Executives: Darrell Rae - Investor Relations Darren Entwistle - President and Chief Executive Officer Doug French - Chief Financial

Officer
Analysts: Phillip Huang - Barclays Capital Greg MacDonald - Macquarie Jeff Fan - Scotiabank Simon Flannery - Morgan Stanley Vince Valentini - TD Securities Maher Yaghi - Desjardins Capital

Markets
Operator: Good morning, ladies and gentlemen. Welcome to the TELUS 2017 Q4 Earnings Conference Call. I would like to introduce your speaker, Mr. Darrell Rae. Please go ahead.

Darrell Rae: Good morning or afternoon everyone and thank you for joining us today. TELUS’s fourth quarter 2017 and 2018 targets news release and detailed supplemental investor information are posted on our website, at telus.com/investors. On the call today will be President and CEO, Darren Entwistle who will provide opening comments; followed by a review of the fourth quarter operational and financial highlights and 2018 targets by Doug French, our CFO. After our prepared remarks, we will conclude with a question-and-answer session. In consideration of your day, we are going to try to keep this call to under an hour.

Let me direct your attention to Slide 2. This presentation, answers to questions and statements about future events, including our 2017 targets outlook and assumptions as well as intentions for dividend growth and capital investments and the performance of TELUS, include forward-looking statements that are subject to risks and uncertainties and are made based on certain assumptions. Accordingly, actual performance could differ materially from statements made today, so do not place undue reliance on them. We also disclaim any obligation to update forward-looking statements, except as required by law. I ask that you read our legal disclaimers and refer you to the risks and assumptions outlined in our public disclosures, in particular, our fourth quarter management review of operations and in our 2017 annual MD&A Sections 9 and 10 as well as with filings with securities commissions in Canada and the United States.

The appendix of this presentation and Section 3 of our fourth quarter management’s review of operations provide definitions and reconciliations of the non-GAAP measures that we use today. Let me now turn the call over to Darren, starting on Slide 3.

Darren Entwistle: Thanks, Darrell, and good morning, everyone. As you seen today TELUS finished 2017 with strong Q4 financial and operational results. Despite a highly competitive environment we realize strong loading, strong data revenue growth, and a strong financial performance across both our wireless and wireline operations.

These results were underpinned by our team’s ongoing commitment to customer service excellence and client loyalty and our continue attraction and efficiency and effectiveness initiatives. Notably, consolidated revenue was up 0.9% and EBITDA was up 0.7% in the fourth quarter. We do have a strong loading across all key growth segments with 156,000 new postpaid wireless, Internet and TELUS TV customers, up 23% from this time last year. In wireless our team earned 121,000 postpaid net additions. This reflects a 39% year-over-year increase and our strongest quarter of postpaid net loading since the fourth quarter of 2012.

While we anticipated strong fourth quarter loading to close out 2017. Q4 was characterized by a heightened market activity and aggressive holiday promotions. Notwithstanding this TELUS delivered strong results. Strong results thanks to our team's unparalleled commitment decline service excellence that results in low churn and strong client loyalty. Strong results that reflect the speed, the reliability and the coverage of our world leading wireless network and strong results from our differentiated value proposition and are in-market execution.

These strategic capabilities underpin the proficiency of the TELUS team and delivering strong results in periods of heightened customer activity. We saw strong growth in wireless network revenue and EBITDA which were up 5.4% and 5% respectively. This was supported by blended ARPU of $67.27, an increase of 1.6% in the fourth quarter. Moreover we continued to lead in customer loyalty achieving a postpaid churn rate of 0.99%. Notably, this was up only 1 basis point year-over-year despite the aggressive competitive promotions that indeed characterized the fourth quarter of 2017.

Thanks to our frontline team members. TELUS is now delivered a postpaid churn rate below 1% for 17 of the last 18 quarters. During the wireline TELUS delivered a strong performance in respect of revenue EBITDA and subscriber growth, buttressed by our proven and diversified product portfolio. Wireline revenues increased 1% and EBITDA grew 4.3% in the fourth quarter, our 21st straight quarter of EBITDA growth in our Wireline business. Data revenue grew 6% of high-speed Internet and TV net additions were up a healthy 21,000 and 14,000 on a respective basis.

Residential network access line losses continued to decline to 14,000 in the fourth quarter, representing our best quarterly now performance in 13 years. In total, we earned a healthy 21,000 Wireline RGUs in the fourth quarter which is up 17% on a year-over-year basis. Our strong and consistent Wireline operating and financial results clearly highlights the efficacy of our consistent focus on delivering customer service excellence. They reflect the success of our ongoing broadband investments with pure fiber network coverage available now to 48% of our Optik footprint at year end, and of course, growing through Q1 of 2018. These results reflect the compelling bundled offerings available to our customers across our differentiated product portfolio and strong combination of wireless services to go with our Wireline products.

And they reflect the strong pull-through effect of Optik TV and a significant product, functionality, feature, and content differentiation that we enjoy in that regard. Moreover, our recent acquisition of circa 40,000 AlarmForce customers in Western Canada provides TELUS with the unique opportunity to leverage our robust broadband networks and expertise to continue to enhance our connected home services including security and health products all of course for the benefit of our customers. Overall, Q4 results were strong, topping off a solid 2017 marked with many notable achievements. Notable achievements that includes delivering on our annual revenue and EBITDA growth target for the seventh year in a row, not a level of consistency that's recently matched among our corporate peers globally. They look at achievements that include adding more than 379,000 net postpaid wireless customers which represents a 56% increase over last year and more than 70,000 new customers coming from MTS, bringing our total wireless subscriber base to almost 9 million clients.

These achievements also reflect our ability to realize an annual postpaid churn rate of 0.90% down 5 basis points from last year and reflecting our fourth consecutive year below 1%. These achievements include earning, industry-leading and record annual lifetime revenue per wireless customer of over $6,000. This is up 53 – rather 53% higher than our national peers supported by our premium lower churn and our annual ARPU growth of 73%. And finally, these achievements recognized TELUS as being strong and independently having a fastest most responsive and highest quality wireless network in the country. Notably in the OpenSignal 2018 report released just yesterday, TELUS once again ranked number one in overall wireless download speeds on a national basis and amongst the very fastest globally.

In fact, as bizarre as it seems, if TELUS were a country, our LTE download speeds of almost 45 megabit per second would rank third in the world according to the LTE speed ranking by OpenSignal. Moreover these results mark a substantial 46% improvement in TELUS' LTE speeds over last year where of course we were the leading player in terms of wireless network performance. This reinforces the efficacy of the investments that we are making in our broadband networks wireless and wireline alike. This acknowledgement represents our second recognition in the annual OpenSignal report and builds on our team’s recent success in capturing top marks in respect of network excellence from J.D. Power, PCMag, and Ookla.

And I would say more broadly looking across the Canadian wireless industry and our peers, Canada has what I would argue to be the world’s best portfolio of wireless networks when it comes to speed, functionality, reliability, and coverage, and I don't think that this can be overstated in terms of its importance to the productivity of our society and our economy in a digital world and I would know within the open signal report, the description of Canada, our country as a 4G superpower and that is indeed critical to our competitiveness and digital society and digital economies. Our 2018 targets announced this morning demonstrated TELUS teams confidence in continuing the strong growth trends, including consolidated revenue about the 6% and EBITDA growth of up to 7% for the year. Similar to 2017, we expect both wireless and wireline results to contribute to these robust targets reflecting the quality of our dual tenants growth engine at TELUS in respect of strong contributions from wireless, strong contributions from wireline. Our consistent growth in wireline and our consistent growth in wireless revenue and EBITDA has buttressed the targeted generational growth investments. TELUS continues to make in its core wireline and wireless broadband networks.

As announced in November, consolidated capital expenditures are targeted at approximately $2.85 billion for the 2018 financial year. As indicated on our Q3 investor call, 2017 represented a peak capital investment year for TELUS both in terms of the dollar value on a nominal basis and as well CapEx intensity. Notably the majority of our broadband network build program will be increasingly behind it as we passed the 50% build threshold early this year in 2018. In always only a few years ago that it was difficult to conceive that we would be passing the halfway mark on the way to a near ubiquitous fiber coverage in the years ahead. The TELUS team as an organization as certainly come a long way in terms of our technology, infrastructure and product progression.

Clearly our consistent long-term approach to capital investment and the returns that we exact in this regard as positioned TELUS well for today and into the future. In addition to the notable benefits of our capital investment delivered to our customers and importantly, the community that we serve. They also deliver meaningful benefits to our shareholders as we've seen for many, many years with TELUS delivering against the expectations that we set with the investor community. Through the success of these capital investments and the people, the great people that have deployed them, we demonstrated our ability to consistently drive long-term revenue and EBITDA growth and deliver sustainable and expanding free cash flow to support our shareholder friendly initiatives. Indeed we've established an enviable track record in this regard.

Notably we’ve returned over $1 billion to shareholders in 2017, $1 billion to be exact. Furthermore since 2004, TELUS’ returned more than $15 billion to shareholders representing some $25 dollars per share and we continue to honor that commitment and that's what you can expect from this organization prospectively. Building upon our track record of 7.1% dividend growth in 2017 and six consecutive years of 10% annual dividend growth prior to that, we are targeting an additional 7% to 10% dividend increase in 2018. As was previously announced and forecast that and guided. This will be supported by our 2018 target announced today and our outlook for expanding free cash up to $1.4 billion in 2018 and looking for that free flow to grow beyond that.

2017 was a strong year for TELUS and indeed our 2018 targets reflect our team's commitment to continuing this level of performance and building upon it. I want to take this opportunity to thank to TELUS team for their ability to consistently deliver on our strategy, regardless of the competitive environment or other challenges that we encounter along the way and God knows that’s been a hallmark of this organization over the last 18 years. Without question, thanks to our incredible team, a team that ranks among the top 10% of companies globally in terms of our engagement level that we’re able to achieve such positive outcomes for investors. I continue to be impressed with what our organization can achieve as a collective and how this translates into strong results for our customers for our security holders and as well importantly, in our digital society for the communities in which we live and serve as citizens. Let me now turn the call over to Doug who's going to give you some additional color on Q4 and as well our targets for 2018.

Doug French: Thank you, Darren. I am on Slide 9. We finished the year with a strong quarter for wireless and network revenue growth of 5.4% up $91 million year-over-year. Wireless ARPU increased 1.6% driven by a larger portion of higher end rate plans and smartphones in our mix and the continued growth in data usage. Adjusted wireless EBITDA grew 5% reflecting our wireless – our network revenue growth partially offset by higher COA and COR expenses.

Reported wireless EBITDA included a net recovery of $21 million related to our MTS subscriber acquisition and lower restructuring and other costs at Q4 2016 included the lump-sum transformational compensation expense. The MTS net recovery reflects the downward revision of our estimate for the number of the qualifying MTS subscribers we acquired from Bell to 74,000. The migration process is complete as of January 31, 2018, and please see our MD&A for more details. Postpaid gross additions increased 17% year-over-year while retention spending grew 3%, both driving higher handset subsidies, commission costs in the quarter, but will deliver strong revenue and EBITDA growth in the future. Turning to wireline, external growth increased $31 million or 2.1% as a result of higher Internet loading and average revenue for Internet customer as customer continue to move to higher-tier plans an increase in TELUS Health revenue was driven by organic growth of professional services and support revenue and acquisitions and higher TV service revenues from a growing subscriber base and other operating increases mainly due to a gain on the sale of a non-core security consulting business.

This growth was partially offset by ongoing declines in higher margin legacy data and voice for portfolios. We generated adjusted wireline EBITDA growth of 4.3% and primarily from the 2.1% revenue growth as noted and our cost savings from our ongoing operational effectiveness initiatives partially offset by decreases in business process outsourcing contributions. Wireline adjusted EBITDA growth was circa 2.6% when excluding the one-time gain and TELUS International business process outsourcing declines. Overall year-over-year adjusted wireline margin expansion with 60 basis points this quarter to 29.1%. On a consolidated basis we generated 4.9% revenue growth.

Adjusted EBITDA rose 4.7% reflecting strong wireless and wireline customer and revenue growth. We delivered lower cost from our efficiency and effectiveness programs in the current prior years while making investments and high quality postpaid additions and renewals and wireless and continue Internet and TV growth and wireline. Basic EPS is $0.47 on adjusted basis earnings per share increased 3.8% to $0.55. The change reflected higher operating income partly offset by higher depreciation and amortization and financing costs. As previously disclosed BC has increased its corporate income tax rate from 11% to 12% effective January 1, 2018.

As a result TELUS revalued its deferred tax liability, which had an unfavorable non-cash impact of $0.5 on EPS recorded in the fourth quarter. See the appendix for the full breakdown of EPS and adjusted EPS. CapEx totaled $739 million for the fourth quarter as we continue to invest in our broadband networks including supporting our small cell technology strategy. We now provide 1.44 million homes and businesses with immediate access to our gigabit capable TELUS pure fiber network, position us well to surpass our 50% completion mark of our fiber to the home program in early 2018. Our wireless network continues to be expanded and enhanced as we now offer LTE Advanced services to 88% of 99% of Canadians we cover.

Even as we execute our generational investment in fiber of free cash flow before dividends was a positive $274 million up $465 million year-over-year. This was driven by higher EBITDA as well as lower CapEx and lower cash tax was paid. For the year free cash flow total $966 million. On Slide 15, you will see that our targets for 2018 on consolidated basis were 4% to 6% on adjusted revenue and 4% to 7% on adjusted EBITDA growth. EPS is targeted to increase 3% to 9%, which reflects our EBITDA growth as well as higher depreciation and amortization as a result of increased capital investments in fiber and wireless acquisitions as well as higher interest costs including those from pensions.

We are targeting to invest $2.85 billion in capital expenditures and capital intensity were approximately 20% as we continue to enhance and expand our broadband networks, enhance our products and service deliveries and continue to support growth in wireless high-speed in TV. A full list of our 2018 assumptions can be found in Section 1.7 of the fourth quarter management review of operations. Commencing in the first quarter 2018 due to the implementation of an accounting standard IFRS, there will be a shift in the timing of revenue and cost recognition. We will provide an update to our 2018 targets under the new accounting standards when we released our first quarter and 2018 results in May. We have restated 2017 under the new rules and is included in Note 2 of our 2017 audited financial statements.

As a reminder, the economics of our business are not adopted by the – are not impacted by the adoption of this pronouncement. Our growth targets compared with our capital expenditures this year will result in a free cash flow outlook of approximately $1.3 billion to $1.4 billion before dividends. This is up more than 37%. Now I’ll turn it back to Darren to start Q&A.

Darren Entwistle: Thank you, Doug.

Mike can you please proceed with questions from the queue for Darren and Doug.

Operator: Sure. [Operator Instructions] And first question comes from Phillip Huang from Barclays. Please go ahead.

Phillip Huang: Hi.

Good afternoon, guys. Congrats on the strong wireless results. I was wondering if you could provide some incremental color perhaps on your performance in the major regions, just given your distinct wireless market shares across the country. Just wondering if it's fair for us to assume that you gain some share in Ontario, but maintain or potentially lost a bit of share in BC and Alberta?

Darren Entwistle: It’s pretty solid performance across Canada nationally, Phillip, so I don't think it's right to call out one region in particular because we didn't have a dichotomy in terms of our performance where we were strong in one area and weak in the other. I think it was geographically quite a strong performance for the TELUS organization across the board.

So I think it would be leading you to draw inferences to a wrong conclusion, if we highlighted that level of disparity when it's not empirically the case. We delivered a set of robust results that are not geography specific.

Phillip Huang: That’s helpful. Maybe if I could dive a little deeper, what happened in Q4 just as everyone's reported now? I want to better understand the competitive dynamics in December, just leading up to the mid December, well documented five-day pricing plan promotions. Rogers characterized the market is being a bit quiet which kind of led them to initiate the pricing promotions in Western Canada and pull forward some volumes.

Just wanted to get your take on the market prior to those promotions? Would you say it was also quite for TELUS up to mid December? I'm just trying to assess how each of the players sort of fared in the quarter up to that point since Shaw began offering iPhones? Thanks.

Darren Entwistle: Looking at Q4 holistically, thinking about the competitive intensity commencing within the Black Friday period, it was a competitive period for the industry as per usual given the characteristics of Q4. I don't want to comment on the interpretation of the market by one of our competitors. That’s their interpretation. That’s their call and they acted accordingly.

I think what's more relevant is to speak to what TELUS did, we've responded to the competitive activity as it unfolded. So I'm not going to do an analysis on why, what precipitated on December 14 came to fruition, but we responded accordingly. I think the results that we generated speak for themselves. I think we're advantaged by the strong level of performance. So we have on the insurance front, which of course as you well know is buttressed by the customers’ first mentality, TELUS and what we do in terms of clients experience excellence, complemented by the extremely high quality of our wireless network.

So I think we can – we fared reasonably well accordingly. I think we need to be mindful, but when we get into rate plan competition, the rate plan discounts at the ARPU level. Frequently are not overcome by the volumes that get generated and can be net dilutive to the overall economics of the industry and I think it's important to be cognizant of that. And the other thing that we've talked about TELUS for quite some time is not to uniquely look at our wireless business according to the P&L, but the P&L on the balance sheet and when you have heavy daily plans in an industry where you spend billions of dollars on spectrum and technology deployment frequently with technology having a very short life or a half life if you will. Before you do the next technology rollover, heavy data plans, that may have net negative economics at the P&L level are even more economically dilutive of when you consider the capital investments that you need to make to support both them with on the spectrum front and the technology deployment, then I'm always cognizant of that particular factor in terms of generating holistically, the right economic return.

And then lastly for TELUS, I would say as an organization we've responded very well to all forms of exogamous shots whether they be market based or regulatory or coming from the competitive market and I think we showed well again in Q4 given of the characteristics of our business and I would expect that to continue to perform well and leverage wireless momentum in 2018 because I would see that momentum continuing and a strong operation on financial performance parameters of TELUS continuing into 2018 as well. And it's just a fact of life. We're in a competitively intense marketplace and this is the type of thing that is reflective of that and they'll be quiet period. They'll be moderate competition and then we will get extremely intense and I don't see that characterization changing in terms of how the years unfold the head of us.

Phillip Huang: That's very helpful.

Thanks for the color Darren.

Darren Entwistle: Appreciate the question.

Operator: All right, and next we have a question from Greg MacDonald from Macquarie. Please go ahead.

Greg MacDonald: Thank you.

Good afternoon, guys. So Darren, I'm looking at the guidance and in the consensus currently being at the low end of the guidance for revenue and EBITDA, I guess you can call about a recently positive message there. Could you comment on what the major issues are that would influence whether the company can hit the top or the low end of that guidance?

Darren Entwistle: I think let's go through it quickly Greg. Number one, I want to see a continuing strong performance from both wireline and wireless. It's one of the key differentiating factors for TELUS versus our global peers that have strong operational and financial contribution from both wireline and wireless.

So to the extent to which we get a evolving competitive dynamic on the wireline side of our business that reflects competition more on technology, the product functionality, and technology advancements, features and products if you will versus price discounting and I think that will be a nice balance to support the growth aspirations that we have you know on wireline going forward. And I think the competitive dynamic can be very healthy there, where you're competing on broad that technology for the products that they support your value proposition, the straight of your distribution and the excellence of your customer service that does underpin the value for money, rather than just consistent singular price discounting. So I think that particular development should bode well for us in 2018 on wireline and it's important to note that will be passing the 50% build threshold on the fibers front early in 2018. And the economic characteristics of our pure fiber deployment from revenue growth OpEx reduction EBITDA growth and more economic returning competitive differentiation. I think again bode well for us to be able to deliver against the expectations that we're setting up with the street in terms of growth characteristics on revenue EBITDA and as well EPS and cash flow separately.

Next on the wireless front, I'm looking for us to continue to lead with focus on lifetime revenue per client, despite the competitive – heavy competitive intensity that we concluded 2017 with we exited Q4 with $5500 lifetime revenue per client which was still up despite you know the pressures in Q4 on a year-over-year basis by 3% and that’s up to a 53% premium to our peers and reflects the important duality of excellence in terms of client retention and of course revenue per growth – growth on a per client basis. For 2018 on wireless I guess what I'm looking for is to see continued strong loading performance, we've enjoyed that as an industry it was nice to see that healthy dynamic for wireless industry 2017 and I am looking for that to continue in 2018 and whether it's related to population, expansion, whether it's the expansion of the age continuum in terms of smartphone usage demographic considerations with in our digital society where the number of RGUs per human beings is growing along the way. Whether it’s a recovery in Alberta that would be peculiar to TELUS in terms of being beneficial in that regard moving people of the value chain of pre to post migrations that there's a lot of opportunities for us to pursue in that regard. We've got a great stratification in terms of market coverage from high-high value in terms of discount, pricing, at the public mobile and right through to high-high quality and high touch experience in terms of the TELUS brand. And then I am looking to see perhaps in a more modest basis than what we've seen historically in that not necessarily in a bad thing continued ARPU expansion in 2018 to go with subscriber expansion in 2018.

And that's going to get driven by continue technology expansion LTE, LTE Advanced on the path to 5G more spectrum, getting deployed even on an unlicensed basis, leveraging that considerable roaming opportunity that we have in front of us that we now Easy Roam in about 130 countries have globally big step for us. We're still scratching the surface in terms of data revenue on IoT machine to machine. There's an attractive opportunity for us there. We're going to drive on in terms of premium plus along the way I think you can look for ARPU growth coming from a greater percentage being on postpaid, particular leveraging pre to post migrations along the way. We are going to be smart in the way that we bundle looking higher percentage of our base on two year share plans along the way.

In a world where data consumptive appetite is almost insatiable it's a real characteristic consumer behavior in North America. We're going to continue to look to upsize data packages and benefit from that along the way and I'm hoping that 2018 will reflect in all they continued cadence in terms of the 28 quarters of ARPU accretion that we've enjoyed thus far. And then the thing that we don't talk and enough about but what we need to is the duality of the focus on AMPU to go with ARPU. The same way and visually and historically it was a necessity to take cost out of our business on the wireline front both to deal with you know price reductions and margin compression and so fun growth initiatives such as our fiber deployment, we've got to do the same thing on the wireless side of the business as well. And I think we're well placed to do that with the technology progression TELUS digital transformation and leveraging our asset on the GI front.

And then lastly, in terms of what to look forward to support the growth in 2018 is continued strong performance from our emerging business on TELUS Health and TELUS International, which is really a tale of two cities for us in 2017. TELUS Health had a terrific year operationally and financially, and TI had a very, very weak year financially, and that was due to a number of our key clients downsizing their businesses with us because of challenges that they were having within their own markets. And that highlights the need for TI to continue to deliver organic growth with new client logos along the way. It speaks to the strategic necessity for them to diversify the revenue base. We’ve got too much revenues coming from two few customers and risk management is something that needs to be at front of mind, and then making smart strategic acquisitions that we can extract value from like we did towards the latter half of last year with Voxpro and like we did this week closing the Xavient deal, which gives us a tremendous step forward on IT outsourcing which is really where the industry is going, and that's exciting in terms of both external revenue growth that it can generate.

But also what Xavient can do to help TELUS lower its cost base on the digital transformation front, supporting us on things like application development, application maintenance, quality assurance as it relates to information technology and systems. One thing I would say for you to be patient about when you're looking at wireline margins in 2018, they'll get modestly pressurized. We will see the revenue and the EBITDA growth that will be modestly pressurized because the maturation of Voxpro and Xavient given they have a reasonable mass to them within that TI fold is not the same level of maturation that we have at TI more holistically. Yes, TI is still a growth business, but it's a little bit further along the EBITDA margin curve then Xavient and Voxpro. So that’s going to be developing story for us over 2018 and I would expect that to deliver significant margin expansion in 2019 and beyond as they deliver significant EBITDA growth with those two acquisitions and the margin accretion that goes with it.

So that’s kind of thumb nail sketch what we're expecting in 2018, good volume, continued modest ARPU growth will deal with the exogenous shocks along the way in terms of competitor activity. We always have and we do it very well and that continue to leverage some exciting emerging growth story within the TELUS portfolio.

Greg MacDonald: Okay. Thanks for that. Can I ask a quick follow-on? If you're able to hit the higher end of the guidance range on EBITDA, does that suggest that there's an opportunity to move up toward the higher end on the dividend growth guidance? Or are issues like spectrum auction and balance sheet still getting factors on that front? Thanks.

Darren Entwistle: So I think the best thing I can say to on that Greg is, we gave you a guidance range and dividend growth 7% to 10%, so it says that anything is possible between the 7% and 10%. I think we've got a pretty good track record in terms of delivering against expectations in that regard, but doing it on a responsible basis. And the two factors that are going to determine whether we're going to be closer to 7% or closer to 10% are the EBITDA growth component and to the extent to which we’re at the higher end of the EBITDA range that support us being at the higher end of the dividend growth range. And that correlation I think is an important piece of transparency for you to understand, so that would be parameter number one. And then parameter number two is affordability.

And that’s something that we've discussed along the way. As we've gone through that free cash flow negative period as we have financed that our broadband builds on both wireline and wireless, and now as we have forecasted to you, we are going free cash flow positive in 2018 and we expect that to be a chronic case prospectively normalizing for spectrum auctions along the way. So increasingly the affordability is constantly improving in terms of the dividend accretion that we want to deliver to you and I think that’s a developing good new story for this organization as we have forecasted.

Greg MacDonald: Very helpful. Thanks very much.

Darrell Rae: Thanks Greg. Mike, next question.

Operator: Yes. The next question comes from Jeff Fan from Scotiabank. Please go ahead.

Jeff Fan: Thank you and good afternoon. One housekeeping question and then a more big picture question. Housekeeping is just regarding your guidance for 2018, can you help us parse out some of the contributions from acquisitions on both the revenue and EBITDA line, just so that we can get to an organic number. And then the bigger picture question is for Darren. I guess one of the assumptions that we've always kind of looked at amongst the national wireless operators, is the networks their quality historically anyways may have been similar to each other.

But based on the network test that we are seeing now and based on the results that we're seeing and based on some of your competitors at least one of your competitors investment that they're making on the network? Are we starting to see that GAAP materializing to a point that is contributing to potential leadership and shares that may not have been there in the past? And then more importantly, whether you think this can maybe translate to a leadership position as well in 5G?

Darren Entwistle: So on the first one is that we had mentioned next quarter. We would give more insight to TI and Health, and so your first question on the organic versus acquisition side of TI will be a little – will be more at that time. So I’m going to not highlight that today, but we’ll definitely bring that back when we have the updates on more information on TI and Health at that stage

Jeff Fan: Okay.

Darren Entwistle: So firstly, Jeff as I said in my opening comments, if you look at Canada holistically in terms of infrastructure and technology, and this would be true across both wireline and wireless, but our focus on wireless for the moment, I think the portfolio of wireless networks that we have in Canada are second to none when it comes to quality and speed. And you can see the results of the speed test, but what's great about Canada is that when we deploy new technologies.

We don't just do it in urban centers. We do it pervasively, which is why we've got greater than 99% coverage on the LTE front. And if you look at the functionality of those networks combined with speed and coverage, and the reliability of the networks, when you think about in a performance on an access failure rate at point of view, a drop call rate point of view, latency in a symmetrical digital world, I mean we're top of the top quartile as a country in terms of in a wireless network performance and people continue to undervalue how much that actually matters to our country. Firstly, when you look at the demographics and the topography of our nation, we need technology, the bridge time and distance and to empower both our society and the competitiveness of our private sector and so it absolutely critical for us in terms of the vibrancy of our digital society, answering social challenges on health education and the environment, where technology, our technology has got a key leadership role to play in that regard. And it's our industry that underpins the innovation and the competitiveness of the private sector.

I think for TELUS, we've done exceedingly well because the same reason that you guys asked me a few years ago, why are you guys ahead on the customer service upfront. And I said, yes, we do some things that are different, yes our culture is key and yes we put our money where our mouth is in that regard. But one of the strongest factors is we set a strategy years and years and years ago and we kept at it with that consistency and that discipline of that focus that yielded benefits down the line and a lot of times organizations don't have that consistency and that discipline and stick with it and that was a massive differentiator along with the other factors for us in customer service. And the same is true as it relates to in a broadband technology. We've been on this page forever putting our money, where our amount is? Whether it's 3G, or 4G, or 4G plus or in the 5G progression or the best that we make in deploying fiber, into our access network at a magnitude over the pace that is significantly greater than what you would see in amongst our peers because we believe in that particular development.

The other thing that it was clear to us years ago and making that dual investment across wireless and wireline was the synergistic nature of the fiber 5G combination that I'll get to just a second but for me it really maybe economics work because now it wasn't just technology to grow revenue having to take cost out to improve your profit your differentiation along the way. But now we're going to get great scope economies across wireline and wireless and what also support all those future services that we wanted to deliver end of the connected home such as what’s transpiring now with help and with security. So we have made these bets whether it's fiber two you know ourselves side on wireless to increase the speed a lot of people don't appreciate that the preponderance and performance frequently within a wireless network is determined by the wireline network and the bandwidth of the wireline network that does the back hall of the wireless traffic or the front haul delivery along the way. We were there doing cell site densification we were there aggressive on the deployment of spectrum. We were there deploying [indiscernible] just every single step of the way in terms of tuning our network from a performance perspective and we just thought it was the right thing to do.

And we do think that it matters. So when we look at our customer retention and our ARPU growth at the end the day we believe in a world where consumer behavior is hugely data consumptive. Where our marketing thesis is focusing on quality you know not just quantity so very much a smartphone bend, if you’ve got the best network in that data consumptive world and you’re armed with people with the latest high quality smartphone a device so leverage that data. If you've got the fastest speed if you've got the best coverage you know people wherever they may go and if you need to way and reliability and by the way the most important statistical parameter of likelihood to recommend is reliability if you can nail that up together then, yes, I think it's going to make it difference. It's going to make a difference in usage that will show up in your ARPU and it's going to make a difference in choice that's going to show up in your client loyalty along the way.

The other thing that we've done that I think is might be differentiated as we continue to leverage our network sharing agreement. That's terrific for us that have that network sharing agreement because in terms of speed to market with new technology, it’s advantages. We get great economy through the geographic segmentation of the Bill responsibility and leveraging two labor pools while they have been just ones we can deploy new technology twice as fast along the way. But also we get great economics out of that network sharing agreement for us it's a strong differentiator both within the urban environment and within non-urban coverage along the way. And then lastly, we've said all the way along it's a synergistic story right we've not talked about the greater segmented broadband on wireless separate from wireline we talked about why there synergistic together and I won't cover that again because of spoken about it on previous calls, the criticality of broad fiber deployment to support the highly intensify to apology that you're going to have within your 5G microcell environment.

And it’s encouraging [indiscernible] coming we did a lab test this year on the 5G or we did a press release and when we started getting 28-gig to 30-gig to speed on 5G. I think it's pretty telling in terms of what type of competitor package that's going to be for this organization prospectively. And then a last component it is integrated kind of being more and more ahead in terms of putting things the chance of the broadband build behind us, passing that 50% threshold on fiber and more of the civil, costs and the access medium cost in a rearview mirror rather than a prospective responsibility and burden to our balance sheet. I think that's going to do great things not just for our competitiveness but for our chronic positive free cash flow generation for many, many, many, many years.

Jeff Fan: Thanks Darren.

Darrell Rae: Thanks Jeff. Next question Mike.

Operator: All right. Next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Simon Flannery: Great. Good morning, Darren. How are you? Thanks for the network commentary there. We just pick up and one of the things you mentioned was getting ready for 5G. There has been a lot of developments here in the last few months in terms of getting the standards.

It seems like the chipsets and the handsets and other devices are starting to roll and we've got a lot of debate about what the right way to attack the market initially is whether it's fixed broadband using microwave spectrum or whether it's lower end spectrum IoT. What are your latest thoughts both on the use cases for 5G and how we should expect TELUS to start rolling that out? Thanks.

Darren Entwistle: So I think in terms of 5G rollout period, I’ll give you sort of a broad boundary on it. Developments are taking place now from a preparation point of view, but I think the activity will be heightened between the second half of 2019 and the 2020 financial year, so that’s kind of 18-month period in terms of the Nexus on 5G deployment and accretion. In terms of the spectrum parameter components, my response there is all of the above, the single band frequencies deployed within the 600 megahertz zone for obvious reasons in terms of coverage and signal propagation and in-building penetration.

I expect to see unlike the U.S., the 3.5-gig 5G ecosystem developed within the Canadian context and we will also be deployed as a millimeter wave spectrum whether it's 20-gig in the 40-gig vicinity or the 65-gig to 70-gig vicinity. It will be horses for courses type deployment. And what you can expect to see is a level of macro, micro network heterogeneity, wireline, wireless network heterogeneity and a multiplicity of spectrums deployed almost in a concatenated view to deliver the optimal client experience and I think we are well positioned for all of the above.

Simon Flannery: Great. Thank you.

Darrell Rae: Thanks. Next question.

Operator: Next question comes from Vince Valentini from TD Securities. Please go ahead.

Vince Valentini: Yes.

Thanks very much. Darren, you were asked earlier about sort of the market conditions in Q4 and in December. Can I just ask specifically though, I mean your churn remains very impressive, but obviously it ticked up 1 basis point year-over-year. Is it fair to conclude that why you had great gross adds during December 14 to 19 in that period of heightened promotional activity your churn may have spiked up a little bit, so if you x-out that period, we would have seen a consistent trend of postpaid churn declining?

Darren Entwistle: Yes. I'm kind of grumpy because it wrecked our average for 2017 since I wanted to be below 0.90.

So yes, that would be a correct assumption despite the fact that nets were up 39% despite the fact that postpaid growth was up 17%. Yes, we indeed have churns spike.

Vince Valentini: Okay. And one – other one, I don't think you covered this in your network commentary a second ago. I mean we're hearing more about LTE-based services delivering up to 1-gig speeds even before we get to 5G.

If that kind of thing is possible or are you at the point of having to rethink how much fiber-to-the-home is really necessary versus maybe just fiber-to-the-curb and tons of many hotspots or cell sites and then beaming signals over the last couple 100 meters just with wireless and maybe saving some CapEx?

Darren Entwistle: Maybe. The horses for courses comment was key. We've always lived with heterogeneity within our network, so we had deployed simultaneously ADSL2, VDSL2, Ethernet to the suite, GPON. All those things were happening concurrently within our network. So now we've got an access mechanism that we can deploy scale.

The technology is robust, it's complimentary to the fiber build that meets the expectations and needs of the clients. We will continue to evaluate those along the way. But one of the things that’s important whether it's LTE or 5G, you still have to have fiber deployed deep, deep, deep into your access network and that’s where the big costs are. It's not so much in the electronics or as it relates to the optical line terminating equipments, it's in the civil component where you have the preponderance of those costs. And then laterally, if you just take your thesis and exploited further, I think it's really interesting because it leads it very well and how far we go on our fiber build.

We are passing 50%. Do we go to 60% in stock, 70% in stock and then use wireless as an access mechanism. I think it's fantastic to have that optionality whether it's LTE or 5G and we're going to have fiber one way or the other deployed deep into our access layer, whether we bring it to the prem or leave it at the curb, I think that's an economic choice that will make at the time contingent upon our value proposition, our economics and the needs of our clients. So I couldn't picture as the better position in that regard.

Vince Valentini: Great, thank you.

Darrell Rae:
.:

Operator: All right, last question comes from Maher Yaghi from Desjardins. Please go ahead.

Maher Yaghi: Thanks for squeezing me in. I wanted to ask you, Darren about – your views about the wireless pricing and in Canada, do you wonder why would an incumbent wireless provider reprice their products to a level that makes it more clear to more people that they're over price compared to a new entrant. What's the strategy behind doing something like that in a very, very active season such as the holiday period? And the second question I wanted to just follow-up on is your assumptions for your targets for 2018 are based on economic expectations for growth in Canada, but that are than and what actually transpired in 2017.

Yet your guidance is for organic growth or growth that you are planning to post that is higher. Is it – can I go on a tangent here and I and I say the differential between your guidance growth in 2017 and 2018 is mainly acquisition related?

Darren Entwistle: No, I think that would be the wrong conclusion. So the acquisitions that we’re doing will be complementary, but the growth is related to strong wireline performance in an improving competitive dynamic that I think you're all aware of that I’ve already spoken about and increased coverage of our fiber build is related to continued wireless momentum in terms of both volumes and modest ARPU accretion along the way is related to costs efficiency measures that we’re booking as the TELUS organization and it’s leveraging the emerging businesses for us in TELUS Health and TELUS International. So it would be a wrong conclusion to assume that these results are unduly plotted on the acquisition front that will be a deeply erroneous conclusion. It’s a greater contributor, but it’s secondary to the organic performance on wireline for the reasons cited side, wireless for the reason cited and the emerging components all combined with cost efficiency.

Maher Yaghi: Thank you for that. And maybe the first question about pricing in wireless…

Darren Entwistle: I was really hoping that you'd forgotten about the first question, and we could just conclude the call right there. I can’t comment on that, Maher. I just I can't do that – I mean I think that you've got resources to go find answer on that question. But I just don't think it's appropriate or ethical for me to comment on it.

What I did say, which I think is really important is that we've seen a lot of exogenous shots competitive, new competitors you know, price changes in the marketplace over the last 17 or 18 years. We've seen equity in credit market. We've seen regulatory impact and TELUS’ whether all of those rights and delivery gate expectations for investors. I think that what you can count on from our prospectively in 2018 and beyond and it is a fantastic characteristic of our organization and I really do believe that in my heart of heart the reason why we have such a strong survivability is because quarter tenant like being that on customer service or having that most pervasive broadband technology deployed that delivers for the clients, experience and the best people and culture. Those are the things that help you overcome those challenges and interruptions along the way and I think that the most important component of our story for investors to understand.

Maher Yaghi: Thank you on the great job, on the build out in 2017.

Darren Entwistle: Thanks for your comments. Appreciate that. End of Q&A

Darrell Rae: Thanks Maher and Thanks everyone for joining us today. If you have any follow-up questions, feel free to contact the Investor Relations team.

On behalf of Darren and Doug, thanks for joining us today. Take care.

Operator: Ladies and gentlemen, this concludes the TELUS 2017 Q4 earnings conference call. Thank you for your participation and have a nice day.