TELUS Reports Third Quarter 2012 Results

Strong wireless and data results drive earnings growth
Free cash flow up 23 per cent
Quarterly dividend increased to 64 cents per share - up 10.3% from a year ago
CEO to take salary in TELUS shares for fourth consecutive year

VANCOUVER, Nov. 9, 2012 /CNW/ - TELUS Corporation's third quarter 2012 revenue increased six per cent to $2.8 billion, while earnings before interest, taxes, depreciation and amortization (EBITDA) increased by five per cent to $1.0 billion. Earnings per share rose eight per cent to $1.08.

TELUS' growth was primarily generated by a seven per cent increase in wireless revenue and a 12 per cent increase in wireless EBITDA, resulting from a 23 per cent increase in data revenue due to continued smartphone adoption. Wireline revenue growth of four per cent was generated by a 14 per cent increase in data revenue driven by strong TV and high-speed Internet growth.

TELUS' total customer base of 13 million grew with the addition this quarter of 116,000 new postpaid wireless customers, 42,000 new TV subscribers and 26,000 high-speed Internet customers, partially offset by a moderating network access line loss of 39,000. TELUS' total wireless subscriber base of 7.6 million is up five per cent year over year and the average revenue per unit increased by 1.5 per cent. The TELUS TV subscriber base of 637,000 is up 41 per cent from a year ago, while high-speed Internet customers are up seven per cent to surpass 1.3 million.

Free cash flow in the third quarter increased 23 per cent from a year ago to $426 million primarily due to higher EBITDA.

Annual guidance for 2012, which was last adjusted in August, has been reaffirmed.

FINANCIAL HIGHLIGHTS                          
C$ and in millions, except per share amounts           3 months ended
September 30
    Per cent
(unaudited)           2012       2011     change
Operating revenues           2,774       2,622     5.8 
Operating expenses before depreciation & amortization           1,756       1,654     6.2 
EBITDA(1)           1,018       968     5.2 
Net income(2)           351       326     7.7 
Earnings per share (EPS), basic(2)           1.08       1.00     8.0 
Capital expenditures           471       470     0.2 
Free cash flow(3)           426       345     23.5 
Total customer connections(4)           12.98       12.57     3.3 

(1)  See Section 11.1 in the 2012 third quarter Management's discussion and analysis.
(2)  Net income and EPS for the third quarter of 2012 included favourable income tax-related
adjustments of $3 million or one cent per share.
(3)  For definition, see Section 11.2 in 2012 third quarter Management's discussion and analysis.
(4)  Sum of wireless subscribers, network access lines, total Internet subscribers, and TELUS TV
subscribers (IPTV and satellite TV).

"Our long-standing strategy to invest in broadband wireless and wireline data technology, services and applications within our core businesses coupled with a focus on putting customers first has resulted in strong quarterly operational and financial growth," said Darren Entwistle, TELUS President and CEO. "We attracted 116,000 new postpaid wireless customers, 42,000 new TV customers, and 26,000 new high-speed Internet customers and encouragingly we saw those customers continuing to stay with us longer, as evidenced by our industry leading 1.44 per cent wireless churn rate. This strong performance translated this quarter into double-digit data revenue growth, eight per cent earnings per share growth and 23 per cent free cash flow growth."

"I am pleased that our winning strategy and continued strong operational execution is enabling us to again increase the quarterly share dividend, consistent with our dividend growth model that we announced last year," Mr. Entwistle added. "We are increasing TELUS' dividend by 3 cents to 64 cents a quarter, or $2.56 annually, a 10.3 per cent increase from a year ago. We look forward to continuing to deliver strong operational and financial results to support the realisation of our dividend growth ambitions through our 2013 commitment and beyond."

"I would like to take this opportunity to extend my deep gratitude to Bob McFarlane for his enormous commitment and extraordinary contributions to TELUS. After an outstanding 12 year career at our company as CFO, Bob has decided to retire at the end of the year and devote more time to his family and community endeavours," said Mr. Entwistle. "Bob's distinguished leadership of TELUS' finance team has yielded a legacy that includes setting rigorous financial policies, achieving a stellar track record of disclosure transparency and helping TELUS consistently deliver on our public commitments to the investment community. His efforts, alongside those of his colleagues across TELUS, have contributed greatly to our company's business success, globally leading shareholder value creation amongst our peers and industry leading balance sheet. Bob and our TELUS team have received countless Canadian and global awards for excellence in corporate disclosure, sustainability reporting, risk management and investor relations. Bob was named CFO of the Year by Canadian Business magazine, and he was honoured with the prestigious Queen's University Kathleen Beaumont Hill Award for outstanding service and advocacy that have contributed to the country's prosperity and growth in business, education and community development. I greatly appreciate Bob's many years of support and his commitment to ensuring a smooth transition to his highly capable successor, John Gossling, who joins TELUS with a wealth of experience in the communications and broadcasting industries."

Mr. Entwistle confirmed today that for the fourth consecutive year he intends to take the entirety of his 2013 annual cash salary compensation in TELUS common shares.

Robert McFarlane, TELUS Executive Vice-President and CFO, said, "TELUS has a strong financial position as reflected by the combination of continued good earnings and cash flow growth along with a 1.7 times net debt to EBITDA ratio, which is well within our policy range and represents the best such credit metric in the Canadian media and telecom industry. This positions TELUS favourably for continued advantaged access to the capital markets and to be in a strong position for future wireless spectrum auctions, as well as for continued dividend growth, and builds on our track record of balancing the interests of debt and equity investors."


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 2012 annual guidance), qualifications and risk factors (including the potential for a future non-voting to common share exchange proposal on a one-for-one basis, semi-annual dividend increases to 2013 and CEO three year goals for EPS and free cash flow growth to 2013 excluding spectrum costs) referred to in the 2012 Information Circular, Management's discussion and analysis (MD&A) in the 2011 annual report, and in the 2012 first, second, and third 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 wireless revenues increased by $104 million or 7.4 per cent to $1.5 billion in the third quarter of 2012, compared to the same period a year ago. This growth was driven by continued subscriber and average revenue per unit (ARPU) growth.
  • Data revenue increased by $102 million or 23 per cent to $546 million. Data ARPU increased by $3.61 or 17 per cent to $24.51. These increases were due to continued strong adoption of smartphones and related data plans, higher roaming volumes, growth in mobile Internet devices and tablets, and increased revenues from text messaging.
  • Blended ARPU increased by $0.90 or 1.5 per cent to $61.42 as 17 per cent data ARPU growth more than offset a 6.8 per cent voice ARPU decline. This is the eighth consecutive quarter of year-over-year blended ARPU growth.
  • Blended monthly subscriber churn decreased 23 basis points year-over-year to 1.44 per cent - the lowest third quarter result in five years - reflecting the successful customers-first marketing and service approach, effective investments in retention and lower churn on smartphones. Postpaid churn was 1.10 per cent, down 23 basis points from a year ago.
  • Total wireless net additions of 111,000 were lower by 2.6 per cent year-over-year from the addition of 116,000 postpaid subscribers and a loss of 5,000 lower-ARPU prepaid subscribers. Postpaid net additions, which declined by 13 per cent from a year ago, were impacted by delayed customer purchase decisions ahead of the anticipated launch of the new iPhone 5 in late September.
  • Total wireless subscribers were up 4.8 per cent from a year ago to 7.56 million and the proportion of high-value postpaid subscribers increased by two points to 85 per cent. Smartphone subscribers now make-up 63 per cent of the total postpaid subscriber base of 6.4 million as compared to 48 per cent a year ago.
  • Wireless EBITDA of $640 million increased $70 million or 12 per cent due to strong revenue network growth and expense control. The margin of 42.4 per cent increased by 1.9 points over last year. Network service revenue margin was up 2.4 points to 46.6 percent.
  • Simple cash flow (EBITDA less capital expenditures) increased by $52 million or 13 per cent to $465 million in the quarter as EBITDA growth was partially offset by increased capital spending related to the ongoing expansion of TELUS' new 4G LTE network, as well as investments in HSPA+ network capacity and coverage, and Internet data centres.

TELUS wireline

  • External wireline revenues increased by $48 million or 3.9 per cent to $1.27 billion in the third quarter of 2012, when compared with same period a year ago. This growth was generated by increased data service and equipment revenues, partially offset by declines in local, long-distance, and other service and equipment revenues.
  • Data service and equipment revenues increased by $93 million or 14 per cent, due primarily to strong growth in the TELUS TV subscriber base and high-speed Internet and enhanced data services, rate increases, and higher equipment sales.
  • TELUS TV additions of 42,000 were lower by 8,000 over the same quarter last year, as stable growth in new customers and a significantly lower churn rate were offset by a higher amount of deactivations from the increasing subscriber base. The total TELUS TV subscriber base increased 41 per cent to 637,000 up by 184,000 from a year ago.
  • High-speed Internet net additions of 26,000 were 18 per cent higher than a year ago and reflect successful promotions and the pull-through effect of Optik TV sales. TELUS' high-speed subscriber base of 1.3 million is up 7.0 per cent or 85,000 from a year ago.
  • Total network access lines declined 5.3 per cent from a year ago to 3.45 million. Residential line losses of 30,000 were unchanged year-over-year, showing an improving sequential trend from the previous two quarters. Residential lines are down 7.7 per cent year-over-year, reflecting ongoing competition and wireless and Internet substitution. Business NAL losses of 9,000 reflect ongoing price based competition in the small and medium business market, and conversion from legacy voice services to IP services.
  • Wireline EBITDA of $378 million decreased by $20 million or 5.0 per cent due to ongoing declines in higher margin legacy voice services that were not offset by growth in lower margin data services.
  • Simple cash flow (EBITDA less capital expenditures) declined slightly by $3 million to $82 million in the quarter as lower EBITDA was largely offset by lower capital spending.

CORPORATE AND BUSINESS DEVELOPMENTS

Bob McFarlane, EVP and CFO, retiring at year's end after outstanding career
Bob McFarlane, executive vice-president and chief financial officer is retiring effective at the end of the year after an extraordinarily successful 12 years at TELUS. Bob will hand over responsibilities to John Gossling effective January 1 after a transition period.

Bob began his career at TELUS as part of the Clearnet acquisition in August 2000, a historic milestone in the expansion of our national growth strategy focused on wireless and data. He was soon after appointed CFO of TELUS based on his strong knowledge of the business, deep understanding of the financial markets and proven track record for raising capital. Bob has been instrumental in helping to answer numerous and unprecedented challenges presented by the equity and credit markets over the past dozen years such that TELUS has always had access to long term financing to fund its prescient growth investments in broadband wireless and wireline technology.

Indicative of his capabilities and excellent work ethic, Bob's responsibilities while encompassing all the traditional Finance functions, were extended in later years to include Corporate Strategy, Mergers & Acquisitions, TELUS Ventures and Government & Regulatory Affairs.

Bob's contributions alongside the efforts of his colleagues across TELUS' leadership team have helped elevate TELUS' brand and reputation to the highest levels in Canada and globally. In the area of corporate and financial disclosure, TELUS has been ranked number one in Canada for four of the last five years by the Canadian Institute of Chartered Accountants. Our annual report has been recognized as the best in the world, and TELUS was the only company globally to be ranked in the top 10 for eight consecutive years.  Additionally, TELUS has won numerous awards for its comprehensive social responsibility reporting including 12 consecutive years of recognition on the prestigious Dow Jones Sustainability Indices.

Bob will be retiring from TELUS with a wonderful legacy of making exceptional contributions that have benefited TELUS' shareholders, customers, team and the communities in which we live, work and serve.

"Bob's distinguished contributions in combination with those of his colleagues across TELUS' leadership team have delivered world-leading shareholder value creation through price appreciation and dividend growth," Mr. Entwistle concluded.

Experienced communications industry CFO, John Gossling joining TELUS executive team
After an extensive executive search, John Gossling was chosen to join TELUS' leadership team as our next executive vice president and chief financial officer. He starts on November 12th and will work closely with retiring EVP and CFO, Bob McFarlane, until the end of 2012 to ensure an effective transition with respect to the leadership of the TELUS Finance team.

John is a highly talented and proven finance executive with extensive experience in the communications industry. From 2008 to 2011, he was the CFO of CTVglobemedia, leading all financial activities for the company. John helped drive dramatically improved financial performance at CTVglobemedia prior to the sale of the company to BCE.

From 2000 to 2008, John held senior leadership roles with the Rogers Communications organization, including CFO at Rogers Wireless. In this role, John led all financial activities for the company. As a member of the Rogers Wireless senior management team, John was a key player in the turnaround of the company's operating performance and was a lead executive on the acquisition of Microcell Telecommunications.

John is a Fellow of the Institute of Chartered Accountants of Ontario (FCA).  He and his family will be relocating to Vancouver.

TELUS shareholders vote decisively to approve 1:1 share exchange proposal
At a joint shareholder meeting on October 17th, TELUS announced that shareholders voted strongly in favour of its proposal to exchange the company's non-voting shares for common shares on a one-for-one basis. Mason Capital's four resolutions proposing alternate share exchange ratios were also voted on at the meeting and did not pass.

Once final votes were tallied, 81.1 per cent of total shares voted were in favour of TELUS' share exchange proposal. Of the 128.8 million common shares voted, 62.9 per cent were in favour, and 99.5 per cent of the 127.7 million non-voting shares voted were in favour. Excluding Mason Capital's most recently reported voting stake, 84.4 per cent of common shares voted were in favour. The voting results easily exceeded the approval thresholds for the proposal to pass, specifically a simple majority of common shares voted and two-thirds of non-voting shares voted. Voting participation by shareholders was high at 73.6 per cent of the common shares outstanding and 84.6 per cent of the non-voting shares outstanding.

The hearing before the Supreme Court of British Columbia to hear Mason Capital's appeals and TELUS' final order application under a plan of arrangement to approve the share exchange began on November 7th. In order for the share exchange to be effective, the Court will have to approve the Company's application for a final order and dismiss all current and further possible appeals.  It is currently estimated that the share exchange would not be effective until late November at the earliest.

TELUS' 4G LTE wireless network continues to grow
In the third quarter, TELUS launched its LTE network in more than 50 new communities across the country and now covers more than 60 per cent of the Canadian population. Newly launched communities include:

  • Alberta: Brooks, Camrose, Drayton Valley, Grande Prairie, Lethbridge and Taber, Medicine Hat, Red Deer, Strathmore, Okotoks and High River;
  • British Columbia: Okanagan, Sea to Sky, Victoria, Fraser Valley, Surrey, Richmond, North Delta, White Rock, Langley, Maple Ridge, Pitt Meadows, Southern Vancouver Island, Kamloops, Vernon, Prince George, Comox, Courtenay, Campbell River;
  • Ontario: Newmarket, Aurora, Windsor, Kanata, Orleans, Nepean and Cumberland;
  • Quebec: Quebec North East, Charny, Quebec City South Shore Levis, Ste-Dorothe, Chomedey, Blainville, Terrebonne Mascouche, Joliette, Joliette Repentigny, Vaudreuil-Dorion.

TELUS launches iPhone 5
TELUS launched iPhone 5 to customers in Canada beginning on September 21. iPhone 5 is the thinnest and lightest iPhone ever, completely redesigned to feature a stunning new 4-inch Retina display; an Apple-designed A6 chip for blazing fast performance; and ultrafast wireless technology—all while delivering even better battery life. iPhone 5 comes with iOS 6, the world's most advanced mobile operating system with over 200 new features including: Shared Photo Streams, Facebook integration, all-new Maps app, Passbook organization and even more Siri features and languages. iPhone 5 customers can connect to TELUS' fast 4G LTE, HSPA+ and DC-HSPA+ networks with Wideband Audio..

TELUS eliminates activation fees for new and renewing customers
As part of the company's commitment to putting customers first and being fair and transparent, TELUS announced that it will no longer charge a $35 activation fee for new customers or a $25 equipment exchange fee for renewing customers who purchase a new device. TELUS is the first of the established wireless brands to eliminate activation fees as part of the Company's ongoing efforts to make the customer experience clear and simple. In addition, starting November 1, 2012, TELUS announced it will begin charging $10 for SIM cards to cover the product cost that was previously included in their renewal and activation fees.

TELUS launches Optik Smart Remote
In October, TELUS launched the Optik Smart Remote app, an innovative way to surf TV and more using your mobile or tablet device. This app enables customers to surf through all their content choices on their phone or tablet instead of the traditional guide on the TV. Customers can spend less time channel surfing by using guide filters to show only what they are looking to find. By linking the mobile device with the digital set top box, they can use swipes to change the channel. Customers can also navigate the interactive program guide on their mobile device without interrupting a show and, retrieve more program related information from sources like Internet Movie Database (IMDb), Wikipedia and YouTube. .

TELUS also added 10 new HD channels to its lineup during the quarter. Optik TV offers more than 550 channels, including more than 135 in HD, which TV customers can get all their HD channels for no extra charge.

TELUS Health eClaims continues to drive efficiencies in claims and benefits management
In the third quarter, TELUS Health launched its nationwide eClaims service for extended healthcare providers and extended its partnerships with Sun Life and Desjardins to now offer TELUS Health eClaims web portal service to their members across Canada. In addition, TELUS Health entered into an agreement with Standard Life to integrate the TELUS Health's eClaims service into its advanced TELUS Health Multi-Benefit Claims Management (MBCM) platform, which will help reduce out-of pocket expenses for plan members, decrease time spent processing insurance paperwork for care providers and streamline the reimbursement process.

TELUS Health launches Emergency Profile
TELUS Health recently created an Emergency Profile feature within TELUS Health Space online portal. Emergency Profile is a free resource that helps prepare families for an emergency quickly and easily and makes it easy to access and share important health information with family members and others. Consumers can sign up for an Emergency Profile by visiting myhealthreference.com. Emergency profile is built on TELUS Health Space, a secure platform certified by Canada Health Infoway to store, organize and share health information.
In September, TELUS Health unveiled the new TELUSHealth.com, an online hub to help bring customers smart healthcare solutions that turn information into better health outcomes to help improve the effectiveness of the country's healthcare system.

TELUS Health acquires KinLogix, Quebec's fastest-growing cloud-based EMR provider
In October, TELUS acquired KinLogix, Quebec's fastest-growing cloud-based Electronic Medical Record (EMR) provider. This is TELUS' second EMR company acquisition this year, following B.C.-based Wolf Medical Systems. These strategic acquisitions extend TELUS Health' reach to physicians and strengthen its leadership in the EMR market to further its efforts to accelerate the adoption of EMR solutions across Canada. With these investments, TELUS is delivering on its national strategy and commitment to the physician EMR market so the company can continue to improve Canada's health system and deliver better health outcomes for patients.

Generation INC., powered by TELUS: Season 3
The business TV show Generation INC., powered by TELUS, has started its third season. The show features 12 local businesses from the province of Québec who are visited by multidisciplinary experts who help them reach their full potential through innovative advice, know-how and technological tools. The Generation INC. movement has created much enthusiasm amongst the small and medium business market such that more than 500 local business owners submitted an application to be part of the show and for a chance to benefit from the advice of the experts.

Toronto glass company wins The Challenge from TELUS and The Globe and Mail
In September, TELUS and The Globe and Mail named Toronto-based glass company Glassopolis the winner of The Challenge contest and awarded the company a $100,000 small business grant to purchase new machinery and expand production across North America.

This second annual contest invited Canadian small business owners to present their biggest business challenge for the opportunity to win a $100,000 grant from TELUS. Entrepreneurs across Canada were invited to submit their entries to be judged by a panel that included entrepreneurs and small business experts.

TELUS executive vice-president Josh Blair recognized as Breakaway Leader
In September, Josh Blair, TELUS executive vice-president of Human Resources, was recognized as one of the Top 10 Breakaway Leaders in the world at the Evanta Global HR Leadership Summit in Denver, Colorado. The awards honoured international leaders who are changing the face of their industry and inspiring a legacy of excellence through ingenuity and dedication. Notably, TELUS is one of only two Canadian companies represented on the Top 10 Breakaway Leaders list.

TELUS' annual report ranked one of best in world
The TELUS 2011 annual report has been ranked the 14th best in the world across all industries and was the top-ranked Canadian company, according to this year's Annual Report on Annual Reports 2012. To develop the ranking, judges evaluated 500 annual reports shortlisted from a wider selection of publicly listed corporations. The comprehensive survey looks at 10 key evaluation criteria: packaging, highlights, strategy, business, financials, investors, governance, accounting, responsibility and communication. The judges gave the TELUS 2011 annual report an 'A' rating and cited it as an example of excellence in four areas (executive message, financial review and analysis, goals-targets-outlook, and risk factors and management). To put this accomplishment in perspective, only 19 Canadian companies made the top 300 and only two other Canadian companies made the top 50.

TELUS Celebration of Giving events laud local charities
This fall, TELUS celebrated local charities as it announced how much it is giving this year toward local community initiatives through TELUS Community Boards and other initiatives in Vancouver, Edmonton, Toronto, Ottawa and Montreal. The TELUS Celebration of Giving is an annual event that brings together professionals and volunteers from the community sector. During this special day, TELUS recognizes the generosity and dedicated work of all those who make a difference in their community. In 2012, TELUS and its team expect to give $8 million to Vancouver-area organizations, $4.5 million to local community initiatives in Edmonton, $5.5 million to Greater Toronto-area charities and community organizations, $1.4 million to Ottawa-based charities, and $3 million to local charities in Montreal. In addition, funds are given to numerous local community initiatives in other regions across Canada.

TELUS Community Excellence Awards in Quebec
In October, TELUS honoured three outstanding community leaders in the Greater Montreal region. The top three winners of the TELUS Community Excellence Awards are Manon Barbeau, co-founder, executive director and artistic director of Wapikoni mobile; Ugo Dionne, co-founder of Bénévoles d'affaires; and Bernard Lamarre, chairman of the board, École Polytechnique. This important honour was part of the TELUS Celebration of Giving in Montreal. Part of TELUS Quebec's 85th anniversary celebrations, the TELUS Community Excellence Awards publicly recognizes people who stand out because of their generosity, commitment to philanthropy and passion for innovation in three main regions: Montreal, Quebec and East of Quebec. This award was launched with the Association of Fundraising Professionals-Quebec Chapter (AFP) and the Association des professionnels en gestion philanthropique (APGP).

TELUS puts fans in the Canadian Football Hall of Fame with The Fan Cup
In September, TELUS and the Canadian Football League (CFL) announced The Fan Cup presented by TELUS, the first ever trophy honouring the game's most important player - the fans. Fans will have the opportunity to put their name on a 100th anniversary replica Grey Cup that will sit alongside the greats of the game inside The Canadian Football Hall of Fame. Cast from the copper of Canadian pennies, The Fan Cup will be engraved with the names of thousands of CFL fans from across Canada be a symbol of appreciation for a century of loyal fan support. Fans will create The Fan Cup trophy during The Grey Cup 100 Tour by using a custom-built TELUS Penny Press to make their own 100th Grey Cup Game collectable out of a Canadian penny. A sliver from every penny used to create The Fan Cup presented by TELUS, which will then be etched with all fans' names.

TELUS expands five-year partnership as National Co-Title sponsor of We Day
TELUS is expanding its partnership with Free the Children, a non-profit organisation that encourages youth to be agents of change and help find solutions for local and global societal problems such as poverty, hunger, bullying and environmental concerns. In addition to its five-year partnership as national co-title sponsor of We Day, a series of inspirational concerts taking place in cities across Canada, TELUS is contributing funds to Free the Children through its Phones for Good campaign. TELUS is also encouraging youth to share examples of their volunteer efforts by writing to the company at telusforweday.com where they can participate in a national video contest. The winner will receive $20,000 to carry out a volunteer activity with a local charity.

TELUS Community Ambassadors donate 9,600 backpacks across Canada
This year, Community Ambassadors across Canada assembled 9,600 "Kits for Kids", backpacks filled with basic school supplies for less fortunate children. A challenge many families face in the fall is affording school supplies. TELUS and its Ambassadors recognize the importance of having these supplies to a young person's confidence and ability to get off to a successful start at school. Since 2007, the Ambassadors have given out nearly 60,000 Kits for Kids.

Dividend Declaration - Increase to 64 cents per quarter - up 10.3 per cent year-over-year
The Board of Directors has declared a quarterly dividend increase of three cents to sixty-four cents ($0.64) Canadian per share on the issued and outstanding Common shares and sixty-four cents ($0.64) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on January 2, 2013 to holders of record at the close of business on December 11, 2012.

In the event that the proposed share exchange of Non-Voting Shares to Common Shares on a one-for-one basis receives all requisite approvals and is effective prior to the dividend record date of December 11, 2012, holders of record on such date who previously held Non-Voting Shares would hold Common Shares and would therefore receive the same dividend as all other holders of Common Shares.

This new quarterly dividend represents the second increase this year and the fourth of six planned under TELUS' plan for semi-annual dividend increases of circa 10 per cent through to 2013. The dividend is a three cent or 4.9 per cent increase from the $0.61 quarterly dividends paid on July 3 and October 1, 2012 and a six cent or 10.3 per cent increase from the $0.58 quarterly dividends paid on January 3 and April 2, 2012, which is consistent with TELUS' dividend growth model. Dividend decisions will continue to be subject to the Board's assessment and determination of the Company's financial situation and outlook on a quarterly basis.  

Access to Quarterly results information
Interested investors, the media and others may review this quarterly earnings news release, management's discussion and analysis, quarterly results slides, audio and transcript of investor webcast call, supplementary financial information and our full 2011 annual report on our website at telus.com/investors.

TELUS' third quarter conference call is scheduled for November 9, 2012 at 11 a.m. ET and will feature a presentation followed by a question and answer period with analysts. Interested parties can access the webcast at: telus.com/investors. A telephone playback will be available on November 9 until December 9 (1-855-201-2300), reservation no. 859140#, access code no. 30599). An archive of the webcast will also be available at: telus.com/investors and a transcript will be posted on the website within several business days.

About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $10.8 billion of annual revenue and 13.0 million customer connections including 7.6 million wireless subscribers, 3.4 million wireline network access lines, 1.3 million Internet subscribers and more than 635,000 TELUS TV customers. Led since 2000 by President and CEO, Darren Entwistle, TELUS provides a wide range of communications products and services including wireless, data, Internet protocol (IP), voice, television, entertainment and video.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed more than $260 million to charitable and not-for-profit organizations and volunteered 4.2 million hours of service to local communities since 2000. Fourteen TELUS Community Boards 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.

condensed interim consolidated statements of
income and other comprehensive income
                  (unaudited)
                           
        Three months     Nine months
Periods ended September 30 (millions except per share amounts)         2012     2011     2012     2011
OPERATING REVENUES                          
Service     $ 2,551    $ 2,443    $ 7,481    $ 7,159 
Equipment             204            169            537            503 
              2,755            2,612            8,018            7,662 
Other operating income              19            10            52            45 
              2,774            2,622            8,070            7,707 
OPERATING EXPENSES                          
Goods and services purchased             1,222            1,178            3,490            3,410 
Employee benefits expense               534            476            1,555            1,393 
Depreciation             362            331            1,049            989 
Amortization of intangible assets             99            112            338            340 
              2,217            2,097            6,432            6,132 
OPERATING INCOME             557            525            1,638            1,575 
Financing costs               86            92            246            290 
INCOME BEFORE INCOME TAXES             471            433            1,392            1,285 
Income taxes               120            107            365            307 
NET INCOME             351            326            1,027            978 
OTHER COMPREHENSIVE INCOME                            
Items that may subsequently be reclassified to income                          
Change in unrealized fair value of derivatives designated as cash flow hedges             (2)           7            (5)           9 
Foreign currency translation adjustment arising from translating financial
  statements of foreign operations
            (7)           6            (2)           2 
Change in unrealized fair value of available-for-sale financial assets             11            —            11            — 
                         13                       11 
Item never subsequently reclassified to income                          
Employee defined benefit plans actuarial gains (losses)             94            (360)           82            (443)
              96            (347)           86            (432)
COMPREHENSIVE INCOME     $ 447    $ (21)   $ 1,113    $ 546 
NET INCOME ATTRIBUTABLE TO:                          
Common Shares and Non-Voting Shares     $ 351    $ 325    $ 1,027    $ 973 
Non-controlling interests             —            1            —            5 
      $ 351    $ 326    $ 1,027    $ 978 
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:                          
Common Shares and Non-Voting Shares     $ 447    $ (22)   $ 1,113    $ 541 
Non-controlling interests             —            1            —            5 
      $ 447    $ (21)   $ 1,113    $ 546 
NET INCOME PER COMMON SHARE AND NON-VOTING SHARE                           
Basic     $ 1.08    $ 1.00    $ 3.16    $ 3.00 
Diluted     $ 1.07    $ 1.00    $ 3.14    $ 2.98 
DIVIDENDS DECLARED PER COMMON SHARE AND NON-VOTING SHARE      $ 0.61    $ 0.55    $ 1.800    $ 1.625 
TOTAL WEIGHTED AVERAGE COMMON SHARES AND NON-VOTING
  SHARES OUTSTANDING 
                         
Basic             326            325            325            324 
Diluted             328            327            327            326 
                           

condensed interim consolidated statements of financial position       (unaudited)
                 
As at (millions)      September 30,
2012
  December 31,
2011
ASSETS                
Current assets                
Cash and temporary investments, net     $ 45    $   46 
Accounts receivable               1,495              1,428 
Income and other taxes receivable             12              66 
Inventories               280              353 
Prepaid expenses             226              144 
Derivative assets               14              14 
              2,072              2,051 
Non-current assets                
Property, plant and equipment, net               8,109              7,964 
Intangible assets, net               6,126              6,153 
Goodwill, net               3,695              3,661 
Real estate joint venture             11              — 
Other long-term assets               142              81 
Investments             32              21 
              18,115              17,880 
      $ 20,187    $   19,931 
                 
LIABILITIES AND OWNERS' EQUITY                
Current liabilities                
Short-term borrowings       $ 403    $   404 
Accounts payable and accrued liabilities               1,547              1,419 
Income and other taxes payable             192              25 
Dividends payable              199              188 
Advance billings and customer deposits               669              655 
Provisions               41              88 
Derivative liabilities                          — 
Current maturities of long-term debt               969              1,066 
              4,022              3,845 
Non-current liabilities                
Provisions               173              122 
Long-term debt               5,213              5,508 
Other long-term liabilities               1,113              1,343 
Deferred income taxes             1,619              1,600 
              8,118              8,573 
Liabilities             12,140              12,418 
Owners' equity                
Common Share and Non-Voting Share equity               8,047              7,513 
      $ 20,187    $   19,931 
                 

condensed interim consolidated statements of cash flows                   (unaudited)
                           
        Three months     Nine months
Periods ended September 30 (millions)        2012     2011     2012     2011
OPERATING ACTIVITIES                          
Net income     $ 351    $ 326    $ 1,027    $ 978 
Adjustments to reconcile net income to cash provided by operating activities:                          
  Depreciation and amortization             461            443            1,387            1,329 
  Deferred income taxes             147            84            (4)           257 
  Share-based compensation              13            8            29            8 
  Net employee defined benefit plans expense              (4)           (8)           (7)           (24)
  Employer contributions to employee defined benefit plans             (14)           (13)           (145)           (263)
  Gain on 51% Transactel (Barbados) Inc. interest re-measured at acquisition-date
  fair value and subsequent adjustment to contingent consideration 
            —            —            —            (16)
  Other             (7)           (11)           (7)           (42)
  Net change in non-cash operating working capital              18            8            236            (419)
Cash provided by operating activities             965            837            2,516            1,808 
INVESTING ACTIVITIES                          
Cash payments for capital assets               (475)           (435)           (1,463)           (1,345)
Cash payments for acquisitions and related investments              (7)           (3)           (48)           (79)
Real estate joint venture advances and contributions              (29)           —            (67)           — 
Real estate joint venture receipts              29            —            47            — 
Proceeds on dispositions                          —            20            — 
Other             (10)           —            (33)           4 
Cash used by investing activities             (490)           (438)           (1,544)           (1,420)
FINANCING ACTIVITIES                          
Non-Voting Shares issued             —            —            —            19 
Dividends paid to holders of Common Shares and Non-Voting Shares               (198)           (178)           (575)           (463)
Issuance and repayment of short-term borrowing                         35            (1)           39 
Long-term debt issued              928            700            3,624            3,110 
Redemptions and repayment of long-term debt              (1,235)           (921)           (4,021)           (2,993)
Acquisition of additional equity interest in subsidiary from non-controlling interest             —            —            —            (51)
Dividends paid by a subsidiary to non-controlling interest             —            —            —            (4)
Other             —            —            —            (6)
Cash provided (used) by financing activities             (502)           (364)           (973)           (349)
CASH POSITION                          
Increase (decrease) in cash and temporary investments, net             (27)           35            (1)           39 
Cash and temporary investments, net, beginning of period             72            21            46            17 
Cash and temporary investments, net, end of period     $ 45    $ 56    $ 45    $ 56 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS                          
Interest (paid)     $ (56)   $ (62)   $ (228)   $ (268)
Interest received     $   $ —    $ 12    $ — 
Income taxes (inclusive of Investment Tax Credits) (paid), net     $ (58)   $ (43)   $ (137)   $ (159)
                           
                       

segmented information                                         (unaudited)
                                                 
Three-month periods ended     Wireless     Wireline     Eliminations     Consolidated
September 30 (millions)     2012     2011     2012     2011     2012     2011     2012     2011
Operating revenues                                                
External revenue   $ 1,501    $ 1,397    $ 1,273    $ 1,225    $ —    $ —    $ 2,774    $ 2,622 
Intersegment revenue           10            10            43            42            (53)           (52)           —            — 
    $ 1,511    $ 1,407    $ 1,316    $ 1,267    $ (53)   $ (52)   $ 2,774    $ 2,622 
EBITDA(1)   $ 640    $ 570    $ 378    $ 398    $ —    $ —    $ 1,018    $ 968 
CAPEX(2)   $ 175    $ 157    $ 296    $ 313    $ —    $ —    $ 471    $ 470 
EBITDA less CAPEX   $ 465    $ 413    $ 82    $ 85    $ —    $ —    $ 547    $ 498 
                          Operating revenues (above)   $ 2,774    $ 2,622 
                          Goods and services purchased           1,222            1,178 
                          Employee benefits expense           534            476 
                          EBITDA (above)           1,018            968 
                          Depreciation           362            331 
                          Amortization           99            112 
                          Operating income           557            525 
                          Financing costs           86            92 
                          Income before income taxes   $ 471    $ 433 
                                                 
                                                 
Nine-month periods ended     Wireless     Wireline     Eliminations     Consolidated
September 30 (millions)     2012     2011     2012     2011     2012     2011     2012     2011
Operating revenues                                                
External revenue   $ 4,312    $ 4,038    $ 3,758    $ 3,669    $ —    $ —    $ 8,070    $ 7,707 
Intersegment revenue           30            29            127            122            (157)           (151)           —            — 
    $ 4,342    $ 4,067    $ 3,885    $ 3,791    $ (157)   $ (151)   $ 8,070    $ 7,707 
EBITDA(1)   $ 1,898    $ 1,686    $ 1,127    $ 1,218    $ —    $ —    $ 3,025    $ 2,904 
CAPEX(2)   $ 520    $ 340    $ 940    $ 995    $ —    $ —    $ 1,460    $ 1,335 
EBITDA less CAPEX   $ 1,378    $ 1,346    $ 187    $ 223    $ —    $ —    $ 1,565    $ 1,569 
                          Operating revenues (above)   $ 8,070    $ 7,707 
                          Goods and services purchased           3,490            3,410 
                          Employee benefits expense           1,555            1,393 
                          EBITDA (above)           3,025            2,904 
                          Depreciation           1,049            989 
                          Amortization           338            340 
                          Operating income           1,638            1,575 
                          Financing costs           246            290 
                          Income before income taxes   $ 1,392    $ 1,285 

(1)    Earnings before interest, taxes, depreciation and amortization (EBITDA) does not have any standardized meaning prescribed by IFRS-IASB
and is therefore unlikely to be comparable to similar measures presented by other issuers; EBITDA is defined by the Company as operating
revenues less goods and services purchased and employee benefits expense. TELUS has issued guidance on, and reports, EBITDA
because it is a key measure that management uses to evaluate performance of its business and is also utilized in measuring compliance
with certain debt covenants.
(2)    Total capital expenditures (CAPEX).
     

TELUS CORPORATION

Management's discussion and analysis

2012 Q3

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 are subject to inherent risks and uncertainties, and require the Company to make assumptions. 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 2012 are described in Section 9. Factors that could cause actual performance to differ materially include, but are not limited to:

  • Competition including: continued intense competitive rivalry across all services among established telecommunications companies, newer entrant wireless operators, cable-TV providers, other communications companies and emerging over-the-top (OTT) services; active price and brand competition; TELUS' ability to offer an enhanced customer service experience; industry growth rates including wireless penetration gain; network access line losses; subscriber additions and subscriber retention experience for wireless, TELUS TV® and Optik™ High Speed™ Internet services; costs of subscriber acquisition and retention; pressures on wireless average revenue per subscriber unit per month (ARPU) such as through flat rate pricing trends for voice and data, inclusive long distance plans for voice, and increasing availability of Wi-Fi networks for data; levels of smartphone sales and associated subsidy levels; and ability to obtain and offer data content across multiple devices on wireless and TV platforms.
  • Technological substitution including: reduced utilization and increased commoditization of traditional wireline voice local and long distance services; increasing numbers of households that have only wireless telephone services; continuation of wireless voice ARPU declines such as through substitution to messaging and OTT applications such as Skype; and OTT IP services that may cannibalize TV and entertainment services.
  • Technology including: subscriber demand for data that could challenge wireless network capacity, service levels and spectrum capacity; reliance on systems and information technology; broadband and wireless technology options, evolution paths and roll-out plans, including reliance on wireless reciprocal network access agreements; choice of suppliers and suppliers' ability to maintain and service their product lines; wireless handset supplier concentration and market power; the expected benefits and performance of long-term evolution (LTE) wireless technology; dependence of rural LTE roll-out strategy on ability to acquire spectrum in the 700 MHz band; successful deployment and operation of new wireless networks and successful introduction of new products (such as new LTE and tablet devices), new services and supporting systems; network reliability and change management (including risk of migration to new, more efficient Internet data centres (IDCs) and realizing the expected benefits); timing of future decommissioning of iDEN and CDMA wireless networks to free up spectrum and reduce operating costs, and the associated subscriber migration and retention risks; and successful upgrades and evolution of TELUS TV technology.
  • Economic growth and fluctuations including: the strength of economic growth in Canada that may be influenced by economic developments in the U.S., Europe, Asia and elsewhere; future interest rates; and pension investment returns and funding.
  • Capital expenditure levels in 2012 and beyond due to the Company's wireless deployment strategy for future technologies including LTE, wireline broadband initiatives, new IDC initiatives, and future Industry Canada wireless spectrum auctions, including auction of spectrum in the 700 MHz band expected in mid-2013 and the 2,500-2,690 MHz bands expected in 2014.
  • Financing and debt requirements including ability to carry out refinancing activities.
  • Ability to sustain growth objectives to 2013 including, over this timeframe, dividend growth of circa 10% per annum and CEO goals of generating low double-digit percentage annualized growth in earnings per share and greater growth in free cash flow, excluding spectrum costs. The growth objectives may be affected by factors such as regulatory and government developments and decisions, competitive environment, reasonable economic performance in Canada, and capital expenditure and spectrum auction requirements. The growth objectives are not necessarily indicative of earnings, dividends and free cash flow beyond 2013.
  • Regulatory approvals and developments including: future spectrum auctions and rules for the 700 MHz and 2,500-2,690 MHz bands (including the amount and cost of spectrum acquired); whether application and ongoing enforcement of new regulatory safeguards regarding vertical integration by competitors into broadcast content ownership prove to be effective; restrictions on non-Canadian ownership of TELUS Common Shares; increased foreign control of certain newer wireless entrants; interpretation and application of tower sharing and roaming rules; and amendments to consumer protection legislation by several provinces and a new CRTC proceeding to establish a mandatory code and clarity for consumers in respect of terms and conditions of wireless services, where non-harmonized provincial rules create risk of significant compliance costs.
  • Pending completion of TELUS' share exchange proposal (Non-Voting Shares into Common Shares on a one-for-one basis) overwhelmingly approved by shareholders on October 17, subject to: the outcome of the hearing before the Supreme Court of British Columbia in respect of Mason Capital's appeals and TELUS' final order application under a plan of arrangement to approve the share exchange, held starting on November 7, 2012, which also could be appealed. In addition, if the arrangement is not approved, the market price of Non-Voting Shares and/or Common Shares may decline given that the share prices in both classes increased on the announcement of the original share conversion proposal in February 2012.
  • Human resource developments including employee retention and engagement matters and the outcome of collective bargaining for a Quebec region agreement that expired at the end of 2011 (covering approximately 600 employees).
  • Ability to successfully implement cost reduction initiatives and realize expected savings net of restructuring costs, such as from business integrations, business process outsourcing, internal offshoring and reorganizations, procurement initiatives and administrative office consolidation, without losing customer service focus or negatively impacting client care.
  • Process risks including: reliance on legacy systems and ability to implement and support new products and services; real estate joint-venture development risks; and implementation of large enterprise deals that may be adversely impacted by available resources and degree of co-operation from other service providers.
  • Tax matters including a general tendency by tax collection authorities to adopt more aggressive auditing practices; possible higher than currently planned corporate income tax rates in the future; the federal government's enacted policy change that eliminates the ability to defer income taxes through the use of different tax year-ends for operating partnerships and corporate partners, which is expected to increase income tax payments commencing in 2014; costs and complexity of complying with the Province of British Columbia's reversal from a harmonized sales tax back to a separate provincial sales tax and federal goods and services tax, as well as the Province of Quebec's provincial sales tax harmonization; and international tax complexity and compliance.
  • Business continuity events including: human-caused threats such as electronic attacks and human errors; equipment failures; supply chain disruptions; natural disaster threats; and effectiveness of business continuity and disaster recovery plans and responses.
  • Acquisitions or divestitures including realizing expected strategic benefits;
  • Health, safety and environmental developments; Litigation and legal matters; 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' 2011 MD&A and year-to-date updates in this MD&A.

Management's discussion and analysis (MD&A)

November 9, 2012

The following sections are a discussion of the consolidated financial position and financial performance of TELUS Corporation for the three-month and nine-month periods ended September 30, 2012, and should be read together with TELUS' Condensed interim consolidated financial statements dated September 30, 2012. This discussion contains forward-looking information qualified by reference to, and should be read together with, the Caution regarding forward-looking statements.

The generally accepted accounting principles (GAAP) used by TELUS are International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and Canadian GAAP. The terms IFRS-IASB and IFRS used subsequently in this document refer to these standards. The Condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. All amounts are in Canadian dollars unless otherwise specified.

Management's discussion and analysis contents
Section       Description
1. Introduction       A summary of TELUS' consolidated results for the third quarter and first nine months of 2012
2. Core business and strategy       A discussion of activities in support of TELUS' six strategic imperatives
3. Key performance drivers       A list of corporate priorities for 2012
4. Capabilities       An update of factors that affect the capability to execute strategies, manage key performance drivers and deliver results
5. Discussion of operations       A discussion of operating performance for the third quarter and first nine months of 2012
6. Changes in financial position       A discussion of changes in the Consolidated statements of financial position for the nine-month period ended September 30, 2012
7. Liquidity and capital resources       A discussion of operating cash flows, investments and financing activities, as well as liquidity, credit facilities and other disclosures
8. Critical accounting estimates and
accounting policy developments
      Accounting estimates that are critical to determining financial results, and changes to accounting policies
9. Annual guidance for 2012       Reaffirmed guidance for the full year of 2012 and related assumptions
10. Risks and risk management       An update of certain risks and uncertainties facing TELUS
11. Definitions and reconciliations       Definitions of operating, liquidity and 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 Condensed 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 to manage the capital structure. Because non-GAAP measures do not generally have a standardized meaning, securities regulations require such measures to be clearly defined, qualified and reconciled with their nearest GAAP measure (see Section 11). The term EBITDA (earnings before interest, taxes, depreciation and amortization) used in this document means standardized EBITDA as defined by the Canadian Performance Reporting Board of the Canadian Institute of Chartered Accountants (CICA). Adjusted EBITDA used in this document deducts from standardized EBITDA, items of an unusual nature that do not reflect ongoing telecommunications operations. See Section 11.1 for the definition, calculation and reconciliation of EBITDA.

1.2 Canada's economy

The Bank of Canada maintained its target for the overnight borrowing rate at 1% in its October 2012 bank rate announcement. The Bank's October 2012 Monetary Policy Report projected Canada's economy will grow at 2.2% in 2012, 2.3% in 2013 and 2.4% in 2014. In addition, Statistics Canada's Labour Force Survey reported the September 2012 national unemployment rate at 7.4% as compared to 7.2% in June and March 2012, and 7.5% in December 2011.

1.3 Consolidated highlights

                 
    Third quarters ended Sept. 30   Nine-month periods ended Sept. 30
($ millions, unless noted otherwise)         2012        2011        Change          2012        2011        Change 
Consolidated statements of income
Operating revenues         2,774        2,622        5.8 %         8,070        7,707        4.7 %
Operating income         557        525        6.1 %         1,638        1,575        4.0 %
Income before income taxes         471        433        8.8 %         1,392        1,285        8.3 %
Net income         351        326        7.7 %         1,027        978        5.0 %
                 
Basic earnings per share1 (EPS) ($)         1.08        1.00        8.0 %         3.16        3.00        5.3 %
Diluted EPS1 ($)         1.07        1.00        7.0 %         3.14        2.98        5.4 %
Cash dividends declared per share1 ($)         0.61        0.55        10.9 %         1.80        1.625       10.8 %
                 
Average shares1 outstanding - basic (millions)         326        325        0.4 %         325        324        0.4 %
Consolidated statements of cash flows
Cash provided by operating activities         965        837        15.3 %         2,516        1,808        39.2 %
Cash used by investing activities         490        438        11.9 %         1,544        1,420        8.7 %
- Capital expenditures2         471        470        0.2 %         1,460        1,335        9.4 %
Cash used by financing activities         502        364        37.9 %         973        349        178.8 %
Other highlights
Subscriber connections3 (thousands)                 12,981        12,571        3.3 %
EBITDA4         1,018        968        5.2 %         3,025        2,904        4.2 %
Adjusted EBITDA4 5         1,018        968        5.2 %         3,018        2,888        4.5 %
Adjusted EBITDA margin6 (%)         36.7        36.9        (0.2) pts.         37.4        37.6        (0.2) pts.
Free cash flow4         426        345        23.5 %         1,068        793        34.7 %
Net debt to EBITDA - excluding restructuring costs4 (times)         1.7        1.8        (0.1)

   
Abbreviations used in MD&A: n/a - Not applicable; n/m - Not meaningful; pt(s). - Percentage point(s).
1      Includes Common Shares and Non-Voting Shares.
2      Capital expenditures exclude changes in associated non-cash investing working capital, and therefore differ from
Cash payments for capital assets, as presented on the Condensed interim consolidated statements of cash flows.
See Note 24(b) of the Condensed interim consolidated financial statements.
3      The sum of wireless subscribers, network access lines (NALs), Internet access subscribers and TELUS TV
subscribers (Optik TV™ and TELUS Satellite TV® subscribers), measured at the end of the respective periods based
on information in billing and other systems
4      Non-GAAP measures. See Section 11.1 EBITDA, Section 11.2 Free cash flow and Section 11.4 Definitions of liquidity
and capital resource measures.
5      Adjusted EBITDA for the first nine months of 2012 excludes equity losses of $2 million for the TELUS Garden
residential real estate redevelopment partnership and a $9 million pre-tax gain on land contributed to the residential
project. TELUS anticipates that it will not retain an ownership interest in this residential project after completion of
construction. Adjusted EBITDA for the first nine months of 2011 excludes a $16 million non-cash gain on Transactel
(Barbados) Inc. that resulted from re-measurement of the Company's 51% interest in Transactel at fair value when
TELUS exercised its purchased call option and asserted control.
6      EBITDA margin is EBITDA divided by Operating revenues. The calculation of Adjusted EBITDA margins for 2012
excludes equity losses and gain on contributed land for the TELUS Garden residential project from both EBITDA
and Operating revenues. The calculation of Adjusted EBITDA margin for the first nine months of 2011 excludes the
non-cash gain on Transactel from both EBITDA and Operating revenues.
   

Operating highlights

  • Consolidated Operating revenues increased by $152 million and $363 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

    Service and equipment revenues increased year over year by $143 million and $356 million, respectively, in the third quarter and first nine months of 2012. The increases were mainly due to growth in wireless network revenue from subscriber growth and ARPU increase, as well as growth in wireline data revenue. Growth in wireline data revenue resulted primarily from Optik TV, enhanced data and Internet services, data equipment sales and managed workplace services, which exceeded declines in legacy voice local and long distance services.

    Other operating income increased year over year by $9 million and $7 million, respectively, in the third quarter and first nine months of 2012. The increases were mainly due to drawdowns from the regulatory price cap deferral account for provisioning broadband Internet service to a number of qualifying rural and remote communities, as well as recoveries of employee costs under eligible government-sponsored employment programs. The nine-month period also included the second quarter 2012, $9 million gain on land contributed to the TELUS Garden residential real estate project offset by the first quarter 2011, $16 million non-cash gain on Transactel (Barbados) Inc.

    Excluding the equity losses and gain on land related to the TELUS Garden residential real estate redevelopment project in 2012 and the non-cash Transactel gain in 2011, adjusted operating revenues increased year over year by $372 million or 4.8% in the first nine months of 2012.

  • Total subscriber connections increased by 410,000 during the 12-month period ended September 30, 2012, as a result of 7.3% growth in wireless postpaid subscribers, 41% growth in TELUS TV subscribers and a 5.7% growth in total Internet subscriptions, partly offset by an 7.4% decrease in wireless prepaid subscribers, a 7.7% decline in residential network access lines (NALs) and a 2.5% decline in business NALs. Wireless net subscriber additions were 111,000 and 219,000, respectively, in the third quarter and first nine months of 2012. TELUS TV and Optik High Speed Internet subscriber additions totalled 68,000 in the third quarter and 191,000 in the first nine months of 2012.

    For the third quarter of 2012, wireless blended ARPU was $61.42, up $0.90 or 1.5% from the same period in 2011, while for the first nine months of 2012, blended ARPU was $60.20, up $1.09 or 1.8% from the same period in 2011. Quarterly blended ARPU has increased year over year for eight consecutive quarters driven by increased roaming and growth in data usage.

    Blended monthly wireless subscriber churn rates were 1.44% and 1.46%, respectively, in the third quarter and first nine months of 2012, down 0.23 percentage points and 0.22 percentage points, respectively, from the same periods in 2011. Improvement in the churn rates was due to retention efforts, as well as significantly higher migrations in 2011 related to the loss of a federal government wireless service contract to a low-priced bid from an established competitor.

  • Operating income increased by $32 million and $63 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011, as higher EBITDA more than offset increases in total depreciation and amortization expenses. Wireless EBITDA increased year over year by $70 million and $212 million, respectively, in the third quarter and first nine months of 2012 mainly due to growth in network revenue and 47% flow through to EBITDA. Wireline EBITDA decreased year over year by $20 million and $91 million, respectively, in the quarter and nine-month period as growth in wireline data services was more than offset by higher content and support costs for the growing Optik TV service and ongoing declines in higher margin legacy voice services.

  • Adjusted EBITDA increased by $50 million and $130 million, respectively, in the third quarter and first nine months of 2012, when compared to the same periods in 2011. Adjusted EBITDA in the first nine months of 2012 excludes equity losses from the TELUS Garden residential real estate redevelopment project, as well as a $9 million gain on land contributed to the project. Adjusted EBITDA for the first nine months of 2011 excludes the $16 million non-cash gain on Transactel. Adjusted EBITDA margins in 2012 decreased slightly from the comparable periods in 2011, as 2.4 percentage point increases in wireless margins for the quarter and nine-month periods were offset by decreases in wireline margins of 2.7 percentage points for the quarter and 2.9 percentage points for the nine-month period.

  • Income before income taxes increased by $38 million and $107 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. The increases were due to higher EBITDA and lower financing costs, partly offset by higher total depreciation and amortization expenses.

  • Income taxes increased by $13 million and $58 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. The increases reflect higher pre-tax income and the effects of income tax revaluations and adjustments, partly offset by a lower blended statutory income tax rates in 2012.

  • Net income increased by $25 million or 7.7% in the third quarter of 2012 and increased by $49 million or 5.0% in the first nine months of 2012 when compared to the same periods in 2011. Excluding income tax-related adjustments, the gain net of equity losses for the residential real estate redevelopment project and the 2011 gain on Transactel, as shown in the following table, Net income increased year over year by $22 million or 6.7% in the quarter and $64 million or 6.7% in the nine-month period.

Analysis of Net income
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012          2011        Change            2012          2011        Change 
Net income             351          326        25            1,027          978        49 
Deduct after-tax gain net of equity losses related to the
  TELUS Garden residential redevelopment project
            —          —        —            (6)         —        (6)
Deduct after-tax Transactel gain             —          —        —            —          (12)       12 
Add back net unfavourable (deduct net favourable)
  income tax-related adjustments, including any related
  interest income (see Section 5.2)
            (3)         —        (3)           (2)         (11)       9 
Net income before above items (approximate)             348          326        22            1,019          955        64 
                           

  • Basic earnings per share (basic EPS) increased by eight cents in the third quarter of 2012 and 16 cents in the first nine months of 2012 when compared to the same periods in 2011. Excluding income tax-related adjustments, the gain net of equity losses for the residential real estate redevelopment project and the 2011 gain on Transactel, as shown in the following table, basic EPS increased year over year by approximately seven cents in the quarter and 20 cents in the nine-month period.
Analysis of basic EPS
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012          2011        Change            2012          2011        Change 
Basic EPS             1.08          1.00        0.08            3.16          3.00        0.16 
Deduct after-tax gain net of equity losses related to the
  TELUS Garden residential real estate redevelopment
  project, per share
            —          —        —            (0.02)         —        (0.02)
Deduct after-tax Transactel gain per share             —          —        —            —          (0.04)       0.04 
Add back net unfavourable (deduct net favourable)
  income tax-related adjustments, per share
  (see Section 5.2)
            (0.01)         —        (0.01)           (0.01)         (0.03)       0.02 
Basic EPS before above items (approximate)             1.07          1.00        0.07            3.13          2.93        0.20 
                           
  • Cash dividends declared: On November 7, 2012, the Board of Directors declared a fourth quarter dividend of 64 cents per share on the issued and outstanding Common Shares and Non-Voting Shares of the Company, payable on January 2, 2013, to shareholders of record at the close of business on December 11, 2012. The fourth quarter dividend of 64 cents per share reflects an increase of 6 cents or 10.3% from the dividend one year earlier, consistent with TELUS' dividend growth model (see Financing and capital structure management plans in Section 4.3).

Share exchange

On August 21, 2012, the Company announced that holders of its Common Shares and Non-Voting Shares would have the opportunity to decide whether to exchange the Company's Non-Voting Shares for Common Shares at a general meeting of holders of Common Shares and a class meeting of holders of Non-Voting Shares, respectively, to be held October 17, 2012. Under the terms of the proposal, each Non-Voting Share would be exchanged for a Common Share on a one-for-one basis, effected by way of a court-approved plan of arrangement and would be subject to the approval of a simple majority of the votes by the holders of Common Shares and two-thirds of the votes by the holders of Non-Voting Shares, each voting separately as a class. On October 15, 2012, a Court Order was issued by the Supreme Court of British Columbia directing that the meeting to consider TELUS' plan of arrangement and the meeting to consider certain resolutions attached to a shareholder requisition provided by CDS Clearing and Depository Services Inc. on behalf of Mason Capital Management LLC, proceed on October 17, 2012, as a joint meeting. At the joint meeting, the Company announced that TELUS' plan of arrangement obtained the necessary approvals from the holders of Common Shares and holders of Non-Voting Shares and that the Mason resolutions had not obtained the necessary approvals. For TELUS' plan of arrangement, 99.5% of the 127.7 million Non-Voting Shares voted were in favour and 62.9% of 128.8 million Common Shares voted were in favour. Excluding hedge fund manager Mason Capital's most recently reported voting bloc, 84.4% of Common Shares voted were in favour of the exchange. A hearing before the Supreme Court of British Columbia in respect of Mason Capital's appeals and TELUS' final order application under a plan of arrangement was held starting on November 7, 2012. See the Share exchange risk discussion in Section 10.1 Regulatory matters.

TELUS is subject to restrictions on foreign ownership and has controls in place to ensure that foreign-ownership levels are respected through a reservation and declaration system. See the Foreign-ownership restrictions discussion in Section 10.1 Regulatory Matters.

Liquidity and capital resource highlights

  • TELUS had unutilized credit facilities of more than $1.3 billion at September 30, 2012, as well as $100 million availability under the Company's trade receivables securitization program, consistent with its objective of generally maintaining more than $1 billion of unutilized liquidity.

  • Net debt to EBITDA - excluding restructuring costs was 1.7 times at September 30, 2012, down from 1.8 times at December 31 and September 30, 2011. The ratio remains within the Company's long-term target policy range of 1.5 to 2.0 times.

  • Cash provided by operating activities increased by $128 million and $708 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. The increases were due to a number of factors including working capital changes, higher adjusted EBITDA, lower net restructuring payments and lower net payments of interest. For the nine-month period, the increase also resulted from lower discretionary employer contributions to defined benefit plans, absence in 2012 of the one-time mandated regulatory rebates to residential subscribers made in 2011, and lower net payment of income taxes.

  • Cash used by investing activities increased by $52 million and $124 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. The increase for the quarter was mainly due to payment timing differences for capital assets, as capital expenditures were flat year over year. The increase for the first nine months was principally due to $125 million higher capital expenditures, which included investments in the wireless LTE network and two state-of-the-art intelligent Internet data centres (IDCs).

  • Cash used by financing activities increased by $138 million and $624 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011, mainly due to reductions in long-term debt and short-term borrowing, and increased dividends. Dividend payments increased due a higher dividend rate and a slightly higher number of shares outstanding, and for the nine-month period, due to the Company no longer issuing shares from treasury for reinvested dividends after March 1, 2011. These increases for the nine-month period were partially offset by the second quarter of 2011 acquisition of an additional equity interest in Transactel (Barbados) Inc. - a cash flow that was a change in investment in a controlled entity that did not also result in a change in control and was presented as a financing activity.

  • Free cash flow increased by $81 million and $275 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. The increases were mainly due to higher adjusted EBITDA, lower contributions to defined benefit plans net of defined benefit plan expenses, lower restructuring payments net of restructuring costs, and lower net payments of interest, partly offset by higher year-to-date capital expenditures.

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 Section 2 of its annual 2011 MD&A. Activities in the first nine months of 2012 that support the Company's six strategic imperatives include the following.

Building national capabilities across data, IP, voice and wireless

The Company's efforts continue to be focused on wireless capacity upgrades, ongoing deployment of a new LTE wireless network in urban markets, investments in new state-of-the-art Internet data centres (IDCs), as well as continued investments in broadband infrastructure expansion and upgrades to support growth in Optik TV and Internet services. Broadband investments include completing the overlay of VDSL2 technology in the West and in Eastern Quebec. TELUS also continues to deploy fibre to the home in new residential areas, and fibre to the building in new multi-dwelling units.

  • TELUS launched LTE network service in 14 metropolitan areas across Canada in February 2012 and reached more than 60% of Canadians at September 30, 2012. Coverage continues to expand and by the end of 2012 is expected to reach approximately 90% of British Columbians, more than 80% of Albertans, and nationally, more than two-thirds of Canadians. TELUS' urban LTE network operates on advanced wireless services (AWS) spectrum, acquired by the Company for $882 million in Industry Canada's 2008 auction, and supports manufacturer-rated peak data download speeds of up to 75 Mbps (typical speeds of 12 to 25 Mbps expected; actual speed may vary by device used, topography and environmental conditions, network congestion, signal strength and other factors). Outside of LTE coverage areas, LTE devices offered by TELUS also work on the HSPA+ network, which covers 34.3 million Canadians at September 30, 2012, or 98% of the population.

  • TELUS is further enhancing its national capability to support cloud computing services and internal requirements by investing a total of approximately $150 million for new state-of-the-art intelligent IDCs in Rimouski, Quebec and Kamloops, B.C. Phase I of the Rimouski facility opened in August 2012 and has gone into service. The new facilities have been designed to Uptime Institute Tier III standards for reliability and security, and to the leadership in energy and environmental design (LEED) gold standards for sustainability. A modular design approach facilitates secure, efficient, reliable and scalable expansion of the facilities in the future. The Kamloops facility is expected to go into service in mid-2013.

    Aided by the use of hydro-electrically generated power and natural cooling, the new IDCs are expected to be among the most environmentally sustainable operations of their type in North America. The facilities will be directly connected to the national TELUS IP network and interconnect into existing TELUS data centres across the country, creating an advanced and regionally diverse computing infrastructure in Canada.

  • The Company continues to invest in its wireline broadband network to expand capacity and coverage. At September 30, 2012, the Company's broadband high-definition (HD) coverage, including VDSL2 and ADSL2+ coverage, reached approximately 2.4 million households in B.C., Alberta and Eastern Quebec, as compared to less than 2.2 million households one year earlier.

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

In August 2012, the Company introduced prepaid services to the Koodo® brand for the first time. Koodo prepaid is distributed through Walmart stores, Koodo kiosks and Koodomobile.com. Koodo prepaid plans were launched to complement existing Koodo postpaid offerings. Basic prepaid plans start at $15 for 30 days for call display, voicemail, unlimited text and picture messaging (excluding premium messages and subscription-based messages) and per-minute charges for talk minutes. Talk Booster™ and Data Booster™ add-ons are available that do not expire if the basic plan remains active.

In May 2012, TELUS announced a two-year extension to its agreement with the Ontario Ministry of Health and Long-Term Care. Under the agreement, TELUS provides management, operation and maintenance of electronic processing systems and technology support services, which enable online, real-time processing of drug claims under the Ontario Public Drug Programs.

The Company's strategy of focusing on growth markets is reflected in the wireline data revenue and wireless revenue total of $6.4 billion for the first nine months of 2012, which reflects an increase of $499 million or 8.4% when compared to the first nine months of 2011. This increase exceeds the $143 million year-over-year decline in legacy wireline voice and other service and equipment revenues in the first nine months of 2012.

Providing integrated solutions that differentiate TELUS from its competitors

The Company's first priority is to provide an excellent customer service experience and improve the likelihood that TELUS is recommended as a service provider. To help accomplish this, and make the customer experience clear, simple and easy, on October 15, 2012, TELUS announced that it would no longer charge a $35 activation fee for new wireless service customers or charge a $25 equipment exchange fee for renewing customers who purchase a new device. Previously, these fees were sometimes waived for promotional events or other reasons. Effective November 1, 2012, when customers do not already have a compatible TELUS SIM card for their device, the Company began charging $10 for the SIM card that was previously included in the activation or renewal fee. TELUS customers are now realizing net activation or renewal savings even when a SIM card is required. This latest change builds upon a series of improvements over the past several years, including: elimination of carrier 911 fees and system access fees on all of the Company's Clear & Simple® rate plans; introduction of data flex plans, data notifications and worry-free travel; adding caller ID and voicemail as standard on all TELUS rate plans; simplified device pricing with anytime upgrades; and replacing contract termination fees with a declining initial device subsidy balance.

TELUS introduced several innovations for Optik TV in 2012:

  • Optik on the go provides Optik TV customers in B.C. and Alberta with the capability to view a growing selection of commercial-free TV on-demand shows and movies on their mobile devices, tablets and laptops, whether at home, or away from home using TELUS' 4G LTE wireless network or Wi-Fi. Should TELUS' customers travel outside of the 4G LTE network coverage area, they will move seamlessly onto the existing 4G HSPA+ network. There is no additional charge for Optik TV customers to watch select TV On Demand shows and movies from channels they already subscribe to. Tablet and smartphone users can enjoy the service without incurring data charges by using Wi-Fi to connect to the Internet. When compatible devices connect via a mobile network, data usage charges would apply.

  • In October 2012, TELUS launched the free Optik Smart Remote app that Optik TV customers can download to their mobile phone or tablet. The app enables customers to navigate the interactive program guide on the mobile device without interrupting the show on the TV. The app also provides access to program-related information from sources like IMDb (Internet Movie Database), Wikipedia and YouTube.

  • In July, TELUS introduced Multi-View on Optik TV, which allows customers to watch up to four channels at once on the same screen. With Multi-View, one channel is displayed in the main window with audio at the same time that up to three other TV programs are displayed in smaller windows. The customer can quickly switch to one of the smaller displayed programs to full screen when the action picks up, such as for a sporting event. The Company also introduced the Weather Network app on Optik TV, allowing users to check weather at any time. Multi-View and the Weather Network app are available free, however, a subscription to Optik High Speed Internet is required for the Weather app.

  • TELUS customers who use an Xbox 360 as their set-top box may now control both live and recorded TV with hand gestures and voice commands with the addition of an Xbox 360 Kinect sensor.

  • A free Twitter app provides access to Twitter features and content while watching Optik TV. Users can tweet what they are watching, follow TV tweets about their favourite shows, discover top trends and get the latest social news and events.

The Company introduced TELUS Managed Mobility Services powered by Vox Mobile - a service offering that manages an enterprise's mobile infrastructure and devices from procurement to payment and leverages a growing trend of enterprises adopting "bring your own device" policies for their employees. TELUS Managed Mobility Services offers enterprises a series of six individual, yet integrated, service modules to provide an end-to-end service option for managing wireless devices on multiple platforms, from multiple carriers.

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

TELUS has made smaller business acquisitions and related investments complementary to the Company's existing lines of business in 2012. This includes enhancing capabilities in respect of cloud-based electronic medical records (EMR) solutions and international business process outsourcing call centre operations, as well as acquiring certain TELUS-branded wireless dealership businesses.

Investing in internal capabilities to build a high performance culture and customer excellence

The Company has opened new TELUS-branded retail stores in Saskatoon, Toronto and Victoria that are designed to meet the specific needs of small and medium businesses. Business clients have the opportunity to try out technologies with one-on-one assistance from TELUS experts. The stores also have learning centres that offer tutorials to help clients learn how to get the most out of their communications technology.

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

In September 2012, TELUS unveiled TELUSHealth.com, a new online healthcare hub for healthcare professionals. The site offers solutions such as eClaims, personal health records and home care monitoring, as well as educational resources, news, events and publications to assist healthcare professionals in their practice. TELUS Health provides technologies and applications that connect professionals to the right information and enable more rapid acceptance and adoption of health information technology solutions. Information is moved securely on TELUS's telecommunications infrastructure.

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 are key performance drivers that help achieve key performance measures quantified by the Company's public financial targets disclosed in Section 9.

Corporate priorities for 2012

Deliver on TELUS' future friendly brand promise by putting customers first
Increase TELUS' competitive advantage through technology leadership
Drive TELUS' leadership position in its chosen business and public sector markets
Accelerate TELUS' leadership position in healthcare information technology
Strive to further improve operational efficiency and effectiveness at TELUS
Build TELUS' culture for sustained competitive advantage.

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 an overview of the Company's competition were described in Section 4.1 of TELUS' annual 2011 MD&A.

4.2 Operational resources

Operational resources were described in Section 4.2 of TELUS' annual 2011 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 and availability of capital at acceptable risk; and (ii) to manage capital in a manner that considers 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 trade receivables.

The Company manages its 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 its capital structure, the Company may adjust the amount of dividends paid to holders of Common Shares and Non-Voting Shares, purchase shares for cancellation pursuant to permitted normal course issuer bids, issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of trade receivables sold 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. See Section 7.4 Liquidity and capital resource measures.

Report on 2012 financing and capital structure management plans

Pay dividends to the holders of TELUS Common Shares and Non-Voting Shares

Dividends declared for the nine-month period ended September 30, 2012, totalled $1.80 per share, or an increase of 10.8% over the dividends declared for the comparable period in 2011. On November 7, 2012, the Board of Directors declared a fourth quarter dividend of 64 cents per share on the issued and outstanding Common Shares and Non-Voting Shares of the Company, payable on January 2, 2013, to shareholders of record at the close of business on December 11, 2012. The dividend of 64 cents per share declared for the fourth quarter of 2012 reflects an increase of 6 cents or 10.3% from the dividend one year earlier, consistent with TELUS' dividend growth model.

TELUS plans to continue with two dividend increases per year to 2013, normally declared in May and November, and expects the annual increase to be in the range of circa 10% over this timeframe. The dividend growth model is not necessarily indicative of dividend increases beyond 2013. Notwithstanding this, dividend decisions will continue to be subject to the Board's assessment and determination of the Company's financial situation and outlook on a quarterly basis. TELUS is maintaining its long-term dividend payout ratio guideline of 55 to 65% of prospective sustainable net earnings.

Use proceeds from securitized trade receivables (presented as Short-term borrowings), bank facilities, commercial paper and dividend reinvestment, as needed, to supplement free cash flow and meet other cash requirements

Proceeds from securitized trade receivables were unchanged at $400 million in 2012 and throughout 2011.

Commercial paper was reduced by $307 million and $97 million, respectively, during the third quarter and first nine months of 2012, to $669 million at September 30, 2012.

Cash provided by operating activities exceeded the use of cash for investing activities by $475 million and $972 million, respectively, during the third quarter and first nine months of 2012.
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 $1.3 billion at September 30, 2012, as well as $100 million of additional availability under the trade receivables securitization program.

Net debt to EBITDA excluding restructuring costs ratio of 1.5 to 2.0 times - Actual result of 1.7 times at September 30, 2012. See Section 7.4.

Dividend payout ratio guideline of 55 to 65% of sustainable net earnings on a prospective basis - See Section 7.4.
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 November 9, 2012, investment grade credit ratings from the four rating agencies that cover TELUS were in the desired range.

4.4 Changes in internal control over financial reporting

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

5. Discussion of operations

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

5.1 General

The Company's operating segments and reporting segments are Wireless and Wireline. Segmented information in Note 5 of the Condensed 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 and trends

Summary of quarterly results
($ millions, except per share amounts
  and as noted)
    2012 Q3   2012 Q2   2012 Q1   2011 Q4   2011 Q3   2011 Q2   2011 Q1   2010 Q4
Operating revenues           2,774          2,665          2,631          2,690          2,622          2,554          2,531          2,554 
Operating expenses                                  
Goods and services purchased           1,222          1,152          1,116          1,316          1,178          1,134          1,098          1,235 
Employee benefits expense           534          515          506          500          476          470          447          478 
Depreciation and amortization           461          456          470          481          443          442          444          445 
            2,217          2,123          2,092          2,297          2,097          2,046          1,989          2,158 
Operating income           557          542          539          393          525          508          542          396 
Financing costs           86          85          75          87          92          94          104          105 
Income before income taxes           471          457          464          306          433          414          438          291 
Income taxes           120          129          116          69          107          90          110          65 
Net income           351          328          348          237          326          324          328          226 
Net income attributable to Common Shares and
  Non-Voting Shares
          351          328          348          246          325          321          327          225 
Net income per Common Share and Non-Voting
  Share
                                 
- Basic           1.08          1.01          1.07          0.76          1.00          0.99          1.01          0.70 
- Diluted           1.07          1.00          1.06          0.75          1.00          0.98          1.00          0.70 
Cash dividends declared per Common Share and
  Non-Voting Share1
          0.61          —          1.19          0.58          0.55          0.55          0.525         0.525
Additional information                                  
EBITDA2           1,018          998          1,009          874          968          950          986          841 
Restructuring costs included in EBITDA and Operating income                    13          13          16          3          12          4          38 
   
1      Dividends declared during the first quarter of 2012 include the first quarter dividend of 58 cents per share paid on April 2, 2012, and the second quarter
dividend of 61 cents per share paid on July 3, 2012.
2      A non-GAAP measure (see Section 11.1 EBITDA). Equivalent to Operating income before depreciation and amortization expenses.

Trends

The consolidated revenue trend principally reflects: (i) year-over-year growth in wireless network revenues generated from a growing subscriber base and higher ARPU; (ii) wireless equipment revenue that has generally increased year-over-year; and (iii) year-over-year growth in wireline data revenues, which now more than offsets declining legacy wireline voice and other service and equipment revenues.

Increasing wireless network revenue reflects growing data revenue (23% year-over-year growth in the third quarter of 2012), partly offset by declining voice revenues (a 2.2% year-over-year decrease in the third quarter of 2012). Data growth reflects increased use of data plans and increased data consumption driven by increasing smartphone adoption, as well as increased roaming revenues. The growing demand for wireless data may challenge network and spectrum capacity in the future. Blended ARPU has increased year over year for eight consecutive quarters following several years of declines, as growth in data ARPU has more than offset ongoing, but moderating, declines in voice ARPU (see the table Year-over-year wireless ARPU growth in Section 5.4). Moderation in the data ARPU growth trend is a result of competitive pressures on data driving bigger included-data buckets in rate plans, and an increasing number of unlimited messaging rate plans, as well as a natural slowing of the growth rate following the significant jump in smartphone adoption and corresponding increase in usage in the latter part of 2010 and off-loading of data traffic to increasingly available Wi-Fi hotspots. Voice ARPU declines moderated in recent quarters; the moderation includes the effect of subscribers adopting more voice-centric plans.

Wireless equipment revenues have generally increased year over year due to an increasing proportion of more expensive smartphones and device upgrade revenues, and in 2011, increased subscriber acquisition and retention volumes.

There is significant third and fourth quarter seasonality with respect to higher wireless subscriber additions, related acquisition costs and equipment sales, and higher retention costs due to contract renewals. These impacts can also typically be more pronounced around iconic device launches. Wireless EBITDA typically decreases in the fourth quarter from heightened competitive intensity. Subscriber additions have typically been lowest in the first quarter. In addition, wireless ARPU has generally risen sequentially in the second and third quarters, and declined sequentially in the fourth and first quarters.

The increasing wireline revenue trend reflects data revenue growth resulting from continuing expansion of the TELUS TV subscriber base (up 41% in the 12-month period ended September 30, 2012), as well as growth in enhanced data, Internet and managed workplace revenues. Growth in Internet revenues includes expansion of the Optik High Speed Internet subscriber base (7.0% over twelve months) as a result of bundling offers with Optik TV, as well as rate increases. A general trend of declining wireline voice revenues and network access lines (NALs) is due to substitution to wireless and IP-based services and applications, as well as competition from VoIP service providers (including cable-TV competitors), resellers and facilities-based competitors. Shaw Communications Inc. increased its promotional activity and incentives early in the first quarter of 2012 to win back and protect its subscriber base and then reduced promotional activity in the latter part of the first quarter. A sequential increase in residential NAL losses in the first quarter of 2012 was due to this increased promotional activity. Moderation in the rate of residential NAL losses was observed from mid-2010 through most of 2011 and in the second and third quarters of 2012 due to the positive impact of Optik TV and Optik High Speed Internet services and improved bundle offers. Residential NAL losses in the third quarter of 2012 were the lowest since the third quarter of 2011. The general trend for business NALs is a decline due to increased competition in the small and medium business (SMB) market, as well as conversion of voice lines to more efficient IP services. Business NALs had increased in the first two quarters of 2011 from implementing wholesale services for enterprise customers.

The trend in the Goods and services purchased expense reflects increasing content and support costs for the growing TELUS Optik TV subscriber base, as well as fourth quarter wireless expense seasonality described above.

The trend in Employee benefits expenses includes compensation increases; increased full-time equivalent (FTE) staff resulting from acquisitions and targeted hiring to support TV, business and wireless growth; and increased employee-related restructuring costs in 2012.

The sequential increase in depreciation and amortization expenses in the fourth quarter of 2011 resulted from a $19 million write-down of assets in a foreign operation that were held for sale at December 31, 2011, as well as from an increase in wireline and wireless broadband capital assets to facilitate subscriber growth.

Financing costs for each period shown are net of varying amounts of interest income, including interest from the settlement of prior years' income tax-related matters. Quarterly financing costs have decreased mainly due to a lower effective interest rate from refinancing activities in the second quarter of 2011.

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

Income tax-related adjustments
($ in millions, except EPS amounts)       2012 Q3     2012 Q2     2012 Q1     2011 Q4     2011 Q3     2011 Q2     2011 Q1     2010 Q4
Approximate Net income impact                        (11)           10            10            —            11            —            10 
Approximate EPS impact             0.01           (0.03)           0.03           0.03            —            0.03            —            0.03 
Approximate basic EPS excluding income
  tax-related impacts
            1.07            1.04            1.04            0.73            1.00            0.96            1.01            0.67 
                                                   

5.3 Consolidated operations

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

Operating revenues                  
            Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)                 2012        2011        Change            2012        2011        Change 
Service                 2,551        2,443        4.4 %           7,481        7,159        4.5 %
Equipment                 204        169        20.7 %           537        503        6.8 %
Service and equipment revenues                 2,755        2,612        5.5 %           8,018        7,662        4.6 %
Other operating income                 19        10        90.0 %           52        45        15.6 %
                  2,774        2,622        5.8 %           8,070        7,707        4.7 %
                           

Consolidated Operating revenues increased by $152 million and $363 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

  • Service revenue increased year over year by $108 million and $322 million, respectively, in the third quarter and first nine months of 2012. Wireless network and other service revenue increased by $83 million or 6.4% in the quarter and $266 million or 7.1% in the nine-month period, principally due to growth in wireless data network revenues from subscriber growth and accelerated smartphone adoption as well as increased roaming volumes, which exceeded the decline in voice network revenue. Wireline service revenue increased by $25 million or 2.1% in the quarter and $56 million or 1.6% in the nine-month period, as growth in data services including TV, Internet and managed workplace services, exceeded the decline in legacy voice local, long distance and other services.

  • Equipment revenue increased year over year by $35 million and $34 million, respectively, in the third quarter and first nine months of 2012, mainly due to higher wireline data equipment sales (including a negotiated sale in the third quarter of 2012) and higher wireless equipment sales.

  • Other operating income increased year over year by $9 million and $7 million, respectively, in the third quarter and first nine months of 2012. The increases include higher drawdowns from the regulatory price cap deferral account in 2012 to recognize provisioning of broadband Internet service to a number of qualifying rural and remote communities (increases of $4 million in the quarter and $10 million year to date), as well as recoveries of employee costs under eligible government-sponsored employment programs (increases of $3 million for the quarter and $1 million year to date). The increase for the nine-month period includes a $9 million gain on land contributed to the TELUS Garden residential real estate redevelopment project recognized in the second quarter of 2012, partly offset by equity losses for the TELUS Garden residential partnership of $2 million. The full gain is $18 million, with recognition of $9 million deferred until ownership of TELUS Garden condominium units is transferred after construction is completed. Offsetting the $9 million second quarter 2012 gain was the first quarter 2011, $16 million non-cash gain on Transactel (Barbados) Inc., which reflected a re-measurement of TELUS' 51% interest at fair value when the Company exercised its purchased call option and asserted control. Transactel operates call centres in Central America.
Operating expenses                  
            Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)                 2012        2011        Change            2012        2011        Change 
Goods and services purchased                 1,222        1,178        3.7 %           3,490        3,410        2.3 %
Employee benefits expense                 534        476        12.2 %           1,555        1,393        11.6 %
Depreciation                 362        331        9.4 %           1,049        989        6.1 %
Amortization of intangible assets                 99        112        (11.6)%           338        340        (0.6)%
                  2,217        2,097        5.7 %           6,432        6,132        4.9 %
                           

Consolidated Operating expenses increased by $120 million and $300 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

  • Goods and services purchased increased year over year by $44 million and $80 million, respectively, in the third quarter and first nine months of 2012, mainly due to increased content and support costs to grow and manage wireline Optik TV services, increased costs of sales related to increased wireline data equipment revenues and higher wireless equipment expenses. These increases were partly offset by lower wireless marketing expenses.

  • Employee benefits expense increased year over year by $58 million and $162 million, respectively, in the third quarter and first nine months of 2012. The increases mainly reflect higher wage and salary expenses of $36 million in the third quarter and $114 million for the nine-month period. Wage and salary expenses increased due to management and bargaining unit compensation increases, full inclusion in 2012 of operations of certain TELUS-branded wireless dealership businesses acquired throughout 2011, smaller acquisitions in 2012, hiring over the past year to support the growing TV subscriber base, and one additional month of expenses in 2012 from the consolidation of Transactel operations since February 2011. Recoveries in respect of employee defined benefit pension plans decreased by $4 million in the quarter and $17 million for the nine-month period, and employee-related restructuring costs increased by $4 million in the quarter and $16 million for the nine-month period. Share-based compensation increased by $6 million in the quarter and $16 million for the nine-month period as expense recoveries in 2011 associated with net-cash settlement feature were non-recurring. These increases were partly offset by higher capitalization of labour of $9 million in the nine-month period, resulting from higher capital expenditures to-date in 2012.

  • Depreciation increased year over year by $31 million and $60 million, respectively, in the third quarter and first nine months of 2012. The increases were mainly due to investments in Optik TV and wireless network expansion, as well as retirements, partly offset by an increase in fully depreciated computer and digital cell site equipment.

  • Amortization of intangible assets decreased year over year by $13 million and $2 million, respectively, in the third quarter and first nine months of 2012 mainly due to an increase in longer-life assets. The decreases were partly offset by retirements, increased investment in network and other software assets, and acquisitions.
Operating income                            
                      Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)                           2012        2011        Change            2012        2011        Change 
                            557        525        6.1 %           1,638        1,575        4.0 %
                                     

Operating income increased by $32 million and $63 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. Wireless EBITDA increased by $70 million in the quarter and $212 million in the nine-month period (see Section 5.4), which was partly offset by decreased wireline EBITDA of $20 million in the quarter and $91 million for the nine-month period (see Section 5.5), and higher total depreciation and amortization expenses.

Financing costs                  
            Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)                 2012        2011        Change            2012        2011        Change 
Interest expenses                 87        90        (3.3)%           266        298        (10.7)%
Interest income and foreign exchange                 (1)       2        n/m               (20)       (8)       n/m    
                  86        92        (6.5)%           246        290        (15.2)%
                           

Financing costs decreased by $6 million and $44 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011, mainly due to lower interest expenses. Interest expenses decreased year over year by $3 million and $32 million, respectively, in the quarter and nine-month periods due to a lower effective interest rate and lower debt levels. The lower effective interest rate resulted mainly from refinancing activities in the second quarter of 2011, where the remaining U.S. dollar Notes matured on June 1 and associated cross currency interest rate swap agreements were settled (combined effective interest rate of 8.5%), funded by a May 2011, 3.65% debt issue and low-rate commercial paper issues.

Interest income and foreign exchange includes interest income of $1 million and $12 million, respectively, in the third quarter and first nine months of 2012 in respect of the settlement of income tax-related matters. The amount in the third quarter of 2011 was a foreign exchange loss. The balances for the first nine months of 2012 and 2011 are mainly foreign exchange gains.

Income taxes              
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012        2011        Change            2012        2011        Change 
Basic blended tax at weighted average statutory
  income tax rates
            121        117        3.4 %           357        349        2.3 %
Revaluation of deferred income tax liability to
  reflect future statutory income tax rates
            —        (10)       n/m               12        (25)       n/m    
Tax rate differential on, and consequential adjustments
  from, reassessments of prior years' tax issues
            (2)       —        n/m               (5)       (11)       n/m    
Share option award compensation                    —        n/m                      —        n/m    
Other             —        —        n/m               (1)       (6)       n/m    
              120        107        12.1 %           365        307        18.9 %
Blended federal and provincial statutory tax rates (%)             25.7        27.1        (1.4) pts.           25.6        27.2        (1.6) pts.
Effective tax rates (%)             25.5        24.7        0.8  pts.           26.2        23.9        2.3  pts.
                       

Basic blended statutory income taxes increased slightly in the third quarter and first nine months of 2012 when compared to the same periods in 2011, as increases in pre-tax income (8.8% in the quarter and 8.3% for the nine-month period) were partly offset by lower blended statutory income tax rates. Revaluation of deferred income tax liabilities for the first nine months of 2012 includes the effect of the elimination of previously enacted Ontario corporate income tax rate reductions in June 2012. Effective tax rates differ from the statutory tax rates due to revaluations of deferred income tax liabilities; the tax rate differential on, and consequential adjustments from, reassessments of prior years' tax issues; and other taxable income differences.

Comprehensive income
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012        2011        Change            2012        2011        Change 
Net income             351        326        7.7 %           1,027        978        5.0 %
Other comprehensive income (OCI)                      
  Items that may be subsequently reclassified to income                    13        (84.6)%                  11        (63.6)%
  Item never subsequently reclassified to income             94        (360)       n/m              82        (443)       n/m   
              447        (21)       n/m              1,113        546        103.8 %
                       

Comprehensive income increased by $468 million and $567 million, respectively, in the third quarter of 2012 and first nine months of 2012 when compared to the same periods in 2011.

  • Net income increased by $25 million and $49 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

  • OCI items that may be subsequently reclassified to income are comprised of changes in unrealized fair value of derivatives designated as cash flow hedges, foreign currency translation adjustments arising from translating financial statements of foreign operations, and an $11 million increase in the unrealized fair value of an available-for-sale TELUS venture capital investment in the third quarter of 2012.

  • The OCI item never subsequently reclassified to income is in respect of after-tax actuarial gains and losses on defined benefit plans, which are likely to fluctuate from period to period.

5.4 Wireless segment

Wireless segment revenues increased by $104 million and $275 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

Operating revenues - wireless segment                      
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012        2011        Change            2012        2011        Change 
  Voice             826        845        (2.2)%           2,433        2,515        (3.3)%
  Data             546        444        23.0 %           1,556        1,212        28.4 %
Network revenue             1,372        1,289        6.4 %           3,989        3,727        7.0 %
Equipment and other             129        108        19.4 %           323        311        3.9 %
External operating revenues             1,501        1,397        7.4 %           4,312        4,038        6.8 %
Intersegment revenue             10        10        —               30        29        3.4 %
Total operating revenues             1,511        1,407        7.4 %           4,342        4,067        6.8 %
Data revenue to network revenue (%)             40        34        6 pts.           39        33        6 pts.
                       

Network revenue increased by $83 million and $262 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011.

  • Voice revenue decreased year over year by $19 million and $82 million, respectively, in the third quarter and first nine months of 2012, due to the ongoing trend of declining voice ARPU. The rate of decline in voice revenues has moderated due to increased subscriber adoption of voice-centric plans, as well as reduced billing credits resulting from TELUS' focus on Clear & Simple® initiatives to improve the customer experience. Year-over-year declines in voice ARPU were due to an increasing volume of mobile Internet connection devices and tablet subscriptions where there are no voice revenues, increased use of included-minute plans for both local and long distance calling, an increased penetration of the lower ARPU Koodo® brand, partly offset by increased roaming volumes. Voice ARPU was $36.91 and $36.64, respectively, in the third quarter and first nine months of 2012, reflecting year-over-year decreases of $2.71 or 6.8% for the quarter and $3.17 or 8.0% for the nine-month period. Average minutes used were up slightly from one year ago.

  • Data revenue increased year over year by $102 million and $344 million, respectively, in the third quarter and first nine months of 2012. Higher data revenues reflect subscriber growth, strength in smartphone service revenues and text messaging driven by increased smartphone penetration, higher data roaming volumes, increased adoption of data plans, growth in mobile Internet connection devices and tablets, and increased rates for pay-per-use text messaging, as well as reduced billing credits, partly offset by lower data roaming rates. Data ARPU was $24.51 and $23.56, respectively, in the third quarter and first nine months of 2012, reflecting year-over-year increases of $3.61 or 17% for the quarter and $4.26 or 22% for the nine-month period.

  • Blended ARPU was $61.42 and $60.20, respectively, in the third quarter and first nine months of 2012, reflecting year-over-year increases of $0.90 or 1.5% in the quarter and $1.09 or 1.8% in the nine-month period. The increases were mainly due to increased roaming and increasing data usage, partly offset by declining voice ARPU. Blended ARPU has increased year over year for eight consecutive quarters.
Year-over-year wireless ARPU growth (%)
                      2012 Q3     2012 Q2     2012 Q1     2011 Q4     2011 Q3     2011 Q2     2011 Q1     2010 Q4
Blended ARPU                           1.5            2.4            1.7            1.0            3.0            2.5            2.7            1.9 
Data ARPU                           17.3            21.1            28.9            35.2            43.8            39.5            34.8            27.1 
Voice ARPU                           (6.8)           (6.7)          (10.3)          (11.9)          (10.4)           (9.3)           (5.8)           (5.2)
                                                                 
  • Gross subscriber additions decreased year over year by 38,000 or 8.1% in the third quarter of 2012, and decreased year over year by 116,000 or 8.9% in the first nine months of 2012. Heightened competitive intensity was reflected in price competition for devices, an increased number of promotional rate plan offers, port-in credits and in-store credits from both established national competitors and newer entrants. Postpaid gross additions decreased year over year by 41,000 or 12% in the quarter and 82,000 or 8.8% in the nine-month period. Loading in the third quarter of 2012 was somewhat impacted by delayed customer purchase decisions ahead of the widely anticipated iPhone 5 launch on September 21, while loading year-to-date was also affected by tightened credit policies. Prepaid gross additions increased year over year by 3,000 or 2.5% in the quarter and decreased by 34,000 or 9.1% in the nine-month period. The improvement in the current quarter was mainly due to the August 2012 launch of prepaid services under the Koodo brand.

  • Net subscriber additions decreased year over year by 3,000 or 2.6% in the third quarter of 2012 and decreased year over year by 21,000 or 8.8% in the first nine months of 2012.

    Postpaid net additions decreased year over year by 17,000 in the third quarter of 2012 and increased year over year by 14,000 in the first nine months of 2012. Postpaid net additions in the third quarter were somewhat impacted by delayed customer purchase decisions ahead of the widely anticipated iPhone 5 launch. Although initial demand for the iconic device was significantly stronger than seen previously at the launch of the iPhone 4S, some volume-related system issues were experienced on launch day and initial supplies were constrained. Postpaid net additions in the first half of 2012 and during 2011 were impacted by the loss of subscribers from a federal government wireless contract to a low bid by an established national competitor. Excluding these losses, postpaid net additions were 116,000 and 299,000, respectively, in the third quarter and first nine months of 2012, as compared to 152,000 and 344,000, respectively, in the third quarter and first nine months of 2011. The normalized decreases of 36,000 and 45,000, respectively, for the quarter and the nine-month period resulted from lower postpaid gross subscriber additions, partly offset by continuing strong performance on postpaid churn.

    Prepaid net subscriber losses were 5,000 and 72,000, respectively, in the third quarter and first nine months of 2012, as compared to net losses of 19,000 and 37,000, respectively, in the third quarter and first nine months of 2011. Prepaid subscriber losses include conversions to postpaid as part of retention efforts, as well as increased competitive intensity in the lower value market segments and the Company's choice to not match certain competitive offers. The improvement in the third quarter was partly due to the August 2012 launch of prepaid services under the Koodo brand.

  • The blended monthly wireless subscriber churn rates were 1.44% and 1.46%, respectively, in the third quarter and first nine months of 2012, as compared to 1.67% and 1.68%, respectively, in the third quarter and first nine months of 2011. The 1.44% blended churn rate for the current quarter is the lowest third quarter churn rate since 2007. Blended churn rates in 2011 included effects from the loss of a federal government wireless contract. Improved churn rates in 2012 are primarily attributed to the Company's continued focus on the customer experience including the Clear and Simple Device Upgrade program, which makes it easy for postpaid clients to upgrade to new devices before the end of their contracts, as well as focus on retaining high-value clients and tightened credit policies. In addition, in the fourth quarter of 2012, TELUS eliminated activation and renewal fees.

  • The smartphone adoption rate was 73% of postpaid gross additions in the third quarter of 2012, as compared to 70% in the third quarter of 2011. Smartphone subscribers represented 63% of the postpaid subscriber base at September 30, 2012, as compared to 48% one year earlier. Smartphone subscribers generate significantly higher ARPU and have lower churn than those with messaging and voice-only devices, but have higher costs of acquisition and retention resulting from the large device subsidies for multiple-year contract sales or renewals. A higher smartphone mix is expected to continue to positively impact future data revenue growth, ARPU and churn rates, which increase expected lifetime revenue. The higher smartphone mix is also expected to increase future costs of retention and network usage, and require ongoing network capacity investments.

Equipment and other revenues increased by $21 million and $12 million, respectively, in the third quarter and first nine months of 2012 when compared to the same periods in 2011. Wireless equipment revenues increased mainly due to higher handset prices from a higher proportion of smartphones in the sales mix, partly offset by lower acquisition and retention volumes and competitive pressures, which drove higher handset subsidies. Retention volumes decreased year over year as significant numbers of postpaid clients upgraded their devices in 2011 under the Clear and Simple Device Upgrade program. Other operating income in the third quarter of 2012 includes $2 million of recoveries of employee costs under eligible government-sponsored employment programs.

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              
                  At September 30
                        2012        2011        Change 
Subscribers (000s)                      
  Postpaid                       6,420        5,982        7.3 %
  Prepaid                       1,138        1,229        (7.4)%
  Total                       7,558        7,211        4.8 %
Postpaid proportion of subscriber base (%)                       85.0        83.0       2.0 pts.
Total digital population coverage1 (millions)                       34.7        34.3        1.1 %
HSPA+ population coverage2 (millions)                       34.3        33.6        2.1 %
                       
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
              2012        2011        Change            2012        2011        Change 
Subscriber gross additions (000s)                      
  Postpaid             309        350        (11.7)%           850        932        (8.8)%
  Prepaid             125        122        2.5 %           341        375        (9.1)%
  Total             434        472        (8.1)%           1,191        1,307        (8.9)%
Subscriber net additions (000s)                      
  Postpaid             116        133        (12.8)%           291        277        5.1 %
  Prepaid             (5)       (19)       73.7 %           (72)       (37)       (94.6)%
  Total             111        114        (2.6)%           219        240        (8.8)%
ARPU3 ($)             61.42        60.52        1.5 %           60.20        59.11        1.8 %
Churn, per month3 (%)             1.44        1.67      (0.23) pts.           1.46        1.68      (0.22) pts.
Average monthly minutes of use per subscriber (MOU)             338        332        1.8 %           334        331        0.9 %
COA4 per gross subscriber addition3 ($)             402        397        1.3 %           390        373        4.6 %
Retention spend to network revenue3 (%)             11.0        11.9        (0.9) pts.           10.8        12.0        (1.2) pts.
EBITDA to network revenue (%)             46.6        44.2        2.4 pts.           47.6        45.2        2.4 pts.
   
1      Including roaming/resale and network access agreements.
2      Including network access agreements.
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 IFRS-IASB.
4      Cost of acquisition.
   
Operating expenses - wireless segment
        Third quarters ended Sept. 30     Nine-month periods ended Sept. 30
($ millions)             2012        2011        Change            2012        2011        Change 
Equipment sales expenses             326        312        4.5 %           868        864        0.5 %
Network operating expenses             169        168        0.6 %           506