Good day, ladies and gentlemen. Welcome to the TELUS 2018 Q1 Earnings Conference Call. I would like to introduce your speaker, Mr. Darrell Rae. Please go ahead.

Hi. Good morning or afternoon, everyone, and thank you for joining us today. TELUS' first quarter 2018 results news release, quarterly report 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 our first quarter operational and financial highlights by Doug French, our CFO. After our prepared remarks, we will conclude with a question-and-answer session. In consideration of your day, we're going to try and 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 our 2018 targets, outlooks and assumptions, as well as intentions for dividend growth and capital investments and the performance of TELUS, 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 first quarter management's discussion and analysis and in our 2017 annual MD&A Sections 9 and 10 as well as filings with securities commissions in Canada and the United States. The appendix of this presentation and Section 3 of our first quarter 2018 MD&A provide definitions and reconciliations of the non-GAAP measures that we use. Let me now turn the call over to Darren, starting on Slide 3.

Thanks, Darrell, and hello, everyone. As you've seen today, TELUS reported first quarter results that reflect strong operational and financial performance, including healthy revenue and EBITDA expansion in both our wireless and wireline product portfolios, in concert with robust customer growth across the business. Our continued strong performance is owing in no small part to the TELUS team's unparalleled dedication to providing consistently exceptional customer experiences. In the first quarter, consolidated operating revenue was higher by 6%, and EBITDA was up by 5.2%. This performance is clearly indicative of our ability to deliver on the targets that we've set for 2018. Notably, we delivered strong customer growth, with combined postpaid wireless and wireline RGU customer additions up 15% on a year-over-year basis. Turning to wireless. We saw strong growth in first quarter revenue and EBITDA, which were up 6.7% and 6%, respectively. In addition, simple free cash flow expanded by 21%, again, on a year-over-year basis. As well in the first quarter, postpaid wireless net additions were 48,000, up 9.1% from one year ago. Postpaid churn came in at 0.95%, up slightly by 2 basis points from Q1 last year but 4 basis points lower than the fourth quarter of 2017. Notably, postpaid churn averaged below 0.85% in both February and March after being 1.15% in January due to the flow-through of aggressive holiday promotions into the first month of this year. Consistently strong performance is a hallmark of TELUS. And it is telling that our team has now delivered a postpaid churn result below 1% for 18 of the last 19 quarters. This puts us in our fifth year of churn below 1%, clearly demonstrating our sustained leadership in customer loyalty and the success of our decade-long and ongoing journey to put our customers first in every single thing…

Thank you, Darren. Before we begin reviewing our first quarter results, let me provide a brief overview of our new accounting standards implemented, including IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. Importantly, neither of these impact the economics of our organization. Results for the comparative period in 2017 have also been restated to reflect the retrospective application of these standards. Under IFRS 15, the timing of revenue recognition and the classification of our revenues as either service revenues or equipment revenues are affected and most pronounced in our wireless results. Under IFRS 15, equipment revenues for handsets or other upfront deliverables are accelerated to the time of acceptance by the customer. The amount recorded is a pro rata value of the item as part of the total contract value. In the past, equipment revenue was the amount of cash received upfront. The difference between the amount recorded and the amount of cash received upfront is set up on the balance sheet as a contract asset and is drawn down over the contract term through the customer's monthly payment. Network revenue decreases in the future from the allocation of the monthly bill to the contract asset. In addition, acquisition and fulfillment costs, including sales commissions, are deferred and amortized over the life of the contract. As for IFRS 9, this does not currently have any material impact on our financial performance. For a full breakdown and description of IFRS 15 and IFRS 9, please see our first quarter financial statements, in particular Note 2. Let's now review our first quarter results, beginning on Slide 9. For the first quarter of 2018, we delivered strong financial and operational results, building off what we achieved in 2017. External revenues were up 6.7%, reflecting network revenue growth of 4%…

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

Our first question comes from Phillip Huang.

So first question is on postpaid churn. The press release indicated sort of intensified competition as the driver for higher churn - slightly higher churn. Typically, seasonally quiet Q1. Obviously, we have observed shops stepping up their wireless offering. But Darren, I was wondering if you could perhaps comment on how you believe the competition for TELUS has evolved just compared to the prior year in your key markets? And given the evolution in the competitive dynamics, does your thinking behind the optimal level of churn change at all?

So we've got a robust competitive dynamic that's pretty observable within the marketplace. Specifically, as it relates to our churn result in Q1 at the 0.95%, I thought it was appropriate to give the additional color as I did within my comments, that the churn rate in February and March on average was below 0.85%. And so if you do the math on the weighted outcome, you can see clearly that our churn in January was 1.15%, and we consider that to be a particular anomaly, and it's related to the 10 GB $60 flow-through from the Christmas promotional period that polluted our January results that gave us an artificially high churn rate of 1.15% on the flow-through. And then we saw the immediate amelioration in February and March where we were below 0.85% on average in terms of churn in both of those months. I think they are more indicative of the churn performance that TELUS will continue to deliver in the quarters ahead, normalizing for any market activity that is aggressive or rational in terms of activities taking place, whether it's device subsidizations or more particularly rate plan affecting us, with the case with 10 GB $60. But in the absence of that, back to the robust competitive dynamic and the usual performance of TELUS, I think the performance in February and March is more indicative or more predictive of what you can expect from this organization prospectively. And January was unique because of the flow-through from the Christmas period and the implications associated that got pollution with the 10 GB $60 plan.

That's helpful. And then one on the fixed line side. You're officially over the hump on your fiber build at 51% of your Optik footprint. At one point can we start thinking about decommissioning copper plants as your next lever of optimization for the wireline business?

Now so given the fiber build is being done on a modular basis, we are decommissioning copper commensurate with that on a modular basis. Obviously, it's going to be a multiyear program for us, but the opportunity is quite significant. So it's something that we're going to be doing in concert with the wider fiber deployment. And if you look at it in terms of where we're at right now, to give you a semblance of the characteristics, we're about 52% done on the build relative to our existing Optik footprint. We're in about 110 communities across B.C., Alberta and Eastern Quebec. We've now passed the 1.55 million homes, businesses and health care organizations. And we've got well over 0.5 million active customers with well over 1 million active services on our PureFibre solution. And what we're seeing that's quite interesting, back to your copper comment, is that fiber relative to copper, we see the churn rate being about 25% lower on fiber versus copper, and more specifically, about 35% lower in terms of the churn rate of HSIA on fiber versus copper and 15% lower in terms of the TV churn rate on fiber versus copper. The other thing that I've talked about repeatedly is the repair savings as it relates to OpEx and the avoidance of truck rolls or calls into our call center or people expressing their dissatisfaction on a digital basis. We've seen about a 40% reduction in trouble tickets on fiber versus our legacy copper infrastructure. And I would expect that to continue to grow. And of course, what we want to do is get into a situation where clients can effectively self-provision their own services on an automated basis and do it within a digital context. That gives us the highest level of customer…

Next question comes from Jeff Fan.

Maybe just a clarification on the IFRS. When we look at the 2018 change in your guidance, as you mentioned, Doug, you said $50 million to $75 million. But when you look at 2017, looks like the impact on EBITDA was a little bit higher. By my math, it was about $114 million. Just wondering if you can clarify why the difference between one year to the next. I think this is probably related to handset volume, but maybe you can help elaborate. And then the second clarification is just on the $50 million to $75 million change in the guidance, just want to make sure there is nothing else impacting that change besides just the accounting. And then maybe just a bigger-picture question for Darren. On the wireless side, if competition does pick up as we get into higher volume periods later this year, what's your priority? Is it ARPU or ABPU? Is it protecting churn? Is it gross loading? Just want to get your perspective on that.

Thanks, Jeff. I'll do your second question first. There was nothing else in the change in guidance as a complete translation between pre- and post-IFRS 15. So it is 100% alignment that you'd argue one equals the other, and it's just a slightly different definition. Our cash flow and all our operating projections are untouched. From the - your first answer on the year-over-year, the complexity with IFRS 15 is your spending profile, which you're right, it's volume and rate, to be completely transparent, is on a two-year rolling basis. So the impact in any given year is your COA, COR spend, volume, rate in 2016, 2017 actually impacts you in 2018. So you actually have to model that profile and why it's very significant, and it'll be even significant on a quarterly basis, when you think that we're accelerating revenue to handset revenue, for an example, and let's - I'll just use an illustrative number. If I increase my spending in 2017 in Q1 by $10 million over the previous year, if I don't increase my spending in 2018 by at least $10 million, my IFRS growth rate will be lower than it was in 2017, all other things being equal. So as you're - as we're modeling this, it's your year-over-year spend on a two-year basis. And so the translation across is really just taking into consideration the growth in 2016 COA, COR or the accelerated revenue, the growth in 2017 accelerated revenue and our estimate of where it's really headed in 2018. And you have to take all three of those into consideration when you look at the impact on your 2018. And so if you actually do a very, very high-spend quarter and you spend that material dollars more than you did a year before, you're going to get a very high growth rate of EBITDA even though you're very cash dilutive. So having a higher IFRS growth rate on a year-over-year as compared to pre isn't necessarily a good thing on all accounts.

Okay, great.

So I think in terms of the competitive dynamic that I've already discussed as robust, I'm not going to give any forward-looking predictions in that regard. It's contingent upon behavior from all the constituents within our industry. I continue to believe that the organization that will do well within a competitive environment is the organization that's got the best loyalty and retention because it's got the best customer service and the best network performance. I also think the organization that will do well from a risk management perspective in a scenario like the one that you just described is the one that's got better diversity in terms of the quality of the asset mix. And as I said in my remarks, if you look at the consolidated results for TELUS, it's nice to see that we've got equal contributions coming from wireless and wireline. So a one-trick pony-type organization. So when we've got growth contributions at the revenue, at the EBITDA level, coming from both our wireless and our wireline asset mix, I think that's a pretty strong story and, again, generating solid operational results, complemented by solid financial results. And I think that diversity, again, puts us in good stead because if we get pressured on any one particular line of business, we've got the opportunity to harvest the contribution from the other assets within our portfolio. In terms of what matters to us on this front, what matters to us is profit. Revenue is vanity, margin is sanity. And that's always going to dictate how we make decisions, allocate resources at TELUS so that we get the right economic outcome. And within that particular axiom, we, of course, are always putting customers first, which supports the best loyalty and retention, and the most valuable customer is the one…

Our next question comes from Drew McReynolds.

A couple for you, Doug, and then one for Darren. First, just looking at an improved free cash flow profile and obviously ticking all your boxes with respect to the payout ratio, the balance sheet, et cetera, can you just comment on where you are with the NCIB and thoughts on that going forward? Second, just in terms of disclosures in and around TELUS Health, TELUS International, I think you alluded last quarter that you could be forthcoming at some point. Just if you can provide us with an update on that. And then I'll just have one for Darren afterwards.

So the NCIB is not a priority for us at the moment. We have it as a tool if necessary, but as you've seen, we have not used that in a while now. And that would remain our cash investments are going to fiber, to dividend increases and the investments we're making in strategy - on strategy for the foreseeable future. That being said, if it's ever needed during a downturn, we would consider it at that time on our share price. On TI and Health, we did discuss on when and what timing is right. Darren and I are looking at Q2 for that as a first update. And there'll be one or the other and maybe both, we'll look through that and give you more at that time. But it will definitely - there will be something in Q2 to enhance that disclosure.

Okay. And bigger picture here for you, Darren. When you talk about IoT and machine-to-machine, obviously, everyone knows with 5G particularly, a very big growth opportunity ahead. At a high level, can you just comment on kind of where you see TELUS or telecom operators in general competing? Clearly, you'll have the pipe, and we'll get compensated for that. But you alluded to earlier in one of your answers about wholesale versus retail. Where do you draw the line on that? It is vertical by vertical? Are there some obvious areas where you'd have a natural competitive advantage, et cetera?

So the focus for us on IoT is very much on key verticals. Without giving you the exhaustive list, we think that we can do very well targeting verticals and areas like transportation, agriculture given our Western heritage, the health sector and the way that we can bundle that with other health solutions. I could go on, but it gives you a flavor of what we're looking to do in that regard. And our approach is both at a retail level and a wholesale level. On the wholesale level side, one of the verticals that we're also excited about is what we can do in terms of home automation, and the consumer play there is extremely exciting. And if we can put together a continuum of products, services and technology in the home that span voice, data, entertainment, security, health and home automation, empowering people to better control the assets within their homes, whether it's food inventory or optimality on heating and cooling or connected car considerations and the like, there's a lot for us to do in that particular sector that can be very exciting. And all of these solutions leverage the investments that we're making in broadband technology, be it our play on PureFibre or what we're doing on the 5G front prospectively and what we're doing at an LTE level today. And a long way to go. The other thing that's key for us is certain verticals where we would be targeting IoT, we're already deeply entrenched, so it's selling new services to a very warm client relationship. An excellent example of that would be our premium position in oil and gas and doing things that improve the performance of those organizations, whether it's within a fractionator environment or whether it's wellhead monitoring in terms of flows…

Our next question comes from Vince Valentini.

Darren, thanks for the update on all the benefits of fiber to home. It sounds like very exciting future. Just want to ask about when that translates into the present. I mean, your wireline margins this quarter still ticked down above 40 basis points year-over-year, and they're still slightly below 30%. Do you expect to start to see some margin expansion this year and trending into - in the low 30s? And then second, just a tiny clarification. Was Pik TV a large portion of your TV ads this quarter?

Okay. So no on Pik TV, so that will be the simple categorical answer on that. Yes, on quality loading on the wireline front, similar to the comment that I made on smartphones on the wireless front as it relates to quality loading. And we had a pretty good result at 12,000 RGUs being up 50% on a year-over-year basis. In fact, if you look at postpaid net on wireless combined with wireline RGUs, we're up 15% on a year-over-year basis. So pretty good going in that regard. Vince, I think you're being a little bit hard on us in terms of the wireline margin upfront. We were at 29.9%, so that's pretty close to 30%. And it wasn't that long ago that you guys were torturing us as to, when are you going to get to 30%, when are you going to get to 30%? Because we set that as a public target, and we were in the 27% zone. And I would say we're there at the 30% upfront in that regard. But getting the essence of your question, which is, is there room for improvement? And the answer is yes in that regard. And that's what we are striving for. And let me you - given that you asked for the here and now on that particular point, let me give you some empirical substantiation of that comment. The EBITDA contribution holistically from TI in Q1 was basically zero. And that's because of the reasons that I said previously that on an organic basis, the TI organization has been performing well, but we have lost some key clients because of exogenous factors that were impacting their businesses and the markets that they were seeking to serve. So we've seen some dilution from that. So it's not flattering…

Our next question comes from Simon Flannery.

This is Landon Park on for Simon. I was hoping you could give us an update on your thoughts around the prospects for fixed wireless and how you might be able to leverage your fiber build to bring that to the forefront and helping serve poor communities and whether or not you think that's a viable solution, and in addition, what particular spectrum bands you might be focused on and what you'll be looking for from the regulatory side to bring that to reality.

A few things. Let's make sure that on the regulatory side, we get access to the spectrum that Canada needs. So that would be at the 3.5 GB level. That would be at the millimeter wave level, 28 GB, 40 GB and 65 to 70 GB. So bringing that to fruition, I think, would be a good thing on a regulatory basis to enable what we want to do here. Secondly, I think we are in a great position in terms of horses for courses. So if you look at what we've done historically on both wireline and wireless, we have deployed and managed a multiplicity of technology simultaneously. So if you look back historically on wireline, we had simultaneously deployed ADSL2, VDSL2, Ethernet to the suite, GPON, so on and so forth. On the wireless side of our business, we've got historically HSPA+ deployed, HSPA+ Dual Carrier deployed, LTE deployed, LTE Advanced deployed, soon-to-be 5G deployed. So I think we've done a good job managing a multiplicity of technologies contemporaneously along the way. And so I would see the advent of point-to-multipoint fixed wireless buttressed by fiber and 5G wireless technology as another example and another opportunity for us to pursue prospectively. And think about what a great position that we're in. We only have to fast-forward until the end of 2019, we will be 2/3 built on the fiber front at the same time as we're launching 5G. Now we have a very interesting economic decision to say, okay, as we think about taking 66% on the fiber build to the premise, why we - which is why we call PureFibre to the premise, both the home and the business, well, if we're going to take that above 66% to 70% to 75% to 85% coverage, let's judge…

Thank you for that, Darren. Should we be thinking about - on the back of that, should we be thinking about a potential for commercial trials on your side in 2019, 2020?

Yes.

Our next question comes from Maher Yaghi.

Doug, I wanted to ask you just to dig a little bit deeper on your EBITDA guidance for growth. As you explained, subsidy cost changes could have delayed impact on EBITDA growth. So if I look at your EBITDA growth forecast pre- and post-IFRS, is it that you are expecting slightly lower subscriber loading in 2018 versus 2017 that is explaining this decreased percentage growth? Or is it that you're expecting lower subsidy cost per load of customer? And I have just a follow-up question to Darren after.

Yes. So it's actually COA and COR that come into the calculation, and it's also rate and volume. So when you get to the assumptions - I'm not going to give an estimate on what we expect for our loading for the year. But that being said, if you remember, last year, there were multiple quarters where our COR spending was higher on a year-over-year basis, and our EBITDA growth rate under old accounting rules was lower because we expensed the subsidy. As you lap some of that, that could have an impact on the year-over-year as an example. So don't just limit it to loading. Look at COA, COR, rate and volume. And I think you'll come to the conclusion of where that differential might be.

Okay, that's fair. And Darren, I wanted to ask you just a quick question on wireless ARPU growth. I mean, you - TELUS is not the only company that is seeing a reduction in ARPU growth. We've seen it in B.C. as well. What is your current view on future ARPU growth? How much of it is explainable by a significant promotional activity in Q4 that we saw? And how much of it is more structural?

I think, Maher, I'm not going to go beyond the comment that we would forecast positive ABPU growth prospectively but on a more modest basis. I think the portfolio of dilution pressures on this front can be offset by the opportunities that we have to monetize increased data usage, particularly as we deploy new technologies that facilitate higher data usage. And we're doing that right now on both LTE Advanced but also in the runup to 5G. I think there are opportunities on roaming, machine-to-machine. And I'm looking forward to greater contribution coming from the province of Alberta as it continues. I think we're doing the right things when it comes to the complexion of our loading, focusing on higher-quality areas particularly as it relates to smartphone growth, which will support, prospectively, ABPU accretion at T plus X overall. And so without putting a growth rate on that per se, I guess what I'm forecasting is that the accretion opportunities will more than offset the dilution reality that we're facing. And then I go back to perhaps the most telling components, which is let's make sure that we're not singularly just focused on ABPU but having even better accretion at the AMPU line through cost efficiency programs. And let's leverage the fact that we've got contributions from two assets, not just one wireless asset within our organization. And also, the sober reality that the Pareto optimal combination of value for money and quality of service, all those things that make clients happy, generating the ROI from ARPU and AMPU to justify the CapEx investments that we make in wireless and generating a level of client satisfaction that drives a disinterest in our industry by government, those are the smart longer-term plays for our organization to pursue.

Last question comes from Tim Casey.

Thankfully, we've covered everything, but I noticed that since we started this call, the Competition Bureau has put out a notice that it's going to be reviewing access to Internet services. I know it's just out, and you haven't reviewed the brief. But any - did you know this was coming? Or any initial thoughts on how we should think about this going forward?

No, I didn't know that it's coming out. I'll have to look at it. I mean, I don't know what to say. They've gone through the wholesale wireline review, and that was an extremely robust, data-intensive exercise by the regulator that involved all the constituents within our industry. We've had various pronouncements in that regard. So hard to fathom exactly what that is until I look at it. I would say this part of our industry is extremely healthy and competitive. And then lastly, I would encourage all the analysts on the call, would you please do me a favor and have a look at Canada's progression as it relates to fiber deployment, which is so critical for both wireline and wireless and so critical to our country in terms of the vibrancy of our digital economy and digital society? Please compare us to other countries within the G20 as to how far progressed they are with their fiber programs. This is a massive success story for Canada that I don't think has gotten the level of attention that it warrants. And what we have done on the fiber front has not been done easily. We've gone through free cash flow-negative years of 2014, '15, '16 and '17 and are now coming back into the free cash flow-positive zone because of the heavy lift that we've undertaken to drive that particular fiber build. We've used our balance sheet to do the right thing for our investors, the right thing for our customers but also the right thing for our country. And this is also true on a national basis. And I think there needs to be more fact-based investigations and more empirical evidence, both absolutely and relative to where other countries are as it relates to the deployment of critical fiber.

Okay. On behalf of Investor Relations, thanks for joining us today. If we didn't get to your question or you have any follow-up questions, feel free to contact any of us. Thanks for your time.

Ladies and gentlemen, this concludes the TELUS 2018 Q1 Earnings Conference Call. Thank you for your participation, and have a nice day