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3. key performance drivers

To focus on the opportunities and challenges, and to create value for shareholders, TELUS sets corporate priorities each year. As TELUS' business focus remains constant, the corporate priorities for 2005 continue the themes from 2004:

3.1 Enhancing TELUS Mobility's leadership position in wireless

In 2004, TELUS Mobility continued to lead the Canadian industry with the highest average revenue per subscriber unit per month (ARPU) of $60, while maintaining one of the lowest churn rates in North America at 1.40%. TELUS Mobility EBITDA margin increased to 40.3% in 2004, from 34.3% in 2003. As a result of continued EBITDA growth and steady capital expenditures, TELUS Mobility generated substantially improved cash flow (EBITDA excluding restructuring less capital expenditures) to a TELUS Mobility record of $787.5 million or 30.3% of Network revenue, as compared with $455.5 million or 20.9% of Network revenue in 2003.

For 2005, TELUS Mobility plans to maintain its leadership position in terms of the financial and operational performance of the wireless business, in the recently consolidated Canadian wireless marketplace with three national players. Innovative products and marketing, strong brand, and superior customer service and retention programs should once again fuel top-quartile industry growth in revenue, profitability and cash flow. TELUS Mobility is targeting 2005 revenue growth of 14 to 16% and EBITDA growth of 18 to 23%. These are being driven by expected wireless subscriber growth of 425,000 to 475,000 and continued margin expansion from improved scale efficiencies. TELUS Mobility expects 2005 capital expenditures of $350 to $400 million to be focused on capacity improvements as well as network and efficiency enhancements and possible investment in 3-G technology. TELUS Mobility cash flow is expected to increase to approximately $1.0 billion in 2005.

Wireless revenue and EBITDA as a proportion of TELUS consolidated results are expected to be approximately 41 and 42%, respectively, in 2005. This compares with 28 and 21%, respectively, in 2002.

3.2 Leveraging investments in high-speed Internet technology through Future Friendly Home services in B.C., Alberta and Eastern Quebec

In 2004, TELUS added 128,100 high-speed Internet net additions, and introduced new services as part of TELUS' digital home strategy, as described in Core business, vision and strategy. In 2005, TELUS' target is to add approximately 100,000 high-speed Internet subscribers, down from 2004, a result of the high level of high-speed Internet adoption in Western Canada (approximately 50% of households), and despite an expected increase in competitive activity. In February 2005, a cable-TV competitor in TELUS' Western incumbent markets launched cable-based telephony services in Calgary that would roll out to additional markets over time, focusing on bundled television, Internet and digital services. TELUS has a broadcasting distribution licence to offer digital television services in select communities across Alberta and B.C., as well as a licence to offer commercial video-on-demand services. By using TELUS' existing high-speed infrastructure, these licences could enable the Company to compete with cable-TV companies and satellite service providers for TV entertainment services. TELUS is testing and evaluating these services for possible launch in the future.

3.3 Accelerating wireline performance in Ontario and Quebec business markets

In 2004, TELUS Communications revenue experienced a small annual decrease of 0.3%, with positive growth in the last two quarters of the year, compared to a 4% annual decline in 2003. In 2005, wireline annual revenue is expected to decrease between 0.4 and 1.5%. The Company is addressing the challenges the wireline industry faces in two ways. The most significant growth opportunity for TELUS is in non-incumbent operations, focused on business and government markets. TELUS is exploiting the competitive head start it has in managed data and IP solutions, utilizing its already-built next generation IP network, to secure recurring data revenues in Ontario and Quebec. In 2005, the Company expects to generate $600 to $650 million in non-incumbent revenue, a significant $39 to $89 million increase, and for the first time deliver positive operating earnings on a full year basis.

Another important element of the Company's wireline revenue growth strategy is the TELUS Future Friendly Home initiative in incumbent operations. TELUS offers a suite of integrated, advanced digital and wireless services that are easy to use, and that leverage significant investments in high-speed Internet. Two new services, TELUS Home Networking and TELUS HomeSitter, were launched in 2004. TELUS plans to launch new retail consumer solutions, which may include VoIP and IP TV in 2005, to continue enhancing the Future Friendly Home portfolio.

3.4 Growing brand value by delivering a superior customer experience via leading IP solutions and excellence in customer care

In 2004, TELUS focused on improving its customer service levels, as evidenced by improved levels on wireline service indicators and by continued low levels of churn at TELUS Mobility. New systems for the Communications segment, from order entry to billing, customer contract and information management, are expected to help improve customer service in the future. By delivering innovative IP and wireless solutions, and by consistently striving for customer care excellence, TELUS aims to strengthen the power and effectiveness of its nature-based national brand.

3.5 Driving continual improvements in productivity across TELUS

Various initiatives were undertaken in 2004 and are planned for 2005 to constantly improve and institutionalize a cost-conscious mindset throughout the organization.

3.6 Reaching a collective agreement

Reaching a collective agreement remains a priority in 2005. The recent decision by the Canada Industrial Relations Board (CIRB) overturning its year-old binding arbitration order returns the parties to the collective bargaining process. Every effort will be made to achieve a long overdue resolution to these negotiations, which first commenced in 2000. The status of certain CIRB decisions and related appeals in 2004 follows.

Appeal for reconsideration of CIRB Decisions 1004 and 271

In February 2004, TCI filed applications with both the CIRB and the Federal Court of Appeal seeking a review of the CIRB's earlier decisions, which imposed a communications ban and required TCI to offer binding arbitration to the Telecommunications Workers Union (TWU). On April 8, 2004, in Decision 271, the CIRB rendered the full reasons regarding the complaints that led to its earlier decisions. The CIRB imposed a further communications ban on TCI, prohibiting communications with bargaining unit members on matters of employment and collective interest until such time as the conditions of the Canada Labour Code with respect to gaining the right to strike or lockout had been satisfied. TCI then sought reconsideration and a judicial review of the CIRB's April 8, 2004 decision. The Federal Court of Appeal granted TCI a stay of its judicial review application until the CIRB issued the reconsideration decision. The CIRB issued a summary decision on February 2, 2005, overturning its previous ruling that imposed binding arbitration. In addition, the Board set aside the April 2004 broad communications ban, and re-instated its narrower January 2004 ban related to communications with bargaining unit team members on labour relations issues and negotiations. TCI is awaiting the CIRB's full reasons for its decision. In the interim, TCI has requested that the Federal Court of Appeal judicial review application be stayed until the CIRB issues its full written reasons for its February 2005 decision. TCI awaits the Federal Court of Appeal's determination. On February 16, 2005, the TWU filed an application in the Federal Court of Appeal of the CIRB's decision that reversed the Board's previous decision that placed the parties in binding arbitration.

Appeal of CIRB Decisions 1088 and 278

The CIRB in Decisions 1088 and 278 declared that TELUS Mobility's non-unionized team members, predominantly located in Ontario and Quebec, performing work similar to their unionized Mobility segment counterparts in Alberta and British Columbia, should be included in the TWU bargaining unit without a representational vote. TELUS Mobility's application to the Federal Court of Appeal for judicial review of Decisions 1088 and 278 was heard in October 2004. The Federal Court of Appeal dismissed the application on December 16, 2004, and TELUS Mobility applied to the Supreme Court of Canada for leave to appeal the decision in February 2005.

On February 4, 2005, the CIRB rendered a further decision to include the former QuébecTel Mobilité employees (clerical and administrative) represented by the Syndicat québecois des employées de TELUS, Local 5044 (SQET) in the bargaining unit represented by the TWU. The CIRB also confirmed that the former QuébecTel Mobilité employees (professional) represented by the Syndicat des agents de maîtrise de TELUS, Local 5144 (SAMT), would remain a separate/distinct bargaining unit continuing to be represented by the SAMT.