The 2003 Canadian
Telecom Summit
Looking toward a
brighter future
Toronto
June 11, 2003
Surviving the “perfect
storm” to reach a
brighter future
Robert McFarlane
EVP & Chief Financial Officer
agenda





3
the warm breeze - late 1990s
the global perfect storm
Canada’s perfect storm
the perfect storm strikes TELUS
lessons learned for a brighter future
the warm
breeze - late
1990s
the warm breeze - late 1990s

Economic expansion
 strong GDP growth
 inflation contained
 low interest rates
5
the warm breeze - late 1990s
Historical North American Key Interest Rate Levels
(1980 through present)
25%
US Fed Funds Rate
Bank of Canada Overnight Rate
20%
15%
10%
5%
6
Source: BMO Nesbitt Burns
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
Jan-88
Jan-87
Jan-86
Jan-85
Jan-84
Jan-83
Jan-82
Jan-81
Jan-80
0%
the warm breeze - late 1990s

Economic expansion




7
strong GDP growth
inflation contained
low interest rates
Emergence of e-enabled individual investor/trader
the warm breeze - late 1990s
emergence of e-trading
TD Waterhouse
133% CAGR
40% CAGR
1994
2000
Active accounts
8
Source: TD Waterhouse 2000 Annual Report
1994
2000
Avg. e-trades per day
the warm breeze - late 1990s

Economic expansion





strong GDP growth
inflation contained
low interest rates
Emergence of e-enabled individual investor/trader
Government surpluses
 reduced government debt issuance
 traditional fixed income investment into government
bonds shifts to corporates

Fixed income mandates shift to seeking more yield

9
emergence of liquid corporate high yield market
the warm breeze - late 1990s

10
Capital markets supported aggressive growth

revenue growth key attribute
 historical revenue growth trend nice but not necessary
 potential revenue growth would suffice

over $925 billion of equity & debt issuance by
telcos from 1995 to 2000
the warm breeze – late 1990s
North American IPOs
714
U.S.
Canada
589
475
443
505
480
263
64
246
175
63
348
327
294
321
150
479
155
185
107
51
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Source: J.P. Morgan Securities
11
155
2000
the warm breeze - late 1990s


12
Capital markets supported aggressive growth

revenue growth key attribute
 historical revenue growth trend nice but not necessary
 potential revenue growth would suffice

over $925 billion of equity & debt issuance in 1995
to 2000
Capital market transitioned from “efficient” to
“excessive”
the warm breeze - late 1990s
Relative Price Performance
NASDAQ Composite Index v. NYSE Composite Index
(January 1, 1998 - March 10, 2000)
350
NASDAQ
300
250
200
150
100
NYSE
13
Source: Bloomberg
Dec-99
Dec-98
Dec-97
50
the warm breeze - late 1990s

Say’s Law and Moore’s Law became accepted
dogma in telecom



Moore’s Law: data network traffic doubles every 2 years
Future value creation apparently a function of
building capacity:

14
Say’s Law: supply creates its own demand
since market began valuing firms on asset multiples as
proxy for future revenue growth
the warm breeze - late 1990s

Resulting valuation metrics:
 Wireless (POPs licensed, subscribers)
 CLECs (PP&E, bldgs. connected)
 IXCs (fibre miles built)
15
wireless penetration outlook
Canadian wireless penetration:
Prior expectation
Revised - Sept ‘991
1
16
September 1999 Clearnet Investor Forum
2006E
40%
50-70%
CLECs valued at multiples of PP&E
17
the warm breeze - late 1990s

Worldcom success fuels copycats:

high levels of capital investment
high margins
high growth
high share price
fuels growth by acquisition
 set new benchmarks for strategies of competitors
18
Worldcom vs. AT&T – capex intensity1
41%
Worldcom
AT&T
29%
29%
24%
23%
9.7%
9.5%
1995
1
19
15%
14%
1996
15%
1997
Ratio of capital expenditures to revenue
Source: Company reports, Merrill Lynch
24%
15%
1998
1999
2000
Worldcom vs. AT&T – EBITDA margin
34%
33%
32%
32%
27%
27%
24%
29%
26%
25%
22%
18%
1995
1
20
1996
1997
Ratio of capital expenditures to revenue
Source: Company reports, Merrill Lynch
1998
1999
2000
Worldcom
AT&T
Worldcom – enterprise value
Worldcom Total Enterprise Value Analysis
(December 31, 1990 - December 31, 2001)
(US$M)
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
Dec-92
Dec-91
21
Dec-90
$0
the warm breeze - late 1990’s

Result: phenomenal capital investment in telecom

22
“build it and they shall come” ideology became
standard basis for telecom business plans
global telecom capital expenditures
(US$B)
$217
$221
$175
$154
1999
23
Source: Merrill Lynch
2000
2001
2002
$145
2003E
the warm breeze – late 1990s
global telecom services - capital raised
$350
$300
47% CAGR (%)
47%
CAGR
(US$ Billions)
$250
$200
$150
$100
$50
$0
1995
1996
1997
Equity
24
1998
Debt
Source: Securities Data Corporation, RBC Capital Markets
1999
2000
the global
perfect storm
the global perfect storm
North American technology meltdown
Relative Price Performance
NASDAQ Composite Index v. NYSE Composite Index
(December 31, 1997 - June 6, 2003)
350
NASDAQ
NASDAQ
S&P/TSX
300
250
200
150
100
NYSE
26
Mar-03
Dec-02
Sep-02
Jun-02
Mar-02
Dec-01
Sep-01
Jun-01
Mar-01
Dec-00
Sep-00
Jun-00
Mar-00
Dec-99
Sep-99
Jun-99
Mar-99
Dec-98
Sep-98
Jun-98
Mar-98
Dec-97
50
the global perfect storm
North American equity issuance – total
(US$B)
$185
$119
$94
2000
2001
Source: J.P. Morgan Securities
27
access to capital markets dries up
2002
the global perfect storm
North American equity issuance - telecom
49
(US$B)
38
18
16
14
10
1995
10
8
1996
1997
1998
1999
2000
2001
2002
Source: J.P. Morgan Securities
28
telecom issuance peaks in 2000 then in free-fall
the global perfect storm
global issuer public debt default analysis
186
141
120
100
60
1998
1999
2000
Source: Moody’s Investors Services
29
number of defaults skyrocket
2001
2002
the global perfect storm
global issuer public debt default analysis
1998
1999
2000
$30B
$30B
2001
2002
$20B
$107B
Source: Moody’s Investors Services
US$270B of public debt defaults in 2001/02
30
$163B
the global perfect storm
US CLEC1 value destruction
Total Enterprise Value, Mar-00
Total Enterprise Value,
post-restructuring
$103B
US$98B
destroyed
$4.5B
1 Composite
comprised of, Teligent, Winstar, PSInet, McLeod and Global Crossing. Global Crossing
enterprise value is as of May-99
31
Source: J.P. Morgan Securities Inc.
the global perfect storm
corporate malfeasance


Accounting irregularities surface
Investor confidence shaken generally & Worldcom/
Qwest/Adelphia placed focus on telecom sector


32
US political reaction: passed Sarbanes-Oxley Act in 45 days
Investor flight to safety, any telecom not considered safe
the global perfect storm
cash becomes King again

Credit agencies didn’t see it coming investor backlash



33
reacted by raising the bar becoming significantly more
conservative
Equity and debt market raised the bar: cash is King!
Capital markets closed to negative cash flow stories
the global perfect storm
global credit rating activity - telecom
783
Upgrades
Downgrades
611
34
12 13
49 31
30 56
1995
1996
1997
Source: Moody’s Investors Services
173
123 121 97 129
45
1998
1999
2000
58
2001
35
2002
the global perfect storm
capital spending ambitions scaled back
Capex Intensity Trend Analysis
2
US RBOCs
US Wireless
Sprint FON
AT&T
2001
2002
Q1-03
25%
34%
31%
13%
18%
26%
14%
10%
11%
14%
10%
7%
Sources: Company reports, Merrill Lynch
1
35
Ratio of capital expenditures to revenue
comprised of SBC Communications, Verizon, and BellSouth
2 Composite
the global perfect storm
telecom meltdown
“. . . 24 of the nation's 29 top telecommunications
companies that have not yet filed for bankruptcy
are at risk of doing so in coming months. Only a
few companies - among them Verizon, Cisco
Systems, SBC and BellSouth - are relatively free
from the risk of toppling into insolvency . . .” -
June 18, 2002
36
Canada’s
perfect storm
Canada’s perfect storm
telecom underperforms TSX
Relative Performance
S&P/TSX Composite & Telecom Services Sub-Index1
(December 31, 1997 - Present)
180
TSX
160
140
120
100
80
60
Telecom
40
20
S&P/TSX
Telcom Services Sub-Index (Adj.)
38
1
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
0
Adjusted to include companies previously removed: Call-Net, Microcell, 360networks, GT Group
Telecom, Microcell, and AT&T Canada
Cdn alternate carrier revenue growth stagnates
($M)
1,545
1,505
1,489
AT&T Canada
Call-Net
GT Group
1,250
929
801
209
1191
73
39
2000
1Includes
2001
only Q1 and Q2 before GT’s CCRA filing
2002
Canadian alternate carrier debt value
destruction
balance sheet debt
before restructuring
balance sheet debt
after restructuring
Call-Net
$500M
Call-Net
AT&T Canada
$2.6B
AT&T Canada
$0B
GT
$4.7B
$1.6B
Microcell
Microcell
360
networks
$2.7B
$13.6B
40
$2.0B
$350M
360networks
$215M
$1B
Canada’s perfect storm
value destruction emulates US experience

Capital no longer available for telcos with no
prospect of cash flow


Liquidity crisis emerges in 2002
Similar outcome as per US:



41
restructurings
destruction of value
Outcome was not regulatory induced but rather
inevitable consequence of global perfect storm
TELUS/Bell West non-ILECs
source of intense competition
$527M
$368M
$335M
$182M
$84M
2000
42
$58M
2001
2002
TELUS East (Non-ILEC)
2000
2001
Bell West
2002
Regulatory impacts



43
Contribution & rebanding decisions significantly
reduce subsidies to ILECs for below-cost rural service
 Announced in 2001, effective January 2002
Decisions significantly benefit non-incumbent long
distance carriers
2002 price cap decision on local rates further hurt
ILECs – also hurt CLECs
the perfect
storm strikes
TELUS
strategic imperatives 2000-2003






45
Provide integrated solutions
Build national capabilities
Partner, acquire & divest as necessary
Focus relentlessly on growth markets
Go to market as one team
Invest in internal capabilities
build national capabilities
TELUS national infrastructure – 2000
Add ML map - network before expansion
46
build national capabilities
TELUS’ national infrastructure - 2003
Add ML map - network after expansion
47
regulatory tornado hits TELUS with little warning
TELUS’ Assessment
($268M)
2002
2003
($211M)
($211M)
($57M)
($75M)
($75M)
Contribution & Rebanding
Price Cap
48
($343M)
TELUS’ perfect storm arrives
TELUS Common Equity
(February 1, 2001 - July 26, 2002)
$45
~April 2001
CRTC Contribution & Rebanding decision
$40
$35
Oct 25
Dividend reduced to $0.15 from $0.35
$30
Mar 21
BCE earnings warning
$25
Jun 25
WorldCom fraud
$20
~Aug-Nov 2001
Enron collapse
$15
May 5
Annual General Meeting & Q1 results
$10
May 31
Initial reaction to CRTC price cap decision
Jul 25
Moody's downgrade
49
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Dec-01
Nov-01
Oct-01
Sep-01
Aug-01
Jul-01
Jul-01
Jun-01
May-01
Apr-01
Mar-01
Feb-01
$5
TELUS recovery plan

Increased focus on cash flow generation

reduced dividend by 57% offsetting cash impact of
contribution decision – Fall 2001
 Operational Efficiency Plan commenced
 focus on improved capital efficiency
 continued successful execution by Mobility
50
operational efficiency program (OEP)
Staff Reductions (net)
7,300
Annual Cost Savings
$550M
6,600
$245M
March 2003
Actual
2003E
2004E
OEP leads to ~29% reduction of wireline employee base
51
invest where there is industry growth
8.5%
6.9%
Local
LD
Data
Wireless
(1.0)%
(3.8)%
Estimated 3-year industry revenue growth
(CAGR% 2003-2006)
52
Source: TELUS estimates for Canadian industry revenue growth
TELUS capex & capex intensity1
37%
$3.0
$2.5
28%
29%
$2.6
30%
24%
$2.0
$1.5
40%
Capex in billions
35%
20%
$1.8
$1.7
$1.6
$1.5
25%
20%
15%
$1.0
10%
$0.5
5%
$0.0
0%
1999
1
53
2
2000
20012
Ratio of capital expenditures to revenue
Includes $356 million for wireless spectrum
2002
2003E
how does TELUS Mobility measure up?
TM 2003
guidance
Cdn Avg
2003
US Avg
2003
EBITDA / network rev.
34%
26%
32%
Annual EBITDA growth rate
29%
16%
15%
Capex intensity1
20%
18%
21%
(EBITDA – Capex) / tot. rev2
11%
5.3%
9.2%
Mkt penetration/cov. POPs
12%
41%
53%
No. of carriers in market
3 to 4
3 to 4
6 to 8
Penetration gain/carrier3
1.2%
0.9%
0.5%
Sources: TELUS estimates. Cdn. Statistics - Company Reports; US Statistics - Company Reports and Morgan Stanley
1 Projected capex as a % of forecast total revenue.
2 Projected EBITDA less projected Capex divided by projected total revenues
3 Projected wireless penetration gain divided by # of carriers in market. For TELUS, projected net adds divided by
projected covered POPs
54
TELUS Mobility is a premium wireless provider
operating in rational Cdn wireless industry
wireless penetration outlook
Canadian wireless penetration:
Prior expectation
55
2006E
40%
Revised - Sept ‘99
50-70%
Current expectation
approx. 50%
brightest future ever for Cdn. wireless industry
56




Rational industry structure supports competition

Financial prospects very bright for those with
good strategies, well-executed
Stable revenue per subscriber
Among lowest churn rates in the world
Producing positive free cash flow for the first time
since inception in 1985
TELUS free cash flow1
$500 to 600M
2001
2002
$(26)M
2003E
$(1.35)B
1
57
EBITDA less capex, cash interest, cash taxes, cash dividends; excludes restructuring & workforce reduction costs
TELUS recovery plan

Increased focus on cash flow generation

reduced dividend by 57% offsetting cash impact of
contribution decision – Fall 2001
 Operational Efficiency Program commenced
 focus on improved capital efficiency
 continued successful execution by Mobility

Enhanced public disclosure – Summer 2002



58
bank covenants disclosed
increased Investor Relations communication
issued 2004 cash flow guidance early
TELUS corporate governance



59
Took comprehensive action in 2002
Supports direction in US of Sarbanes-Oxley/SEC
Supports Canada’s proposed National Policy on
disclosure & Ontario’s Bill 198
TELUS corporate governance
response to concerns
Enhancements include:
60
Not
Required required
CEO & CFO certification of Financial
Statements & MD&A

Disclosure controls & procedures

Enhance MD&A

Ethics policy update & disclose

Whistle blower hotline

Improve risk management process

External auditor independence

TELUS recovery plan

Increased focus on cash flow generation

reduced dividend by 57% – Fall 2001 - offsetting cash
impact of contribution & rebanding decision
 Operational Efficiency Plan commenced
 focus on improved capital efficiency
 continued successful execution by Mobility

Enhanced public disclosure – Summer 2002





61
bank covenants disclosed
increased Investor Relations communication
issued 2004 cash flow guidance early
Debt buyback / equity issue – Aug/Sept 2002
Reduce leverage
strategy & execution paying off
TELUS Bond Performance
$120
Apr 30
Annual General Meeting &
Q1 Results
Feb 14
Q4 results
Sep 12
Equity offering & debt buyback
$100
Apr 16
Moody's outlook upgrade to stable
May 29
Fitch outlook upgrade to stable
$80
Dec 16
2003 targets release
Nov 4
Q3 results
$60
C$ 7.5% 2006
US$ 7.5% 2007
Jul 29
Q2 results & increased disclosure
US$ 8.0% 2011
62
May-03
Apr-03
Mar-03
Feb-03
Jan-03
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
$40
2003 outlook
leading North American telecom performance
Projected EBITDA Growth Rates – 2003E
9.2%
5.3% 5.0%
Aliant Verizon Sprint
TELUS
BCE
MTS
(0.6%)
Bell
South
AT&T
SBC
(2.0%)
(4.5%)
(6.3%)
(13.0%)
(21.2%)
Note: TELUS data based on 2002 actual results & average of 2003 targets
Other 2003 estimates provided by TD Securities, based on analysts estimates
63
2003 outlook
leading North American telecom performance
Projected EBITDA-Capex Growth Rates – 2003E
52.3%
18.4%
11.5%
8.5% 7.0%
1.5%
TELUS
BCE
MTS
Aliant Sprint
Bell
South
SBC
Verizon AT&T
(0.6%)
(4.6%)
Note: TELUS data based on 2002 actual results & average of 2003 targets
Other 2003 estimates provided by TD Securities, based on analysts estimates
64
(19.9%)
strategy & execution paying off - equity
TELUS Equity Performance
$25
Nov 4
Q3 results
$20
Sep 12
Equity offering & debt buyback
$15
Dec 16
2003 targets release
Feb 14
Q4 release
Apr 30
Annual General
Meeting &
Q1 results
$10
Jul 29
Q2 results & increased disclosure
65
May-03
Apr-03
Mar-03
Feb-03
Jan-03
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
$5
Lessons learned
for a brighter future
lessons learned





67
Customers & investors should determine telecom
winners and losers, not regulator
Do not ask regulators to subsidize poor strategies,
poorly executed
CLEC/alternate carrier failures in Canada consistent
with US experience, not due to CRTC
Debt-free ‘fallen angels’ source of rejuvenated
competition
Bell & TELUS geographic expansions are source of
increasingly intense competitive rivalry
lessons learned
68

TELUS has incurred ~$350M of reduced operating profit
due to price cap and contribution/rebanding regulatory
decisions

Regulatory decisions should ideally be consistent,
transparent and sensitive to capital market considerations

Unlike US, Canada has evolved to correct wireless
industry structure

TELUS Mobility is producing best-in-class results and we
are now experiencing the brightest future ever for Cdn.
wireless industry despite moderating growth

TELUS experience in past year shows that good telecom
strategy consistently well-executed will be rewarded
despite regulatory and other external adversity
questions?