Good morning, ladies and gentlemen. Welcome to the TELUS 2018 Q3 Earnings Conference Call. I would like to introduce your speaker, Mr. Darrell Rae. Please go ahead.

Thanks, Mike. Good morning, everyone, and thank you for joining us today. TELUS' third quarter 2018 earnings news release, quarterly report and detailed supplemental investor information are posted on our website, telus.com/investors. On the call today we have President and CEO, Darren Entwistle, who will provide opening comments, followed by a review of our third quarter operational and financial highlights by Doug French, our CFO. After our prepared remarks, we will conclude with a question-and-answer session. Let me now direct your attention to Slide 2, our caution regarding forward-looking statements. This presentation, answers to questions and statements about future events, including our 2018 and 2019 targets, 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 cautionary note and refer you to the risks and assumptions outlined in our public disclosures, in particular our third 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 United States. The appendix of our presentation in Sections 1 and 11 number, third quarter 2018 MD&A provide definitions and reconciliations of the non-GAAP measures that we use today. Before we begin, let me take a moment to discuss certain non-recurring items that flowed through our financial results this quarter. As previously disclosed, we recorded equity income of $171 million related to the sale of TELUS Garden with 50% allocated to each of our wireless and wireline operating segments. Concurrently we committed to a donation to the TELUS Friendly Future Foundation of $118 of which 50% was allocated to restructuring and other costs in each of our wireless and wireline segments. Lastly, we recorded a long-term debt prepayment premium of $34 million before income taxes or $0.04 per share after taxes. The review of our results today will exclude these items unless otherwise noted. Let me now turn the call over to Darren.

Thanks, Danni, and good morning, everyone. As you have seen today, TELUS once again reported strong operational and financial results including robust customer growth across both the wireless and wireline segments of our business. Our strong Q3 results are buttressed by ongoing excellent performance in wireless and wireline customer loyalty and lifetime revenue. Again this quarter, the TELUS team continued to achieve industry-leading postpaid wireless churn and realized record third quarter high-speed Internet and TV retention levels. Consolidated operating revenue in the quarter increased by 5.8% whilst EBITDA was up 6.4%. Notably, the robust customer growth that we delivered in the quarter included a 199,000 new wireless, Internet and TV customer additions, up 31% on a year-over-year basis. This was driven by our low postpaid churn, strong retention levels in respect of high speed Internet and TV, and by the ongoing generational investments we are making in our world-leading broadband networks. Moreover, the blend of lifetime revenue of our wireless, Internet and TV customers was up 17% year-over-year. Turning now to wireless. We achieved solid growth in the third quarter in respect of revenue and EBITDA, which were up 4.2% and 6.8% respectively. Postpaid wireless net additions of 109,000 and total wireless additions of 145,000 represented healthy third quarter loading. Postpaid churn in the third quarter was an industry-leading 0.87%. Notably, this is 22 and 27 basis points better than our national peers. Consistently strong customer loyalty is, of course, the hallmark of the TELUS organization with the team having delivered a postpaid churn result below 1% for 20 of the last 21 quarters, putting us now in our sixth year of churn below 1%. This clearly demonstrates the success of our decade long and ongoing journey to put our customers first in everything that we do. Our teams' unrelenting…

Thank you, Darren, and hello, everyone. Let's continue with wireless. External wires revenue increased 4.2% driven by network and equipment revenue growth of 2.2% and 11% respectively. Network revenue growth was driven by continued growth in our postpaid subscriber base, which is up 354,000 over the last 12 months and a larger portion of customers stepping up to higher rate plans inclusive of larger data buckets. This growth was partially offset by declining chargeable variable usage due to more bonus data being included in rate plan promotions. Equipment revenue resulted mainly from higher smartphones in the gross and retention mix. Adjusted EBITDA grew 6.8% reflecting higher network revenue as well as an improvement in equipment margins. This was partially offset by higher marketing expenses including commissions related to increased customer loading, increased network operating cost including roaming. Excluding the effects of IFRS 15, adjusted EBITDA of $866 million was higher by 6.5%. Notably wireless simple cash flow as measured by adjusted EBITDA less CapEx increased by approximately 13% or $78 million over last year due to higher EBITDA and lower capital expenditures as planned. In wireline, external revenue grew by 8.1% compared to the prior year, reflecting data services' revenue growth of 15% which was primarily driven by increased Internet and enhanced data service revenues resulting from ARPU growth as well as an increase in our high speed Internet subscriber base which is up 108,000 over the past 12 months, higher TELUS International revenue from acquisitions and the recovery of organic growth and increased TELUS Health revenues. In addition, TELUS TV revenues resulting from subscriber growth and revenues from our recently launched home and business security service offerings also contributed to our higher wireline data revenue growth. Adjusted wireline EBITDA increased by 5.7% due to growth in our Internet and…

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

Sure, definitely. So the first question comes from Drew McReynolds from RBC. Please go ahead.

Thanks very much. Good morning. Darren, I was going to ask you about ABPU, but I think you've covered that off pretty extensively. I just want to look at the CapEx guidance for 2019. I was just wondering if you could just peel it away a little bit in terms of where you think you will be on fibre to the home. Are you interested in fixed wireless initiatives, et cetera? What does – what would this CapEx profile look like for TI and TH? And just a quick follow up I guess for you, Doug. On the cash tax outlook for 2019, I was just wondering should we normalize cash taxes or are there other kind of puts and takes we should consider?

Thanks for the question, Drew. So importantly as I conveyed in my remarks, we are looking to deliver an overall CapEx envelope in 2019 that is highly similar to what we are postulating for this year, $2.85 billion. We are looking to ratchet down our CapEx intensity by about 100 basis points. Over 50% of our CapEx program in 2019 will be a success-based or performance-based in its orientation. The key drivers in terms of 2019 CapEx is going to be quite similar to what you've seen from TELUS over the last few years in that the preponderance of the capital is going to be invested in broadband technologies. So on fibre front, as per your question specifically, we are going to carry on with what is a multiyear program. That really should take us through to above the end of 2021 with a significant ratcheting down thereafter. By the end of 2019, I would expect our fiber coverage which stands right now at about 56%, 57% of our Optik footprint or about 1.8 million homes in totality, that by the end of next year we should be around 66% to 70% covered in that regard, which is good for what we want to do on the Future Friendly Home product suite from voice and Internet and TV. But it's also key for new services that we are looking to layer on top of that including security services, home health services and home automation, and that's a big competitive differentiator for us. And then with that degree of penetration of fiber into our access network, it's not just great for our Future Friendly Home product suite, but of course the right foundation for 5G in terms of wireless frontal delivery and backhaul redistribution of that wireless traffic. So that should…

And on that, the cash tax side, so in 2019 you will see increased cash taxes. They would obviously be more reflective of the effective tax rate that you would have seen disclosed in the financial statements. And then in that first year of where you end up having to pay installments and the incremental tax, there will be a slight premium to that in 2019 and we'll disclose more of that when we put out our guidance in February.

Thank you.

All right. Our next question comes from Vince Valentini of TD Securities. Please go ahead.

Yes, thanks so much. Let me ask about the wireline side and your video and Internet business. The ARPU you talk about is 37% higher for homes that are on fibre versus copper. I'm wondering if you see that as being able to close the gap that exists in ARPU for both video and Internet in Alberta B.C. versus what we see in Ontario? Maybe you can update us on your views on that, given that neither you nor Shaw really give us video Internet revenue every quarter, but sometimes you're willing to update us on how big that gap is. And do you think fibre is the solution to closing that gap over the next couple of years?

I don't really want to comment so much on our pricing strategy, Vince, prospectively. But the answer directly to your question, do I think that fibre can address the gap that you're referring to and provide superior economics prospectively, the answer is categorically yes. The explicit number that I gave was a 35% lift on the ARPH on fibre versus copper coupled with a 25% churn improvement and a 40% cost efficiency improvement. So looking at those things in combination and the fact that the product attributes are so attractive on both Internet and TV in terms of differentiation from our peer group, I like what that's going to deliver for the organization prospectively from loading to the economic characteristics of that loading, which is why we've given some guidance to the street in terms of where we want to take our wireline margins. We – right now if you normalize on the TI front and just look at the kind of core FFH part of our business, we're very close to 30% margins. What we want to do with TELUS prospectively, TI included, is to get our wireline margins up to 35% and that's the march that we're on in terms of wireline value creation. And there's a number of things that I think can help achieve that. One is the rightful point that you're making, that fibre growth will drive positive fibre economics in terms of our FFH base, but there are other things going on. Right now the TI acquisitions that we have done have been dilutive to our EBITDA margins. I would expect as those acquisitions mature and we harvest the value, and TI has got a margin goal of 15% to 20% because of the high quality of the service that they provide, I think…

Thank you.

The next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Thanks a lot. Good morning. Doug, I wonder if you could just talk about the balance sheet a bit. Obviously there is good momentum on the free cash flow side of things. It sounds like that's going to continue in 2019. You've got some spectrum auctions as well. So maybe you can just update us on what you're thoughts on where your leverage is today, where you'd like to get your leverage over time and how you balance the various opportunities to pay down debt by spectrum to put it towards the cash returns projects as you think about the next three-year plan?

Yes, we have – right now we have very good momentum with where we're headed on leverage and you'll see in this quarter, we continue to lever down more on the growth perspective as that ratio. We expect even with the spectrum auction in 2019, but, yes, you'll see leverage, I would say, tick up a little bit during that timeframe, but it would be still lower than the historical rates we had in 2017. So confident of where we're at, confident with the leverage ratio that it is the right cost of capital for our organization and that even with the spectrum, we'll be in a very reasonable level with the longer term still trajectoring back down to the 2.5.

And how does that tie into anything you could sort of say about your capacity to continue to do another 7% to 10% type program?

So it will all come down to our growth and execution of our operating plan. And as Darren highlighted some of the opportunities that we go through in 2019 and we'll do the renewal back in the AGM. I would say that would be the driver to the 7% to 10% and the continuation of that plan is the execution of our operational plan. There won't be limitations because of the balance sheet and Darren also talked about opportunities on free cash flow with our capital flexibility. So all of those items would contribute to that decision, which you will see in May and I think it's trending in a direction we're happy with.

Great. Thank you.

Next question comes from Jeff Fan from Scotiabank. Please go ahead.

Thanks, good morning. Couple of questions. First, more housekeeping on the wireless area. Your equipment cost this quarter looks like it has contributed to positive margin this quarter. Normally that's sort of flat to negative. I'm wondering if there is something that's happening there. Are you subsidy-related or something that might be missing? The other is just on your wireline acquisition that you made this quarter. Pardon me if we're not experts in the healthcare industry, but with this Medisys acquisition, I was just wondering how you think that fits into the health segment and may be just a little bit on the financial profile and growth. I know it's not big, but it does contribute to the overall growth story. So just wondering if you can shed some light there please.

I'll take the margin one first. So, yes, with IFRS 15, obviously margins are impacted slightly differently than you would have seen in the past, but the main reasons for the margin accretion in the wireless side on that front is fewer early renewal. So when we had early renewals in previous periods, you'd have to write off device balances and waives. We've had a higher mix of handsets, which actually have a margin to them and generally they are the higher-end handsets in both loading and renewals. And we've been less promotional in the renewal offering. So all three of those are contributing to your – the margin component and from an AMPU perspective, it's completely aligned with how we are managing the overall P&L.

Do you think that's sustainable that those three factors going forward to kind of keep a positive margin for equipment going forward?

It will depend on the quarter and the intensity, but it will also depend on our pre to post migrations and some of the other initiatives that occur on a quarterly basis. So I think it will have a little bit of volatility to it depending on the quarter and what goes on in the quarter, but it is definitely something that we are looking at for a longer term margin accretion.

Jeff, just so we are clear, there is no misunderstanding. Normalizing for the acquisitions and just looking at organic growth, the wireline EBITDA growth is mid-single digit. So we're not having a flattering of that as it relates to the acquisitions. The 5.7%, the preponderance of that is coming organically. Stripping out the acquisitions, we're still on the mid-single digits in terms of the EBITDA wireline contribution. In terms of our health strategy, the Medisys' move is really one that's all about vertical integration. We are pushing hard on driving our preventative healthcare and wireless solutions and the technology that underpins it into the employer healthcare market. Not dissimilar to moves that have been made south of the border by some fairly prescient companies in that regard. And having the Medisys' clinics gives us the opportunity to drive some interesting architectural innovation within TELUS Health by accelerating the delivery of employee centered healthcare that's backed by our broadband networks, both fibre and 5G, and allows us to actually deploy operationally our digital tools that we've been developing within Josh's TELUS Health organization. And these digital tools include the electronic medical records, they include virtual care, you saw what we did in terms of the press release on the partnership with Babylon out at the UK They include mental health applications, and of course they include capabilities and digital tools that allow us to network the primary care health ecosystem by connecting consumers and doctors and pharmacists with capabilities like e-prescribing and the processing of benefits claims on an electronic basis. And so it really allows us to have an incubation and a lab for the deployment, the trialing and the scaling and the economics of our product portfolio and put it into practice in a way that's deeply meaningful and in an area that we see as being a high growth area in the future, which is employer-based healthcare and that's kind of the strategic efficacy that underpins the rationale in that regard.

Great. Thank you guys.

Next question comes from Maher Yaghi from Desjardins. Please go ahead.

I wanted to just go back on some metrics you talked about in your fibre to the home territory and you talked about decline in 25% in churn. Is that number sustainable in your view or it's more a reflection of the early going for the technology, i.e. it could change as the product matures and you have more competition in the territory that you're serving and newly started serving with fibre to the home with some win backs by the cable cos. So just trying to understand where you see this number going in the future as the technology matures. And when it comes to wireless, just a question on the gross loading rearview on where we are right now in terms of growth or flatness in gross loading and how do you see it going forward?

Okay. Firstly, I think it reflects well on the TELUS organization, the amount of disclosure that we do around pure fibre in terms of the precision of the coverage that we have, both on a home basis and communities basis and relative to our Optik footprint. We've also forecasted specifically the growth that we would expect to deliver on the Fibre footprint over 2019 to about 66% to 70% of the Optik footprint by the end of next year. And then lastly, the economic characteristics on cost efficiency, churn and revenue per household. So now going beyond that and providing forecast is asking a lot, but maybe I could just focus on some math here. The numbers that I'm quoting are not based on 12 months of fibre deployment. So it's not like we started the PureFibre program in 2017. We're now 12 months into it and the most attractive returns are the early returns. And the fibre program at TELUS started way back in 2014. So when you think about 2014, 2015, 2016, 2017 and 2018, this is based on five years' worth of data that underpins the economic characteristics that I just conveyed. So I would say that that's fairly robust mathematically in terms of that weight as it relates to the economic parameters that are being conveyed. It's not a situation where we just started the fibre program and the early returns are the most attractive returns. So when you talk about sustainability, given that this is based on five years' worth of data, I would expect prospectively, I'm not going to go past 2019, but if someone said to me, do you think the churn improvement that you're getting on fibre, the efficiency improvement that you're getting on fibre and the revenue per home that you're…

So on the loading side, just a quick refresh, the Canadian market still is penetrated about 87%. So we do see still upside to loading within the industry in aggregate and the year over year on the industry growing, it's still in excess of 20% to 30% depending on what measure you want to use. The other exciting thing for us is as our FFH loadings, the wireline loading, home automation and healthcare applications grow, we'll have more and more relationships in which wireless add-ons will contribute to that and in the quarter itself also very happy with our – the quality of our loading and the overall number. And if you remember, some of the swings between the Government of Canada loading between our competitors, normalizing for some of that will put us very close to the top in that value loading and how we look at our base in the quarter. So overall, happy and future potential still very good to grow considering the Canadian dynamics.

Thank you for the disclosure, Darren. And thank you Doug.

Okay, Mike. We’ll take our last question.

Of course. Our last question comes from Adam Ilkowitz from Citi. Please go ahead.

Thanks for taking the question. Doug, I just wanted to go to free cash flow in 2019 for one second and make sure I understand the pushes and pulls. With stable CapEx and EBITDA up, the cash tax is up as well, do you expect 2019 free cash flow to show meaningful growth next year similar to what you've seen this year? And then secondly, on the prepaid side of wireless, it seems like yourselves did very well this quarter, and also your other telco brethren, but not the market leader necessarily. Are you seeing a different return in the prepaid business or some different strategic need to be more aggressive in the prepaid business going forward?

So on the free cash flow item, we will disclose more in February when we give out our guidance. I think if we get very specific now, I'm preempting Board approval even for financial numbers for next year. So I'll hold off to February on that front and you've got CapEx and directionally where taxes are going. So we'll just have to wait for the remaining till February.

One thing I would encourage investors to think about is that longer term in terms of cash flow growth, the contribution won't singularly be coming from just the wireless business, but from the wireless and wireline business and not just because of the moderating CapEx comments that I made earlier, but by the significant growth that we are delivering from our wireline portfolio to complement what we're doing on the wireless front. And if we can take the success that we've enjoyed on Internet and TV and mirror it with success on home security, home health and home automation, all on the back of that fibre 5G connectivity from an economies of scope point of view, that's going to be a lot of higher margin incremental revenue off of a fixed cost base. That will really support the amplification of our wireline cash flow growth to complement the cash yield that we're getting out of the wireless business. And I think the diversity of revenue growth, EBITDA growth and cash flow growth across wireless and wireline at TELUS is a very unique story within the global context. In terms of the prepaid question that you asked, I think we did okay on the prepaid front. But I think, quite honestly, we can do a lot better. It's a developing area for us, one that we should have moved on more expeditiously historically and there's upside here to be achieved. Secondly, we don't just think about prepaid as, a singularly a feeder channel to post on the migrations front. The new generation of prepaid has attractive AMPU characteristics in its own right and represents for us better quality loading than some alternatives within the wireless space relative to tablets by way of example. I think prepaid has a more attractive set of AMPU characteristics. And then you've got a scale or scope economy, however you want to look at it, in that you can harvest that prepaid base on postpaid migrations. And by doing so, that can help buttress your ability to improve your ABPU performance historically as you shift, farm, cultivate your prepaid base on the postpaid migration front. So that's a very important strategic consideration for us. And then lastly, as it relates to pre – to post migrations, that was not a particularly potent story for us within our Q3 results and it represents an opportunity to do better prospectively within the TELUS organization as we both amplify the magnitude of our success on prepaid and also improve our effectiveness and efficiency in moving prepaid customers into the postpaid environment. So those are the two comments, nice AMPU on a standalone basis and nice future migration opportunity. It's an area where we've done okay, but an area where we can do a lot better. And pre to post migrations, we're not flattering our Q3 results unfortunately.

Thank you.

Okay. Thanks, Adam. So if you have any follow-up questions, feel free to contact the Investor Relations team. And on behalf of Darren and Doug, thank you for taking the time out of your busy schedules to join us today.

Ladies and gentlemen, this concludes the TELUS 2018 Q3 earnings conference call. Thank you for your participation, and have a nice day.