CEO letter to investors

Delivering a winning growth strategy

Remarkably, TELUS is the only telco in the world that has the same strategy today as it did in 2000. Supporting this proven strategy are six strategic imperatives, which continue to guide our efforts. The following is a discussion of our performance and plans as they relate to these imperatives.

Focusing relentlessly on data and wireless

Your Company experienced strong growth in data and wireless in 2011. Data and wireless revenue now represents 77 per cent of consolidated revenue and, notably, more than 40 per cent of this revenue comes from regions outside Western Canada.

In 2011, our wireless customer base grew to more than 7.3 million subscribers. Moreover, we achieved an industry-leading increase of 425,000 high-value postpaid subscribers that was largely generated by smartphone sales. This increase in our smartphone customer base, up 20 percentage points to 53 per cent of postpaid subscribers, coupled with tremendous growth in data usage, resulted in 47 per cent higher wireless data revenue in 2011 over the previous year. With Koodo, our initial talk and text service, we expanded our smartphone and data plan offerings in 2011 to provide choice to customers who want to upgrade to data functionality. Notably, we led the Canadian industry in a number of value-creating operating metrics, including the lowest churn (a measure of client loyalty) and the highest average lifetime revenue per customer.

Encouragingly, wireline data revenue was up 14 per cent, primarily due to record sales of TELUS TV service and resurgent sales of high-speed Internet service. By bundling our service offerings, we are also reducing our losses of residential phone lines to competitors. As well, we had a very successful year in both securing new and renewing existing public and large enterprise contracts across Canada, as noted in the next section.

Building national capabilities

In 2011, we launched faster dual-cell technology on our national 4G wireless HSPA+ (high-speed packet access plus) network. In February 2012, as the next step in our wireless network upgrade path, we began offering services on our next generation wireless 4G long-term evolution (LTE) network in major urban centres, including Vancouver, Calgary, Edmonton, Toronto, Ottawa, Montreal and Quebec City. We plan to continue rolling out 4G LTE coverage to more regions across Canada to reach more than 25 million Canadians by the end of this year. LTE provides Canadians with mobile Internet access at speeds that are up to three times faster than HSPA+ technology. TELUS has one of the most advanced wireless networks in the world in terms of data speed, coverage and innovative services on the latest devices.

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Largest customer contract in our history

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We completed our strategic telecommunications services agreement with the Government of B.C. in 2011. Valued at $100 million a year for 10 years, this is the largest deal in the history of our Company. In the coming years, TELUS will expand access to highspeed Internet service to 97 per cent of B.C. residents, extend wireless coverage to 1,700 kilometres of rural highway corridors and upgrade communications technology in 450 schools.

In the large enterprise market in 2011, we completed a 10-year $1 billion strategic telecommunications agreement with the Government of B.C., the largest deal in the history of our Company. As part of this agreement, TELUS will extend advanced wireline and wireless communications infrastructure into both urban and rural B.C. communities. We will also provide long distance, conferencing, data, wireless and strategic services for all provincial government offices, six regional health authorities and select public sector partners such as BC Hydro and WorkSafeBC.

Additionally, in 2011 we extended our large contract with the Government of Ontario for an additional five years to provide and manage its portfolio of data telecommunications and security services. In early 2012, we also extended our major contract with the Department of National Defence for Global Defence Network Services to 2016, which is worth more than $250 million. As well, we began implementing in 2011 a number of new enterprise contracts, including one with Canadian Pacific Railway.

TELUS has one of the most advanced wireless networks in the world in terms of data speed, coverage and innovative services on the latest devices.

We commenced planning and construction in 2011 of two new intelligent Internet data centres in Rimouski, Quebec and Kamloops, B.C., which are being built to LEED (leadership in energy and environmental design) gold standards. The centres, costing approximately $65 million each, will further expand our capacity to provide information technology management services to businesses in Canada and internationally. They will be a cornerstone of TELUS' ongoing support of next generation cloud computing and unified communications solutions.

Providing integrated solutions

TELUS' investments in advanced broadband technology, combined with our Future Friendly Home® strategy, came to fruition in mid-2010 with the launch of Optik TV and High Speed Internet service offerings. We are providing a superior home entertainment experience through our Optik TV service, delivered on our fibreoptic network. Since its launch, Optik TV has provided exceptional bundling and integration opportunities with high-speed Internet and home phone services. In 2011, we added 196,000 new TV customers, increasing our customer base by 62 per cent. The success of Optik TV also enabled us to attract 75,000 more high-speed Internet subscribers and reduce home phone losses by one-quarter, compared to 2010.

As an IP-based service, Optik TV provides a platform for new and innovative applications. To date, we have offered Remote Recording using a smartphone or tablet, the option of using the Microsoft Xbox as a set-top box, and Facebook on TV. As well, in early 2012, we introduced Optik on the go, an integrated feature that will increasingly enable customers to view their TV content on their computers, smartphones or tablets.

203,000 views

Connecting on telustalksbusiness.com

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Across Canada, business customers are making connections and gaining valuable knowledge, thanks to telustalksbusiness.com. This innovative online business resource provides customers with exclusive advice and insights from industry experts, and a platform to share thoughts and network with peers.

509,000 TV subscribers

Growing demand for Optik TV

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The number of our TV subscribers surpassed the 500,000 milestone at the end of 2011, reflecting the increasing popularity of Optik TV, our superior entertainment service. Optik TV's IP-based platform acts as a runway for new value-added applications, enhancing the entertainment experience for customers and positioning us for continued growth.

We strengthened our focus on small and medium businesses in 2011. For example, we introduced TELUS Business Freedom, enabling our business customers, for the first time, to bundle their office phone, Internet and wireless telecommunication services into one flexible, simple and cost-effective solution.

The TELUS team is dedicated to transforming healthcare through innovative technology solutions. We move healthcare information over our secure, wireline and wireless broadband networks to those who need it, when they need it, to improve health outcomes, work processes and efficiency in service delivery.

TELUS wireless and wireline broadband technology is also enhancing the care services available to patients and medical professionals. Notably, more than 2,000 clinicians will benefit from a care co-ordination solution, which improves the monitoring of more than 10,000 chronically ill patients in Quebec's Lower St. Laurent region.

In 2010, we launched TELUS Health Space®, powered by Microsoft HealthVault. This innovative electronic consumer health platform enables people to manage and share their personal health information using various devices – from computer to tablet to smartphone. We made progress in 2011, signing contracts with three leading electronic medical record providers operating in B.C., Alberta, Ontario and Quebec to connect their solutions to the TELUS Health Space platform. The momentum continued in late 2011 with a contract to provide Alberta Health Services with TELUS Health Space for the development of a personal health record solution for the province's citizens.

Partnering, acquiring and divesting

In early 2012, TELUS acquired Wolf Medical Systems, Canada's largest and fastest-growing electronic medical record provider. The acquisition creates a new line of business called TELUS Physician Solutions, which will help doctors co-ordinate and share information – anywhere, anytime – with their extended health- care teams, their patients and the patients' families. Access to electronic medical records will be further expanded by combining Wolf's hosted, cloud-based technology with TELUS' secure, wireless and wireline broadband telecommunications networks.

Over the past year, your Company has made three acquisitions to secure more than 60 independent dealer locations doing business under the TELUS name. These investments were made to enhance our ability to improve the customer experience, reduce selling costs and expand our distribution of wireless and wireline products across Western Canada. In addition, we have enhanced the client experience with offerings such as Smart Fit, an innovative online tool designed to help customers pick the right phone, and the TELUS Learning Centre, which helps customers get the most from their wireless device.

Finally, your Company announced a partnership with Westbank, a leading real estate developer, for the TELUS Garden redevelopment project in downtown Vancouver. Over the next three years, this project will transform a city block that currently houses the Company's national headquarters and provide an opportunity for TELUS to monetize a portion of its real estate holdings. The commercial and residential buildings will be built to LEED platinum and gold standards, respectively.

Discover how TELUS continued to realize the benefits of its strategic investments and generated positive financial performance in 2011.

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Investing in internal capabilities

A new five-year collective agreement that balances the needs of our customers, team members and investors was successfully negotiated and ratified in 2011, covering more than 11,000 unionized team members. The agreement had a positive effect on employee engagement and our focus on customer service.

Late in the year, the TELUS team achieved overall employee engagement results of 70 per cent, up from 57 per cent the previous year. This increase elevates our Company's results into the highest level of engagement and the best employer result for a company of our size and diverse makeup. This is truly an exceptional achievement that will underpin our future economic success and client experience goals.

The TELUS team achieved overall employee engagement results of 70 per cent, up from 57 per cent the previous year.

Our people practices have earned TELUS many global and national external awards for excellence in corporate culture, diversity, training and development. Please refer to telus.com/awards for more details. Notably, in 2011, Recognition Professionals International named TELUS as having the best overall employee recognition program globally.

Going to market with one brand

The TELUS brand promise, the future is friendly, reflects our values as an organization and our desire to make communications technology enjoyable to use and accessible for all Canadians. Our brand continues to gain recognition and grow in value. According to Brand Finance, it is one of the top brands in Canada, most recently valued at $2.9 billion.

Your Company's Koodo brand, launched three years ago to address the competitive market and build new low-cost distribution channels, has generated significant sales momentum. In a recent J.D. Power & Associates customer satisfaction survey, Koodo ranked second nationally and first in Ontario for the wireless provider with the highest customer satisfaction.