TELUS Reports First Quarter 2010 Results

Growth in earnings and cash flow due to expense control and lower capital expenditures

Quarterly dividend increase of 5.3 per cent to 50 cents per share

VANCOUVER, May 5 /CNW/ - TELUS Corporation reported first quarter 2010 revenue of $2.375 billion, unchanged from the same period a year ago as four per cent growth in both wireless revenue and wireline data revenue offset continued declines in traditional voice services. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased by four per cent due to lower restructuring costs, efficiency initiatives and expense control.

When excluding income tax-related adjustments, net income and EPS increased this quarter by 2.5 per cent. First quarter results included favourable income tax-related adjustments of approximately $2 million or one cent per share this quarter and $62 million or 20 cents in the same period a year ago. Reported net income in the first quarter was $268 million and earnings per share (EPS) were 84 cents, down approximately 17 per cent.

Free cash flow of $246 million nearly doubled from a year ago, primarily due to capital expenditures being lower by $163 million, partially offset by a $37 million increase in cash tax payments.

Over the 12 month period, total customer connections increased 2.4 per cent or 276,000, driven by a 6.4 per cent increase in wireless subscribers and 103 per cent growth in TELUS TV customers, partially offset by declines in legacy landline connections.

    
    FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------
    C$ and in millions, except per share amounts    3 months ended
                                                        March 31
    (unaudited)                                     2010      2009  % Change
    -------------------------------------------------------------------------
    Operating revenues                             2,375     2,375         -
    Operations expense                             1,429     1,441      (0.8)
    Restructuring costs                                6        28     (78.6)
    EBITDA(1)                                        940       906       3.8
    Net income(2)                                    268       322     (16.8)
    Earnings per share (EPS), basic(2)              0.84      1.01     (16.8)
    EPS (excluding income-tax related adjustments)  0.83      0.81       2.5
    Capital expenditures                             311       474     (34.4)
    Free cash flow(3)                                246       125      96.8
    Total customer connections (millions)(4)       11.89     11.62       2.4

    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is defined as Operating revenues less Operations expense
        less Restructuring costs. See Section 11.1 in 2010 first quarter
        Management's discussion and analysis.
    (2) Net income and EPS for the three month period in 2010 included
        favourable income tax-related adjustments of approximately $2 million
        or 1 cent per share, compared to $62 million or 20 cents per share
        respectively for the same period in 2009.
    (3) See Section 11.2 in 2010 first quarter Management's discussion
        and analysis.
    (4) Historical NALs have been restated for prior periods commencing in
        2007, as a result of a periodic subscriber measurement review and
        correction. See section 5.4 in 2010 first quarter Management's
        discussion and analysis.
    

"The growth in postpaid wireless and TELUS TV net additions coupled with the improvement in quarterly earnings and free cash flow in the first quarter of 2010 are a testament to our major strategic investments and the team's hard work," said Darren Entwistle, TELUS president and CEO. "We are starting to benefit from Canada's fastest 3G+ wireless network and enhanced wireline broadband network, leading to greater sales of smartphones and TELUS TV. Importantly, we are experiencing significant traction in our operational efficiency and cost control endeavours."

"Based on our positive financial outlook, we are increasing our dividend by 5.3%" noted Mr. Entwistle. "This reflects our confidence in the prospect for earnings and cash flow growth in 2010 and beyond."

Robert McFarlane, TELUS executive vice-president and CFO said, "The Board decision to increase the company's dividend this quarter as well as the dividend payout ratio target guideline to 55 to 65 per cent of prospective sustainable earnings, is aligned with our future expected earnings and free cash flow growth profile. TELUS is moving to a new phase of moderated capital expenditures and normal cash tax rates."

The company reaffirmed its annual 2010 guidance set in mid-December 2009.

    
    -------------------------------------------------------------------------
    This news release contains statements about expected future events and
    financial and operating results of TELUS that are forward-looking. By
    their nature, forward-looking statements require the Company to make
    assumptions and are subject to inherent risks and uncertainties. There is
    significant risk that the forward-looking statements will not prove to be
    accurate. Readers are cautioned not to place undue reliance on
    forward-looking statements as a number of factors could cause actual
    future results and events to differ materially from that expressed in the
    forward-looking statements. Accordingly this news release is subject to
    the disclaimer and qualified by the assumptions (including assumptions
    for 2010 guidance), qualifications and risk factors referred to in the
    Management's discussion and analysis in the 2009 annual report, and in
    the 2010 first quarter report. Except as required by law, TELUS disclaims
    any intention or obligation to update or revise forward-looking
    statements, and reserves the right to change, at any time at its sole
    discretion, its current practice of updating annual targets and guidance.
    -------------------------------------------------------------------------
    

OPERATING HIGHLIGHTS

    
    TELUS wireless

    -   External revenues increased by $47 million or 4.2% to $1.2 billion in
        the first quarter of 2010, compared with the same period in 2009,
        driven primarily by equipment and other revenue growth of
        $30 million, which included revenue from Black's Photo, as well as a
        1.6% increase in network revenue.
    -   Data revenue of $258 million increased $50 million or 24% due to the
        continued adoption of smartphones and mobile Internet keys, and
        increased use of data services such as text messaging and wireless
        social networking.
    -   Blended ARPU (average revenue per subscriber unit per month) declined
        by 4.4% to $55.80 compared to the same quarter a year ago. The
        downward trend in ARPU moderated from the 7.7% decline experienced in
        the fourth quarter of 2009. The improved trend is due to a lower rate
        of decline in voice ARPU and a higher rate of increase in data ARPU.
        Voice ARPU declined 9.5% this quarter compared to 12% in the
        fourth quarter. Data ARPU increased by 17% to $13.14, which
        represented 24% of total ARPU, and is higher than the 13% increase in
        data ARPU in the fourth quarter of 2009.
    -   Total net subscriber additions of 51,000 increased by 6.3% over the
        same period a year ago. Higher value postpaid net additions increased
        48% to 65,000, while prepaid subscribers decreased 14,000. As a
        result, postpaid subscribers represented 127% of aggregate net
        subscriber additions. Smartphone subscribers now represent 22% of
        total postpaid subscribers compared to 15% a year ago.
    -   Cost of acquisition per gross addition decreased by 4.2%
        year-over-year to $322, reflecting the impact of loading through
        lower variable cost channels and a shift in product mix, partly
        offset by higher cost of subsidizing smartphone devices.
    -   Cost of retention of $123 million increased by $10 million,
        reflecting higher retention volumes and equipment subsidy costs
        associated with increased customer migrations to high cost
        smartphones, notably including the Apple iPhone.
    -   Blended monthly subscriber churn improved to 1.55%, reflecting
        improving economic conditions.
    -   EBITDA of $497 million increased by 1.8% due to improved wireless
        revenue growth, partially offset by increased retention costs.
    -   Simple cash flow (EBITDA less capital expenditures) increased by
        $146 million or 50% to $438 million in the quarter due to higher
        EBITDA and $137 million reduction in capital spending due to late
        2009 completion of the new HSPA wireless network.

    TELUS wireline

    -   External revenues decreased by $47 million or 3.8% to $1.2 billion in
        the first quarter of 2010, when compared with the same period in
        2009, primarily due to continued declines in traditional local and
        long-distance revenues.
    -   Data revenues increased by $20 million or 3.7% due to TELUS TV
        growth, increased enhanced data and hosting services, and higher
        managed workplace revenues.
    -   TELUS high-speed Internet net additions of 3,000 were down 11,000
        from the same period a year ago, due to aggressive pricing and
        promotional activity in the quarter by the Company's primary cable-TV
        competitor.
    -   TELUS TV net additions were 29,000, an increase of 45% over the same
        period last year, due to improved installation capabilities,
        investment in expanded broadband coverage, and the addition of TELUS
        Satellite TV service in mid-2009.
    -   Total network access lines (NALs) declined by 58,000 in the quarter
        to 3.9 million, down 5.2% from a year ago. Residential NAL losses of
        50,000 increased year-over-year due to aggressive pricing and
        promotional activity by the cable-TV competitor and wireless
        substitution. Business NALs declined by 8,000 primarily in Western
        Canada, due to competitive and economic factors, which more than
        offset increased business data lines in Ontario and Quebec.
    -   EBITDA of $443 million increased by $25 million or 6% in large part
        due to lower restructuring costs and operational savings from
        efficiency initiatives.
    -   Simple cash flow (EBITDA less capital expenditures) increased by
        $51 million to $191 million due to higher EBITDA and $26 million
        lower capital expenditures.
    

CORPORATE AND BUSINESS DEVELOPMENTS

TELUS TV surpasses 200,000 subscriber milestone and launches Mediaroom

TELUS' all-digital television service hit another notable milestone in April as the TELUS TV subscriber base surpassed 200,000 customers. Since launching TELUS TV, the company has advanced the service by introducing more than 400 channels, including over 40 in High Definition, and video on demand and pay per view.

In February, TELUS launched an enhanced version of TELUS TV powered by Microsoft Mediaroom. This new platform offers customers impressive new features including a single personal video recorder (PVR) solution for the whole home, allowing customers to record and play back shows on up to six TVs in a home and record three programs simultaneously from any room. TELUS' new PVR-anywhere service allows customers to record over 300 hours of Standard Definition programming or 120 hours of High Definition programming.

$1.7 billion capital investment extends reach and speed of advanced broadband

TELUS plans in 2010 to invest $1.7 billion across Canada, including $650 million in both British Columbia and Alberta and $400 million in Ontario and Quebec, as the Company continues extending the reach and speed of its advanced wireline and wireless broadband services. TELUS' investment in information, communications and technology is delivering advances in priority areas such as healthcare, the environment and the quality of life for Aboriginal people. TELUS is continuing to invest in broadband networks to deliver advanced Internet services and high definition digital TELUS TV to more than 1.8 million households. TELUS will also continue to enhance its wireless broadband network, building on the November 2009 launch of its 3G+ network, now covering more than 31 million Canadians.

Federal Government supports opening door to more foreign investment in telecom

At the beginning of March, the Federal Government signaled its intention to consider easing foreign ownership restrictions in the telecommunications sector. While the Industry Minister has signaled he will consider a number of options including removing all restrictions for carriers under the Telecommunications Act, he has also signaled that the government is not considering any changes under the Broadcasting Act at this time. This would make it difficult for all converged or integrated carriers like Shaw and TELUS to take advantage of any rule changes because all distribute broadcasting over the same networks used to carry telecom traffic.

There is also a possibility that government may consider a previously recommended phased-in approach to liberalization that would allow increased flexibility for carriers with less than 10% national market share or allow for more access to foreign capital in upcoming spectrum auctions expected in the 2011 to 2012 timeframe. It is currently not clear what, if any, changes to the foreign ownership regulatory structure may occur.

TELUS has not opposed foreign ownership restrictions being lifted in Canada, but has rather advocated that it be done in a fair and symmetrical basis for all communications carriers including satellite and cable-TV companies in Canada. At the same time, TELUS does not support changing Canadian control regulations for broadcasters.

TELUS Consumer and Business units combining into TELUS Customer Solutions

Beginning in March, as part of an organizational change, TELUS began the process of combining Consumer and Business Solutions into one team. The new Customer Solutions business unit is uniting under the leadership of Joe Natale, who assumed a new role as TELUS' chief commercial officer. The integration enhances our ability to collaborate more effectively on competitive strategies, market and customer care activities, and business support processes, which will also help achieve efficiency and cost synergies.

Latest Motorola devices available from TELUS

TELUS and Motorola launched the much-anticipated MOTOROLA MILESTONE in Canada. Powered by Google's new Android operating platform, the MILESTONE delivers a rich mobile web experience, superior messaging and top-of-the-line multi-media features in an innovative design. MILESTONE features the best of both worlds with a full QWERTY keyboard and touchscreen navigation, as well as the opportunity for users to customize their mobile with widgets and the freedom to run multiple applications at once.

Also in late April, TELUS launched the latest Android-powered device, the industry acclaimed MOTOROLA BACKFLIP with MOTOBLUR, available only on Canada's fastest 3G+ network. The unique reverse flip smartphone comes fully equipped with a 3.1" high resolution touchscreen, 3G+ speed, Wi-Fi access and access to more than 30,000 applications and widgets from the Android Market.

TELUS the first mobile carrier in Canada to offer over-the-air DRM-free music

TELUS is the first wireless carrier in Canada to offer over-the-air DRM-free (digital rights management) music tracks to Canadians. Canadians now have the freedom to play music purchased from the TELUS Music shop on any of their digital music-capable devices. DRM-free music expands the TELUS music experience by allowing clients to transfer the music they buy from TELUS to their own electronic devices including cell phones, smartphones or PCs.

TELUS CTO recognized for courage to innovate

TELUS Chief Technology Officer Ibrahim Gedeon was named to the distinguished list of honourary degree recipients for 2010 from the University of British Columbia (UBC). Honorary degrees recognize individuals who have made substantial contributions to society at the provincial, national and/or international levels.

TELUS again named a Global 100 Most Sustainable Corporations

Corporate Knights again recognized TELUS on its list of the Global 100 Most Sustainable Corporations in the World for 2010. TELUS is one of only nine Canadian companies and the only Canadian telecommunications company, to earn a spot on the list. The annual list of Global 100 Most Sustainable Corporations in the World is compiled by Corporate Knights magazine and Global Currents Investment Management. The Global 100 list is announced each year at the World Economic Forum in Davos, Switzerland.

TELUS recognized as one of Canada's Best Diversity Employers

For the second straight year, TELUS has been named one of Canada's Best Diversity Employers in an annual competition that recognizes the nation's leaders in creating diverse and inclusive workplaces. This year's list pays tribute to 45 companies and organizations in Canada that have developed exceptional diversity initiatives to promote inclusiveness among employee groups such as women, members of visible minorities and persons with disabilities.

2010 TELUS World Skins Game raising funds for Jeneece Place

The TELUS World Skins Game will bring some of the top names in golf to Canada this June when the event visits Victoria, British Columbia's Bear Mountain Resort. Canada's own Mike Weir, Camilo Villegas of Colombia, Fred Couples of the United States, Ian Poulter of England and Retief Goosen of South Africa make up the 2010 field. This summer's game will improve the quality of life for Vancouver Island's sick kids and their families for years to come. The money raised during the event will benefit the Queen Alexandra Foundation for Children in support of Jeneece Place, a home-away-from-home for families staying in Victoria to be near their children being treated at Victoria General Hospital. TELUS, the Jeneece Place Foundation, the Queen Alexandra Foundation for Children and their partners have already raised more than $400,000 for this important project, jump-starting the planning and architecture work.

TELUS' long-standing commitment to local charities such as Jeneece Place recently won international recognition when the Association for Fundraising Professionals named TELUS the world's top philanthropic corporation for 2010.

TELUS donates $679,000 to Atlantic Canada Boys and Girls Clubs

In February, TELUS donated $679,000 to 30 Boys and Girls Clubs in Atlantic Canada to further its commitment to helping at-risk youth. The Help Kids Go Further campaign was originally launched in April 2009 by TELUS President and CEO Darren Entwistle in celebration of the launch of the TELUS Atlantic Canada Community Board. The campaign saw $25 from the sale of every TELUS smartphone and mobile phone sold in Atlantic Canada earmarked for the local member agencies of Boys and Girls Clubs throughout the region.

TELUS supports local programs and charities through sales of TELUS TV

TELUS has expanded a local community investment program promoting TELUS TV while supporting communities in British Columbia and Alberta. Starting March 2 and lasting one year, TELUS will give $100 to community infrastructure projects for every new TELUS TV customer in Vernon, Powell River, Penticton and Lethbridge. This expands the program already in place in Airdrie and Medicine Hat Alberta and in B.C. in Kelowna, Sechelt, Prince George, and Vancouver Island.

TELUS and its customers partner locally to save lives with pink BlackBerry smartphones

With the launch of the pink BlackBerry Curve 8530 and pink BlackBerry Pearl 3G, TELUS will be giving customers the opportunity to get directly involved in a very local and important fundraising initiative. Starting this month and running until October 31, 2010, TELUS will donate $25 from the sale of each of these pink BlackBerry smartphones to a local breast cancer organization for the purchase of digital mammography equipment at hospitals in the province the device is purchased. Together, TELUS and its customers will advance the early detection and treatment of breast cancer, and thus save lives. The pink BlackBerry Curve and BlackBerry Pearl 3G will be available only from TELUS later in May.

TELUS turns out the lights and turns on the texts for Earth Hour 2010 Canada

TELUS gave its customers another way to get involved in Earth Hour 2010. In cooperation with the Mobile Giving Foundation, TELUS created an easy way for Canadians to text donations to the World Wildlife Fund Canada, the official organizer of Canada's Earth Hour. Through their TELUS mobile devices, customers simply had to text the word "earth" to 45678 to donate $5, to a maximum of $30 each month. Additionally, on March 27, TELUS and its team members joined tens of thousands of businesses and millions of people around the world in turning out the lights in support of Earth Hour 2010.

Go paperless for Earth Day to save 60,000 trees

This Earth Day, TELUS and the Nature Conservancy of Canada (NCC) are encouraging TELUS' wireless customers to go paperless, and save 60,000 trees in just one year. Each week, from April 26 to September 26, TELUS will give $1,000 to a selected client who makes the switch from paper to online billing and will also donate an additional $1,000 to NCC in honour of the winning client. For every client going paperless, TELUS will also donate $2 to the Nature Conservancy of Canada.

Dividend Declaration - 5.3% increase and new dividend payout ratio target guideline

The Board of Directors has declared a quarterly dividend of fifty cents ($0.50) Canadian per share on the issued and outstanding Common shares and fifty cents ($0.50) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on July 2, 2010 to holders of record at the close of business on June 10, 2010.

This quarterly dividend represents a two and one half cent or 5.3 per cent increase from the forty seven and a half cents paid on January 4 and April 1, 2010 and the four dividends paid in 2009. This is the sixth increase in the dividend over the last six years.

The Board of Directors has also approved a dividend payout ratio target guideline of 55 to 65 per cent of sustainable net earnings, up from the previous guideline of 45 to 55 per cent. This prospective target guideline signals management and Board confidence in the outlook of the company into 2011.

Access to Quarterly results information

Interested investors, the media and others may review this quarterly earnings release, quarterly results slides, supplementary financial information and our full 2009 annual report on our website at telus.com/investors.

Quarterly conference call and webcast presentation

TELUS quarterly conference call is scheduled for May 5, 2010 at 4:30 pm ET and will feature a presentation about our first quarter results. It will be followed by a question and answer period with analysts. Interested parties can access the webcast at: telus.com/investors. A transcript will be posted on the website within several business days. Also, a recording will be available on May 5 until May 15, 2010 at: telus.com/investors or by telephone (1-403-669-1055 or 1-877-353-9587, reservation no. 296209 followed by the number sign).

About TELUS

TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $9.6 billion of annual revenue and 11.9 million customer connections including 6.6 million wireless subscribers, 3.9 million wireline network access lines and 1.2 million Internet subscribers and 200,000 TELUS TV customers. Led since 2000 by President and CEO, Darren Entwistle, TELUS provides a wide range of communications products and services including data, Internet protocol (IP), voice, entertainment and video.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed $158 million to charitable and not-for-profit organizations and volunteered 3.1 million hours of service to local communities since 2000. Nine TELUS Community Boards across Canada lead TELUS' local philanthropic initiatives. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

For more information about TELUS, please visit telus.com.

    
    TELUS Corporation

    interim consolidated statements of income and
     other comprehensive income                                   (unaudited)

                                                           Three months
    Periods ended March 31 (millions except per
     share amounts)                                     2010          2009
    -------------------------------------------------------------------------
    OPERATING REVENUES                              $    2,375    $    2,375
    -------------------------------------------------------------------------
    OPERATING EXPENSES
      Operations                                         1,429         1,441
      Restructuring costs                                    6            28
      Depreciation                                         345           334
      Amortization of intangible assets                    108            93
    -------------------------------------------------------------------------
                                                         1,888         1,896
    -------------------------------------------------------------------------
    OPERATING INCOME                                       487           479
      Other expense, net                                     8             5
      Financing costs                                      112            95
    -------------------------------------------------------------------------
    INCOME BEFORE INCOME TAXES                             367           379
      Income taxes                                          99            57
    -------------------------------------------------------------------------
    NET INCOME                                             268           322
    OTHER COMPREHENSIVE INCOME
      Change in unrealized fair value of
       derivatives designated as cash flow hedges           17            29
      Foreign currency translation adjustment
       arising from translating financial statements
       of self-sustaining foreign operations                (1)            1
    -------------------------------------------------------------------------
                                                            16            30
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME                            $      284    $      352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME ATTRIBUTABLE TO:
      Common Shares and Non-Voting Shares           $      267    $      321
      Non-controlling interests                              1             1
    -------------------------------------------------------------------------
                                                    $      268    $      322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
      Common Shares and Non-Voting Shares           $      283    $      351
      Non-controlling interests                              1             1
    -------------------------------------------------------------------------
                                                    $      284    $      352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME PER COMMON SHARE AND NON-VOTING SHARE
      - Basic                                       $     0.84    $     1.01
      - Diluted                                     $     0.84    $     1.01
    DIVIDENDS DECLARED PER COMMON SHARE AND
     NON-VOTING SHARE                               $    0.475    $    0.475
    TOTAL WEIGHTED AVERAGE COMMON SHARES AND
     NON-VOTING SHARES OUTSTANDING
      - Basic                                              318           318
      - Diluted                                            319           318



    TELUS Corporation

    interim consolidated statements of financial
     position                                                     (unaudited)

                                                      March 31,  December 31,
    As at (millions)                                    2010          2009
    -------------------------------------------------------------------------

    ASSETS

    Current Assets
    Cash and temporary investments, net             $       46    $       41
    Accounts receivable                                    737           694
    Income and other taxes receivable                       31            16
    Inventories                                            206           270
    Prepaid expenses                                       173           105
    Derivative assets                                        2             1
    -------------------------------------------------------------------------
                                                         1,195         1,127
    -------------------------------------------------------------------------
    Non-Current Assets
    Property, plant, equipment and other, net            7,637         7,729
    Intangible assets, net                               5,096         5,148
    Goodwill, net                                        3,572         3,572
    Other long-term assets                               1,642         1,602
    Investments                                             40            41
    -------------------------------------------------------------------------
                                                        17,987        18,092
    -------------------------------------------------------------------------
                                                    $   19,182    $   19,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND OWNERS' EQUITY
    Current Liabilities
    Accounts payable and accrued liabilities        $    1,388    $    1,385
    Income and other taxes payable                           6           182
    Restructuring accounts payable and accrued
     liabilities                                            86           135
    Dividends payable                                      152           150
    Advance billings and customer deposits                 687           674
    Current maturities of long-term debt                    82            82
    Current portion of derivative liabilities               48            62
    Current portion of future income taxes                 288           294
    -------------------------------------------------------------------------
                                                         2,737         2,964
    -------------------------------------------------------------------------
    Non-Current Liabilities
    Long-term debt                                       6,072         6,090
    Other long-term liabilities                          1,281         1,271
    Future income taxes                                  1,362         1,319
    -------------------------------------------------------------------------
                                                         8,715         8,680
    -------------------------------------------------------------------------
    Total Liabilities                                   11,452        11,644
    -------------------------------------------------------------------------
    Owners' Equity
    Common Share and Non-Voting Share equity             7,709         7,554
    Non-controlling interests                               21            21
    -------------------------------------------------------------------------
                                                         7,730         7,575
    -------------------------------------------------------------------------
                                                    $   19,182    $   19,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    TELUS Corporation

    interim consolidated statements of cash flows                 (unaudited)

                                                           Three months
    Periods ended March 31 (millions)                 2010          2009
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income                                      $      268    $      322
    Adjustments to reconcile net income to cash
     provided by operating activities:
      Depreciation and amortization                        453           427
      Future income taxes                                   31           (11)
      Share-based compensation                               1             9
      Net employee defined benefit plans expense             7             4
      Employer contributions to employee defined
       benefit plans                                       (45)          (53)
      Restructuring costs, net of cash payments            (49)           (1)
      Amortization of deferred gains on
       sale-leaseback of buildings, amortization
       of deferred items and other, net                     (1)           20
      Net change in non-cash working capital              (251)         (103)
    -------------------------------------------------------------------------
    Cash provided by operating activities                  414           614
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Capital expenditures                                  (311)         (474)
    Proceeds from the sale of property and other assets      3             -
    Other                                                    1            (4)
    -------------------------------------------------------------------------
    Cash used by investing activities                     (307)         (478)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Common Shares and Non-Voting Shares issued               -             1
    Dividends to holders of Common Shares and Non-Voting
     Shares                                               (129)         (151)
    Long-term debt issued                                  875         3,574
    Redemptions and repayment of long-term debt           (847)       (3,499)
    Dividends paid by a subsidiary to non-controlling
     interests                                              (1)            -
    -------------------------------------------------------------------------
    Cash provided (used) by financing activities          (102)          (75)
    -------------------------------------------------------------------------
    CASH POSITION
    Increase in cash and temporary investments, net          5            61
    Cash and temporary investments, net, beginning of
     period                                                 41             4
    -------------------------------------------------------------------------
    Cash and temporary investments, net, end of
     period                                         $       46    $       65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
    Interest (paid)                                 $      (36)   $      (49)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income taxes (inclusive of Investment Tax
     Credits (paid) received, net                   $     (251)   $     (214)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    TELUS Corporation

    segmented information                                         (unaudited)

    Three-month periods ended
    March 31                           Wireline              Wireless
    (millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Operating revenues
      External revenue            $   1,198  $   1,245   $ 1,177   $   1,130
      Intersegment revenue               36         33         7           7
    -------------------------------------------------------------------------
                                      1,234      1,278     1,184       1,137
    -------------------------------------------------------------------------
    Operating expenses
      Operations expense                787        834       685         647
      Restructuring costs                 4         26         2           2
    -------------------------------------------------------------------------
                                        791        860       687         649
    -------------------------------------------------------------------------
    EBITDA(1)                     $     443  $     418   $   497   $     488
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                      $     252  $     278   $    59   $     196
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX             $     191  $     140   $   438   $     292
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Three-month periods ended
    March 31                           Eliminations          Consolidated
    (millions)                       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Operating revenues
      External revenue            $       -  $       -  $   2,375  $   2,375
      Intersegment revenue              (43)       (40)         -          -
    -------------------------------------------------------------------------
                                        (43)       (40)     2,375      2,375
    -------------------------------------------------------------------------
    Operating expenses
      Operations expense                (43)       (40)     1,429      1,441
      Restructuring costs                 -          -          6         28
    -------------------------------------------------------------------------
                                        (43)       (40)     1,435      1,469
    -------------------------------------------------------------------------
    EBITDA(1)                     $       -  $       -  $     940  $     906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                      $       -  $       -  $     311  $     474
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX             $       -  $       -  $     629  $     432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  EBITDA (from above)   $     940  $     906
                                  Depreciation                345        334
                                  Amortization                108         93
                                 --------------------------------------------
                                  Operating income            487        479
                                  Other expense, net            8          5
                                  Financing costs             112         95
                                 --------------------------------------------
                                  Income before income
                                   taxes                      367        379
                                  Income taxes                 99         57
                                 --------------------------------------------
                                   Net income           $     268   $    322
                                 --------------------------------------------
                                 --------------------------------------------
    (1) Earnings Before Interest, Taxes, Depreciation and Amortization
        (EBITDA) is a measure that does not have any standardized meaning
        prescribed by GAAP and is therefore unlikely to be comparable to
        similar measures presented by other issuers; EBITDA is defined by the
        Company as operating revenues less operations expense and
        restructuring costs. The Company has issued guidance on, and reports,
        EBITDA because it is a key measure used by management to evaluate
        performance of its business segments and is utilized in measuring
        compliance with certain debt covenants.
    (2) Total capital expenditures (CAPEX).



    -------------------------------------------------------------------------
                              TELUS CORPORATION

                     Management's discussion and analysis

                                   2010 Q1
    -------------------------------------------------------------------------

    Caution regarding forward-looking statements

    -------------------------------------------------------------------------
    This document contains forward-looking statements about expected future
    events and financial and operating performance of TELUS Corporation
    (TELUS or the Company, and where the context of the narrative permits, or
    requires, its subsidiaries). By their nature, forward-looking statements
    require the Company to make assumptions, and forward-looking statements
    are subject to inherent risks and uncertainties. There is significant
    risk that assumptions, predictions and other forward-looking statements
    will not prove to be accurate. Readers are cautioned not to place undue
    reliance on forward-looking statements as a number of factors could cause
    future performance, conditions, actions or events to differ materially
    from the targets, expectations, estimates or intentions expressed. Except
    as required by law, the Company disclaims any intention or obligation to
    update or revise any forward-looking statements, and reserves the right
    to change, at any time at its sole discretion, its current practice of
    updating annual targets and guidance. Annual targets, guidance and
    related assumptions for 2010 are described in Section 9: Annual guidance
    for 2010.

    Factors that could cause actual performance to differ materially include,
    but are not limited to:
    -------------------------------------------------------------------------

    Competition (including more active price competition; the expectation
    that new wireless competitors will launch or expand services in 2010
    using advanced wireless services (AWS) spectrum; industry growth rates
    including wireless penetration gain; actual network access line losses;
    TELUS TV(R) and wireless subscriber additions experience; variability in
    wireless average revenue per subscriber unit per month (ARPU) as well as
    variability in subscriber acquisition and retention costs that are
    dependent on subscriber loading and retention volumes, smartphone sales
    and subsidy levels, and TELUS TV installation costs); technological
    substitution (contributing to reduced utilization and increased
    commoditization of traditional voice local and long distance services);
    economic growth and fluctuations (including strength and persistence of
    the economic recovery in Canada, and pension performance, funding and
    expenses); capital expenditure levels in 2010 and beyond (due to the
    Company's wireline broadband initiatives, fourth generation (4G) wireless
    deployment strategy, and any new Industry Canada wireless spectrum
    auctions); financing and debt requirements (including ability to carry
    out refinancing activities); tax matters (including acceleration or
    deferral of required payments of significant amounts of cash taxes);
    human resource developments (including collective bargaining in the TELUS
    Québec region and a national collective agreement expiring in late 2010);
    ability to successfully implement cost reduction initiatives and realize
    expected savings, net of restructuring costs (such as from business
    integrations, internal off-shoring and reorganizations, without losing
    customer-focus and negatively impacting client care); technology
    (including subscriber demand for data challenging wireless network and
    spectrum capacity in future; reliance on systems and information
    technology, broadband and wireless technology options and roll-out plans,
    choice of suppliers and suppliers' ability to maintain and service their
    product lines, expected technology and evolution path and transition to
    4G technology, expected future benefits and performance of high-speed
    packet access (HSPA) / long-term evolution (LTE) wireless technology,
    successful deployment and operation of new wireless networks and
    successful introduction of new products (such as new HSPA devices), new
    services and supporting systems; and successful upgrades of TELUS TV
    technology); regulatory approvals and developments (including the
    incumbent local exchange carriers' (ILECs') obligation to serve;
    utilization of funds in the ILECs' deferral accounts; interpretation and
    application of tower sharing and roaming rules; the design and impact of
    future spectrum auctions (including the cost of acquiring the spectrum);
    the possibility of Industry Canada changing annual spectrum fees to a
    market-based approach; and possible changes to foreign ownership
    restrictions); process risks (including conversion of legacy systems and
    billing system integrations, and implementation of large complex
    enterprise deals that may be adversely impacted by available resources
    and degree of co-operation from other service providers); health, safety
    and environmental developments; litigation and legal matters; business
    continuity events (including human-caused and natural threats); any
    future acquisitions or divestitures; and other risk factors discussed
    herein and listed from time to time in TELUS' reports and public
    disclosure documents including its annual report, annual information
    form, and other filings with securities commissions in Canada (on SEDAR
    at sedar.com) and in its filings in the United States, including Form
    40-F (on EDGAR at sec.gov).

    For further information, see Section 10: Risks and risk management in
    TELUS' 2009 Management's discussion and analysis, and updates in this
    first quarter Management's discussion and analysis.
    -------------------------------------------------------------------------
    

Management's discussion and analysis (MD&A)

May 4, 2010

The following sections are a discussion of the consolidated financial position and financial performance of TELUS Corporation for the three- month periods ended March 31, 2010 and 2009, and should be read together with TELUS' interim Consolidated financial statements for the same periods. This discussion contains forward-looking information qualified by reference to, and should be read together with, the Caution regarding forward-looking statements above.

TELUS' interim Consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP), which differ in certain respects from U.S. GAAP. See Note 20 to the interim Consolidated financial statements for a summary of the principal differences between Canadian and U.S. GAAP as they relate to TELUS. All amounts are in Canadian dollars unless otherwise specified. TELUS' interim Consolidated financial statements include the accounts of the Company and all of the Company's subsidiaries, of which the principal one is TELUS Communications Inc. (TCI). Currently, through the TELUS Communications Company partnership and the TELE-MOBILE COMPANY partnership, TCI includes substantially all of the Company's wireline segment's operations and all of the wireless segment's operations.

    
    Management's discussion and analysis contents
    -------------------------------------------------------------------------
    Section                        Contents
    -------------------------------------------------------------------------
    1. Introduction                A summary of TELUS' consolidated results
                                   for the first quarter of 2010
    -------------------------------------------------------------------------
    2. Core business and strategy  A discussion of activities in support of
                                   TELUS' six strategic imperatives
    -------------------------------------------------------------------------
    3. Key performance drivers     A list of corporate priorities for 2010
    -------------------------------------------------------------------------
    4. Capabilities                An update of the factors that affect the
                                   capability to execute strategies, manage
                                   key performance drivers and deliver
                                   results
    -------------------------------------------------------------------------
    5. Discussion of operations    A detailed discussion of operating
                                   performance for the first quarter of 2010
    -------------------------------------------------------------------------
    6. Changes in financial        A discussion of changes in the
       position                    Consolidated statements of financial
                                   position for the three-month period ended
                                   March 31, 2010
    -------------------------------------------------------------------------
    7. Liquidity and capital       A discussion of cash flow, liquidity,
       resources                   credit facilities and other disclosures
    -------------------------------------------------------------------------
    8. Critical accounting         A description of accounting estimates
       estimates and accounting    that are critical to determining financial
       policy developments         results, and changes to accounting
                                   policies, including status of transition
                                   to International Financial Reporting
                                   Standards (IFRS)
    -------------------------------------------------------------------------
    9. Annual guidance for 2010    TELUS' confirmed targets for the full
                                   year, and related assumptions
    -------------------------------------------------------------------------
    10. Risks and risk management  An update on certain risks and
                                   uncertainties facing TELUS
    -------------------------------------------------------------------------
    11. Definitions and            Definitions of operating, liquidity and
        reconciliations            capital resource measures, including
                                   calculation and reconciliation of certain
                                   non-GAAP measures used by management
    -------------------------------------------------------------------------
    

1. Introduction

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

1.1 Preparation of the MD&A

The Company's disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. Management determines whether or not information is material based on whether it believes a reasonable investor's decision to buy, sell or hold securities in the Company would likely be influenced or changed if the information were omitted or misstated. The MD&A and the interim Consolidated financial statements were reviewed by TELUS' Audit Committee and approved by TELUS' Board of Directors.

Management has issued guidance on and reports on certain non-GAAP measures to evaluate performance of the Company and its segments. Non-GAAP measures are also used to determine compliance with debt covenants and manage the capital structure. Because non-GAAP measures do not generally have a standardized meaning, securities regulations require that non-GAAP measures be clearly defined and qualified, and reconciled with their nearest GAAP measure. The Canadian Institute of Chartered Accountants (CICA) Corporate Performance Reporting Board has issued guidelines that define standardized EBITDA and standardized free cash flow. While EBITDA and free cash flow discussed in this document are management's definitions, reconciliations to the standardized definitions are provided in Section 11: Definitions and reconciliations.

1.2 Canadian economy

Canada's economy emerged from recession in the third quarter of 2009 and economic growth continued in the first quarter of 2010. The Bank of Canada reported in its April 2010 Monetary Report that it expects the Canadian economy to grow by 3.7% in 2010, before slowing to 3.1% in 2011 and 1.9% in 2012 - a more front-loaded economic recovery than the one in the Bank's January 2010 Monetary Report. The economy is expected to return to full capacity in the second quarter of 2011. The Bank also indicated that persistent strength in the Canadian dollar, Canada's poor relative productivity performance, and the low absolute level of U.S. demand will continue to act as drags on economic activity in Canada. In addition, Statistics Canada's March 2010 Labour Force Survey reported the unemployment rate to be 8.2%, down from 8.5% in December 2009, and up from 8.0% reported in March 2009.

In the context of a continuing economic recovery in Canada and TELUS' operating performance in the first quarter of 2010, management confirms its annual targets for 2010, as described in Section 9.

1.3 Consolidated highlights

    
    -------------------------------------------------------------------------
                                                    Quarters ended March 31
    ($ millions, unless noted otherwise)           2010      2009    Change
    -------------------------------------------------------------------------
    Consolidated statements of income
    -------------------------------------------------------------------------
    Operating revenues                            2,375     2,375         - %
    Operating income                                487       479       1.7 %
    Income before income taxes                      367       379      (3.2)%
    Net income                                      268       322     (16.8)%

    Earnings per share (EPS)(1) - basic ($)        0.84      1.01     (16.8)%
    EPS(1) - diluted ($)                           0.84      1.01     (16.8)%
    Cash dividends declared per share(1) ($)      0.475     0.475         - %

    Average shares(1) outstanding - basic
     (millions)                                     318       318         - %
    -------------------------------------------------------------------------
    Consolidated statements of cash flows
    -------------------------------------------------------------------------
    Cash provided by operating activities           414       614     (32.6)%

    Cash used by investing activities               307       478     (35.8)%
    Capital expenditures                            311       474     (34.4)%

    Cash used by financing activities               102        75      36.0 %
    -------------------------------------------------------------------------
    Subscribers and other measures
    -------------------------------------------------------------------------
    Subscriber connections(2) (thousands)        11,893    11,617       2.4 %
    EBITDA(3)                                       940       906       3.8 %
    Free cash flow(3)                               246       125      96.8 %
    -------------------------------------------------------------------------
    Debt and payout ratios(4)
    -------------------------------------------------------------------------
    Net debt to EBITDA - excluding restructuring
     costs (times)                                  2.0       1.9       0.1
    Dividend payout ratio of adjusted net
     earnings(5) (%)                                 67        57    10 pts.
    -------------------------------------------------------------------------
    pts. - percentage points
    (1)  Includes Common Shares and Non-Voting Shares.
    (2)  The sum of wireless subscribers, network access lines (NALs),
         Internet access subscribers and TELUS TV subscribers (IP TV and
         satellite TV), measured at the end of the respective periods based
         on information in billing and other systems. Subscriber connections
         for March 31, 2009 include the reduction of 5,000 Internet
         subscribers made in the second quarter of 2009. In addition, NALs at
         March 31, 2009, have been reduced by 72,000 to reflect prior period
         restatements of residential and business NALs.
    (3)  EBITDA and free cash flow are non-GAAP measures. See Section 11.1
         Earnings before interest, taxes, depreciation and amortization
         (EBITDA) and Section 11.2 Free cash flow.
    (4)  See Section 7.4 Liquidity and capital resource measures and Section
         11.4 Definitions of liquidity and capital resource measures.
    (5)  Based on earnings per share excluding 36 cents per share favourable
         income tax-related adjustments and 22 cents per share loss on
         redemption of long-term debt for the four quarters ended March 31,
         2010 (30 cents per share for the four quarters ended March 31,
         2009), and minor impacts from a net-cash settlement feature.
    -------------------------------------------------------------------------

    Highlights from operations, including a comparison of results for the
first quarter of 2010, or measures as at March 31, 2010, to those in 2009:

    -   Consolidated Operating revenues were unchanged in the first quarter
        of 2010 when compared to the same period in 2009. Growth in wireless
        revenues and wireline data revenue was offset by lower wireline voice
        revenues.

        Wireless average revenue per subscriber unit per month (ARPU) was
        $55.80 in the first quarter of 2010, a decrease of 4.4% from the same
        period in 2009, which reflects moderation from the 7.7% year-over-
        year decline experienced in the fourth quarter of 2009 and the 5.6%
        year-over-year decline experienced in the first quarter of 2009.

    -   Subscriber connections increased by 276,000 in the twelve-month
        period ending March 31, 2010. This includes 6.4% growth in wireless
        subscribers and 103% growth in TELUS TV subscribers, partly offset by
        a 0.7% decrease in total Internet subscribers and a 5.2% decrease in
        total network access lines.

        Wireless subscribers with smartphones now represent 22% of the
        postpaid subscriber base as compared to 15% for the first quarter of
        2009, as the Company continued to experience strong smartphone growth
        driven by iPhone, Blackberry and, to a lesser extent, Android
        devices.

    -   Operating income increased by $8 million in the first quarter of 2010
        when compared to the same period in 2009, as higher EBITDA was partly
        offset by an increase in depreciation and amortization expenses.
        EBITDA increased by $34 million due to lower Restructuring costs and
        traction from efficiency initiatives.

    -   Income before income taxes decreased by $12 million in the first
        quarter of 2010 when compared to the same period in 2009. Higher
        Operating income was more than offset by lower interest income,
        mainly due to interest recorded last year from settlement of prior
        years' tax matters.

    -   Net income decreased by $54 million in the first quarter of 2010,
        when compared to the same period in 2009. The decrease was due
        primarily to $62 million of favourable income tax-related adjustments
        recorded in the prior year. Net income before income tax-related
        adjustments increased by $6 million (see analysis table that
        follows).

    -   Basic earnings per share was $0.84 in the first quarter of 2010, a
        decrease of 17 cents per share from the first quarter of 2009. Basic
        earnings per share, before favourable income tax-related adjustments
        was 83 cents per share in the first quarter of 2010, compared to 81
        cents per share in the first quarter of 2009 (see Section 5.2).

    -------------------------------------------------------------------------
    Analysis of Net income                          Quarters ended March 31
    ($ millions)                                    2010      2009    Change
    -------------------------------------------------------------------------
    Net income                                       268       322       (54)
    Deduct net favourable income tax-related
     adjustments (see Section 5.2)                    (2)      (62)       60
    -------------------------------------------------------------------------
    Net income before favourable income tax-related
     adjustments                                     266       260         6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liquidity and capital resources highlights, including a comparison of
results for the first quarter of 2010, or measures as at March 31, 2010, to
those in 2009:

    -   TELUS had unutilized credit facilities of more than $1.7 billion at
        March 31, 2010, as well as $100 million availability under the
        Company's accounts receivable securitization program, consistent with
        its objective of generally maintaining more than $1 billion of
        unutilized liquidity.

    -   Net debt to EBITDA (excluding restructuring costs) at March 31, 2010,
        was slightly under 2.0 times and within the Company's long-term
        target policy range of 1.5 to 2.0 times.

    -   The dividend payout ratio of adjusted net earnings at March 31, 2010,
        was 67% based on the annualized first quarter dividend and earnings
        for the most recent four quarters, excluding favourable income tax-
        related adjustments, the December 2009 loss on redemption of long-
        term debt, and a minimal impact from a net-cash settlement feature.

        On May 4, 2010, the Board of Directors declared a quarterly dividend
        of 50 cents per share on the issued and outstanding Common Shares and
        Non-Voting Shares of the Company, payable on July 2, 2010, to
        shareholders of record at the close of business on June 10, 2010.
        This represents a 5.3% increase from the previous level of the
        dividend.

    -   Cash provided by operating activities decreased by $200 million in
        the first quarter of 2010 when compared to the same period in 2009. A
        first quarter 2010 reduction in proceeds from securitized accounts
        receivable decreased cash flow by $100 million. The cash flow
        decrease also included $37 million higher income tax payments and $26
        million higher restructuring payments, with the balance primarily due
        to working capital changes.

    -   Cash used by investing activities decreased by $171 million in the
        first quarter of 2010 when compared to the same period in 2009. The
        decrease was primarily due to higher capital investment levels in
        2009 to build out the Company's 3G+ wireless high-speed packet access
        (HSPA) network and service capability for the November 2009 launch.
        The Company continues to invest in wireline and wireless broadband
        initiatives with full-year capital expenditures expected to be
        approximately $1.7 billion, down 19% from 2009. See Section 9.

    -   Cash used by financing activities increased by $27 million in the
        first quarter of 2010 when compared to the same period in 2009. Cash
        used by financing activities in the current quarter reflected
        dividend payments net of amounts reinvested in TELUS Non-Voting
        Shares issued from treasury under the Company's amended dividend
        reinvestment plan (DRIP), partly offset by a $28 million increase in
        commercial paper. In the comparative 2009 period, Cash used by
        financing activities reflected payment of dividends with no
        corresponding issue of TELUS Non-Voting Shares from treasury under
        the DRIP, net of a $76 million aggregate increase in commercial paper
        and amounts drawn on the 2012 credit facility.

    -   Free cash flow increased by $121 million in the first quarter of 2010
        when compared to the same period in 2009, as lower capital
        expenditures and improved EBITDA more than offset higher income tax
        and restructuring payments.
    

2. Core business and strategy

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

TELUS' core business and strategy were described in its 2009 MD&A. Activities in the first quarter of 2010 that support the Company's six strategic imperatives include the following:

Building national capabilities across data, IP, voice and wireless

The Company plans to substantially complete its wireline ADSL2+ network in 2010, to offer download speeds of 15 megabits per second (Mbps) or higher, and covering up to 90% of the top 48 communities in Alberta and B.C. by the end of the year. As a next step, the Company has started to deploy VDSL2 technology to bring network download speeds of up to 30 Mbps when the upgrade is largely completed for the top 48 communities by the end of 2011. The Company is also continuing its fibre to the home deployment in new residential areas. These investments in core infrastructure serve to strengthen the Company's competitive position versus other wireless competitors and cable-TV companies.

Focusing relentlessly on the growth markets of data, IP and wireless

External wireless total revenues and wireline data revenues combined were $1,735 million (73% of consolidated revenue) in the first quarter of 2010. This reflects an increase of $67 million or 4.0% from the first quarter of 2009 where such revenues were $1,668 million (70% of consolidated revenue). Growth in aggregate wireless revenues and wireline data revenue offset a $67 million decline in wireline voice revenues.

Providing integrated solutions that differentiate TELUS from its competitors

The ongoing broadband build is expanding IP-based TELUS TV service coverage across B.C., Alberta and Eastern Quebec, providing more high-definition (HD) TV channels and personal video recorder (PVR) capabilities. The TELUS TV subscriber base more than doubled to 199,000 over the past 12 months. In February 2010, TELUS launched an enhanced version of TELUS TV powered by Microsoft Mediaroom. This new platform offers customers impressive new features including a single (PVR) solution for the whole home, which allows customers to record and play back shows on up to six TVs in a home.

Investing in internal capabilities to build a high-performance culture and efficient operations

TELUS realized approximately $37 million in operational efficiency savings during the first quarter of 2010 from initiatives implemented since the beginning of 2009. The Company expects to generate approximately $135 million of operating efficiency savings for the full year of 2010. This is expected to be partially offset by full-year restructuring expenses of approximately $75 million related to a reduction of approximately 1,000 domestic employees (see Key assumptions in Section 9).

The number of full-time equivalent (FTE) employees decreased by approximately 1,200 during the first quarter of 2010. This included a decrease of 600 domestic FTE employees resulting from past and current restructuring initiatives, attrition and hiring freezes. The remaining decrease included seasonal reductions in domestic part-time staff and TELUS International staff.

Beginning in March 2010 with a planned completion in May 2010, the Company began the process of uniting the operations of business and consumer solutions as part of an organizational change under the leadership of Joe Natale, who has been appointed Chief Commercial Officer and EVP & President of TELUS Customer Solutions. The expected benefits include: (i) increased capability to approach customers as one team with fully coordinated sales, marketing and customer care priorities; (ii) enhanced ability to share best practices, learning, programs, competitive strategies and go-to-market activities to deliver the experiences that customers demand; (iii) contributing to operational efficiencies and cost synergies contemplated in the Company's 2010 restructuring target; and (iv) streamlining interfaces between TELUS Customer Solutions and business enabling units, which will facilitate improved prioritization of financial and human resources.

    
    Ongoing efficiency initiatives include:
    -   simplifying or automating processes
    -   simplifying organizational structures through consolidation of
        functions and reducing organizational layers
    -   decommissioning uneconomic products and services
    -   leveraging business process outsourcing and off-shoring to TELUS' own
        international call centres.
    

Going to the market as one team under a common brand, executing a single strategy

This strategic imperative is expected to be facilitated by the creation of TELUS Customer Solutions, described above.

3. Key performance drivers

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

Management confirms or sets new corporate priorities each year to both advance TELUS' long-term strategic priorities and address near-term opportunities and challenges.

    
    -------------------------------------------------------------------------
    Corporate priorities for 2010
    -------------------------------------------------------------------------
    Capitalize on the full potential of TELUS' leading wireless and wireline
     broadband networks

    Enhance TELUS' position in the small and medium business market

    Ensure TELUS delivers its future friendly(R) brand promise to clients

    Continue to improve TELUS' operational efficiency to effectively compete
     in the market and fund future growth

    Increase TELUS team engagement and live the culture of personal
     responsibility and customer service.
    -------------------------------------------------------------------------
    

4. Capabilities

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

4.1 Principal markets addressed and competition

The principal markets addressed by the Company and its competition were described in Section 4.1 of TELUS' 2009 MD&A. See Key assumptions in Section 9 of this document for an update in respect of emerging competition from wireless new entrants.

Foreign ownership restrictions generally apply to all facilities-based telecommunications carriers, including wireless telecommunications companies, wireline telecommunications companies, and licensed broadcasting distribution undertakings. See Section 10.3 Regulatory for developments related to foreign ownership restrictions and other regulatory matters.

4.2 Operational resources

Operational resources were described in Section 4.2 of TELUS' 2009 MD&A.

4.3 Liquidity and capital resources

Capital structure financial policies

The Company's objectives when managing capital are: (i) to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk; and (ii) to manage capital in a manner that balances the interests of equity and debt holders.

In the management and definition of capital, the Company includes Common Share and Non-Voting Share equity (excluding accumulated other comprehensive income), long-term debt (including any associated hedging assets or liabilities, net of amounts recognized in accumulated other comprehensive income), cash and temporary investments and securitized accounts receivable.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to holders of Common Shares and Non-Voting Shares, issue new shares from treasury, purchase shares for cancellation pursuant to permitted normal course issuer bids, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of sales of trade accounts receivable to an arm's-length securitization trust.

The Company monitors capital utilizing a number of measures, including: net debt to EBITDA - excluding restructuring costs; and dividend payout ratios. On May 4, 2010, the Board of Directors approved a revised dividend payout ratio guideline of 55 to 65% of sustainable net earnings on a prospective basis. For further discussion, see Section 7.4 Liquidity and capital resource measures.

    
    Financing and capital structure management plans

    Reporting back on TELUS' 2010 financing and capital structure management
    plan
    -------------------------------------------------------------------------
    Pay dividends to the holders of TELUS Common Shares and Non-Voting Shares

    The dividends paid on January 4 and April 1, 2010 were 47.5 cents per
    share, unchanged from 2009. The quarterly dividend declared for payment
    on July 2, 2010, was 50 cents per share, an increase of 5.3%.
    -------------------------------------------------------------------------
    Use proceeds from securitized receivables, bank facilities, commercial
    paper and dividend reinvestment, as needed, to supplement free cash flow
    and meet other cash requirements

    Stronger free cash flow, as well as reduced cash outflow for dividends
    reinvested in TELUS Non-Voting shares issued from treasury, facilitated a
    reduction of $77 million in net debt during the first quarter of 2010.
    -------------------------------------------------------------------------
    Maintain compliance with financial objectives, policies and guidelines

    Maintain a minimum $1 billion in unutilized liquidity - The Company had
    unutilized credit facilities of more than $1.7 billion at March 31, 2010,
    as well as availability under the accounts receivable securitization
    program.

    Net debt to EBITDA excluding restructuring costs ratio of 1.5 to 2.0
    times - Actual result slightly under 2.0 times at March 31, 2010.

    Dividend payout ratio guideline of 55 to 65% of sustainable net earnings
    on a prospective basis - The ratio is 61 to 69% calculated on a $2.00
    annualized dividend, as compared to current EPS - basic guidance of
    $2.90 to $3.30 (see Section 9).
    -------------------------------------------------------------------------
    Maintain position of fully hedging foreign exchange exposure for
    indebtedness

    Maintained for the 8.00% U.S. dollar Notes due 2011, the only foreign
    currency-denominated debt issue.
    -------------------------------------------------------------------------
    Preserve access to the capital markets at a reasonable cost by
    maintaining investment grade credit ratings in the range of BBB+ to A-,
    or the equivalent, in the future

    At May 4, 2010, investment grade credit ratings from the four rating
    agencies that cover TELUS were in the desired range.
    -------------------------------------------------------------------------
    

4.4 Changes in internal control over financial reporting

There were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

5. Discussion of operations

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

5.1 General

The Company has two reportable segments: wireline and wireless. Segmentation is based on similarities in technology, the technical expertise required to deliver the products and services, customer characteristics, the distribution channels used and regulatory treatment. Intersegment sales are recorded at the exchange value. Segmented information in Note 5 of the interim Consolidated financial statements is regularly reported to the Company's Chief Executive Officer (the chief operating decision-maker).

5.2 Summary of quarterly results

    
    -------------------------------------------------------------------------
    ($ in millions,
    except per         2010   2009   2009   2009   2009   2008   2008   2008
    share amounts)       Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2
    -------------------------------------------------------------------------
    Operating
     revenues         2,375  2,443  2,411  2,377  2,375  2,454  2,450  2,399
      Operations
       expense        1,429  1,577  1,456  1,451  1,441  1,479  1,465  1,477
      Restructuring
       costs              6     77     32     53     28     38     10      4
    -------------------------------------------------------------------------
    EBITDA(1)           940    789    923    873    906    937    975    918
      Depreciation      345    347    330    330    334    351    344    343
      Amortization of
       intangible
       assets           108     94    100     94     93     84     92     77
    -------------------------------------------------------------------------
    Operating income    487    348    493    449    479    502    539    498
      Other expense       8     10      6     11      5     11      6      2
      Financing costs   112    230    101    106     95    118    122    114
    -------------------------------------------------------------------------
    Income before
     income taxes       367    108    386    332    379    373    411    382
      Income taxes
       (recovery)        99    (48)   106     88     57     88    125    114
    -------------------------------------------------------------------------
    Net income          268    156    280    244    322    285    286    268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income
     attributable to
     Common Shares and
     Non-Voting Shares  267    155    279    243    321    285    285    267
    Income per Common
     Share and Non-
     Voting Share
     - basic           0.84   0.49   0.88   0.77   1.01   0.90   0.89   0.83
     - diluted         0.84   0.49   0.87   0.77   1.01   0.89   0.89   0.83
    Cash dividends
     declared per
     Common Share
     and Non-Voting
     Share            0.475  0.475  0.475  0.475  0.475  0.475   0.45   0.45
    -------------------------------------------------------------------------
    (1) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before
        interest, taxes, depreciation and amortization (EBITDA).
    -------------------------------------------------------------------------
    

Trends

The consolidated revenue trend reflects year-over-year growth in wireless revenues generated from an increasing subscriber base and increased equipment and other revenues. Wireless network revenue increased by 1.6% year-over-year in the first quarter of 2010, as subscriber growth more than offset a lower blended ARPU. Blended ARPU for the first quarter of 2010 decreased by 4.4% year-over-year and was an improved result from the 7.7% decline in fourth quarter of 2009. The general trend is caused by declining voice ARPU (as discussed further in Section 5.5), partially offset by data ARPU growth. Data ARPU improved from 2009 due to increased adoption of data plans driven by increased smartphone adoption. The growing demand for wireless data may challenge network and spectrum capacity in future (see Section 10.2 Technology). Wireless equipment and other revenues increased by 51.7% year-over-year in the first quarter of 2010 from the acquisition of Black's Photo in September 2009 and increasing smartphone sales.

The expected entry of a number of new wireless competitors in 2010 and 2011 may disrupt usual seasonal patterns for wireless subscriber additions in the future. Historically, there has been significant fourth quarter seasonality with respect to higher wireless subscriber additions, related acquisition costs and equipment sales, and higher retention costs due to contract renewals, resulting in lower fourth quarter wireless EBITDA. The third quarter has become more significant in terms of subscriber additions in recent years as a result of back-to-school offers, while subscriber additions have typically been lowest in the first quarter. In addition, wireless ARPU has generally risen sequentially in the second and third quarters, and declined sequentially in the fourth and first quarters.

The consolidated revenue trend also reflects continued growth in wireline data revenue, but at a more moderate rate, more than offset by declining wireline legacy voice local and long distance revenues. The decline in wireline voice revenues is due to substitution to wireless and Internet services, as well as competition from VoIP service providers (including cable-TV competitors), resellers and facilities-based competitors, and winning a lower market share of new subscribers. See risk discussion in Section 10.1 Competition. Residential network access line (NAL) net losses have increased in the first quarter of 2010 as a result of aggressive promotional activity from the primary cable-TV competitor for local and Internet services. The Company has also experienced a larger number of disconnections and fewer installations of business NALs attributed to competition, technological substitution and cautious business spending.

The year-over-year decrease in operations expense in the first quarter of 2010 reflects fewer domestic full-time equivalent employees, partly offset by higher wireless retention costs, expenses from Black's Photo and increased TELUS TV programming costs from doubling the subscriber base. The sequential and year-over-year increase in fourth quarter 2009 consolidated operations expense primarily reflects higher wireless retention costs associated with migration to smartphones, and expenses from Black's Photo. The sequential decrease in consolidated operations expenses in the first quarter of 2009 resulted mainly from lower employee compensation.

Restructuring costs increased strongly from the fourth quarter of 2008 to the fourth quarter of 2009, as management accelerated efficiency initiatives, primarily in the wireline segment. While Restructuring costs in the first quarter of 2010 were the second lowest in the two-year period; it is expected that the full-year amount will be approximately $75 million as new initiatives are implemented (see Key assumptions in Section 9).

The sequential increase in depreciation expense beginning in the fourth quarter of 2009 resulted from growth in capital assets in service, including the wireless HSPA network launched in November 2009. The sequential decline in depreciation in the first quarter of 2009 was due to certain assets still in use becoming fully depreciated for accounting purposes in 2008.

The sequential increase and year-over-year increase in Amortization in the first quarter of 2010 resulted from implementation of HSPA services in November 2009. Amortization in the fourth quarter of 2009 was reduced by application of approximately $10 million in investment tax credits following determination of eligibility by taxation authorities, for assets capitalized in prior years that are fully amortized. Similarly, amortization in the fourth quarter of 2008 was reduced by approximately $6 million for investment tax credits. The sequential increase in amortization of intangible assets in the third quarter of 2008 was due to implementation of the converged billing platform for B.C. residential customers in July 2008.

Financing costs in the fourth quarter of 2009 include a $99 million loss on redemption of long-term debt to early redeem 30% of the principal amount of 8% U.S. dollar Notes (maturity June 2011) and unwind related cross currency interest rate swaps. The partial redemption was financed with a new ten-year $1 billion 5.05% Note issue. Financing costs for each period shown are also net of varying amounts of interest income, including interest from the settlement of prior years' income tax-related matters.

The trends in Net income and earnings per share (EPS) reflect the items noted above, as well as adjustments arising from legislated income tax changes, settlements and tax reassessments for prior years, including any related interest on reassessments.

    
    -------------------------------------------------------------------------
    Income tax-related
    adjustments
    ($ in millions,    2010   2009   2009   2009   2009   2008   2008   2008
    except EPS amounts)  Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2
    -------------------------------------------------------------------------
    Approximate Net
     income impact        2     79     14     19     62     32      -      -
    Approximate EPS
     impact            0.01   0.25   0.04   0.06   0.20   0.10      -      -
    Approximate basic
     EPS excluding
     income tax-related
     impacts           0.83   0.24   0.84   0.71   0.81   0.80   0.89   0.83
    -------------------------------------------------------------------------
    

5.3 Consolidated operations

    
    -------------------------------------------------------------------------
                                                   Quarters ended March 31
    ($ millions, except EBITDA margin)             2010      2009    Change
    -------------------------------------------------------------------------
    Operating revenues                            2,375     2,375         - %
      Operations expense                          1,429     1,441      (0.8)%
      Restructuring costs                             6        28     (78.6)%
    -------------------------------------------------------------------------
    EBITDA(1)                                       940       906       3.8 %
      Depreciation                                  345       334       3.3 %
    Amortization of intangible assets               108        93      16.1 %
    -------------------------------------------------------------------------
    Operating income                                487       479       1.7 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA margin (%)(2)                           39.6      38.1   1.5 pts.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before
        interest, taxes, depreciation and amortization (EBITDA).
    (2) EBITDA divided by Operating revenues.
    -------------------------------------------------------------------------
    

Discussion of TELUS' consolidated operations follows. Segmented discussion is provided in Section 5.4 Wireline segment, Section 5.5 Wireless segment and Section 7.2 Cash used by investing activities - capital expenditures.

Operating revenues

Consolidated Operating revenues were unchanged in the first quarter of 2010 when compared to the same period in 2009, as wireless growth offset wireline revenue declines. Wireless segment network revenue increased by $17 million from growth in data revenue driven by increasing smartphone adoption, partly offset by declining voice revenue. Wireless equipment and other revenue increased by $30 million from the acquisition of Black's Photo in September 2009 and increased smartphone sales. Wireline segment data revenue increased by $20 million from growth in TELUS TV, enhanced data and managed services, but was more than offset by legacy voice revenues that declined by $67 million.

Operations expense

Operations expense decreased by $12 million in the first quarter of 2010 when compared to the same period in 2009.

    
    -------------------------------------------------------------------------
                                                   Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Salaries, benefits(1) and employee-related
     expenses                                       570       591      (3.6)%
    Other operations expenses                       859       850       1.1 %
    -------------------------------------------------------------------------
                                                  1,429     1,441      (0.8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) Includes defined benefit pension plan expenses of $7 million in 2010
        and $4 million in 2009, principally in the wireline segment.
    -------------------------------------------------------------------------

    In respect of changes in operations expense:

    -   Salaries, benefits and employee-related expenses decreased by $21
        million, mainly due to lower wireline base salaries from fewer
        domestic full-time equivalent (FTE) employees and continued reduction
        of discretionary employee-related expenses (see Investing in internal
        capabilities in Section 2). This was partially offset by an increase
        in wireless G&A costs from inclusion of expenses from Black's Photo,
        acquired in September 2009.

    -   Other operations expenses increased by $9 million, mainly due to
        higher wireless subscriber retention costs and TELUS TV programming
        costs, partly offset by lower wireline costs of sales and one-time
        operating savings in both segments.
    

Restructuring costs

Restructuring costs in the first quarter of 2010 decreased by $22 million when compared to the same period in 2009. Restructuring costs were primarily severance costs in respect of efficiency initiatives described in Investing in internal capabilities in Section 2. An expense of approximately $75 million is expected for efficiency initiatives in 2010.

EBITDA

Consolidated EBITDA increased by $34 million in the first quarter of 2010 when compared to the same period in 2009, primarily due to lower restructuring costs and traction from efficiency initiatives, as well as a high margin application software sale and one-time operating savings in the first quarter of 2010. Wireline EBITDA increased by $25 million and wireless EBITDA increased by $9 million.

Depreciation; Amortization of intangible assets

Combined depreciation and amortization expenses increased by $26 million in the first quarter of 2010 when compared to the same period in 2009.

    
    -   Depreciation increased by $11 million primarily from growth in
        capital assets, including the wireless HSPA network.
    -   Amortization increased by $15 million from increased software assets,
        including application software supporting wireless HSPA services.
    

Operating income

Operating income increased by $8 million in the first quarter of 2010 when compared to the same period in 2009, as higher EBITDA was partially offset by increased depreciation and amortization expenses.

    
    Other income statement items
    -------------------------------------------------------------------------
    Other expense, net                             Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
                                                      8         5      60.0 %
    -------------------------------------------------------------------------
    

Other expense, net includes accounts receivable securitization expense, income (losses) or impairments in equity or portfolio investments, gains and losses on disposal of real estate, and charitable donations.

The increase in Other expense, net primarily reflects earlier timing in charitable donations in 2010, partly offset by gains on minor investments. Accounts receivable securitization expenses were approximately $2 million in the first quarter of 2010 and 2009, as higher average proceeds from securitized accounts receivable in 2010 were offset by lower average rates. See Section 7.6 Accounts receivable sale for additional information.

    
    -------------------------------------------------------------------------
    Financing costs                                Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Interest on long-term debt, short-term
     obligations and other                          113       115      (1.7)%
    Foreign exchange losses (gains)                   -        (7)      n/m
    Interest income (tax refunds)                     -       (12)      n/m
    Interest income (other)                          (1)       (1)        - %
    -------------------------------------------------------------------------
                                                    112        95      17.9 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    n/m - not meaningful.
    -------------------------------------------------------------------------
    

Interest on long-term debt, short-term obligations and other decreased by $2 million in the first quarter of 2010 when compared to the same period in 2009, resulting from a lower average debt balance and lower effective interest rate. Interest income on tax refunds in 2009 was related to the settlement of prior years' tax matters.

    
    -------------------------------------------------------------------------
    Income taxes                                   Quarters ended March 31
    ($ millions, except tax rates)                 2010      2009    Change
    -------------------------------------------------------------------------
    Basic blended federal and provincial tax at
     statutory income tax rates                     106       115      (7.8)%
    Revaluation of future income tax liability to
     reflect future statutory income tax rates       (7)      (19)      n/m
    Tax rate differential on, and consequential
     adjustments from, reassessments of prior
     years' tax issues                               (1)      (40)      n/m
    Share option award compensation                   1         1         -
    -------------------------------------------------------------------------
                                                     99        57      73.7 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Blended federal and provincial statutory tax
     rates (%)                                     28.9      30.3  (1.4) pts.
    Effective tax rates (%)                        27.0      15.0   12.0 pts.
    -------------------------------------------------------------------------
    

Basic blended statutory income taxes decreased by $9 million in the first quarter of 2010 when compared to the same period in 2009 due to the 3.2% decrease in Income before income taxes, as well as lower blended statutory income tax rates. The effective tax rates were lower than the statutory tax rates due to revaluations of future income tax liabilities and the tax rate differential and consequential adjustments from reassessments of prior years' tax issues. Changes to B.C. income tax rates were enacted in the first quarter of 2009, reducing rates beginning January 1, 2010. Changes to Ontario income tax rates from 2010 to 2013 were enacted in the fourth quarter of 2009 for provincial income taxes effective July 1, 2010 and thereafter. In addition, enacted federal income tax rates decreased in 2010.

    
    -------------------------------------------------------------------------
    Other comprehensive income                     Quarters ended March 31
    ($ millions, except tax rates)                 2010      2009    Change
    -------------------------------------------------------------------------
                                                     16        30     (46.7)%
    -------------------------------------------------------------------------
    

Other comprehensive income includes changes in unrealized fair value of derivatives designated as cash flow hedges, principally associated with U.S. dollar debt.

5.4 Wireline segment

    
    -------------------------------------------------------------------------
    Operating revenues - wireline segment          Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Voice local                                     439       470      (6.6)%
    Voice long distance                             133       166     (19.9)%
    Data                                            558       538       3.7 %
    Other                                            68        71      (4.2)%
    -------------------------------------------------------------------------
    External operating revenue                    1,198     1,245      (3.8)%
    Intersegment revenue                             36        33       9.1 %
    -------------------------------------------------------------------------
    Total operating revenues                      1,234     1,278      (3.4)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total wireline segment revenues decreased by $47 million in the first
quarter of 2010 when compared to the same period in 2009, as follows.

    -   Voice local revenue decreased by $31 million. The decrease continues
        to reflect lower basic access and enhanced voice service revenues
        caused by competition for residential subscribers, the consequent
        decline in local residential access lines and matching of competitive
        offers, and technological substitution by wireless and Internet-based
        services. The decrease also reflects a decline in business voice
        lines from technological substitution to data services, competitor
        activity including price competition, and cautious business spending
        following the recent economic downturn.

    Wireline operating indicators
    -------------------------------------------------------------------------
                                                        As at March 31
    (000s)                                         2010      2009    Change
    -------------------------------------------------------------------------
    Network access lines (NALs)(1)
    Residential                                   2,173     2,354      (7.7)%
    Business                                      1,735     1,769      (1.9)%
    -------------------------------------------------------------------------
    Total                                         3,908     4,123      (5.2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                   Quarters ended March 31
    (000s)                                         2010      2009    Change
    -------------------------------------------------------------------------
    Net (losses) additions in NALs
    Residential                                     (50)      (44)    (13.6)%
    Business                                         (8)       (9)     11.1 %
    -------------------------------------------------------------------------
    Total                                           (58)      (53)     (9.4)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) As a result of a periodic subscriber measurement review and
        correction, historical NALs have been restated for the prior periods
        commencing in 2007. Total NALs at March 31, 2009, reflect a reduction
        of 7,000 residential NALs from the previously reported number in
        respect of TELUS TV subscribers that did not subscribe to voice lines
        services, but were inadvertently included in NAL counts. Business
        NALs were reduced by 65,000 from the previously reported number due
        to the clean up and removal of inaccurate subscriber records as part
        of the integration of billing and subscriber reporting processes, as
        well as the consistent application of industry measurement practices
        across TELUS.
    -------------------------------------------------------------------------
    

Residential access line net losses increased in the first quarter of 2010, relative to the quarterly loss experience in 2009, as a result of aggressive promotional activity from the primary cable-TV competitor for local and Internet services. Business NAL losses continue to reflect declines in voice lines particularly in Western Canada from competitor promotional activity, partially offset by growth in data lines nationally. Growth in certain data services such as private networks is not measured by business NAL counts, and conversion of legacy voice services to IP services results in an overall decrease in business NALs.

    
    -   Voice long distance revenue decreased by $33 million. The decrease
        reflects ongoing industry-wide price competition, losses of local
        subscribers, and technological substitution to wireless and Internet-
        based services. An increase in retail business minute volumes was
        largely offset by lower consumer and wholesale minute volumes.

    -   Wireline data revenues increased by $20 million. The increases
        resulted from: (i) subscriber growth in TELUS TV services; (ii)
        increased Internet, enhanced data and hosting services, partly offset
        by lower average retail prices from competitive pricing pressure; and
        (iii) higher managed workplace revenues from a high margin software
        application sale in the first quarter of 2010. These increases were
        partly offset by declining legacy basic services and lower data
        equipment sales.

    Wireline operating indicators
    -------------------------------------------------------------------------
                                                        As at March 31
    (000s)                                         2010      2009    Change
    -------------------------------------------------------------------------
    Internet subscribers
    High-speed(1)                                 1,131     1,105       2.4 %
    Dial-up                                          80       114     (29.8)%
    -------------------------------------------------------------------------
    Total(1)                                      1,211     1,219      (0.7)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TELUS TV subscribers(2)                         199        98     103.1 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                   Quarters ended March 31
    (000s)                                         2010      2009    Change
    -------------------------------------------------------------------------
    Net additions (losses) of Internet subscribers
    High-speed                                        3        14     (78.6)%
    Dial-up                                          (7)      (10)     30.0 %
    -------------------------------------------------------------------------
    Total                                            (4)        4       n/m
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TELUS TV subscriber net additions(2)             29        20      45.0 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) High-speed and total Internet subscribers at March 31, 2009 were
        reduced by 5,000 for the opening balance adjustment reported in
        second quarter of 2009. Net additions have not been restated for the
        first quarter of 2009.
    (2) Includes TELUS Satellite TV(TM) subscribers beginning in second
        quarter of 2009.
    -------------------------------------------------------------------------
    

High-speed Internet subscriber net additions were lower in the first quarter of 2010 than the same period in 2009. The decrease in net additions continues to reflect competitive intensity and a maturing market. TELUS TV subscriptions more than doubled in the 12-month period ended March 31, 2010, through improved installation capability, availability of high-definition TV channels and personal video recorders (PVRs), increasing geographic coverage of IP TV, the launch of TELUS Satellite TV service in mid-2009, and the marketing of bundled offers.

    
    -   Other revenue decreased by $3 million from lower voice equipment
        sales.

    -   Intersegment revenue represents services provided by the wireline
        segment to the wireless segment and is eliminated upon consolidation
        together with the associated expense in the wireless segment.

    -------------------------------------------------------------------------
    Operating expenses - wireline segment          Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Salaries, benefits(1) and employee-related
     expenses                                       425       452      (6.0)%
    Other operations expenses                       362       382      (5.2)%
    -------------------------------------------------------------------------
    Operations expenses                             787       834      (5.6)%
    Restructuring costs                               4        26     (84.6)%
    -------------------------------------------------------------------------
    Total operating expenses                        791        860     (8.0)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) Includes defined benefit pension plan expenses of $7 million in 2010
        and $4 million in 2009.
    -------------------------------------------------------------------------

    Total wireline operating expenses decreased by $69 million in the first
quarter of 2010 when compared to the same period in 2009.

    -   Salaries, benefits and employee-related expenses decreased by $27
        million, mainly due to a decrease in base salaries from fewer
        domestic full-time equivalent (FTE) employees and continued reduction
        of discretionary employee-related expenses such as travel and
        overtime.

    -   Other operations expenses decreased by $20 million, principally due
        to lower cost of sales from lower equipment sales volumes and
        implementation of related services, as well as lower transit and
        termination costs from lower outbound international long distance
        minutes volumes and one-time operating savings. The decreases were
        partially offset by higher programming costs for TELUS TV services
        related to the doubled subscriber base, and to a lesser extent,
        higher access facility costs from implementing large complex
        enterprise deals.

    -   Restructuring costs decreased by $22 million, reflecting relatively
        high level of restructuring activities in the prior year period, and
        expectations of lower restructuring charges for the full year of
        2010, when compared to 2009 (see Section 9). See current initiatives
        under the Company's operating efficiency program in Investing in
        internal capabilities in Section 2.

    -------------------------------------------------------------------------
    EBITDA - wireline segment                      Quarters ended March 31
                                                   2010      2009    Change
    -------------------------------------------------------------------------
    EBITDA ($ millions)                             443       418       6.0 %
    EBITDA margin (%)                              35.9      32.7    3.2 pts.
    -------------------------------------------------------------------------
    

The wireline segment EBITDA increased by $25 million in the first quarter of 2010 when compared to the same period in 2009. Improvement in the EBITDA margin resulted from lower restructuring costs and operating savings realized from efficiency initiatives to alleviate declining voice revenues, as well as a high margin software application sale in the first quarter of 2010.

5.5 Wireless segment

    
    -------------------------------------------------------------------------
    Operating revenues - wireless segment          Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Network revenue                               1,089     1,072       1.6 %
    Equipment and other revenue                      88        58      51.7 %
    -------------------------------------------------------------------------
    External operating revenue                    1,177     1,130       4.2 %
    Intersegment revenue                              7         7         - %
    -------------------------------------------------------------------------
    Total operating revenues                      1,184     1,137       4.1 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Wireless segment revenues increased by $47 million in the first quarter of
2010 when compared to the same period in 2009. In respect of year-over-year
revenue growth:

    -   Network revenue increased by $17 million due to continued wireless
        data revenue growth and the 6.4% growth in the subscriber base. Data
        revenue increased by $50 million or 24% and was partially offset by a
        $33 million or 3.7% decrease in voice revenues. Wireless data
        revenues now represent 24% of network revenue as compared to 19% from
        the same period in 2009. The growth in data revenues reflects
        strength in smartphone service revenues and text messaging driven by
        increased penetration of smartphones, increased adoption of data
        plans, higher-speed HSPA and EVDO-capable handsets, mobile Internet
        keys, and higher inbound data roaming volumes, partly offset by lower
        roaming rates.

        Smartphones represented 33% of postpaid gross additions in the first
        quarter of 2010, as compared to 18% in the same period in 2009.
        Subscribers with smartphones now represent 22% of the postpaid
        subscriber base as compared to 15% for the first quarter of 2009, and
        generate ARPU significantly higher than messaging and voice-only
        devices. A higher smartphone mix is expected to positively impact
        future data revenue growth and ARPU, while increasing network usage
        and future costs of retention compared to historical levels.

        Blended ARPU of $55.80 decreased by $2.59 or 4.4% in the first
        quarter of 2010 when compared to the same period in 2009, and
        reflected the seasonal sequential decline when compared to $57.38 in
        the fourth quarter of 2009. Data ARPU in the first quarter of 2010
        was $13.14, an increase of $1.88 or 17% when compared to the same
        period in 2009. Voice ARPU in the first quarter of 2010 was $42.66, a
        decrease of $4.47 or 9.5% when compared to the prior year quarter.
        While the voice ARPU decline moderated from the 12% decrease
        experienced in the fourth quarter of 2009, it is a continuing trend
        caused by: declining minutes of use by both consumers and businesses,
        increased use of included-minute rate plans as subscribers shift
        usage patterns and move to optimize price plans, increased
        penetration and lower service revenue of the Koodo brand, an
        increasing volume of mobile Internet key subscriptions from which
        there is no voice revenue, lower Mike service ARPU, elimination of
        system access fees and carrier e911 charges, and decreased inbound
        roaming rates, partly offset by higher service feature revenues and
        increased inbound roaming volumes.

        Gross and net subscriber additions reflect improving economic
        conditions, enhanced distribution for the iPhone commencing in March
        2010 and a concerted effort to attract and retain high value postpaid
        customers, when comparing to the first quarter of 2009. Overall gross
        subscriber additions increased by 2.9% in the first quarter of 2010,
        while strong postpaid subscriber gross additions of 238,000
        represented a 10.7% increase compared to the same period in 2009. The
        proportion of postpaid subscriber gross additions represented
        approximately 67% of total gross additions for the first quarter of
        2010, up five percentage points when compared to the first quarter of
        2009.

        Net additions for the first quarter of 2010 were 51,000, up 6.3% from
        the same period in 2009, and reflect a continued improvement in the
        postpaid / prepaid mix of gross and net subscriber additions.
        Postpaid subscriber net additions of 65,000 increased by 48% in the
        first quarter of 2010 when compared to the same period in 2009, and
        represented 127% of total net additions for the first quarter of
        2010, as compared to 92% in the same period of 2009. Prepaid
        subscribers decreased by 14,000 in the first quarter of 2010 as the
        Company did not respond to competitor handset discounting in the
        prepaid segment and retained focus on higher value, postpaid
        subscriber growth. The decrease in prepaid subscribers in 2010
        compares to net additions of 4,000 in the first quarter of 2009.

        The blended churn rate improved to 1.55% in the first quarter of 2010
        from 1.62% in the same period in 2009. The decreased churn rate
        reflects lower involuntary churn, as a result of the improving
        economy, partly offset by increased competitive marketing intensity
        within both the postpaid and prepaid market segments.

    -   Equipment sales, rental and service revenue in the first quarter of
        2010 increased by $30 million largely due to the acquisition of
        Black's Photo in September 2009, and to a lesser extent, higher per-
        unit revenues from an increasing smartphone mix and higher
        acquisition and retention volumes, as well as increased accessory
        sales.

    -   Intersegment revenue represents services provided by the wireless
        segment to the wireline segment and is eliminated upon consolidation
        along with the associated expense in the wireline segment.

    Wireless operating indicators
    -------------------------------------------------------------------------
                                                        As at March 31
                                                   2010      2009    Change
    -------------------------------------------------------------------------
    Subscribers (000s)
    Postpaid                                      5,355     4,966       7.8 %
    Prepaid                                       1,220     1,211       0.7 %
    -------------------------------------------------------------------------
    Total                                         6,575     6,177       6.4 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Proportion of subscriber base that is
     postpaid (%)                                  81.4      80.4     1.0 pt.
    Digital POPs(1) covered (millions)(2)          33.7      32.7       3.1 %
    HSPA POPs covered (millions)(2)                31.3         -       n/m

                                                   Quarters ended March 31
                                                   2010      2009    Change
    -------------------------------------------------------------------------
    Subscriber gross additions (000s)
    Postpaid                                        238       215      10.7 %
    Prepaid                                         118       131      (9.9)%
    -------------------------------------------------------------------------
    Total                                           356       346       2.9 %
    -------------------------------------------------------------------------
    Subscriber net additions (000s)
    Postpaid                                         65        44      47.7 %
    Prepaid                                         (14)        4       n/m
    -------------------------------------------------------------------------
    Total                                            51        48       6.3 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ARPU(3) ($)                                   55.80     58.39      (4.4)%
    Churn, per month(3) (%)                        1.55      1.62 (0.07) pts.
    Average monthly minutes of use per
     subscriber (MOU)                               359       382      (6.0)%
    COA(4) per gross subscriber addition(3) ($)     322       336      (4.2)%
    Retention spend to network revenue(3) (%)      11.3      10.5    0.8 pts.
    EBITDA excluding COA ($ millions)               611       604       1.2 %
    EBITDA to network revenue (%)                  45.6      45.5    0.1 pts.
    -------------------------------------------------------------------------
    pt., pts. - percentage point(s)
    (1) POPs is an abbreviation for population. A POP refers to one person
        living in a population area that is wholly or substantially included
        in the coverage area.
    (2) Including roaming/resale agreements, principally with Bell Canada.
    (3) See Section 11.3 Definitions of key wireless operating indicators.
        These are industry measures useful in assessing operating performance
        of a wireless company, but are not measures defined under Canadian or
        U.S. GAAP.
    (4) Cost of acquisition.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating expenses - wireless segment          Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Equipment sales expenses                        218       183      19.1 %
    Network operating expenses                      157       154       1.9 %
    Marketing expenses                               86        93      (7.5)%
    General and administration (G&A) expenses
      Salaries, benefits and employee-related
       expenses                                     145       139       4.3 %
      Other G&A expenses                             79        78       1.3 %
    -------------------------------------------------------------------------
    Operations expense                              685       647       5.9 %
    Restructuring costs                               2         2         - %
    -------------------------------------------------------------------------
    Total operating expenses                        687       649       5.9 %
    -------------------------------------------------------------------------

    Wireless segment total operating expenses in the first quarter of 2010
increased by $38 million when compared to the same period in 2009. In respect
of increased wireless total operating expenses:

    -   Equipment sales expenses increased by $35 million due in part to
        higher acquisition and retention volumes and higher per-unit costs to
        support migration of clients to smartphones, including the Apple
        iPhone 3G and 3GS. This category includes results from Black's since
        September 2009.

    -   Network operating expenses increased by $3 million. The increase
        reflected the introduction of regulated e911 fees for wireless
        subscribers in Quebec and slightly higher costs to support 24% growth
        in data revenues. The continued penetration of smartphones drove
        increases in revenue-share volumes to third parties and licensing
        volumes to service providers, but was mostly offset by lower
        negotiated revenue-share and licensing rates. Growth in roaming
        volumes was offset by lower roaming costs from reduced rates.

    -   Marketing expenses decreased by $7 million, as a shift in non-
        smartphone product mix and loading through lower variable cost
        channels resulted in lower overall commissions. First quarter COA per
        gross subscriber addition decreased by $14 or 4.2% compared to the
        first quarter of 2009, as lower commissions per gross subscriber
        addition were partly offset by higher per-unit subsidy costs driven
        by a higher smartphone mix.

        Retention costs as a percentage of network revenue increased to 11.3%
        in the first quarter of 2010 as compared to 10.5% in the same period
        in 2009. Retention costs increased from higher retention volumes
        related to a larger subscriber base, as well as higher per-unit
        subsidy costs from an increased volume of clients migrating to
        smartphones, including upgrades to HSPA devices.

    -   Total G&A expenses increased by $7 million, mainly from $6 million in
        higher salaries, benefits and employee-related costs due to the
        inclusion in 2010 of expenses from Black's Photo. Other G&A expenses
        increased slightly as inclusion of expenses from Black's Photo and
        increased external labour costs supporting the growing subscriber
        base were largely offset by a lower bad debt expense and one-time
        operating savings. Bad debt expense decreased by $9 million,
        reflecting decreased involuntary subscriber churn from an improving
        economy.

    -   Restructuring costs were unchanged. For current restructuring
        activities, see Investing in internal capabilities in Section 2.

    -------------------------------------------------------------------------
    EBITDA - wireless segment                      Quarters ended March 31
                                                   2010      2009    Change
    -------------------------------------------------------------------------
    EBITDA ($ millions)                             497       488       1.8 %
    EBITDA margin (%)                              42.0      42.9  (0.9) pts.
    -------------------------------------------------------------------------
    

The wireless segment EBITDA increased by $9 million in the first quarter of 2010 when compared to the same period in 2009. This reflects improvement in terms of data growth, lower ARPU erosion and lower bad debt expense. As expected, wireless margins continue to be pressured primarily due to increase retention costs associated with smartphone adoption, following the launch of the new HSPA network and related devices in late 2009.

6. Changes in financial position

Changes in the Consolidated statements of financial position for the three-month period ended March 31, 2010, are as follows:

    
    -------------------------------------------------------------------------
    Financial position
    as at:           Mar. 31,  Dec. 31,                  Explanation of
    ($ millions)        2010      2009       Changes        the change
    -------------------------------------------------------------------------
    Current Assets
    Cash and              46        41       5     12 %  See Section 7:
     temporary                                            Liquidity and
     investments, net                                     capital resources

    Accounts receivable  737       694      43      6 %  The increase
                                                          reflected a $100
                                                          million reduction
                                                          in proceeds from
                                                          securitized
                                                          accounts receivable
                                                          (see Section 7.6),
                                                          partly offset by
                                                          lower wireless
                                                          accounts receivable
                                                          due to a decline in
                                                          postpaid ARPU and
                                                          seasonal decrease
                                                          in receivables from
                                                          dealers. Accounts
                                                          receivable turnover
                                                          was 43 days at
                                                          March 31, 2010
                                                          compared to 46 days
                                                          at December 31,
                                                          2009 and 43 days at
                                                          March 31, 2009.

    Income and other      31        16      15     94 %  Increase due to
     taxes receivable                                     reclassification of
                                                          balances from long-
                                                          term assets, as
                                                          well as final
                                                          income tax payments
                                                          in 2010 for the
                                                          2009 tax year

    Inventories          206       270     (64)   (24)%  Primarily a decrease
                                                          in wireless handset
                                                          volumes, parts and
                                                          accessories, and
                                                          lower average cost
                                                          of new handsets

    Prepaid expenses     173       105      68     65 %  Mainly payment of
                                                          annual wireless
                                                          licence fees and
                                                          employee benefits,
                                                          net of amortization

    Derivative assets      2         1       1    100 %  Fair value
                                                          adjustments on
                                                          operational hedges
                                                          for TELUS
                                                          International
    -------------------------------------------------------------------------
    Current Liabilities

    Accounts payable   1,388     1,385       3      - %  Primarily reflects
     and accrued                                          an increase in
     liabilities                                          accrued interest
                                                          payable and
                                                          employee benefits
                                                          payable, offset by
                                                          lower trade
                                                          payables and
                                                          accrued liabilities
                                                          arising from lower
                                                          capital expenditure
                                                          levels


    Income and other       6       182    (176)   (97)%  Reflects final
     taxes payable                                        income tax payments
                                                          in 2010 for the
                                                          2009 tax year,
                                                          partially offset by
                                                          the 2010 current
                                                          income tax expense
                                                          net of 2010
                                                          instalments

    Restructuring         86       135     (49)   (36)%  Payments exceeded
     accounts payable                                     new obligations
     and accrued                                          under restructuring
     liabilities                                          initiatives

    Dividends payable    152       150       2      1 %  -

    Advance billings     687       674      13      2 %  Primarily reflects
     and customer                                         deferred revenues
     deposits                                             becoming current

    Current maturities    82        82       -      - %  The balance in both
     of long-term debt                                    periods includes
                                                          the May 2010
                                                          maturity of $50
                                                          million TCI 12%
                                                          Series 1 debentures
                                                          and the July 2010
                                                          maturity of $30
                                                          million TCI 11.5%
                                                          Series U First
                                                          Mortgage Bonds

    Derivative            48        62     (14)   (23)%  Fair value
     liabilities                                          adjustments for
                                                          share option and
                                                          restricted share
                                                          unit hedges, and
                                                          cash settled option
                                                          derivative unwind,
                                                          partly offset by
                                                          foreign exchange
                                                          hedges for wireless
                                                          handsets

    Current portion      288       294      (6)    (2)%  Lower partnership
     of future                                            income not yet
     income taxes                                         allocated to
                                                          corporate partners
                                                          at March 31, 2010
                                                          compared to
                                                          December 31, 2009
    -------------------------------------------------------------------------
    Working           (1,542)   (1,837)    295     16 %  The improvement in
     capital(1)                                           working capital was
                                                          enabled by
                                                          sequentially lower
                                                          operating and
                                                          capital
                                                          expenditures in the
                                                          first quarter, as
                                                          well as faster
                                                          turnover of
                                                          receivables,
                                                          facilitating
                                                          payment of income
                                                          taxes and
                                                          restructuring
                                                          obligations.
    -------------------------------------------------------------------------
    Non-Current Assets
    Property, plant,   7,637     7,729     (92)    (1)%  See Capital
     equipment and                                        expenditures in
     other, net                                           Section 7.2 Cash
                                                          used by investing
                                                          activities and
                                                          Depreciation in
                                                          Section 5.3
                                                          Consolidated
                                                          operations

    Intangible         5,096     5,148     (52)    (1)%  See Capital
     assets, net                                          expenditures in
                                                          Section 7.2 Cash
                                                          used by investing
                                                          activities and
                                                          Amortization in
                                                          Section 5.3
                                                          Consolidated
                                                          operations.
                                                          Included in the
                                                          balances for both
                                                          periods are
                                                          wireless spectrum
                                                          licenses of $3,849
                                                          million.

    Goodwill, net      3,572     3,572       -      - %  -

    Other long-term    1,642     1,602      40      2 %  Primarily pension
                                                          assets plan funding
                                                          and continued
                                                          amortization of
                                                          transitional
                                                          pension assets

    Investments           40        41      (1)    (2)%  Reflects the sale of
                                                          a small investment,
                                                          net of a new
                                                          investment
    -------------------------------------------------------------------------
    Non-Current
     Liabilities
    Long-Term Debt     6,072     6,090     (18)     - %  Includes a $46
                                                          million decrease in
                                                          the Canadian dollar
                                                          value of U.S.
                                                          dollar Notes and a
                                                          $28 million
                                                          increase in
                                                          commercial paper


    Other Long-Term    1,281     1,271      10      1 %  Includes a $26
     Liabilities                                          million increase
                                                          for changes in U.S.
                                                          dollar exchange
                                                          rates and a fair
                                                          value adjustment of
                                                          the derivative
                                                          liability
                                                          associated with the
                                                          2011 U.S. dollar
                                                          Notes (offset in
                                                          Long-Term Debt and
                                                          Other comprehensive
                                                          income), net of a
                                                          portion of deferred
                                                          revenue becoming
                                                          current

    Future Income      1,362     1,319      43      3 %  An increase in
     Taxes                                                future taxes on
                                                          long-term assets
                                                          and liabilities,
                                                          including
                                                          unrealized gains
                                                          and losses on
                                                          derivatives
    -------------------------------------------------------------------------
    Owners' Equity
    Common Share       7,709     7,554     155      2 %  Mainly Net income
     and Non-Voting                                       of $267 million and
     Share equity                                         Other comprehensive
                                                          income of $16
                                                          million
                                                          attributable to
                                                          holders of Common
                                                          Shares and Non-
                                                          Voting Shares, less
                                                          declared dividends
                                                          of $152 million


    Non-controlling       21        21       -      - %  Net income of $1
     interests                                            million
                                                          attributable to
                                                          non-controlling
                                                          interests less
                                                          dividends of $1
                                                          million paid by a
                                                          subsidiary to a
                                                          non-controlling
                                                          interest.
    -------------------------------------------------------------------------
    (1) Current assets subtracting Current liabilities - an indicator of the
        ability to finance current operations and meet obligations as they
        fall due.
    -------------------------------------------------------------------------
    

7. Liquidity and capital resources

The discussion in this section is qualified by the Caution regarding forward-looking statements at the beginning of the MD&A.

The Company's capital structure financial policies are described in Section 4.3. In the normal course, the Company has generated annual cash flow from operations exceeding annual capital investment needed to support business growth and re-invest in technology.

    
    -------------------------------------------------------------------------
    Summary of Consolidated statements of
    cash flows                                     Quarters ended March 31
    ($ millions)                                   2010      2009    Change
    -------------------------------------------------------------------------
    Cash provided by operating activities           414       614     (32.6)%
    Cash used by investing activities              (307)     (478)     35.8 %
    Cash used by financing activities              (102)      (75)    (36.0)%
    -------------------------------------------------------------------------
    Increase (decrease) in cash and temporary
     investments, net                                 5        61         -
    Cash and temporary investments, net, beginning
     of period                                       41         4         -
    -------------------------------------------------------------------------
    Cash and temporary investments, net, end of
     period                                          46        65     (29.3)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

7.1 Cash provided by operating activities

Cash provided by operating activities decreased by $200 million in the first quarter of 2010 when compared to the same period in 2009, primarily due to the following.

    
    -   Changes in proceeds from securitized accounts receivable (included in
        Net change in non-cash working capital on the Consolidated statements
        of cash flow) are a use of cash when proceeds are reduced and a
        source of cash when the proceeds are increased. In the first quarter
        of 2010, the Company reduced proceeds from securitized accounts
        receivable by $100 million, compared to no change in the first
        quarter of 2009. See Section 7.6 Accounts receivable sale.

    -   EBITDA increased by $34 million, as described in Section 5:
        Discussion of operations. Excluding restructuring costs, EBITDA
        increased by $12 million.

    -   Payments under restructuring plans increased by $26 million.

    -   Interest paid decreased by $13 million, mainly due to financing
        activities in 2009 that increased the proportion of fixed rate, semi-
        annual interest debt, reduced variable rate commercial paper and
        eliminated all amounts drawn on the 2012 credit facility.

    -   Income tax payments, net of refunds received, were $251 million in
        the first quarter of 2010, or an increase of $37 million from the
        same period in 2009. Payments included final instalments in respect
        of the preceding tax year as well as current year instalments.

    -   Other changes in working capital, including a smaller reduction in
        customer accounts receivable during the first quarter of 2010
        compared to the first quarter of 2009.
    

7.2 Cash used by investing activities

Cash used by investing activities decreased by $171 million in the first quarter of 2010 when compared to the same period in 2009, primarily due to lower capital expenditures. Property, plant and equipment and intangible assets under construction were $546 million, a decrease of $43 million from December 31, 2009, reflecting a lower capital intensity level in 2010.

    
    -------------------------------------------------------------------------
    Capital expenditures                             Quarters ended March 31
    ($ millions, except capital intensity)            2010     2009   Change
    -------------------------------------------------------------------------
    Wireline segment                                   252      278    (9.4)%
    Wireless segment                                    59      196   (69.9)%
    -------------------------------------------------------------------------
    Total capital expenditures                         311      474   (34.3)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less capital expenditures(1)                629      432    45.6 %
    Capital intensity(2)(%)                             13       20  (7) pts.
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
    (1) See Section 11.1 EBITDA for the calculation and description.
    (2) Capital intensity is calculated as capital expenditures divided by
        operating revenues. This measure provides a basis for comparing the
        level of capital expenditures to other companies of varying size
        within the same industry.
    -------------------------------------------------------------------------
    

Total capital expenditures decreased by $163 million in the first quarter of 2010 when compared to the same period in 2009. Lower capital intensity in 2010 primarily reflects the considerable build activity throughout 2009 for the wireless HPSA 3G+ network that was launched in November 2009. The Company expects capital expenditures for the full year of 2010 to decrease by approximately $400 million or 19%, as compared to 2009 (see Section 9). EBITDA less capital expenditures increased by $197 million, or 46%, in the first quarter of 2010 when compared to the same period in 2009.

    
    -   Wireline segment

        Wireline capital expenditures decreased by $26 million in the first
        quarter of 2010 when compared to the same period in 2009. The
        decrease reflected lower expenditures for network growth as demand
        moderated and such expenditures were relatively high in 2009 for a
        first quarter period. This was partly offset by increased spending
        for TELUS TV and other wireline broadband initiatives (see Section 2:
        Core business and strategy). Wireline capital intensity decreased to
        20% in the first quarter of 2010 from 22% in the first quarter of
        2009. Wireline cash flow (EBITDA less capital expenditures) was $191
        million in the first quarter of 2010, up by $51 million or 36% from
        the first quarter of 2009.

    -   Wireless segment

        Wireless capital expenditures decreased by $137 million in the first
        quarter of 2010 when compared to the same period in 2009. The
        decrease in 2010 was due to activity in the prior year to construct
        the new HSPA 3G+ network, which was substantially completed and
        launched in November 2009, as well as lower expenditures for the
        mature CDMA network. Consequently, wireless capital intensity
        decreased to 5% in the first quarter of 2010 from 17% in the first
        quarter of 2009, due to transitioning to a sustainment mode following
        the November 2009 HSPA launch. Capital spending is expected to pick
        up in future quarters. Wireless cash flow (EBITDA less capital
        expenditures) was $438 million in the first quarter of 2010, up by
        $146 million or 50% from the first quarter of 2009.
    

7.3 Cash used by financing activities

Net cash used by financing activities increased by $27 million in the first quarter of 2010 when compared to the same period in 2009.

    
    -   Cash dividends paid to holders of Common Shares and Non-Voting Shares
        were $129 million in the first quarter of 2010, in respect of the
        47.5 cent per share dividend declared in the fourth quarter of 2009.
        The amount is the dividend payable at December 31, 2009, net of $22
        million dividends reinvested in TELUS Non-Voting Shares under the
        Company's amended dividend reinvestment plan (DRIP), where shares
        were issued from treasury at a 3% discount rather than being
        purchased in the open market. The DRIP participation rate at January
        4, 2010, was approximately 14%. The dividend payment of $151 million
        in the first quarter of 2009 was in respect of the 47.5 cent per
        share dividend declared in the fourth quarter of 2008.

    -   Bank facilities and commercial paper

        The Company often shifts among short-term financing sources to take
        advantage of interest cost differentials. In the first quarter of
        2010, issued commercial paper increased by $28 million to $495
        million, while no amounts were drawn against the 2012 credit facility
        (unchanged from December 31, 2009). In comparison, during the first
        quarter of 2009, net amounts drawn on the 2012 credit facility
        decreased by $680 million to $300 million, while issued commercial
        paper increased by $756 million to $1,188 million.
    

7.4 Liquidity and capital resource measures

    
    -------------------------------------------------------------------------
    Liquidity and capital resource measures
    As at, or 12-month periods ended, March 31        2010     2009   Change
    -------------------------------------------------------------------------
    Components of debt and coverage ratios(1)
     ($ millions)
    -------------------------------------------------------------------------
    Net debt                                         7,235    7,301      (66)
    Total capitalization - book value               15,021   14,715      306
    EBITDA - excluding restructuring costs           3,693    3,816     (123)
    Net interest cost                                  549      449      100
    -------------------------------------------------------------------------
    Debt ratios
    -------------------------------------------------------------------------
    Fixed-rate debt as a proportion of total
     indebtedness (%)                                   88       76   12 pts.
    Average term to maturity of debt (years)           4.8      3.8        1
    Net debt to total capitalization (%)(1)           48.2     49.6 (1.4)pts.
    Net debt to EBITDA - excluding restructuring
     costs(1)                                          2.0      1.9      0.1
    -------------------------------------------------------------------------
    Coverage ratios(1)
    -------------------------------------------------------------------------
    Interest coverage on long-term debt
     (Earnings coverage)                               3.1      4.3     (1.2)
    EBITDA - excluding restructuring costs
     interest coverage                                 6.7      8.5     (1.8)
    -------------------------------------------------------------------------
    Other measures
    -------------------------------------------------------------------------
    Free cash flow ($ millions)(2)                     621      (42)     663

    Dividend payout ratio of adjusted
     net earnings (%)(1)                                67       57   10 pts.
    Dividend payout ratio (%)(1)                        64       52   12 pts.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) See Section 11.4 Definitions of liquidity and capital resource
        measures.
    (2) See Section 11.2 Free cash flow for the definition.
    -------------------------------------------------------------------------
    

The decrease in Net debt at March 31, 2010, as compared to one year earlier, reflects a number of financing activities in 2009, including a reduction in commercial paper, elimination of amounts drawn on the 2012 bank facility and partial early redemption of U.S. dollar Notes, largely offset by a $700 million five-year Note issue in May and a $1 billion 10-year Note issue in December. The increase in total capitalization primarily reflects increased retained earnings. Net debt to EBITDA (excluding restructuring costs) increased by 0.1, as the decrease in 12-month trailing EBITDA before restructuring costs was only partly offset by lower net debt.

The proportion of debt on a fixed-rate basis was 88% on March 31, 2010, up from 76% one year earlier primarily due to the May 2009 issue of Series CF Notes and repayment of amounts drawn on the 2012 credit facility, partly offset by increased securitization of accounts receivable. The average term to maturity of debt increased to 4.8 years at March 31, 2010, from 3.8 years at March 31, 2009, primarily due to the December 2009 issue of ten-year Series CG Notes and early partial redemption of U.S. dollar Notes due June 1, 2011.

The interest coverage on long-term debt ratio was 3.1 times for the 12-month period ended March 31, 2010, down from 4.3 times one year earlier. An increase in long-term interest expense (mostly due to the $99 million loss on redemption of long-term debt recorded in December 2009) decreased the ratio by 0.7, while lower 12-month trailing earnings before long-term interest and income taxes decreased the ratio by 0.5. The EBITDA (excluding restructuring costs) interest coverage ratio for the 12-month period ended March 31, 2010, was 6.7 times, down from 8.5 times one year earlier, due mainly to the loss on redemption of long-term debt recorded in December 2009. This ratio calculated to exclude the loss on redemption was 8.2 times at March 31, 2010.

Free cash flow (FCF) for the 12-month period ended March 31, 2010, increased by $663 million when compared to the 12-month period ended March 31, 2009. The increase in FCF resulted from lower total capital expenditures, partly offset by lower EBITDA and higher restructuring, interest and income tax payments.

The Company's strategy is to maintain the financial policies and guidelines set out below. The Company believes that these measures are currently at the optimal level and by maintaining credit ratings in the range of BBB+ to A-, or the equivalent, are expected to provide reasonable access to capital markets.

    
    TELUS' long-term financial policies and guidelines are:

    -   Net debt to EBITDA - excluding restructuring costs of 1.5 to 2.0
        times

        The ratio at March 31, 2010 was slightly under 2.0 times.

    -   Dividend payout ratio target guideline of 55 to 65% of sustainable
        net earnings

        The target guideline is on a prospective basis, rather than on a
        trailing basis. The current guideline was approved on May 4, 2010,
        and signals management and Board confidence in the mid-term outlook
        of the Company into 2011. The increased payout ratio is seen as
        appropriate to the Company's prospects for earnings and cash flow
        growth, and moderating capital expenditure investments. The ratio is
        61 to 69% calculated on a $2.00 annualized dividend as compared to
        current full-year 2010 guidance of $2.90 to $3.30 for EPS - basic.
    

7.5 Credit facilities

At March 31, 2010, TELUS had available liquidity exceeding $1.7 billion from unutilized credit facilities, consistent with the Company's objective of generally maintaining at least $1 billion of available liquidity. The Company also has availability under its accounts receivable securitization program at March 31, 2010 (see Section 7.6).

    
    TELUS credit facilities at March 31, 2010
    -------------------------------------------------------------------------
                                                  Out-    Backstop
                                                standing     for
                                                 undrawn commercial
                                                 letters    paper   Available
    ($ in millions)   Expiry    Size    Drawn  of credit   program  liquidity
    -------------------------------------------------------------------------
    Five-year
     revolving
     facility(1) May 1, 2012    2,000        -      (123)     (495)    1,382
    364-day
     revolving   December 31,
     facility(2)        2010      300        -         -         -       300
    Other bank
     facilities            -       62       (1)       (3)        -        58
    -------------------------------------------------------------------------
    Total                  -    2,362       (1)     (126)     (495)    1,740
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) Canadian dollars or U.S. dollar equivalent.
    (2) Canadian dollars only.
    -------------------------------------------------------------------------
    

TELUS' revolving credit facilities contain customary covenants, including a requirement that TELUS not permit its consolidated Leverage Ratio (debt to trailing 12-month EBITDA) to exceed 4 to 1 (approximately 2.0 to 1 at March 31, 2010) and not permit its consolidated Coverage Ratio (EBITDA to interest expense on a trailing 12-month basis) to be less than 2 to 1 (approximately 6.7 to 1 at March 31, 2010) at the end of any financial quarter. There are certain minor differences in the calculation of the Leverage Ratio and Coverage Ratio under the credit agreements as compared with the calculation of Net debt to EBITDA and EBITDA interest coverage. Historically, the calculations have not been materially different. The covenants are not impacted by revaluation of property, plant and equipment, intangible assets and goodwill for accounting purposes. Continued access to TELUS' credit facilities is not contingent on the maintenance by TELUS of a specific credit rating.

7.6 Accounts receivable sale

TELUS Communications Inc. (TCI), a wholly owned subsidiary of TELUS, is a party to an agreement with an arm's-length securitization trust associated with a major Schedule I Canadian bank, under which TCI is able to sell an interest in certain of its trade receivables, for an amount up to a maximum of $500 million. As a result of selling the interest in certain of the trade receivables on a fully serviced basis, a servicing liability is recognized on the date of sale and is, in turn, amortized to earnings over the expected life of the trade receivables.

TCI is required to maintain at least a BBB (low) credit rating by DBRS Ltd. or the securitization trust may require the sale program to be wound down. The necessary credit rating was exceeded by three levels at A (low) as of May 4, 2010.

    
    -------------------------------------------------------------------------
    Balance of
     proceeds from
     securitized
     receivables    2010,  2009,   2009,   2009, 2009,  2008,   2008,   2008,
                     Mar.   Dec.   Sept.   June   Mar.   Dec.   Sept.   June
    ($ millions)      31     31      30      30    31     31      30      30
    -------------------------------------------------------------------------
                     400    500     400     400   300    300     250     150
    -------------------------------------------------------------------------
    

7.7 Credit ratings

There were no changes to the Company's investment grade credit ratings as at May 4, 2010.

7.8 Financial instruments, commitments and contingent liabilities

Financial instruments

The Company's financial instruments and the nature of risks that they may be subject to were described in TELUS' 2009 MD&A. Certain updates follow:

Credit risk

Credit risk associated with accounts receivable is minimized by the Company's large and diverse customer base, which covers substantially all consumer and business sectors in Canada. The Company follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Company maintains allowances for potential credit losses, and any such losses to date have been within management's expectations. As at March 31, 2010, the weighted average life of customer accounts receivable was 31 days (December 31, 2009 - 36 days) and the weighted average life of past-due customer accounts receivable was 76 days (December 31, 2009 - 72 days).

Liquidity risk

As a component of capital structure financial policies, discussed under Section 4.3 Liquidity and capital resources, the Company manages liquidity risk by maintaining a daily cash pooling process, which enables the Company to manage its liquidity surplus and liquidity requirements according to the actual needs of the Company and its subsidiaries, by maintaining bilateral bank facilities and syndicated credit facilities, by maintaining a commercial paper program, by the sales of trade receivables to an arm's-length securitization trust, by continuously monitoring forecast and actual cash flows and by managing maturity profiles of financial assets and financial liabilities.

The Company has significant debt maturities in future years. As at March 31, 2010, the Company has access to a shelf prospectus, in effect until October 2011, pursuant to which it can offer $3 billion of debt or equity securities. The Company has credit facilities available, including a $2 billion facility until 2012 (see Section 7.5 Credit facilities). The Company believes that its investment grade credit ratings provide reasonable access to capital markets.

Market risk

Net income and other comprehensive income for the years ended March 31, 2010 and 2009, could have varied if the Canadian dollar to U.S. dollar foreign exchange rates, market interest rates and the Company's Common Share and Non-Voting Share prices varied by reasonably possible amounts from their actual statement of financial position date values.

The sensitivity analysis of the Company's exposure to currency risk, interest rate risk and other price risk arising from share-based compensation is shown in Note 4 of the interim Consolidated financial statements.

Commitments and contingent liabilities

Guarantees

Canadian GAAP requires the disclosure of certain types of guarantees and their maximum, undiscounted amounts. As at March 31, 2010, the Company's maximum undiscounted guarantee amounts, without regard for the likelihood of having to make such payment, were not material.

In the normal course of operations, the Company may provide indemnification in conjunction with certain transactions. Other than obligations recorded as liabilities at the time of the transaction, historically the Company has not made significant payments under these indemnifications.

In connection with its 2001 disposition of TELUS' directory business, the Company agreed to bear a proportionate share of the new owner's increased directory publication costs if the increased costs were to arise from a change in the applicable CRTC regulatory requirements. The Company's proportionate share would have been 80% through May 2006, declining to 40% in the next five-year period and then to 15% in the final five years. Should the CRTC take any action that would result in the owner being prevented from carrying on the directory business as specified in the agreement, TELUS would indemnify the owner in respect of any losses that the owner incurred. As at March 31, 2010, the Company has no liability recorded in respect of indemnification obligations.

Claims and lawsuits

A number of claims and lawsuits (including class actions) seeking damages and other relief are pending against the Company. As well, the Company has received or is aware of certain intellectual property infringement claims and potential claims against the Company and, in some cases, numerous other wireless carriers and telecommunications service providers. In some instances, the matters are at a preliminary stage and the potential for liability and magnitude of potential loss cannot be readily determined currently. It is impossible at this time for the Company to predict with any certainty the outcome of such claims, potential claims and lawsuits. However, subject to the foregoing limitations, management is of the opinion, based upon legal assessment and information presently available, that it is unlikely that any liability, to the extent not provided for through insurance or otherwise, would be material in relation to the Company's consolidated financial position, other than as disclosed in Note 18(b) of the interim Consolidated financial statements and certain updates to litigation and legal matters in Section 10.5 of this document.

7.9 Outstanding share information

The total number of outstanding and issuable shares in the following table assumes full conversion of outstanding options and shares reserved for future option grants, at March 31, 2010.

    
    -------------------------------------------------------------------------
    Outstanding shares                         Common   Non-Voting   Total
    (millions)                                 Shares     Shares    shares
    -------------------------------------------------------------------------
    Common equity
      Outstanding shares at March 31, 2010       174.8      143.6    318.4(1)
      Options outstanding and issuable(2)
       at March 31, 2010                           0.1       15.1       15.2
    -------------------------------------------------------------------------
      Outstanding and issuable shares
       at March 31, 2010                         174.9      158.7      333.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) For the purposes of calculating diluted earnings per share, the
        number of shares was 318.6 million for the quarter ended March 31,
        2010.
    (2) Assuming full conversion and ignoring exercise prices.
    -------------------------------------------------------------------------
    

The number of outstanding and issuable shares at April 30, 2010, was not materially different than at March 31, 2010. Approximately 922,000 TELUS Non-Voting Shares were issued from treasury under the dividend reinvestment plan (DRIP) for the dividend paid on April 1, 2010. The DRIP participation rate was approximately 21% for April 1 dividend, up from 14% for the January 4, 2010 dividend.

The Board of Directors approved a recommended increase of 15 million Non-Voting Shares to the share option reserve, and the proposed increase is to be voted on by shareholders at the May 5, 2010 annual and special general meeting.

In March 2010, the federal government announced its intention to change the tax treatment of certain share-based compensation. Should the changes be enacted, the Company may find it necessary to revise its share-based compensation plans or waive deductions on the cash settlement of share options.

8. Critical accounting estimates and accounting policy developments

8.1 Critical accounting estimates

Critical accounting estimates are described in Section 8.1 of TELUS' 2009 MD&A. The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8.2 Accounting policy developments

Transition to International Financial Reporting Standards (IFRS) as

issued by the International Accounting Standards Board (IASB)

The discussion in this section includes expectations at the reporting date about the transition from Canadian GAAP to IFRS as issued by the IASB, or IFRS-IASB (subsequently referred to as IFRS).

    
    -------------------------------------------------------------------------
    Key dates:

    -   January 1, 2010 (transition date): An opening statement of financial
        position according to IFRS will be prepared, as at this date, to
        facilitate the changeover to IFRS in 2011. TELUS will continue to
        report its fiscal 2010 and comparative 2009 results according to
        Canadian GAAP.

    -   January 1, 2011 (changeover date): The date after which TELUS will
        prepare and report interim and annual 2011 financial statements with
        2010 comparatives according to IFRS.
    -------------------------------------------------------------------------
    

Transition date impacts and policy choices

The transition to IFRS requires the Company to apply IFRS 1, or the requirements for preparing IFRS-compliant financial statements in the first reporting period after the changeover date. IFRS 1 applies only at the time of changeover, and includes a requirement for retrospective application of each IFRS, as if they were always in effect. IFRS 1 also mandates certain exceptions to retrospective application and provides a series of optional exemptions from retrospective application to ease the transition to the full set of IFRSs. The Company disclosed its initial decisions regarding transition date impacts in Section 8.2.1 its 2009 MD&A. In addition, the Company determined a modest number of areas where changes in accounting policies were expected that may impact the Consolidated financial statements, disclosed in Section 8.2.2 of its 2009 MD&A.

    
    -------------------------------------------------------------------------
    Policy area                Choices and impacts
    -------------------------------------------------------------------------
    Employee benefits

    - Recognition of           IFRS 1 optional exemption and transition date
      cumulative actuarial     impact: The Company currently expects to
      gains or losses and      record 100% of the actuarial gains or losses
      transitional assets      and transitional assets of its defined
      at the IFRS              benefits pension plans as an opening balance
      transition date          adjustment to Retained earnings.

    - Recognition of           Ongoing impact: The Company currently expects
      ongoing actuarial        to record 100% of the ongoing actuarial gains
      gains and losses         or losses in Other comprehensive income.
    -------------------------------------------------------------------------
    Fair value of property,    IFRS 1 optional exemption and transition date
     plant and equipment and   impact: The Company currently expects to use
     intangible assets as      the carrying value at the transition date.
     deemed cost
                               Ongoing impact: The Company currently expects
                               to continue to use the cost model for each
                               class of asset.
    -------------------------------------------------------------------------
    Impairment of assets       IAS 36 states that assets should be tested
                               separately for impairment, and where the
                               recoverable amount cannot be estimated for
                               individual assets, it should be estimated as
                               part of a cash-generating unit. The Company
                               currently expects its cash-generating units to
                               be consistent with testing levels under
                               Canadian GAAP, namely, wireline and wireless.

                               Under IFRS, impairment testing for long-lived
                               assets (except for Goodwill) requires reversal
                               of impairments where adverse circumstances
                               have reversed.

                               Transition date impact: The Company is
                               currently evaluating the application of IAS 36
                               on the impairment of wireless spectrum
                               recorded in 2002, as well as impairments
                               recorded by predecessor companies for the
                               transition from regulatory accounting
                               principles (RAP) to GAAP for certain remaining
                               capital assets.

                               Ongoing impact: Whether the Company will be
                               affected depends on the facts at the time of
                               each impairment test. Increased volatility in
                               profit could result from periodic asset
                               impairments and reversal of impairments,
                               depending on the facts at the time of each
                               impairment test.
    -------------------------------------------------------------------------
    De-recognition of          Transition date impact: Proceeds from the sale
     financial assets and      of accounts receivable under the Company's
     liabilities               accounts receivable securitization agreement
                               are expected to be recorded as short-term debt
                               under IFRS, rather than a reduction to
                               accounts receivable under Canadian GAAP.

                               Ongoing impact: Accounts receivable
                               securitization expenses are expected to be
                               included in Borrowing costs under IFRS, rather
                               than in Other expense, currently.
    -------------------------------------------------------------------------
    Leases                     The sale and lease-back of certain non-
                               strategic buildings, primarily in 2000 and
                               2001, resulted in deferred gains under
                               Canadian GAAP that are being amortized to
                               income over the varying terms of the leases.
                               IFRS requires that a portion of the deferred
                               gains be recognized at the time of the sale.

                               Transition date impact: A portion of the
                               balance of such gains deferred under Canadian
                               GAAP will be recognized at the transition date
                               as an increase in opening Retained earnings.

                               Ongoing impact: Amortization of the remaining
                               balance of such gains deferred under Canadian
                               GAAP will continue at a reduced amount.
    -------------------------------------------------------------------------
    Income taxes               Transition date and ongoing impacts: The
                               impacts on the Company of the IAS 12 standard
                               for income taxes are expected to be related to
                               recognition and measurement of uncertain tax
                               positions, and disclosure and presentation
                               differences.
    -------------------------------------------------------------------------
    

IFRSs that are mandatory at the changeover date have been finalized; however, the IASB's work plan currently has projects underway that are expected to result in new pronouncements that continue to evolve IFRS. As a result, IFRS as at the changeover date may differ from its current form. The IASB is reviewing the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, with the intention of replacing it with a new IFRS in 2010. The new IFRS is currently expected to be effective for fiscal years ending in 2011, with possible application to 2010 comparatives. The objectives of the review include improving the guidance on identifying liabilities, reducing the differences between IAS 37 and U.S. GAAP, making recognition of liabilities within the scope of IAS 37 consistent with those for other liabilities, and clarifying the requirements for identifying liabilities. The IASB is also expected to review the IAS 12 standard for income taxes on a piecemeal basis. The Company continues to evaluate the possible effects of IAS 37 and will monitor the near-term projects that the IASB initiates for income taxes. The ultimate impacts cannot be determined at this time.

IFRS changeover plan - updates

The following updates to the TELUS' changeover plan are based on the Company's current assumptions and expectations, which could change in future based on IFRS changes or other factors.

    
    -------------------------------------------------------------------------
    Key activity         Milestones (expected          Status and comments
                             timeframes)
    -------------------------------------------------------------------------
    Financial
     statement
     preparation
    -------------------------------------------------------------------------
    - Key elements   Identification, evaluation      Initial choices
      phase          and selection of accounting     completed. Ongoing
                     policies necessary for the      review of IFRS exposure
                     Company to change over to IFRS  drafts and developments.
                    ---------------------------------------------------------
                     This phase includes other       See commentary below
                     operational elements, such as
                     information technology,
                     internal control over financial
                     reporting, and training
    -------------------------------------------------------------------------
    - Embedding      Integrate the solutions         The Company has adapted
      phase          necessary for the changeover    its existing accounting
                     into the Company's underlying   systems for parallel
                     financial systems and           reporting under IFRS
                     processes. (See
                     Infrastructure below.)
                    ---------------------------------------------------------
                     Maintain two parallel sets of   In 2010, the Company is
                     books: one according to         maintaining two
                     contemporary Canadian GAAP and  parallel sets of books,
                     one according to contemporary   as planned
                     IFRS
                    ---------------------------------------------------------
                     Develop financial statements    Drafted. Senior
                     formats and note disclosures    management approval to
                                                     be sought in 2010
                    ---------------------------------------------------------
                     Disclosure in the MD&A of the   Activities are planned
                     impacts on the 2010             for the fourth quarter
                     comparative period, when        of 2010
                     available
                    ---------------------------------------------------------
                     2011 first quarter: Disclosure
                     in the MD&A of final
                     quantification of conversion
                     effects on the 2010
                     comparative period
    -------------------------------------------------------------------------
    Communication    Provide ongoing training on     In 2010, the Company
     and training    expected IFRS impacts, IFRS 1   plans to leverage
                     elections and accounting        internal resources to
                     policy choices                  implement a general
                                                     Finance-wide training
                                                     seminar and a number of
                                                     targeted training
                                                     seminars for Finance
                                                     team members, who are
                                                     highly impacted by the
                                                     IFRS convergence
                                                     project.

                                                     General communication
                                                     and education is
                                                     provided to all Finance
                                                     team members
                                                     highlighting a number of
                                                     external IFRS resources
                                                     available through
                                                     TELUS' internal IFRS
                                                     website.
    -------------------------------------------------------------------------
    Infrastructure   Determine necessary changes to  Parallel reporting
     - Information   systems and processes and       platforms were designed,
       technology    update accounting systems to    implemented, and tested
                     enable the opening financial    for operation in the
                     position under IFRS, and        fourth quarter 2009.
                     facilitate dual reporting in
                     2010                            Dual reporting
                                                     capability in the
                                                     Company's accounting
                                                     systems was activated in
                                                     the first quarter of
                                                     2010.
                    ---------------------------------------------------------
                     Implement financial planning    Processes are currently
                     and forecasting capability      being adapted. Dual
                     under IFRS standards            forecasting capability
                                                     is to be implemented
                                                     during 2010.
    -------------------------------------------------------------------------
    Business policy  Assess impacts on contractual   Contracts are currently
     assessment      arrangements and covenants.     being reviewed.
                     Implement changes as necessary  Calculations of the
                                                     Leverage Ratio and
                                                     Coverage Ratio,
                                                     specified in the
                                                     Company's 2012 credit
                                                     facility, are not
                                                     expected to be affected
                                                     by the changeover.
    -------------------------------------------------------------------------
    Control
     environment
    -------------------------------------------------------------------------
    - Internal       Approval of initial IFRS 1      Senior management
      control over   optional exemption and          approval received for
      financial      accounting policy choices       initial elections and
      reporting                                      policy choices obtained
                                                     in 2009.

                                                     Audit Committee review
                                                     of management's initial
                                                     elections and policy
                                                     choices, and Board of
                                                     Directors' approval
                                                     obtained in 2009.

                     Progress reviews by senior      Review by senior
                     management and Audit Committee  management of
                                                     implementation progress
                                                     and impacts of
                                                     outstanding IFRS
                                                     exposure drafts, in
                                                     April 2010.

                                                     Progress presented at
                                                     the May 4, 2010 Audit
                                                     Committee meeting,
                                                     including expected
                                                     impacts on the
                                                     Consolidated statement
                                                     of financial position at
                                                     the transition date and
                                                     expected impacts on the
                                                     2010 consolidated
                                                     statements of
                                                     comprehensive income.
                    ---------------------------------------------------------
                     Testing of controls for 2010    Activities commenced in
                     comparatives                    the first quarter of
                                                     2010
    -------------------------------------------------------------------------
    - Disclosure     Review and sign-off by senior   Activities related to
      controls and   management of expected          quantifying 2010 IFRS
      procedures     conversion effects on fiscal    opening balance
                     2010                            adjustments and 2010
                                                     reporting period
                                                     differences, continued
                                                     in the first quarter of
                                                     2010.

                                                     Approval of transition
                                                     date impacts and
                                                     quantified disclosure of
                                                     the differences in the
                                                     opening Consolidated
                                                     statement of financial
                                                     position is expected for
                                                     the third quarter of
                                                     2010.

                                                     Approval of the 2010
                                                     annual disclosures and
                                                     quantification of
                                                     expected impacts to the
                                                     2010 Consolidated
                                                     statements of
                                                     comprehensive income is
                                                     currently expected in
                                                     the fourth quarter of
                                                     2010.
                    ---------------------------------------------------------
                     December 2010: Expect to issue  It is a long-standing
                     final guidance for fiscal 2010  practice of TELUS to
                     according to Canadian GAAP.     release annual targets
                                                     for the upcoming year in
                     Provide updated disclosure of   December and provide a
                     expected conversion effects on  final guidance for the
                     fiscal 2010.                    current year. An
                                                     investor call normally
                     December 2010 to first quarter  follows the news
                     2011: Planned release of 2011   release.
                     annual targets according to
                     IFRS standards, together with   Because of the
                     supplementary disclosure for    transition, it may be
                     fiscal 2010 according to IFRS.  necessary to delay the
                                                     announcement of 2011
                                                     targets until the first
                                                     quarter of 2011, or
                                                     revise targets at that
                                                     time.
                    ---------------------------------------------------------
                     First quarter 2011 results with
                     2010 comparatives according to
                     IFRS. MD&A discussion of final
                     changeover impacts.
    -------------------------------------------------------------------------
    

Transitional accounting policy changes adopted in 2009 and 2008

As activities consistent with Canadian GAAP being converged with IFRS, the Company previously adopted new recommendations for Goodwill and intangible assets (CICA Handbook Section 3064), Business combinations (CICA Handbook Section 1582), Consolidations (CICA Handbook Section 1601), Non-controlling interests (CICA Handbook Section 1602), financial instrument disclosure and presentation (CICA Handbook Sections 3862 and 3863), and Inventories (CICA Handbook Section 3031). See Section 8.2.4 of TELUS' 2009 MD&A.

9. Annual guidance for 2010

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

The Company confirms its original targets announced in December 2009.

    
    Annual guidance
    -------------------------------------------------------------------------
                                                 2010 Confirmed targets and
                                                  expected change from 2009
                                                       actual results
    -------------------------------------------------------------------------
    Consolidated

        Revenues                                    $9.8 to $10.1 billion
                                                           2 to 5%
       ----------------------------------------------------------------------
        EBITDA(1)                                   $3.5 to $3.7 billion
                                                          flat to 6%
       ----------------------------------------------------------------------
        EPS - basic                                    $2.90 to $3.30
                                                          (8) to 5%

        EPS - basic (excluding income
              tax-related adjustments
              and loss on redemption
              of long-term debt)(2)                       3 to 17%
       ----------------------------------------------------------------------
        Capital expenditures                        Approx. $1.7 billion
                                                            (19)%
    -------------------------------------------------------------------------
    Wireline segment

        Revenue (external)                          $4.85 to $5.0 billion
                                                          (1) to 2%
       ----------------------------------------------------------------------
        EBITDA                                    $1.575 to $1.675 billion
                                                           1 to 8%
    -------------------------------------------------------------------------
    Wireless segment

        Revenue (external)                         $4.95 to $5.1 billion
                                                          5 to 8%
       ----------------------------------------------------------------------
        EBITDA                                     $1.925 to $2.025 billion
                                                        flat to 5%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) See Section 11.1 Earnings before interest, taxes, depreciation and
        amortization (EBITDA) for the definition.
    (2) A non-GAAP measure. For comparability purposes, the growth rates are
        based on 2009 actual results adjusted to exclude 55 cents per share
        of positive income tax-related adjustments and 22 cents per share for
        a loss on early partial redemption of long-term debt.
    -------------------------------------------------------------------------
    

The following key assumptions were made at the time the 2010 targets were announced in December 2009. Assumptions for the defined benefit pension plan expense and contributions were updated in the annual 2009 MD&A.

    
    -------------------------------------------------------------------------
    Assumptions for 2010 original        Status
     targets
    -------------------------------------------------------------------------
    Ongoing wireline and wireless        Same expectation
    competition in both business and
    consumer markets
    -------------------------------------------------------------------------
    Canadian wireless industry market    Same expectation, with an increasing
    penetration gain of approximately    proportion from postpaid subscribers
    four percentage points for the year
    (approximately 3.6 percentage
     points in 2009)
    -------------------------------------------------------------------------
    Increased wireless subscriber        Smartphones represented 33% of gross
    loading in smartphones               postpaid subscriber additions in the
                                         first quarter of 2010, as compared
                                         to 18% in the first quarter of 2009
    -------------------------------------------------------------------------
    Reduced downward pressure on         Confirmed by the 4.4% year-over-year
    wireless ARPU (down 6.8% in 2009)    decrease in wireless ARPU in the
                                         first quarter of 2010
    -------------------------------------------------------------------------
    New competitive wireless entry in    After its initial launch in Calgary
    early 2010 following one             and Toronto in December 2009,
    competitive launch in December 2009  Globalive expanded to Edmonton in
                                         the first quarter of 2010, to Ottawa
                                         in April, and is expected to launch
                                         in Vancouver during the year. Public
                                         Mobile is expected to turn up
                                         services in Toronto and Montreal by
                                         mid-2010.
    -------------------------------------------------------------------------
    In wireline, stable residential      Residential access line losses
    network access line losses and       increased in the first quarter of
    continued competitive pressure in    2010, from aggressive promotional
    small and medium business market     activity by the primary cable-TV
    from cable-TV and VoIP companies     competitor for voice and Internet
                                         services
    -------------------------------------------------------------------------
    Continued wireline broadband         See Section 2: Core business and
    expansion                            strategy
    -------------------------------------------------------------------------
    Significant increase in cost of      Wireless costs of retention as a
    acquisition and retention            percentage of network revenues
    expenses for smartphones and TELUS   increased to 11.3% in the first
    TV loading                           quarter of 2010.

                                         TELUS TV loading was 29,000 in the
                                         first quarter, compared to 20,000 in
                                         same quarter in 2009. In addition,
                                         programming costs have increased
                                         with the doubling of the subscriber
                                         base.
    -------------------------------------------------------------------------
    EBITDA savings of approximately      Savings of approximately $37 million
    $135 million from efficiency         were realized in the first quarter
    initiatives                          of 2010
    -------------------------------------------------------------------------
    Approximately $75 million of         No change
    restructuring expenses ($190
    million in 2009)
    -------------------------------------------------------------------------
    A blended statutory tax rate of      No change. The blended statutory
    approximately 28.5 to 29.5%          income tax rate was 28.9% in the
    (30.3% in 2009). The expected        first quarter of 2010.
    decrease is based on enacted
    changes in federal and
    provincial income tax rates.
    -------------------------------------------------------------------------
    Cash income taxes peaking at         Cash income tax payments net of
    approximately $385 to $425           refunds received were $251 million
    million (net $266 million in         in the first quarter of 2010,
    2009) due to the timing of           comprised of final payments for the
    instalment payments                  2009 tax year and instalments for
                                         2010. Payments in remaining quarters
                                         are expected to be for in-year
                                         instalments only, and accordingly,
                                         no change is expected for the
                                         estimate of full-year income tax
                                         payments.
    -------------------------------------------------------------------------
    A pension accounting discount rate   No change to defined benefit pension
    was estimated at 5.75% and           plan expenses, which are set at the
    subsequently set at 5.85% (140       beginning of the year. The Company's
    basis points lower than 2009).       best estimate of contributions to
    The expected long-term return of     defined benefit pension plans in
    7.25% is unchanged from 2009 and     2010 is currently unchanged.
    consistent with the Company's
    long-run returns and its future
    expectations.

    - Defined benefit pension plans
      net expenses were estimated to
      be $28 million in 2010
      (compared to $18 million in
      2009), based on projected
      pension fund returns

    - Defined benefit pension plans
      contributions were estimated
      to be approximately $143
      million in 2010, down from
      $179 million in 2009,
      largely due to the stock
      market recovery in 2009 and
      proposed federal pension reforms.
    -------------------------------------------------------------------------
    

10. Risks and risk management

The discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

10.1 Competition

The following are updated excerpts from Section 10.1 Competition of TELUS' 2009 MD&A.

    
    Aggressive competitor pricing and technological substitution may
    adversely affect market shares, volumes and pricing, leading to reduced
    utilization and increased commoditization of traditional voice local and
    long distance services
    

TELUS faces intense competition across all key business lines and market segments, including consumer, small and medium businesses (SMB), and the large enterprise market. Technological advances have blurred the traditional boundaries between broadcasting, Internet and telecommunications. Cable-TV companies continue to expand offerings of digital voice and enhanced phone services, resulting in intensified competition in the residential and certain SMB, local access, long distance and high-speed Internet access (HSIA) markets. Overall, industry pricing pressure and customer acquisition efforts have intensified across most product and service categories and market segments, and this is expected to continue.

In the consumer wireline market, cable-TV companies and other competitors encounter minimal regulation and continue to combine a mix of residential local VoIP, long distance, HSIA and, in some cases wireless services, into one bundled and/or discounted monthly rate, along with their traditional broadcast or satellite-based TV services. In addition, cable-TV companies continue to increase the speed of their HSIA offerings. To a lesser extent, other non-facilities-based competitors offer local and long distance VoIP services over the Internet and resell HSIA solutions. Erosion of TELUS' residential network access lines (NALs) is expected to continue from this competition, as well as ongoing technological and wireless substitution. Competitors are anticipated to capture a majority of the share in growth marketplace opportunities; thus, access line associated revenues, including long distance, can be expected to continue to decline. Although the HSIA market is maturing, subscriber growth is expected to continue over the next several years. With a more mature HSIA market, and the potential for higher-speed Internet offerings from competitors, TELUS may be constrained in its ability to maintain market share in its incumbent territories, because of the amount and timing of capital expenditures associated with maintaining competitive network access speeds.

Risk mitigation: Canadian Radio-television and Telecommunications Commission (CRTC) decisions in recent years approving wireline deregulation have provided TELUS with improved flexibility to respond to intensifying competition. Active monitoring of competitive developments in product and geographic markets enables TELUS to respond more rapidly to competitor offers and leverage the Company's full suite of integrated solutions and national reach. TELUS continues to expand its IP-based TELUS TV offering in its incumbent territories of B.C., Alberta, and Eastern Quebec in order to provide a premium television experience and enhance its bundles to better address customer needs and respond to cable-TV company bundled offerings. In addition, TELUS Satellite TV service in Alberta and B.C. complements IP TV service and enables the Company to more effectively serve those households that are not currently on the TELUS IP TV network footprint and leverage TELUS' strong distribution and marketing presence. In order to offset increasing competitive intensity and losses in its incumbent areas, TELUS continues to expand into and generate growth in non-incumbent markets in Central Canada with business services and mobility offerings. In addition to expanding services, TELUS also continues to actively pursue the most competitive cost structure possible.

Customer experience

There is a risk that TELUS will not maintain or earn improved levels of client loyalty if products and services and service experience offered by the Company do not meet or exceed customer expectations. If TELUS does not provide a better customer experience than its competitors, the TELUS brand image could suffer, and business clients and consumers may change service providers. The Company's revenues and profitability could be negatively impacted should the costs to acquire and retain customers increase.

Risk mitigation: Driving the best customer experience and earning the patronage of clients is a Company-wide commitment. Two of the Company's internal priorities for 2010 are to increase TELUS team member engagement and live the culture of personal responsibility and customer service, and ensure TELUS delivers its future friendly brand promise to clients. (See Section 3: Key performance drivers).

10.2 Technology

The following is an excerpt from Section 10.2 Technology of TELUS' 2009 MD&A.

Subscriber demand for data may challenge wireless networks

The demand for wireless data services has been growing at unprecedented rates and it is projected that this demand will further accelerate, driven by increasing levels of broadband penetration, increasing need for personal connectivity and networking, increasing affordability of smartphones and Internet-only devices (e.g. high-usage data devices such as the Apple iPhone, mobile Internet keys and emerging products such as electronic book readers), increasingly rich multimedia services and applications, increasing wireless competition, and possibly unlimited data plans. The industry expects dramatic year-over-year increases in subscriber data traffic over the next one to five years, as it is anticipated that wireless data demand will continue to track wired Internet data consumption, lagging by only three to five years. The anticipated levels of data traffic will represent a growing challenge to the current mobile network's ability to serve this traffic. The ability to acquire additional spectrum to address future requirements is dependent on the timing and the rules established by Industry Canada. (See Section 3: Regulatory in TELUS' 2009 MD&A.)

Risk mitigation: TELUS built an extensive 3G+ wireless network based on HSPA/HSPA+ technologies. This 3G+ network uses the most advanced mobile broadband technology commercially available in Canada at the reporting date, delivering manufacturer-rated download speeds of up to 21 megabits per second, as well as significant increases in network capacity. The new wireless network brings higher capacity and improved support and performance for real-time conversational and interactive services through the introduction of MIMO (multiple input multiple output) antennas, continuous packet connectivity and higher-order modulation schemes. As such, TELUS' 3G+ network, with coverage exceeding 1.1 million square kilometres and reaching 93% of the Canadian population (including network sharing agreements), positions TELUS to meet the capacity demands and challenges in the foreseeable future. The new network complements TELUS' existing wireless portfolio that includes the CDMA, 3G high-speed wireless (EVDO) network and the Mike Push to Talk network and business service. TELUS is continuing to evolve its technology leadership position to address traffic demand, while offering customers a wide selection of wireless devices and service experiences, no matter which network technology is running in the background.

In addition to the superior capabilities and higher capacity delivered by HSPA/HSPA+, the infrastructure supporting TELUS' 3G+ network facilitates the migration to 4G LTE wireless technologies, which in turn is expected to further increase network capacity and speed. TELUS investments to date in IP networks, IP/fibre cell-site backhaul and a software-upgradeable radio infrastructure, are expected to greatly facilitate rapid introduction of LTE when this ecosystem reaches maturity. LTE technologies are expected to deliver speeds up to 100 Mbps, while at the same time introducing significant improvements in performance including a reduction in delay/latency. These improvements are expected to increase network capacity, enhance performance, enable richer multimedia applications and services, and deliver a superior subscriber experience.

Fast growth of wireless data volumes requires optimal and efficient utilization of TELUS' spectrum holdings. Deployment of TELUS' HSPA/HSPA+ technology, eventual launch of 4G LTE technology, and development of a traffic management toolkit aim to achieve efficient utilization of TELUS' spectrum holdings and position TELUS to meet increasing levels of data traffic. Furthermore, TELUS has developed a spectrum strategy to further strengthen its ability to deliver the mobile Internet to Canadians in the future.

10.3 Regulatory

The following are updates to Section 10.3 Regulatory of TELUS' 2009 MD&A.

TELUS' broadcasting distribution undertakings

TELUS holds licences from the CRTC to operate terrestrial broadcasting distribution undertakings to serve various communities in B.C. and Alberta (both licensed in August 2003 and renewed in 2009 for a second full seven-year term) and Eastern Quebec (licensed in July 2005). TELUS also holds a licence to operate a national video-on-demand undertaking (licensed in September 2003 and in the process of being renewed).

The CRTC held proceedings relating to local television, and on March 22, 2010, introduced a new framework to allow English-language private broadcasters to enter into negotiations with broadcasting distribution undertakings to establish a fair value of the distribution of each TV station's programming. As there is uncertainty whether the CRTC has the authority to implement a negotiation regime, the CRTC also referred this regulatory policy to the Federal Court of Appeal seeking clarification of its jurisdiction under the Broadcasting Act. Some obligations may flow to all broadcast distributors as a result of this policy framework, subject to determinations by the Federal Court of Appeal.

Foreign ownership restrictions

TELUS and its subsidiaries are subject to the foreign ownership restrictions imposed by the Telecommunications Act, the Radiocommunication Act and the Broadcasting Act and associated regulations. Although TELUS believes that TELUS Corporation and its subsidiaries are in compliance with the relevant legislation, there can be no assurance that a future CRTC, Industry Canada or Heritage Canada determination, or events beyond TELUS' control, will not result in TELUS ceasing to comply with the relevant legislation. If such a development were to occur, the ability of TELUS' subsidiaries to operate as Canadian carriers under the Telecommunications Act or to maintain, renew or secure licences under the Radiocommunication Act and Broadcasting Act could be jeopardized and TELUS' business could be materially adversely affected.

In June 2008, the Competition Policy Review Panel provided its final report to the Minister of Industry. The Panel made a number of recommendations to liberalize foreign ownership rules for the telecommunications and broadcasting sectors. TELUS anticipates that the chances for full removal of foreign ownership restrictions under a minority government are low. However, the Federal Government Throne Speech on March 3, 2010 and the Federal Budget on March 4, 2010 signalled an intention to consider opening the telecommunications services sector to further foreign investment. At present, this contemplated relaxation of the ownership and control regime appears to be confined to satellite providers and would require the enactment of legislation. It is not clear what, if any, further changes to the ownership and control regime might occur. There is a risk that government may consider a phased-in approach to liberalization that would allow increased flexibility for carriers with less than 10% national market share or allow for more access to foreign capital in upcoming spectrum auctions expected in the 2011 to 2012 timeframe.

There has also been greater uncertainty around the interpretation of the existing rules due to a recent Cabinet decision. On December 10, 2009, the Governor in Council (on behalf of the Federal Cabinet) issued Order in Council P.C. 2009-2008, in which it overturned an October 29, 2009 decision by the CRTC (Telecom Decision CRTC 2009-678) that found that wireless new entrant Globalive did not meet Canada's foreign ownership laws due to the substantial capital backing of Egypt-based Orascom Telecom. Notwithstanding the Governor in Council's claim that the decision was particular to facts of the Globalive case, it appears that a new precedent may have been set with respect to loosening foreign ownership restrictions in telecommunications, broadcasting and other sectors where the "control in fact" test has traditionally been applied. The Governor in Council's decision creates the possibility of a double standard with respect to the application of the foreign ownership and control restrictions and may render these restrictions meaningless. It is possible the government may be considering changes to the Investment Canada and Telecommunications Acts to provide it more flexibility in determining when to allow ownership arrangements deemed to be in the public interest. Relaxation or elimination of foreign ownership restrictions increases the risk that foreign-owned or financed telecommunications carriers will be increasingly able to operate in Canada, particularly in the wireless sector. On January 8, 2010, Public Mobile Inc. filed an application for judicial review with the Federal Court seeking to overturn the Governor in Council's December 10, 2009 decision declaring Globalive to be eligible to operate as a Canadian carrier. Pubic Mobile Inc.'s application for judicial review is being opposed by the Federal Government and by Globalive.

There is no assurance that resolution of uncertainty over interpretation of existing laws and regulations concerning foreign ownership restrictions that TELUS is subject to, or the manner in which they may be changed, will be beneficial to TELUS.

Risk mitigation for regulatory matters: TELUS advocates a regulatory environment that relies, to the greatest extent possible, on market forces rather than regulatory intervention. TELUS believes this is in the best interest of customers. TELUS does not oppose the removal of the foreign ownership restrictions, provided that liberalization is implemented on a fair and symmetrical basis for all telecommunications carriers and broadcast distribution undertakings.

10.4 Human resources

The following is an update to Section 10.4 Human resources of TELUS' 2009 MD&A.

National collective bargaining in 2010

The collective agreement between TELUS and the Telecommunications Workers Union (TWU) will expire on November 19, 2010. The TWU contract applies to approximately 12,000 employees across Canada in TELUS' wireline and wireless business segments. TELUS and the TWU have agreed to begin negotiations in July 2010 to renew this collective agreement. In addition, collective bargaining continues in the TELUS Québec region to renew the collective agreement with the Syndicat québécois des employés de TELUS (SQET). The SQET agreement expired on December 31, 2009, and covers approximately 1,000 trades, clerical and operator services team members.

In any set of labour negotiations, there can be no assurance that the negotiated compensation expenses or changes to operating efficiency will be as planned or that reduced productivity and work disruptions will not occur during the course of collective bargaining prior to settlement.

Risk mitigation: A governance model is in place to ensure the financial and operating impact of any proposed terms of settlement are assessed and determined to be aligned with TELUS' strategic direction. As is prudent in any round of collective bargaining, any potential need to continue operations in response to work disruptions will be addressed through contingency planning and emergency operations plans.

10.5 Litigation and legal matters

The following is an update to Section 10.9 Litigation and legal matters of TELUS' 2009 MD&A.

Certified class action

A class action was brought in 2004 under class action legislation in Saskatchewan against a number of past and present wireless service providers including the Company. The claim alleges that each of the carrier defendants is in breach of contract and has violated competition, trade practices and consumer protection legislation across Canada in connection with the collection of system access fees, and seeks to recover direct and punitive damages in an unspecified amount. Similar proceedings were commenced in other provinces. A national class was certified on September 17, 2007 by the Saskatchewan Court of Queen's Bench. On February 20, 2008, the same court removed from the class all customers of the Company who are bound by an arbitration clause, applying two recent decisions of the Supreme Court of Canada. In March 2010, the Company obtained leave to appeal the 2007 certification decision. Certification is a procedural step. If the Company is unsuccessful on appeal of the certification decision, the plaintiff would still be required to prove the merits of the claim.

A new class action making substantially the same allegations was brought in 2009 in Saskatchewan. The Company believes this was done in an attempt to take advantage of the expanded scope in class action legislation since 2004. The new class action was stayed by the court in December 2009 upon an application by the defendants to dismiss it for abuse of process, conditional on possible future changes in circumstance. In March 2010, the plaintiffs applied for leave to appeal the stay decision.

Risk mitigation: The Company believes that it has good defences to these actions. Should the ultimate resolution of these actions differ from management's assessments and assumptions, a material adjustment to the Company's financial position and the results of its operations could result.

11. Definitions and reconciliations

11.1 Earnings before interest, taxes, depreciation and amortization (EBITDA)

TELUS has issued guidance on and reports EBITDA because it is a key measure that management uses to evaluate performance of segments and the Company. EBITDA is also utilized in measuring compliance with debt covenants. (See Section 11.4 - EBITDA excluding restructuring costs.)

EBITDA is a measure commonly reported and widely used by investors as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric. Management's definition is a top-down calculation.

    
    -------------------------------------------------------------------------
    EBITDA (management's definition)                 Quarters ended March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Operating revenues                                     2,375       2,375
    Deduct:
      Operations expense                                   1,429       1,441
      Restructuring costs                                      6          28
    -------------------------------------------------------------------------
                                                             940         906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Management believes EBITDA assists investors in comparing a company's operating performance on a consistent basis, before taking into account financing decisions and before depreciation and amortization expenses, which are non-cash in nature and can vary significantly depending upon accounting methods or non-operating factors such as historical cost.

EBITDA is not a calculation based on Canadian or U.S. GAAP and should not be considered an alternative to Net income in measuring the Company's performance, nor should it be used as an exclusive measure of cash flow, because it does not consider the impact of working capital growth, capital expenditures, debt principal reductions and other sources and uses of cash, which are disclosed in the Consolidated statements of cash flows. Investors should carefully consider the specific items included in TELUS' computation of EBITDA. While EBITDA has been disclosed herein to permit a more complete comparative analysis of the Company's operating performance and debt servicing ability relative to other companies, investors are cautioned that EBITDA as reported by TELUS may not be comparable in all instances to EBITDA as reported by other companies.

The CICA has defined standardized EBITDA to foster comparability of non-GAAP measures between entities. Similar to management's definition of EBITDA, standardized EBITDA is an indication of an entity's capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible and intangible capital assets, which vary according to their vintage, technological currency and management's estimate of their useful life. Accordingly, standardized EBITDA comprises revenue less operating costs before interest expense, capital asset amortization and impairment charges, and income taxes. The following reconciles management's definition of EBITDA with Net income and standardized EBITDA.

    
    -------------------------------------------------------------------------
    EBITDA reconciliation                            Quarters ended March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Net income                                               268         322
      Financing costs                                        112          95
      Income taxes                                            99          57
      Depreciation                                           345         334
      Amortization of intangible assets                      108          93
    -------------------------------------------------------------------------
    Standardized EBITDA (CICA guideline)                     932         901
      Other expense (income)                                   8           5
    -------------------------------------------------------------------------
    EBITDA (management's definition)                         940         906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Management also calculates EBITDA less capital expenditures as a simple proxy for cash flow at a consolidated level and in its two reportable segments. EBITDA less capital expenditures may be used for comparison to the reported results for other telecommunications companies over time and is subject to the potential comparability issues of EBITDA described above.

    
    -------------------------------------------------------------------------
                                                     Quarters ended March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    EBITDA                                                   940         906
    Capital expenditures                                    (311)       (474)
    -------------------------------------------------------------------------
    EBITDA less capital expenditures                         629         432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

11.2 Free cash flow

TELUS reports free cash flow because it is a key measure used by management to evaluate the Company's performance. Free cash flow excludes certain working capital changes and other sources and uses of cash, as found in the Consolidated statements of cash flows. Free cash flow is not a calculation based on Canadian or U.S. GAAP and should not be considered an alternative to the Consolidated statements of cash flows. Free cash flow can be used to gauge TELUS' performance over time. Investors are cautioned that free cash flow as reported by TELUS may not be comparable in all instances to free cash flow as reported by other companies, and differs from standardized free cash flow defined by the CICA. Management's definition of free cash flow provides an indication of how much cash generated by operations is available after capital expenditures, but before acquisitions, proceeds from divested assets and changes in certain working capital items (such as trade receivables, which can be significantly distorted by securitization changes that do not reflect operating results, and trade payables).

The following shows management's calculation of free cash flow.

    
    -------------------------------------------------------------------------
    Free cash flow calculation                       Quarters ended March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    EBITDA (management's definition)                         940         906
    Share-based compensation                                   1           9
    Net employee defined benefit plans expense                 7           4
    Employer contributions to employee defined
     benefit plans                                           (45)        (53)
    Restructuring costs net of cash payments                 (49)         (1)
    Donations and securitization fees included
     in Other expense                                        (10)         (3)
    Cash interest paid                                       (36)        (49)
    Cash interest received                                     -           -
    Income taxes received (paid), net                       (251)       (214)
    Capital expenditures                                    (311)       (474)
    -------------------------------------------------------------------------
    Free cash flow (management's definition)                 246         125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The CICA defined standardized free cash flow to foster comparability of non-GAAP measures between entities. Standardized free cash flow is an indication of the entity's capacity to generate discretionary cash from operations, comprising cash flows from operating activities less net capital expenditures and those dividends that are more representative of interest costs. It does not necessarily represent the cash flow in the period available for management to use at its discretion, which may be affected by other sources and non-discretionary uses of cash. The following reconciles management's definition of free cash flow with standardized free cash flow and Cash provided by operating activities.

    
    -------------------------------------------------------------------------
    Free cash flow reconciliation                    Quarters ended March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Cash provided by operating activities                    414         614
    Deduct capital expenditures                             (311)       (474)
    Proceeds from disposition of capital assets                -           -
    -------------------------------------------------------------------------
    Standardized free cash flow (CICA guideline)             103         140
      Amortization of deferred gains on
       sale-leaseback of buildings, amortization
       of deferred items and other, net                        1         (20)
      Reduction (increase) in securitized
       accounts receivable                                   100           -
      Non-cash working capital changes, except
       changes from income tax payments (receipts),
       interest payments (receipts) and securitized
       accounts receivable                                    42           5
      Proceeds from disposition of capital assets              -           -
    -------------------------------------------------------------------------
    Free cash flow (management's definition)                 246         125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    n/a - not applicable
    -------------------------------------------------------------------------
    

11.3 Definitions of wireless operating indicators

These measures are industry metrics and are useful in assessing the operating performance of a wireless company.

Average revenue per subscriber unit per month (ARPU) is calculated as Network revenue divided by the average number of subscriber units on the network during the period and expressed as a rate per month. Data ARPU is a component of ARPU, calculated on the same basis for revenue derived from services such as text messaging, mobile computing, personal digital assistance devices, Internet browser activity and pay-per-use downloads.

Churn per month is calculated as the number of subscriber units disconnected during a given period divided by the average number of subscriber units on the network during the period, and expressed as a rate per month. A prepaid subscriber is disconnected when the subscriber has no usage for 90 days following expiry of the prepaid card.

Cost of acquisition (COA) consists of the total of handset subsidies, commissions, and advertising and promotion expenses related to the initial subscriber acquisition during a given period. As defined, COA excludes costs to retain existing subscribers (retention spend).

COA per gross subscriber addition is calculated as cost of acquisition divided by gross subscriber activations during the period.

EBITDA excluding COA is a measure of operational profitability normalized for the period costs of adding new customers.

Retention spend to Network revenue is calculated as direct costs, including handset subsidies any associated marketing and promotional costs aimed at the retention of the existing subscriber base, divided by Network revenue.

Smartphones are advanced mobile devices or personal digital assistants (PDAs) that provide text messaging, email, multimedia downloads and social networking (e.g. Facebook Mobile) functionalities in addition to voice. TELUS reports smartphones as a percentage of gross postpaid subscriber additions and as a percentage of the postpaid subscriber base.

11.4 Definitions of liquidity and capital resource measures

Dividend payout ratio and dividend payout ratio of adjusted net earnings: The basic measure is defined as the quarterly dividend declared per Common Share and Non-Voting Share, as recorded on the financial statements, multiplied by four and divided by the sum of basic earnings per share for the most recent four quarters for interim reporting periods (divided by annual basic earnings per share for fiscal years). The target guideline for the annual dividend payout ratio is on a prospective basis, rather than on a trailing basis, and is 55 to 65% of sustainable net earnings. More representative of a sustainable calculation is the historical ratio based on reported earnings per share adjusted to exclude income tax-related adjustments, loss on redemption of long-term debt, and ongoing impacts of a net-cash settlement feature introduced in 2007.

EBITDA - excluding restructuring costs is used in the calculation of Net debt to EBITDA and EBITDA interest coverage, consistent with the calculation of the Leverage Ratio and the Coverage Ratio in credit facility covenants. Restructuring costs were $168 million and $80 million, respectively, for the 12-month periods ended March 31, 2010 and 2009.

EBITDA - excluding restructuring costs interest coverage is defined as EBITDA excluding restructuring costs divided by Net interest cost. Historically, this measure is substantially the same as the Coverage Ratio covenant in TELUS' credit facilities.

Interest coverage on long-term debt (earnings coverage) is calculated on a 12-month trailing basis as Net income before interest expense on long-term debt and income tax expense, divided by interest expense on long-term debt. Interest expense on long-term debt includes losses on redemption of long-term debt. The calculation is based on total long-term debt, including long-term debt due within one year.

Net debt is a non-GAAP measure whose nearest GAAP measure is Long-term debt, including Current maturities of long-term debt, as reconciled below. Net debt is one component of a ratio used to determine compliance with debt covenants (refer to the description of Net debt to EBITDA below).

    
    -------------------------------------------------------------------------
                                                          As at March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Long-term debt including current portion               6,154       6,512
    Debt issuance costs netted against long-term debt         29          27
    Derivative liability                                     747         651
    Accumulated other comprehensive income amounts
     arising from financial instruments used to
     manage interest rate and currency risks
     associated with U.S. dollar denominated debt
     (excluding tax effects)                                 (49)       (124)
    Cash and temporary investments                           (46)        (65)
    Proceeds from securitized accounts receivable            400         300
    -------------------------------------------------------------------------
    Net debt                                               7,235       7,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The derivative liability in the table above relates to cross currency interest rate swaps that effectively convert principal repayments and interest obligations to Canadian dollar obligations, and is in respect of the U.S.$1,348 million debenture, as at March 31, 2010 (U.S.$1,925 million at March 31, 2009) that matures June 1, 2011. Management believes that Net debt is a useful measure because it incorporates the exchange rate impact of cross currency swaps put into place that fix the value of U.S. dollar debt and because it represents the amount of long-term debt obligations that are not covered by available cash and temporary investments.

Net debt to EBITDA - excluding restructuring costs is defined as Net debt as at the end of the period divided by the 12-month trailing EBITDA - excluding restructuring costs. TELUS' long-term guideline range for Net debt to EBITDA is from 1.5 to 2.0 times. Historically, Net debt to EBITDA - excluding restructuring costs is substantially the same as the Leverage Ratio covenant in TELUS' credit facilities.

Net debt to total capitalization provides a measure of the proportion of debt used in the Company's capital structure.

Net interest cost is defined as Financing costs before gains on redemption and repayment of debt, calculated on a 12-month trailing basis. No gains on redemption and repayment of debt were recorded in the respective periods. Losses recorded on the redemption of long-term debt are included in net interest cost. Net interest costs for the 12-month periods ended March 31, 2010 and 2009 are equivalent to Financing costs reported for those periods.

Total capitalization - book value is calculated as Net debt plus Owners' equity, excluding accumulated other comprehensive income or loss:

    
    -------------------------------------------------------------------------
                                                          As at March 31
                                                    -------------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Net debt                                               7,235       7,301
    Owners' equity
      Common Share and Non-Voting Share equity             7,709       7,290
      Add back Accumulated other comprehensive loss           56         100
      Non-controlling interests                               21          24
    -------------------------------------------------------------------------
    Total capitalization - book value                     15,021      14,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE TELUS Corporation

For further information: For further information: Media relations: Shawn Hall, (604) 619-7913, shawn.hall@telus.com; Investor relations: Robert Mitchell, (416) 279-3219, ir@telus.com

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