TELUS Reports Second Quarter 2010 Results

    
         Strong growth in net income of 21% and free cash flow of 67%
      Improving wireless trends in ARPU, subscriber additions and churn
               TELUS TV additions of 29,000 lead to doubling of
                         subscriber base in last year
    

VANCOUVER, Aug. 6 /CNW/ - TELUS Corporation reported second quarter 2010 revenue of $2.4 billion, an increase of one per cent, as continued growth in wireless revenues and wireline data revenues more than offset declines in traditional voice services. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased by five per cent due to revenue growth, lower restructuring costs and ongoing benefits from efficiency initiatives.

Reported net income and EPS for the second quarter were $296 million and 92 cents, respectively, representing year-over-year increases of 21 and 19 per cent. When excluding for positive income tax-related adjustments, normalized net income and EPS were $286 million and 89 cents, respectively, increases of 27 and 25 per cent. Second quarter results included favourable income tax-related adjustments of approximately $10 million or three cents per share compared to $18 million or six cents in the same period a year ago.

Free cash flow of $241 million increased by 67 per cent from a year ago, primarily due to capital expenditures being $160 million lower, which was partially offset by cash income tax payments being $50 million higher.

Over the 12 month period, total customer connections increased by 288,000, driven by a 6.5 per cent increase in wireless subscribers and 98 per cent growth in TELUS TV customers, partially offset by continued declines in landline connections.

    
    FINANCIAL HIGHLIGHTS
    -------------------------------------------------------------------------
    C$ and in millions, except per share amounts          3 months ended
                                                              June 30

    (unaudited)                                      2010    2009   % Change
    -------------------------------------------------------------------------
    Operating revenues                              2,398   2,377        0.9
    Operations expense                              1,460   1,451        0.6
    Restructuring costs                                19      53      (64.2)
    EBITDA(1)                                         919     873        5.3
    Net income(2)                                     296     244       21.3
    Earnings per share (EPS), basic(2)               0.92    0.77       19.5
    EPS (excluding income-tax related adjustments)   0.89    0.71       25.4
    Capital expenditures                              397     557      (28.7)
    Free cash flow(3)                                 241     144       67.4
    Total customer connections (millions)(4)        11.98   11.69        2.5

    (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 second quarter
        Management's discussion and analysis.
    (2) Net income and EPS for the second quarter of 2010 included favourable
        income tax-related adjustments of approximately $10 million or
        3 cents per share, compared to $18 million or 6 cents per share
        respectively for the same period in 2009.
    (3) See Section 11.2 in 2010 second quarter Management's discussion and
        analysis.
    (4) The sum of wireless subscribers, network access lines (NALs),
        Internet access subscribers, and TELUS TV subscribers (IP TV and
        satellite TV). In addition, historical residential and business NALs
        reflect previously announced restatements.
    

"Our second quarter results demonstrate that our major strategic investments in broadband networks and operating efficiency are driving improved growth in wireless and data revenues, 25 per cent growth in underlying earnings per share and 67 per cent growth in free cash flow," said Darren Entwistle, TELUS president and CEO.

Mr. Entwistle stated, "these results demonstrate strong progress during this transition year for our company as we increasingly realize the benefits from our broadband wireline and wireless investments."

Mr. Entwistle noted, "wireless operational performance was robust this quarter with excellent customer net additions up 12 per cent to 124,000, combined with a continued improving trend in monthly revenue per subscriber - down modestly at 1.9 per cent - and our lowest customer churn rate in two years."

"TELUS is offering Canadian customers competitive choice with the newest devices like the iPhone 4," added Mr. Entwistle. "Moreover, Canada's fastest mobile network is about to get even faster using cost efficient HSPA+ Dual Cell technology - in coming months manufacturer rated speeds will double to up to 42 megabits per second."

Mr. Entwistle also commented, "TELUS continues to demonstrate leadership and innovation for the benefit of consumers with the recent launch of Optik TV powered by Microsoft Mediaroom with the advanced functionality of PVR Anywhere. Optik TV clients are among the first globally to be able to use the Xbox 360 as a digital set top box. Furthermore, we are now providing customers the flexibility to manage their PVR by using Remote Recording over the Web or iPhone while they are on the move."

Robert McFarlane, TELUS executive vice-president and CFO said "TELUS in late July again demonstrated ready access to the capital markets with our notable $1 billion 10-year notes issue at an attractive 5.05% coupon. This successful outcome has been earned due to our transparent and prudent financial policies, our strong balance sheet, and management's long-term track record for execution against TELUS' public objectives and policies."

The company reaffirmed its consolidated annual 2010 EBITDA, EPS and capital expenditure guidance set in mid-December 2009. Wireless revenue and EBITDA guidance was maintained as was wireline EBITDA. Consolidated and wireline revenue guidance has been reduced by one to one and a half percent and two to three per cent, respectively. See section 9 in MD&A for updated detail on guidance, status and assumptions.

    
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    This news release contains statements about expected future events and
    financial and operating performance of TELUS that are forward-looking. By
    their nature, forward-looking statements require the Company to make
    assumptions and predictions and are subject to inherent risks and
    uncertainties. There is significant risk that the forward-looking
    statements will not prove to be accurate. Readers are cautioned not to
    place undue reliance on forward-looking statements as a number of factors
    could cause actual future performance and events to differ materially
    from that expressed in the forward-looking statements. Accordingly 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 and second quarter reports.
    Except as required by law, TELUS disclaims any intention or obligation to
    update or revise forward-looking statements, and reserves the right to
    change, at any time at its sole discretion, its current practice of
    updating annual targets and guidance.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

OPERATING HIGHLIGHTS

TELUS wireless

    
    -  External revenues increased by $71 million or 6.2% to $1.2 billion in
       the second quarter of 2010, compared to the same period a year ago,
       driven by a 4% increase in network revenue, as well as a 49% increase
       in equipment and other revenue, which included revenue from Black's
       Photo acquired in September 2009.
    -  Data revenue of $273 million increased by $57 million or 26% due to
       increased adoption of smartphones and related data plans and
       applications, increased mobile Internet keys, and higher in-bound
       volumes of data roaming.
    -  Blended ARPU (average revenue per subscriber unit) per month declined
       by 1.9% to $57.47 from the same quarter a year ago reflecting a
       sequential improvement from the 4.4% decline in the first quarter of
       2010. The improving trend is due to a lower rate of decline in voice
       ARPU and a higher rate of increase in data ARPU, which increased by
       19% to $13.80.
    -  Total net subscriber additions of 124,000 increased by 12% over the
       same period a year ago. Higher value postpaid net additions increased
       15% to 109,000. Smartphone subscribers now represent 25% of total
       postpaid subscribers compared to 16% a year ago.
    -  Cost of acquisition per gross addition increased by 10% year-over-year
       to $342, reflecting higher per-unit subsidy (including a one-time
       settlement for prior periods) and commission costs driven by a higher
       smartphone mix, higher advertising and promotion expenditures for new
       device launches, partly offset by a favourable U.S. dollar exchange
       rate.
    -  Cost of retention of $112 million decreased slightly by $2 million,
       reflecting a favourable U.S. dollar exchange rate, lower commissions
       per subscriber, partly offset by higher retention volumes and
       equipment subsidy costs from increased migrations to higher cost
       smartphones.
    -  Blended monthly subscriber churn improved 10 basis points to 1.45%,
       reflecting improving economic conditions, availability of new handsets
       including the iPhone, and successful retention efforts.
    -  Wireless EBITDA of $523 million increased by 6.1% due to improved data
       revenue growth and lower bad debt expense.
    -  Simple cash flow (EBITDA less capital expenditures) increased by
       $120 million or 39% to $424 million in the quarter due to higher
       EBITDA and a $90 million reduction in capital spending due to the
       November 2009 completion of the new HSPA+ wireless network.

    TELUS wireline

    -  External revenues decreased by $50 million or 4.1% to $1.2 billion in
       the second 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 $27 million or 5.1%, reflecting TELUS TV
       subscriber growth, higher managed workplace revenues and increased
       Internet, enhanced data and hosting services.
    -  TELUS high-speed Internet net additions of 3,000 were unchanged from a
       year ago, due to ongoing competitive intensity and a maturing market.
    -  TELUS TV net additions were 29,000, an increase of 71% over the same
       period last year, due to improved installation capabilities, enhanced
       service including PVR Anywhere, investment in expanded broadband
       coverage, and addition of TELUS Satellite TV service in mid-2009.
       TELUS TV subscriber base now totals 228,000 up 98% over last year.
    -  Total network access lines (NALs) declined by 63,000 to 3.85 million,
       down 5.6% from a year ago. Residential NAL losses of 51,000 increased
       due to intense cable-TV competition and wireless substitution.
       Business NALs declined by 12,000 primarily in Western Canada from
       competitive factors, which more than offset increased data lines in
       Ontario and Quebec.
    -  Wireline EBITDA of $396 million increased by $16 million or 4.2% in
       large part due to lower restructuring costs and operational savings
       from efficiency initiatives.
    -  Simple cash flow (EBITDA less capital expenditures) increased by $86
       million to $98 million due to higher EBITDA and a $70 million
       reduction in capital spending.
    

CORPORATE AND BUSINESS DEVELOPMENTS

TELUS unleashes Optik

TELUS' ongoing investment in the expansion of its fibre optic network has given the company the capacity needed to introduce Western Canadians to the most compelling home entertainment services on the market.

TELUS is revolutionizing home entertainment and communications with a new suite of advanced TV and High Speed Internet services - newly branded as Optik in June. The TELUS team has tapped the latest fibre optic and IP technologies to bring customers the most advanced home services - Optik TV, powered by the award-winning Microsoft Mediaroom, and Optik High Speed, offering Internet access speeds of up to 15 megabits per second that can be accessed anywhere in the customers household with home Wi-Fi.

Optik TV offers PVR Anywhere, networking up to six TVs in the home with one multi-tuner PVR so customers can pause a recorded show or movie in one room and pick it up in another from where they left off. It also brings TELUS customers video on demand with DVD-style controls, picture-in-picture browsing, fast channel changing and on-screen call display.

TELUS Optik TV customers among first in world to use Xbox 360 as digital set top box

The Xbox 360 is a first-class home entertainment and gaming system that Optik TV customers can now use as a digital set top box. Beginning in August, the Microsoft Mediaroom software that powers Optik TV also supports delivery of Optik TV to the Xbox 360 to provide great functionality for watching television anywhere in the home.

TELUS is among the first TV providers in the world to offer this innovative capability with the Xbox 360. All the features of TELUS' popular Optik TV service now become available directly via the Xbox 360 console. This means that customers can use an Xbox 360 as a digital set top box to:

    
    -   Access any of Optik TV's over 400 TV channels including over 50 in HD
    -   Watch any shows that they have recorded on their Optik HD PVR digital
        box
    -   Use PVR Anywhere to record up to three shows simultaneously from any
        room
    -   Get PVR functionality from any TV when watching recorded programs -
        pause, replay, rewind and fast-forward.
    

With the Xbox 360 console, Optik TV delivers the ultimate integration of gaming and entertainment on one platform. In addition to being able to watch recorded shows and schedule recordings, subscribers can also use the Xbox 360 console to access digital photos and digital music libraries on the TV via their home wireless network and connected Windows PC.

TELUS HEALTH SPACE launched

TELUS HEALTH SPACE, Canada's first consumer health platform to achieve Canada Health Infoway pre-implementation certification for providing a secure, interoperable application environment and personal health information platform, was launched on May 31. Twelve leading national health organizations are collaborating with TELUS to embed life-changing applications, medical devices and educational materials into TELUS HEALTH SPACE.

Powered by Microsoft HealthVault, TELUS HEALTH SPACE is a cutting-edge, high-security data storage and sharing service where individual Canadians will be able to keep all their personal healthcare information - such as lab results and prescription information - in an online database for access over any Internet connection. With the user-friendly TELUS HEALTH SPACE application, Canadians can create, store and manage all aspects of their health information and that of their family, such as immunizations, allergies, medications, height, weight, symptoms, key medical measurements, pre-existing conditions, as well as their medical history.

TELUS issues $1 billion of long-term debt to fund early redemption of 2011 Notes

In July, TELUS successfully completed a public offering of 10-year Canadian dollar notes, raising $1 billion. The net proceeds of the new 5.05% notes are to be used to fund the early partial redemption of the 8% US dollar notes due in June 2011 and terminate associated cross-currency interest rate swaps. The early redemption is expected to cause a pre-tax charge of approximately $58 million or after tax a 13 cent negative impact to third quarter 2010 EPS.

The first early redemption occurred in December 2009 with proceeds of a 10-year $1 billion notes issue. This second partial redemption reduces refinancing risk in 2011 as two thirds of the originally maturing C$3 billion of the swapped US 8% notes have now been refinanced. This US debt has an effective yield of approximately 8.5% and is being refinanced at lower interest rates of approximately five per cent. Another important benefit is that TELUS is successfully balancing the company's overall debt maturity profile out over many years so as to reduce the risk of having large amounts of debt coming due in any one year. Finally, the average total debt maturity has now been extended by 1.3 years to almost six years.

TELUS answers Canada's smartphone craving with award winning HTC Desire

TELUS announced an important addition to its leading 3G+ Android powered device line-up with the July launch of HTC Desire, with Android 2.1. This device was named Hottest Handset of 2010 at Mobile Magazine's 2010 Mobile Industry Awards. Featuring a large, crisp touchscreen, HTC Desire is being called the perfect Android powered smartphone to personalize and access social networks, including the most popular Google apps, such as free Google Navigation and Youtube and choosing from over 50,000 apps in the Android Market. Multiple social networks such as Twitter, Facebook and Flickr are easy to follow and update in a single view with HTC's Friend Stream app. Users can expect a more vivid view of rich web pages for embedded videos on the touchscreen and the ability to navigate with double-tap, multi-touch, and pinch and zoom. The 3.7 inch touchscreen and powerful 1 GHz Qualcomm Snapdragon processor, combined with HTC Sense and the fast speed of TELUS' 3G+ network, should make this smartphone incredibly responsive.

TELUS and the CFL team-up to bring Canadians mobile app

In July the CFL named TELUS as their official wireless provider bringing fans the first-ever CFL mobile app, called TELUS CFL Mobile. The premier app offers Canadians mobile access to live streaming of all games, real time scoring and exclusive content for TELUS customers with special in-game and on-demand features to complement live video streaming. TELUS CFL Mobile is now available on BlackBerries and will be available on other select Smartphones.

TELUS launches the Smart Hub 3G+ Wi-Fi Router with voice

TELUS launched its first TELUS Smart Hub 3G+ Wi-Fi router with voice that allows users to share their high speed Internet connection wirelessly across multiple devices and plug in an analog phone for voice services. Developed by NetComm Limited, the TELUS Smart Hub operates on TELUS' 3G+ network and is designed to support both voice and data traffic. Capable of connecting multiple Wi-Fi enabled devices simultaneously, the TELUS Smart Hub offers the benefits of a landline experience wirelessly.

TELUS Data Notifications helps customers manage data usage

In June, TELUS introduced a free SMS notification system called TELUS Data Notifications, informing wireless customers when they are nearing their data thresholds. The automatic service alerts customers when they are close to using all of the data included with their monthly rate plan or add-on feature so they can better manage their data usage. For customers with data packages, SMS notifications are sent informing customers when they have reached both 75 per cent and 95 per cent of their data thresholds. For customers using pay per-use data, SMS notifications will be sent when customers have used $10 and $50. These alerts will work in Canada and while roaming in the U.S. and Internationally.

TELUS to increase Canada's fastest wireless data network speeds

TELUS in August announced Canada's fastest* mobile network is to get even faster by deploying HSPA+ Dual Cell technology. TELUS will increase manufacturer-rated maximum download speeds to up to 42 Mbps when network deployment is complete in Canadian cities and towns. Dual Cell capable devices starting with Mobile Internet keys are expected to be commercially available starting in the first quarter of 2011. Canadians are amongst the most sophisticated users of wireless data in the world, and TELUS is committed to meeting their growing needs with the best technology available anywhere.

By leveraging the investment TELUS has already made in its 3G+ network, the company is able to support the deployment of Dual Cell technology with a small investment that is within TELUS' overall capital expenditure guidance for 2010. The implementation of HSPA+ and Dual Cell technology are expected to provide an optimal future transition to 4G long-term evolution (LTE) technology.

*Based on TELUS' tests of data throughput speeds in large Canadian urban centres available from national HSPA+ service providers. Internet access speed provided by the network operator may vary due to the device being used, network congestion, distance from the cell site, local conditions and other factors. Speed on the Internet is beyond the wireless network operator's control and may vary with your configuration, Internet traffic, website server and management policies, and other factors.

TELUS builds IP next-generation network cloud services

In partnership with Cisco, TELUS announced in June that it was enhancing its service delivery network using Cisco Unified Service Delivery. The solution combines the power of the data centre with the power of the network to transform service delivery and build a foundation for Internet-based "cloud" computing services to deliver the best-in-class managed services and offer a comprehensive range of innovative data and communication services. The investment helps to enable the interconnectivity of TELUS' diverse data centres to increase efficiencies and on-demand service delivery to customers.

François Gratton selected as "Top 40 Under 40"

François Gratton, senior vice-president, Business Markets for TELUS Québec, was selected in the 2009 Top 40 Under 40. François Gratton is one of the 40 Canadians and 8 Quebecers under 40 years old to be chosen from 1,200 leaders from private, public and non-profit organization across Canada. The winners of the Top 40 Under 40 are chosen by an independent advisory board of 25 Canadian business leaders. The judges base their choices on five key criteria: vision and leadership, innovation and achievement, impact, community involvement and growth strategy.

Environmentally friendly TELUS House Toronto opened

TELUS officially opened the doors of its new green office tower, TELUS House Toronto, home to 1,600 team members. TELUS House Toronto is environmentally future-friendly, targeting gold LEED (Leadership in Energy and Environmental Design) certification, an internationally accepted benchmark for design, construction, and operation of high-performance sustainable buildings. The 30-storey office tower offers street-level access as the newest leg of the PATH connecting team members and Toronto commuters to the busiest transit hub in the country. TELUS House Toronto brings together 15 offices across the Greater Toronto Area and houses some of the most advanced technology innovations like super high definition virtual meeting rooms called Telepresence, which is helping to reduce travel costs at TELUS.

Volunteers make a difference on fifth TELUS Day of Service

On May 29, the fifth annual TELUS Day of Service took place across Canada. On this one special day, TELUS team members and retirees mobilized in a massive nationwide volunteer effort to make positive, lasting connections within their communities. This year a record 10,000 TELUS volunteers, friends and family from coast-to-coast came together to give and support the communities where they live, work and serve. Over 175 volunteer activities were organized, which included preparing and serving meals for the homeless and those in need, planting trees and plants in parks and gardens and donating blood for Canadian Blood Services. TELUS Day of Service is part of TELUS' overall commitment to Corporate Social Responsibility in which we strive to engrain the triple bottom line of sound economic, social and environmental sustainability practices into all aspects of our business.

TELUS tops up Jeneece Place campaign to $1 million after TELUS World Skins Game

At this year's TELUS World Skins Game, TELUS partnered with the Queen Alexandra Foundation for Children, to have all funds raised going to Jeneece Place. TELUS started its fundraising efforts for Jeneece Place last July, when TELUS president and CEO Darren Entwistle announced that the 2010 TELUS World Skins Game would be held at Bear Mountain, in Victoria B.C. and kicked-off the fundraising with a $100,000 donation. At the closing of the 2010 TELUS World Skins Game on June 22, TELUS announced that it had raised $1 million for Jeneece Place through its donations and fundraisers, including donating $100 on behalf of every new Optik TV customer on Vancouver Island. Jeneece Place will provide accommodation for children and their families who need to travel to Victoria for care at Victoria General Hospital, the Queen Alexandra Centre or for specialist appointments and lab tests.

TELUS Walk to Cure Diabetes

In June, Juvenile Diabetes Research Foundation's (JDRF) biggest fundraiser, the TELUS Walk to Cure Diabetes, swept across Canada. TELUS team members and retirees, friends and family were excited to be shoulder-to-shoulder with JDRF on the third annual TELUS Walk to Cure Diabetes. More than 300,000 Canadians are currently affected by this devastating disease that can suddenly strike both children and adults, leaving them dependent on injected or pumped insulin for life. This annual, family-focused event raises awareness of type 1 diabetes as well as raises funds that are necessary to continue research towards finding a cure and improving treatments for this disease. More than 45,000 Canadians take part in the TELUS Walk annually and this year's fundraising goal is $7.5 million. Together, we can help find a cure for Juvenile Diabetes and make a real difference to current and future generations of Canadian children.

Go Pink with TELUS bringing digital mammography to Canadian communities

TELUS in cooperation with certain healthcare facilities across Canada launched a campaign to make a 'pink' difference and help bring digital mammography to various communities. Between May and October 31, 2010, TELUS is donating $25 for each purchase of a pink BlackBerry Curve 8530 or the pink BlackBerry Pearl 3G smartphone available only at TELUS. Digital mammography enhances early detection of breast cancer for women and men. The coast-to-coast campaign has already raised more than $300,000 and is funding innovative breast cancer technology in healthcare facilities across Canada, including: BC Women's Hospital & Health Centre Foundation, Alberta Cancer Foundation, Saskatchewan Cancer Agency, CancerCare Manitoba, Princess Margaret Hospital Foundation in Toronto, The Ottawa Hospital Foundation, Segal Cancer Center at the Montreal Jewish General Hospital and QEII Health Sciences Centre in Halifax.

Dividend Declaration

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 October 1, 2010 to holders of record at the close of business on September 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 October 1, 2009.

Access to Quarterly results information

Interested investors, the media and others may review this quarterly earnings release, management's discussion and analysis, 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 August 6, 2010 at 11:00 am ET and will feature a presentation about our second 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 August 6 until August 16, 2010 at: telus.com/investors or by telephone (1-403-669-1055 or 1-877-353-9587, reservation no. 371224 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 12 million customer connections including 6.7 million wireless subscribers, 3.8 million wireline network access lines and 1.2 million Internet subscribers and 228,000 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)


    Periods ended June 30
    (millions except per              Three months             Six months
     share amounts)                 2010        2009        2010        2009
    -------------------------------------------------------------------------

    OPERATING REVENUES           $ 2,398     $ 2,377     $ 4,773     $ 4,752
    -------------------------------------------------------------------------
    OPERATING EXPENSES
    Operations                     1,460        1,451      2,889       2,892
    Restructuring costs               19           53         25          81
    Depreciation                     316          330        661         664
    Amortization of intangible
     assets                           91           94        199         187
    -------------------------------------------------------------------------
                                   1,886        1,928      3,774       3,824
    -------------------------------------------------------------------------
    OPERATING INCOME                 512          449        999         928
    Other expense, net                 6           11         14          16
    Financing costs                  114          106        226         201
    -------------------------------------------------------------------------
    INCOME BEFORE INCOME TAXES       392          332        759         711
    Income taxes                      96           88        195         145
    -------------------------------------------------------------------------
    NET INCOME                       296          244        564         566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    OTHER COMPREHENSIVE INCOME
    Change in unrealized fair
     value of derivatives
     designated as cash flow
     hedges                            2          (2)         19          27
    Foreign currency translation
     adjustment arising from
     translating financial
     statements of self-sustaining
     foreign operations                -          (9)         (1)         (8)
    Change in unrealized fair
     value of available-for-sale
     financial assets                  -           1           -           1
    -------------------------------------------------------------------------
                                       2         (10)         18          20
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME         $   298     $   234     $   582     $   586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME ATTRIBUTABLE TO:
    Common Shares and Non-Voting
     Shares                      $   295     $   243     $   562     $   564
    Non-controlling interests          1           1           2           2
    -------------------------------------------------------------------------
                                 $   296     $   244     $   564     $   566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TOTAL COMPREHENSIVE INCOME
     ATTRIBUTABLE TO:
    Common Shares and Non-Voting
     Shares                      $   297     $   233     $   580     $   584
    Non-controlling interests          1           1           2           2
    -------------------------------------------------------------------------
                                 $   298     $   234     $   582     $   586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET INCOME PER COMMON SHARE
     AND NON-VOTING SHARE)
      Basic                      $  0.92     $  0.77     $  1.76     $  1.78
      Diluted                    $  0.92     $  0.77     $  1.76     $  1.78
    DIVIDENDS DECLARED PER
     COMMON SHARE AND NON-VOTING
     SHARE                       $  0.50     $ 0.475     $ 0.975     $  0.95
    TOTAL WEIGHTED AVERAGE
     COMMON SHARES AND NON-VOTING
     SHARES OUTSTANDING
      Basic                          319         318         319         318
      Diluted                        320         318         319         318



    TELUS Corporation
    interim consolidated statements of financial position         (unaudited)

                                                      June 30,   December 31,
    As at (millions)                                     2010           2009
    -------------------------------------------------------------------------

    ASSETS
    Current Assets
    Cash and temporary investments, net          $         41   $         41
    Accounts receivable                                   780            694
    Income and other taxes receivable                     152             16
    Inventories                                           173            270
    Prepaid expenses                                      217            105
    Derivative assets                                       6              1
    -------------------------------------------------------------------------
                                                        1,369          1,127
    -------------------------------------------------------------------------
    Non-Current Assets
    Property, plant, equipment and other, net           7,618          7,729
    Intangible assets, net                              5,096          5,148
    Goodwill, net                                       3,572          3,572
    Other long-term assets                              1,686          1,602
    Investments                                            41             41
    -------------------------------------------------------------------------
                                                       18,013         18,092
    -------------------------------------------------------------------------
                                                 $     19,382   $     19,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND OWNERS' EQUITY

    Current Liabilities
    Accounts payable and accrued liabilities     $      1,274   $      1,385
    Income and other taxes payable                          6            182
    Restructuring accounts payable and accrued
     liabilities                                           83            135
    Dividends payable                                     161            150
    Advance billings and customer deposits                560            674
    Current maturities of long-term debt                1,463             82
    Current portion of derivative liabilities             721             62
    Current portion of future income taxes                417            294
    -------------------------------------------------------------------------
                                                        4,685          2,964
    -------------------------------------------------------------------------
    Non-Current Liabilities
    Long-term debt                                      4,740          6,090
    Other long-term liabilities                           673          1,271
    Future income taxes                                 1,380          1,319
    -------------------------------------------------------------------------
                                                        6,793          8,680
    -------------------------------------------------------------------------
    Total Liabilities                                  11,478         11,644
    -------------------------------------------------------------------------
    Owners' Equity
    Common Share and Non-Voting Share equity            7,882          7,554
    Non-controlling interests                              22             21
    -------------------------------------------------------------------------
                                                        7,904          7,575
    -------------------------------------------------------------------------
                                                 $     19,382   $     19,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    TELUS Corporation

    interim consolidated statements of cash flows                (unaudited)

    Periods ended June 30             Three months             Six months
     (millions)                     2010        2009        2010        2009
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income                   $   296     $   244     $   564     $   566
    Adjustments to reconcile net
     income to cash provided by
     operating activities:
      Depreciation and
       amortization                  407         424         860         851
      Future income taxes            146         132         177         121
      Share-based compensation         6          11           7          20
      Net employee defined
       benefit plans expense           7           5          14           9
      Employer contributions to
       employee defined benefit
       plans                         (44)        (51)        (89)       (104)
      Restructuring costs, net
       of cash payments               (3)         31         (52)         30
      Other                           (5)          3          (6)         23
      Net change in non-cash
       working capital              (287)         53        (538)        (50)
    -------------------------------------------------------------------------
      Cash provided by operating
       activities                    523         852         937       1,466
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Capital expenditures            (397)       (557)       (708)     (1,031)
    Proceeds from the sale of
     property and other assets         -           -           3           -
    Other                              8           5           9           1
    -------------------------------------------------------------------------
    Cash used by investing
     activities                     (389)       (552)       (696)     (1,030)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Common Shares and Non-Voting
     Shares issued                     2           -           2           1
    Dividends paid to holders of
     Common Shares and
     Non-Voting Shares              (120)       (151)       (249)       (302)
    Long-term debt issued            878       2,599       1,753       6,173
    Redemptions and repayment of
     long-term debt                 (899)     (2,783)     (1,746)     (6,282)
    Dividends paid by a
     subsidiary to
     non-controlling interests         -          (4)         (1)         (4)
    -------------------------------------------------------------------------
    Cash provided (used) by
     financing activities           (139)       (339)       (241)       (414)
    -------------------------------------------------------------------------
    CASH POSITION
    Increase (decrease) in cash
     and temporary investments,
     net                              (5)        (39)          -          22
    Cash and temporary
     investments, net,
     beginning of period              46          65          41           4
    -------------------------------------------------------------------------
    Cash and temporary
     investments, net, end of
     period                      $    41     $    26     $    41     $    26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    SUPPLEMENTAL DISCLOSURE OF
     CASH FLOWS
    Interest (paid)              $ (185)     $  (184)    $  (221)    $  (233)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest received            $    -      $    35     $     -     $    35
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income taxes (inclusive of
     Investment Tax Credits)
     (paid) received, net        $  (58)     $    (8)    $  (309)    $  (222)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    TELUS Corporation

    segmented information                                        (unaudited)

    Three-month periods ended
     June 30                            Wireline                Wireless
    (millions)                      2010        2009        2010        2009
    -------------------------------------------------------------------------
    Operating revenues
    External revenue             $ 1,181     $ 1,231     $ 1,217     $ 1,146
    Intersegment revenue              40          31           9           7
    -------------------------------------------------------------------------
                                   1,221       1,262       1,226       1,153
    -------------------------------------------------------------------------
    Operating expenses
    Operations expense               806         833         703         656
    Restructuring costs               19          49           -           4
    -------------------------------------------------------------------------
                                     825         882         703         660
    -------------------------------------------------------------------------
    EBITDA(1)                    $   396     $   380     $   523     $   493
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                     $   298     $   368     $    99     $   189
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX            $    98     $    12     $   424     $   304
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Three-month periods ended
     June 30                          Eliminations            Consolidated
    (millions)                      2010        2009        2010        2009
    -------------------------------------------------------------------------
    Operating revenues
    External revenue             $     -      $   -      $ 2,398     $ 2,377
    Intersegment revenue             (49)       (38)           -           -
    -------------------------------------------------------------------------
                                     (49)       (38)       2,398       2,377
    -------------------------------------------------------------------------
    Operating expenses
    Operations expense               (49)       (38)       1,460       1,451
    Restructuring costs                -          -           19          53
    -------------------------------------------------------------------------
                                     (49)       (38)       1,479       1,504
    -------------------------------------------------------------------------
    EBITDA(1)                    $     -      $   -      $   919     $   873
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                     $     -      $   -      $   397     $   557
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX            $     -      $   -      $   522     $   316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                EBITDA (from above)      $   919     $   873
                                Depreciation                 316         330
                                Amortization                  91          94
                                ---------------------------------------------
                                Operating income             512         449
                                Other expense, net             6          11
                                Financing costs              114         106
                                ---------------------------------------------
                                Income before income
                                 taxes                       392         332
                                Income taxes                  96          88
                                ---------------------------------------------
                                Net income               $   296     $   244
                                ---------------------------------------------
                                ---------------------------------------------


    Six-month periods ended
     June 30                            Wireline                Wireless
    (millions)                      2010        2009        2010        2009
    -------------------------------------------------------------------------
    Operating revenues
    External revenue             $ 2,379     $ 2,476     $ 2,394     $ 2,276
    Intersegment revenue              76          64          16          14
    -------------------------------------------------------------------------
                                   2,455       2,540       2,410       2,290
    -------------------------------------------------------------------------
    Operating expenses
    Operations expense             1,593       1,667       1,388       1,303
    Restructuring costs               23          75           2           6
    -------------------------------------------------------------------------
                                   1,616       1,742       1,390       1,309
    -------------------------------------------------------------------------
    EBITDA(1)                    $   839     $   798     $ 1,020     $   981
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                     $   550     $   646     $   158     $   385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX            $   289     $   152     $   862     $   596
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six-month periods ended
     June 30                          Eliminations            Consolidated
    (millions)                      2010        2009        2010        2009
    -------------------------------------------------------------------------
    Operating revenues
    External revenue             $     -     $     -     $ 4,773     $ 4,752
    Intersegment revenue             (92)        (78)          -           -
    -------------------------------------------------------------------------
                                     (92)        (78)      4,773       4,752
    -------------------------------------------------------------------------
    Operating expenses
    Operations expense               (92)        (78)      2,889       2,892
    Restructuring costs                 -          -          25          81
    -------------------------------------------------------------------------
                                     (92)        (78)      2,914       2,973
    -------------------------------------------------------------------------
    EBITDA(1)                    $     -     $     -     $ 1,859     $ 1,779
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CAPEX(2)                     $     -     $     -     $   708     $ 1,031
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less CAPEX            $     -     $     -     $ 1,151     $   748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                EBITDA (from above)      $ 1,859     $ 1,779
                                Depreciation                 661         664
                                Amortization                 199         187
                                ---------------------------------------------
                                Operating income             999         928
                                Other expense, net            14          16
                                Financing costs              226         201
                                ---------------------------------------------
                                Income before income
                                 taxes                       759         711
                                Income taxes                 195         145
                                ---------------------------------------------
                                Net income               $   564     $   566
                                ---------------------------------------------
                                ---------------------------------------------

    (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 Q2

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

    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 and brand competition; the
    expectation that new wireless competitors will launch or expand services
    in 2010 and 2011 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
    and repair 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 a tentative
    collective agreement reached in the TELUS Québec region and the start of
    collective bargaining for 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 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 (MD&A), as well as
    updates in TELUS' 2010 first quarter MD&A and this second quarter MD&A.
    -------------------------------------------------------------------------
    

Management's discussion and analysis (MD&A)

August 4, 2010

The following sections are a discussion of the consolidated financial position and financial performance of TELUS Corporation for the three-month and six-month periods ended June 30, 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 second quarter and first six
                                   months of 2010
    -------------------------------------------------------------------------
    2.  Core business and          A discussion of activities in support of
        strategy                   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 second quarter and
                                   first six months of 2010
    -------------------------------------------------------------------------
    6.  Changes in financial       A discussion of changes in the
        position                   Consolidated statements of financial
                                   position for the six-month period ended
                                   June 30, 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 that
        estimates and accounting   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' revised guidance 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) Canadian 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.

1.2 Canadian economy

Canada's economy emerged from recession in the third quarter of 2009, with economic growth continuing through the second quarter of 2010. Statistics Canada's June 2010 Labour Force Survey reported the unemployment rate was 7.9%, down from 8.5% in December 2009 and 8.6% in June 2009. The Bank of Canada reported in its July 2010 Monetary Report that it expects economic growth of 3.5% in 2010, 2.9% in 2011 and 2.2% in 2012, which is more gradual than predicted in its April Monetary Report. The Bank of Canada also expects Canada's economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April.

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

1.3 Consolidated highlights

    
    -------------------------------------------------------------------------
                                                         Six-month periods
    ($ millions, unless     Quarters ended June 30         ended June 30
     noted otherwise)       2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Consolidated statements
     of income
    -------------------------------------------------------------------------
    Operating revenues     2,398    2,377    0.9 %    4,773    4,752    0.4 %
    Operating income         512      449   14.0 %      999      928    7.7 %
    Income before income
     taxes                   392      332   18.1 %      759      711    6.8 %
    Net income               296      244   21.3 %      564      566   (0.4)%

    Earnings per share
     (EPS)(1) basic and
     diluted ($)            0.92     0.77   19.5 %     1.76     1.78   (1.1)%
    Cash dividends
     declared per
     share(1) ($)           0.50    0.475    5.3 %    0.975     0.95    2.6 %

    Average shares(1)
     outstanding - basic
     (millions)              319      318    0.3 %      319      318    0.3 %
    -------------------------------------------------------------------------
    Consolidated statements
     of cash flows
    -------------------------------------------------------------------------
    Cash provided by
     operating activities    523      852  (38.6)%      937    1,466  (36.1)%

    Cash used by investing
     activities              389      552  (29.5)%      696    1,030  (32.4)%
      Capital expenditures   397      557  (28.7)%      708    1,031  (31.3)%

    Cash used by financing
     activities              139      339  (59.0)%      241      414  (41.8)%
    -------------------------------------------------------------------------
    Subscribers and other
     measures
    -------------------------------------------------------------------------
    Subscriber connections(2)
     (thousands)                                     11,979   11,691    2.5 %
    EBITDA(3)                919      873    5.3 %    1,859    1,779    4.5 %
    Free cash flow(3)        241      144   67.4 %      487      269   81.0 %
    -------------------------------------------------------------------------
    Debt and payout ratios(4)
    -------------------------------------------------------------------------
    Net debt to EBITDA -
     excluding restructuring
     costs (times)                                      1.9      1.9      -
    Dividend payout ratio
     of adjusted net
     earnings(5) (%)                                     66       58   8 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. In addition, NALs at
        June 30, 2009, reflect previously announced 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 for the four quarters ended June 30,
        2010, excluding favourable income tax-related adjustments of
        30 cents, loss on redemption of long-term debt of 22 cents in
        December 2009, and minor impacts from a net-cash settlement feature.
        Earnings per share for the four quarters ended June 30, 2009,
        excluding 33 cents per share favourable income tax-related
        adjustments and minor impacts from a net-cash settlement feature.
    -------------------------------------------------------------------------
    

Highlights from operations, including a comparison of results for the second quarter and first six months of 2010, or measures as at June 30, 2010, to those in the same periods in 2009:

    
    -   Consolidated Operating revenues increased by $21 million in the
        second quarter and first six months of 2010 when compared to the same
        periods in 2009. Continued growth in wireless revenues and wireline
        data revenue exceeded the decline in wireline voice and other
        revenues.

    -   Subscriber connections increased by 288,000 in the twelve-month
        period ending June 30, 2010. This includes 6.5% growth in wireless
        subscribers and 98% growth in TELUS TV subscribers, partly offset by
        a 5.6% decrease in total network access lines and a 0.5% decrease in
        total Internet subscribers.

        Smartphones represented 30% of wireless postpaid gross additions in
        the second quarter of 2010, compared to 15% in the second quarter of
        2009, as the Company continued to experience strong smartphone growth
        driven by iPhone, Blackberry and, to a lesser extent, Android
        devices.

        TELUS launched Optik(TM), a new suite of advanced TV and high-speed
        Internet services. Optik brings together TELUS' most advanced home
        services - Optik TV powered by Microsoft Mediaroom, and Optik High-
        Speed with Internet access speeds of up to 15 megabits per second.
        The Company is focused on upgrading existing subscribers to the
        improved service and continued to have strong net additions of new
        customers in the current quarter. See Section 2 - Providing
        integrated solutions that differentiate TELUS from its competitors.

        Erosion in residential and business network access lines continued at
        an elevated level in 2010 due to technological substitution and
        aggressive competitor activity in both consumer and business markets.

    -   Operating income increased by $63 million and $71 million,
        respectively, in the second quarter and first six months of 2010 when
        compared to the same periods in 2009. The increases were largely due
        to higher EBITDA, which increased by $46 million and $80 million,
        respectively, as a result of revenue growth and ongoing traction from
        efficiency initiatives. In addition, depreciation and amortization
        expenses decreased by $17 million in the second quarter (see Section
        5.3 Consolidated operations).

    -   Income before income taxes increased by $60 million and $48 million,
        respectively, in the second quarter and first six months of 2010 when
        compared to the same periods in 2009. Higher Operating income was
        partly offset by lower interest income of $14 million for the quarter
        and $26 million for the first six months due to interest earned in
        2009 for the settlement of prior years' tax matters.

    -   Net income increased by $52 million in the second quarter of 2010 and
        decreased by $2 million in the first six months of 2010, when
        compared to the same periods in 2009. Net income before income tax-
        related adjustments (including related interest income) increased by
        $60 million and $67 million, respectively.

    -------------------------------------------------------------------------
    Analysis of Net                                      Six-month periods
     income                 Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Net income               296      244       52      564      566      (2)
    Net favourable
     income tax-related
     adjustments
     (see Section 5.2)       (10)     (18)       8      (11)     (80)     69
    -------------------------------------------------------------------------
    Net income before
     favourable income
     tax-related
     adjustments             286      226       60      553      486      67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -   Basic earnings per share were $0.92 and $1.76, respectively, in the
        second quarter and first six months of 2010, or an increase of
        15 cents for the quarter and a decrease of two cents for the first
        six months, when compared to the same periods in 2009. Excluding
        favourable income tax-related adjustments, earnings per share were
        $0.89 and $1.73, respectively, for the second quarter and first six
        months of 2010, as compared to $0.71 and $1.53, respectively, in the
        same periods in 2009 (see Section 5.2).

        Liquidity and capital resources highlights, including a comparison of
        results for the second quarter and first six months of 2010, or
        measures as at June 30, 2010, to those in the same periods in 2009:

    -   TELUS had unutilized credit facilities of more than $1.7 billion at
        June 30, 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 June 30, 2010,
        was 1.9 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 June 30, 2010,
        was 66% based on the annualized second quarter declared dividend and
        sum of 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 August 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 October 1,
        2010, to shareholders of record at the close of business on
        September 10, 2010.

    -   Cash provided by operating activities decreased by $329 million and
        $529 million, respectively, in the second quarter and first six
        months of 2010 when compared to the same periods in 2009. The
        decreases resulted primarily from changes in proceeds from
        securitized accounts receivable, higher income tax payments net of
        recoveries, lower interest received, and other working capital
        changes.

    -   Cash used by investing activities decreased by $163 million and
        $334 million, respectively, in the second quarter and first six
        months of 2010 when compared to the same periods in 2009. The
        decreases were 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 decreased by $200 million and
        $173 million, respectively, in the second quarter and first six
        months of 2010 when compared to the same periods in 2009, primarily
        due to reduction of commercial paper and amounts drawn on the 2012
        credit facility in the second quarter of 2009, following a public
        Note issue in May 2009. In addition, dividend payments in 2010 were
        net of amounts reinvested in TELUS Non-Voting Shares issued from
        treasury under the Company's amended dividend reinvestment plan
        (DRIP), while in the comparative 2009 periods, no TELUS Non-Voting
        Shares were issued from treasury under the DRIP.

        On July 23, 2010, the Company successfully completed a $1 billion
        public offering of 5.05%, 10-year Notes. The proceeds are to be used
        for an early partial redemption of the U.S. dollar, 8% Notes maturing
        in June 2011, and for payments to terminate cross currency interest
        rate swaps associated with the Notes to be redeemed. On July 27,
        2010, TELUS delivered a redemption notice to the trustee that
        specified a redemption date of September 2, 2010. The early
        redemption is expected to cause a pre-tax charge of approximately
        $58 million, or after tax, approximately 13 cents per share in the
        third quarter.

    -   Free cash flow increased by $97 million and $218 million,
        respectively, in the second quarter and first six months of 2010 when
        compared to the same periods in 2009. Lower capital expenditures and
        improved EBITDA more than offset higher income tax payments net of
        recoveries, and lower interest received from the settlement of prior
        years' income tax-related matters.
    

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 half of 2010 that support the Company's six strategic imperatives include the following:

Building national capabilities across data, IP, voice and wireless

On August 3, 2010, TELUS announced its mobile network is to get even faster through deployment of HSPA+ Dual Cell technology. TELUS will increase manufacturer-rated maximum download speeds to up to 42 megabits per second (Mbps) when network deployment is complete in Canadian cities and towns. Dual Cell capable devices are expected to be commercially available starting in the first quarter of 2011. Canadians are among the most sophisticated users of wireless data in the world, and TELUS is committed to meeting their growing needs with the best technology available anywhere. By leveraging the investment TELUS has already made in its 3G+ network, the Company is able to support the deployment of Dual Cell technology with a small investment that is within TELUS' overall capital expenditure guidance for 2010. The existing HSPA+ network and implementation of Dual Cell technology are expected to provide an optimal future transition to long-term evolution (LTE) technology, the emerging worldwide standard for fourth generation or 4G wireless networks.

The Company plans to substantially complete its wireline ADSL2+ network in 2010, to offer download speeds of 15 Mbps or higher, and covering up to 90% of the top 48 communities in Alberta and B.C. by the end of the year. Since 2009, the Company has been deploying VDSL2 technology to bring network download speeds of up to 30 Mbps to the top 48 communities, and the upgrade is expected to be largely complete by the end of 2011. The Company is also continuing its fibre to the home deployment in new residential areas, and fibre to the building deployment in new multi-dwelling units. These investments in core infrastructure serve to strengthen the Company's competitive position versus other wireless competitors and cable-TV companies. (See Providing integrated solutions below.)

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

Combined external wireless revenues and wireline data revenues were $3,509 million (74% of consolidated revenue) in the first half of 2010, as compared to $3,344 million (70% of consolidated revenues) in the first half of 2009, or an increase of $165 million or 4.9%. Growth in aggregate wireless revenues and wireline data revenue more than offset a $144 million decline in wireline voice and other revenues for the six-month period.

Partnering, acquiring and divesting to accelerate the implementation of TELUS' strategy and focus TELUS' resources on core business

In May 2010, TELUS announced that TELUS HEALTH SPACE(TM), powered by Microsoft HealthVault, is available for licensing by healthcare organizations. TELUS HEALTH SPACE is a high-security data storage and sharing service where individual Canadians will be able to keep all their personal healthcare information in an online database for access over any Internet connection. TELUS HEALTH SPACE is the first consumer health platform in Canada to gain Canada Health Infoway pre-implementation certification for providing a secure, interoperable application environment and personal health information platform. The Company also announced that twelve leading national health organizations are collaborating with TELUS to embed life-changing applications, medical devices and educational materials into TELUS HEALTH SPACE.

Providing integrated solutions that differentiate TELUS from its competitors

TELUS' ongoing investment in the expansion of its fibre optic network has provided the capacity to introduce compelling new home entertainment services in B.C. and Alberta. In June 2010, TELUS launched Optik, a new suite of advanced TV and high-speed Internet services. Optik brings together TELUS' most advanced home services - Optik TV based on Microsoft Mediaroom, and Optik High-Speed with Internet access speeds of up to 15 megabits per second that can be accessed anywhere in the home with home Wi-Fi. With Microsoft Mediaroom- based Optik TV, TELUS customers can record up to three programs simultaneously from any room on a single personal video recorder (PVR) and play them back on any of up to six TVs in the home with a digital box, even switching TVs mid- program. Optik TV also offers video on demand with DVD-style controls, an intuitive on-screen guide with picture-in-picture browsing, instant channel changing, and call display on the TV.

In June, the Company also introduced TELUS Data Notifications, which are automatic, free short-messaging service alerts that inform wireless service customers when they reach thresholds of data consumption. These alerts to customers on rate plans, or on pay-per-use basis, work in Canada and while roaming in the U.S. and internationally.

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

TELUS realized approximately $37 million in cumulative operational efficiency savings during the second quarter of 2010, or $74 million for the first six months of 2010. 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 ongoing initiatives in 2010 with associated 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 1,100 during the first six months of 2010. This included a decrease of 850 domestic FTE employees resulting from restructuring initiatives, attrition and hiring freezes. The remaining decrease included seasonal reductions in domestic part-time staff and TELUS International staff.

In May 2010, the Company completed the first stages in creating TELUS Customer Solutions by uniting the customer-facing business units, business and consumer solutions, under the leadership of Joe Natale, who has been appointed EVP & Chief Commercial Officer. 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
    -   consolidating administrative real estate to create a smaller
        environmental footprint through mobile working, encouraging less
        inter-city travel, reduced daily commutes, and lower use of real
        estate space;
    -   decommissioning uneconomic products and services; and
    -   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

The creation of TELUS Customer Solutions, described above, is expected to contribute to this imperative.

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 quarterly dividend paid on July 2, 2010, was 50 cents per share, a
    5.3% increase from the 47.5 cents per share dividend paid on April 1,
    2010.
    -------------------------------------------------------------------------
    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 arising from
    dividends reinvested in TELUS Non-Voting shares issued from treasury,
    facilitated a reduction of $91 million in net debt during the first six
    months 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 June 30, 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 of 1.9 times at June 30, 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. During the third quarter of 2010, the
    Company expects to unwind a portion of its cross currency interest rate
    swaps associated with the planned early partial redemption of these
    Notes. The redemption is to be funded with the proceeds of a July 23,
    2010, Note issue (see Section 7.3 Cash used by financing activities).
    -------------------------------------------------------------------------
    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

    At August 4, 2010, investment grade credit ratings from the four rating
    agencies that cover TELUS were in the desired range with a stable outlook
    or trend.
    -------------------------------------------------------------------------
    

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   2010   2009   2009   2009   2009   2008   2008
     share amounts)      Q2     Q1     Q4     Q3     Q2     Q1     Q4     Q3
    -------------------------------------------------------------------------
    Operating
     revenues         2,398  2,375  2,443  2,411  2,377  2,375  2,454  2,450
      Operations
       expense        1,460  1,429  1,577  1,456  1,451  1,441  1,479  1,465
      Restructuring
       costs             19      6     77     32     53     28     38     10
    -------------------------------------------------------------------------
    EBITDA(1)           919    940    789    923    873    906    937    975
      Depreciation      316    345    347    330    330    334    351    344
      Amortization
       of intangible
       assets            91    108     94    100     94     93     84     92
    -------------------------------------------------------------------------
    Operating income    512    487    348    493    449    479    502    539
      Other expense       6      8     10      6     11      5     11      6
      Financing costs   114    112    230    101    106     95    118    122
    -------------------------------------------------------------------------
    Income before
     income taxes       392    367    108    386    332    379    373    411
      Income taxes
       (recovery)        96     99    (48)   106     88     57     88    125
    -------------------------------------------------------------------------
    Net income          296    268    156    280    244    322    285    286
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income
     attributable to
     Common Shares
     and Non-Voting
     Shares             295    267    155    279    243    321    285    285
    Income per Common
     Share and
     Non-Voting Share
     - basic           0.92   0.84   0.49   0.88   0.77   1.01   0.90   0.89
     - diluted         0.92   0.84   0.49   0.87   0.77   1.01   0.89   0.89
    Cash dividends
     declared per
     Common Share
     and Non-Voting
     Share             0.50  0.475  0.475  0.475  0.475  0.475  0.475   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: (i) year-over-year growth in wireless revenues generated from an increasing subscriber base and increased equipment and other revenues; and (ii) growth in wireline data revenues, more than offset by declining legacy wireline voice and other revenues.

Wireless network revenue increased by 4.0% year-over-year in the second quarter of 2010, as subscriber growth more than offset a lower blended ARPU. Blended ARPU for the second quarter of 2010 decreased by 1.9% year-over-year, reflecting continued improvement from the 4.4% decline in the first quarter of 2010 and the 7.7% decline in the fourth quarter of 2009. A general trend of growing data ARPU continued in the second quarter of 2010, with a year-over- year growth of 19%, offset by declining voice ARPU of 7.2% (as discussed further in Section 5.5). Data ARPU growth is 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 the future (see Section 10.2 Technology). Wireless equipment and other revenues increased by 49% year- over-year in the second quarter of 2010, primarily from the acquisition of Black's Photo in September 2009 and, to a lesser extent, increasing smartphone sales.

The expected entry of a number of new wireless competitors, as well as the potential launch of new wireless incumbent flanker brands, 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.

Wireline revenue reflects a more moderate rate of data growth, more than offset by declining wireline legacy voice local, long distance and other revenues. Data revenue growth reflects the near-doubling of the TELUS TV subscriber base over 12-months and growth in managed workplace revenues, moderated by ongoing declines in legacy basic data services. 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 2010 as a result of aggressive promotional activity from the primary cable- TV competitor for local telephony and Internet services. The Company has also experienced steady disconnections and fewer installations of business NALs attributed to competition, technological substitution and cautious business spending, as well as lower growth in Ontario and Quebec due to the completion of some large enterprise deals, which also included large private IP networks that do not add access lines.

The trend in operations expense reflects fewer domestic full-time equivalent employees, partly offset by expenses from Black's Photo, higher combined wireless acquisition and retention costs, and increased TELUS TV programming costs from near-doubling of 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.

Restructuring costs in the first and second quarters of 2010 were lower than reported quarterly in 2009 and it is expected that the full-year amount will be approximately $75 million as new initiatives are implemented (see Key assumptions in Section 9). 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.

The sequential decline in depreciation expense in the second quarter of 2010 resulted mainly from an increase in the estimated useful life of TV set- top boxes and certain assets still in use becoming fully depreciated for accounting purposes (see Section 5.3 Consolidated operations - Depreciation). 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.

Amortization in the second quarter of 2010 was reduced by approximately $5 million of investment tax credits (ITCs) following determination of eligibility by taxation authorities, for assets capitalized in prior years that are now fully amortized. Similarly, ITCs reduced amortization by approximately $10 million in the fourth quarter of 2009 and approximately $6 million in the fourth quarter of 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.

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. 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.

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. The information presented below has been revised from that previously reported to exclude investment tax credits.

    
    -------------------------------------------------------------------------
    Income tax-related
     adjustments
    ($ in millions,
     except EPS        2010   2010   2009   2009   2009   2009   2008   2008
     amounts)            Q2     Q1     Q4     Q3     Q2     Q1     Q4     Q3
    -------------------------------------------------------------------------
    Approximate Net
     income impact       10      1     71     14     18     62     26      -
    Approximate EPS
     impact            0.03      -   0.23   0.04   0.06   0.19   0.08      -
    Approximate basic
     EPS excluding
     income
     tax-related
     impacts           0.89   0.84   0.26   0.84   0.71   0.82   0.82   0.89
    -------------------------------------------------------------------------
    

5.3 Consolidated operations

    
    -------------------------------------------------------------------------
                                                         Six-month periods
    ($ millions, except     Quarters ended June 30         ended June 30
     EBITDA margin)         2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Operating revenues     2,398    2,377    0.9 %    4,773    4,752    0.4 %
      Operations expense   1,460    1,451    0.6 %    2,889    2,892   (0.1)%
      Restructuring costs     19       53  (64.2)%       25       81  (69.1)%
    -------------------------------------------------------------------------
    EBITDA(1)                919      873    5.3 %    1,859    1,779    4.5 %
      Depreciation           316      330   (4.2)%      661      664   (0.5)%
      Amortization of
       intangible assets      91       94   (3.2)%      199      187    6.4 %
    -------------------------------------------------------------------------
    Operating income         512      449   14.0 %      999      928    7.7 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA margin (%)(2)    38.3     36.7  1.6 pts     38.9     37.4  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 increased by $21 million in the second quarter and first six months of 2010, when compared to the same periods in 2009. Wireless network revenue increased by $44 million and $61 million, respectively, from growth in data revenue driven by increasing smartphone adoption, partly offset by declining voice revenue. Wireless equipment and other revenue increased by $27 million and $57 million, respectively, from the acquisition of Black's Photo in September 2009 and increased smartphone sales. Wireline segment data revenue increased by $27 million and $47 million, respectively, from growth in TELUS TV and increased managed workplace revenues, but was more than offset by declines in legacy voice and other revenues of $77 million in the second quarter and $144 million for the first six months.

Operations expense

Operations expenses were relatively unchanged in the second quarter and first six months of 2010, when compared to the same periods in 2009.

    
    -------------------------------------------------------------------------
                                                         Six-month periods
                            Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Salaries, benefits(1)
     and employee-related
     expenses                582      612   (4.9)%    1,152    1,203   (4.2)%
    Other operations
     expenses                878      839    4.6 %    1,737    1,689    2.8 %
    -------------------------------------------------------------------------
    Total operations
     expense               1,460    1,451    0.6 %    2,889    2,892   (0.1)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) Includes defined benefit pension plan expenses (principally in the
        wireline segment): $7 million and $5 million, respectively, in the
        second quarter of 2010 and 2009, and $14 million and $9 million,
        respectively, in the first six months of 2010 and 2009.
    -------------------------------------------------------------------------

    In respect of changes in operations expense:

    -   Salaries, benefits and employee-related expenses decreased by
        $30 million and $51 million, respectively, 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 expenses from
        inclusion of Black's Photo, acquired in September 2009.

    -   Other operations expenses increased by $39 million and $48 million,
        respectively, mainly due to higher wireless combined subscriber
        acquisition and retention costs and inclusion of Black's Photo
        expenses in 2010, as well as increased TELUS TV costs related to the
        98% year-over-year increase in the subscriber base and higher
        wireline advertising and promotions costs, partly offset by other
        wireline cost decreases.
    

Restructuring costs

Restructuring costs decreased by $34 million and $56 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009, reflecting accelerated restructuring activities during 2009, principally in the wireline segment. A full-year expense of approximately $75 million is expected for efficiency initiatives in 2010 (see Section 9). Current restructuring costs were primarily severance costs in respect of efficiency initiatives described in Investing in internal capabilities in Section 2.

EBITDA

EBITDA increased by $46 million and $80 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009, primarily due to improving wireless network revenue growth and sustained traction from efficiency initiatives. In addition, the six-month period includes a one-time high margin application software sale and one-time operating savings in the first quarter of 2010. Wireline EBITDA increased by $16 million and $41 million, respectively, and wireless EBITDA increased by $30 million and $39 million, respectively.

Depreciation; Amortization of intangible assets

Combined depreciation and amortization expenses decreased by $17 million in the second quarter of 2010 and increased by $9 million in the first six months of 2010 when compared to the same periods in 2009.

    
    -   Depreciation decreased by $14 million and $3 million, respectively,
        in the second quarter and first six months of 2010 when compared to
        the same periods in 2009, primarily from asset life changes as a part
        of a continuing program of asset life studies (including an increase
        in the estimated useful life for TELUS TV set-top boxes in 2010), as
        well as from certain computer hardware and digital cell sites
        becoming fully depreciated (while the majority remain in service),
        and lower retirements in 2010. These decreases were partly offset by
        growth in TELUS TV and broadband capital assets, including ADSL2+,
        VDSL2, gigabit passive optical network (GPON) technology and the
        wireless HSPA network.

    -   Amortization decreased by $3 million in the second quarter of 2010
        and increased by $12 million in the first six months of 2010, when
        compared to the same periods in 2009. Higher amortization from
        increased software assets, including application software supporting
        wireless HSPA services, was partly offset by an investment tax credit
        of approximately $5 million in the second quarter of 2010 for assets
        capitalized in prior years that are now fully amortized.
    

Operating income

Operating income increased by $63 million and $71 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009, principally from 5% higher EBITDA and lower second quarter depreciation and amortization expenses.

Other income statement items

    
    -------------------------------------------------------------------------
                                                         Six-month periods
    Other expense, net      Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
                               6       11  (45.5)%       14       16  (12.5)%
    -------------------------------------------------------------------------
    

Other expense, net includes accounts receivable securitization expense, investment losses or income, gains or losses on disposal of real estate, and charitable donations.

Other expenses decreased by $5 million and $2 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009. Charitable donations decreased in the second quarter of 2010 compared with the same period in 2009, due to higher first quarter remittances in 2010. Accounts receivable securitization expenses were $2 million and $4 million, respectively, in the second quarter and first six months of 2010, unchanged from the same periods in 2009. See Section 7.6 Accounts receivable sale for additional information.

    
    -------------------------------------------------------------------------
                                                         Six-month periods
    Financing costs         Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Interest expenses
     (Interest on
     long-term debt,
     short-term
     obligations
     and other)              113      116   (2.6)%      226      231   (2.2)%
    Foreign exchange
     losses (gains)            1        4    n/m          1       (3)   n/m
    Interest income
     - tax refunds             -      (14)   n/m          -      (26)   n/m
    Interest income
     - other                   -        -      -         (1)      (1)     -
    -------------------------------------------------------------------------
                             114      106    7.5 %      226      201   12.4 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

Interest expenses decreased by $3 million and $5 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009. The decrease resulted 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                                         Six-month periods
    ($ millions, except     Quarters ended June 30         ended June 30
     tax rates)             2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Basic blended federal
     and provincial tax
     at statutory income
     tax rates               113      100   13.0 %      219      215    1.9 %
    Revaluation of future
     income tax liability
     to reflect future
     statutory income
     tax rates                (9)      (7)     -        (16)     (26)     -
    Tax rate differential
     on, and consequential
     adjustments from,
     reassessments of prior
     years' tax issues       (10)      (8)     -        (11)     (48)     -
    Share option award
     compensation              1        2      -          2        3      -
    Other                      1        1      -          1        1      -
    -------------------------------------------------------------------------
                              96       88    9.1 %      195      145   34.5 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Blended federal and
     provincial statutory
     tax rates (%)          28.8     30.1 (1.3)pts     28.9     30.2 (1.3)pts
    Effective tax
     rates (%)              24.5     26.5 (2.0)pts     25.7     20.4  5.3 pts
    -------------------------------------------------------------------------
    

Basic blended statutory income taxes increased by $13 million and $4 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009, due to respective increases of 18% and 7% in Income before income taxes, partly offset by 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                                  Six-month periods
     income                Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
                               2      (10)     n/m       18       20  (10.0)%
    -------------------------------------------------------------------------
    

Other comprehensive income includes changes in unrealized fair value of derivatives designated as cash flow hedges, principally associated with U.S. dollar debt, and foreign currency translation adjustments arising from translating financial statements of self-sustaining foreign operations.

5.4 Wireline segment

    
    -------------------------------------------------------------------------
    Operating revenues -                                 Six-month periods
     wireline segment       Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Voice local              426      470   (9.4)%      865      940   (8.0)%
    Voice long distance      136      163  (16.6)%      269      329  (18.2)%
    Data                     557      530    5.1 %    1,115    1,068    4.4 %
    Other                     62       68   (8.8)%      130      139   (6.5)%
    -------------------------------------------------------------------------
    External operating
     revenue               1,181    1,231   (4.1)%    2,379    2,476   (3.9)%
    Intersegment revenue      40       31   29.0 %       76       64   18.8 %
    -------------------------------------------------------------------------
    Total operating
     revenues              1,221    1,262   (3.2)%    2,455    2,540   (3.3)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Total wireline segment revenues decreased by $41 million and $85 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Voice local revenue decreased by $44 million and $75 million,
        respectively. The decreases continue 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.


    Wireline operating indicators
    -------------------------------------------------------------------------
                                                          As at June 30
    (000s)                                            2010     2009   Change
    -------------------------------------------------------------------------
    Network access lines (NALs)(1)
    Residential                                      2,122    2,311    (8.2)%
    Business                                         1,723    1,764    (2.3)%
    -------------------------------------------------------------------------
    Total                                            3,845    4,075    (5.6)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                        Six month periods
                           Quarters ended June 30         ended June 30
    (000s)                 2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Net (losses)
     additions in NALs
    Residential             (51)     (43)  (18.6)%    (101)     (87)  (16.1)%
    Business                (12)      (5) (140.0)%     (20)     (14)  (42.9)%
    -------------------------------------------------------------------------
    Total                   (63)     (48)  (31.3)%    (121)    (101)  (19.8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) As a result of a periodic subscriber measurement review and
        correction during the first quarter of 2010, historical NALs were
        restated for the prior periods commencing in 2007. Total NALs at
        June 30, 2009, reflect a reduction of 9,000 residential NALs from the
        figure reported in the prior year, 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
        60,000 from the figure reported in the prior year, 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 second quarter and first six months of 2010, relative to the loss experience in the same periods in 2009, as a result of aggressive promotional activity from the primary cable- TV competitor for local and Internet services. Business NAL net losses reflect steady churn rates, lower levels of additions, and slower growth in data lines from the completion of some large enterprise deals that also included large private IP networks. Growth in certain data services such as private IP 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 $27 million and $60 million,
        respectively, reflecting ongoing industry-wide price competition,
        losses of local subscribers, and technological substitution to
        wireless and Internet-based services. Retail and wholesale minute
        volumes declined.

    -   Wireline data revenues increased by $27 million and $47 million,
        respectively. The increases resulted from: (i) subscriber growth in
        TELUS TV services; (ii) higher managed workplace revenues including a
        high margin software application sale in the first quarter of 2010;
        and (iii) increased Internet, enhanced data and hosting services,
        partly offset by lower average retail prices from competitive pricing
        pressure. These increases were partly offset by declining legacy
        basic data services.

    Wireline operating indicators
    -------------------------------------------------------------------------
                                                          As at June 30
    (000s)                                            2010     2009   Change
    -------------------------------------------------------------------------
    Internet subscribers
    High-speed(1)                                    1,134    1,108     2.3 %
    Dial-up                                             73      105   (30.5)%
    -------------------------------------------------------------------------
    Total(1)                                         1,207    1,213    (0.5)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TELUS TV subscribers(1)                            228      115    98.3 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                        Six month periods
                           Quarters ended June 30         ended June 30
    (000s)                 2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Net additions (losses)
     of Internet
     subscribers
    High-speed                3        3       -         6       17   (64.7)%
    Dial-up                  (7)      (9)   22.2 %     (14)     (19)   26.3 %
    -------------------------------------------------------------------------
    Total                    (4)      (6)   33.3 %      (8)      (2)    n/m
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    TELUS TV subscriber
     net additions(1)        29       17    70.6 %      58       37    56.8 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) Includes TELUS Satellite TV(TM) subscribers beginning in second
        quarter of 2009.
    -------------------------------------------------------------------------
    

High-speed Internet subscriber net additions were unchanged in the second quarter and lower in the first six months of 2010, relative to the same periods in 2009. The low level of net additions in 2010 reflects ongoing competitive intensity and a maturing market. TELUS TV subscriptions nearly doubled in the 12-month period ended June 30, 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. As described in Section 2, the Company introduced its new Optik TV and high-speed Internet service in June 2010. The Company is focused on upgrading existing subscribers, as well as rolling out Optik to new customers.

    
    -   Other revenue decreased by $6 million and $9 million, respectively,
        primarily 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 -                                 Six month periods
     wireline segment       Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009     2010
    -------------------------------------------------------------------------
    Salaries, benefits
     and employee-related
     expenses                436      466   (6.4)%      861      918   (6.2)%
    Other operations
     expenses                370      367    0.8 %      732      749   (2.3)%
    -------------------------------------------------------------------------
    Operations expenses      806      833   (3.2)%    1,593    1,667   (4.4)%
    Restructuring costs       19       49  (61.2)%       23       75  (69.3)%
    -------------------------------------------------------------------------
    Total operating
     expenses                825      882   (6.5)%    1,616    1,742   (7.2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Wireline total operating expenses decreased by $57 million and $126 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Salaries, benefits and employee-related expenses decreased by
        $30 million and $57 million, respectively, 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 increased by $3 million in the second
        quarter and decreased by $17 million in the first six months.
        Increased expenses included higher TELUS TV programming and material
        costs related to the 98% year-over-year increase in the subscriber
        base, higher advertising and promotions costs, and lower labour
        capitalization from lower capital intensity in 2010. These increases
        were offset by lower transit and termination costs from lower
        outbound long distance minute volumes and per-minute costs and lower
        cost of sales from lower equipment sales volumes. The six-month
        period included one-time operating savings in the first quarter of
        2010.

    -   Restructuring costs decreased by $30 million and $52 million,
        respectively. See discussion in Section 5.3.

    -------------------------------------------------------------------------
    EBITDA - wireline                                    Six month periods
     segment                Quarters ended June 30         ended June 30
                            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    EBITDA ($ millions)      396      380    4.2 %      839      798    5.1 %
    EBITDA margin (%)       32.4     30.1  2.3 pts     34.2     31.4  2.8 pts
    -------------------------------------------------------------------------
    

The wireline segment EBITDA increased by $16 million and $41 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009. Improvement in EBITDA margins resulted from lower restructuring costs and operating savings realized from efficiency initiatives to mitigate declining voice revenues, as well as a high margin software application sale in the first quarter of 2010.

5.5 Wireless segment

    
    -------------------------------------------------------------------------
    Operating revenues -                                 Six month periods
     wireless segment       Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Network revenue        1,135    1,091    4.0 %    2,224    2,163    2.8 %
    Equipment and other
     revenue                  82       55   49.1 %      170      113   50.4 %
    -------------------------------------------------------------------------
    External operating
     revenue               1,217    1,146    6.2 %    2,394    2,276    5.2 %
    Intersegment revenue       9        7   28.6 %       16       14   14.3 %
    -------------------------------------------------------------------------
    Total operating
     revenues              1,226    1,153    6.3 %    2,410    2,290    5.2 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Wireless segment revenues increased by $73 million and $120 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Network revenue increased by $44 million and $61 million,
        respectively, in the second quarter and first six months of 2010,
        when compared to the same periods in 2009. The increases were due to
        continued wireless data revenue growth and the 6.5% year-over-year
        growth in the subscriber base, partly offset by decreased voice
        revenues. Data revenue increased by $57 million or 26% in the second
        quarter, and $107 million or 25% in the first six months, reflecting
        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, as well as
        increased mobile Internet keys, and higher inbound data roaming
        volumes, partly offset by lower roaming rates. Data revenue
        represented 24% of network revenue for the first half of 2010, as
        compared to 20% in the same period in 2009. Voice revenue declined by
        $13 million or 1.5% in the second quarter and $46 million or 2.6% in
        the first six months, primarily due to falling voice ARPU, described
        further below.

        Smartphones represented 30% of postpaid gross additions in the second
        quarter of 2010, as compared to 15% in the same period in 2009. At
        June 30, 2010, smartphone subscribers represented 25% of the postpaid
        subscriber base as compared to 16% one year earlier. Smartphone
        subscribers generate significantly higher ARPU than those with
        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 $57.47 in the second quarter of 2010 decreased by
        $1.14 or 1.9% when compared to the same period in 2009, and reflected
        the seasonal sequential increase when compared to $55.80 in the first
        quarter of 2010. The 1.9% year-over-year decline in the second
        quarter is a continued improvement from the 4.4% decline in the first
        quarter of 2010 and the 7.7% decline in the fourth quarter of 2009.
        Blended ARPU for the first six months of 2010 was $56.64, a decrease
        of $1.86 or 3.2% from the same period in 2009. Data ARPU was $13.80
        and $13.47, respectively, in the second quarter and first six months
        of 2010, reflecting increases of $2.24 or 19% for the quarter and
        increases of $2.06 or 18% for the six-month period, when compared to
        the same periods in 2009. Voice ARPU was $43.67 and $43.17,
        respectively, in the second quarter and first six months of 2010, or
        decreases of $3.38 or 7.2% for the quarter and decreases of $3.92 or
        8.3% for the six-month period, when compared to the same periods in
        2009. While the year-over-year decline in voice ARPU has moderated
        from the 9.5% decrease experienced in the first quarter of 2010 and
        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, growing substitution of text messaging for
        voice calls, elimination of system access fees and carrier e911
        charges, lower Mike service ARPU, and decreased inbound roaming
        rates, partly offset by higher service feature revenues and increased
        inbound roaming volumes.

        Gross and net subscriber additions reflect improvement in economic
        conditions, enhanced distribution for the iPhone commencing in March
        2010 and a concerted effort to attract and retain high value postpaid
        customers. Total gross subscriber additions increased by just under
        3% in the second quarter and first six months of 2010, when compared
        to the same periods in 2009, with postpaid gross additions increasing
        by approximately 12% in both periods. Postpaid gross additions were
        approximately 67% of the total in the second quarter and first six
        months of 2010, as compared to approximately 61% in the same periods
        in 2009.

        Net additions for the second quarter and first six months of 2010
        increased when compared to the same periods in 2009, and reflect
        continued improvement in the postpaid/prepaid mix. In 2010, second
        quarter postpaid net additions represented 88% of the total (86% in
        2009), while six-month postpaid net additions were 99% of the total
        (87% in 2009). Prepaid subscriber net additions were relatively flat
        for the second quarter of 2010 when compared to the same period in
        2009 due to lower churn, while for the first six months of 2010,
        prepaid net additions were down significantly from the same period in
        2009, as the Company did not respond to competitor handset
        discounting in this segment and focused on higher value, postpaid
        subscriber growth.

        The blended churn rates were 1.45% and 1.50%, respectively, in the
        second quarter and first six months of 2010, as compared to 1.55% and
        1.59%, respectively, in the same periods in 2009. The decrease in
        churn rates reflect lower involuntary churn, the availability of the
        new HSPA/HSPA+ network, greater choice in handsets including the
        Apple iPhone, and successful retention efforts, partly offset by
        increased competitive marketing intensity within both the postpaid
        and prepaid market segments.

    -   Equipment and other revenues increased by $27 million and
        $57 million, respectively, in the second quarter and first six months
        of 2010, when compared to the same periods in 2009. The increases
        were 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, partly offset by lower
        activation revenues due to matching of competitive offers.

    -   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 June 30
                                                      2010     2009   Change
    -------------------------------------------------------------------------
    Subscribers (000s)
    Postpaid                                         5,464    5,061     8.0 %
    Prepaid                                          1,235    1,227     0.7 %
    -------------------------------------------------------------------------
    Total                                            6,699    6,288     6.5 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Proportion of subscriber
     base that is postpaid (%)                        81.6     80.5  1.1 pts.
    Digital POPs(1) covered
     (millions)(2)                                    33.7     32.7     3.1 %
    HSPA POPs covered
     (millions)(2)                                    31.7        -     n/m

                                                        Six-month periods
                           Quarters ended June 30         ended June 30
                           2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Subscriber gross
     additions (000s)
    Postpaid                277      247   12.1 %      515      462    11.5 %
    Prepaid                 136      155  (12.3)%      254      286   (11.2)%
    -------------------------------------------------------------------------
    Total                   413      402    2.7 %      769      748     2.8 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Subscriber net
     additions (000s)
    Postpaid                109       95   14.7 %      174      139    25.2 %
    Prepaid                  15       16   (6.3)%        1       20   (95.0)%
    -------------------------------------------------------------------------
    Total                   124      111   11.7 %      175      159    10.1 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ARPU(3) ($)           57.47    58.61   (1.9)%    56.64    58.50    (3.2)%
    Churn, per
     month(3) (%)          1.45     1.55 (0.10)pts    1.50     1.59 (0.09)pts
    Average monthly
     minutes of use per
     subscriber (MOU)       373      402   (7.2)%      366      392    (6.6)%
    COA(4) per gross
     subscriber
     addition(3) ($)        342      311   10.0 %      333      322     3.4 %
    Retention spend to
     network
     revenue(3) (%)         9.9     10.6 (0.7)pts     10.6     10.5   0.1 pts
    EBITDA excluding
     COA ($ millions)       665      618    7.6 %    1,276    1,222     4.4 %
    EBITDA to network
     revenue (%)           46.1     45.2  0.9 pts     45.9     45.4   0.5 pts
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    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 -                                 Six-month periods
     wireless segment       Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Equipment sales
     expenses                217      190   14.2 %      435      373   16.6 %
    Network operating
     expenses                160      150    6.7 %      317      304    4.3 %
    Marketing expenses       101       93    8.6 %      187      186    0.5 %
    General and
     administration (G&A)
     expenses
      Salaries, benefits
       and employee-
       related expenses      146      146      - %      291      285    2.1 %
      Other G&A expenses      79       77    2.6 %      158      155    1.9 %
    -------------------------------------------------------------------------
    Operations expense       703      656    7.2 %    1,388    1,303    6.5 %
    Restructuring costs        -        4 (100.0)%        2        6  (66.7)%
    -------------------------------------------------------------------------
    Total operating
     expenses                703      660    6.5 %    1,390    1,309    6.2 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Wireless segment total operating expenses increased by $43 million and $81 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Equipment sales expenses increased by $27 million and $62 million,
        respectively, 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. This category includes
        results from Black's Photo since September 2009.

    -   Network operating expenses increased by $10 million and $13 million,
        respectively. The increases reflected growth in roaming volumes, the
        introduction of regulated e911 fees for wireless subscribers in
        Quebec and slightly higher costs to support double-digit growth in
        data revenues, partly offset by lower roaming costs from reduced
        rates. 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.

    -   Marketing expenses increased by $8 million and $1 million,
        respectively. COA per gross subscriber addition increased by $31 or
        10% in the second quarter of 2010 and increased by $11 or 3.4% for
        the first six months of 2010, when compared to the same periods in
        2009. COA per gross subscriber addition for the second quarter
        increased due to higher per-unit subsidy and commission costs driven
        by a higher smartphone mix, and higher advertising and promotion
        expenditures related to new device launches, partly offset by a
        favourable U.S. dollar exchange rate (compared to 2009). For the
        first six months, COA per gross subscriber addition increased due to
        higher per-unit subsidy costs and higher advertising and promotion
        expenditures, partly offset by a favourable U.S. dollar exchange
        rate. In addition, COA per gross subscriber addition increased in the
        second quarter of 2010 due to a one-time settlement of channel
        subsidies for prior periods.

        Retention costs as a percentage of network revenue decreased to 9.9%
        in the second quarter, and increased to 10.6% in the first six months
        of 2010, as compared to 10.6% and 10.5%, respectively, in the same
        periods in 2009. Retention costs in the second quarter of 2010
        decreased slightly when compared to the same period in 2009 in part
        due to improving network revenue growth and a favourable U.S. dollar
        exchange rate (compared to 2009). Retention costs for the quarter and
        six-month period were also positively impacted by lower commissions
        per retention subscriber, offset by higher retention volumes related
        to a larger subscriber base and an increased volume of clients
        migrating to smartphones, including upgrades to HSPA devices.

    -   Total G&A expenses increased by $2 million and $9 million,
        respectively, mainly due to higher salaries, benefits and employee-
        related costs from inclusion of Black's Photo expenses in 2010,
        mostly offset by fewer domestic full-time equivalent employees. 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,
        for the first six months of 2010, one-time operating savings in the
        first quarter of 2010. Bad debt expense decreased by $7 million in
        the second quarter and $16 million for the first six months,
        reflecting decreased involuntary subscriber churn from an improving
        economy.

    -   Restructuring costs decreased by $4 million for the quarter and six-
        month periods. See discussion in Section 5.3.

    -------------------------------------------------------------------------
    EBITDA - wireless                                   Six-month periods
     segment               Quarters ended June 30         ended June 30
                           2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    EBITDA ($ millions)     523      493    6.1 %    1,020      981    4.0 %
    EBITDA margin (%)      42.7     42.8 (0.1)pts.    42.3     42.8 (0.5)pts.
    -------------------------------------------------------------------------
    

The wireless segment EBITDA increased by $30 million and $39 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009. This reflects improvement in terms of data growth, lower ARPU erosion and lower bad debt expense. Wireless margins were pressured primarily due to higher combined acquisition and 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 six- month period ended June 30, 2010, are as follows:

    
    -------------------------------------------------------------------------
    Financial
     position
     as at:        June 30,  Dec. 31,       Changes          Explanation
    ($ millions)      2010      2009                        of the change
    -------------------------------------------------------------------------
    Current Assets

    Cash and            41        41        -      - %  See Section 7:
     temporary                                          Liquidity and capital
     investments,                                       resources
     net

    Accounts           780       694       86     12 %  The increase
     receivable                                         reflected a $100
                                                        million reduction in
                                                        proceeds from
                                                        securitized accounts
                                                        receivable (see
                                                        Section 7.6), partly
                                                        offset by a seasonal
                                                        decrease in
                                                        receivables from
                                                        wireless dealers.
                                                        Accounts receivable
                                                        turnover was 45 days
                                                        at June 30, 2010
                                                        compared to 46 days
                                                        at December 31, 2009
                                                        and 43 days at
                                                        June 30, 2009.

    Income and other   152        16      136    n/m    Reflects an increase
     taxes                                              in accrued income and
     receivable                                         other taxes
                                                        receivable, as well
                                                        as current year
                                                        instalments, net of
                                                        current income tax
                                                        expense

    Inventories        173       270      (97)   (36)%  Primarily a decrease
                                                        in wireless handset
                                                        volumes, parts and
                                                        accessories, and
                                                        lower average cost of
                                                        new handsets

    Prepaid expenses   217       105      112    107 %  Mainly annual
                                                        payments of property
                                                        taxes, front-loaded
                                                        payments of employee
                                                        benefits, payment of
                                                        annual wireless
                                                        licence fees and
                                                        maintenance
                                                        contracts, all net of
                                                        amortization

    Derivative assets    6         1        5    n/m    Fair value
                                                        adjustments for
                                                        handset foreign
                                                        exchange hedges and
                                                        operational hedges
    -------------------------------------------------------------------------
    Current
     Liabilities

    Accounts         1,274     1,385     (111)    (8)%  Mainly lower accrued
     payable and                                        liabilities and trade
     accrued                                            payables arising from
     liabilities                                        lower operating and
                                                        capital expenditure
                                                        levels

    Income and other     6       182     (176)   (97)%  Primarily reflects
     taxes payable                                      final income tax
                                                        payments in the first
                                                        quarter of 2010 for
                                                        the 2009 tax year

    Restructuring       83       135      (52)   (39)%  Payments exceeded new
     accounts                                           obligations from
     payable and                                        restructuring
     accrued                                            initiatives
     liabilities

    Dividends          161       150       11      7 %  Primarily reflects
     payable                                            the 5.3% increase in
                                                        the dividend rate for
                                                        the dividend paid
                                                        July 2, 2010

    Advance billings   560       674     (114)   (17)%  Includes a
     and customer                                       reclassification of
     deposits                                           $128 million of the
                                                        regulatory price
                                                        deferral account to
                                                        Other long-term
                                                        liabilities

    Current          1,463        82    1,381    n/m    The June 30 balance
     maturities of                                      includes $1,432
     long-term debt                                     million for 8% U.S.
                                                        dollar Notes maturing
                                                        in June 2011. The
                                                        June 30 and
                                                        December 31 balances
                                                        include $30 million
                                                        for TCI 11.5% Series
                                                        U First Mortgage
                                                        Bonds maturing in
                                                        July 2010. TCI 12%
                                                        Series 1 debentures
                                                        of $50 million,
                                                        current at
                                                        December 31, matured
                                                        and were repaid in
                                                        May 2010.

    Derivative         721        62      659    n/m    Includes
     liabilities                                        reclassification of
                                                        derivative
                                                        liabilities
                                                        associated with the
                                                        June 2011 maturity of
                                                        U.S. dollar Notes
                                                        from Other long-term
                                                        liabilities, partly
                                                        offset by fair value
                                                        adjustments for share
                                                        option and restricted
                                                        share unit hedges,
                                                        and cash settled
                                                        option derivative
                                                        unwind

    Current portion    417       294      123     42 %  Primarily due to
     of future                                          changes in
     income taxes                                       partnership income
                                                        that will be
                                                        allocated over the
                                                        next 12 months, as
                                                        well as changes in
                                                        the accounting
                                                        classification of
                                                        liabilities between
                                                        current and long-term
    -------------------------------------------------------------------------
    Working         (3,316)   (1,837)  (1,479)   (81)%  Primarily due to U.S.
     capital(1)                                         dollar Notes maturing
                                                        in June 2011 (see
                                                        Section 7.3)
    -------------------------------------------------------------------------
    Non-Current
     Assets

    Property,        7,618     7,729     (111)    (1)%  See Capital
     plant,                                             expenditures in
     equipment and                                      Section 7.2 Cash used
     other, net                                         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
                                                        licences of $3,849
                                                        million.

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

    Other            1,686     1,602       84      5 %  Primarily pension
     long-term                                          plan funding and
     assets                                             continued
                                                        amortization of
                                                        transitional pension
                                                        assets

    Investments         41        41        -      - %  The sale of a small
                                                        investment was offset
                                                        by new investments
    -------------------------------------------------------------------------
    Non-Current
     Liabilities

    Long-Term Debt   4,740     6,090   (1,350)   (22)%  The decrease
                                                        primarily reflects
                                                        reclassification of
                                                        8% U.S. dollar Notes
                                                        maturing in June 2011
                                                        to Current maturities
                                                        of long-term debt),
                                                        net of a $57 million
                                                        increase in
                                                        commercial paper

    Other Long-Term    673     1,271     (598)   (47)%  The decrease
     Liabilities                                        primarily reflects
                                                        reclassification the
                                                        $721 million
                                                        derivative liability
                                                        associated with the
                                                        8% U.S. dollar Notes
                                                        maturing in June 2011
                                                        to Current
                                                        Liabilities, partly
                                                        offset by the
                                                        reclassification of
                                                        $128 million of the
                                                        price cap deferral
                                                        account from Advance
                                                        billings and customer
                                                        deposits in Current
                                                        Liabilities

    Future Income    1,380     1,319       61      5 %  An increase in future
     Taxes                                              taxes on long-term
                                                        assets and
                                                        liabilities partly
                                                        offset by a
                                                        reclassification to
                                                        the Current portion
                                                        of future income
                                                        taxes
    -------------------------------------------------------------------------
    Owners' Equity

    Common Share     7,882     7,554      328      4 %  Mainly Net income of
     and Non-Voting                                     $562 million and
     Share equity                                       Other comprehensive
                                                        income of $18 million
                                                        attributable to
                                                        holders of Common
                                                        Shares and Non-Voting
                                                        Shares, less declared
                                                        dividends of $313
                                                        million, and adding
                                                        back $53 million for
                                                        treasury shares
                                                        issued for dividends
                                                        reinvested in
                                                        Non-Voting Shares
                                                        under the dividend
                                                        re-investment plan.

    Non-controlling     22        21        1      5 %  Net income of $2
     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                                       Six-month periods
     cash flows             Quarters ended June 30         ended June 30
    ($ millions)            2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Cash provided by
     operating activities    523      852  (38.6)%      937    1,466  (36.1)%
    Cash used by investing
     activities             (389)    (552)  29.5 %     (696)  (1,030)  32.4 %
    Cash used by financing
     activities             (139)    (339)  59.0 %     (241)    (414)  41.8 %
    -------------------------------------------------------------------------
    Increase (decrease)
     in cash and temporary
     investments, net         (5)     (39)     -          -       22      -
    Cash and temporary
     investments, net,
     beginning of period      46       65      -         41        4      -
    -------------------------------------------------------------------------
    Cash and temporary
     investments, net,
     end of period            41       26   57.7 %       41       26   57.7 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

7.1 Cash provided by operating activities

Cash provided by operating activities decreased by $329 million and $529 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009. Decreases in cash flow were primarily due to the following:

    
    -   Payments under restructuring plans increased by $26 million in the
        six-month period.

    -   Interest received decreased by $35 million in both the second quarter
        and six-month period. The $35 million interest received in the second
        quarter of 2009 was primarily due to the settlement of prior years'
        tax matters.

    -   Income tax payments, net of refunds received, were $58 million in the
        second quarter and $309 million in the first six months of 2010, or
        increases of $50 million and $87 million, respectively. Refunds
        received were $nil in the second quarter of 2010 ($4 million in the
        first six months of 2010), as compared to $54 million received in the
        second quarter of 2009.

    -   Changes in proceeds from securitized accounts receivable (included in
        Net change in non-cash working capital) are a use of cash when
        proceeds are reduced and a source of cash when the proceeds are
        increased. Proceeds from securitized accounts receivable were
        unchanged during the second quarter of 2010, as compared to an
        increase of $100 million during the second quarter of 2009, for a
        comparative $100 million decrease in second quarter cash flow.
        Proceeds decreased by $100 million during the first six months of
        2010, as compared to an increase of $100 million in the same period
        in 2009, for a $200 million comparative decrease in six-month cash
        flow. See Section 7.6 Accounts receivable sale.

    -   Other changes in non-cash working capital, including: (i) a smaller
        decrease in customer receivables in the first six months of 2010 when
        compared to the same period in 2009; (ii) smaller inventory
        reductions in the second quarter and first six months of 2010,
        compared to the same periods in 2009, due to smaller inventory
        balances in 2010; and (iii) a larger increase in prepaid expenses in
        the second quarter and first six-months of 2010, when compared to the
        same periods in 2009.

    Decreases in cash flow were partly offset by:

    -   An increase in EBITDA before restructuring costs of $12 million and
        $24 million, respectively, in the second quarter and first six months
        of 2010 when compared to the same periods in 2009.

    -   A decrease in employer contributions to defined benefit plans, net of
        defined benefit plan expenses, of $9 million in the quarter and
        $20 million for the six-month period. See assumptions for defined
        benefit pension plans in Section 9.

    -   A decrease in interest paid of $12 million in the six-month period.
    

7.2 Cash used by investing activities

Cash used by investing activities decreased by $163 million and $334 million, respectively in the second quarter and first six months of 2010 when compared to the same periods in 2009, principally due to lower capital expenditures.

    
    -------------------------------------------------------------------------
    Capital expenditures                                 Six-month periods
    ($ millions, except     Quarters ended June 30         ended June 30
     capital intensity)     2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------
    Wireline segment         298      368  (19.0)%      550      646  (14.9)%
    Wireless segment          99      189  (47.6)%      158      385  (59.0)%
    -------------------------------------------------------------------------
    Total capital
     expenditures            397      557  (28.7)%      708    1,031  (31.3)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA less capital
     expenditures(1)         522      316   65.2 %    1,151      748   53.9 %
    Capital
     intensity(2) (%)         17       23 (6.0)pts       15       22 (7.0)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 $160 million and $323 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods 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, as well as a deferral of expenditures ahead of the July 1, 2010, implementation of harmonized sales taxes (HST) in B.C. and Ontario. 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 $206 million and $403 million, respectively, in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Wireline segment

        Wireline capital expenditures decreased by $70 million and
        $96 million, respectively, in the second quarter and first six months
        of 2010 when compared to the same periods in 2009. The decrease
        reflected lower expenditures for network growth as demand moderated,
        as well as lower expenditures for ADSL2+ due to significant activity
        in 2009, partly offset by increased expenditures for TELUS TV, VDSL2
        and gigabit passive optical network (GPON) technology (see Section 2 -
        Building national capabilities and following). Wireline capital
        intensity decreased to 22% in the first half of 2010 from 25% in the
        first half of 2009. Consequently, wireline cash flow (EBITDA less
        capital expenditures) was $289 million in the first half of 2010, up
        by $137 million or 90% when compared to the first half of 2009.

    -   Wireless segment

        Wireless capital expenditures decreased by $90 million and
        $227 million, respectively, in the second quarter and first six
        months of 2010 when compared to the same periods 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 7% in the first half of 2010 from 17% in the first half
        of 2009. Capital spending is expected to pick up in future quarters.
        Wireless cash flow (EBITDA less capital expenditures) was
        $862 million in the first half of 2010, up by $266 million or 45%
        when compared to the first half of 2009.
    

7.3 Cash used by financing activities

Net cash used by financing activities decreased by $200 million and $173 million, respectively in the second quarter and first six months of 2010 when compared to the same periods in 2009.

    
    -   Cash dividends paid to holders of Common Shares and Non-Voting Shares
        were $120 million and $249 million, respectively, in the second
        quarter and first six months of 2010. The amounts are the dividends
        declared, net of amounts reinvested in TELUS Non-Voting Shares issued
        from treasury at a 3% discount under the Company's amended dividend
        reinvestment plan (DRIP). No shares were issued from treasury for the
        cash dividend payments of $151 million and $302 million,
        respectively, in the second quarter and first six months of 2009.

        The quarterly dividends paid per share were 47.5 cents at January 4
        and April 1, 2010, unchanged from comparable quarterly dividends in
        2009. The quarterly dividend paid on July 2, 2010, was 50 cents per
        share, a 5.3% increase from the dividend paid in April.

    -   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. In the second quarter of 2010, commercial paper
        increased by $29 million to $524 million. No amounts were drawn
        against the 2012 credit facility at June 30, 2010 (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. During the second quarter of 2009, due primarily to
        the successful issue of new Notes in May, the Company reduced
        commercial paper to $604 million and reduced net amounts drawn on the
        2012 credit facility to $nil.

    -   Long-term debt issue in July 2010; planned early partial redemption
        of U.S. dollar Notes

        On July 23, 2010, the Company successfully closed a public offering
        of 5.05%, Series CH Notes maturing in July 2020, for gross proceeds
        of $1 billion. The Series CH Notes are redeemable at the option of
        the Company, in whole at any time, or in part from time to time, on
        not fewer than 30 and not more than 60 days' prior notice, at a
        redemption price equal to the greater of (i) the present value of the
        Notes discounted at the Government of Canada yield plus 47 basis
        points, or (ii) 100% of the principal amount thereof. In addition,
        accrued and unpaid interest, if any, will be paid to the date fixed
        for redemption.

        The new Series CH Notes require that the Company make an offer to
        repurchase the Notes at a price equal to 101% of their principal plus
        accrued and unpaid interest to the date of repurchase upon the
        occurrence of a change in control triggering event, as defined in the
        supplemental trust indenture.

        Net proceeds of approximately $993 million will be used to fund the
        early partial redemption of U.S.$607 million of the Company's
        publicly held U.S. dollar, 8% Notes maturing in June 2011, as well as
        payments to terminate cross currency interest rate swaps associated
        with the Notes to be redeemed and any excess for corporate purposes.
        On July 27, 2010, TELUS delivered a redemption notice to the trustee
        that specified a redemption date of September 2, 2010. The early
        redemption is expected to cause a pre-tax charge of approximately
        $58 million, or after tax, approximately 13 cents per share in the
        third quarter.

    -   Long-term debt issue in May 2009

        In the prior year, the Company successfully closed a $700 million
        public offering of 4.95%, Series CF Notes maturing in May 2014.
    

7.4 Liquidity and capital resource measures

    
    -------------------------------------------------------------------------
    Liquidity and capital resource measures
    As at, or 12-month periods ended, June 30       2010      2009    Change
    -------------------------------------------------------------------------
    Components of debt and coverage ratios(1)
     ($ millions)
    -------------------------------------------------------------------------
    Net debt                                       7,221     7,255       (34)
    Total capitalization - book value             15,179    14,764       415
    EBITDA - excluding restructuring costs         3,705     3,820      (115)
    Net interest cost                                557       441       116
    -------------------------------------------------------------------------
    Debt ratios
    -------------------------------------------------------------------------
    Fixed-rate debt as a proportion of total
     indebtedness (%)                                 87        86      1 pt.
    Average term to maturity of debt (years)         4.5       4.2       0.3
    Net debt to total capitalization (%)(1)         47.6      49.1  (1.5)pts.
    Net debt to EBITDA - excluding restructuring
     costs(1)                                        1.9       1.9         -
    -------------------------------------------------------------------------
    Coverage ratios (times)(1)
    -------------------------------------------------------------------------
    Earnings coverage (Interest coverage on
     long-term debt)                                 3.2       4.2      (1.0)
    EBITDA - excluding restructuring costs
     interest coverage                               6.7       8.7      (2.0)
    -------------------------------------------------------------------------
    Other measures
    -------------------------------------------------------------------------
    Free cash flow ($ millions)(2)                   718      (152)      870
    Dividend payout ratio of adjusted net
     earnings (%)(1)                                  66        58     8 pts.
    Dividend payout ratio (%)(1)                      64        53    11 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 June 30, 2010, as compared to one year earlier, includes maturity of $50 million long-term debt in the second quarter of 2010, a reduction in commercial paper and the December 2009 partial early redemption of U.S. dollar Notes, offset by the December 2009, $1 billion 10- year Note issue. A $382 million increase in retained earnings over the twelve- month period ended June 30, 2010, was the primary contributor to higher Total capitalization and the lower Net debt to total capitalization ratio. Net debt to EBITDA (excluding restructuring costs) at June 30, 2010 was unchanged from one year earlier as net debt decreased in proportion with 12-month trailing EBITDA (excluding restructuring costs).

The proportion of debt on a fixed-rate basis was 87% at June 30, 2010, up from 86% one year earlier primarily due to lower amounts of commercial paper outstanding. The average term to maturity of debt increased to 4.5 years at June 30, 2010, from 4.2 years at June 30, 2009, primarily due to the December 2009 issue of ten-year Series CG Notes and the December 2009 early partial redemption of U.S. dollar Notes due June 1, 2011.

The Earnings coverage ratio was 3.2 times for the 12-month period ended June 30, 2010, down from 4.2 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 0.3. The EBITDA (excluding restructuring costs) interest coverage ratio for the 12-month period ended June 30, 2010, was 6.7 times, down from 8.7 times one year earlier due mainly to the loss on redemption of long-term debt recorded in December 2009, as well as lower EBITDA before restructuring costs and lower interest income included in net interest costs. This ratio calculated to exclude the loss on redemption was 8.1 times at June 30, 2010.

Free cash flow (FCF) for the 12-month period ended June 30, 2010, increased by $870 million when compared to the 12-month period ended June 30, 2009. The increase in FCF resulted from lower total capital expenditures, partly offset by lower EBITDA, higher payments for restructuring, interest (net of interest received) and income tax (net of recoveries).

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 June 30, 2010 was 1.9 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 by the Board on
        May 4, 2010, and signals management and Board confidence in the
        mid-term outlook of the Company into 2011. The 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 June 30, 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 June 30, 2010 (see Section 7.6).

    
    TELUS credit facilities at June 30, 2010
    -------------------------------------------------------------------------
                                                    Out-   Backstop
                                                  standing   for
                                                   undrawn  commer-
                                                   letters   cial
                                                      of    paper   Available
    ($ in millions)          Expiry   Size  Drawn   credit program  liquidity
    -------------------------------------------------------------------------
    Five-year
     revolving
     facility(1)        May 1, 2012  2,000      -    (118)   (524)     1,358
    364-day
     revolving
     facility(2)  December 31, 2010    300      -       -       -        300
    Other bank
     facilities                   -     62     (2)     (3)      -         57
    -------------------------------------------------------------------------
    Total                         -  2,362     (2)   (121)   (524)     1,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (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 1.9 to 1 at June 30, 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 June 30, 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 August 4, 2010.

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

7.7 Credit ratings

There were no changes to the Company's investment grade credit ratings as at August 4, 2010, detailed in TELUS' annual 2009 MD&A.

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 June 30, 2010, the weighted average life of customer accounts receivable was 32 days (December 31, 2009 - 35 days) and the weighted average life of past-due customer accounts receivable was 69 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 June 30, 2010, the Company has access to a shelf prospectus, in effect until October 2011, pursuant to which it was able to offer $3 billion of debt or equity securities. Subsequent to the July 23, 2010, $1 billion Note issue, the Company can offer $2 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 periods ended June 30, 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(g) 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 June 30, 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 June 30, 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 potential claims (including intellectual property infringement 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 any 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.

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 June 30, 2010.

    
    -------------------------------------------------------------------------
    Outstanding shares                        Common   Non-Voting    Total
    (millions)                                Shares     Shares     shares
    -------------------------------------------------------------------------
    Common equity
      Outstanding shares at June 30, 2010      174.8      144.5      319.3(1)
      Options outstanding and issuable(2)(3)
       at June 30, 2010                          0.1       30.0       30.1
    -------------------------------------------------------------------------
      Outstanding and issuable shares
       at June 30, 2010                        174.9      174.5      349.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) For the purposes of calculating diluted earnings per share, the
        number of shares was 320.3 million for the quarter ended June 30,
        2010.
    (2) Assuming full conversion and ignoring exercise prices.
    (3) Includes an increase to the share option reserve of 15 million
        Non-Voting Shares, approved by shareholders at the May 5, 2010 annual
        and special general meeting.
    -------------------------------------------------------------------------
    

Other than for shares issued under the dividend reinvestment plan (DRIP), the number of outstanding and issuable shares at July 31, 2010, was not materially different than at June 30, 2010. Approximately 1.24 million TELUS Non-Voting Shares were issued from treasury under the DRIP for the dividend paid on July 2, 2010. The DRIP participation rate was approximately 27% for the July 2 dividend, up from a participation rate of 21% for the April 1, 2010, dividend.

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

Transitioning 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 has been 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.
    -------------------------------------------------------------------------
    

IFRS 1 impacts and accounting policy choices

The transition to IFRS requires the Company to apply IFRS 1, or the requirement 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 IFRS. The Company disclosed its initial decisions regarding transition date impacts in Section 8.2.1 of 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. The following topics, though not an exhaustive list, are more relevant to the Company:

    
    -------------------------------------------------------------------------
    Topic                       Choices and impacts
    -------------------------------------------------------------------------
    Employee benefits
     - defined benefit plans

    - Recognition of            IFRS 1 optional exemption taken: Yes.
      cumulative unamortized
      actuarial gains and       Transition date impact: IFRS allows, and the
      losses, past service      Company has chosen, to recognize cumulative
      costs, and transitional   unamortized actuarial gains and losses, past
      obligations and assets    service costs, and transitional obligations
      at the transition date    and assets at the transition date as an
                                adjustment to Retained earnings on the same
    - Recognition of ongoing    date. Had the Company not taken the
      actuarial gains and       exemption, it would be required to
      losses                    retroactively restate cumulative gains and
                                losses for all defined benefit plans since
                                their inception.

                                Ongoing impact: IFRS allows, and the Company
                                has chosen, to charge actuarial gains and
                                losses arising subsequent to the transition
                                date to Other comprehensive income. This
                                choice is consistent with changes proposed in
                                an exposure draft for employee benefits:
                                recognition and measurement of actuarial gain
                                or losses for defined benefit plans.

                                Difference from Canadian GAAP: Canadian GAAP
                                required that the excess of the net actuarial
                                gain (loss) over 10% of the greater of the
                                accrued benefit obligation and fair value of
                                the plan assets was to be amortized over the
                                expected average remaining service periods of
                                active employees of the plan, as were past
                                service costs and transitional assets and
                                liabilities.
    -------------------------------------------------------------------------
    Fair value or revaluation   IFRS 1 optional exemption taken: No.
     as deemed cost
                                Transition date impact: The Company has
                                chosen to measure its property, plant and
                                equipment and intangible assets at historic
                                cost. Had the Company taken the optional
                                exemption, it could record the fair value of
                                property, plant and equipment and intangible
                                assets at the transition date, for individual
                                assets or classes of assets.

                                Ongoing impact: For post-transition periods,
                                IFRS allows the Company to choose whether to
                                use the revaluation model or historical cost
                                model. The Company has chosen to continue use
                                of the historical cost model for each class
                                of asset.
    -------------------------------------------------------------------------
    Impairment of assets        Difference from Canadian GAAP: IFRS requires
                                that increases in recoverable amounts of
                                impaired assets subsequent to the time of
                                impairment to be recognized as an impairment
                                reversal, but only to the extent that the
                                resulting carrying amount would not exceed
                                the carrying amount that would have existed
                                had an impairment amount not initially been
                                recognized. Canadian GAAP did not allow for
                                increases in recoverable amounts of impaired
                                assets subsequent to the time of impairment
                                to be recognized.

                                Transition date impact: The Company expects
                                to record impairment reversals at the
                                transition date for wireless spectrum, as
                                well as reversals for certain wireline
                                property, plant and equipment impairments
                                recorded by predecessor companies during a
                                past transition from regulatory accounting
                                principles (RAP) to Canadian GAAP.

                                Ongoing impact: The transition date RAP to
                                GAAP impairment reversal will result in a
                                minor increase in depreciation expense.
                                Volatility in Net income could result from
                                periodic impairment tests, should the facts
                                support a future impairment.
    -------------------------------------------------------------------------
    Sale of accounts            Difference from Canadian GAAP: IFRS does not
     receivable                 de-recognize the accounts receivable sold to
                                the arm's-length securitization trust that
                                the Company transacts with and considers the
                                sale proceeds to be short-term borrowings of
                                the Company. Canadian GAAP de-recognized
                                accounts receivable sold to the arm's-length
                                securitization trust that the Company
                                transacts with.

                                Transition date impact: Proceeds from the
                                sale of accounts receivable under the
                                Company's accounts receivable securitization
                                agreement are recorded as short-term debt,
                                rather than a reduction to accounts
                                receivable (or de-recognition).

                                Ongoing impact: Accounts receivable
                                securitization expenses are included in
                                financing costs under IFRS, rather than in
                                Other expense under Canadian GAAP.
    -------------------------------------------------------------------------
    Leasing (sales and          Difference from Canadian GAAP: The Company
     leaseback transactions)    sold and leased-back certain non-strategic
                                buildings, primarily in 2000 and 2001. IFRS
                                requires that where the original sale was at
                                fair value that the gain be recognized in
                                income immediately. Canadian GAAP required
                                that gains arising on sales and leaseback
                                transactions be deferred and amortized over
                                the term of the resulting lease.

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

                                Ongoing impact: Amortization of deferred
                                gains under IFRS will be reduced for the
                                portion of gains recognized at the transition
                                date under IFRS.
    -------------------------------------------------------------------------
    Income taxes                Difference from Canadian GAAP; transition
                                date and ongoing impacts: The impacts on the
                                Company of the IAS 12 standard for income
                                taxes are primarily related to recognition
                                and measurement of uncertain tax positions,
                                and disclosure and presentation differences.
    -------------------------------------------------------------------------
    

IFRS 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.

In April 2010, the IASB issued an exposure draft pertaining to employee benefits; specifically the recognition of actuarial gain or losses for defined benefit plans. The exposure draft proposes to eliminate the corridor method for recognition of actuarial gains or losses. The Company's elected accounting policy choice of recognizing ongoing actuarial gains or losses in Other comprehensive income is consistent with this exposure draft. The exposure draft also proposes certain presentation and disclosure changes. The final standard is expected to be published in 2011.

In June 2010, the IASB issued an exposure draft pertaining to revenue recognition as part of the joint revenue project with the U.S. Financial Accounting Standards Board. This exposure draft that the Company is currently reviewing is the next step in developing an entirely new revenue recognition standard. The final standard is expected to be published in June 2011.

The Company continues to evaluate the possible effects of IAS 37, as well as exposure drafts related to employee benefits and revenue recognition, 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.

    
    -------------------------------------------------------------------------
                             Milestones
    Key activity        (expected timeframes)        Status and comments
    -------------------------------------------------------------------------
    Financial
     statement
     preparation
    -------------------------------------------------------------------------
    - Key elements  Identification, evaluation       Initial choices
      phase         and selection of accounting      completed and approved
                    policies necessary for the       in 2009.
                    Company to change over to IFRS
                                                     Ongoing review of IFRS
                                                     exposure drafts and
                                                     developments, as noted
                                                     in the previous section,
                                                     has not resulted in any
                                                     changes to policy
                                                     choices.
    -------------------------------------------------------------------------
                    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 parallel
                    contemporary Canadian GAAP and   sets of books, as
                    one according to contemporary    planned.
                    IFRS
                                                     Activities related to
                                                     quantifying and
                                                     recording 2010 IFRS
                                                     opening balance
                                                     adjustments and 2010
                                                     reporting period
                                                     differences, continued
                                                     in the second quarter of
                                                     2010.
                   ----------------------------------------------------------
                    Develop financial statements     Drafted. Senior
                    formats and note disclosures     management approval
                                                     expected in the second
                                                     half of 2010
                   ----------------------------------------------------------
                    Disclosure in the MD&A of the    The Company currently
                    impacts on the 2010 comparative  expects to quantify
                    period, when available           impacts on key financial
                                                     statement line items and
                                                     other measures in the
                                                     third quarter MD&A.

                                                     The Company expects to
                                                     quantify the following
                                                     in the annual 2010 MD&A,
                                                     for release in the first
                                                     quarter of 2011:

                                                     - IFRS impacts on the
                                                       January 1 and December
                                                       31, 2010 Consolidated
                                                       statements of
                                                       financial position;

                                                     - IFRS impacts on the
                                                       2010 Consolidated
                                                       statements of
                                                       comprehensive income;
                                                       and

                                                     - IFRS impacts on 2010
                                                       policy metrics and
                                                       other calculated
                                                       measures.
    -------------------------------------------------------------------------
    Communication   Provide ongoing training on      In 2010, the Company is
     and training   expected IFRS impacts, IFRS 1    leveraging internal
                    elections and accounting         resources to implement a
                    policy choices                   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      Parallel reporting
     - Information  to 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 the second half
                                                     of 2010.
    -------------------------------------------------------------------------
    Business        Assess impacts on contractual    Contract reviews are
     policy         arrangements and covenants.      conducted each quarter;
     assessment     Implement changes as necessary   changes have not been
                                                     required, to date.

                                                     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       optional exemption and           approval received for
      over          accounting policy choices        initial elections and
      financial                                      policy choices obtained
      reporting                                      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,
                                                     impacts of outstanding
                                                     IFRS exposure drafts,
                                                     and quantification
                                                     efforts in April and
                                                     July 2010.

                                                     Progress presented at
                                                     the May 4 and August 3,
                                                     2010, Audit Committee
                                                     meetings. Quantified
                                                     results were reviewed
                                                     with the Audit Committee
                                                     in July.
                   ----------------------------------------------------------
                    Testing of controls for 2010     Activities commenced in
                    comparatives                     the first quarter of
                                                     2010 and continued in
                                                     the second quarter.
    -------------------------------------------------------------------------
    - Disclosure    Review and sign-off conversion   Fourth quarter of 2010 -
      controls and  effects on fiscal 2010           approval of IFRS
      procedures                                     disclosures in third
                    - Review and approval by senior  quarter MD&A, including
                      management                     quantification of
                                                     impacts on key line
                    - Review by Audit Committee      items.
                      and approval by the Board of
                      Directors                      First quarter of 2011 -
                                                     approval of fiscal 2010
                                                     IFRS disclosures.
                   ----------------------------------------------------------
                    December 2010                    The Company expects to
                                                     continue its long-
                    - Board of Directors' approval   standing practice of
                      of the Company's 2011          releasing annual targets
                      IFRS-based budget              for the upcoming year in
                                                     December and provide
                    - Senior management approval     final guidance for the
                      of 2011 public targets under   current year. An
                      IFRS                           investor call follows
                                                     the news release.
                    - Publicly issue final guidance
                      for fiscal 2010 according to
                      Canadian GAAP, and expected
                      IFRS changeover impacts on
                      fiscal 2010, together with
                      2011 annual targets according
                      to IFRS
    -------------------------------------------------------------------------
    

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.

Management has considered the Company's performance for the first half of 2010, the July debt issue and planned early partial redemption of U.S. dollar Notes, and has provided the following guidance revisions:

    
    Annual guidance
    -------------------------------------------------------------------------
                                       2010 revised
                                       guidance and
                                   expected change from        Change from
                                   2009 actual results       original target
    -------------------------------------------------------------------------
    Consolidated
                                         $9.70 to               $(100) to
        Revenues                      $9.950 billion         $(150) million
                                          1 to 4%
       ----------------------------------------------------------------------
        EBITDA(1)                  $3.5 to $3.7 billion         no change
                                         flat to 6%
       ----------------------------------------------------------------------
        EPS - basic(2)                 $2.90 to $3.30           no change
                                          (8) to 5%
       ----------------------------------------------------------------------
        Capital expenditures       Approx. $1.7 billion         no change
                                            (19)%
    -------------------------------------------------------------------------
    Wireline segment
                                          $4.75 to              $(100) to
        Revenue (external)             $4.85 billion         $(150) million
                                         (3) to (1)%
       ----------------------------------------------------------------------
                                         $1.575 to
        EBITDA                        $1.675 billion            no change
                                           1 to 8%
    -------------------------------------------------------------------------
    Wireless segment

        Revenue (external)         $4.95 to $5.1 billion        no change
                                           5 to 8%
       ----------------------------------------------------------------------
                                         $1.925 to
        EBITDA                        $2.025 billion            no change
                                         flat to 5%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (1) See Section 11.1 Earnings before interest, taxes, depreciation and
        amortization (EBITDA) for the definition.
    (2) Current basic EPS guidance remains unchanged from the original
        target, but does include the impact of the 13 cent (per share)
        penalty for early partial redemption of U.S. dollar Notes, and
        3 cents favourable income tax recoveries realized in the first six
        months of 2010.
    -------------------------------------------------------------------------
    

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, confirmed ongoing
    competition in both business and     aggressive offers by the primary
    consumer markets                     competitor in Western Canada, and a
                                         new brand launch by an incumbent
                                         wireless competitor
    -------------------------------------------------------------------------
    Canadian wireless industry market    Same expectation, with an increasing
    penetration gain of approximately    proportion from postpaid subscribers
    four percentage points for the year  associated with growing data usage
    (approximately 3.6 percentage        and smartphone adoption
    points in 2009)
    -------------------------------------------------------------------------
    Increased wireless subscriber        Smartphone represented 30% of
    loading in smartphones               postpaid gross additions in the
                                         second quarter of 2010, compared to
                                         15% in the second quarter of 2009
    -------------------------------------------------------------------------
    Reduced downward pressure on         Confirmed by the 1.9% year-over-year
    wireless ARPU (down 6.8% in 2009)    decrease in wireless ARPU in the
                                         second quarter of 2010 (3.2% year-
                                         over-year for the first six months)
    -------------------------------------------------------------------------
    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 launched in Edmonton in
                                         the first quarter of 2010, and
                                         Ottawa and Vancouver in the second
                                         quarter.

                                         Other new entrants began launching
                                         services in the second quarter.
                                         Public Mobile turned up services in
                                         Toronto and Montreal. Mobilicity
                                         launched services in Toronto and
                                         stated expectations to launch in
                                         Vancouver, Edmonton, Calgary and
                                         Ottawa during rest of the year.
                                         Quebecor, an existing mobile virtual
                                         network operator (MVNO) competitor,
                                         stated expectations to launch its
                                         own services in Quebec and Ontario
                                         later in 2010. Shaw Communications
                                         stated it expects to begin launching
                                         wireless services in late 2011.

                                         In addition, an incumbent competitor
                                         has announced a new brand.
    -------------------------------------------------------------------------
    In wireline, stable residential      Residential access lines decreased
    network access line losses and       by 8.2% over the 12-month period
    continued competitive pressure in    ended June 30, 2010, resulting from
    small and medium business market     aggressive promotional activity by
    from cable-TV and VoIP companies     the primary cable-TV competitor for
                                         voice and Internet services.
                                         Business line losses were 2.3% over
                                         the past 12 months from stable churn
                                         and lower additions
    -------------------------------------------------------------------------
    Continued wireline broadband         See Section 2: Core business and
    expansion                            strategy
    -------------------------------------------------------------------------
    Significant increase in cost of      Wireless COA per gross subscriber
    acquisition and retention expenses   addition was $333 in the first half
    for smartphones and TELUS TV         of 2010, or an increase of 3.2% from
    loading                              the same period in 2009. Retention
                                         spending as a percentage of growing
                                         network revenue was 10.6% in the
                                         first half of 2010, unchanged from
                                         the first half of 2009.

                                         TELUS TV loading was 57,000 in the
                                         first half of 2010, compared to
                                         37,000 in first half of 2009. TELUS
                                         TV programming costs have increased
                                         with the 98% increase in the
                                         subscriber base over the past 12
                                         months.
    -------------------------------------------------------------------------
    EBITDA savings of approximately      Savings of approximately $74 million
    $135 million from efficiency         were realized in the first six
    initiatives                          months of 2010
    -------------------------------------------------------------------------
    Approximately $75 million of         No change
    restructuring expenses ($190
    -------------------------------------------------------------------------
    A blended statutory tax rate of      No change. The blended statutory
    approximately 28.5 to 29.5% (30.3%   income tax rate was 28.9% in the
    in 2009). The expected decrease is   first half of 2010.
    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 million   refunds received were $309 million
    (net $266 million in 2009) due to    in the first half of 2010, comprised
    the timing of instalment payments    of instalments for 2010 and final
                                         payments for the 2009 tax year made
                                         in the first quarter. Expectation
                                         for the full year was revised to a
                                         range of $330 to $370 million.
                                         Payments for the remainder of 2010
                                         are expected to be for in-year
                                         instalments only, net of expected
                                         refunds for the settlement of prior
                                         years' matters.
    -------------------------------------------------------------------------
    A pension accounting discount rate   No change to defined benefit
    was estimated at 5.75% and           pension plan expenses, which are
    subsequently set at 5.85% (140       set at the beginning of the year.
    basis points lower than 2009).       The Company's best estimate of
    The expected long-term return of     contributions to defined benefit
    7.25% is unchanged from 2009 and     pension plans in 2010 is currently
    consistent with the Company's        unchanged.
    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. The following are updates to the risk and risk management discussions in Section 10 of TELUS' MD&As for 2009 or the first quarter of 2010.

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 (BDUs)

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. In June 2010, Industry Canada unveiled three options for consultation on lifting foreign ownership restrictions for telecommunications companies:

    
    -   Increase the limit for direct foreign investment in broadcasting and
        telecommunications common carriers to 49 per cent;

    -   Lift restrictions on telecommunications common carriers with a
        10-percent market share or less, by revenue; or

    -   Remove foreign ownership restrictions completely.
    

These consultations ran through July 30, 2010. Aside from these proposed options, the government could also 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 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. Public 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

In June 2010, a tentative collective agreement was reached with the Syndicat québécois des employés de TELUS (SQET) in the TELUS Québec region. Both the SQET negotiating committee and their Executive Council have endorsed the deal and have recommended it to their membership for acceptance. Ratification votes were being held from mid-July to early August 2010. If ratified, the new collective agreement will expire on December 31, 2014. The previous SQET agreement expired on December 31, 2009, and covers approximately 1,000 trades, clerical and operator services team members.

In July 2010, TELUS and the Telecommunications Workers Union (TWU) began negotiations to renew a collective agreement that will expire on November 19, 2010. The TWU contract applies to approximately 12,000 employees across Canada in TELUS' wireline and wireless business segments.

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 Process risks

Systems and processes

TELUS undertook an extensive nine-month, enterprise-wide project involving hundreds of staff to implement changes in more than seventy systems and processes, in order to accommodate the July 1, 2010, implementation of harmonized sales tax (HST) by the provinces of B.C. and Ontario, and the HST rate increase in Nova Scotia. A relatively short implementation time, as well as delayed issuance of legislation and late rule changes, may result in interpretation issues and possible future reassessments that could lead to further system and process changes and increased costs. Despite the significant challenges, early indications are that the conversions were successful, with only minor post-implementation problems surfacing.

Risk mitigation: The quality assurance of the implemented solutions includes on-going government consultations, extensive functional, performance and revenue assurance testing, and an independent post-implementation review of the system changes.

11. Definitions and reconciliations

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

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. 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 EBITDA - excluding restructuring costs in Section 11.4.) 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. 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's Canadian Performance Reporting Board defined standardized EBITDA to foster comparability of the measure between entities. 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. Management's definition of EBITDA differs from standardized EBITDA as follows:

    
    -------------------------------------------------------------------------
    EBITDA calculation               Quarters ended        Six-month periods
                                        June 30              ended June 30
                                ---------------------------------------------
    ($ millions)                    2010        2009        2010        2009
    -------------------------------------------------------------------------
    Net income                       296         244         564         566
      Financing costs                114         106         226         201
      Income taxes                    96          88         195         145
      Depreciation                   316         330         661         664
      Amortization of
       intangible assets              91          94         199         187
    -------------------------------------------------------------------------
    Standardized EBITDA
     (CICA guideline)                913         862       1,845       1,763
      Other expense (income)           6          11          14          16
    -------------------------------------------------------------------------
    EBITDA (management's
     definition)                     919         873       1,859       1,779
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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.

    
    -------------------------------------------------------------------------
    EBITDA less capital              Quarters ended        Six-month periods
     expenditures                       June 30              ended June 30
                                ---------------------------------------------
    ($ millions)                    2010        2009        2010        2009
    -------------------------------------------------------------------------
    EBITDA                           919         873       1,859       1,779
    Capital expenditures            (397)       (557)       (708)     (1,031)
    -------------------------------------------------------------------------
                                    522          316       1,151         748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

11.2 Free cash flow

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. 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. 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).

    
    -------------------------------------------------------------------------
    Free cash flow calculation       Quarters ended        Six-month periods
                                        June 30              ended June 30
                                ---------------------------------------------
    ($ millions)                    2010        2009        2010        2009
    -------------------------------------------------------------------------
    EBITDA (management's
     definition)                     919         873       1,859       1,779
    Share-based compensation           6          11           7          20
    Net employee defined
     benefit plans expense             7           5          14           9
    Employer contributions to
     employee defined benefit
     plans                           (44)        (51)        (89)       (104)
    Restructuring costs net of
     cash payments                    (3)         31         (52)         30
    Donations and securitization
     fees included in Other
     expense                          (4)        (11)        (14)        (14)
    Cash interest paid              (185)       (184)       (221)       (233)
    Cash interest received             -          35           -          35
    Income taxes received (paid),
     net                             (58)         (8)       (309)       (222)
    Capital expenditures            (397)       (557)       (708)     (1,031)
    -------------------------------------------------------------------------
    Free cash flow (management's
     definition)                     241         144         487         269
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

CICA's Canadian Performance Reporting Board defined standardized free cash flow to foster comparability of the measure 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                   Quarters ended        Six-month periods
    reconciliation                      June 30              ended June 30
                                ---------------------------------------------
    ($ millions)                    2010        2009        2010        2009
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                      523         852         937       1,466
    Deduct stipulated dividends      n/a         n/a         n/a         n/a
    Deduct capital expenditures     (397)       (557)       (708)     (1,031)
    Proceeds from disposition of
     capital assets                    -           -           -           -
    -------------------------------------------------------------------------
    Standardized free cash flow
     (CICA guideline)                126         295         229         435
    Other (Amortization of
     deferred gains on
     sale-leaseback of buildings,
     amortization of deferred
     items and other, net)             5          (3)          6         (23)
    Reduction (increase) in
     securitized accounts
     receivable                        -        (100)        100        (100)
    Non-cash working capital
     changes, except changes from
     income tax payments
     (receipts), interest payments
     (receipts) and securitized
     accounts receivable             110         (48)        152         (43)
    Proceeds from disposition of
     capital assets                    -           -           -           -
    -------------------------------------------------------------------------
    Free cash flow (management's
     definition)                     241         144         487         269
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    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.

Earnings coverage (Interest coverage on long-term debt) 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.

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 $134 million and $129 million, respectively, for the 12-month periods ended June 30, 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.

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 June 30
                                                        ---------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Long-term debt including current portion               6,203       6,137
    Debt issuance costs netted against long-term debt         25          29
    Derivative liability                                     686         835
    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)    (52)       (120)
    Cash and temporary investments                           (41)        (26)
    Proceeds from securitized accounts receivable            400         400
    -------------------------------------------------------------------------
    Net debt                                               7,221       7,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 June 30, 2010 (U.S.$1,925 million at June 30, 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 June 30, 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 June 30
                                                        ---------------------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Net debt                                               7,221       7,255
    Owners' equity
      Common Share and Non-Voting Share equity             7,882       7,378
      Add back Accumulated other comprehensive loss           54         110
      Non-controlling interests                               22          21
    -------------------------------------------------------------------------
    Total capitalization - book value                     15,179      14,764
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE TELUS Corporation

For further information: For further information: Media relations: Shawn Hall, (604) 619-7913, shawn.hall@telus.com; Investor relations: Robert Mitchell, (647) 837-1606, ir@telus.com

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