Q2 2012 TELUS investor conference call August 3, 2012 Robert McFarlane EVP & Chief Financial Officer...

Q2 2012 TELUS investor conference callAugust 3, 2012

Robert McFarlaneEVP & Chief Financial Officer

Joe NataleEVP & Chief Commercial Officer

Darren EntwistlePresident & Chief Executive Officer

TELUS Forward Looking Statement

Today's presentation and answers to questions contain statements about expected future events and financial and operating performance of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements. Accordingly our comments are subject to the disclaimer and qualified by the assumptions (including assumptions for 2012 annual targets), qualifications and risk factors (including the potential for a future share consolidation proposal and restrictions on non-Canadian ownership of TELUS Common shares, the ability over time to sustain dividend growth of circa 10% per annum with semi-annual dividend increases to 2013, and CEO three year goals for EPS and free cash flow growth excluding spectrum costs to 2013) referred to in the Management’s discussion and analysis in the 2011 annual report, and in the 2012 first and second quarter reports. Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

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3

Agenda

Wireless and wireline segment review

Consolidated financial review

Updates

2012 guidance

TELUS foreign ownership position

CRTC arbitration decision on TV service negotiations

Operational highlights

Questions and Answers

Q2 2012 wireless financial results

($M) Q2-11 Q2-12 change

Revenue (external) 1,333 1,428 7.1%

EBITDA1 565 636 13%

EBITDA margins2

(total revenue)42.1% 44.2% 2.1 pts

Capex 107 194 81%

EBITDA less capex 458 442 (3.5)%

1 EBITDA before restructuring costs in Q2-12 and Q2-11 were $640 and $566 million, respectively.2 Margins on network revenue in Q2-12 and Q2-11 were 47.9% and 45.7%, respectively.

Strong double digit EBITDA growth and margin expansionCapex higher for LTE network investments

4

Wireless subscriber results

Wireless subscribers

Postpaidnet adds

7.4M total

1.1Mprepaid

Q2-11

92K112K

Q2-12

Totalnet adds

Q2-11

94K86K

Q2-12

Postpaid net adds growth of 22% year-over-yearSmartphones now 59% of postpaid base, up from 42% a year ago

85%

15%

6.3Mpostpaid

5

Marketing and retention

Q2-11 Q2-12 change

Gross adds (000s) 447 394 (12)%

Blended churn1 1.67% 1.39% (0.28) pts

COA per gross add $370 $404 9.2%

COA expense $165M $159M (3.6)%

Retention expense $149M $143M (4.0)%

Lifetime revenue $3,526 $4,337 23%

1 Q2-12 and Q2-11 blended churn of 1.37% and 1.51% when normalized for loss of Government of Canada contract.

Lowest churn rate in over 5 years combined with ARPU growth leads to 23% increase in lifetime revenue

6

Blended ARPU analysis

Data

Q2-12

$60.29 Voice$58.88

Q2-11

% of ARPU

Q2-12Q2-11

61%

39%23.32

39.63 36.97

ARPU increase of 2.4% led by data ARPU growth of 21%Voice ARPU decline moderated to -6.7%

19.25

67%

33%

7

Wireless data revenue

Q2-11

$402M

Q2-12

$512M

$270M

Q2-10

Q2 data revenue growth of 27% year-over-yearData now represents 39% of network revenue

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Q2 2012 wireline financial results

($M) Q2-11 Q2-12 change


EBITDA1 385 362 (6.0)%

EBITDA margins(total revenue)

30.5% 28.3% (2.3) pts

Capex 349 354 1.4%

EBITDA less capex 36 8 (78)%

Wireline revenue growth reflects good TV and HSIA subscriber resultsEBITDA and margin down due to declines in high margin legacy services

1 Q2-12 adjusted EBITDA excludes a $9 million pre-tax gain on land contributed to the TELUS Garden residential real estate project, and equity losses of $1 million for the residential real estate partnership.

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TELUS TV customer growth

Q2-11

46K 43K

Q2-12

TELUS TV net additions*

TELUS TV subscribers*

* Includes both IP TV and TELUS Satellite TV subscribers

Q2-12Q2-11

403K

595K

Momentum continues with TV net adds of 43K Total TV subscribers up 48% year-over-year

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Q2-11

1.2M

TELUS high-speed Internet customer growth

Q2-11

13K

Q2-12

20K

High-speed Internet net adds increased 54% Total subscriber base up 81,000 or 6.8% year-over-year

High-speed subscribers

Q2-12

1.28M

High-speed net additions

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TELUS network access line losses

Q2-12 Q2-12

-31K-36K

7K

-14KQ2-11

Q2-11

BusinessResidential

Residential and Business lines impactedby renewed price-based competition

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Q2 2012 consolidated financial results

($M, except EPS) Q2-11 Q2-12 change


EBITDA1 950 998 5.1%

EPS (basic) 0.99 1.01 2.0%

Capex 456 548 20%

EBITDA less capex 494 450 (8.9)%

Free cash flow 286 284 (0.7)%

Consolidated revenue and EBITDA growth driven by wireless Strong free cash flow remains stable

13


EPS continuity analysis

$0.99 ($0.03)

$0.02 ($0.02)

($0.03)($0.01) $1.02 $0.02

$0.96

$0.10 ($0.03)

2011 Tax Adj.

Higher Normalized

EBITDA1

HigherPension

LowerFinancing

Costs

HigherDep

& Amort

Incr in Tax Exp.

2012 Tax Adj.

TELUSGarden

$1.01

Q2-12 reported

Q2-11 reported

Adjusted EPS growth of 6.3% from $0.96 to $1.02 when excluding tax adjustments and TELUS Garden impacts

Q2-11 Adj.

Q2-12 Adj.

141 Normalized EBITDA excludes net $0.01 positive impact of TELUS Garden and Pension costs.

2012 segmented guidance

Wireless EBITDA range up $100 millionWireline revenue range up $50 million, EBITDA top end down $50 million

Wireless 2012 guidance y/y change

Revenue (external)$5.75 to 5.9B

No change 5 to 8%

EBITDA $2.4 to 2.5B 10 to 14%

Wireline 2012 guidance y/y change

Revenue (external) $5.0 to 5.15B 1 to 4%

EBITDA $1.5 to 1.55B (6) to (3)%

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2012 consolidated guidance

Updated guidance reflects our latest and generally favourable outlook for balance of year

2012 guidance y/y change

Revenue (external) $10.75 to 11.05B 3 to 6%

EBITDA $3.9 to 4.05B 3 to 7%

EPS (basic) $3.75 to 4.15No change 0 to 10%

Capex Approx $1.95B Approx 6%

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TELUS files foreign ownership position with CRTC

In July, TELUS responded to CRTC about misleading allegations by Globalive concerning TELUS’ foreign ownership levels

As of June 29, 32.59% of TELUS’ voting shares held by non-Canadians, below federal limit of 33.3%

Mason Capital has made foreign ownership allegations very similar to Globalive's in an attempt to frustrate TELUS’ plans to consolidate its dual-class share structure on 1-for-1 basis

Globalive and Mason both used reports from Broadridge not intended for determination of foreign ownership levels

TELUS’ long-established systems to monitor and control foreign ownership of its voting shares have kept TELUS compliant with Canada’s foreign ownership restrictions for communication companies

TELUS continues to be fully compliant with Canada’s foreign ownership restrictions

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CRTC arbitration decision - TELUS vs Bell Media

CRTC released decision on final offer arbitration between TELUS and Bell Media on renewal agreement for distribution of Bell Media specialty TV services

Pleased CRTC selected TELUS’ final offer in arbitration, which means consumers continue to enjoy choice provided by TELUS’ theme

pack model TELUS not required to move TSN to basic Essentials package

Bell was seeking a “minimum penetration level” for TSN, which significantly exceeded actual consumer take-up of the service in Optik TV’s sports pack

Impact of new agreement consistent with previous expense accruals

CRTC decision is a win for TELUS and consumers and reinforces the Commission’s vertical integration framework

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Q2 2012 highlights

Robust revenue and earnings growth generated by continued excellent wireless revenue and EBITDA results, and wireline data revenue

Focus on Customers First leads to lowest blended wireless churn rate in five years

Continued Optik TV and high-speed Internet subscriber growth offsetting residential line losses

Increased guidance reflects year-to-date results and positive outlook

Pleased with overall strong results in Q2 and first half of 2012

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Strong smartphone adoption, ARPU growth continues

Q2 smartphone base up 54% to 3.7 million y/yData ARPU growth driven by 27% increase in data revenue

Q2-10 Q2-11 Q2-12

5.55.9 6.3

25%42%

59%

Postpaid subscribers (millions)

Smartphone % of postpaid

$13.80$19.25

$23.32

Q2-10 Q2-11 Q2-12

Wireless Data ARPU

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Low and improving churn

Low wireless churn rate best since Q1-07 Supports industry leading lifetime revenue per subscriber

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2012

Q1 2012

Q2 2012

Wireless Churn Rate Impact of loss of Govt. of Canada contract

1.54%

1.72% 1.70% 1.67% 1.67% 1.67%

1.55%1.62%

1.51%

1.58% 1.60%1.52%

1.37%

1.39%

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Future friendly home – continued strength in Optik

TV and High-Speed Internet loading exceedingresidential NAL losses for eighth consecutive quarter

TELUS TVResidential NALs

High-speed Internet

Q2-11 Q2-12Q2-10

59K63K

38K

50K32K

-43K-51K -31K -36K

29K46K 43K

3K

13K 20K

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Continued Optik TV innovations

Re-architected theme pack offering Enhanced Video on Demand storefront Launched Multi-View

Allows viewing of up to 4 channels at once

Introduced The Weather Network App

Expanding line-up of innovative new services supports premium, differentiated customer experience and ongoing momentum

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Appendix – free cash flow

2012Q2

2011Q2

C$ millions

Adjusted EBITDA1 950 990Capex (456) (548)

Net Employee Defined Benefit Plans Expense (Recovery) (7) (2)

Employer Contributions to Employee Defined Benefit Plans (15) (15)

Interest expense paid, net (145) (106)

Income taxes received (paid), net (50) (31)

Share-based compensation 5 9

Restructuring payments (net of expense) 4 (13)Free Cash Flow 284

(170) (189)Dividends

Working Capital and Other (241) (31)

Funds Available for debt redemption (174) 59

Net Issuance (Repayment) of debt 172 (55)

Increase in cash (2) 4

Common and Non-voting shares issued 2

Acquisitions (51) -

286

-

TELUS Garden real estate project - (5)


Appendix – definitions

EBITDA: Earnings before interest, taxes, depreciation and amortization

Capital intensity: capital expenditures divided by total revenue

Cash flow: EBITDA less capex

Free cash flow: EBITDA, adding Restructuring costs, net employee defined benefit plans expense, cash interest received and excess of share-based compensation expense over share-based compensation payments, subtracting the non-cash gain on Transactel, cash interest paid, cash taxes, capital expenditures, restructuring payments and employer contributions to employee defined benefit plans.

Cost of retention (COR): total costs to retain existing subscribers, often presented as a percentage of network revenue

Net cash interest

EBITDA1

($M)

Other3

Free Cash Flow (before dividends and spectrum)

Capex

Net cash tax payment2

Cash pension contribution (including DB pension recovery)4

Free Cash Flow(before dividends and spectrum)

Appendix – 2012E free cash flowAppendix – 2012E free cash flow

1 2011 EBITDA excludes $17M Transactel gain2 Midpoint used to calculate 2012E FCF range3 Includes restructuring payments (net of expense), and share based compensation (net of expense)4 2012 and 2011 includes cash pension contributions and pension recovery included in reported in EBITDA

~(350)

2012E

$3,900 to 4,050

~(45)

~(1,950)

1,380 to 1,530

(150) to (200)

~(180)

1,200 to 1,350

27

997

2011

(377)

$3,761

(60)

(1,847)

1,327

(150)

(330)

Q2 2012 TELUS investor conference call August 3, 2012 Robert McFarlane EVP & Chief Financial Officer...

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