Manitoba Telecom Services Inc. Reports Third Quarter Results

    
    Stock Symbol: MBT

    This news release contains forward-looking statements and information.
    For a description of the related risk factors and assumptions, please see
    the section entitled "Forward-looking Statements Disclaimer" later in
    this news release. This release discusses results from Manitoba Telecom
    Services Inc.'s continuing operations. The results, and the definition
    of continuing operations and free cash flow, should be read in
    conjunction with Manitoba Telecom Services Inc.'s third quarter 2009
    interim management's discussion and analysis dated November 4, 2009
    (available at the Investors section of www.mtsallstream.com), which is
    incorporated by reference in this release.


    -   Stable sequential performance in the face of challenging economic
        conditions, in line with consensus forecasts
    -   Consumer Markets division growth services revenues climb 7.1% in the
        third quarter
    -   New HDTV product, MTS Ultimate TV, drives increased profitability and
        digital TV subscriber growth
    -   Converged IP, the Enterprise Solutions division's flagship growth
        product, sees revenue climb 12.2% in the third quarter
    -   Cost reduction program already reached annual target of $50 million
        to $60 million of annualized savings in 2009
    -   Business generating solid cash flow in support of quarterly dividend
        of $0.65 per share
    

WINNIPEG, Nov. 5 /CNW/ - Manitoba Telecom Services Inc., including its principal operating subsidiary MTS Allstream Inc. (herein collectively referred to as either the "Company" or "MTS Allstream") today reported its third quarter 2009 financial performance and operational results. While the Company's reported results reflect current economic conditions, the increased prominence of strategic growth services in its overall business mix and the achieved cost reductions are consistent with the Company's longer-term strategy.

"Our third quarter results reflect the continued impact of economic challenges facing Canada's business market as well as our success in key product lines for our future. While economic pressures continue to impact our enterprise legacy portfolio and unified communications services, our results also highlight our success in strategic product lines that will define our long-term success, such as wireless, high-speed Internet, television and converged IP, which all grew strongly," said Pierre Blouin, Chief Executive Officer. "In addition, our Manitoba operations once again delivered solid growth and some of the best margins and overall performance in the industry. We are also pursuing the transformation of our business processes, with a focus on our Enterprise Solutions division, to realign our cost structure and improve service with $51.4 million in annualized savings achieved to date."

Results from continuing operations(1) for the third quarter of 2009 were consistent with the Company's updated financial outlook and the analysts' consensus forecast. Revenue declined 3.5%, EBITDA(2) declined 5.0%, and EPS(3) was 9.5% lower than the third quarter of 2008.

The Company's growth services portfolio, which includes wireless, digital television, high-speed Internet, converged Internet protocol ("IP"), unified communications, professional services and security, delivered solid performance in the third quarter, growing by 2.4%. Revenues from these services continued to increase their prominence in the overall revenue mix of the business, rising to 47% of total revenues.

    
    QUARTERLY FINANCIAL HIGHLIGHTS *

    *From continuing operations

    -------------------------------------------------------------------------
                                               2009                 2008
    (in millions $, except EPS)
                                        Q3      Q2      Q1       Q4      Q3
    -------------------------------------------------------------------------
    Growth services revenues          218.2   216.7   227.2    212.5   213.1

    Legacy services revenues          244.7   247.6   255.7    263.9   266.8

    Revenue                           462.9   464.3   482.9    476.4   479.9

    EBITDA                            156.9   159.3   163.2    156.7   165.1

    Free cash flow(4)                  62.0    59.9    68.7     39.4    70.8

    EPS                                0.67    0.67    0.71     0.59    0.74

    Capital expenditures/revenue        15%     14%     12%      19%     14%
    -------------------------------------------------------------------------
    

Free cash flow of $62.0 million provided sufficient funds to cover the dividend and operating needs. The Company continued to maintain a very strong balance sheet through the third quarter, with a debt ratio that is one of the lowest in the industry at 41%.

"Our balance sheet has not been impacted materially by the difficult economic conditions and continues to be one of the strongest in the industry," said Wayne Demkey, Chief Financial Officer.

The Company's Board of Directors declared a cash dividend of $0.65 per share for the fourth quarter of 2009, which is payable on January 15, 2010 to shareholders of record on December 15, 2009.

    
    DIVISIONAL HIGHLIGHTS*

    *From Continuing Operations

    -------------------------------------------------------------------------
                           Three months               Nine months
                               ended                     ended
    (in millions of $)     September 30    change     September 30    change
                        ----------------           ----------------
                          2009     2008              2009     2008
    -------------------------------------------------------------------------
    Consumer Markets division ("CMD")
    -------------------------------------------------------------------------
      CMD growth
       services revenue   108.0    100.8     7.1%    313.3    289.5     8.2%
    -------------------------------------------------------------------------
      CMD legacy
       services revenue   100.6    107.4    (6.3%)   307.2    323.3    (5.0%)
    -------------------------------------------------------------------------
      CMD total revenue   208.6    208.2     0.2%    620.5    612.8     1.3%
    -------------------------------------------------------------------------
      CMD EBITDA          107.9    104.9     2.9%    322.3    312.7     3.1%
    -------------------------------------------------------------------------
    Enterprise Solutions division ("ESD")
    -------------------------------------------------------------------------
      ESD growth
       services revenue   110.2    112.3    (1.9%)   348.8    343.4     1.6%
    -------------------------------------------------------------------------
      ESD legacy
       services revenue   144.1    159.4    (9.6%)   440.8    488.9    (9.8%)
    -------------------------------------------------------------------------
      ESD total revenue   254.3    271.7    (6.4%)   789.6    832.3    (5.1%)
    -------------------------------------------------------------------------
      ESD EBITDA           49.0     60.1   (18.5%)   156.7    190.7   (17.8%)
    -------------------------------------------------------------------------
    MTS Allstream totals
    -------------------------------------------------------------------------
      Revenue             462.9    479.9    (3.5%) 1,410.1  1,445.1    (2.4%)
    -------------------------------------------------------------------------
      EBITDA(5)           156.9    165.1    (5.0%)   479.4    505.1    (5.1%)
    -------------------------------------------------------------------------

    Consumer Markets division
    -------------------------
    

Once again, the Company's Consumer Markets division delivered solid margins, revenue and EBITDA growth and strong cash flow. The division continues to benefit from exposure to the resilient economy of Manitoba and a business strategy that has combined unmatched product bundles with the capabilities of MTS Allstream's advanced networks to offer tremendous value to customers.

The division's three major consumer growth products delivered solid revenue growth through the third quarter. Wireless revenues increased 7.3%, Internet revenues increased 4.8% and digital television revenues climbed 9.6%. The Company has continued to deploy its new HDTV product, MTS Ultimate TV, the most advanced television viewing experience in Canada, with 3,624 new sales in the third quarter. The service is currently available to over half the households in Winnipeg and is expected to reach 70% by year end. Overall the TV subscriber base grew by 2.3%, reaching 84,200 subscribers as at September 30, 2009. The new service is expected to drive subscriber growth as it becomes more established in Winnipeg and Brandon, the second largest market in Manitoba, where it was recently launched.

"Our products and strategies continue to deliver solid performance," said Kelvin Shepherd, President Consumer Markets division. "We are well-positioned to face the competitive environment in Manitoba, and we continue to introduce strong and innovative products like our market-leading Whole Home PVR and our MiFi portable wireless router. We expect to benefit from HSPA wireless and further advanced broadband capabilities, which are positioning our business for success now and in the long-term."

    
    Enterprise Solutions division
    -----------------------------
    

The recession and the slow pace of the economic recovery affected the performance of certain business lines within the Enterprise Solutions division. Converged IP, the division's flagship strategic growth product, continued to be successful, with growth of 12.2% in the third quarter as compared to the same period of 2008. The division's national sales team won $88.3 million in new contracts in the third quarter of 2009, including announced contracts with Stella-Jones, WestJet and Vicwest Income Fund.

"We are positioning the Enterprise Solutions division to benefit once the economy recovers and business spending resumes," said Dean Prevost, President Enterprise Solutions division. "We are making progress on realigning our cost structure to ensure it reflects the realities of the market and the requirements of our customers. As we continue to transition our business toward our IP-based products, we are building long-term value for the Company."

2010 OUTLOOK

The Company announced today that the release of its Financial and Operating Outlook for 2010 is expected to be provided in February of 2010 to be consistent with the timing of its peers. Based on the Company's stable sequential performance over the past two quarters, and assuming that current economic conditions do not worsen, no significant change in the performance of the business is expected between now and that time.

OTHER DEVELOPMENTS

The following are various announcements made recently by the Company.

    
    Corporate announcements

    -   On November 2, 2009, MTS Allstream announced it was named as one of
        Manitoba's Top 25 Employers for 2010. This annual competition,
        announced by the Winnipeg Free Press, recognizes Manitoba's best
        places to work.

    -   On October 22, 2009, MTS Allstream celebrated the official opening of
        the Allstream Centre. After many months of construction, the
        Allstream Centre, Canada's newest and greenest conference facility,
        located at Exhibition Place in Toronto, is fully-equipped with unique
        and innovative Allstream-branded communications solutions.

    -   On October 19, 2009, the Company announced the establishment of a
        $500 million medium term note program. Under this program, the
        Company may issue medium term notes periodically up to an amount of
        $500 million over the next 25 months.

    -   On October 8, 2009, MTS Allstream announced it was named as one of
        Canada's Top 100 Employers for 2010. This annual competition,
        announced by Maclean's magazine, recognizes Canada's best places to
        work and aims to identify the companies and organizations that lead
        their industries in attracting and retaining employees.

    -   On October 7, 2009, the Company updated its financial outlook for
        2009.

    -   On September 29, 2009, MTS Allstream announced it acquired VisionIP
        Technologies Inc. ("VisionIP"), a Montreal-based provider of IT
        solutions and services. As a Cisco Silver Partner in Canada, with
        specializations in advanced security, advanced wireless, and advanced
        unified communications, VisionIP strengthens MTS Allstream's
        competitive position by expanding its unified communications
        solutions delivery and service capabilities in the province of Quebec
        where VisionIP has established a great depth of expertise and
        experience in supporting a key business market.

    -   On September 17, 2009, MTS Allstream welcomed an announcement by the
        Federal Government that the Canadian Radio-television and
        Telecommunications Commission ("CRTC") should consider the views of
        the public when it comes to the issue of Fee-For-Carriage, which
        would see service providers pay broadcasters a fee to provide
        customers with television signals that are currently available free
        of charge over the airwaves.

    -   On September 16, 2009, MTS Allstream filed a submission with the CRTC
        opposing Fee-For-Carriage, which would see service providers pay
        broadcasters a fee to provide customers with television signals that
        are available free of charge over the airwaves. The submission was
        made in preparation for a CRTC hearing on broadcast issues expected
        to take place in November.

    -   On September 11, 2009, the Company confirmed that its previously
        announced agreement with Rogers, that will see both companies share
        the cost to deploy a high-speed packet access ("HSPA") wireless
        network across the existing MTS Allstream regional wireless
        footprint, received the required regulatory approvals and will
        proceed.

    -   On September 10, 2009, MTS Allstream, the Canadian Association of
        Internet Service Providers, the Canadian Federation of Independent
        Businesses and nearly two dozen individual companies from across
        Canada launched an Internet-based campaign to convince the Federal
        Government to correct a CRTC decision that is harmful to competition
        in broadband Internet, Ethernet and other next generation
        communications services.

    -   On August 21, 2009, MTS Allstream received top honours at Manitoba's
        first annual Commuter Friendly Workplace Awards. The award recognizes
        the Company's achievements in encouraging green commuting year-round
        through facility improvements, and outstanding management and staff
        support.

    -   On August 11, 2009, Cindy Klassen, Canada's all-time most decorated
        Olympian and MTS Allstream-sponsored athlete, participated in one of
        Manitoba's premier community festivals, the Morden Corn & Apple
        Festival on Saturday, August 22, 2009. MTS Allstream is a proud
        sponsor of both Cindy Klassen and the Morden Corn & Apple Festival.

    Consumer Markets division announcements

    -   On October 19, 2009, MTS Allstream announced it launched Canada's
        first Whole Home personal video recorder ("PVR"). This new and more
        advanced PVR is capable of recording up to three programs at the same
        time and playing back programs from any connected TV in the home.
        This is the only service of its kind in Canada and exclusive to MTS
        Ultimate TV Service customers.

    -   On October 16, 2009, MTS Allstream became the first wireless provider
        to launch the Novatel Wireless MiFi(TM) 2200 Intelligent Mobile
        Hotspot in Manitoba. The MiFi wirelessly accesses the Internet
        anywhere MTS 1X/EVDO wireless coverage is available with any WiFi-
        enabled device. Able to support up to five users or devices
        simultaneously, customers can share their wireless high-speed
        connection with friends, family members and co-workers.

    -   On October 9, 2009, MTS Allstream announced that TSN2 was available
        to its MTS TV subscribers. Each year, TSN2 delivers hundreds of
        exclusive live sporting events and encore telecasts of key sporting
        events, including marquee NHL and NBA games.

    -   On October 2, 2009, MTS TV premiered a new line-up of
        locally-produced programming exclusively on Winnipeg On Demand.
        Winnipeg on Demand provides access to local filmmakers and community
        producers to express themselves through their stories. The result is
        a new and growing library of programs featuring Winnipeg people,
        music, history, arts, culture and lifestyle.

    -   On September 25, 2009, MTS Allstream launched MTS Ultimate TV Service
        to residents in Brandon. MTS Ultimate TV Service is the next
        generation of high definition television that combines technology
        from Alcatel-Lucent Canada Inc. and the award-winning Microsoft
        Mediaroom Internet Protocol television software platform.

    -   On September 18, 2009, MTS Allstream introduced two new residential
        high-speed Internet plans - Lightning Bolt and Lightning Super MAX.
        These plans offer MTS Allstream's fastest consumer speeds yet and are
        great for gaming, for downloading multiple files from multiple URLs
        at once, and for when multiple users are accessing the Internet at
        the same time.

    -   On August 27, 2009, MTS Allstream announced its continued support of
        community festivals and organizations in Western Manitoba through
        financial, in kind, and volunteer contributions. Through a payroll
        deduction and corporate match program, MTS employees and retirees
        contribute more than $20,000 to charitable organizations in Western
        Manitoba every year. MTS Allstream employees and retirees also
        contribute more than 8,000 hours to community organizations and
        events in Western Manitoba every year through the MTS Volunteers
        organization.

    -   On August 12, 2009, MTS Allstream launched Wireless Hewlett Packard
        Mini Notebook Packages. The Wireless HP Mini Notebook Packages
        combine an MTS Internet Express Stick and an HP Mini Notebook
        computer to provide access to the Internet anywhere 1xEVDO coverage
        exists in Manitoba, using Manitoba's widest wireless network, as well
        as throughout the rest of Canada and the U.S.

    Enterprise Solutions division announcements

    -   On October 20, 2009, MTS Allstream announced a contract to provide
        Vulcan County Alberta with a wireless solution assessment that will
        see leading-edge technologies, an information system network, and
        other communications infrastructure installed throughout the county.

    -   On October 14, 2009, MTS Allstream announced it had achieved Cisco
        Managed Services Master Channel Partner worldwide status for unified
        communications managed services and managed business IP. As MTS
        Allstream continues to deliver advanced business communication
        solutions to its customers, this designation recognizes the Company's
        continued investment in the personnel, processes and tools needed to
        meet the growing demand for highly-sophisticated managed services
        practices.

    -   On October 13, 2009, MTS Allstream announced that guests of the 2009
        Allstream Global Forum will be the first in Canada to hear former
        U.S. Vice-President Al Gore share his new and compelling vision of
        how business can play a pivotal role in ensuring changes for the
        better through innovation and investment in new technology. Proceeds
        from the event, which will take place on November 24, 2009, at the
        Allstream Centre in Toronto, go to the David Suzuki Foundation and
        its efforts to help transform the Canadian economy in ways that are
        consistent with a sustainable future.

    -   On October 5, 2009, MTS Allstream announced the renewal of a two-year
        contract with WestJet, to continue servicing their global MPLS
        network to all domestic and international locations; maintain and
        support all local, long distance, and toll-free services; support
        Internet services for e-commerce Web bookings; and maintain all
        domestic phone switches.

    -   On October 1, 2009, MTS Allstream selected Concrete Design
        Communications as its agency-of-record for marketing the Company's
        enterprise networking solutions offered under the Allstream brand.

    -   On September 30, 2009, MTS Allstream was selected by Vicwest Income
        Fund to design a fully-managed MPLS network for 18 of its locations
        throughout Canada and one location in the U.S.

    -   On September 15, 2009, MTS Allstream and Ciena announced a strategic
        partnership that will see MTS Allstream launch the next generation of
        managed wavelength services to its business customers across Canada
        that require resilient network solutions for mission critical
        applications. MTS Allstream also joined Ciena's BizConnect global
        partner program as a designated Managed Services Provider partner.

    -   On September 4, 2009, MTS Allstream announced it was selected by
        Stella-Jones Inc., a leading North American producer and marketer of
        industrial pressure-treated wood products, specializing in the
        production of railway ties, timbers, and wood poles, for the
        installation of an MPLS network and managed hosting solution to eight
        facilities across Canada.

    -   On September 3, 2009, AAA Alarm Systems Ltd. announced it had
        signed a five-year alarm monitoring contract with Loblaws for its 670
        corporate stores across Canada. Certain franchise stores may, at
        their option, also choose to receive monitoring under the terms of
        the contract.
    

Quarterly Conference Call

MTS Allstream's third quarter 2009 conference call with the investment community is scheduled for 9:00 a.m. (Eastern time) on November 5, 2008. Investors are invited to listen to the conference call. The dial-in number is 1-800-732-1073. A live audio Webcast of the investor conference call can be accessed by visiting the Investors section of the MTS Allstream Web site (www.mtsallstream.com). A replay of the conference call will be available until midnight (Eastern time) on November 14, 2009, and can be accessed by dialing 1-877-289-8525 or 1-416-640-1917 (access code 4167928 followed by the number sign).

Note

MTS Allstream's interim Management's Discussion and Analysis ("MD&A") for the nine months ended September 30, 2009 and supplementary financial information are available in the Investors section of the MTS Allstream Web site at www.mtsallstream.com.

About Manitoba Telecom Services Inc.

Manitoba Telecom Services Inc., through its wholly owned subsidiary MTS Allstream Inc., is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians want to live and work today. The Company has more than 100 years of experience, with 6,000 employees across Canada dedicated to a mission of delivering true value as seen through the eyes of our customers. In 2008, MTS Allstream had nearly two million total customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba. The Company's extensive national broadband and fibre optic network spans almost 30,000 kilometres. MTS Allstream is a proud sponsor of Cindy Klassen, 2006 World Champion and Canada's greatest Olympian, and a proud contributor to the Canadian Museum for Human Rights. Manitoba Telecom Services Inc.'s common shares are listed on the Toronto Stock Exchange (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS Allstream services, markets, community commitments and record of creating shareholder value are encouraged to visit: www.mtsallstream.com.

Forward-looking Statements Disclaimer

This news release includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operating and dispute resolution activities, financial objectives, and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Forward-looking statements reflect our expectations as at November 4, 2009. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending", and other similar terms. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that affect our ability to compete effectively or to enter into new business opportunities (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); fluctuations in pension plan funding requirements (pension solvency funding); the ability to manage labour relations effectively (collective agreements); the ability to anticipate, and respond to, changes in technology (technology); and other risk factors listed from time to time in our comprehensive public disclosure documents, including our 2008 annual MD&A and in other filings with the Canadian securities regulatory authorities. Unless otherwise stated, all amounts are expressed in Canadian dollars. For further information, refer to the "Risks and Uncertainties" sections in our 2008 annual MD&A and our interim MD&A for the third quarter of 2009.

Additional information relating to our Company, including our Annual Information Form, is available on SEDAR at www.sedar.com. This news release and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors.

    
    (1) Refer to MTS Allstream's third quarter 2009 interim MD&A for the
        definition of continuing operations.
    (2) EBITDA is earnings before interest, taxes, amortization, and other
        income. EBITDA should not be construed as an alternative to operating
        income or to cash flows from operating activities (as determined in
        accordance with Canadian generally accepted accounting principles) as
        a measure of liquidity.
    (3) EPS is earnings per share.
    (4) Refer to MTS Allstream's third quarter 2009 interim MD&A for the
        definition of free cash flow.
    (5) Includes other EBITDA of nil in the third quarter of 2009 as compared
        to $0.1 million in the third quarter of 2008. Also includes other
        EBITDA of $0.4 million in the first nine months of 2009 as compared
        to $1.7 million in the first nine months of 2008.

    

MANAGEMENT'S DISCUSSION AND ANALYSIS

Unless otherwise indicated, this Management's Discussion and Analysis ("MD&A") of our financial results for the interim period ended September 30, 2009 is as at November 4, 2009. In this MD&A, "we", "our", and "us" refer to Manitoba Telecom Services Inc. ("MTS"). This interim MD&A should be read in conjunction with our interim consolidated financial statements and the discussion and analysis that accompanies our audited consolidated financial statements for the year ended December 31, 2008. This interim MD&A for the nine months ended September 30, 2009 updates the information contained in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. Unless otherwise stated, all amounts are expressed in Canadian dollars.

Disclaimer Regarding Forward-Looking Statements

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

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that affect our ability to compete effectively or to enter into new business opportunities (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); fluctuations in pension plan funding requirements (pension solvency funding); the ability to manage labour relations effectively (collective agreements); the ability to anticipate, and respond to, changes in technology (technology); and other risk factors listed from time to time in our comprehensive public disclosure documents, including our 2008 annual MD&A and in other filings with the Canadian securities regulatory authorities.

For further information, please refer to the "Risks and Uncertainties" section in this interim MD&A, our interim MD&As for the first and second quarters of 2009, our 2008 annual MD&A, and our Annual Information Form, all of which are available on SEDAR at www.sedar.com.

Please note that forward-looking statements reflect our expectations as at November 4, 2009. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. This interim MD&A and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors.

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

In this MD&A, we provide information concerning continuing operations, EBITDA and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by Canadian generally accepted accounting principles ("GAAP"), and are not necessarily comparable to similarly titled measures used by other companies.

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

        In the first nine months of 2009, continuing operations excludes
        restructuring costs; the costs to transition certain wireless service
        requirements away from Bell Mobility to new suppliers and to our
        wireless platform; costs related to our high-speed packet access
        ("HSPA") deployment and related billing implementation; costs related
        to certain regulatory proceedings; certain costs associated with our
        transition from Canadian GAAP to International Financial Reporting
        Standards ("IFRS"); a rebate related to Use of deferral account funds
        to improve access to telecommunications services for persons with
        disabilities and to expand broadband services to rural and remote
        communities, Telecom Decision CRTC 2008-1 ("Decision 2008-1"); and
        solvency funding to our pension plans.

        In the first nine months of 2008, continuing operations excluded the
        costs of transitioning certain wireless service requirements away
        from Bell Mobility to new suppliers and to our wireless platform as
        well as costs associated with the advanced wireless services ("AWS")
        spectrum auction; restructuring and integration costs; the impact of
        changes in income tax rates on our tax asset; and solvency funding to
        our pension plans.

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

    -   Free Cash Flow - We define free cash flow as cash flow from operating
        activities, less capital expenditures, and excluding changes in
        working capital. Free cash flow is the amount of discretionary cash
        flow that we have for purchasing additional assets beyond our annual
        capital expenditure program, paying dividends, buying back shares
        and/or retiring debt.

    OVERVIEW
    --------
    

MTS is a leading national communications provider in Canada and the market leader in Manitoba. We are organized into two reportable operating segments, the Consumer Markets division ("CMD") and the Enterprise Solutions division ("ESD"). Our common shares are listed on the Toronto Stock Exchange (trading symbol: MBT). Our website is www.mtsallstream.com.

Consumer Markets division

The Consumer Markets division leads every telecommunications market segment in Manitoba, delivering a full suite of wireless, high-speed Internet and data, digital television and wireline voice services under the MTS brand, as well as security and alarm monitoring services through AAA Alarm Systems Ltd., a subsidiary of MTS. This complete range of products is unmatched by any other provider in Manitoba. In addition, the Consumer Markets division is an important service provider in the national small business telecommunications market, providing customers in targeted major Canadian centres with a range of innovative business Internet, data and voice services under the Allstream brand.

Enterprise Solutions division

The Enterprise Solutions division, which operates under the Allstream brand nationally and under the MTS Allstream brand in Manitoba, is a leading competitor in the national business and wholesale markets. This division's main customer base is medium and large businesses and government organizations and its key products are Internet protocol ("IP")-based communications, unified communications, voice and data connectivity, and professional services. The Enterprise Solutions division operates an extensive national broadband fibre optic network that spans almost 30,000 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international service providers.

    
    STRATEGIC PRIORITIES UPDATE
    ---------------------------
    

In summary, during the first nine months of 2009, we made the following progress on five core priorities:

    
    1.  Focus on profitable growth

        Our Consumer Markets division's growth services revenues increased by
        8.2%, and our Enterprise Solutions division's growth services
        revenues increased by 1.6%. EBITDA from our growth services, across
        the company, was up 9.0%.

    2.  Improve the customer experience and gain market share

        Our wireless services revenues climbed by 9.0% year-over-year on
        customer growth of 7.4%. Our consumer high-speed Internet revenues
        were up 8.4%, with subscribers growing by 3.4%. Driven in part by the
        success of our newly introduced high definition television ("HDTV")
        product, MTS Ultimate TV Service, late in the first quarter of 2009,
        our digital television revenues were up 8.1% on subscriber growth of
        2.3%. Revenues from our converged IP enterprise data products
        delivered 12.0% growth. We have maintained our market share in most
        of our major product lines.

    3.  Align cost structure to new market realities

        Our revised and increased target for 2009 is to generate $50 million
        to $60 million in annualized cost savings. We met our 2009 target,
        having achieved $51.4 million in annualized cost savings from these
        initiatives in the first nine months of the year, and we continue to
        pursue additional cost saving opportunities.

    4.  Drive the transition from legacy to growth services

        Growth services accounted for 47.0% of our total revenue from
        continuing operations in the first three quarters of 2009, up from
        43.8% a year earlier.

    5.  Determine HSPA deployment plan in Manitoba and national wireless
        strategy

        On July 28, 2009, we made a significant announcement regarding our
        wireless strategy going forward for both divisions of the company.

        We entered into a strategic wireless arrangement with Rogers Wireless
        Partnership ("Rogers Wireless") that will see both companies share
        the cost to deploy an HSPA wireless network across Manitoba. The
        agreement also allows us to leverage Rogers Wireless's purchasing
        scope and scale to gain cost effective access to the new network
        technology and leading-edge HSPA handsets. Our customers will have
        access to the best national and international roaming capabilities
        with Rogers Wireless as our roaming partner, and both companies will
        share roaming revenues from the HSPA network in Manitoba.

        The agreement also provides us with the opportunity to launch a
        national wireless business offering under the Allstream brand through
        a competitive wholesale arrangement. We are continuing our analysis
        of the opportunity and will provide more information to stakeholders
        when available.

    2009 OUTLOOK UPDATE
    -------------------
    

This outlook and the financial information contained herein have been reviewed by our Audit Committee and should be read in conjunction with the "Disclaimer Regarding Forward-Looking Statements" and the "Risks and Uncertainties" sections in this interim MD&A, as well as similar sections of our interim MD&As for the first and second quarters of 2009, our 2008 annual MD&A and our 2008 Annual Information Form.

On October 7, 2009, we updated our 2009 financial outlook by issuing a press release, a copy of which has been made available on www.sedar.com. Our current 2009 financial outlook is detailed in the following table:

    
    -------------------------------------------------------------------------
               2009 Financial Outlook - Continuing Operations
    -------------------------------------------------------------------------
    Revenues                                $1.855 billion to $1.900 billion
    EBITDA                                  $625 million to $645 million
    EPS                                     $2.60 to $2.90
    Free cash flow                          $230 million to $250 million
    Capital expenditures                    13% to 15% of revenues
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Our updated outlook reflects the impact the recession and the slow pace of economic recovery are having principally on our Enterprise Solutions division, and primarily reflects a sharper than expected decline in our legacy long distance and data services portfolio, as well as a decline in revenues from our unified communications line of business.

Through the third quarter and first nine months of the year, our Consumer Markets division continued to deliver strong results and growth, as well as benefit from exposure to Manitoba's resilient economy. Converged IP services, the largest and fastest growing product line within our Enterprise Solutions division, also continued to deliver solid growth.

Our growth businesses that will define our long-term success, such as wireless, digital television, high-speed Internet and converged IP, are continuing to perform well despite the economy, and we expect the positive trends in these lines of business to continue. We remain on track to achieve our targeted cost reductions, which are expected to achieve $50 million to $60 million of annualized savings in 2009.

Material Assumptions

We have made a number of assumptions in preparing our updated financial outlook and making certain other forward-looking statements, which include, but are not limited to, the following assumptions:

Market Assumptions

As competition in the overall marketplace continues, the broad market segment trends that have taken shape in 2008 and 2009 will continue to persist through the balance of 2009.

Growth for our Consumer Markets division in such services as Internet and digital television is expected to continue at similar levels in the fourth quarter of 2009 as it has through the first nine months of the year. We are assuming that there will not be any material changes to the continued growth of wireless services in 2009, notwithstanding anticipated changes to relationships and market dynamics. In addition, we continue to expect there will be no meaningful new competitor in wireless services in Manitoba in 2009 and competitive pressures to continue upon local and long distance services. Although we expect competition from an incumbent cable operator to continue in the Manitoba residential market, we are confident that we have prudently prepared our operations and strategies to counter these threats. Through our broadband network initiative, our bundling leadership, and our residential service offerings, which include wireless, Internet, digital television, local, long distance and home security services, we believe that we are well- positioned to compete successfully.

With respect to our Enterprise Solutions division, we expect our converged IP services to continue to deliver strong growth in the fourth quarter of 2009 as compared to the same period in 2008. In addition, the competitive pressure experienced in traditional legacy services, which include data connectivity, local and long distance services, will continue in similar trends as it did in 2008. Likewise, we anticipate that customer demand will continue to migrate to IP-based services. To face the continued competition in the enterprise markets through 2009, we have been refining our market focus, creating innovative IP solutions, reducing our cost structure, and investing selectively in higher-margin opportunities.

Economic Assumptions

Through the third quarter and first nine months of the year, our Consumer Markets division continued to deliver strong results and to benefit from exposure to the resilient Manitoba economy, which is expected to outperform the national economy for the balance of the year.

Our Enterprise Solutions division is affected by the national economy, which deteriorated sharply towards the end of 2008. While some economists have begun to see indications of a very slight economic improvement in the second half of 2009, we have yet to see the effect of this improvement on our enterprise business and do not expect to through the fourth quarter of 2009.

Financial and Operational Assumptions

Our financial and operational assumptions for the balance of 2009 are discussed above.

Cost Reduction Assumptions

For the first nine months of the year, we have achieved $51.4 million in annualized cost savings. Our initial target for 2009 was to generate $35 million to $45 million in cost savings. In the second quarter, we increased the range to $50 million to $60 million. This increase will result in our restructuring costs for 2009 to be approximately $25 million to $35 million as compared to our initial estimate of $10 million to $20 million. These restructuring costs are not included in our 2009 financial outlook from continuing operations. For the first nine months of 2009, our restructuring costs are $27.8 million dollars.

Liquidity and Capital Resources Assumptions

Our operations historically have delivered strong cash flows, and we expect this trend to continue in 2009. We continue to invest in our core operations with a focus on our growth products and services to ensure success in the markets in which we operate. We have adopted a prudent expenditure and investment strategy that is scalable and provides flexibility to adjust the pace of investment according to economic conditions. For example, during the first nine months of this year, we have been scaling back our capital expenditures in light of the impact the economy is having on our Enterprise Solutions division and continues to do so. In 2009, our capital program is expected to be 13% to 15% of our revenues from continuing operations, with the majority spent on growth services.

Our cash requirements for 2009 include two non-recurring obligations of approximately $35 million to $40 million for restructuring programs; and $14.4 million for wireless transition costs. We expect our pension solvency funding requirement to be approximately $35 million, which is lower than our original expected range of $40 million to $50 million.

The cost of our regional HSPA network upgrade is expected to be up to $70 million ending in early 2011, approximately $20 million of which will be funded by our existing capital envelope. In conjunction with our HSPA roll-out in Manitoba, we will be implementing a new integrated billing platform with the capability for multiple services, creating the opportunity for significant future cost savings. Wireless customers will be the first to be served over our new billing platform, and the cost to build this new platform is approximately $40 million over the next three years.

Tax Assumptions

We have been able to reduce our taxable income by utilizing our substantial capital cost allowance ("CCA") pools and available tax losses. By utilizing our deferred CCA deductions, we project that we will not pay cash taxes before 2015.

The present value of our tax asset is approximately $360 million. On March 26, 2009, the province of Ontario announced plans to reduce its corporate tax rate from the current rate of 14% to 10% by 2013. When the new rates are substantively enacted, the effect will be to reduce the book value of our future tax asset by $17.5 million.

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

    Operating Revenues
    -------------------------------------------------------------------------
    (in millions $)                              Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    Revenue (continuing operations)              462.9      479.9       (3.5)
    Deferral account rebate                      (13.5)         -        n.m.
                                             --------------------------------
    Revenue                                      449.4      479.9       (6.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $)                             YTD/09     YTD/08   % change
    -------------------------------------------------------------------------
    Revenue (continuing operations)            1,410.1    1,445.1       (2.4)
    Deferral account rebate                      (13.5)         -        n.m.
                                             --------------------------------
    Revenue                                    1,396.6    1,445.1       (3.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                2009                2008
    (in millions $, except EPS)*       Q3      Q2      Q1      Q4      Q3
    -------------------------------------------------------------------------
    Growth services revenues           218.2   216.7   227.2   212.5   213.1
    Legacy services revenues           244.7   247.6   255.7   263.9   266.8
    Revenue                            462.9   464.3   482.9   476.4   479.9
    EBITDA                             156.9   159.3   163.2   156.7   165.1
    Free cash flow                      62.0    59.9    68.7    39.4    70.8
    EPS                                 0.67    0.67    0.71    0.59    0.74
    Capital expenditures/revenue         15%     14%     12%     19%     14%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * All financial metrics in this table are from continuing operations.
    

Through the third quarter, our growth and legacy services continued to be negatively affected by the impact of the recession and slow pace of economic recovery. This contributed to the year-over-year decline in the key metrics listed in the table above.

REVENUES

    
    By Segment (continuing operations)
    -------------------------------------------------------------------------
    (in millions $)                              Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    Revenues                                     462.9      479.9      (3.5)
    -------------------------------------------------------------------------
    CMD growth services revenues                 108.0      100.8       7.1
    ESD growth services revenues                 110.2      112.3      (1.9)
    Total growth services revenues               218.2      213.1       2.4
    -------------------------------------------------------------------------
    CMD legacy services revenues                 100.6      107.4      (6.3)
    ESD legacy services revenues                 144.1      159.4      (9.6)
    Total legacy services revenues               244.7      266.8      (8.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $)                             YTD/09     YTD/08    % change
    -------------------------------------------------------------------------
    Revenues                                   1,410.1    1,445.1      (2.4)
    -------------------------------------------------------------------------
    CMD growth services revenues                 313.3      289.5       8.2
    ESD growth services revenues                 348.8      343.4       1.6
    Total growth services revenues               662.1      632.9       4.6
    -------------------------------------------------------------------------
    CMD legacy services revenues                 307.2      323.3      (5.0)
    ESD legacy services revenues                 440.8      488.9      (9.8)
    Total legacy services revenues               748.0      812.2      (7.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Summary

Overall improvement in our growth services revenues, which include our wireless, consumer high-speed Internet, digital television, converged IP, unified communications, security and professional services, and alarm services business, continued in the third quarter and the first nine months of 2009. While sluggishness in the economy has persisted throughout the third quarter, we continue to see strong demand for the converged IP products that our Enterprise Solutions division offers in its growth services portfolio. We believe that it will be our key growth services, such as wireless, digital television, high-speed Internet and converged IP, that will define our long- term success and continue to perform well despite the economy.

Growth Services Revenues

Revenues from our growth services increased 2.4% or $5.1 million and 4.6% or $29.2 million in the three and nine months ended September 30, 2009, respectively, as compared to the same periods last year. These increases are a reflection of the continued solid demand for the majority of our products offered within in our growth services portfolio. Contributing to this performance are higher, often market-leading, year-over-year revenue growth from converged IP, consumer Internet, wireless and digital television services on a quarterly and year to date basis, which were partially offset by lower revenues from unified communications, and security and professional services.

Legacy Services Revenues

Legacy services revenues include our local, long distance and legacy data services. As we continue to see the impact of declining revenues from legacy services contracts with Rogers Communications Inc. ("Rogers") and AT&T Corp. ("AT&T"), we are also experiencing the effects of re-pricing and lower volumes in the enterprise legacy market and competitive losses in the consumer market. In addition, a decline in legacy services revenues related to the slowing economy as some of our enterprise customers who are based or have operations in the U.S. are reducing their business volumes.

The expected migration of communications traffic by Rogers and AT&T to their own respective networks has continued, which resulted in revenues from these customers decreasing to $16.5 million in the third quarter and $51.7 million year to date as compared to $23.1 million and $74.4 million in the same periods last year, respectively. For the three and nine months ended September 30, 2009, our legacy services revenues declined by 8.3% and 7.9%, respectively. However, if Rogers and AT&T are excluded, revenues from our legacy services would have decreased by 6.4% and 5.6% for these periods.

    
    Operating Revenues (continuing operations)
    -------------------------------------------------------------------------
    (in millions $)                              Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    Wireless                                      80.6       75.1        7.3
    Data                                         162.3      171.3       (5.3)
    Local                                        128.2      132.6       (3.3)
    Long distance                                 70.2       80.2      (12.5)
    Other                                         21.6       20.7        4.3
                                             --------------------------------
    Total                                        462.9      479.9       (3.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $)                             YTD/09     YTD/08   % change
    -------------------------------------------------------------------------
    Wireless                                     234.4      215.1        9.0
    Data                                         508.1      523.8       (3.0)
    Local                                        387.6      396.3       (2.2)
    Long distance                                215.3      248.0      (13.2)
    Other                                         64.7       61.9        4.5
                                             --------------------------------
    Total                                      1,410.1    1,445.1       (2.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Wireless Services
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            80.6       75.1        7.3
    YTD                                          234.4      215.1        9.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our wireless portfolio consists of cellular, wireless data, paging and
    group communications services that we offer in the Manitoba market.
    

Year-over-year increases in our wireless services revenue were primarily driven by our growing subscriber base. As at September 30, 2009, our wireless subscriber base grew by 7.4% over the previous year, reaching 451,916 subscribers. We also continue to see increased subscriber usage of individual and bundled service features such as data, text messaging, voicemail and call display services which are solidly contributing to revenue growth in our wireless services. On a year to date basis, our performance was enhanced by a $3.4 million one-time sale of FleetNet 800(TM) handsets to the City of Winnipeg which occurred in the first quarter of this year.

Our average revenue per user ("ARPU") of $57.04 decreased by 0.8% or $0.47 for the nine months ended September 30, 2009. We have continued to see increased airtime usage along with strong increases in wireless data services and calling-feature utilization however, this positive performance was impacted by the presence of aggressively-priced plans from competitors in the fourth quarter of 2008 and first quarter of this year. We remained disciplined with our pricing strategy but we were forced to partly respond to these plans for a limited time, withdrawing our promotion in February 2009.

We continue to see growth potential for our wireless services in Manitoba. Our MTS Mobility network provides strong brand awareness, network reach and customer service. In addition, the high-value product bundles that we offer customers cannot be matched by our competitors. These factors along with increasing consumer adoption of wireless products provide an environment for further growth in Manitoba. For example, at the end of the third quarter of 2009, wireless penetration in Manitoba was approximately 64% as compared to our estimate of the Canadian penetration rate of approximately 67%.

Revenues from our wireless data services continued to experience strong year-over-year growth, increasing 23.3% for the nine months ended September 30, 2009. Growth in revenues from our wireless Internet access services, attractive wireless data bundles and service features such as text messaging, drove this increase.

    
    Data Services
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                           162.3      171.3       (5.3)
    YTD                                          508.1      523.8       (3.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Our data line of business includes revenues earned from providing data,
    Internet, converged IP and professional services. Data services connect
    data, video and voice networks to establish private connections across
    office locations and to integrate traffic over highly secure networks. We
    provide a wide range of Internet connectivity services to meet the needs
    of residential customers in Manitoba and business customers across the
    country. We also offer hosting and security services to business
    customers across Canada.
    

Strong demand is continuing for our converged IP services, which delivered revenue growth of 12.2% and 12.0% for the third quarter and year to date periods in 2009. Our consumer Internet services revenues rose by 4.8% and 8.4% in the third quarter and for the first nine months of this year. However, offsetting this growth were the effects of lower legacy data services revenues resulting from customer transition to IP-based growth services and the impact of the recession as many enterprise customers are experiencing lower business volumes and postponing purchases of unified communications and professional services. In addition, the continuing migration of legacy data communications traffic by Rogers and AT&T to their respective networks has further impacted the year-over-year declines in our data services revenues. Our data services revenues decreased by 5.3% and 3.0% in the third quarter and year to date, respectively. If the data services revenues of Rogers and AT&T were excluded, our data services revenues would have shown declines of 2.9% and 0.2% in the third quarter and year to date periods, respectively.

The capabilities of the suite of products offered by our Enterprise Solutions division continued to be demonstrated by solid growth in our IP- virtual private network ("IP-VPN") customer base. As at September 30, 2009, we were supporting 350 IP-VPN customers, a 19.9% increase over last year.

Our consumer Internet services revenue continued to grow in the third quarter and first nine months of the year with increases of 4.8% to $21.7 million and 8.4% to $66.1 million, respectively. Contributing to this growth was an increase of 3.4% in our consumer high-speed Internet customer base, which reached 180,546 customers as at September 30, 2009, and a 7.5% year-over-year increase in ARPU. Similar to our national peers, increasing penetration in the high-speed Internet market is slowing our subscriber activations.

    
    Local Services
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                           128.2      132.6       (3.3)
    YTD                                          387.6      396.3       (2.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Local services revenues include basic voice connections for residential
    customers, including enhanced calling features (such as Call Answer, Call
    Display, Call Waiting and 3-Way Calling), payphone revenue, wholesale
    revenues from services provided to third parties, as well as a full range
    of local services to business customers. These services allow customers
    to complete calls in their local calling areas and to access long
    distance, cellular networks and the Internet.
    

We believe that we have positioned ourselves for long-term success in our markets by bundling our residential services in attractive offerings. The popularity of our residential service bundle packages, which can include wireless, Internet, digital television and alarm services bundles, continues to provide a unique value proposition for our customers. Customers utilizing our bundled service packages grew by 3.5% in the third quarter of 2009 as compared to the same period in 2008. Through the success of these programs, we continued to deliver "best in class" performance against cable company competitors, and are minimizing the reduction in our local services revenues. Our overall customer connections, which include network access services, high- speed Internet, wireless and digital television subscribers, increased year- over-year by 0.7% as compared to the third quarter of 2008.

Year-over-year, reduced local services revenues reflect decreased residential network access lines due to local competition and substitution. However, our year-over-year residential line loss is among the lowest in Canada at 5.1% and demonstrates the success of our service bundle and consumer strategies in this market. Westman Communication Group launched digital phone service in the Brandon, Manitoba market late in 2008, which has contributed to the decline in local services revenues in 2009. In the national local business markets, our Enterprise Solutions division continues to perform well and achieve stable revenues in the markets where it competes.

    
    Long Distance Services
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            70.2       80.2      (12.5)
    YTD                                          215.3      248.0      (13.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long distance services enable residential customers in Manitoba and
    business customers across Canada to communicate with destinations outside
    the local exchange. Our long distance voice service portfolio includes
    basic, domestic, cross-border and international outbound long distance,
    basic and enhanced toll-free services, calling cards and audio
    conferencing, as well as a variety of enhanced long distance services and
    features.
    

Similar to the first half this year, we continued to experience impacts in the third quarter from competitive pricing pressures, customer losses and a slowing economy on our long distance services revenues in all market segments that we serve. Long distance services revenues in our Consumer Markets division were lower mainly due to customer migration to lower-priced long distance plans, reduced volumes and customer losses. Decreased long distance services revenues in our Enterprise Solutions division resulted primarily from lower volumes in the cross-border, international and domestic markets along with lower domestic rates. Lower domestic and cross-border volumes are attributable to exiting customers and reduced use by our customers that are based or have operations in the U.S. and have been negatively affected by reduced business activity. In the face of these pressures on our long distance business in the enterprise segment, we launched sales and marketing initiatives designed to identify new customers, retain our existing customer base and encourage higher long distance usage.

    
    Other Revenues
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            21.6       20.7        4.3
    YTD                                           64.7       61.9        4.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other revenues consist of revenues earned from our digital television and
    home security services, and miscellaneous items. Our digital television
    service is offered across our broadband network platform and is targeted
    at residential customers in Winnipeg, Brandon and Portage la Prairie.
    Miscellaneous revenues primarily consist of the sale and maintenance of
    terminal equipment.
    

Year-over-year increases in other revenues were driven by growth in our digital television services revenues. Revenues from our digital television services increased by 9.6% or $1.2 million, and 8.1% or $3.0 million in the third quarter and year to date, respectively.

We continued to add new customers to our digital television subscriber base during the third quarter and these additions were enhanced by an increase in average revenue per subscriber ("ARPS") of 2.3% to $51.49 in the first nine months of the year. Year-over-year, our digital television subscriber base increased by 2.3% reaching 84,200 subscribers as at September 30, 2009 and our market share increased to 34% as compared to approximately 33% in the same period last year.

Contributing to the growth in digital television services revenues is a price increase to our basic television service that we implemented in January 2009, increased usage of our MTS Ultimate TV Service personal video recorder ("PVR") as well as increased subscriber purchases of pay-per-view events and services, and increased video-on-demand services. In fact, pay-per-view events and services purchases contributed a $0.30 increase to ARPS on a year to date basis. We continue to see our digital television services as a steady growth stream for revenues even during tough economic times, as it provides an entertainment option that is less-expensive than theatre or cinema, in particular as we pursue the roll-out of our recently launched industry-leading MTS Ultimate TV Service in Winnipeg and Brandon.

At the end of March of this year, we launched MTS Ultimate TV Service; becoming the first company in Canada to provide the next generation of HDTV, a digital television service that includes combined technology from Alcatel- Lucent Canada Inc. and the award-winning Microsoft Mediaroom Internet Protocol Television software platform. When launched, this service was available to approximately 20% of Winnipeg households. At the end of the third quarter, we extended our coverage to over 50% of Winnipeg households and expect it reach 70% at year-end. This service provides customers with a feature-rich television experience and is the most-advanced television experience in Canada. It also includes PVR functionality, improved guide features and other television advancements. MTS Ultimate TV Service gives customers access to our fastest Internet speeds available and places our television product in a better position to match and exceed those of our competitors while helping to drive subscriber growth rates going forward. We successfully launched this new leading-edge service in Winnipeg and Portage la Prairie in the first quarter of 2009, and expanded our offering of MTS Ultimate TV Service to Brandon on September 25, 2009.

More recently, on October 19, 2009, we launched Whole Home PVR, a new, more-advanced PVR that is capable of recording up to three programs at the same time and playing back programs from any connected television in a subscriber's home. This is the only service of its kind in Canada and is exclusive to subscribers of MTS Ultimate TV Service. Still early in its launch, Whole Home PVR is proving to be very popular with our MTS Ultimate TV Service subscribers. We expect it to contribute to enhanced growth in our digital television services revenues in coming quarters.

    
    EBITDA
    -------------------------------------------------------------------------
    (in millions $)                              Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    EBITDA (continuing operations)               156.9      165.1       (5.0)
    Deferral account rebate                      (13.5)         -        n.m.
    Restructuring and other costs                 (9.0)      (7.1)      26.8
    National wireless/wireless
     transition costs                             (0.7)      (7.5)     (90.7)
                                             --------------------------------
    EBITDA                                       133.7      150.5      (11.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $)                             YTD/09     YTD/08   % change
    -------------------------------------------------------------------------
    EBITDA (continuing operations)               479.4      505.1       (5.1)
    Deferral account rebate                      (13.5)         -        n.m.
    Restructuring and other costs                (27.8)      (7.1)       n.m.
    National wireless/wireless
     transition costs                            (14.4)     (17.8)     (19.1)
                                             --------------------------------
    EBITDA                                       423.7      480.2      (11.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Our EBITDA from continuing operations was $156.9 million this quarter and $479.4 million on a year to date basis. Solid growth in wireless, digital television and consumer Internet services, as well as double-digit growth in revenues from our converged IP services, was offset by the impact of the recession on our long distance, legacy data, unified communications, and security and professional services revenues in the first nine months of the year as well as reduced revenues from Rogers and AT&T. We continue to closely monitor the effects of the current economy on our industry by focusing on our management of our cost structure, revenue retention and prudent capital spending, while progressing with our long-term strategic objectives to increase revenues from growth services and create efficiencies in all areas of our business.

Lower consolidated EBITDA was primarily driven by higher year-over-year restructuring costs, the costs associated with the transition away from Bell Mobility to new suppliers and our wireless platform, and the deferral account rebate we recorded in the third quarter of 2009.

At the end of the second quarter this year, our cost reduction program was ahead of schedule and delivering more savings than originally forecasted and as a result, we increased our initial cost savings target for 2009 of $35 million to $45 million to the range of $50 million to $60 million. As at September 30, 2009, we have generated $51.4 million in annualized savings and have re-engineered and streamlined production processes to improve capacity output. We expect our restructuring costs for 2009 to be approximately $25 million to $35 million.

Additionally, due to the early success of our initial cost reduction program, we were able to launch an additional cost reduction program targeting other areas of our business that were not reviewed in our previous initiatives. We believe that there are further opportunities to streamline and gain additional efficiencies in our business in 2010.

    
    EPS
    -------------------------------------------------------------------------
    (in $)                                       Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    EPS (continuing operations)                   0.67       0.74       (9.5)
    National wireless/wireless
     transition costs                                -      (0.08)       n.m.
    Deferral account rebate                      (0.14)         -        n.m.
    Restructuring and other costs                (0.10)     (0.07)     (42.9)
                                             --------------------------------
    Basic EPS                                     0.43       0.59      (27.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in $)                                      YTD/09     YTD/08   % change
    -------------------------------------------------------------------------
    EPS (continuing operations)                   2.05       2.39      (14.2)
    National wireless/wireless
     transition costs                            (0.14)     (0.18)     (22.2)
    Deferral account rebate                      (0.14)         -        n.m.
    Future tax rate adjustment                       -      (0.12)       n.m.
    Restructuring and other costs                (0.30)     (0.07)       n.m.
                                             --------------------------------
    Basic EPS                                     1.47       2.02      (27.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: EPS for the three and nine months ended September 30 is based on
    weighted average shares outstanding of 64.7 million for 2009, and
    64.6 million for 2008.
    

On a year-over-year basis, EPS from continuing operations decreased by 9.5% in the third quarter and 14.2% for the first nine months of the year as a result of lower EBITDA. Also impacting EPS in the first nine months of the year are higher debt charges due to our decision to issue long-term debt at attractive rates in the second quarter of this year. These rates are higher than the short-term rates we incurred last year but represent excellent financing costs for us as compared to our historical long-term average.

Basic EPS decreased to $0.43 and $1.47 in the third quarter and first nine months of 2009, respectively. This performance reflects impacts of the restructuring costs related to our cost saving initiatives, the transition of certain wireless service requirements away from Bell Mobility to new suppliers and our wireless platform, and the rebate from the deferral account as well as a tax rate adjustment which occurred in the second quarter of 2008.

OPERATING EXPENSES

    
    Operations Expense (continuing operations)
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                           306.0      314.8       (2.8)
    YTD                                          930.7      940.0       (1.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Operating expenses in the third quarter and year to date were down 2.8% and 1.0%, respectively, as compared to the same periods in the prior year. These decreases are primarily due to our continued focus on cost reduction initiatives in both salaries and benefits, and indirect expenses. Our savings on a year to date basis are partly offset by increases in direct costs in our Enterprise Solutions division.

We continued to make progress with our 2009 cost reduction program. As at September 30, 2009, we achieved $51.4 million in annualized savings and have re-engineered and streamlined production processes to improve capacity output. In addition, we are seeing success with our cost reduction program that is focusing on areas of our business not impacted by the previous initiatives and expect to generate further savings in the future.

    
    Restructuring and Transition
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                             9.7       14.6      (33.6)
    YTD                                           42.2       24.9       69.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

We incurred restructuring costs in the amounts of $9.7 million and $42.2 million in the third quarter and year to date, respectively. These costs represent a continuation of the cost reduction initiative that we commenced in the fourth quarter of 2008 with the aim to achieve process improvements and further cost reductions, and include facilities consolidation of select real estate. We initiated another workforce reduction program in the third quarter this year and recorded costs of $2.2 million. Partly offsetting the year to date workforce changes is the success of internal redeployment efforts. Please refer to Note 2 to our consolidated financial statements for further details on our restructuring and transition expenses.

    
    Amortization Expense
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            82.1       83.9       (2.1)
    YTD                                          245.2      246.6       (0.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Amortization expense was lower in the third quarter due to a decrease in the composite rate. In the first nine months of the year, a decrease in the composite rate was partly offset by an increase in intangible assets and a charge taken in the first quarter of 2009 related to an accounting change in AAA Alarm Systems Ltd.

    
    Other Income
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                             3.2        2.5       28.0
    YTD                                            7.6        7.6        nil
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Other income was higher in the third quarter of 2009 primarily due to interest income on a tax credit recorded in the third quarter of 2009 under the scientific research and experimental development ("SR&ED") program. In the first nine months of the year, other income was impacted by interest income on the tax credit under the SR&ED program as well as the gain of $3.1 million, related to the sale of our alarm customers outside of Manitoba in exchange for Manitoba-based customers of SecurTek Monitoring Solutions Inc. ("SecurTek"), offset by foreign exchange losses.

    
    Debt Charges
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            15.1       12.1       24.8
    YTD                                           43.9       36.7       19.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Debt charges are higher in 2009 as compared to 2008. This increased interest expense is primarily associated with our higher levels of outstanding debt and higher average coupon rates, which results from a higher proportion of our debt being long-term in 2009.

    
    Income Tax Expense
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   % change
    -------------------------------------------------------------------------
    Q3                                            11.8       18.9      (37.6)
    YTD                                           47.2       74.2      (36.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Income tax expense declined by 37.6% or $7.1 million to $11.8 million in the third quarter and 36.4% or $27.0 million to $47.2 million in the first nine months of the year as compared to the same periods in 2008, respectively, primarily due to lower income before tax and a lower effective tax rate in 2009 as compared to 2008. In addition, the impact of a $7.5 million charge related to a change in provincial tax rates that was required in the second quarter of 2008 is included in the year-over-year decrease in the first nine months of the year.

We continue to benefit from our substantial CCA pools and available tax losses which have enabled us to fully-offset our taxable income. By utilizing our deferred CCA deductions, we project that we will not pay cash taxes before 2015 with the present value of our tax asset being approximately $360 million.

CONSOLIDATED QUARTERLY DATA

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

    
    -------------------------------------------------------------------------
    (in millions $, except earnings        Q3        Q2        Q1        Q4
     per share)                           2009      2009      2009      2008
    -------------------------------------------------------------------------
    Operating revenues                   449.4     464.3     482.9     476.4
    Operating income                      51.6      59.2      67.7      50.3
    Net income and comprehensive income   27.9      30.1      37.0      13.7
    Earnings per share                    0.43      0.47      0.57      0.21
    Diluted earnings per share            0.43      0.47      0.57      0.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $, except earnings        Q3        Q2        Q1        Q4
     per share)                           2008      2008      2008      2007
    -------------------------------------------------------------------------
    Operating revenues                   479.9     486.4     478.8     489.2
    Operating income                      66.6      78.8      88.2      72.1
    Net income and comprehensive income   38.1      38.0      54.2      14.3
    Earnings per share                    0.59      0.59      0.84      0.22
    Diluted earnings per share            0.59      0.58      0.83      0.22
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    
    -   The recording of charges in the amount of $13.5 million for the
        deferral account rebate in relation to Decision 2008-1 in the third
        quarter of 2009.

    -   The recording of $7.4 million, $6.3 million and $0.7 million in costs
        in relation to the transition of certain wireless service
        requirements away from Bell Mobility to new suppliers and to our
        wireless platform in the first, second and third quarters of 2009,
        respectively. We recorded costs in the amounts of $10.3 million,
        $7.5 million and $9.3 million in the second, third and fourth
        quarters of 2008, respectively, for this transition and costs
        associated with the AWS spectrum auction.

    -   The recognition of restructuring costs for our ongoing cost reduction
        initiatives including the following amounts: $5.4 million in the
        first quarter of 2009; $12.3 million in the second quarter of 2009;
        $8.6 million in the third quarter of 2009; $7.1 million and
        $13.7 million in the third and fourth quarters of 2008, respectively;
        and $3.0 million in the fourth quarter of 2007.

    -   An adjustment in the amount of $25.7 million for a reduction to our
        tax asset valuation allowance in the fourth quarter of 2007.

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

    LIQUIDITY AND CAPITAL RESOURCES
    -------------------------------

    Cash Flows from Operating Activities
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   $ change
    -------------------------------------------------------------------------
    Q3                                           120.9      124.9       (4.0)
    YTD                                          224.3      359.7     (135.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from operating activities refer to cash we generate from our
    normal business activities.
    

In the third quarter of 2009, cash flows from operating activities declined primarily due to lower consolidated EBITDA and higher debt charges which were partially offset by higher utilization of our accounts receivable securitization program resulting in increased cash from working capital and lower pension solvency funding requirements. On a year to date basis, the decrease in cash flows from operating activities is due primarily to lower utilization of our accounts receivable securitization program resulting in a decrease to cash from working capital in the amount of $122.5 million, lower consolidated EBITDA, increased debt charges, increased deferred wireless costs and increased pension solvency funding.

    
    Cash Flows used in Investing Activities
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   $ change
    -------------------------------------------------------------------------
    Q3                                            77.3      120.1      (42.8)
    YTD                                          204.4      249.3      (44.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing activities represent cash used for acquiring, and cash received
    from disposing of, long-term assets and other long-term investments.
    

Cash flows used in investing activities decreased in the third quarter primarily due to our cost of acquiring spectrum in the AWS spectrum auction last year, which was partly offset by our acquisition of VisionIP Technologies Inc. ("VisionIP"). The decrease in cash flows used in investing activities on a year to date basis resulted mainly from our cost of acquiring spectrum in the AWS spectrum auction last year, and the proceeds from the transaction with SecurTek earlier this year and our acquisition of ICU Technologies Inc. in 2008, partly offset by our acquisition of VisionIP in the third quarter of 2009. Our capital expenditures from continuing operations in the third quarter of 2009 were $67.4 million as compared to $69.1 million in the same quarter in 2008 and on a year to date basis were $186.7 million as compared to $194.0 million last year.

    
    Free Cash Flow
    -------------------------------------------------------------------------
    (in millions $)                              Q3/09      Q3/08   % change
    -------------------------------------------------------------------------
    Free cash flow (continuing operations)        62.0       70.8      (12.4)
    Deferral account rebate                      (13.5)         -        n.m.
    Restructuring and other costs                 (9.0)      (7.1)      26.8
    HSPA and related billing expenditures         (6.5)         -        n.m.
    Pension solvency funding                      (6.0)     (10.7)     (43.9)
    Restructuring capital expenditures            (0.6)         -        n.m.
    Wireless transition capital expenditures         -       (2.4)       n.m.
    National wireless/wireless
     transition costs                             (0.7)      (7.5)     (99.4)
    Spectrum license costs                           -      (48.6)       n.m.
                                             --------------------------------
    Consolidated free cash flow                   25.7       (5.5)       n.m.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (in millions $)                             YTD/09     YTD/08   % change
    -------------------------------------------------------------------------
    Free cash flow (continuing operations)       190.6      221.9      (14.1)
    Deferral account rebate                      (13.5)         -        n.m.
    Restructuring and other costs                (27.8)      (7.1)       n.m.
    HSPA and related billing expenditures        (14.0)         -        n.m.
    Pension solvency funding                     (23.5)     (22.1)       6.3
    Restructuring capital expenditures            (1.4)         -        n.m.
    Wireless transition capital expenditures      (0.2)      (2.4)     (91.7)
    National wireless/wireless
     transition costs                            (14.4)     (17.8)     (19.1)
    Spectrum license costs                           -      (48.6)       n.m.
                                             --------------------------------
    Consolidated free cash flow                   95.8      123.9      (22.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Free cash flow refers to cash flow from operating activities, less
    capital expenditures, and excluding changes in working capital.
    

The year-over-year decrease in free cash flow from continuing operations in the three months ended September 30, 2009 primarily reflects lower EBITDA from continuing operations, partly offset by lower capital expenditures. For the nine months ended September 30, 2009, lower EBITDA from continuing operations, higher debt charges and deferred wireless costs were partly offset by lower capital expenditures.

Consolidated free cash flow increased to $25.7 million in the third quarter this year and decreased to $95.8 million on a year to date basis, as compared to the same periods in 2008. Details on the items not included in continuing operations are included in the preceding tables.

    
    Cash Flows from (used in) Financing Activities
    -------------------------------------------------------------------------
    (in millions $)                               2009       2008   $ change
    -------------------------------------------------------------------------
    Q3                                           (41.6)       3.3      (44.9)
    YTD                                          (17.4)    (103.8)      86.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financing activities refer to actions we undertake to fund our operations
    through equity capital and borrowings.
    

The decrease in cash flows from financing activities in the third quarter of 2009 mainly resulted from the repayment of notes payable. On a year to date basis, the increase in cash flows from financing activities is primarily due to the net issuance of debt.

    
    Credit Facilities
    -------------------------------------------------------------------------
                                                                 utilized at
                                                                September 30,
    (in millions $)                                   capacity          2009
    -------------------------------------------------------------------------
    Medium term note program                             350.0         350.0
    Accounts receivable securitization                   150.0          77.0
    Revolving credit facility                            350.0         106.9
                                                  ---------------------------
    Total                                                850.0         533.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

We have arrangements in place that allow us to access the debt capital markets for funding when required. Borrowings under these facilities typically are used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations. Our medium term note program was renewed on October 16, 2009 for $500.0 million.

Our revolving credit facility is $350.0 million, of which $150.0 million is available to back-stop our commercial paper program. In addition to these programs and facilities, we have an accounts receivable securitization program of $150.0 million.

As at September 30, 2009, we utilized $77.0 million of our accounts receivable securitization program, and $106.9 million of our revolving credit facility due to $106.9 million in undrawn letters of credit. Of this amount, $80.7 million represents letters of credit issued under the Solvency Funding Relief Regulations enacted in 2006 under the Pension Benefits Standards Act, 1985 (Canada), which permit the extension of pension solvency payments from a five-year amortization period to a 10-year amortization period for our defined benefit pension plans.

    
    Capital Structure
    -------------------------------------------------------------------------
                                                  September 30,  December 31,
    (in millions $)                                       2009          2008
    -------------------------------------------------------------------------
    Cash and cash equivalents                             (9.0)         (6.5)
    Proceeds from accounts receivable
     securitization                                       77.0         127.0
    Notes payable                                            -          95.0
    Capital lease obligations, including
     current portion                                      19.4          18.8
    Long-term debt, including current portion            852.5         650.2
                                                  ---------------------------
    Total debt                                           939.9         884.5
    Shareholders' equity                               1,351.9       1,382.0
                                                  ---------------------------
    Total capitalization                               2,291.8       2,266.5
                                                  ---------------------------
                                                  ---------------------------
    Debt to capitalization                               41.0%         39.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 41.0% as at September 30, 2009 continues to represent financial strength and flexibility.

    
    Credit Ratings
    -------------------------------------------------------------------------
    S&P - Senior debentures                                BBB+
    -------------------------------------------------------------------------
    S&P - Commercial paper                                 A-2
    -------------------------------------------------------------------------
    DBRS - Senior debentures                               BBB
    -------------------------------------------------------------------------
    DBRS - Commercial paper                                R-2 (high)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Two leading rating agencies, Standard & Poor's ("S&P") and DBRS Limited ("DBRS"), analyze us and assign ratings based on their assessments. We consistently have been assigned solid investment grade credit ratings. In conjunction with our most recent debt offering, S&P confirmed our credit ratings on our long-term corporate credit and senior unsecured debt of "BBB+", and our commercial paper of "A-2". The outlook remained unchanged at negative. In addition, DBRS confirmed our credit ratings at "BBB" on our senior debentures and "R-2 (high)" on our commercial paper, and maintained its stable outlook.

Outstanding Share Data as at October 27, 2009

Authorized:

    
    -   Unlimited number of Preference Shares of two classes issuable in one
        or more series
    -   Unlimited number of Common Shares of a single class

    -------------------------------------------------------------------------
    Issued:
    -------------------------------------------------------------------------
                                                                  Book Value
    Shares                                           Number   (in millions $)
    -------------------------------------------------------------------------
    Common                                       64,667,817          1,266.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Stock options:
    -------------------------------------------------------------------------
                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                                       Price
    Options                                          Number        Per Share
    -------------------------------------------------------------------------
    Outstanding                                   2,369,835           $40.80
    Exercisable                                   1,204,940           $41.43
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contractual Obligations, Financial Instruments, Off-Balance Sheet
    Arrangements, and Other Financial Arrangements
    

Our contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.

    
    CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
    ---------------------------------------------
    

Our critical accounting estimates and assumptions remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.

    
    CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION
    ----------------------------------------------------------
    

Our accounting policies, including initial adoption, remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.

IFRS

In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the date IFRS will replace Canadian GAAP for publicly accountable enterprises. Currently, there are a number of areas where accounting standards under IFRS are different from those under Canadian GAAP. Also, because IFRS continues to evolve, it is expected that IFRS at the changeover date will differ from current IFRS. Our first financial statements under IFRS will be for periods commencing January 1, 2011.

We began our IFRS changeover project in 2008 and have developed a detailed IFRS changeover plan. A project governance structure has been established, which includes a steering committee, consisting of senior management from our finance, information technology ("IT"), network services, enterprise risk management and treasury departments. Our project team includes certain dedicated resources, employees who contribute as required by the project plan, as well as external consultants who have been engaged for project management and technical accounting expertise. The project team reports regularly to the Audit Committee of the Board of Directors of MTS regarding the status of the project and implications of the changeover to IFRS. Throughout the execution of our IFRS plan, there is ongoing training and communication to affected employees and other internal and external stakeholders. Our IFRS changeover plan consists of the following four phases.

Phase 1: Diagnostic Gap Assessment

Phase 1 consists of a high-level diagnostic gap and impact analysis of the differences between Canadian GAAP and IFRS applicable to us. The key activities of Phase 1 include:

    
    -   Identification of significant technical accounting and disclosure
        differences;
    -   Identification of key IFRS accounting policy alternatives; and
    -   Identification of major operational and system impacts.
    

We completed Phase 1 of our IFRS changeover plan in June 2008.

Phase 2: Design and Planning

Phase 2 entails a detailed analysis of relevant Canadian GAAP and IFRS differences, as well as an assessment of the implications of implementing new standards. The key activities of Phase 2 include:

    
    -   Detailed evaluation of accounting and disclosure options, including
        review of estimated impacts on our financial position and results of
        operations, key performance indicators, and business activities;
    -   Selection of IFRS-compliant accounting policies, including IFRS 1
        policy choices and continuing accounting policies;
    -   Assessment of implications to systems, processes and controls in
        sufficient detail to support solution development in Phase 3; and
    -   Identification of a dual reporting solution to maintain parallel
        records during 2010.
    

We have completed Phase 2 activities to assess and select accounting policies. This assessment is based on our expectations of accounting standards that will be in place at the time of changeover, as well as the estimated impact of these standards. Consequently, the detailed evaluation of the impacts of certain accounting policy options is ongoing, along with the final selection of these accounting policies. As IFRS continues to evolve, further evaluation may be required. We have identified a dual reporting solution.

Phase 3: Solution Development

During Phase 3, we will design and test solutions that will be implemented as a result of the changeover to IFRS. The key activities of Phase 3 include:

    
    -   Design, development and execution of testing strategies for changes
        to accounting and business processes and IT solutions;
    -   Design, development and execution of a testing strategy for our dual
        reporting solution; and
    -   Revision of internal controls, as required, resulting from changes to
        ongoing accounting policies and the one-time adjustments to our
        opening balance sheet on changeover to IFRS.
    

We have commenced Phase 3 activities, including the assessment of implications to systems, processes and internal controls resulting from financial accounting policy differences. We have designed a solution for dual reporting in 2010, and development is underway. We also have commenced design and development activities related to IT system and process changes resulting from the changes in accounting standards for property, plant and equipment. We expect that Phase 3 will be substantially completed by the end of the fourth quarter of 2009.

Phase 4: Implementation

During Phase 4, we will implement IFRS-compliant accounting policies and related systems, processes and controls. The key activities of Phase 4 include:

    
    -   Implementation of changes to accounting policies;
    -   Preparation of IFRS-compliant opening balance sheet as at January 1,
        2010;
    -   Preparation of IFRS-compliant financial statements and related note
        disclosures; and
    -   Implementation of changes to systems, processes and controls.
    

Phase 4 of the IFRS changeover plan is expected to commence in the first quarter of 2010 and will continue until the end of the first quarter of 2011.

During these phases of our IFRS project, we will complete the necessary work required to quantify the impact of the changeover to IFRS on our financial position and results of operations. We will monitor changes to IFRS and assess the impacts that these new standards will have on our financial results and on our IFRS changeover project. The financial impacts on changeover to IFRS may be material to our financial statements, and we expect the impacts to be of similar nature to our competitors. Based on our work to date, we believe that the areas of highest impact are property, plant and equipment and employee benefits. Further information regarding the selection of IFRS-compliant accounting policies and quantification of the impacts will be provided as we move closer to the changeover date.

    
    RISKS AND UNCERTAINTIES
    -----------------------
    

Our risks and uncertainties remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, except as noted below. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.

Deployment of the HSPA Network

The expected timing, completion and benefits to be gained from the execution of our strategic wireless agreement with Rogers Wireless are subject to various risks and uncertainties. The agreement with Rogers Wireless has been structured with the intent of reducing our long-term capital and operating costs and providing us with an opportunity to generate new business through a national wireless offering. However, there can be no assurance that we will be able to fully realize the expected cost savings and efficiencies from the new technology or the network sharing arrangements, and there are inherent risks associated with deploying new technologies, new products and billing platforms that could negatively impact our operations, customer service and profitability.

Bell Mobility Arbitration

As a result of the end of a historical wireless alliance with Bell Mobility, we incurred significant one-time costs of transitioning certain wireless services requirements away from Bell Mobility to new suppliers and to our wireless platform. Although we have completed this transition and have migrated all existing wireless customers to our new service platform, we are disputing certain costs charged in the past by Bell Mobility, as well as claiming other costs caused by this transition. We are of the opinion that certain of such costs are recoverable from Bell Mobility; however, there is no certainty that such costs will be recovered and the matter is subject to arbitration.

    
    Changes in Telecommunications Policy and Canadian Radio-television and
    Telecommunications Commission ("CRTC") Regulation
    

The telecommunications and broadcast industries in which we operate are federally regulated. We operate as both an incumbent local exchange carrier ("ILEC") in Manitoba and as a competitive local exchange carrier nationally. In addition, pursuant to Broadcasting Decision CRTC 2002-235, the CRTC granted us a Class 1 regional broadcasting distribution license to operate as a broadcasting distribution undertaking ("BDU") serving Winnipeg and the surrounding areas. The following describes developments relating to material regulatory and policy proceedings that occurred during the third quarter of 2009 and should be read in conjunction with our 2008 annual MD&A, as well as the disclosures in our interim MD&As for the first and second quarters of this year.

Deferral Account

On February 16, 2006, the CRTC issued Decision 2006-9. In this decision, the CRTC determined that the funds accumulated in our deferral account should be used for certain reductions in rates for basic local residential services and for certain optional features; for the expansion of broadband services; and for initiatives to improve accessibility to telecommunications services for persons with disabilities. After using approximately $5 million to fund the required rate reductions which came into effect on June 1, 2006, the estimate of the balance to be cleared from our deferral account for the remaining initiatives is approximately $25 million.

In two subsequent decisions relating to the use of deferral account funds, Telecom Decision CRTC 2007-50 dated July 6, 2007 and Telecom Decision CRTC 2008-1 dated January 17, 2008 ("Decision 2008-1"), the CRTC approved various proposals submitted for the expansion of broadband services in certain rural and remote communities, and for improved access to telecommunications services for persons with disabilities. In Decision 2008-1, the CRTC directed that the remaining balance of the deferral accounts of the ILECs be rebated to residential customers in non-high-cost serving areas.

Bell Canada and certain consumer groups were granted leave to appeal Decision 2006-9 to the Supreme Court of Canada. We intervened in that appeal in support of Bell Canada. The appeal was argued in front of the Supreme Court in March 2009 and on September 18, 2009, the Supreme Court issued its decision dismissing the appeals and upholding Decision 2006-9 (2009 SCC 40).

We will provide the CRTC with a proposed roll-out plan to expand broadband services to 16 previously approved rural and remote communities as well as file a plan to credit the remaining deferral account monies to the accounts of residential urban customers. Pursuant to directions issued by the CRTC, these proposals will be filed in early 2010. We have estimated these cost and accrued for them.

Internet Traffic Management Practices (Net Neutrality)

On November 20, 2008, by way of Telecom Public Notice CRTC 2008-19, the CRTC commenced a consultation to consider issues relating to wholesale and retail Internet traffic management practices (net neutrality) of the incumbent cable and telephone companies. The issues raised in this proceeding bear on the essential services framework that was established by the CRTC in 2008 and what network traffic management practices for Internet traffic are acceptable and whether these practices are equally acceptable for wholesale and retail customers. We argued that the capacity or traffic management practices applied to retail customers should not be applied to wholesale services. After conducting a public proceeding with a hearing in July 2009, the CRTC issued its decision on October 21, 2009. This decision adopted an Internet traffic management practices ("ITMP") framework to deal with assessing measures utilized by incumbent telephone and cable carriers in order to manage network capacity issues as usage grows. While indicating a preference for economic (e.g., usage fees or caps) rather than technical (e.g., traffic choking or throttling) measures, the CRTC left the decision as to the appropriate measure in the hands of the incumbent telephone or cable carrier, with an accompanying obligation to inform customers in a manner that will enable their customers to ascertain the consequences of such measures in terms of pricing or technical performance. While the CRTC recognized the importance of wholesale services in the context of its ITMP framework, we believe the CRTC has yet to recognize the distinction between the Internet access services sold to retail customers and the wholesale broadband access services purchased by competitors. We will continue to work with the CRTC to have them recognize the distinction and will review potential next steps with respect to this decision.

Broadcasting Policy

On June 4, 2009, the CRTC issued Broadcasting Regulatory Policy CRTC 2009- 329 (the "New Media Decision") in which it accepted our submissions and those of other Internet service providers ("ISPs") by dismissing proposals to levy a charge on ISPs' gross revenues as a means of funding the creation of Canadian broadcasting content and by extending the exemption of broadcasting content distributed over the Internet or via mobile devices from regulation. In the New Media Decision, the CRTC also referred to the Federal Court the issue of whether when ISPs are providing access to broadcast content via the Internet, they are acting as BDUs and subject to the requirements of the Broadcasting Act. We intend to intervene in the referral and to argue that ISPs are not BDUs but rather are telecommunications carriers offering access to the Internet.

On July 6, 2009, the CRTC issued Broadcasting Regulatory Policy CRTC 2009- 406 and Broadcasting Notice of Consultation 2009-411 in which it, on an interim basis, increased the levy that BDUs, such as ourselves, must pay to support local programming from 1% to 1.5% of BDU revenue while initiating a proceeding to determine the appropriate level of that levy on a more permanent basis and to determine the appropriate mechanism to determine the "fair market value" of local and distant conventional television signals that would then be paid by BDUs to broadcasters for the right of distribution. The proceeding will also examine a number of related issues concerning broadcasting license renewals, obligations and conventional television. In September 2009, the CRTC indicated that the public hearing originally scheduled for that month would be delayed until November of this year.

On October 2, 2009, the CRTC issued Broadcasting Notice of Consultation CRTC 2009-614 following a request from the Governor in Council to prepare a report on the implications and advisability of implementing a compensation regime for the value of television signals. To facilitate the consultation, the CRTC will hold a further public hearing in December 2009, as well as receive submissions. Most BDUs, including ourselves, have indicated that the increased costs associated with a "fee for carriage" would need to be passed through to customers.

    
    CONTROLS AND PROCEDURES
    -----------------------
    

Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recent interim period ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FOURTH QUARTER DIVIDEND

On November 4, 2009, the Board of Directors of MTS declared a quarterly cash dividend of $0.65 per share. The fourth quarter dividend is payable on January 15, 2010 to shareholders of record at the close of business on December 15, 2009.

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

    
    Notes:
    1.  Supplementary financial information is available in the Investors
        section of the MTS Web site at www.mtsallstream.com.

    2.  MTS's third quarter 2009 conference call with the investment
        community is scheduled for 9:00 a.m. Eastern time on November 5,
        2009. The dial-in number is 1-800-732-1073. A live audio Webcast of
        the investor conference call can be accessed by visiting the
        Investors section of the MTS Web site (www.mtsallstream.com). A
        replay of the conference call will be available until midnight
        November 14, 2009 and can be accessed by dialing 1- 877-289-8525 or
        1-416-640-1917 (access code 4167928 followed by the number sign). The
        audio Webcast will be archived on MTS's Web site.



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

    For the periods ended
     September 30                   Three months ended     Nine months ended
    -------------------------------------------------------------------------
    (in millions, except
     earnings per share)               2009       2008       2009       2008
    -------------------------------------------------------------------------

    Operating revenues            $   449.4  $   479.9  $ 1,396.6  $ 1,445.1
    -------------------------------------------------------------------------

    Operating expenses
      Operations                      306.0      314.8      930.7      940.0
    -------------------------------------------------------------------------
      Restructuring and
       transition (Note 2)              9.7       14.6       42.2       24.9
    -------------------------------------------------------------------------
      Amortization                     82.1       83.9      245.2      246.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                      397.8      413.3    1,218.1    1,211.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income                   51.6       66.6      178.5      233.6
    -------------------------------------------------------------------------

    Other income                        3.2        2.5        7.6        7.6
    -------------------------------------------------------------------------
    Debt charges                      (15.1)     (12.1)     (43.9)     (36.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Income before income taxes         39.7       57.0      142.2      204.5
    -------------------------------------------------------------------------

    Income tax expense (recovery)
      Current                          (2.0)       0.2       (1.8)       0.3
    -------------------------------------------------------------------------
      Future                           13.8       18.7       49.0       73.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       11.8       18.9       47.2       74.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income and comprehensive
     income for the period        $    27.9  $    38.1  $    95.0  $   130.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings
     per share (Note 7)           $    0.43  $    0.59  $    1.47  $    2.02
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    For the periods ended
     September 30                   Three months ended     Nine months ended
    -------------------------------------------------------------------------
    (in millions)                      2009       2008       2009       2008
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period          $    79.9  $   129.0  $    96.8  $   120.8
    -------------------------------------------------------------------------

    Net income                         27.9       38.1       95.0      130.3
    -------------------------------------------------------------------------

    Dividends declared                (42.1)     (42.0)    (126.1)    (126.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings, end
     of period                    $    65.7  $   125.1  $    65.7  $   125.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    CONSOLIDATED BALANCE SHEETS
    (unaudited)

                                                  September 30,  December 31,
    (in millions)                                         2009          2008
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash and cash equivalents                    $       9.0   $       6.5
    -------------------------------------------------------------------------
      Accounts receivable (Note 3)                       114.9          62.2
    -------------------------------------------------------------------------
      Future income taxes                                 91.4          90.5
    -------------------------------------------------------------------------
      Other current assets                                70.8          64.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         286.1         223.2

    Capital assets (Note 4)                            1,616.9       1,616.7
    -------------------------------------------------------------------------
    Other assets                                         387.6         334.6
    -------------------------------------------------------------------------
    Future income taxes                                  385.8         436.8
    -------------------------------------------------------------------------
    Goodwill                                              42.3          41.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                   $   2,718.7   $   2,653.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities
      Accounts payable and accrued liabilities     $     339.1   $     351.6
    -------------------------------------------------------------------------
      Advance billings and payments                       56.9          51.4
    -------------------------------------------------------------------------
      Current portion of long-term debt (Note 6)          11.9         220.0
    -------------------------------------------------------------------------
      Notes payable (Note 5)                                 -          95.0
    -------------------------------------------------------------------------
      Current portion of capital lease obligations         6.1           3.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         414.0         721.8

    Long-term debt (Note 6)                              840.6         430.2
    -------------------------------------------------------------------------
    Long-term portion of capital lease obligations        13.3          15.0
    -------------------------------------------------------------------------
    Deferred employee benefits                            43.2          44.2
    -------------------------------------------------------------------------
    Other long-term liabilities                           54.6          58.1
    -------------------------------------------------------------------------
    Future income taxes                                    1.1           1.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                       1,366.8       1,271.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shareholders' equity
      Share capital (Note 8)                           1,266.9       1,265.8
    -------------------------------------------------------------------------
      Contributed surplus                                 19.3          19.4
    -------------------------------------------------------------------------
      Retained earnings                                   65.7          96.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       1,351.9       1,382.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                   $   2,718.7   $   2,653.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    For the periods ended
     September 30                   Three months ended     Nine months ended
    -------------------------------------------------------------------------
    (in millions)                      2009       2008       2009       2008
    -------------------------------------------------------------------------

    Cash flows from operating
     activities
      Net income                  $    27.9  $    38.1  $    95.0  $   130.3
    -------------------------------------------------------------------------
      Add (deduct) items not
       affecting cash
        Amortization                   82.1       83.9      245.2      246.6
    -------------------------------------------------------------------------
        Future income taxes            13.8       18.7       49.0       73.9
    -------------------------------------------------------------------------
        Gain on sale of
         intangible assets                -          -       (3.1)         -
    -------------------------------------------------------------------------
      Deferred wireless costs         (10.0)      (9.3)     (35.4)     (28.8)
    -------------------------------------------------------------------------
      Pension funding and net
       pension credit                 (15.1)     (17.5)     (48.7)     (42.4)
    -------------------------------------------------------------------------
      Other, net                        1.5        0.7       (3.9)     (10.7)
    -------------------------------------------------------------------------
      Changes in non-cash working
       capital                         20.7       10.3      (73.8)      (9.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows from operating
       activities                     120.9      124.9      224.3      359.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from investing
     activities
      Capital expenditures, net       (74.5)    (120.1)    (202.3)    (245.0)
    -------------------------------------------------------------------------
      Acquisition                      (2.1)         -       (2.1)      (4.0)
    -------------------------------------------------------------------------
      Net proceeds from sale of
       intangible assets                  -          -        1.4          -
    -------------------------------------------------------------------------
      Other, net                       (0.7)         -       (1.4)      (0.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows used in
       investing activities           (77.3)    (120.1)    (204.4)    (249.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from financing
     activities
      Dividends paid                  (42.1)     (42.0)    (126.1)    (126.0)
    -------------------------------------------------------------------------
      Issuance of long-term debt          -          -      425.0          -
    -------------------------------------------------------------------------
      Repayment of long-term debt         -          -     (220.0)     (89.7)
    -------------------------------------------------------------------------
      (Repayment) issuance of
       notes payable, net                 -       45.0      (95.0)     115.0
    -------------------------------------------------------------------------
      Issuance of share capital
       (Note 8)                         0.1          -        0.9        0.2
    -------------------------------------------------------------------------
      Other, net                        0.4        0.3       (2.2)      (3.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Cash flows (used in) from
       financing activities           (41.6)       3.3      (17.4)    (103.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Change in cash and cash
     equivalents                        2.0        8.1        2.5        6.6
    -------------------------------------------------------------------------

    Cash and cash equivalents
     (bank indebtedness),
     beginning of period                7.0      (11.6)       6.5      (10.1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents
     (bank indebtedness), end
     of period                    $     9.0  $    (3.5) $     9.0  $    (3.5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MANITOBA TELECOM SERVICES INC.
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)
    For the nine months ended September 30, 2009 and 2008 (All financial
    amounts are in $ millions, except where noted.)
    -------------------------------------------------------------------------

    1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The interim consolidated financial statements of Manitoba Telecom
        Services Inc. (the "Company") have been prepared in accordance with
        Canadian generally accepted accounting principles ("GAAP"). These
        interim consolidated financial statements have been prepared using
        the same accounting policies and methods of their application as the
        Company's audited consolidated financial statements for the year
        ended December 31, 2008, except as described in Note 4.

        These interim consolidated financial statements should be read in
        conjunction with the Company's audited consolidated financial
        statements for the year ended December 31, 2008.

    2.  RESTRUCTURING AND TRANSITION

        During the nine months ended September 30, 2009 and 2008, the Company
        recorded net restructuring and transition expenses as follows:

        ---------------------------------------------------------------------
                                    Three months ended     Nine months ended
        ---------------------------------------------------------------------
                                       2009       2008       2009       2008
        ---------------------------------------------------------------------
        Restructuring
        ---------------------------------------------------------------------
          Workforce                     2.2        0.9       10.3        0.9
        ---------------------------------------------------------------------
          Other                         6.8        6.2       17.5        6.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                        9.0        7.1       27.8        7.1
        ---------------------------------------------------------------------
        Wireless transition             0.7        7.5       14.4       17.8
        ---------------------------------------------------------------------
                                        9.7       14.6       42.2       24.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The liability for restructuring costs as at September 30, 2009 is as
        follows:

        ---------------------------------------------------------------------
        Balance December 31, 2008                                       11.3
        ---------------------------------------------------------------------
        2009 restructuring costs, net of a $1.5 million reversal
         of previously recorded costs                                   27.8
        ---------------------------------------------------------------------
        Less cash payments                                             (24.5)
        ---------------------------------------------------------------------
        Balance September 30, 2009                                      14.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Restructuring activities in 2009 represent a continuation of the cost
        reduction initiative which commenced in the fourth quarter of 2008
        aimed at achieving process improvements and further cost reductions.
        The costs recorded in 2009 include severance and other employee-
        related expenses, costs to review and improve efficiencies in current
        processes, real estate facility consolidation charges, as well as
        other non-recurring amounts associated with certain regulatory
        proceedings and the transition from Canadian GAAP to International
        Financial Reporting Standards.

        The Company has undertaken additional workforce reduction initiatives
        throughout 2009. In the second quarter, the Company recorded
        workforce reduction costs of $9.4 million relating to the reduction
        of approximately 160 positions in the Enterprise Solutions division.
        In the third quarter, the Company initiated another workforce
        reduction program and recorded costs of $2.2 million.

        Wireless transition includes costs of transitioning certain wireless
        service requirements away from Bell Mobility to new suppliers and to
        the Company's wireless platform. In 2008, this amount also included
        costs associated with the advanced wireless services spectrum
        auction.

    3.  ACCOUNTS RECEIVABLE SECURITIZATION

        Under the terms of the Company's accounts receivable securitization
        program, the Company has the ability to sell, on a revolving basis,
        an undivided ownership interest in its accounts receivable to a
        securitization trust, up to a maximum of $150.0 million. As a result
        of selling the interest in certain of the trade receivables on a
        fully-serviced basis, a service liability of $0.2 million has been
        recognized by the Company as at September 30, 2009.

        The terms of the Company's accounts receivable securitization program
        also require the Company to maintain reserve accounts, the fair value
        of which approximates carrying value. As at September 30, 2009, the
        Company had received $77.0 million on the sale of its accounts
        receivable to the trust, which is comprised of the outstanding
        undivided ownership interest held by the trust of $95.9 million and
        the reserve accounts of $18.9 million.

        During the three and nine months ended September 30, 2009, the
        Company recognized a recovery of nil and $0.4 million, respectively,
        on previously recorded losses on the sale of accounts receivable,
        which is recorded in other income.

        During the three and nine months ended September 30, 2009, cash flows
        received and paid to the trust in revolving period securitizations
        were $674.0 million and $1,708.7 million, respectively.

        The key assumptions used to determine the recovery of previously
        recorded losses on the sale of receivables and the fair values
        attributed to the retained interest as at September 30, 2009 are as
        follows:

        ---------------------------------------------------------------------
        Annual discount rate                                           0.68%
        ---------------------------------------------------------------------
        Weighted average life of receivables sold (days)                  38
        ---------------------------------------------------------------------
        Credit loss ratio                                              0.52%
        ---------------------------------------------------------------------
        Servicing fee liability                                         1.0%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  CAPITAL ASSETS

        Effective January 1, 2009, the Company adopted the recommendations of
        the Canadian Institute of Chartered Accountants ("CICA") Handbook
        section 3064 Goodwill and Intangible Assets and the updates to CICA
        Handbook section 1000 Financial Statement Concepts. This guidance
        establishes updated standards for the recognition, measurement,
        presentation and disclosure of intangible and deferred assets.
        Accordingly, for the 2008 comparatives, the Company has reclassified
        $51.3 million of other long-term assets and $9.5 million of other
        current assets relating to deferred wireless costs and installation
        costs to intangible assets. The Company also reclassified specific
        software costs within capital assets of $129.9 million from property,
        plant and equipment to intangible assets.

        The following table provides details of the Company's capital assets:

                             September 30, 2009         December 31, 2008
        ---------------------------------------------------------------------
                                  Accumu-                    Accumu-
                                   lated      Net             lated      Net
                                  amorti-    book            amorti-    book
                           Cost   zation    value     Cost   zation    value
        ---------------------------------------------------------------------
        Property, plant
         and equipment
        ---------------------------------------------------------------------
          Network
          equipment
          and outside
          plant         2,876.1  1,884.2    991.9  2,750.2  1,777.4    972.8
        ---------------------------------------------------------------------
          General
           equipment
           and other      438.8    317.9    120.9    419.1    274.8    144.3
        ---------------------------------------------------------------------
          Buildings       265.5    150.2    115.3    262.4    142.9    119.5
        ---------------------------------------------------------------------
          Equipment under
           capital lease    5.4      0.9      4.5      5.4      0.6      4.8
        ---------------------------------------------------------------------
          Plant under
           construction    78.0        -     78.0     91.4        -     91.4
        ---------------------------------------------------------------------
          Materials and
           supplies        20.3        -     20.3     21.3        -     21.3
        ---------------------------------------------------------------------
          Land              6.3        -      6.3      6.3        -      6.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                        3,690.4  2,353.2  1,337.2  3,556.1  2,195.7  1,360.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Intangible
         assets
        ---------------------------------------------------------------------
          Software        291.1    145.5    145.6    240.0    110.1    129.9
        ---------------------------------------------------------------------
          Deferred
           wireless
           costs           89.7     39.4     50.3     78.3     37.6     40.7
        ---------------------------------------------------------------------
          Other deferred
           installation
           costs           29.9     14.9     15.0     43.7     23.6     20.1
        ---------------------------------------------------------------------
          Customer
           contracts and
           relationships   29.4     12.8     16.6     27.1     13.8     13.3
        ---------------------------------------------------------------------
          Other
           contractual
           relationships    1.3      0.6      0.7      1.3      0.5      0.8
        ---------------------------------------------------------------------
          Spectrum
           licenses        48.6        -     48.6     48.6        -     48.6
        ---------------------------------------------------------------------
          Broadcasting
           certificate      2.9        -      2.9      2.9        -      2.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                          492.9    213.2    279.7    441.9    185.6    256.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Total           4,183.3  2,566.4  1,616.9  3,998.0  2,381.3  1,616.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  NOTES PAYABLE

        The Company has a $350 million bank credit facility with a syndicate
        of financial institutions which is used for cash management purposes,
        the issuance of letters of credit and to support the Company's
        $150 million commercial paper program. As at September 30, 2009, the
        Company had $106.9 million in undrawn letters of credit outstanding
        under this facility. The Company paid short-term interest costs of
        nil and $2.5 million for the three and nine months ended
        September 30, 2009, respectively.

    6.  LONG-TERM DEBT

                                                  September 30,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Medium Term Note, 5.85%, due February 23,
         2009                                                -          70.0
        ---------------------------------------------------------------------
        Medium Term Note, 5.25%, due June 10, 2009           -         150.0
        ---------------------------------------------------------------------
        Medium Term Note, 8.625%, due September 8,
         2010                                             11.9          11.9
        ---------------------------------------------------------------------
        Medium Term Note, 5.20%, due September 27,
         2011                                            220.0         220.0
        ---------------------------------------------------------------------
        Medium Term Note, 5.05%, due May 11, 2012        100.0             -
        ---------------------------------------------------------------------
        Loan payable, 6.59%, due May 14, 2014             75.0             -
        ---------------------------------------------------------------------
        Medium Term Note, 6.15%, due June 10, 2014       200.0         200.0
        ---------------------------------------------------------------------
        Medium Term Note, 6.65%, due May 11, 2016        250.0             -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                         856.9         651.9
        ---------------------------------------------------------------------
        Less: deferred costs associated with the
         issuance of long-term debt                       (4.4)         (1.7)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                         852.5         650.2
        ---------------------------------------------------------------------
        Less: current portion of long-term debt          (11.9)       (220.0)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                         840.6         430.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the three and nine months ended September 30, 2009, the
        Company recorded interest expense on long-term debt, including
        amortization of debt issue costs of $13.1 million and $33.2 million,
        respectively. The Company paid interest on long-term debt for the
        three and nine months ended September 30, 2009 of $6.2 million and
        $24.6 million, respectively.

    7.  EARNINGS PER SHARE RECONCILIATION

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

        ---------------------------------------------------------------------
                                                           Nine months ended
                                                              September 30
        ---------------------------------------------------------------------
                                                          2009          2008
        ---------------------------------------------------------------------

        Net income
        Basic and diluted                                 95.0         130.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Weighted average shares outstanding
         (in millions)
        Weighted average number of shares outstanding
         - basic and diluted                              64.7          64.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings per share ($)
        Basic and diluted earnings per share              1.47          2.02
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  SHARE CAPITAL

        As at September 30, 2009, share capital consists of 64,667,817 issued
        and outstanding Common Shares (December 31, 2008 - 64,637,917).

        During the nine months ended September 30, 2009, 29,900 stock options
        to purchase Common Shares were exercised for cash consideration of
        $0.9 million, of which $1.1 million was credited to share capital and
        $0.2 million was charged to contributed surplus.

    9.  EMPLOYEE FUTURE BENEFITS

        The Company's total net benefit recovery for all of its defined
        benefit and defined contribution pension plans, supplemental pension
        arrangements, and other non-pension employee future benefits for the
        three and nine months ended September 30, 2009 is $2.9 million and
        $6.1 million, respectively.

    10. SEGMENTED INFORMATION

        As at September 30, 2009, the Company had two reportable operating
        segments: the Consumer Markets division and the Enterprise Solutions
        division. The Consumer Markets division provides a full range of
        wireless, high-speed Internet and data, digital television, wireline
        voice services, and alarm monitoring services to residential and
        small business customers in Manitoba. The Consumer Markets division
        also provides Internet, data and voice services to small business
        customers in Canada. The Enterprise Solutions division provides
        Internet protocol-based communications, unified communications,
        voice, and data connectivity services to medium and large business
        customers in Canada.

        The Company evaluates performance based on EBITDA (earnings before
        interest, taxes, amortization, and other income). EBITDA, as reported
        below, includes intersegment revenues and expenses. The Company
        accounts for intersegment revenues and expenses at either prices that
        approximate current market prices or cost, depending on the type of
        service.

        The following table provides further segmented information:

    -------------------------------------------------------------------------
                              Three months ended September 30
    -------------------------------------------------------------------------
                   Consumer      Enterprise
                    Markets       Solutions          Other           Total
    -------------------------------------------------------------------------
                 2009    2008    2009    2008    2009    2008    2009    2008
    -------------------------------------------------------------------------
    Operating
     revenue
      External  195.1   208.2   254.3   271.7       -       -   449.4   479.9
    -------------------------------------------------------------------------
      Internal    0.2     0.1       -       -     8.3    10.4     8.5    10.5
    -------------------------------------------------------------------------
    EBITDA       94.3    97.3    40.4    53.3    (1.0)   (0.1)  133.7   150.5
    -------------------------------------------------------------------------
    Restructuring
     and trans-
     ition        0.1     7.6     8.6     6.8     1.0     0.2     9.7    14.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                               Nine months ended September 30
    -------------------------------------------------------------------------
                   Consumer      Enterprise
                    Markets       Solutions          Other           Total
    -------------------------------------------------------------------------
                 2009    2008    2009    2008    2009    2008    2009    2008
    -------------------------------------------------------------------------
    Operating
     revenue
      External  607.0   612.8   789.6   832.3       -       - 1,396.6 1,445.1
    -------------------------------------------------------------------------
      Internal    0.4     0.3     0.1     0.1    26.4    29.0    26.9    29.4
    -------------------------------------------------------------------------
    EBITDA      295.0   296.3   130.6   183.9    (1.9)      -   423.7   480.2
    -------------------------------------------------------------------------
    Restructuring
     and trans-
     ition       13.8    16.4    26.1     6.8     2.3     1.7    42.2    24.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Reconciliation to consolidated net income is as follows:

        ---------------------------------------------------------------------
                                    Three months ended     Nine months ended
                                        September 30          September 30
        ---------------------------------------------------------------------
                                       2009       2008       2009       2008
        ---------------------------------------------------------------------
        Total EBITDA                  133.7      150.5      423.7      480.2
        ---------------------------------------------------------------------
        Amortization                  (82.1)     (83.9)    (245.2)    (246.6)
        ---------------------------------------------------------------------
        Other income                    3.2        2.5        7.6        7.6
        ---------------------------------------------------------------------
        Debt charges                  (15.1)     (12.1)     (43.9)     (36.7)
        ---------------------------------------------------------------------
        Income tax expense            (11.8)     (18.9)     (47.2)     (74.2)
        ---------------------------------------------------------------------
                                       27.9       38.1       95.0      130.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. COMMITMENTS AND CONTINGENCIES

        Commitments

        On May 30, 2002, the Canadian Radio-television and Telecommunications
        Commission ("CRTC") issued Regulatory framework for second price cap
        period, Telecom Decision CRTC 2002-34, which provided the regulatory
        framework for local rates charged to residential and business
        customers and the rates that incumbent telephone companies charged
        their competitors. As part of this framework, the CRTC established a
        regulatory deferral account. On January 17, 2008, the CRTC issued
        Disposition of funds in the deferral accounts, Telecom Decision CRTC
        2008-1, which required the funds that were accumulated in the
        Company's deferral account to be used for the expansion of broadband
        services, for initiatives to improve accessibility to
        telecommunications services for persons with disabilities, and for
        certain rate reductions or credits. Aspects of Decision 2008-1,
        including the requirement for rate reductions or credits, were
        appealed to the Federal Court and then the Supreme Court of Canada by
        Bell Canada, TELUS Communications Inc. and the Public Interest
        Advocacy Centre with a decision by the Supreme Court ultimately
        upholding the CRTC's decision on September 18, 2009. The estimated
        balance of the Company's deferral account is approximately
        $25 million as at September 30, 2009. In the third quarter, the
        Company recorded a liability in its financial statements in the
        amount of $13.5 million for the estimated amount applicable to rate
        reductions or credits. The Company will be required to file with the
        CRTC, its intended plan and costs for the approved extension of
        broadband services and the administration of the rate reductions or
        credits.

        Contingencies

        On April 21, 2004, Unique Broadband Services, Inc. (UBS) filed a
        statement of claim against Allstream, Inukshuk Internet Inc.
        (Inukshuk), Microcell Telecommunications Inc. and Microcell Solutions
        Inc. (Microcell) in the Ontario Superior Court of Justice. This
        claim, seeking damages in the amount of $160.0 million was settled
        during the second quarter of 2009 without any contribution to the
        settlement by the Company. There are no future potential liabilities
        outstanding against the Company in relation to the above claim.

    12. COMPARATIVE FIGURES

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

%SEDAR: 00003357E

For further information: For further information: Investors: Paul Peters, Vice-President, Tax and Investor Relations, Manitoba Telecom Services Inc., (204) 941-6178, investor.relations@mtsallstream.com; Media: Greg Burch, Director, Corporate and Employee Communications, Manitoba Telecom Services Inc., (416) 345-3576 or (204) 941-8576, media.relations@mtsallstream.com

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