for today and tomorrow

Dear investor,

For TELUS, 2007 was a year of great initiatives and accomplishments, yet one of tremendous change and challenges. Through it all, we maintained a strong focus on advancing our national growth strategy. We are continuing to invest for the future while creating value for our investors, customers, team members and communities along the way.

2007: A retrospective

Looking back at 2007, I am pleased with the many successes our team achieved and the progress we made in maintaining a leading position in the telecommunications industry. We generated good operational results and continued to advance our strategy, notwithstanding intense competition and a changing industry and regulatory environment.

TELUS remains a leader among global incumbent telecom peers in earnings growth, investing in core business and returning cash to shareholders through progressive dividend increases and share buybacks. Operationally, in 2007 we successfully advanced our strategy with sizeable contract wins, with a focus on key business verticals, a willingness to invest for long-term growth, and a strong track record for implementing advanced data and wireless solutions.

Throughout the year, we maintained a disciplined approach to investing for today and tomorrow. Whilst we made some difficult decisions along the way, it was always with a clear view to delivering growth and value for our investors and our company.

This was evidenced in our pursuit of the acquisition of BCE, which presented an opportunity to further our national growth strategy. TELUS’ goal was to create a national telecommunications champion that could create additional value for both TELUS and BCE shareholders. In the end, we chose not to submit a competing offer to acquire BCE. This decision took many factors into consideration, including deteriorating capital market conditions, BCE’s accelerated process timeline and delays in government approval processes. Ultimately, we took a prudent and disciplined approach in determining that the risk to TELUS investors was too great to proceed.

On the regulatory front, we were encouraged to finally see Canadian carriers given regulatory flexibility and competitiveness on the wireline side of our business. In 2007, we gained approval for the deregulation of the majority of our residential and business customer base in B.C., Alberta and Quebec. Deregulation provides TELUS with a more level playing field and competitive tools not formerly in our repertoire, which positively impacts the overall client experience by providing improved bundling, pricing and marketing flexibility.

Unfortunately, the federal government reversed its course on allowing market forces to determine competitive outcomes with its framework for the wireless spectrum auction in May 2008, which includes special features that facilitate new entrants. We are obviously disappointed with this decision. Notwithstanding this, TELUS remains confident about the prospects for ongoing strong wireless growth in Canada, particularly given the relatively low penetration rate in Canada together with TELUS’ four-year track record of attracting more than 500,000 new wireless customers annually.

financial performance fuels growth

As shown in the table, since 2000, TELUS has generated significantly positive long-term performance and resulting value creation across a range of key financial and operating metrics. These strong results were achieved over a very challenging period for telecom and technology companies. Once again, this demonstrates the value of TELUS’ business strategy that focuses on the growth tenets of wireless and data in the Canadian domestic market. This strategy has produced a superior asset mix for TELUS such that 47 per cent of our 2007 consolidated revenue was generated by wireless and 20 per cent by wireline data.

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TELUS' results for the 2007 financial year were solid, with consolidated revenue surpassing $9 billion and earnings per share (EPS) increasing 23 per cent, as we generated an all-time high for return on equity at 18 per cent. This was driven by strong wireless growth of 10.5 per cent and wireline data growth of
eight per cent.

Overall, TELUS achieved or exceeded three out of four consolidated financial targets for 2007, including the two profitability targets of EBITDA and EPS. Revenue ended only one per cent below target, largely attributable to competitive pressures on wireless pricing. Our successful performance was achieved despite higher-than-expected mid-year costs in three areas – introduction of wireless number portability (WNP), implementation of a new unified customer care platform in Alberta, and the turn-down of AMP’D Mobile service due to bankruptcy proceedings of its U.S. parent.

Notwithstanding these challenges, TELUS continues to execute on its long-standing commitment to balance the interests of equity and debt holders, and to return cash to investors. This includes:

• A fourth successive sizeable increase in our dividend – up 20 per cent for 2008 to a record high of $1.80 annualized
• The continuation of our share repurchase program in 2007 that saw TELUS buy back $750 million of its shares. Since December 2004, TELUS has repurchased nearly 53 million shares for $2.5 billion
• The successful debt refinancing in March of $1 billion at much lower interest rates, providing ongoing interest savings of $33 million per year.

Our strong cash flow and balance sheet provide us with the flexibility to accomplish two goals that at many companies are mutually exclusive – to invest prudently in strategic growth opportunities and, at the same time, to return significant amounts of cash to shareholders on an ongoing basis. TELUS’ investment decisions have been consistent with our strategy over the last eight years as we concentrated on our core businesses in our domestic market, whilst simultaneously adhering to our dividend growth model and share repurchase programs.

share price volatility

After four years of double-digit share price increases, TELUS shares in 2007 were marked by a wide range of trading from the low $40s to mid $60s, ending the year down almost eight per cent at just under $50. This can be attributed to three external factors: private equity speculation and exuberance that has since dissipated; the new spectrum auction framework that facilitates new entrants; and a general stock market downturn, which continued into the first few months of 2008. Moreover, whilst TELUS delivered solid financial results in 2007, they were not the exceptionally strong results investors have come to expect from our company. The shares rallied strongly after the announcement in mid-December of our 2008 targets. These targets reflect strong revenue and earnings growth.

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On a total return basis, which includes share price appreciation and reinvested dividends, TELUS has generated a 220 per cent return for shareholders in the last five years. As illustrated in the table, it is also worth noting that, at year-end 2007, TELUS ranked second in creating share price value since mid-2000 among top global incumbent telcos. In fact, TELUS held the number one position for 105 weeks from mid-2005 to mid-2007 in terms of share price performance since 2000.

measuring our progress against a proven strategy

TELUS has maintained a consistent strategic direction since 2000 and our national growth strategy remains as relevant today as it was when we began this journey eight years ago. As well, the six strategic imperatives set in 2000 continue to effectively guide your company. The following is a brief discussion of our achievements during 2007 that are in keeping with these imperatives, including our plans going forward.