Telus Corp (TU) 2014 Q1 法說會逐字稿

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Good day, ladies and gentlemen.

Welcome to the TELUS 2014 Q1 earnings conference call.

I would like to introduce your speaker, Mr. Paul Carpino.

Please go ahead.

Thank you, Peter.

Good afternoon, and thank you for joining us today.

In addition to releasing our strong first-quarter results earlier today, we hosted our annual general shareholders meeting here in Vancouver.

We hope you had a chance to listen as we recap TELUS's 2013 performance highlighting our consistent and strong track record for delivering industry-leading growth metrics and driving the best returns to shareholders amongst our global peers.

Q1 news release and detailed supplemental investor information are posted on our website TELUS.com/investors.

On the call today will be Executive Chairman, Darren Entwistle, who will provide some opening comments.

Followed by an overview of operational highlights by Joe Natale, President and Chief Executive Officer.

John Gossling, our CFO, will then provide a review of our first quarter financial results.

After our prepared remarks, we will conclude with a question and answer session.

Let me direct your attention to Slide 2. This presentation answers the question and statements about future events such as 2014 targets, intentions for dividend growth and future share repurchases 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 designers and refer to the risk and assumptions outlined in our public disclosures and filing with the Securities Commission in Canada and the United States.

Let me now turn the call over to Darren starting on Slide 3.

Thanks, Paul.

TELUS, once again, realized strong operational and strong financial results, driven by our innovation leadership in both wireless and wireline data services, coupled with our intense continued focus on companywide efficiency initiatives.

The strong start to the year reflects a continued success of our long-standing strategy of investing in advanced broadband technologies and services and a long-term value we continue to realize from our successful customers first strategy.

TELUS's operational and shareholder highlights for the quarter include adding 96,000 new wireless, postpaid, high-speed and TV net additions.

Delivering the North American, industry-leading wireless postpaid term rate of 0.99%, our third consecutive quarter at less than 1%.

Achieving an industry-leading wireless lifetime revenue of over $4,400, realizing that best access line retention result in the past seven years, returning $648 million to shareholders through April 2014, building on the more than $1.85 billion returned in 2013 and now exceeding $10 billion since 2004.

Finally, announcing an 11.8% increase in the Company's quarterly dividend to $0.38 per share, the seventh dividend increase since May 2011.

Our continued profitable growth, robust free cash flow and, as well, our strong balance sheet enabled TELUS to simultaneously invest for future growth and return cash to our investors through our multiyear dividend growth and share purchase programs.

Indeed, our strong balance sheet positioned us well for this year's 700 MHz spectrum auction where we successfully acquired licenses equating to a national average of 16.6 MHz of wireless spectrum at a cost of $1.14 billion.

Importantly, this substantial acquisition of valuable spectrum will enable our Company to deliver enhanced wireless service to our customers in areas traditionally left inaccessible by cellular devices in both urban and rural communities.

And as well, continue meeting our clients' ever-increasing demand for data service reliability, data service speed and data service coverage.

Recently we announced our leadership progression which was fostered through TELUS's world-class succession planning.

With our esteemed Chair, Brian Canfield, beginning his well-earned retirement, the appointment of Joe Natale as our new President and CEO and my progression to Executive Chair, I'm confident in the sustained success of our organization.

Indeed, I'm excited to continue leading the progression of our national growth strategy alongside Joe, an exceptionally proven and highly talented leader who is going to take this Company to greater heights.

His passion for TELUS's strategy and culture is helping differentiate our performance in the marketplace.

Our Company, in my opinion, remains well-positioned to take advantage of future opportunities and to build momentum in a rapidly evolving and a highly competitive environment to continue delivering leading value to our investors in the years ahead.

I'm now invite Joe to take you through a succinct review of our first-quarter operating results before John covers our financial highlights.

Thank you, Darren, and thank you for this very kind comments.

Our consistent strategy has led to the transformation and growth of TELUS into a national communications provider and a successful customer-focused and sustainable national new entrant wireless provider.

We're seeing great traction on our journey to put customers first.

The impact of that is very evident in the momentum, in both wireline and wireless, in our financial and operating results, which John and I will take you through.

Starting on Slide 4, TELUS reported industry-leading first-quarter postpaid wireless net additions of 48,000.

TALUS has led the industry in postpaid net additions for three of the last four quarters.

The mix continued to shift towards postpaid and smartphones, with our strategic focus on quality, higher-value smartphone subscribers.

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

However, our leading 57% share of industry postpaid net additions, generated by the national carriers, supported the ongoing expansion of our postpaid subscriber base and market share.

As shown on Slide 5, TELUS reported a low first-quarter blended churn rate of 1.39%, a 9-basis point improvement over last year.

Postpaid churn improved 12 points to a North American industry low of.

99%, the third consecutive quarter it has been less than 1%.

This is the lowest first-quarter churn in seven years and achieved in another intensely competitive quarter.

Postpaid churn of less than 1% is outstanding accomplishment by our TELUS team and clearly demonstrates the continued success of our relentless efforts to differentiate TELUS through a superior customer experience.

Notably, we reported lower churn while at the same time reducing our investment and cost of retention by 20 basis points to 10.7% of network revenues.

Earlier today, JD Power released the results of their most recent customer satisfaction survey with a third year in a row, kudo ranked number one, standalone wireless provider and the TELUS brand was the top-ranked amongst the national full-service providers.

Moving to Slide 6, we reported a 14th consecutive quarter of year-over-year blended ARPU growth up 2%.

TELUS led the industry in share of service revenue growth in the first quarter.

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

Our smartphone subscriber base continues to grow, now an industry-leading 78% of our postpaid base, a 10 percentage point increase.

This represents an ongoing opportunity for us as smartphone penetration moves towards 100% of postpaid, voice-capable devices as we have seen in other developed markets.

Data and smartphone growth is being supported by the continued enhancement of our 4G LTE network, covering more than 81% of the Canadian population, while 99% of Canadians can enjoy our 4G HSPA+ network.

Our customers require access to high-speed, reliable data and that is why we are making significant investments in our infrastructure and deploying and repurposing spectrum as quickly as practical to meet their needs.

Turning to Slide 7, our industry-leading churn in 14 consecutive quarters of year-over-year ARPU growth are supporting continued leadership in lifetime revenue per subscriber, up again this quarter to more than $4,400, the highest first-quarter result in seven years and 20% better than our peers.

Our best-in-class cost of acquisition per gross addition was relatively flat in spite of intense competition, lower gross additions and our focus on smartphone loading.

TELUS's marketing efficiency measured as a ratio of cost of acquisition per gross addition to lifetime revenue remains industry-leading at 8.5%, a 60 basis point improvement.

In summary, our superior wireless operating metrics continue to be underpinned by our strategic focus on high quality loading, continued proliferation of smartphones an elevated and consistent customer experience.

Turning to wireline on Slide 8, we continue to build increased scale in TV and high-speed Internet.

We reported TV net additions of 27,000 with our base expanding by 18% year-over-year to 842,000 customers as we continue to grow market share.

Since this launch in June 2010, the demand for our premium and consumer-friendly Optik TV service has been strong, and our market share continues to grow.

In addition, there continues to be a strong pull-through growth in the demand for higher margin, high-speed Internet with an increase of 21,000 subscribers in the quarter.

As a result, our Internet based grew by more than 5% year-over-year.

Through our continued broadband investments in pushing fiber deeper into the network, including directly to homes of businesses, we now offer 50 mgs of Internet to close to 90% of our approximate 2.8 million OPTIK capable households.

We're seeing continued approved in Optik TV and Internet metrics, including first-quarter ARPU and churn for both products.

Our successful focus on offering compelling bundles and winning the home is illustrated by the lowest residential NAL losses we have seen in eight years, the down close to 30% to 24,000, reflecting ongoing yet moderating substitution trends.

This is the second quarter we have seen residential NAL losses trending down in the mid-20,000 range.

Combined TV and high-speed net additions of 48,000 exceeded residential NAL losses by two times.

This was the 15th consecutive quarter we have seen this trend, while also setting a record for the highest first-quarter ratio we have seen.

Total wireline customer connections increased by 24,000 in the quarter.

Our Triple Play product offering has never been more compelling.

As a result, we have seen a 5% increase in Triple Play ARPU over the last year as we expand coverage and speeds and add new content.

If we look at our new Optik TV customers in the first quarter, 76% were brand-new to TELUS, 80% added either home phone or high-speed Internet or both at the same time that they added TV, and 97% have at least one other future-friendly home products.

We are committed to continuing to innovate and enhance the Optik TV experience for our customers.

This was evident in TELUS offering the most comprehensive coverage of the Sochi 2014 Winter Olympics in the first quarter.

As well as our launch of additional live streaming content for OPTIK On The Go.

Optik TV customers can now watch 59 TV channels on their smartphone and tablets, complementing the more than 8,600 video On Demand titles also available on OPTIK On The Go.

While the market is competitive, we remain very focused on initiatives aimed at enhancing efficiency to mitigate impacts of substitution and competition.

This ongoing focus on operating efficiency is, at the same time, helping us continue to enhance effectiveness in delivering a superior experience to our customers.

Before I turn it over to John, turning to Slide 9, let me summarize five key operational highlights reflected in our first-quarter results.

But first, is our leading postpaid wireless subscriber growth, where we took 57% share of net additions generated by the major national carriers.

The second is our postpaid churn, the lowest in Canada and, in fact, in North America.

The third is wireless ARPU, the highest in Canada, following 14 consecutive quarters of growth and driving our industry-leading wireless network revenue growth.

The fourth is wireless, lifetime revenue per customer, also the highest in Canada.

And the fifth is our wireline growth with Future Friendly Home, which is the most rapidly growing wireline business in Canada.

All of which have led to strong EBITDA performance and revenue growth in both wireless and wireline.

As Darren referenced earlier in his AGM presentation to shareholders, TELUS is focused on what matters to you, our customers and investors.

We operate in a highly competitive industry and one that is constantly changing.

But this represents an opportunity for TELUS as we have a sound strategy that we have stuck with since 2000, and that puts customers first.

With this, the 14-year track record we have established and a team culture and management depth that is second to none, TELUS is well-positioned to continue to successfully navigate these changes.

I would now turn the call over to John to take you through some of the financials.

Mr. Gossling.

Thank you, Joe.

Good afternoon, everyone.

I am on Slide 10.

First-quarter wireless results also continue to demonstrate our strong operational execution, as Joe has just taken you through.

Total revenue was up 5.6%, driven by network revenue growth which was up an industry-leading 5.3% due to subscriber growth and increased data usage from continued smartphone adoption.

EBITDA increased by 3.6%, but was negatively impacted by CAD10 million for the inclusion of public mobile.

Excluding that negative impact EBITDA, increased by 5.1% to CAD700 million, reflecting a margin of 45.3% of total revenue, up 40 basis points year-over-year.

Capital expenditures increased due to continued investment in wireless broadband infrastructure, as well as system resiliency, interreliability and support of our ongoing customers first initiative.

As shown on Slide 11, our wireline financial results also continue to show solid growth.

Revenue increased by 4.4%, due to 10% data revenue growth, primarily from TV and high-speed Internet subscriber growth combined with higher ARPU.

Wireline EBITDA increased a strong 5%, representing a margin of 28.0% compared to 27.8% a year ago.

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

Wireline capital expenditures were flat compared to last year due to the completion of our Internet data centers in 2013, as well as lower expenditures for business growth, partly offset by increased broadband investments and readying the network and systems for future retirement of legacy assets.

On Slide 12, our consolidated results reflect the success and traction of our strategy, which is delivering industry-leading revenue and EBITDA growth, while reliably returning capital to our shareholders.

Revenue increased by 5%, benefiting from continued growth in both wireline and wireless.

EBITDA was up 4.2%, but up 5.1% when excluding the negative impact from the inclusion of public mobile, as discussed earlier.

Basic earnings per share were CAD0.61, an increase of 8.9%, and I will discuss the puts and takes on EPS in the next slide.

Simple cash flow was CAD581 million as EBITDA growth was partially offset by higher CapEx as we continue to invest in our business for future sustainable growth.

We established industry-leading financial targets for 2014 in February, and our Q1 results show we were well on track to achieving them.

Slide 13 provides a breakdown of EPS drivers this quarter.

Strong EBITDA growth, excluding public mobile, was the primary driver, adding CAD0.06 to the upside; lower shares outstanding, reflecting our share purchase program added CAD0.03 to the upside; higher financing costs combined with higher depreciation and amortization expense resulted in CAD0.02 to the downside; and higher income tax rates impacted EPS by CAD0.01.

Meanwhile, the inclusion of public mobile unfavorably impacted EPS this quarter by CAD0.01.

Assuming that negative impact, EPS was up 10.7%.

As underlined on Slide 14, capital markets continue to embrace our strategy with the successful completion in early April of our CAD1 billion debt financing at attractive interest rates.

As a result of good market environment and strong demand for our notes, we were able to lower TELUS's average cost of long-term debt to 4.9%, compared to 5.44% at the end of 2012.

We also extended the average term to maturity of TELUS's long-term debt to 10.3 years, compared to 5.5 years at the end of 2012.

In addition, TELUS further strengthened our balance sheet and liquidity by extending our credit facility to May of 2019 while also expanding its size by CAD250 million to CAD2.25 billion.

These financing activities, combined with our profitable growth, we affirm TELUS's strong position of being able to return capital to shareholders, while at the same time investing in our business for future sustainable growth.

Let me conclude, before I turn it back over to Paul, on Slide 15, TELUS's continued strong operational execution -- sorry -- operational executional combined with our strong balance sheet leaves us well-positioned to continue executing on our multiyear, shareholder-friendly initiatives, including our dividend growth and share purchase programs.

Under our dividend growth program we have today, an 11.8% year-over-year increase to our quarterly dividend to CAD0.38 per share or CAD1.52 annually.

Through our 2014 normal course issuer program to the end of April 2014, we have purchased approximately 5.4 million shares for CAD202 million reflecting an average price of CAD37.45.

As Darren mentioned during our AGM today, with July 2nd dividends payments declared today, we will surpass CAD10 billion in cash returned to shareholders over the past decade, about CAD16 per share.

With that, let me pass the call to Paul.

Thanks, John.

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

Richard [Cho], please go ahead

Thank you.

I wanted to know, given that we've seen three quarters of sub-1% postpaid churn, do you think you can continue you this going forward?

Obviously, competitive measures might influence that, but it seems like you've broken this level of churn and maybe could stay there for a little bit?

Sure.

I think our most important secret at TELUS is our focus on putting customers first.

The churn is the direct result of that organization-wide cultural imperative.

It shows up in everything that we do as an organization.

Our focus on driving customer satisfaction, you heard this morning about the most recent three years in a row being ranked top provider by JD Power.

That is a great headline, but what it really underscores is that throughout in the organization, we have examined every single aspect of how we serve customers and continue to create new reasons for people to come to TELUS.

Fundamental to that is the ability to drive good churn performance.

I think it does a few things for us.

It certainly is -- creates strong economics as a whole because it's best to keep the customers you already have versus spending money to get new customers.

I mean, it's clearly a simply equation from that perspective.

But as we get through competitively intensive periods, and there are all kinds of aggressive promotions in the market -- it allows us to stand back from the fray a little bit and be a little more sanguine because we know we've got a strong churn performance to make sure that we support the economic commitments that we've made as organization.

The team couldn't be more focused on that, and it's something that we're going to guard, specifically.

We have been at it now for a long time.

It's not something we've invented overnight.

Our goal is to continue to widen the gap between ourselves and our competitors.

There's been a lot of discussion as of late from some of our competitors really emulating in our footsteps around some of the actions, mindsets and policies that we have struck around managing churn and increasing customer loyalty.

To me, that's a rallying cry to our team to say we must not just maintain that gap between ourselves and our competitors, we must widen that gap so that we are forever the leader on this front.

That is very important part of our future and one of my top priorities in the organization.

Thanks, Richard.

Peter, the next question, please.

Drew McReynolds.

Thanks very much.

Two questions for me.

Joe, thanks for that, and I was actually going to touch on customer service.

Obviously, we're hearing a lot from Bell and Rogers as that being the priority for them.

I was wondering if you could talk to the gap that you feel you have, and where you think you could improve on the customer service front.

And then a second question, you talk about moderating wireless substitution.

Just wondering -- a couple quarters back, there's a little bit more fear out there that substitution would accelerate and put some downward pressure on your residential NAS.

I'm wondering, last couple of quarters what has changed -- do think it's TELUS specific, or do you think there is something out there that's easing this industry-wide?

Thank you

The customer service front, I'm not sure there is any magic elixir.

In fact, I know there's no magic elixir.

Customer service is a team sport that requires the engagement and focus of everyone in the organization.

The greatest advantage we have is cultural.

We will continue to invest in the hearts and minds of our people and keep them focused on that imperative.

It's hard to be more specific than that.

It's very important to us.

It's part of our secret sauce, and we're going to maintain a focus on keeping our secrets to ourselves because it's very important to our future.

With respect to wireless substitution, I think a few things are in play.

First of all, our cable competitor now has a sufficiently-sized base of home phone customers that the impacts of wireless substitution are being felt not just by the TELUS organization but by our competitor as well.

In terms of the moderation of wireless substitution, it's a combination of things.

Our thesis around TV was never just about selling entertainment.

It was always about creating pull through in the home and inoculating our residential services and creating a foundation, frankly, for other incremental NextWave solutions that might be added to the home over time, whether it's home automation, home security, all of the things that you've heard us talk about in the past.

So as part of that, the decision by a homeowner to say, I am going to select or deselect the home phone is not necessarily a singular decision anymore.

It's actually wrapped up now in the decision around, how do I feel about my provider giving me all of the services that are important to the household?

And more than ever, we're seeing customers become not just Triple Play customers for TELUS, but quad play customers, including wireless.

In a world where the wireless and wireline platforms are coming together -- you look at OPTIK On the Go, another great reason why wireless and wireline are coming together, we're seeing customers make whole home decisions.

Looking at them and saying, you know what, in the context of the whole home decision, I do want to keep the landline.

I think also you look at weather conditions across Canada the last number of months, whether it's ice storms in Toronto, whether it's foul weather in parts of Alberta -- are all challenges.

I think that people learn to recognize that there is a resiliency and safety factor in the home phone that is important to people.

Yes, young people, generationally, are disconnecting or not getting a home phone to begin with.

We're also seeing young people as they mature and start a family saying, maybe it's worth making that investment in the home phone as part of our overall bundle, because it gives me peace of mind, and peace of mind is important, especially coming from my telephone provider who has been there for a very long time providing peace of mind.

I think it's not one singular thing, Drew.

I think it's a combination of those things coming together.

Thank you.

Thanks Drew.

Next question, please.

Phillip Huang.

Hi.

Good afternoon, guys.

Question on the wireline margin.

Great to see that is expanding for the first time in years.

Maybe a question for John.

I know that cost efficiency is an ongoing process, and you have a longer-term target to get wireline margin maybe up to a three handle.

Could you maybe give us an update on some of the opportunities you see over the next couple of years to help further expand margins?

Sure, Phil.

I can, and Joe can probably help as well.

I don't think the story has changed a lot from what we have said in the last few quarters.

So our progress is good on margin expansion, as you pointed out.

The initiatives that will drive that are well underway, and we're actually tracking very well to that plan.

Actually, a little bit ahead at this point.

The initiatives will also continue to be augmented as we go along.

There will be, always, new things that are considered and added to the list of projects that have get done.

So those relate to things that can be as small as half a million dollars up to several million dollars, just depends what we're looking at.

Those can be things in customer service, in efficiency of our field force, all of those types of things that we have talked about before.

The other important thing you have to remember in wireline in terms of the margin is, there is a big mix effect happening.

So what Joe just talked about on home phone and the now situation, it does affect the margin in a positive way.

So the mix of products that we're seeing together with a very large and getting to be more mature TV base also helps.

So there is a lot of moving pieces within the wireline margin, but at this point, they're all moving in that right direction.

That is very helpful.

Maybe a quick follow-up for Joe on the -- on Shaw Wi-Fi.

Shaw has obviously been pushing forward with their Wi-Fi footprint expansion quite rapidly.

From today's results, there certainly doesn't appear to have any signs of impact on your data growth.

How do you view this development in your home turf, and should we be concerned at all?

First of all, there is no question that Wi-Fi usage is important to every consumer.

And that's why we see Wi-Fi availability in restaurants, in municipal areas, you can walk into a Starbucks or Tim Hortons and get free Wi-Fi.

So Wi-Fi is sort of an important capability overall.

When we look at Wi-Fi deployment from our cable competitor, I would say a couple of things.

First of all, we're not seeing any impact of any substance with respect to either customer churn or with respect to customers not choosing TELUS because of that Wi-Fi capability.

It's something that we watch very closely.

I look at, on a regular basis, all of the reasons why people leave TELUS on a regular basis.

I look at the successes that we have within our sales areas, our outbounding areas.

I look at the reasons why people would choose not to come with us, and I have to tell you that when it comes to our cable competitor's Wi-Fi capabilities, it doesn't show up on the radar as being a major reason for either a loss of a customer or someone not coming to TELUS.

Having said that, Wi-Fi is an important capability that we will deploy over the course of the next many years.

As we move towards a small cell underlay, the capability to offload our macro wireless network and support a contiguous experience from the macro through to the micro through to the Wi-Fi in the home is a very important part of our broad service offering.

I think that is the future of the wireless business, is that contiguity.

So whether you are off in the back bowls of Whistler and getting coverage there, whether you are in your living room, whether you're walking down the street to the café, whether you're in the park with your family, it's that contiguous coverage and a very seamless customer experience is what we're striving for, rather than having customers login and logout to different Wi-Fi capabilities along the way.

And given the demanding consumption of bandwidth that exists in our marketplace, the demand has ever been higher, and driving exponentially, there is an economic benefit to us by the satisfying needs of customers and relieving some of the capital investment that's required to build both the macro and micro networks.

Thanks very much.

Thanks, Phil.

Next question, please.

Dvai Ghose.

Thanks very much.

A couple of questions for me.

The first is on the business market.

If I look at Bell, they reported earlier this week a 43% increase in business line loss.

They attribute it to voice-over IP substitution as well as weak economic conditions.

I had to check the TELUS number a few times.

It apparently reported zero line loss on the business side.

Why is there this massive delta?

Is it just an East Coast versus West Coast thing, or are there other factors at play?

Dvai, I can't speak to specifics of what's happening with our competitor.

I can talk to our business.

In our business, a few things are happening.

First of all, we continue to win strong economically rational business across the country in the B2B market, and that's contributing to our growth.

We have a strong capability in some very important verticals.

We have talked often about our healthcare business.

And that healthcare business is on driving healthcare IT solutions, it's driving along productivity solutions that are bringing with it WAN connectivity, high-speed connections, etc.

So those vertical solutions are helping to drive and propel our growth.

We are fully exposed to the economic growth that's happening right now in places like Northern Alberta, Lower Mainland of British Colombia, and as a result, we are capturing that economic growth, and that is helping to drive our business growth as well.

Our offering in the small business market is very comprehensive.

You buy a small business solution from TELUS, it's not just about connectivity.

We're offering an all-in, cloud-capable solution that gives you a voice services, data services, security services, other applications capabilities, backup services, and really kind of creating a capability for a business customer to have peace of mind and pay a very simple per unit price each month.

And that is helping us to not just protect our capability on the business wireline but actually grow and take share on that line.

It's all those things coming together.

At the end of the day, the team has been both innovative, creative and driven to go after the market, and I think we've proven that we can do so economically.

Thanks very much, Joe.

My second question is on the management session that was enacted today.

Congratulations on assuming the CEO position.

I was wondering if you and/or Darren could talk about the delineation of responsibilities going forward.

And Darren in particular, if you can talk to us about your future commitments to TELUS.

Let's just leave it that my future commitment to TELUS are over the long-term.

Whether the manifestation of that is at the Exec Chair role or evolving into a non-Exec Chair capacity, if the circumstances present themselves.

My commitment to this organization is long-term.

Secondly, from an Executive oversight perspective, I am completely committed to the continuity of the strategy of this organization that has borne such fruitful results for investors and the team of people across the organization that's executed that strategy so successfully.

And then, thirdly, I am completely committed to the success of Joe Natale and leadership team.

And I plan to support them in that regard, and I think, collaboratively, Joe and I have enjoyed a lot of longevity over the last 11 years together that has been very beneficial relationship for investors and customers alike.

I would see that continuing into the foreseeable future, and I feel very good about the culture that this organization has on a collaborative basis.

So when I put it all together and think about long-term commitment, when I see a company that once again in Q1 has firing on all cylinders and has a multiplicity of growth engines being enacted because of the success of our strategy and the skill of our team putting the strategy to work, and then you hear my commitment to support the leadership team of this Company in general, and the success of Joe, in particular, I think that is a sufficient answer to your question.

It is.

If I may, Dvai, Darren and I have worked incredibly well together for 11 years.

We have worked very closely on some of the most important decisions we've made as an organization over the last 11 years, so we've also sweated and fretted through some of the most challenging moments we have had as an organization over the last 11 years.

That partnership has been forged and been a very successful one.

I wouldn't be sitting here today if it weren't for the strength of that partnership and that collaboration.

I feel fortunate to have that partnership and collaboration continue.

To me, it's not about the delineation.

To me, it's about the sum of the parts being greater than the individual components.

That's when -- the strength of our leadership duality, or partnership, over the years, which will continue in the future.

I think investors are going to benefit from that.

I think team members will benefit from that.

It's a great thing for the organization as a whole.

Thanks very much.

I hope you keep the team together for a long time.

Next question, Peter.

Simon Flannery

Thanks very much.

Can you talk a little bit about the integration of public mobile?

There is obviously a drag on the EBITDA line this quarter.

Presumably, there is some synergies that you can achieve over the next couple of quarters.

Any color on how that is going and what we should look for going forward?

And then, in terms of the ads, we saw 70% of postpaid ads in the US tablets this quarter.

Do you see an opportunity there, or do you think that is going to stay primarily a Wi-Fi device?

Thanks

Why don't I talk about the integration and how it's going.

And maybe, John, you can talk about the dilution leading to accretion, tax benefits.

I think that would be a good thing to comment as well -- tax loss, etc.

The integration is going well.

We have struck a team to really look at it from a network point of view, a distribution point of view, a customer point of view.

We have begun the process of migrating customers over from the public mobile network onto the TELUS's HSPA+ network, and we have launched capability in the marketplace to do so.

We're starting to rationalize distribution as appropriate.

We have a number of public mobile storage now selling kudo as well for customers that are looking to make the switch and maybe re-up into a more of a postpaid offering, because there are some customers that would like to make that bigger investment, sort of more for more, if you will.

I think it's going extremely well.

We have retained some of the best talent and people that were part of the public mobile team.

In fact, we're quite delighted with some of the capabilities that have come on board.

Individuals that will become a very important fabric in the TELUS organization as a whole.

Yes, there is some dilution as we work our way through the synergies, but we're headed towards a formative place on that front.

Maybe, John, you can spend a few minutes on that.

Then I'll take it back on tablets.

Simon, the other important synergy that comes out of the integration is, of course, the tax benefits.

I think we talked about this on our last call and as part of guidance.

There's about $100 million cash tax benefit that will come out of the public integration, and that doesn't happen until the first quarter of 2015.

It's just the way the timing of installment payments and final tax returns and payments happen in Canada.

That benefit is also still significant and out there for early next year.

Okay, great.

And on the tablet front, no question there's a great appetite for tablets in the marketplace.

In fact, we are seeing an appetite for tablets and increasing appetite for all kinds of other connected devices in the fullness of time.

At the end of the day, I think tablet as a Wi-Fi-only offering is certainly something we're seeing in some parts of the market, but we're also seeing that in places where we are offering customers a more -- a broader solution, maybe even in the case of easy pay -- as an easy pay formula that we've struck where we're helping customers, if you will, finance the cost of the tablet.

Not subsidizing the tablets.

We've done no subsidy of tablets, but we're helping finance the tablet.

We're seeing customers make that investment.

The SharePlus plans are helping.

SharePlus plans, you can add a tablet and a share in the family pool of data bucket the family is assigned.

There is an approach to the marketplace where tablets can be accretive to overall mobile revenue.

There is no question that the individual ARPU is lower.

But as you heard us say many times in the past, our focus is on average margin per unit, and if we can maintain a discipline where we are not subsidizing tablets and we're continuing to add that capability to our customers plans, I think there's a good market there.

Thank you.

Next question, please.

Maher Yaghi.

Thank you for taking my question.

I want to ask you about the wireline business margins.

And when you look at EBITDA margins, even after restructuring, the first quarter in many years that we're seeing increases in year-on-year margins.

Are we at a point -- I know you want to be cautious in answering this question, but are we at a point where margins are -- the cost to operate the TV business and adding subscribers to the TV business is starting to be taken up by the operation and margins going forward should start to move higher, steadily?

Maher, it's John.

I will take that.

I think just following on from the earlier question, you are right, we are cautious on -- it depends a lot on mix in any given quarter and how that evolves.

When you look at the guidance for the year, recognizing that EBITDA range is fairly wide on wireline, but that does imply that there is potentially some market expansion that we can see in this year, and that is certainly our goal.

Internally, we push very hard for that margin expansion in wireline.

I think we're on the same page with what you are saying and asking, and it really comes down to, in any given quarter, is there a mix driving it one way or another, but we would certainly -- over the medium-term, that's the direction we're going.

And so if we're at that point of change and margins, when you look at the operating leverage of that operation, how do you think -- when you're looking at this business, maybe a few quarters or a year or two down the road, where would you like to take this operation in terms of margins down the road?

Again, I think on the previous question, the fact that we talked pretty publicly about margins and wireline being in the 30 range, where we need to get them back to, is what we have been targeting for a while.

We have seen good progress, so we have shown the last five or six quarters that we have had good EBITDA growth coming from the wireline segment, and now that is turning, as you mentioned, into some margin expansion as well.

Okay.

That is a lot of operating leverage that is to come.

That's going to be very helpful to catch those.

Just one last question on wireless.

In terms of churn, all three companies incumbents are now focusing on churn.

They are trying to lower their churn, and you definitely are way ahead of all three.

But the underlying growth additions are starting to come lower -- is moving lower.

What can -- as an organization, what can you do to improve the underlying fundamentals of the business in trying to sell more product to customers.

Instead of having one phone, having a phone plus an iPad, a laptop, something like that, and charge them more services for the same customer.

What are the objectives here?

Let's start first with the objects.

The broad objectives are to continue to grow the revenue base, but do so in a manner where we are growing contribution to margin at the same time.

You've heard us talk about in the past about how we look at it as household, not necessarily just a single customer.

We look at the household in terms of what other connected devices in that household, whether they're smartphones or tablets or other devices down the road.

And within that, we look at the individual component pieces and all of those categories, smartphones, tablets, other devices, and we look at both the ARPU and APU contribution from that mix.

I mean, that 's the goal.

The goal is to win in the connected device market and do so in a manner that continues to drive margin and contribution as a whole.

It's not gross loading for gross loading's sake.

I think we've proven that.

The last four quarters we were in last place when it came to gross loading but we led the industry three out of four quarters on net loading.

That's the sort of sanity that we're trying to maintain in terms of discipline around profitability in the marketplace.

Now, there will be seasonally specific periods.

Most of the volume is coming from two OEMs right now.

The iOS volume, and the Android volume, largely from Samsung -- and some other companies as well, but largely from Samsung right now.

Iconic devices will create peak moments in time where customers have a reason to shop.

There's still lots of growth opportunity.

Canada's penetration is only at 80%.

In the US, they are over 100% penetration.

There's still penetration room to grow.

There's smartphone penetration -- there's still room to grow on that front.

At 70%, there still room to grow on it postpaid base as well.

Roaming is an opportunity for us.

We are new entrant to the international roaming market.

We will continue to grow capability on that front.

As we truly drive harder to improve the customer experience around roaming, there's an opportunity to increase roaming overall and get more volumes on the roaming front.

Not all our smart phones are created equal.

There are some first and second generations smartphones, whereas people upgrade their smartphones to new generation smartphones, there is an automatic lift in the amount of data consumption, and, therefore, there is growth on that front.

So this is about quality -- quality loading and profitable contribution, not just about loading for loading's sake.

In a more mature market, the goal is to take the best customers and to drive the increase to profitability from those customers.

Thanks, Maher.

Next question, Peter.

Vince Valentini.

Thanks very much.

Most things have been asked, but just let me -- just on the wireline side, anything changed in terms of the competitive environment and pricing discipline with Shaw cable in your view over the past quarter?

And also, now that you kind of lapsed the initial to your contracts on your Optik TV customers are you seeing any increase in churn as TELUS maybe tres to do some win-back activity?

From the first comment, Vince, around the competitive environment, it's still a competition that's moving along at modest pace.

Not as aggressive as it was a couple of years ago, but it's still very competitive marketplace as a whole.

We have been primarily reactive to some of the promotional offers that have been laid up in the market largely from a win-back perspective.

Our churn has been improving over the last little while.

The impact of the two-year plans from a while ago, I think people are finding what they love the Optik TV solution.

We keep adding new features and capabilities to it.

We've got some of the best HD capabilities as a whole.

We have almost 9,000 titles in the vault library.

OPTIK On the Go has been a really compelling feature add overall.

So a lot of our customers are saying I love this new, modern, constantly evolving TV product.

I'm not going anywhere.

That is our mandate above all, is to continue to create new reasons to buy and new reasons to stay.

The other thing, I think, we're starting to get some benefit from overall is the quad play.

The quad play is a unique advantage over our cable competitor.

More than ever, with OPTIK On the Go as an example, our smart remote, the advantage of wireless and wireline coming together is visible and emphatic.

In the past, I would say it was more theoretical for a lot of people.

Holding that tablet in your hand, you kind of get the integration aspects now as a customer, working very hard to make that quad play work.

That is the story on the TV front.

Thanks.

Peter, we have time for one last question.

Glen Campbell.

Yes, thanks for fitting me in.

Question on the wireline networks.

Impressive statistics, 50 mg capabilities over 90% of your OPTIK footprint.

So my question is, where do you go from here?

I mean edging out, yes, but is there really a business case for doing fiber upgrades to people already have that kind of capability?

Can you talk a little bit about where you might go over the next few years?

Thanks.

Sure.

Glen, I'd be happy to do that.

First of all, we continue to add new communities.

So this past year we added eight new communities, and new communities we're pulling fiber to the home.

We stopped pulling copper a long time ago.

Therefore, there's an of opportunity on that front.

As we expand into communities that have never had high-speed service in the past.

So that's one area.

Secondly, the appetite for bandwidth and capacity is growing at a strong pace.

What was in the past, maybe a requisite amount of capacity or speed, now as there are more connected devices in the household, more tablets and smartphones, more TV viewing, etc., the demand for speed and capacity is increasing.

We're finding more and more people are willing to pay for greater capacity and speed.

The broadband connection of the home has become the new dial tone service.

That has become the most essential connection in the household, and we're finding now that there is going to be increased appetite which will substantiate our investments in that area.

The protection benefit, as I've talked about, around the bundle is certainly providing good economic leverage for us as a whole.

You have our commitment, as we said in the past, that we will be prudent in our capital expenditure.

We will do so with an eye towards sweating the assets we already have on the ground, and as we add new capacity capability, we will do that with a mindful eye towards driving economic contribution.

I think we've proven now, as John said earlier, over the last five or six quarters that we can grow this business.

We can grow this business, at the same time, we can continue to make the investments in the future of this business.

At the same time, we can lead the pack in terms of returning money to shareholders.

That is the formula we're after as a whole.

Okay.

Maybe just a quick follow-up.

John mentioned readying the network for the retirement of legacy assets.

What does he mean by that?

That's the copper comment, really.

There's more to it than that.

Obviously, there's many, many elements in the network that are legacy, but it's primarily around that shift.

But that'd be at FTP overbuild essentially, would it?

Not totally, but some.

At this point, no, not overbuild.

That wouldn't be the case in Q1.

Glen, let's draw a line under it.

The FTP program would be modular in nature meted out over numerous years.

Number two, as I've said previously, the economy's scope in that program right now are more significant than what they've been in the past because it's not just supporting broadband connectivity requirements and bandwidth requirements as it relates to TV and HSIA, but also the back calling of small cell traffic, which is going to be a big component of our macro/micro interoperability into the future.

And then thirdly, we're looking at opportunities on a fiber basis when we are now enjoying the scale economies in terms of economics, from achieving business that is approaching 900,000 clients, and a TV HSIA footprint that is going past 2.2 million households.

And so when you think about the affordability of doing that CapEx investment, doing it on the back of what I think is globally leading revenue and EBITDA growth from our wireline part of the business, I think that's a pretty smart combination.

But as I say, it will be judicious and it will be multi-year and modular in nature.

Thanks, Glen.

Thank you.

On behalf of Darren, Joe and John, thanks for taking the time to join us today, and we'll speak to you soon.

Ladies and gentlemen, this concludes the TELUS 2014 Q1 earnings conference call.

Thanks for your participation and have a nice day.