CEO letter to investors

Achieving our 2005 corporate priorities

Each year, we focus our efforts on corporate priorities that drive the collective efforts of our team in support of our growth strategy and the underlying strategic imperatives that define it. What follows is a summary of our performance against these priorities.

1 Enhancing our leadership position in wireless
Our wireless operations continued to excel in 2005, leading the industry in many areas and significantly contributing to TELUS’ overall growth in revenue and earnings. In fact, TELUS has been ranked as the best-performing wireless operator in North America in an independent assessment by N. Moore Capital and Associates out of New York.

Your company’s wireless division exceeded expectations in 2005, generating a record number of new subscribers (584,000) and achieving 17 per cent revenue growth. Our wireless segment’s excellence in marketing operations, client care and network performance has led to an industry-leading average revenue per customer, operating profit growth and cash flow yield, as well as one of the best customer loyalty and retention rates in the global wireless industry.

In August, we introduced TELUS mobile TV, giving customers access to television on their wireless handsets. We also introduced a new national wireless high-speed network, based on the EVDO (evolution data optimized) standard, which offers business customers the ability to transfer data at speeds at least six times faster than the previous TELUS transmission rate. Innovative solutions like these are a catalyst for continued wireless data growth.

2 Leveraging our investments in high-speed Internet technology
High-speed Internet continues to be the platform for TELUS’ Future Friendly Home services, providing secure connectivity to the world. In 2005, we added 73,000 high-speed Internet subscribers, bringing our total Internet base to 1.0 million. Whilst these results were hindered by the labour disruption, TELUS expects to regain momentum in 2006 and we expect to add more than 100,000 high-speed customers in 2006.

In 2005, TELUS expanded its suite of Future Friendly Home services from mobility and security to entertainment. TELUS TV delivers differentiated customer choice without resorting to price discounting. We began a phased neighbourhood roll-out in Edmonton and Calgary of our innovative TELUS TV service, ushering in an exciting area of growth for our company. Further expansion of TELUS TV will continue on a targeted basis through 2006.

We entered into a $110 million agreement with the Government of British Columbia to connect 119 communities to high-speed Internet and to expand broadband services. In addition, we secured a new master services agreement with the Government of British Columbia, our largest customer, and its Crown corporations. The agreement is projected at $245 million over four years, with options for three more years.

3 Accelerating wireline performance in Ontario and Quebec business markets
We continue to pursue the significant growth opportunity that exists in the Ontario and Quebec business markets. Our leading-edge IP network and managed data and IP solutions provide business customers with new and tailored solutions to meet their business needs. Our non-incumbent business revenues increased by 13 per cent to $632 million in 2005 and, for the first time, generated positive full-year EBITDA of $21 million.

During the 2005 financial year, your company gained a number of new large multi-year customers including Hamilton Health Sciences, Government of Quebec, Intrawest Corporation and Best Buy Canada.

4 Growing brand value by delivering a superior customer experience
Delivering exceptional customer care continues to be of paramount importance. In our wireless business, we have consistently achieved high levels of customer satisfaction as evidenced by our very low churn rate of only 1.4 per cent in 2005. Moreover, TELUS’ performance in customer loyalty and retention has been at, or near, best-in-class in the North American wireless industry consistently for the past five years.

In our wireline business, customer service levels remained higher than expected during the labour disruption due to the strength of your company’s contingency plans and the dedication of our team members. Given the flexibility the new collective agreement has established and a united focus on serving customers, TELUS is positioned to deliver superior customer service going forward.

5 Reaching a new collective agreement
Reaching a collective agreement after a four-month labour disruption was a significant milestone for TELUS and heralds a new constructive era for our team.

The new five-year agreement provides increased operating flexibility and productivity, focuses team members on our core business, and facilitates better service for customers in an increasingly competitive marketplace. It fosters a culture of high performance with universal variable pay, which rewards team members when certain performance metrics are met, and encourages advancement based on merit as well as seniority.

The agreement also establishes a new paradigm for labour relations. For example, the company and the union have agreed to work together to withdraw various legal proceedings between the parties. As well, a Common Interest Forum has been established as a mechanism for cooperation and dialogue.

6 Driving continual improvements in productivity
TELUS’ continual drive towards operational efficiency and effectiveness was impacted in the second half of the year due to the labour disruption. Our original 2005 goal of investing $100 million in restructuring costs was halved in 2005 and the goal was reset for 2006 to the aforementioned amount.

The new collective agreement put in place in November and the recent integration of our wireline and wireless operations provide TELUS with opportunities for productivity and cost efficiencies going forward. For example, we can institute best practices, contract out non-core activities and continue to consolidate operations.