Good morning, ladies and gentlemen. Welcome to the TELUS 2017 Q2 Earnings Conference Call. I would like to introduce your speaker, Mr. Paul Carpino. Please go ahead.

Thanks, Oliver. Good morning, everyone, and thank you for joining us today on our second quarter conference call. Our Q2 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 the second quarter operational and financial highlights by Doug French, CFO. After our prepared remarks, we will conclude with a question-and-answer session. In consideration of your day, we're going to try to keep this call to under an hour. Let me direct your attention to Slide 2. This presentation, answers to questions and statements about future events, including 2017 annual targets and outlook and intentions for dividend growth and future share purchases, include forward-looking statements that are subject to risks and uncertainties and are made based on certain assumptions. Accordingly, actual performance could differ materially from statements made today, so do not place undue reliance on them. We also disclaim any obligation to update forward-looking statements, except as required by law. I ask that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosures, in particular, our second quarter management's discussion and analysis and in our 2016 annual report MD&A Section 9 and 10 as well as filing with securities commissions in Canada and the United States. The appendix of this presentation in Section 11 of our second quarter MD&A provide definitions and reconciliations of the non-GAAP measures that we use today. Let me now turn the call over to Darren, starting on Slide 3.

Thanks, Paul, and good morning, everyone. In Q2, TELUS delivered another quarter of strong financial and operational results. This was driven importantly by success in both our wireless and wireline operations and underpinned by our unprecedented customer loyalty performance. Notably, our consolidated operating revenue and EBITDA were up 3.9% and 3.6%, respectively. These results reflect the quality of our asset base and excellent execution by our teams, which, in combination, continue to deliver higher data revenue and healthy subscriber growth across both our wireless and our wireline operations. These results also capture our team's continued traction in our efficiency initiatives. Specifically, on the wireless front, TELUS network revenue grew 7.2%, while our EBITDA increased 3.3%. Network revenue growth was driven by ongoing strength in high-quality customer loading as well as increased data demand from customers who continued to embrace our numerous data-friendly pricing plans. Our EBITDA growth reflects our consistent and balanced approach to our COA and COR investments. Notably, our focus on high-quality smartphone loading and customer loyalty is contributing to our leading postpaid net adds, churn and lifetime revenue results. Indeed, TELUS reported 99,000 high-quality postpaid net additions, a 62% increase from the second quarter of 2016. These new customers in Q2 joined the 85,000 MTS subscribers who became part of the TELUS family back in the first quarter. Over the past decade of our customers’ first journey, the 50,000 strong TELUS team has fully committed their energy and passion into the creation of our client-centric culture. This unwavering commitment to customer service excellence continues to inspire client loyalty, as reflected in our record wireless postpaid churn rate of 0.79% in the second quarter. This new benchmark is a full 11 basis point improvement on a year-over-year basis and represents the 15th quarter of the last 16 where…

Thank you, Darren, and good morning, everyone. I'm on Slide 9. We had an excellent second quarter in wireless, building off our strong results in the first quarter. Notably, network revenue growth of 7.2% increased over Q1 of 6.4% and 5.4% in Q4 of 2016. We continue to benefit from strong postpaid subscriber growth and a third consecutive quarter of 3.9% ARPU increase from the larger portion of higher-rate smartphone plans, including our Premium Plus plans and continued data usage growth. Adjusted EBITDA growth of 3.3% reflected our strong network revenue growth. EBITDA growth included a nominal impact from the acquisition of MTS subscribers of less than 0.5%. Gross loading increased 6.1% year-over-year and 5 - and also retention units increased 5% year-over-year. Retention volumes were down 6% in the first quarter of 2017. The increased loading and retention as well as an increase in our sales mix of higher-value smartphones increased handset subsidy and commission investments. On a reported basis, wireless EBITDA declined 1% year-over-year, with an adjusted EBITDA growth being offset by an $18 million increase in restructuring and other costs as well as prior year nonrecurring items. This includes cost related to the acquisition and migration of MTS subscribers and some non-recurrence of Q2 2016 gains from the exchange of wireless spectrum licenses totaling $15 million and a $3 million net decrease in gains related to real estate transactions. Turning to wireline. Revenue growth increased to 2.2% from 0.7% in the first quarter from increases in Internet loading, average revenue per Internet subscriber, business process outsourcing, TELUS Health revenues and TV service revenues. We generated leading wireline EBITDA growth of 4.1%, due to our revenue growth and strong focus on efficiency and effectiveness. Reductions in wireline labor cost were partially offset by an increase in team members…

Thanks, Doug. Oliver, if you want to start the Q&A, please?

The first question is from Phillip Huang from Barclays.

Well, first, I was certainly wowed by the improvement on the - in the wireless metrics, particularly, obviously, the record low churn, which was 11 basis points below my estimates. But it obviously came at a higher cost. So my first question is for Doug. I was wondering if you could provide a bit more color on the different buckets of higher wireless cost in the quarter since you also migrated 85,000 MTS subs in the quarter. Just trying to gauge how much of the higher cost is nonrecurring. And then the second question is for Darren. So wondering if you believe - or where you believe the optimal churn level - postpaid churn level is. Does it vary by quarter? Or where do you think it could go?

Okay. So on our - as mentioned, our retention unit volume was up 5% year-over-year, where in Q1, it was down 6%. So that swing factor in our Q1 versus Q2 results, you'll see a lot of that cost change. But the investments we made were all in COA and COR. We continue to have efficiency and effectiveness programs. Our cost structure, overall, continues to decline. And the investment was not differentiating between new customers and our existing customers. And as offers hit the market, it's available to them all. And when you have periods of time in which there is more stimulation in the market, as you would have seen on significant gross loading, we do see an increase in retention units. The rates on COA and COR are in line, however, slightly up, as all of us are seeing, through increased competition. And we followed a lot of those initiatives as the quarter progressed.

So just to echo Doug's comments, because it's important that you read through our operational and financial results correctly, the investment that we have made on COA, COR is a prudent level of investment and characteristic, I think, of what we have done on a historic basis. And if I've learned anything over the last 17 years, smart COA, COR investments in high-quality wireless loading leads to value creation for your wireless business prospectively. The second comment that I'll make, and I tried to stress this in my comments, is the quality of our postpaid net additions on wireless was excellent. And I'll give you one empirical data point to illustrate it. If I backed out tablets and wireless home phone from our 99,000 postpaid net adds, the resulting number would not be dissimilar to the holistic loading at our peers that includes tablets and wireless home phone. So hopefully, that gives you a sense of the preponderance of smartphone loading within our base. The third thing that I would ask you is in terms of cost investment and aggression. Go back and have a look over Q2 and determine how many price promotions TELUS led in the marketplace. I think you'll struggle to find them. Next, I think it's important to illustrate that when we have a quarter where our postpaid nets are up 62% on a year-over-year basis, there's a knock-on correlation effect on COR. And the corollary here is that at TELUS, yes, we want to grow our customer base, but we think it's important to also treat our existing customers well. Sometimes you will hear me say that the most valuable customer that you've - that you're going to get is the one that you already have in the first place. So the knock-on COA, COR…

That's very helpful, Darren. I just wanted to follow up on the out-of-contract/BYOD subscriber base that you mentioned. Certainly, that's a metric, I think, you alluded to in terms of reducing in order to mitigate potential future churn. Are you able to provide us any color on the mix of - the size of the mix of that base within your postpaid subscriber base? And do you see an optimal level for that as well?

I think we've gone a long way on the disclosure, Phil, on that. I just - I'll think I'll leave it there. I guess, my comment is that as you're acquiring customers, it's also important to renew and retain customers but to do it on a prudent basis to make sure that the economics support that. But it's, I would say, something that you would ignore at your peril. If you let your out of contract-base continue to grow, it's going to either manifest itself in a retention issue downstream, or it's going to be more expensive prospectively on COR as people go to renew during more heavy promotional periods, such as what we've got coming up in Q3 and Q4. And just one thing that I meant to correct. We did not load or take on 85,000 customers on the MTS front in Q2. I just want to correct that. That 85,000 was a subbase adjustment in Q1. The loading that we delivered in Q2 is independent loading of what's been transpiring in terms of corporate development activities in Manitoba.

Yes. No, that part I got. I just wasn't sure of any part of the delta on the cost on a year-over-year basis related to any of the migration of those subscribers on to your network, perhaps, giving them a device. But it sounds like it's a vast majority of it, if not all, relates to the normal course of COA/COR. Is that correct?

Yes. And we're about 1/3 of the way through the migration tap on the 85,000 as we speak.

The following question is from Greg MacDonald from Macquarie Securities.

Darren, thanks for the insight on mix of load as it relates to quality of the load coming on. I wonder if you might talk a little bit about the profile of postpaid ARPU. It was a pretty noticeable beat relative to our estimates on The Street. And I think a lot of us are probably wondering what the sustainability of that type of growth number is. I know it's an easier comp year-over-year this quarter relative to what we'll expect next quarter. But if you could talk a little bit about maybe whether loads coming on are higher on the postpaid side than what I suspect is probably a low $70 ARPU number.

ARPU is healthy. Loading is high quality on the postpaid front. And by high quality, I'm including ARPU characteristics within that, Greg. One of the things that doesn't get discussed very much, as it relates to ARPU, is churn. When you have low churn and disproportionately low churn on your high ARPU base, that gives you a foundation for ARPU growth that's extremely beneficial. And I've not seen anyone really talk about the statistics or the empirical evidence to that effect, but it's an important consideration that 0.79% is not just good in terms of gross to net flow-through and the economics associated with that, including lifetime revenue. But it's important foundationally to give us the right platform for ARPU expansion, because it's a great number in and of itself. And that number is disproportionately strong in terms of client loyalty and retention amongst our highest ARPU customers. Prospectively, in terms of what I think about on the ARPU front, as you would know, given the longevity of our relationship, we don't provide prospective ARPU forecast. But what we try to do is to say, "All right, we've had a lot of fantastic ARPU expansion now for 27 consecutive quarters." So I think you can draw some semblance of inference from 27 consecutive quarters in that regard. Secondly, to see ARPU amelioration happening within the Alberta economy is a helpful consideration. And I would note that Bloomberg has actually picked them to have the best provincial GDP growth prospectively over the next 12 to 18 months. So it's not the ARPU engine in terms of contribution that it's been historically. But we've seen ARPU amelioration coming out of Alberta, as we have seen in terms of churn and loading. So I think that's an encouraging factor for, prospectively, our ARPU…

Just a - can I ask just a quick follow-on, Darren? It's been said, and I don't remember who said it, that the majority of postpaid loads for the incumbents now are coming from the flanker brands. Is that true to make that assumption? And are those customers coming on in the flanker brands necessary below the average 70, whatever it is, dollar postpaid ARPU?

Flanker brands have a lower ARPU. I don't think that's a particularly radical concept. We had a good performance out of Koodo this quarter. But I think it's a great question that you're asking, Greg, because it gives me the opportunity to point out that we had an excellent quarter from TELUS as well. So it was nice to see the overall contribution not being a single tenant like Koodo from a flanker brand strategy but excellent contribution from Koodo and TELUS alike. The other thing that was, I think, encouraging about our loading is that it wasn't related to any particular geo. It was pretty pervasive on a national basis. So we're not hanging our hat that we did well within BC or had some fortuitous recovery in Alberta. Right across the country, we had a very strong performance overall. And then your question, again, is excellent because it gives me the opportunity to emphasize that on the flanker brand front, yes, it may have a lower ARPU than the premium brand, but we have engineered a lower cost structure into Koodo versus the premium brand on the TELUS front. So what is a difference at the ARPU level between the 2 is de minimis in terms of the difference at the AMPU level because of the lower cost structure that we purposely engineered into both Koodo and Public Mobile. And I think that's a smart way to manage the portfolio of the wireless products that you have. Even on the machine-to-machine front, which is a tidy contributor to our ARPU, there, you have ARPUs that are sub $10. But you have points of margin in the 60-point zone as it relates to the AMPU. So again, nice contributions on the ARPU level but nice flow-through to the AMPU level as well.

The following question is from Vince Valentini from TD Securities.

I hope I can get in a bit of a clarification and then the question I was going to ask. But Darren, I just want to make sure we're understanding your comments on an earlier question properly. Are you signaling that you have pulled forward some of the retention volumes that - we've all been expecting a big surge in the back half of this year after the iPhone 8 comes out. Are you suggesting you've deliberately pulled some of that forward into Q2, so we shouldn't expect quite as much of a bulge from TELUS in the second half of the year? Or is it just you're going to be subsidizing those phones pretty heavily as well? And as you said, you'll give existing customers the same promotion that you give new customer, so it's inevitable that we'll see continued high retention spending in - especially Q4.

Definitively, Vince, I'm not signaling that we pulled forward. I'm just highlighting the correlation between acquisition, retention and renewal, the correlation between COA, COR, particularly in the quarter where we did very well on the high-quality loading front. I'm signaling that we are always attentive to our existing customers that are cognizant as to what promotional plans are out there in the marketplace that you're using on an acquisition basis. I am highlighting or asking to go back and say, "Is this something that TELUS was aggressive about?" And I think if you investigate that, you won't find us being the price promotion leader within the marketplace. And I make that comment as it relates to the solid loading that we have delivered. And then the last comment that I'm making is that you can ignore your out-of-contract base at your peril. And so you just have to be attentive to it, not to the point where you renew at any cost. I made the comment quite explicitly that you have to be cognizant of the ARPU and the churn characteristics and the COR investment that you're making. But on many occasions, and I think Q2 was a good example, we felt that the renewal investment was a smart investment to make across both rate and volume as we have gone through this. And if you don't do things smartly, prudently, economically efficiently, in that regard, then your out-of-contract base can grow. And if it grows, then it's going to come back and manifest itself in some challenges, whether it's a retention challenge or more expensive COR when they're looking at even more aggressive acquisition plans that are out there in the marketplace during the back-to-school, Black Friday, Christmas selling season. So I just - I think it's important to be attentive to that particular base. That's the comment that I'm making, along with the fact that we had disproportionately strong smartphone loadings. And I think it's a prudent investment that we have made on COA, COR.

Okay. No, that's clear. And I just wanted to ask and, hopefully, this is shorter. The cash payments for acquisitions and investments was $493 million in the second quarter. I guess Kroll was $250 million of that. I don't know, Doug, if you can comment on this. What was the rest of it? And maybe if you guys can give a bit color on this Kroll investment, because I don't remember seeing a press release on that previously.

So the Kroll was $150 million in cash and $100 million in shares was what we issued for that. There was a few small tuck-unders, and the rest would have been MTS. So that's how you would reconcile that number. And Darren, do you want to top up on the Kroll itself?

Yes, the shares that we issued went to management at Kroll and have retention considerations associated with that, that are nontrivial for us given that we've given Kroll the mandate for running our pharmacy management operations at TELUS on a systems basis. We think it's an attractive opportunity for us as it relates to TELUS' strategy in respect of the primary care health ecosystem. We're very much focused on connecting that particular topology of people, clinicians and pharmacies in terms of network connectivity, building platforms and ecosystems to support the activities of that particular topology and to build services and applications on top of it. The Kroll acquisition gives us some nice enhanced geographic reach to complement our operations. It gives us very strong operating talent and expertise and increases the breadth and quality of our product offering as it relates to pharmacy management systems. It's going to see the acceleration in terms of TELUS' delivering a national, open platform on the ePrescribing front that we are in the throes right now of developing and launching the operations of as it relates to ePrescribing with Canada Health Infoway, where in Q2, we won the RFP with Canada Health Infoway to provide ePrescribing services across all jurisdictions in Canada. And we are driving that open platform on a national basis. And we think it's going to be a positive development for Canadians in that regard. It also provides us the opportunity to support pharmacies of all sizes nationally. It's going to drive better collaboration, if you will. I'm thinking collaboration between doctors and pharmacies across the primary care ecosystem. And when you get better collaboration, better flow of data and information across the primary care ecosystem, you get better outcomes for money spent more efficiently on a cost basis. And this is a pretty important challenge, not just within Canada, but around the world. And I think, without a doubt, we're well positioned to drive within Canada a vision as it relates to digital health transformation that will see improved customer connectivity. And it will see better enablement for both providers and patients by putting tools in the hands of both docs, pharmacists and consumers that better enable them to manage the health of the citizens in our society.

The following question is from Maher Yaghi from Desjardins.

Just a follow-up on your last comment on health care initiatives. It's starting to come quite well together. Is there any thought about doing something like TELUS International, where you bring on a partner to help you support the next leg of the growth phase, or are you intending to keep it inside fully controlled at this point in time? And I just have another question after that.

It's a good question. I think for the foreseeable future, we see it as something that we would keep inside of TELUS. From our point of view, when you think about the money that we're spending on broadband deployment, both wireline and wireless, it's important as an organization that we drive economies of scope in the CapEx investment that we're making in things like fiber or, prospectively, 5G wireless. So we're very concentrated on what new revenue streams can we create as a result of that new technology infrastructure that we're putting in place. And we see our health offerings as very complementary to our current portfolio of services. So if you think about what TELUS is doing on the communications front, what we're doing on the entertainment front, what we're doing on the data front within the home, what may come in the future as it relates to home automation development and the like, we see health as a very synergistic fit overall within that portfolio. And then again, what's great is that, that synergistic fit isn't just [indiscernible] within the home. But when you've got a broadband wireless business, people can take their health applications mobile. And for us, that's tremendously exciting. So for us, we're focused on building assets of consequence across the primary care, health ecosystem topology, knitting it together with our network, our broadband networks, wireline and wireless, building important platforms within that space, including ePrescribing, such as what I've just described, but others along the way. And you've seen us do that with things like electronic medical records and Home Health Monitoring and then do it in an open ecosystem, API-friendly fashion, where we invite third parties to come in and on our platforms alongside ourself, develop additional services and applications that are of interest to consumers when it relates to their health management and that of their families, of great interest to docs and empowering the full legislative latitude of pharmacists. And an industry that's spending the type of money that we're spending on health care, I think, needs to think about digital transformations and the technology that accompanies that and what that enables on the citizen front and what we can do from a shareholder value perspective in terms of creating economic value for what we enable within this particular space. And I think it's important to highlight that the performance of TELUS Health financially, I'm talking revenue and EBITDA now, continues to be very strong. And we're pleased with the results both currently and optimistic prospectively.

And on the wireline side, you mentioned that you're approaching the halftime here for your fiber rollout. And now that you've seen a full quarter worth of, I guess, market dynamic with your competitor in Western Canada, can you talk about prospectively what you see in the market in terms of change in behavior of customers that you had on FTTN? The churn rate on FTTN, is it going up now that you have a newer competitor in the market? And what it could mean on your TV net adds in the next couple of quarters, if your churn on older FTTN customers is going up a bit?

Okay. The new competitor comment, are you just talking about the expansion --

X1 platform, yes.

Yes, okay. So let's kind of go through this, if you will. Any day of the week, give me vibrant, aggressive, dynamic competition versus onerous regulatory intervention. I think the former is a model that we can be successful within. It's a model that's inspirational to the culture of this management and leadership team. And I think it drives great outcomes in the marketplace from value for money to product innovation that's pretty cool. So I look at the dynamic with Shaw, and I like it. And so I think that's the first thing to highlight. When we don't see that vibrancy, it sometimes leads to a regulatory intervention. And I find that much more puzzling in how you deal with it and respond to it from a management point of view. The second thing that I think is worth highlighting is, we -- there's going to be puts and takes quarter in and quarter out. We have done -- if you look at our Future Friendly Home, our wireline business since 2011 quarter in and quarter out, we've done extremely well on a competitive basis. But there's going to be peaks and troughs in terms of how that continues to manifest itself. And that's fine. I think that's the outcome of vibrant competition. But when you look at TELUS and what we do, it's not just looking at our track record since 2011 and how we've done on high-speed Internet or TV. It's the way that we've looked to balance our operational results with our financial results. And so this particular quarter, Shaw did well in terms of their operational loading, and good for them. For us, we think we struck what was the most appropriate balance for the competitive conditions in the market in Q2 between loading and…

The following question is from Simon Flannery from Morgan Stanley.

Darren, if we could just follow up on that last point there. We have the consultation document on the 600 spectrum auction. I was wondering if you could give us some of your thoughts about that and about 600 in general. You've got T-Mobile sort of -- and DISH being very active in 600 in the U.S. But AT&T was fairly quiet, and Verizon bought nothing, so a real divergence. Verizon, in particular, focused on microwave spectrum for 5G. So what are your thoughts on the 600 auction and, generally, on what sort of spectrum you would be focused on for the 5G deployment?

It is a bit of a delta between Canada and the US as it relates to millimeter wave spectrum, whether in 28 or 40 gig in that regard. That -- there's a desire within the U.S. to use that as more of a broadband access play to ameliorate the cost economics of the final meters of connectivity within neighborhoods and use broadband/wideband spectrum to achieve that. For us, within Canada, it's not that we're ignoring what could potentially be a nice economic access method to complement what we're doing in terms of building fiber to homes and businesses. But for right now, we continue to pursue direct fiber connectivity and have optical network terminations on a per-prem basis over both consumer and the business market in that regard. Secondly, it's still the perspective of TELUS that low-band frequencies are valuable for reasons that I think are either intuitively plausible or technologically important. So when you think about signal attenuation or signal radius or coverage economics or in-building penetration, low-band frequencies have value in terms of your spectrum repertoire, if you will, in terms of the breadth, the diversity of frequencies, within which you would have 600 within your overall spectrum portfolio. So we will be a participant in that particular auction process. Our approach as it relates to 5G, I think, is going to be balanced across a range of frequencies from low band to 3.5 gigs to selective use on the millimeter wave front. And those three areas are ones that you can expect us to progress prospectively. The other thing that's different about Canada, we have challenging diseconomies of scale. You look at organizations in the U.S., like Verizon or an AT&T or a Comcast, they have the scale economies to actually justify ecosystems that are, if not…

The following question is from Aravinda Galappatthige from Canaccord Genuity.

Darren, you talked about the rollout of the fiber program and where you stand right now. Could you give us an idea at this point or when you maybe look into 2018 of the extent to which your key markets now can offer speeds in excess of 100 MB and be able to broadly advertise that based on infrastructure you have right now? I'm really looking to assess the extent to which and how long the period is where your competitor can have certain advantages in terms of speed in particular territories. I'm just trying to assess that, and we're wondering if you can kind of help with that.

Okay. Let me just go through that sequentially. So to give you a flavor of where we're at, I think we're at the midpoint in our 5-year program, to give you sort of a chronologic point of reference. So we're sort of at the halfway mark on our development in terms of where we're going to see the greatest level of CapEx intensity. And I think for the reasons that I've stated previously, I won't repeat them, the accelerated program makes good sense. And we can afford to do it given our balance sheet strength and the respect that we have in terms of our credit obligations. In terms of precision, right now, we cover about 1.3 million homes with what we call our PureFibre footprint. We say PureFibre because it's not fiber to the node, it's fiber to the premise. And that's about 42% of our Optik footprint overall. And when we have our call at next year's AGM, I would hope that we would have passed the 50% mark at that particular juncture to give you a bit of a pace of the undertaking in that regard. We are not just looking at 100 MB. The fiber program has 150 MB profile. It also has a 250 MB profile, and it's 150 and 250 symmetrical on both the downlink and the uplink. And I don't think I have to highlight the importance of symmetry when you think about things like reduced latency and what that means when you're playing games on a network basis or what it means for people that are working from home in our telecommuting society, where they're not just receiving information, but they're sending information as well, people that are not just downloading a video in our celebrity society, but they're pushing video out…

Thanks, Aravinda. And thanks, everyone, for joining us on the call. IR team is available for any follow-ups as well. Have a great day.

Ladies and gentlemen, this concludes the TELUS 2017 Q2 Earnings Conference Call. Thank you for your participation, and have a nice day.