvai I will take that.

In terms of what would get us to the upper end of that range versus the lower end, there are a few items.

On the revenue growth side of the equation, we can't predict the seasonal competitive attempts made in the marketplace, so clearly we have confidence in our ability to continue adding TV customers, but moderated by what might happen in the fullness of the year.

We still feel very confident around our ability to grow ARPU and on demand services.

We mentioned that Triple Play ARPU was up 8% and we are seeing greater consumption, on demand services and other pay per view-type events and other things that we are adding to our TV offering.

On the OpEx efficiency side of the equation, we have a number of programs that we have laid out for the year with respect to driving down call volumes that are a big part of OpEx in supporting the business, driving better marketing efficiency with respect to the cost of acquisition around TV in the marketplace, the channel costs in that area.

So these are all initiatives that will get us closer to the 8%.

Some of them are truly within our control through the course of the year.

Others will depend on the dynamic nature of the marketplace.

Thanks very much.

Much appreciated.

Dvai, I think one important point to highlight in your question, it is good positioning to go into a spectrum auction with a very strong balance sheet.

I think it is also prudent to come out of an auction with a very strong balance sheet.

And at the end of the day if the cost of securing spectrum is the undermining of the balance sheet, then it is a bit of a pyrrhic victory.

It is important in terms of the strategy and the mentality of this Organization that you have a balanced outcome, you get what you need to get in terms of bandwidth for your wireless business, and you protect the strategic advantage that you have in a strong balance sheet.

Because it is one thing to buy spectrum, you still need your balance sheet to operationalize it, and then you need to make the investments again to deliver the services in a way that customers find appealing.

That is holistically the necessity that we have as an Organization.

Our next question comes from the line of from Maher Yaghi of Desjardins Securities.

Please go ahead.

Thank you for taking my question.

After many quarters of declining, I would say sluggish voices, that you are starting to see a significant increase in minutes of use.

Now, it definitely goes to show how customers are appreciating your product offering.

However, can you talk a little bit about if this is a real sign of wireless substitution that we are seeing here?

And as a follow-up, can you give us some maybe KPIs about your efficiency of keeping clients who are choosing to go [purely] wireless?

And finally, what is the current rate of wireless substitution that you are seeing in your incumbent landline territory?

Sure.

So generally speaking let me talk about wireless substitutions to begin with.

No question that right now the majority of our access line erosion, the residential sector, is actually driven more by wireless substitution than competitive losses.

So that is sort of a fact of the marketplace, as a younger demographic especially is settling into homeownership, or home rental, and choosing either to not have a wireline connection for home phone and going strictly with wireless.

Now for us, given that we have a national wireless business and our wireline business is western-based and eastern Quebec-based, we are a net winner in that overall dynamic.

As we see more cord cutting happening on the land line front, it actually will help to support some of our aspirations and goals on the wireless growth side of the equation.

With respect to voice overall on wireless, if I understand your question, the first part of the question, Maher I would say, first of all, we have been working very hard to moderate the voice ARPU and voice revenue erosion that has been a natural part of the wireless business over the last number of years.

If you look at our overall voice revenue, it is down only 2.7% in the quarter, which, I think, is a good balanced outcome, especially if you compare it against our peers and the type of voice erosion that they face.

We have been working hard to balance the rerate on the voice erosion with the propositions we have in the market and offering more-for-more services.

So really, you are seeing a lot of customers in our lower-tier, mid-tier plans for voice, upping and buying into cost certainty around unlimited plans or larger plans as a whole.

So we are really working hard to strike that balance.

In terms of minutes of usage, to your comment there, we don't disclose minutes of usage directly, but we have seen moderated minutes of usage over the course of the last many quarters.

We are not seeing the type of spike that you asked in your question.

I think what we are seeing is certainly more minutes of usage for people that are big voice users that are in the cost certainty -- are in rate plans with unlimited cost certainty, especially nationwide, but being moderated by other demographic segments of the population that are more tuned to data consumption and are using our data services for communication purposes, whether it's texting or any host of the social media apps that are out there from Facebook to Instagram, and the like.

So voice minutes are being moderated because of that demographic shift and phenomena, but what it's doing for us is giving us 14% of data growth, and it's giving us even greater data attachment rates across our smartphone base.

And we're seeing an upgrade of customers from lower and mid tier data plans to higher data plans as a result of that shift.

So I think it is a good thing for the Organization as a whole.

As we move down the road and move towards VOLTE, or voice over LTE, voice services will truly become data services when voice becomes an application in that sense.

So the focus will then really be squarely on data growth and monetization of data growth.

Data growth and good margins.

Right, good margins, which is the key and the heart of the matter in terms of expansion and data services.

Next question comes from Tim Casey.

Please go ahead.

A couple for me.

Are you able to provide some more color on the financial metrics you're seeing with respect to Optik, maybe some comments on blended ARPU and you said you expect continued progress in EBITDA.

Can you flesh that out a little more for us?

Second, on Public, you quantified the losses you're going to incur.

Can you walk us through what the strategic plan is for those subscribers, if you are even interested in keeping them, and how you expect to transition the spectrum into your consolidated operations?

Thank you.

Tim, it is John.

I will take the first part, and on the Public Mobile general plan, Joe will comment on that one.

I would say generally on Optik and high-speed internet, while we don't give a lot of detail in terms of ARPU, I'd say the trend in both of those areas is strong.

ARPU growth is strong, high-speed internet actually to even higher effect than on TV, but they are both very good, and churn as we come into the fourth quarter is actually very, very robust, as well.

So I am not sure how much that helps, but certainly the metrics are -- those metrics are important.

As you say driving the EBITDA growth it is really the mix effect in wireline as to how quickly that legacy wireline voice revenue goes away and gets replaced by a much different gross margin and margin profile of the other two products.

But, certainly the metrics are pointing all in a very positive direction.

Tim, can you please repeat the Public Mobile question, just so I make sure I understand exactly.

Sure, can you update us on what your plans are for the spectrum and the subscribers, if you have any plans for them, and how you expect that to evolve over the year?

Sure.

Okay.

Absolutely.

So we have struck a comprehensive integration team to look at all the different elements of integrating Public Mobile into the TELUS organization, everything from network through channel through customers, through spectrum, and the like.

Our plan right now is to migrate our customers, migrate the Public Mobile customers to CDMA, and eventually to HSPA and LTE by the end of 2014.

So the plan is very much is to make the quick move to CDMA and then in the fullness of 2014, make the final transition over to HSPA and LTE.

Our goal is to free up the spectrum in that period of time.

We are looking at distribution and the right plans with respect to distribution and our ability to support the Public Mobile brand.

We are assessing the Public Mobile pricing right now and looking at the product offerings.

We have made a commitment to keep the CAD19 unlimited voice plan in the market through 2014, but we will be looking at all the various aspects of Public Mobile rate plans and making sure that we strike the right balance between doing this right for Public Mobile customers and putting forth a set of economic considerations for the TELUS Organization.

And as we mentioned earlier, we have plans to leverage the tax synergies in early 2015, so a lot happening on the Public Mobile front.

Most of it really happening in 2014.

Thank you.

The next question comes from Greg MacDonald of Macquarie Capital Securities.

Please go ahead.

Thank you.

Good morning, guys.

Two questions if I can.

The first is on ARPU.

We saw with Roger's results, at least they were indicating that the trend toward inclusion of voice features was one of the things that were impacting them, as well as the move towards shared data plans.

I wonder, it seems from your guidance you guys are thinking sort of small increase, or at the least flat ARPU, or at least that's what's implied by your guidance.

Could you talk about those two inclusion of voice features for free and shared data plans as to what impact that has on your ARPU outlook?

Thank you.

Sure.

Let me start, Greg with those macro comments, and I will get specifically to your questions, okay.

So just bear with me.

I want to talk a bit about ARPU as a whole.

First of all, this is our 13th consecutive quarter of ARPU accretion, I think something we're all very proud of in the Organization.

We have a lot of factors still working hard to drive growth in ARPU, whether it is smartphone penetration that is now 77% and continuing to grow towards 100%, whether it is the fact that we are a new entrant to the category of international roaming outside of the US, the fact that we have some very strong propositions with respect to more-for-more built into our SharePlus plans, or the fact that we are working hard to continue to grow the data attachment rate on all categories of smartphones.

The fact that there is another category of migration within the smartphone category, we have our low tier smartphone customers moving to mid and high tier.

We have HSPA smartphone customers making the migration to LTE.

Along the way they consume two to three times more data in that migration path.

Darren talked about our plans to expand LTE; with that expansion will come an even greater addressable market of LTE smartphone customer, et cetera.

So those are -- that's the plus side of the equation.

The downdrafts on ARPU, the things that we're challenged by are two-fold.

Two very specific items.

One is a short-term J-curve in the move to SharePlus plans.

The SharePlus plans are such that it is really the all-in, nationwide voice and text features in those plans.

So we have a higher value, longtail customers rerating into those plans, and therefore creating downdraft, but we also have a tremendous number of lower tier customers that are upping into the higher rate plans for cost certainty and greater access to that cost certainty, which is terrific.

And those lines are beginning to cross.

No question that the longtail customers have been a little more aggressive in the beginning to rerate their larger bills, but the upsell of the lower, mid-tier customers is quickly making up for that downdraft, and we expect that to be temporal in nature, no different than it was for Verizon, no different than it was for AT&T, where they went through that phenomena for a number of quarters.

We are in the midst of it right now, and we are feeling very comfortable in our ability to manage that in a disciplined fashion.

I think it shows up very clearly in our voice numbers.

Our voice network revenue is only down 2.7% despite the phenomena I just described to you.

The second factor, and the most pronounced of all, frankly in the last number of months around ARPU consideration, has been the level of promotional activity in the marketplace.

I would say the last two or three quarters have been the most promotionally intense that I have seen in my tenure at TELUS.

It seems that at every corner, every turn, we were faced with the prospect of new and aggressive promotional plans around double data, around even greater generous data plans, et cetera.

We are working very hard to monetize our data capability and making sure that we maintain a disciplined approach of data pricing.

I tell you unequivocally that we led none of that data promotion pricing over the last number of quarters, but it did cause us to really reflect and think upon which of those we would be willing to jump into and not jump into.

The greatest thing we have working for us is the churn rate.

At a 0.97% postpaid churn rate, I think we can take a very sanguine and disciplined approach to some of the promotional activity in the marketplace.

You have heard me say that in the past.

In the last few quarters we were able to kind of step away from the fray many times when things got to a place where we felt there was too much future ARPU, and too much future value being eroded.

Our churn capability, our outstanding churn performances afforded us the ability to be much more sanguine in that view.

So you look at data was up 14%, voice was down 2.7%, yet we maintained 41.7% wireless margin in the quarter, normalized for restructuring, which is still industry-leading.

So at the heart of our ability is our churn capability and the ability to manage margin, but the two items are the ones I described fully.

The last few months around managing the promotional activity was quite intense for my team.

For the last few weeks of the quarter they were pretty much daily pricing calls dealing with the intensity in the marketplace, and I think we faired very well in the end.

Thanks John.

It is also important to note that when an industry spends as much capital as we spend on spectrum, we have a responsibility to shareholders to monetize that bandwidth, to monetize that data in a disciplined fashion so that we generate a return on that capital.

Number two, it is important to always think about ARPU and AMPU in concert.

Because you are always driving ARPU accretion initiatives, but you are also being buffeted by ARPU headwinds.

I think the smart Organization that John and Joe lead is to make sure that we never take our focus off of the efficiency initiatives that deliver a strong result at the AMPU level.

I think that's aptly illustrated by the 90 basis point expansion in our wireless business, and AMPU is a big part of our performance-based pay at this Organization and the concentration of the leadership team.

And then lastly, the manifestation, of course, of our customers-first initiative is achieving sub 1% churn rates on a postpaid base.

I can tell you that the mathematics of ARPU are deeply informed by your churn rate.

Because at the end of the day you can blow your brains out on ARPU accretive initiatives, but if you are bleeding from your base in terms of your most valuable customers, it's not going to give you the holistic result that you are striving for.

That is not the case at the TELUS Organization.

Our churn gives us a lot of base resiliency, so that when we do drive ARPU accretive initiatives, they stick.

Thanks both of you.

The second question, it is nice that we dovetail into this on the churn rate.

I think everyone understands the focus that TELUS has on profitability and on churn gives you the ability to have that competitive advantage and ability to pull back when the market get as little bit, perhaps, aggressive on pricing.

But if we assume, given the maturity that that pricing aggressiveness may continue, it is not lost on me that there was a 10% decline on the postpaid gross ads.

0.97% is a fantastic churn rate, is there room on the downside to that to continue?

Because as time goes on one might assume that you lose that ability to step back and allow the market to do what it wants on pricing.

If I look at -- Greg, if I look at the market overall, wireless growth will continue as penetration reaches 100%, 100%-plus when you include tablets and other devices.

Smartphone penetration will go from 77% to 100% on that front.

It really becomes a battle of who will get the best customers.

At some point every Canadian will have a multiplicity of wireless devices, and to me, the secret sauce is do you have the customer service capability given we are a service provider to attract and retain those best customers.

If you do, then you will maintain your economic capability to drive value for the Organization and for shareholders.

Because the equation is an expensive one.

Churn certainly is expensive from the point of view of pricing discipline as Darren and I just described, but churn costs bleed through every part of the Organization.

Whether it is costs to support customers who are thinking of leaving through loyalty and retention efforts, whether all the rest of it.

At the heart of it I really believe that churn has to be the primary focus and the primary measure.

It will allow us to maintain a squarely focused purpose on getting those highest value customers and keeping those highest value customers.

As we evolve to a marketplace where there are more and more solutions to leverage in our channels on top of the wireless broadband connectivity, it is important to have those high value customers, whether it is machine-to-machine solutions, whether it is connected home solutions, connected car solution, whether it is health care solutions.

The highest value customer base will allow us the opportunity to grow our revenue and grow our contribution over time because of having that capability.

Greg, I think that the question that you raised is perhaps best answered by, a forward-looking organization deals with downside contingencies by having a vigorous and continued focus on efficiency initiatives to deal up such eventualities if they present themselves.

The second thing that I would say, is when you have a company coming forward with 2014 guidance that is 6% in terms of revenue growth, up to 8% EBITDA growth for wirelined and wireless, and EPS growth of 11% to 21%, I think that gives you our view of the future.

If you want to extend beyond 2014, I think stepping forward with the dividend growth model with a 10% annual CAGR and another CAD1.5 billion to go on our NCIB program, speaks to our ability to deliver against the expectations that we set, and to deal up effectively downside eventualities if they present themselves.

But I think the best way to draw the line is to look at the robustness of our guidance for 2014 and the fact that the growth tenant at TELUS is not a singular one, but we have the duality of contribution from both wireless and wireline.

The guidance is not lost on me.

Thanks, guys.

Great context on the questions.

Thank you, Greg.

Although we are over time, but we will take a few more questions.

The next question is from Jeff Fan of Scotiabank.

Please go ahead.

Good afternoon.

Most of my questions have been answered, but I want to address something more macro on the data revenue and data ARPU side.

As the wireless industry continues to grow and you now have the highest smartphone penetration, I am wondering if you can share some insights on the long term ability to monetize higher usage.

Maybe you can share for us, with us, anything you can say on the data usage for subscriber growth that you are seeing in your base, whether that growth continues to be stable, whether it is accelerating or it's slowing down.

And the second part is whether there is any difference between what you are seeing in the east versus the west because of the presence of WiFi offload?

Okay.

So Jeff, first of all, the question that data growth is an important part of our future outlook.

Right now data represents 45% of our network revenue and growing.

The appetite for data and wireless broadband from our customers is growing.

We are seeing, I think as I mentioned in the past, we're seeing LTE customers consume two to three times as much data as previous generations smartphone customers were consuming.

So with the quality of network capability, the availability of bandwidth, and the capability of phones, we are seeing that grow substantially.

And in the fullness of time, what will be truly a data business on this front.

So the onus is on us as an organization to make sure that we extract fair economic rent for the cost of that data servicing capability, whether the cost comes in the form of spectrum, whether it comes in the form of infrastructure, or other support costs in the Organization to support the needs of a more complex smartphone customer.

The path to that is, I think, multifold.

The first path to that is maintaining a strong discipline focus in the marketplace with respect to monetizing that data consumption and driving forward with rate plans that allow customers to attach data in a way that they feel comfortable with.

We have some customers that are only comfortable or capable of consuming a small amount of data.

And therefore we need to have strong, transparent capabilities to let that customer manage and control their ability to spend money on data, and we are doing exactly that with respect to on-board applications and monitoring tools that help customers manage and gauge their data consumption.

To the higher value customers who have opted in for large bucket SharePlus plans with multiple family members attaching smartphones and tablets and devices to those plans, as the consumption of data in those households becomes an ever increasing important element in how they run their daily lives.

So we've got a very important responsibility on that front to make sure we continuously drive our ability to monetize on that front.

That will be dictated by the competitive marketplace.

But as we've said now repeatedly on this call, our greatest tool we have in that ability to regulate that data monetization is our churn rate and the quality of our customer service, which are two very important tools in that discussion.

On the other side of the equation is the AMPU considerations.

We will continue to drive OpEx efficiency, G&A reduction, continue to drive the cost of operating our businesses such that we have the economic head room to continue to invest in solutions in growth areas, and continue to kind of withstand the shock of anything that may come along from a cost or revenue perspective throughout the piece.

As an Organization I think we have done a very good job of that as a whole.

But there is no question the cost of offering data is growing, not decreasing with respect to everything from infrastructure costs, support costs, et cetera.

So we've got to be as diligent as ever in minimizing the drivers to those cost elements.

Thank you, Peter.

We have time for one more question.

Thank you.

Next question comes from Phillip Huang of UBS.

Please go ahead.

Thank you for fitting me in.

My question is on the data roaming.

And certainly encouraged to hear that your data roaming volumes have been growing, which is quite a contrast versus the trends that we're seeing at some of your peers.

I was wondering if you can elaborate a little bit on what the drivers were?

Is it because TELUS is gaining more share of subscribers who tend to roam more, such as Corporate or S&B customers, or is it a function of recent changes in pricing or dynamics in the market?

Thanks.

Sure.

Number one, Phillip, is just market share gain.

When we launched HSPA in November of 2009, we didn't just launch a network capability.

We became a new entrant in the international roaming market.

In that period of time we have signed over 550 bilateral agreements with carriers across the globe.

Not just agreements, we've created high quality network-to-network interfaces and roaming experiences that we pressure tested across the globe, and therefore created an experience that we know has been well received by our customers.

As a result, we are able to attract more of the consumer-based high value customers that travel internationally, more of S&B and enterprise customers that travel internationally.

And historically we've often struggled -- before 2009, we often struggled to get S&B customers as a whole.

Where the owner/operator would travel internationally, we are often cut off from any of the wireless loading within those accounts.

Not only are we getting the wireless data roaming capability of the senior people in those organizations, we are winding up with the entire account because of the broader capability on that front.

So no question that has been a big push.

We continue to grow on that front, and continue to do so in a manner that is customer-friendly, driven by the TELUS focus on putting customers first.

We have been working hard to increase the value in roaming packages and roaming passes.

So we have cut roaming rates by as much as 60% in the last 12 to 18 months.

We've increased the value in roaming passes and we are exchanging the rate reduction, if you will, for an increase in volume, based on the reaction from customers that now feel more comfortable in roaming and turning on the roaming features.

We are still not completely there.

I think there is still upside on that front.

I think as we continue to offer even greater insights into roaming capability, and we've always maintained a future-friendly approach to helping customers manage their roaming expenses.

We were the first to offer data roaming notifications for international travelers and the like.

So as we continue to increase that level of comfort for our customers, I think we will continue to see growth on the roaming side, and not have the longtail to rerate, which is the challenge to some of our competitors.

Are you able to provide any color on the growth level of the unique roamers that you are seeing?

Unique users or roamers at all in terms of the percentage increase since say 2009 when you launched the HSPA network?

We are not in a place to provide that color.

I think it is competitively-sensitive information.

Great.

Thanks so much.

Thanks Phil.

As always, if you have any follow-up questions, please feel free to call me or my colleagues.

And on behalf of Darren, Joe, and John, thank you for taking the time to join us today.

Ladies and gentlemen, this concludes the TELUS 2013 Q4 earnings and 2014 guidance conference call.

Thank you for your participation and have a nice day.