Welcome to the TELUS 2016 Q2 Earnings Conference Call. I would like to introducer your speaker Mr. Paul Carpino. Please go ahead.

Great. Thank you, Peter. Good morning everyone and thank you for joining us today. The Q2 2016 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 financial highlights by Doug French our CFO. After our prepared remarks we will conclude with a question and answer session. Let me direct your attention to slide two. This presentation, answers the question and statements about future events including 2016 annual targets and guidance, 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 that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosures in particular in section 10 of TELUS's annual MD&A and filings with securities commission in Canada and the United States. Let me now turn the call over to Darren, starting on slide 3.

Thanks, Paul and good morning everyone. TELUS delivered strong second quarter results that reflect robust loading across key segments including net new postpaid wireless, Internet and TELUS TV customer additions. Concurrently the Company once again realized industry leading customer loyalty, solid ARPU growth and best in class lifetime revenue. Impressively TELUS's results in respective subscriber, revenue and EBITDA growth in both our wireless and wireline businesses, are being delivered despite the continuing economic challenges in the province of Alberta. Clearly this performance reflects the efficacy of our Company industry-leading customer service and the robustness of our multi-tenant growth strategy implemented so effectively by our team. Let me provide some highlights for you from the quarter. Cumulatively our attractive asset mix delivered strong net additions in both wireless and wireline in the second quarter with net RGUs increasing 92,000 following the soft first quarter. In wireless we earned post rate net additions of 61,000 up postpaid in the first quarter reflecting strong performance across all regions and early signs of stability in Alberta. We continue to earn the best customer loyalty amongst our national peers achieving a churn rate of 0.9% in the second quarter. TELUS has now delivered a postpaid churn results of less than 1% in 11 of the last 12 quarters, an unparalleled achievement amongst our global peer group. Through our commitment to delivering an unrivaled customer experience combined with thoughtful COR and COA investments TELUS continued its leadership in lifetime revenue per customer. In this regard at more than CAD5600 our current lifetime revenue per sub is 18% and 42% higher than our two national peers. Blended ARPU in Q2 increased 1.4% to CAD64.38, the highest amongst our country's national telecoms. Notably one year ago we went to get another industry-leading first with our customer from initiative…

Thank you Darren and good morning everyone. I'm on slide 9. Second quarter wireless results showed a notable improvement in margins and solid operational execution in a competitive and challenging economic environment. Network revenue grew 2.6% reflecting the continued postpaid subscriber growth and higher ARPU driven by data. This was particularly -- this was partially offset by the moderating yet meaningful impact of the economic slowdown in Alberta with continued to affect both subscriber growth and usage patterns. Adjusted EBITDA increased 3.6% from higher network revenue and cost savings through the execution of our operational efficiency and effective -- and effectiveness initiatives. Adjusted EBITDA margins were up 130 basis points as expenses were flat or down in most of our expense categories, cost saving a CAD20 million increase in our combined COA and COR costs. Capital expenditures increased year-over-year by 14% reflecting the continued LTE enhancements and increased investments in our small cell technology. Moving to wireline on slide 10. In wireline revenue increased year-over-year by 1%. Wireline revenue has now increased year-over-year for 22 consecutive quarters. The growth this quarter was driven by an increase in data revenue, reflecting strong growth from TELUS International, continued high-speed Internet growth, higher Internet revenue per customer, as well as higher TELUS TV customer base. Offsetting this was a decline in lower margin equipment revenue, as well as lower voice and other revenue which were impacted by an economic slowdown in Alberta, notably in business. Reported wireline EBITDA increased 10%. When excluding restructuring costs and a real estate gain adjusted wireline increased by 5.5% with a margin of 28.2 up a solid 120 basis points year-over-year. The EBITDA growth reflects improving margins in Internet, TV and business process outsourcing services. As well as cost savings from our ongoing operational and efficiency programs. Capital…

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

[Operator Instructions]. Our first question comes from Phil Huang. Please go ahead.

I wanted to ask you a little bit about the postpaid market. In hindsight the wireless market was certainly surprisingly strong in Q2 and the three national players added I think in total almost 200,000 postpaid subs. I mean it can't all be driven by population growth so I was interested in your perspective on why the postpaid market has seen such a growth acceleration? And is it mainly driven by acceleration in prepaid subs, converting postpaid? Just wondering where are the postpaid subs coming from? Thanks.

I cannot speak entirely from the industry in terms of where the loading is coming from but I can't speak for the TELUS organization. In terms of just a level set think it's nice to see the strong performance overall for the industry. I would say that's a positive signal for investors comprehensively. So good to see when you see that healthy performance for the industry in totality but terms of the drivers of that ubiquitously across our peer group, I think that's better question posed to them. In terms of what's going on at the TELUS organization, I think it would be fair to say that we continue on our consistent thesis of preferring value over volume and we continue to stay on that track earning 31% of postpaid net adds in the quarter. I think is a pretty good result overall particularly in the face of softness within the province of Alberta. So I'm pleased with that and to deliver a solid result on wireless operationally but to deliver solid result both financially and operationally on wireless. And then to mirror that on the wireline side of the business, I think speaks to the quality and the diversity of our asset mix overall. As Doug indicated in his comment in terms of the source of our postpaid net loading the quality was very high with premium loading at the high-end of the smart phone continuum. Which I think is why you've seen a target contribution being reflected in the ARPU growth of our organization. And we're very pleased with our quality and I think it bodes well in terms of continued operational performance for the organization through the second half. And the financial contribution that quality loading is going to make for this organization. The other thing that…

Maybe just a quick follow up on the cost side obviously there's a very strong quarter on cost savings. Have we seen the full run rate of the savings this quarter from the initiatives implemented late last year, earlier this year? Thanks

No not yet. That I think will be fully reflected in 2017. So we've processed just over CAD70 million on the workforce restructuring front at the half year point in 2016 on the way to spending about CAD175 million or maybe a little bit more in totality over 2016. So I think that reflects the fact that we'll hit that overall run rate in terms of savings being realized on a fully annualized basis within the 2017 year. In terms of where we're going with that I always think it's a pretty good indicator in terms of a one-to-one ratio that if you're spending a dollar of restructuring you want to get a dollar cost savings out of it. And in terms of the full impact of this particular program in 2017, I would look to see CAD117 million of restructuring investments to getting CAD175 million of cost efficiency on a fully annualized basis. And of course and for us we need to visualize the mentality within our organization as we've done in the past. The cost efficiency isn't an ad hoc event, but rather a recurring responsibility of the leadership team. The same way we evolve technology, the same way that we invest in products and people, we have to invest continuously in driving cost efficiencies. For two key reasons number one, to fund future growth because most future growth that I'm aware of within the telecom industry has a J curve characteristics so if you want to fund that J curve I think you need to be responsible and do it at a cost efficiency. And secondly to buttress your profitability results when you set expectations with the Street as we have in terms of leading the way, as our targets indicate in terms of topline revenue growth…

Our next question comes from Tim Casey. Please go ahead.

Darren could you talk a little bit about how your go to market strategy on the wireline side is evolving given that Shaw has repriced and reconfigured their data offering and they're going to be in market presumably with an IT service on the video side soon. I'm just wondering how you're thinking about block by block tactical marketing initiatives and things like that. Thanks.

Hard for me on this forum to discuss that degree of granularity. I'm not going to discuss our pricing, our marketing responses to their pricing and marketing activities overall. But something that you said is quite president that it is going to be a block by block type progress move from us as it relates to the expansion of our fiber footprint on a modular and on a sustained basis. The fiber program at TELUS has been particularly successful for us. Customers have responded extremely positively. We've been able to establish a multi-product relationship with both household and businesses alike. It's bringing a tremendous amount of innovation, new services and capacity for our clients and importantly back to the previous comments as allowing us to take cost out of our business. Our repair rate on our fiber infrastructure by way of example is 1/15 of what we traditionally experienced on a copper front. So, I'm thinking that to that particular program as we expand and start trending towards a 1 million households being covered with our fiber footprint, hitting levels of penetration at the 30% level with prospects million households footprint that's going to be the key path for us and it's important to think about this particular program over the longer term because we're making a generational investment in gigabyte enabling not just our wireline business but our wireless business along the way. The economy is the scope in terms of what we’re doing on fiber and the synergies that they have with the fiber that we need to deploy in preparation for the advent of 5G on the wireless front are quite considerable to say the least. So when we think about making this investment in a very low cost of capital environment and leveraging deployment efficiencies along…

Next question comes from Simon Flannery. Please go ahead.

If I could come back to the dividend growth model Darren you've obviously, you’ve moved to the 7% to 10% range so in the prior years we had a pretty sort of specific target but now 7% to 10%, Can you give us a little more color about what's going to determine whether it's the 7% or it's the 10% or somewhere in between. Is that EPS payout, is that free cash flow, is that leverage or all of the above as you think about sort of next quarter. And then any comments any more detail you could give us about specifically what the extra 200 million of CapEx is going on? Thanks.

So you actually Simon, answered the question for me quite eloquently so it is indeed all of the above. It's looking at things like our net income, it's looking at our free cash flow, it's looking at our net debt to EBITDA and it's looking at those things both currently, retrospectively and importantly prospectively in terms of how we would expect to do on a go forward basis. I think 7% to 10% is pretty good specificity particularly given our track record on delivering against our dividend growth expectations over an extremely long protracted period of time right now. And the fact that we're pretty darn unique on a global basis in terms of postulating that level of dividend growth all the way out to 2019 and here we're having a conversation to this midpoint of 2016. Overall what I think is very interesting about the TELUS organization in terms of being distinct from an investment opportunity point of view is that we can do two things that are typically mutually exclusive of most organizations and those two things are continuing to return material cash to shareholders through our dividend growth model and our subordinated NTIV [ph] programs and simultaneously make thoughtful investments for the future and you saw us elevating our CapEx investment for 2016 to support what we want to do on the wireless front on broadband and what we're continuing to do on the fiber front and that's a pretty unique story overall [indiscernible] a very strong balance sheet at the TELUS organization. And the reason why it's so important in my view to make these investments is because I'm not concerned with concluding the dividend growth model in 2019. I'm concerned with elongating the dividend growth model post-2019 and our ability to do that is contingent upon the investments that we make today and what is effectively successful broadband technologies on the wireless and the wireline front. So I would guide you to say you can expect us to be within that particular range because I think we've got a pretty darn good track record in delivering against our commitments and the better that we do in driving profitable revenue growth, EBITDA expansion from quality loading within this particular organization and having those strengths of financial results manifest themselves on the P&L and on the balance sheet, you'll see us closer to the high end of the range than the midpoint or the lower end of the range. I think that's really the task for the management team of this organization. We've got great growth opportunities available for us on both wireless and wireline if we can continue to have that quality harvesting of volume that drives a positive economic impact for this company across the breadth of our asset space [ph], I think you can expect us to deliver dividend growth in the future that from a magnitude perspective looks a lot like the dividend growth percentages that we've driven in the past.

And on the CapEx? Any specifics on the increase and is it coming out of 17 or is this just accelerating the overall belt?

I would say it's a mixture of both Simon, so importantly -- I guess the best empirical evidence is substantiate the comments that I’ve just made is that the increased CapEx in 2016 is not coming at the cost of our capital return policy. So they are indeed mutually inclusive and were driving on with those. We continue to have that ability to invest in the future and return the cash to you that we've committed to along the way. It's really related to two components, number one is wireless and this would be more the incremental components rather than the pull forward from 2017. We made the call in terms of our radio access network in Quebec to do a vendor swap out to improve the network performance on the wireless front within the province of Quebec in terms of speed, capacity and importantly to deliver enhanced reliability in terms of things like access failure rates, or drop call rates and we think that swap out in terms of our radio access network infrastructure in the province and undertaking that major upgrade will be a positive thing for us to do because the performance factors that I've just articulated and to try and drive some of that performance differentiation versus our competitors fear in that particular province. The other areas on the wireless are a little bit more pull forward if you will or acceleration for lack of better descriptor, so we continue to feed the expansion of LTE and our LTE advanced network technology infrastructure. As I said in my comments earlier we're continuing to push fiber into the access network not just for wireline purposes but to support our small cell anthropology and to repair for the eventual evolution to 5G and I think that's a smart…

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

Two questions from me. First with respect to wireline margins, just Darren or Doug just wondering if you just flush out qualitatively the dynamics are seeing specifically within TV health and international. Are you kind of at scale with respect to these businesses? Some of the margin improvement sustainable going forward. I think that would be helpful and then secondly, Darren for you just back to 5G when we look at the pace of your fiber to the home deployment and the economies of scope with a small cell deployment on top of that. Just wondering is this something that TELUS can get a head of in terms of the benefits of 5G or is it really a shotgun for the broader industry in terms of being able to generate some real traction with that technology. Thanks.

It's Doug I will take the first part. So on the wireline margin there's definitely room in there, we’re definitely planning for continued margin enhancement and improvements. I think the two items that you would've seen is we were the only significant revenue growth energy growth NRG [ph] growth in [indiscernible] and wireline framework. So we continue to grow revenue and our revenue growth was limited a little bit that infrastructure spending by some of our customers which is generally lower margin equipment sales was actually down year over year. So our core fundamental Internet, Health, TI type revenue was even stronger than what was on the page that you saw in front of you. We also continue than to have our cost initiatives as Darren pointed out. TI being one of those opportunities we continue to drive value of our own organization by the use of TI services and also the internal cost efficiencies that Darren referred to in the efficiency and effectiveness around reliability and the enhancement programs that we put in over the past year so I would expect to see margins on wireline continues to both those fronts.

Okay. In terms of 5G, although it's clearly still formative and at the development stages. I think it will be a very exciting development for a number of reasons. Firstly, I think as everyone would recognize the continued data consumption continues to be extremely aggressive within our industry in terms of satiating a consumer demand or business demand in that regard so having technology solutions in terms of broadband infrastructure that can meet or provide incremental capacity to answer the data-driven volumes from our diverse client base I think is a smart thing to do and those data volumes into the future are going to grow. The other thing that we think about a lot when it comes to answering the demand of for data is to think about it not asymmetrically but symmetrically a lot of people talk about data speeds on the down link have been increasingly upload speeds are important as it relates to data. Whether that's for business customers or whether it relates to the gaming environment, having a symmetrical network topology infrastructure and technology to support two-way data volumes is a key strategic thrust across both wireline and wireless overall. Secondly in terms of thinking about 5G wireless the opportunity for us to take this concept from formative or developmental through our living lab environment or 5G living lab in Vancouver to trial deployments, to test but effectively in terms of best way of describing 5G is to think about it as a layered mashed network with distributed to pathologies that leveraged a centralized or cloud-based brand environment underpinned by fiber that provides both the back haul and the front haul again back to symmetry to support movements of data on that 5G network. And that's exactly where we’re going with our network architecture and…

Our next question comes from Vince Valentini. Please go ahead.

Maybe just a clarification first and then a question. 145 million for spectrum purchases this quarter that is not included in the CapEx this quarter or in the revised guidance is that correct?

That's correct.

Okay great. I'm just trying to understand the numbers behind the fiber to home a little bit more, so you said you went from 750,000 homes up to 830,000 homes this quarter so 80,000 we'll think about 1000 per home that would be about 80 million bucks of direct investment but the wireline CapEx in total is 511 so I suggest those numbers are misleading you must be spending a ton of money on the sort of backbone infrastructure and you're getting closer to homes and this 80,000 increase doesn’t really show the power of what you're investing. Is that fair? Because if isn't 80,000 a quarter will take you 6.5 years to finish everywhere. So you can give any color and that it would be great.

Vince you want maybe for us to call you afterwards because I think and breakdown of the numbers, not with tremendous specificity but directionally might be helpful for you because our wireline CapEx is broader than just the fiber to the home component. As you know we're deploying wireline CapEx for diverse purposes such as what we're doing with the government of Ontario what we're currently doing with the Government of Canada along the way. So large complex deals on a national basis. We have data activities that are transpiring on wireline that are not specific. We've got set top considerations. I think it might be helpful just to have a layered conversation. So we can give you some directional understanding in terms of the wireline CapEx segmentation.

Right and in addition there is alot of pre-work that leading to future homes that will be passed have not yet been covered let's in a number of 830, so a significant portion is not home.

I would love to have that more detailed discussion budgets for everybody's purposes that it's not fair to say 80,000 a quarter take 6.5 years to finish, you should be able to finish the fiber the whole lot much quicker than that, is that fair?

I think 6.5 years would be a long-tail in terms of this particular deployment. Our expectations in terms of concluding this would be much truncated than that Vince, but it's not going to be something that concludes in 2017. So I think five years is a pretty good target overall in terms of where we want to get to. And I already made the comment by the end of 2016 we will be turning towards a million homes covered by our fiber footprint and I gave you some indication that we would expect to be in the overall 30% penetration environment in that regard.

Our next question comes from Batya Levi.

Two questions, first on Alberta can you just talk about the weakness in that region is getting worse or it's similar to trend and as you anniversary the pressure when that started a year ago in 3Q, can we see some acceleration in a couple of the metrics that were hurt by it like ARPU growth in wireless or some business trends and wireline. And then second, maybe a little bit more strategic we did talk about the over the top product, as it evolves and takes more share what are your thoughts of potentially going outside of your wireline footprint and bundle the product with wireless and as you do that versus the peers do think it matters if you own content assets are not? Thank you.

Okay. Let me take this. I think content is really important. I think the manifestation of that belief doesn't have to get reflected in content ownership. So I think content partnerships, content procurement and content commercial relationships are better path for the TELUS organization to follow. If you're looking for a [indiscernible] in terms of content investments TELUS has gone down a differentiated path in terms of what we’re doing on the TELUS health environment and we think the economic returns and the social returns as well on that particular investment will significantly exceed anything that we could have realized out of a content investment at the end of the day and we think it's much more synergistic with the type of broadband technology that we're deploying for both consumers and businesses overall. In terms of OTT outside of our [indiscernible] infrastructure we have no intentions of the present point in time to pursue that particular strategy. Not that there's anything wrong with that strategy. I think we've got enough growth opportunity facing us currently within our Western Canadian and Eastern Quebec footprint and I think our disciplined responsibility to shareholders is to harvest that particular growth to operationalize that growth and the important thing at the end of the day is if investors are going to allow us to spend their money in terms of the CapEx investment to drive things like fiber infrastructure then I think it's our responsibility to investors to get a return on that investment and so that's very much our focus right now to say okay, we're on a modular deployment program on the fiber front, within our [indiscernible] territory to support all those growth opportunities that I've articulated and I think it's our premium responsibility, our first responsibility to exact an economic return…

Our last question comes from Jeffrey Fan. Please go ahead.

Just a couple of clarifications if I may, Darren, you talked about the five-year on the fiber build being a good target and you also talked about one-time pull forward of some of these investments. Is this a one-time pull forward -- I guess is this pull forward a one-time thing or are you actually shortening the investment horizon from some number of years through that five years, maybe that just to close a loop on that one and then a couple of other ones, 30% penetration that you talked about -- that sounds kind of low -- maybe that's just a short term goal maybe the long term goal is a lot higher because your fiber to the no penetration is already well above 30%, I would suspect the fiber to the home penetration goal would be much higher than that. And then lastly, on some of your comments around 5G and just to clarify you're talking about mobile 5G that you are investing in and not the fixed wireless last mile 5G vis-a-vis what Verizon is doing maybe just a quick clarification on that would be great. Thanks.

Okay. So let's go in reverse on that. As a relates to 5G I'm actually talking about enabling both, so my comments that I made previously were more related to the former but we would have the opportunity to leverage point to multi-point fixed wireless over 28 gigs by way of example as a solution that could be complementary for us. One of the things that we've not communicated but TELUS has been pretty good at innovating on the wireless front to use it for last mile connectivity. It would be about now six years ago we first deployed HSIA over HSPA in Eastern Quebec in some of the rural areas, we’re now doing the same in Western Canada in some of the non-urban areas where leveraging wireless as an access medium is a much more economical solution than doing something on the wireline front in terms of CapEx efficiency. And so we actually have a heritage of doing it and we did it out of economic necessity in Eastern Quebec with a lot of leadership deploying HSIA over HSPA and laterally HSIA over LTE in both Quebec and Western Canada as an active mechanism because of the superior economics in some challenging non-urban territories. So that would be a complementary mechanism that yes indeed we would look at case-by-case instances where we can deploy that but most of my comments previously were related to a more traditional concept of the 5G deployment overall. Next, as it relates to the pen rate, a few things, 30% is a snapshot in time. The build is always ahead of the penetration level so it's a snowplow if you will and then the penetration catches up with it. I don't think it's appropriate to say where we're going to end up in terms…

Great. Thanks Jeff. On behalf of Darren and Doug thank you for taking the time out to join us today. If you have any follow-up please contact the investor relations team. Thank you.

Ladies and gentlemen this concludes the TELUS 2016 Q2 earnings conference call. Thank you for your participation and have a nice day.