Dear fellow investor

At TELUS, we continue to post strong financial results generated from a growth-oriented asset mix, and again largely achieved our 2006 consolidated financial targets. As we move into 2007, we do so from a position of considerable financial strength and with an ongoing commitment to corporate disclosure and governance excellence. We are growing together – with a focus on future opportunities and creating value for our investors, customers and team members.

Growing financial strength

Our national growth strategy and execution to plan continue to result in exceptional financial performance for TELUS. This is based on a superior asset mix compared to most global telecom companies such that 63 per cent of our annual revenue profile is generated from fast-growing wireless and data services.

In 2006, our operational excellence provided robust growth in revenue and EBITDA (earnings before interest, taxes, depreciation and amortization), up $538 million and $295 million, respectively. We continued to create growth in free cash flow, up $135 million to $1.6 billion. Our decision to early redeem $1.6 billion of Notes in December 2005 contributed to lowering interest expense in 2006 by $119 million. These factors, combined with positive tax impacts, drove net income up by an impressive 60 per cent - up $422 million to $1.1 billion.

These results maintained our position as an industry leader for four years running on certain value-creating metrics. We achieved top quartile performance compared to other telecommunications companies globally, in terms of growth in revenue, operating earnings and earnings per share (EPS).

Creating ongoing investor value

The stock market reacted very positively to our mid-September proposal to convert TELUS in its entirety into an income trust. Disappointingly and surprisingly, the federal government reversed its twice-confirmed tax policy regarding income trusts at the end of October and accordingly TELUS decided not to proceed in November. While the proposed income trust conversion was value enhancing, it was a complement to, and not a substitute for, our ongoing national growth strategy. The underlying attributes of TELUS remain the same today as before, namely our premium asset mix, healthy growth prospects, strong cash flow generation and sound balance sheet.

We have maintained our long-standing commitment to balance the interests of our debt and equity holders and, in 2006, we augmented our strong record of returning capital to shareholders. For the third consecutive year, we made a sizeable increase in our quarterly dividend. Effective January 1, 2007, the Board declared a 36 per cent increase to a new all-time high of $1.50 on an annualized basis.

We also continued our share repurchase programs in 2006, buying back more than 16 million shares at a cost of $800 million. This is part of an ongoing effort to reduce dilution and increase the value of the remaining shares. Since December 2004, a total of 39.4 million shares have been repurchased for $1.77 billion. We have also implemented a new third share buyback program for up to 24 million shares that extends to December 2007. Finally, we have implemented an innovative program for the cash settlement of vested options that will result in reduced share dilution and significant cash tax savings going forward.

In 2006, we took two steps toward refinancing, at lower interest rates, a significant amount of the $1.5 billion of 7.5% Notes coming due in June 2007. In May 2006, the issue of $300 million of 5.0% Notes with a seven-year maturity was well received. We also entered into forward starting interest rate swap agreements that have the effect of fixing the underlying interest rate on up to $500 million of future debt issuance that we plan to undertake in the first half of 2007. A portion of this refinancing may be a lower-cost new commercial paper program based on our strong investment grade credit ratings.