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AR 08
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Questions & Answers

Q What is TELUS' rationale and approach towards operational efficiency in the current business environment?

ADue to the nature of our industry, operational efficiency must be a way of life for TELUS and has been since 2001. As a result of technological substitution (e.g. wireless devices replacing home phones) and competitive pressures, some parts of our business are in decline – the local and long distance business and legacy data products are examples. This causes downward pressure on revenues and profit margins. To compensate, we must curtail costs and redeploy resources to growth areas within the company.

In addition, we must continue to maintain healthy profits and cash flow, to fund our core strategic growth initiatives that sustain our future performance. While many of these investments have negative cash flow in the short term, they are designed to create long-term value for shareholders. These include the wireline broadband build supporting the sale of high-speed Internet and TELUS TV services, and our next generation wireless network and technology evolution to fourth generation (4G).

Finally, in the current economic and capital market environment, the company is wise to ensure it is efficiently run so as to be able to absorb pressures from these challenging conditions. All this leads us to the simple fact that we must maintain profit margins and fund our strategic growth initiatives, in part, through the internal efficiencies that are available to us. Notably, this is one of our key corporate priorities.

In the second half of 2008 and into 2009, we have intensified our operational efficiency program through a series of initiatives. We are focusing on a number of key areas in 2009 including streamlining and integrating certain business units, centralizing our procurement and vendor management activities, and containing compensation and benefits-based costs. We are also reducing discretionary expenses including contractor and consulting costs.

Reflecting the increased focus on efficiency improvements, we tripled our restructuring costs to $59 million in 2008 and have a target of $50 to $75 million for 2009. In one to two years, these investments in restructuring are expected to contribute positively to earnings.

For 2009, the TELUS team is focused on achieving this corporate priority to help advance our national growth strategy in a responsible manner so as to ensure a strong future for all our stakeholders.

Message from CEO

Hear about some of TELUS' accomplishments from 2008 and how we are continuing to advance our national growth strategy for today and tomorrow.

Robert McFarlane
Robert McFarlane

Executive Vice-President
and Chief Financial Officer

Bob
Q What are the benefits of your decision to build an HSPA 
wireless network?

AThe question is best answered by discussing TELUS’ planned evolution to 4G wireless tech nology. Current 4G technologies are based on orthogonal frequency division multiplexing (OFDM) as the underlying modulation scheme, which is particularly well suited to data transmission. As many of our investors know, TELUS takes great care in evaluating technologies, looking at not only the technology but also the resulting ecosystem that will emerge to support devices and services.

Thus, after an exhaustive strategic and financial analysis, TELUS chose long-term evolution (LTE) for our 4G network over WiMax and ultra mobile broadband (UMB). We believe LTE is the right decision as WiMax will likely be more of a niche network in nature and UMB, the CDMA2000 4G path, has since been cancelled.

Having made our 4G choice, TELUS considered the possible options on the path towards LTE and selected an interim step − to build a national next generation high-speed packet access (HSPA) wireless network with an expected launch of service by early 2010. This step is to facilitate an optimal transition to LTE technology as it becomes available in several years. Overall, we believe this decision strengthens TELUS’ competitive position in the Canadian wireless market.

For our customers, the new network has many advantages. We expect it to augment our existing wireless services with:

  • A larger selection of innovative new devices and applications unmatched by any competitor in Canada
  • Faster next generation data speeds with robust network reliability
  • Enhanced international roaming that will improve our customers’ service experience while travelling.

For TELUS, the new network is expected to offer cost efficiencies through access to global economies of scale in network equipment and handsets, and new revenue opportunities as we address additional market segments and capture incremental revenues from international roaming.

Importantly, TELUS is sharing the new network build by enhancing and extending an existing relationship with Bell Canada to lower the capital and operating costs, improve the economics, accelerate the deployment of the network and maximize the geographic coverage. We have also chosen two suppliers, Nokia Siemens Networks and Huawei Technologies, and have assured ourselves of very competitive pricing.

While HSPA represents an exciting evolution in our multinetwork strategy, we will continue to operate our CDMA and iDEN networks as we transition to LTE technology in the longer term. This approach is aimed at providing clients with the widest choice of wireless solutions that will best meet their needs, and enhances our ability to compete for new customers.

Over the years, we have evolved our current networks through several well-executed and capital-efficient technology upgrades, delivering enhanced customer services and driving innovation in the industry. With this newest initiative, we are on track to do so once again.

Message from CEO

Hear about some of TELUS' accomplishments from 2008 and how we are continuing to advance our national growth strategy for today and tomorrow.

Eros Spadotto
Eros Spadotto

Executive Vice-President, Technology Strategy

Eros
Q How is TELUS responding to increased competition in order to increase market share in highspeed Internet and TELUS TV?

ATELUS is laying the foundation for future success with continued expansion and enhancements to our broadband network across our largest markets of Edmonton, Calgary and Vancouver to provide even higher Internet speeds and the capability for more services.

We have made significant investments in developing a robust and scalable IP TV service in Alberta, B.C. and Eastern Quebec over the past several years. During this time, our focus has been on maximizing the quality of the client experience, supported by a TELUS team that is passionate about continuous improvement.

In 2008, TELUS delivered significant enhancements to TELUS TV including:

  • Improvements to set-top box middleware and the client experience
  • A notable expansion of high-definition (HD) availability to 75% of our TV-eligible households
  • Continued HD channel line-up growth
  • The launch of personal video recorder (PVR) service in December.

Based on these efforts, we gained momentum with higher customer additions in Edmonton and Calgary where our TELUS TV deployment and marketing efforts were largely focused during 2008. By the end of 2010, we look forward to significantly expanding the number of households eligible for our TV services.

While TELUS clearly benefits from competing in one of the most successfully penetrated high-speed Internet markets in North America, there is a heightened necessity to effectively use bundles to grow market share at this stage.

TELUS’ bundling strategy centres on our Future Friendly Home suite of services. Combining local and long distance, high-speed Internet and entertainment services, we are increasingly offering bundled products and services to achieve competitive differentiation that provides our customers with more freedom, flexibility and choice. TELUS’ Future Friendly Home strategy positions us to grow wallet share with consumers, while enhancing retention and loyalty through multiple service offerings.

To realize this opportunity, TELUS is continuing the expansion of fibre to the node (FTTN) technologies to support the sale of a full suite of Future Friendly Home services in Vancouver, and most cities within our traditional markets, by the end of 2010. This significant investment will enable both material geographic expansion and the deployment of VDSL2 technology to support enhanced connectivity speeds and higher bandwidth entertainment applications such as high-definition TELUS TV. In addition, there is considerable effort underway to continuously improve the quality of our clients’ experience and reduce support costs. The implementation of our new order entry, billing and customer care system, completed in 2007 and 2008 in Alberta and B.C, is key to this effort.

With this foundation in place, the next two years will see a focus on delivering a number of client service enhancements leveraged across a much larger base of homes capable of accessing all our Future Friendly Home services. This will leverage the considerable marketing and operational expertise of the TELUS team, ensuring we deliver a superior compe titive value proposition to clients in Alberta, B.C. and Eastern Quebec.

Message from CEO

Hear about some of TELUS' accomplishments from 2008 and how we are continuing to advance our national growth strategy for today and tomorrow.

John Watson
John Watson

Executive Vice-President & President, TELUS Consumer Solutions

John
Q Given TELUS' recent successes in Central Canada, how do you plan to sustain the momentum?

AThe TELUS team in Ontario and Quebec continues to make good progress in Central Canada. Our investments in network connectivity, IP applications and managed services have been opening new opportunities in the Central Canadian business market for our integrated IP-based solutions. TELUS is seizing this opportunity by targeting customers in four key industry verticals (the public sector, healthcare, financial services and energy) as well as focusing on the underserved emerging and medium-sized business segments. While the strategy entails initial cash outflows and then building revenues and profit, these multi-year contracts are all geared to driving an attractive return on investment over time.

Our sales success is not just about technology. It is also based on a consultative sales and service approach that focuses on building strong client relationships and providing thought leadership. We aim to create loyalty and trust by differentiating ourselves, by first thoroughly understanding our clients’ business and their needs and only then delivering innovative solutions.

The addressable annual market for healthcare, including public and private spending and business process outsourcing, is approximately $3.5 billion and is estimated to be growing at 7% annually. TELUS acquired Emergis in early 2008 to complement our existing healthcare technology solutions. Later in the year, we combined all of TELUS’ healthcare solution assets under the newly launched TELUS Health Solutions brand. TELUS has committed $100 million over three years to invest in healthcare solutions, ranging from electronic health records management and health insurance processing to pharmacy management and home care. TELUS’ Integrated Bedside Terminal solution exemplifies the new world of IP-enabled healthcare solutions − it delivers both entertainment for patients and access to medical information for healthcare workers. This solution accesses information across both a hospital’s local network and TELUS’ wide area networks. In fact, the Information Technology Association of Canada named TELUS the 2008 Health Company of the Year for demonstrating excellence in the Canadian health informatics industry.

Our momentum in healthcare is being driven by the escalating needs of Canadians and associated costs that governments are trying to address with more efficient use of healthcare information. Notably, the January 2009 federal government budget earmarked $500 million for Canada Health Infoway, a program to assist healthcare agencies achieve the goal of having electronic health records for 50% of Canadians by 2010. TELUS is well positioned, with multiple health IT platforms, systems and solutions, to participate in this evolution of healthcare delivery in Canada.

TELUS is pursuing the financial services industry with a similar focus on business value, for example by helping financial services organizations use wired and wireless technology to deliver a better experience for their customers. One such solution is the TELUS Mobile Banking system, which provides bank customers with access to secure information and account management using their mobile devices, via text messaging or mobile web services.

In the public sector, TELUS has won large multi-year contracts by focusing on innovative IP-based networks that provide a foundation for an entire generation of new services. Examples of significant managed data contract wins in the public sector are the Government of Ontario, Department of National Defence and, most recently, the Government of Quebec.

Another important element to maintain momentum is to ensure we build on our implementation track record, which creates positive referrals and ongoing contract bid success. While most implementations go smoothly, we are always striving for continuous improvement. In 2008, we consolidated three business units into two to make deployments of technology more effective and we increased our focus on project implementation processes to identify learnings that can be applied across other such projects.

In the small and medium-sized business space, TELUS has countered growing competition by continuing to tailor our solutions and services to the unique needs of this critical segment, and by leveraging our market leading suite of smartphones, mobile applications and converged wireless and wireline solutions.

In short, the TELUS team is focused on developing and successfully delivering differentiated customer solutions. Our future success and growth will build upon the strength of our Ontario and Quebec operations. We continue to look ahead to our future – making sizeable investments to evolve our technology and thought leadership − to build lasting relationships with our clients that will continue to support their success and TELUS’ long-term profitable growth.

Message from CEO

Hear about some of TELUS' accomplishments from 2008 and how we are continuing to advance our national growth strategy for today and tomorrow.

Karen Radford
Karen Radford

Executive Vice-President and President, TELUS Québec and Partner Solutions

Karen
Joe Natale
Joe Natale

Executive Vice-President and President,
Business Solutions

Joe


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