Manitoba Telecom Services Inc. Reports First Quarter 2009 Results



    
    Stock Symbol: MBT

    This news release contains forward-looking statements. For a description
    of the related risk factors and assumptions, please see the section
    entitled "Forward-looking Statements Disclaimer" later in this news
    release. This release discusses results from Manitoba Telecom Services
    Inc.'s continuing operations. The results, and the definition of
    continuing operations, should be read in conjunction with Manitoba
    Telecom Services Inc.'s first quarter 2009 Management's Discussion &
    Analysis dated May 5, 2009 (available at the Investors section of
    www.mtsallstream.com) which is incorporated by reference in this release.

    First quarter 2009 highlights

    -   Consumer Markets division continues to grow, benefits from the
        Manitoba economy
    -   Enterprise Solutions division delivers sequential improvement in
        EBITDA
    -   Growth services revenue up 10.9%
    -   Cost reductions ahead of schedule and exceeding expectations
    -   On track to deliver results within ranges for 2009 outlook
    -   Declared dividend of $0.65 per share
    

    WINNIPEG, May 6 /CNW/ - Manitoba Telecom Services Inc. (TSX: MBT), which
includes its principal operating subsidiary, MTS Allstream Inc. (the "Company"
or "MTS Allstream") one of Canada's leading national communications companies,
today announced its results for the first quarter ended March 31, 2009.
    "Considering current economic conditions MTS Allstream delivered solid
performance in the first quarter on the strength of double-digit growth from
growth services and cost reductions that exceeded our plan," said Pierre
Blouin, Chief Executive Officer. "The Company also benefited from the
continued resilience of the Manitoba economy, which has been less affected by
the recession than Canada as a whole."
    The Company generates approximately 70% of its operating cash flow and
profitability in Manitoba. The Manitoba provincial economy, according to the
current Manitoba Department of Finance outlook, is expected to contract by
0.2% this year, which is significantly better performance than the 3% economic
contraction forecast by the Bank of Canada for the country as a whole in 2009.
    "Looking forward, we continue to believe we will achieve at least the
lower end of our guidance ranges for key metrics over the full-year even
though the economic outlook has deteriorated since our 2009 outlook call,"
said Mr. Blouin. At the time of the 2009 outlook call, on December 17, 2008,
Manitoba was forecasted to deliver 2.4% GDP(1) growth and Canada was
forecasted to deliver 1.5% growth.

    First quarter results

    In the first quarter of 2009, MTS Allstream continued to deliver strong
growth from its growth services, which include wireless, high-speed Internet,
digital television, converged Internet protocol ("IP"), and unified
communications services. Growth services grew by 10.9% as compared to the same
period a year ago, offsetting reductions in legacy services revenues. As a
result, total revenue increased by 0.9% for the first quarter. Growth services
revenues comprised 47.0% of total revenues in the first quarter of 2009, as
compared to 42.8% a year earlier.
    MTS Allstream's cost reduction plan is delivering more savings than
originally forecasted. During the first quarter of 2009, the Company achieved
annualized cost reductions of $16.4 million, while also implementing process
improvements that will benefit MTS Allstream's customer service by increasing
order execution speed through 2009.
    While EBITDA(2) from continuing operations(3) in the first quarter of
2009 was down 3.3% from a year earlier, on a sequential basis it was up 4.1%
from the fourth quarter of 2008. The Company believes the sequential
comparison is more meaningful given the change in economic conditions during
the second half of last year.

    FINANCIAL HIGHLIGHTS(*)

    
    -------------------------------------------------------------------------

                                        2009               2008

        in millions of dollars,        --------------------------------------
            except EPS(4)                 Q1      Q4      Q3      Q2      Q1

    -------------------------------------------------------------------------
    Growth services revenue            227.2   212.5   213.1   214.9   204.9

    Legacy services revenue            255.7   263.9   266.8   271.5   273.9
                                       --------------------------------------
    Revenue                            482.9   476.4   479.9   486.4   478.8
                                       --------------------------------------
                                       --------------------------------------

    -------------------------------------------------------------------------
    EBITDA                             163.2   156.7   165.1   171.3   168.7
    -------------------------------------------------------------------------
    Free cash flow(5)                   68.7    39.4    70.8    72.4    78.7
    -------------------------------------------------------------------------
    EPS                                 0.71    0.59    0.74    0.81    0.84

    (*) From continuing operations. MTS Allstream provides financial
        information on continuing operations in order to assist investors in
        understanding its underlying financial performance. MTS Allstream's
        definition of continuing operations excludes certain non-recurring
        items such as restructuring costs and the retroactive impact of
        regulatory decisions. For more information, please see MTS
        Allstream's first quarter 2009 Management's Discussion and Analysis
        ("MD&A") in the Investors section of www.mtsallstream.com.

    -------------------------------------------------------------------------
    

    MTS Allstream's balance sheet and financial profile remained strong at
quarter end, with a debt to EBITDA ratio of 1.4 times. This compares
favourably with other Canadian telecommunications service providers. The
Company has also successfully refinanced the $70 million in long-term debt
that matured in February of 2009 with a five-year term loan for $75 million at
a competitive interest rate in a transaction which was finalized on May 5,
2009. This refinancing speaks further to the continuing stability of the
company's operational performance and balance sheet and illustrates its
ongoing ability to access capital.
    Free cash flow in the first quarter was $68.7 million, and capital
expenditures from continuing operations were stable at $56.0 million as
compared to the first quarter of last year. MTS Allstream continues to have
the flexibility to scale capital expenditures up or down as economic
conditions warrant.

    DIVISIONAL HIGHLIGHTS(*)

    
    (*) From continuing operations

    -------------------------------------------------------------------------
                                                        Three months
              In millions of dollars                  ended March 31  Change
                                                      --------------
                                                        2009    2008
    -------------------------------------------------------------------------
    Consumer Markets division ("CMD")
    -------------------------------------------------------------------------
      CMD total growth services revenue                101.8    91.7   11.0%
    -------------------------------------------------------------------------
      CMD legacy services revenue                      102.3   108.0   -5.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      CMD total revenue                                204.1   199.7    2.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      CMD EBITDA                                       106.3   102.4    3.8%
    -------------------------------------------------------------------------
    Enterprise Solutions division ("ESD")
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      ESD total growth services revenue                125.4   113.2   10.8%
    -------------------------------------------------------------------------
      ESD legacy services revenue                      153.4   165.9   -7.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      ESD total revenue                                278.8   279.1   -0.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      ESD EBITDA                                        56.7    65.1  -12.9%
    -------------------------------------------------------------------------
    MTS Allstream totals
    -------------------------------------------------------------------------
      Revenue                                          482.9   478.8    0.9%
    -------------------------------------------------------------------------
      EBITDA (xx)                                      163.2   168.7   -3.3%
    -------------------------------------------------------------------------
    (xx) Includes other EBITDA of $0.2 million in the first quarter of 2009
         as compared to $1.2 million in the first quarter of 2008.


    Consumer Markets division (continuing operations)
    -------------------------------------------------
    

    The Consumer Markets division continues to deliver strong and
best-in-class performance with revenue in the first quarter of 2009 of $204.1
million, up 2.2% from $199.7 million a year earlier. EBITDA in the first
quarter of 2009 was $106.3 million, up 3.8% from $102.4 million a year
earlier, reflecting the revenue gain and strong performance of growth
services.
    Consumer Markets division margins remain the best in Canada among
incumbents, due in part to the continued growth in growth services revenue.
The wireless and consumer high-speed Internet businesses remained strong with
revenue up 14.2% and 11.6% respectively from a year earlier. Bundle strategies
continue to yield solid results with bundled customers growing by 7.8% in the
quarter as compared to last year.
    Overall, growth services represented 49.9% of total Consumer Markets
division revenue in the first quarter of 2009, as compared to 45.9% of revenue
a year earlier. The gain in growth services revenues continued to offset the
decline from legacy services revenues.
    The wireless transition away from Bell Mobility is now complete as 100%
of MTS Allstream's subscribers now receive service from the Company's own
wireless platform. This transition was completed on plan and on budget.
    The Company has also successfully launched MTS HDTV, the most advanced
television service in Canada. The service is now available in Winnipeg, and
contains features such as personal video recorder capability, improved guide
features and other interactive TV advancements. By deploying features that
match and exceed those of its competition, this product is expected to help
strengthen subscriber growth going forward.
    "Our competitive position is strong in Manitoba. We have strong products
and network capabilities that create a unique overall offering our competitors
cannot always match," said Kelvin Shepherd, President Consumer Markets
division. "We are positioned to extend this advantage with the launch of MTS
HDTV, and are in position to continue to grow our overall consumer business."
    The Manitoba economy continues to perform better than most other
provincial economies in Canada, supporting continued overall growth in MTS
Allstream's Consumer Markets division and serving as a solid foundation for
its business.

    
    Enterprise Solutions division (continuing operations)
    -----------------------------------------------------
    

    The Enterprise Solutions division delivered steady results in the first
quarter of 2009. Revenue was $278.8 million, consistent with a year earlier,
as gains within growth services revenues approximately offset legacy services
revenues reductions. Converged IP offerings continue to produce strong growth
of 10.7% in sales and represented more than 20% of total first quarter
revenue, the largest revenue stream for the Enterprise Solutions division.
This product line continued to show momentum with a record month for installs
in March 2009.
    EBITDA was $56.7 million, down from the first quarter of 2008 due to the
impact of the challenging economic conditions and some first quarter 2008
events, including a regulatory benefit and favourable foreign exchange
conditions, which did not recur in the first quarter of 2009. However, on a
sequential basis, EBITDA has improved slightly from the fourth quarter of
2008.
    "Looking ahead, we continue to expect a performance for the Enterprise
Solutions division similar to 2008 based on the impact of record contract wins
in 2008, continued strong sales of converged IP and a cost reduction program
that should deliver larger savings in 2009," said Dean Prevost, President
Enterprise Solutions division. "The division remains focused on operational
performance, maintaining pricing discipline and will be positioned for renewed
growth when the economy recovers."
    The Enterprise Solutions division sales funnel remains strong with new
contract wins in the first quarter up 15% from a year earlier and the
divisional backlog stands at approximately $38.4 million. The division
continues to win business, including recent announced wins with the City of
Winnipeg, Pethealth Inc. and the Accessible Channel.

    
    Outlook
    -------
    

    MTS Allstream expects stable operating performance for the balance of
2009 as compared to 2008. The Company also expects to implement further cost
reductions and has increased its cost reduction target for 2009 to between $50
million and $60 million, up from the previous target of $35 million to $45
million on an annualized basis.
    The incremental success of the cost reduction program so far will allow
MTS Allstream to reduce headcount by approximately 160, over and above
previously disclosed reductions. The Company now estimates that 2009
restructuring costs related to the cost reduction program will be $25 million
to $35 million, as compared to a previously disclosed estimate of $10 million
to $20 million.
    MTS Allstream is reviewing business processes not previously reviewed
within the Enterprise Solutions division to identify the potential for
additional cost savings and productivity improvements going forward.
    The Company's free cash flow is in line with guidance for 2009 and is
expected to cover all anticipated cash requirements, including the current
dividend policy, which provides one of the highest yields on the TSX. Free
cash flow for 2009 will benefit from lower than anticipated pension funding
requirements for 2009. While the pension funding requirement of approximately
$35 million represents an incremental increase of $5 million over 2008, the
Company had previously anticipated that the incremental increase would be in
the range of $10 million to $20 million.
    The Company continues to benefit from large tax assets, which have a
present value of approximately $385 million and are expected to shelter the
Company from paying cash taxes until 2015.

    
    Dividend
    --------
    

    The Company's Board of Directors declared a cash dividend of $0.65 per
share for the second quarter of 2009, which is payable on July 15, 2009 to
shareholders of record on June 15, 2009.


    Other Developments

    The following are various announcements made recently by the Company.

    
    Enterprise Solutions division announcements

    -   On May 5, 2009, MTS Allstream announced the completion of an
        installation of a 36-month contract with Allied International Credit
        ("AIC") that provides a global multiprotocol label switching network
        to AIC locations in the United Kingdom.

    -   On April 29, 2009, MTS Allstream announced that it had been named a
        Cisco Advanced Technology Partner for its outdoor wireless mesh
        network solution, becoming one of only five Canadian communications
        solutions providers to achieve this status. The invitation-only
        Advanced Technology Partner status recognizes MTS Allstream's
        high-level knowledge and ability to implement, operate and support
        outdoor wireless mesh services and technologies.

    -   On April 27, 2009, MTS Allstream announced that it had achieved a
        Cisco Powered designation for services by establishing the resources
        and procedures to deploy, manage and support Cisco Powered unified
        communications solutions and managed business Internet protocol
        services. Cisco Powered designation means that the Company has been
        recognized for its investment in the tools and processes necessary to
        provide high-quality network-based managed services. This designation
        not only acknowledges that MTS Allstream has invested in
        industry-leading Cisco solutions, but also entitles the Company to
        take advantage of Cisco resources to envision, build, market and sell
        its managed services, which will contribute to market acceptance and
        adoption.

    -   On April 3, 2009, MTS Allstream announced that it was selected to
        provide wavelength solutions to The Accessible Channel, also known as
        TACtv, a national, English language described video and
        closed-captioned, basic HD specialty service television channel. MTS
        Allstream's wavelength solutions will provide TACtv with high
        bandwidth applications and business continuity requirements to meet
        the needs of persons who are blind, vision-impaired, deaf or hard of
        hearing.

    -   On March 24, 2009, MTS Allstream announced that that it was selected
        by Pethealth Inc., North America's second largest provider of medical
        insurance for dogs and cats to pet owners operating in Canada, the
        United States and the United Kingdom, to provide a fully-managed
        hosting environment for the company's PetPoint application. As part
        of the PetPoint solution, MTS Allstream provides secure data centre
        space, highly reliable power, and a completely managed
        infrastructure, including the monitoring and management of servers
        and software.

    -   On March 13, 2009, MTS Allstream announced a continuation of its
        relationship with The City of Winnipeg with the award to the Company
        of a $3.35 million contract to supply FleetNet 800(TM) mobile and
        portable radios to the Winnipeg Police Service ("WPS"). All WPS
        dispatch radio equipment operates on MTS Allstream's FleetNet network
        and provides secure, province-wide, voice communications between WPS
        members and most public safety organizations within Manitoba.
        FleetNet is one of the largest geographical trunked radio networks in
        the world and is designed to the highest public safety standards.
        Over 1,500 City of Winnipeg radios use the FleetNet network.

    Consumer Markets division announcements

    -   On May 5, 2009, MTS Allstream announced that it launched the
        Company's newest and most exciting calling plan - the MTS All Access
        Plan. The MTS All Access Plan offers MTS mobility customers unlimited
        local and long distance calling to all MTS residential, business, and
        MTS Mobility phone numbers within Manitoba.

    -   On March 31, 2009, MTS Allstream announced that it launched MTS HDTV
        - the most advanced television experience in Canada - to residents in
        Winnipeg. MTS HDTV is the next generation of high definition
        television, with personal video recorder, improved guide features and
        other TV advancements. MTS Allstream is the first company in Canada
        to launch a digital television service that includes combined
        technology from Alcatel-Lucent Canada Inc. and the award-winning
        Microsoft Mediaroom Internet Protocol television software platform.

    -   On March 13, 2009, MTS Allstream announced that its Lightning High
        Speed Internet service has increased its speed by up to 40%, up to
        7 megabits per second. This is an addition to MTS Allstream's already
        impressive lineup of Internet services that include upload speeds of
        up to 2 megabits per second, superior to most competing plans, for
        customers using both MTS TV and Lightning or Lightning Max High Speed
        Internet.

    -   On March 6, 2009, MTS Allstream announced a multi-year agreement with
        Paramount Pictures Corporation, one of the world's top producers and
        distributors of filmed entertainment, to deliver recent release hit
        movies on MTS Video On Demand. The MTS service gives customers a
        great selection of movie titles and other programs with the ability
        to watch them as many times as they want, whenever they want, within
        a 24-hour period. Customers can also pause, rewind and fast-forward
        their movies at their convenience.

    -   On March 2, 2009, MTS Allstream announced the launch of MTS Digital
        Cable, a new digital television service offered to residents in
        Morden and Winkler, Manitoba. MTS Digital Cable provides customers
        with access to 65 new and exciting channels, including movie
        channels, sports channels, kids programming and time shift channels,
        all with digital quality picture and sound. Customers can rent a
        digital box for a low monthly cost, eliminating the need for
        expensive hardware.

    Corporate announcements

    -   On April 8, 2009, MTS Allstream announced that it signed a
        sponsorship deal with Adam Speirs, one of Canada's top professional
        golfers. As part of this sponsorship agreement, he will represent MTS
        Allstream at various golf tournaments and other events across Canada.
        In addition to the financial support he will receive to help him
        continue training and attending golf competitions around the world,
        Mr. Speirs will also be outfitted with MTS Allstream equipment and
        services - including a BlackBerry(TM) World Edition - to help him
        stay connected while on the road.

    -   On April 3, 2009, MTS Allstream announced that it would be the title
        sponsor of the Royal Manitoba Winter Fair's premier event, the MTS
        Grand Prix competition. The event took place on Saturday, April 4,
        2009 and featured the best of the Winter Fair's competitive horse
        jumping.

    -   On March 12, 2009, MTS Allstream announced that it had petitioned the
        federal cabinet, requesting that the Government of Canada vary a
        recent decision by the Canadian Radio-television and
        Telecommunications Commission ("CRTC") that is denying Canadian
        telecommunications customers the benefits of choice and innovation
        in broadband services that can only be delivered via competitive
        market forces. The petition is centered on a CRTC decision related to
        the Essential Facilities regime, the rules of which restrict
        competitors from offering choice and lower prices for
        telecommunications services to millions of businesses across Canada.
    

    Quarterly conference call

    MTS Allstream's first quarter 2009 conference call with the investment
community is scheduled for 9:00 a.m. (Eastern Time) on May 6, 2009. Investors
are invited to listen to the conference call. The dial-in number is
1-800-732-0232. A live audio Webcast of the investor conference call can be
accessed by visiting the Investors section of the MTS Allstream Web site
(www.mtsallstream.com). A replay of the conference call will be available
until midnight (Eastern Time) on May 19, 2009 and can be accessed by dialing
1-877-289-8525 or 1-416-640-1917 and enter the pass code 21303355 followed by
the pound sign when prompted.
    MTS Allstream's interim MD&A for the three months ended March 31, 2009
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
providers, delivering innovative products and services through its Enterprise
Solutions and Consumer Markets divisions. The Enterprise Solutions division,
which operates under the Allstream brand nationally and under the MTS
Allstream brand in Manitoba, is a leading competitor in the national business
and wholesale markets. This division offers customers a portfolio of solutions
tailored to the needs of medium and large businesses looking for success in a
world of rapidly evolving technology - Internet protocol connectivity, unified
communications, IT consulting and security services, and voice and data
connectivity services. The Consumer Markets division leads every
telecommunications market segment in Manitoba, delivering a full suite of next
generation wireless, high-speed Internet and data, digital television and
wireline voice services under the MTS brand, as well as small business
services in select markets across Canada under the Allstream brand, and
security and alarm monitoring services through the company's subsidiary AAA
Alarm Systems Ltd., which also operates in other western provinces. The
company's extensive national broadband fibre optic network spans more than
27,900 kilometres, and provides international connections through strategic
alliances and interconnection agreements with other international service
providers. Manitoba Telecom Services Inc.'s common shares are listed on The
Toronto Stock Exchange (trading symbol: MBT). For more information, please
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, operating and dispute resolution activities, 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. Forward-looking statements reflect our
expectations as at May 5, 2009. 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 from those expected, and the material factors or assumptions
that were applied in drawing a conclusion or making a forecast or projection
set out in such forward-looking statements, include, but are not limited to,
the items identified in our interim MD&A for the first quarter of 2009, and
our 2008 annual MD&A. Except as required by law, 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.
    Factors that could cause anticipated opportunities and actual results to
differ materially include, but are not limited to, the intensity of
competitive activity from both traditional and new competitors (competitive
conditions); the ability to retain major customers (customer relationships);
decisions by the federal regulator that affect our ability to compete
effectively or to enter into new business opportunities (developments in
federal regulation); general economic and market conditions and the level of
consumer confidence and spending, and the demand for, and prices of, our
products and services (market conditions and economic fluctuations);
fluctuations in pension plan funding requirements (pension solvency funding);
the ability to manage labour relations effectively (collective agreements);
the ability to anticipate, and respond to, changes in technology (technology);
and other risk factors listed from time to time in our comprehensive public
disclosure documents, including our 2008 Annual Report and in other filings
with the Canadian securities regulatory authorities. Unless otherwise stated,
all amounts are expressed in Canadian dollars. For further information, refer
to the "Risks and Uncertainties" sections in our 2008 annual MD&A and our
interim MD&A for the first quarter of 2009.
    Additional information relating to our Company, including our Annual
Information Form, is available on SEDAR at www.sedar.com. 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   GDP is gross domestic product.
    2   EBITDA is earnings before interest, taxes, amortization, other income
        and discontinued operations. EBITDA should not be construed as an
        alternative to operating income or to cash flows from operating
        activities (as determined in accordance with Canadian generally
        accepted accounting principles) as a measure of liquidity.
    3   Refer to MTS Allstream's first quarter 2009 interim MD&A for the
        definition of continuing operations.
    4   EPS is earnings per share.
    5   Refer to MTS Allstream's first quarter 2009 interim MD&A for the
        definition of free cash flow.



                        -----------------------------
                           MANAGEMENT'S DISCUSSION
                                AND ANALYSIS
                        -----------------------------
    

    Unless otherwise indicated, this Management's Discussion and Analysis
("MD&A") of our financial results for the interim period ended March 31, 2009
is as at May 5, 2009. In this MD&A, "we", "our", and "us" refer to Manitoba
Telecom Services Inc. ("MTS"). This interim MD&A should be read in conjunction
with our interim consolidated financial statements and the discussion and
analysis that accompanies our audited consolidated financial statements for
the year ended December 31, 2008. This interim MD&A for the three months ended
March 31, 2009 updates the information contained in our 2008 annual MD&A.
    This interim MD&A includes forward-looking statements and information
(collectively, the "statements") about our corporate direction, business
opportunities, operating and dispute resolution activities, 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. 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 from those expected, and the material factors or assumptions
that were applied in drawing a conclusion or making a forecast or projection
set out in such forward-looking statements, include, but are not limited to,
the items identified in this interim MD&A under the "Risks and Uncertainties"
and "Material Assumptions" sections, and our 2008 annual MD&A. Please note
that forward-looking statements reflect our expectations as at May 5, 2009. 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. Additional information relating to our company,
including our Annual Information Form, is available on SEDAR at www.sedar.com.
Unless otherwise stated, all amounts are expressed in Canadian dollars.

    
    NON-GAAP MEASURES OF PERFORMANCE
    --------------------------------

    In this MD&A, we provide information concerning continuing operations,
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 Canadian generally accepted accounting principles ("GAAP"),
and are not necessarily comparable to similarly titled measures used by other
companies.

    -   Continuing Operations - We provide information that refers to our
        performance from continuing operations to assist investors in
        understanding the performance of our company.

        In the first quarter of 2009, continuing operations excludes
        restructuring costs; the costs to transition certain wireless service
        requirements away from Bell Mobility to new suppliers and to our
        wireless platform; costs related to certain regulatory proceedings;
        certain costs associated with our transition from Canadian GAAP to
        International Financial Reporting Standards ("IFRS"); and solvency
        funding to our pension plans.

        In the first quarter of 2008, continuing operations excluded solvency
        funding to our pension plans.

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

    -   Free Cash Flow - We define free cash flow as cash flow 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.

    OVERVIEW
    --------
    

    MTS is a leading national communications provider in Canada. The company
is organized into two reportable operating segments, the Enterprise Solutions
division and the Consumer Markets division. The company, which operates under
two principal brands, MTS and Allstream, builds upon its unique combination of
market leadership in Manitoba and agile competitive presence in business
markets across Canada to deliver innovative telecommunications solutions that
bring value to customers. MTS employs approximately 6,000 people.
    MTS commenced its operations in the province of Manitoba in 1908, first
as a department of the provincial government, and then as a Crown corporation
that was incorporated in 1933. In 1997, the company was reorganized and
continued as a publicly traded company.
    MTS's common shares are listed on The Toronto Stock Exchange under the
trading symbol MBT.

    Enterprise Solutions division

    The Enterprise Solutions division, which operates under the Allstream
brand nationally and under the MTS Allstream brand in Manitoba, is a leading
competitor in the national business and wholesale markets. This division
offers customers a portfolio of solutions tailored to the needs of medium and
large businesses looking for success in a world of rapidly evolving technology
- Internet protocol ("IP")-based communications, unified communications, voice
and data connectivity, and professional services. The Enterprise Solutions
division operates an extensive national broadband fibre optic network that
spans more than 27,900 kilometres, and provides international connections
through strategic alliances and interconnection agreements with other
international service providers. The division's advanced services, combined
with the impressive reach of a state-of-the-art network and continued
leadership in technological innovation, have allowed the company to forge
strong relationships with top national business customers across the country.

    Consumer Markets division

    The Consumer Markets division leads every telecommunications market
segment in Manitoba, delivering a full suite of next generation wireless,
high-speed Internet and data, digital television and wireline voice services
under the MTS brand, as well as security and alarm monitoring services through
AAA Alarm Systems Ltd., a subsidiary of MTS. This complete range of products
is unmatched by any other provider in Manitoba, and the successful launch of
MTS high definition television ("HDTV") will further enhance our position.
This service is recognized as one of the leading North American digital
television services including features such as personal video recorder
capability and more HD channels. With the deployment of the most advanced HDTV
service that matches or exceeds the competition, we expect to strengthen
subscriber growth going forward. With this innovative combination of products
and services, the company connects people, homes and businesses everywhere in
our markets. In addition, the Consumer Markets division is an important
service provider in the national small business telecommunications market in
Manitoba as well as outside the province, providing customers in targeted
major Canadian centres with a range of innovative business Internet, data and
voice services under the Allstream brand.

    
    RESULTS OF OPERATIONS
    ---------------------
    

    We delivered an increase in revenues of 0.9% in the first quarter
consistent with our financial outlook for 2009.
    Our results in the first quarter of 2009 were in line with the third and
fourth quarters of 2008, which we believe represents a more meaningful
comparison than the first quarter of 2008, given the change in economic
conditions in the second half of 2008.
    We expect to see continued stable performance through 2009 based on
growth in our Consumer Markets division, which continues to be supported by a
Manitoba economy that is among the strongest in Canada, and a cost reduction
program which is generating higher savings than we initially forecasted.

    
    -------------------------------------------------------------------------
    (in millions $,                 2009                   2008
     except EPS)(*)                  Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Growth services revenues       227.2    212.5    213.1    214.9    204.9
    Legacy services revenues       255.7    263.9    266.8    271.5    273.9
    Revenue                        482.9    476.4    479.9    486.4    478.8
    EBITDA                         163.2    156.7    165.1    171.3    168.7
    Free cash flow                  68.7     39.4     70.8     72.4     78.7
    Earnings per share ("EPS")      0.71     0.59     0.74     0.81     0.84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) All financial metrics in this table are from continuing operations.


    REVENUES

    Operating Revenues
    -------------------------------------------------------------------------
                                                     Q1/09             Q1/09
                                                      chg               chg
    (in millions $)                Q1/09    Q4/08    Q4/08    Q1/08    Q1/08
    -------------------------------------------------------------------------
    Revenue
     (continuing operations)       482.9    476.4     1.4%    478.8     0.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Our Consumer Markets division again achieved double-digit growth in
revenues from growth services in the first quarter of 2009 as compared to a
year earlier. The number of customers choosing our attractive product bundles
increased by 7.8%. We remain confident in the ability of our bundled product
strategy to continue to drive growth within our Consumer Markets division and
are pleased with its success.
    Our Enterprise Solutions division achieved a double-digit increase in
growth services revenues in the first quarter of the year. Strong demand for
converged IP services resulted in an increase of 10.7% in revenues from this
line of business and provided continued growth in the first quarter of the
year.

    
    Segmented Revenues (Continuing Operations)
    -------------------------------------------------------------------------
    (in millions $)                            Q1/09       Q1/08    % change
    -------------------------------------------------------------------------
    Growth services                            227.2       204.9        10.9
    Legacy services                            255.7       273.9        (6.6)
                                           ----------------------------------
    Total                                      482.9       478.8         0.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Growth Services Revenues

    Contributing to our overall performance is the solid demand for the
products that we offer within our growth services portfolio that offset the
declines in our legacy products such as long distance. In the quarter, we saw
increases in revenues from wireless, converged IP, unified communications,
consumer Internet, and digital television services.

    Legacy Services Revenues

    The decline in legacy services revenues was impacted this quarter by the
reduced business activity from some of our customers who are based or have
operations in the U.S. Additionally, we continue to see declining revenues
from Rogers Communications Inc. ("Rogers") and AT&T Corp. ("AT&T"), as well as
re-pricing in the enterprise legacy market and competitive losses in the
consumer market.
    As expected, Rogers and AT&T have continued with the migration of
communications traffic to their own networks with revenues from these
customers decreasing to $18.2 million in the first quarter of 2009 as compared
to $26.5 million in the first quarter of 2008. Excluding Rogers and AT&T,
revenues from our legacy services would have decreased by 4.0% in the first
quarter of 2009.

    
    Operating Revenues (Continuing Operations)
    -------------------------------------------------------------------------
    (in millions $)                            Q1/09       Q1/08    % change
    -------------------------------------------------------------------------
    Wireless                                    77.8        68.1        14.2
    Data                                       177.9       173.9         2.3
    Local                                      129.6       131.2        (1.2)
    Long distance                               77.0        85.2        (9.6)
    Other                                       20.6        20.4         1.0
                                           ----------------------------------
    Total                                      482.9       478.8         0.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our operating revenues include those earned from the provision of
    wireless, data, local voice, long distance voice, and other services,
    which include our digital television service.


    Wireless Services
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      77.8        68.1        14.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our wireless portfolio consists of cellular, wireless data, paging and
    group communications services that we offer in the Manitoba market.
    

    Primarily driving the year-over-year increases in our wireless services
revenues is the growth in our wireless subscriber base. As at March 31, 2009,
our wireless subscriber base had reached 438,300 subscribers, growing by 9.6%
over last year. Our average revenue per user ("ARPU") of $55.80 increased by
1.9% or $1.04 for the three months ended March 31, 2009, driven by increased
airtime usage along with increases in wireless data services and calling-
feature usage. ARPU growth and subscriber acquisitions were impacted in the
quarter by the presence of aggressively-priced plans from competitors. While
we remained disciplined in our approach to pricing, we were forced to partly
respond to these plans for a limited time. We ended this promotion in
February, and more recently, one of our competitors also withdrew their
similar promotion. Growth in wireless services in the first quarter was
enhanced by a $3.4 million one-time sale of FleetNet 800(TM) handsets to the
City of Winnipeg as compared to $1.3 million in the first quarter of 2008.
    We provide the largest wireless coverage in Manitoba and continue to
offer our customers high-value product bundles that remain unmatched by our
principal competitors. We continue to see potential for growth in our wireless
services revenues in Manitoba. At the end of the first quarter of 2009,
wireless penetration in Manitoba was approximately 61.5% as compared to our
estimate of the Canadian penetration rate of approximately 66%.
    We continue to review our plans for the conversion of our network
following recent announcements by our Canadian roaming partners. We are in
discussions with other Canadian providers with respect to UMTS/HSPA wireless
networks, and once these discussions are completed, we expect to be in a
position to announce our strategies in this matter.
    Our revenues from wireless data services increased by 32.9% in the first
quarter, driven by the increasing utilization of our next generation wireless
data services and service features, such as text messaging and Web browsing
services. In addition, we experienced growth in wireless Internet access
revenues due to year-over-year growth in subscribers choosing our 1x and EVDO
access plans.

    
    Data Services
    -------------------------------------------------------------------------
    (in millions $)                             2009      2008      % change
    -------------------------------------------------------------------------
    Q1/YTD                                     177.9     173.9           2.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our data line of business includes revenues earned from providing data,
    Internet and professional services. Data services connect data, video and
    voice networks to establish private connections across office locations
    and to integrate traffic over highly secure networks. We provide a wide
    range of Internet connectivity services to meet the needs of residential
    customers in Manitoba and business customers across the country. We also
    offer numerous hosting and security services to business customers across
    Canada.
    

    We achieved an increase of 2.3% year-over-year in our data services
revenues this quarter, driven primarily by increases in revenues from next
generation services, which include converged IP and unified communications
services, and consumer Internet services. Partly offsetting this growth was
the impact of customers transitioning from legacy services to growth services,
and reduced traffic on our network by Rogers and AT&T. If the data services
revenues of Rogers and AT&T were excluded, our data services revenues would
have shown an increase of 5.8% for the quarter.
    Revenues from our next generation data services, including converged IP
and unified communications services, grew by 11.4% in the first quarter of
2009 as compared to the same period last year. We are achieving our desired
results as customers are continuing to migrate to IP solutions that utilize
our state-of-the-art IP multiprotocol label switching ("MPLS") network and
customer service capabilities. Converged IP services represent the largest
revenue stream for our Enterprise Solutions division and notably, set a record
month for installations during the quarter. We continued to win new customers
and experienced higher year-over-year volume usage from business IP domestic
MPLS, switched Ethernet and higher sales of unified communications services.
    The capabilities of the suite of products offered by our Enterprise
Solutions division continued to be demonstrated by solid growth in our
IP-virtual private network ("IP-VPN") customer base. As at March 31, 2009, we
were supporting 324 IP-VPN customers, a 20.0% increase over last year.
    Our consumer Internet services revenue continued to show growth in the
first quarter of 2009, increasing 11.6% year-over-year to $22.2 million.
Contributing to this growth was an increase of 4.8% in our consumer high-speed
Internet customer base, which reached 177,997 customers as at March 31, 2009,
and a 9.9% year-over-year increase in ARPU. Similar to our national peers the
increasing penetration in the high-speed Internet market is slowing subscriber
activations. However, this is having the opposite impact on our ARPU by
reducing the number of subscribers who are on promotional pricing plans as
demonstrated by the strong increase in ARPU this quarter.

    
    Local Services
    -------------------------------------------------------------------------
    (in millions $)                             2009      2008      % change
    -------------------------------------------------------------------------
    Q1/YTD                                     129.6     131.2          (1.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Local services revenues include basic voice connections for residential
    customers, including enhanced calling features (such as Call Answer, Call
    Display, Call Waiting and 3-Way Calling), payphone revenue, wholesale
    revenues from services provided to third parties, as well as a full range
    of local services to business customers. These services allow customers
    to complete calls in their local calling areas and to access long
    distance, cellular networks and the Internet.
    

    The reduction in local services revenues results from a decrease in
residential network access lines through local competition. Westman
Communication Group launched digital phone service in the Brandon, Manitoba
market late in 2008, which has contributed to the decline in local services
revenues related to customers substituting local line service with solutions
from alternative providers. At 4.5%, our year-over-year line loss is among the
lowest in Canada and demonstrates the success of our service bundle and
consumer marketing strategies in this market. In addition, the revenues from
our business local services have remained flat year-over-year in recent
quarters and continue to perform well in the markets in which we do business.
    We believe that we have positioned ourselves for long-term success in our
markets by bundling our residential services in attractive offerings. The
popularity of our residential service bundle package, which includes wireless,
Internet, digital television and alarm services bundles, continues to provide
a unique value proposition for our customers. This quarter, we launched MTS
HDTV, one of the leading North American digital television services offering
such advanced features as a personal video recorder, and more HD channels.
This product matches or exceeds the capabilities of our competitors and is
expected to strengthen our subscriber growth rates going forward. Customers
utilizing our bundled service packages grew by 7.8% in the first quarter of
2009 as compared to the same period in 2008. Through the success of these
programs, we continued to deliver "best in class" performance against cable
company competitors, and are minimizing the reduction in our local services
revenues. Our overall customer connections, which include network access
services, high-speed Internet, wireless and digital television subscribers,
increased by 2.2% as compared to the first quarter of 2008.

    
    Long Distance Services
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      77.0        85.2        (9.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long distance services enable residential customers in Manitoba and
    business customers across Canada to communicate with destinations outside
    the local exchange. Our long distance voice service portfolio includes
    basic, domestic, cross-border and international outbound long distance,
    basic and enhanced toll-free services, calling cards and audio
    conferencing, as well as a variety of enhanced long distance services and
    features.
    

    Competitive pricing pressures, customer losses and the impact of a
slowing economy continued to impact revenues from our long distance services
in all market segments that we service. Our Consumer Markets division
experienced decreased long distance revenue due to customer migration to
lower-priced long distance plans, lower calling volumes as customers continue
to substitute wireless services and e-mail as alternative communication
methods, and customer losses. In our Enterprise Solutions division, decreased
revenues resulted from lower rates and decreased usage in domestic and
cross-border long distance services, as well as customer losses, partly offset
by higher international calling rates. The decline in cross-border revenues is
due to reduced use by our customers that are based or have operations in the
U.S. and have been negatively affected by reduced business activity.

    
    Other Revenues
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      20.6        20.4         1.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other revenues consist of revenues earned from our digital television and
    home security services, and miscellaneous items. Our digital television
    service is offered across our broadband network platform and is targeted
    at residential customers in Winnipeg. Miscellaneous revenues primarily
    consist of the sale and maintenance of terminal equipment.
    

    Growth in revenue from our digital television services, which increased
by 6.6% or $0.8 million to $13.0 million, contributed to the increase in our
other revenues.
    An 8.2% year-over-year growth in subscribers was partly offset by a
decrease in average revenue per subscriber ("ARPS") of 2.3% to $49.69. This
decrease in ARPS was due mainly to an increased number of subscribers on
promotional pricing plans, which were partially offset by increases to
pay-per-view services. We continue to see our digital television services as a
steady growth stream for revenues even during tough economic times, as it
provides an entertainment option that is less-expensive than theatre or
cinema.
    Earlier this year, we became the first company in Canada to have launched
the next generation of HDTV, a digital television service that includes
combined technology from Alcatel-Lucent Canada Inc. and the award-winning
Microsoft Mediaroom Internet Protocol Television software platform. With this
milestone of launching the most advanced television experience in Canada to
our customers, we not only provide next generation HDTV but also personal
video recorder, improved guide features and other television advancements. The
addition of these features places our television product in a better
competitive position to match and exceed those of our competitors and helps to
drive our subscriber growth rates going forward. In January 2009, we launched
this new leading-edge service in Portage la Prairie, Manitoba and on March 31,
2009, we successfully launched the product in Winnipeg, Manitoba with plans to
expand our offering of premium HDTV to Brandon later in 2009.
    As at March 31, 2009, our digital television subscriber base increased by
8.2% year-over-year to reach 84,502, representing a 34% market share,
increasing from 32% last year.

    
    EBITDA
    -------------------------------------------------------------------------
    (in millions $)                            Q1/09       Q1/08    % change
    -------------------------------------------------------------------------
    EBITDA (continuing operations)             163.2       168.7        (3.3)
    Wireless transition costs and AWS
     spectrum auction costs                     (7.4)          -         n.m.
    Restructuring costs                         (6.1)          -         n.m.
                                            ---------------------------------
    EBITDA                                     149.7       168.7       (11.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Our EBITDA for the first quarter was $163.2 million, or 3.3% lower than
the first quarter of 2008.  The economy was substantially better in the first
half of 2008, and since that time we have been closely monitoring the impacts
on our industry with a focus on cost management, revenue retention and prudent
capital spending, while at the same time continuing with our long-term
strategic objectives to increase revenues from growth services and create
efficiencies in all areas of our business.  Our first quarter 2009 results
represent steady, stable performance that is largely consistent overall with
our results in the second half of 2008.
    The decrease in EBITDA in the first quarter of 2009 was primarily in our
Enterprise Solutions division due to reduced business from Rogers and AT&T,
declining volumes from some of our U.S.-based long distance customers,
declining foreign exchange rates which impact our cross-border costs, and a
couple of small regulatory wins that resulted in expense credits in the first
quarter of 2008.  We had some increases in lower margin revenues in the first
quarter this year that offset the Rogers and AT&T reductions on the revenue
side but resulted in higher costs.  These include a large FleetNet equipment
sale and an increase in our cross-border wholesale long distance revenues.  It
is important to note that our Enterprise Solutions division's EBITDA in the
quarter represented a respectable 23% of our full-year guidance for 2009, and
we expect the balance of the year will benefit from the increasing impact from
our successful cost reduction initiatives and our continuing success in growth
services.
    The $7.4 million cost to transition certain wireless service requirements
away from Bell Mobility to new suppliers and our wireless platform, as well
as, higher year-over-year restructuring costs, are the primary drivers of the
decrease in consolidated EBITDA. Our cost reduction program is ahead of
schedule and delivering more savings than originally forecasted. We generated
$16.4 million in annualized savings in the first quarter of 2009 and
re-engineered and streamlined production processes to improve capacity output.
Our initial target for 2009 was to generate $35 million to $45 million in cost
savings. We are ahead of schedule and exceeding expectations and now expect to
achieve $50 million to $60 million in savings from these initiatives. This
will result in the reduction of an incremental 160 positions in our Enterprise
Solutions division and correspondingly, we expect our restructuring costs for
2009 to be approximately $25 million to $35 million.
    Additionally, given that we are ahead of schedule on our 2009 cost
reduction program, we are getting an early start on a new cost reduction
program that will target additional areas of the business that were not
reviewed in our previous initiatives.  We have not yet quantified the
annualized savings this new program will generate, but believe that there are
significant opportunities to streamline and gain efficiencies from these areas
of the business.

    
    EPS
    -------------------------------------------------------------------------
    (in $)                                     Q1/09       Q1/08    % change
    -------------------------------------------------------------------------
    EPS (continuing operations)                 0.71        0.84       (15.5)
    Wireless transition costs and AWS
     spectrum auction costs                    (0.08)          -         n.m.
    Restructuring costs                        (0.06)          -         n.m.
                                            ---------------------------------
    Basic EPS                                   0.57        0.84       (32.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: EPS for the three months ended March 31 is based on weighted
    average shares outstanding of 64.6 million for 2009, and 64.6 million for
    2008.

    On a year-over-year basis, EPS from continuing operations decreased by
15.5% as a result of lower EBITDA and other income, as well as higher debt
charges. These results are primarily due to a change in economic conditions
during the latter half of last year versus a strong economy in the first
quarter of 2008.

    OPERATING EXPENSES

    Operations Expense (Continuing Operations)
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                     319.7       310.1         3.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating expenses in the first quarter of 2009 were up 3.1% primarily
due to the impact of a regulatory recovery that reduced our costs last year,
higher costs in the current year due to foreign exchange rate changes, a
reduction in high-margin Rogers and AT&T revenues and an increase in lower
margin one-time sales in the first quarter of 2009.
    These impacts on our costs will be offset by our 2009 cost reduction
program, where we are ahead of schedule and exceeding expectations and now
expect to achieve $50 million to $60 million in cost savings or $15 million
more than originally forecast for 2009.
    Additionally, we have recently initiated a new cost reduction program
that will focus on areas of our business not impacted by the previous
initiatives and expect to generate further savings in the future.

    
    Restructuring Expenses
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                       6.1           -         n.m.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the first quarter of 2009, we have incurred $6.1 million in
restructuring expenses. These costs relate to the continuation of the cost
reduction initiative that we commenced in the fourth quarter of 2008 with the
aim to achieve process improvements and further cost reductions, and include
facilities consolidation of select real estate.

    Amortization Expense
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      82.0        80.5         1.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The year-over-year increase in our amortization expense is due primarily
to increases in property, plant and equipment, which were partially offset by
a decrease in the composite rate.

    Other Income
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                       1.5         4.1       (63.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other income was lower primarily due to the impact of gains on foreign
exchange hedging contracts last year, which did not occur in the current year.

    Debt Charges
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      13.1        12.5         4.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The increase in debt charges resulted from higher short-term interest
costs related to increased borrowing under our syndicated credit facility and
costs relating to the increase in the syndicated credit facility, which was
partly offset by lower long-term interest costs due to lower year-over-year
long-term debt.

    Income Tax Expense
    -------------------------------------------------------------------------
    (in millions $)                             2009        2008    % change
    -------------------------------------------------------------------------
    Q1/YTD                                      19.1        25.6       (25.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    We have been able to reduce our taxable income without utilizing our
substantial and growing capital cost allowance ("CCA") pools as a result of
our acquisition of Allstream Inc. in 2004 along with its income tax loss
carryforwards. It is anticipated that these tax loss carryforwards will have
been fully utilized by the end of the second quarter of 2009. However, by
utilizing our deferred CCA deduction, we project that we will not pay cash
taxes before 2015.
    Income tax expense decreased by 25.4% or $6.5 million to $19.1 million in
the first quarter of 2009 as compared to the same period in 2008. This
decrease was driven primarily by lower income before tax and lower statutory
tax rates.
    On March 26, 2009, the province of Ontario announced plans to reduce its
corporate tax rate from the current rate of 14% to 10% by 2013. When the new
rates are substantively enacted, the effect will be to reduce the book value
of our future tax asset by $17.5 million.

    CONSOLIDATED QUARTERLY DATA

    Unaudited quarterly financial data for our eight most recently completed
quarters is presented below:

    
    -------------------------------------------------------------------------
    (in millions $, except                 Q1        Q4        Q3        Q2
     earnings per share)                  2009      2008      2008      2008
    -------------------------------------------------------------------------
    Operating revenues                   482.9     476.4     479.9     486.4
    Operating income                      67.7      50.3      66.6      78.8
    Net income and comprehensive income   37.0      13.7      38.1      38.0
    Earnings per share                    0.57      0.21      0.59      0.59
    Diluted earnings per share            0.57      0.21      0.59      0.58
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in millions $, except                 Q1        Q4        Q3        Q2
     earnings per share)                  2008      2007      2007      2007
    -------------------------------------------------------------------------
    Operating revenues                   478.8     489.2     475.9     474.1
    Operating income                      88.2      72.1      82.5      92.2
    Net income and comprehensive income   54.2      14.3      45.5      57.0
    Earnings per share                    0.84      0.22      0.70      0.88
    Diluted earnings per share            0.83      0.22      0.70      0.88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Our consolidated financial results for the eight most recently completed
quarters reflect the ongoing performance of our business in the marketplace,
as well as the following:

    -   The recording of $7.4 million in costs in relation to the transition
        of certain wireless service requirements away from Bell Mobility to
        new suppliers and to our wireless platform in the first quarter of
        2009. We recorded costs in the amounts of $10.3 million, $7.5 million
        and $9.3 million in the second, third and fourth quarters of 2008,
        respectively, for this transition and costs associated with the AWS
        spectrum auction.

    -   The recognition of restructuring expenses for our ongoing cost
        reduction initiatives including the amount of $5.4 million in the
        first quarter of 2009 which is related to the continuation of the
        cost reduction initiative that we commenced in the fourth quarter of
        2008; restructuring expenses related to our 2008 efficiency program
        in the amounts of $7.1 million and $13.7 million in the third and
        fourth quarters of 2008, respectively; and restructuring expenses for
        our 2007 efficiency program in each of the second, third and fourth
        quarters of 2007 in the amounts of $2.7 million, $2.3 million and
        $3.0 million, respectively.

    -   The recording of a $5.0 million positive impact in the second quarter
        of 2007, which is related to Decision 2007-10.

    -   Adjustments in the amounts of $12.8 million and $25.7 million for
        reductions to our tax asset valuation allowance in the second and
        fourth quarters of 2007, respectively.

    -   The recording of charges to reflect decreases in the value of our
        income tax asset as a result of reductions in future income tax rates
        or rate differential on temporary differences, consisting of
        $7.5 million and $9.0 million in the second and fourth quarters of
        2008, respectively, and $6.0 million and $49.6 million in the second
        and fourth quarters of 2007, respectively.


    LIQUIDITY AND CAPITAL RE

SOURCES ------------------------------- Cash Flows from Operating Activities ------------------------------------------------------------------------- (in millions $) 2009 2008 $ change ------------------------------------------------------------------------- Q1/YTD 45.3 93.8 (48.5) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows from operating activities refer to cash we generate from our normal business activities. The decrease in cash flows from operating activities resulted primarily from changes to our working capital, decreased consolidated EBITDA, increased pension solvency funding and pension expense, decreased other income, and increased deferred wireless costs. Cash Flows used in Investing Activities ------------------------------------------------------------------------- (in millions $) 2009 2008 $ change ------------------------------------------------------------------------- Q1/YTD 57.2 58.9 (1.7) ------------------------------------------------------------------------- Investing activities represent cash used for acquiring, and cash received from disposing of, long-term assets and other long-term investments. Cash flows used in investing activities declined primarily due to the impact in the first quarter of 2008 of our acquisition of ICU Technologies Inc. Our capital expenditures from continuing operations in the first quarter of 2009 were $56.0 million as compared to $54.8 million in the same quarter in 2008. Free Cash Flow ------------------------------------------------------------------------- (in millions $) Q1/09 Q1/08 % change ------------------------------------------------------------------------- Free cash flow (continuing operations) 68.7 78.7 (12.7) Pension solvency funding (8.7) (3.9) n.m. Wireless transition costs and AWS spectrum auction costs (7.4) - n.m. Restructuring expense (6.1) - n.m. Restructuring capital expenditures (0.6) - n.m. --------------------------------- Consolidated free cash flow 45.9 74.8 (38.6) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Free cash flow refers to cash flow from operating activities, less capital expenditures, and excluding changes in working capital. The decrease in the first quarter in our free cash flow from continuing operations is mainly attributable to lower year-over-year EBITDA from continuing operations, decreased other income and increased deferred wireless costs. Consolidated free cash flow decreased to $45.9 million in the first quarter of 2009, and includes items not from continuing operations as detailed in the table above. Cash Flows from (used in) Financing Activities ------------------------------------------------------------------------- (in millions $) 2009 2008 $ change ------------------------------------------------------------------------- Q1/YTD 1.1 (42.1) 43.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financing activities refer to actions we undertake to fund our operations through equity capital and borrowings. The year-over-year increase in cash flows from financing activities is due primarily to the issuance of notes payable in the first quarter of 2009 which was partly offset by repayment of long-term debt. Credit Facilities ------------------------------------------------------------------------- utilized at March 31, (in millions $) capacity 2009 ------------------------------------------------------------------------- Medium term note program 350.0 - Accounts receivable securitization 150.0 126.0 Revolving credit facility 600.0 313.9 -------------------------- Total 1,100.0 439.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 established our $350.0 million medium term note program on January 18, 2008. On January 5, 2009, our revolving credit facility was increased from $350.0 million to $600.0 million, of which $150.0 million is available to back-stop our commercial paper program. In addition to these programs and facilities, we have an accounts receivable securitization program of $150.0 million. As at March 31, 2009, we utilized $126.0 million of our accounts receivable securitization program, and $313.9 million of our revolving credit facility, which includes $106.9 million in undrawn letters of credit. Of this amount, $80.7 million represents letters of credit issued under the Solvency Funding Relief Regulations enacted in 2006 under the Pension Benefits Standards Act, 1985 (Canada), which permit the extension of pension solvency payments from a five-year amortization period to a 10-year amortization period for our defined benefit pension plans. We successfully refinanced $70 million in long-term debt that matured in February 2009 with a five-year term loan for $75 million at a competitive interest rate in a transaction which was finalized on May 5, 2009. This demonstrates our ability to access the credit markets at competitive rates and speaks to the strength of our balance sheet. Capital Structure ------------------------------------------------------------------------- March 31, December 31, (in millions $) 2009 2008 ------------------------------------------------------------------------- Bank indebtedness (cash and cash equivalents) 4.3 (6.5) Proceeds from accounts receivable securitization 126.0 127.0 Notes payable 207.0 95.0 Capital lease obligations, including current portion 19.0 18.8 Long-term debt, including current portion 580.3 650.2 -------------------------- Total debt 936.6 884.5 Shareholders' equity 1,377.7 1,382.0 -------------------------- Total capitalization 2,314.3 2,266.5 -------------------------- -------------------------- Debt to capitalization 40.5% 39.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 40.5% as at March 31, 2009 continues to represent excellent financial strength and flexibility. Credit Ratings ------------------------------------------------------------------------- S&P - Senior debentures BBB+ ------------------------------------------------------------------------- S&P - Commercial paper A-2 ------------------------------------------------------------------------- DBRS - Senior debentures BBB ------------------------------------------------------------------------- DBRS - Commercial paper R-2 (high) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Two leading rating agencies, Standard & Poor's ("S&P") and DBRS Limited ("DBRS"), analyze us and assign ratings based on their assessments. We consistently have been assigned solid investment grade credit ratings. On December 16, 2008, S&P confirmed our credit ratings on our long-term corporate credit and senior unsecured debt of "BBB+", and our commercial paper of "A-2". The outlook remained unchanged at negative. DBRS confirmed our credit ratings on December 19, 2008 at "BBB" on our senior debentures and "R-2 (high)" on our commercial paper, and maintained its stable outlook. Outstanding Share Data as at April 28, 2009 Authorized: - Unlimited number of Preference Shares of two classes issuable in one or more series - Unlimited number of Common Shares of a single class ------------------------------------------------------------------------- Issued: ------------------------------------------------------------------------- Book Value Shares Number (in millions $) ------------------------------------------------------------------------- Common 64,659,917 1,266.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Stock options: ------------------------------------------------------------------------- Weighted Average Exercise Price Options Number Per Share ------------------------------------------------------------------------- Outstanding 2,331,740 $41.29 Exercisable 1,173,160 $41.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 that were disclosed in our 2008 annual MD&A. For additional details, please consult our 2008 annual MD&A, which is available on our Web site at www.mtsallstream.com. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS --------------------------------------------- Our critical accounting estimates and assumptions remain substantially unchanged from those that were disclosed in our 2008 annual MD&A. For additional details, please consult our 2008 annual MD&A, which is available on our Web site at www.mtsallstream.com. CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION ---------------------------------------------------------- Our accounting policies, including initial adoption, remain substantially unchanged from those that were disclosed in our 2008 annual MD&A, except as described in Note 4. For additional details, please consult our 2008 annual MD&A, which is available on our Web site at www.mtsallstream.com. IFRS In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the date IFRS will replace Canadian GAAP for publicly accountable enterprises. Currently, there are a number of areas where accounting standards under IFRS are different from those under Canadian GAAP. Also, because IFRS continues to evolve, it is expected that IFRS at the transition date will differ from current IFRS. Our first financial statements under IFRS will be for periods commencing January 1, 2011. We commenced our IFRS changeover project in 2008 and have developed a detailed IFRS changeover plan. A project governance structure has been established, which includes a steering committee, consisting of senior management from our finance, information technology ("IT"), network services, enterprise risk management and treasury departments. Our project team includes certain dedicated resources, employees who contribute as required by the project plan, as well as external consultants who have been engaged for project management and technical accounting expertise. The project team reports regularly to the Audit Committee of the Board of Directors of MTS regarding the status of the project and implications of the changeover to IFRS. Throughout the execution of our IFRS plan, there is ongoing training and communication to affected employees and other internal and external stakeholders. Our IFRS changeover plan consists of the following four phases. Phase 1: Diagnostic Gap Assessment Phase 1 consists of a high-level diagnostic gap and impact analysis of the differences between Canadian GAAP and IFRS applicable to us. The key activities of Phase 1 include: - Identification of significant technical accounting and disclosure differences; - Identification of key IFRS accounting policy alternatives; and - Identification of major operational and system impacts. We completed Phase 1 of our IFRS changeover plan in June 2008. Phase 2: Design and Planning Phase 2 entails a detailed analysis of relevant Canadian GAAP and IFRS differences, as well as an assessment of the implications of implementing new standards. The key activities of Phase 2 include: - Detailed evaluation of accounting and disclosure options, including review of estimated impacts on our financial position and results of operations, key performance indicators, and business activities; - Selection of IFRS-compliant accounting policies, including IFRS 1 policy choices and continuing accounting policies; - Assessment of implications to systems, processes and controls in sufficient detail to support solution development in Phase 3; and - Identification of a dual reporting solution to maintain parallel records during 2010. We are currently working on Phase 2 and are completing our detailed evaluation of accounting policy options and implications. We have identified a dual reporting solution. We expect to have Phase 2 substantially completed by the end of the second quarter of 2009. Phase 3: Solution Development During Phase 3, we will design and test solutions that will be implemented as a result of the changeover to IFRS. The key activities of Phase 3 include: - Design, development and execution of testing strategies for changes to accounting and business processes and IT solutions; - Design, development and execution of a testing strategy for our dual reporting solution; and - Revision of internal controls, as required, resulting from changes to ongoing accounting policies and the one-time adjustments to our opening balance sheet on changeover to IFRS. We have started certain Phase 3 activities, including the design of a solution for dual reporting in 2010. We also have commenced design and development activities related to IT system changes resulting from the changes in accounting standards for property, plant and equipment. We expect that Phase 3 will be substantially completed by the end of the fourth quarter of 2009. Phase 4: Implementation During Phase 4, we will implement IFRS-compliant accounting policies and related systems, processes and controls. The key activities of Phase 4 include: - Implementation of changes to accounting policies; - Preparation of IFRS-compliant opening balance sheet as at January 1, 2010; - Preparation of IFRS-compliant financial statements and related note disclosures; and - Implementation of changes to systems, processes and controls. Phase 4 of the IFRS changeover plan is expected to commence in the third quarter of 2009 and will continue until the end of the first quarter of 2011. During these phases of our IFRS project, we will complete the necessary work required to quantify the impact of the changeover to IFRS on our financial position and results of operations. We will monitor changes to IFRS and assess the impacts that these new standards will have on our financial results and on our IFRS changeover project. The financial impacts on changeover to IFRS may be material to our financial statements, and we expect the impacts to be of similar nature to our competitors. Based on our work to date, we believe that the areas of highest impact are property, plant and equipment and employee benefits. RISKS AND UNCERTAINTIES ----------------------- Our risks and uncertainties remain substantially unchanged from those that were disclosed in our 2008 annual MD&A, except as noted below. For additional details, please consult our 2008 annual MD&A, which is available on our Web site at www.mtsallstream.com. Bell Mobility Agreement We and Bell Mobility have been parties to a wireless alliance that addresses competition and reciprocal services in our respective territories and provides us with access to various wireless-related platforms and products. On March 5, 2008, we provided notice of termination to Bell Mobility of certain wireless agreements relating to the framework underpinning this wireless alliance. These agreements provide for the continuation of services following such notice during a notice period and, thereafter, during a transition period. Bell Mobility disputes that it has any remaining obligations under these agreements. We have commenced formal proceedings to resolve this disagreement. Notwithstanding this dispute, we have entered into a transition agreement with Bell Mobility which will ensure continuity of services to our customers, while reserving all rights to our respective entitlements under these agreements. Effective September 29, 2008, we started activating new wireless customer additions and handset upgrades on new service platforms independent of Bell Mobility. As at March 31, 2009, we have migrated all existing wireless customers to our new service platform. In accordance with the transition agreement we signed with Bell Mobility, we have given Bell Mobility notice of termination of our transition agreement, with such termination to be effective June 24, 2009. We anticipate that the one-time costs of transitioning certain wireless services requirements away from Bell Mobility to new suppliers and to our wireless platform, as well as the costs associated with the AWS spectrum auction, to be an aggregate of $40 million to $50 million, which includes the amounts we have incurred in 2008 and the first quarter of 2009. As noted above, we are disputing certain costs being charged by Bell Mobility in relation to the transition away from Bell Mobility, and we are of the opinion that such costs are recoverable from Bell Mobility, however, there is no certainty that such costs will be recovered. Changes in Telecommunications Policy and CRTC Regulation The telecommunications and broadcast industries in which we operate are federally regulated. We operate as both an incumbent local exchange carrier ("ILEC") in Manitoba and as a competitive local exchange carrier nationally. In addition, pursuant to Broadcasting Decision CRTC 2002-235, the CRTC granted us a Class 1 regional broadcasting distribution license to operate as a broadcasting distribution undertaking serving Winnipeg and the surrounding areas. Current regulatory proceedings and policy issues, which present significant risk and uncertainty on our business, are described below. Essential Facilities On March 3, 2008, the CRTC issued Revised regulatory framework for wholesale services and definition of essential service, Telecom Decision CRTC 2008-17, in which it adopted a new broadened definition of an essential service or facility as one that (i) is required by competitors to provide a retail telecommunications service; (ii) is controlled by a company that could use its market power to lessen or prevent competition; and (iii) provides a functionality that would not be practical or feasible for competitors to duplicate. In addition, the CRTC adopted six categories of mandated competitor services, with differing approaches as to when and how mandated access could or, in the case of one category of services will, be phased out. We applied to have the decision reviewed and varied with respect to the treatment of Ethernet and asymmetric digital subscriber line ("ADSL"). On December 11, 2008 and January 26, 2009 in Telecom Decision CRTC 2008-118 pertaining to Ethernet and Telecom Decision 2009-34 pertaining to ADSL, the CRTC dismissed our applications, and initiated a further proceeding concerning the appropriate unbundling of ADSL. On December 11, 2008, we expressed our intention to petition Cabinet, which is the next statutorily prescribed level of appeal. On March 11, 2009, we filed our petition with the federal government, seeking to have Ethernet and ADSL access and transport facilities controlled by the incumbents treated as essential and made available to competitors on a mandated basis, at cost-based rates. Bell Canada and TELUS Communications Inc. ("TELUS") also filed separate petitions on that date seeking relief which would give them further flexibility to discriminate among or deny competitors access to high-speed network inputs. We will file reply comments to the Bell Canada and TELUS petitions. The government is expected to rule on the petitions by the end of the year. Deferral Account On February 16, 2006, the CRTC issued Disposition of funds in the deferral accounts, Telecom Decision CRTC 2006-9 ("Decision 2006-9"). In this decision, the CRTC determined that the funds accumulated in our deferral account should be used for certain reductions in rates for basic local residential services and for certain optional features; for the expansion of broadband services; and for initiatives to improve accessibility to telecommunications services for persons with disabilities. After using approximately $5 million to fund the required rate reductions which came into effect on June 1, 2006, the estimate of the balance to be cleared from our deferral account for the remaining initiatives is approximately $25 million. The final calculation of the balance to be cleared is dependent upon certain other CRTC proceedings. In two subsequent decisions relating to the use of deferral account funds, Telecom Decision CRTC 2007-50 dated July 6, 2007 and Telecom Decision CRTC 2008-1 dated January 17, 2008 ("Decision 2008-1"), the CRTC approved various proposals submitted for the expansion of broadband services in certain rural and remote communities, and for improved access to telecommunications services for persons with disabilities. In Decision 2008-1, the CRTC directed that the remaining balance of the deferral accounts of the ILECs be rebated to residential customers in non-high-cost serving areas. Bell Canada and certain consumer groups have been granted leave to appeal Decision 2006-9 to the Supreme Court of Canada. We intervened in that appeal in support of Bell Canada. The appeal was argued in front of the Supreme Court in March 2009 with a decision expected before the end of the year. The final disposition of deferral account balances will be dependent upon the outcome of these appeals. In the interim, Decision 2006-9 and Decision 2008-1 have been stayed by order of the Supreme Court of Canada. Pension Solvency Funding We have defined benefit pension plans which provide retirement benefits to our employees. These plans are funded as determined through periodic actuarial valuations. We have filed January 1, 2008 actuarial valuations for our defined benefit pension plans, which are in a deficit position, in accordance with federal pension legislation under the Pension Benefits Standards Act, 1985 (Canada). As one of our defined benefit pension plans is in a surplus position, solvency funding is not required for this plan. We have two defined benefit pension plans with solvency deficiencies for which a total of $30.5 million in solvency and special funding payments were made in 2008. In 2006 and 2009, we elected to extend the amortization period of our solvency funding payments from five years to 10 years based on the Solvency Funding Relief Regulations. In accordance with the requirements of these regulations, we have obtained letters of credit, which are amended annually, to guarantee future funding of our registered pension plans. Future solvency funding requirements will depend on the results of annual actuarial funding valuations which are affected by various factors, such as return on plan assets, changes in solvency liability discount rates, and government regulations regarding the requirements associated with solvency valuations. In 2009, the federal government is engaging in a public stakeholder consultation process regarding the rules that govern federally regulated pension plans and we are participating in this consultation process. The outcome of the public consultation process may impact our future solvency funding payments. CONTROLS AND PROCEDURES ----------------------- Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during our most recent interim period ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 2009 OUTLOOK ------------ Forward-looking statements disclaimer This outlook includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operating and dispute resolution activities, 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. Forward-looking statements reflect our expectations as at May 5, 2009. 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 from those expected, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in such forward-looking statements, include, but are not limited to, the items identified in this interim MD&A, and our 2008 annual MD&A. Please note that forward-looking statements reflect our expectations as at May 5, 2009. 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. Additional information relating to our company, including our Annual Information Form, is available on SEDAR at www.sedar.com. This outlook and the financial information contained herein have been reviewed by our Audit Committee. Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that affect our ability to compete effectively or to enter into new business opportunities (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); fluctuations in pension plan funding requirements (pension solvency funding); the ability to manage labour relations effectively (collective agreements); the ability to anticipate, and respond to, changes in technology (technology); and other risk factors listed from time to time in our comprehensive public disclosure documents, including our 2008 Annual Report and in other filings with the Canadian securities regulatory authorities. Unless otherwise stated, all amounts are expressed in Canadian dollars. For further information, refer to the "Risks and Uncertainties" sections in this interim MD&A, and our 2008 annual MD&A. Our financial outlook from continuing operations, as detailed below, remains unchanged since originally announced on December 17, 2008: ------------------------------------------------------------------------- 2009 Financial Outlook - Continuing Operations ------------------------------------------------------------------------- Revenues $1.900 billion to $1.980 billion EBITDA $645 million to $685 million EPS $2.90 to $3.20 Free cash flow $250 million to $280 million Capital expenditures 13% to 15% of revenues ------------------------------------------------------------------------- ------------------------------------------------------------------------- We expect to deliver growth of up to 2% in overall revenue, EBITDA, EPS and free cash flow in 2009 as we continue to execute on our long-term strategy. A Sharpened Strategic Focus We have a unique position in the Canadian communications services industry. We are the leading full-service communications provider in Manitoba, and we have a leading presence in national enterprise markets. In our Consumer Markets division, where local competition has intensified, our emphasis will be on growth products and bundles in areas such as high-speed Internet, wireless and digital television services. Our goal is to maintain our position as the one-stop provider of clear choice to Manitoba households and consumers by delivering stable growth in our Internet, digital television and wireless services in 2009 in a more competitive and deregulated market. We have been forborne in a few markets, including the local market in Winnipeg, which has enhanced our ability to compete against new market entrants. In our Enterprise Solutions division, we will build on our established leadership in advanced IP, MPLS solutions and unified communications services. As part of this new strategy, we will strive to reduce our direct costs through the migration of customers to our network, and we will continue to improve our productivity and cost structure. From a growth perspective, revenues from our IP connectivity product line are forecasted to grow at a double-digit rate. Material Assumptions We have made a number of assumptions in preparing our outlook and making certain other forward-looking statements, which include, but are not limited to, the following assumptions: Economic Assumptions The business prospects and performance of the Canadian economy, and to a greater extent, the Manitoba economy, have an impact on us. When we were developing our financial outlook from continuing operations for 2009 in October 2008, the Conference Board of Canada was forecasting a national growth rate of approximately 1.5% for gross domestic product and a growth rate of 2.4% for gross domestic product for the province of Manitoba. More recent forecasts such as the April 24, 2009, Manitoba Department of Finance forecasts for gross domestic product included a decrease of 1.8% for the national average and a decrease of 0.2% for Manitoba. The actual performance of the Canadian economy and the Manitoba economy may impact the assumptions we used in the development of our business plan, which may have a negative impact on our actual results in 2009. Market Assumptions As competition in the overall marketplace continues, the broad market segment trends that have taken shape in recent years will also persist in 2009. Growth in service areas such as Internet, digital television, and IP-based next generation services, specifically for business customers, are expected to continue at similar levels in 2009. We are assuming that there will not be any material changes to the continued growth of wireless services in 2009, notwithstanding anticipated changes to relationships and market dynamics. In addition, we have forecasted no meaningful new competitor in wireless services in Manitoba in 2009. The competitive pressure experienced in traditional legacy services, which include data connectivity, local and long distance services will continue in similar trends as it did in 2008. Likewise, it is anticipated that customer demand will continue to migrate to next generation services. To face the continued strong competition in the enterprise markets, we have been refining our market focus, creating innovative IP solutions, reducing our cost structure, and investing selectively in high-margin opportunities. Although competition from an incumbent cable operator is expected to continue in the Manitoba residential market, we are confident that we have prudently prepared our operations and strategies to counter these threats. Through our broadband network initiative and our residential service offerings, which include local and long distance, wireless, Internet, digital television and alarm services, we believe that we are well-positioned to compete successfully. Financial and Operational Assumptions We have made the following financial and operating assumptions with respect to the forward-looking information in this outlook: - continuing overall growth from growth services; and - overall revenue growth of up to 2%. We have future tax assets resulting from net operating loss carryforwards, which, to the extent utilized, will reduce future taxable income. As such, we do not expect to pay any cash taxes on earnings from operations in 2009. Cost Reduction Assumptions Key to our operating and financial progress will be our strong track record of controlling costs. When we announced our financial outlook for 2009, we doubled our target cost reduction for 2009 over that of 2008, and our expectation was to achieve further cost reductions this year of between $35 million and $45 million. Our 2009 cost reduction program is ahead of schedule and exceeding expectations and we now expect to save $50 million to $60 million on an annualized basis. We expect to reduce operating costs and enhance productivity by optimizing certain key internal business processes and refocusing our sales team. To capture these additional savings, we expect to incur one-time costs of approximately $25 million to $35 million in 2009. These costs are not included in our 2009 outlook from continuing operations. Liquidity and Capital Resources Assumptions Our operations historically have delivered strong cash flows, and we expect this positive trend to continue in 2009. We will continue to invest in our core operations with a focus on our growth products and services to ensure success in the markets in which we operate. We have adopted a prudent expenditure and investment strategy that is scalable and provides flexibility to adjust the pace of investment according to economic conditions. Significant investments have been made in modernizing our network infrastructure, both in Manitoba and nationally. In 2005, we saw the completion of a five-year, $300 million broadband expansion program in Manitoba, which has positioned our network capabilities second to none in Canada. These investments, in addition to the investment choices we are making nationally, are placing us in a favourable position in terms of capital requirements going forward. In 2009, our capital program is expected to comprise 13% to 15% of our revenues. We continue to have discussions with a number of service providers and are working to finalize our plans with respect to the conversion of our wireless network from CDMA to HSPA. The time lines that our peers have indicated publicly provide us with time to complete our own evaluation and to make an announcement regarding our plans at the appropriate time. We have indicated that the incremental costs for such a conversion would be approximately $30 million to $50 million if spread over a few years, depending on the conversion scenario, a portion of which has been included in our capital spending plans for 2009. Depending on the timing of the conversion among other factors, costs may exceed this estimate and all or a portion of the costs may be incremental to our typical capital program of 13% to 15% of our revenues. Our cash requirements for 2009 include two non-recurring obligations of approximately $15 million to $20 million for restructuring programs; and approximately $10 million to $15 million for wireless transition costs. We expect our pension solvency funding requirement to be approximately $35 million, which is lower than our previously expected range of $40 million to $50 million. SECOND QUARTER DIVIDEND On May 5, 2009, the Board of Directors of MTS declared a quarterly cash dividend of $0.65 per share. The second quarter dividend is payable on July 15, 2009 to shareholders of record at the close of business on June 15, 2009. 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 which reduce income tax otherwise payable. Notes: 1. Supplementary financial information is available in the Investors section of the MTS Web site at www.mtsallstream.com. 2. MTS's first quarter 2009 conference call with the investment community is scheduled for 9:00 a.m. Eastern time on May 6, 2009. The dial-in number is 1-800-732-0232. A live audio Webcast of the investor conference call can be accessed by visiting the Investors section of the MTS Web site (www.mtsallstream.com). A replay of the conference call will be available until midnight May 19, 2009 and can be accessed by dialing 1-877-289-8525 or 1-416-640-1917 (access code 21303355 followed by the number sign). The audio Webcast will be archived on MTS's Web site. This interim MD&A contains forward-looking statements and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Forward-looking statements reflect our expectations as at May 5, 2009. Additional information on these risks can be found in our filings with the Canadian securities regulatory authorities. 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. In addition, investors should read the forward-looking statements disclaimer in the "2009 Outlook" section for the various factors, including economic, competitive, regulatory and company-specific, that could cause actual future financial and operating results to differ materially from the forward-looking information in this interim MD&A. 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 providers, delivering innovative products and services through its Enterprise Solutions and Consumer Markets divisions. The Enterprise Solutions division, which operates under the Allstream brand nationally and under the MTS Allstream brand in Manitoba, is a leading competitor in the national business and wholesale markets. This division offers customers a portfolio of solutions tailored to the needs of medium and large businesses looking for success in a world of rapidly evolving technology - Internet protocol connectivity, unified communications, IT consulting and security services, and voice and data connectivity services. The Consumer Markets division leads every telecommunications market segment in Manitoba, delivering a full suite of next generation wireless, high-speed Internet and data, digital television and wireline voice services under the MTS brand, as well as small business services in select markets across Canada under the Allstream brand, and security and alarm monitoring services through the company's subsidiary AAA Alarm Systems Ltd., which also operates in other western provinces. The company's extensive national broadband fibre optic network spans more than 27,900 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international service providers. Manitoba Telecom Services Inc.'s common shares are listed on The Toronto Stock Exchange (trading symbol: MBT). For more information, please visit: www.mtsallstream.com. MANITOBA TELECOM SERVICES INC. CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME (unaudited) Three months ended March 31 2009 2008 ------------------------------------------------------------------------- (in millions, except earnings per share) Operating revenues $ 482.9 $ 478.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating expenses Operations 319.7 310.1 ------------------------------------------------------------------------- Restructuring and transition (Note 2) 13.5 - ------------------------------------------------------------------------- Amortization 82.0 80.5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 415.2 390.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income 67.7 88.2 ------------------------------------------------------------------------- Other income 1.5 4.1 ------------------------------------------------------------------------- Debt charges (13.1) (12.5) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Income before income taxes 56.1 79.8 ------------------------------------------------------------------------- Income tax expense Current 0.3 - ------------------------------------------------------------------------- Future 18.8 25.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 19.1 25.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income and comprehensive income for the period $ 37.0 $ 54.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share (Note 6) $ 0.57 $ 0.84 ------------------------------------------------------------------------- Diluted earnings per share (Note 6) $ 0.57 $ 0.83 ------------------------------------------------------------------------- MANITOBA TELECOM SERVICES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited) Three months ended March 31 2009 2008 ------------------------------------------------------------------------- (in millions) Retained earnings, beginning of period $ 96.8 $ 120.8 ------------------------------------------------------------------------- Net income 37.0 54.2 ------------------------------------------------------------------------- Dividends declared (42.0) (42.0) ------------------------------------------------------------------------- Retained earnings, end of period $ 91.8 $ 133.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- MANITOBA TELECOM SERVICES INC. CONSOLIDATED BALANCE SHEETS (unaudited) March 31, December 31, 2009 2008 ------------------------------------------------------------------------- (in millions) Assets Current assets Cash and cash equivalents $ - $ 6.5 ------------------------------------------------------------------------- Accounts receivable (Note 3) 66.9 62.2 ------------------------------------------------------------------------- Future income taxes 92.1 90.5 ------------------------------------------------------------------------- Other current assets 67.9 64.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 226.9 223.2 ------------------------------------------------------------------------- Capital assets (Note 4) 1,605.0 1,616.7 ------------------------------------------------------------------------- Other assets 360.7 334.6 ------------------------------------------------------------------------- Future income taxes 414.9 436.8 ------------------------------------------------------------------------- Goodwill 41.7 41.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 2,649.2 $ 2,653.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities Bank indebtedness $ 4.3 $ - ------------------------------------------------------------------------- Accounts payable and accrued liabilities 307.7 351.6 ------------------------------------------------------------------------- Advance billings and payments 52.3 51.4 ------------------------------------------------------------------------- Current portion of long-term debt 150.0 220.0 ------------------------------------------------------------------------- Notes payable (Note 5) 207.0 95.0 ------------------------------------------------------------------------- Current portion of capital lease obligations 5.2 3.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 726.5 721.8 Long-term debt 430.3 430.2 ------------------------------------------------------------------------- Long-term portion of capital lease obligations 13.8 15.0 ------------------------------------------------------------------------- Deferred employee benefits 43.4 44.2 ------------------------------------------------------------------------- Other long-term liabilities 57.3 58.1 ------------------------------------------------------------------------- Future income taxes 0.2 1.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1,271.5 1,271.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Shareholders' equity Share capital (Note 7) 1,266.8 1,265.8 ------------------------------------------------------------------------- Contributed surplus 19.1 19.4 ------------------------------------------------------------------------- Retained earnings 91.8 96.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1,377.7 1,382.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 2,649.2 $ 2,653.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- MANITOBA TELECOM SERVICES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three months ended March 31 2009 2008 ------------------------------------------------------------------------- (in millions) Cash flows from operating activities Net income $ 37.0 $ 54.2 ------------------------------------------------------------------------- Add items not affecting cash Amortization 82.0 80.5 ------------------------------------------------------------------------- Future income taxes 18.8 25.6 ------------------------------------------------------------------------- Deferred wireless costs (12.1) (9.9) ------------------------------------------------------------------------- Pension funding and net pension credit (16.8) (11.5) ------------------------------------------------------------------------- Other, net (6.4) (9.3) ------------------------------------------------------------------------- Changes in non-cash working capital (57.2) (35.8) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows from operating activities 45.3 93.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows from investing activities Capital expenditures, net (56.6) (54.8) ------------------------------------------------------------------------- Acquisition - (4.0) ------------------------------------------------------------------------- Other, net (0.6) (0.1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows used in investing activities (57.2) (58.9) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows from financing activities Dividends paid (42.0) (42.0) ------------------------------------------------------------------------- Repayment of long-term debt (70.0) - ------------------------------------------------------------------------- Issuance of notes payable, net 112.0 - ------------------------------------------------------------------------- Issuance of share capital 0.8 - ------------------------------------------------------------------------- Other, net 0.3 (0.1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows from (used in) financing activities 1.1 (42.1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Change in bank indebtedness (10.8) (7.2) ------------------------------------------------------------------------- Cash and cash equivalents (bank indebtedness), beginning of period 6.5 (10.1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Bank indebtedness, end of period $ (4.3) $ (17.3) ------------------------------------------------------------------------- ------------------------------------------------------------------------- MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) For the three months ended March 31, 2009 and 2008 (All financial amounts are in $ millions, except where noted.) ------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of Manitoba Telecom Services Inc. (the "Company") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the Company's audited consolidated financial statements for the year ended December 31, 2008, except as described in Note 4. These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2008. 2. RESTRUCTURING AND TRANSITION For the three months ended March 31, 2009 and 2008, the Company recorded net restructuring and transition expenses as follows: --------------------------------------------------------------------- 2009 2008 --------------------------------------------------------------------- Restructuring Workforce (0.1) - --------------------------------------------------------------------- Other 5.5 - --------------------------------------------------------------------- 5.4 - --------------------------------------------------------------------- Transition and other Wireless transition 7.4 - --------------------------------------------------------------------- Other 0.7 - --------------------------------------------------------------------- 13.5 - --------------------------------------------------------------------- --------------------------------------------------------------------- The liability for restructuring costs as at March 31, 2009 is as follows: --------------------------------------------------------------------- Balance December 31, 2008 11.3 --------------------------------------------------------------------- 2009 restructuring costs 5.7 --------------------------------------------------------------------- Less: Cash payments (9.4) --------------------------------------------------------------------- Reversals of provisions (0.3) --------------------------------------------------------------------- Balance March 31, 2009 7.3 --------------------------------------------------------------------- --------------------------------------------------------------------- Restructuring activities in 2009 represent a continuation of the cost reduction initiative which commenced in the fourth quarter of 2008 aimed at achieving process improvements and further cost reductions. The costs recorded in 2009 include costs to review and improve efficiencies in current processes, as well as real estate facility consolidation charges. Wireless transition activities represent costs of transitioning certain wireless service requirements away from Bell Mobility to new suppliers and to the Company's wireless platform. The Company also recorded other non-recurring costs of $0.7 million relating to certain regulatory proceedings and certain costs associated with the transition from Canadian GAAP to International Financial Reporting Standards. 3. ACCOUNTS RECEIVABLE SECURITIZATION Under the terms of the Company's accounts receivable securitization program, the Company has the ability to sell, on a revolving basis, an undivided ownership interest in its accounts receivable to a securitization trust, up to a maximum of $150.0 million. As a result of selling the interest in certain of the trade receivables on a fully serviced basis, a service liability of $0.2 million has been recognized by the Company as at March 31, 2009. The terms of the Company's accounts receivable securitization program also require the Company to maintain reserve accounts, the fair value of which approximates carrying value. As at March 31, 2009, the Company had received $126.0 million on the sale of its accounts receivable to the trust, which is comprised of the outstanding undivided ownership interest held by the trust of $160.1 million and the reserve accounts of $34.1 million. During the three months ended March 31, 2009, the Company recognized a recovery of $0.2 million on previously recorded losses on the sale of accounts receivable, which is recorded in other income. During the three months ended March 31, 2009, cash flows received and paid to the trust in revolving period securitizations were $360.5 million. The key assumptions used to determine the recovery of previously recorded losses on the sale of receivables and the fair values attributed to the retained interest as at March 31, 2009 are as follows: --------------------------------------------------------------------- Annual discount rate 1.87% --------------------------------------------------------------------- Weighted average life of receivables sold (days) 36 --------------------------------------------------------------------- Credit loss ratio 1.25% --------------------------------------------------------------------- Servicing fee liability 1.0% --------------------------------------------------------------------- --------------------------------------------------------------------- 4. Capital Assets Effective January 1, 2009, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook section 3064 Goodwill and Intangible Assets and the updates to CICA Handbook section 1000 Financial Statement Concepts. This guidance establishes updated standards for the recognition, measurement, presentation and disclosure of intangible and deferred assets. Accordingly, the Company has reclassified $50.9 million (2008 - $51.3 million) of other long-term assets and $10.7 million (2008 - $9.5 million) of other current assets relating to deferred wireless costs and installation costs to intangible assets. The Company also reclassified specific software costs within capital assets of $144.2 million (2008 - $129.9 million) from property, plant and equipment to intangible assets. The following table provides details of the Company's capital assets: March 31, 2009 December 31, 2008 ------------------------------------------------------------------------- Accumulated Net Accumulated Net amorti- book amorti- book Cost zation value Cost zation value ------------------------------------------------------------------------- Property, plant and equipment ------------------------------------------------------------------------- Network equipment and outside plant 2,793.9 1,816.4 977.5 2,750.2 1,777.4 972.8 ------------------------------------------------------------------------- General equipment and other 431.3 281.5 149.8 419.1 274.8 144.3 ------------------------------------------------------------------------- Buildings 264.4 146.1 118.3 262.4 142.9 119.5 ------------------------------------------------------------------------- Equipment under capital lease 5.4 0.7 4.7 5.4 0.6 4.8 ------------------------------------------------------------------------- Plant under construction 56.8 - 56.8 91.4 - 91.4 ------------------------------------------------------------------------- Materials and supplies 21.2 - 21.2 21.3 - 21.3 ------------------------------------------------------------------------- Land 6.3 - 6.3 6.3 - 6.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3,579.3 2,244.7 1,334.6 3,556.1 2,195.7 1,360.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Intangible assets ------------------------------------------------------------------------- Software 265.5 121.3 144.2 240.0 110.1 129.9 ------------------------------------------------------------------------- Deferred wireless costs 83.8 38.1 45.7 78.3 37.6 40.7 ------------------------------------------------------------------------- Other deferred installation costs 46.0 30.2 15.8 43.7 23.6 20.1 ------------------------------------------------------------------------- Customer contracts and relationships 27.2 14.8 12.4 27.1 13.8 13.3 ------------------------------------------------------------------------- Other contractual relationships 1.3 0.5 0.8 1.3 0.5 0.8 ------------------------------------------------------------------------- Spectrum licenses 48.6 - 48.6 48.6 - 48.6 ------------------------------------------------------------------------- Broadcasting certificate 2.9 - 2.9 2.9 - 2.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 475.3 204.9 270.4 441.9 185.6 256.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total 4,054.6 2,449.6 1,605.0 3,998.0 2,381.3 1,616.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. NOTES PAYABLE The Company has a $600 million bank credit facility with a syndicate of financial institutions which is used for cash management purposes, the issuance of letters of credit and to support the Company's $150 million commercial paper program. As at March 31, 2009, the Company had utilized $313.9 million of this facility, which was comprised of $207.0 million in notes payable and $106.9 million in undrawn letters of credit outstanding. The Company paid short-term interest costs of $1.8 million for the three months ended March 31, 2009. 6. EARNINGS PER SHARE RECONCILIATION The following table provides a reconciliation of the information used to calculate basic and diluted earnings per share: --------------------------------------------------------------------- Three months ended March 31 --------------------------------------------------------------------- 2009 2008 --------------------------------------------------------------------- Net income Basic and diluted 37.0 54.2 --------------------------------------------------------------------- --------------------------------------------------------------------- Weighted average shares outstanding (in millions) Weighted average number of shares outstanding - basic 64.6 64.6 --------------------------------------------------------------------- Dilutive effect of outstanding stock options - 1.0 --------------------------------------------------------------------- Weighted average number of shares outstanding - diluted 64.6 65.6 --------------------------------------------------------------------- --------------------------------------------------------------------- Earnings per share ($) Basic earnings per share 0.57 0.84 --------------------------------------------------------------------- Diluted earnings per share 0.57 0.83 --------------------------------------------------------------------- --------------------------------------------------------------------- 7. SHARE CAPITAL As at March 31, 2009, share capital consists of 64,659,917 issued and outstanding Common Shares (December 31, 2008 - 64,637,917). During the three months ended March 31, 2009, 22,000 stock options to purchase Common Shares were exercised for cash consideration of $0.8 million, of which $1.0 million was credited to share capital and $0.2 million was charged to contributed surplus. 8. EMPLOYEE FUTURE BENEFITS The Company's total benefit recovery for all of its defined benefit and defined contribution pension plans, supplemental pension arrangements, and other non-pension employee future benefits for the three months ended March 31, 2009 is $1.6 million. 9. SEGMENTED INFORMATION As at March 31, 2009, the Company had two reportable operating segments: the Consumer Markets division and the Enterprise Solutions division. The Consumer Markets division provides a full range of wireless, high-speed Internet and data, digital television, and wireline voice services to residential and small business customers in Manitoba. The Consumer Markets division also provides alarm monitoring services to residential and small business customers in the western provinces, and Internet, data and voice services to small business customers in Canada. The Enterprise Solutions division provides Internet protocol-based communications, unified communications, voice, and data connectivity services to medium and large business customers in Canada. The Company evaluates performance based on EBITDA (earnings before interest, taxes, amortization, other income, and discontinued operations). 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 table provides further segmented information: --------------------------------------------------------------------- Three months ended March 31 --------------------------------------------------------------------- Consumer Enterprise Markets Solutions Other Total --------------------------------------------------------------------- 2009 2008 2009 2008 2009 2008 2009 2008 --------------------------------------------------------------------- Operating revenue External 204.1 199.7 278.8 279.1 - - 482.9 478.8 --------------------------------------------------------------------- Internal 0.1 0.1 - - 9.6 10.4 9.7 10.5 --------------------------------------------------------------------- EBITDA 98.9 102.4 51.3 65.1 (0.5) 1.2 149.7 168.7 --------------------------------------------------------------------- Restructuring and transition 7.4 - 5.4 - 0.7 - 13.5 - --------------------------------------------------------------------- --------------------------------------------------------------------- Reconciliation to consolidated net income is as follows: --------------------------------------------------------------------- Three months ended March 31 --------------------------------------------------------------------- 2009 2008 --------------------------------------------------------------------- Total EBITDA 149.7 168.7 --------------------------------------------------------------------- Amortization (82.0) (80.5) --------------------------------------------------------------------- Other income 1.5 4.1 --------------------------------------------------------------------- Debt charges (13.1) (12.5) --------------------------------------------------------------------- Income tax expense (19.1) (25.6) --------------------------------------------------------------------- 37.0 54.2 --------------------------------------------------------------------- --------------------------------------------------------------------- 10. COMPARATIVE FIGURES The prior period figures have been reclassified when necessary to conform to the current period's presentation. %SEDAR: 00003357E

For further information:

For further information: Investors: Ian Chadsey, Vice-President,
Investor Relations, (204) 941-8283, investor.relations@mtsallstream.com;
Media: Greg Burch, Manager, Corporate Communications, (416) 345-3576 or (204)
941-8576, media.relations@mtsallstream.com

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