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Q

How can TELUS maintain Optik TV momentum and achieve profitability?

Joe Natale

Joe Natale

Executive Vice-President and Chief Commercial Officer

We believe the superior Optik TV customer experience, ongoing roll-out of new IP-based features and our large coverage footprint will help maintain our momentum into 2012. Despite ongoing intense competition from our major cable-TV competitors, Optik TV service continues to drive leading North American IP TV penetration gains, as demonstrated by the addition of 196,000 customers and the 62 per cent increase in our TELUS TV base in 2011.

TELUS' Optik TV service offers customers the best selection of HD channels, multicultural content and family programming. It also features differentiated services such as PVR Anywhere, video on demand, picture-in-picture browsing and super-fast channel changing that put it ahead of basic cable-TV offerings.

Optik TV service offers customers the best selection of HD channels, multicultural content and family programming.

Additionally, Optik TV service enjoys an exciting roadmap of future IP-based services supported by its Microsoft MediaRoom technology platform, used by major telcos worldwide. We continue to develop new services including Facebook on TV and, in early 2012, Optik on the go, which enables customers to watch on-demand movies and shows anywhere, anytime on a 4G or Wi-Fi-enabled laptop, tablet or smartphone. In February, TELUS also became the first TV provider in the world to offer voice and gesture navigation on both live and recorded TV, via an advanced version of Optik TV for Xbox 360 taking advantage of Xbox's Kinect sensor.

TELUS has already made the major investments required to make Optik services available to a large coverage footprint of close to 2.3 million homes in Western Canada and Eastern Quebec. Although we continue to expand speed and capability, we can now focus more on marketing and delivering Optik services to more households.

We are significantly intensifying our customer focus with our promise to put customers first. Notable recent initiatives include offering two-hour appointment windows to the majority of TV customers and providing proactive troubleshooting and repair. We are also investing in our call centres to support growth services, reducing call volumes and providing the best choice and flexibility for TV consumers.

Our distribution network is a key competitive advantage, making us a one-stop shop and enabling us to offer an integrated service bundle in B.C., Alberta and Eastern Quebec.

We are seeing positive economic impacts from the strong pull-through effects from Optik TV service, with accelerated high-speed Internet loading, improved client winback rates and reduced residential phone line losses. Among TV customers added in 2011, the vast majority either added or have another service with TELUS. In 2011, combined TV and high-speed Internet net additions of 271,000 exceeded residential phone losses of 131,000 by a factor of more than two times.

Positive momentum in Optik revenue is contributing to enhanced profitability. Particularly noteworthy is increasing ARPU, due to customers coming off introductory pricing promotions, increased content purchases by clients and selective price increases. Of course, this is an intensely competitive market and pricing is not fully under our control, especially since we are the new entrant in the TV and entertainment market.

TELUS TV creates momentum (additions, thousands)

TELUS TV creates momentum

On the cost side of the profitability equation, we must absorb content and programming increases over time. However, we are focusing on efficiency enhancements to drive improved equipment and content costs as we achieve increased scale and look to reduce customer acquisition, installation and customer care costs.

We believe the upfront j-curve dilution from our investment in marketing and accelerating TV growth peaked in 2011. The operating profit contribution of TV is expected to improve, particularly through the second half of 2012 and into 2013.

The premium and differentiated features of Optik TV, exciting roadmap ahead for new services, network investments in recent years, our intense focus on the customer experience and our extensive distribution network position TELUS well for continued TV momentum and prospects for improved profitability.