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Q4 2003 investor conference call - George Cope presentation

Thank you, Darren. Good morning, everyone. I'm on page 14 and let me start by saying I am proud to report TELUS Mobility's Q4 and year-end financial results this morning to investors.

Let me now turn to page 15. This slide will show you that our net-ads at 166,000 for the 4th Quarter were up 27% year-over-year, consistent with overall growth in the industry. Important to us, as well, was that our post-paid net-adds are actually up 48% year-over-year. I'm particularly pleased with this, given the environment in Canada. We were able to avoid offering competitive programs such as buy one phone get four free, and also obviously we're competing in Vancouver with City Fido. I'm also pleased that our camera phone positioning seemed to work well for us. Our campaign was well-recognized in the marketplace and we were able to provide this increased growth with a declining CO, cost of acquisition, year-over-year.

Turning to Slide 16, one of the continual highlights for TELUS Mobility this year is that our ARPU again increased year-over-year. Our ARPU, in fact, was up to $59 from $56 last year. Both our pre-paid category and post-paid categories are up, pre-paid up approximately $2, post-paid up north of $3, for an overall increase of 5%. Our MOU is up 23%. We are clearly attracting the right clients to our network. In fact, our post-paid MOU was over 400 minutes per month.

Turning to Slide 17, an important development for the industry in Canada is that the three major carriers again, not just TELUS, saw their ARPU increase, with both Bell and Rogers seeing an increase and Microcell seeing a decrease in an increasing market. Important from a TELUS perspective, is we have been able to maintain our premium over our competitors, even as their ARPU is increased. So you can see on the chart that our ARPU moved up in absolute dollars similar to Bell and actually outreached Rogers. We also plan to continue to focus on price in the marketplace, trying to maintain ARPUs and as such, recently we announced that on July 1st, the price for calling line ID in Canada for new clients on TELUS will go from $4 to $5, our voice mail services, depending on which one, will increase from $3 to $5 or $5 to $8, and our 911 charges, which will include some location services, will go from $0.25 to $0.50 and those will be again consistent with our other pricing strategies, which will generally grandfather our current client base, which has the effect of also lowering churn in the entire industry.

Turning to Slide 18, the combination of the ARPU and strong subscriber growth has resulted in a 20% increase in network revenue, industry-leading in Canada and possibly in North America - not all carriers have yet reported. And most importantly for us also, leading in Canada in absolute dollar growth with $97 million increase in network revenue year-over-year in the 4th Quarter.

Turning to Slide 19, you will see that our churn is down year-over-year, which I am pleased with, but it is important to note that it is up over both Q2 and Q3. Important for investors to note is that our post-paid churn was 1.3% in the quarter, versus 1.5% last year. The primary issue for us in churn in the 4th Quarter was pre-paid, where we saw an increase in churn, particularly from aggressive pricing from Microcell, where we saw their pre-paid rates drop fairly dramatically in the second half of the year and, I guess, was indicated yesterday by their decrease in ARPU in pre-pays. We also did see some increase in post-paid churn in Vancouver because of City Fido, but overall, as I mentioned, our post-paid churn stayed or was at 1.3%. I still believe it's prudent for analysts to forecast a blended churn rate of 1.5% going forward and we will continue to focus very hard on trying to maintain that as our blended churn rate, with an absolute focus on maintaining post-paid as low as we can.

Turning to Slide 20, very pleased to see that our cost of acquisition was reduced year-over-year in the 4th Quarter. I know some of our competitors commented on our branding program and as a result, somehow our COA would actually go up year-over-year. Well, of course, these numbers show that that wasn't the fact. Our net-adds went up, as our COA came down. And importantly, our lifetime revenue in the 4th Quarter went up and our cost of acquisition over the lifetime revenue of our client was 12% in the 4th Quarter, down from 14% last year, and clearly, industry-leading in Canada, taking our COA over our lifetime revenue.

Turning to Slide 21, no doubt the highlight of the quarter for investors will be seeing that we're able to increase our net-adds 27%, but still drive the consistent EBITDA growth we were able to achieve throughout the year by achieving actually a 48% EBITDA growth in the 4th Quarter. This is driven by two things: first of all, revenue, which I talked about being a combination of subscribers and ARPU; but on top of that, it also comes in very tight expense control. Our COA, I mentioned, is down, but more importantly, if you look at our expenses excluding COA, you will see they are up only $8.4 million year-over-year versus a revenue increase of $97 million, so that's 91% of every incremental dollar flowed to our EBITDA line. We are now seeing ratios such as one new employee required for every 2,000 subscribers, which would be a ratio of about $1.4 million incremental revenue for every $80,000 investment in employee side. You'll also note in the MD and A that our G and A line which was $512.8 million in 2002 is also $512.8 million in 2003. That's on a year-over-year basis, not quarter-over-quarter. So cost control has been just as important as revenue growth.

Turning to Slide 22, it illustrates that our strategy of focusing on profitable subscriber growth as opposed to subscriber growth is working well. We did achieve a reasonable market share of 30% of net-adds, but most importantly, consistent with our strategy, we achieved the dominant share of the incremental EBITDA created in the industry this year. In fact, we captured 45% of the $630 million of incremental EBITDA in Canada this year in the wireless industry.

Turning, finally, to Slide 23, it was a tremendous year for TELUS Mobility, as you can see here. All metrics moved the right way. Net-adds were up, churn was down, ARPU is up $2, network revenue up 18%, EBITDA, as Darren mentioned, for the second year in a row up over 50%, EBITDA margins on network revenue to 37% with an objective this year to try to drive that to 40; capex down dramatically and free cash flow up 500%. Our objective in 2004 is to continue to be one of the leaders in North America in the wireless industry in profitable subscriber growth.

Thank you. With that, I'll turn the presentation over to Bob McFarlane.

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Q4 2003 investor conference call - presentations

John Wheeler, vice-president, investor relations
Darren Entwistle, president and chief executive officer, TELUS Corporation
George Cope, president and chief executive officer, TELUS Mobility
Robert McFarlane, executive vice-president and chief financial officer
Question period
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