Good day, ladies and gentlemen. Welcome to the TELUS 2017 Q3 Earnings Conference Call. I would like to introduce your speaker, Mr. Paul Carpino. Please go ahead.

Thanks Mike. Good morning, everyone and thank you for joining us today. The Q3 2017 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 third 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 very busy day today, we are 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 our 2017 guidance and outlook and 2018 targets and assumptions as well as 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 third quarter management discussion and analysis and in our 2016 annual report’s 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 11 of our third 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 the third quarter, TELUS once again delivered strong financial and operational results. Despite a highly competitive environment, we realized strong loading, data revenue growth and positive financial performance across both our wireless and wireline operations. These results were underpinned by our unprecedented customer service excellence and loyalty performance as well as our team’s continued traction in efficiency and effectiveness initiatives. Notably, our consolidated operating revenue and EBITDA were up 4% and 4.4%, respectively. These results reflect the continued success of our dual tenant growth strategy, the quality of our asset base and the proven and consistent execution by our team. Specifically, on the wireless front, TELUS network revenue grew 6.8%, whilst our EBITDA increased 5.1%. Network revenue growth was driven by ongoing strength in high-quality customer loading as well as increased data demand from customers who continue to embrace our numerous data-friendly pricing plans. Our EBITDA growth continues to reflect our consistent and balanced long-term approach COA and COR investments. It also reflects a significant uptick in year-over-year postpaid gross adds this quarter and high renewal volumes from the strong acquisition activity and industry-leading postpaid net loading that we generated 24 months ago. Notably, our focus on high-quality smartphone loading and customer loyalty is contributing to our strong postpaid net additions, whilst continuing to drive industry leading churn and lifetime revenue performance. Indeed, TELUS reported 115,000 high-quality postpaid net additions, which represents a 32% increase from the third quarter of 2016. Consistent with our quarter-in quarter-out performance, our globally recognized client-centric culture is the key driver of the strong results that we are achieving. The TELUS team’s unwavering commitment to customer service excellence has become the industry model with respect to earning client loyalty. Encouragingly, our wireless postpaid churn rate was once again…

Thank you, Darren and good morning everyone. I am on Slide 9. Our team’s ongoing commitment to drive operational excellence, cost efficiencies and customer growth continued to be evident in our third quarter results. We notably continued our wireless momentum with network revenue growth of 6.8% for the quarter and year-to-date. We continue to benefit from strong postpaid subscriber growth and our 3% ARPU increase for the fifth consecutive quarter of 3% or greater. This was due to a large portion of higher rate smartphone plans, including premium plus plans and continued data usage growth. Adjusted EBITDA grew 5.1%, reflecting our strong network revenue growth, including some of the benefits from MTS subscriber acquisition. Postpaid gross additions increased 8% year-over-year, while our retention units increased 6.5%, driving higher handset subsidies and commission cost in the quarter. However, that will deliver strong revenue and EBITDA growth in the future. The retention volumes were normal course and were driven by our industry-leading loading in 2014 and 2015 that are now up for renewal. Turning to wireline, external revenue growth increased $12 million or 0.8% as a result of higher Internet loading, average revenue per customer, increases in TELUS Health revenues from organic growth in professional services and higher TV service revenues. This growth was partially offset by ongoing declines in legacy data and voice portfolios. We generated adjusted wireline EBITDA growth of 3% from the revenue growth noted and cost savings from our ongoing efficiency and effective initiatives. Overall, year-over-year adjusted wireline margin expansion continued and was up 50 basis points to 28.3%. On a consolidated basis, we generated 4% revenue growth, up from 3.9% in the second quarter, and 2.9% in the first quarter. Adjusted EBITDA rose 4.4%, reflecting strong wireless and wireline customer growth and revenue growth. We delivered lower…

Great. Thank you, Doug. Mike, can you please proceed with the Q&A session for Darren and Doug?

Yes, definitely. So, first question comes from Phillip Huang from Barclays. Please go ahead.

Hi, thanks. Good morning. I was very pleasantly surprised to see sort of the preliminary 2018 CapEx guidance, especially was it beginning to come down with your fiber build crossing the 50% mark. I just want to confirm that I am reading the message correctly. Is this the inflection point for CapEx, as the peak investments, excluding spectrum, of course, now behind us, should we assume that CapEx is going to gradually normalize starting in 2018?

That’s correct. In terms of the culmination of 2017, we have peaked and to be more specific, we have peaked in terms of both wireline CapEx intensity and we have peaked in terms of a nominal dollar spend, as per the comments that Doug just made.

That’s very helpful. And then a quick follow-up on the wireless side, I understand from the prior quarter, there were still around 15,000 subscribers for MTS that have yet to be migrated. Are the remainder – are they all migrated now as of the end of Q3 and to what extent was that sort of an increase to your cost on the wireless side in the quarter? Thanks.

Okay. So the migration is still taking place in terms of MTS. We are extremely pleased with what we see as an enhanced position within the province as it relates to improve network performance in coverage, enhanced distribution and as well as the progress that we’ve made in respect of the migrations. And complementing migrations, we are also seeing strong organic performance within the province of Manitoba. So it’s nice to see the culmination of solid migrations continue to take place, but the basic organic performance is equally strong and aided and abetted by the network improvements that we have seen, the distribution improvements that we’ve seen and the investments that we have made in brand and reputation. We are still targeting in the zone of 80,000 to 85,000 migrations to be achieved. We are very pleased with the metrics associated with the customers that we have migrated thus far. We are approaching 60,000 migrations as we speak and very pleased with the metrics. I am principally talking about ARPU in terms of the customers that have come across to us. We are of course continuing to have the support cost with Bell as we undertake this particular migration. It’s important to note that if we fall short of the 85,000 target, this will be reflected in terms of the final tally as to the amount paid to the Bell organization. So we will get compensated financially for any shortfall in that regard. So we are about two-thirds of the way through on the migrations, as I say, approaching about 60,000 thus far. And it’s important to note that TELUS, today in 2017 in Manitoba is fundamentally different than what we have experienced over the past many, many years. The network coverage, the network performance from a quality point of view is vastly superior. And I would note the PCMag ranked us as the fastest network in Winnipeg. We have materially improved our distribution with the expansion of 15 dealers and 7 new corporate stores, our data offerings are doing exceedingly well. And of course, as can be expected, we have taken our philosophy of customer service excellence to Manitoba in the extreme and I think that’s winning us the hearts and minds of customers, both those who are coming across on a migration basis or how we are winning in the market in terms of our organic performance. So, I think for us the future is very bright and we will bring the culmination of the migration to conclusion over the next few months and wrap up what’s been a very successful investment on our part and thereafter build on a great organic base.

That’s perfect. Congrats. Thanks very much.

Pleasure. Thanks, Phillip.

Thanks, Phil. Mike, can we have the next question please?

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

Hi, good morning. I want to just follow-up on the CapEx question. Darren, if we can just kind of get your sense of – this CapEx peaking in ‘17 going to ‘18, is this a function of efficiency? Is this – because you still have about half the footprint to be rolled out? Is this efficiency? Is this because the pace or the number of homes or the number of premises that you are going to pass is going to slow or is this a reflection of like the competitive environment that you are seeing after your cable competitor having been in the market with BlueSky for almost a year now. Just wanted to get a sense of the – like what gives you the comfort that this is the right level of spend to compete effectively?

So to put it simply, Jeff, it’s really a function of math and passing the 50% build mark early in 2018, which has given us mathematically the confidence to say the culmination of 2017, as it relates to both CapEx intensity on wireline and the nominal dollars spend, represents the peak of our broadband build investment on the wireline side of our business. So, we would expect in the first quarter of 2018 to pass the 50% build threshold across of our Optik footprint with our fiber deployment. And that’s what’s really driving this particular number holistically. You are quite correct that we are enjoying scale economies as it relates to our fiber deployment and we have achieved some rather significant unit cost improvements as a result of those scale efficiencies. On the flipside of the economic equation, we are also seeing very superior performance coming out of our fiber footprint. It’s doing very well from a penetration and win in the market perspective. The receptivity from clients has been excellent. The key economic characteristics of ARPU, churn and lifetime revenue are all distinctly superior to what we experienced on the copper front and they are all growing. Our OpEx is dropping and our OpEx is dropping because of improved reliability, fewer truck rolls taking place, more clients self-provisioning, so on and so forth. And then lastly, we are enjoying economies of scope as we are increasingly supporting a multiplicity of services and RGUs over the fiber connection. So for us, it’s very much about the same strategy that we are talking about back in 2000, data services delivered over a fiber medium or a wireless medium. And at the end of the day, I think it’s important to note the other comment that I made in talking about our…

Thanks, Darren.

Thanks, Jeff. Next question please, Mike.

Okay. Next question comes from Choe Richard from JPMorgan. Please go ahead.

Hi. Just wanted to follow-up on that a little bit, in terms of the CapEx guidance for next year, should we expect a similar level of build-out on the fiber side? I think you kind of implied that, but how are you queuing though at the lower CapEx level? Is it easier builds or is it just going to be more measured on the success based partner?

No, I would say, the build in 2018 will not be dissimilar to the fiber build in 2017. Two things to note, one is the scale economies and what that means on a unit cost level, as per my previous response. Secondly, finding CapEx efficiencies in other areas of our business to accommodate for the fiber investment that we are making, but we are not moderating the build, as I have said. It’s a situation where we are crossing the 50% threshold and increasingly more of the build is going to be in a rearview mirror versus prospective.

And I think it’s implied in the numbers and you have talked about it a little bit, but it seems like you have gotten to a scale where the impact on the NALs side is moderating and the video side is kind of gaining momentum on seasonality. Is that the right way to look at the wireline results?

Well, I think at the end of the day, if you look at what we did on the loading front, we did 19,000 Internet loads, which represents a 35% year-over-year improvement. We did 12,000 in terms of IPTV loads. I think that’s a solid performance for our organization. And Richard, really what we are trying to do is just say on the wireline front let’s just stay consistent, right? We don’t have to get super aggressive. We don’t have to do anything irrational, because we have got a long list of positive technology and product-based differentiators versus our competitor. So, let’s leverage that and deliver solid loading that doesn’t need to be exceptional in that regard and provoke all sorts of irrational responses. And let’s make sure that we honor the duality of our responsibility to complement operational loading with revenue and EBITDA accretion, because for us, the duality is critical to say, we are delivering operationally and financially because at the end of the day, if we are going to ask investors for their money to be deployed to support our fiber build, I think we have got to earn our way by delivering both operational and financial results. So for us, it’s just about solid loading. Let’s keep at it. Let’s try and improve or ameliorate what we are losing on the NALs front, because those NALs come with very, very, very high margins attached to them. So, if we can do better there on the retention front, solid on Internet, solid on TV, that’s a smart thing to do. And if on the fiber front, we can get a nice voice pull-through on the back of our HSIA and TV connection, then that’s gravy for us along the way. And then what we think about in terms of the home is okay, what can we do on economies of scope? So, is there an opportunity to add a health RGU on the back of that? Is there an opportunity to add a security RGU on the back of that? Is there an opportunity to add a home automation RGU on the back of that so we can put more and more and more services over that fiber connection and leverage the economies of scope and generate a better return for our shareholders overall? So solid operational, solid financial, earn our way, keep layering additional services on the back of that high-tech connection. And the last thing I would say is, look how long we have earned a return from copper. If we can return – earn a return on fiber, even half as long as what we have done on the copper front, that’s going to generate a lot of returns for many, many, many years for the investment community in TELUS.

That’s great. Thank you.

Thanks, Richard. Next question, Mike.

Alright. Next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Hi, this is [indiscernible] on for Simon. I just wanted to touch base on the margins for both segments. Maybe if you can just provide some color on how you are thinking about 2018 and beyond about the ability to return to a growth trajectory on the wireless market side and what the ultimate goal is on the wireline side once the fiber build continues?

Okay. I am not going to give specific margin guidance for 2018. I think we have done pretty well with free cash flow general guidance for ‘18 and beyond. We have been quite specific on both the CapEx number and where CapEx will be trending. And of course, we have given a capital return forecast of 7% to 10% through 2019. So, what I can tell you is we are pretty pleased in terms of our solid loading and financial performance across both wireless and wireline, with the 5% EBITDA growth on wireless, 5.1% to be precise and 3% EBITDA growth on the wireline front. And I would note that if you look at our EBITDA margins on a consolidated basis, they are actually up 10 bps on a year-over-year basis. And I think that speaks to the dual tenet of our growth strategy. Yes, our wireless margins were down modestly in Q3, but as I’m going to hand it over to Doug to talk about, I think the wireless margins were down for the right reasons. And let’s just do a quick level sets. If you look at 2017 year-to-date, our wireless margins are only down 20 bps. So when I talk about our wireless margins being down in Q3 for the right reasons, the margins are impacted by future good growth initiatives, good growth factors, and these include our postpaid gross ads. We are up 8% year-over-year. Our retention volumes were up 6.5%. And I think the added color that Doug is going to provide in a second reflects the disproportionate market activity that TELUS enjoyed 2 years ago and what it means in terms of renewal volumes today and how that differentiates us versus our peers in terms of the COR investment. Our wireless margins, also as it relates to COA and COR and this is tremendously important, when wireless loading includes tablets or wireless home phone, I’d like to point out that the quality of our loading on the wireless front in Q3 was excellent, and we enjoyed a higher mix of high-quality smartphones in the loading and of course, experienced the increased device cost that come with that. And then the other thing in terms of burden to the margin that will get ameliorated prospectively is the customer support costs that are not far away from $10 million related to the MTS subscribers that we are acquiring as a result of the migration program with Bell. So I think for us, the margin pressure is for the right long-term – medium to long-term reasons in terms of economic value creation. And I will just hand it over to Doug to give you some additional color on that. And then I will make a comment about wireline, which is up 50 basis points in the quarter.

So on the wireless component, our gross loading was up year-over-year. And so we’re taking into consideration the investment in the lifetime revenue. When we have a very favorable churn ratio, it’s going to have a very, very significant payback. On the retention side, in 2014 and 2015, we led the industry with over 600,000 net loads during those 2 years, all of which are renewing over this time frame. So going back to leading the industry of that growth profile and having the lower churn, they are going to come through a natural renewal type platform. We did not get any kind of incremental. It was the normal renewal platform that we had for that timeframe. And when we do renew those, we generally get an uptick on ARPU concurrently. So, it is also an investment for the future. So, if you look back to the significant growth and leadership we had back then and then you look at the normal course to renew those customers, which is very beneficial to us for the long run.

And I’d note, Simon, our wireline margins are up 50 bps in the quarter, they’re up 70 bps on a year-to-date basis. And I think it’s driven by positive notable factors. The margin accretion is in part related to data services, in particular,, growth on HSIA and TV, so that’s a good thing. We are seeing a nice margin contribution from our TELUS Health business. And I think importantly, for investors in terms of returns at both the EBITDA and the CapEx investment point of view, we are continuing to harvest significant cost efficiencies on the wireline side of our business. Our workforce restructuring charge will be about $125 million in 2017 and you can look for us to be in that particular vicinity again in 2018, because we have habitualized the need to drive cost efficiencies the same way we focus on new product and technology deployment. So we are on a march to get to 30% margins on wireline or better. We experienced some seasonal volatility quarter-to-quarter, but that’s the goal for us. And I think we have got a strong track record that we can build upon. I think we show that we can weather exogenous events, whatever they maybe and still deliver good results and we love the rhythm of good loading and good financials.

Okay.

Thanks, Landon. Next question, Mike.

Alright. Next question comes from Vince Valentini from TD Securities. Please go ahead.

Yes, thanks very much. You have been selling the iPhone X for about a week now, so I am wondering if you can give us any update on both demand and supply and if you see any big impact from that on your financials in Q4. And then a bigger picture one, if you don’t mind, you made three acquisitions year-to-date in TELUS International. Clearly, it’s an area that’s going well for you and you are trying to grow it. Can you give us any update there on how big is this now, how it trends and maybe most importantly for me, can we see this business disclosed as a separate segment in 2018? Thanks.

Okay. Let me stop at that particular point. Just to the dichotomy between Apple and TI, firstly, as it relates to Apple and the iPhone X, specifically, as per your question, Vince, I think it would be fair to say that demand currently exceeds supply, which at the end of the day, is a good thing for our organization. I think its early days with respect to the new iPhones, 8 through X, and some of the tuck-in iPhones on 6 and 7 that always sell in the back of these promotional periods extremely well. It’s been again a situation where the iPhone has been extremely popular as it always is. And TELUS views the iPhone very positively because of two key characteristics. One is the premium ARPU that tends to go with it, because of the data usage and the great loyalty and retention that we enjoy, which gives us a very good lifetime revenue outcome. It’s interesting going into the seasonal selling periods in Q4 as we go through Black Friday and Cyber Monday and the holiday period, we have never in my time with the organization, obviously, enjoyed a broader iPhone device lineup than we have right now in iPhone 6 right through the X, which I think positions us well as an industry for the seasonal selling periods that are going to come to fruition in Q4 and over the medium to longer term, to leverage to positive characteristics in terms of ARPU and retention. We have got a strong relationship with Apple. In addition to what I said within my opening comments on the recognition that we have received from Ookla and OpenSignal and PCMag and J.D. Power, we were also recognized by Apple as having the best network for the iPhone in Canada. And…

Thanks, Vince. Mike, next question please?

Alright. And next question comes from Greg MacDonald from Macquarie. Please go ahead.

Thanks, guys. Good morning. Just under the wire, I appreciate the question. Darren, I am going to ask about the 7% to 10% dividend growth profile. Thanks for the greater CapEx clarity that I think that helps a lot for this stock in particular. So far, we have seen growth at the low end of that range. And I wanted to ask under what scenario could prompt growth at the higher end of that range? I am going to make the assumption that the CapEx profile has kind of ended up being what you originally thought it would be. Is it mostly a question of getting past the spectrum option and knowing what that price tag is or are there other things that affect the decision on low-end versus high-end of that range? Thanks.

Okay. A few things on this, Greg. We are still committed to camping out over the medium to longer term in terms of our dividend policy on the net income percentage front in the 65% to 75% zone. In terms of 7% to 10% and what could move us towards the higher end of that range, I would say a few things. Leveraging the fact that we are going to go chronic free cash flow positive in 2018 and thereafter normalizing for spectrum options along the way, getting our net debt to EBITDA ratio below the high-end of our policy range, so sub 2.5% would be a nice box to tick along the way and then on the free cash flow front, really looking at some key factors. So, what are we doing in terms of continued EBITDA growth and accretion? What more can we do on a position of materiality as it relates to critical cost reductions across both our wireline and our wireless businesses. Our moderating capital appetite, post ‘19, I see our capital appetite moderating still further. In fact, that’s going to become a more material moderation in 2020 and thereafter. So that’s going to support or buttress our fee cash flow our position. As you rightly say, I would like to get the spectrum auction under our belt. It’s a bit of an unknown quantity in terms of what that expenditure is going to represent. And then more particularly, on the back of expanding free cash flow and putting to bed some of the components that I have just articulated, it’s getting this organization to prospectively deliver an EBITDA growth rate at a net income expansion rate that supports the 7% to 10% zone robustly and begins to creep up in terms of elevated performance on…

That’s pretty detailed answer. Thanks a lot, Darren.

Appreciate it.

We are going to take two more questions. So, Mike, if we can get the next question please?

Alright. Next question comes from Drew McReynolds from RBC. Please go ahead.

Yes, thanks very much. Darren, just wondering if you can just give us quick update on the competitive environment, just how it evolved in Q3 from your perspective and any kind of real notable changes in Q4? And then second just a bigger picture question, just around 5G you have been ahead of the curve in a number of ways, done some successful pilots trialing it in Vancouver. Just can you give us an update just from your perspective, just any milestones on 5G that you are looking for maybe in 2018 and ‘19? Thank you.

We are on a good path in the 5G front. I think you may have noted the press release that we had earlier in the year on the 5G trial that we ran out at Vancouver, where we delivered a world leading speed of 30 gigabits per second in terms of the 5G trial that we ran in conjunction with Huawei. In terms of key markers, I would look for the availability of network equipment and devices and to synchronize the aspect of devices that leverage the network technology within our industry. It’s frequently being the case historically where the network capability comes sometimes a year in advance to the device capability, but I think those two markers will be very interesting things to look for. I would look for the commercialization on 5G to begin in 2019 and then ramp up thereafter. I think it’s going to be pretty meaningful to the country in terms of digital economy, supporting diversity, digital society and also what it can do within the consumer lifestyles front. But I see it as a real game changer as it relates to key verticals, what it can do to the transportation industry, financial services, agri-tech, oil and gas, healthcare, tremendously exciting in that regard and going to be very potent for the performance of Canada’s economy prospectively. And I think it’s important that we get the right outcomes in the spectrum auctions that are coming up so that we can deploy a 5G technology, leveraging spectrum at the 3.5 GB level, leveraging spectrum at the 600 level and leveraging millimeter wave spectrum at 28 GB, 40 GB and in the 60 GB to 70 GB zones. And I think it’s going to be very important to supporting all of those propositions. And it’s going to…

Thanks. Thanks, Darren, for that.

That’s great. Thanks, Drew and we will have our last question, Mike.

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

Yes, it’s Maher and thank you for squeezing me in. I wanted to ask you, Darren, a question about your fiber investment. Now that you have reached this important milestone of 50%, how are we going to judge the returns on that investment? Can you help us find what kind of metrics we need to monitor to judge the return on that investment, especially now that lines and the sand or the line of separation between wireless and wireline are getting blurred year after year? Is it EBITDA growth on a consolidated basis that you are working to achieve a certain level? Is it ROIC, is it – maybe just some metrics to help us understand the returns on those investments that you have made?

So, why don’t we just look and finish it up quickly with the stratification. So first thing you can do is look at the quality of revenue-generating assets that we are securing. So, are we getting the right products on HSIA and TV and NAL amelioration and do those products – do those services have the right metric associated with them when it comes to ARPU and stickiness? I can tell you that the ARPU performance and the stickiness performance, particularly within our fiber footprint is very encouraging. So I would say how are we doing in terms of quality operational loading and the metric, the economic metrics associated with that. Secondly, do we turn 18 consecutive quarters of wireline EBITDA growth into 19, into 20, into 30 over the longer term? So look at the P&L performance as it relates to the wireline segment. Third area that I would look at is the one that we have been discussing. It’s one thing to turn free cash flow positive. I guess the second question that should come thereafter is, your fee cash flow growing? And to me, I think that would be a good marker for you guys to look at, normalizing for events like spectrum auctions or acquisitions and what’s the wireline contribution to that expanding free cash flow. And I think that’s a very kind of classic NPV component to it. Fourth, back to economies of scope is to say, alright, you guys now have the fiber in place, how innovative are you as an organization at getting new services over your established access infrastructure on the fiber front. So, I would be holding this accountable to say, okay, you guys have been dining out on HSIA and TV for a long time, what’s next. Is it going…

Thank you, Darren and congratulation on this milestone.

Thank you, Maher.

Thanks everyone for joining us today. Please feel free to reach out to the IR team if you have any follow-on questions. Thanks.

Ladies and gentlemen, this concludes the TELUS 2017 Q3 earnings conference call. Thank you for your participation and have a nice day.