Transcript Slide 1

Telecom & Cable TV
Fixed Income Conference
September 13, 2006
Robert McFarlane
EVP & Chief Financial Officer
Forward-looking statements
Presentations and answers to questions today contain forward-looking
statements that require assumptions about expected future events
including income trust conversion and timing, financing, financial and
operating results, and 2006 guidance that are subject to inherent risks
and uncertainties. There is significant risk that predictions and other
forward-looking statements will not prove to be accurate so do not
place undue reliance on them.
There are many factors that could cause actual results to differ
materially. For a full listing and description of the potential risk factors
and assumptions, please refer to the TELUS 2005 annual report,
updates in the 2006 quarterly reports, Sept. 11, 2006 income trust
proposal news release and other filings with securities commissions in
Canada and the United States.
Agenda
 About TELUS
 TELUS wireless review
 TELUS wireline review
 TELUS consolidated review
 Credit profile
 Q&A
 Appendix
 Definitions
3
About TELUS
 Executing national growth strategy focused on data, IP & wireless
 Financial results (12ME June 30, 2006)
 Revenue
$8.4B
 EBITDA
$3.3B
 FCF
$1.5B
 Enterprise value: ~$26B (net debt ~$5.7B)
 Listings: TSX: T, T.A; NYSE: TU
 Reporting segments: wireless and wireline
Best performing Canadian telco
4
Leading the way with a proven strategy
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
Focusing on growth markets of data & wireless
Building national capabilities
Providing integrated solutions
Investing in internal capabilities
Partnering, acquiring and divesting as necessary
Going to market as one team
Strategic intent… to unleash the power of the Internet
to deliver the best solutions to Canadians at home,
in the workplace and on the move.
Consistent strategy and execution 2000  2006
5
Wireless-wireline merger rationale
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Advance our industry leading strategy
Achieve meaningful commercial differentiation in the market
Capitalize on technology convergence of wireless and wireline
Drive continued operating efficiency and effectiveness
One team, united behind one strategy, defined by one brand
6
Strategic focus on data and wireless
Revenue
20062
20001
LD
LD
23%
10%
Wireless
Voice
41%
Wireless
18%
Voice
Data
Voice
49%
10%
28%
Wireline Data
19%
$5.7B
1
$8.4B
2
12 months ending June 2000
12 months ending June 2006
Data and wireless now represent 62% of revenue
7
Wireless
Data
2%
Strategic focus on wireless generating cash flow
Cash Flow
20001
20062
(EBITDA less capex)
Wireless
22%
Wireline
Wireline
Wireless
41%
59%
78%
$1.1B
1 12
$1.9B
2
months ending June 2000
12 months ending June 2006
Wireless now represents 59% of Cash Flow
8
Total subscriber connections
9.9
10.4
(millions)
9.4
Res NALs
Bus NALs
Dial-up Internet
High-speed Internet
Wireless
Q2-04
Q2-05
Q2-06
Connections increasing with strong wireless and Internet growth
9
TELUS subscriber trends
3-year trend
Jun-04
Jun-06
Wireless subscribers
3.6M
4.7M

31%
High-speed Internet
624K
831K

33%
NALs
4.8M
4.6M

(4)%
10
Change
Wireless
Wireless segment – financial results
H1-05
Revenue
H1-06
$1,555M $1,827M
Change

18%
EBITDA1
$704M
$ 837M

19%
Capital expenditures
$174M
$209M

20%
Cash flow (EBITDA less capex)
$530M
$628M

19%
1
Includes $3M in restructuring & workforce reduction costs in H1-06
Excellent revenue, EBITDA and cash flow growth
12
review of operations
Increasing Canadian wireless penetration
Dec-03
Jun-06
Dec-08E
Penetration:
42%
53.5%
65 - 68%
Subscribers:
13.4M
17.4M
21 - 22M
Source: Industry analysts, CWTA
4 to 5 million net additions expected over next 2.5 years
13
Wireless data ARPU growth
Data ARPU
$63.18
$4.45
$60.84
$2.30
Q2-05
Q2-06
ARPU growth led by 93% increase in wireless data
14
review of operations – wireless
Industry ARPU comparison
Q2-06 prepaid ARPU
Q2-06 postpaid ARPU
$72
$67
$63
$26
TELUS
Wireless
Rogers
Wireless
BCE
Wireless
TELUS
Wireless
$13
$14
Rogers
Wireless
BCE
Wireless
Significant ARPU premium over peers
15
Staying ahead on wireless data
 Expanding EVDO high speed wireless service
24 major urban markets
Cool new applications
Music downloads and video games
Watch 15 channels on Mobile TV
TELUS Mobile Radio – powered by XM Canada
5 times faster
 Amp’d “Powered by TELUS” coming in 2007
Fostering continued wireless data growth
16
Exclusive Amp’d arrangement and investment
 Amp’d Mobile responsible for marketing, freshest and
exclusive entertainment content, and optimized handsets
 Targeting 18 to 35 age demographic and lifestyle
 TELUS responsible for managing sales and distribution,
billing, client care, network options and pricing
 Exclusive licensing and service agreement – not a
traditional MVNO
 Amp’d Mobile is a premium brand with high ARPUs focused
on mobile media (not traditional voice) and postpaid
 TELUS Ventures invested US$7.5M in US business of
Amp’d Mobile, Inc.
17
Wireless industry economics comparison
Q2-06
TELUS
ARPU
$63.18
$51
$55.951
Blended churn
1.30%
1.60%
1.82%1
Avg. lifetime revenue per sub
$4860
$3188
$3074
COA per gross add
$394
$419
$397
COA / lifetime revenue
8.1%
13.1%
12.9%
1Calculated
BCE
Rogers
using prepaid and postpaid metrics due to non-disclosure by Rogers
TELUS subscriber economics compare favourably
18
Staying ahead in North American performance
Q2 YTD cash flow yield1 of national wireless companies (%)
34%
33%
26%
21%
21%
12%
TELUS
BCE
Rogers Sprint
Wireless Wireless Wireless Nextel
1
12%
Verizon Cingular T-Mobile
Wireless
EBITDA less capex as a percentage of total revenue. Source: Company reports
Highest Q2 YTD cash flow yield in North America
19
2006 wireless guidance
2006 guidance2
annual change
Revenue
$3.8 to $3.875B
 15 to 18%
EBITDA
$1.7 to $1.75B
 18 to 21%
Capex
approx. $450M

Wireless net adds
560 to 590K
1 See
forward looking statement caution
2 August 4, 2006
Solid wireless momentum
20
11%
flat
Wireline
Wireline segment – financial results
H1-05
H1-06
Revenue
$2.44B
$2.39B

2.1%
EBITDA1
$1,017M
$923M

9.3%
$1,034M
$968M

6.4%
Capital expenditures
$508M
$570M

12%
Cash flow (EBITDA less capex)
$510M
$353M

31%
EBITDA (excl. restructuring)
1
Change
Includes $17M and $45M in wireline restructuring costs in H1-05 and H1-06 respectively
Results reflect challenging wireline environment
and increased restructuring charges
22
Year-over-year NAL declines
Trailing six quarters ended Q2-06
%
TELUS
-1.2
-1.8
-2.2
-2.4
-2.7 -2.6
BCE
SBC
Verizon
BellSouth
-1.3
-1.6
-2.0
-2.5
-3.2
-3.3
-3.9
-4.4
-4.8
-5.1
-5.6
-6.0
-6.1
-4.5
-5.0
-5.1
-5.5
-6.2
-6.7
-6.9
-5.8
-6.1
-7
-7.4
Q1 Q2 Q3 Q4 Q1 Q2
Source: Merrill Lynch, company reports
2005
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2006
Future Friendly Home
 Suite of IP applications:
 Home Networking (wireless LAN)
 HomeSitterTM
 TELUS TV targeted roll-outs in
 Edmonton and Calgary 2005/2006
 Vancouver lower mainland 2006/2007
24
financial review
Expanding TELUS TV availability
 Offering customers differentiated entertainment
 Choice of 200+ digital stations
 Customized channel packaging
 Interactive programming guide
 Video on demand
 myTELUS channel
 Call display
Targeted launches to continue
25
Non-ILEC revenue & EBITDA
Revenue ($M)
EBITDA ($M)
650-675
555
561
632
2003
2003
2004
2005
2006E1
(29)
1
2004
(22)
21
2005
August 4, 2006 guidance. See forward looking statement caution.
Continued focus on profitable, long-term growth
26
25-30
2006E1
2006 wireline guidance1
2006 guidance 2
Revenue
Non-ILEC Revenue
EBITDA
Non-ILEC EBITDA
Capex
$4.825 to $4.850B
$650 to $675M
$1.8 to $1.85B
$25 to $30M
approx. $1.15B
High speed net adds
> 125K
annual change
 0 to (1%)
 3 to 7%
 0 to (3%)
 18 to 42%

26%

>52K
1 See
2
forward looking statement caution
August 4, 2006
Guidance reflects challenging wireline environment
27
Consolidated Review
TELUS Consolidated
H1-05
H1-06
Change
$3.99B
$4.22B
 5.6%
$1,721M
$1,760M
 2.2%
$17M
$47M
EBITDA (excl. restructuring) $1,738M
$1,807M
Revenue
EBITDA
Restructuring costs
EBIT
EPS (reported)
1
 4.0%
$611M
$706M

16%
$1.20
$1.63

36%
Normalized for tax-related adjustments, retroactive regulatory decisions and and a BC Tel
bond litigation accrual, EPS in H1-05 & H1-06, would have been $1.06 and $1.29, up 22%
Strong gains in revenue and EPS
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Strategic operating model
Growth opportunities
Non-ILEC
Growth
+
Future
Friendly
Home
+
Wireline
Organization
Effectiveness
Technological
Substitution
Challenges
+
Competitive
Intensity
+
Price Cap
Regulatory
Framework
Short-term dilutive
Strive to hold wireline EBITDA (before restructuring) flat
over medium term

Growth in revenues and EBITDA from wireless business
=
Continued improvements in consolidated results
30
Push to implement the Telecom Policy Report
 Supporting TPR panel and Industry Canada’s thought leadership
Other CRTC developments
 2005 VoIP decision re-affirmed by CRTC
 Re-assessing aspects of local forbearance decision
 Mobile TV broadcasting not regulated
 Third local price cap proceeding underway for 2007
Opportunity for positive regulatory and policy change
31
2006 consolidated guidance summary
2006 guidance1
annual change
Revenue
$8.625 to 8.725B

6 to 7%
EBITDA2
$3.5 to 3.6B

6 to 9%
 48 to 58%
EPS3
$2.90 to 3.10
Capex
approx. $1.6B

Free Cash Flow
$1.55 to 1.65B
 6 to 13%
21%
1 September
11, 2006 guidance (unchanged from Aug 4/06), and reflects est. $7M of expenses in 2006
related to trust conversion. See forward looking statement caution
2 Including restructuring & workforce reduction costs of $54M in 2005 and up to $100M in 2006
3 Including 34 cents of positive tax-related adjustments in 2006
Annual consolidated financial guidance remains unchanged
2007 guidance planned for December 2006
32
Income trust transaction overview
 Sept. 11/06 announced approved proposal for reorganization into
income trust
 Represents conversion of TELUS in its entirety
 Via plan of arrangement under Business Corporations Act (B.C.)
 Subject to approval of 2/3rds of each class of shares
 To be one class of Fund Unit vs current dual class share structure
 Anticipate initial distributions of between $3.90 to $4.10 on
annualized basis
 Compares to current $1.10 annualized dividend
Conversion entails increase in cash distributions by 255 to 273%
33
Strategic rationale for TELUS conversion into Income Trust
 Transaction supports advancement of national growth strategy
 Optimizes ability to make future growth investments
 Enhances tax efficiency at TELUS and significantly increases
cash distributions to shareholders
 Ensures integrated operations drive customer service excellence
and competitive differentiation
 Avoids costs and governance complexity of a partial conversion
 Offers investors high quality assets, strong predictable cash flow
and prospect of growth
Creating Canada’s premier income trust
34
Benefits of proposed conversion in January 2007
 Tax efficiency as TELUS has fully utilized its tax assets as
of June 30, 2006
 TELUS now generating current tax liability on go forward basis
 Status quo would entail paying cash taxes commencing in
2008
 Optimal timing for TELUS as expect to be able to shelter
2006 tax liability on conversion, in addition to ongoing tax
efficiencies
 Optimal timing for shareholders as taxable deemed
disposition on conversion of shares for units generally not
payable until April 2008
 Beneficial to debt holders as increases future cash flow for
debt servicing
35
Return of capital pre and post conversion
$ per share
3.90 to
4.10
Normal Course Issuer Bid
4
Dividends paid
Income trust cash
distribution
3
3.38 2,3
3.30
2.62 1
2
1
0.82
0.60
2003
1
2
3
2004
2005
2006
Total Cash per Share – annualized 2006 dividend, plus YTD NCIB as at Aug 30, 2006
Total Cash per Share – annualized 2006 dividend, plus YTD NCIB as at Aug 30, 2006 annualized
See forward looking statement caution
36
2007E3
Transaction time line1
 Notice of special meeting of TELUS shareholders Nov. 2006
 Information circular mailing Dec. 2006
 Special shareholder meeting Jan. 2007
 Obtain regulatory and other approvals
 Closing and conversion expected late Jan. 2007
1
See forward looking statement caution
To create premier income trust in Canada
37
Credit Profile
Debt overview
 Simplified debt structure with 86% of total debt now at TELUS
Corporation
 Average term to maturity is 5.0 years (at June 30, 2006)
 Fixed to floating ratio currently 99% fixed
 $3.7B of existing debt denominated in US$ and fully hedged
 No long-term debt maturities until 2007 when US$1.2B
TELUS Notes and $70M TCI Medium Term Notes mature
39
Credit profile
Current debt structure
TELUS Corporation
Bank1
- 3 Year
- 5 Year
US$ 7.5% Notes
US$ 8.0% Notes
C$ 5.0% Notes
$0.8B
$0.8B
C$1.5B
C$3.0B
C$0.3B
Maturity
revolver May 2008
revolver May 2010
June 2007
June 2011
June 2013
100%
TELUS Communications Inc.
•Mortgage Bonds
•MTNs
•Debentures
•Net Sr. Notes to TC
1
$0.030B
$0.070B
$0.799B
$2.5B
Maturity
July 2010
Feb 2007
2010 to 2025
Canadian dollars or U.S. dollar equivalent. At June 30, 2006, $74M in borrowings existed under the Bank credit
facilities. TCI may also borrow on the bank credit facility.
86% of total debt at TELUS Corporation
40
Credit profile
Current debt structure - maturities
C$ millions
3500
3000
2500
2000
1500
1000
500
0
2006 2007 2008 2009 2010 2011 2012 2013 2014+
Debt
Deferred FX Hedge Liability
Process of refinancing 2007 maturity already begun
41
TELUS US$1.2B Notes maturing in 2007
 TELUS US$1.2B 7.50% Notes mature June 1, 2007
 At time of issue, swapped into C$1.8B liability with yield
of 8.109%
 Notes are redeemable at any time in whole or in part at the
US Treasury yield plus 25 basis points
 TELUS may consider early redeeming a portion of notes
 TELUS has already taken two steps to refinance notes
 Interest rates locked for $500M of future fixed rate debt
through forward starting interest rate swaps
 In May 2006 TELUS issued $300M 5% 7 year Note to
repay a portion of the foreign exchange liability
May 2006 $300M 7-year note offering met strong demand
42
Committed credit facilities
 Total committed credit facilities of $1.6B
 3-year $800M credit facility due in May 2008
 5-year $800M term facility due in May 2010
 Term of facilities extend beyond the maturity date of TELUS'
June 2007 public note maturity
 Reinforces TELUS' strong liquidity position
43
Consolidated leverage
Jun-06
Jun-03
Jun-04
Jun-05
Net debt ($M)
9,120
7,223
6,096
5,740
Net debt : Capital
55.7%
51.9%
46.0%
45.5%
Net debt : EBITDA
3.0x
2.4x
1.8x
1.7x
FCF1 : Net debt
4%
16%
23%
27%
1
12-month trailing Free cash flow
Strong leverage improvement / credit enhancement
44
Credit ratings
Credit rating changes in 2005 & 2006
 All four rating agencies upgraded TELUS ratings in 2005
 Moody’s reiterated rating, changed outlook to “positive” May/06
 DBRS rating under review Sep/06
 Moody’s affirmed rating, with a “developing” outlook Sep/06
Credit rating overview for TELUS Corporation
Agency
Rating
Outlook
BBB (high)
UR - Developing
S&P
BBB+
Stable
Fitch
BBB+
Stable
Moody’s
Baa2
Developing
DBRS
45
Long term financial policy targets
long term
policy
Q2-06
Net Debt : Capital
45 to 50%
45.5%

Net Debt : EBITDA
1.5 to 2.0x
1.7x

>$1B
~$1.5B
BBB+ to A-
BBB+
Minimum liquidity
Credit rating


3 of 4
Conversion does not change TELUS debt targets / lessens risk profile
46
Recognized leader in disclosure
Annual Report on Annual Reports
 TELUS 2005 Annual Report ranked BEST in world
Canadian Institute of Chartered Accountants (CICA)
 Best Corporate Governance Disclosure in Canada
 2004 Annual Report received Award of Excellence
 11 consecutive years of recognition
IR Magazine (Canada) awards
 2006: Best annual report & disclosure policy
Member of 2007 Dow Jones Sustainability Index
 only North American telco in global index
47
e.Com
Report
Watch
Why invest in TELUS?
 Premium asset mix - high wireless exposure
 Offer investors high quality assets, strong predictable
cash flow and prospect of growth
 Orderly refinancing of 2007 notes already underway
 Significant >$1B of annual free cash flow generation pretrust conversion
 Trust conversion announced
 Increases cash flow and lessens TELUS risk profile
 Beneficial to debt holders as increased future cash
flow for debt servicing
 TELUS has met or exceeded all leverage targets
 Excellence in reporting, transparency and governance
Track record of delivering on commitments to investors
48
investor relations
1-800-667-4871
telus.com
[email protected]
Appendix
Definitions
 EBITDA: Earnings, after restructuring and workforce
reduction costs, before interest, taxes, depreciation and
amortization
 Capital intensity: capex divided by total revenue
 Cash flow: EBITDA less capex
 Cash flow yield: EBITDA less capex, divided by total
revenue
 Free Cash Flow: EBITDA, adding Restructuring and
workforce reduction costs, cash interest received and excess
of share compensation expense over share compensation
payments, subtracting cash interest paid, cash taxes, capital
expenditures, and cash restructuring payments
TELUS definitions for non-GAAP measures