MTS Allstream Announces 2011 Financial Outlook

Highlights include:

    -   EBITDA, EPS and Free Cash Flow expected to improve in 2011
    -   Free Cash Flow expected to cover dividend payment and 2011
        cash requirements
    -   Allstream IP revenues forecast to grow by 10% to 12% in 2011,
        contributing to improved margins and EBITDA
    -   MTS expected to launch new HSPA wireless services and new billing
        platform in early 2011
    -   Annualized cost reductions of $25 million to $35 million expected
    -   2011 financial outlook in line with analyst consensus estimates
    -   MTS Allstream now reporting financial results under International
        Financial Reporting Standards rules and on a consolidated basis

Stock Symbol: MBT

TORONTO, Dec. 15 /CNW/ - Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"), including its two operating divisions "MTS" and "Allstream", today announced its financial outlook for 2011. The Company expects to deliver stable year-over-year performance in 2011 as it continues to execute its strategy of driving growth in wireless, television, broadband and IP-based services; increasing high-margin on-net sales at Allstream through success-based capital spending; and ongoing cost reductions.

"Our 2011 financial outlook reflects our belief that improved performance at Allstream, the continued stability and strength of MTS, and tight cost management will combine to make MTS Allstream a more competitive and a more valuable company," said Pierre Blouin, Chief Executive Officer. "Our strategy at Allstream is working, as evidenced by the increased sales momentum and a disciplined move towards higher-margin on-net business. At MTS, our product leadership, unique bundles and investments in fibre-to-the-home and our new HSPA wireless network give us confidence that we will remain the clear market leader and a source of significant financial strength for the company in 2011 and beyond. Our financial outlook is in line with analysts' consensus estimates and demonstrates that our strategy is producing the expected results."


Beginning January 1, 2011, the Company is required to comply with International Financial Reporting Standards ("IFRS"). MTS Allstream's 2011 financial outlook, as well as its converted 2010 outlook, are presented in the table below in accordance with IFRS. The impact of the changeover from Canadian GAAP to IFRS on MTS Allstream's financial statements is similar to its Canadian telecom peers. For further information on the Company's transition to IFRS, please see details provided at the end of this news release.

MTS Allstream is also no longer reporting its financial results on a continuing operations basis. Beginning with this 2011 outlook, the Company will be presenting its financial results on a consolidated basis.

                            2011 Outlook             2010 Outlook (converted)
                Reported in accordance with IFRS and on a consolidated basis
    Revenues             $1.665 billion to                 $1.740 billion to
                            $1.765 billion                    $1.790 billion

    EBITDA(1)              $550 million to                   $550 million to
                              $590 million                      $580 million

    EPS(2)                  $2.00 to $2.45                    $2.00 to $2.35

    Free cash flow         $110 million to                    $35 million to
                              $150 million                       $65 million

     expenditures   16% to 18% of revenues            20% to 22% of revenues

The Company's 2011 financial outlook under IFRS methodology calls for results to be in line with or better than 2010, assuming economic and competitive conditions are similar to 2010. In 2011, EBITDA is expected to be higher when compared to 2010, primarily due to operating cost reductions and lower restructuring costs, partially offset by higher pension expense. Earnings per share ("EPS") are also expected to grow. Free cash flow in 2011 is expected to be significantly higher than 2010 due to lower capital spending and restructuring costs. MTS Allstream's balance sheet is expected to remain strong with a net debt to EBITDA ratio of 1.7x. The Company continues to expect that it will not pay cash taxes any earlier than 2019.

MTS Allstream is targeting an additional $25 million to $35 million in annualized cost reductions in 2011 through operational efficiency programs mainly associated with legacy product lines and restructuring initiatives. Restructuring costs are expected to be up to $10 million.

Total capital spending, including expenditures for MTS's fibre-to-the-home ("FTTH") deployment in Manitoba, are expected to be 16% to 18% of revenues. Approximately $20 million of the Company's 2011 capital envelope is allocated to the continued expansion of the FTTH network into an additional four Manitoba communities. The Company now expects that by the end of 2013, 65% of Manitoba households will have access to either VDSL or FTTH technology, giving MTS the largest footprint and providing customers with the most advanced digital television and high-speed Internet services. The Company's 2011 capital program includes funding for more strategic investments in Allstream's national IP network to connect fibre to an additional 180 buildings and to pursue its successful high margin IP strategy.


In 2011, MTS is expected to continue to be a solid and stable foundation for the Company, generating reliable cash flows and continuing to deliver EBITDA margins that are higher than its Canadian telecom peers. In 2011, MTS plans to fight competitive pressures with a continuation of its focus on multi-product customers and bundles. The Company expects to maintain its market share and drive revenue growth in wireless, high-speed Internet and digital television services.

"Overall, we have done well in 2010 by leveraging our strengths and competitive advantages to defend our home market against aggressive pricing by our cable competitors. The number of customers using our bundles climbed by more than 10% in the first nine months of the year and we expect continued growth in the fourth quarter," said Kelvin Shepherd, President of MTS. "Looking ahead to 2011, we expect our innovative bundling approach to help reduce the number of customers on short term promotional plans."

MTS anticipates that its wireless and broadband services in 2011 will continue to increase at similar rates to 2010. MTS now has almost 90,000 digital television subscribers. At the end of December, MTS Ultimate TV service is expected to be available to more than 96% of Winnipeg households. MTS's accelerated FTTH program will be deployed in four new communities in 2011 where MTS faces cable telephony competitors but where the Company does not currently offer a VDSL-based product. This is expected to improve its competitive position and provide an opportunity for revenue growth by offering services that were previously not available to those communities.

Early in 2011, MTS plans to launch its new high-speed packet access ("HSPA") wireless services. HSPA technology enables MTS to deliver higher speed mobile data services, up to 21 Mbps, to more customers through an expanded footprint in Manitoba. In addition, MTS customers will have access to a solid HSPA handset line-up and superior national and international roaming capabilities through MTS's arrangements with Rogers Wireless.

"With our investments in HSPA, our large VDSL footprint in Winnipeg and Brandon, and our planned expansion of FTTH in more communities in Manitoba; MTS will continue to be the Canadian telco best equipped to compete against cable competitors," Mr. Shepherd added.


Allstream showed signs of improvement during the second half of 2010 in a national business market that is recovering slowly. Management expects Allstream's results to continue to improve as the company executes its plans to drive growth in high-margin IP services.

"IP is the fastest growing segment of the Canadian telecom market, and it will define our success in the future. Based on our strong sales levels since June, we expect to see improved results in the fourth quarter of 2010 and in 2011, especially in our profitable IP portfolio, as we work towards achieving a cash neutral position," said Dean Prevost, President of Allstream.

Allstream continues to shift towards an IP, on-net focus and exit low-margin product lines. This will reduce revenues in 2011, but the Company expects to improve EBITDA and cash flow due to growth in IP revenues, lower restructuring costs, and further legacy cost reductions. In support of the Company's ongoing efforts to reduce legacy costs and shift resources to support IP growth, Allstream is reducing 150 positions with an expected fourth quarter charge of $6 million and annual cost savings of $13 million. The majority of the positions will exit the business before the end of the first quarter of 2011.

Since June 2010, Allstream's IP sales have been strong - confirming its competitiveness in the Canadian IP market. At the end of the third quarter of 2010, Allstream's IP revenues represented about 26% of the division's revenues or about $220 million on an annual basis. Management expects to grow its IP revenues by 10% to 12% annually over the next three years, which is in line with the overall forecasted Canadian market growth.

Allstream will continue to make targeted investments as part of its plan to extend fibre to 675 multi-tenant buildings over the next few years. In connection with this program, Allstream won 36 new IP contracts in October and November, bringing the total IP contracts Allstream has won through this initiative to 120 as at November 30, 2010. This includes several follow on sales that have increased Allstream's penetration into these newly connected buildings. Allstream has achieved an additional 90 IP contracts in the expanded Allstream IP co-location footprint. Management expects to connect 180 buildings in total during 2011.

As part of Allstream's business plan for 2011, management is also undertaking a number of initiatives to improve the division's results and profitability. These include focusing on winning high-margin on-net IP revenues, developing product life-cycle management plans to exit various legacy services, and reinvesting cash flows from legacy services into IP platforms.


The impact of IFRS on our financial statements is similar to the impact disclosed by other Canadian telecom providers who have released information. The total impact on retained earnings is expected to be $369 million as at January 1, 2010. The major item impacting the balance sheet is the write-down of pension assets and the recognition of a pension liability. The overall EBITDA impact is expected to be a reduction of about one percent primarily due to certain costs that cannot be capitalized under IFRS, as well as differences in pension accounting under IFRS. The impact on EPS will be positive as the reduction in EBITDA is more than offset by lower depreciation expense that comes with a change in depreciation policy and the write-down of certain assets in our Allstream division. Cash flows are unchanged. Further details are contained in the IFRS Supplementary Information section below.


The Company has made a number of assumptions in preparing its 2011 financial outlook and when making certain forward-looking statements, which include, but are not limited to, the following assumptions:

Economic assumptions

MTS consumer services are expected to benefit from a Manitoba economy that is forecast to grow in real gross domestic product ("GDP") by 2.7% in 2011, according to the Manitoba Department of Finance. The Bank of Canada is forecasting real GDP growth for Canada in 2011 to be 2.3%. The Company anticipates the continuation of the growth seen in 2010 will positively impact Allstream's enterprise markets in 2011.

Market assumptions

The Company expects market conditions to stay the same as 2010. Management expects competitive pressures in Manitoba will generally remain consistent in 2011 as compared to 2010. It is anticipated that there will be no new entrant in the wireless market in Manitoba in 2011. MTS Allstream expects ongoing competitive pressures in its local and long distance services. Revenues generated by the residential voice telecommunications market will continue to decrease due to competition and substitution at levels similar to 2010. The Company expects to launch HSPA services and its new billing system in early 2011, but does not anticipate the launch to impact MTS results in the near term. The Company expects Allstream to benefit from the IP sales contracts won in 2010 with growth in IP revenues in 2011, and also expects Allstream to be cash neutral in the shorter term. It is expected that enterprise customers will continue to migrate from legacy to IP-based services at levels similar to 2010.

Cost reduction assumptions

For 2011, management expects to achieve $25 million to $35 million in annualized cost reductions through operational efficiency and restructuring efforts. The Company's restructuring costs for 2011 are anticipated to be up to $10 million. The Company also expects that there will be no significant one-time expenses or costs affecting the business, other than contemplated herein.

Capital resource assumptions

In 2011, MTS Allstream's capital program is expected to be approximately 16% to 18% of the Company's revenues.

Tax assumptions

Management has been able to reduce taxable income by utilizing MTS Allstream's substantial CCA pools and available tax losses. By utilizing deferred CCA deductions, management projects that the Company will not pay cash taxes before 2019. The present value of MTS Allstream's tax asset is approximately $310 million.

Pension assumptions

The Company's 2011 financial outlook includes pension solvency funding in the amount of $15 million in January and assumes the new letters of credit regulations are implemented in early 2011. In the event the regulations are not brought into force early in 2011, MTS Allstream will be required to make a pension solvency payment in the amount of $15 million in January as well as $5 million per month thereafter.

Management has assumed in its 2011 outlook that the Company is going to win its pension appeal in connection with the Manitoba Court of Queen's Bench ruling on a lawsuit regarding the 1997 initial funding, ongoing surplus and governance of the primary pension plan for Manitoba employees. The appeal is expected to be heard in December 2010, with a ruling to be released in 2011.


Investors, media and the public are invited to join today's outlook presentation via live audio webcast on MTS Allstream's website beginning at 8:30 a.m. (Eastern Time) on December 15, 2010. Investors, the public and media are invited to listen to the presentation via live audio webcast or by teleconference (listen-only mode). The audio webcast can be accessed by visiting the Investors section of MTS Allstream's Website( The dial-in number for the teleconference is 1-888-300-0053 or 1-647-427-3420 (access code 31742005). The Webcast will be archived on MTS Allstream's website and a replay of the outlook presentation will be available until midnight December 22, 2010. The replay can be accessed by dialing 1-800-642-1687.


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


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

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

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


    (1)  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 or
        with International Financial Reporting Standards) as a measure of
    (2)  EPS is earnings per share.



Condensed preliminary IFRS consolidated statement of financial position:

The following preliminary reconciliations present the differences between Canadian GAAP and IFRS for the Company's opening balance sheet at January 1, 2010 and key performance indicators for the nine-months ended September 30, 2010. These reconciliations are based on our most recent assumptions and expectations, and circumstances may arise, such as changes in IFRS, which could change these assumptions or expectations.

                                   31, 2009
                                   Canadian  Reclassi-             January 1,
    In $ millions         Note       GAAP    fications Adjustments 2010 IFRS
      Current assets                  432       (79)         -           353
      Property, plant
       and equipment       A,B      1,362         -         17         1,379
      Intangible assets     B         323         -        (45)          278
      Other assets          C         417         -       (375)           42
      Deferred tax
       assets               E         362        79        133           574

    Total assets                    2,896         -       (270)        2,626

       liabilities                    426        (1)        (3)          422
      Long-term debt
       and lease
       obligations                  1,053         -          -         1,053
      Employee future
       benefits             C          43         -        119           162
      Other long-term
       liabilities          D          57         1        (17)           41
    Total liabilities               1,579         -         99         1,678

     equity               A to E    1,317         -       (369)          948

    Total liabilities
     and shareholders'
     equity                         2,896         -       (270)        2,626

Preliminary IFRS consolidated key performance indicators:

                                For the nine months ended September 30, 2010
    In $ millions,            Note       Canadian   Adjustments      IFRS
     except EPS                            GAAP

    Revenue                               1,336          -          1,336

    EBITDA                     A            436         (7)           429

    EPS                      A,B,C        $1.42        $0.30        $1.72

    Free cash flow                           99         (1)            98

    Capital expenditures       A            235         (2)           233


The following notes highlight the most significant items we expect to impact the Company's consolidated financial position and consolidated financial results upon adoption of IFRS. The summary tables and notes are based on our current preliminary assumptions and expectations of the impact and should not be regarded as a complete list.

    A.  Under IFRS, we reclassified certain items of property, plant and
        equipment into IFRS-compliant components, we changed our depreciation
        policy from a pooling of assets method to a separate unit straight-
        line method, and we started expensing certain expenditures that are
        not permitted to be capitalized under IFRS. We applied these changes
        retrospectively at January 1, 2010, the date of transition to IFRS
        (the "Transition Date"), which resulted in an increase in the net
        book value of property, plant and equipment and intangible assets.
        For the nine months ended September 30, 2010, these changes in
        accounting policy are expected to result in a minor decrease in
        EBITDA and a decrease in depreciation and amortization expense, which
        increases net income and EPS.
    B.  As required for first-time adopters of IFRS, we completed the
        impairment testing of our balance sheet at the Transition Date.
        Impairment testing is different under IFRS than CGAAP. As a result of
        the change in methodology, the Company recognized an asset impairment
        to intangible assets and property, plant and equipment in its
        Allstream division. For the nine months ended September 30, 2010, we
        expect depreciation and amortization expense to be lower under IFRS
        than CGAAP, resulting in an increase in net income and EPS.
    C.  We elected to recognize all cumulative actuarial gains and losses on
        defined benefit pension plans in opening retained earnings at the
        Transition Date, resulting in a decrease in our pension assets and
        the recognition of a pension liability. For the nine months ended
        September 30, 2010, we expect pension expense to be slightly higher
        under IFRS.
    D.  At the Transition Date, we expect to recognize the deferred gain
        relating to a previous sale-leaseback transaction, resulting in a
        decrease in other long-term liabilities. For the nine months ended
        September 30, 2010, we expect this change in accounting policy to
        result in a slight increase in EBITDA.
    E.  As a result of the differences identified above, deferred taxes under
        IFRS have been adjusted, where applicable.

SOURCE MTS Allstream

For further information: For further information: Investors: Paul Peters, Vice-President, Tax and Investor Relations, Manitoba Telecom Services Inc., (204) 941-6178, Media: Helen Reeves, Chief Communications Officer, Manitoba Telecom Services Inc., (416)345-2006,

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