MTS Allstream Reports Fourth Quarter 2010 and Year-End Results

    <<
    Q4 highlights include:

    -  Allstream achieves fourth consecutive quarter of sequential EBITDA
       growth
    -  2010 cost reduction target achieved with $34.4 million in annualized
       savings
    -  Allstream Q4 EBITDA up 14.6%; converged IP revenues increase by 9.7%
    -  MTS wireless and digital television revenues up by 9.7% and 14.7%
       respectively
    -  MTS to launch HSPA+ wireless network March 31, 2011
    -  MTS Allstream 2010 results in line with financial outlook issued
       August 6, 2010
    -  Board of Directors declares $0.425 per share cash Q1 dividend

    Stock Symbol: MBT
    >>

WINNIPEG, Feb. 10 /CNW/ - Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"), including its two operating divisions "MTS" and "Allstream" today reported its fourth quarter 2010 financial results. The Company's 2010 financial results from continuing operations(1) are in line with its updated outlook for 2010 and also consistent with management's original 2010 outlook for all metrics except revenues.

"Our results for 2010 came in as we expected which bodes well to deliver on our positive outlook for 2011," said Pierre Blouin, Chief Executive Officer. "In 2010, we made some very critical, strategic decisions to invest for the future. With respect to Allstream, we achieved near double-digit converged IP growth in the fourth quarter and believe our strategy of expanding our IP fibre network is starting to show results as we work to reduce low-margin legacy revenues and bring more business onto our own fibre network. We have strengthened our Allstream business, building a solid foundation in 2010 and expect to deliver improved results across the Company in 2011. Our investments in HSPA+ wireless technology and the acceleration of our fibre-to-the-home program represent growth opportunities for us, and will go a long way to ensuring we maintain our market leadership in Manitoba and continue to deliver strong cash flows for many years to come."

    <<
    2010 FINANCIAL RESULTS COMPARED TO 2010 FINANCIAL OULOOK*
    -----------------------------------------------------------

    -------------------------------------------------------------------------
    (in millions $, except EPS)    Outlook (Aug. 6, 2010)     Actual Results
    -------------------------------------------------------------------------
    Revenue                         $1.740 B to $1.790 B            $1.776 B
    EBITDA(2)                           $570 M to $600 M            $592.3 M
    EPS(3)                                $1.80 to $2.15               $2.02
    Free cash flow(4)                   $160 M to $190 M            $193.2 M
    Capital expenditures              14-16% of revenues   15.1% of revenues
    -------------------------------------------------------------------------
    * All financial metrics in this table are from continuing operations
    and reported in accordance with Canadian GAAP(5).


    QUARTERLY FINANCIAL HIGHLIGHTS*
    ---------------------------------
                                                   2010                  2009
    -------------------------------------------------------------------------
    (in millions $, except EPS)       Q4       Q3       Q2       Q1       Q4
    -------------------------------------------------------------------------
    Revenue                        444.5    446.3    443.1    442.0    453.8
    EBITDA                         148.6    149.1    149.3    145.3    146.8
    EPS(3)                          0.48     0.53     0.54     0.46     0.59
    Free cash flow                  19.5     56.5     62.3     54.9     43.4
    Capital expenditures/revenue   20.7%    13.7%    13.3%    12.8%    16.1%
    -------------------------------------------------------------------------
    * All financial metrics in this table are from continuing operations
    and reported in accordance with Canadian GAAP.
    >>

Results in the fourth quarter of 2010 were sequentially stable with the first, second and third quarters of 2010. MTS Allstream's results throughout 2010 reflect the slow pace of economic recovery nationally, higher non-cash pension expense, and declines in legacy revenues; partly offset by cost reductions, strong performance in wireless and television at MTS, and actions to increase high-margin, on-net IP revenues at Allstream.

Building on over $300 million in annualized savings achieved since 2005, the Company continued to improve its cost structure in 2010, and had targeted an additional $30 million to $40 million in annualized cost reductions through operational efficiency and restructuring initiatives. The Company achieved this target, reaching $34.4 million in annualized cost savings by year end.

    <<
    MTS
    ---
    >>

MTS continued to provide a solid and stable foundation for the Company throughout 2010. MTS used a disciplined approach, leveraging its bundling capabilities to face a highly competitive market, and successfully maintained its industry-leading EBITDA margin, which exceeds 50 per cent. MTS's 2010 results were also highlighted by strong performance in its strategic growth services - wireless and broadband (which includes high-speed Internet and TV). Although MTS's EBITDA was lower in 2010 compared to 2009, this was primarily due to higher non-cash pension expenses and additional costs to support growth lines of business in a competitive environment, partly offset by increased cost savings.

In the fourth quarter, MTS's wireless revenue grew 9.7 per cent compared to the prior year with net subscribers climbing by 5.5 per cent. Wireless average revenue per user ("ARPU") reached $58.42 in the fourth quarter of 2010, driven by 50.4 per cent growth in wireless data revenues. This level of wireless performance is anticipated to continue through 2011, strengthened in part, by the expected launch of MTS's new HSPA+ network on March 31, 2011. MTS's new HSPA+ network will provide MTS customers throughout Manitoba with cellular voice and high speed mobile data coverage of up to 21 Mbps, access to an exciting new array of smart-phones and handsets, and extensive international roaming on compatible GSM and HSPA networks.

Digital television revenues increased by 14.7 per cent in the fourth quarter, reflecting 4.0 per cent subscriber growth and higher ARPU. MTS Ultimate TV, which is the Company's premium television service, is now available to 95 per cent of Winnipeg households, up from 70 per cent at the end of 2009. High-speed Internet revenues were up 2.1 per cent in the fourth quarter with customers increasing by 1.6 per cent in the period.

In 2011, one of MTS's priorities is deploying fibre-to-the-home technology in four new communities where MTS faces cable telephony competitors and where the Company currently does not have a VDSL-based product. This will provide residents in Steinbach, Dauphin, Thompson and The Pas with access to some of the fastest high-speed Internet speeds and make the most feature-rich television service in Canada available to them. An expanded fibre-to-the-home network is expected to improve MTS's competitive position and provide an opportunity for revenue growth by offering services that were previously not available to those communities.

"We are gearing up for the launch of our HSPA+ network on March 31, 2011, which will deliver cellular voice and high speed mobile data coverage of up to 21 Mbps to 97 per cent of Manitobans, and we are also excited about the deployment of our fibre to more communities in Manitoba," said Kelvin Shepherd, President of MTS. "With an expanded television footprint through fibre-to-the-home, we expect more customers in these markets to take advantage of our bundled offerings."

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

In 2010, Allstream's results demonstrated that its business had stabilized despite the slow pace of economic recovery nationally by achieving four sequential quarters of modest EBITDA growth. In the fourth quarter of 2010, Allstream's EBITDA from continuing operations improved by 14.6 per cent as compared to the same period of 2009. This is largely attributable to steady growth in Allstream's IP services and strong cost management. The Company expects Allstream's results to continue to improve in 2011 as it executes its plans to drive more growth in high-margin IP services.

In the fourth quarter, Allstream's flagship product line, converged IP, which now represents 27% of the division's overall revenues, grew by 9.7 per cent, reflecting increased sales of IP in previous quarters. This level of growth represented a marked improvement from the level of growth experienced in the first three quarters of the year. For all of 2010, Allstream's IP revenues totaled $217.4 million.

"Our team is working very hard to drive continued strong IP sales levels, and I am very pleased to see the results of our strategy and focus reflected in our financial results," said Dean Prevost, President of Allstream. "We have sustained our strong IP sales levels through the fourth quarter 2010 making our double digit growth target for IP services in 2011 well within our reach."

Allstream is continuing to execute a number of initiatives to improve its results and profitability. These include focusing on winning high-margin on-net IP revenues, accelerating plans to exit various legacy services, and reinvesting cash flows from legacy services into IP platforms. To that end, Allstream launched a targeted investment program in 2010 to expand its IP fibre access to an additional 675 multi-tenant buildings over three years.

In connection with this targeted investment program, Allstream won 52 new IP contracts in the fourth quarter of 2010 bringing the total IP contracts Allstream has won through this initiative to 139 as at December 31, 2010. This includes several follow on sales that have increased our penetration into these newly connected buildings. Allstream has also achieved an additional 102 IP contracts in the expanded Allstream IP co-location footprint.

The Company expects Allstream's EBITDA and cash flow to improve in 2011 due to growth in IP revenues, lower restructuring costs, and further legacy cost reductions. In support of the Company's ongoing efforts to reduce legacy costs and shift resources to support IP growth, Allstream reduced 150 positions in the fourth quarter and recorded a fourth quarter charge of $6 million with an expected annual cost savings of $13 million.

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

In January 2011, the Company contributed $14.8 million in pension solvency payments to meet its 2011 pension funding obligations. The new federal pension legislation, which allows letters of credit to satisfy a portion of pension solvency obligations, was passed in 2010, and the associated regulations were published for comment on December 18, 2010. The comment period has now expired and the regulations are expected to become effective in the near future. If the new regulations are not implemented by the end of February, the Company will be required to make additional pension solvency payments of approximately $5 million each month until the new regulations are in place.

    <<
    2011 Adoption of International Financial Reporting Standards and Change
    -----------------------------------------------------------------------
    in Basis of Presentation
    ------------------------
    >>

MTS Allstream's results for the fourth quarter of 2010 are reported in accordance with Canadian GAAP on a continuing operations basis. As of January 1, 2011, MTS Allstream will be reporting results in accordance with International Financial Reporting Standards ("IFRS") on a consolidated "all-in" basis. For comparative purposes, management has presented 2010 results by quarter as they would have been reported on a consolidated "all in" IFRS basis in the fourth quarter supplementary package.

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

The Company's Board of Directors declared a cash dividend of $0.425 per share for the first quarter of 2011, which is payable on April 15, 2011 to shareholders of record on March 15, 2011. The Board evaluates the Company's dividend each quarter based on the Company's long-term financial outlook as well as its current year financial performance.

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

MTS Allstream's fourth quarter 2010 conference call with the investment community is scheduled for 9:30 a.m. (Eastern Time) on February 10, 2011. Investors, media and the public are invited to listen to the conference call. The dial-in number is 1-888-231-8191. A live audio Webcast of the conference call can be accessed by visiting the Investors section of the MTS Allstream website (www.mtsallstream.com). A replay of the conference call will be available until midnight (Eastern Time) on February 24, 2011, and can be accessed by dialing 1-800-642-1687 or 1-416-849-0833 (access code 35589264).

    <<
    Note
    ----
    >>

MTS Allstream's interim Management's Discussion and Analysis ("MD&A") for the three and twelve months ended December 31, 2010 and supplementary financial information are available in the Investors section of the MTS Allstream website at www.mtsallstream.com.

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

Manitoba Telecom Services Inc., through its wholly-owned subsidiary MTS Allstream Inc., is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians live and work today. The Company has more than 100 years of experience, with 6,000 employees across Canada dedicated to a mission of delivering true value as seen through the eyes of our customers. MTS Allstream has nearly two million customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba. The Company's extensive national broadband and fibre optic network spans almost 30,000 kilometres. Manitoba Telecom Services Inc.'s common shares are listed on Toronto Stock Exchange (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS Allstream are encouraged to visit: www.mtsallstream.com.

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

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

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the "Risks and Uncertainties" section and elsewhere in our interim MD&A for the fourth quarter of 2010, as well as our 2009 annual MD&A, and our Annual Information Form, all of which are available on SEDAR at www.sedar.com.

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

    <<
    Footnotes:
    1.  Refer to MTS Allstream's fourth quarter 2010 interim MD&A for the
        definition of continuing operations.
    2.  EBITDA is earnings before interest, taxes, amortization, other
        income, goodwill revaluation, 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 or
        with International Financial Reporting Standards) as a measure of
        liquidity.
    3.  EPS is earnings per share.
    4.  Refer to MTS Allstream's fourth quarter 2010 interim MD&A for the
        definition of free cash flow.
    5.  Canadian GAAP is Canadian Generally Accepted Accounting Principles.
    >>

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 December 31, 2010 is as at February 9, 2011. In preparing this MD&A, we have taken into account information available to us up to February 9, 2011. In this MD&A, "we", "our", and "us" refer to Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"). This interim MD&A should be read in conjunction with our interim consolidated financial statements for the period ended December 31, 2010. We also encourage you to read management's discussion and analysis that accompanies our audited consolidated financial statements for the year ended December 31, 2009 (MTS Allstream's 2009 annual MD&A dated March 4, 2010), our first quarter 2010 interim MD&A dated May 5, 2010, our second quarter 2010 interim MD&A dated August 5, 2010, as well as our third quarter 2010 interim MD&A dated November 3, 2010. You will also find more information about us, including our annual information form for the year ended December 31, 2009 dated March 4, 2010, on our website at www.mtsallstream.com or on SEDAR at www.sedar.com.

This MD&A comments on our operations, performance and financial conditions for the three months ("Q4") and twelve months ("YTD") ended December 31, 2010 and 2009. Unless otherwise stated, all amounts are expressed in Canadian dollars.

Regarding forward-looking statements

This interim MD&A includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operations, financial objectives, future financial results and performance and future cash flows and distributions to shareholders that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending", and other similar terms.

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in our first, second, and third quarter 2010 interim MD&As, this fourth quarter MD&A, as well as our 2009 annual MD&A, all of which are available on SEDAR at www.sedar.com.

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

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.

        Continuing operations in 2010 excludes our non-telecommunications
        information technology ("IT") consulting business, which has been
        classified as discontinued operations; an adjustment to the rebate
        related to use of deferral account funds pursuant to Telecom Decision
        Canadian Radio-television and Telecommunications Commission ("CRTC")
        2010-638 ("Decision 2010-638"); restructuring costs; certain legal
        costs associated with our appeal of a Court decision relating to one
        of the Company's pension plans; costs related to our high-speed
        packet access ("HSPA") deployment and related billing implementation;
        a revaluation charge for Allstream goodwill; a one-time cash payment
        received as part of a comprehensive settlement agreement with Bell
        Mobility; and solvency funding to our pension plans.

        Continuing operations in 2009 excludes our non-telecommunications IT
        consulting business, which has been classified as discontinued
        operations; the costs to transition certain wireless service
        requirements away from Bell Mobility to new suppliers and to our
        wireless platform; costs related to our HSPA deployment and related
        billing implementation; costs related to certain regulatory
        proceedings; restructuring costs; certain costs associated with our
        transition from Canadian GAAP to International Financial Reporting
        Standards ("IFRS"); a rebate related to use of deferral account
        funds pursuant to Telecom Decision CRTC 2008-1("Decision 2008-1");
        the impact of changes in statutory income tax rates and other rate
        adjustments on our tax asset; and solvency funding to our pension
        plans.

    -   EBITDA - We define EBITDA as earnings before interest, taxes,
        amortization, other income, goodwill revaluation, 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.
    >>

2011 ADOPTION OF IFRS AND CHANGE IN BASIS OF PRESENTATION

MTS Allstream's results for the fourth quarter of 2010 are reported in accordance with Canadian GAAP on a continuing operations basis. As of January 1, 2011, MTS Allstream will be reporting results in accordance with IFRS on a consolidated "all-in" basis. For comparative purposes, management has presented 2010 results by quarter as they would have been reported on a consolidated "all in" IFRS basis in our fourth quarter supplementary package. More information on IFRS is available, in the section entitled Changes in accounting policies, including initial adoption.

OVERVIEW

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

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

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

STRATEGIC IMPERATIVES UPDATE

In summary, in 2010, we made the following progress on our four strategic imperatives:

    <<
    1.  Drive profitable increases in our growth services including converged
        IP, wireless, high-speed Internet, and digital television.

        Allstream's converged IP revenues returned to near double-digit
        growth, increasing by 9.7% in the fourth quarter and 4.4% in the
        full-year of 2010.

        In 2010, MTS's high-speed Internet revenues remained stable and
        digital television revenues increased by 10.0% as compared to 2009.
        MTS's wireless services revenues in 2010 were up by 5.8%, or 6.9%
        after adjusting for the impact of a one-time $3.4 million sale of
        handsets to the City of Winnipeg in the first quarter of 2009. For
        the year of 2010, MTS increased its average revenue per user ("ARPU")
        for digital television and wireless services by 4.5% and 1.4%,
        respectively. Additionally, high-speed Internet, digital television,
        and wireless subscriber bases rose by 1.6%, 4.0% and 5.5%,
        respectively.

    2.  Continue to focus on delivering superior customer service while
        achieving further cost reductions.

        Building on the considerable progress we made in 2009 to improve our
        cost structure, we targeted an additional $30 million to $40 million
        in 2010 in cost reductions through operational efficiency and
        restructuring initiatives. We achieved $34.4 million in annualized
        cost savings from these initiatives in 2010.

        Throughout 2010, we continued to focus on delivering superior
        customer service. Allstream continues to be among industry leaders
        when it comes to customer satisfaction. MTS continued to meet its
        targets for superior customer experience.

    3.  Drive innovation in product and service development to exceed
        customer expectations.

        In 2009, we launched MTS Ultimate TV service, which provides
        customers with unique whole home personal video recorder
        functionality as well as access to our fastest Internet speeds. In
        2010, we continued to deploy the service to more areas of Manitoba.
        MTS Ultimate TV Service is now available to 95% of Winnipeg
        households (up from 70% at the end of 2009), 98% of households in
        Brandon and 91% in Portage la Prairie. In the fourth quarter of 2010,
        we launched Ultimate TV in Selkirk, Manitoba. We continue to enhance
        the attractiveness of our premium television offering by adding new
        features and by increasing its availability through an expanded
        fibre-to-the-home footprint. In the fourth quarter of 2010, we became
        the first provider in Canada to launch GMA Life TV, a uniquely
        Filipino channel.

        We expect to launch HSPA+ services on March 31, 2011. The new HSPA+
        network will provide MTS customers in urban centers and rural areas
        throughout Manitoba with faster download speeds, access to an
        exciting selection of smart-phones and handsets, and extensive
        international roaming on compatible GSM and HSPA+ networks.

    4.  Selectively and prudently investing in strategic initiatives to
        broaden market reach and enhance leadership position.

        We are making a number of targeted, focused investments to broaden
        our market reach and enhance our leadership position, both in MTS in
        Manitoba and Allstream nationally.

        In Manitoba, our new HSPA+ wireless data network is expected to
        provide high-speed coverage that is one-third larger and deliver
        speeds that are up to seven times faster than what we could
        previously offer with our EVDO network. With HSPA+, we will be able
        to deliver cellular voice and high-speed mobile data coverage of up
        to 21 Mbps to 97% of Manitobans. The expansiveness and sophistication
        of our wireless infrastructure in Manitoba is a significant
        competitive advantage which will be strengthened by the deployment of
        HSPA+ technology over our regional wireless network in Manitoba.

        In August 2010, we announced our plans to invest $125 million over
        the next five years as part of an accelerated deployment of our
        fibre-to-the-home network, also referred to as fibre optic network
        ("FiON"), in Manitoba. By the end of 2015, we expect to deploy fibre
        to approximately 120,000 homes in close to 20 Manitoba communities
        such as Steinbach, Thompson, The Pas, and in areas of Winnipeg. Once
        this plan is completed, 65% of Manitoba households will be covered by
        either Very-high-bit-rate Digital Subscriber Line ("VDSL") or
        fibre-to-the-home service. This will enable MTS to provide customers
        with access to the most advanced high-speed Internet and television
        services.

        In 2010, we have been expanding our Allstream IP fibre network to
        improve the profitability of Allstream and support future growth. As
        part of a three-year plan, we are making targeted investments to
        extend fibre to 675 select multi-tenant buildings that are within
        200 metres of our existing national network and to enhance our
        Ethernet capabilities in our co-location areas. This investment will
        extend our on-net reach and provide us with significant incremental
        high margin revenue opportunities. In the fourth quarter 2010,
        Allstream won 52 new IP contracts through this initiative. In 2010,
        we won a total of 139 contracts throughout the year. This includes
        several follow on sales that have increased our penetration into
        these newly connected buildings. We have also achieved an additional
        102 IP contracts in Allstream's expanded IP co-location footprint.
        This initiative has contributed to the 9.7% IP revenue growth in the
        fourth quarter of 2010 and is expected to continue to contribute to
        IP growth in future. Based on the sales cycle for enterprise
        customers, we anticipate the benefits from this program to begin to
        positively impact our financial results in 2011. Management expects
        to connect 180 buildings in 2011 using a success-based approach.
    >>

SUBSEQUENT PENSION SOLVENCY FUNDING

In January 2011, the Company contributed $14.8 million in pension solvency payments to meet its 2011 pension funding obligations. The new federal pension legislation, which allows letters of credit to satisfy a portion of pension solvency obligations, was passed in 2010 and the associated regulations were published for comment on December 18, 2010. The comment period has now expired and the regulations are expected to become effective in the near future.

If the new regulations are not implemented by the end of February, we will be required to make additional pension solvency payments of approximately $5 million each month until the new regulations are in place.

RESULTS OF OPERATIONS

Quarterly metrics for the most recent five quarters (continuing operations)

    <<
                                                2010                    2009
    -------------------------------------------------------------------------
    (in millions $,
     except EPS)                  Q4        Q3        Q2        Q1        Q4
    -------------------------------------------------------------------------
    Revenue                    444.5     446.3     443.1     442.0     453.8
    EBITDA                     148.6     149.1     149.3     145.3     146.8
    EPS                         0.48      0.53      0.54      0.46      0.59
    Free cash flow              19.5      56.5      62.3      54.9      43.4
    Capital expenditures/
     revenue                   20.7%     13.7%     13.3%     12.8%     16.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Our results in the fourth quarter of 2010 were sequentially stable with the first, second and third quarters of 2010. EBITDA increased by 1.2% in the fourth quarter of 2010 as compared to the same period of 2009 due to improved results in our Allstream division. While revenues and earnings per share ("EPS") were lower in the fourth quarter of 2010 compared to the fourth quarter of 2009, results have been consistent throughout the year. Our results throughout 2010 reflect the slow pace of economic recovery nationally, higher non-cash pension expense, and declines in our legacy revenues; partly offset by cost reductions, strong performance in wireless and television at MTS, and actions to increase high-margin, on-net IP revenues at Allstream.

Revenues by business segment (continuing operations)

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    MTS revenues          237.3    233.5      1.6    935.3    937.2     (0.2)
    Allstream revenues    207.2    220.3     (5.9)   840.6    891.5     (5.7)
    -------------------------------------------------------------------------
    Total revenues        444.5    453.8     (2.0) 1,775.9  1,828.7     (2.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Total revenues from continuing operations decreased by $9.3 million and by $52.8 million in the fourth quarter and year, respectively, as compared to the same periods of 2009. These results reflect continued strong growth in our wireless, broadband and converged IP lines of business; offset by declines in long distance and legacy data lines of business, security and monitoring, and local access which was partially due to lower CRTC mandated local contribution revenue. Our results for the year of 2009 were also enhanced by a one-time $3.4 million wireless sale of FleetNet 800(TM) ("FleetNet") handsets. Further details on each of our main businesses' revenue performance (MTS and Allstream) are described below.

    <<
    MTS Revenues
    ------------
    >>

Operating revenues (continuing operations)

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    Wireless services      85.8     78.2      9.7    329.0    311.1      5.8
    Broadband and
     converged IP
     services              46.2     44.0      5.0    181.7    176.1      3.2
    Unified
     communications,
     security &
     monitoring services    9.8      8.7     12.6     35.6     33.2      7.2
    Local access services  70.7     75.2     (6.0)   288.5    305.6     (5.6)
    Long distance &
     legacy data services  24.8     27.4     (9.5)   100.5    111.2     (9.6)
    -------------------------------------------------------------------------
    Total MTS operating
     revenues             237.3    233.5      1.6    935.3    937.2     (0.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Revenues from continuing operations at MTS were higher by $3.8 million as compared to the fourth quarter of 2009. These results reflect continued growth in our wireless, broadband, and unified communications services; partly offset by declines in our local access, long distance and legacy data services. Our popular residential service bundles (which can include wireline, wireless, Internet, digital television, and alarm monitoring services), continue to provide a unique value proposition for our customers and cannot be matched by our competitors. Customers utilizing our bundled service offerings grew strongly by 9.0% in the fourth quarter of 2010, as compared to the same period of 2009. Total MTS operating revenues for the year decreased by $1.9 million compared to 2009, reflecting continued growth in our wireless, broadband and converged IP, and unified communications services; offset by declines in our local access, long distance and legacy data services, and the one-time $3.4 million wireless FleetNet sale that occurred in the first quarter of 2009.

As an incumbent local exchange carrier ("ILEC") in the province of Manitoba, we receive a monthly subsidy per network access line for basic local access services we provide to customers in rural and remote parts of the province where the costs of providing service are higher. The CRTC reviews and adjusts ILEC subsidy rates annually. For 2010, the CRTC used a negative inflation rate in their calculation of subsidy rates which had the effect of reducing our local contribution revenue by $5.0 million for the year of 2010. Excluding the impact of the one-time FleetNet sale in the first quarter of 2009 and lower local contribution revenues in 2010, MTS's revenues in 2010 would have increased by 0.7%.

Wireless services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          85.8        78.2         9.7
    YTD                                        329.0       311.1         5.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our wireless portfolio consists of cellular, wireless data, paging, and
    group communications services that we offer in the Manitoba market to
    both residential and business customers.
    >>

Our wireless services delivered strong growth in 2010 with revenues increasing by $7.6 million in the fourth quarter and by $17.9 million for the year, as compared to the same periods in 2009. These strong levels of performance were driven mainly by solid growth in our subscriber base and significantly higher wireless data usage. At December 31, 2010, we had 483,754 wireless subscribers, up by 5.5% from December 31, 2009. Revenues from our wireless data services were also up strongly by 50.4% in the fourth quarter of 2010 and by 46.2% for the year ended December 31, 2010.

Wireless ARPU for the year ended December 31, 2010 of $57.46 grew by 1.4% or $0.78 from $56.68 in 2009. This ARPU growth is mainly due to continued strong growth in our wireless data services and calling-feature utilization, partly offset by lower air time revenue due to customer migration to plans with more inclusive minutes.

In 2010, wireless revenue growth was partly offset by a $3.4 million sale of FleetNet handsets to the City of Winnipeg in the first quarter of 2009. After adjusting for this sale, our wireless revenues increased by 6.9% year-over-year.

Broadband and converged IP services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          46.2        44.0         5.0
    YTD                                        181.7       176.1         3.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Broadband and converged IP services include revenues earned from
    providing high-speed Internet and digital television services to
    residential customers in Manitoba, as well as IP-based connectivity to
    business customers based in Manitoba.
    >>

Revenues from our broadband and converged IP services were up by $2.2 million and by $5.6 million in the fourth quarter and year of 2010, respectively. The fourth quarter increase is mainly attributable to growth in revenues from our digital television and high-speed Internet services. The year-over-year increase reflects growth in digital television and stable high-speed Internet revenues.

Our digital television services revenues (including both MTS Classic TV and MTS Ultimate TV services) increased by $2.0 million or 14.7% in the fourth quarter of 2010 as compared to the same period of 2009. This fourth quarter growth reflects an increase in MTS Ultimate TV subscribers and a 4.5% increase in average revenue per subscriber ("ARPS"), partly offset by an increase in subscribers on promotional plans. For the year, digital television services revenues grew by $5.4 million or 10.0% compared to 2009. At the end of the fourth quarter, there were more than 37,000 subscribers on our MTS Ultimate TV service, as compared to approximately 14,000 at the end of the same period of 2009. In total, we had 89,967 digital television subscribers at December 31, 2010, representing a 4.0% increase year-over-year.

Our high-speed Internet services revenues were up by $0.5 million in the fourth quarter, and were stable for the year, as compared to the same periods in 2009. At December 31, 2010, our high-speed Internet subscriber base totalled 184,806, up 1.6% from last year.

Our converged IP revenues for the year increased by 0.8% compared to 2009.

Unified communications, security and monitoring services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                           9.8         8.7        12.6
    YTD                                         35.6        33.2         7.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Unified communications, security and monitoring services consist of
    revenues earned from the provision of IP telephony products and services
    to business customers in Manitoba. This line of business also includes
    revenues earned from the installation and monitoring of alarm services to
    residential and business customers in Manitoba.
    >>

Unified communications, security and monitoring services revenues grew by $1.1 million in the fourth quarter of 2010, and by $2.4 million year-to-date, reflecting slight increases in unified communications sales and installations.

Local access services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          70.7        75.2        (6.0)
    YTD                                        288.5       305.6        (5.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Local access services include revenues earned for the provision of both
    residential and business voice connectivity including calling features,
    payphone revenue, and wholesale revenue within Manitoba.
    >>

Local access services revenues decreased by $4.5 million in the fourth quarter and by $17.1 million for the year, as compared to the same periods in 2009. Lower local access services revenues in 2010 reflect decreased residential network access lines due to local competition and substitution, as well as lower local contribution revenue relating to high-cost serving areas.

As an ILEC in the province of Manitoba, we receive a monthly subsidy per network access line for basic local access services we provide to customers in rural and remote parts of the province where the costs of providing service are higher. The CRTC reviews and adjusts ILEC subsidy rates annually. For 2010, the CRTC used a negative inflation rate in their calculation of subsidy rates, which had the effect of reducing our contribution revenue by $1.3 million in the fourth quarter and $5.0 million in the full-year of 2010.

Long distance and legacy data services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          24.8        27.4        (9.5)
    YTD                                        100.5       111.2        (9.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long distance and legacy data services include revenues earned from the
    provision of long distance calling along with traditional data services,
    such as dial-up Internet connectivity, frame-relay networks, and private
    line networks we offer to residential and business customers in Manitoba.
    >>

Revenues from our long distance and legacy data services decreased by $2.6 million in the fourth quarter and by $10.7 million in the year of 2010. Long distance services revenues declined mainly due to customer migration to lower-priced long distance plans, reduced volumes, and substitution. Our legacy data services revenues were also lower as a result of customers transitioning to broadband or other IP-based services.

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

Operating revenues (continuing operations)

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    Converged IP
     services              56.3     51.3      9.7    217.4    208.3      4.4
    Unified
     communications &
     security services     23.0     24.7     (6.9)    87.9    104.2    (15.6)
    Local access services  49.9     51.6     (3.3)   201.5    208.0     (3.1)
    Long distance &
     legacy data services  78.0     92.7    (15.9)   333.8    371.0    (10.0)
    -------------------------------------------------------------------------
    Total Allstream
     operating revenues   207.2    220.3     (5.9)   840.6    891.5     (5.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Revenues from continuing operations at Allstream were lower by $13.1 million in the fourth quarter and by $50.9 million for the year, as compared to the same periods in 2009. These results reflect growth in converged IP services, offset by lower unified communications and security, local access, as well as long distance and legacy data revenues. Throughout 2010, we have been taking action to improve Allstream's revenue mix by focusing on higher-margin, on-net revenues; improving our cost structure; and exiting unprofitable lines of business, such as low-margin unified communications and security product resale, and low-margin wholesale long distance.

Converged IP services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          56.3        51.3         9.7
    YTD                                        217.4       208.3         4.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Converged IP services include revenues earned from the provision of
    IP-based networking and related products and services to business
    customers nationally.
    >>

Converged IP revenues increased by $5.0 million and $9.1 million in the fourth quarter and year of 2010, respectively. Throughout the second half of 2010, our sales team was successful in winning service agreements with new customers. The solid increase in IP sales activity we experienced in the summer months continued through December, returning our sales levels to the level required to achieve double-digit growth in 2011. We are starting to benefit from these increased sales levels with 9.7% growth in the fourth quarter of 2010. We continue to see growth in our IP-Virtual Private Network ("IP-VPN") customer base; as at December 31, 2010, Allstream had 365 IP-VPN customers, a 9.3% increase over last year.

Building on our national IP fibre network that currently reaches over 2,100 multi-tenant buildings, we have undertaken a targeted expansion that will extend our on-net reach and provide us with significant incremental high-margin revenue opportunities. The results of this success-based investment are in line with our targets. Allstream won 52 new IP contracts through this initiative in the fourth quarter, including several follow on sales that have increased our penetration into these newly connected buildings. We have also achieved an additional 102 IP contracts in the expanded Allstream IP co-location footprint.

Unified communications and security services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          23.0        24.7        (6.9)
    YTD                                         87.9       104.2       (15.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Unified communications and security services include revenues earned from
    the provision of IP telephony products and services along with revenues
    from our IP-based security offerings to national business customers.
    >>

Unified communications and security services revenues declined by $1.7 million in the fourth quarter and by $16.3 million for the year, as compared to the same periods in 2009. These decreases reflect lower revenues from both unified communications and security services, due to lower product sales. Beginning with the second quarter of 2009, Allstream's unified communications and security services have been affected by the recession and slow pace of economic recovery as many enterprise customers experienced lower business volumes and postponed capital investment decisions. We are also taking action to exit low-margin unified communications and security product resale.

Local access services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          49.9        51.6        (3.3)
    YTD                                        201.5       208.0        (3.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Local access services include revenues earned for the provision of
    business voice connectivity including calling features to national
    business and wholesale customers.
    >>

Local access services revenues declined by $1.7 million for the fourth quarter and by $6.5 million for the year, as compared to the same periods in 2009. The decrease mainly reflects lower pricing, partly offset by growth in the number of small- and medium-sized business customers selecting bundled services.

Long distance and legacy data services

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          78.0        92.7       (15.9)
    YTD                                        333.8       371.0       (10.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long distance and legacy data services include revenues earned from the
    provision of long distance calling along with traditional data services,
    such as primary rate interfaces, frame-relay networks, and private line
    networks to business customers nationally.
    >>

Revenues from Allstream's long distance and legacy data services declined $14.7 million and $37.2 million in the fourth quarter and year of 2010, respectively. The decline in Allstream's long distance services revenues in the fourth quarter of 2010 is mainly attributable to lower international and domestic rates and volumes. For the year ended December 31, 2010, lower long distance revenues primarily reflect lower international and domestic rates, and lower cross-border long distance volumes. We expect further declines, but have implemented sales and marketing initiatives to identify new customers, and retain our existing customer base to counter these impacts. We are also exiting low-margin wholesale long distance to improve the quality of Allstream's revenue mix.

Our legacy data services revenues continue to be affected by customers' transition to broadband and other IP-based services. In addition, the continuing migration of long distance and legacy data communications traffic by Rogers and AT&T to their respective networks has further impacted the year-over-year declines. Long distance and legacy data services revenues from these customers in the fourth quarter and year of 2010 totalled $14.7 million and $60.4 million, respectively; as compared to $17.6 million and $70.5 million in the same periods of 2009.

    <<
    Consolidated Results
    --------------------
    >>

Operating revenues

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    Revenue (continuing
     operations)          444.5    453.8     (2.0) 1,775.9  1,828.7     (2.9)
    Adjustment to
     deferral account
     rebate                   -        -        -      5.0    (13.5)     n.m.
    -------------------------------------------------------------------------
    Revenue               444.5    453.8     (2.0) 1,780.9  1,815.2     (1.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

As a result of Decision 2010-638, the Company's liability relating to customer rebates is $8.5 million. The resulting $5.0 million adjustment was recognized in the third quarter. The estimated balance of the Company's deferral account is approximately $21 million as at December 31, 2010.

EBITDA

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    MTS EBITDA
     (continuing
     operations)          121.4    123.8     (1.9)   484.8    511.5     (5.2)
    Allstream EBITDA
     (continuing
     operations)           27.4     23.9     14.6    107.1    116.3     (7.9)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA*
     (continuing
     operations)          148.6    146.8      1.2    592.3    627.3     (5.6)
    Restructuring and
     other costs          (13.0)    (5.8)     n.m.   (35.5)   (33.6)    (5.7)
    Deferral account
     rebate                   -        -        -      5.0    (13.5)     n.m.
    Wireless transition
     recovery (costs)         -     (3.7)     n.m.    10.0    (18.1)     n.m.
    -------------------------------------------------------------------------
    EBITDA                135.6    137.3     (1.2)   571.8    562.1      1.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * Contains EBITDA from corporate operations.
    >>

Our EBITDA from continuing operations for the fourth quarter of 2010 was consistent with our results for the last three quarters, and was higher by $1.8 million as compared to the fourth quarter of 2009. This increase primarily reflects savings from our cost reduction initiatives and lower direct costs, partly offset by higher non-cash pension expense with the balance due to lower revenues.

At $592.3 million, EBITDA from continuing operations for 2010 was down by $35.0 million as compared to 2009. $19.1 million or 55% of the decrease is due to higher non-cash pension expense with the balance due to lower revenues, partly offset by lower direct costs.

Consolidated EBITDA for the fourth quarter benefitted from lower wireless transition costs, offset by higher restructuring and other costs as compared to 2009. Consolidated EBITDA for the year ended December 31, 2010 benefitted from a $5.0 million adjustment to our deferral account rebate, and a $10.0 million one-time cash payment received as part of a comprehensive settlement agreement with Bell Mobility.

On a segmented basis, MTS's EBITDA from continuing operations in the fourth quarter, at $121.4 million, was down by $2.4 million as compared to the prior year. The decrease is primarily due to $4.2 million higher non-cash pension expense. For the year, MTS's EBITDA was impacted primarily by a $16.8 million increase in non-cash pension expense and additional costs to support growth lines of business in a competitive environment, partly offset by increased cost savings. MTS's EBITDA margin in the fourth quarter of 2010 continues to be strong and market leading, at 51.2%.

Allstream's EBITDA from continuing operations in the fourth quarter of 2010 was $27.4 million, a 14.6% improvement over the $23.9 million EBITDA in the same quarter last year. On a sequential basis, Allstream's EBITDA from continuing operations improved by $0.3 million to $27.4 million in the fourth quarter, as compared to $27.1 million in the third quarter, $26.6 million in the second quarter and $26.0 million in the first quarter 2010. This sequential EBITDA improvement reflects stabilizing performance primarily due to strong cost management and steady growth in our IP services.

Earnings per share ("EPS")

    <<
    (in $)                Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    EPS (continuing
     operations)           0.48     0.59    (18.6)    2.02     2.64    (23.5)
    Restructuring and
     other costs          (0.14)   (0.04)     n.m.   (0.37)   (0.34)    (8.8)
    Discontinued
     operations               -    (0.04)     n.m.   (0.04)   (0.04)       -
    Goodwill revaluation  (0.22)       -      n.m.   (0.22)       -      n.m.
    Deferral account
     rebate                   -        -      n.m.    0.05    (0.14)     n.m.
    Wireless transition
     recovery (costs)         -    (0.05)     n.m.    0.10    (0.19)     n.m.
    Future statutory tax
     rate and other tax
     rate adjustments         -    (0.36)     n.m.       -    (0.36)     n.m.
    -------------------------------------------------------------------------
    Basic EPS              0.12     0.10     20.0     1.54     1.57     (1.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: EPS for the three and twelve months ended December 31st, 2009, and
    the twelve months ended December 31st, 2010 is based on weighted average
    shares outstanding of 64.7 million. EPS for the three months ended
    December 31st, 2010 is based on weighted average shares outstanding of
    64.9 million.
    >>

EPS from continuing operations decreased by $0.11 to $0.48 for the fourth quarter, and by $0.62 to $2.02 for the year of 2010, mainly as a result of lower EBITDA and higher debt charges.

Basic EPS increased by $0.02 to $0.12 in the fourth quarter of 2010 due to a tax adjustment that took place in the fourth quarter of 2009. The increase was partly offset by lower EPS from continuing operations and the goodwill revaluation.

Basic EPS decreased by $0.03 to $1.54 for the year of 2010 as compared to 2009, which is mainly due to lower EPS from continuing operations and the revaluation charge for Allstream goodwill, partly offset by the tax adjustment in the fourth quarter of 2009, an adjustment to our liability for customer rebates, and the $10.0 million one-time cash payment received as part of a comprehensive settlement agreement with Bell Mobility.

Operating expenses

Operations (continuing operations)

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                         295.9       307.0        (3.6)
    YTD                                      1,183.6     1,201.4        (1.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Operating expenses from continuing operations decreased $11.1 million in the fourth quarter and $17.8 million in the year 2010, respectively, as compared to the same periods in 2009. These decreases reflect savings from our ongoing cost reduction initiatives and lower direct costs due to lower revenues, partly offset by higher pension expense and higher costs to fund certain growth services.

Restructuring and transition

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          13.0         9.5        36.8
    YTD                                         25.5        51.7       (50.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

We incurred $13.0 million of restructuring and transition costs in the fourth quarter of 2010, as compared to the $9.5 million of costs we incurred in the same period of last year. Restructuring and transition costs declined by $26.2 million in 2010 compared to last year. Our lower costs in 2010 primarily reflect lower transition costs due to the recovery of $10.0 million from Bell Mobility as compared to wireless transition costs of $18.1 million incurred in 2009.

We continue to work on removing costs from our business. For 2010, we set a target of achieving between $30 million and $40 million of annualized savings from our operational efficiency programs. We achieved $34.4 million of annualized savings from these cost reduction initiatives throughout the year.

Amortization

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          85.7        77.9        10.0
    YTD                                        336.1       322.7         4.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Amortization expense increased by $7.8 million in the fourth quarter of 2010 and by $13.4 million for the year, as compared to the same periods of 2009, which is mainly due to an increase in depreciable assets and an increase to amortization of deferred wireless costs.

Other income

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                           1.3         2.8       (53.6)
    YTD                                          5.7         8.7       (34.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Other income for the fourth quarter was $1.5 million lower as compared to $2.8 million for the same quarter in 2009. In 2010, other income of $5.7 million was lower by $3.0 million. Other income in 2009 was positively impacted by a gain of $3.1 million related to the sale of our alarm monitoring services accounts outside of Manitoba in exchange for Manitoba-based accounts of SecurTek Monitoring Solutions Inc. which occurred in the second quarter of 2009.

Goodwill revaluation

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          14.1           -         n.m.
    YTD                                         14.1           -         n.m.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

During the year ended December 31, 2010, we recorded a $14.1 million goodwill revaluation charge which reduced the carrying value of goodwill for Allstream to nil based on annual impairment testing. This charge results from the negative impact of the economic downturn on Allstream's operations.

Debt charges

    <<
    (in millions $)                             2010        2009    % change
    -------------------------------------------------------------------------
    Q4                                          18.0        15.6        15.4
    YTD                                         69.9        59.5        17.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Debt charges were higher by $2.4 million in the fourth quarter of 2010 and by $10.4 million for the year of 2010. This increase is primarily due to higher debt levels and higher average coupon rates, which is indicative of a greater proportion of our debt being long-term compared to the prior year.

Income tax expense

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    Income tax on
     continuing
     operations            15.2     17.8    (14.6)    61.5     82.8    (25.7)
    Tax effect on
     one-time items        (4.2)    19.8      n.m.    (6.2)     1.9      n.m.
    -------------------------------------------------------------------------
    Total income tax       11.0     37.6    (70.7)    55.3     84.7    (34.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Total income tax expense for the quarter and year ended December 31, 2010 decreased by $26.6 million and $29.4 million, respectively, as compared to the same periods in 2009. These decreases are primarily due to lower pre-tax income and no statutory tax rate adjustments in 2010, partly offset by the impact of goodwill impairment in the fourth quarter of 2010.

We used the last of our available tax losses associated with the acquisition of Allstream during the first half of 2009 by deferring the use of our substantial capital cost allowance ("CCA") pools. By utilizing our deferred CCA deductions, we expect to fully offset our taxable income and not pay cash taxes before 2019, with the present value of our tax asset being approximately $330 million.

Consolidated quarterly financial data

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

    <<
    (in millions $, except EPS)          Q4/10     Q3/10     Q2/10     Q1/10
    -------------------------------------------------------------------------
    Operating revenues                   444.5     451.3     443.1     442.0
    Operating income                      49.9      77.3      57.8      50.7
    Net income before discontinued
     operations                            8.1      43.0      29.6      21.4
    Net income and comprehensive income    8.1      43.0      28.2      20.4
    Basic and diluted EPS before
     discontinued operations              0.12      0.66      0.46      0.33
    Basic and diluted EPS                 0.12      0.66      0.44      0.32
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in millions $, except EPS)          Q4/09     Q3/09     Q2/09     Q1/09
    -------------------------------------------------------------------------
    Operating revenues                   453.8     438.8     452.8     469.8
    Operating income                      59.4      52.5      59.5      68.0
    Net income before discontinued
     operations                            9.0      28.1      30.0      36.8
    Net income and comprehensive income    6.7      27.9      30.1      37.0
    Basic and diluted EPS before
     discontinued operations              0.14      0.43      0.47      0.57
    Basic and diluted EPS                 0.10      0.43      0.47      0.57
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

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 recording of the following items:

    <<
    -   Restructuring and other costs, including non-recurring amounts
        related to our HSPA deployment and related billing implementation, as
        well as certain legal costs to appeal a court decision relating to
        one of the Company's pension plans, were $12.6 million, $8.2 million,
        $1.7 million, and $13.0 million for each of the four quarters of
        2010, listed chronologically. The restructuring and other costs in
        2009 were $6.1 million, $12.7 million, $9.0 million, and
        $5.8 million, for each of the four quarters, listed chronologically.

    -   Losses, net of tax, associated with discontinued operations were
        $1.0 million and $1.4 million in the first and second quarters of
        2010, respectively. For 2009, the results from discontinued
        operations were as follows: income, net of tax, for the first and
        second quarters of $0.2 million and $0.1 million, respectively; and
        losses, net of tax, for the third and fourth quarters of $0.2 million
        and $2.3 million, respectively.

    -   A reduction in the deferral account rebate liability of $5.0 million
        in relation to Decision 2010-638 in the third quarter of 2010 and
        charges of $13.5 million for the deferral account rebate in relation
        to Decision 2008-1 in the third quarter of 2009.

    -   A recovery of costs for $10 million relating to the one-time payment
        received from Bell Mobility in the third quarter of 2010 from the
        comprehensive settlement agreement; as well as 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, second, third and fourth quarters of 2009, in the amounts of
        $7.4 million, $6.3 million, $0.7 million, and $3.7 million,
        respectively.

    -   Charges to reflect decreases in the value of our income tax asset as
        a result of reductions in future income tax rates and rate
        differential on temporary differences, consisting of $23.4 million in
        the fourth quarter of 2009.

    -   Revaluation charge for Allstream goodwill in the fourth quarter of
        2010 in the amount of $14.1 million.
    >>

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities

    <<
    (in millions $)                             2010        2009    $ change
    -------------------------------------------------------------------------
    Q4                                         133.4        39.4        94.0
    YTD                                        455.5       263.8       191.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from operating activities refer to cash we generate from our
    normal business activities.
    >>

Cash flows from operating activities were $133.4 million in the fourth quarter of 2010 as compared to $39.4 million in the fourth quarter of 2009. For the year ended December 31, 2010, cash flows from operating activities totalled $455.5 million, as compared to $263.8 million in the same period in 2009. The year-over-year increase was primarily due to a reduction in the use of our accounts receivable securitization program which impacts working capital, and higher consolidated EBITDA (excluding non-cash pension expense).

Cash flows used in investing activities

    <<
    (in millions $)                             2010        2009    $ change
    -------------------------------------------------------------------------
    Q4                                        (132.4)      (93.6)      (38.8)
    YTD                                       (368.9)     (297.9)      (71.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing activities represent cash used for acquiring, and cash received
    from disposing of, long-term assets and other long-term investments.
    >>

In the fourth quarter of 2010, we used $132.4 million of cash for investing activities as compared to $93.6 million in 2009. For the year of 2010, cash flows used in investing activities increased by $71.0 million over the prior year. These increases are primarily due to capital expenditures for the deployment of our HSPA+ network in Manitoba and capital costs related to our restructuring initiatives.

Capital expenditures

    <<
    (in millions $)       Q4/10    Q4/09 $ change   YTD/10   YTD/09 $ change
    -------------------------------------------------------------------------
    Capital expenditures
     (continuing
     operations)           92.2     73.2     19.0    268.8    259.8      9.0
    HSPA and related
     billing               25.1     18.6      6.5     70.8     32.6     38.2
    Restructuring          12.8      1.2     11.6     25.0      2.8     22.2
    -------------------------------------------------------------------------
    Consolidated capital
     expenditures         130.1     93.0     37.1    364.6    295.2     69.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

We continue to focus on spending capital prudently by allocating capital to fund our higher growth services. Our capital expenditures from continuing operations for the fourth quarter and for the year of 2010 were $92.2 million and $268.8 million, respectively.

Free cash flow

    <<
    (in millions $)       Q4/10    Q4/09 % change   YTD/10   YTD/09 % change
    -------------------------------------------------------------------------
    Free cash flow
     (continuing
     operations)           19.5     43.4    (55.1)   193.2    233.5    (17.3)
    Pension solvency
     funding              (32.7)   (23.2)   (40.9)   (41.7)   (46.7)    10.7
    HSPA & related
     billing capital
     expenditures         (25.1)   (18.6)   (34.9)   (70.8)   (32.6)     n.m.
    Restructuring
     capital
     expenditures         (12.8)    (1.2)     n.m.   (25.0)    (2.8)     n.m.
    Restructuring and
     other costs          (13.0)    (5.8)   (70.7)   (35.5)   (33.6)    (5.7)
    Deferral account
     rebate                   -        -      n.m.     5.0    (13.5)     n.m.
    Wireless transition
     recovery (costs)         -     (3.7)     n.m.    10.0    (18.1)     n.m.
    -------------------------------------------------------------------------
    Consolidated free
     cash flow            (64.1)    (9.1)     n.m.    35.2     86.2    (59.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Free cash flow refers to cash flow from operating activities, less
    capital expenditures, and excluding changes in working capital.
    >>

Free cash flow from continuing operations in the fourth quarter of 2010 was $19.5 million as compared to $43.4 million in the fourth quarter of 2009. This decrease is mainly attributable to a higher proportion of the annual capital expenditures incurred in the fourth quarter compared to the prior year. For the year, free cash flow from continuing operations was $193.2 million compared to $233.5 million in 2009. The decrease is primarily due to lower EBITDA, higher debt charges, increased capital expenditures, and higher deferred wireless costs.

In 2010, consolidated free cash flow was negative $64.1 million in the fourth quarter and $35.2 million for the year as compared to negative $9.1 million and $86.2 million in the same periods in 2009. (Details of the items not included in continuing operations are shown in the preceding table.)

Cash flows (used in) from financing activities

    <<
    (in millions $)                             2010        2009    $ change
    -------------------------------------------------------------------------
    Q4                                         (22.7)      155.2      (177.9)
    YTD                                       (157.7)      137.8      (295.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financing activities refer to actions we undertake to fund our operations
    through equity capital and borrowings.
    >>

The $177.9 million decrease in cash from financing activities in the fourth quarter of 2010 was primarily due to an issuance of $200 million of long-term debt in the fourth quarter of 2009, partly offset by the reduction in dividends paid and the issuance of common shares under our dividend reinvestment program.

Cash flows from financing activities decreased in 2010 as compared to 2009 primarily due to a net increase in long-term debt in 2009, partly offset by dividend reductions and the issuance of common shares under our dividend reinvestment program in 2010.

Credit facilities

    <<
                                                                 Utilized at
                                                                 December 31,
    (in millions $)                                   Capacity          2010
    -------------------------------------------------------------------------
    Medium term note program                             500.0         200.0
    Revolving credit facility                            400.0         111.9
    Letter of credit facility                            150.0          27.9
    Accounts receivable securitization                   150.0             -
    -------------------------------------------------------------------------
    Total                                              1,200.0         339.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 renewed our medium term note program on October 16, 2009 for $500.0 million and we utilized $200.0 million of this facility to issue debt in December 2009. We also have a $400.0 million revolving credit facility, of which $150.0 million is available to back-stop our commercial paper program. At December 31, 2010, we utilized $111.9 million of our revolving credit facility for undrawn letters of credit. On September 20, 2010, we established an additional $150.0 million credit facility which is used solely for the issuance of letters of credit. As at December 31, 2010, we utilized $27.9 million of this facility for undrawn letters of credit. Of the $139.8 million in total letters of credit outstanding, $110.2 million represents letters of credit issued under the Solvency Funding Relief Regulations enacted in 2006 under the Pension Benefits Standards Act, 1985 (Canada), which permits the extension of pension solvency payments from a five-year amortization period to a 10-year amortization period for our defined benefit pension plans. In addition to these programs and facilities, we have a $150.0 million accounts receivable securitization program which was unutilized at December 31, 2010.

Capital structure

    <<
                                                   December 31,  December 31,
    (in millions $)                                       2010          2009
    -------------------------------------------------------------------------
    (Cash and cash equivalents)                          (50.0)       (110.2)
    Capital lease obligations, including
     current portion                                      16.4          17.6
    Long-term debt, including current portion          1,040.6       1,051.5
    -------------------------------------------------------------------------
    Total debt                                         1,007.0         958.9
    Shareholders' equity                               1,286.5       1,316.9
    -------------------------------------------------------------------------
    Total capitalization                               2,293.5       2,275.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Debt to capitalization                               43.9%         42.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 43.9% as at December 31, 2010 continues to represent financial strength and flexibility.

    <<
    Credit ratings
    -------------------------------------------------------------------------
                               BBB                                    BBB
    S&P - Senior debentures   (stable)    DBRS - Senior debentures   (stable)
                                                                      R-2
    S&P - Commercial paper     A-2        DBRS - Commercial paper    (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 21, 2010, S&P confirmed their credit ratings on our long-term corporate credit and senior unsecured debt at "BBB" and confirmed our commercial paper rating of "A-2". S&P also confirmed its outlook as stable. DBRS confirmed its ratings on January 18, 2010, for our senior debentures as "BBB" and our commercial paper "R-2 (high)". DBRS's outlook remained stable.

Outstanding share data as at February 1st, 2011

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:

    Shares          Number         Book value (in millions $)
    -------------------------------------------------------------------------
    Common          65,213,827     $1,282.0

    Stock options:

                                   Weighted average
    Options         Number         exercise price per share
    -------------------------------------------------------------------------
    Outstanding     3,025,490      $38.69
    Exercisable     1,599,919      $41.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

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 2009 annual MD&A. For additional details, please consult our 2009 annual MD&A, which is available on our website at www.mtsallstream.com.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Goodwill

We test the recoverability of our goodwill on an annual basis or earlier when events or changes in circumstances indicate that the carrying value might not be recoverable. In the fourth quarter of 2010, we completed our annual valuation test. As a result, we recorded a $14.1 million goodwill revaluation charge which reduced the carrying value of goodwill for Allstream to nil. The results of other tests of goodwill indicated that the fair values of goodwill were higher than the carrying values as at December 31, 2010.

Our remaining critical accounting estimates and assumptions are substantially unchanged from those that were disclosed in our 2009 annual MD&A. For additional details, please consult our 2009 annual MD&A, which is available on our website at www.mtsallstream.com.

CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION

International financial reporting standards

The Canadian Accounting Standards Board ("AcSB") adopted a strategic plan in 2006, outlining plans for the convergence of Canadian GAAP with IFRS over a five-year period. In February 2008, the AcSB confirmed January 1, 2011 as the date IFRS will replace current Canadian GAAP for publicly accountable enterprises. As a Canadian reporting issuer, we will begin reporting our financial results under IFRS in the first quarter of 2011, which will include the 2010 comparative period.

Our IFRS changeover plan

We started our IFRS changeover activities in 2008 with the development of a detailed IFRS changeover plan. Our plan consists of four phases, which represent the activities we undertook from 2008 until 2011 to ensure we have the systems, business processes and controls in place to report our financial results on an IFRS basis effective January 1, 2011, with comparative information for 2010.

In 2010, we completed the third phase of our plan: Solution Development, which included designing, developing and executing testing strategies for changes to our accounting business processes, controls, and IT solutions, including our dual reporting solution. In 2010 through the first quarter of 2011, we are working on the fourth phase of our plan: Implementation. During this phase, we are implementing IFRS-compliant accounting policies and related systems, processes and controls. The key activities associated with this phase include implementation of changes to our accounting policies; preparation of our IFRS opening balance sheet as at January 1, 2010, and development of IFRS financial statements and note disclosures. We are also implementing the changes to systems, processes and controls, where necessary. (A description of each of the four phases of our plan is set out on page 26 of our 2009 Annual Report, which is available on our website at www.mtsallstream.com or on SEDAR at www.sedar.com.)

Progress towards completion of our IFRS changeover plan

Our progress to date on key activities of our changeover plan is summarized in the following table:

    <<
                          Key Activities                Progress to Date
    -------------------------------------------------------------------------
    Financial       - Identify accounting and     - We have identified
    Statement         disclosure differences        accounting and disclosure
    Preparation       between IFRS and our          differences.
                      existing policies.          - We evaluated accounting
                    - Evaluate accounting policy    policy alternatives and
                      options and select IFRS       our senior management has
                      accounting policies,          selected initial IFRS
                      including policy choices      accounting policies,
                      under IFRS 1, First-time      including IFRS 1 policy
                      Adoption of International     choices. The Audit
                      Financial Reporting           Committee of our Board of
                      Standards ("IFRS 1").         Directors reviewed these
                    - Develop IFRS-compliant        preliminary selections
                      financial statements and      and will formally approve
                      note disclosure.              them upon approval of our
                    - Quantify the impact of        consolidated financial
                      changeover to IFRS.           statements for the three
                                                    months ending March 31,
                                                    2011, our first set of
                                                    interim financial
                                                    statements under IFRS.
                                                    These are the same
                                                    accounting policies we
                                                    expect to adopt in the
                                                    preparation of our first
                                                    annual IFRS financial
                                                    statements for the year
                                                    ending December 31, 2011.
                                                  - We monitored the effects
                                                    of new or amended IFRSs
                                                    throughout our project
                                                    and continue to do so as
                                                    we report under IFRS
                                                    going forward.
                                                  - We drafted our
                                                    preliminary IFRS
                                                    financial statements
                                                    format and note
                                                    disclosures.
                                                  - We quantified the
                                                    preliminary impact of our
                                                    IFRS changeover and
                                                    disclose this impact
                                                    below.
    -------------------------------------------------------------------------
    Systems and     - Identify impacts of IFRS    - We completed design and
    Processes         conversion on IT systems      development activities
                      and accounting and            related to IT system and
                      business processes.           process changes resulting
                    - Design, test, and             from differences in
                      implement IT solutions        accounting standards for
                      and changes to accounting     property, plant, and
                      and business processes.       equipment. We tested and
                    - Design, test, and implement   implemented this
                      a dual reporting system       solution.
                      to maintain parallel        - We identified a dual
                      records throughout 2010.      reporting IT solution,
                                                    and tested and
                                                    implemented this
                                                    solution. Our dual
                                                    reporting system has
                                                    maintained parallel
                                                    records for 2010.
                                                  - We designed and
                                                    implemented changes to
                                                    our accounting and
                                                    business processes.
                                                  - We implemented financial
                                                    planning and forecasting
                                                    capabilities under IFRS.
    -------------------------------------------------------------------------
    Controls and    - Assess impact of            - We assessed the impact of
    Procedures        changeover on disclosure      changeover on our DC&P
                      controls and procedures       and ICFR.
                      ("DC&P") and internal       - We designed and
                      control over financial        implemented new and
                      reporting ("ICFR").           revised controls, as
                    - Design and implement new      necessary.
                      or revised controls, as     - We evaluated the
                      considered necessary,         operating effectiveness
                      resulting from                of new and revised DC&P
                      implementation of ongoing     and ICFR for 2010
                      IFRS accounting policies      certification
                      and our one-time              requirements. We have
                      transition adjustments.       developed plans to
                    - Evaluate the operating        evaluate the operating
                      effectiveness of new and      effectiveness of our new
                      revised DC&P and ICFR for     and revised DC&P and ICFR
                      certification requirements    in 2011.
                      in 2010 and 2011.
    -------------------------------------------------------------------------
    Communication   - Communicate progress of     - We provided updates on
    and Training      IFRS changeover plan and      our changeover plan and
                      impacts of changeover to      related impacts in our
                      internal and external         MD&A on an ongoing basis.
                      stakeholders.               - We provided regular
                    - Provide specific training     updates to the Audit
                      to employees affected by      Committee of our Board of
                      our IFRS changeover.          Directors, our IFRS
                    - Provide general IFRS          Steering Committee and
                      training to finance           senior management on the
                      employees.                    progress made on our IFRS
                                                    changeover plan.
                                                  - We completed detailed
                                                    training for employees
                                                    involved with our IFRS
                                                    changeover.
                                                  - We provided general
                                                    training to our finance
                                                    employees.
    -------------------------------------------------------------------------
    >>

Impact of IFRS

The implementation of IFRS for the year ending December 31, 2011 requires us to apply the accounting policies we expect to adopt retrospectively to January 1, 2010, our transition date to IFRS, and to the 2010 reporting period. The following preliminary reconciliations present the differences between Canadian GAAP and IFRS for our key performance indicators for the year ended December 31, 2010, the consolidated statements of financial position at each of January 1, 2010 and December 31, 2010, and the consolidated statement of net income and other comprehensive income for the year ended December 31, 2010. These reconciliations are based on the accounting policies we expect to adopt in our 2011 interim and annual consolidated financial statements.

Preliminary IFRS consolidated key performance indicators:

    <<
    -------------------------------------------------------------------------
                                     For the year ended December 31, 2010
    -------------------------------------------------------------------------
                                            Canadian
    (In millions $, except EPS)   Note        GAAP     Adjustments     IFRS
    -------------------------------------------------------------------------

    Revenue                                  1,780.9        1.7      1,782.6
    EBITDA                       A, B, C       571.8       (7.0)       564.8
    EPS                           A to E        1.54       0.64         2.18
    Free cash flow                              35.2       (1.1)        34.1
    Capital expenditures               B       364.6       (2.7)       361.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Condensed preliminary IFRS consolidated statement of financial position as at January 1, 2010

    <<
    -------------------------------------------------------------------------
                                  December 31,                     January 1,
                                      2009                            2010
    -------------------------------------------------------------------------
                                   Canadian  Reclassifi-
    (In millions $)        Note      GAAP      cations   Adjustments   IFRS
    -------------------------------------------------------------------------
    Assets
      Current assets                  432.0      (79.0)         -      353.0
      Property, plant
       and equipment       B, D     1,362.2          -       16.4    1,378.6
      Intangible assets    B, D       322.9          -      (44.4)     278.5
      Other assets            A       417.2          -     (374.9)      42.3
      Deferred tax assets     E       362.1       79.0      132.8      573.9
    -------------------------------------------------------------------------
    Total assets                    2,896.4          -     (270.1)   2,626.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
      Current liabilities             426.7       (1.2)      (3.2)     422.3
      Long-term debt and
       lease obligations            1,053.0          -          -    1,053.0
      Employee future
       benefits               A        43.1       (0.1)     119.5      162.5
      Other long-term
       liabilities            C        56.7        1.3      (17.2)      40.8
    -------------------------------------------------------------------------
    Total liabilities               1,579.5          -       99.1    1,678.6
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Shareholders'
     equity              A to E     1,316.9          -     (369.2)     947.7
    -------------------------------------------------------------------------
    Total liabilities
     and shareholders'
     equity                         2,896.4          -     (270.1)   2,626.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Condensed preliminary IFRS consolidated statement of financial position as at December 31, 2010

    <<
    -------------------------------------------------------------------------
                                                December 31, 2010
    -------------------------------------------------------------------------
                                   Canadian  Reclassifi-
    (In millions $)        Note      GAAP      cations   Adjustments   IFRS
    -------------------------------------------------------------------------
    Assets
      Current assets                  332.0      (71.2)         -      260.8
      Property, plant
       and equipment       B, D     1,446.5          -       51.1    1,497.6
      Intangible assets    B, D       303.7          -      (24.2)     279.5
      Other assets            A       477.2          -     (369.9)     107.3
      Deferred tax assets     E       315.9       71.2      162.6      549.7
    -------------------------------------------------------------------------
    Total assets                    2,875.3          -     (180.4)   2,694.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
      Current liabilities             657.0       (0.3)      (3.2)     653.5
      Long-term debt and
       lease obligations              832.1          -          -      832.1
      Employee future
       benefits               A        44.7       (0.2)     276.0      320.5
      Other long-term
       liabilities            C        55.0        0.5      (14.7)      40.8
    -------------------------------------------------------------------------
    Total liabilities               1,588.8          -      258.1    1,846.9
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Shareholders'
     equity              A to E     1,286.5          -     (438.5)     848.0
    -------------------------------------------------------------------------
    Total liabilities
     and shareholders'
     equity                         2,875.3          -     (180.4)   2,694.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Preliminary IFRS consolidated statement of net income and other comprehensive income for the year ended December 31, 2010

    <<
    -------------------------------------------------------------------------
                                      For the year ended December 31, 2010
    -------------------------------------------------------------------------
                                   Canadian  Reclassifi-
    (In millions $)        Note      GAAP      cations   Adjustments   IFRS
    -------------------------------------------------------------------------

    Operating revenues              1,780.9          -        1.7    1,782.6
    -------------------------------------------------------------------------

    Operating expenses
      Operations        A, B, C     1,183.6          -        8.7    1,192.3
      Restructuring
       and transition                  25.5          -          -        25.5
      Depreciation and
       amortization        B, D       336.1          -      (45.4)     290.7
    -------------------------------------------------------------------------
                                    1,545.2          -      (36.7)   1,508.5
    -------------------------------------------------------------------------

    Operating income                  235.7          -       38.4      274.1

    Other income (expense)              5.7       (9.2)      (1.7)      (5.2)
    Goodwill revaluation      D       (14.1)         -       14.1          -
    Finance costs, net                (69.9)       5.9          -      (64.0)
    -------------------------------------------------------------------------

    Income before income
     taxes                            157.4       (3.3)      50.8      204.9
    -------------------------------------------------------------------------

    Income tax expense        E        55.3       (0.9)       9.2       63.6
    -------------------------------------------------------------------------

    Income before
     discontinued operations          102.1       (2.4)      41.6      141.3
    -------------------------------------------------------------------------

    Loss from discontinued
     operations                        (2.4)       2.4          -          -
    -------------------------------------------------------------------------

    Net income for the year            99.7          -       41.6      141.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other comprehensive income
      Actuarial losses from
       defined benefit plans
       and other employee
       benefits                           -          -     (149.8)    (149.8)
      Deferred taxes on items
       in other comprehensive
       income                             -          -       39.2       39.2
    -------------------------------------------------------------------------
    Other comprehensive
     loss for the year                    -          -     (110.6)    (110.6)
    -------------------------------------------------------------------------

    Total comprehensive
     income for the year               99.7          -      (69.0)      30.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Accounting policies under IFRS and first-time adoption of IFRS

As quantified in the preceding tables, we identified certain differences between Canadian GAAP and IFRS that impact our consolidated financial statements. The key areas where we expect changes in our accounting policies and any related optional exemptions we expect to apply are described below. The IFRS accounting policies we expect to adopt are based on the standards and interpretations currently issued and expected to be effective at December 31, 2011, the end of our first annual IFRS reporting period.

A. Employee Benefits

International Accounting Standard ("IAS") 19, Employee Benefits, provides accounting options for the treatment of actuarial gains and losses with respect to defined benefit pension plans. We adopted an accounting policy whereby actuarial gains and losses are recognized immediately in equity rather than in net income. Under Canadian GAAP, we use the corridor approach to account for actuarial gains and losses and recognize the related expense in net income. As a first-time adopter of IFRS, we also elected to recognize all cumulative actuarial gains and losses related to our defined benefit pension plans and other non-pension future employee benefits in opening retained earnings as at January 1, 2010.

Unlike Canadian GAAP, IFRS provides guidance on the impact to pension assets and liabilities when there are contractual or statutory minimum funding requirements of defined benefit plans. As a result, we recognized a liability related to our minimum funding requirements.

In addition, under IFRS, we measure the expected return on plan assets at fair value of pension fund assets. This is different from Canadian GAAP, where we measure the expected return on plan assets using a moving-average of year-end market values of pension fund assets.

As a result, for the year ended December 31, 2010, pension expense, which is included in operations expense, is slightly higher under IFRS, and actuarial gains and losses are recognized in other comprehensive income.

B. Property, Plant and Equipment

IAS 16, Property, Plant and Equipment, requires that each item of property, plant and equipment with a cost that is significant in relation to the total cost of the item be depreciated separately. This requirement results in differences in the classification of individual components of property, plant and equipment. Additionally, we adopted a separate unit straight-line policy for depreciating items of property, plant and equipment. This is different than under CGAAP, where we calculate depreciation expense based on the pooling of assets.

In addition, IFRS requires certain expenditures, which are appropriate to capitalize as property, plant and equipment under Canadian GAAP, to be expensed under IFRS.

For the year ended December 31, 2010, these changes in accounting policy result in a minor increase in operations expense and a decrease in depreciation and amortization expense.

C. Leases

IAS 17, Leases, requires that in a sale-leaseback transaction where the leaseback is classified as an operating lease, any gain on sale is recognized immediately in income. This differs from Canadian GAAP, where, any gain on sale is deferred and recognized in income over the term of the operating lease.

D. Impairment of Assets

IAS 36, Impairment of Assets, requires that a one-step approach be used to test for, and to measure impairment of, long-lived assets, with the carrying value of assets compared to the higher of fair value less costs to sell and value in use, which is measured using discounted cash flows. This is different from the two-step approach followed under Canadian GAAP. This approach first requires an entity to compare carrying values to undiscounted future cash flows to assess whether any impairment exists, and then to measure the impairment using discounted cash flows. A first-time adopter of IFRS is required to test goodwill for impairment at the transition date to IFRS. Our impairment testing as at January 1, 2010 resulted in the recognition of an asset impairment loss to intangible assets and property plant and equipment in our Allstream division.

E. Income tax effect of other adjustments

As a result of the differences identified above, deferred taxes under IFRS have been adjusted where applicable.

OUR REGULATORY ENVIRONMENT

The telecommunications and broadcast industries in which we operate are federally regulated pursuant to both the Telecommunications Act and the Broadcasting Act. The primary regulatory agency we are subject to is the CRTC. The Government of Canada ("the Government") through the Departments of Industry and Canadian Heritage, exercises legislative oversight of the CRTC. We are subject to policy decisions taken by the Government from time to time as well as any amendments to applicable legislation or regulatory instruments. We operate as an ILEC in Manitoba and as a competitive local exchange carrier outside of Manitoba. We also operate as a licensed broadcasting distribution undertaking ("BDU") in parts of Manitoba, including Winnipeg and the surrounding area. The following are significant updates to the Regulatory Environment sections described in our 2009 annual MD&A, as well as our first, second and third quarter 2010 interim MD&As, which are available on our website at www.mtsallstream.com or on SEDAR at www.sedar.com.

Broadcasting policy

The reference to the Federal Court of Appeal, described in our first quarter 2010 interim MD&A, to determine whether the CRTC has authority to require that cable companies pay broadcasters a fee for the carriage of local over the air signals, was heard on September 13, 2010. The structure of the industry has changed dramatically since the issue of fee for carriage first came into prominence, with the larger BDUs now owning or in the process of acquiring the major broadcasters. Despite this change the position put forth by the larger BDUs at the Federal Court of Appeal continued to advocate that imposing a fee for carriage for over the air signals is beyond the jurisdiction of the CRTC. The Federal Court of Appeal is expected to issue a decision on this matter in early 2011.

On June 7, 2010, the Federal Court of Appeal determined that Internet service providers are not acting as BDUs and are not subject to the Broadcasting Act when they provide Internet access, which includes broadcasting content via the Internet. On September 30, 2010, opposing parties sought leave to appeal this decision to the Supreme Court of Canada. We agree with the Federal Court of Appeal's decision that Internet service providers are not BDUs and have intervened in opposition to the leave and are currently awaiting a decision from the Supreme Court as to whether the opposing appeal can proceed. We will intervene in the appeal should it be allowed.

Telecommunications Policy

Essential Facilities

On August 30, 2010 the CRTC issued Decision 2010-632 mandating the incumbent telephone and cable companies to offer their wholesale high-speed Internet access service to competitors on a technologically neutral basis and at the same speed these incumbents make available to retail customers. The decision was a positive one and included the Company's views regarding the importance of wholesale access, especially in the business market.

As discussed in the 2009 MD&A, the proceeding was initiated in December 2009 by the CRTC as a consequence of the Federal Cabinet's request that the CRTC re-visit an earlier decision mandating matching speeds that was appealed to the Government by Bell Canada. The CRTC found, despite Bell Canada's assertions to the contrary, that competition drives investment and innovation and that wholesale access to the incumbents' underlying facilities and services is necessary to ensure that there is sufficient competition. The CRTC, through the mark-up allowed on the higher-speed wholesale Internet access services, recognized that the increased risk associated with incremental investment in fibre is needed to bring higher-speed Internet access services to customers.

The Cabinet had 90 days from the date of the CRTC decision to modify the decision or to give further direction to the CRTC in this regard. The Cabinet did not exercise this prerogative by the deadline of November 30, 2010, so the CRTC decision on wholesale access remains in force.

Deferral Account

On August 31, 2010, the CRTC issued Decision 2010-638 approving our plan to use the approximately $21 million funds remaining in the deferral account to roll-out broadband to 16 rural communities and to credit the remaining deferral monies to the accounts of residential urban customers in Manitoba. This decision brings to an end the process associated with the Company's deferral account. As at December 31, 2010, we have accrued a liability in the amount of $8.5 million.

RISKS AND UNCERTAINTIES

Our risks and uncertainties remain substantially unchanged from those that were disclosed in our 2009 annual MD&A, as well as our first, second and third quarter 2010 interim MD&As. For additional details, please consult these documents; they are available on our website www.mtsallstream.com.

FOURTH QUARTER DIVIDEND

On February 9, 2011, the Board of Directors of MTS Allstream declared a quarterly cash dividend of $0.425 per share. The first quarter dividend is payable on April 15, 2011 to shareholders of record at the close of business on March 15, 2011.

The first quarter dividend is designated as an "eligible" dividend under the Income Tax Act (Canada) and any corresponding provincial legislation. Under this legislation, individuals resident in Canada may be entitled to enhanced dividend tax credits that reduce income tax otherwise payable.

Notes:

    <<
    1.  Supplementary financial information is available in the Investors
        section of the MTS Allstream website at www.mtsallstream.com.

    2.  MTS Allstream's fourth quarter 2010 conference call with the
        investment community is scheduled for 9:30 a.m. (Eastern Time)
        Thursday, February 10, 2011.  The dial-in number is 1-888-231-8191.
        A live audio webcast of the investor conference call can be accessed
        by visiting the Investors section of the MTS Allstream website
        (www.mtsallstream.com). A replay of the conference call will be
        available until midnight February 24, 2011 and can be accessed by
        dialing 1-800-642-1687 or 1-416-849-0833 (access code: 35589264). The
        audio webcast will be archived on MTS Allstream's website.



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

    For the periods ended
     December 31                    Three months ended   Twelve months ended
    -------------------------------------------------------------------------
    (in millions, except
     earnings per share)               2010       2009       2010       2009
    -------------------------------------------------------------------------

    Operating revenues            $   444.5  $   453.8  $ 1,780.9  $ 1,815.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating expenses
      Operations                      295.9      307.0    1,183.6    1,201.4
    -------------------------------------------------------------------------
      Restructuring and
       transition (Note 2)             13.0        9.5       25.5       51.7
    -------------------------------------------------------------------------
      Amortization                     85.7       77.9      336.1      322.7
    -------------------------------------------------------------------------
                                      394.6      394.4    1,545.2    1,575.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income                   49.9       59.4      235.7      239.4
    -------------------------------------------------------------------------

    Other income                        1.3        2.8        5.7        8.7
    -------------------------------------------------------------------------
    Goodwill revaluation (Note 4)     (14.1)         -      (14.1)         -
    -------------------------------------------------------------------------
    Debt charges                      (18.0)     (15.6)     (69.9)     (59.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income before income taxes         19.1       46.6      157.4      188.6
    -------------------------------------------------------------------------

    Income tax expense
      Current                          (1.0)       0.8        0.4       (1.0)
    -------------------------------------------------------------------------
      Future                           12.0       36.8       54.9       85.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       11.0       37.6       55.3       84.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income before discontinued
     operations                         8.1        9.0      102.1      103.9
    -------------------------------------------------------------------------

    Loss from discontinued
     operations, net of tax (Note 3)      -       (2.3)      (2.4)      (2.2)
    -------------------------------------------------------------------------

    Net income and comprehensive
     income for the period        $     8.1  $     6.7  $    99.7  $   101.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings
     per share (Note 6)
      Income before discontinued
       operations                 $    0.12  $    0.14  $    1.58  $    1.61
    -------------------------------------------------------------------------
      Net income                  $    0.12  $    0.10  $    1.54  $    1.57
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONSOLIDATED STATEMENT OF (DEFICIT) RETAINED EARNINGS
    (unaudited)

    For the periods ended
     December 31                    Three months ended   Twelve months ended
    -------------------------------------------------------------------------
    (in millions)                      2010       2009       2010       2009
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period          $    10.3  $    65.7  $    30.4  $    96.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income for the period           8.1        6.7       99.7      101.7
    -------------------------------------------------------------------------

    Dividends declared                (27.6)     (42.0)    (139.3)    (168.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (Deficit) retained earnings,
     end of period                $    (9.2) $    30.4  $    (9.2) $    30.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONSOLIDATED BALANCE SHEETS
    (unaudited)

    December 31                                           2010          2009
    -------------------------------------------------------------------------
    (in millions)

    Assets

    Current assets
      Cash and cash equivalents                    $      50.0   $     110.2
    -------------------------------------------------------------------------
      Accounts receivable                                152.3         166.2
    -------------------------------------------------------------------------
      Future income taxes                                 71.2          79.0
    -------------------------------------------------------------------------
      Other current assets                                58.5          58.0
    -------------------------------------------------------------------------
      Assets held for sale (Note 3)                          -          18.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         332.0         432.0

    Capital assets
      Property, plant and equipment                    3,999.8       3,749.4
    -------------------------------------------------------------------------
      Intangible assets                                  568.5         505.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       4,568.3       4,254.5
    -------------------------------------------------------------------------
      Accumulated amortization                         2,845.8       2,611.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       1,722.5       1,643.3

    Other assets                                         477.2         417.2
    -------------------------------------------------------------------------
    Future income taxes                                  315.9         362.1
    -------------------------------------------------------------------------
    Goodwill (Note 4)                                     27.7          41.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                   $   2,875.3   $   2,896.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities
      Accounts payable and accrued liabilities     $     376.8   $     349.1
    -------------------------------------------------------------------------
      Advance billings and payments                       55.3          52.5
    -------------------------------------------------------------------------
      Current portion of long-term debt                  220.0          11.9
    -------------------------------------------------------------------------
      Current portion of capital lease obligations         4.9           4.2
    -------------------------------------------------------------------------
      Liabilities related to assets held for
       sale (Note 3)                                         -           9.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         657.0         426.7

    Long-term debt                                       820.6       1,039.6
    -------------------------------------------------------------------------
    Long-term portion of capital lease obligations        11.5          13.4
    -------------------------------------------------------------------------
    Deferred employee benefits                            44.7          43.1
    -------------------------------------------------------------------------
    Other long-term liabilities                           53.9          55.5
    -------------------------------------------------------------------------
    Future income taxes                                    1.1           1.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                       1,588.8       1,579.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shareholders' equity
      Share capital (Note 6)                           1,275.0       1,266.9
    -------------------------------------------------------------------------
      Contributed surplus                                 20.7          19.6
    -------------------------------------------------------------------------
      (Deficit) retained earnings                         (9.2)         30.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       1,286.5       1,316.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                   $   2,875.3   $   2,896.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    For the periods ended
     December 31                    Three months ended   Twelve months ended
    -------------------------------------------------------------------------
    (in millions)                      2010       2009       2010       2009
    -------------------------------------------------------------------------

    Cash flows from operating
     activities
      Income before discontinued
       operations                 $     8.1  $     9.0  $   102.1  $   103.9
    -------------------------------------------------------------------------
      Add (deduct) items not
       affecting cash
        Amortization                   85.7       77.9      336.1      322.7
    -------------------------------------------------------------------------
        Future income taxes            12.0       36.8       54.9       85.7
    -------------------------------------------------------------------------
        Goodwill revaluation
         (Note 4)                      14.1          -       14.1          -
    -------------------------------------------------------------------------
        Gain on sale of
         intangible assets                -          -          -       (3.1)
    -------------------------------------------------------------------------
      Deferred wireless costs         (16.9)     (11.3)     (50.0)     (46.7)
    -------------------------------------------------------------------------
      Pension funding and net
       pension expense                (39.1)     (31.6)     (58.4)     (80.3)
    -------------------------------------------------------------------------
      Other, net                        2.1        3.1        1.0       (0.8)
    -------------------------------------------------------------------------
      Changes in non-cash
       working capital                 67.4      (44.5)      55.7     (117.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows from operating
       activities                     133.4       39.4      455.5      263.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from investing
     activities
      Capital expenditures, net      (130.1)     (93.0)    (364.6)    (295.2)
    -------------------------------------------------------------------------
      Acquisition                         -          -          -       (2.1)
    -------------------------------------------------------------------------
      Net proceeds from sale of
       intangible assets                  -          -          -        1.4
    -------------------------------------------------------------------------
      Other, net                       (2.3)      (0.6)      (4.3)      (2.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows used in
       investing activities          (132.4)     (93.6)    (368.9)    (297.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from financing
     activities
      Dividends paid                  (27.5)     (42.0)    (153.7)    (168.1)
    -------------------------------------------------------------------------
      Repayment of long-term debt         -          -      (11.9)    (220.0)
    -------------------------------------------------------------------------
      Issuance of long-term debt          -      200.0          -      625.0
    -------------------------------------------------------------------------
      Repayment of notes
       payable, net                       -          -          -      (95.0)
    -------------------------------------------------------------------------
      Issuance of share capital
       (Note 6)                         6.4          -        8.1        0.9
    -------------------------------------------------------------------------
      Other, net                       (1.6)      (2.8)      (0.2)      (5.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows (used in) from
       financing activities           (22.7)     155.2     (157.7)     137.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows before
     discontinued operations          (21.7)     101.0      (71.1)     103.7
    -------------------------------------------------------------------------

    Cash flows from discontinued
     operations (Note 3)                1.5        0.2       10.9          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Change in cash and cash
     equivalents                      (20.2)     101.2      (60.2)     103.7
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     beginning of period               70.2        9.0      110.2        6.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     end of period                $    50.0  $   110.2  $    50.0  $   110.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    For the years ended December 31, 2010 and 2009 (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, 2009.

        These interim consolidated financial statements should be read in
        conjunction with the Company's audited consolidated financial
        statements for the year ended December 31, 2009.

    2.  RESTRUCTURING AND TRANSITION

        During the years ended December 31, 2010 and 2009, the Company
        recorded net restructuring and transition expenses as follows:

        ---------------------------------------------------------------------
                                                          2010          2009
        ---------------------------------------------------------------------
        Restructuring
        ---------------------------------------------------------------------
          Workforce                                       15.4          12.8
        ---------------------------------------------------------------------
          Other                                           20.1          20.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                          35.5          33.6
        ---------------------------------------------------------------------
        Wireless transition                              (10.0)         18.1
        ---------------------------------------------------------------------
                                                          25.5          51.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The liability for restructuring costs as at December 31, 2010 is as
        follows:

        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Balance December 31, 2009                                       13.9
        ---------------------------------------------------------------------
        2010 restructuring costs, net of a $1.8
         million reversal of previously recorded costs                  35.5
        ---------------------------------------------------------------------
        Less:
        ---------------------------------------------------------------------
          Cash payments                                                (29.9)
        ---------------------------------------------------------------------
          Adjustments to existing real estate facility
           consolidation reserves                                       (1.2)
        ---------------------------------------------------------------------
        Balance December 31, 2010                                       18.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Restructuring activities are aimed at achieving further process
        improvements and overall expense reductions, and include costs for
        severance and other employee-related expenses that supported
        workforce reduction initiatives undertaken throughout the period,
        real estate facility consolidation charges, as well as costs to
        review and improve efficiencies in current processes. Also included
        are other non-recurring amounts associated with the high-speed packet
        access deployment and related billing implementation, as well as
        certain legal costs to appeal a court decision relating to one of the
        Company's pension plans.

        Wireless transition includes costs of transitioning certain wireless
        service requirements away from Bell Mobility to new suppliers and to
        the Company's wireless platform. The current year's wireless
        transition recovery of $10.0 million represents a one-time cash
        payment received as part of a comprehensive settlement agreement with
        Bell Mobility.

    3.  DISCONTINUED OPERATIONS

        On January 31, 2010, the Company sold the majority of its non-
        telecommunications information technology consulting group, which was
        a line of business within the Allstream unit, to
        PricewaterhouseCoopers Canada for cash proceeds of $12.0 million.
        The sale was finalized on December 17, 2010. The financial results
        attributable to this line of business have been presented as
        discontinued operations.

        The following table provides further information on the composition
        of revenues and (loss) income related to discontinued operations:

                                                          2010          2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Revenue                                            2.9          51.2
        ---------------------------------------------------------------------
        (Loss) income from discontinued operations
          before income taxes                             (1.1)          0.1
        ---------------------------------------------------------------------
        Loss on sale of discontinued operations
         before income taxes                              (2.3)            -
        ---------------------------------------------------------------------
        Costs related to sale                                -          (2.8)
        ---------------------------------------------------------------------
        Future income tax recovery related
         to discontinued operations                        1.0           0.5
        ---------------------------------------------------------------------
        Loss from discontinued operations, net of tax     (2.4)         (2.2)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The following table provides further information on the composition
        of assets and liabilities held for sale:

                                                          2010          2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Assets
        ---------------------------------------------------------------------
          Current assets                                     -          17.7
        ---------------------------------------------------------------------
          Property, plant and equipment, net                 -           0.9
        ---------------------------------------------------------------------
        Assets held for sale                                 -          18.6
        ---------------------------------------------------------------------
        Liabilities
        ---------------------------------------------------------------------
          Current liabilities                                -           9.0
        ---------------------------------------------------------------------
        Liabilities related to assets held for sale          -           9.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The following table provides further information on cash flows
        relating to discontinued operations:

                                                          2010          2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Cash flows (used in) from operating activities    (1.1)          0.1
        ---------------------------------------------------------------------
        Cash flows from (used in) investing activities    12.0          (0.1)
        ---------------------------------------------------------------------
        Cash flows from discontinued operations           10.9             -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  GOODWILL

        During the year ended December 31, 2010, the Company recorded a $14.1
        million goodwill revaluation charge which reduced the carrying value
        of goodwill for its Allstream unit to nil based on annual impairment
        testing. This charge results from the negative impact of the
        economic downturn on Allstream's operations.

    5.  NOTES PAYABLE

        As at December 31, 2010, the Company has a $400 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
        December 31, 2010, the Company had $111.9 million in undrawn letters
        of credit outstanding under this facility. The Company also has a
        $150 million credit facility with a financial institution which is
        used solely for the issuance of letters of credit. As at December
        31, 2010, the Company had $27.9 million in undrawn letters of credit
        outstanding under this facility.  The Company paid short-term
        interest costs of nil (2009 - $2.5 million) for the year ended
        December 31, 2010.

    6.  SHARE CAPITAL

        As at December 31, 2010, share capital consists of 64,959,635 issued
        and outstanding Common Shares (December 31, 2009 - 64,667,817).

        During the year ended December 31, 2010, the Company established a
        Dividend Reinvestment Plan and Share Purchase Plan ("the Plan") which
        enables eligible holders of its Common Shares to automatically
        reinvest their regular quarterly dividends in additional Common
        Shares of the Company. Participants in the Plan also have the option
        to make cash payments to purchase additional Common Shares.  The
        shares are issued from treasury at a discount of 3% from the average
        market price. During the year ended December 31, 2010, 280,818 Common
        Shares were issued as a result of participation in the Plan at a cost
        of $7.8 million, which was credited to share capital.

        During the year ended December 31, 2010, 11,000 stock options were
        exercised for cash consideration of $0.3 million which was credited
        to share capital. During the year ended December 31, 2009, 29,900
        stock options were exercised for cash consideration of $0.9 million,
        of which $1.1 million was credited to share capital and $0.2 million
        was charged to contributed surplus.

        Earnings per share reconciliation

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

                                                          2010          2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net income - basic and diluted
        ---------------------------------------------------------------------
        Income before discontinued operations            102.1         103.9
        ---------------------------------------------------------------------
        Loss from discontinued operations, net of tax     (2.4)         (2.2)
        ---------------------------------------------------------------------
        Net income                                        99.7         101.7
        ---------------------------------------------------------------------

        Weighted average shares outstanding
        (in millions)
        ---------------------------------------------------------------------
        Weighted average number of shares outstanding
         - basic and diluted                              64.7          64.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings per share - basic and diluted ($)
        ---------------------------------------------------------------------
        Income before discontinued operations             1.58          1.61
        ---------------------------------------------------------------------
        Loss from discontinued operations, net of tax    (0.04)        (0.04)
        ---------------------------------------------------------------------
        Net income                                        1.54          1.57
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  STOCK-BASED COMPENSATION

        The following tables provide further information on outstanding stock
        options:


                                            2010                  2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                              Weighted              Weighted
                                               average               average
                                              exercise              exercise
                                     Number      price     Number      price
                                  of shares  per share  of shares  per share
        ---------------------------------------------------------------------
        Outstanding, beginning
         of year                  2,321,835      42.00  2,173,940      42.00
        ---------------------------------------------------------------------
        Granted                     866,215      33.67    381,695      34.24
        ---------------------------------------------------------------------
        Exercised                   (11,000)     25.35    (29,900)     30.67
        ---------------------------------------------------------------------
        Terminated                 (149,560)     41.72   (203,900)     43.41
        ---------------------------------------------------------------------
        Outstanding, end
         of year                  3,027,490      38.70  2,321,835      40.70
        ---------------------------------------------------------------------

        Exercisable, end of year  1,525,919      41.30  1,246,940      41.21
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                              Weighted
                                               average     Range of
                                              exercise     exercise
        Year          Options      Options       price        price   Expiry
        granted   outstanding  exercisable   per share    per share     date
        ---------------------------------------------------------------------
        2010        866,215              -       33.67        33.67     2020
        ---------------------------------------------------------------------
        2009        357,835         72,879       34.19  32.93-35.19     2019
        ---------------------------------------------------------------------
        2008        374,200        162,400       42.24        42.24     2018
        ---------------------------------------------------------------------
        2007        282,000        178,800       47.34  47.03-49.37     2017
        ---------------------------------------------------------------------
        2006        200,900        165,500       39.37  38.78-46.85     2016
        ---------------------------------------------------------------------
        2005        575,500        575,500       42.31  40.44-49.03     2015
        ---------------------------------------------------------------------
        2004        126,280        126,280       45.61        45.61     2014
        ---------------------------------------------------------------------
        2003        93,760          93,760       34.83  34.75-35.81     2013
        ---------------------------------------------------------------------
        2002        95,600          95,600       34.19  33.58-34.71     2012
        ---------------------------------------------------------------------
        2001        55,200          55,200       37.03  36.42-38.81     2011
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  SEGMENTED INFORMATION

        On January 1, 2010, the Company announced changes to its
        organizational structure. Under this new structure, the Company
        renamed its reportable operating segments as MTS and Allstream.
        MTS provides a full range of wireless, broadband Internet and data,
        digital television, wireline voice services, and security and alarm
        monitoring services to residential and business customers in
        Manitoba. Allstream provides Internet protocol-based communications,
        unified communications, voice and data connectivity, and security
        services to business customers in Canada. Accordingly, segmented
        information for 2010 and 2009 is provided under this new basis of
        segmentation.

        The Company evaluates performance based on EBITDA (earnings before
        interest, taxes, amortization, and other income). 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:


                    MTS           Allstream        Other           Total
    -------------------------------------------------------------------------
                2010    2009    2010    2009    2010    2009    2010    2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating
     revenue
      External 940.3   923.7   840.6   891.5       -       - 1,780.9 1,815.2
    -------------------------------------------------------------------------
      Internal   0.3     0.5       -       -    37.9    36.0    38.2    36.5
    -------------------------------------------------------------------------
    EBITDA     488.3   483.9    86.8    85.4    (3.3)   (7.2)  571.8   562.1
    -------------------------------------------------------------------------
    Restructuring
     and trans-
     ition       1.5    14.1    20.3    30.9     3.7     6.7    25.5    51.7
    -------------------------------------------------------------------------
    Amorti-
     zation    238.7   223.1    97.0    99.1     0.4     0.5   336.1   322.7
    -------------------------------------------------------------------------
    Goodwill    27.7    10.4       -    31.4       -       -    27.7    41.8
    -------------------------------------------------------------------------
    Assets   1,951.9 1,788.2 1,760.5 1,772.1   139.9   236.5 3,852.3 3,796.8
    -------------------------------------------------------------------------
    Capital
     expend-
     itures,
     net       234.0   182.4   129.9   111.0     0.7     1.8   364.6   295.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Reconciliation to consolidated net income is as follows:

                                                          2010          2009
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Total EBITDA                                     571.8         562.1
        ---------------------------------------------------------------------
        Amortization                                    (336.1)       (322.7)
        ---------------------------------------------------------------------
        Other income                                       5.7           8.7
        ---------------------------------------------------------------------
        Goodwill revaluation                             (14.1)            -
        ---------------------------------------------------------------------
        Debt charges                                     (69.9)        (59.5)
        ---------------------------------------------------------------------
        Income tax expense                               (55.3)        (84.7)
        ---------------------------------------------------------------------
        Income before discontinued operations            102.1         103.9
        ---------------------------------------------------------------------
        Loss from discontinued operations                 (2.4)         (2.2)
        ---------------------------------------------------------------------
                                                          99.7         101.7
        ---------------------------------------------------------------------
        Consolidated assets
        Assets for operating segments                  3,852.3       3,796.8
        ---------------------------------------------------------------------
        Eliminations                                  (1,364.1)     (1,360.1)
        ---------------------------------------------------------------------
        Future income taxes                              387.1         441.1
        ---------------------------------------------------------------------
        Assets held for sale                                 -          18.6
        ---------------------------------------------------------------------
                                                       2,875.3       2,896.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  COMMITMENTS, GUARANTEES AND CONTINGENCIES

        Commitments

        On May 30, 2002, the Canadian Radio-television and Telecommunications
        Commission ("CRTC") issued Regulatory framework for second price cap
        period, Telecom Decision CRTC 2002-34, which provided the regulatory
        framework for local rates charged to residential and business
        customers and the rates that incumbent telephone companies charged
        their competitors. As part of this framework, the CRTC established a
        regulatory deferral account. On January 17, 2008, the CRTC issued
        Disposition of funds in the deferral accounts, Telecom Decision CRTC
        2008-1, which required the funds that were accumulated in the
        Company's deferral account to be used for the expansion of broadband
        services, for initiatives to improve accessibility to
        telecommunications services for persons with disabilities, and for
        certain rate reductions or credits. Aspects of Decision 2008-1,
        including the requirement for rate reductions or credits, were
        appealed to the Federal Court and then the Supreme Court of Canada by
        Bell Canada, TELUS Communications Inc. and the Public Interest
        Advocacy Centre with a decision by the Supreme Court ultimately
        upholding the CRTC's decision on September 18, 2009. On August 31,
        2010, the CRTC issued Follow-up to Telecom Decision 2008-1 - Proposal
        by MTS Allstream Inc. to dispose of the funds remaining in its
        deferral account, Telecom Decision CRTC 2010-638. As a result of the
        decision, the estimated balance of the Company's deferral account is
        approximately $21 million and the company's liability relating to the
        customer rebates is $8.5 million.

    10. COMPARATIVE FIGURES

        The prior period figures have been reclassified when necessary to
        conform to the current period's presentation.
    >>



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

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