Good morning, ladies and gentlemen. Welcome to the TELUS 2019 Q1 Earnings Conference Call. I'd like to introduce your speaker, Mr. Robert Mitchell, please go ahead.

Hello everyone. Thank you for joining us today for TELUS first quarter 2019 results. News release, quarterly report, and detailed supplemental information are posted on our website at telus.com/investors. On the call today, we have Darren Entwistle, President and CEO, who will provide opening comments followed by a review of our first quarter operational financial highlights by Doug French, Executive Vice President and CFO. Following prepared remarks, we will move the question-and-answer session. With that, let me direct your attention to slide two. This presentation, answers to questions, statements about future events, including our 2019 targets, outlook, and assumptions, as well intensions for dividends 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 we ask that you do not place undue reliance on them. We also disclaim any obligation to update forward-looking statements, except as required by law. We 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 discussions and analysis, our 2019 annual MD&A, sections nine and 10 as well as filings with Security's Commissions in Canada and the U.S. The appendix of our presentation in section 11 of our first quarter 2019 MD&A provide definitions and reconciliations of the non-GAAP and other financial and operational measures that we will discuss today. And now with that, let me turn the call over to you Darren, starting on slide three.

Thanks Robert and hello everyone. As you've seen today, TELUS once again achieved strong financial and operational as well as in the first quarter of 2019. This included healthy revenue and EBITDA pension in both our wireless and wirelines product portfolios, high quality profitable smartphone-centric mobile phone growth in wireless, in addition to strong growth in mobile connected devices driven by the Internet-of-Things or IoT and finally, ongoing robust customer growth across our wireline business, which continues to generate strong results. Without question, our continued strong performance is owing to note small part through our team's unparalleled dedication to providing exceptional customer experiences. In the first quarter, consolidated operating revenue grew by an industry leading 3.8%, EBITDA was up 8.6%, or a healthy 4.4% when normalizing for the effective IFRS 16. This performance is clearly indicative of our ability to deliver on the targets that we've set for ourselves in 2019. Notably, we delivered industry-leading overall customer growth with combined wireless mobile phones and connected devices, Internet, and TV customer additions, up 50% over the last year. Turning to wireless, revenue in the first quarter grew by 1.8%. In addition, we saw strong EBITDA growth of 8.4%, or approximately 5% when normalizing for the impact of IFRS 16. Wireless loading in the first quarter included 11,000 mobile phone net additions, a year-over-year increase of 14,000, driven entirely by high volumes smartphone centric subscriber growth. We've evolved our wireless loading strategy to intensify our focus on profitable, prepared to postpaid spread customer growth, staying away from non-accretive, uneconomical prepaid to postpaid migrations. Notably, prepared growth is attractive from a margin perspective and an area in which we can certainly, as an organization, do better from a loading and execution perspective. While there continues to be smart be paid to postpaid migration…

Thank you, Darren and good morning everyone. Let's begin with a quick overview of our wireless results. External revenue increased $1.8 million -- or 1.8% driven by both network and equipment revenue growth. Network revenue increased by $20 million or 1.4%, reflecting a 4.9% growth in our subscriber base over the last 12 months, partially offset by lower mobile phone ARPU as previously discussed. Wireless adjusted EBITDA increased by 8.4%, reflecting higher network revenue growth, lower employee benefits expense, higher equipment margins, and the implementation of IFRS 16. Adjusted EBITDA margin increased by 290 basis points to 47.4%. On a pro forma basis, for IFRS 16, adjusted EBITDA increased by 5%. As Darren discussed earlier, we modernized our corporate reporting as it relates to our wireless subscriber results. As a result of the change, data-centric devices such as tablets, Internet keys, wearables and connected car devices, will now be reported in our mobile connected devices subscribers. For transparency, postpaid churn for old definition declined by seven basis points in the quarter to 0.88%, making it almost six full years below 1%. Wireless net additions would have been 12,000 compared to the 11,000 reported in that mobile phone net additions. And finally, ARPU and AMPU would have been lower year-over-year by 2.1% and 0.6%, respectively. In wireline, revenue was up 6.4%, largely driven by organic data revenue growth. Data revenue growth was up 12%, driven by growth in TELUS of international revenues due to organic business growth, increased Internet and enhanced data services revenues reflecting higher revenue per customer, as well as 7.4% increase in our high-speed Internet subscriber base over the past 12 months. Increased TELUS Health revenues driven by both business acquisitions including Med Access and organic growth, revenues from our home and business mark technology lines of business,…

Thank you, Doug and Darren. Mike can you please proceed with the questions from the queue.

Sure. [Operator Instructions] And the first question comes from Phillip Huang from Barclays Capital. Please go ahead.

Thanks. Quick question for you guys, and Darren, thanks for the color behind the evolved disclosure. Just out of curiosity, I think, you guys have sort of suggested that you might evolve your disclosure going forward in -- for some time now. I was just wondering if there's any part of the business that you also see -- could see some evolved disclosure like this one to better align with your internal processes and objectives? Would it be subscriber loading or otherwise?

No, I think we got this disclosure move -- made a lot of sense because it puts the emphasis and the onus on TELUS' management as it relates to quality loading that delivers sustainable attractive, but economic returns. I think, making that transparent with the Street, it's also the right thing to do because it aligns The Street at with the expectations that we are setting on the management front and creates why would call pressure but in that regard, in terms of what we want the teams to deliver from the quality loading point of view. I think, the other thing that's extremely clear that was really the key impetus in terms of modernizing our disclosure, was the realization that we're heading into a prolific, what I'd call hyper connected 5G world, and we wanted to credit delineation in terms of quality smartphone loading and all that that entails and measure how we're doing without regard and the returns that we generate. But greater insight and transparency in terms of growth as it relates to connected devices within ubiquitous IoT ecosystem. And again, to hold ourselves to the team standard, it's not just about the volume growth in terms of connected devices and IoT, but what does it do profitable revenue growth? What contribution is it making to your EBITDA because of the network revenue growth that is delivering because of the proliferation of those devices, and we thought now is the right time to do it given that we are on the cusp with the advent of bringing 5G capability to fruition and it's going to be a big story for this organization prospectively. And we've got 9 million connections today, which have been sort of traditionally very humanistic. The machine-to-machine world is going to grow over time…

That's very helpful. If I may, I just wanted to revisit the fiber-to-the-home deployment, your fiber story, now that you're essentially two-thirds done or approaching two-thirds, the 70% by the end of the year, I was wondering, if you still think 75% is the ceiling for that -- for this deployment? And also any update on -- any -- your latest thoughts on decommissioning copper as sort of the next phase of realizing efficiencies for this program? Thanks.

Okay, the answer is, yes, I do. I think that 75% represents a good target. We're now at 2 million premises passed as we speak or done 63% coverage of the 3.1 million homes within our broadband optic footprint. We will meet or surpass 70% by the end of the year in 2019, which is a really critical milestone for this organization as it relates to scale and our ability to market efficiently against that scale because of the coverage footprint that we now enjoy. In 2020, we will meet and likely surpass the 75% threshold. And at that point, we have a beautiful level of mutual inclusiveness taking place because, as we get to 75% in 2020, we're going to be commercially scaling our 5G deployment. And as we secure 3.5 gig spectrum and secure millimeter wave spectrum let's say in the first instance, 28 gig to 30 gig, we will now have the opportunity to look at broadband access through a dual lens, both a direct fiber connectivity lens but also through a broadband wireless lens on a point to multipoint basis. And we will start making access network investment decisions based on hardcore economics as to which is the more cost-efficient path to secure a particular customer ecosystem in neighborhoods across our ILEC footprint. So, I'm very bullish and excited by the contemporaneous nature of 5G coming to fruition and the breadth of fiber coverage that we're going to enjoy and the optionality that we'll get in terms of going past 75% is going to be very discretionary as to whether we do fiber direct or whether we leverage wireless spectrum and wireless 5G capabilities as an alternative access mechanism. The other thing that is just critical is that if you look at the returns that fiber…

Mike, next question please.

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

Yes, thanks very much. Darren, let me keep you on that last theme because you've given us some, seems like, pretty simple math, but it's somewhat astounding. If you -- you're dividend right now is $2.25. If you grow that even at 7% a year for three years, that's $2.76, 60% to 75% payout ratios, basically you're seeing free cash flow per share by 2022 will be somewhere between $3.68 and $4.60. Is that accurate?

So, I'm not doing the calculation as you speak, Vince, but I would assume that your accurate in that calculation because we're accurate and the payout ratio range on free cash flow is 60% to 75%. Assuming you've got the right definition of free cash flow and we're pretty adamant about the 7% to 10% annual expansion and CAGR associated with that.

Right and one follow-up. Just the connected device, your outlook is extremely exciting. I just want to make sure everybody's clear, and you may correct me if I'm wrong, but we'll always fixate on network revenue growth, which arguably is a bit soft at 1.4% this quarter, but none of the service revenue that goes with the connected devices is going into that number, so it won't really paint a full picture going forward to just look at that network revenue line. Is that fair?

I think the network revenue line is the line that you want to look at, Vince. I think that will be the telltale sign. Secondly, I'm not satisfied with 1.5% network revenue growth, and I am, on one hand, excited to see the IoT expansion, and of course, that is going to get hyper connected embellished by 5G. And yes, I like the 22% uplift in the connected devices, and that's all great. But for it to be considered a success at TELUS, I want it showing up in the revenue line and the subset network revenue line, and I want it hitting the EBITDA line. And I want that happening starting in Q2 of this year and for every quarter thereafter. If we load like maniacs on IoT, and we have fantastic connected device growth rates and machine-to-machine goes through the roof but I can't find it or I need a microscope to find it in the revenue and EBITDA line, I'm going to be one unhappy camper in that regard. So, the same thing in terms of smartphone loading to deliver an economic return, I want to have IoT loading to deliver an economic return. And at the unit level, okay, it might be smaller, so at the IoT level, maybe the ARPU is $7, $9 or $10, but the margins are pretty darn decent. The AMPU on a $10 ARPU can be $5. So, I think that's attractive business. We want to scale it, but I want to see the revenue and the EBITDA and the economic returns coming out the other side of the pipe. And the other thing about it is in terms of the weight on IoT, not only does it have to pay for the investments that we're making at the network level, I want to see it given it's a big economy of scope to get us a return on the spectrum investment that we're making at 600, 3.5 and millimeter wave in respect of 5G. So, yes, I am very positive on the scaling of the loading, but I will not be happy until I see that manifest itself in terms of the economic results, and I have zero patience for that, so I want to see the clients starting in Q2 and continue thereafter.

Thanks.

Thanks. Mike, we'll have our next question please.

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

Thanks for taking my question. I understand fully how -- why you've changed your reporting on the wireless to break out more dial and connected devices. I'm still trying to understand why we stopped providing prepaid and postpaid. I understand, Darren, you talked about the fact that what you care about is loading profitable customers and the margins that are associated with those customers, but 10 years ago, 15 years ago, we were all talking about the fact that postpaid used to -- is the way to go. That's where the money's at. And now we're saying it's not the case anymore, or prepaid is as good as postpaid in those kind of discussions. So, going forward, why has this happened? And when you look at churn, when you don't break the prepaid and postpaid, are we to expect churn to head higher if we're expecting prepaid to grow more than postpaid?

So, Maher let me just kind of tell you completely what our thinking is on this. Number one, we're not saying that prepaid is at a point of equivalency with post. We still have a bias towards post. So, the consolidation does not eradicate that ideology. Secondly, there is a negative mantra associated with prepaid that's not accurate. If you look at ARPU to AMPU, you can have quality AMPU-accretive prepaid loading. And we should focus on that. And so that's the pressure point that we're bringing to bear. Thirdly, I am saying and I said it on previous calls, I prefer AMPU-accretive prepaid loading over AMPU-dilutive tablet loading or wireless home phone loading any day of the week. So, it's not my preference of equivalency between pre and post. It's my preference of AMPU-accretive pre over non-economically accretive tablets or wireless home phones and that's the efficacy of what we're doing here. Secondly, in terms of the overall view, there are two types of pre- to post migrations. There are quality sensible, economically accretive pre- to post migrations, and then there's non-sensible, non-economic accretive pre to post migrations that flatter postpaid loading in a way that's economically dilutive. So, why would we do that? And by consolidating and presenting the results together, I'm saying I want to load on pre. I have a preference for that versus other areas that are less economically attractive. And when we do look at pre to post migrations, I want to make sure that they're done with the filter, that it's going to add value to the TELUS organization not destroy value at the TELUS organization. And so that's the ideology behind it. And then secondly, I want to give you enhanced disclosure in terms of transparency into the wireless connected device portfolio…

Okay. And just one on -- I agree with you that you have inherently good assets that maybe are undervalued by the market in TI and TELUS Health. But providing The Street with ad hoc numbers on these two assets might not be enough to get The Street to value them at the proper level. Do you think we can get to a point where you could provide this information regularly so we can build the historical framework in order to value these assets at the right -- in the right way?

So, the answer is yes. So, I gave a three-tiered response to the earlier question. One is as it relates to our traditional business, I'm happy with where we've gone with our current disclosure model and the changes that we've made today. We're going to complement that with ad hoc disclosure quarter in, quarter out to give you greater insight into the key drivers of our business. And then the third tier is TELUS Health and TELUS International and because of what we heard from both sell-side and buy-side investors, we have taken that from TELUS Health and TI on an ad hoc basis to now a regularized disclosure program that takes place in August. So, when we have our Q2 call in August and every year hereafter, you're going to get regularized structure disclosure that lets you know how TELUS Health and TELUS International is doing. And with that as the base case, we may look to augment that on a go-forward basis because we don't want to have valuation that's less than the sum of the parts, and these are very positive success stories for the TELUS organization. By way of but one example, both TELUS International and TELUS Health had a very good Q1. So, a nice start to the year, and when we get to the Q2 results in August, Josh Blair will have the opportunity to give you tangible empirical insights into both International and Health that have direct ramifications on the value of those businesses and, by extension, the value of TELUS, and that's regularized and that's our commitment to The Street.

Okay. Thank you very much.

Thanks Maher. Next question Mike.

Next question comes from Jeff Fan from Scotia Capital. Please go ahead.

Thank you. Good afternoon. I have three quick ones. First, on the disclosure, the question is, was this, Darren, a proactive move to try to preempt some behavior that you think might be creeping into the market or within TELUS? Or was this a move to try to sort of get management to get away from some of the actions that you guys may have taken in the past? And then a couple of quick ones on the payout ratio, 60% to 75%. Am I reading it correctly that you're going to get to that level of payout given the dividend growth by 2022? Is that the timeframe that we should be looking at? And then finally on service revenue growth, are you saying that you need IoT contribution to service revenue to see that reaccelerate? Thanks.

I'll take the last one. So, I'll take the last one first, Jeff. The answer is yes and no. It isn't a singular contributor to improving network revenue growth. The yes is it will make a contribution to network revenue growth, definitively, but that will not be the sole contribution. I'm expecting a contribution -- material contribution -- significant -- statistically significant contribution to network revenue growth coming from our high-quality smartphone loading as well. So, I want to see both priming the pump in terms of improving the revenue growth within our wireless business. So, yes, I want it to make a contribution, but I have equal expectations coming out of our smartphone loading as well. I'll let Doug take the next question in reverse order as it relates to the dividend and FCF?

Yes, so the payout ratio, we will be within the 60% to 75% of free cash flow in 2020. So, right out of the gate, as we implement the new program, it -- we don't need to wait. It doesn't need to -- or we don't need to grow into to a better term. We set the target to be aligned with our free cash flow projections and we will be in it right out of the gate.

And we don't make those decisions lightly, right? So, you can imagine within that 60% to 75% range, we modeled a robust number of scenarios as to what the future will look like, could look like, what contingency considerations do we have to deal with, what investment appetites do we have to satiate as to make sure that we could operate comfortably within that 60% to 75% range. So, there was a lot of modeling done and a lot of due diligence and pressure testing to make sure that, that range was sustainable not just within the base case scenario but our ability to absorb contingencies and exogenous events. And the last one is, was it preemptive? I guess, categorically, you would say, yes, because we made the decision in Q4 of 2018. And we've been working on it over the last few months in that regard. As I've already said earlier, there's a discipline factor here by boxing the TELUS organization, the focus on quality smartphone loading, and there's nowhere to hide now in that regard. And then secondly, scaling our IoT loading and making sure you get an economic return. So, yes, part of it was to make sure that there was no room for behavior that was either value neutral or value dilutive that now we'd structured or boxed the organization in that regard, or it's got to be quality, quality smartphone loading, supporting economic accretion, and scalable IoT loading supporting economic accretion. So, yes, there was a discipline factor associated with it. I think, also maybe a little bit of a TELUS color. It was a healthy organization activity for us to undertake on the IoT front because, going through this process and disclosing our IoT base meant that we had to come up with an audible IoT count, which I would have thought would have been very straightforward, but it wasn't. As the finance team went through the cupboards of the organization to make sure that the count was accurate in that regard. And so I think an ancillary benefit of this activity is a better controlled environment on our IoT base and better lenses and filters as we look to materially accrete that base in the years ahead now that we've got public disclosure transparency associated with it and wanting to get the desired economic returns. So, it was quite interesting what happens when you put the specter of public disclosure on an organization and looking at the robustness of our operational account of our asset base in that space.

Thanks Jeff. And Mike we have time for one question.

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

Thank you. This is Landon Park on for Simon. I was just wondering if you can talk your strategy for the 600 megahertz buildout following the auction as well as us any updates on 5G or 5G trials.

So, we'll be looking to deploy 600 in about the next 12 months. We're undertaking a range of 5G trials on the 600 front. We're very interested in testing it in urban areas as it relates to in-building penetration given the wave characteristics and, of course, interested in deploying it in rural dominions given the propagation characteristics of the low band of spectrum. In terms of 600, it can be deployed as what you see at a T Mobile in the U.S. on an LTE basis, but our thesis really at TELUS is looking at deploying 600 at scale for 5G. And I really see that being a material event in the second half of 2020 and beyond. We first have to go through our RFP process on 5G, select a vendor in that regard and then beginning to deploy 600 and then, laterally, 3.5 and millimeter wave. That's kind of the timeframe as it relates to 600. And the applications that we would be thinking about deploying it in terms of building penetration in the urban confines coverage considerations as it relates to rural. And one of the things that I would say is important in terms of low-band spectrum like 600 to enable 5G. Canada has a fantastic track record across Bell, Rogers, and TELUS, but when it comes to deploying new technology, and 5G won't be an exception, we don't just apply that new technology within the urban confines. We roll it out to the entirety of the population so everyone can enjoy the benefits of that technology and what it means to economic growth and diversification and what it means to helping improve social outcomes in areas like health, education, the environment, and improving economic disparity among citizens. So, that's kind of the timeframe on 600. And you've got to get the RFP done first.

And just one quick follow-up on the 3.5 gigahertz, when do we expect the decision on the callback?

So, hopefully, in the latter half of 2019 or early 2020. My track record in guessing customer or government time lines is fairly spurious.

Fair enough. Thank you.

Thank you.

Thank you, Landon, and thank you, Mike. And thank everyone for joining taking time to join us today. If you have any follow-up questions, please feel free to reach out to Ian McMillan or myself on the IR team.

Ladies and gentlemen, this concludes the TELUS 2019 Q1 earnings conference call. Thank you for your participation and have a nice day.