Good morning, ladies and gentlemen, welcome to the TELUS 2015 Q3 Earnings Conference Call. I would like to introduce Mr. Darrell Rae. Please go ahead.

Thanks, Peter. Good morning everyone and thank you for joining us today. The Q3 news release and detailed supplemental investor information are posted on our website, telus.com/investors. On the call today will be President and CEO, Darren Entwistle, who will provide opening comments, followed by a review of operational and financial highlights by John Gossling, our CFO. After our prepared remarks, we will conclude with a question-and-answer session. In consideration of your busy day, we're going to try to keep this call to under an hour. Let me now direct your attention to slide 2. This presentation, answers to questions and statements about future events such as 2015 annual 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 on them. We also disclaim any obligation to update forward looking statements except as required by law. I ask you that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosures and filings with Securities Commissions in Canada and the United States. Let me now turn the call over to Darren, starting on Slide 3.

Thanks, Darrell Rae; and good morning, everybody. Despite a period of high customer activity and a tempered economy, TELUS posted solid results across numerous financial, operating, and growth metrics in the third quarter including net RGUs, net TV additions, lifetime revenue and customer loyalty. Consistent with this performance, TELUS also continued to demonstrate our robust track record of returning capital to shareholders through our notable shareholder-friendly initiatives. We once again demonstrated our leadership and differentiated approach in this regard by completing meaningful stock buybacks during the third quarter in conjunction with a double-digit percentage increase in our dividend, a growth rate that distinguishes us from our peers. Let me take you through some of the highlights for Q3. While TELUS reported postpaid wireless net additions of 69,000 in Q3, impressively, our team delivered a wireless monthly postpaid churn rate of 0.97%. This represents our ninth straight quarter below 1% as our team continues to set benchmarks in our industry in respect of customer loyalty. Indeed, TELUS is the only North American carrier to achieve this exceptional level of performance despite the frequent and exogenous factors common to our industry associated with the regulatory environment, capital markets or the general economy. Notably, we have maintained our unmatched track record for customer loyalty during this period of heightened market activity in our industry. Customer retention in the quarter represented 14.3% of network revenue compared to 11.5% one year ago. This reflects a significant $52 million year-over-year increase in the investment being made in our customers to support the heightened volumes associated with double cohort in the second half of 2015. The value opportunity in these investments is clear as reflected in lifetime revenue per subscriber increasing once again this quarter, up 4% to over $5,000. This represents a 14% to 31% value…

Thanks very much, Darren. Good morning, everyone. I’m on slide 11. Third quarter wireless results continue to reflect our solid operational execution in a very competitive double cohort environment. Network revenue growth of 4% was driven by data revenue growth of 12%. This includes subscriber growth, increased adoption of higher rate to your plan, higher data usage from the continued growth in smartphones over the ever expanding 4G LTE network and partly offset by the impact of the economic slowdown in the business market. Reported EBITDA increased by 2% based on network revenue increased from a larger customer base and ARPU growth. We also continue to benefit from ongoing operational efficiency initiatives, including the previous integration of Public Mobile and other efficiency programs. This increase was also achieved despite a 29% increase in retention spend, as well as increased customer service and other distribution channel expenses. Retention volumes were up 14% to 569,000 subscribers in the quarter, driving higher associated commissions, while per head subsidy cost increased due to continued preference for higher value smartphones and lower device upgrade fees. Excluding restructuring and other like cost, EBITDA margins were 40.9% of total revenue. This reflects the greater retention volumes and expenses during the period of heightened market activity, excluding our cost underlying EBITDA growth was 5.2%. As we head into seasonally important fourth quarter we expect retention volumes and remain elevated as we continue to invest in our customers. Capital expenditures in wireless were down year-over-year by 17% and represented a modest 12% of total operating revenue, reflecting the ongoing investments in wireless broadband infrastructure to enhance our network coverage, speed and capacity, including the ongoing deployment of 700 megahertz spectrum. Moving on to slide 12, revenue in our wireline business increased by a healthy 3.3%. This increase was driven…

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

Okay. Thank you. Our first question comes from Phillip Huang. Please go ahead, sir.

Yes, good morning. Thanks. Maybe a question for John first and then one for Darren. First, on the restructuring side, just want to better understand your thoughts behind accelerating the cost efficiency initiatives. I was wondering if you could read any of this as a reflection of the current economic environment or is this primarily based on having identified greater than expected savings opportunities as part of your original program? And then, a second question, perhaps with Darren on the spectrum side, you guys have certainly strengthened your spectrum portfolio significantly through the auctions this year. I was wondering if you see any opportunity to further increase your spectrum portfolio in the future as certainly there is still some underutilized spectrum on the market, perhaps held by other players. Thanks.

Thanks, Phil. I'll take that first part. So you're bang on in terms of what's driving the restructuring. Yes, the economic situation is front and center on our thinking on that. Obviously, things in our key market in Alberta are continuing to be under a fair bit of stress. We also, as you mentioned, have identified further initiatives that we were working on through the end of the second quarter into the third quarter and now with this larger headcount reduction that is going to driver the number higher. So you're right, it's the situation that we face and as well you see in wireless with the additional retention spending through double cohort, that's also driving our thoughts in terms of efficiency and what we need to do to maintain margins there. Darren, you want to take the second question?

Yes, just to complement what John is saying, clearly for us, we are seeing an economic softness in the province of Alberta, I think that's pretty observable to all concerned, but there are also significant latent deficiency opportunities that we need to harvest within TELUS that are independent of the economic environment. And I think we've made a positive step forward in that regard with the increased restructuring investment that we're going to make. It goes well beyond what we're doing in terms of staff-level reductions. We're also looking at decommissioning older wireless network technologies. We're looking at being aggressive in terms of supply chain efficiencies. We're tactically using TELUS International and I think that has been a very fruitful asset for us historically. And as well, I think we've discussed with you on a number of occasions. We're leveraging the synergistic relationship between improved customer service and the cost of not serving customers well and the inefficiencies that that drives. You can see that in terms of our attempts to reduce inbound call volumes, which is a key feature of our data notification system that we just launched the past quarter right through to the learning center environment within our stores, that not only reduces follow-up calls but stimulates data growth. So, we've taken a pretty holistic approach to improving the efficiency profile of the organization and I think that's good as it relates to economic headwinds. But I think that's necessary as it relates to latent efficiency opportunities that have yet to be harvested within the TELUS fold directly and we're going to get right on that. In terms of spectrum, yes, we have done a very good job in terms of augmenting our spectrum position over the course of 700, 2.5 and AWS-3. I'm very pleased with all of those outcomes, I think they're very smart investments in a data-centric wireless world. And yes, there are additional tactical opportunities that are out there in the market. I think it's our fiduciary responsibility to look at each of them, and if it makes good sense for us strategically and economically, then we'll proceed. If it doesn't meet those expectations, then we'll wait. There will be more spectrum coming on the market in the future, including 600, so we have the opportunity to be patient and we burn that opportunity to be patient given the cumulative spectrum that we've secured over the last 30 months. So, I'll leave it at.

Thank you. Next question comes from Greg MacDonald. Please go ahead.

Want to talk about ARPU trends if we can. One of your competitors has put up a pretty good ARPU growth number. There is some difference between TELUS and other carriers when it comes to mix of prepaid versus postpaid. And I know that that can have an impact. There's also a difference between the carriers on the exposure to Alberta and Darren, you've mentioned that. I wonder if you might comment on a couple of things. Number one, how much of an impact did Alberta overall have on the ARPU growth trend this quarter? And then, secondly, it feels to me like the industry is kind of reaching a natural cap on postpaid ARPU, would you agree with that or not? Is there more upside I guess is what I'm asking as usage trends continue to grow in data? Thanks.

Greg, I think you'll remember for the past 15 years, I've not made a habit of giving forward-looking projections on ARPU. We've talked with some granular details as to the key drivers of ARPU and what we're working on as an organization of both the ARPU and at the AMPU level. But we've always declined from providing forward-looking ARPU projections. Number two, yes, in looking at one of our major competitors, I think the ARPU growth that they posted was excellent. I think they should be applauded for it. I think it was a very good result. Yes, clearly under the hood, there are differentiating factors, but none that would normalize the way the fact that that was a strong result from that particular organization. Number 3. Alberta has had an impact on the overall performance in terms of both ARPU and loading, and that's quite distinct and its top quartile in terms of being an explanatory factor in that regard. I think what's important and not to be lost in this is a good chunk of this is self-inflicted and sensibly so within the TELUS organization as a result of the investment that we made in our real-time rating and client notification system. The number one priority at this organization for now going on seven years has been putting customers first and leading the way on likelihood to recommend and we lead the way on likelihood to recommend against our peers by a significant margin. And we have said repeatedly, we will take an ARPU hit to do the right thing for the customer over the longer term, which we think the right thing for the customer over the longer term is the right thing economically for our shareholders and that particular investment has done just that. So we've…

Just a quick follow-on, Darren, was there a geography i.e., Eastern Canada that you were less happy with relative to other geographies or was the disappointment across the board?

No. Across the board, I’m concentrated, because of the [indiscernible] events in Alberta but across the board.

Okay. All right, thanks very much. Comprehensive answer.

Thank you, Greg.

Next question, Peter.

Next question comes from Simon Flannery. Please go ahead.

Great. Thanks very much. Darren, any initial thoughts on the change of government and how do you think that might impact the telecom industry in the coming years? And any big sort of asks that you have? And then, we've seen the US carriers increasingly move to installment plans and now it seems like leasing of phones is taking over and even Apple is getting in the game, with their upgrade plan. How do you think -- we're seeing it in Japan, we're seeing it in other countries, how are you thinking about that if it seems like customers are interested in buying devices that way and separating it out? Is that something that you're exploring? Thank you.

Thanks, Simon. I think its early days with the new government. I would say for us we’re cautiously optimistic, but I think it's important for us to be given the experience that we've had over 15 years to be saying one of those, because we're going to have a degree of regulatory and government intervention. It's not a binary situation. I would hope that in the future that it would be moderating in that regard and I'd like to move to a more collaborative relationship with the government. I think there are fantastic things that we can do, given the technology and the infrastructure investments that we're making and they are considerable in nature when you look at the totality of sort of $8 billion over the last few years by this organization in broadband, wireline and wireless technologies. I think there's a lot that we can do collaboratively with the government for the greater good of our country, whether that's related to drive in a digital economy strategy or even perhaps more importantly, a digital society strategy supporting aspirations on both health and education. And I think we have a lot that we can bring to bear in that regard from intellectual property to experience within these markets to the technology investments that are going to matter to answering the future challenges of things like healthcare transformation where technology, if not a panacea, is going to be the core ingredient to not just driving better health outcomes for less money spent on a more affordable basis but driving the promotion of wellness and the avoidance of disease in the first place. And so I think that's a real open door for us to step through and do some very interesting things. I also think that we can leverage technology…

Sure.

Thank you.

Simon, this is a fairly common subject when comparing the US to Canada. And obviously, the markets have developed over time differently. So if you look in the US where you have the two very large national carriers, two still quite large in terms of subscriber base and overall five of those businesses, the two challengers, Canada has the three large national carriers that are relatively different in size. So it's evolved differently in Canada where we went to device balance kind of concept where that is device financing in our view, it's maybe not the full amount or the full value of the phone, but we went to that concept many years ago to give that transparency to our customers and that has worked quite well for us. So to go to that next step, I think is interesting. I think you've heard us talk a lot about customers and putting customers first and L2R as our main focus. So we have to balance that obviously with if there's customer demand for it and what do we need to do on the side of managing the risk of it, managing credit exposures. Obviously, there would be some change we have to make in our systems and our distributions. So we're looking at it, it is interesting, we're seeing the success in other markets. But as I say, we have a very high subsidy type of offering right now in Canada and that's effectively in our mind device financing. So it doesn't get you all the way there, but it's certainly something that we do offer and there's a cost to that obviously. We do have some of the elements as well that you've seen, yes, we have what we call our TF program that lets a customer upgrade to a new iPhone every year as the new models come out. So there are many things that are similar, they're perhaps packaged differently or they're called different things, but we feel that we've got a very high subsidy kind of environment here in Canada. But we're looking at it, of course, we're not completely blind of what happens in other markets and what seems to be working well in some of the markets you mentioned.

Thank you. And next question comes from Vince Valentini. Please go ahead.

Yes. Thanks very much. A question about the wireline business and I guess at the heart of the question is the EBITDA margins. But just wondering how you're balancing your thoughts about volume versus pricing and profitability these days because your sub adds in Internet and TV were both up year-over-year, but if we back out that 15 million retroactive assessment on your programming costs, your EBITDA was actually even excluding restructuring cost was down 0.5% and the margins were down to 26.2%. So you've been talking about getting to 30% at some point. I would have thought you would have been swinging up the J-curve on some of the businesses like IPTV, but it doesn't seem to be evident. So your updated thoughts on volume versus profit would be much appreciated.

So, Vince, this is John. You're right. There was an adjustment last year. However, there was a positive adjustment last year on some real estate gains. So, that's effectively a wash in the prior period. So, there is no sort of sleight of hand going on with the margins of the increase there. But that was neutral in Q3 last year. So, we can take that offline, we can walk you through the numbers and where those bits and pieces are. But in terms of the margin, overall, yes, you're right, there is strong growth in Internet and TV and as we've talked before, there is a very different gross margin profile in a TV product versus the home phone products. So that mix continues to drive the overall margin profile in wireline. And Darren has talked quite a bit about our restructuring program. Clearly that's partly at the heart of why we're doing it as well because the margins in wireline continue to frankly be stressed by cost increases and that's where we have to attack. So I think we've got softness in revenue and in subscribers on the wireline side in Alberta, that's been quite clear for a while. And that's also causing some downward pressure. So the consumer business in wireline is performing quite well, not only on subscribers, but also at the contribution level, but we're facing these headwinds and that's why we're continuing to attack the cost base.

So to be clear, Vince, there are not very many telcos where the wireline attributes on revenue and EBITDA are plus 3% on a global basis, particularly with the dilutive impact of TV and HSIA being up 7.8% on a year-over-year basis. In terms of the excellent question on focus on price and volume and the balance between the two, I think you've actually adequately captured it in that it is a balance. We're expecting to drive growth, particularly as we make increased investments in fiber, but not to the point where we're going to scorch the earth with price aggression just to hit a loading level. For the last year, the focus has been on quality and this is a five to seven-year strategy as it relates to our wideband deployment on fiber. And we are ex exceedingly pleased with the results that we are realizing. The penetration gains that we are securing in the market are extremely attractive in terms of receptivity to our fiber-based value proposition. The ARPU is accretive versus the base, distinctly so. The churn is better than the base and that's highly attractive. Our ability to get multiple products with a customer is going up distinctly in that regard. Our reliability is better in terms of the service. Our ability to operate more efficiently is there, because we can leverage things like soft provisioning of services on a remote basis with that level of fiber connectivity and so when you look at the attributes of this holistically plus the point I made in answering Simon's question that, it's really supporting multiple products across wireline, wireless and health. We think it's a very attractive program, but we don't feel the need to rush that program, it's very much a modular deployment and for once we have a regulatory window of opportunity that's favorable to supporting this generational investment that we're making.

Thank you. Our next question comes from Maher Yaghi. Please go ahead.

Yes, thank you for taking my question. I want to ask you a question about your spending on acquisition and retention in the quarter seems to be a balancing effort and by my calculation and correct me if I'm wrong, but your cost of retention per sub is about $402 compared to 400 for cost of acquisition. Now, if I compare that with some of your peers, it seems BCE was spending a lot more on cost of acquisition in the quarter and maybe the reason why their gross adds were higher, could you talk a little bit about how you see your spending efforts taking place going forward based on the results you saw this quarter? Is there a place to rebalance the spending that you're making to go a little bit more on the acquisition front, and if that is feasible? And a follow-up question on margins, now even with the higher cost that BCE spending on acquisition and retention, their margins on wireless were better than what you guys have put up and I was wondering where can we see some improvement on the margin side? Is there some -- in the cost reduction you announced today, can you split maybe the cost savings in between wireline and wireless?

Okay. Let me take that. Firstly, let's do a scene setting here. So, we had a soft quarter on wireless by TELUS's definition. So, when you actually look at the overall results, you see things that are quite interesting. Number one, clearly evident, we have two growth tenets, not one. I think that's a distinguishing factor and TELUS's soft quarter on wireless across a number of parameters is not exactly out of the ballpark. So we took about 31% share versus our peers that are 200, 300, 400 basis points higher than that, but I think we're in pretty close proximity. We're talking about a delta of 8,000 net adds on the post front. So, I'd say we are in the zip code, so to speak and disappointed and I think investors should be pleased to see that, because that's the improvement mentality of this organization being evident. Secondly, for us, when you think about the balancing of acquisition and retention, if you are going to make an investment within a double cohort environment, $52 million being increased on a year-over-year basis on COR. I think it kind of says, maybe you should be a little bit judicious in terms of your investment in COA during that particular period. Particularly when you've got a great churn rate to give you a better gross to net flow through within your organization and the cost efficiency that goes with it and the great lifetime revenue outcome at $5,000. So we can focus on the quality, well I’m not putting nominal loading first, but putting quality first. We can say in the quarter, we're going to prioritize COR ahead of COA buttressed by the great churn rate and the great lifetime revenue that we can generate. And then, the other thing that you…

Next question comes from Drew McReynolds. Please go ahead. I think Drew you dropped from the queue. And so we’ll go to our next question is Batya Levi. Please go ahead.

Great. Thank you. Just a follow-up first on the prior question. As we look into 4Q, you mentioned that there will be more heightened activity and you are also going to start to benefit from some of those cost savings. Do you expect to implement some of that into the acquisition front just to drive that gross adds inwards a bit higher than the decline that we saw in the third quarter or is it still going to be a balancing act between the COR and COA?

For sure, it's going to be a balancing act between COR and COA. And TELUS has not historically assumed an aggressive profile on COA and I think you can presume that that's going to be the way that we will go forward. We will be competitive. We will be smart and we will leverage the fact that we've got a 34 BPs churn differentiation versus our peers to do smart acquisition adjudication strategies.

Okay. And on the wireline side, one of the highlights was that accelerating data revenue growth in the quarter. I was wondering if you could quantify maybe the impacts of any price increases that you had and if we can expect that trend to continue into the fourth quarter. And the cable carriers are talking more about deployment of DOCSIS 3.1. Do you think that would impact the pace of your fiber deployments?

Okay. If I looked at the data growth, I would probably characterize it as three quarters volume, one quarter rate or price related, I think would be a good rule of thumb for your use to understand where the growth is coming from. And that volume is derived from market success. As it relates to DOCSIS 3.X deployment, I don't see it materially impacting the pace of our fiber deployment. At the end of the day, fiber connectivity to the home is going to be a significant advantage for us. We've got a footprint now that's past 0.5 million homes and growing, and I think that that's a significant opportunity for you to contemplate in terms of reviewing the TELUS to grow tenant wireline, wireless positions. And again, I'll emphasize that the returns on that investment are extremely attractive from penetration to ARPU to churn, the cost reduction to improved reliability.

Thank you. Our next question is from Drew McReynolds. Please go ahead.

Yes, thanks very much. Not sure what happened there. Darren, just one last one from me, if the organization's talked in the past about just what the potential is in Canada and particularly your market in terms of bundling wireline data or Internet with wireless. Obviously, we're seeing some of the regional carriers do it. And I think the data point that you provided previously was about 25% of your basis is interested in bundling it too. I just want to get your big picture thoughts on, is this a trend that will continue to grow in Canada? And is there anything on the horizon that could possibly accelerate that trend? Thank you.

So, do you mean cross product bundling or do you mean data pooling in terms of a data package that wireline and wireless would draw off of? I'm presuming it's the latter.

Yes, it would be.

Okay. I don't see us going there in the near term. We will always obviously respond to competitive market conditions. But right now, I think we would exact better economic returns across wireless and wireline by managing those two developments independently and putting our emphasis on product integration rather than data pooling. And I make that comment for a number of reasons. Number one, we're spending a lot of money on fiber. So, making sure that we exact the strong return and avoid things that are dilutive perhaps to that return, I think would be a smart strategy. Number two, our main competitor doesn't have a macro wireless business. So, I don't think the necessity right now is there in terms of competitive pressures. Maybe when we get to the point of market maturation over the longer term, we could think about a concept of that. Whether that's within the consumer environment or the B2B environment, which is another economy of scope opportunity on the fiber front. I think we could contemplate that at that juncture perhaps when our cross product bundling strategy gets us to have three or four products on a per home basis leveraging everything from data and entertainment to small cell considerations right through to help, maybe when we've hit certain penetration goals on that front and we've got product rep within the home, maybe we can think about a data bundle at that juncture. But in the near to medium term, that's not a path that we're currently contemplating going down.

Thanks, Darren, for those comments.

Okay. As we approach the RPU, we have time for one more question.

Thank you. Our next question is from Jeff Fan. Please go ahead.

Thanks and good morning. Just a few final things here. First, just touch on the gross adds on wireless a little bit. I think we discussed the geographic potential impact there. Wondering if you can touch on whether you saw any competitive impact as a result of the gross adds results, is there something that your competitors might be doing that you're seeing, that's having an impact on those numbers? Second part is, data sharing, we just touched on data pooling between wireline and wireless, but just staying within wireless, I know you guys have data sharing plans, wondering if that's something that you see customers wanting and maybe pushing that a little bit more going forward? Thanks.

Okay. So let me break it down in terms of gross to net in a way that I think will be tremendously clear. Number one, we put the emphasis on COR. So in terms of the toggling between the two, 52 million year-over-year uplift, that's what we thought we should put the money and we were more circumspect in terms of an acquisition investment, I think that was smart. Number two, the Alberta impact for us unloading was significant, that was the most material impact for us, which is why trying to put our foot on the gas on acquisition just would have wasted money within that particular territory for us, but that was the number one explanatory factor. Number two is, our competitors did well. So it's not like we're out of the ballpark with that [8K] delta and we're all in a pretty tight proximity in terms of share, but they did well. So if you look at it, it doesn't take too much time on the data analytics to say, we took 31% share this quarter. The same quarter last year, we took 51% share. So that's a 2,000 basis point delta, so there's a lot of explanation within that and so that's great. I mean that's life and to be sanguine about it, we have led the industry on loading, which is not the central thesis -- ironically, it's not the central thesis at TELUS. We've led the industry on loading eight of the last ten quarters. So we're not going to lead the industry 100% of the time on a tenet that's actually not central to our marketing thesis. We're focused on quality and we like to leverage the efficiency of the churn engine and the major differentiator that we have in the marketplace [indiscernible]…

That concludes our call. If you have any follow-up questions, feel free to contact the Investor Relations team. And on behalf of Darren and John, thank you for taking the time out of your schedules today.

Ladies and gentlemen, this concludes the TELUS 2015 Q3 earnings conference call. Thank you for your participation and have a nice day.