MTS Allstream Reports Solid First Quarter 2011 Results

    <<
    Stock Symbol:  MBT

    Highlights include:

    -   MTS Allstream EBITDA up by 14.7% on Allstream EBITDA improvement of
        $16.0 million
    -   MTS successfully launches 4G wireless network and iPhone 4
    -   MTS wireless revenues increase by 9.7% on ARPU growth of 3.6%
    -   Allstream's converged IP revenues up 7.9%; strong IP sales momentum
        continues
    -   $16.9 million achieved in annualized cost savings in Q1
    -   Board of Directors declares $0.425 per share Q2 cash dividend
    >>

WINNIPEG, May 4 /CNW/ - Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"), including its two operating divisions MTS and Allstream, today reported its first quarter 2011 financial results. The Company's results for the first quarter of 2011 are in line with its expectations and financial outlook for the full year.

"We are particularly pleased to report that MTS Allstream's overall EBITDA improved by nearly 15 per cent in the first quarter compared to the same quarter last year," said Pierre Blouin, Chief Executive Officer. This increase was driven mainly by a $16.0 million improvement in Allstream's EBITDA. MTS also delivered a strong quarter, producing top line revenue and EBITDA growth.

"Our first quarter results across the Company were strong and demonstrate that our strategy is working," said Mr. Blouin. "We are focused on driving growth in wireless, IP television, broadband and IP-based services; increasing high-margin on-net sales at Allstream through the expansion of our fibre network; and continuing our cost reductions. In the first three months of the year, we made excellent progress in each of these areas and are well positioned to deliver results in the 2011 outlook ranges."

    <<
    QUARTERLY FINANCIAL HIGHLIGHTS
    ------------------------------

    (in millions $, except      2011                     2010
     EPS1)                       Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                    439.3     446.7     451.0     442.9     442.0
    EBITDA(2)                  149.8     135.5     159.9     138.8     130.6
    EPS ($)                     0.67      0.46      0.76      0.54      0.42
    Free cash flow(3)           24.4     (64.1)     44.3      33.3      20.6
    Capital expenditures/
     revenue                    15.4%     29.0%     17.4%     17.6%     17.1%
    -------------------------------------------------------------------------
    All financial metrics in this table are presented on a consolidated basis
    and reported in accordance with International Financial Reporting
    Standards ("IFRS").
    >>

MTS Allstream's EBITDA and EPS results in the first quarter of 2011 were higher when compared to the first quarter of 2010. Improvements in EBITDA and EPS were primarily due to better gross margins at Allstream together with the impact of cost savings. The overall revenue decline is attributable to lower Allstream revenues, which were expected and consistent with management's plan to focus on driving growth in high-margin, on-net revenues while discontinuing lower margin legacy revenues. Free cash flow of $24.4 million in the first quarter was also up when compared to a year ago due primarily to higher EBITDA and lower capital expenditures. In the first quarter, the Company achieved $16.9 million in annualized cost savings against its full-year target of annualized cost savings between $25 million and $35 million.

    <<
    MTS
    ---
    >>

MTS's revenues and EBITDA were up by 3.0 per cent in the first quarter when compared to the same period last year, driven by a strong performance in the division's growth services revenues (wireless, high-speed Internet, and IP TV) which increased collectively by 9.4 per cent. Residential line losses continue to compare favourably to the industry at 5.9 per cent. The number of customers using MTS's bundled services climbed strongly in the first quarter by 6.1 per cent when compared to the same period a year ago. In the first quarter, MTS introduced a new four-service bundle to rural Manitobans, which means that more customers across the province are now eligible to receive bundled services.

Wireless revenues were up by 9.7 per cent in the first quarter when compared to the first quarter last year. Wireless average revenue per user reached $56.73 in the first quarter of 2011, driven by 40.5 per cent growth in wireless data revenues. MTS successfully launched its 4G wireless network on March 31, 2011. The new network provides faster high-speed data to 97 per cent of the population, improving on MTS's EVDO data coverage which reaches 72 per cent of the population. MTS customers also now have access to an exciting new array of smart-phones and handsets, and extensive international roaming on compatible GSM and 4G networks. On April 26, 2011, MTS launched the iPhone 4. Wireless subscriber additions, which were slow in Q1 leading up to our 4G (HSPA+) network launch, rebounded in April, leaving us well positioned to achieve our 2011 growth target for subscriber adds.

MTS's broadband and converged IP revenues were up by 7.2% in the first quarter when compared to the same period of 2010, driven by increases in high-speed Internet and IP TV revenues. IP TV revenues increased by 17.3 per cent in the quarter based on 1.1 per cent subscriber growth and higher average revenue per customer. MTS continues to improve its Ultimate TV services and in April further enhanced the service with the addition of a new feature - My PVR. Subscribers are now able to remotely program their PVR by accessing a web-based application, which enables MTS Ultimate TV customers to add, change or delete their Whole Home PVR recordings using any computer with an Internet connection or from select mobile devices.

"With our bundles and innovative products, we are well positioned to give Manitobans the best that today's technology has to offer. Our commitment to run fibre-to-the-home technology to over 20 new communities in Manitoba over the next five years, combined with our existing network, will allow MTS to bring broadband to 65 per cent of Manitoba households by 2013," said Kelvin Shepherd, President of MTS. "Together, these investments in 4G and fibre-to-the-home will ensure we have the right network and product bundles to maintain our leading position in Manitoba for many years to come."

    <<
    Allstream
    ---------
    >>

During the first quarter of 2011, Allstream continued to show signs of improvement as it advanced its initiatives to improve results, profitability and its cash flows. These initiatives include focusing on winning high-margin on-net IP revenues, discontinuing sales or exiting various legacy services, reinvesting cash flows from legacy services into IP platforms and reducing costs. In the first quarter, Allstream's EBITDA improved by $16.0 million when compared to the first quarter last year, which marks Allstream's second consecutive quarter of year-over-year EBITDA growth. The increase is partly attributable to an $11.7 million reduction in restructuring costs from 2010. Even if these are excluded, EBITDA increased by 17.6 per cent demonstrating solid performance in the quarter.

"The evidence is there - we are improving Allstream's performance. We started to see meaningful improvements in the business in the fourth quarter of 2010, and that trend is continuing," said Dean Prevost, President of Allstream. "In April, it looks like we had our best month of IP sales ever."

Allstream continues to benefit from the increasing market demand for IP-based services. Converged IP revenues were up by 7.9 per cent in the first quarter when compared to the same period last year. Based on sales activity in the quarter and during the month of April, the Company remains on track to achieve its target of 10 per cent to 12 per cent converged IP revenue growth by the end of 2011. Allstream is supporting this growth with success-based investments that are adding new fibre-fed buildings to our network. In the first quarter of 2011, Allstream added a total 75 buildings to the network. This increased Allstream's total number of fibre-fed buildings to 2,164 at March 31, 2011.

A significant part of Allstream's investment plan began in 2010, when the Company announced a multi-year program to expand Allstream's IP fibre network and increase profitability. This program specifically targets select multi-tenant buildings that are very close to existing fibre assets and can be connected at a very low cost. These investments extend Allstream's on-net reach and provide incremental high-margin revenue opportunities. Since Allstream launched this initiative 12 months ago, the Company has extended fibre into 141 new multi-tenant buildings on a cost-effective basis and won a total of 187 new IP contracts.

    <<
    Subsequent Pension Solvency Funding
    -----------------------------------
    >>

On March 25, 2011, the federal government announced that new federal pension regulations allowing letters of credit to satisfy a portion of pension solvency obligations would be implemented effective April 1, 2011. In the first quarter of 2011, the Company contributed $24.4 million in pension solvency payments to meet its 2011 funding obligations. With the implementation of the new federal pension regulations, management expects to satisfy any remaining pension solvency funding obligations in 2011 using letters of credit.

    <<
    Dividend
    --------
    >>

The Company's Board of Directors declared a cash dividend of $0.425 per share for the second quarter of 2011, which is payable on July 15, 2011 to shareholders of record on June 15, 2011.

    <<
    Quarterly Conference Call
    -------------------------
    >>

MTS Allstream's first quarter 2011 conference call with the investment community is scheduled for 8:30 a.m. (Eastern Time) on Wednesday, May 4, 2011. Investors, media and the public are invited to listen to the conference call. The dial-in number is 1-888-231-8191. A live audio Webcast of the conference call can be accessed by visiting the Investors section of the MTS Allstream website (www.mtsallstream.com). A replay of the conference call will be available until midnight (Eastern Time) on May 18, 2011, and can be accessed by dialing 1-800-642-1687 or 1-416-849-0833 (access code 55991094).

    <<
    Note
    ----
    >>

MTS Allstream's interim Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2011 and supplementary financial information are available in the Investors section of the MTS Allstream website at www.mtsallstream.com.

    <<
    About Manitoba Telecom Services Inc.
    ------------------------------------
    >>

Manitoba Telecom Services Inc., through its wholly-owned subsidiary MTS Allstream Inc., is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians live and work today. The Company has more than 100 years of experience, with 5,500 employees across Canada dedicated to a mission of delivering true value as seen through the eyes of our customers. MTS Allstream has nearly two million customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba. The Company's extensive national broadband and fibre optic network spans almost 30,000 kilometres. Manitoba Telecom Services Inc.'s common shares are listed on Toronto Stock Exchange (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS Allstream are encouraged to visit: www.mtsallstream.com.

    <<
    Forward-looking Statements Disclaimer
    -------------------------------------
    >>

This news release includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operations, financial objectives and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending", and other similar terms.

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the "Risks and Uncertainties" section and elsewhere in our interim MD&A for the first quarter of 2011, as well as our 2010 annual MD&A, and our Annual Information Form, all of which are available on SEDAR at www.sedar.com.

Please note that forward-looking statements reflect our expectations as at the date hereof. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. This news release and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors.

Footnotes:

    <<
    1.  EPS is earnings per share.
    2.  EBITDA is earnings before interest, taxes, depreciation and
        amortization and other income (expense). EBITDA should not be
        construed as an alternative to operating income or to cash flows from
        operating activities (as determined in accordance with International
        Financial Reporting Standards) as a measure of liquidity. Refer to
        MTS Allstream's first quarter 2011 interim MD&A for more information.
    3.  Refer to MTS Allstream's first quarter 2011 interim MD&A for the
        definition of free cash flow.
    >>

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") of our financial results comments on our operations, performance and financial condition for the three months ended March 31, 2011 and 2010. This MD&A is based on financial statements that reflect the adoption of International Financial Reporting Standards ("IFRS"), and which represent the initial presentation of our results and financial position under IFRS. Prior to 2011, our consolidated financial statements were presented in accordance with previous Canadian generally accepted accounting principles ("GAAP"). All financial amounts, unless otherwise indicated, are in Canadian dollars and in accordance with IFRS.

Unless otherwise indicated, this MD&A for the three months ended March 31, 2011 is as at May 3, 2011. In preparing this MD&A, we have taken into account information available to us up to May 3, 2011. In this MD&A, "we", "our", and "us" refer to Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"). This interim MD&A should be read in conjunction with our condensed interim consolidated financial statements for the three months ended March 31, 2011. We also encourage you to read the MD&A that accompanies our audited consolidated financial statements for the year ended December 31, 2010 dated March 3, 2011. You will also find more information about us, including our annual information form for the year ended December 31, 2010 dated March 3, 2011, on our website at www.mtsallstream.com and on SEDAR at www.sedar.com.

    <<
    -------------------------------------------------------------------------
    Regarding forward-looking statements

    This interim MD&A includes forward-looking statements and information
(collectively, the "statements") about our corporate direction, business
opportunities, operations, financial objectives, future financial results and
performance, future cash flows and distributions to shareholders that are
subject to risks, uncertainties and assumptions.  As a consequence, actual
results in the future may differ materially from any conclusion, forecast or
projection in such forward-looking statements.  Examples of statements that
constitute forward-looking information may be identified by words such as
"believe", "expect", "project", "should", "anticipate", "could", "target",
"forecast", "intend", "plan", "outlook", "see", "set", "pending", and other
similar terms.
    Factors that could cause anticipated opportunities and actual results to
differ materially include, but are not limited to, matters identified in our
2010 Annual MD&A.
    Please note that forward-looking statements reflect our expectations as at
the date hereof.  We disclaim any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise except as required by law.  This interim MD&A and the
financial information contained herein have been reviewed by our Audit
Committee and approved by our Board of Directors.
    -------------------------------------------------------------------------
    >>

OVERVIEW OF OUR BUSINESS

MTS Allstream is a leading national communications provider in Canada and the market leader in Manitoba. Our company is organized into two principal business segments: MTS, operating in Manitoba; and Allstream, operating nationally. Our common shares are listed on the Toronto Stock Exchange (trading symbol: MBT) and our website is www.mtsallstream.com.

MTS

MTS leads every telecommunications market segment in Manitoba, delivering a full suite of wireless, high-speed Internet, Internet protocol television ("IP TV"), converged Internet protocol ("IP"), unified communications, security, home alarm monitoring services, local access and long distance services. This complete range of products is unmatched by any other provider in the province. MTS serves both residential and business customers in Manitoba.

Allstream

Allstream is a leading competitor in the national business and wholesale markets, offering small, medium and large businesses and government organizations a portfolio of telecommunications solutions tailored to meet their needs. Allstream's main products are IP-based communications, unified communications, voice and data connectivity, and security services. Allstream operates an extensive national broadband fibre optic network that spans almost 30,000 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international service providers.

FIRST QUARTER IN REVIEW

Summary of results

    <<
    (in millions $,
    except EPS and
    capital expenditures/
    revenues)                Q1 2011   Q4 2010   Q3 2010   Q2 2010   Q1 2010
    -------------------------------------------------------------------------
    Revenues                   439.3     446.7     451.0     442.9     442.0
    -------------------------------------------------------------------------
    EBITDA(1)                  149.8     135.5     159.9     138.8     130.6
    -------------------------------------------------------------------------
    Earnings per share         $0.67     $0.46     $0.76     $0.54     $0.42
    -------------------------------------------------------------------------
    Free cash flow(1)           24.4     (64.1)     44.3      33.3      20.6
    -------------------------------------------------------------------------
    Capital expenditures/
     revenues                   15.4%     29.0%     17.4%     17.6%     17.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS

    (1) EBITDA (earnings before interest, taxes, depreciation and
    amortization, and other income (expense)) and free cash flow are non-IFRS
    measures of performance. See the section titled "Non-IFRS measures of
    performance" for further information.
    >>

Our financial results in the first quarter of 2011 reflected solid performance at both MTS and Allstream.

With EBITDA growth of 3.0% in the first quarter of 2011, MTS continued to provide a solid and stable foundation for the Company. MTS leveraged its product leadership and unique bundling capabilities to face a competitive market, resulting in strong performance in its wireless, IP TV and high-speed Internet lines of business. This growth, along with active cost management efforts, offset declines in legacy revenues and supported MTS's industry-leading EBITDA margin of 51.9%.

Allstream's results for the first quarter of 2011 continued to reflect improvements in its business with an increase in high-margin, on-net IP revenues and continued improvements to its cost structure, which offset legacy revenue declines. We continued our strategy to manage our legacy lines of business for profitability and cash flows by exiting low-margin legacy services, removing costs, and transitioning customers to our IP-based services. In the first quarter of 2011, Allstream's converged IP revenue growth was 7.9%, representing another significant step towards double-digit IP revenue growth in 2011. EBITDA increased by $16.0 million, compared to the same period of 2010, partly due to $11.7 million of restructuring expenses in the first quarter of 2010. Excluding these costs, EBITDA was up by 17.6% in the first quarter of 2011, the second straight quarter with year-over-year EBITDA growth for Allstream.

Consolidated revenues of $439.3 million in the first quarter of 2011 were stable compared to the same period of 2010. Managed declines in our legacy services were mostly offset by 9.4% growth in MTS's strategic services (wireless, Internet and IP TV) and 7.9% growth in Allstream's IP revenues.

EBITDA was $149.8 million in the first quarter of 2011, an increase of $19.2 million or 14.7%, compared to the same period of 2010. This increase was due to stable consolidated revenues, improvements to our cost structure, improved margins at Allstream, and $12.6 million of restructuring and transition expenses in the first quarter of 2010. Excluding restructuring and transition expenses, consolidated EBITDA in the first three months of 2011 increased by $6.6 million, or 4.6%, over the same period of 2010.

Earnings per share ("EPS") was $0.67 in the first quarter of 2011, an increase of $0.25, or 59.5%, compared to the same period of 2010. This improvement in EPS is due to EBITDA growth and an increase in other income, partly offset by higher depreciation and amortization expense resulting from an increase in depreciable assets. Excluding restructuring and transition expenses, EPS increased by $0.13, or 21.8%.

Free cash flow was $24.4 million in the first quarter of 2011, an increase of 18.4% compared to the same period of 2010. This increase is primarily due to strong EBITDA growth, particularly at Allstream, and lower capital expenditures, partly offset by higher year-over-year pension solvency funding of $24.4 million. For further discussion regarding pension funding obligations, refer to the section titled "Pension solvency funding".

Our capital intensity ratio was 15.4% in the first quarter of 2011 compared to 17.1% in the same period of 2010. This decrease is in line with our outlook for 2011 and is mainly due to higher spending in the first quarter of 2010 related to our new 4G wireless network, which was launched on March 31, 2011.

Strategic objectives

At MTS Allstream, we are committed to remaining a leading national telecommunications provider and the market leader in Manitoba. To this end, we are concentrating on three strategic objectives in 2011. By meeting these strategic objectives, we expect to continue to produce strong cash flows in support of our dividend policy. In the first quarter of 2011, we made the following progress on our three strategic objectives:

    <<
    1.  Maintain our industry-leading position in Manitoba.

        In Manitoba, we are the market leader because of our strong brand
        recognition, customer loyalty, exclusive distribution channels,
        product leadership, and unmatched bundling capabilities. To maintain
        our product leadership, we continued to invest in our wireless and
        broadband networks and enhance our unmatched bundling capabilities.

        On March 31, 2011, we launched our new 4G (HSPA+) wireless network in
        Manitoba, which provides customers with cellular voice and high-speed
        mobile data coverage of up to 21 megabits per second. Our 4G network
        delivers high-speed data to 97% of Manitoba's population, improving
        on our evolution data optimized ("EVDO") network, which reaches 72%
        of the population. We also introduced new service bundles and a new
        line-up of smartphones, including iPhone 4, which we launched on
        April 26, 2011. The expansiveness and sophistication of our wireless
        network in Manitoba is a significant competitive advantage. Our
        wireless services set our bundle offering apart from our competitors
        and further reinforce the strength of the MTS brand. In the first
        three months of 2011, our wireless revenues and average revenue per
        user ("ARPU") increased by 9.7% and 3.6%, respectively, when compared
        to the same period of 2010.

        In the first quarter of 2011, we continued to make investments in our
        broadband network by deploying our fibre-to-the-home network
        ("FTTH"). In 2010, we announced plans to invest $125 million over the
        next five years to deploy FTTH to approximately 120,000 homes in over
        20 Manitoba communities. In 2011, we will deploy FTTH to four new
        communities in Manitoba where we currently do not have very-high-bit-
        rate digital subscriber line. A strong broadband network is a
        competitive advantage, creates growth opportunities, and allows MTS
        to provide high-speed Internet and IP TV services. In the first
        quarter of 2011, MTS's Internet and IP TV revenues increased by 3.8%
        and 17.3%, respectively, when compared to the same period of the
        previous year. In the first quarter of 2011, MTS's high-speed
        Internet and IP TV subscriber bases rose by 0.8% and 1.1%,
        respectively.

    2.  Drive growth in IP-based services and improve profitability.

        Allstream continued to grow converged IP revenues, achieving 7.9%
        growth in the first quarter of 2011 when compared to the same period
        of 2010. We are supporting this growth with success-based investments
        that are adding new fibre-fed buildings to our network. In the first
        quarter of 2011, we added a total of 75 buildings to the network.
        This increased the total number of fibre-fed buildings to 2,164 as at
        March 31, 2011.  Through our new building programs,
        the transitioning of existing customers, and new customer sales into
        existing buildings during the first quarter of 2011; IP sales levels
        were consistent with the levels required to support double-digit IP
        revenue growth in 2011.

        A significant part of our investment plan began in 2010 when we
        announced a multi-year plan to expand Allstream's IP fibre network
        and increase profitability. This program specifically targets select
        multi-tenant buildings that are very close to existing fibre assets
        and can be connected at a very low cost. These investments extend our
        on-net reach and provide us with incremental high-margin revenue
        opportunities. Since we launched this initiative twelve months ago,
        we have extended fibre into 141 new multi-tenant buildings on a cost-
        effective basis and won a total of 187 new IP contracts.

    3.  Deliver superior customer service, while aggressively improving our
        cost structure.

        In 2011, we remain committed to delivering superior customer service
        and improving the customer experience. In the first quarter of 2011,
        we established a new role in each of our divisions, Vice President,
        Customer Experience, responsible for the development and
        implementation of the overall experience and quality strategy for our
        customers. MTS continued to meet its targets for superior customer
        service in the first quarter of 2011. Allstream continued to be among
        industry leaders when it comes to customer satisfaction, and in the
        first quarter of 2011, improved on its customer service and delivery
        metrics as compared to 2010.

        In the first quarter of 2011, we achieved $16.9 million in annualized
        cost savings through operational efficiency programs mainly
        associated with legacy product lines and restructuring initiatives.
        We are targeting a total of $25 million to $35 million in annualized
        cost savings in 2011. This continued improvement to our cost
        structure builds on successes realized in previous years. In 2010, we
        achieved $34.4 million in annualized cost reductions through our
        operational efficiency and restructuring initiatives. Together, these
        efforts have contributed to a 7.0% decrease in operating expenses in
        the first quarter of 2011 compared to the same period of 2010.
    >>

Key developments in the first quarter

Pension solvency funding

On March 25, 2011, the federal government announced that new federal pension regulations allowing letters of credit to satisfy a portion of pension solvency obligations would be implemented effective April 1, 2011. In the first quarter of 2011, we contributed $24.4 million in pension solvency payments to meet our 2011 funding obligations. With the implementation of the new federal pension regulations, we expect to satisfy any further pension solvency funding obligations in 2011 using letters of credit.

DISCUSSION OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

    <<
    (in millions $, except EPS)           Q1 2011      Q1 2010      % change
    -------------------------------------------------------------------------
    Operating revenues                      439.3        442.0          (0.6)
    -------------------------------------------------------------------------
    Operations expense                      289.5        311.4          (7.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA                                  149.8        130.6          14.7
    -------------------------------------------------------------------------
    Depreciation and amortization            74.8         70.2           6.6
    -------------------------------------------------------------------------
    Other income (expense)                    1.7         (4.0)          n.m.
    -------------------------------------------------------------------------
    Finance costs                           (15.6)       (15.6)            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income before income taxes               61.1         40.8          49.8
    -------------------------------------------------------------------------
    Income tax expense                       17.7         13.4          32.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income for the period                43.4         27.4          58.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other comprehensive income (loss)
     for the period, net of tax              56.6        (30.7)          n.m.
    -------------------------------------------------------------------------
    Total comprehensive income (loss)
     for the period                         100.0         (3.3)          n.m.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EPS                                     $0.67        $0.42          59.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Operating revenues

    <<
    (in millions $)                       Q1 2011      Q1 2010      % change
    -------------------------------------------------------------------------
    MTS                                     234.6        227.7           3.0
    -------------------------------------------------------------------------
    Allstream                               204.7        214.3          (4.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total operating revenues                439.3        442.0          (0.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Total operating revenues in the first quarter of 2011 decreased by $2.7 million, or 0.6%, compared to the same period of 2010.

At MTS, the 3.0% revenue growth in the first quarter of 2011 was driven by a 9.7% growth in wireless revenues and 7.2% growth in broadband and converged IP revenues (which include high-speed Internet and IP TV services revenue), partly offset by declines in local access, long distance and legacy data revenues.

At Allstream, a 4.5% revenue decrease in the first quarter of 2011 resulted from solid growth of 7.9% in converged IP revenues, offset by managed and expected declines of 9.0% in our legacy lines of business.

Operations expense

Operations expense decreased by $21.9 million, or 7.0%, in the first quarter of 2011 compared to the same period of 2010. This decrease was due to lower restructuring and transition costs, as well as operational efficiency and restructuring initiatives completed in previous periods, and margin improvements at Allstream. At Allstream, direct costs decreased by 8.6% in the first quarter of 2011 compared to the same period of 2010.

In the first quarter of 2011, we did not incur any restructuring and transition expenses compared to the $12.6 million we incurred in the same period of 2010. Restructuring expenses are expected to be up to $10 million in 2011, which is lower than our total restructuring and transition expenses of $35.5 million in 2010; our results in the first quarter reflect these plans. We continue to remove costs from our business and, in the first quarter of 2011, we achieved $16.9 million of annualized savings from our operational efficiency programs. We are targeting total annualized cost reductions in 2011 of $25 million to $35 million mainly associated with legacy product lines and restructuring initiatives.

EBITDA

    <<
    (in millions $)                       Q1 2011      Q1 2010      % change
    -------------------------------------------------------------------------
    MTS                                     121.8        118.2           3.0
    -------------------------------------------------------------------------
    Allstream                                28.8         12.8         125.0
    -------------------------------------------------------------------------
    Other                                    (0.8)        (0.4)        100.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total EBITDA                            149.8        130.6          14.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

The EBITDA increase is attributable to a decrease in restructuring and transition expenses, improving margins at Allstream, growth in MTS revenues, and improvements to our cost structure resulting from operational efficiency initiatives implemented in previous years.

At MTS, the EBITDA increase was due to overall revenue growth of 3.0%, partly offset by increased operations expense mainly associated with our growth lines of business. MTS's EBITDA margin in the first quarter of 2011 was 51.9%, consistent with the same period of 2010.

At Allstream, the significant EBITDA increase was mainly due to lower restructuring expenses, lower operating costs, and improved margins in the first quarter of 2011 compared to the same period of 2010. We continued to focus on increasing on-net IP revenues, managing the decline of low-margin off-net and legacy revenues, and removing costs from the business. Direct costs decreased by 8.6% in the first three months of 2011 compared to the first three months of 2010, while revenues decreased by 4.5%. Overall, Allstream's gross margin increased to 56.2% in the first quarter of 2011 from 54.2% in the same period of 2010.

Depreciation and amortization

Depreciation and amortization expense increased by $4.6 million, or 6.6%, in the first quarter of 2011 compared to the same period of 2010. This increase reflected higher depreciation expense primarily from growth in our wireless and IP TV asset bases and higher amortization of our wireless costs of acquisition.

Other income (expense)

Other income in the first quarter of 2011 was $1.7 million compared to other expense of $4.0 million in the first quarter of the previous year. This increase was mainly due to losses related to Allstream's sale of its non-telecommunications information technology ("IT") consulting group in the first quarter of 2010, and a one-time recovery of a previous year's expenditure.

Finance costs

Finance costs of $15.6 million in the first quarter of 2011 were in line with finance costs of $15.6 million in the same period of 2010.

Income tax expense

Income tax expense increased by $4.3 million, or 32.1%, in the first quarter of 2011 compared to the same period of 2010. This increase is mainly due to higher income before income taxes.

In previous years, we used our available tax losses associated with the acquisition of Allstream by deferring the use of our substantial capital cost allowance ("CCA") pools. By utilizing our deferred CCA deductions, we expect to fully offset our taxable income and not pay cash taxes before 2019, with the present value of our tax asset being approximately $325 million.

Net income and EPS

Net income and EPS increased by $16.0 million and $0.25, or 58.4% and 59.5%, respectively, in the first quarter of 2011 compared to the same period of 2010. These increases were due to the increase in EBITDA and other income, partly offset by higher depreciation and amortization expense and income tax expense.

Other comprehensive income (loss)

Other comprehensive income (loss) represents actuarial gains and losses arising from changes in the present value of our defined benefit plans' obligations and changes in the fair value of our defined benefit plans' assets. These items are recognized in other comprehensive income net of tax, and therefore, do not have an impact on our net income or EPS.

DIVISIONAL ANALYSIS

MTS operating revenues

    <<
    (in millions $)                       Q1 2011      Q1 2010      % change
    -------------------------------------------------------------------------
    Wireless                                 84.0         76.6           9.7
    -------------------------------------------------------------------------
    Broadband and converged IP               47.7         44.5           7.2
    -------------------------------------------------------------------------
    Unified communications, security
     and monitoring                           8.1          8.5          (4.7)
    -------------------------------------------------------------------------
    Local access                             69.0         72.6          (5.0)
    -------------------------------------------------------------------------
    Long distance and legacy data            22.4         22.8          (1.8)
    -------------------------------------------------------------------------
    Other                                     3.4          2.7          25.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total MTS operating revenues            234.6        227.7           3.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Wireless

Our wireless portfolio consists of cellular, wireless data, paging and group communications services that we offer in the Manitoba market.

The 9.7% wireless revenue growth in the first quarter of 2011 was mainly due to higher wireless data usage, growth in our subscriber base, and an increase in ARPU. Revenue growth from our wireless data services was strong at 40.5% in the first quarter of 2011 compared to the first quarter of 2010. Our new 4G wireless network, which was launched on March 31, 2011, delivers high-speed data to 97% of Manitoba's population, improving on our EVDO network coverage which reaches 72% of the population, strongly supporting continuing growth in wireless data services for the future.

At March 31, 2011, we had 483,722 wireless subscribers, a 5.3% increase from 459,554 in the first quarter of 2010. Sequentially, our total wireless subscriber base was flat, which was expected leading up to the announced launch of our 4G wireless network.

Our wireless ARPU was $56.73 for the first quarter of 2011, an increase of 3.6% from $54.76 in the same period of 2010. This increase primarily reflected higher wireless data services revenues, partly offset by lower network charges resulting from the removal of system access fees on new plans.

Broadband and converged IP

Broadband and converged IP services include revenues earned from providing high-speed Internet and IP TV services to residential customers in Manitoba, as well as IP-based connectivity to business customers based in Manitoba.

The 7.2% broadband and converged IP revenue growth in the first quarter of 2011 was mainly due to increases in revenues from our IP TV and high-speed Internet services.

Revenues from our IP TV services (which include both MTS Classic TV and MTS Ultimate TV) increased by $2.4 million, or 17.3%, in the first quarter of 2011 compared to the same period of 2010. This increase reflected higher sales of our MTS Ultimate TV services and purchases of our high-definition programming, along with fewer customers on promotional pricing. At March 31, 2011, we had a total of 90,468 subscribers to our IP TV services, representing a year-over-year increase of 1.1%. Close to 44,000 of these customers subscribe to our MTS Ultimate TV service, double the number of subscribers we had at March 31, 2010. Our Ultimate TV service produces higher ARPU and premium revenues compared to our Classic TV service. Our ARPU for IP TV services was $58.63 in the first three months of 2011, an increase of 14.7% from $51.12 in the first quarter of 2010. At March 31, 2011, our Ultimate TV service was available to 95% of Winnipeg households as well as 94% and 99% of households in each of Portage La Prairie and Brandon, respectively.

Revenues from our Internet services increased by $0.9 million, or 3.8%, in the first three months of 2011 compared to the first three months of 2010, driven by a 5.8% increase in high-speed Internet residential ARPU. At March 31, 2011, our high-speed subscriber base totalled 184,899, an increase of 0.8% from the prior year.

Revenues from converged IP services for the first quarter of 2011 were stable compared to the same period of 2010.

Unified communications, security and monitoring

Unified communications, security and monitoring services consist of revenues earned from the provision of IP products and services to business customers in Manitoba. This line of business also includes revenues earned from the installation and monitoring of alarm services to residential and business customers in Manitoba.

The $0.4 million unified communications, security and monitoring services revenues decrease in the first quarter of 2011 reflected the timing of unified communications sales and installations.

Local access

Local access services include revenues earned for the provision of both residential and business voice connectivity including calling features, payphone revenue, and wholesale revenue within Manitoba.

The 5.0% local access services revenues decrease in the first quarter of 2011 was mainly due to a 5.9% decline in residential local access lines resulting from local competition and substitution, a 2.1% decrease in business local access lines, and lower contribution revenues.

Long distance and legacy data

Long distance and legacy data services include revenues earned from the provision of long distance calling along with legacy data services, such as private line networks, that we offer to business customers in Manitoba.

Long distance and legacy data services revenues were stable in the first quarter of 2011 compared to the same period of 2010 and compared to the last four sequential quarters. Long distance services revenues decreased as a result of customer migration to lower-priced long distance plans and reduced volumes as customers continue to substitute long distance calling with alternative methods of communication, such as email, text messaging, and social networking. This decrease in long distance revenues was mostly offset by an increase in legacy data services revenues due to increased demand for private line network services.

Other

Other services include revenues earned from customer late payment charges, facilities rental and other miscellaneous items.

Other services revenues increased by $0.7 million due to a one-time retroactive rate change for rentals of support structures following a decision by the Canadian Radio-television and Telecommunications Commission ("CRTC").

Allstream operating revenues

    <<
    (in millions $)                       Q1 2011      Q1 2010      % change
    -------------------------------------------------------------------------
    Converged IP                             57.5         53.3           7.9
    -------------------------------------------------------------------------
    Unified communications and security      22.1         23.6          (6.4)
    -------------------------------------------------------------------------
    Local access                             50.3         50.7          (0.8)
    -------------------------------------------------------------------------
    Long distance and legacy data            56.1         62.4         (10.1)
    -------------------------------------------------------------------------
    Other                                    18.7         24.3         (23.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Allstream operating revenues      204.7        214.3          (4.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Converged IP

Converged IP services include revenues earned from the provision of IP-based networking and related products and services to business customers nationally.

The 7.9% converged IP revenue growth in the first quarter of 2011 was our second straight quarter of significant year-over-year IP revenue growth due to our success in winning multiple service agreements with new customers. This solid increase in IP sales activity continued into 2011, supporting sales levels that are expected to result in double-digit revenue growth in 2011. In 2010, we launched a multi-year plan to expand Allstream's IP fibre network on a cost-effective basis to support this high-margin IP revenue growth. To date under this program, we have extended fibre to 141 new multi-tenant buildings and won a total of 187 new IP contracts.

Unified communications and security

Unified communications and security services include revenues earned from the provision of IP telephony products and services along with revenues from our IP-based security offerings to national business customers.

The $1.5 million unified communications and security services revenues decrease in the first quarter of 2011 reflected lower product sales in both unified communications and security services due to actions taken to exit low-margin resale product lines at Allstream.

Local access

Local access services include revenues earned for the provision of business voice connectivity, including calling features, to national business and wholesale customers.

Local access revenues earned in local business markets across Canada remained stable in the first quarter of 2011 as slight declines in local access rates were offset by continued growth in the number of small- and medium-sized business customers subscribing to bundled services.

Long distance and legacy data

Long distance and legacy data services include revenues earned from the provision of long distance calling along with legacy data services, such as private line networks, to business customers nationally.

The 10.1% long distance and legacy data revenue decrease in the first quarter of 2011 was due to declines in both long distance and legacy data services portfolios.

The decline in long distance services revenues was mainly due to lower domestic and cross-border rates along with decreased volumes in the cross-border market, somewhat offset by higher international rates and domestic volumes.

The decrease in our legacy data revenues was mainly due to our customers' continued transition to broadband and other IP-based services. We continue to implement our strategy to improve profitability of our legacy services by exiting low-margin services, reducing costs, and transitioning our customers to IP-based services.

Other

Other services include wholesale revenues earned from the routing and exchange of long distance network traffic, customer late payment charges, and other miscellaneous items.

The 23.0% other services revenues decrease in the first quarter of 2011 was mainly due to our decision to reduce our participation in low-margin businesses.

SUMMARY OF QUARTERLY RESULTS

Our financial results for our eight most recently completed quarters are presented below:

    <<
                                             IFRS     IFRS     IFRS     IFRS
                                               Q1       Q4       Q3       Q2
    (in millions $, except EPS)              2011     2010     2010     2010
    -------------------------------------------------------------------------
    Operating revenues                      439.3    446.7    451.0    442.9
    -------------------------------------------------------------------------
    EBITDA                                  149.8    135.5    159.9    138.8
    -------------------------------------------------------------------------
    Net income                               43.4     29.8     48.9     35.2
    -------------------------------------------------------------------------
    Basic and diluted EPS                   $0.67    $0.46    $0.76    $0.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  Previous Previous Previous
                                             IFRS     GAAP     GAAP     GAAP
                                               Q1       Q4       Q3       Q2
    (in millions $, except EPS)              2010     2009     2009     2009
    -------------------------------------------------------------------------
    Operating revenues                      442.0    453.8    438.8    452.8
    -------------------------------------------------------------------------
    EBITDA                                  130.6    137.3    134.5    140.5
    -------------------------------------------------------------------------
    Net income                               27.4      6.7     27.9     30.1
    -------------------------------------------------------------------------
    Basic and diluted EPS                   $0.42    $0.10    $0.43    $0.47
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Our consolidated financial results for the eight most recently completed quarters reflected the following significant transactions and trends:

    <<
    -   In general, over the last eight quarters, operating revenues
        reflected strong growth in MTS's wireless, high-speed Internet and IP
        TV services in Manitoba, along with strong growth in Allstream's
        converged IP services, and declines in total legacy services
        revenues. We have seen an increase in demand for IP-based
        telecommunications services, with Allstream showing three quarters of
        sequential IP revenue growth beginning in the third quarter of 2010.
        In addition, beginning in the second quarter of 2009, our Allstream
        revenues, particularly our long distance and legacy data services and
        our unified communications portfolio, were negatively impacted by the
        global recession and slow pace of economic recovery.

    -   Over the past several years, we have improved our cost structure
        through operational efficiency and restructuring initiatives.
        Expenses related to these ongoing cost reduction initiatives resulted
        in decreases in EBITDA. In 2010, restructuring and transition
        expenses were $12.6 million in the first quarter, $8.2 million in the
        second quarter, $1.7 million in the third quarter, and $13.0 million
        in the fourth quarter. In 2009, restructuring and transition expenses
        were $12.7 million, $9.0 million, and $5.8 million in the second,
        third and fourth quarters, respectively.

    -   In the third quarter of 2009, a decision by the CRTC related to the
        use of deferral account funds required us to recognize a $13.5
        million customer rebate, resulting in a decrease in operating
        revenues. In the third quarter of 2010, the CRTC reduced our
        requirements to rebate customers by $5.0 million, resulting in an
        increase in operating revenues.

    -   In 2010, MTS executed a comprehensive settlement agreement with Bell
        Mobility in respect of various historical disputes. Under this
        confidential settlement, we received a $10.0 million one-time cash
        payment from Bell Mobility in the third quarter of 2010, which
        resulted in an increase in EBITDA. We also incurred expenses over the
        past several years in relation to the transition of certain wireless
        service requirements away from Bell Mobility and to new suppliers and
        our wireless platform. These expenses were $6.3 million, $0.7
        million, and $3.7 million in the second, third and fourth quarters of
        2009, respectively.

    -   In 2010, we completed the sale of the majority of our Allstream non-
        telecommunications IT consulting group. We recognized losses, net of
        tax, associated with this line of business in the amounts of $1.0
        million and $1.4 million in the first and second quarters of 2010,
        respectively, and $2.3 million in the fourth quarter of 2009. These
        losses resulted in decreases in net income and EPS.

    -   In the fourth quarter of 2009, under previous GAAP, we recognized
        deferred income tax expense of $23.4 million to reflect a decrease in
        the value of our income tax asset as a result of reductions in future
        income tax rates or rate differential on temporary differences. This
        transaction resulted in a decrease in net income and EPS.
    >>

LIQUIDITY AND CAPITAL RESOURCES

SUMMARY OF CASH FLOWS

    <<
    (in millions $)                       Q1 2011      Q1 2010      $ change
    -------------------------------------------------------------------------
    Cash flows from (used in):
    -------------------------------------------------------------------------
    Operating activities                     27.4         97.6         (70.2)
    -------------------------------------------------------------------------
    Investing activities                    (68.5)       (66.0)         (2.5)
    -------------------------------------------------------------------------
    Financing activities                    (14.2)       (41.3)         27.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Change in cash and cash equivalents
     for the period                         (55.3)        (9.7)        (45.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Operating activities

Cash flows from operating activities refer to cash we generate from our normal business activities.

The $70.2 million decrease in cash flows from operating activities in the first quarter of 2011 was mainly due to an increase in year-over-year pension funding, along with cash used in the first quarter of 2011 for trade accounts payable associated with higher capital expenditures on our 4G network in the fourth quarter of 2010 compared to the fourth quarter of 2009. These uses of cash were partly offset by increased cash flows resulting from higher EBITDA.

Investing activities

Investing activities represent cash used for acquiring, and cash received from disposing of, long-term assets and other long-term investments.

The $2.5 million increase in cash flows used in investing activities in the first quarter of 2011 was mainly due to proceeds on the sale of Allstream's non-telecommunications IT group in the first quarter of 2010, somewhat offset by a year-over-year decrease in capital expenditures.

Capital expenditures were $67.8 million in the first three months of 2011, a decrease of $8.0 million from $75.8 million in the same period of 2010. This represented a capital intensity ratio of 15.4% in the first quarter of 2011 compared with 17.1% in the first quarter of 2010. The decrease in spending, which is in line with our outlook for 2011, was mainly due to higher spending in the first quarter of 2010 related to our 4G wireless network and the related billing implementation.

Capital spending in the first quarter of 2011 was focused on our growth lines of business. At MTS, our capital spending was focused on our 4G wireless network and billing implementation and enhancing our broadband network by deploying FTTH. At Allstream, we focused our capital spending on Allstream's IP fibre network where we are making targeted investments to extend fibre to select multi-tenant buildings and to enhance our Ethernet capabilities in our co-location areas.

Financing activities

Financing activities refer to actions we undertake to fund our operations through equity capital and borrowings.

The $27.1 million decrease in cash flows used in financing activities in the first quarter of 2011 was due to a decrease in our quarterly dividend, the 25% participation in our dividend reinvestment program ("DRIP"), and the issuance of notes payable in the first quarter of 2011.

In the first quarter of 2011, cash dividends paid were based on a quarterly dividend of $0.425 per outstanding common share as approved by our Board of Directors. This was compared to a quarterly dividend paid of $0.65 per outstanding common share in the first quarter of 2010. In the third quarter of 2010, our Board of Directors approved an update to the Company's dividend policy and established a new dividend payout ratio target of 70% to 80% of free cash flows from our Manitoba operations.

In the second quarter of 2010, we established a DRIP with a 3% discount, which enables eligible holders of the Company's common shares to automatically reinvest their regular quarterly dividends in additional common shares of the Company without incurring brokerage fees. Participation in our DRIP was 25% in the first quarter of 2011, resulting in $7.0 million additional cash available for operations.

Free cash flow

Free cash flow refers to cash flows from operating activities, less capital expenditures, and excluding changes in working capital. Free cash flow is the amount of discretionary cash flow that we have for purchasing additional assets beyond our annual capital expenditure program, paying dividends, buying back shares, and/or retiring debt.

    <<
    (in millions $)                       Q1 2011      Q1 2010      $ change
    -------------------------------------------------------------------------
    Cash flows from operating activities     27.4         97.6         (70.2)
    -------------------------------------------------------------------------
    Add (deduct): Changes in non-cash
     working capital                         64.8         (1.2)         66.0
    -------------------------------------------------------------------------
    Deduct: Capital expenditures            (67.8)       (75.8)          8.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Free cash flow for the period            24.4         20.6           3.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

The 18.4% increase in free cash flow in the first quarter of 2011 was primarily due to higher EBITDA and a reduction in capital expenditures, partly offset by an increase in pension solvency funding.

In the first quarter of 2011, we contributed $24.4 million in pension solvency payments to meet our 2011 funding obligations. With the introduction of new federal pension funding regulations effective April 1, 2011, we expect that any further solvency funding obligations in 2011 will be satisfied using letters of credit.

CAPITAL MANAGEMENT

Credit facilities

    <<
                                           Utilized at         Capacity at
    (in millions $)                       March 31, 2011      March 31, 2011
    -------------------------------------------------------------------------
    Medium term note program                  200.0               500.0
    -------------------------------------------------------------------------
    Revolving credit facility                 111.9               400.0
    -------------------------------------------------------------------------
    Letter of credit facility                  27.9               150.0
    -------------------------------------------------------------------------
    Accounts receivable securitization          6.0               150.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total credit facilities                   345.8             1,200.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

We have arrangements in place that allow us to access the debt capital markets for funding when required. Borrowings under these facilities typically are used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations.

We have a $500.0 million medium term note program under which we have utilized $200.0 million for the issuance of debt. We also have a $400.0 million revolving credit facility, of which $150.0 million is available to back-stop our commercial paper program. As of March 31, 2011, we had utilized $111.9 million of our revolving credit facility for undrawn letters of credit. We also have a $150.0 million credit facility, which is used solely for the issuance of letters of credit. As at March 31, 2011, we utilized $27.9 million of this facility for undrawn letters of credit. In addition to these programs and facilities, we have a $150.0 million accounts receivable securitization program, of which $6.0 million was utilized at March 31, 2011. On April 22, 2011, we renewed our accounts receivable securitization program, decreasing the amount available under this facility from $150.0 million to $110.0 million.

Of the $139.8 million in total letters of credit outstanding, $110.2 million represents letters of credit issued under the Solvency Funding Relief Regulations enacted in 2006 under the Pension Benefits Standards Act, 1985 (Canada), which permits the extension of pension solvency payments from a five-year amortization period to a 10-year amortization period for our defined benefit pension plans. Effective April 1, 2011, new federal pension regulations allowing letters of credit to satisfy a portion of pension solvency obligations came into force, and the letters of credit issued under the Solvency Funding Relief Regulations are now considered letters of credit under the new federal pension regulations. We expect to issue letters of credit to satisfy our pension solvency funding obligations for the remainder of 2011.

Capital structure

    <<
    (in millions $)                       March 31, 2011   December 31, 2010
    -------------------------------------------------------------------------
    Bank indebtedness (cash and
     cash equivalents)                          5.3               (50.0)
    -------------------------------------------------------------------------
    Notes payable                               6.0                   -
    -------------------------------------------------------------------------
    Finance lease obligations, including
     current portion                           16.6                16.4
    -------------------------------------------------------------------------
    Long-term debt, including current
     portion                                1,040.8             1,040.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total debt                              1,068.7             1,007.0
    -------------------------------------------------------------------------
    Shareholders' equity                      927.6               848.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total capitalization                    1,996.3             1,855.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Debt to capitalization                     53.5%               54.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    In accordance with IFRS
    >>

Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 53.5% at March 31, 2011 continues to represent financial strength and flexibility.

Credit ratings

    <<
                                             S&P                 DBRS
    -------------------------------------------------------------------------
    Senior debentures                        BBB (stable)        BBB (stable)
    -------------------------------------------------------------------------
    Commercial paper                         A-2                 R-2 (high)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Our credit ratings remain unchanged from those disclosed in our 2010
Annual MD&A.

    Outstanding share data

                                                   As at              As at
                                          April 21, 2011      March 31, 2011
    -------------------------------------------------------------------------
    Common shares outstanding                 65,450,771          65,213,118
    -------------------------------------------------------------------------
    Stock options outstanding                  3,060,135           3,060,135
    -------------------------------------------------------------------------
    Stock options exercisable                  1,850,990           1,850,990
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements

Our contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements remain substantially unchanged from those disclosed in our 2010 Annual MD&A.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Our critical accounting estimates and assumptions remain substantially unchanged from those disclosed in our 2010 Annual MD&A.

CHANGES IN ACCOUNTING POLICIES

2011 adoption of IFRS

In 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the date for IFRS to replace Canadian GAAP for publicly accountable enterprises. Our condensed interim consolidated financial statements for the three months ended March 31, 2011 represent the initial presentation of our results and financial position under IFRS. These financial statements are prepared using the same accounting policies we expect to apply in our first annual IFRS consolidated financial statements for the year ending December 31, 2011.

Further information regarding the financial impact of our conversion to IFRS is available in note 10 to the condensed interim consolidated financial statements for the three months ended March 31, 2011 and in our 2010 Annual MD&A.

OUR REGULATORY ENVIRONMENT

The telecommunications and broadcast industries in which we operate are federally regulated pursuant to both the Telecommunications Act and the Broadcasting Act. The primary regulatory agency we are subject to is the CRTC. The Government of Canada ("the Government'), through the Departments of Industry and Canadian Heritage, exercises legislative oversight of the CRTC. We are subject to policy decisions taken by the Government from time to time as well as any amendments to applicable legislation or regulatory instruments. We operate as an incumbent local exchange carrier ("ILEC") in Manitoba and as a competitive local exchange carrier outside of Manitoba. We also operate as a licensed broadcasting distribution undertaking ("BDU") in parts of Manitoba, including Winnipeg and the surrounding area.

The following are updates to key regulatory and policy proceedings described in the section titled "Our regulatory environment" of our 2010 Annual MD&A.

Broadcasting policy

On June 7, 2010, the Federal Court of Appeal determined that Internet service providers are not acting as BDUs and are not subject to the Broadcasting Act when they provide Internet access, which includes broadcasting content via the Internet. On September 30, 2010, opposing parties sought leave to appeal this decision to the Supreme Court of Canada (the "SCC"), which was granted on March 24, 2011. We agree with the Federal Court of Appeal's decision and will participate with other Internet service providers as respondents in the appeal.

On February 28, 2011, the Federal Court of Appeal decided the CRTC has authority to require BDUs to pay broadcasters a fee for the carriage of local over-the-air signals. At least one BDU has announced its intention to seek leave to appeal the decision to the SCC. While monitoring any appeal to the SCC, we and a number of other parties have raised the issue of large integrated players seeking fee for carriage as part of the CRTC's review of the implications of BDUs owning television programming and production assets.

Usage-based billing

On January 25, 2011, the CRTC issued a decision permitting incumbent carriers to apply usage-based billing ("UBB") rates on their wholesale residential high-speed Internet access services at a discount of 15% from the carrier's comparable UBB rates for its retail Internet services. This decision provoked considerable public outcry, which led to an examination of the issue by the parliamentary Standing Committee on Industry, Science and Technology.

On February 8, 2011, the CRTC put the implementation of its UBB decision on hold and initiated a review of billing practices for wholesale residential high-speed Internet access or broadband services. We are participating in this proceeding, including the public hearing, which is scheduled to commence on July 11, 2011, and are advocating for competitive access to incumbent facilities at fair and reasonable prices.

Unbundled local loops

Throughout 2010, the CRTC conducted a detailed review of how to set prices for competitors who use ILEC's copper facilities, known as unbundled local loops, to provide local telephone service to customers. The review, which was triggered by an application submitted on June 2, 2009 by Bell Canada and Bell Aliant Regional Communications, Limited Partnership, (the "Bell companies") considered the issue of obsolescence of copper facilities in light of greatly expanded deployment of fibre in the applicants' access networks.

On January 12, 2011, the CRTC issued Telecom Decision CRTC 2011-24 approving new rates for unbundled local loops leased from the applicants. The new prices reflect recovery of the applicants' net book values of copper facilities over the assumed remaining useful life. There is also a possibility of additional applications for other services using copper facilities, or applications from other ILECs. We have identified certain issues with the CRTC's analysis and calculations. As a result, we filed an application on March 7, 2011 to review and vary the decision, with the expectation of reducing or eliminating the price increase. On March 31, 2011, the Bell companies announced their intent to also file an application to review and vary the decision. The CRTC's decision accepted many of the points we had raised by declining to grant the significant price increases being sought by the large incumbents, which, as a result, are no longer material. We are pursuing our review and vary application to eliminate or further reduce the increases and will oppose any further application filed by the Bell companies.

Review of network interconnection regulatory regimes

The CRTC has initiated a proceeding to review the regulatory and compensation regimes for network interconnection between local, toll, and wireless service providers. The proceeding will consider technological neutrality, enhancements to competition, and benefits to customers which could arise from the consolidation, modification, or simplification of these regimes. The proceeding is expected to last throughout most of 2011 with a decision anticipated in early 2012.

Industry Canada radio spectrum consultations

The Government has identified that making suitable spectrum available for next-generation wireless networks and services is a key component of its digital economy strategy. Accordingly, in November 2010, the Government initiated consultations on the policy and technical framework that will govern the wireless spectrum auctions for the 700 megahertz ("MHz") spectrum band. As well, on February 10, 2011, the Government initiated a similar consultation for the 2500-2690 MHz spectrum band, which may be auctioned jointly with the 700 MHz spectrum band. The timing and sequencing of the auction(s) remains to be determined. The Government has also indicated that it will link its decision on foreign investment to the policy and structure of these auctions. We are participating in both consultations, which are expected to conclude in May 2011, and will participate in subsequent consultations on the licensing framework for the auctioning of the spectrum.

As in our submissions in other forums, we continue to advocate for pro-competitive auction measures (in addition to the lifting of the foreign investment restrictions) and conditions of licence that will contribute to sustainable competition in the Canadian telecommunications marketplace for the benefit of all Canadians in all regions.

Manitoba Consumer Protection Office consultation

In December 2010, the Manitoba Consumer Protection Office launched a public consultation on potential new rules governing cell phone and wireless device contracts. As a member of the Canadian Wireless Telecommunications Association ("CWTA"), we contributed to, and supported, an industry-backed submission on January 14, 2011, highlighting the range of consumer-friendly practices which CWTA members have implemented or begun implementing. We will continue to work with the CWTA and with public officials in the coming months to identify key issues that may affect us and our customers and will respond constructively to any proposed legislation tabled by the government.

RISKS AND UNCERTAINTIES

Our risks and uncertainties remain substantially unchanged from those disclosed in our 2010 Annual MD&A.

NON-IFRS MEASURES OF PERFORMANCE

In this MD&A, we provide information concerning EBITDA and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by IFRS and are not necessarily comparable to similarly titled measures used by other companies.

EBITDA

We define EBITDA as earnings before interest, taxes, depreciation and amortization, and other income (expense). EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with IFRS) as a measure of liquidity.

Free cash flow

We define free cash flow as cash flows from operating activities, less capital expenditures, and excluding changes in working capital. Free cash flow is the amount of discretionary cash flow that we have for purchasing additional assets beyond our annual capital expenditure program, paying dividends, buying back shares, and/or retiring debt.

CONTROLS AND PROCEDURES

Internal control over financial reporting

Other than the changes to systems, processes, controls and procedures resulting from the conversion to IFRS as described in the section titled "Changes in accounting policies, including initial adoption" in our 2010 Annual MD&A, there have been no changes in our internal control over financial reporting during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SECOND QUARTER DIVIDEND

On May 3, 2011, the Board of Directors of MTS Allstream declared a quarterly cash dividend of $0.425 per common share. The first quarter dividend is payable on July 15, 2011 to shareholders of record at the close of business on June 15, 2011. The second quarter dividend is designated as an "eligible" dividend under the Income Tax Act (Canada) and any corresponding provincial legislation. Under this legislation, individuals resident in Canada may be entitled to enhanced dividend tax credits that reduce income tax otherwise payable.

Notes

    <<
    1.  Supplementary financial information is available in the Investors
        section of the MTS Allstream website at www.mtsallstream.com.
    2.  MTS Allstream's first quarter 2011 conference call with the
        investment community is scheduled for 8:30 a.m. (Eastern time)
        Wednesday, May 4, 2011. The dial-in number is 1-888-231-8191. A live
        audio webcast of the investor conference call can be accessed by
        visiting the Investors section of the MTS Allstream website
        (www.mtsallstream.com). A replay of the conference call will be
        available until midnight Wednesday, May 18, 2011 and can be accessed
        by dialing 1-800-642-1687 or 1-416-849-0833 (access code: 55991094).
        The audio webcast will be archived on MTS Allstream's website.


    MANITOBA TELECOM SERVICES INC.
    CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
    AND OTHER COMPREHENSIVE INCOME (LOSS)
    (unaudited)

    For the three months ended March 31
    (in millions of Canadian dollars,
     except earnings per share)                     Note      2011      2010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating revenues                                     $ 439.3   $ 442.0
    -------------------------------------------------------------------------

    Operating expenses
      Operations                                             289.5     311.4
    -------------------------------------------------------------------------
    Depreciation and amortization                             74.8      70.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             364.3     381.6
    -------------------------------------------------------------------------

    Operating income                                          75.0      60.4
    -------------------------------------------------------------------------

    Other income (expense)                                     1.7      (4.0)
    -------------------------------------------------------------------------
    Finance costs                                            (15.6)    (15.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income before income taxes                                61.1      40.8
    -------------------------------------------------------------------------

    Income tax expense                                 5      17.7      13.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income for the period                              $  43.4   $  27.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other comprehensive income
    Net actuarial gains (losses) from defined
     benefit plans and other employee benefits             $  76.6   $ (73.6)
    -------------------------------------------------------------------------
    Change in the effect of the minimum funding
     requirement                                                 -      32.0
    -------------------------------------------------------------------------
    Deferred taxes on items in other comprehensive
     income                                                  (20.0)     10.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other comprehensive income (loss) for the period,
     net of tax                                               56.6     (30.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total comprehensive income (loss) for the period       $ 100.0   $  (3.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings per share               6   $  0.67   $  0.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    (unaudited)

    (in millions of                              March   December    January
     Canadian dollars)                 Note    31 2011    31 2010     1 2010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Assets
    Current assets
    Cash and cash equivalents                $       -  $    50.0  $   110.2
    -------------------------------------------------------------------------
    Accounts receivable                          149.9      152.3      166.2
    -------------------------------------------------------------------------
    Prepaid expenses                              40.2       33.1       34.1
    -------------------------------------------------------------------------
    Inventories                                   34.1       25.4       23.9
    -------------------------------------------------------------------------
    Assets held for sale                             -          -       18.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                 224.2      260.8      353.0
    -------------------------------------------------------------------------

    Property, plant and equipment        11    1,505.2    1,497.6    1,378.6
    -------------------------------------------------------------------------
    Intangible assets                    11      273.7      279.5      278.5
    -------------------------------------------------------------------------
    Other assets                                  44.8       43.0       42.3
    -------------------------------------------------------------------------
    Deferred tax assets                  11      512.0      549.7      573.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets                             $ 2,559.9  $ 2,630.6  $ 2,626.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities
    Bank indebtedness                        $     5.3  $       -  $       -
    -------------------------------------------------------------------------
    Accounts payable and accrued
     liabilities                                 292.2      343.4      312.7
    -------------------------------------------------------------------------
    Advance billings and payments                 58.7       55.3       52.5
    -------------------------------------------------------------------------
    Current provisions                   11       26.2       29.9       32.0
    -------------------------------------------------------------------------
    Current portion of long-term debt            220.0      220.0       11.9
    -------------------------------------------------------------------------
    Notes payable                                  6.0          -          -
    -------------------------------------------------------------------------
    Current portion of finance lease
     obligations                                   6.5        4.9        4.2
    -------------------------------------------------------------------------
    Liabilities related to assets held
     for sale                                        -          -        9.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                 614.9      653.5      422.3
    -------------------------------------------------------------------------

    Long-term debt                               820.8      820.6    1,039.6
    -------------------------------------------------------------------------
    Long-term portion of finance lease
     obligations                                  10.1       11.5       13.4
    -------------------------------------------------------------------------
    Long-term provisions                 11        6.0        5.7        8.1
    -------------------------------------------------------------------------
    Employee benefits                            148.0      256.2      162.5
    -------------------------------------------------------------------------
    Other long-term liabilities                   31.4       34.0       31.5
    -------------------------------------------------------------------------
    Deferred tax liabilities             11        1.1        1.1        1.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total liabilities                          1,632.3    1,782.6    1,678.6
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital                         8    1,282.0    1,275.0    1,266.9
    -------------------------------------------------------------------------
    Contributed surplus                           20.4       20.1       19.3
    -------------------------------------------------------------------------
    Deficit                                     (374.8)    (447.1)    (338.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                 927.6      848.0      947.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total liabilities and
     shareholders' equity                    $ 2,559.9  $ 2,630.6  $ 2,626.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
    (unaudited)

    (in millions of                  Share   Contributed
     Canadian dollars)      Note    capital    surplus    Deficit      Total
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance at December
     31, 2010                     $ 1,275.0  $    20.1  $  (447.1) $   848.0
    -------------------------------------------------------------------------

    Net income for the period             -          -       43.4       43.4
    -------------------------------------------------------------------------
    Other comprehensive income
     for the period                       -          -       56.6       56.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total comprehensive
     income for the period                -          -      100.0      100.0
    -------------------------------------------------------------------------
    Share-based compensation              -        0.3          -        0.3
    -------------------------------------------------------------------------
    Issuance of shares                  7.0          -          -        7.0
    -------------------------------------------------------------------------
    Dividends declared         7          -          -      (27.7)     (27.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance at March 31, 2011     $ 1,282.0  $    20.4  $  (374.8) $   927.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance at January 1, 2010    $ 1,266.9  $    19.3  $  (338.5) $   947.7
    -------------------------------------------------------------------------

    Net income for the period             -          -       27.4       27.4
    -------------------------------------------------------------------------
    Other comprehensive loss
     for the period                       -          -      (30.7)     (30.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total comprehensive loss
     for the period                       -          -       (3.3)      (3.3)
    -------------------------------------------------------------------------
    Share-based compensation              -        0.2          -        0.2
    -------------------------------------------------------------------------
    Issuance of shares                  0.2          -          -        0.2
    -------------------------------------------------------------------------
    Dividends declared         7          -          -      (42.0)     (42.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance at March 31, 2010     $ 1,267.1  $    19.5  $  (383.8) $   902.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)


    For the three months ended March 31
    (in millions of Canadian dollars)             Note       2011       2010
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from operating activities
      Net income                                           $ 43.4    $  27.4
    -------------------------------------------------------------------------
      Add items not affecting cash
        Depreciation and amortization                        74.8       70.2
    -------------------------------------------------------------------------
        Deferred income tax expense                  5       17.7       13.3
    -------------------------------------------------------------------------
        Loss on disposal of assets                            0.1        0.6
    -------------------------------------------------------------------------
      Deferred wireless costs                                (9.1)      (9.3)
    -------------------------------------------------------------------------
      Pension funding and net pension expense               (35.1)      (3.3)
    -------------------------------------------------------------------------
      Other, net                                              0.4       (2.5)
    -------------------------------------------------------------------------
      Changes in non-cash working capital                   (64.8)       1.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows from operating activities                   27.4       97.6
    -------------------------------------------------------------------------

    Cash flows from investing activities
      Capital expenditures                                  (67.8)     (75.8)
    -------------------------------------------------------------------------
      Proceeds on disposal of assets held for sale              -       10.5
    -------------------------------------------------------------------------
      Other, net                                             (0.7)      (0.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows used in investing activities               (68.5)     (66.0)
    -------------------------------------------------------------------------

    Cash flows from financing activities
      Dividends paid                                        (27.6)     (42.0)
    -------------------------------------------------------------------------
      Issuance of notes payable                               6.0          -
    -------------------------------------------------------------------------
      Issuance of share capital                      8        7.0        0.2
    -------------------------------------------------------------------------
      Other, net                                              0.4        0.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows used in financing activities               (14.2)     (41.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Change in cash and cash equivalents                     (55.3)      (9.7)
    -------------------------------------------------------------------------

    Cash and cash equivalents, beginning of period           50.0      110.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (Bank indebtedness) cash and cash equivalents,
     end of period                                         $ (5.3)   $ 100.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
    (unaudited)

    All amounts are in millions of Canadian dollars, unless otherwise
indicated

    1.  CORPORATE INFORMATION

        Manitoba Telecom Services Inc. (the "Company") is incorporated in
        Manitoba, Canada, and its Common Shares are listed on the Toronto
        Stock Exchange. The Company's head and registered office is located
        at 333 Main Street, P.O. Box 6666, Winnipeg, Manitoba, Canada, R3C
        3V6.

    2.  SIGNIFICANT ACCOUNTING POLICIES

        (a) Statement of compliance

        These interim condensed consolidated financial statements of Manitoba
        Telecom Services Inc. (the "Company") represent the initial
        presentation of its results and financial position under
        International Financial Reporting Standards ("IFRS"). The Company
        previously prepared its consolidated financial statements in
        accordance with previous Canadian generally accepted accounting
        principles ("GAAP"). These interim condensed consolidated financial
        statements have been prepared in accordance with IAS 34, Interim
        Financial Reporting, IFRS 1, First-time Adoption of International
        Financial Reporting Standards ("IFRS 1"), and the accounting policies
        described below. These policies are based on the standards as issued
        by the International Accounting Standards Board ("IASB"), and which
        have been incorporated by the Canadian Accounting Standards Board
        into current GAAP for publicly accountable enterprises. As these
        financial statements represent the Company's initial presentation of
        its results and financial position under IFRS, disclosure of the
        transition from previous GAAP to IFRS is included in note 10. As a
        result of these adjustments, certain required annual disclosures that
        are considered material to the understanding of the Company's interim
        financial statements are included in note 11.

        The interim condensed consolidated financial statements were approved
        by the Board of Directors on May 3, 2011.

        (b) Basis of presentation

        The interim condensed consolidated financial statements have been
        prepared on a historical cost basis, which is generally based on the
        fair value of the consideration at the time of the transaction. The
        consolidated financial statements are presented in Canadian dollars
        and all values are rounded to the nearest million unless otherwise
        indicated.

        (c) Basis of consolidation

        The interim condensed consolidated financial statements include the
        accounts of the Company and its wholly-owned subsidiaries, which
        includes its principal operating subsidiary MTS Allstream Inc.. The
        financial statements of the subsidiaries are prepared for the same
        reporting period as the parent company, using consistent accounting
        policies. All intercompany transactions and balances are eliminated
        on consolidation.

        (d) Revenue recognition

        Revenue is recognized when it is probable that the associated
        economic benefits of the transaction will flow to the Company and the
        amount of revenue can be reliably measured. Revenue is measured at
        the fair value of the consideration received or receivable from
        customers for the provision of telecommunications services and sale
        of equipment, net of discounts and sales taxes collected. More
        specifically, the Company applies the following revenue recognition
        policies:

        -  Revenues from the provision of local voice, wireless, data
           connectivity, Internet, Internet protocol television ("IPTV"),
           security and alarm monitoring services are recognized in the
           period that services are provided.

        -  Monthly network access fees, which are billed in advance, are
           deferred and recognized on a straight-line basis over the
           contracted period.

        -  Revenues from long distance, wireless airtime, and other pay-per-
           use services are recognized in the period the services are
           delivered.

        -  Revenues related to interconnection of voice and data traffic
           between telecommunication operators is recognized in the period
           the network usage occurs. These revenues are reported gross of any
           amounts charged by other telecommunications carriers for
           interconnection services. The costs of interconnection services
           received from other carriers are expensed in the period the
           services are received.

        Revenues from the provision of maintenance services are recognized on
        a straight-line basis over the period of the customer contract.

        -  Revenue from the sale of equipment is recognized when the
           significant risks and rewards of ownership are transferred to the
           buyer, which is normally at the time the equipment is delivered to
           and available for use by the customer, in accordance with
           contractual arrangements.

        -  Advance payments received from customers are deferred and
           recognized in the period in which the services are provided or the
           goods are delivered.

        -  Revenues related to contributions from customers for the
           construction of assets are deferred and recognized as revenue as
           the related service is provided.

        -  The Company enters into arrangements with customers in which
           services and products may be sold together. When the components of
           these multiple element arrangements have stand-alone value to the
           customer, the components are accounted for separately based on the
           relative selling prices using the appropriate revenue recognition
           criteria as described above.

        -  Revenues are disclosed net of discounts and rebates, as the
           Company does not receive an identifiable benefit in exchange for
           the discount given to the customer.

        (e) Cash and cash equivalents

        Cash and cash equivalents include cash on hand, net of bank
        overdrafts, and money market instruments, which are readily converted
        into known amounts of cash and have a maturity of three months or
        less.

        (f) Inventories

        The Company's inventory balance consists of wireless handsets, parts
        and accessories, and communications equipment held for resale. The
        Company values its inventory at the lower of cost and net realizable
        value, with cost being determined on an average cost basis.

        (g) Property, plant and equipment

        Property, plant and equipment is recorded at historical cost, net of
        accumulated depreciation and accumulated impairment losses, if any.
        For construction projects, historical cost includes materials, direct
        labour, other directly attributable expenditures, and borrowing costs
        associated with construction projects that take a substantial period
        of time to get ready for their intended use. Historical cost is
        presented net of any related investment tax credits, which are
        recognized when the Company has reasonable assurance that they will
        be realized. The present value of estimated costs for decommissioning
        an asset after its intended use, representing a provision, is also
        included in the historical cost of property, plant and equipment.

        Depreciation is calculated on a straight-line basis over the
        estimated useful life of the asset. When significant parts of
        property, plant and equipment are required to be replaced in
        intervals, the Company recognizes such parts as individual assets and
        depreciates them over their estimated useful lives. The estimated
        useful lives are reviewed annually, with any changes in estimate
        accounted for prospectively. Land is not depreciated. The estimated
        useful lives of property, plant and equipment are as follows:

                                                       Estimated useful life
        ---------------------------------------------------------------------
        Network assets
        ---------------------------------------------------------------------
          Outside plant                                       15 to 40 years
        ---------------------------------------------------------------------
          Inside plant                                         3 to 20 years
        ---------------------------------------------------------------------
          Wireless site equipment                              4 to 12 years
        ---------------------------------------------------------------------
        General equipment and other                            4 to 20 years
        ---------------------------------------------------------------------
        Buildings and leasehold improvements                  20 to 40 years
        ---------------------------------------------------------------------
        Assets under finance lease                                  10 years
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        An item of property, plant and equipment is derecognized upon
        disposal or when no future economic benefits are expected from its
        use. Any gain or loss arising on derecognition of the asset, which is
        calculated as the difference between the net disposal proceeds and
        the carrying amount of the asset, is included in the consolidated
        statement of income in the period the asset is derecognized.

        (h) Intangible assets

        Intangible assets are recognized when the Company controls the asset,
        it is probable that future economic benefits attributable to the
        asset flow to the Company, and the cost of the asset can be reliably
        measured. Intangible assets are initially recognized at cost and
        subsequently measured at cost less accumulated amortization and
        impairment. Intangible assets, other than goodwill and indefinite
        life intangible assets, are amortized on a straight-line basis over
        their estimated periods of benefit. The estimated useful lives and
        amortization methods are reviewed annually, with any changes in
        estimate accounted for prospectively. The Company's intangible assets
        include the following:

           (i) Computer software

           Computer software, which is purchased from third parties, is
           amortized over five years.

           (ii) Subscriber acquisition costs

           Subscriber acquisition costs are capitalized and amortized over
           the average contractual life of the customer, which is normally 31
           months for wireless costs and 36 months for alarm costs.

          (iii)  Spectrum licenses and broadcast certificate

           The wireless spectrum licenses and broadcast certificate are
           indefinite life intangible assets and are therefore not amortized.
           The wireless spectrum licenses were issued by Industry Canada on
           December 15, 2008 for an initial 10-year term expiring December
           14, 2018. The broadcast certificate was issued by the CRTC, for a
           seven year term expiring on August 31, 2015. The Company has
           determined that there are no legal, regulatory, contractual,
           economic or other factors which would prevent the renewals or
           limit the useful lives of its spectrum licenses or broadcast
           certificate.

           (iv) Customer contracts and relationships

           Customer contracts and relationships acquired in business
           combinations are initially recognized at their fair value at the
           date of acquisition and are amortized on a straight-line basis
           over the estimated periods of benefit ranging from two to 10
           years.

           (v) Other

           Other intangible assets, which include non-competition agreements
           and other service contracts, were acquired in business
           combinations. These items are initially recognized at their fair
           value at the date of acquisition and are amortized on a straight-
           line basis over the estimated periods of benefit ranging from two
           to ten years. Other intangible assets are subsequently measured at
           cost less accumulated amortization.

           (vi) Goodwill

           Goodwill represents the excess of the aggregate purchase price
           over the fair value of the identifiable net tangible assets and
           intangible assets acquired in business combinations at the dates
           of acquisition. Goodwill is initially recognized as an asset at
           cost and is subsequently measured at cost less any accumulated
           impairment losses.

        (i) Impairment of property, plant and equipment and intangible
            assets

        At each reporting date, the Company reviews the carrying amounts of
        its property, plant and equipment and intangible assets to determine
        whether there is any indication that their carrying amount may not be
        recoverable. If such an indication of impairment exists, the
        recoverable amount of the asset is estimated and compared to its
        carrying amount to determine if the asset is impaired. If the
        recoverable amount of the individual asset cannot be determined,
        recoverability is tested on the basis of the cash- generating unit to
        which the asset is allocated.

        The recoverable amount of an asset is the higher of its fair value
        less costs to sell and its value in use. Value in use is determined
        using discounted cash flow calculations. Estimated future cash flows
        of the asset or cash-generating unit are discounted to their present
        value using a pre-tax discount rate that reflects current market
        assessments of the time value of money and risks specific to the
        asset.

        If the recoverable amount of an asset or cash-generating unit is
        estimated to be less than its carrying amount, the carrying amount of
        the asset is considered impaired and is reduced to its recoverable
        amount. An impairment loss is recognized immediately in income.
        Impairment losses, other than those related to goodwill, are reversed
        if the reasons for recognizing the original impairment loss no longer
        apply, and the asset is recognized at a value that would have been
        applied if no impairment losses had been recognized in prior periods.

        Intangible assets with indefinite useful lives are tested for
        impairment annually, and whenever there is an indication that the
        asset may be impaired.

        Goodwill is tested for impairment annually, and whenever there is an
        indication that the asset may be impaired. If the carrying amount of
        the cash-generating unit to which goodwill is allocated exceeds its
        recoverable amount, an impairment loss is recognized. Goodwill
        impairment losses cannot be reversed in future periods.

        (j) Income taxes

        The Company uses the liability method of accounting for income taxes.
        Under this method, current income taxes reflect the estimated income
        taxes payable for the current year. Deferred tax assets and
        liabilities are measured using substantively enacted tax rates and
        are based on:

           -  the differences between the tax base of an asset or liability
              and its carrying amount for accounting purposes; and

           -  the benefit of unused tax losses available to be carried
              forward to future years for tax purposes.

        Deferred tax assets and liabilities are determined using the tax
        rates that are expected to apply when the temporary difference is
        reversed. Deferred tax assets are recognized only to the extent that
        it is probable that taxable income will be available against which
        the deductible temporary differences or loss carryforwards can be
        utilized. Deferred tax assets and liabilities are not discounted.

        Current and deferred taxes are recognized in the consolidated
        statement of income except when the tax relates to items charged or
        credited to other comprehensive income or equity, in which case the
        tax is recognized in other comprehensive income or equity,
        respectively. The Company establishes provisions for uncertain tax
        positions for possible consequences of audits and differing
        interpretations by the tax authorities. These provisions are based
        upon the likelihood and then best estimate of amounts expected to be
        paid.

        (k) Provisions

        The Company recognizes a provision when it has a present legal or
        constructive obligation that is the result of a past event, it is
        probable that the Company will be required to settle the obligation,
        and a reliable estimate of the amount of the obligation can be made.
        Provisions are measured based on the best estimate of the amount
        required to settle the obligation. If the effect of the time value of
        money is material, the amount of the provision is determined using a
        pre-tax discount rate that reflects the risks specific to the
        obligation. The Company reviews its provisions at the end of each
        reporting period and, if required, an adjustment to reflect the
        current best estimate is made. In instances where it is no longer
        probable that an outflow of resources will be required to settle the
        obligation, the provision is reversed.

        The Company recognizes restructuring provisions related to efficiency
        programs aimed at achieving process improvements and cost reductions.
        For voluntary termination benefits, the Company recognizes a
        liability and expense once the employee has accepted the Company's
        offer. Involuntary termination benefits are recognized when a plan of
        termination is established and the plan is communicated to affected
        employees. Facility exit costs are recognized as a liability and
        expensed when the Company exits a lease prior to the lease expiration
        date. The liabilities recognized are based on the remaining lease
        rentals reduced by the actual or estimated sublease rentals at the
        cease-use date. Decommissioning provisions are initially recognized
        at fair value, and the resulting costs are added to the carrying
        amount of the related asset and the cost is amortized over the
        economic life of the asset. The carrying amount of the provision is
        adjusted for the passage of time and any changes in the market-based
        discount rate, amount or timing of the underlying future cash flows
        required to settle the obligation.

        (l) Financial instruments

           (i) Recognition and derecognition of financial assets and
               liabilities

           Financial assets and liabilities are recognized on the Company's
           statement of financial position when the Company becomes a party
           to the contractual provisions of the instrument. The Company's
           financial assets and liabilities are recorded initially at fair
           value. Financial assets are derecognized when the Company no
           longer has rights to cash flows, the risks and rewards of
           ownership or control of the asset. Financial liabilities are
           derecognized when the obligation under the liability is
           discharged, cancelled or expires.

           (ii) Financial assets

           Cash and cash equivalents

           Cash and cash equivalents include cash on hand, net of bank
           overdrafts, and money market instruments, which are readily
           convertible into known amounts of cash. Cash and cash equivalents
           are classified as fair value through profit and loss ("FVTPL") and
           are measured at fair value with changes in fair value recognized
           in net income.

           Accounts receivable

           Accounts receivable are classified as loans and receivables, and
           are measured at amortized cost less any allowance for doubtful
           accounts. The Company maintains an allowance for doubtful accounts
           for potential credit losses. This allowance is based on
           management's best estimates and assumptions regarding current
           market conditions, customer analysis and historical payment
           trends. These factors are considered when determining whether past
           due accounts are allowed for or written-off.

           (iii) Financial liabilities

           Long-term debt

           Long-term debt is classified as other liabilities and measured at
           amortized cost. The Company accounts for debt issue costs
           associated with the issuance of long-term debt as a reduction in
           the carrying value of long-term debt. These costs, which are
           amortized over the life of long-term debt using the effective
           interest rate method, are included in debt charges.

           Other financial liabilities

           Accounts payable provisions, notes payable, securitization
           borrowings and other long-term liabilities are classified as other
           liabilities and are measured at amortized cost.

          (iv)  Fair value

           The fair value of financial assets designated as FVTPL are
           determined based on quoted prices in active markets for identical
           assets, per Level 1 of the fair value hierarchy.

           The fair value of long-term debt, which has fixed interest rates,
           is estimated by discounting the expected future cash flows using
           the relevant risk-free interest rate adjusted for an appropriate
           risk premium for the Company's credit profile.

           (v) Accounts receivable securitization

           The Company accounts for the transfer of receivables to a
           securitization trust as a collateralized borrowing. When the
           receivables are transferred, the Company continues to recognize
           the receivables on its balance sheet, because the associated risks
           and rewards, in particular credit risk, have not been transferred.
           A corresponding financial liability is recognized for the cash
           consideration received from the trust. All trade receivables
           transferred have a maturity of less than 90 days. Under this
           arrangement the Company continues to manage and service the
           receivables transferred.

           (vi) Impairment of financial assets and liabilities

           At each balance sheet date, the Company assesses whether there is
           objective evidence that the carrying value of a financial asset is
           impaired. If impairment occurs, the loss is recognized in the
           statement of net income and the carrying value is reduced to its
           fair value. With the exception of long-term debt, the carrying
           value of the Company's financial assets and liabilities, which are
           subject to normal trade terms, approximates the fair value.

           (vii) Derivative financial instruments

           The Company purchases foreign currency forward contracts in U.S.
           dollars to manage foreign currency exchange exposure, which arises
           in the normal course of business operations. The Company has
           elected not to designate any of its foreign currency forward
           contracts as accounting hedges. Foreign exchange gains and losses
           on these foreign currency forward contracts are recorded in the
           consolidated statement of financial position as an asset or
           liability, with changes in fair value recognized in the
           consolidated statement of net income.

           (m) Leases

           The determination of whether an arrangement is, or contains a
           lease, is based on the substance of the arrangement and requires
           an assessment of whether the fulfillment of the arrangement is
           dependant on the use of a specific asset or assets and whether the
           arrangement conveys the right to use that asset.

           Assets held under finance leases are recognized as assets of the
           Company at the lower of the present value of the minimum lease
           payments or the fair value of the leased assets. Assets held under
           finance leases are depreciated over the shorter of the lease term
           or their useful economic life. The corresponding liability of the
           Company is included in the statement of financial position as a
           finance lease obligation. Lease payments are apportioned between
           finance charges and reduction of the lease obligation using the
           effective interest method. Finance charges are expensed in the
           period.

           Leases which do not transfer the risks and rewards of ownership
           are classified as operating leases. Payments are recorded in the
           statement of net income on a straight-line basis over the lease
           term.

           (n) Employee benefits

           The Company's cost of providing benefits under its defined benefit
           pension plans and other non-pension employee future benefits is
           determined annually by independent actuaries using the projected
           unit credit method. These actuarial valuations require the use of
           assumptions, including the discount rate to measure obligations,
           the expected long-term rate of return on plan assets and expected
           future salary increases. The discount rate used to calculate the
           present values of the defined benefit obligation is determined by
           reference to market interest rates of high quality Canadian
           corporate bonds as at the measurement date. The expected return on
           plan assets is calculated using the fair value of pension fund
           assets. Past service costs arising from plan amendments are
           recognized immediately in income.

           The defined benefit asset or liability recognized in the Company's
           consolidated statement of financial position comprises the present
           value of the defined benefit obligations less the fair value of
           plan assets. All actuarial gains and losses are recognized
           immediately in other comprehensive income. At each interim
           reporting period the Company estimates actuarial gains and losses
           resulting from changes in the discount rate used to calculate
           the present value of the defined benefit pension obligations and
           from differences between the expected long-term rate of return on
           plan assets and the actual return on plan assets. At year-end, all
           actuarial gains and losses arising from changes in the present
           value of the defined benefit obligations and the fair value of
           plan assets are determined in an accounting valuation prepared by
           an independent actuary. For funded defined benefit plans, when an
           asset is recognized it is limited to the present value of the
           economic benefit in the form of reductions in future contributions
           to the plan. Any minimum funding requirements are considered in
           the calculation of the economic benefit. For plans recognized by a
           defined benefit liability, minimum funding requirements can also
           result in an increase in the liability. An economic benefit is
           available to the Company if it is realizable during the life of
           the plan, or on settlement of the plan liabilities. The Company
           recognizes any decrease in an asset or increase in a liability as
           a result of the above in other comprehensive income. The Company
           recognizes its payments to the defined contribution plans as an
           expense in the period the employee service is incurred.

           (o) Share-based compensation

           The Company has a number of share-based compensation plans whereby
           the Company receives services from employees or its Board of
           Directors in exchange for equity-settled or cash-settled share-
           based compensation. Equity-settled plans include the Company's
           stock option program. Cash-settled plans include the Company's
           employee share ownership plan, performance share unit plan,
           restricted share unit plan and share appreciation plan.

           The cost of equity-settled share-based transactions is measured at
           the fair value of the stock option at the grant date using the
           Black-Scholes option pricing model. The fair value of the stock
           options, which have graded vesting, is expensed over the
           respective vesting period of each tranche based on the Company's
           estimate of stock options expected to vest.

           The cost of cash-settled share-based transactions is measured at
           fair value at the grant date. The fair value is expensed over the
           vesting period of the award and a corresponding liability
           recognized. The liability is remeasured to fair value at each
           reporting date with any changes in the liability recognized in
           income.

           (p) Translation of foreign currencies

           The Company's consolidated financial statements are presented in
           Canadian dollars, which is also its functional currency. Foreign
           currencies have been translated into Canadian dollars at rates of
           exchange on the following bases:

           -  monetary assets and liabilities at rates in effect on the date
              of the statement of financial position;
           -  non-monetary assets and liabilities at historical exchange
              rates; and
           -  revenues and expenses at rates prevailing at the respective
              transaction dates.

    3.  CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS

        The preparation of our consolidated financial statements in
        accordance with IFRS requires management to make estimates,
        assumptions and judgements that affect the reported amounts of assets
        and liabilities as at the date of the consolidated financial
        statements and the reported amounts of revenues and expenses during
        the reporting period.

        (a) Critical accounting estimates and assumptions

        Estimates and assumptions are based on reasonable methodologies,
        established processes and comparisons to industry standards. The
        Company continuously evaluates these estimates and assumptions, which
        rely on the use of professional judgement. Because professional
        judgement involves inherent uncertainty, actual results could differ
        from our estimates. Areas involving critical estimates and
        assumptions are described below:

           (i) Valuation of accounts receivable

           The Company estimates that a certain portion of receivables from
           customers will not be collected, and maintains an allowance for
           doubtful accounts. If circumstances related to specific customers
           change, economic conditions change, or actual results differ from
           expectations, the Company's estimate of the recoverability of
           receivables could fluctuate from that provided for in the
           consolidated financial statements. A change in estimate could
           impact bad debt expense and accounts receivable.

           (ii) Property, plant and equipment

           Property, plant and equipment are amortized on a straight-line
           basis over their estimated period of future benefit. The Company
           reviews these estimates on an annual basis, or more frequently if
           events during the year indicate that a change may be required,
           with consideration given to technological obsolescence,
           competitive pressures, and other relevant business factors. A
           change in management's estimate could impact depreciation expense
           and the carrying value of property, plant and equipment.

           (iii) Useful lives of definite life intangible assets

           Intangible assets with a definite useful life are amortized on a
           straight-line basis over their estimated period of future benefit.
           The estimated useful lives and amortization methods are reviewed
           on an annual basis, or more frequently, if events during the year
           indicate that a change may be required, with consideration given
           to customer churn, industry standards and other relevant business
           factors. A change in estimate could impact amortization expense
           and the carrying value of intangible assets.

           (iv)  Goodwill and indefinite life intangible assets

           The Company tests the recoverability of goodwill and indefinite
           life intangible assets on an annual basis or earlier when events
           or changes in circumstance indicate that the carrying value might
           not be recoverable. The recoverable amount of each cash-generating
           unit is determined based on value in use calculations. These
           calculations require the use of estimates, including management's
           expectations of revenues and operating costs and assumptions of
           growth rates. A change in estimates could impact the carrying
           value of goodwill and indefinite life intangible assets.

           (v) Deferred tax assets

           The Company has deferred tax assets resulting from net operating
           loss carry forwards and deductible temporary differences, which,
           to the extent utilized, will reduce future taxable income.
           Realization of these deferred tax assets is dependent on the
           Company's ability to utilize the underlying future deductions
           against future taxable income. In assessing the carrying value of
           the deferred tax assets, the Company makes estimates and
           assumptions of future taxable income using internal management
           projections, the carry forward period associated with the deferred
           tax assets, the nature of income that may be used to realize the
           deferred tax assets, future tax rates, and ongoing audits by
           Canada Revenue Agency ("CRA"). A change in the Company's estimates
           or assumptions of any of these factors could affect the value of
           the deferred tax asset and related income tax expense. CRA audits
           currently are underway for the years 2001 to 2006. These audits
           include a review of loss carry forwards accumulated by Allstream
           Inc. prior to its acquisition by the Company in 2004.

           (vi) Decommissioning provisions

           When recognizing decommissioning provisions, the Company makes
           estimates of the probability of retiring assets, the timing and
           amount of retirement costs, and the discount factor applied to
           determine fair value. Management's estimates of probability and
           the timing and amount of costs are subject to change, and are
           reviewed annually or more frequently if events during the year
           indicate that a change may be required.

           (vii) Employee future benefits

           The Company provides pension, supplemental pension and other non-
           pension employee future benefits to its employees. The
           determination of benefit expense and benefit obligation associated
           with employee future benefits requires the use of certain
           actuarial and economic assumptions, such as the discount rate to
           measure benefit obligations, the expected rate of return on plan
           assets, expected future salary increases and future mortality
           rates. A change in estimate or assumptions could affect benefit
           expense and the present value of the defined benefit obligation.

        (b) Critical accounting judgement

        The following is the critical judgement, apart from those involving
        estimates, that has been made in the process of applying the
        Company's accounting policies and that has the most significant
        effect on the amounts recognized in the financial statements:

           (i) Revenue recognition

           The Company enters into arrangements in which services and
           products are sold together. Judgement is often necessary to
           determine when components can be accounted for separately.

    4.  ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

        The Company has not yet adopted certain standards, interpretations to
        existing standards and amendments which have been issued but have an
        effective date of later than January 1, 2011. The following standard
        the Company reasonably expects to be applicable to its consolidated
        financial statements at a future date is listed below:

        IFRS 9, Financial Instruments

        IFRS 9, Financial Instruments, issued by the IASB in November 2009
        and amended in October 2010 introduces new requirements for the
        classification and measurement of financial assets and liabilities.
        IFRS 9 requires all financial assets within the scope of
        International Accounting Standard ("IAS") 39 Financial Instruments -
        Recognition and Measurement to be subsequently measured at amortized
        cost or fair value replacing the multiple classification options in
        IAS 39. IFRS 9 also requires an entity choosing to measure a
        financial liability at fair value to present the portion of the
        change in its fair value due to changes in the entity's own credit
        risk in the other comprehensive income section of the income
        statement, rather than within the statement of net income.

        IFRS 9 reflects the first phase of a project to replace IAS 39. In
        subsequent phases, the IASB will address hedge accounting and the
        impairment of financial assets. IFRS 9 is effective for annual
        periods beginning on or after January 1, 2013, with earlier
        application permitted. The Company is currently evaluating the impact
        of IFRS 9 on its financial statements.

    5.  INCOME TAX EXPENSE

        Income tax expense is comprised of the following:

        Three months ended March 31                           2011      2010
        ---------------------------------------------------------------------
        Current income tax expense                               -       0.1
        ---------------------------------------------------------------------
        Deferred income tax expense                           17.7      13.3
        ---------------------------------------------------------------------
        Income tax expense                                    17.7      13.4
        ---------------------------------------------------------------------

    6.  Earnings Per Share

        The following table provides a reconciliation of the information used
        to calculate basic and diluted earnings per share:

                                                              2011      2010
        ---------------------------------------------------------------------

        Net income for the period
        Basic and diluted                                     43.4      27.4
        ---------------------------------------------------------------------

        Weighted average shares outstanding (in millions)
        Weighted average number of shares outstanding
         - basic                                              65.2      64.7
        ---------------------------------------------------------------------
        Dilutive effect of stock options                         -      (0.1)
        ---------------------------------------------------------------------
        Weighted average number of shares outstanding
         - diluted                                            65.2      64.6
        ---------------------------------------------------------------------

        Earnings per share ($)
        Basic and diluted earnings per share                  0.67      0.42
        ---------------------------------------------------------------------

        As at March 31, 2011, 3.1 million stock options have an anti-dilutive
        effect (2010 - 3.2 million), and therefore, were excluded from the
        diluted weighted average number of shares outstanding.

    7.  DIVIDENDS

        The Company's Board of Directors declared a cash dividend of $0.425
        per share for the first quarter of 2011 (2010 - $0.65 per share). The
        liability of $27.7 million (2010 - $42.0 million) is payable on July
        15, 2011 to shareholders of record on June 15, 2011.

    8.  SHARE CAPITAL

        As at March 31, 2011, share capital consists of 65,213,118 issued and
        outstanding Common Shares (December 31, 2010 - 64,959,635).

        During the three months ended March 31, 2011, 254,192 Common Shares
        were issued under the Company's Dividend Reinvestment Plan and Share
        Purchase Plan. These shares were issued for proceeds of $7.0 million
        and credited to share capital.

    9.  SEGMENTED INFORMATION

        As at March 31, 2011, the Company had two reportable operating
        segments: MTS and Allstream. MTS provides a full range of wireless,
        broadband, high-speed Internet, IPTV, converged IP, unified
        communications, security, home alarm monitoring services, local
        access and long distance services to residential and business
        customers in Manitoba. Allstream provides IP-based communications,
        unified communications, voice and data connectivity, and security
        services to business customers in Canada.

        The Company evaluates performance based on EBITDA (earnings before
        interest, taxes, depreciation and amortization, and other income
        (expense)). EBITDA, as reported below, includes intersegment revenues
        and expenses. The Company accounts for intersegment revenues and
        expenses at either prices that approximate current market prices or
        cost, depending on the type of service.

        The following tables provide further segmented information:

                           MTS        Allstream      Other          Total
    Three months
    ended March 31     2011   2010   2011   2010   2011   2010   2011   2010
    -------------------------------------------------------------------------
    Operating revenue
      External        234.6  227.7  204.7  214.3      -      -  439.3  442.0
    -------------------------------------------------------------------------
      Internal          0.1    0.1      -      -    9.2    9.5    9.3    9.6
    -------------------------------------------------------------------------
    EBITDA            121.8  118.2   28.8   12.8   (0.8)  (0.4) 149.8  130.6
    -------------------------------------------------------------------------
    Depreciation and
     amortization      55.5   52.1   19.3   18.0      -    0.1   74.8   70.2
    -------------------------------------------------------------------------
    Capital
     expenditures      39.8   54.6   28.0   21.0      -    0.2   67.8   75.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Reconciliation to consolidated income before income taxes is as follows:

    Three months ended March 31                           2011          2010
    -------------------------------------------------------------------------
    Income before income taxes
    Total EBITDA                                         149.8         130.6
    -------------------------------------------------------------------------
    Depreciation and amortization                        (74.8)        (70.2)
    -------------------------------------------------------------------------
    Other income (expense)                                 1.7          (4.0)
    -------------------------------------------------------------------------
    Finance costs                                        (15.6)        (15.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income before income taxes                            61.1          40.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. TRANSITION TO IFRS

        These interim condensed consolidated financial statements for the
        period ended March 31, 2011 are the Company's first interim
        consolidated financial statements prepared in accordance with IFRS.
        As such, these financial statements have been prepared in accordance
        with IFRS 1, as well as the accounting policies as described in note
        1.

        Prior to 2011, the Company's consolidated financial statements were
        prepared in accordance with previous GAAP, which differs in certain
        areas from IFRS. Therefore, in preparing the consolidated opening
        statement of financial position at January 1, 2010, the Company's
        date of transition to IFRS (the "Transition Date"), certain
        adjustments have been made to amounts previously reported in the
        consolidated financial statements under previous GAAP. An explanation
        of how the transition from previous GAAP to IFRS has affected the
        Company's financial position, financial results, equity and cash
        flows is set out in this note.

        (a) Exemptions upon IFRS adoption

        On adoption of IFRS, entities are required to implement accounting
        policies that are in accordance with IFRS and apply these policies
        retrospectively. IFRS 1 allows first-time adopters of IFRS to apply
        certain optional exemptions to this retrospective application. The
        relevant exemptions applied by the Company are as follows:

        (i)   Business combinations
              The Company elected not to apply IFRS 3, Business Combinations,
              retrospectively to business combinations that occurred prior to
              the Transition Date.

        (ii)  Employee benefits
              The Company elected to recognize all cumulative actuarial gains
              or losses and transitional assets on pension and other non-
              pension future employee benefits in opening retained earnings
              at the Transition Date. The Company also elected to disclose
              amounts required by paragraph 120A(p) of IAS 19, Employee
              Benefits, as the amounts are determined for each accounting
              period prospectively from the Transition Date.

        (iii) Share-based payments
              The Company elected to apply IFRS 2, Share-based Payment,
              retrospectively to all stock options granted after November 7,
              2002, and which were not fully vested at the Transition Date.

        (iv)  Borrowing costs
              The Company elected to apply IAS 23 Borrowing Costs, as it
              relates to the determination of the capitalization rate
              prospectively from the Transition Date.

        (b) Notes to explain the effects of IFRS in the financial statements

        In adopting IFRS, the Company has applied accounting policies that
        are in accordance with IFRS. These policies that differ from the
        previous application of GAAP and the related impact on the Company's
        financial statements are as follows:

        A. Employee benefits

        Actuarial gains and losses

        At the Transition Date, the Company applied the exemption in IFRS 1
        and recognized all cumulative actuarial gains and losses and
        transitional assets and obligations on pension and other non-pension
        future employee benefits in opening retained earnings. Under IFRS,
        the Company recognizes all actuarial gains and losses arising from
        changes in the present value of the defined benefit obligation and
        the fair value of plan assets immediately in other comprehensive
        income. This is different than previous GAAP where the corridor
        approach was used, and the excess of the net actuarial gain or loss
        over 10% of the greater of the benefit obligation and the market-
        related value of plan assets was amortized over the expected average
        remaining service life of active employees. The amount of this
        amortization comprised one of the components of pension expense under
        previous GAAP. As a result, pension expense recognized in the
        consolidated statement of net income under IFRS excludes the
        amortization of actuarial gains and losses. Under IFRS, these
        actuarial gains and losses are recognized immediately in other
        comprehensive income.

        Minimum funding requirements

        At the Transition Date, the Company determined that the minimum
        funding requirements of its defined benefit pension plans resulted in
        the recognition of a defined benefit obligation in its opening IFRS
        statement of financial position. Under IFRS, any changes in this
        defined benefit obligation is recognized in other comprehensive
        income.

        Measurement of plan assets

        Under IFRS, the expected return on plan assets is measured based on
        the fair value of pension fund assets. Under previous GAAP, the
        Company measured the expected return on plan assets based on a
        market-related value of pension fund assets. This difference in the
        measurement of plan assets results in a change in pension expense
        recognized in the consolidated statement of net income.

        B. Property, plant and equipment

        Components and depreciation methodology

        Under IFRS, each part of an item of property, plant and equipment
        with a cost that is significant in relation to the total cost of the
        item must be depreciated separately. This may result in differences
        in the individual components of property, plant and equipment between
        IFRS and previous GAAP. Upon transition to IFRS, the Company
        reclassified certain items of property, plant and equipment into
        IFRS-compliant components. The Company also changed its depreciation
        methodology from a straight-line basis where depreciation expense was
        calculated based on the pooling of assets, to a separate unit
        straight-line methodology. As a result of the retrospective
        application of these changes, the Company adjusted accumulated
        depreciation in its opening IFRS statement of financial position,
        resulting in an increase in the net book value of its property, plant
        and equipment. This adjustment in depreciation methodologies also
        results in a change in depreciation expense recognized in the
        consolidated statement of net income.

        Capitalization

        Certain expenditures that are appropriate to capitalize as property,
        plant and equipment under previous GAAP do not qualify for
        capitalization under IFRS. As a result of retrospectively
        implementing this change in accounting policy, the Company adjusted
        the cost and accumulated depreciation of its property, plant and
        equipment in its opening IFRS statement of financial position,
        resulting in a decrease in the net book value of its property, plant
        and equipment. This adjustment also results in a change in operations
        expense and depreciation expense recognized in the consolidated
        statement of net income.

        Contributions from customers

        Under IFRS, contributions from customers related to the construction
        of assets should be recognized initially as a liability and
        recognized as revenue in the period the related service is provided.
        Under previous GAAP, the Company credited amounts received from
        customers against the cost of construction of property, plant and
        equipment. This change in accounting policy results in a change in
        property, plant and equipment and liabilities on the consolidated
        statement of financial position and a change in revenues and
        depreciation expense recognized in the statement of net income.

        C. Impairment

        Under IFRS, a one-step approach is used to test for, and to measure
        impairment of long-lived assets, with the carrying value of assets
        compared to its recoverable amount, which is defined as the higher of
        value in use and fair value less costs to sell. Value in use is
        measured using discounted cash flows. This is different from the two-
        step approach followed under previous GAAP, where an entity is
        required to compare carrying values to undiscounted cash flows to
        assess whether any impairment exists, and then to measure the
        impairment using discounted cash flows.

        Under IFRS, a first-time adopter is required to test goodwill for
        impairment at the Transition Date. The Company's impairment testing
        as at the transition date under IFRS resulted in the recognition of
        an impairment loss in Allstream which was reflected as decreases in
        goodwill ($14.1 million), other intangible assets ($18.4 million) and
        property, plant and equipment ($101.2 million). This adjustment also
        results in a decrease in depreciation and amortization expense
        recognized in the consolidated statement of net income.

        In performing the impairment testing of the Allstream cash-generating
        unit at the Transition Date, the Company measured the recoverable
        amount of the cash-generating unit based on a value in use
        calculation using certain key management assumptions. Cash flow
        projections, which were made over a five-year period based on
        financial budgets approved by the Board, include key assumptions
        about revenues, expenses and other cash flows. Revenue forecasts were
        based on management's estimate of growth in the markets served and
        are not considered to exceed the long-term average growth rates for
        those markets. Operating expenses were estimated based upon past
        experience, adjusted for the increase in activity levels supporting
        the cash flow projections. Discount rates applied to the cash flow
        forecasts are derived from the group's pre-tax weighted average cost
        of capital, adjusted to reflect management's estimate of the specific
        risk profiles of the individual cash-generating units. The cash flows
        related to Allstream were discounted using pre-tax rates of 15.0% to
        16.2%.

        D. Leases

        Sale-leaseback transactions

        Under IFRS, in a sale-leaseback transaction where the leaseback is
        classified as an operating lease, any gain on sale is recognized
        immediately in income. This accounting treatment differs from
        previous GAAP, where any gain on sale is deferred and recognized in
        income over the term of the operating lease. The Company had one such
        sale-leaseback transaction, and upon transition to IFRS this deferred
        gain has been derecognized. This adjustment results in an increase in
        operations expense as recognized in the consolidated statement of net
        income.

        E. Revenues

        Revenue recognition

        Under IFRS, the Company has recorded an adjustment to recognize a
        liability for customer prepayments related to wireless activation
        fees. These fees are deferred and recognized as revenue over the
        period of the customer contract.

        F. Decommissioning provisions

        Measurement

        Under IFRS, the discount rate to be used for measuring
        decommissioning provisions should be based on current market rates at
        time of initial recognition and updated each reporting period. This
        measurement basis is slightly different than that required under
        previous GAAP, so a minor adjustment to the decommissioning provision
        and corresponding item of property, plant and equipment is recognized
        at the Transition Date.

        G. Share-based compensation

        Forfeitures

        In determining share-based compensation expense related to stock
        options, IFRS requires that the number of awards expected to vest be
        estimated at the time the award is granted. This estimate may be
        revised based on subsequent information regarding the number of
        awards expected to vest. Under previous GAAP, the Company recognizes
        forfeitures of awards as they occur. As a result of retrospectively
        applying this change in accounting, a minor adjustment to retained
        earnings at the Transition Date has been recognized.

        H. Income taxes

        Income tax effect of other adjustments at the Transition Date

        As a result of the differences between previous GAAP and IFRS for
        each of the financial statement items identified above, deferred
        taxes under IFRS have been adjusted, where applicable.

        I. Presentation reclassifications

        Prepaid expenses, inventory, intangible assets and provisions

        Under IFRS, separate disclosure of prepaid expenses, inventory,
        intangible assets and provisions is required on the face of the
        consolidated statement of financial position.

        Deferred taxes

        Under IFRS, all deferred tax assets and liabilities are classified as
        non-current. As a result, the current portion of the deferred tax
        asset has been reclassified to long-term.

        Other income and finance costs, net

        Under IFRS, certain items previously classified as other income have
        been reclassified to finance costs on the consolidated statements of
        net income.

        Discontinued operations

        Under IFRS, the definition of discontinued operations differs from
        that under previous GAAP. As a result, the sale of the Company's non-
        telecommunications IT consulting group in 2010, which was classified
        as a discontinued operation under previous GAAP, is not considered a
        discontinued operation under IFRS and was reclassified to continuing
        operations on the consolidated statement of net income.

        (c) Reconciliations of GAAP to IFRS

        As a first-time adopter of IFRS, the Company is required to reconcile
        previously reported GAAP to IFRS for equity, comprehensive income and
        cash flows.

        A reconciliation of shareholders' equity from previous GAAP to IFRS
        is as follows:

                                        December 31,    March 31,  January 1,
                             Reference         2010         2010        2010
        ---------------------------------------------------------------------
        Shareholders' equity
         under previous GAAP                1,286.5      1,295.8     1,316.9
        ---------------------------------------------------------------------
        Adjustments to
         shareholders' equity
         to conform with IFRS:
          Employee future benefits   A       (645.9)      (536.7)     (494.4)
        ---------------------------------------------------------------------
          Property, plant and
           equipment                 B        146.5        116.2       105.7
        ---------------------------------------------------------------------
          Impairment                 C       (119.6)      (133.7)     (133.7)
        ---------------------------------------------------------------------
          Leases                     D         21.9         23.2        23.6
        ---------------------------------------------------------------------
          Revenues                   E         (4.9)        (4.2)       (4.1)
        ---------------------------------------------------------------------
          Decommissioning
           provisions                F          0.9          0.9         0.9
        ---------------------------------------------------------------------
          Income taxes               H        162.6        141.3       132.8
        ---------------------------------------------------------------------
        Total reduction in
         shareholders' equity                (438.5)      (393.0)     (369.2)
        ---------------------------------------------------------------------
        Shareholders' equity
         under IFRS                           848.0        902.8       947.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        A reconciliation of earnings and comprehensive income from previous
        GAAP to IFRS is as follows:


        For the period                  December 31,    March 31,
         ended               Reference         2010         2010
        ---------------------------------------------------------------------
        Net income and
         comprehensive income
         under previous GAAP                   99.7         20.4
        ---------------------------------------------------------------------
        Adjustments to net
         income to conform with
         IFRS:
          Employee future benefits   A         (1.7)        (0.6)
        ---------------------------------------------------------------------
          Property, plant and
           equipment                 B         40.8         10.3
        ---------------------------------------------------------------------
          Impairment                 C         14.1            -
        ---------------------------------------------------------------------
          Leases                     D         (1.7)        (0.4)
        ---------------------------------------------------------------------
          Revenues                   E         (0.8)           -
        ---------------------------------------------------------------------
          Decommissioning
           provisions                F         (0.1)           -
        ---------------------------------------------------------------------
          Share-based compensation   G          0.2          0.1
        ---------------------------------------------------------------------
          Income taxes               H         (9.2)        (2.4)
        ---------------------------------------------------------------------
        Total increase in net
         income                                41.6          7.0
        ---------------------------------------------------------------------
        Net income under IFRS                 141.3         27.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Adjustments to other
         comprehensive income to
         conform with IFRS:
          Employee future benefits   A       (149.8)       (41.6)
        ---------------------------------------------------------------------
          Taxes                      H         39.2         10.9
        ---------------------------------------------------------------------
        Total comprehensive income
         (loss) under IFRS                     30.7         (3.3)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d) IFRS financial statements

        In addition to the required disclosure presented above, the following
        reconciliations of the Company's consolidated financial statements as
        previously presented under previous GAAP to financial statements
        prepared under IFRS provide further perspective on the financial
        impact of the transition to IFRS:

        Consolidated statement of financial position as at January 1, 2010


                                                    IFRS      IFRS
        IFRS                          Previous  reclassi-   adjust-
        presentation       Reference      GAAP fications     ments      IFRS
        ---------------------------------------------------------------------
        Assets
        Current assets
        Cash and cash
         equivalents                  $  110.2  $      -  $      -  $  110.2
        ---------------------------------------------------------------------
        Accounts receivable              166.2         -         -     166.2
        ---------------------------------------------------------------------
        Prepaid expenses           I         -      34.1         -      34.1
        ---------------------------------------------------------------------
        Inventories                I         -      23.9         -      23.9
        ---------------------------------------------------------------------
        Future income tax assets   I      79.0     (79.0)        -         -
        ---------------------------------------------------------------------
        Other current assets       I      58.0     (58.0)        -         -
        ---------------------------------------------------------------------
        Assets held for sale              18.6         -         -      18.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                         432.0     (79.0)        -     353.0
        ---------------------------------------------------------------------

        Property, plant and
         equipment               B,C   1,362.2         -      16.4   1,378.6
        ---------------------------------------------------------------------
        Intangible assets          C     322.9         -     (44.4)    278.5
        ---------------------------------------------------------------------
        Other assets               A     417.2         -    (374.9)     42.3
        ---------------------------------------------------------------------
        Deferred tax assets      H,I     362.1      79.0     132.8     573.9
        ---------------------------------------------------------------------
        Total assets                  $2,896.4  $      -  $ (270.1) $2,626.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Liabilities and
         shareholders' equity
        Current liabilities
        Accounts payable and
         accrued liabilities     D,I  $  349.1  $  (34.7) $   (1.7) $  312.7
        ---------------------------------------------------------------------
        Advance billings and
         payments                         52.5         -         -      52.5
        ---------------------------------------------------------------------
        Current provisions       F,I         -      33.5      (1.5)     32.0
        ---------------------------------------------------------------------
        Current portion of
         long-term debt                   11.9         -         -      11.9
        ---------------------------------------------------------------------
        Current portion of
         finance lease
         obligations                       4.2         -         -       4.2
        ---------------------------------------------------------------------
        Liabilities related to
         assets held for sale              9.0         -         -       9.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                         426.7      (1.2)     (3.2)    422.3
        ---------------------------------------------------------------------

        Long-term debt                 1,039.6         -         -   1,039.6
        ---------------------------------------------------------------------
        Long-term portion of
         finance lease
         obligations                      13.4         -         -      13.4
        ---------------------------------------------------------------------
        Long-term provisions     F,I         -       7.5       0.6       8.1
        ---------------------------------------------------------------------
        Employee future
         benefits                A,I      43.1      (0.1)    119.5     162.5
        ---------------------------------------------------------------------
        Other long-term
         liabilities           D,E,I      55.5      (6.2)    (17.8)     31.5
        ---------------------------------------------------------------------
        Deferred tax
         liabilities                       1.2         -         -       1.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Total liabilities              1,579.5         -      99.1   1,678.6
        ---------------------------------------------------------------------
        Shareholders' equity
        Share capital                  1,266.9         -         -   1,266.9
        ---------------------------------------------------------------------
        Contributed surplus        G      19.6         -      (0.3)     19.3
        ---------------------------------------------------------------------
        Retained earnings
         (deficit)            A to H      30.4         -    (368.9)   (338.5)
        ---------------------------------------------------------------------
                                       1,316.9         -    (369.2)    947.7
        ---------------------------------------------------------------------
        Total liabilities
         and shareholder's
         equity                       $2,896.4 $       -  $ (270.1) $2,626.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Consolidated statement of net income and other comprehensive income
        for the year ended December 31, 2010

                                                    IFRS      IFRS
        IFRS                          Previous  reclassi-   adjust-
        presentation       Reference      GAAP fications     ments      IFRS
        ---------------------------------------------------------------------

        Operating revenues       B,E  $1,780.9  $      -  $    1.7  $1,782.6
        ---------------------------------------------------------------------
        Operating expenses
          Operations       A,B,D,F,G   1,183.6         -       8.7   1,192.3
        ---------------------------------------------------------------------
          Restructuring
           and transition                 25.5         -         -      25.5
        ---------------------------------------------------------------------
          Depreciation and
           amortization            B     336.1         -     (45.4)    290.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                       1,545.2         -     (36.7)  1,508.5
        ---------------------------------------------------------------------
        Operating income                 235.7         -      38.4     274.1
        ---------------------------------------------------------------------
        Other income (expense)     I       5.7      (9.2)     (1.7)     (5.2)
        ---------------------------------------------------------------------
        Goodwill revaluation       C     (14.1)        -      14.1         -
        ---------------------------------------------------------------------
        Finance costs              I     (69.9)      5.9         -     (64.0)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Income before income
         taxes                           157.4      (3.3)     50.8     204.9
        ---------------------------------------------------------------------
        Income tax expense         H      55.3      (0.9)      9.2      63.6
        ---------------------------------------------------------------------
        Income before
         discontinued
         operations                      102.1      (2.4)     41.6     141.3
        ---------------------------------------------------------------------
        Loss from discontinued
         operations                I      (2.4)      2.4         -         -
        ---------------------------------------------------------------------
        Net income for the year       $   99.7  $      -  $   41.6  $  141.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Other comprehensive
         income
        Net actuarial losses
         from defined benefit
         plans and other
         employee benefits            $      -  $      -  $ (181.8) $ (181.8)
        ---------------------------------------------------------------------
        Change in effect of the
         minimum funding
         requirement                         -         -      32.0      32.0
        ---------------------------------------------------------------------
        Deferred taxes on items
         in other comprehensive
         income                              -         -      39.2      39.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Other comprehensive
         loss for the year,
         net of tax                          -         -    (110.6)   (110.6)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Total comprehensive
         income for the year          $   99.7  $      -  $  (69.0) $   30.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Basic and diluted
         earnings per share           $   1.54  $      -  $   0.64  $   2.18
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Consolidated statement of cash flows for the year ended December 31,
        2010

                                                    IFRS      IFRS
        IFRS                          Previous  reclassi-   adjust-
        presentation       Reference      GAAP fications     ments      IFRS
        ---------------------------------------------------------------------

        Cash flows from
         operating activities
        Net income                    $  102.1  $   (2.4) $   41.6  $  141.3
        ---------------------------------------------------------------------
        Add (deduct) items
         not affecting cash:
          Depreciation and
           amortization        B,C,G     336.1         -     (45.4)    290.7
        ---------------------------------------------------------------------
          Deferred income
           taxes                 H,I      54.9      (0.9)      9.2      63.2
        ---------------------------------------------------------------------
          Goodwill revaluation     C      14.1         -     (14.1)        -
        ---------------------------------------------------------------------
          Loss on disposal of
           assets                  I         -       2.2       2.1       4.3
        ---------------------------------------------------------------------
        Deferred wireless
         costs                           (50.0)        -         -     (50.0)
        ---------------------------------------------------------------------
        Pension funding and
         net pension expense       A     (58.4)        -       1.7     (56.7)
        ---------------------------------------------------------------------
        Other, net                         1.0         -       2.2       3.2
        ---------------------------------------------------------------------
        Changes in non-cash
         working capital                  55.7         -         -      55.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Cash flows from operating
         activities                      455.5      (1.1)     (2.7)    451.7
        ---------------------------------------------------------------------
        Cash flows from investing
         activities
        Capital acquisitions, net  B    (364.6)        -       2.7    (361.9)
        ---------------------------------------------------------------------
        Proceeds on disposal
         of assets held for sale   I         -      12.0         -      12.0
        ---------------------------------------------------------------------
        Other, net                        (4.3)        -         -      (4.3)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Cash flows used in
         investing activities           (368.9)     12.0       2.7    (354.2)
        ---------------------------------------------------------------------
        Cash flows from financing
         activities
        Dividends paid                  (153.7)        -         -    (153.7)
        ---------------------------------------------------------------------
        Repayment of long-term debt      (11.9)        -         -     (11.9)
        ---------------------------------------------------------------------
        Issuance of share capital          8.1         -         -       8.1
        ---------------------------------------------------------------------
        Other, net                        (0.2)        -         -      (0.2)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Cash flows used in
         financing activities           (157.7)        -         -    (157.7)
        ---------------------------------------------------------------------
        Cash flows before
         discontinued operations         (71.1)     10.9         -     (60.2)
        ---------------------------------------------------------------------
        Cash flows from discontinued
         operations                       10.9     (10.9)        -         -
        ---------------------------------------------------------------------
        Change in cash and cash
         equivalents                     (60.2)        -         -     (60.2)
        ---------------------------------------------------------------------
        Cash and cash equivalents,
         beginning of year               110.2         -         -     110.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Cash and cash equivalents,
         end of year                  $   50.0  $      -  $      -  $   50.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. ADDITIONAL ANNUAL DISCLOSURES

        These interim condensed consolidated financial statements represent
        the Company's initial presentation of its results and financial
        position under IFRS. The following annual disclosures for the year
        ended December 31, 2010 that are considered material to the
        understanding of the Company's interim financial statements are
        provided below.

        (a) Property, plant & equipment

        Property, plant and equipment are comprised of the following:

                                      Building
                                           and    Assets
                             General  leasehold    under
    January 1,     Network  equipment  improve- construc-
     2010           assets  and other    ments      tion      Land     Total
    -------------------------------------------------------------------------
    Cost           2,919.4     440.0     245.6      93.3       6.3   3,704.6
    -------------------------------------------------------------------------
    Accumulated
     depreciation
     and
     impairment    1,923.2     297.9     104.9         -         -   2,326.0
    -------------------------------------------------------------------------
    Net book value   996.2     142.1     140.7      93.3       6.3   1,378.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    December 31,
     2010
    -------------------------------------------------------------------------
    Cost           2,925.7     586.4     279.7     154.4       6.4   3,952.6
    -------------------------------------------------------------------------
    Accumulated
     depreciation
     and
     impairment    1,874.2     452.2     128.6         -         -   2,455.0
    -------------------------------------------------------------------------
    Net book value 1,051.5     134.2     151.1     154.4       6.4   1,497.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        (b) Intangible assets

        Intangible assets are comprised of the following:

                                                          Spectrum  Customer
                                             Subscriber   licenses  contracts
                                                acqui-         and       and
                                   Computer     sition   broadcast  relation-
    January 1, 2010                software      costs  certificate    ships
    -------------------------------------------------------------------------
    Cost                              298.9       89.6       51.4       10.8
    -------------------------------------------------------------------------
    Accumulated amortization          177.2       35.2          -        2.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net book value                    121.7       54.4       51.4        8.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    December 31, 2010
    -------------------------------------------------------------------------
    Cost                              334.9      117.7       51.4       10.7
    -------------------------------------------------------------------------
    Accumulated amortization          217.1       56.3          -        3.6
    -------------------------------------------------------------------------
    Net book value                    117.8       61.4       51.4        7.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    January 1, 2010                   Other   Goodwill      Total
    --------------------------------------------------------------
    Cost                               32.1       27.7      510.5
    --------------------------------------------------------------
    Accumulated amortization           17.0          -      232.0
    --------------------------------------------------------------
    --------------------------------------------------------------
    Net book value                     15.1       27.7      278.5
    --------------------------------------------------------------
    --------------------------------------------------------------

    December 31, 2010
    --------------------------------------------------------------
    Cost                               42.7       27.7      585.1
    --------------------------------------------------------------
    Accumulated amortization           28.6          -      305.6
    --------------------------------------------------------------
    Net book value                     14.1       27.7      279.5
    --------------------------------------------------------------
    --------------------------------------------------------------

        (c) Income tax

        The major components of income tax expense for the year ended
        December 31, 2010 are:
                                                                        2010
        ---------------------------------------------------------------------

        Current income tax:

        Current income tax expense                                       0.1
        ---------------------------------------------------------------------
        Adjustments in respect of current income tax of previous years   0.3
        ---------------------------------------------------------------------
                                                                         0.4
        ---------------------------------------------------------------------

        Deferred income tax:

        Relating to origination and reversal of temporary differences   63.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Income tax expense                                              63.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Income tax recovery on actuarial gains and losses from defined
        benefit plans and other employee benefits recognized in other
        comprehensive income in 2010 is $39.2 million.

        A reconciliation between income tax expense recognized and the
        accounting income multiplied by the applicable tax rate for the year
        ended December 31, 2010 is as follows:

                                                                2010
        ---------------------------------------------------------------------
                                                            %             $
        ---------------------------------------------------------------------
        Accounting income before tax                                   204.9
        ---------------------------------------------------------------------

        Income tax at combined federal and provincial
         statutory tax rate                               30.3          62.1
        ---------------------------------------------------------------------
        Effect of:
        Adjustments in respect of current income tax
         of previous years                                 0.1           0.3
        ---------------------------------------------------------------------
        Rate differential on temporary differences        (0.4)         (0.9)
        ---------------------------------------------------------------------
        Other items                                        1.0           2.1
        ---------------------------------------------------------------------
        Income tax reported in the consolidated
         statement of net income                          31.0          63.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The tax rate used represents the combined federal and provincial
        statutory tax rate applicable to the Company's major operating
        entity.

        The major items giving rise to deferred tax assets and liabilities
        are presented below:

                                                   December 31,    January 1,
                                                          2010          2010
        ---------------------------------------------------------------------
        Tax loss carry forwards                          214.9         142.7
        ---------------------------------------------------------------------
        Property, plant and equipment                    261.8         384.6
        ---------------------------------------------------------------------
        Employee benefits                                 69.0          42.5
        ---------------------------------------------------------------------
        Other                                              2.9           2.9
        ---------------------------------------------------------------------
        Deferred tax assets, net                         548.6         572.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Reflected in the consolidated statements of financial position as
        follows:

                                                   December 31,    January 1,
                                                          2010          2010
        ---------------------------------------------------------------------
        Deferred tax assets                              549.7         573.9
        ---------------------------------------------------------------------
        Deferred tax liabilities                          (1.1)         (1.2)
        ---------------------------------------------------------------------
        Deferred tax assets, net                         548.6         572.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Deferred tax assets of $214.9 million (January 1, 2010 -
        $142.7 million) on tax loss carry-forwards, which arose in certain
        subsidiaries, were recognized in situations where their utilization
        is dependent on future taxable profits in excess of the reversal of
        existing temporary differences of the entities and where there is a
        history of current and prior year losses, since it is probable that
        the losses will be utilized through amalgamations with other taxable
        entities of the Company and other tax planning opportunities.

        At December 31, 2010, the Company, along with its subsidiaries, had
        unused non-capital tax loss carry forwards of $821.7 million (January
        1, 2010 - $565.0 million) available to reduce future years' taxable
        income, which expire as follows:


        ---------------------------------------------------------------------
        2014                                                            22.0
        ---------------------------------------------------------------------
        2025 and beyond                                                799.7
        ---------------------------------------------------------------------
                                                                       821.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (d) Provisions

        The composition and changes in provisions during 2010 was as follows:

                        Restruct-       Tax- Decommiss-
                           uring    related     ioning      Other      Total
        ---------------------------------------------------------------------
        January 1, 2010     15.4       14.1        6.0        4.6       40.1
        ---------------------------------------------------------------------
        Provisions
         recognized         18.8        0.5          -        4.1       23.4
        ---------------------------------------------------------------------
        Provisions
         utilized          (19.5)      (3.2)      (0.2)      (2.4)     (25.3)
        ---------------------------------------------------------------------
        Provisions
         reversed           (2.0)      (0.2)         -       (1.1)      (3.3)
        ---------------------------------------------------------------------
        Accretion            0.3          -        0.4          -        0.7
        ---------------------------------------------------------------------
        December 31, 2010   13.0       11.2        6.2        5.2       35.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Presented as:
        Current provisions  12.2       11.2        1.6        4.9       29.9
        ---------------------------------------------------------------------
        Long-term
         provisions          0.8          -        4.6        0.3        5.7
        ---------------------------------------------------------------------
        Total provisions    13.0       11.2        6.2        5.2       35.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) Restructuring

        Restructuring provisions relate to the Company's efficiency programs
        aimed at achieving process improvements and expense reductions.
        Restructuring costs include costs for severance and other employee-
        related expenses that supported workforce reduction initiatives
        undertaken throughout the year, facility consolidation of select real
        estate, as well as costs to review and improve efficiencies in
        current processes. These provisions are expected to be settled over
        periods ranging from one month to 30 months.

        (ii) Tax-related

        The Company recognizes tax-related provisions for uncertain tax
        positions related to sales taxes, capital taxes and property taxes.
        The provisions reflect the potential obligation for the Company to
        remit additional taxes, penalties and/or interest as a result of
        decisions by taxation authorities.

        (iii) Decommissioning

        Decommissioning provisions arise from legal and constructive
        obligations that exist for the removal of equipment or the
        restoration of premises upon the termination of certain agreements.
        These provisions which are expected to be settled over periods
        ranging from two months to 41 years, are associated with underground
        and above ground cable, microwave towers and related structures,
        building accesses, and leased facilities.

        The undiscounted amount of the estimated cash flows required to
        settle the decommissioning provisions is approximately $14.0 million
        (January 1, 2010 - $14.0 million).

        (iv) Other

        Other provisions include amounts provided for legal or constructive
        obligations arising from regulatory decisions and litigation claims.

        (e) Employee benefits

        Pension benefits

        The Company and its subsidiaries provide pension benefits through two
        contributory and one non-contributory defined benefit best average
        pension plans, which cover most of the employees of the Company and
        its subsidiaries. These plans provide pensions based on length of
        service and best average earnings. Two of the defined benefit plans
        have provisions for periodic cost of living adjustments to benefit
        payments for certain members based on a percentage of the increase in
        the Consumer Price Index. The Company's policy is to fund the plans
        as determined through periodic actuarial valuations. Contributions
        reflect actuarial assumptions regarding salary projections and future
        service benefits.

        The Company also has two defined contribution pension plans that
        cover certain employees of the Company. One plan requires the Company
        to contribute on behalf of each member an amount equal to 2.5% of the
        member's earnings. The second plan, which was implemented in 2010 for
        certain Manitoba based employees, requires members to contribute a
        minimum of 1% to a maximum of 9% of earnings. The Company is required
        to match member contributions subject to limits that vary by years of
        continuous service.

        The Company also provides supplemental pension benefits to certain
        current and retired employees. One of the Company's supplemental
        pension benefit plans has assets set aside in trust to fund benefits.

        The Company measures its defined benefit obligations and the fair
        value of plan assets as at December 31 each year. The most recent
        actuarial valuation of the pension plans for funding purposes was as
        at January 1, 2010. The next funding valuations are required to be
        completed as at January 1, 2011. Future funding requirements will
        depend on the results of annual actuarial funding valuations which
        are affected by various factors, such as actuarial experience of the
        plans, return on plan assets and interest rate fluctuations.

        In 2006, the Government of Canada enacted Solvency Funding Relief
        Regulations for defined benefit pension plans regulated under the
        Pension Benefits Standards Act, 1985 (Canada), which enabled the
        extension of solvency funding payments from five years to 10 years.
        The Company continued to fund two of its defined benefit plans under
        the Solvency Funding Relief Regulations. To facilitate the solvency
        funding relief, the Company has arranged for $110.2 million (2009 -
        $110.2 million) in letters of credit to be held by RBC Dexia Investor
        Services Trust, the trustee for the defined benefit pension plans.

        In 2010, the Federal government changed the regulations for federally
        regulated private pension plans to reduce funding volatility and
        enhance protection for plan members. The new regulations include
        minimum solvency contribution requirements based on a three year
        average solvency ratio, contribution holidays are only permitted if a
        plan has both a going concern surplus and if solvency assets exceed
        solvency liabilities by at least five percent and enhanced annual
        disclosure to plan members. Commencing April 1, 2011, the new Federal
        pension regulations will enable the use of letters of credit to meet
        solvency funding requirements up to a maximum of 15% of plan assets.

        Other benefits

        The Company provides other non-pension employee future benefits,
        including life, medical and dental insurance, which are unfunded. The
        Company's costs for medical and dental insurance available for
        certain retirees are fixed and not subject to changes in medical cost
        trend rates.

        The Company also has a long-term disability plan for certain
        employees for which the Company had dedicated assets set aside to
        fund benefits. These assets were recorded on the Company's financial
        statements in 2010. These assets have subsequently been reallocated
        to general corporate purposes in 2011.

        Defined benefit plans

           Net benefit expense

           The amounts recognized in the Company's consolidated statement of
           net income in operations expense and the actual return on plan
           assets are as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Current service cost                           24.4           2.1
           ------------------------------------------------------------------
           Interest cost                                 110.6           1.5
           ------------------------------------------------------------------
           Expected return on plan assets               (127.0)         (0.3)
           ------------------------------------------------------------------
           Net benefit expense                             8.0           3.3
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           ------------------------------------------------------------------
           Actual return on plan assets                  156.3           0.1
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           The amounts recognized in the Company's consolidated statement of
           other comprehensive income are as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Net actuarial losses                          179.7           2.1
           ------------------------------------------------------------------
           Change in the effect of the minimum
            funding requirement                          (32.0)            -
           ------------------------------------------------------------------
                                                         147.7           2.1
           ------------------------------------------------------------------
           Deferred tax effect of actuarial gains and
            losses                                       (38.7)         (0.5)
           ------------------------------------------------------------------
           Total recognized in other comprehensive
            income                                       109.0           1.6
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           Net benefit liability

           The components of the net benefit liability as recognized in the
           Company's consolidated statement of financial position are as
           follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Present value of funded defined benefit
            obligations                               (2,085.7)         (8.6)
           ------------------------------------------------------------------
           Fair value of plan assets                   1,873.7           3.0
           ------------------------------------------------------------------
                                                        (212.0)         (5.6)
           ------------------------------------------------------------------
           Present value of unfunded defined benefit
            obligations                                  (14.0)        (19.8)
           ------------------------------------------------------------------
           Net benefit liability - recorded in
            employee benefits                           (226.0)        (25.4)
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           Benefit obligation and plan assets

           The changes in the present value of the defined benefit obligation
           and the fair value of plan assets are as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Present value of defined benefit obligation,
            beginning of year                          1,882.0          25.4
           ------------------------------------------------------------------
             Current service cost                         24.4           2.1
           ------------------------------------------------------------------
             Employee contributions                       12.0             -
           ------------------------------------------------------------------
             Interest cost                               110.6           1.5
           ------------------------------------------------------------------
             Actuarial loss on obligation                209.0           1.9
           ------------------------------------------------------------------
             Benefit payments and transfers             (138.3)         (2.5)
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           Present value of defined benefit
            obligation, end of year                    2,099.7          28.4
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           Fair value of plan assets, beginning
            of year                                    1,779.0           3.3
           ------------------------------------------------------------------
             Employee contributions                       12.0             -
           ------------------------------------------------------------------
             Employer contributions                       64.7           2.1
           ------------------------------------------------------------------
             Expected return on plan assets              127.0           0.3
           ------------------------------------------------------------------
             Actuarial gain (loss) on plan assets         29.3          (0.2)
           ------------------------------------------------------------------
             Benefit payments and transfers             (138.3)         (2.5)
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           Fair value of plan assets, end of year      1,873.7           3.0
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           The cumulative gains and losses recognized in other comprehensive
           income are as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Actuarial losses, beginning of year               -             -
           ------------------------------------------------------------------
           Net actuarial losses recognized in year       179.7           2.1
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           Actuarial losses, end of year                 179.7           2.1
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           The Company expects to contribute approximately $58 million in
           cash funding and arrange for approximately $45 million in new
           letters of credit to be issued to the defined benefit plans in
           2011.

           Other financial information about the Company's benefit plans is
           as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Present value of defined benefit
            obligation                                 2,099.7          28.4
           ------------------------------------------------------------------
           Fair value of plan assets                   1,873.7           3.0
           ------------------------------------------------------------------
           Net benefit liability                        (226.0)        (25.4)
           ------------------------------------------------------------------
           Experience loss on defined benefit
            obligation                                  (209.0)         (1.9)
           ------------------------------------------------------------------
           Experience gain (loss) on plan assets          29.3          (0.2)
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           The major categories of defined benefit pension plan assets as a
           percentage of the fair value of the total plan assets are as
           follows:

                                                                        2010
           ------------------------------------------------------------------
           Equity securities                                             56%
           ------------------------------------------------------------------
           Debt securities                                               39%
           ------------------------------------------------------------------
           Real estate                                                    5%
           ------------------------------------------------------------------
                                                                        100%
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           The plan's assets do not include any direct investment in the
           Company's own financial instruments, or any property occupied by,
           or other assets used by the Company. The plan's assets are
           invested in units of certain Canadian equity and bond pooled funds
           that may hold financial instruments of the Company from time to
           time.

           Actuarial assumptions

           Management must make assumptions about the expected long-term rate
           of return on plan assets. In determining the long-term rate of
           return assumption, management considers input from its actuaries
           regarding the expected long-term rates of return assuming the
           Company's targeted investment portfolio mix.

           The actuarial assumptions used to determine the defined benefit
           obligation and net benefit expense are as follows:

                                                       Pension         Other
                                                      benefits      benefits
                                                          2010          2010
           ------------------------------------------------------------------
           Defined benefit obligation
           Discount rate                                 5.25%    5.00-5.25%
           ------------------------------------------------------------------
           Future salary increases                       3.50%         3.50%
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           Net benefit expense
           Discount rate                                 6.00%    5.75-6.00%
           ------------------------------------------------------------------
           Expected rate of return on plan assets        7.25%         7.25%
           ------------------------------------------------------------------
           Future salary increases                       3.50%         3.50%
           ------------------------------------------------------------------
           ------------------------------------------------------------------

        Defined contribution plan

        During 2010, the Company recognized expense, representing employer
        contributions to the defined contribution plans, in the amount of
        $2.7 million.

    >>



For further information: Investors: Paul Peters, Investor Relations, (204) 941-6178, investor.relations@mtsallstream.com; Media: Selena Hinds, Corporate Communications, (416) 345-3576, or (204) 941-8576, media.relations@mtsallstream.com

Profil de l'entreprise

MTS Allstream Inc.

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