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CEO's letter to our investors

Operational results

TELUS' sizeable investments in wireless and wireline broadband network expansions set the stage for improved operational performance in 2010.

On the wireless side, revenue growth resumed, up seven per cent, based on an increase in our customer base of seven per cent and a much improved trend in average revenue per customer, which was down only one per cent compared to a seven per cent decline in 2009. With Canada's fastest* coast- to-coast HSPA+ wireless network, Clear & Simple® rate plans and a wide array of compelling devices, we experienced tremendous growth in smartphone loading, a trend we expect to continue through 2011.

On the wireline side, we launched the Optik™ brand with Microsoft Mediaroom, a revolutionary new suite of advanced IP-based entertainment services for the home. The launch sparked a tremendous acceleration in TV subscriptions, with the customer base growing by 85 per cent to 314,000 in 2010. This growth in Optik TV, combined with our ongoing operational efficiency efforts, is helping to offset the decline in revenues and operating earnings from our legacy services. We are again expecting strong TV net additions in 2011, which will likely be accompanied by further j-curve earnings dilution from introductory promotions offered to customers. This is typical of the successful ramping-up phase of a fast-growing business and reminds me of our experience in wireless a decade ago.

Financial results

Consolidated revenue and earnings growth resumed in 2010. Growth was primarily driven by increases in the number of customer connections, the improving trend in wireless revenue per customer and the benefits of ongoing operational efficiency initiatives. Revenue grew by two per cent, operating earnings (earnings before interest, taxes, depreciation and amortization or EBITDA) by four per cent and earnings per share (EPS) by three per cent. Adjusted for non-operating items, underlying EPS growth was 15 per cent.

Particularly noteworthy for investors was the upswing in free cash flow in 2010, up by 95 per cent to $947 million due to improved operating earnings and reduced capital expenditures. The strong cash flow position and prospects for continued earnings growth allowed us to increase the dividend by 10.5 per cent last year to a record high of $2.10 on an annual basis. Notably, TELUS has delivered seven dividend increases to share- holders in as many years. The amount of dividends has tripled from $210 million in 2003 to $642 million in 2010.

TELUS has considerable financial strength and a decade-long track record of considering the interests of debt and equity holders by adhering to consistent

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financial guidelines. As a result, TELUS has been able to readily access the capital markets and in mid-2010 completed a successful $1 billion debt refinancing that will reduce future interest expenses.

The outlook for 2011 is positive with up to mid-single-digit increases in our targets for consolidated revenue and operating earnings in anticipation of further strong wireless performance. EPS is expected to experience a low double-digit increase due to operating earnings growth and lower financing costs, and free cash flow is expected to have an even higher increase.

We also have a solid track record of attaining the targets we set publicly each year. In the past decade, we have met or exceeded 77 per cent of our 48 consolidated financial targets, including three out of four in 2010.

Your company has achieved impressive results across an array of financial and operating metrics in the past 10 years, as shown above.