strongertogether
2017 ANNUAL REPORT
We hope you draw inspiration from the deeply
meaningful creative found within the pages of
our annual report, conveying our story of
togetherness, connectedness and a friendly
future … inspired by the infinite potential
of the human spirit.
The cover image evokes the iconic double helix,
the building block of humanity. These strands
are replaced with fibre-optic cable as a tribute to
the innovation that is making human connection
possible in our digital society.
This theme is carried lyrically throughout our
report, inextricably bound within our brand’s
identification with nature. This connection
reinforces our undeniable bond with our
natural world, demonstrating that innovation
is often inspired by nature.
Through our technology innovation, we are
creating a stronger and more caring world by
enabling remarkable human, social and business
outcomes. We believe wholeheartedly that we are
all stronger together, and this is foundational to
our promise to make the future a little more
friendly for everyone.
Our values
We embrace change
and seize opportunity
We have a passion
for growth
We believe in spirited
teamwork
We have the courage
to innovate
1– 9
Corporate overview
What we offer, results and highlights from 2017,
and our 2018 targets
10 –15
CEO letter to investors
How we are delivering on our proven growth strategy
and, together, creating remarkable outcomes
16 –19
Operations at a glance
A brief review of our wireless and wireline operations
20 – 21
Our social purpose
How we are creating a friendlier future
22– 29
Leadership
Our Executive Leadership Team, questions and
answers, Board of Directors and corporate governance
30 –180
Financial review
Detailed financial disclosure, including a letter from
our CFO, and other investor resources
Who we are
TELUS is Canada’s fastest-growing
national telecommunications company,
with $13.3 billion of annual revenue
and 13.1 million subscriber connections,
including 8.9 million wireless
subscribers, 1.7 million high-speed
Internet subscribers, 1.3 million
residential network access lines and
1.1 million TELUS TV® customers.
TELUS provides a wide range
of communications products and
services, including wireless, data,
Internet protocol (IP), voice, television,
entertainment, video and home
automation, including security.
TELUS is also Canada’s leading
healthcare IT provider, and TELUS
International delivers business
process solutions around the globe.
In support of our philosophy to give
where we live, TELUS, our team
members and retirees have contributed
more than $525 million to charitable
and not-for-profit organizations and
volunteered 8.7 million hours of service
to local communities since 2000.
All financial information is reported in Canadian dollars unless
otherwise specified. Copyright © 2018 TELUS Corporation.
All rights reserved. Certain products and services named in this
report are trademarks. The symbols TM and ® indicate those
owned by TELUS Corporation or its subsidiaries. All other
trademarks are the property of their respective owners.
Together, we have infinite potential
Together, our highly engaged team
is making the future friendly,
by enabling remarkable human,
social and business outcomes
in all that we do.
Together, with our communities,
we are championing social
change and leveraging technology
to help youth reach their
full potential.
Together, with the trust of our
customers, we are bridging
digital divides and redefining
what it means to be a
technology company in an
ever-changing digital world.
WHAT WE OFFER
We are putting customers first
Together, we are delivering exceptional experiences and providing
our customers with a wide range of innovative products and services
powered by leading technologies to meet their evolving needs.
Mobile services
Keeping our customers happy
Canadians’ appetite for ubiquitous connectivity and data continues
to grow. The increasing speeds, capacity and coverage of our leading
4G LTE wireless network, coupled with our extensive lineup of devices,
are meeting our customers’ ever-growing mobile data needs. Over the
past several years, we have introduced hundreds of customer-centric
programs and services to improve our customers’ experiences and
continue to earn their business, wherever they go. With our customers
first focus, TELUS has consistently led the Canadian industry in wireless
loyalty and has one of the best wireless churn rates in the world.
Future friendly home services
Offering innovative broadband solutions
In British Columbia, Alberta and Eastern Quebec, TELUS offers a wide range of
telecommunications, connectivity and entertainment services to consumers. We
are nearly halfway through a multi-year, multi-billion-dollar investment to expand
our gigabit-capable TELUS PureFibreTM network directly to homes across our
footprint. With TELUS PureFibre, customers can reliably connect to the people
and digital technologies that matter most to them, including streaming video,
security and other smart home solutions.
2 • TELUS 2017 ANNUAL REPORT
2 • TELUS 2017 ANNUAL REPORT
Business solutions
Helping businesses succeed
Our focus is on providing data and managed solutions to businesses and governments
across Canada. With leading IP networks, we offer secure and reliable cloud-based
enhanced data services, with critical applications residing in our Internet data centres.
Leveraging our wireless expertise, businesses are transforming their operations through
our mobile and Internet of Things solutions to increase their productivity and efficiency.
Healthcare technology solutions
Changing the delivery of healthcare
We know information has the power to transform healthcare for Canadians.
At TELUS Health, we are working with healthcare providers and patients
across the country to improve information-sharing and harness the power
of technology. As a result, we are improving healthcare with digital innovation
and helping deliver a better care experience to patients while easing the
burden on the healthcare system. We offer digital health solutions for
physicians, pharmacies, extended healthcare providers, patients, insurers
and health authorities.
Business process and information
technology solutions
Expanding our customers first culture
At TELUS International, we enable customer experience innovation through
spirited teamwork, agile thinking and a caring culture that puts customers
first. Our more than 30,000 TELUS International team members deliver
superior customer service and next-generation IT solutions to multinational
companies in over 35 languages from locations around the world, including
North America, Central America, Asia and Europe.
TELUS 2017 ANNUAL REPORT • 3
TELUS 2017 ANNUAL REPORT • 3
TELUS IN 2017
We are advancing our strategy
through key initiatives
Together in 2017, our team worked relentlessly to deliver on
our long-term growth strategy, focus on putting customers first
and drive innovation along the way.
Q1
Q2
• Achieved national leadership in network performance,
• Expanded our presence in Manitoba by acquiring
as noted by OpenSignal’s 2017 State of Mobile Networks:
postpaid wireless subscribers, certain network assets
Canada report, which showed that TELUS’ 4G LTE
and dealer locations in Manitoba, as part of an
wireless network offered the fastest overall download
agreement with BCE Inc. following its acquisition
speeds and best network availability among three
of Manitoba Telecom Services Inc.
national providers in Canada. Later in the year, TELUS
• Launched Pik TVTM, an innovative self-install TV service
was also recognized for network performance in
for customers who want easy and affordable access
three other independent studies
to streaming apps and live TV. Pik TV complements
• Lowered our weighted average cost of long-term debt
our Optik TV ® service in B.C. and Alberta and helps
and extended our average term to maturity by issuing
us better meet the varied needs of our customers
US$500 million of 10-year senior unsecured notes and
• Acquired Kroll Computer Systems Inc., a complementary
$325 million of 31-year senior unsecured notes
pharmacy management software company, to expand
• Introduced our future friendly storyTM, enabling us to
and enhance TELUS Health’s geographic reach and
share how we are leveraging our technology innovation
offering as a national service provider
to create remarkable outcomes for our customers,
• TELUS Health was selected by Canada Health Infoway
communities and citizens across Canada and around
to be the technical solution provider for PrescribeIT,
the world
a national e-prescribing service that enables secure
• Launched our TELUS Mobility for Good pilot program,
electronic transmission of prescriptions, limiting errors,
which supports young adults transitioning from foster
saving time and increasing convenience
care to independent living by providing them with
• Held our 12th annual TELUS Days of Giving® with
a smartphone and wireless rate plan so they can
32,000 team members, retirees, family, friends and
stay connected to the people and information that
customers volunteering in Canada and eight other
matter most.
countries around the world to make a positive difference.
4 • TELUS 2017 ANNUAL REPORT
Q3
Q4
• Expanded our cloud-based communications solutions
• Introduced a new and integrated Optik TV app that
with the launch of TELUS Business Connect® Mobile,
enables subscribers to easily watch live TV, access
an all-in-one integrated mobile solution designed
thousands of On Demand titles, and set and manage
to drive productivity and cost savings for businesses
recordings, all from their smartphone, tablet or computer
• Introduced TELUS Network as a Service to enable
• Announced that TELUS Health and Tunstall Healthcare
businesses to virtually build, manage and optimize their
are working together to improve the lives of patients
networks quickly, easily and cost-effectively through a
living with chronic disease by advancing the capabilities
flexible self-serve platform
of TELUS Health’s home monitoring solutions through
• Acquired Voxpro Limited, a business process outsourcing
the use of Tunstall’s integrated care platform
and contact centre services company, through TELUS
• Announced our agreement to acquire Xavient Information
International, expanding our U.S. footprint, adding new
Systems, an IT consulting firm, to expand TELUS
service delivery centres in Ireland and growing our
International’s client base, and enhance our IT solutions
presence in Romania and the Philippines
and delivery capabilities
• Launched MedDialog, a national clinical solution that
• Received the fewest customer complaints of any
enables doctors to communicate electronically with each
national wireless service provider in the Commission
other regarding the care of their patients directly from
for Complaints for Telecom-television Services’ annual
their electronic medical records systems, allowing for
report, for the sixth year in a row. We continue to
seamless communication, greater efficiency and better
remain focused on putting customers first and delivering
patient care
exceptional experiences by listening and taking action
• Established the TELUS Barrie Community Board,
to address our customers’ top complaints
providing annual funding to grassroots charities that
• Surpassed one million hours of volunteering in local
support local youth. We now have 13 community
communities by TELUS team members, retirees and our
s in Canada and
boards in Canada and
ternationally.
five internationally.
extended TELUS family.
TELUS 2017 ANNUAL REPORT • 5
2017 PERFORMANCE AT A GLANCE
We are delivering solid results
OPERATIONS
+3.9% +4.4% +1.9%
Operating
revenues
2017: $13.3 billion
2016: $12.8 billion
EBITDA1,2
2017: $4.9 billion
2016: $4.7 billion
Adjusted
basic EPS1,3
2017: $2.63
2016: $2.58
+7.1%
Dividends declared
per share
2017: $1.97
2016: $1.84
FINANCIAL RESOURCES
+22.6% +4.2% +6.6% +0.04
times
Cash from
operations
2017: $3.9 billion
2016: $3.2 billion
Capital expenditures
(excluding spectrum
licences)
2017: $3.09 billion
2016: $2.97 billion
Total
assets
2017: $29.5 billion
2016: $27.7 billion
Net debt to
EBITDA ratio1,2
2017: 2.73 times
2016: 2.69 times
CUSTOMER CONNECTIONS4
+3.8% +5.3% -5.5% +3.7%
Wireless
subscribers
2017: 8.91 million
2016: 8.59 million
Internet
subscribers
2017: 1.74 million
2016: 1.66 million
Residential network
access lines
2017: 1.30 million
2016: 1.37 million
TV
subscribers
2017: 1.10 million
2016: 1.06 million
OPERATING REVENUES
($ billions)
2017
2016
2015
EBITDA1,2
($ billions)
2017
2016
2015
13.3
12.8
12.5
DIVIDENDS DECLARED PER SHARE
($)
TOTAL CUSTOMER CONNECTIONS4
(millions)
2017
2016
2015
1.97
1.84
1.68
2017
2016
2015
6 • TELUS 2017 ANNUAL REPORT
4.9
4.7
4.5
13.1
12.7
12.5
2017 financial and operating highlights
($ in millions except per share amounts)
2017
2016
% change
OPERATIONS
Operating revenues
Earnings before interest, taxes, depreciation and amortization (EBITDA)1
EBITDA margin (%)
EBITDA – excluding restructuring and other costs1
Adjusted EBITDA1
Operating income
Net income attributable to common shares
Basic earnings per share (EPS)
Adjusted basic EPS1,3
Dividends declared per share
Dividend payout ratio (%)1
WIRELESS SEGMENT
External revenue
Adjusted EBITDA1
Adjusted EBITDA1 margin on total revenue (%)
WIRELINE SEGMENT
External revenue
Adjusted EBITDA1
Adjusted EBITDA1 margin on total revenue (%)
FINANCIAL POSITION
Total assets
Net debt1
Return on common equity (%)5
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations
Capital expenditures (excluding spectrum licences)
Free cash flow (before dividends)1
Net debt to EBITDA ratio1,2
CUSTOMER CONNECTIONS4 (in thousands at December 31)
Wireless subscribers
Internet subscribers
Residential network access lines
Total TV subscribers
Total customer connections
n/m – not meaningful
$ 13,304
$ 4,774
35.9
$ 4,913
$ 4,891
$ 2,605
$ 1,460
$ 2.46
$ 2.63
$ 1.97
80
$ 7,535
$ 3,157
41.8
$ 5,769
$ 1,734
29.0
$ 29,548
$ 13,422
17.8
$ 3,947
$ 3,094
$ 966
2.73
8,911
1,743
1,298
1,098
13,050
$ 12,799
$ 4,229
33.0
$ 4,708
$ 4,667
$ 2,182
$ 1,223
$ 2.06
$ 2.58
$ 1.84
89
$ 7,115
$ 3,000
42.0
$ 5,684
$ 1,667
28.4
$ 27,729
$ 12,652
15.4
$ 3,219
$ 2,968
$ 141
2.69
8,585
1,655
1,374
1,059
12,673
3.9
12.9
–
4.4
4.8
19.4
19.4
19.4
1.9
7.1
–
5.9
5.2
–
1.5
4.0
–
6.6
6.1
–
22.6
4.2
n/m
–
3.8
5.3
(5.5)
3.7
3.0
1 These are non-GAAP measures and do not have standardized meanings under IFRS-IASB. Therefore, they are unlikely to be comparable to similar measures
presented by other companies. For definitions, see Section 11 of Management’s discussion and analysis (MD&A) in this report.
2 Excludes restructuring and other costs.
3 For information on adjusted basic EPS, see Section 1.3 of the MD&A in this report.
4 Customer connections have been revised in 2016 and 2017 to account for acquisitions and adjustments. For details, see Section 1.3 of the MD&A in this report.
5 Common share income divided by the average quarterly share equity for the 12-month period.
TELUS 2017 ANNUAL REPORT • 7
2017 RESULTS AND 2018 TARGETS
We are driven to achieve
outstanding performance
2017 targets
We continued to pursue our proven national growth
strategy focused on wireless and data
2017 results
We achieved our revenues and earnings targets,
supported by profitable customer growth in
wireless and wireline and cost efficiencies
2018 targets
Our targets reflect revenue, earnings and
dividend growth, supported by customer growth,
continued network investments and an ongoing
focus on efficiency
At TELUS, we believe in setting annual financial targets to provide
clarity for investors and help drive our performance.
In 2017, we achieved three of our four revised consolidated
targets. Our achievements reflect growth in wireless network
revenues resulting from an increase in average revenue per
subscriber unit and growth in our wireless subscriber base,
as well as an increase in wireline data service revenue and an
ongoing focus on operational efficiency. Capital expenditures
exceeded our target due to a continued focus on investments
in our broadband wireless and wireline infrastructure.
For further information, see Section 1.4 of Management’s
discussion and analysis (MD&A) in this report.
We are currently guided by a number of long-term financial
objectives, policies and guidelines, which are detailed in
Section 4.3 of the MD&A.
With these policies in mind, our 2018 consolidated financial
targets reflect continued execution of our successful national
growth strategy focused on wireless and data. In each of the past
eight years, we have met three of our four consolidated financial
targets, which has supported the return of capital to shareholders
through our shareholder-friendly initiatives, including our
multi-year dividend growth program.
The following scorecard shows TELUS’ 2017 performance
against our revised targets, as well as our targets for 2018.
For more information and a complete set of 2018 financial
targets and the assumptions on which they are based, see our
fourth quarter 2017 results and 2018 targets quarterly report
issued on February 8, 2018.
Caution regarding forward-looking statements summary
This annual report contains forward-looking statements including statements relating to
our 2018 targets, expected performance and multi-year dividend growth program. By their
nature, forward-looking statements do not refer to historical facts and require the Company
to make assumptions and predictions, and are subject to inherent risks. There is significant
risk that the forward-looking statements will not prove to be accurate and there can be no
assurance that TELUS will achieve its targets or performance goals or maintain its multi-year
dividend growth program. Readers are cautioned not to place undue reliance on forward-
looking statements as a number of factors (such as competition, technological substitution,
regulatory developments, government decisions, economic performance in Canada, our
cost reduction initiatives, our earnings and free cash flow, and our capital expenditures)
could cause actual future performance and events to differ materially from those expressed
in the forward-looking statements. Accordingly, this document is subject to the disclaimer
and qualified by the assumptions (including assumptions on which our 2018 annual targets
and guidance are based and regarding semi-annual dividend increases through 2019),
qualifications and risk factors as set out in Management’s discussion and analysis in this
report, especially Sections 9 and 10, and in other TELUS public disclosure documents and
filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United
States (on EDGAR at sec.gov). Except as required by law, TELUS disclaims any intention or
obligation to update or revise forward-looking statements, and reserves the right to change,
at any time at its sole discretion, its current practice of updating annual targets and guidance.
8 • TELUS 2017 A
8 • TELUS 2017 ANNUAL REPORT
2017 revised targets1
2017 results and growth
2018 targets2
Revenues
Targeted between
$13.180 and $13.310 billion
an increase of
3.0 to 4.0%
Targeted between
$4.875 and $5.040 billion
an increase of
3.5 to 7.0%
EBITDA –
excluding
restructuring
and other
costs3
Adjusted
EBITDA3
Basic earnings
per share (EPS)
Targeted between
$2.49 and $2.66
an increase of
2.0 to 9.0%4
Targeted
$3.0 billion
Capital
expenditures
(excluding
spectrum
licences)
$13.30 billion
an increase of
3.9%
$4.91 billion
an increase of
4.4%
$4.89 billion
an increase of
4.8%
$2.515
an increase of
2.9%
$3.09 billion
an increase of
4.2%
Targeting between
$13.835 and $14.100 billion
an increase of
4 to 6%
Targeting between
$5.105 and $5.230 billion
an increase of
4 to 7%
Targeting between
$2.53 and $2.68
an increase of
3 to 9%6
Approximately
$2.85 billion
OPERATING REVENUES
($ billions)
20182
2017
ADJUSTED EBITDA3
($ billions)
13.835 to 14.100
13.30
20182
2017
5.105 to 5.230
4.89
Targeting an increase of 4 to 6%, driven by growth in wireless
and wireline data, including acquisitions
Targeting 4 to 7% growth, generated by profitable revenue growth
and operating efficiencies in both our wireless and wireline businesses
BASIC EPS
($)
20182
2017
CAPITAL EXPENDITURES (EXCLUDING SPECTRUM LICENCES)
($ billions)
2.53 to 2.68
2.46
20182
2017
2.85
3.09
Targeting an increase of 3 to 9%6, driven by EBITDA growth, partly
offset by higher depreciation and amortization and interest costs
Continuing investment in wireless and wireline broadband infrastructure
to support customer growth, technology evolution and reliability
1 Reflects the 2017 revised targets that were announced on May 11, 2017 to account for the acquisition of Manitoba Telecom Services’ postpaid wireless subscribers,
certain network assets and dealer locations. The 2017 original targets were set on February 9, 2017. For more information, see Section 1.4 of the MD&A in this report.
2 The targets for 2018 exclude the impacts of IFRS 9 and IFRS 15.
3 EBITDA – excluding restructuring and other costs and Adjusted EBITDA are non-GAAP measures and do not have a standardized meaning under IFRS-IASB.
Therefore, they are unlikely to be comparable to similar measures presented by other companies. See Section 11 of the MD&A in this report.
4 Our basic EPS target growth rate was based on 2016 basic EPS of $2.44, which was adjusted to exclude the transformative compensation expense of $0.38.
5 Our 2017 basic EPS included the effect of an increase in the B.C. corporate income tax rate of $0.05, which was not reflected in the original target. Excluding this impact,
our basic EPS of $2.51 met the target range.
6 The target for 2018 basic EPS growth is based on 2017 basic EPS of $2.46.
TELUS 2017 ANNUAL REPORT • 9
CEO LETTER TO INVESTORS
Stronger together
For the TELUS team, 2017 was characterized by both
opportunities and challenges, which we seized and surmounted,
demonstrating that we are indeed stronger together. By providing
outstanding customer experiences and responding effectively
to the competitive landscape, we once again delivered strong
financial and operational results. Importantly, we moved forward
with our disciplined and targeted capital investment program,
while simultaneously creating significant value for investors.
10 • TELUS 2017 ANNUAL REPORT
Enabling the success of Canadians
in a dynamic, digital society
TELUS’ success is built on our shared commitment to
listening, learning and embracing new ideas to delight our
clients, every day. Consistent with our strong quarter-in
quarter-out performance, this passion for improving the lives
of our customers is reflected in our global leadership with
respect to client loyalty. Indeed, the TELUS team’s unwavering
focus on customer service excellence has become the
industry model. In 2017, we achieved our fourth consecutive
year of postpaid churn below one per cent, a performance
that was once again unmatched by our North American peers.
Our team’s ability to put customers first was further
reflected in the reliability, coverage and speed of our national
networks. Last year, we received considerable praise for
our network excellence, highlighting the value of our
investments and the positive outcomes we are generating
for our customers. Notably, your Company was ranked
as having the fastest wireless network, nationally, by PCMag
and the crowd-sourced Ookla Speedtest. In addition, in
the J.D. Power 2017 Canadian Wireless Network Quality
Study, TELUS was ranked Highest Wireless Network Quality
Performance in Ontario for three years in a row; and in
British Columbia, Alberta, Saskatchewan and Manitoba for
two years in a row. Moreover, TELUS was awarded Fastest
Overall Download Speed and Best Availability among three
national providers by OpenSignal in both its 2017 and
2018 studies. These best-in-class network rankings serve as
an important differentiator for TELUS, confirming that our
long-term strategy, based on smart investments in broadband
technology and infrastructure, is delivering significant
benefits for our customers and investors alike.
In 2017, our leadership in customer service excellence
was once again detailed in the annual report from the
Commission for Complaints for Telecom-television Services
(CCTS). For the past six years, we have garnered the fewest
customer complaints of any national wireless service provider,
with TELUS receiving less than seven per cent of all CCTS
complaints in 2017, while our two national peers accounted
for nearly half of all complaints.
Putting customers first also involves keeping our clients
and their families safe in an increasingly digital world. We have
achieved 3.6 million touchpoints with TELUS WISE® since it
was launched five years ago. Through this program, we are
empowering youth with the tools and knowledge to stay safe
online and rise above cyberbullying.
Darren Entwistle participated with his daughter in the JDRF TELUS Walk
to Cure Diabetes in Vancouver, B.C. In 2017, more than 40,000 people
across the country walked in support of the 300,000 Canadians living
with type 1 diabetes.
Delivering on our winning strategy
In a highly competitive environment, we realized strong
customer growth, data revenue expansion and financial
performance across both our wireless and wireline operations
in 2017. Notably, our consolidated operating revenue and
EBITDA were up 3.9 per cent and 4.4 per cent, respectively.
This growth was underpinned by quality client loading as
we added 379,000 postpaid wireless customers, 81,000 high-
speed Internet subscribers and an industry-leading 35,000
new TV clients. These results reflect the continued success
of our dual-tenet growth strategy across wireless and wireline
services, the quality and diversity of our asset base and
consistent execution by our highly engaged team.
Our leadership in customer loyalty and quality smartphone
loading highlighted the differentiated customer experience
we strive to provide our customers at TELUS. Indeed, our
extensive product portfolio, pervasive distribution channels
and superior network, supported by our commitment to
client service excellence, resulted in our wireless customers
spending more with us in 2017. Thanks to the combination
of leading churn and strong revenue per customer, we
significantly outpaced our peers and drove industry-
leading and record lifetime revenue of more than $6,000
per subscriber.
Against a backdrop of aggressive competition, our team
realized strong wireline financial and operational performance
throughout the year. Our results reflected industry-leading
growth in high-speed Internet and TV additions, buttressed
by positive revenue and EBITDA growth. Wireline revenues
increased by 1.5 per cent, while EBITDA was up an
TELUS 2017 ANNUAL REPORT • 11
We are investing for a friendly future
TELUS became the first carrier in Canada to successfully deploy licensed assisted
access technology and achieve record-breaking wireless speeds of nearly 1 Gbps,
creating the foundation for our 5G network. Through the infinite potential of our
technology innovation, we are helping Canadians succeed in our digital economy.
industry-leading four per cent. Importantly, this represents
our fourth year of EBITDA growth – a rare achievement
relative to our industry peers. These results are indicative of
our team’s continued focus on delivering positive wireline
loading in concert with strong financial results.
For TELUS International, 2017 was another year of growth
and expansion. We acquired Voxpro, allowing us to expand
our operations in the United States, Ireland, Romania and the
Philippines. Furthermore, in early 2018, we acquired Xavient,
a global IT consulting and next-generation software services
company with operations in India and the United States.
These transactions add client diversity and expansion across
key capabilities, industry verticals and delivery geographies
to TELUS International’s global customer base.
TELUS Health also enjoyed a successful year of double-
digit growth. We completed important acquisitions, including
Kroll Computer Systems and Practimax, which will further
strengthen our leadership position in the primary healthcare
ecosystem. In addition to advancing our position as the
partner of choice for Canadian physicians, pharmacists,
extended healthcare providers, insurers and consumers, we
were selected by Canada Health Infoway to develop and
operate PrescribeIT, Canada’s national e-prescribing service.
Continuing our legacy of unparalleled
shareholder value creation
Reflecting the consistency of TELUS’ performance in a dynamic
world, we have met three of our four consolidated financial
targets in each of the past eight years, which has supported
the return of capital to shareholders. Notably, our share price
12 • TELUS 2017 ANNUAL REPORT
We are enabling remarkable health outcomes
through better health information
TELUS Health continues to help lead the transformation of healthcare
in this country. Our team’s leadership in the primary care ecosystem
now includes supporting more than 20,000 physicians, 40,000 extended
healthcare providers and thousands of Canada’s pharmacies.
reached an all-time high in 2017, contributing to an annual
total shareholder return of 16 per cent, the seventh year out
of the past eight years we have delivered double-digit returns.
Indeed, since the beginning of 2000 through the end of 2017,
we have generated a total shareholder return of 432 per cent,
once again demonstrating leadership among our telecom
incumbent peers. Moreover, this is more than double the
return for the Toronto Stock Exchange’s S&P/TSX Composite
Index of 199 per cent and a stark contrast to the MSCI World
Telecom Services Index of two per cent over the same period.
During the 14 multi-year time periods since 2000, for the
years ending from 2004 until today, TELUS’ total shareholder
return was number one in the world versus our incumbent
peers 12 times and has surpassed the second place finisher
by an average of 43 percentage points over those 12 periods.
Similarly, your Company continues to return capital to
shareholders. During the year, we announced two increases
in our quarterly dividend, representing the 13th and
14th increases since 2011. Over the course of this period,
shareholders have received a total dividend increase of
92 per cent. Importantly, these increases in 2017 also
reflect the continuation of our successful three-year annual
dividend growth program, which continues to target annual
growth of between seven and 10 per cent through 2019.
Our track record of delivering on our shareholder-
friendly initiatives is unmatched and continues to generate
significant value for our shareholders. Furthermore, while
simultaneously building broadband networks that are among
the most advanced in the world, TELUS has returned
$15.1 billion to shareholders, including $9.9 billion in dividends,
representing more than $25 per share since 2004.
Leveraging generational investments
for a friendlier future for all
In our ever-changing digital society, we understand that
the success of our organization and our customers is
contingent on our continued investment in state-of-the-art
technologies. We are leveraging our technology innovation
to bridge digital and socio-economic divides, keeping
Canadians connected to the people and information that
matter most, while answering the productivity, sustainability
and health challenges that are among the most significant
facing our world today. In this regard, our disciplined
investments in our broadband networks accelerated in
2017, resulting in exceptional innovation to help Canadians
succeed in our digital society and economy.
In wireless, we expanded our LTE service, now reaching
99 per cent of Canada’s population and dramatically
improving the quality and reliability of the service our
customers enjoy. At our 5G Living Lab, our team focused
on deploying the latest 5G mobile technology, which will
support the advent of smart homes, businesses and cities,
as well as applications, devices and services that enhance
business productivity, improve educational outcomes,
support environmental sustainability and promote wellness
across the country.
Leveraging our broadband momentum, innovation
abounded across our wireline network and product lines,
with TELUS PureFibre network coverage available to
48 per cent of our Optik footprint at year-end. Notably,
the majority of our broadband network build program
will be increasingly behind us as we surpass the halfway
TELUS 2017 ANNUAL REPORT • 13
We are creating critical connections
Through TELUS Mobility for Good, we are helping vulnerable citizens realize
their potential. This program helps youth aging out of foster care gain their
independence by providing them with a smartphone and 3 GB rate plan at no charge,
keeping them connected to the people and opportunities that matter most.
build threshold in the first half of 2018. Reflecting the
infinite potential of our TELUS PureFibre network, we
continue to provide our customers with world-leading
broadband networks that keep them secure and
connected through solutions such as home security,
home health and home automation.
Our values elevate our
culture and brand
Your Company’s globally admired, client-centric culture
remains a key indicator of the cohesion and capabilities of
the TELUS team. In this regard, in 2017 we once again
achieved a team engagement level that placed us in the
top 10 per cent of all employers surveyed worldwide.
This incredible culture is the foundation for our team’s
belief that a friendly future is created by having the
courage to innovate, by inspiring a passion for growth,
by embracing change and seizing opportunities and
by demonstrating spirited collaboration across our diverse
and inclusive team, each and every day. I want to extend
my sincere appreciation to the 53,000 TELUS team
members globally for ensuring our customers remain
at the heart of everything we do. Indeed, it is thanks
to our team’s passion for putting our customers first, and
their compassionate support of our communities, that
we are winning the hearts and minds of our clients and
positioning our Company and our team for success
in 2018 and well beyond.
Our inspiring social purpose
begins with giving where we live
In 2017, our team once again came together to fulfil our
heartfelt community promise to give where we live, with our
hearts, our hands and our philanthropy. Through our passion
for innovation, we offered our support to those who need
our help the most, making the future a little more friendly for
our fellow citizens, championing social change to build a
more compassionate world and helping youth rise above and
realize their full potential. Indeed, this culture of caring informs
our future friendly story, which is articulated through initiatives
like Stories, presented by TELUS – a series of videos that
showcase the many ways TELUS is leveraging our technology
and partnerships to improve the lives of our fellow citizens.
This year, in celebration of Canada 150+, the TELUS team
and our extended TELUS family raised the bar, by volunteering
more than one million hours in our local communities. This
journey began with our TELUS Days of Giving, during which
more than 32,000 team members, retirees, friends, partners
and customers volunteered to make a positive difference
across the country and around the globe.
Our goal of volunteering one million hours was
strengthened through the incredible work of our TELUS
Community Boards. Our 18 community boards in Canada
and globally – including two new boards in Manitoba
and Barrie, Ontario – are helping young people pursue
their passions and realize their dreams. Since 2005,
our boards have contributed more than $67 million to
6,280 grassroots community programs, improving the lives
of more than two million young people and their families.
14 • TELUS 2017 ANNUAL REPORT
Clearly, one of the hallmarks of our award-winning culture
remains our team’s extraordinary commitment to enabling
improved social, educational and economic outcomes for our
fellow citizens. This dedication has resulted in more than half
a billion dollars and the equivalent of more than one million
days of volunteering and caring invested in improving the
health and strength of our communities since 2000.
Our team is equally passionate about honouring our
TELUS brand, which exemplifies nature, by preserving and
caring for the planet our children will inherit. In 2017, our
sustainability practices once again earned us national and
global recognition. Notably, TELUS was listed on the Dow
Jones Sustainability North America Index for the 17th year,
a feat unequalled by any North American telecom or cable
company. We were also included on its World Index for the
second year in a row – one of only nine telecommunications
companies globally included in the World Index last year.
Stronger together in 2018
and beyond
Impressively, TELUS concluded 2017 with the industry’s
leading customer loyalty, the best network performance in
the country, the most transparent and rewarding shareholder-
friendly capital allocation programs in our industry and a
leadership position in respect of the implementation of our
next-generation broadband networks. Backstopped by these
successes, we are approaching this year with confidence
and momentum, as reflected in the targets we have set
for 2018, including growth in revenue of up to six per cent,
EBITDA of up to seven per cent and earnings per share
of up to nine per cent.
In 2018, the entire TELUS team remains dedicated to
putting customers first through our commitment to customer
service excellence and our investments in creating the
fastest, most pervasive and reliable broadband networks.
Indeed, the positive outcomes we continue to generate for
our customers are fuelling our financial and operational
success and supporting our demonstrated ability to provide
shareholder value that is unmatched by our national peers.
I would like to thank the TELUS team for your collective
strength in continually positioning your Company for success
and delivering on our commitments to our investors, our
customers and the communities we serve.
Thank you for your continued support.
Darren Entwistle
Member of the TELUS team since 2000
February 16, 2018
2018 corporate priorities
Our corporate priorities help guide our actions
as we execute on our national growth strategy.
• Honouring our team, customers and social
purpose by delivering on our brand promise
• Leveraging our broadband networks to
drive TELUS’ growth
• Fuelling our future through recurring
efficiency gains
• Driving emerging opportunities in
TELUS Health and TELUS International.
TELUS 2017 ANNUAL REPORT • 15
WIRELESS OPERATIONS AT A GLANCE
We are keeping our customers happy
+56%
+$600
Postpaid subscriber
net additions
2017: 379,000
2016: 243,000
Lifetime revenue
per customer
2017: $6,000
2016: $5,400
5 points
better
Monthly postpaid
churn rate
2017: 0.90%
2016: 0.95%
+3.8%
Total wireless
subscribers
2017: 8.911 million
2016: 8.585 million
Fulfilling the wireless needs
of Canadians
Gaining momentum in
a growing industry
The Canadian wireless industry continued to experience
TELUS recorded an average monthly postpaid churn rate of
strong growth in 2017 with an estimated 1.3 million new wireless
0.90 per cent in 2017, the best in the North American industry,
subscribers and seven per cent network revenue growth.
along with robust postpaid subscriber growth, demonstrating the
Key drivers included ongoing customer growth, reflecting the
effectiveness of our sustained focus on putting customers first.
growing Canadian population and increased data usage driven
We also continued making significant investments in our 4G LTE
by the ongoing adoption of more advanced and multiple devices,
and LTE advanced networks, including the integration of small
attractive data rate plans and enhanced networks. Canadian
cells and new spectrum aggregation technologies that boost
carriers continued making significant capital investments to
data speeds and support our delivery of exceptional customer
enhance 4G LTE advanced networks and building new cell sites
experiences. Our sustained focus on customers helped us
to accommodate the rapid growth in data usage. Customer
generate industry-leading average lifetime revenue per customer
acquisition and retention costs remained elevated and continued
of more than $6,000. Our wireless revenue grew 6.5 per cent in
to pressure earnings due to both the prevalence of heavily
2017, reflecting 379,000 postpaid subscriber net additions and
discounted smartphones during key promotional periods and
a 3.0 per cent improvement in average revenue per subscriber
the ongoing market adoption of more expensive smartphones.
unit, as customer data usage continues to grow.
16 • TELUS 2017 ANNUAL REPORT
In 2017, we grew stronger
together by:
• Responding to customer feedback by introducing innovative
plans and simplified self-serve data management capabilities,
which give customers simpler, more affordable options with
greater price certainty
• Enhancing customer value by extending our suite of mobile
product and service offerings into non-traditional areas,
such as our connected car solution, TELUS Drive+TM, smart
watches and wireless home phone service
• Continuing to focus on retail store expansion, growing
our innovative Connected Experience Store footprint to
14 locations nationally and supporting the emerging smart
home category with products such as Google Home and
Amazon Echo
• Significantly expanding retail distribution in Manitoba while
welcoming new customers to TELUS with enhanced access
to the largest and fastest 4G LTE network in Canada
• Advancing our network towards 5G by achieving speeds
faster than 2 Gbps in tests using 3.5 GHz spectrum, which
will support a future of driverless cars, home health devices
and smart homes and businesses.
In 2018, we are creating
opportunities by:
• Continuing to put customers first and elevating their
experience, as measured by their likelihood to recommend
our products and services
• Enhancing our networks with a continued build-out of LTE
advanced technologies, deploying spectrum and expanding
small-cell technology to improve capacity and prepare for a
more efficient and timely evolution to 5G
• Growing our postpaid subscriber base and continuing
the drive for profitable growth in smartphones and data,
while expanding further into non-traditional connected
services such as smart home and security
• Strengthening our market share in the national small and
medium-sized business space by leveraging our advanced
integrated service offerings
• Focusing on the Internet of Things (IoT) to help businesses
incorporate connected devices into their operations to
enhance their efficiency, productivity and profitability, and to
bring innovative healthcare advancements to patients and
healthcare providers.
We offer
• Leading 4G LTE network covering 99 per cent
of Canadians
• The latest smartphones, tablets, mobile
Internet devices, smart home services and
IoT solutions
• Lightning-fast wireless Internet access
for video, social networking, messaging
and mobile applications, including our
Optik TV app
• International roaming to more than
225 countries
2017 results – wireless
+5.9% +5.2%
Revenue
(external)
2017: $7.54 billion
2016: $7.12 billion
Adjusted
EBITDA
2017: $3.16 billion
2016: $3.00 billion
Visit telus.com/learn to find out how
to get the most from your device
TELUS 2017 ANNUAL REPORT • 17
WIRELINE OPERATIONS AT A GLANCE
We are growing through
continued investment
+5.0%
+88,000
+39,000
+51,000
Data revenue
2017: $4.26 billion
2016: $4.06 billion
Internet subscribers
2017: 1.74 million
2016: 1.66 million
TV subscribers
2017: 1.10 million
2016: 1.06 million
Wireline customer
connections
2017: 4.14 million
2016: 4.09 million
Performing in a dynamic market
The wireline communications market continued to be defined
by changing customer habits, technology evolution and intense
competition. Enhanced data services revenue grew at a slower
facilities-based competition, which balances ongoing
investment with rigorous competition.
Investing for continued growth
pace amid increased competition and moderate business
Our significant broadband investments have put us at
spending, while declines in higher-margin legacy voice services
the forefront of delivering a superior customer experience.
were ongoing. Telecom companies made significant fibre-optic
Our future friendly home service bundle, including innovative
network expansion investments to support their growing
Optik TV 4K and Pik TV service options, continues to
consumer Internet, IP TV and business service offerings, and
differentiate us and drive our success in customer additions,
cable companies ramped up their bundled Internet and TV
despite increased competition from rival cable-TV providers
promotions, and pushed deeper into business markets.
and over-the-top video services. Our comprehensive integrated
Direct-to-consumer streaming services continued to proliferate,
wireless and wireline solutions target high-value business
requiring all carriers to invest in video delivery platforms
customers across the country, helping to maximize their
to keep pace. Canadian regulators continued to encourage
IT investments and drive greater business agility.
TELUS International (TI) expanded its presence
and capabilities through acquisitions, while
TELUS Health continued to extend its
reach. With these growing markets and
our focus on efficiency and effectiveness,
we remained one of the few established telecoms
in the world generating positive wireline revenue,
EBITDA and customer growth in 2017.
18 • TELUS 2017 ANNUAL REPORT
18 • TELUS 2017 ANNUAL REPORT
In 2017, we advanced our
capabilities by:
• Expanding and enhancing our gigabit-capable fibre-optic
network, TELUS PureFibre, which now reaches 1.44 million
premises in B.C., Alberta and Eastern Quebec – nearly
50% of our current target footprint
• Enhancing our Optik TV content offering with a revamped
Optik TV app and the launch of Pik TV, which gives
customers flexible and affordable access to live TV and
streaming apps like Netflix and YouTube through a
self-install media box
• Further developing our cloud and managed IT solutions for
businesses, as well as Internet of Things offerings, to deliver
an enhanced, flexible and secure customer experience
• Welcoming new TI clients with the acquisition of Voxpro,
We offer
• Comprehensive high-speed Internet access
with a growing fibre-optic network
• Differentiated TELUS Optik TV 4K and
to help meet our fast-growing customer demands for more
Pik TV service
locations, flexible and agile support structures, and highly
engaged multilingual team members
• Complementing the geographic reach and quality of
TELUS Health’s national pharmacy management services
by acquiring Kroll Computer Systems.
In 2018, we are reinforcing our
leadership position by:
• Continuing to elevate the customer experience by putting
our customers first, simplifying products and delivering
exceptional service
• Further expanding the capabilities, speed and reliability of
our TELUS PureFibre network
• Continuing to grow our TV and Internet subscriber bases
by introducing and promoting new and innovative services,
including home security, to our future friendly® home bundle
• Driving sales and efficiency in the enterprise and business
markets through enhanced connectivity, tailored solutions
and high-quality customer service
• Growing our evolving TI operations and strategy by integrating
Voxpro and attracting new business with the addition of next-
generation IT consulting services following the successful
acquisition of Xavient Information Systems in early 2018
• Advancing our strategy to improve the delivery of healthcare
by increasing the adoption of our innovative healthcare
technology solutions, which support greater collaboration
across the healthcare ecosystem and drive better
patient outcomes.
• Reliable home phone service
• Home automation and security
• Leading IP networks and applications
for businesses
• Hosting, managed IT, security and
cloud-based services
• Innovative healthcare technology solutions
• Business process outsourcing solutions
2017 results – wireline
+4.0%
+1.5%
Revenue
(external)
2017: $5.77 billion
2016: $5.68 billion
Adjusted
EBITDA
2017: $1.73 billion
2016: $1.67 billion
Visit telus.com/smarthome to learn
how to get connected
TELUS 2017 ANNUAL REPORT • 19
OUR SOCIAL PURPOSE
We are creating a friendlier future
Together, we are bridging the digital and
socio-economic divides, enabling us all to be connected,
safe and healthy in our online world.
Bridging the divides
We are connecting Canadians with the information and people
that matter most to them. Through our leading networks,
advanced technologies and innovative social solutions, we are
helping citizens fully participate in our increasingly digital world.
In 2017, we launched TELUS Mobility for Good in B.C. to
provide young adults transitioning from foster care into
independent living with a smartphone and rate plan at no charge.
The program ensures that young people can access the critical
services and resources they need, such as job training and
employment opportunities, and stay connected with their support
networks. It also offers digital literacy training and access to
TELUS WISE (wise Internet and smartphone education), our free
educational program, to help them stay safe online. The program
will be expanding to Ontario in 2018.
increased patient satisfaction, experience and safety, as well
as improved clinical access and lower costs.
As an example, TELUS Health partnered with Doctors of
the World, an international organization that provides medical
care to vulnerable populations, on one of Canada’s first mobile
healthcare clinics. Located in Montreal, the mobile clinic
leverages TELUS Health technology to provide care to
disadvantaged people directly where they live. Equipped with
TELUS LTE Wi-Fi network connectivity and TELUS Health
electronic medical records solutions, the mobile clinic enables
doctors to offer critical medical care and improved health
outcomes to those in need. In 2017, more than 2,000 patients
received medical care through the clinic, bringing the total to
more than 4,000 since the program began in 2014. Plans are in
place to introduce two mobile clinics to B.C. in 2018.
This initiative builds on our TELUS Internet for Good program,
introduced in B.C. in 2016 and Alberta in 2017, which is providing
Caring for our planet
low-income families with TELUS-subsidized home Internet service
We continue to advance our efforts to promote a healthier, more
and access to a low-cost computer and digital literacy training.
sustainable environment. In 2017, we progressed our long-term
Transforming healthcare
We are enabling remarkable health outcomes through the use
of innovative technology solutions, helping patients get better
care while easing the burden on the healthcare system. We are
working with health authorities and community partners to build
a more sustainable healthcare system to address a need for
partnership with the Nature Conservancy of Canada (NCC) by
becoming its official technology and innovation partner. Our
three-year, $750,000 agreement is providing the NCC with the
latest technology – such as Internet connectivity, data capacity,
hardware, a wide area network and new phone systems – that
will help it more effectively protect 1.2 million hectares of natural
habitats, home to some of Canada’s most endangered species.
20 • TELUS 2017 ANNUAL REPORT
Giving a million hours
In 2017, in celebration of Canada 150+, TELUS team members,
along with Canadians from coast to coast, volunteered
more than one million hours to help improve our communities
and create meaningful social outcomes.
We place great emphasis on ensuring our buildings meet
We also inspire youth to drive social change through our
the highest leadership in energy and environmental design (LEED)
10-year partnership with WE, an international charity and
standards. Currently, TELUS is the single largest leaseholder of
educational partner. TELUS is the national co-title sponsor of
LEED-certified real estate in the country. Our new Calgary office
WE Day, the largest series of youth education and empowerment
tower, TELUS Sky ®, is scheduled for completion in 2019 and
events in North America, which brings socially minded teens and
is being built to LEED platinum standards.
pre-teens together with world-renowned motivational speakers
For more information on our sustainability practices, visit
and individuals who have overcome adversity. Last year, 136,000
telus.com/sustainability.
youth attended 11 WE Day events across Canada.
Advancing education and keeping
Canadians safe online
In addition, TELUS recently collaborated with WE to develop
a co-branded school curriculum that focuses on cyberbullying
and digital citizenship, and features TELUS WISE resources.
The curriculum, which was distributed to 6,000 schools and
Recognizing the importance education plays in empowering
groups across Canada in 2017, includes educational resources
our youth and ensuring their future success, we look for
and lesson plans that are designed to help youth rise above
opportunities to fund youth-based education programs and
cyberbullying and create positive change in their communities.
use the power of technology to ensure equal access to learning.
Additionally, as digital interactions increase, we remain committed
Helping those in need
to helping Canadians stay safe online.
An important element of our digital strategy is TELUS WISE,
which offers innovative training and educational resources to
Canadians of all ages about safe and responsible Internet use.
As part of this program, we provide youth with critical tools
and knowledge that can help them recognize and combat
cyberbullying and learn how to keep themselves and their
friends safe in our digital society. In 2017, we surpassed
1.7 million engagements with TELUS WISE.
Our team is passionate about making a positive social impact and
providing support for those who need it most. We are guided by
our community philosophy – we give where we live® – and are
committed to making a difference in our communities. Our vision
is to create strong, sustainable communities, with a particular
focus on empowering our youth to reach their full potential.
In 2017, TELUS, our team members and retirees contributed
more than $45 million to charitable and community organizations
and volunteered one million hours.
TELUS 2017 ANNUAL REPORT • 21
EXECUTIVE LEADERSHIP TEAM
We are leading the way
and lending a hand
Together, we look for opportunities to make a positive
impact and contribute to strong, healthy and sustainable
communities. Here are some of the ways members of our
Executive Leadership Team give back to local communities.
Phil Bates
Executive Vice-President
(EVP), Business
Transformation and
Operations
Location: Vancouver,
British Columbia
Joined TELUS: 2003
Executive: 2015
TELUS shareholdings: 107,128
Phil Bates assembling
Comfort Kits with fellow team
members at TELUS Garden®
in Vancouver, B.C.
Josh Blair gardening
at the Dr. Peter AIDS
Centre with his wife,
Andrea Martin Blair,
and sons, Henry
and Ethan, in
Vancouver, B.C.
Josh Blair
Chief Corporate Officer; EVP, TELUS
Health and Business Solutions West;
and Chair, TELUS International
Location: Vancouver, British Columbia
Joined TELUS: 1995
Executive: 2007
TELUS shareholdings: 325,206
Doug French (left)
volunteering at the
Dr. Peter AIDS Centre
with his wife, Ann,
daughters, Samantha
and Rachel, and
father, Don, in
Vancouver, B.C.
Doug French
EVP and Chief Financial Officer
Location: Vancouver, British Columbia
Joined TELUS: 2000 (Clearnet: 1996)
Executive: 2016
TELUS shareholdings: 75,123
David Fuller
participating in the
JDRF TELUS Walk
to Cure Diabetes with
his wife, Carmen, in
Toronto, Ontario.
David Fuller
EVP and President, TELUS Consumer
and Small Business Solutions
Location: Toronto, Ontario
Joined TELUS: 2004
Executive: 2014
TELUS shareholdings: 201,676
22 • TELUS 2017 ANNUAL REPORT
Tony Geheran
EVP and President,
Broadband Networks
Location: Vancouver,
British Columbia
Joined TELUS: 2001
Executive: 2015
TELUS shareholdings: 119,205
Tony Geheran participating
in Habitat for Humanity’s
Carter Place Home Dedication
Ceremony, with recipients of
the new home, in Edmonton,
Alberta.
François Gratton
landscaping at The
Lighthouse Children
and Families with his
daughter, Stéphanie,
and son, Alexandre,
in Montreal, Quebec.
François Gratton
EVP, Partner Solutions, and
President, Business Solutions East
and TELUS Québec
Location: Montreal, Quebec
Joined TELUS: 2008 (Emergis: 2002)
Executive: 2015
TELUS shareholdings: 121,553
Sandy McIntosh
(right) participating
in the OneWalk to
Conquer Cancer with
her niece, Zoe Dicaire,
in Toronto, Ontario.
Sandy McIntosh
EVP, People and Culture, and
Chief Human Resources Officer
Location: Toronto, Ontario
Joined TELUS: 2007
Executive: 2015
TELUS shareholdings: 108,699
Monique Mercier
(right) marching in
the Pride Parade
with Nicole Bleau
in Vancouver, B.C.
Monique Mercier
EVP, Corporate Affairs, and Chief Legal
and Governance Officer
Location: Vancouver, British Columbia
Joined TELUS: 2008 (Emergis: 1999)
Executive: 2011
TELUS shareholdings: 113,622
Eros Spadotto
EVP, Technology Strategy
Location: Toronto, Ontario
Joined TELUS: 2000
(Clearnet: 1995)
Executive: 2005
TELUS shareholdings: 175,349
Eros Spadotto assembling
backpacks for children in
need in Ottawa, Ontario.
Darren Entwistle
President and Chief Executive Officer
More information can be found on page 27
For further information, visit
telus.com/ELT
TELUS shareholdings represent the total common shares and restricted stock units held as at December 31, 2017.
TELUS 2017 ANNUAL REPORT • 23
QUESTIONS AND ANSWERS
We are communicating
with clarity and transparency
We spoke with some members of our Executive Leadership Team
to garner their thoughts on issues that are top of mind for investors,
such as our generational investments in advanced broadband
technologies, the competitive landscape and our growth strategies.
JB
DF
MM
ES
Josh Blair
Chief Corporate Officer;
Executive Vice-President (EVP),
TELUS Health and
Business Solutions West; and
Chair, TELUS International
David Fuller
EVP and President,
TELUS Consumer and
Small Business Solutions
Monique Mercier
EVP, Corporate Affairs, and
Chief Legal and Governance Officer
Eros Spadotto
EVP, Technology Strategy
How will Canadians benefit from TELUS’
investments in broadband?
What is TELUS doing to differentiate
itself from the competition?
Our investments to evolve our broadband networks
The landscape in which we operate is increasingly
ES
and our momentum in bringing state-of-the-art
DF
competitive and 2017 saw us extend our leadership in
technologies to market are driving extraordinary
service excellence. Our customers enjoy the benefits
benefits for Canadians. Through our TELUS PureFibre network,
of a superior network and a talented team that is focused on
which now reaches 109 communities in B.C., Alberta and
providing exceptional customer experiences. We constantly look
Quebec, we are delivering on Canadians’ demands for improved
for ways to make it easy for our customers and strive to give them
reliability and ultra-fast speeds, and future-proofing communities
the information they need at their fingertips. In 2017, we elevated
for generations. We are currently developing solutions with
our digital experience with investments in our My Account app,
the capability to support residential speeds faster than 1 Gbps
which has been downloaded over one million times. We have over
and the delivery of high-bandwidth augmented and virtual
1,900 points of distribution, including 14 Connected Experience
reality services. Likewise, our 4G LTE network was recognized
stores, enabling us to share our lineup of leading digital life solu-
for its superior performance among Canadian networks by
tions in a meaningful way. We significantly expanded our reach in
four prominent independent sources in 2017, and brings greater
Manitoba, where our customers now benefit from our $70 million
reliability and faster speeds to 99 per cent of our population.
investment in the province’s largest 4G LTE network. Our true
Our investments in broadband provide Canadians with the
differentiator remains our outstanding team members, who
most advanced solutions and promote economic development
embody a culture of putting our customers first, strive to be as
by enabling businesses to leverage world-leading networks
transparent as possible and commit to investing in our com-
to compete on a global scale. Our team remains focused on
munities. Combining trust in our brand with our industry-leading
progressing our wireless leadership position, hastening the
TELUS PureFibre and award-winning LTE mobility networks
evolution of TELUS’ broadband networks and deploying 5G
continues to be a recipe for success for TELUS. Our team’s
in the coming years.
tireless emphasis on differentiating ourselves through innovation
and service excellence will continue in 2018 and beyond.
24 • TELUS 2017 ANNUAL REPORT
“Our customers enjoy the benefits
of a superior network and a talented
team that is focused on providing
exceptional customer experiences.”
“Our investments in broadband
provide Canadians with the most
advanced solutions and promote
economic development.”
David Fuller
Eros Spadotto
What’s the latest with telecom regulation?
MM
We have a good relationship with government and
regulators. Our industry has been top of mind for
the government – particularly in terms of connectivity,
affordability and competition. The government has stressed the
importance of network builders such as TELUS and the need
to sustain an attractive investment environment. We partnered
with the Government of Canada through its Connect to Innovate
program and, together with the Government of Quebec,
committed nearly $45 million to bring our broadband networks
to underserved communities and extend our world-class
technology to more Canadians. In terms of wireless connectivity
and affordability, we proactively worked with governments to
demonstrate that our TELUS, Koodo and Public Mobile brands
offer citizens a near-ubiquitous wireless experience, as well
as choice, flexibility and a range of affordable price points.
Our concerted effort to put customers first and respond to their
requirements is the core of our business and will continue to
be reflected in our submissions on spectrum auction rules,
mandated roaming and wholesale access.
How are broadband investments
driving continuous innovation?
We are committed to innovation
ES
and enabling technologies that
improve the lives of Canadians.
We are working to build the latest broadband
technologies and capitalize on the promise
of convergent network technologies, in
support of powering the smart homes,
businesses, cities and healthcare apps of
tomorrow. In 2017, we accelerated our
TELUS PureFibre deployment, which
now provides access to 1.44 million
homes and businesses. We also broke
new ground in advancing 5G wireless
capabilities in our Living Lab, including
successfully piloting 5G wireless-to-
the-premises technology, as well as
TELUS 2017 ANNUAL REPORT • 25
“We proactively worked with
governments to demonstrate that
our brands offer citizens choice,
flexibility and a range of affordable
price points.”
“Through TELUS Health, we continue
to deliver on our vision to enable
better health outcomes for Canadians
through better health information
for less money spent.”
Monique Mercier
Josh Blair
leveraging 3.5 GHz spectrum to achieve mobile download
in over 35 languages by our talented team of 30,000 team
speeds eclipsing 2 Gbps. These advancements are placing
members. We continue to partner with organizations that share
Canada at the forefront of global 5G research and creating
our commitment to providing world-class client experiences
the foundation to provide next-generation services. We became
by helping them to provide better service for their customers.
the first carrier in Canada to deploy licensed assisted access
TI continues to focus on growth and, in 2017, expanded with
technology to achieve record-breaking wireless speeds of nearly
our acquisition of Voxpro, which has extended our U.S. footprint
1 Gbps. Our Network as a Service solution for businesses was
and added new capacity in Europe and Asia. Additionally, our
recognized as Most Innovative Product/Service for Operators
acquisition of Xavient adds client diversity, next-generation
by Telecom Review and is enabling software-defined networking
IT solutions and operations in the U.S. and India that will help
capabilities and the virtualized networks of the future.
us sustain our double-digit growth trajectory. These strategic
How is TELUS positioned for success
versus its peers in wireless?
acquisitions will contribute to TI’s expansion across key capabilities,
client verticals and geographic regions, and will have a positive
impact on the strength of both TELUS and TI over the longer term.
DF
Our success in mobility begins by leveraging our
Importantly, TI continues to provide diversification to TELUS’
network’s superior reach, speed and quality. We con-
long-term growth profile and its growth supports our generational
tinue by focusing on putting cus tomers first and
investments in broadband networks across Canada.
ensuring they have the best customer experi ence in the industry,
as evidenced by TELUS having the fewest complaints among
our national peers with the Commission for Complaints for
How is TELUS Health contributing
to TELUS’ growth?
Telecom-television Services. These same customers are staying
Through TELUS Health, we continue to deliver on
with us longer, which is reflected in our industry-leading client
JB
our vision to enable better health outcomes for
loyalty. In fact, TELUS has earned a wireless postpaid churn rate
Canadians through better health information for less
of less than one per cent for four full years. We achieve these
money spent. We are investing to bring patient-centred solutions
levels of excellence by focusing on what matters most to our
to market that improve the flow of patient information across
customers, including removing pain points and enhancing our
the continuum of care. Notably, our recent acquisitions – such
self-serve options in an effort to make it easier for our customers
as Kroll, a complementary pharmacy management software
to do business with us. Our mobile and home bundled offerings,
company, and Practimax, an advanced electronic medical
as well as our family plans and suite of features that enable
records solution – have expanded our suite of offerings. We also
customers to better manage their data usage with real-time
launched MedDialog, which enables doctors to communicate
data notifications, are compelling incentives to join and
electronically and securely with each other regarding the care
stay with TELUS.
How will TELUS International maintain
its path of growth?
of their patients, allowing for seamless communication, greater
efficiency and better patient care. As well, we are partnering
with Canada Health Infoway to bring electronic prescribing to
physicians, pharmacists and consumers across Canada, starting
JB
TELUS International (TI), under the leadership of
with Alberta and Ontario. These are just a few examples of
President and CEO, Jeffrey Puritt, remains focused on
how we are continuously striving to be the health IT partner of
providing outstanding contact centre and business
choice for Canadian physicians, pharmacists, extended
process and IT solutions to our global customers, offering service
healthcare providers, insurers and consumers.
26 • TELUS 2017 ANNUAL REPORT
Board of Directors
1
6
2
7
3
8
4
9
5
10
11
12
13
14
1 R.H. (Dick) Auchinleck, TELUS Chair
Residence: Victoria, British Columbia
Director since: 2003
TELUS shareholdings: 192,765
2 Raymond T. Chan
Residence: Calgary, Alberta
Director since: 2013
TELUS Committees: Pension, and
Human Resources and Compensation
TELUS shareholdings: 36,802
3 Stockwell Day
Residence: Vancouver, British Columbia
Director since: 2011
TELUS Committees: Human Resources
and Compensation; and Chair, Pension
TELUS shareholdings: 34,621
4 Lisa de Wilde
Residence: Toronto, Ontario
Director since: 2015
TELUS Committees: Corporate
Governance and Pension
TELUS shareholdings: 14,311
5 Darren Entwistle
Residence: Vancouver, British Columbia
Director since: 2000
TELUS shareholdings: 605,113
6 Mary Jo Haddad
Residence: Oakville, Ontario
Director since: 2014
TELUS Committee: Chair, Human
Resources and Compensation
TELUS shareholdings: 21,736
11 Sarabjit (Sabi) S. Marwah
Residence: Toronto, Ontario
Director since: 2015
TELUS Committees: Audit and Corporate
Governance
TELUS shareholdings: 20,094
7 Kathy Kinloch
12 Claude Mongeau
Residence: Vancouver, British Columbia
Director since: 2017
TELUS Committee: Audit
TELUS shareholdings: 4,338
Residence: Montreal, Quebec
Director since: 2017
TELUS Committee: Audit
TELUS shareholdings: 71,746
8 John S. Lacey
13 David Mowat
Residence: Thornhill, Ontario
Director since: 2000
TELUS Committees: Corporate
Governance, and Human Resources
and Compensation
TELUS shareholdings: 160,007
9 William (Bill) A. MacKinnon
Residence: Toronto, Ontario
Director since: 2009
TELUS Committee: Chair, Audit
TELUS shareholdings: 76,044
10 John Manley
Residence: Ottawa, Ontario
Director since: 2012
TELUS Committees: Pension; and Chair,
Corporate Governance
TELUS shareholdings: 36,202
TELUS 2017 ANNUAL REPORT • 27
Residence: Edmonton, Alberta
Director since: 2016
TELUS Committees: Audit, and Human
Resources and Compensation
TELUS shareholdings: 15,499
14 Marc Parent
Residence: Montreal, Quebec
Director since: 2017
TELUS Committee: Audit
TELUS shareholdings: 1,553
TELUS shareholdings represent the total common
shares and deferred stock units (restricted stock units
for Darren Entwistle) held as at December 31, 2017.
For further information,
visit telus.com/Board
CORPORATE GOVERNANCE
We are dedicated to
good governance and integrity
Together, we are strongly committed to sound and effective
practices in corporate governance and full and fair disclosure.
Our ongoing efforts to enhance our practices help us pursue
greater transparency and ensure integrity in our actions.
Guiding our business
We announced the appointment of three new directors in 2017.
Kathy Kinloch and Claude Mongeau were elected as directors in
May, and Marc Parent joined our Board in November. Collectively,
Kathy, Claude and Marc bring a wealth of strategic expertise,
significant experience in key markets and extensive knowledge
in areas that are aligned with our vision and business strategy.
We initiated our committee chair succession process in
Currently, 38 per cent (five members) of our independent
directors represent this diversity, exceeding our goal of 30 per
cent. As well, 23 per cent (three members) of our independent
directors are women, and we are working toward meeting
our goal of having 30 per cent of each gender represented
in 2018.
Earning the trust of our stakeholders
May 2016, with Mary Jo Haddad replacing John Lacey as Chair
Adhering to high ethical standards is essential to everything we
of the Human Resources and Compensation Committee in 2017.
do at TELUS. Together, we know that having a shared commitment
John remains a member of the committee, acting as a resource
to integrity and fostering a culture of open communication sets
and helping the Board ensure a smooth transition with an
the foundation for earning the trust of our customers, investors
emphasis on continuity and consistency.
and team members.
Fostering diversity
We recognize that cultivating diversity provides a major
competitive advantage and helps to ensure our Board benefits
from a broader range of perspectives and relevant experience
that better reflects our customers and the communities we serve.
In support of our Board diversity policy, we set targets to have
diversity represented by not less than 30 per cent of our Board’s
independent members by 2017, and a minimum representation
of 30 per cent of each gender by the end of 2018.
For a full statement of TELUS’ corporate
governance practices, including our
Board policy manual and disclosure
regarding our governance practices
compared to those required by the
New York Stock Exchange, refer to
the TELUS 2018 information circular
or visit telus.com/governance
Each year, we review our code of ethics and conduct to
ensure it remains relevant. We also update our online learning
course, called Integrity, which establishes the expectations of
how we conduct business and interact with each other, as well
as with our customers, investors, suppliers and communities.
The course focuses on four main themes – ethics, privacy,
security and respect – and is mandatory for all team members
and the majority of our contractors.
In 2017, we advanced efforts to help our stakeholders better
understand our commitment to protecting personal information
and being transparent about how we collect, use and secure
information. We enhanced our privacy training with a stand-alone
annual mandatory training course. We also updated our privacy
commitment and code, adding more detail and streamlining the
information to make it easier for customers to find what they need
on our website and helping them increase their understanding
of our privacy practices. As well, we introduced a comprehensive
privacy management program framework that incorporates
a variety of controls and practices to protect the privacy of our
customers and team members. For more information, visit
telus.com/privacy.
28 • TELUS 2017 ANNUAL REPORT
Long-standing best
practices in corporate
governance
Say-on-pay vote
Majority voting
policy
Clawback policy
Board diversity
policy
Shareholder
engagement policy
Code of ethics
and conduct and
EthicsLine
Privacy
management
program
framework
Enterprise risk
governance and
oversight
Board recruitment
process and
orientation
programs
Mandatory
continuing
education sessions
for the Board
Board and
committee
succession
planning
CEO succession
planning
planning
Board, committee
and director
evaluations
Director term limits
Share ownership
guidelines for
directors and
executives
We continue to provide an EthicsLine for anonymous and
confidential questions or complaints on internal controls and
other issues related to integrity. Calls are handled by an
independent agency, offering multi-language services to internal
and external callers 24 hours a day. For the 15th consecutive
year, none of the calls made to the Ethics Office in 2017 involved
breaches by team members with a significant role in internal
the Canadian Coalition for Good Governance to discuss our
controls over financial reporting.
sustainability program and best practices in this area. To view
Encouraging communication
We place great importance on communicating with our
past and upcoming events, visit telus.com/investors.
Gaining recognition for our efforts
stakeholders and providing opportunities for open and honest
Our efforts to achieve excellence in corporate governance and
dialogue, which is demonstrated by our shareholder engagement
provide transparent disclosure continue to be recognized. In 2017,
policy. We recognize that timely and regular communication
we received the Award of Excellence in Corporate Governance
helps investors make sound, informed investment decisions.
Disclosure and a Gold Award in Corporate Reporting from the
In 2017, we participated in numerous investor conferences and
Chartered Professional Accountants of Canada. In addition, our
tours and met with many institutional investors in Canada, the
2016 annual report placed first in the world in the telecommuni-
United States and Europe. As well, Dick Auchinleck, TELUS Chair,
cations sector in the 2017 Annual Report on Annual Reports by
along with some of our executives, met with representatives of
ReportWatch, an international ranking by industry sector.
To provide shareholder feedback or comments to our Board, email board@telus.com
TELUS 2017 ANNUAL REPORT • 29
CFO LETTER TO INVESTORS
We are building outstanding value
for our shareholders
Together, our team delivered strong financial results in 2017, meeting our
revenue and earnings growth targets for the seventh year running, while
continuing to make generational investments in our advanced broadband
networks and delivering significant returns to our shareholders.
Delivering growth and
shareholder value
Our financial results in 2017 reflected profitable growth
across our wireless and wireline businesses. Outstanding
postpaid wireless gross loading, combined with industry-
leading churn, led to our best wireless customer growth
since 2013. The ever-increasing demand for data services
also drove another year of robust growth in average revenue
per subscriber. In wireline, we balanced solid high-speed
Internet and TV customer growth with consistent, positive
financial performance while slowing losses in high-margin
legacy network access lines. We also made strategic
acquisitions to bolster our diversified TELUS Health and
TELUS International businesses.
In 2017, we reached the peak of our capital investments
with a record $3.1 billion invested, and we are nearing
the halfway point of our fibre-optic build. We generated
$966 million in free cash flow in 2017 and we are expecting
an increase of more than 37 per cent in 2018, as a result
of our strategic investments and efficiency initiatives, which
are continuing to drive profitable growth in our key markets.
We continued our industry-leading dividend growth
program, returning more than $1.1 billion in dividends during
the year, with our shareholders enjoying a total annual return
of 16 per cent in 2017. This is the seventh year of the past
eight that TELUS has delivered a double-digit annual
shareholder return, reflecting our commitment to a strategy
that supports shareholder-friendly initiatives, despite
economic and competitive pressures.
Leading the way
Looking ahead, we will continue delivering value to
investors and supporting our targeted seven to 10 per cent
annual dividend growth program through to the end of
2019 by:
• Delivering on our profitable growth strategy
• Maintaining our strong balance sheet and being careful
stewards of capital over the long term
• Maximizing the value of our investments to drive profitable
growth and positive free cash flow
• Continuing to implement our operational effectiveness
initiatives in order to achieve an optimal cost structure.
Consolidated 2018 targets1
4 to 6% 4 to 7% 3 to 9% ~ $2.85
billion
Revenues
$13.835 to $14.100 billion
Adjusted EBITDA2
$5.105 to $5.230 billion
Basic earnings per share
$2.53 to $2.68
Capital expenditures
(excluding spectrum
licences)
1 See Caution regarding forward-looking statements on page 38 of this report.
2 For a definition of this non-GAAP measure, see Section 11 of Management’s discussion and analysis in this report.
30 • TELUS 2017 ANNUAL REPORT
Financial review
30-31
CFO letter to investors
A look at TELUS’ financial performance and how
we create value for our investors
32-37
Financial and operating statistics
Annual and quarterly financial and operating
information
38-110
Management’s discussion and analysis
A discussion of our financial position and
performance
111-174
Consolidated financial statements
2017 consolidated financial statements and
accompanying notes
175-Back cover
Additional investor resources
Glossary, investor information and reasons to
invest in TELUS
“We continued our industry-leading
dividend growth program, returning
more than $1.1 billion in dividends
during the year, with our shareholders
enjoying a total annual return of
16 per cent in 2017.”
Corporate social responsibility is deeply embedded in our
culture. We are taking an integrated approach to our strategy,
operations and reporting to ensure a resilient business
model that reflects the opportunities and risks posed by
environmental and social issues. As a founding member of
the Prince’s Accounting for Sustainability project, we are
working to demonstrate the ways in which finance and
business can play a role in creating a healthier and more
sustainable future.
We believe that investing in customers, communities and
team members is integral to our success. This commitment
enables us to build on our world-class culture and support
our highly engaged team members who continue to put
customers first. It also helps drive sustainable financial
success and value creation for our investors.
Creating ongoing value
Our proven strategy to deliver the best solutions to Canadians
by investing in technology, network reliability and future
capabilities will continue to fuel our growth, industry leadership
and best-in-class shareholder return. Building on the
momentum generated in 2017, we will maintain a relentless
focus on achieving our financial commitments and positioning
TELUS for continued success in 2018 and beyond.
Best regards,
Doug French
Executive Vice-President and Chief Financial Officer
February 16, 2018
TELUS 2017 ANNUAL REPORT • 31
Annual consolidated financial information
Consolidated
Statement of income (millions)
2017
2016
2015
2014
2013
2012
2011
Operating revenues
$ 13,304
$ 12,799
$ 12,502
$ 12,002
$ 11,404
$ 10,921
$ 10,397
Operating expenses before restructuring and
other costs, depreciation and amortization1
EBITDA – excluding restructuring and other costs1
Restructuring and other costs2
EBITDA1
Depreciation and amortization
Operating income
Financing costs before long-term debt
prepayment premium
Long-term debt prepayment premium
8,391
4,913
139
4,774
2,169
2,605
573
–
8,091
4,708
479
4,229
2,047
2,182
520
–
8,014
4,488
226
4,262
1,909
2,353
447
–
7,711
4,291
75
4,216
1,834
2,382
443
13
7,288
4,116
98
4,018
1,803
2,215
424
23
7,014
3,907
48
3,859
1,865
1,994
374
–
6,697
3,700
35
3,665
1,810
1,855
383
–
Income before income taxes
2,032
1,662
1,906
1,926
1,768
1,620
1,472
Income taxes
Net income
553
426
524
501
474
416
346
$ 1,479
$ 1,236
$ 1,382
$ 1,425
$ 1,294
$ 1,204
$ 1,126
Net income attributable to common shares3
$ 1,460
$ 1,223
$ 1,382
$ 1,425
$ 1,294
$ 1,204
$ 1,130
Share information3
Basic total weighted average shares
outstanding (millions)
Year-end shares outstanding (millions)
2017
2016
2015
2014
2013
2012
2011
593
595
592
590
603
594
616
609
640
623
651
652
649
650
Basic earnings per share (EPS)
$ 2.46
$ 2.06
$ 2.29
$ 2.31
$ 2.02
$ 1.85
$ 1.74
Dividends declared per common share
1.97
1.84
1.68
1.52
1.36
1.22
1.1025
Financial position (millions)
Capital assets, at cost 4
2017
2016
2015
2014
2013
2012
2011
$ 47,958
$ 46,684
$ 44,686
$ 41,512
$ 38,575
$ 37,189
$ 36,586
Accumulated depreciation and amortization 4
25,932
25,856
24,965
24,592
23,616
22,843
22,469
Total assets
Net debt 5
Total capitalization6
Long-term debt
Owners’ equity
29,548
13,422
21,634
27,729
26,406
23,217
21,566
20,445
19,931
12,652
11,953
9,393
7,592
6,577
6,959
20,546
19,566
16,809
15,576
14,223
14,461
12,256
11,604
11,182
8,263
7,936
7,672
9,055
7,454
7,493
8,015
5,711
7,686
5,508
7,513
OPERATING REVENUES AND EBITDA – EXCLUDING
RESTRUCTURING AND OTHER COSTS1
($ billions)
DIVIDENDS DECLARED PER SHARE3 AND BASIC EPS3
($)
2017
2016
2015
2014
2013
2012
2011
4.9
4.7
4.5
4.3
4.1
3.9
3.7
13.3
2017
12.8
12.5
12.0
11.4
10.9
10.4
2016
2015
2014
2013
2012
2011
1.97
2.46
1.84
2.06
1.68
1.52
2.29
2.31
1.36
1.22
1.1025
2.02
1.85
1.74
EBITDA – excluding restructuring and other costs
Operating revenues
Dividends declared per share
Basic EPS
32 • TELUS 2017 ANNUAL REPORT
Quarterly consolidated financial information
Consolidated
Statement of income (millions)
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Operating revenues
$ 3,467
$ 3,366
$ 3,273
$ 3,198
$ 3,305
$ 3,238
$ 3,148
$ 3,108
Operating expenses before restructuring and
other costs, depreciation and amortization1
2,284
2,134
2,040
1,933
2,188
2,047
1,936
1,920
EBITDA – excluding restructuring and other costs1
1,183
1,232
1,233
1,265
1,117
1,191
1,212
1,188
Restructuring and other costs2
60
36
39
4
EBITDA1
Depreciation and amortization
Operating income
Financing costs before long-term debt
prepayment premium
Long-term debt prepayment premium
Income before income taxes
Income taxes
Net income
1,123
1,196
1,194
1,261
564
559
547
649
526
668
532
729
348
769
533
236
60
23
48
1,131
1,189
1,140
515
616
499
690
500
640
144
149
142
138
134
129
134
123
–
415
133
–
500
130
–
526
140
–
591
150
–
102
15
–
487
132
–
556
140
–
517
139
$ 282
$ 370
$ 386
$ 441
$ 87
$ 355
$ 416
$ 378
Net income attributable to common shares
$ 281
$ 367
$ 379
$ 433
$ 81
$ 348
$ 416
$ 378
Share information
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Basic total weighted average shares
outstanding (millions)
Period-end shares outstanding (millions)
595
595
594
594
592
593
591
591
591
590
592
591
593
592
593
593
Basic EPS
$ 0.47
$ 0.62
$ 0.64
$ 0.73
$ 0.14
$ 0.59
$ 0.70
$ 0.64
Dividends declared per common share
0.5050
0.4925
0.4925
0.4800
0.48
0.46
0.46
0.44
1 These are non-GAAP measures and do not have standardized meanings under International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). Therefore, they are unlikely to be comparable to similar measures presented by other companies. For definitions or more
information, see Section 11 of the MD&A in this report.
Includes a $305 million immediately vesting transformative compensation expense recorded in the fourth quarter of 2016.
2
3 Common shares and non-voting shares prior to February 4, 2013.
Includes Property, plant and equipment and Intangible assets.
4
5 The summation of Long-term debt excluding unamortized debt issuance cost, Current maturities of long-term debt, Short-term borrowings, and net deferred hedging liability
related to U.S. dollar commercial paper and U.S. dollar Notes, less Accumulated other comprehensive income amounts arising from financial instruments used to manage
interest rate and currency risks associated with U.S. dollar-denominated long-term debt (excluding tax effects) and Cash and temporary investments.
6 Net debt plus Owners’ equity excluding Accumulated other comprehensive income (loss).
Note: Certain comparative information has been restated to conform with the 2017 presentation.
OPERATING REVENUES
($ millions)
EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS1
($ millions)
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
3,467
3,366
3,273
3,198
3,305
3,238
3,148
3,108
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
TELUS 2017 ANNUAL REPORT • 33
1,183
1,232
1,233
1,265
1,117
1,191
1,212
1,188
Annual operating statistics
Consolidated
Cash flow statement information
2017
2016
2015
2014
2013
2012
2011
Cash provided by operating activities (millions)
$ 3,947
$ 3,219
$ 3,556
$ 3,407
$ 3,246
$ 3,219
$ 2,550
Cash used by investing activities (millions)
Cash provided (used) by financing activities (millions)
Profitability ratios
Dividend payout1
Return on common equity 2
Cash flows to assets 3
Debt and coverage ratios
EBITDA interest coverage ratio 4
Net debt to EBITDA ratio5,6
Other metrics
(3,643)
(227)
80%
17.8%
13.4%
8.7
2.73
(2,923)
(4,477)
(3,668)
(2,389)
(2,058)
(1,968)
(87)
1,084
(15)
(628)
(1,100)
(553)
89%
15.4%
11.6%
8.3
2.69
73%
18.3%
13.5%
9.7
2.66
66%
17.8%
14.7%
9.5
2.19
67%
16.8%
15.1%
10.5
1.84
66%
15.6%
15.7%
11.8
1.68
63%
14.4%
12.8%
9.8
1.88
EBITDA6 less capital expenditures (millions)
$ 1,819
$ 1,740
$ 1,911
$ 1,932
$ 2,006
$ 1,926
$ 1,853
Free cash flow (millions)7
$ 966
$ 141
$ 1,078
$ 1,057
$ 1,051
$ 1,331
$ 997
Capital expenditures (excluding spectrum
licences) (millions)
$ 3,094
$ 2,968
$ 2,577
$ 2,359
$ 2,110
$ 1,981
$ 1,847
Cash payments for spectrum licences (millions)
–
$ 145
$ 2,048
$ 1,171
$ 67
23%
21%
20%
19%
12,673
12,495
12,228
11,685
11,474
11,050
–
18%
–
18%
Capex intensity 8
Total customer connections (000s)9
Employee-related information
23%
13,050
Total salaries and benefits (millions)6
$ 3,036
$ 2,985
$ 3,007
$ 2,851
$ 2,743
$ 2,474
$ 2,258
Total active employees10
Full-time equivalent (FTE) employees
53,600
52,900
51,300
50,500
47,700
46,600
43,700
42,700
43,400
42,300
42,400
41,400
41,100
40,100
CASH PROVIDED BY OPERATING ACTIVITIES
($ millions)
CAPITAL EXPENDITURES (EXCLUDING SPECTRUM LICENCES)
($ millions)
2017
2016
2015
2014
2013
2012
2011
3,947
2017
3,219
3,556
3,407
3,246
3,219
2,550
2016
2015
2014
2013
2012
2011
3,094
2,968
2,577
2,359
2,110
1,981
1,847
34 • TELUS 2017 ANNUAL REPORT
Quarterly operating statistics
Consolidated
Cash flow statement information
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Cash provided by operating activities (millions)
$ 979
$ 1,133 $ 1,126 $ 709 $ 732 $ 1,032 $ 892 $ 563
Cash used by investing activities (millions)
Cash provided (used) by financing activities (millions)
(734)
(224)
(866)
(1,221)
(150)
(328)
(822)
475
(848)
138
(680)
(370)
(735)
(207)
(660)
352
Profitability ratios
Dividend payout1
Return on common equity 2
Cash flows to assets 3
Debt and coverage ratios
EBITDA interest coverage ratio 4
Net debt to EBITDA ratio 5,6
Other metrics
80%
91%
91%
17.8%
15.3%
15.2%
13.4%
12.5%
12.4%
87%
16.0%
11.8%
89%
76%
74%
15.4%
17.9%
18.5%
11.6%
12.1%
12.3%
76%
17.7%
12.7%
8.7
2.73
8.5
2.76
8.6
2.79
8.5
2.73
8.3
2.69
8.5
2.62
8.8
2.67
9.2
2.74
EBITDA6 less capital expenditures (millions)
$ 444 $ 411 $ 423 $ 541 $ 323 $ 404 $ 443 $ 570
Free cash flow (millions)7
$ 274 $ 215 $ 260 $ 217
$ (191)
$ 98 $ 126 $ 108
Capital expenditures (excluding spectrum
licences) (millions)
$ 739 $ 821 $ 810 $ 724 $ 794 $ 787 $ 769 $ 618
Cash payments for spectrum licences (millions)
–
–
–
–
–
–
$ 145
–
Capex intensity 8
21%
24%
25%
23%
24%
24%
24%
20%
Total customer connections (000s)9
13,050
12,942
12,810
12,683
12,673
12,577
12,494
12,443
Employee-related information
Total salaries and benefits (millions)6
$ 786
$ 754 $ 756 $ 740 $ 751 $ 761 $ 739 $ 734
1 Sum of the last quarterly dividends declared per share, divided by the sum of Basic earnings per share reported in the most recent four quarters.
2 Equity share income divided by the average quarterly share equity for the 12-month period. Quarterly ratios are calculated on a 12-month trailing basis.
3 Cash provided by operating activities divided by total assets. Quarterly ratios are based on 12-month trailing cash flow provided by operating activities.
4 EBITDA – excluding restructuring and other costs, divided by Financing costs before long-term debt prepayment premium and capitalized long-term debt interest,
calculated on a 12-month trailing basis.
5 Net debt at the end of the period divided by 12-month trailing EBITDA – excluding restructuring and other costs.
6 Excluding restructuring and other costs.
7 EBITDA as reported, adjusted for payments in excess of expense for share-based compensation, restructuring initiatives and defined benefit plans, and deducting cash
interest, cash income taxes, gain on exchange of wireless spectrum licences, net gains and equity income from real estate joint venture developments, gains from the
sale of property, plant and equipment and capital expenditures (excluding spectrum licences).
8 Capital expenditures (excluding spectrum licences) divided by Operating revenues.
9 The sum of wireless subscribers, residential network access lines, high-speed Internet subscribers and TELUS TV subscribers. Customer connections have been
adjusted in certain years. For details on 2017 and 2016 adjustments, see Section 1.3 of the MD&A in this report.
10 Excluding employees in TELUS International, total active employees were 25,700 in 2017, 25,500 in 2016, 27,000 in 2015, 27,900 in 2014, 28,300 in 2013, 28,000
in 2012, and 27,800 in 2011.
Note: Certain comparative information has been restated to conform with the 2017 presentation.
RETURN ON COMMON EQUITY2
(%)
TOTAL CUSTOMER CONNECTIONS 9
(000s)
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
17.8
15.3
15.2
16.0
15.4
17.9
18.5
17.7
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
Wireless
Wireline
TELUS 2017 ANNUAL REPORT • 35
13,050
12,942
12,810
12,683
12,673
12,577
12,494
12,443
Annual segment statistics
Wireless segment
Network revenues (millions)
Operating revenues (millions)1
Operating expenses before restructuring and other
costs, depreciation and amortization (millions)
EBITDA – excluding restructuring and other
2017
2016
2015
2014
2013
2012
2011
$ 6,964
$ 6,541
$ 6,298
$ 6,008
$ 5,641
$ 5,367
$ 5,004
$ 7,578
$ 7,173
$ 6,994
$ 6,641
$ 6,177
$ 5,886
$ 5,500
4,400
4,146
4,107
3,884
3,543
3,415
3,321
costs (millions)
3,178
3,027
2,887
2,757
2,634
2,471
2,179
Restructuring and other costs (millions)2
79
121
81
30
30
13
2
EBITDA (millions)
EBITDA margin3
Capital expenditures (excluding spectrum
$ 3,099
$ 2,906
$ 2,806
$ 2,727
$ 2,604
$ 2,458
$ 2,177
41.9%
42.2%
41.3%
41.5%
42.6%
42.0%
39.6%
licences) (millions)
$ 978
$ 982
$ 893
$ 832
$ 712
$ 711
$ 508
Cash payments for spectrum licences (millions)
–
$ 145
$ 2,048
$ 1,171
$ 67
–
–
Subscriber gross additions (000s)4,5
Subscriber net additions (000s)4,5
Subscribers (000s)4,5,6,7
Wireless market share, subscriber-based
1,460
296
8,911
29%
1,399
1,443
1,620
1,614
1,646
1,798
173
176
252
307
331
369
8,585
8,457
8,281
7,807
7,670
7,340
29%
29%
28%
27%
28%
28%
Blended monthly average revenue per unit (ARPU) 4,5
$ 67
$ 65
$ 63
$ 62
$ 61
$ 60
$ 59
Monthly blended churn rate 4,5
Monthly postpaid churn rate 5
Wireline segment
1.11%
0.90%
1.21%
0.95%
1.26%
0.94%
1.41%
0.93%
1.41%
1.03%
1.47%
1.09%
1.68%
1.31%
Operating revenues (millions)1
$ 5,975
$ 5,878
$ 5,743
$ 5,590
$ 5,443
$ 5,246
$ 5,099
Operating expenses before restructuring and other
costs, depreciation and amortization (millions)
EBITDA – excluding restructuring and other
4,240
4,197
4,142
4,056
3,961
3,810
3,578
costs (millions)
1,735
1,681
1,601
1,534
1,482
1,436
1,521
Restructuring and other costs (millions)2
60
358
145
45
68
35
33
EBITDA (millions)
EBITDA margin3
Capital expenditures (millions)
Internet subscribers (000s)8,9,10
Residential network access lines (NALs) (000s)9,11
Total TV subscribers (000s)9
$ 1,675
$ 1,323
$ 1,456
$ 1,489
$ 1,414
$ 1,401
$ 1,488
29.0%
28.6%
27.9%
27.4%
27.2%
27.4%
29.8%
$ 2,116
$ 1,986
$ 1,684
$ 1,527
$ 1,398
$ 1,270
$ 1,339
1,743
1,298
1,098
1,655
1,374
1,059
1,566
1,467
1,005
1,475
1,556
916
1,420
1,643
815
1,359
1,767
678
1,286
1,915
509
TOTAL WIRELESS SUBSCRIBERS4,5,6,7
(000s)
TOTAL WIRELINE SUBSCRIBERS8,9,10,11
(000s)
2017
2016
2015
2014
2013
2012
2011
8,911
2017
8,585
8,457
8,281
7,807
7,670
7,340
2016
2015
2014
2013
2012
2011
4,139
4,088
4,038
3,947
3,878
3,804
3,710
Postpaid
Prepaid
Internet subscribers
TV subscribers
Residential NALs
36 • TELUS 2017 ANNUAL REPORT
Quarterly segment statistics
Wireless segment
Network revenues (millions)
Operating revenues (millions)1
Operating expenses before restructuring and other
costs, depreciation and amortization (millions)
EBITDA – excluding restructuring and other
costs (millions)
Restructuring and other costs (millions)2
EBITDA (millions)
EBITDA margin3
Capital expenditures (excluding spectrum
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Q2 2016
Q1 2016
$ 1,772
$ 1,794
$ 1,725
$ 1,673
$ 1,681
$ 1,679
$ 1,608
$ 1,573
$ 1,982
$ 1,945
$ 1,857
$ 1,794
$ 1,856
$ 1,833
$ 1,768
$ 1,716
1,247
1,133
1,047
973
1,173
1,056
966
951
735
27
812
24
810
27
821
1
683
85
777
18
802
765
9
9
$ 708
$ 788
$ 783
$ 820
$ 598
$ 759
$ 793
$ 756
37.1%
41.7%
43.6%
45.8%
36.8%
42.4%
45.4%
44.6%
licences) (millions)
$ 233
$ 237
$ 259
$ 249
$ 249
$ 295
$ 258
$ 180
Cash payments for spectrum licences (millions)
Subscriber gross additions (000s)5
Subscriber net additions (000s)5
Subscribers (000s)5,7
Wireless market share, subscriber-based
Blended monthly ARPU5
Monthly blended churn rate5
Monthly postpaid churn rate5
Wireline segment
–
424
98
8,911
29%
–
399
124
–
342
83
–
295
(9)
–
398
78
–
$ 145
379
80
331
40
–
291
(25)
8,824
8,700
8,576
8,585
8,507
8,427
8,387
29%
29%
29%
29%
29%
29%
29%
$ 67
$ 69
$ 67
$ 66
$ 66
$ 67
$ 64
$ 63
1.23%
1.05%
1.00%
0.99%
0.86%
0.79%
1.18%
0.93%
1.25%
1.18%
1.15%
0.98%
0.94%
0.90%
1.26%
0.97%
Operating revenues (millions)1
$ 1,546
$ 1,483
$ 1,479
$ 1,467
$ 1,515
$ 1,468
$ 1,442
$ 1,453
Operating expenses before restructuring and other
costs, depreciation and amortization (millions)
EBITDA – excluding restructuring and other
costs (millions)
Restructuring and other costs (millions)2
EBITDA (millions)
EBITDA margin3
Capital expenditures (millions)
Internet subscribers (000s)9,10
Residential NALs (000s)9
Total TV subscribers (000s)9
1,098
1,063
1,056
1,023
1,081
1,054
1,032
1,030
448
33
420
12
423
12
444
3
434
263
414
42
410
14
423
39
$ 415
$ 408
$ 411
$ 441
$ 171
$ 372
$ 396
$ 384
29.0%
28.3%
28.6%
30.3%
28.6%
28.2%
28.4%
29.1%
$ 506
$ 584
$ 551
$ 475
$ 545
$ 492
$ 511
$ 438
1,743
1,298
1,098
1,722
1,703
1,312
1,332
1,084
1,075
1,686
1,351
1,070
1,655
1,631
1,617
1,599
1,374
1,396
1,421
1,441
1,059
1,043
1,029
1,016
Includes intersegment revenue.
Includes a $305 million immediately vesting transformative compensation expense recorded in the fourth quarter of 2016; $70 million in wireless and $235 million in wireline.
1
2
3 Excludes restructuring and other costs.
4 Effective January 1, 2014, prepaid subscribers, total subscribers and associated operating statistics have been adjusted for inclusion of 222,000 Public Mobile prepaid
subscribers in the opening subscriber balances, and subsequent Public Mobile subscriber changes. TELUS acquired 100% of Public Mobile in November 2013.
5 Subscribers have been adjusted in certain years. For details, see Section 5.4 of the MD&A in this report.
6
Includes an April 1, 2013 adjustment to remove approximately 76,000 machine-to-machine subscriptions and an October 1, 2013 adjustment to remove approximately
94,000 Mike subscriptions.
7 Subsequent to a review of our subscriber base during the first quarter of 2016, our 2016 opening wireless postpaid subscriber base was reduced by 45,000.
8 Effective January 1, 2014, Internet subscribers exclude dial-up subscribers.
9 Subscriber connections have been adjusted in certain years. For details, see Section 5.5 of the MD&A in this report.
10 Subsequent to a review of our subscriber base during the first quarter of 2016, our 2016 opening wireline high-speed Internet subscriber base was increased by 21,000.
11 Effective December 31, 2015, NALs have been restated to remove business NALs and, as such, comparative prior periods have been adjusted to exclude business NALs.
Note: Certain comparative information has been restated to conform with the 2017 presentation.
TELUS 2017 ANNUAL REPORT • 37
Management’s discussion and analysis
Caution regarding forward-looking statements
This document contains forward-looking statements about expected
events and the financial and operating performance of TELUS Corporation.
The terms TELUS, the Company, we, us and our refer to TELUS Corporation
and, where the context of the narrative permits or requires, its subsidiaries.
Forward-looking statements include any statements that do not refer
to historical facts. They include, but are not limited to, statements relating to
our objectives and our strategies to achieve those objectives, our targets, out-
look, updates, and our multi-year dividend growth program. Forward-looking
statements are typically identified by the words assumption, goal, guidance,
objective, outlook, strategy, target and other similar expressions, or future
or conditional verbs such as aim, anticipate, believe, could, expect, intend,
may, plan, predict, seek, should, strive and will.
By their nature, forward-looking statements are subject to inherent risks
and uncertainties and are based on assumptions, including assumptions
about future economic conditions and courses of action. These assumptions
may ultimately prove to have been inaccurate and, as a result, our actual results
or events may differ materially from expectations expressed in or implied by
the forward-looking statements. Our general outlook and assumptions for 2018
are presented in Section 9 General trends, outlook and assumptions in this
Management’s discussion and analysis (MD&A).
Risks and uncertainties that could cause actual performance or events
to differ materially from the forward-looking statements made herein and in
other TELUS filings include, but are not limited to, the following:
• Competition including: our ability to continue to retain customers through
an enhanced customer service experience, including through the deploy-
ment and operation of evolving wireless and wireline networks; the ability
of industry competitors to successfully launch their respective platforms
and to combine a mix of residential local voice over Internet protocol (VoIP),
long distance, high-speed Internet access (HSIA) and, in some cases, wire-
less services under one bundled and/or discounted monthly rate, along
with their existing broadcast or satellite-based TV services; the success of
new products, new services and supporting systems, such as Internet
of Things (IoT) services for Internet-connected devices; continued intense
rivalry across all services among wireless and wireline telecommunications
companies, cable-TV providers, other communications companies and
over-the-top (OTT) services, which, among other things, places pressures
on current and future average revenue per subscriber unit per month
(ARPU), cost of acquisition, cost of retention and churn rate for all services,
as do customer usage patterns, flat-rate pricing trends for voice and data,
inclusive rate plans for voice and data and availability of Wi-Fi networks
for data; mergers and acquisitions of industry competitors; pressures on
high-speed Internet and TV ARPU and churn rate resulting from market
conditions, government actions and customer usage patterns; residential
and business network access line (NAL) losses; subscriber additions
and retention volumes, and associated costs for wireless, TV and high-
speed Internet services; and our ability to obtain and offer content on
a timely basis across multiple devices on wireless and TV platforms at a
reasonable cost.
• Technological substitution including: reduced utilization and increased
commoditization of traditional wireline voice local and long distance services
from impacts of OTT applications and wireless substitution, a declining
overall market for paid TV services, including as a result of content piracy
and signal theft and as a result of a rise in OTT direct to consumer video
offerings and virtual multichannel video programming distribution platforms;
the increasing number of households that have only wireless and/or Internet-
based telephone services; potential wireless ARPU declines as a result of,
among other factors, substitution to messaging and OTT applications;
substitution to increasingly available Wi-Fi services; and disruptive tech-
nologies such as OTT IP services, including Network as a Service in the
business market, that may displace or re-rate our existing data services.
• Technology including: subscriber demand for data that may challenge
wireless networks and spectrum capacity levels in the future and may
be accompanied by increases in delivery cost; our reliance on information
technology and our need to streamline our legacy systems; technology
options, evolution paths and roll-out plans for video distribution platforms
and telecommunications networks (including broadband initiatives, such as
fibre to the premises (FTTP), wireless small-cell deployment, 5G wireless
and availability of resources and ability to build out adequate broadband
capacity); our reliance on wireless network access agreements, which
have facilitated our deployment of wireless technologies; choice of sup-
pliers and those suppliers’ ability to maintain and service their product lines,
which could affect the success of upgrades to, and evolution of, technology
that we offer; supplier concentration and market power for network
equipment, TELUS TV and wireless handsets; the performance of wireless
technology; our expected long-term need to acquire additional spectrum
capacity through future spectrum auctions and from third parties to address
increasing demand for data; deployment and operation of new wireline
broadband networks at a reasonable cost and availability and success
of new products and services to be rolled out on such networks; network
reliability and change management; self-learning tools and automation
that may change the way we interact with customers; and uncertainties
around our strategy to replace certain legacy wireline networks, systems
and services to reduce operating costs.
• Capital expenditure levels and potential outlays for spectrum licences
in spectrum auctions or from third parties, due to: our broadband
initiatives, including connecting more homes and businesses directly to
fibre; our ongoing deployment of newer wireless technologies, including
wireless small cells to improve coverage and capacity and prepare for
a more efficient and timely evolution to 5G wireless services; utilizing
acquired spectrum; investments in network resiliency and reliability;
subscriber demand for data; evolving systems and business processes;
implementing efficiency initiatives; supporting large complex deals;
and future wireless spectrum auctions held by Innovation, Science and
Economic Development Canada (ISED). Our capital expenditure levels
could be impacted if we do not achieve our targeted operational and
financial results.
• Regulatory decisions and developments including: the potential of gov-
ernment intervention to further increase wireless competition; the CRTC
wireless wholesale services review, in which it was determined that the
CRTC will regulate wholesale GSM-based domestic roaming rates and
the setting of such rates charged to wireless service providers (WSPs); the
Governor in Council’s order to the CRTC to reconsider whether Wi-Fi net-
works should be considered a home network for WSPs seeking mandated
roaming; future spectrum auctions and spectrum policy determinations,
including the recently announced repurposing of 600 MHz spectrum (and
including limitations on established wireless providers, proposed spectrum
set-aside that favours certain carriers and other advantages provided
to new and foreign participants, and the amount and cost of spectrum
acquired); restrictions on the purchase, sale and transfer of spectrum
licences; the impact of the CRTC’s wireline wholesale services review, with
a formal review of rates for wholesale FTTP access still to be commenced
for TELUS; disputes with certain municipalities regarding rights-of-way
38 • TELUS 2017 ANNUAL REPORT
bylaws; and other potential threats to unitary federal regulatory authority
over telecommunications, including provincial wireless legislation; the
potential impacts of the CRTC’s decision to require pro-rated refunds
when customers terminate their services; the CRTC’s proposed phase-out
of the local service subsidy regime and corresponding establishment of
a broadband funding regime to support the enhancement of high-speed
Internet services focusing on underserved areas in Canada; the impact
of the review of the Minister of Canadian Heritage’s new Creative Canada
policy framework announced on September 28, 2017; the CRTC’s consul-
tation and report on distribution models of the future; vertical integration
in the broadcasting industry resulting in competitors owning broadcast
content services, and timely and effective enforcement of related regulatory
safeguards; the review of the Copyright Act scheduled to begin in early
2018; the federal government’s stated intention to review the Broadcasting
Act and Telecommunications Act as announced in the March 22, 2017
federal budget; TELUS’ applications for renewal of its broadcasting distri-
bution licences; the North American Free Trade Agreement renegotiation;
and restrictions on non-Canadian ownership and control of TELUS
Common Shares and the ongoing monitoring and compliance with
such restrictions.
• Human resource matters including: recruitment, retention and appro-
priate training in a highly competitive industry, and the level of employee
engagement.
• Operational performance and business combination risks including: our
reliance on legacy systems and ability to implement and support new prod-
ucts and services and business operations in a timely manner; our ability
to implement effective change management for system replacements and
upgrades, process redesigns and business integrations (such as our abil-
ity to successfully integrate acquisitions, complete divestitures or establish
partnerships in a timely manner, and realize expected strategic benefits,
including those following compliance with any regulatory orders); the imple-
mentation of complex large enterprise deals that may be adversely impacted
by available resources, system limitations and degree of co-operation from
other service providers; our ability to successfully manage operations in
foreign jurisdictions; information security and privacy breaches, including
data loss or theft of data; intentional threats to our infrastructure and
business operations; and real estate joint venture re-development risks.
• Business continuity events including: our ability to maintain customer
service and operate our networks in the event of human error or human-
caused threats, such as cyberattacks and equipment failures that could
cause various degrees of network outages; supply chain disruptions;
natural disaster threats; epidemics; pandemics; political instability in certain
international locations; and the completeness and effectiveness of business
continuity and disaster recovery plans and responses.
• Ability to successfully implement cost reduction initiatives and realize
planned savings, net of restructuring and other costs, without losing
customer service focus or negatively affecting business operations.
Examples of these initiatives are: our operating efficiency and effectiveness
program to drive improvements in financial results, including the future
benefits of the immediately vesting transformative compensation initiative;
business integrations; business product simplification; business process
outsourcing; offshoring and reorganizations, including any full-time
equivalent (FTE) employee reduction programs; procurement initiatives;
and real estate rationalization. Additional revenue and cost efficiency and
effectiveness initiatives will continue to be assessed and implemented.
• Financing and debt requirements including: our ability to carry out
financing activities, and our ability to maintain investment grade credit
ratings in the range of BBB+ or the equivalent.
• Ability to sustain our dividend growth program through 2019. This
program may be affected by factors such as the competitive environment,
economic performance in Canada, our earnings and free cash flow,
our levels of capital expenditures and spectrum licence purchases,
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
acquisitions, the management of our capital structure, and regulatory
decisions and developments. Quarterly dividend decisions are subject
to assessment and determination by our Board of Directors (Board)
based on the Company’s financial position and outlook. Shares may be
purchased under our normal course issuer bid (NCIB) when and if we
consider it opportunistic, based on the Company’s financial position and
outlook, and the market price of TELUS shares. There can be no assur-
ance that our dividend growth program or any NCIB will be maintained,
not changed and/or completed through 2019.
• Taxation matters including: interpretation of complex domestic and foreign
tax laws by the tax authorities that may differ from our interpretations;
the timing of income and deductions, such as tax depreciation and oper-
ating expenses; changes in tax laws, including tax rates; tax expenses
being materially different than anticipated, including the taxability of income
and deductibility of tax attributes; elimination of income tax deferrals
through the use of different tax year-ends for operating partnerships and
corporate partners; and tax authorities adopting more aggressive auditing
practices, for example, tax reassessments or adverse court decisions
impacting the tax payable by us.
• Litigation and legal matters including: our ability to successfully respond
to investigations and regulatory proceedings; our ability to defend against
existing and potential claims and lawsuits, including intellectual property
infringement claims and class actions based on consumer claims, data,
privacy or security breaches and secondary market liability; and the com-
plexity of legal compliance in domestic and foreign jurisdictions, including
compliance with anti-bribery and foreign corrupt practices laws.
• Health, safety and the environment including: lost employee work time
resulting from illness or injury, public concerns related to radio frequency
emissions, environmental issues affecting our business including climate
change, waste and waste recycling, risks relating to fuel systems on our
properties, and changing government and public expectations regarding
environmental matters and our responses.
• Economic growth and fluctuations including: the state of the economy
in Canada, which may be influenced by economic and other develop-
ments outside of Canada, including potential outcomes of yet unknown
policies and actions of foreign governments; future interest rates; inflation;
unemployment levels; effects of fluctuating oil prices; effects of low busi-
ness spending (such as reducing investments and cost structure); pension
investment returns, funding and discount rates; and Canadian dollar:
U.S. dollar exchange rates.
These risks are described in additional detail in Section 9 General trends,
outlook and assumptions and Section 10 Risks and risk management in this
MD&A. Those descriptions are incorporated by reference in this cautionary
statement but are not intended to be a complete list of the risks that could
affect the Company.
Many of these factors are beyond our control or our current expectations
or knowledge. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial may also have a material adverse
effect on our financial position, financial performance, cash flows, business
or reputation. Except as otherwise indicated in this document, the forward-
looking statements made herein do not reflect the potential impact of any
non-recurring or special items or any mergers, acquisitions, dispositions or
other business combinations or transactions that may be announced or that
may occur after the date of this document.
Readers are cautioned not to place undue reliance on forward-looking
statements. Forward-looking statements in this document describe our expect-
ations and are based on our assumptions as at the date of this document and
are subject to change after this date. Except as required by law, we disclaim
any intention or obligation to update or revise any forward-looking statements.
This cautionary statement qualifies all of the forward-looking statements
in this MD&A.
TELUS 2017 ANNUAL REPORT • 39
February 8, 2018
Section
Page
Section
Page
1 Introduction
Preparation of the MD&A
The environment in which we operate
1.1
1.2
1.3 Highlights of 2017
1.4 Performance scorecard
(key performance measures)
2 Core business and strategy
2.1 Core business
2.2 Strategic imperatives
3 Corporate priorities
4 Capabilities
4.1 Principal markets addressed
and competition
4.2 Operational resources
4.3 Liquidity and capital resources
4.4 Disclosure controls and procedures
and changes in internal control
over financial reporting
5 Discussion of operations
5.1 General
5.2 Summary of consolidated
quarterly results, trends and
fourth quarter recap
5.3 Consolidated operations
5.4 Wireless segment
5.5 Wireline segment
6 Changes in financial position
41
41
41
42
45
46
46
46
48
50
50
53
55
56
57
57
58
60
62
65
67
7 Liquidity and capital resources
Liquidity and capital resource measures
7.1 Overview
7.2 Cash provided by operating activities
7.3 Cash used by investing activities
7.4 Cash used by financing activities
7.5
7.6 Credit facilities
7.7
7.8 Credit ratings
7.9
Financial instruments, commitments
and contingent liabilities
7.10 Outstanding share information
7.11 Transactions between related parties
Sale of trade receivables
8 Accounting matters
8.1 Critical accounting estimates
8.2 Accounting policy developments
9 General trends, outlook
and assumptions
9.1
9.2 Telecommunications industry
Telecommunications industry in 2017
general outlook and trends
9.3 TELUS assumptions for 2018
9.4 Telecommunications industry regulatory
developments and proceedings
10 Risks and risk management
10.1 Overview
10.2 Competition
10.3 Technology
10.4 Regulatory matters
10.5 Human resources
10.6 Operational performance
10.7 Financing, debt requirements
and returning cash to shareholders
10.8 Taxation matters
10.9 Litigation and legal matters
10.10 Health, safety and environment
10.11 Economic growth and fluctuations
11 Definitions and reconciliations
11.1 Non-GAAP and other financial measures
11.2 Operating indicators
69
69
69
69
70
71
72
73
73
73
77
77
77
77
81
83
83
84
86
86
89
89
91
93
97
99
99
102
103
104
106
107
108
108
110
40 • TELUS 2017 ANNUAL REPORT
MD&A: INTRODUCTION
1 Introduction
The forward-looking statements in this section, including estimates
regarding economic growth, are qualified by the Caution regarding
forward-looking statements at the beginning of this Management’s
discussion and analysis (MD&A).
1.1 Preparation of the MD&A
1.2 The environment in which
we operate
The success of our business and the challenges we face can best
be understood with reference to the environment in which we operate,
including broader economic factors that affect our customers and us,
and our competitive industry. Our estimates regarding our environment
also form an important part of the assumptions on which our targets
The following sections are a discussion of our consolidated financial
position and financial performance for the year ended December 31,
are based.
2017, and should be read together with our December 31, 2017, audited
Consolidated financial statements (Consolidated financial statements).
The generally accepted accounting principles (GAAP) we use are
the International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Our Consolidated
financial statements comply with IFRS-IASB and Canadian GAAP.
Our use of the term IFRS in this MD&A is a reference to these standards.
In our discussion, we also use certain non-GAAP financial measures
to evaluate our performance, monitor compliance with debt covenants
and manage our capital structure. These measures are defined, qualified
and reconciled with their nearest GAAP measures in Section 11.1.
All currency amounts are in Canadian dollars, unless otherwise specified.
Additional information relating to the Company, including our annual
information form and other filings with securities commissions or similar
regulatory authorities in Canada, is available on SEDAR (sedar.com).
Our filings with the Securities and Exchange Commission in the United
States, including Form 40-F, are available on EDGAR (sec.gov).
Our disclosure controls and procedures are designed to provide
2017 Canadian telecom
industry revenues
Est. $62 billion
TELUS 2017 revenues
$13.3 billion
TELUS subscriber
connections
13.1million
Economic growth
TELUS employees
53,630
We estimate that the rate of economic growth in Canada in 2018 will
be 2.2% (3.1% in 2017), both of which are based on a composite of
estimates from Canadian banks and other sources. For our incumbent
local exchange carrier (ILEC) provinces in Western Canada, we estimate
reasonable assurance that all relevant information is gathered and
that economic growth will be 2.5% in 2018 in British Columbia (B.C.)
reported to senior management on a timely basis, so that appropriate
(3.4% in 2017), and 2.4% in Alberta (3.9% in 2017). The Bank of Canada’s
decisions can be made regarding public disclosure. This MD&A and
January 2018 Monetary Policy Report estimated economic growth in
the Consolidated financial statements were reviewed by our Audit
Canada will be 2.2% in 2018 (3.0% in 2017). The extent to which these
Committee and approved by our Board of Directors (Board) for issuance
economic growth estimates affect us and the timing of their impact will
on February 8, 2018.
depend upon the actual experience of specific sectors of the Canadian
economy.
In respect of the national unemployment rate, Statistics Canada’s
Labour Force Survey reported a rate of 5.7% for December 2017 (6.9%
reported for December 2016). The unemployment rate for B.C. was 4.6%
for December 2017 (5.8% for December 2016), while the unemployment
rate for Alberta was 6.9% for December 2017 (8.5% for December 2016).
TELUS 2017 ANNUAL REPORT • 41
Canadian telecommunications industry growth
into supporting customers who provide Internet-related services and
We estimate that industry revenues (including TV revenue and excluding
products, bolstering sales capabilities in our chosen markets, and
media revenue) grew by approximately 3% in 2017 (2% in 2016). We esti-
acquiring multi-site redundancy in support of other facilities. We concur-
mate that the Canadian wireless industry grew in 2017 by approximately
rently provided a written put option to, and have a purchased call option
1.3 million new subscribers and experienced approximately 7% network
from, the remaining selling shareholders under which they could put,
revenue growth. Key drivers included immigration and population growth;
or we could call, the remaining 45% of the shares commencing in 2021.
the trend toward multiple devices, including tablets; the expanding func-
If either of these options are exercised, total consideration is estimated
tionality of data and related applications; and mobile adoption by both
to be approximately $141 million.
younger and older generations. The wireline market was impacted by the
state of the economy in 2017, including Alberta, which experienced an
economic contraction in 2016, while declines in higher-margin legacy voice
services were ongoing, partially attributable to technological substitution.
(See Section 9 General trends, outlook and assumptions, Section 10.2
Competition, and Section 10.11 Economic growth and fluctuations.)
1.3 Highlights of 2017
Long-term debt issue
Xavient Information Systems
On October 30, 2017, through our TELUS International (Cda) Inc.
subsidiary, we entered into an agreement to acquire 65% of Xavient
Information Systems, a group of information technology consulting
and software services companies with facilities in the U.S. and in India,
for consideration of approximately $144 million (US$115 million) in cash
and approximately $19 million (US$15 million) in TELUS International
(Cda) Inc. common shares. The transaction closed on February 6, 2018.
We concurrently provided a written put option to the remaining selling
shareholders under which they could put the remaining 35% interest on
On March 6, 2017, we issued US$500 million of senior unsecured notes
or before December 31, 2020. The written put option sets out that the
with a 10.5-year maturity at 3.70% and $325 million of senior unsecured
share pricing methodology will be dependent upon earnings. If this option
notes with a 31-year maturity at 4.70%. The proceeds were used to fund
is exercised, total consideration would be in the range of $310 million
the repayment, on maturity, of $700 million of the principal amount out-
(US$250 million). Concurrent with our acquisition of the initial 65% interest,
standing on TELUS’ Series CD Notes due March 2017, to repay a portion
the non-controlling shareholders provided us with a purchased call option,
of outstanding commercial paper and for general corporate purposes.
which substantially mirrored the written put option. The investment was
Agreement with BCE Inc. regarding Manitoba Telecom
Services Inc.
On April 1, 2017, we acquired certain assets of Manitoba Telecom
Services Inc. (MTS) from BCE Inc. These assets included postpaid wire-
made with a view to enhancing our ability to provide complex and higher-
value information technology services, improve our related sales and
solutioning capabilities and acquire multi-site redundancy in support of
other facilities.
less subscribers, certain network assets and rights to 15 retail locations
Changes to the Board of Directors
in Manitoba. Pursuant to this acquisition, in the second quarter of 2017,
In May 2017, we welcomed Kathy Kinloch and Claude Mongeau to
we commenced the migration of postpaid wireless subscribers to TELUS.
our Board of Directors. Kathy has served as the President of the British
The final price of the transactions with BCE Inc. will vary depending upon
Columbia Institute of Technology (BCIT) since January 2014. From 2010
the actual number of qualifying postpaid wireless subscribers acquired;
to 2013, she was President of Vancouver Community College, and
such final determination will happen by March 31, 2018. We currently
from 2007 to 2010, she served as Dean of Health Sciences at BCIT.
estimate we will migrate 74,000 postpaid subscribers by that date.
Claude served as President and Chief Executive Officer of Canadian
Kroll Computer Systems Inc.
In May 2017, we acquired Kroll Computer Systems Inc. The primary
reason for the acquisition was to enhance our geographic reach and the
quality of our product offering as a national pharmacy management ser-
vices provider. The total purchase price was approximately $250 million,
of which $100 million was paid by issuing approximately two million
TELUS Common Shares.
Voxpro Limited
National Railway Company from 2010 to 2016. He also served as
Executive Vice-President and Chief Financial Officer from 2000
to 2009, and Senior Vice-President and Chief Financial Officer from
1999 to 2000.
Micheline Bouchard, an independent director who had served as
a TELUS director since 2004, retired from our Board in May 2017.
In November 2017, Marc Parent joined our Board. Marc serves as
President and Chief Executive Officer of CAE Inc. (CAE), a position he has
held since 2009. He has also served at CAE as Executive Vice-President
On August 31, 2017, through our TELUS International (Cda) Inc.
and Chief Operating Officer from 2008 to 2009; Group President,
subsidiary, we acquired 55% of Voxpro Limited (Voxpro), a business
Simulation Products and Military Training & Services from 2006 to 2008;
process outsourcing and contact centre services company with
and Group President, Simulation Products from 2005 to 2006. CAE
facilities in Ireland, the U.S. and Romania, for cash consideration of
is a global leader in training for the civil aviation, defence and security,
$58 million. The investment was made with a view to expanding further
and healthcare markets.
42 • TELUS 2017 ANNUAL REPORT
Consolidated highlights
Years ended December 31
($ millions, except footnotes
and unless noted otherwise)
Consolidated statements of income
Operating revenues
Operating income
Income before income taxes
Net income
Net income attributable to
Common Shares
Earnings per share (EPS) ($)
Basic EPS
Adjusted basic EPS1
Diluted EPS
Dividends declared per Common Share ($)
Basic weighted-average Common Shares
2017
2016
Change
13,304
12,799
2,605
2,032
1,479
2,182
1,662
1,236
3.9%
19.4%
22.3%
19.7%
1,460
1,223
19.4%
2.46
2.63
2.46
1.97
2.06
2.58
2.06
1.84
19.4%
1.9%
19.4%
7.1%
outstanding (millions)
593
592
0.1%
Consolidated statements of cash flows
Cash provided by operating activities
3,947
3,219
22.6%
Cash used by investing activities
(3,643)
(2,923)
(24.6)%
Capital expenditures
(excluding spectrum licences)
(3,094)
(2,968)
(4.2)%
Cash used by financing activities
(227)
(87)
n/m
Other highlights
Subscriber connections2 (thousands)
13,050
12,673
3.0%
MD&A: INTRODUCTION
4 Adjusted EBITDA for all periods excludes the following: restructuring and other costs,
and net gains and equity income related to real estate joint venture developments.
Adjusted EBITDA for 2017 excludes the MTS net recovery (as defined later in this
section). Adjusted EBITDA for 2016 excludes a $15 million gain in the second quarter
of 2016 from the exchange of wireless spectrum licences (see Section 11.1 regarding
Adjusted EBITDA and for restructuring and other costs amounts).
5 Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where
the calculation of the Operating revenues excludes the net gains and equity income
related to real estate joint venture developments, the gain from exchange of wireless
spectrum licences in the second quarter of 2016, and the MTS net recovery (as defined
later in this section).
Operating highlights
• Consolidated operating revenues increased by $505 million in 2017:
Service revenues increased by $478 million in 2017, mainly due to
growth in wireless network revenue and wireline data services revenue,
partly offset by the ongoing decline in legacy wireline voice revenue.
Equipment revenues were relatively flat in 2017.
Other operating income increased by $28 million in 2017, primarily
due to higher net gains in the current period than in the comparable
period. In the fourth quarter of 2017, we recorded a pre-tax recovery
of contingent consideration paid of $26 million to reflect the revised
estimate of qualifying MTS subscribers acquired (MTS contingent
consideration recovery) of 74,000, down 11,000 from our original
assumption. In addition to this item, a change in Other operating
income includes recognition of a gain on sale of a security consulting
business in the fourth quarter of 2017. The remaining are other net
gains, offset by lower government assistance, the non-recurrence of
2016 wireless spectrum gains and lower gains from the real estate
joint venture.
For additional details on operating revenues, see Section 5.4
Wireless segment and Section 5.5 Wireline segment.
• During 2017, our total subscriber connections increased by 377,000,
reflecting a 5.7% increase in wireless postpaid subscribers, a 5.3%
increase in high-speed Internet subscribers and a 3.7% increase in
EBITDA (earnings before interest,
income taxes, depreciation
and amortization)1
Restructuring and other costs1,3
EBITDA – excluding restructuring
and other costs
Adjusted EBITDA4
Adjusted EBITDA margin5 (%)
4,774
139
4,913
4,891
36.8
4,229
12.9%
TELUS TV subscribers, partly offset by a 9.9% decline in wireless
479
(71.0)%
prepaid subscribers and a 5.5% decline in wireline residential NALs.
4,708
4,667
4.4%
4.8%
36.6
0.2 pts.
Our postpaid wireless subscriber net additions were 379,000 in
2017, up 136,000 from 2016, due to an increase in market growth, the
success of promotions, our marketing efforts focused on higher-value
postpaid and smartphone loading, and in the fourth quarter, our suc-
cessful response to aggressive holiday offers. Our monthly postpaid
Free cash flow1
966
141
n/m
subscriber churn rate was 0.90% in 2017, as compared to 0.95% in
Net debt to EBITDA – excluding
2016. (See Section 5.4 Wireless segment for additional details.)
restructuring and other costs1 (times)
2.73
2.69
0.04
Net additions of high-speed Internet subscribers were 81,000 in
Notations used in MD&A: n/m – not meaningful; pts. – percentage points.
1 Non-GAAP and other financial measures. See Section 11.1.
2 The sum of active wireless subscribers, residential network access lines (NALs),
high-speed Internet access subscribers and TELUS TV subscribers, measured at the
end of the respective periods based on information in billing and other systems. In
relation to an acquisition and a divestiture that were both undertaken during the first
quarter of 2017, January 1, 2017, residential NALs, high-speed Internet and TELUS TV
subscriber balances were increased by a net 1,000, 6,000 and 5,000, respectively,
and are not included in subscriber connection net additions metrics in Section 5.4.
Effective April 1, 2017, postpaid subscribers, total subscribers and associated oper-
ating statistics (gross additions, net additions, average revenue per subscriber unit
per month (ARPU) and churn) have been adjusted to include an estimated migration
of 85,000 MTS subscribers in the opening subscriber balances. Subsequent to this,
on October 1, 2017, total subscribers and associated operating statistics have been
adjusted to reduce estimated migrations of MTS subscribers down by 11,000 to
74,000 (impacts are described later in this section). Cumulative subscriber connections
also include an April 1, 2017, adjustment to remove approximately 19,000 prepaid
and 25,000 postpaid subscriptions from the respective subscriber bases, primarily
due to our national CDMA network shutdown.
In the fourth quarter of 2016, we recorded an expense of $305 million in respect of
immediately vesting transformative compensation (transformative compensation)
as part of other costs.
3
2017, up 13,000 from 2016. The increase was due to continued cus-
tomer demand for our high-speed broadband services, including fibre
to the premises, as well as the success of our innovative product
offerings. Net additions of TELUS TV subscribers were 35,000 in 2017,
down 19,000 from 2016. This reflects lower gross additions and higher
satellite-TV subscriber losses due to a declining overall market for
paid TV services resulting from the effects of heightened competitive
intensity, including from over-the-top (OTT) services, and a high
rate of market penetration. These pressures were partly offset by
the continued focus on connecting more homes and businesses
directly to fibre (as we approach nearly 50% of our targeted coverage
footprint), expanding and enhancing our addressable high-speed
Internet and Optik TV footprint, and bundling these services together.
This contributed to combined Internet and TV subscriber growth of
127,000 or 4.7% in the year. (See Section 5.5 Wireline segment for
additional details.)
TELUS 2017 ANNUAL REPORT • 43
• Operating income increased by $423 million in 2017, reflecting
wireless network revenue growth driven by higher ARPU and a
larger customer base, in addition to growth in data service margins,
partly offset by increased depreciation arising from our fibre invest-
ment capital expenditures. Excluding the effects of the $305 million
transformative compensation expense recorded in the fourth quarter
of 2016, Operating income increased by $118 million for the full year
or 4.7%.
EBITDA includes restructuring and other costs, net gains and
equity income related to real estate joint venture developments,
a gain from the exchange of wireless spectrum licences recorded in
the second quarter of 2016, and the MTS contingent consideration
recovery net of post-closing adjustments (MTS net recovery). EBITDA
increased by $545 million or 12.9% in the full year of 2017. The increase
reflects: (i) growth in wireless network revenues and increased wireline
data revenues, partially offset by increased costs associated with
higher wireless gross loading and retention volumes; and (ii) lower
restructuring and other costs which included the 2016 transformative
compensation expense, partly offset by costs associated with the
migration and servicing of subscribers acquired from MTS.
Adjusted EBITDA excludes restructuring and other costs, net
gains and equity income related to real estate joint venture develop-
ments, a gain from the exchange of wireless spectrum licences
recorded in the second quarter of 2016, and the MTS net recovery.
Adjusted EBITDA increased by $224 million or 4.8% for the full
year of 2017. (See Section 5.4 Wireless segment and Section 5.5
•
Wireline segment for additional details.)
Income before income taxes increased by $370 million in 2017,
reflecting higher Operating income as noted above, partly offset by an
increase in Financing costs. The increase in Financing costs resulted
from lower capitalized long-term debt interest costs for spectrum
licences that are now being deployed and higher average long-term
•
debt outstanding. (See Financing costs in Section 5.3.)
Income taxes increased by $127 million in 2017, primarily due to
an increase in income before income taxes and revaluation of the
deferred tax liability for the increase in the B.C. income tax rate that
was substantively enacted in the fourth quarter of 2017.
• Net income attributable to Common Shares increased by
$237 million in 2017. This increase was driven by higher Operating
income partly offset by associated Income taxes. Adjusted Net
income excludes the effects of restructuring and other costs, net
gains and equity income related to real estate joint venture develop-
ments, income tax-related adjustments, a non-recurring gain from
the exchange of wireless spectrum licences recorded in the second
quarter of 2016 and the MTS net recovery. Adjusted Net income
increased by $32 million or 2.1% for the full year of 2017.
Analysis of Net income
Years ended December 31 ($ millions)
2017
2016
Change
Net income attributable
to Common Shares
Add back (deduct):
Gain on the exchange of
wireless spectrum licences,
1,460
1,223
237
after income taxes
–
(13)
13
Net gains and equity income
from real estate joint venture
developments, after
income taxes
Restructuring and other costs,
after income taxes
Unfavourable (favourable) income
tax-related adjustments
MTS net recovery
Adjusted Net income
(1)
(16)
15
102
351
(249)
21
(22)
(17)
–
1,560
1,528
38
(22)
32
• Basic EPS increased by $0.40 or 19.4% in 2017. Adjusted basic
EPS excludes the effects of restructuring and other costs, net gains
and equity income related to real estate joint venture developments,
income tax-related adjustments, a non-recurring gain from the
exchange of wireless spectrum licences recorded in the second
quarter of 2016 and the MTS net recovery. Adjusted basic EPS
increased by $0.05 or 1.9% for the full year of 2017.
Analysis of basic EPS
Years ended December 31 ($)
Basic EPS
Add back (deduct):
Gain on the exchange of wireless
spectrum licences, after
income taxes, per share
Net gains and equity income
from real estate joint venture
developments, after income
taxes, per share
Restructuring and other costs,
2017
2.46
2016
2.06
Change
0.40
–
(0.02)
0.02
–
(0.03)
0.03
after income taxes, per share
0.18
0.60
(0.42)
Unfavourable (favourable) income
tax-related adjustments,
per share
MTS net recovery, per share
Adjusted basic EPS
0.03
(0.04)
2.63
(0.03)
–
2.58
0.06
(0.04)
0.05
• Dividends declared per Common Share totalled $1.97 in 2017,
up 7.1% from 2016. On February 7, 2018, the Board declared
a first quarter dividend of $0.5050 per share on the issued and
outstanding Common Shares, payable on April 2, 2018, to share-
holders of record at the close of business on March 9, 2018.
The first quarter dividend increased by $0.025 per share or 5.2%
from the $0.48 per share dividend declared one year earlier,
consistent with our multi-year dividend growth program described
in Section 4.3 Liquidity and capital resources.
44 • TELUS 2017 ANNUAL REPORT
Liquidity and capital resource highlights
• Net debt to EBITDA – excluding restructuring and other costs
was 2.73 times at December 31, 2017, up from 2.69 times at
December 31, 2016, as the increase in net debt exceeded the
growth in EBITDA – excluding restructuring and other costs.
(See Section 4.3 Liquidity and capital resources and Section 7.5
Liquidity and capital resource measures.)
• Cash provided by operating activities increased by $728 million
in 2017 due to lower income taxes paid, which reflected the
reorganization of our legal structure that impacted the timing
of cash income tax payments.
• Cash used by investing activities increased by $720 million or 24.6%
in 2017, attributed to higher cash payments for multiple business
acquisitions and higher capital expenditures. Acquisitions increased
by $474 million as we made cash payments for multiple business
acquisitions, including MTS, Kroll Computer Systems Inc. and Voxpro
Limited, as described under Highlights of 2017. Capital expenditures
increased by $126 million in 2017 due to continuing investments in
our broadband infrastructure, including connecting more homes and
businesses directly to our fibre-optic network. These investments
support our high-speed Internet and TELUS TV subscriber growth,
as well as our customers’ demand for faster Internet speeds, and
extend the reach and functionality of our business and healthcare
solutions. (See Section 7.3 Cash used by investing activities.)
• Cash used by financing activities increased by $140 million in 2017
largely due to the 2016 issuance of shares of TELUS International
(Cda) Inc. to Baring Private Equity Asia through which it acquired a
35% non-controlling interest in TELUS International (Cda) Inc., with
no comparable activity in 2017. (See Section 7.4 Cash used by
financing activities.)
• Free cash flow increased by $825 million in 2017, resulting from
higher EBITDA – excluding restructuring and other costs and lower
income taxes paid. (See calculation in Section 11.1 Non-GAAP and
other financial measures.)
MD&A: INTRODUCTION
1.4 Performance scorecard
(key performance measures)
In 2017, we achieved three of four revised consolidated targets, missing
only the target for capital expenditures, after normalizing basic EPS
for the B.C. corporate income tax rate change. Our original targets
were announced on February 9, 2017. On May 11, 2017, we announced
revised targets to account for the acquisition of MTS’ postpaid wireless
subscribers, certain network assets and dealer locations.
We achieved our revised consolidated revenue target primarily due to
growth in wireless network revenue resulting from growth in blended ARPU
and a growing wireless subscriber base. Additionally, we experienced
increased wireline data service revenue from increases in Internet and
enhanced data service, growth in business process outsourcing revenues,
inclusive of acquisitions, TELUS Health revenue and TELUS TV revenue,
partly offset by the ongoing decline in legacy wireline voice revenue.
We met our revised target for consolidated EBITDA – excluding
restructuring and other costs. This was achieved largely from increased
wireless network revenue, in addition to growth in data service margins.
Our revised basic EPS target growth was based on 2016 basic EPS
of $2.44, which was adjusted to exclude the transformative compensation
expense of $0.38. Our 2017 basic EPS was $2.46. However, our 2017
basic EPS included the effect of an increase in the B.C. corporate income
tax rate of $0.05 recorded in the fourth quarter of 2017, when the income
tax rate increase became substantively enacted. The target for 2017 basic
EPS did not account for this change. Excluding this impact, our basic EPS
of $2.51 met the target range.
Our capital expenditures in 2017 exceeded both our original target
and revised guidance, as we continued to focus on investments in broad-
band infrastructure, including connecting more homes and businesses
directly to our fibre-optic network. These investments also support our
small-cell technology strategy to improve coverage and prepare for a
more efficient and timely evolution to 5G.
Our capital structure financial policies and report on financing and
capital structure management plans are described in Section 4.3.
The following scorecard compares TELUS’ performance to our original or revised 2017 targets. For information related to our 2018 targets,
see Section 9 General trends, outlook and assumptions.
SCORECARD
Consolidated
Revenues
EBITDA – excluding
restructuring and other costs1
Basic EPS2
2017 PERFORMANCE
Original or revised targets3 and growth
Actual results and growth
Result
$13.180 to $13.310 billion3a
3.0 to 4.0%
$4.875 to $5.040 billion3b
3.5 to 7.0%
$2.49 to $2.663c
2.0 to 9.0%
$13.304 billion
3.9%
$4.913 billion
4.4%
$2.514
2.9%4
Capital expenditures
Approx. $3.0 billion3d
$3.094 billion
(excluding spectrum licences)
1 See description in Section 11.1 Non-GAAP and other financial measures.
2 The original and revised targets for basic EPS growth were based on 2016 basic EPS of $2.44, which was adjusted to exclude the transformative
Met target
Missed target
compensation expense of 38 cents.
3 Reflects the 2017 revised targets that were announced on May 11, 2017, to account for the acquisition of Manitoba Telecom Services’ postpaid
wireless subscribers, certain network assets and dealer locations. The 2017 original targets were set on February 9, 2017.
3a The original target for Consolidated revenues was $13.120 to $13.250 billion, or an increase of 2.5 to 3.5%.
3b The original target for Consolidated EBITDA – excluding restructuring and other costs was $4.850 to $4.995 billion, or an increase of 3.0 to 6.0%.
3c The original target for basic EPS was $2.49 to $2.64, or an increase of 2.0 to 8.0%.
3d The original target for Capital expenditures was $2.9 billion.
4 Our 2017 basic EPS included the effect of an increase in the B.C. corporate income tax rate of $0.05, which was not reflected in the original target.
Excluding this impact, our basic EPS of $2.51 met the target range.
TELUS 2017 ANNUAL REPORT • 45
We made the following key assumptions when we announced the 2017 targets in February 2017.
ASSUMPTIONS FOR 2017 TARGETS AND RESULTS
• Our economic assumptions are based on a composite of estimates from Canadian banks and other sources. Our original assumptions for 2017 were:
(i) higher economic growth in Canada of 1.8%, up from an estimated 1.2% in 2016; (ii) for our ILEC provinces in Western Canada, economic growth
in B.C. of 2.3%, down from an estimated 2.9% in 2016, and economic growth in Alberta in the range of 1.0 to 2.0%, compared to estimated contraction
of 2.4% in 2016.
In our MD&A for the first quarter of 2017, we revised our 2017 economic growth assumptions to 2.2% for Canada, and 2.4% for Alberta. In our
MD&A for the third quarter of 2017, we further revised our 2017 economic growth assumptions to 3.0% for Canada, 3.2% for B.C. and 3.5% for Alberta.
We estimate that economic growth for 2017 was 3.1% for Canada, 3.4% for B.C., and 3.9% for Alberta.
• Our original assumption for income taxes included income taxes calculated at applicable statutory rate of 26.4 to 26.9% and cash income tax
payments between $300 million to $360 million. In our MD&A for the third quarter of 2017, we revised our assumption for cash income tax payments
downward to a range of $170 million to $230 million, due to a reorganization to simplify our legal structure to realize efficiencies and streamline
processes, which also impacted the timing of cash income tax payments. Our actual results were at a statutory income tax rate of 26.6% and cash
income tax payments were $191 million.
• Our assumption for restructuring and other costs was approximately $125 million. Our actual 2017 amount for restructuring and other costs was
$139 million as we incurred higher non-labour restructuring and other costs associated with the migration and servicing of subscribers from MTS.
• Our assumption was for continuing weakness in the average Canadian dollar: U.S. dollar exchange rate, which was US$0.755 in 2016. The average
Canadian dollar: U.S. dollar exchange rate strengthened to US$0.77 during 2017 and closed at US$0.80 on December 31, 2017.
Confirmed:
• No material adverse regulatory rulings or government actions.
• Continued intense wireless and wireline competition in both consumer and business markets.
• An increase in wireless industry penetration of the Canadian market.
• Ongoing subscriber adoption of, and upgrades to, data-intensive smartphones, as customers want more mobile connectivity to the Internet.
• Wireless revenue growth resulting from growth in both postpaid subscriber loadings and blended ARPU.
• Continued growth in wireline data revenue, resulting from an increase in high-speed Internet and TELUS TV subscribers, speed upgrades and
expanding broadband infrastructure, as well as business outsourcing and healthcare solutions.
• Continued focus on our customers first initiatives and maintaining our customers’ likelihood-to-recommend scores.
• Pension plans: Defined benefit pension plan expense of approximately $83 million recorded in Employee benefits expense and approximately $5 million
recorded in employee defined benefit plans net interest in Financing costs; a 3.80% rate for discounting the obligation (2016 – 3.80%) and a 4.00%
rate for current service costs employee defined benefit pension plan accounting purposes (2016 – 4.00%); and defined benefit pension plan funding
of approximately $65 million. Actual results were: $82 million recorded in Employee benefits expense, $5 million recorded in employee defined
benefit plans net interest, a rate of 3.40% for discounting the obligation, a 4.00% rate for current service costs employee defined benefit pension
plan accounting purposes, and defined benefit pension plan funding of $66 million.
Increased investments in broadband infrastructure, including upgrades and expansions of our fibre-optic network and 4G LTE capacity, as well as
investments in network and systems resiliency and reliability.
•
2 Core business and strategy
2.1 Core business
2.2 Strategic imperatives
We provide a wide range of telecommunications products and services.
Since 2000, we have maintained a proven national growth strategy.
Wireless products and services include network revenue (data and
Our strategic intent is to unleash the power of the Internet to deliver the
voice) and equipment sales arising from mobile technologies. Wireline
best solutions to Canadians at home, in the workplace and on the move.
products and services include data revenues (which include revenues
We also developed six strategic imperatives in 2000 that remain
from Internet protocol; television; hosting, managed information tech-
relevant for future growth, despite changing regulatory, technological and
nology and cloud-based services; business process outsourcing; certain
competitive environments. We believe that a consistent focus on these
healthcare solutions; and home security), voice revenues and other tele-
imperatives guides our actions and contributes to the achievement of our
communications services revenues. We earn the majority of our revenue
financial goals. To advance these long-term strategic imperatives and
from access to, and the usage of, our telecommunications infrastructure,
address near-term opportunities and challenges, we also set new corpor-
and from providing services and products that facilitate access to, and
ate priorities each year, as further described in Section 3. Our six strategic
usage of, our infrastructure.
imperatives are listed below, together with a discussion of the 2017
activities and initiatives that relate to each of them.
46 • TELUS 2017 ANNUAL REPORT
MD&A: CORE BUSINESS AND STRATEGY
Focusing relentlessly on growth markets of data, IP and wireless
During the year, we made network enhancement investments in
External wireless revenues and wireline data revenues totalled $11.8 bil-
Manitoba to improve coverage, speed and capacity in order to signifi-
lion in 2017, up $622 million or 5.6%, while remaining revenues totalled
cantly enhance our customer experience and supplement the business
$1.5 billion in 2017, down $117 million or 7.2%. These external wireless
acquisition of MTS subscribers, dealers and network.
revenues and wireline data revenues represented 89% of our consolidated
revenues for 2017, as compared to $11.2 billion, or 87%, in 2016. (See the
consolidated revenue trend discussion in Section 5.2 and segment trend
discussions in Section 5.4 and Section 5.5.)
Partnering, acquiring and divesting to accelerate
the implementation of our strategy and focus
our resources on core business
In 2017, we made numerous business acquisitions. These are also
Providing integrated solutions that differentiate TELUS
discussed in Section 1.3:
from our competitors
• We acquired approximately 74,000 of Manitoba Telecom Services Inc.’s
In May 2017, we launched Pik TV, which provides customers with access
(MTS’) postpaid wireless subscribers, certain network assets and
to 23 basic local and regional cable channels and a choice of five specialty
rights to 15 retail locations in Manitoba. Additionally, we expanded
channels, as well as sports and movie theme pack options, through a
and enhanced our network in Manitoba as described in Section 7.3.
self-install media box. On demand channels, as well as popular over-the-
We also officially launched our TELUS Manitoba Community Board
top (OTT) services and certain other apps, are also available. The Pik TV
as described in Section 3.
app lets customers watch certain channels on the go on their tablet or
• We completed the acquisition of Kroll Computer Systems Inc. to
smartphone. Pik TV was created to embrace the changing environment
enhance our geographic reach and the quality of our product offering
where content is available from many alternatives by providing a stream-
as a national pharmacy management services provider.
lined offer for customers who may have otherwise ceased and/or never
• We acquired 55% of Voxpro and approximately 2,700 Voxpro team
subscribed for TV services.
Building national capabilities across data, IP, voice and wireless
During the year, we continued our long-term strategy of investing in
urban and rural communities with commitments to deliver broadband
net work capabilities to as many Canadians as possible. We expanded our
TELUS PureFibre footprint by connecting more homes and businesses
directly to fibre-optic cable and delivering faster broadband Internet
speeds. For further discussion, see Section 3 – Increasing our competitive
advantage through advanced, client-centric technology, networks and
systems that lead the world in reliability.
Highlights include:
members joined us through our TELUS International (Cda) Inc.
subsidiary. The Ireland-headquartered company now operates as
Voxpro – powered by TELUS International.
• On February 6, 2018, we closed an agreement through our
TELUS International (Cda) Inc. subsidiary to acquire 65% of Xavient
Information Systems, a group of information technology consulting
and software services companies with facilities in the U.S. and India.
This acquisition will accelerate our ability to expand our global IT
services and now operates as Xavient Digital – powered by TELUS
International. See Additional wireline capabilities under Section 9.2
for further details.
•
In January 2017, we announced an investment of $250 million in
Subsequent to 2017, we acquired all of the customers, assets and
the city of Surrey, B.C. to connect more than 90% of homes and
operations of AlarmForce Industries Inc. (AlarmForce) in B.C., Alberta
businesses to the TELUS PureFibre network before the end of 2018.
and Saskatchewan; the primary reason for this acquisition is to leverage
•
In February 2017, we announced investments of $55 million and
our telecommunications infrastructure and expertise to continue to
$150 million in the cities of Chilliwack, B.C. and Burnaby, B.C.,
enhance connected home, business, security and healthcare services for
respectively, to connect more than 90% of homes and businesses
our customers. The total purchase price was approximately $69 million.
to the TELUS PureFibre network before the end of 2018 and
This acquisition, combined with our growing gigabit-capable TELUS
2019, respectively.
In April 2017, we announced fibre-optic investments in the province of
•
PureFibre network, was made with a view to accelerate our position in
smart home and security services, and provides us with the ability to
Quebec, including $80 million in the Quebec City region, $30 million
offer our customers bundled services in the future.
in the Lower St. Lawrence region, $30 million in the Gaspé Peninsula
and $15 million in the North Shore region, and we expect to connect
99% of Eastern Quebec before the end of 2021.
•
In October 2017, we announced an investment of $60 million in
the Alberta towns of Okotoks, Black Diamond and Turner Valley to
connect more than 90% of homes and businesses to the TELUS
PureFibre network before the end of 2019.
•
In 2017, we completed our previously announced investment to
connect the city of Kitimat, B.C. to the TELUS PureFibre network.
In June 2017, we completed our initiative in Ontario and Quebec to
Going to market as one team under a common brand,
executing a single strategy
Our team works together to implement our top corporate priority of putting
customers first, as we strive to consistently deliver exceptional customer
experiences and become the most recommended company in the markets
we serve. In November 2017, the office of the Commission for Complaints
for Telecom-television Services (CCTS) issued its annual report for the
12-month period ended July 31, 2017, and TELUS continued to receive
the fewest customer complaints of the national carriers, while Koodo®
continued to receive the fewest customer complaints of the national
update our radio access network to the latest wireless technologies,
flanker brands. TELUS, Koodo and Public Mobile were the subjects of
improving network performance for our customers and enabling
6.9%, 2.9% and 1.1% of the total customer complaints accepted by the
advanced capabilities.
CCTS, respectively, or 10.9% of total customer complaints, in aggregate,
when we have approximately 28% of Canadian wireless customers.
TELUS 2017 ANNUAL REPORT • 47
In 2017, we continued to deliver a leading postpaid customer churn
In addition, we incurred incremental, non-recurring restructuring
rate on a national basis. Our monthly postpaid churn rate further exem-
and other costs with the objectives of improving our operating efficiency
plifies the success of our differentiated customers first culture and our
and effectiveness and addressing the profitability challenges in certain
ongoing focus on delivering outstanding customer service, coupled with
areas of our business. Restructuring costs associated with the rational-
attractive new product and service offerings. For further discussion,
ization of administrative, channel and network real estate were recorded
see Section 3 – Delivering on TELUS’ future friendly brand promise by
in Goods and services purchased. Employee-related restructuring costs
putting customers first.
Investing in internal capabilities to build a high-performance
culture and efficient operation
Each year, we conduct team member Pulsecheck engagement surveys,
administered by Aon Hewitt, to gather confidential team member
feedback about TELUS as a place to work and measure our progress
for reorganizing and streamlining business processes, such as certain
client care, marketing and support functions, were recorded in Employee
benefits expense. Other costs for incremental external expenses in
connection with business acquisition or disposition activity, as well as
litigation costs, in the context of significant losses and settlements,
were recorded in Goods and services purchased.
in establishing a high-performance culture. Following each survey,
Restructuring and other costs
business units and departments make use of their Pulsecheck results
to review their current action plans and prioritize their ongoing actions.
In 2017, our employee engagement score increased to 84%, elevating
our high-performance culture and placing our Company within the
top 10% of all employers surveyed on a global basis.
Years ended December 31 ($ millions)
Goods and services purchased
Employee benefits expense
Restructuring and other costs included in EBITDA
2017
103
36
139
2016
62
417
479
For further discussion, see Section 3 – Elevating our winning culture for
sustained competitive advantage.
3 Corporate priorities
We confirm or set new corporate priorities each year to advance TELUS’ long-term strategic imperatives (see Section 2.2) and address near-term
opportunities and challenges. The following table provides a discussion of activities and initiatives that relate to our 2017 corporate priorities.
Delivering on TELUS’ future friendly brand promise by putting customers first
• We maintained our leadership position in customer loyalty, achieving a postpaid wireless churn rate of less than 1% for 17 of the last 18 quarters.
•
Notably, in the J.D. Power 2017 Canadian Wireless Network Quality Study, TELUS was ranked Highest Wireless Network Quality Performance in Ontario,
three years in a row; and in the West (including British Columbia, Alberta, Saskatchewan and Manitoba) two years in a row.
In February 2017, TELUS was awarded Fastest Overall Download Speed and Best Availability among three national providers by OpenSignal, a UK-based
company that studies wireless coverage globally using crowd-sourced data from real customer devices. This result is testament to our multi-pronged
strategy for technology development, such as through our roll-out of LTE, our wireless network upgrade in Eastern Canada and our approach to the
roll-out of 5G by incubating new technologies through trials in a real-life environment in our 5G Living Lab in Vancouver.
• We were ranked as having the fastest wireless network nationally according to PCMag. Additionally, we were ranked as having the fastest network in
certain markets across Canada, including Victoria, Vancouver, Edmonton, Saskatoon, Moose Jaw, Winnipeg, Windsor, Toronto, Ottawa, Quebec City,
Montreal, Fredericton and Prince Edward Island.
• We were recognized as having Canada’s fastest mobile network according to the crowd-sourced Ookla Speedtest for the second quarter to third
quarter of 2017.
• We now provide Cuba Roaming Passports, providing customers travelling to Cuba with cost savings and cost certainty.
• Our customers’ likelihood-to-recommend scores improved for Business Solutions and TELUS Health. We also continue to lead our national peers in
the consumer space, with Koodo being the most recommended of any wireless brand.
• We made YouTube available on all Optik TV 4K digital boxes. As a result, a subscription to 4K content or a 4K-capable TV is no longer required to
access the YouTube app on Optik TV.
• We launched our new Optik TV app, which allows subscribers to watch live TV, set recordings and access our On Demand library on a smartphone,
tablet or computer.
• We expanded our cloud communications solutions with the launch of TELUS Business Connect Mobile, an all-in-one integrated mobile solution
designed to drive productivity and cost savings for businesses.
48 • TELUS 2017 ANNUAL REPORT
MD&A: CORPORATE PRIORITIES
Elevating our winning culture for sustained competitive advantage
• Our employee engagement levels continue to place our organization within the top 10% of all employers surveyed on a global basis (see Investing in
internal capabilities to build a high-performance culture and efficient operation in Section 2.2).
• Our culture continues to drive our success in the marketplace, as we focus on putting our customers first in a manner that differentiates us from
•
our competitors.
In 2017, we reached our goal of volunteering one million hours in order to honour the 150th anniversary of Canadian confederation. Also, TELUS, our team
members and retirees contributed over $45 million to charities and community organizations across Canada and around the world.
• We launched the TELUS Barrie Community Board, which will provide funding to local registered charitable organizations to support youth programs.
Additionally, the TELUS Manitoba Community Board and the TELUS International Romania Community Board were both officially launched in 2017,
bringing our total to 18 community boards around the world.
• For the 12th year, we received a BEST award for excellence in employee learning and development from the Association for Talent Development.
• We launched the TELUS Mobility for Good pilot project in B.C., working with the government of B.C.’s Ministry of Children and Family Development to
support young adults transitioning from foster care into independent living by providing them with a smartphone and wireless rate plan. We are working
with the Children’s Aid Foundation of Canada to pilot this program in Ontario.
• We expanded TELUS WISE (wise Internet and smartphone education) to incorporate a TELUS WISE Youth Ambassador Program, which engages
ambassador students in grades nine through 12 to deliver interactive workshops, practicing their presentation and public speaking skills and making a
difference in their community. TELUS WISE is our free educational program aimed at keeping participants, their families and communities safer online.
Generating profitable top-line revenue growth while enhancing our operational efficiency
• We continued to execute clear and simple principles to reduce complexity and customer support requirements.
• We retired our legacy CDMA network assets.
• We continue to invest in operational efficiency initiatives, including increased utilization of our TELUS International (TI) customer care, IT and business
process services, incremental real estate rationalization, and various other efficiency and effectiveness programs, in support of our top priority of
putting customers first while continuing to drive toward a more efficient cost structure.
Increasing our competitive advantage through advanced, client-centric technology, networks and systems that lead the world in reliability
• Together with our lead vendor, we successfully completed a 5G wireless connection using the global 3GPP technology standards platform in our 5G
Living Lab in Vancouver.
• We successfully completed Canada’s first test of licensed assisted access (LAA) on indoor and outdoor live networks. The test delivered wireless
download speeds of 970 Mbps indoors and 966 Mbps outdoors using 80MHz of aggregated spectrum in a live, dynamic production network.
LAA technology will enhance the TELUS network as it continues to evolve towards next-generation 5G speeds, bringing customers higher throughput
and a better overall network experience as we deploy the technology into our network in the coming years.
• We successfully completed a live-environment mobile broadband test using 3.5 GHz spectrum and achieved download speeds eclipsing 2 Gbps in
suburban northwest Edmonton. The 3.5 GHz spectrum will enable future 5G networks to deliver faster speeds in more places.
• We continued to invest in our leading-edge broadband technology, which has enabled the success of Optik TV and Pik TV, Internet and business
services, as well as the ongoing evolution of our world-class wireless networks.
• Our 4G LTE network covered 99% of Canada’s population at December 31, 2017.
• Our high-speed broadband coverage reached more than 3 million households and businesses in B.C., Alberta and Eastern Quebec at
December 31, 2017, including approximately 1.44 million homes and businesses covered by fibre-optic cable, up from 1.08 million homes
and businesses in 2016, which now provides these premises with immediate access to our gigabit-capable fibre-optic network.
• As noted in Section 2.2, in June 2017, we updated our radio access network in Ontario and Quebec to the latest wireless technologies, improving
network performance for our customers and enabling advanced capabilities.
• We continued to enhance our network performance and achieved significant year-over-year improvements in 4G LTE average download speeds,
voice accessibility, voice dropped call rates and 4G LTE data accessibility.
• To provide our customers with an improved wireless calling experience, we expanded our voice over LTE (VoLTE) coverage nationally, excluding the
province of Saskatchewan and some parts of Manitoba, and we expect to cover the remaining parts of Manitoba in 2018.
Driving TELUS’ leadership position in our chosen business, public sector and international markets
• TI remains focused on providing outstanding contact centre, business process and IT solutions to our global customers, and continuing to partner
with like-minded organizations that share our commitment to providing world-class customer experiences by helping them to provide better service
for their clients. TI continues to focus on growth and, in 2017, expanded with our acquisition of Voxpro, which has extended our U.S. footprint and
added new capacity in Europe and Asia. Additionally, our 2018 acquisition of Xavient adds client diversity, next-generation IT solutions and operations
in the U.S. and India that will help us sustain our growth trajectory.
• We launched Network as a Service (NaaS) in 2017, further solidifying our position in the Canadian business telecom market. NaaS makes it easy for
Canadian businesses to deploy and optimize their own secure and reliable software defined networks quickly, easily and cost-effectively through a
flexible self-serve cloud-based platform.
• As Canadian companies continue to drive their digital transformation to improve their competitiveness in a rapidly evolving global economy, we look to
be an Internet of Things (IoT) thought leader, providing integrated solutions that allow our customers to focus on their core competencies.
TELUS 2017 ANNUAL REPORT • 49
Advancing TELUS’ leadership position in healthcare information management for better human outcomes
• TELUS Health and Université Laval announced a partnership to provide comprehensive simulation teaching facilities to the university’s pharmacy
faculty. Additionally, pharmacy students will have an opportunity to operate Ubik, TELUS Health’s pharmacy management platform currently being
deployed across pharmacies in Quebec, which will be customized for use in academic settings.
• We acquired Kroll Computer Systems Inc. to enhance our geographic reach and the quality of our product offering as a national pharmacy management
services provider.
• Canada Health Infoway selected TELUS Health as the successful bidder to be the technical solution provider for PrescribeIT, a national e-prescribing
service. PrescribeIT will enable the secure electronic transmission of prescriptions from a physician office or clinic directly to the patient’s pharmacy of
choice. Electronic transmission of prescriptions will prevent transcription errors, save time for physicians and pharmacists, and increase convenience
for patients. PrescribeIT will be built on the open, interoperable and vendor-agnostic TELUS Health Exchange platform, which already provides
healthcare professionals with a variety of collaboration tools that improve the quality and efficiency of the care they provide to their patients.
In July 2017, TELUS Health announced the launch of MedDialog, a national clinical solution that allows doctors to communicate electronically with
other physicians regarding the care of their patients directly from their EMR systems. This technology will enable more efficient clinical practice and
better patient care by eliminating the need for phone and fax communications and ensuring all patient communication history remains within the
digital chart.
•
• TELUS Health announced a partnership with Tunstall Healthcare, a leading connected healthcare company, to provide Canadians with access to
healthcare through the Tunstall Integrated Care Platform (ICP). As patients track and upload their own vital signs from their homes, the TELUS Home
Health Monitoring solution powered by ICP will allow virtual care teams to maintain a close watch on biometrics in real time and intervene before a
health issue arises, regardless of where they are located. By leveraging remote monitoring and videoconferencing telehealth software solutions, we aim
to improve the lives of patients living with chronic disease and help prevent unnecessary hospital admissions.
Our 2018 corporate priorities are provided in the table below.
2018 CORPORATE PRIORITIES
• Honouring our team, customers and social purpose by delivering on our brand promise
• Leveraging our broadband networks to drive TELUS’ growth
• Fuelling our future through recurring efficiency gains
• Driving emerging opportunities in TELUS Health and TELUS International.
4 Capabilities
The forward-looking statements in this section, including statements regarding our dividend growth program and our financial objectives in Section 4.3,
are qualified by the Caution regarding forward-looking statements at the beginning of this MD&A.
4.1 Principal markets addressed and competition
WIRELESS PRODUCTS AND SERVICES FOR CONSUMERS AND BUSINESSES ACROSS CANADA
Our products and services
• Data and voice – Fast Internet access for video, social networking, messaging and mobile applications, including our new Optik TV app; Internet of
Things (IoT) solutions (including machine-to-machine (M2M) connectivity); clear and reliable voice services; push-to-talk (PTT) solutions, including
TELUS Link® service; and international roaming.
• Devices – The latest smartphones, tablets, mobile Internet keys, mobile Wi-Fi devices, M2M modems, digital life devices and wearable technology.
• Suite of IoT solutions to support Canadian businesses locally and internationally, including asset tracking, fleet management, remote monitoring,
digital signage and security.
50 • TELUS 2017 ANNUAL REPORT
MD&A: CAPABILITIES
WIRELESS PRODUCTS AND SERVICES FOR CONSUMERS AND BUSINESSES ACROSS CANADA
Our capabilities
• Licensed gross national wireless spectrum holdings averaging 160.4 MHz.
• Coast-to-coast digital 4G LTE network:
• Overall coverage of 99% of Canada’s population, with the LTE advanced portion of the network covering 88% of Canada’s population,
at December 31, 2017. Coverage includes roaming agreements.
• Coverage and capacity were enhanced with the deployment of the 700 MHz wireless spectrum licences acquired in 2014 and the deployment
of the 2500 MHz wireless spectrum acquired in 2015. We plan to utilize other spectrum licences purchased in recent years in combination
with unlicensed supplementary spectrum, as network and device ecosystems evolve.
• Manufacturer’s rated download speeds: LTE advanced, up to 750 Mbps; LTE, up to 110 Mbps; HSPA+, up to 42 Mbps.
Average expected speeds: LTE advanced, 12–200 Mbps; LTE, 12–45 Mbps; HSPA+, 4–14 Mbps1.
• Reverts to the HSPA+ network and speeds when customers are outside LTE coverage areas.
•
International voice and data roaming capabilities in more than 225 countries.
Competition overview
• Facilities-based national competitors Rogers Wireless and Bell Mobility, as well as provincial or regionally focused telecommunications companies
Freedom Mobile, Videotron, SaskTel, Eastlink, Tbaytel and Xplornet (expected in 2018).
• Fixed wireless services.
• Resellers of competitors’ wireless networks.
• Services offered by cable-TV and wireless competitors over wireless and metropolitan Wi-Fi networks.
WIRELINE PRODUCTS AND SERVICES: RESIDENTIAL SERVICES IN BRITISH COLUMBIA, ALBERTA AND EASTERN QUEBEC;
HEALTHCARE SOLUTIONS; BUSINESS SERVICES ACROSS CANADA; AND CONTACT CENTRE AND OUTSOURCING SOLUTIONS
OFFERED INTERNATIONALLY
Our products and services
• Voice – Reliable fixed phone service with long distance and advanced calling features; voice over IP (VoIP) supporting voice services into the future.
Internet – Fixed high-speed Internet access (HSIA) service with email and a comprehensive suite of security solutions. Also includes HSIA over LTE
•
and TELUS PureFibre, with reliable Wi-Fi, and cloud storage. TELUS offers symmetrical 150 Mbps download and upload speeds.
• TELUS TV – High-definition entertainment service with Optik TV, Pik TV and TELUS Satellite TV®. Optik TV offers extensive content options and
innovative features such as PVR Anywhere, Remote Recording, Optik® Smart Remote channel browsing with a tablet or smartphone, and our new
Optik TV app (see Section 3 for further information). Pik TV, which is provided only in B.C. and Alberta, delivers a streamlined offer for customers
who have ceased and/or never subscribed for TV services by offering a self-install TV service created to embrace the changing environment where
content is increasingly available from over-the-top (OTT) services. We are the content leader in Western Canada, which includes being the only
provider in Western Canada offering 4K TV capability. TELUS Satellite TV service is offered only in B.C. and Alberta by way of an agreement with
Bell Canada.
IP networks and applications for businesses – Converged voice, video and data services and Internet access, offered on a high-performing network.
•
• Contact centre, business process and IT outsourcing solutions in more than 30 languages – Managed solutions providing low-cost and scalable
infrastructure in North America, Asia, Europe and Central America and next-generation IT consulting and delivery capabilities upon closing our
acquisition of Xavient Information Systems.
• Hosting, managed IT and cloud-based services – Cybersecurity and other solutions with ongoing assured availability of telecommunications,
networks, servers, databases, files and applications, with critical applications stored in our Internet data centres (IDCs) across Canada or through
partner facilities, depending on customer preferences, including our Network as a Service (NaaS) offering.
• Healthcare – TELUS Health’s services, including pharmacy management, electronic medical records (EMR) and mobile EMR, electronic health records,
drug information systems, regional clinical information systems, personal health record systems, remote patient monitoring, online settlement claims
management solutions, e-prescribing services, TELUS Health Exchange Platform and MedDialog.
• Unified Communications conferencing and collaboration – Full range of equipment and application solutions to support meetings and webcasts by
means of phone, video and Internet.
• Home security – Central monitoring station, wireless and hard-wired security accessibility, and wearable security offerings for residential customers.
1 Network speeds vary with location, signal and customer device. Compatible device required.
TELUS 2017 ANNUAL REPORT • 51
WIRELINE PRODUCTS AND SERVICES: RESIDENTIAL SERVICES IN BRITISH COLUMBIA, ALBERTA AND EASTERN QUEBEC;
HEALTHCARE SOLUTIONS; BUSINESS SERVICES ACROSS CANADA; AND CONTACT CENTRE AND OUTSOURCING SOLUTIONS
OFFERED INTERNATIONALLY
Our capabilities
• Broadband Internet coverage reaching more than three million homes and businesses in B.C., Alberta and Eastern Quebec.
• Ongoing connection of homes and businesses directly to fibre-optic cables; approximately 1.44 million homes and businesses addressable
by TELUS PureFibre in B.C., Alberta and Eastern Quebec at December 31, 2017 and we are approaching nearly 50% of our targeted
coverage footprint.
• Wireline residential access line services provided to an estimated 31% of households in B.C. and Alberta, and 58% of households in our Eastern
Quebec region.
• Broadcasting distribution licences allowing us to offer digital television services in incumbent territories, as well as licences to offer commercial
video-on-demand services.
• Home security technological abilities to support central monitoring. Field services capabilities to install, upgrade and repair security at a
customer’s premises.
• An IP-based national network overlaying an extensive switched network in B.C., Alberta and Eastern Quebec, as well as global interconnection
arrangements.
• Eight data centres in six communities directly connected to the national TELUS IP network, creating an advanced and regionally diverse computing
infrastructure in Canada.
• Access to businesses across Canada through our networks, as well as competitive local exchange carrier status.
• Business process outsourcing and next-generation IT consulting services with global delivery capabilities through our multinational, multi-language
programs, supported by approximately 27,900 full-time equivalent (FTE) roles across North America, Asia, Europe and Central America, as at
December 31, 2017.
• Technology solutions to assist health regions, hospitals, insurers, consumers and employers; also to improve the connectivity and collaboration
among healthcare providers, including physicians, nurses, pharmacists and physiotherapists.
Competition overview
• Substitution of wireless services, including our own wireless offerings, for residential local and long distance services. The percentage of households
with wireless-only telephone services (among all providers, including TELUS) is estimated to be 45% in B.C. and Alberta, and 18% in Eastern Quebec,
compared to 41% and 16%, respectively, in 2016.
• Allstream Inc., a national telecommunications service provider for business customers, owned by Zayo Group Holdings Inc., a U.S.-based provider of
communications infrastructure services.
• Cable-TV competitors for Internet and entertainment services, such as Shaw Communications (in B.C. and Alberta) and Cogeco Cable and Videotron
(in Eastern Quebec).
• Various others offering resale or VoIP-based local, long distance and Internet services.
• OTT voice and entertainment services, such as Skype, Netflix, Amazon Prime Video and YouTube.
• Satellite-based entertainment and Internet services offered by Bell Canada, Shaw Communications and Xplornet.
• Competitors for contact centre services, such as Convergys, Teleperformance, Sykes Alorica, Sutherland and Sitel.
• Fixed wireless services.
• Customized managed outsourcing solutions competitors, such as system integrators CGI Group Inc., EDS division of HP Enterprise Services and IBM.
• Competitors for TELUS Health include providers of EMR and pharmacy management products, such as Omnimed, Familiprix, Medfar, Fillware, ARI and
Logipharm. Competitors also include systems integrators, health service providers, such as Loblaws, McKesson and the Jean Coutu Group, that have
also become vertically integrated and own a mix of health services delivery, IT solutions and related services, and potentially, global providers such as
EPIC and Cerner that could achieve expanded Canadian footprints.
• Competitors for home security range from local to national companies, such as ADT, Chubb Security, Stanley Security, Fluent and Monitronics.
52 • TELUS 2017 ANNUAL REPORT
MD&A: CAPABILITIES
4.2 Operational resources
RESOURCES
Our team
• Approximately 53,630 employees at the end of 2017 (approximately 52,860 FTE roles across a wide range of operational functions, with 24,960 FTE
roles in Canada and 27,900 FTE roles internationally).
• Approximately 10,465 of our employees are covered by collective agreements. The agreement with the Telecommunications Workers Union (TWU),
United Steel Workers Local Union 1944, which covers approximately 9,020 employees, expires on December 31, 2021. The agreement with the
Syndicat des agents de maîtrise de TELUS (SAMT), which covers approximately 635 team members in the TELUS Quebec region, expires on
March 31, 2022. The agreement with the Syndicat québécois des employés de TELUS (SQET), which covers approximately 1,385 employees,
expires on December 31, 2022.
• Operations at Canadian and international locations to support contact centres and business process outsourcing services for external wholesale
customers, as well as for certain functions internally.
• Employee compensation programs that support a high-performance culture and contain market-driven and performance-based components
(bonus and share-based compensation) to attract and retain key employees.
• Succession plans to cover ongoing retirement, ready access to labour in Canada and, for contact centres and specific support functions, in various
international locations. We also use external contractors and consultants.
• Training, mentoring and development programs to maintain and improve employee engagement levels and enhance the customer experience.
Our brand and distribution channels
• A well-established and recognizable national brand (TELUS, the future is friendly).
• Koodo Mobile® – A national provider of postpaid and prepaid wireless voice and data services with a broad distribution network, including
TELUS-owned stores, dealers and third-party electronics retailers.
• Public Mobile – A prepaid wireless service provider, with a primarily web-based distribution channel, and provides customers with a SIM-only service.
• Optik TV brand, launched in mid-2010. Pik TV brand, launched in mid-2017.
• TELUS PureFibre, our next-generation fibre-optic network.
• Our sales and support distribution channels:
• Wireless services are supported through a broad network of TELUS-owned and branded stores, including our 50% ownership of the kiosk
channel WOW! Mobile, an extensive distribution network of exclusive dealers and large third-party electronics retailers (e.g. Best Buy, WalMart
and London Drugs) and a white label brand for a premier retail chain, as well as online self-serve applications, mass marketing campaigns and
customer care telephone agents.
• Wireline residential services are supported through TELUS-owned and branded stores, including third-party electronics retailers, as well as
mass marketing campaigns, customer care telephone agents, and online and TV-based self-serve applications.
• Through telus.com, we enable sales of both wireless and wireline products and services. We also provide online account management tools
enabling wireless and wireline customers to manage their accounts through our website or mobile applications.
• TELUS Health provides some of its consumer services – personal health records and home health monitoring – in partnership with provincial
governments.
• Business services, including healthcare, across wireless and wireline are supported through certain dedicated stores for business, TELUS sales
representatives, product specialists, independent dealers and online self-serve applications for small and medium-sized businesses (SMBs).
Business process outsourcing services are supported through sales representatives and client relationship management teams.
• Dedicated direct-to-consumer channel of over 600 field sales agents.
Our technology, systems and properties
• We are a technology-enabled company with a multitude of IT systems and processes. We are focused on driving innovation and making generational
investments to deliver state-of-the-art broadband solutions in an increasingly digital society.
• Wireless broadband networks – In 2012, we launched our 4G LTE wireless network capable of speeds of up to 110 Mbps, and today, our wireless
network covers 99% of Canada’s population. Our LTE network allows customers to take advantage of the newest mobile devices and enjoy a
seamless experience across their multiple devices. In 2015, we launched the newest LTE advanced (LTE-A) network technology and have been
working to expand our LTE capabilities with this technology since then. In April 2016, we enhanced our LTE-A network with the first global implementation
of frequency division duplex (FDD) 4x4 multiple-input-multiple-output (MIMO) technology. We implemented another key enhancement to our LTE-A
network in June 2017 by introducing quad-band LTE-A carrier aggregation technology – this network covers 88.2% of Canada’s population and
enables theoretical peak speeds of 750 Mbps.
•
In 2014, we deployed a centralized radio access network (C-RAN) in Vancouver and, in 2016, launched voice over LTE (VoLTE) service in B.C. and
Alberta communities. Both deployments were key transformations in our wireless capabilities. We were also the first national operator to provide
high-speed Internet service over our LTE network for rural customers in B.C. and Alberta through our Smart Hub mobile Internet solution.
• We have been making significant investments in heterogeneous network (HetNet) technology, one of the key building blocks for 5G. HetNet combines
multiple types of cells, such as outdoor macro cells and microcell, as well as indoor pico cells, to enhance coverage and capacity in crowded urban
areas and inside buildings. By taking continuous strides to evolve our small-cell technology concurrent with the evolution of network technologies to
LTE-A pro (i.e. 4.5G), in September 2017, we became the first operator in Canada to introduce licensed assisted access (LAA) small cells for both
outdoor and indoor environments. This technology is capable of speeds of up to 970 Mbps, which are the highest achieved globally.
TELUS 2017 ANNUAL REPORT • 53
RESOURCES
Our technology, systems and properties
• Wireline broadband networks – Our investments to deploy our gigabit-enabled TELUS PureFibre network have brought fibre-optic connectivity deeper
into our network and directly to homes and businesses. At the end of 2017, 1.44 million homes and businesses in communities across B.C., Alberta
and Quebec had access to fast, symmetrical 150/150 Internet download and upload speeds with TELUS PureFibre. Sixty of these communities now
also have 250/250 Mbps and 1 Gbps/250 Mbps Internet service tiers available to them. Recognizing the need for highly reliable, high-capacity
connectivity with low latency to support emerging services such as virtualized networks and IoT applications, we have also begun rolling out a next-
generation nationwide optical backbone network capable of 400 Gbps per channel with automated self-healing and the ability to turn up network
capacity on demand.
• We have advanced our converged voice evolution strategy with the launch of our enhanced home phone service and small business voice
services. These services leverage the capabilities of the TELUS PureFibre network and will serve as a foundation for new services in conjunction
with our wireless network.
• We have continued to innovate through Optik TV advancements for our customers, building a next-generation video platform to enable more
differentiated OTT friendly services and launching a user-installable Android TV-based set-top box, which enabled us to introduce our new Pik TV
service to customers as of May 2017.
• By deploying next-generation platforms like Ericsson MediaRoom and MediaFirst Cloud, and investing in video distribution and the cloudification
of video infrastructure, we will continue to advance our priority of enabling “anytime, everywhere” content and entertainment.
• Real estate – Our network facilities are constructed under or along streets and highways, pursuant to rights-of-way granted by the owners of land,
including municipalities and the Crown, or on freehold land we own.
• Our real estate properties (owned or leased) also include administrative office space, work centres and space for telecommunications equipment.
Some buildings are constructed on leasehold land and the majority of wireless towers are situated on lands or buildings held under leases or
licences with varying terms. We also participate in two real estate joint ventures. (See Section 7.11.)
•
Intangible assets – Our intangible assets include wireless spectrum licences from Innovation, Science and Economic Development Canada (ISED),
which are essential to providing wireless services. We have assets totalling 160.4 MHz average nationally. We have deployed 700 MHz, 2300 MHz,
2500 MHz, 1900 MHz, AWS-1 and 850 MHz spectrum to evolve our wireless network and will continue to enhance our LTE capability with AWS-3
spectrum as well as look to the introduction of new bands that will enable the realization of 5G networks. We intend to continue acquiring spectrum
within the rules set out by ISED to meet our future capacity requirements.
• Our broadcasting distribution licences enable us to provide entertainment services. See Section 9.4 Broadcasting related issues describing
developments relating to these licences.
• Future technologies, TELUS Health and TELUS International – In addition to evolving our existing wireless and wireline infrastructure, we are investing
in the technologies of the future that will serve as the foundation to provide next-generation services to Canadians. By way of example, we are
building the next generation of 5G wireless technologies and capitalizing on the promise of convergent wireless and wireline network technologies.
As mobile operators globally work to develop 5G, we have achieved groundbreaking wireless speeds of nearly 30 Gbps – 200 times faster than
today’s LTE standard – in our Living Lab. In 2017, we broke new ground by piloting 5G wireless-to-the-premises (WTTx) technology and achieved
2 gigabit per second download speeds in a live-environment test using 3.5 GHz spectrum.
• We continue to invest in enabling platforms such as our jasper connected device platform (CDP) and our dedicated machine-to-machine virtual
evolved packet core (M2M vEPC) to support IoT applications, where the ease of onboarding partners is crucial for emerging services such as
connected vehicles, fleet management and more.
In 2017, we launched our NaaS solution, the first Canadian network function virtualization (NFV) infrastructure that will power the virtualized
networks of the future and enable Canadian businesses to serve their customers better with improved total cost of ownership.
•
• Through TELUS International, we provide customer care, IT, business processing and next-generation IT consulting services by utilizing geographically
diverse service centres, software tools and international data networks and data centres. Global rerouting capabilities and geographic diversity are
supported by facilities located in North America, Asia, Europe and Central America.
• Through TELUS Health’s services, such as pharmacy management, EMRs (including mobile EMR), electronic health records, personal health
records, clinical information systems, remote patient monitoring and online claims settlement management software solutions, including the
online renewal of prescriptions, e-prescribing services, and MedDialog, TELUS Health facilitates the integration of electronic health records from
the home to the doctor’s office to the hospital, making critical health information available to healthcare providers over wireless and wireline
broadband networks.
54 • TELUS 2017 ANNUAL REPORT
4.3 Liquidity and capital resources
Capital structure financial policies
Our objective when managing capital is to maintain a flexible
capital structure that optimizes the cost and availability of capital
at acceptable risk.
In the management of capital and in its definition, we include
Common Share equity (excluding Accumulated other comprehensive
income), Long-term debt (including long-term credit facilities, commercial
paper backstopped by long-term credit facilities and any associated
hedging assets or liabilities, net of amounts recognized in Accumulated
other comprehensive income), Cash and temporary investments,
and short-term borrowings arising from securitized trade receivables.
Financing and capital structure management plans
MD&A: CAPABILITIES
We manage our capital structure and make adjustments to it in
light of changes in economic conditions and the risk characteristics of
our telecommunications infrastructure. In order to maintain or adjust our
capital structure, we may change the amount of dividends paid to holders
of Common Shares, purchase shares for cancellation pursuant to our
normal course issuer bid (NCIB) programs, issue new shares, issue new
debt, issue new debt to replace existing debt with different characteristics
and/or increase or decrease the amount of trade receivables sold to an
arm’s-length securitization trust.
We monitor capital by utilizing a number of measures, including the net
debt to EBITDA – excluding restructuring and other costs ratio, coverage
ratios and the dividend payout ratio. (See definitions in Section 11.1.)
REPORT ON FINANCING AND CAPITAL STRUCTURE MANAGEMENT PLANS
Pay dividends to the holders of Common Shares under our multi-year dividend growth program
•
In May 2016, we announced our intention to target ongoing semi-annual dividend increases, with the annual increase in the range of 7 to 10% from
2017 through to the end of 2019, thereby extending the policy first announced in May 2011. Notwithstanding this target, dividend decisions will continue
to be subject to our Board’s assessment and the determination of our financial position and outlook on a quarterly basis. Our long-term dividend payout
ratio guideline is 65 to 75% of prospective net earnings per share. (See Section 7.5 Liquidity and capital resource measures). There can be no assurance
that we will maintain a dividend growth program or that it will not be changed through 2019. (See Caution regarding forward-looking statements – Ability
to sustain our dividend growth program through 2019 and Section 10.7 Financing, debt requirements and returning cash to shareholders.)
• Dividends declared in 2017 totalled $1.97 per share, an increase of $0.13 per share or 7.1% compared to the dividends declared in 2016. On February 7,
2018, the Board declared a first quarter dividend of $0.5050 per share, payable on April 2, 2018, to shareholders of record at the close of business on
March 9, 2018. The first quarter dividend for 2018 reflects a cumulative increase of $0.025 per share or 5.2% from the $0.48 per share dividend
declared one year earlier.
In connection with dividends declared during 2017, our dividend reinvestment and share purchase plan trustee purchased from Treasury approximately
2 million dividend reinvestment Common Shares for $91 million, with no discount applicable.
•
Purchase Common Shares
•
In November 2017, we received approval from the Toronto Stock Exchange (TSX) for a new 2018 NCIB to purchase and cancel up to 8 million
Common Shares for consideration of up to $250 million over a 12-month period, commencing from November 13, 2017, to November 12, 2018, through
the facilities of the TSX, the New York Stock Exchange, and alternative trading platforms or as otherwise permitted by applicable securities laws.
TELUS will purchase Common Shares only when and if we consider it opportunistic, subject to any purchases that may be made under an automatic
share purchase plan (ASPP). As of February 8, 2018, we have not had any transactions pursuant to our 2018 NCIB.
• Our 2017 NCIB, for which we had received approval to purchase up to 8 million shares for an aggregate purchase price of up to $250 million, concluded
on September 29, 2017 with TELUS having purchased, in the same manner as provided under the new 2018 NCIB, approximately 2.0 million shares
or 0.3% of our outstanding shares for $80 million at an average price of approximately $40.97 per share.
• We may also enter into an ASPP with a broker for the purpose of permitting us to purchase our Common Shares under our NCIB at times when we
would not be permitted to trade in our shares, including regularly scheduled quarterly blackout periods. Such purchases will be determined by the
broker in its sole discretion based on parameters that we established prior to any blackout period, in accordance with TSX rules and applicable securities
laws. The ASPP has been approved by the TSX, and may be implemented from time to time in the future.
Use proceeds from securitized trade receivables (Short-term borrowings), bank facilities and commercial paper as needed, to supplement
free cash flow and meet other cash requirements
• Our issued and outstanding commercial paper was $1,140 million at December 31, 2017, all of which was denominated in U.S. dollars (US$908 million),
compared to $613 million (US$456 million) at December 31, 2016.
• Our net draws on the TELUS International (Cda) Inc. credit facility were $346 million ($339 million net of unamortized costs) at December 31, 2017,
compared to $340 million ($332 million net of unamortized issue costs) at December 31, 2016.
• Proceeds from securitized trade receivables were $100 million at December 31, 2017, unchanged from December 31, 2016.
TELUS 2017 ANNUAL REPORT • 55
REPORT ON FINANCING AND CAPITAL STRUCTURE MANAGEMENT PLANS
Maintain compliance with financial objectives
Certain of our current financial objectives will be reviewed in 2018 for possible revision due to changes arising from the adoption of new accounting
standards, IFRS 15, Revenue from Contracts with Customers and IFRS 16, Leases. (See Section 8.2 Accounting policy developments.)
• Maintain investment grade credit ratings in the range of BBB+ or the equivalent – On February 8, 2018, investment grade credit ratings from the
four rating agencies that cover TELUS were in the desired range. (See Section 7.8 Credit ratings.)
• Net debt to EBITDA – excluding restructuring and other costs ratio of 2.00 to 2.50 times – As measured at December 31, 2017, the ratio was 2.73 times,
outside of the objective range, primarily due to the funding of spectrum licences acquired in wireless spectrum auctions held during 2014 and 2015, and
the elevated strategic capital investments in our fibre-optic network. We expect this ratio to decline in 2018 and we continue to expect it to return to within
the objective range in the medium term, consistent with our long-term strategy. (See Section 7.5 Liquidity and capital resource measures.)
• Dividend payout ratio of 65 to 75% of net earnings per share on a prospective basis – Our objective range is on a prospective basis. The dividend
payout ratio we present in this MD&A is a historical measure utilizing the last four quarters of dividends declared and earnings per share, and is disclosed
for illustrative purposes in evaluating our target guideline. As at December 31, 2017, the historical ratio of 80% and the adjusted historical ratio of 80%
exceeded the objective range; however, we currently expect that we will be within our target guideline when considered on a prospective basis within
the medium term. (See Section 7.5 Liquidity and capital resource measures.)
• Generally maintain a minimum of $1 billion in unutilized liquidity – As at December 31, 2017, our unutilized liquidity was more than $1 billion.
(See Section 7.6 Credit facilities.)
Financing and capital structure management plans for 2018
At the end of 2017, our long-term debt (excluding unamortized
discount) was $13.8 billion and the weighted average term to maturity
was approximately 10.7 years (excluding commercial paper and the
revolving component of the TELUS International credit facility). Our
weighted average interest rate on long-term debt (excluding commercial
paper and the revolving component of the TELUS International credit
facility) was 4.18% at December 31, 2017, as compared to 4.22% one
year earlier. Aside from Short-term borrowings of $100 million, commer-
cial paper of $1,140 million (US$908 million) and the utilized revolving
component of the TELUS International credit facility of $197 million
(US$157 million), all of our debt was on a fixed-rate basis.
During 2018, we may issue senior Notes to refinance maturing
debt or to use for general corporate purposes. Anticipated free cash
flow and sources of capital are expected to be more than sufficient
to meet requirements. For the related risk discussion, see Section 10.7
Financing, debt requirements and returning cash to shareholders.
LONG-TERM DEBT PRINCIPAL MATURITIES
AS AT DECEMBER 31, 2017
($ millions)
2048
2046
2045
2044
2043
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
325
500
400
600
500
¢ Other long-term debt
¢ Commercial paper
900
1,000
1,380
1,000
1,100
1,083
1,008
1,008
4.4 Disclosure controls and
procedures and changes in internal
control over financial reporting
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to senior
management, including the President and Chief Executive Officer (CEO)
and the Executive Vice-President and Chief Financial Officer (CFO),
on a timely basis so that appropriate decisions can be made regarding
public disclosure.
The CEO and the CFO have assessed the effectiveness of our
disclosure controls and procedures related to the preparation of this
MD&A and the December 31, 2017, Consolidated financial statements.
They have concluded that our disclosure controls and procedures
were effective, at a reasonable assurance level, in ensuring that material
information relating to TELUS and its consolidated subsidiaries would
be made known to them by others within those entities, particularly
during the period in which the MD&A and the Consolidated financial
statements were being prepared.
Internal control over financial reporting
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements in accordance with IFRS-IASB
and the requirements of the Securities and Exchange Commission in
the United States, as applicable. TELUS’ CEO and CFO have assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2017, in accordance with the criteria established in Internal
Control – Integrated Framework (2013), issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment, TELUS’ CEO and CFO have concluded that our
internal control over financial reporting is effective as of December 31, 2017,
1,565
and certify TELUS’ annual filings with the Form 40-F, as required by
the United States’ Sarbanes-Oxley Act of 2002, and TELUS’ Annual
Information Form, as required by National Instrument 52-109 Certification
of Disclosure in Issuers’ Annual and Interim Filings.
257
1,140
1,397
Deloitte LLP, our auditor, has audited our internal controls over
financial reporting as of December 31, 2017.
56 • TELUS 2017 ANNUAL REPORT
MD&A: DISCUSSION OF OPERATIONS
Changes in internal control over financial reporting
controls over revenue recognition, contract acquisition costs and financial
There were no changes in internal control over financial reporting that
reporting. We have completed the design of these controls and they have
have materially affected, or are reasonably likely to materially affect, our
been implemented as of December 31, 2017. We do not expect significant
internal control over financial reporting in 2017. The adoption of IFRS 15,
changes to our internal control over financial reporting due to the adoption
Revenue from Contracts with Customers, required the implementation
of the new standard.
of new accounting processes, which changed the Company’s internal
5 Discussion of operations
This section contains forward-looking statements, including those with
At December 31 ($ millions)
2017
2016
2015
respect to average revenue per subscriber unit (ARPU) growth, wireless
Total assets
29,548
27,729
26,406
loading and retention spending, high-speed Internet subscriber growth,
and various future trends. There can be no assurance that we have
accurately identified these trends based on past results, or that these
trends will continue. See Caution regarding forward-looking statements
at the beginning of this MD&A.
5.1 General
A significant judgment we make is in respect of distinguishing between
our wireless and wireline operations and cash flows (and this extends to
allocations of both direct and indirect expenses and capital expenditures).
The clarity of such distinction has been increasingly affected by the con-
vergence and integration of our wireless and wireline telecommunications
infrastructure technology and operations. The continued build-out of our
technology-agnostic fibre-optic infrastructure, in combination with con-
verged edge technology, has significantly affected this judgment, as has
the commercialization of fixed-wireless telecommunications solutions.
It has become increasingly impractical and difficult to objectively and
clearly distinguish between our wireless and wireline operations and
cash flows, and the assets from which those cash flows arise. As at
December 31, 2017, we do not currently aggregate operating segments,
less and wireline. Segmented information in Note 5 of the Consolidated
financial statements is regularly reported to our Chief Executive Officer
(CEO) (our chief operating decision-maker).
Selected annual information
Years ended December 31
($ in millions, except per share amounts)
Operating revenues
Net income
Net income attributable
to Common Shares
Net income per Common Share
Basic earnings per share (basic EPS)
Diluted
Cash dividends declared
per Common Share
2017
2016
2015
13,304
12,799
12,502
1,479
1,236
1,382
1,460
1,223
1,382
2.46
2.46
2.06
2.06
2.29
2.29
1.97
1.84
1.68
Current maturities of long-term debt
1,404
1,327
856
Non-current financial liabilities1
Provisions
Long-term debt
152
57
55
12,256
11,604
11,182
Other long-term financial liabilities
224
166
150
Total non-current financial liabilities
12,632
11,827
11,387
Deferred income taxes
Common equity
2,500
8,221
2,107
7,917
2,155
7,672
1
In our specific current instance, financial liabilities do not include liabilities that
are excluded by definition (e.g. employee benefits and share-based compensation
liabilities) or liabilities that do not involve a future outlay of economic resources
(e.g. deferred recognition of customer activation and connection fees; deferred gains
on sale-leaseback of buildings).
2017 REVENUE MIX –
89% WIRELESS AND DATA
11%
¢ Wireless
¢ Wireline data
¢ Wireline voice and other
Operating revenues: Combined
wireless revenue and wireline
data revenue represented
approximately 89% of consoli-
dated revenues in 2017 (87%
in 2016 and 86% in 2015).
Total assets: Growth in
Total assets includes increases
in Property, plant and equip -
ment and Intangible assets,
which increased by a combined
$1,198 million in 2017 and a
combined $1,107 million in 2016.
These increases resulted primarily from our ongoing investments in
broadband networks, business acquisitions and purchases of wireless
spectrum licences. See Section 7.3 Cash used by investing activities.
For changes in Long-term debt, see Section 6 Changes in financial
position and Section 7.4 Cash used by financing activities.
and thus our reportable segments as at December 31, 2017, are also wire-
32%
57%
TELUS 2017 ANNUAL REPORT • 57
5.2 Summary of consolidated quarterly results, trends and fourth quarter recap
Summary of quarterly results
($ millions, except per share amounts)
2017 Q4
2017 Q3
2017 Q2
2017 Q1
2016 Q4
2016 Q3
2016 Q2
2016 Q1
Operating revenues
Operating expenses
3,467
3,366
3,273
3,198
3,305
3,238
3,148
3,108
Goods and services purchased1
1,658
1,531
1,433
1,313
1,574
1,426
1,331
1,300
Employee benefits expense1
Depreciation and amortization
686
564
639
547
646
526
624
532
962
533
681
515
628
499
668
500
Total operating expenses
2,908
2,717
2,605
2,469
3,069
2,622
2,458
2,468
Operating income
Financing costs
Income before income taxes
Income taxes
Net income
Net income attributable
to Common Shares
Net income per Common Share:
Basic earnings per share (EPS)
Adjusted basic EPS2
Diluted EPS
Dividends declared per
Common Share
Additional information:
EBITDA2
Restructuring and other costs2
Gains on the exchange of
(Net losses and equity losses)
net gains and equity income
from real estate joint venture
developments
MTS net recovery
Adjusted EBITDA2
Cash provided by
operating activities
Free cash flow 2
559
144
415
133
282
649
149
500
130
370
668
142
526
140
386
729
138
591
150
441
236
134
102
15
87
616
129
487
132
355
690
134
556
140
416
281
367
379
433
81
348
416
0.47
0.55
0.47
0.62
0.66
0.62
0.64
0.68
0.64
0.73
0.74
0.73
0.14
0.53
0.14
0.59
0.65
0.59
0.70
0.70
0.70
640
123
517
139
378
378
0.64
0.70
0.64
0.5050
0.4925
0.4925
0.48
0.48
0.46
0.46
0.44
1,123
60
1,196
36
1,194
39
–
–
–
–
3
–
(2)
21
1,261
4
–
–
–
769
348
1,131
60
–
–
7
–
10
–
1,189
1,140
23
15
9
–
48
–
–
–
1,164
1,232
1,230
1,265
1,110
1,181
1,188
1,188
979
274
1,133
215
1,126
260
709
217
732
(191)
1,032
98
892
126
563
108
wireless spectrum licences
–
1 Goods and services purchased and Employee benefits expense amounts include restructuring and other costs.
2 See Section 11.1 Non-GAAP and other financial measures.
Trends
The trend of year-over-year increases in consolidated revenue reflects:
(i) wireless network revenue generated from growth in both our ARPU and
subscriber base; and (ii) wireline data service revenue, driven by Internet
and enhanced data, business process outsourcing, TELUS Health, and
TELUS TV services revenues. Increased Internet and TV service revenues
are being generated by subscriber growth and higher Internet revenue
per customer. Consolidated revenue growth was partially offset by the con-
tinued decline in wireline voice revenues. Wireless equipment revenues
vary with per-unit subsidies resulting from both postpaid gross subscriber
additions and retention volumes. For additional information on wireless
and wireline revenue and subscriber trends, see Section 5.4 Wireless
segment and Section 5.5 Wireline segment.
OPERATING REVENUES
($ millions)
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
3,467
3,366
3,273
3,198
3,305
3,238
3,148
3,108
58 • TELUS 2017 ANNUAL REPORT
EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS
($ millions)
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
EBITDA is a non-GAAP measure.
ADJUSTED EBITDA
($ millions)
Q4 17
Q3 17
Q2 17
Q1 17
Q4 16
Q3 16
Q2 16
Q1 16
Adjusted EBITDA is a non-GAAP measure.
1,183
1,232
1,233
1,265
1,117
1,191
1,212
1,188
1,164
1,232
1,230
1,265
1,110
1,181
1,188
1,188
MD&A: DISCUSSION OF OPERATIONS
The trend of year-over-year increases in Financing costs reflects
an increase in long-term debt outstanding, mainly associated with our
generational investments in fibre to homes and businesses and our
wireless network, and the significant investments in wireless spectrum
licences acquired during auctions in 2014 and 2015. Financing costs
are net of capitalized interest, which was related to spectrum licences
acquired during the wireless spectrum licence auctions. Capitalization of
interest ceased in the first quarter of 2017, as cell sites are now capable
of utilizing those spectrum frequencies. Financing costs also include
Employee defined benefit plans net interest expense. Additionally, for the
eight periods shown, Financing costs include varying amounts of foreign
exchange gains or losses and varying amounts of interest income.
The trend in Net income reflects the items noted above, as well
as non-cash adjustments arising from legislated income tax changes,
and adjustments recognized in the current periods for income taxes of
prior periods, including any related after-tax interest on reassessments.
Historically, the trend in basic EPS has also been impacted by share
purchases under our normal course issuer bid programs. However,
there have been no such repurchases in 2017.
The general trend of year-over-year increases in Cash provided
by operating activities reflects generally higher consolidated Adjusted
EBITDA. It also reflects increased interest payments arising from
increases in debt outstanding, offset by lower fixed-term interest rates.
Income tax payments increased in 2016 and have decreased in 2017,
as described in Assumptions for 2017 targets and results in Section 1.4.
The trend in free cash flow reflects the factors affecting Cash provided
by operating activities, as well as increases in capital expenditures.
For further discussion on these trends, see Section 5.4 Wireless segment
and Section 5.5 Wireline segment.
The trend of year-over-year increases in Goods and services pur-
Fourth quarter recap
chased expense reflects higher equipment expenses associated with
Results for the fourth quarter of 2017 were discussed in Management’s
increased postpaid gross additions and retention volumes, as well
as increasing per-unit device costs including higher-value smartphones
in the sales mix; increasing wireless and wireline customer service,
review of operations attached to our February 8, 2018 news release.
• Consolidated operating revenues increased by $162 million or 4.9%
in the fourth quarter of 2017 when compared to the fourth quarter
roaming, and external labour expenses to support growth in our
of 2016, primarily reflecting growth in wireless network revenue
subscriber base; and increased wireline TV costs of sales associated
and wireline data services, which includes increased Internet and
with a growing subscriber base. These were partly offset by lower
enhanced data service, growth in business process outsourcing
wireline equipment costs.
revenues, inclusive of recent acquisitions, TELUS Health and TELUS
The general trend of year-over-year decreases in net Employee benefits
TV revenues. These increases were partly offset by the continuing
expense reflects moderating wages and salaries resulting from reductions
decline in wireline voice revenues, consistent with the results for the
in the number of full-time equivalent (FTE) domestic employees associated
full year, discussed in the following sections.
with cost efficiency and effectiveness programs and the impact of benefits
• Consolidated EBITDA increased by $354 million or 45.9% in the
from certain contract concessions associated with our immediately vest-
fourth quarter of 2017 when compared to the fourth quarter of 2016.
ing transformative compensation (recorded in the fourth quarter of 2016)
The increase reflects: (i) growth in wireless network revenues and
that are yielding efficiency improvements and continue to support our
increased wireline data revenues, partially offset by increased costs
customer service focus. This was partly offset by increases in the number
of employees resulting from acquisitions to support business process
associated with higher wireless gross loading and retention volumes;
and (ii) lower restructuring and other costs, which included the
outsourcing revenue growth and expand our TELUS Health offerings.
2016 transformative compensation expense, partly offset by costs
The trend of year-over-year increases in Depreciation and amortization
associated with the migration and servicing of subscribers acquired
reflects increases due to growth in capital assets, which is supporting
the expansion of our broadband footprint and enhanced long-term evo-
from MTS.
• Adjusted EBITDA, which excludes restructuring and other costs,
lution (LTE) network coverage, and growth in business acquisitions, as
net gains and equity income or net losses and equity losses related
well as the present impact of our continuing program of asset life studies.
to real estate joint venture developments, a gain from the exchange
The investments in our fibre-optic network also support our small-cell
of wireless spectrum licences recorded in the second quarter of 2016
technology strategy to improve coverage and capacity while preparing
and the MTS net recovery, increased by $54 million or 4.7% in the
for a more efficient and timely evolution to 5G.
fourth quarter of 2017.
TELUS 2017 ANNUAL REPORT • 59
• Net income attributable to Common Shares increased by $200 mil-
lion in the fourth quarter of 2017 when compared to the fourth quarter
of 2016, largely due to the transformative compensation expense
recorded in 2016, partly offset by increased depreciation, amortization
of intangible assets, financing costs and income taxes, the increase
in income taxes primarily being driven by increased income before
income taxes and the revaluation of the deferred tax liability for the
increase in the B.C. income tax rate. Basic EPS increased by $0.33
in the fourth quarter of 2017 when compared to the same period in
2016. When excluding restructuring and other costs, income tax-
related adjustments, net gains and equity income or net losses and
equity losses related to real estate joint venture developments, and
the MTS net recovery, adjusted Net income increased by $12 million
in the fourth quarter of 2017, while adjusted basic EPS increased
by $0.02.
• Cash provided by operating activities increased by $247 million
in the fourth quarter of 2017 when compared to the same period
in 2016. The increase was mainly due to higher EBITDA, resulting
from the $305 million transformative compensation expense that
was incurred in the fourth quarter of 2016, partly offset by changes
in operating working capital.
• Cash used by investing activities decreased by $114 million in the
fourth quarter of 2017 when compared to the same period in 2016,
mainly due to decreased capital expenditures and changes in working
capital amounts related to acquisitions in current and prior periods.
• Cash used by financing activities was $224 million in the fourth
quarter of 2017 compared to cash provided by financing activities
of $138 million in the fourth quarter of 2016. The net change of
$362 million was primarily due to the larger amount of long-term
debt issued in the fourth quarter of 2016.
• Free cash flow increased by $465 million in the fourth quarter of
2017 when compared to the same period in 2016, resulting from
increased EBITDA, including the impact of the 2016 transformative
compensation expense, and lower capital expenditures. (See cal-
Operating revenues
Years ended December 31 ($ millions)
2017
2016
Change
Service
Equipment
Revenues arising from
12,478
12,000
724
725
4.0%
(0.1)%
contracts with customers
13,202
12,725
3.7%
Other operating income
102
74
37.8%
13,304
12,799
3.9%
Consolidated operating revenues increased by $505 million in 2017.
• Service revenues increased by $478 million in 2017, primarily reflecting
growth in wireless network revenue and wireline data services, partly
offset by the continuing decline in wireline voice revenues. Wireless
network revenue reflects growth in blended ARPU and a growing
wireless subscriber base and, to a lesser extent, revenues related to
postpaid subscribers we acquired from the MTS acquisition. Wireline
data service revenue reflects increases in Internet and enhanced
data service, growth in business process outsourcing revenues, inclu-
sive of recent acquisitions and foreign exchange impacts on foreign
operations, TELUS Health, and TELUS TV revenues. Higher TELUS
Health revenues were driven by organic growth through additional
professional services and support revenue, and through acquisitions.
Internet and TV revenues increased due to subscriber growth,
as well as higher Internet revenue per customer.
• Equipment revenues were $724 million in 2017 and were relatively
flat compared to 2016.
• Other operating income increased by $28 million in 2017, primarily
due to higher net gains in the current period than in the comparable
period. These changes include the MTS contingent consideration
recovery and recognition of a gain on sale of a security consulting
business. The remaining are other net gains offset by lower govern-
ment assistance, the non-recurrence of 2016 wireless spectrum
gains and lower gains from the real estate joint venture.
culation in Section 11.1 Non-GAAP and other financial measures.)
Operating expenses
5.3 Consolidated operations
Years ended December 31 ($ millions)
Goods and services purchased
Employee benefits expense
The following is a discussion of our consolidated financial performance.
Depreciation
Segment information in Note 5 of the Consolidated financial statements
Amortization of intangible assets
2017
5,935
2,595
1,617
552
2016
Change
5,631
5.4%
2,939
(11.7)%
1,564
3.4%
483
14.3%
10,699
10,617
0.8%
is regularly reported to our CEO. We discuss the performance of our
segments in Section 5.4 Wireless segment, Section 5.5 Wireline segment
and Section 7.3 Cash used by investing activities.
OPERATING REVENUES
($ millions)
2017
2016
2015
2014
13,304
12,799
12,502
Consolidated operating expenses increased by $82 million in 2017.
• Goods and services purchased increased by $304 million in 2017,
reflecting increased costs associated with higher wireless gross
loading, higher handset costs, increased roaming costs, higher
non-labour restructuring and other costs, including those associated
with the migration and servicing of subscribers from MTS, increased
external labour to support a growing subscriber base, increased
advertising and promotion expense, higher TV content costs, and
higher customer support costs related to acquired MTS subscribers
during migration.
• Employee benefits expense decreased by $344 million in 2017 due to
the non-recurrence of labour-related restructuring and other expenses
from 2016, and the benefits from certain contract concessions associ-
ated with our transformative compensation that are yielding efficiency
improvements and continue to support our customer service focus.
60 • TELUS 2017 ANNUAL REPORT
MD&A: DISCUSSION OF OPERATIONS
Excluding the transformative compensation expense, Employee
• Capitalized long-term debt interest is in respect of debt incurred
benefits expense reflects a decrease of $39 million for 2017.
for the purchase of spectrum licences during spectrum auctions held
The decrease resulted mainly from lower employee-related restruc-
by Innovation, Science and Economic Development Canada (ISED),
turing and other costs, realizing the benefits from certain contract
which we deploy in our existing network. Capitalization of long-term
concessions associated with our transformative compensation,
debt interest occurs until substantially all of the activities necessary
lower compensation and benefit costs from a decrease in the number
to prepare the spectrum for its intended use are complete, effectively
of domestic FTEs, excluding acquisitions and higher capitalized labour
when cell sites are ready to be put into service. The capitalization of
costs, partly offset by an increase in the number of employees and
interest ceased in the first quarter of 2017.
related compensation resulting from acquisitions supporting growing
• Employee defined benefit plans net interest was flat in 2017
TELUS Health and business process outsourcing revenue.
• Depreciation increased by $53 million in 2017 due to increased
expenditures associated with capital assets, including those arising
•
compared to 2016.
Interest income increased in 2017 due to the settlement of prior
years’ income-tax related matters.
from our fibre investment and business acquisitions, as well as the
• Foreign exchange (gains) losses have fluctuated as a result of the
impact of our continuing program of asset life studies.
strengthening of the Canadian dollar relative to the U.S. dollar in 2017.
• Amortization of intangible assets increased by $69 million in 2017,
reflecting increased expenditures associated with the intangible asset
base, including those arising from business acquisitions.
INTEREST EXPENSE
($ millions)
Operating income
Years ended December 31 ($ millions)
Wireless EBITDA (see Section 5.4)
Wireline EBITDA (see Section 5.5)
EBITDA
Depreciation and amortization
(discussed above)
2017
3,099
1,675
4,774
2016
Change
2,906
1,323
4,229
6.6%
26.6%
12.9%
(2,169)
2,605
(2,047)
6.0%
2,182
19.4%
Operating income increased by $423 million, while EBITDA increased
by $545 million in 2017. These increases reflect wireless network revenue
growth driven by higher ARPU and a larger customer base, in addition
to growth in data service margins, partly offset by increased depreciation
arising from our fibre investment capital expenditures. Excluding the
effects of the $305 million transformative compensation expense recorded
in the fourth quarter of 2016, Operating income increased by $118 million
or 4.7% in 2017, while EBITDA increased by $240 million or 5.3%.
Financing costs
Years ended December 31 ($ millions)
2017
Gross interest expense
Capitalized long-term debt interest
Interest expense
Employee defined benefit plans
net interest
Interest income
Foreign exchange (gains) losses
579
–
579
6
(7)
(5)
2016
554
(52)
502
4.5%
n/m
15.3%
6
(3)
–%
133.3%
15
(133.3)%
573
520
10.2%
Financing costs increased by $53 million in 2017, mainly due to the
following factors:
• Gross interest expense, prior to capitalization of long-term debt
interest, increased by $25 million in 2017, primarily due to the increase
in average long-term debt balances outstanding, partly offset by a
reduction in the effective interest rate. Our weighted average interest
rate on long-term debt (excluding commercial paper and the revolving
component of the TELUS International (Cda) Inc. credit facility) was
4.18% at December 31, 2017, as compared to 4.22% one year earlier.
(See Long-term debt issues and repayments in Section 7.4.)
2017
2016
2015
2014
Income taxes
Years ended December 31
($ millions, except tax rates)
Income taxes computed at
579
502
470
2017
2016
Change
applicable statutory rates
541
444
21.8%
Adjustments recognized in the
current period for income taxes
of prior periods
Revaluation of deferred income tax
liability to reflect future statutory
income tax rates
Other
Change
Income taxes computed at
applicable statutory rates (%)
Effective tax rates (%)
(4)
(12)
66.7%
28
(12)
553
26.6
27.2
(4)
(2)
n/m
n/m
426
29.8%
26.7
(0.1) pts.
25.6
1.6 pts.
Total income tax expense increased by $127 million in 2017. The increase
was primarily due to an increase in income before income taxes, and
revaluation of the deferred tax liability for the increase in the B.C. income
tax rate that was substantively enacted in the fourth quarter of 2017.
NET INCOME ATTRIBUTABLE TO COMMON SHARES
($ millions)
2017
2016
2015
2014
1,460
1,223
1,382
TELUS 2017 ANNUAL REPORT • 61
Comprehensive income
Years ended December 31 ($ millions)
Net income
Other comprehensive income (loss)
(net of income taxes):
Items that may be subsequently
2017
1,479
2016
Change
1,236
19.7%
reclassified to income
13
(15)
n/m
Item never subsequently
reclassified to income –
Employee defined benefit
plans re-measurements
Comprehensive income
(172)
1,320
–
1,221
n/m
8.1%
Comprehensive income increased by $99 million in 2017, primarily due
to increases in Net income, partly offset by changes in employee defined
benefit plans re-measurement amounts. Items that may be subsequently
reclassified to income are composed of changes in the unrealized fair
value of derivatives designated as cash flow hedges, foreign currency
translation adjustments arising from translating financial statements of
foreign operations and changes in the unrealized fair value of available-
for-sale investments.
5.4 Wireless segment
Postpaid subscribers
Postpaid churn
2017: 7,978,000
2016: 7,550,000 +5.7%
2017: 0.90%
2016: 0.95% (0.05) pts.
Prepaid subscribers
Blended ARPU
2017: 933,000
2016: 1,035,000 (9.9)%
2017: $67.05
2016: $65.10 +3.0%
Wireless trends and seasonality
The historical trend in wireless network revenue reflects growth in both
ARPU and our subscriber base, driven by larger proportions of higher-
rate plans in the revenue mix and higher data consumption. This growth,
coupled with higher-value smartphones in the sales mix, was partially
offset by the general decline in wireless equipment revenues. This general
the Premium Plus plans launched in June 2016, and a higher mix
of higher-rate data share plans. This was partly offset by competitive
pressures driving larger allotments of data provided in rate plans,
including data sharing and international data roaming features and plans,
consumer behavioural response to increased frequency of customer
data usage notifications, and offloading of data traffic to Wi-Fi hotspots.
ARPU is expected to continue to increase, as a result of the continued
growth in data consumption and the ongoing shift in our subscriber base
towards higher-value postpaid customers. However, the level of ARPU
is highly dependent on competition, as competitive pressures, including
promotional activity and resulting reactions to those pressures and
promotions, have the potential to compress ARPU in future periods. The
economic environment, consumer behaviour, the regulatory environ ment,
device selection and other factors also impact ARPU, and, as a conse-
quence, there cannot be assurance that ARPU growth will continue to
materialize. In terms of seasonality, wireless ARPU has historically experi-
enced seasonal sequential increases in the second and third quarters,
reflecting higher levels of usage and roaming in the spring and summer,
followed by historical seasonal sequential declines in the fourth and
first quarters. This seasonal effect on ARPU has moderated, as unlimited
nationwide voice plans have become more prevalent and chargeable
voice and long distance usage spikes have become less pronounced.
In addition, customers are opting for higher-capacity data plans with
higher base prices and benefiting from flexible data top-up features,
resulting in less variability in chargeable data usage but higher monthly
recurring revenue.
Historically, the third and fourth quarter seasonal effects described
above have reflected higher wireless subscriber additions, an increase
in related acquisition costs and equipment sales, and higher retention
costs due to contract renewals in those quarters. Retention costs have
historically increased during periods of heightened marketing activity
and also coinciding with the maturation of contracts that reflect seasonal
subscriber additions and renewals in previous periods. These impacts
can be more pronounced around popular device launches and seasonal
promotional events, such as back to school, Black Friday and the
Christmas holiday season. The costs associated with higher seasonal
loading volumes have typically resulted in sequential decreases in
wireless EBITDA from the second quarter through to the fourth quarter,
and are usually followed by sequential increases in wireless EBITDA
from the fourth quarter through to the second quarter. The fourth quarter
of 2016 included the immediately vesting transformative compensation
expense. Subscriber additions have generally been lowest in the
decline in wireless equipment revenues reflects higher per-unit subsidies,
first quarter.
including devices on Premium Plus plans, partly offset by increased gross
additions. The general trend of year-over-year increases in subscriber
net additions resulted from the success of our promotions, including
marketing efforts focused on higher-value postpaid and smartphone
loading, coupled with the effects of market growth arising from a growing
population, changing population demographics and an increasing num-
ber of customers with multiple activated devices. Although there have
historically been significant third and fourth quarter seasonal effects that
The trend of year-over-year improvements in our average monthly
postpaid subscriber churn reflects our efforts to put customers first and
our retention programs. We may experience pressure on our postpaid
subscriber churn if the level of competitive intensity increases, in part due
to increased promotional activity, and an increase in customers on expired
contracts, as well as customers bringing their own devices and therefore
not entering into new contracts. Accordingly, our wireless segment
historical operating results and trends may not be reflective of results
result in increased loading, competitive intensity in both the consumer
and trends for future periods.
and business markets may impact subscriber addition results and trends
for future periods.
The wireless ARPU growth trend increased in 2017 due to an
The trends in revenue and revenue-based operating metrics will
be impacted by our adoption of IFRS 15, Revenue from Contracts
with Customers, as discussed further in Section 8.2 Accounting policy
emphasis on marketing and increased mix of higher-rate plans, including
developments.
62 • TELUS 2017 ANNUAL REPORT
MD&A: DISCUSSION OF OPERATIONS
2017
2016
Change
WIRELESS NETWORK REVENUE
($ millions)
Wireless operating indicators
At December 31
Subscribers (000s):
Postpaid
Prepaid
Total
Postpaid proportion of
subscriber base (%)
HSPA+ population coverage1 (millions)
LTE population coverage1 (millions)
7,978
933
8,911
89.5
36.7
36.6
7,550
1,035
8,585
87.9
35.7
35.2
5.7%
(9.9)%
3.8%
1.6 pts.
2.8%
4.0%
Years ended December 31
2017
2016
Change
Subscriber gross additions (000s):
Postpaid
Prepaid
Total
Subscriber net additions (000s):
Postpaid
Prepaid
Total
1,140
1,039
9.7%
320
360
(11.1)%
1,460
1,399
4.4%
379
(83)
296
243
(70)
173
56.0%
(18.6)%
71.1%
Blended ARPU, per month2 ($)
67.05
65.10
3.0%
Churn, per month2 (%)
Blended
Postpaid
1.11
0.90
1.21
(0.10) pts.
0.95
(0.05) pts.
Including network access agreements with other Canadian carriers.
1
2 See Section 11.2 Operating indicators. These are industry measures useful in
assessing operating performance of a wireless company, but are not measures
defined under IFRS-IASB.
3 Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating
statistics (gross additions, net additions, ARPU and churn) have been adjusted to
include an estimated migration of 85,000 MTS subscribers in the opening subscriber
balances. Subsequent to this, on October 1, 2017, total subscribers and associated
operating statistics have been adjusted to reduce estimated migrations of MTS sub-
scribers down by 11,000 to 74,000. Cumulative subscriber connections also include
an April 1, 2017 adjustment to remove approximately 19,000 prepaid and 25,000
postpaid subscriptions from the respective subscriber bases, primarily due to our
national CDMA network shutdown.
Operating revenues – Wireless segment
Years ended December 31 ($ in millions)
Network revenue
Equipment and other service revenues
Revenues arising from contracts
2017
6,964
535
2016
Change
6,541
537
with customers
Other operating income
7,499
7,078
36
37
External operating revenues
7,535
7,115
2017
2016
2015
2014
6,964
6,541
6,298
Network revenue from external customers increased by $423 million
in 2017. Network revenue increased by 6.5%, reflecting: (i) growth in
the subscriber base, including subscribers we acquired from MTS;
(ii) a larger proportion of higher-rate plans in the revenue mix, including
the Premium Plus plans launched in June 2016; (iii) a larger proportion
of customers selecting plans with larger data buckets or periodically
topping up their data buckets; (iv) a higher postpaid subscriber mix;
(v) a higher smartphone mix; and (vi) higher roaming revenues.
• Monthly blended ARPU was $67.05 in 2017, reflecting an increase
of $1.95 or 3.0%. The increase was primarily driven by the effects
of higher network revenue (as described above).
• Gross subscriber additions were 1,460,000 in 2017, reflecting an
increase of 61,000 for the year. Postpaid gross additions increased
by 101,000 due to the success of promotions and our marketing
efforts focused on higher-value postpaid and smartphone loading,
higher demand for tablet devices, demographic shifts as the Canadian
population grows, and in the fourth quarter, our successful response
to aggressive holiday offers. Prepaid gross activations decreased by
40,000 resulting mainly from competitive intensity, and our marketing
efforts focused on higher-value postpaid loading.
• Our average monthly postpaid subscriber churn rate was 0.90%
in 2017, as compared to 0.95% in 2016. The continuing low postpaid
subscriber churn rate during 2017 reflects our focus on executing
customers first initiatives and retention programs, partly offset by
incremental deactivations from aggressive holiday offers. Our blended
monthly subscriber churn rate was 1.11% in 2017, as compared to 1.21%
in 2016. The improvement in our blended subscriber churn rate in 2017
reflects the changes in the postpaid churn rate and improvements
in prepaid churn rates, as well as an increase in the mix of postpaid
6.5%
(0.4)%
5.9%
(2.7)%
5.9%
subscribers versus prepaid subscribers in our subscriber base.
• Net subscriber additions reflect postpaid net additions of 379,000
in 2017, compared to 243,000 in 2016, attributed to the factors
affecting gross subscriber additions as described above. Prepaid
subscribers decreased by 83,000 in 2017, reflecting our focus on
higher-value postpaid loading. Net subscriber additions were 296,000
in 2017, reflecting a year-over-year improvement of 123,000 due to
Intersegment revenues
43
58
(25.9)%
lower blended monthly churn and higher postpaid gross additions.
Wireless operating revenues
7,578
7,173
5.6%
The 74,000 MTS subscribers acquired are not part of net subscriber
Total wireless operating revenues increased by $405 million in 2017.
additions, as they were added to the subscriber base.
TELUS 2017 ANNUAL REPORT • 63
Equipment and other service revenues decreased by $2 million in 2017
mainly due to a combination of higher per-unit subsidies combined with
competitive intensity and a higher mix of bring-your-own-device loading,
EBITDA – Wireless segment
Years ended December 31
($ in millions, except margins)
partly offset by increased postpaid gross additions, higher retention vol-
EBITDA
umes and increased handset device balance payments from subscribers.
Other operating income was relatively flat in 2017 compared to 2016.
The MTS contingent consideration recovery was partially offset by the
non-recurrence of 2016 gains from the exchange of wireless spectrum
licences and lower gains from sales of property, plant and equipment.
Intersegment revenues represent network services that are eliminated
upon consolidation along with the associated wireline expenses.
Operating expenses – Wireless segment
Years ended December 31 ($ in millions)
2017
2016
Change
Goods and services purchased:
Equipment sales expenses
1,782
1,684
Network operating expenses
Marketing expenses
Other 1
Employee benefits expense1,2
826
433
792
646
773
420
667
723
5.8%
6.9%
3.1%
18.7%
(10.7)%
Wireless operating expenses
4,479
4,267
5.0%
1
2
Includes restructuring and other costs. See Section 11.1 Non-GAAP and other
financial measures.
Includes transformative compensation expense of $70 million recorded in other costs
in the fourth quarter of 2016.
Wireless expenses increased by $212 million in 2017.
Equipment sales expenses increased by $98 million in 2017, reflecting
an increase in postpaid gross additions, an increase in higher-value
smartphones in the sales mix, including premium devices on Premium
Plus plans, increasing handset costs, and an increase in retention
volumes.
Network operating expenses increased by $53 million in 2017, mainly
due to increased roaming expenses.
Marketing expenses increased by $13 million in 2017, primarily due
to higher advertising and promotions expenses, as well as higher
commission expense driven by higher gross additions and an increase
in retention volumes.
2017
3,099
2016
Change
2,906
6.6%
79
121
(34.7)%
Add back restructuring and other
costs included in EBITDA1
Deduct gain on the exchange
of wireless spectrum licences
–
(15)
n/m
Deduct net gains and equity income
from real estate joint venture
developments
Deduct MTS net recovery
Adjusted EBITDA2
EBITDA margin (%)
Adjusted EBITDA margin3 (%)
–
(21)
(12)
–
n/m
n/m
3,157
3,000
5.2%
40.9
41.8
40.5
0.4 pts.
42.0
(0.2) pts.
1
Includes transformative compensation expense of $70 million recorded in other costs
in the fourth quarter of 2016.
2 See description under EBITDA in Section 11.1 Non-GAAP and other financial measures.
3 Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where
the calculation of the Operating revenues excludes the net gains and equity income
from real estate joint venture developments, the gain on the exchange of wireless
spectrum licences as well as the MTS net recovery.
WIRELESS EBITDA – EXCLUDING RESTRUCTURING
AND OTHER COSTS
($ millions)
2017
2016
2015
2014
WIRELESS ADJUSTED EBITDA
($ millions)
2017
2016
2015
2014
3,178
3,027
2,887
3,157
3,000
2,887
Other goods and services purchased increased by $125 million in
2017, primarily due to an increase in external labour, largely because of
Wireless EBITDA increased by $193 million or 6.6% in 2017. Wireless
Adjusted EBITDA increased by $157 million or 5.2% in 2017, reflecting
higher non-labour restructuring and other costs, including those associ-
network revenue growth driven by higher ARPU and a larger customer
ated with the migration and servicing of subscribers from MTS, customer
base, including the subscribers we acquired from MTS, partly offset
support costs related to acquired MTS subscribers during migration,
by increased equipment sales expenses, increased network operating
an increase in external labour and higher administrative costs supporting
expenses, higher administrative costs and increased customer support
the higher customer base.
costs due to growth in the subscriber base.
Employee benefits expense decreased by $77 million in 2017, primarily
due to the non-recurrence of significant labour-related restructuring
and other costs from efficiency initiatives in 2016. Excluding the
transformative compensation expense, employee benefits expense
decreased by $7 million. This decrease was primarily due to lower
capitalized labour costs.
64 • TELUS 2017 ANNUAL REPORT
5.5 Wireline segment
Wireline operating indicators
MD&A: DISCUSSION OF OPERATIONS
TELUS TV subscribers
Subscriber connections:
At December 31 (000s)
2017
2016
Change
from upgrades to faster speeds and larger data usage rate plans. The
Years ended December 31 ($ in millions)
trend of increasing TELUS Health revenues has been driven by organic
Data services and equipment
growth and through acquisitions. Growth rates of business process
Voice services
High-speed Internet
subscribers
2017: 1,743,000
2016: 1,655,000 +5.3%
2017: 1,098,000
2016: 1,059,000 +3.7%
Residential NALs
Total wireline
subscribers
2017: 1,298,000
2016: 1,374,000 (5.5)%
2017: 4,139,000
2016: 4,088,000 +1.2%
Wireline trends
The trend of increasing wireline service revenue reflects growth in high-
speed Internet and enhanced data services, business process outsourcing
services, TELUS Health revenues, and TELUS TV revenues, and is partly
offset by declining wireline voice revenues and equipment revenues.
The increases in Internet and TV service revenues are being generated
by subscriber growth and higher Internet revenue per customer resulting
outsourcing services reflect acquisition growth and moderating organic
growth. The trend of declining wireline voice revenues is due to techno-
logical substitution, greater use of inclusive long distance coupled with
lower long distance minutes used, and continuing intensification of
competition in the small and medium-sized business market, as well as
impacts of the economic slowdown in previous quarters, particularly in
Alberta, which were more prominent in the business markets for voice.
We expect continued high-speed Internet subscriber base growth
as the economy grows and as we continue our investments in expanding
our fibre-optic network. TELUS TV subscriber base growth has moder-
ated due to a declining overall market for paid TV services resulting from
the high rate of market penetration and increased competitive intensity,
including from over-the-top (OTT) services. Residential network access
line (NAL) losses continue to reflect the ongoing trend of substitution
to wireless and Internet-based services.
WIRELINE EXTERNAL REVENUE
($ millions)
2017
2016
2015
2014
High-speed Internet subscribers
TELUS TV subscribers
Residential NALs1
Total wireline subscriber connections1
1,743
1,098
1,298
4,139
1,655
1,059
1,374
4,088
5.3%
3.7%
(5.5)%
1.2%
Years ended December 31 (000s)
2017
2016
Change
Subscriber connection
net additions (losses):
High-speed Internet
TELUS TV
Residential NALs
Total wireline subscriber
81
35
(76)
68
54
(93)
19.1%
(35.2)%
18.3%
connection net additions1
40
29
37.9%
1
In relation to an acquisition and a divestiture that were both undertaken during the
first quarter of 2017, January 1, 2017 residential NALs, high-speed Internet and TELUS
TV subscriber balances were increased by a net 1,000, 6,000 and 5,000, respectively.
Operating revenues – Wireline segment
2017
4,261
1,230
212
2016
Change
4,059
1,363
225
5.0%
(9.8)%
(5.8)%
Other services and equipment
Revenues arising from
contracts with customers
5,703
5,647
1.0%
Other operating income
External operating revenues
Intersegment revenue
66
5,769
206
Total operating revenues
5,975
5,878
37
78.4%
5,684
194
1.5%
6.2%
1.7%
Total wireline operating revenues increased by $97 million in 2017.
• Data services and equipment revenues increased by $202 million
in 2017. The increase was primarily due to: (i) increased Internet and
enhanced data service revenues resulting from a 5.3% increase in
our high-speed Internet subscribers over the last 12 months, higher
revenue per customer from upgrades to faster Internet speeds and
larger data usage Internet rate plans, and certain rate increases;
(ii) growth in business process outsourcing revenues, inclusive of
recent acquisitions and foreign exchange impacts on foreign oper-
ations; (iii) increased TELUS Health revenues driven by organic
5,769
growth through additional professional services and support revenue,
5,684
5,569
and through acquisitions (professional services revenue increased
largely due to being selected as the technology solution provider for
PrescribeIT, and support revenue growth has arisen from additional
physicians using our electronic medical records offering); and
(iv) increased TELUS TV revenues resulting from 3.7% subscriber
growth over the last 12 months. This growth was partly offset by
the ongoing decline in legacy data services.
• Voice services revenues decreased by $133 million in 2017.
The decrease reflects the ongoing decline in legacy revenues from
technological substitution, increased competition, greater use of
inclusive long distance plans and lower long distance minutes
of use, including lower wholesale volumes and price plan changes.
We experienced a 5.5% decline in residential NALs in the year.
TELUS 2017 ANNUAL REPORT • 65
• Wireline subscriber connection net additions were 40,000 in 2017,
Excluding the transformative compensation expense, employee
reflecting an increase of 11,000 from 2016.
• Net additions of high-speed Internet subscribers increased
by 13,000 in 2017, due to continued customer demand for our
benefits expense decreased by $32 million. The decrease was primarily
due to the non-recurrence of significant labour-related restructuring
and other costs from efficiency initiatives in 2016, benefits from certain
high-speed broadband services, including fibre to the premises,
contract concessions associated with our transformative compen-
as well as the success of our innovative product offerings.
Net additions of TELUS TV subscribers were 35,000 in 2017,
a decrease of 19,000 compared to the net additions in 2016.
sation, lower compensation and benefit costs from a decrease in the
number of domestic FTEs, excluding acquisitions, and higher capital-
ized labour costs. The decrease was partly offset by an increase in
This decrease reflects lower gross additions and higher satellite-TV
the number of employees and related compensation resulting from
subscriber losses due to a declining overall market for paid
acquisitions supporting growing TELUS Health and business process
TV services resulting from the effects of heightened competitive
outsourcing revenue, net of the effects of foreign exchange on
intensity, including from OTT services, and a high rate of market
foreign operations.
penetration. These pressures were partly offset by the continued
focus on connecting more homes and businesses directly to fibre
(as we approach nearly 50% of our targeted coverage footprint),
expanding and enhancing our addressable high-speed Internet
and Optik TV footprint, and bundling these services together.
This contributed to combined Internet and TV subscriber growth
of 127,000 or 4.7% in the year.
• Residential NAL losses were 76,000 in 2017, as compared to
NAL losses of 93,000 in 2016. The residential NAL losses continue
to reflect the trend of substitution to wireless and Internet-based
services, as well as increased competition, partially mitigated by
the success of our bundled service offerings and our customers
first initiatives.
• Other services and equipment revenues decreased by $13 million
in 2017, mainly due to declines in voice equipment sales.
Other operating income increased by $29 million in 2017, mainly due to
gains on sales of certain assets, the non-recurrence of a 2016 provision
related to written put options issued in a 2012 TELUS International
(Cda) Inc. business combination, partly offset by lower net gains and
equity income related to real estate joint venture developments.
Intersegment revenues represent services provided to the wireless
segment. Such revenue is eliminated upon consolidation together with
the associated expenses in wireless.
Operating expenses – Wireline segment
Years ended December 31 ($ millions)
Goods and services purchased 1
Employee benefits expense1,2
Wireline operating expenses
2017
2,351
1,949
4,300
2016
Change
2,339
0.5%
2,216
(12.0)%
4,555
(5.6)%
1
2
Includes restructuring and other costs. See Section 11.1 Non-GAAP and other
financial measures.
Includes transformative compensation expense of $235 million recorded in other
costs in the fourth quarter of 2016.
Total wireline operating expenses decreased by $255 million in 2017,
primarily due to the following factors:
• Goods and services purchased increased by $12 million in 2017,
primarily due to increased external labour supporting the growing
customer base, higher TV content costs mainly driven by higher
numbers of TV subscribers, and higher non-labour restructuring
and other costs.
• Employee benefits expense decreased by $267 million in 2017,
mainly due to the non-recurrence of the $235 million transformative
compensation expense recorded in the fourth quarter of 2016.
EBITDA – Wireline segment
Years ended December 31
($ in millions, except margins)
EBITDA
Add back restructuring and other
costs included in EBITDA1
Deduct net gains and equity income
from real estate joint venture
developments
Adjusted EBITDA2
EBITDA margin (%)
Adjusted EBITDA margin3 (%)
2017
1,675
2016
Change
1,323
26.6%
60
358
(83.2)%
(1)
(14)
92.9%
1,734
1,667
4.0%
28.0
29.0
22.5
28.4
5.5 pts.
0.6 pts.
1
Includes transformative compensation expense of $235 million recorded in other
costs in the fourth quarter of 2016.
2 See description under EBITDA in Section 11.1 Non-GAAP and other financial measures.
3 Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where
the calculation of the Operating revenues excludes the net gains and equity income
from real estate joint venture developments.
WIRELINE EBITDA – EXCLUDING RESTRUCTURING
AND OTHER COSTS
($ millions)
2017
2016
2015
2014
WIRELINE ADJUSTED EBITDA
($ millions)
2017
2016
2015
2014
1,735
1,681
1,601
1,734
1,667
1,601
Wireline EBITDA increased by $352 million or 26.6% in 2017. Wireline
Adjusted EBITDA increased by $67 million or 4.0% in 2017 due to growth
in data service margins (including Internet, TELUS Health services, and
TELUS TV) and our execution of cost efficiency programs, partly offset
by continued declines in legacy voice services and a decline in the
contribution from business process outsourcing services.
66 • TELUS 2017 ANNUAL REPORT
MD&A: CHANGES IN FINANCIAL POSITION
6 Changes in financial position
Financial position at December 31 ($ millions)
2017
2016
Change
($ millions)
Change
(%)
Change includes:
Current assets
Cash and temporary investments, net
509
432
Accounts receivable
1,623
1,471
77
152
18
See Section 7 Liquidity and capital resources
10
An increase in roaming revenue accruals, as well as an
increase in wireless receivables related to higher postpaid
average revenue per subscriber unit per month (ARPU)
and subscriber growth
Income and other taxes receivable
96
9
87
n/m
An increase in receivable for prior years due to adjustments
recognized in the current period
Inventories
Prepaid expenses
Current derivative assets
Current liabilities
378
260
18
318
233
11
60
27
7
19
An increase in wireless handset inventory
12
An increase in prepaid maintenance contracts
64
An increase in the nominal amounts of restricted stock
unit hedging items.
Short-term borrowings
100
100
–
–
See Section 7.7 Sale of trade receivables
Accounts payable and accrued liabilities
2,460
2,330
130
6
Income and other taxes payable
34
37
(3)
(8)
Dividends payable
299
284
15
Advance billings and customer deposits
782
737
45
5
6
Provisions
78
124
(46)
(37)
Current maturities of long-term debt
1,404
1,327
77
6
Current derivative liabilities
33
12
21
n/m
Working capital
(Current assets subtracting
Current liabilities)
(2,306)
(2,477)
171
7
An increase in payables associated with higher capital
expenditures and higher roaming net settlements.
See Note 23 of the Consolidated financial statements
Instalments made during the year exceeded current
income tax expense
Effects of an increase in the dividend rate, as well as an
increase in the number of shares outstanding
An increase in advance billings due to the upfront payment
for hardware, maintenance and installation of a managed
voice solution, as well as increased subscriber growth
during the year. See Note 24 of the Consolidated financial
statements
Payment of employee-related restructuring disbursements
in excess of associated expenses. See Note 25 of the
Consolidated financial statements
An increase in outstanding commercial paper of $527, as
well as amounts reclassified from long-term debt relating
to the upcoming maturity of $250 of our 1.50% Notes,
Series CS in March 2018, offset by redemption of $700
of our 4.95% Notes, Series CD in March 2017
An increase in the nominal amounts of U.S. currency
hedging items.
TELUS normally has a negative working capital position.
See Financing and capital structure management plans in
Section 4.3 and the Liquidity risk discussion in Section 7.9.
TELUS 2017 ANNUAL REPORT • 67
Financial position at December 31 ($ millions)
2017
2016
Change
($ millions)
Change
(%)
Change includes:
Non-current assets
Property, plant and equipment, net
11,368
10,464
904
Intangible assets, net
10,658
10,364
294
9
3
Goodwill, net
4,217
3,787
430
11
Other long-term assets
421
640
(219)
(34)
Non-current liabilities
Provisions
492
395
97
25
See Capital expenditures in Section 7.3 Cash used by
investing activities and Depreciation in Section 5.3
See Capital expenditures in Section 7.3 Cash used by
investing activities and Amortization of intangible assets
in Section 5.3
Acquisitions including MTS subscribers, a pharmacy
management services provider, and a business process
outsourcing and contact centre services company
A decrease in pension and post-retirement assets
resulting from actuarial losses primarily arising from
financial assumption changes in the pension plans.
An increase due to a business acquisition provision in
respect of non-controlling interests. See Note 25 of the
Consolidated financial statements
Long-term debt
12,256
11,604
Other long-term liabilities
847
736
652
111
6
See Section 7.4 Cash used by financing activities
15
An increase in pension and post-retirement liabilities
resulting from actuarial losses primarily arising from
financial assumption changes in the pension plans,
as well as an increase in the nominal amounts of U.S.
currency hedging items. See Note 27 of the Consolidated
financial statements
Deferred income taxes
2,500
2,107
393
19
Owners’ equity
Common equity
8,221
7,917
304
4
Non-controlling interests
42
19
23
n/m
An increase in temporary differences between the
accounting and tax basis of assets and liabilities, as well
as the revaluation of the liability at higher future income
tax rates.
Net income of $1,460, issue of shares in a business
combination of $100, dividends reinvested and optional
cash payments of $71, and other of $3, net of Other
comprehensive loss of $163, and dividend declarations of
$1,167. See Section 7.4 Cash used by financing activities
Includes Net income of $19 and Other comprehensive
income of $4.
68 • TELUS 2017 ANNUAL REPORT
7 Liquidity and capital resources
This section contains forward-looking statements, including those with
respect to our dividend payout ratio and net debt to EBITDA – excluding
restructuring and other costs ratio. See Caution regarding forward-
looking statements at the beginning of this MD&A.
7.1 Overview
Our capital structure financial policies and financing and capital structure
management plans are described in Section 4.3.
Cash flows
Years ended December 31 ($ millions)
2017
2016
Change
Cash provided by operating activities
Cash used by investing activities
Cash used by financing activities
Increase in Cash and temporary
3,947
(3,643)
(227)
3,219
(2,923)
(87)
728
(720)
(140)
investments, net
77
209
(132)
Cash and temporary investments,
net, beginning of period
432
223
209
Cash and temporary investments,
net, end of period
509
432
77
7.2 Cash provided by operating activities
Analysis of changes in cash provided by operating activities
Years ended December 31 ($ millions)
2017
2016
Change
EBITDA (see Section 5.4
and Section 5.5)
Restructuring and other costs,
net of disbursements
Employee defined benefit plans expense,
net of employer contributions
Share-based compensation expense,
net of payments
Interest paid, net of interest received
Income taxes paid, net of
recoveries received
Other operating working capital changes
4,774
4,229
545
(21)
15
17
(532)
(191)
(115)
24
22
(2)
(506)
(600)
52
(45)
(7)
19
(26)
409
(167)
728
Cash provided by operating activities
3,947
3,219
MD&A: LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATING ACTIVITIES
($ millions)
2017
2016
2015
2014
3,947
3,219
3,556
CASH USED BY INVESTING ACTIVITIES
($ millions)
2017
2016
2015
2014
3,643
2,923
4,477
7.3 Cash used by investing activities
Cash used by investing activities
Years ended December 31 ($ millions)
2017
2016
Change
Cash payments for capital assets,
excluding spectrum licences
Cash payments for spectrum licences
Cash payments for acquisitions, net
Real estate joint ventures advances
and contributions
Real estate joint ventures receipts
Proceeds on dispositions and Other
(3,081)
(2,752)
–
(564)
(26)
18
10
(145)
(90)
(33)
103
(6)
(329)
145
(474)
7
(85)
16
Cash used by investing activities
(3,643)
(2,923)
(720)
• The increase in Cash payments for capital assets, excluding spectrum
licences for 2017 was composed of:
• An increase in capital expenditures of $126 million in 2017
(see Capital expenditure measures table and discussion below)
•
Increased capital expenditure payments with respect to payment
timing differences, as associated Accounts payable and accrued
liabilities decreased by $258 million in 2017.
• For 2017, there were no cash payments for acquisition of spectrum
licences, compared to 2016, in which we made payments as part of
•
Income taxes paid, net of recoveries received, decreased in 2017.
an approved spectrum licence exchange.
This reflected the reorganization of our legal structure, which
•
In the full year of 2017, we made cash payments for multiple business
impacted the timing of cash income tax payments. See Assumptions
acquisitions, as described in Section 1.3, including MTS, Kroll
for 2017 targets and results in Section 1.4 for additional information.
Computer Systems Inc. and Voxpro Limited.
• For a discussion on Other operating working capital changes,
• Receipts from real estate joint ventures, net of advances in 2016,
see Section 6 Changes in financial position and Note 31(a) of
resulted mainly from repayment of construction financing from the
the Consolidated financial statements.
TELUS Garden real estate joint venture, as TELUS Garden opened
in September 2015.
TELUS 2017 ANNUAL REPORT • 69
CAPITAL EXPENDITURES (EXCLUDING SPECTRUM LICENCES)
($ millions)
Cash used by financing activities
7.4 Cash used by financing activities
2017
2016
2015
2014
3,094
2,968
2,577
Capital expenditure measures
Years ended December 31
($ millions, except capital intensity)
Capital expenditures1
Wireless segment
Wireline segment
Consolidated
Wireless segment capital intensity (%)
Wireline segment capital intensity (%)
Consolidated capital intensity 2 (%)
2017
2016
Change
978
2,116
3,094
13
35
23
982
(0.4)%
1,986
2,968
14
34
23
6.5%
4.2%
(1) pt.
1 pt.
– pts.
1 Capital expenditures include assets purchased but not yet paid for, and therefore
differ from Cash payments for capital assets, as presented on the Consolidated
statements of cash flows.
2 See Section 11.1 Non-GAAP and other financial measures.
Wireless segment capital expenditures decreased by $4 million
in 2017 due to the wind-down of spectrum deployment for HSIA over
LTE. This was partly offset by continuing investments in our fibre-optic
network to support our small-cell technology strategy to improve
coverage, capacity and back-haul while preparing for a more efficient
and timely evolution to 5G. We also made investments in Manitoba to
improve coverage, speed and capacity and to significantly enhance
our customer experience while supplementing the business acquisition
of MTS subscribers, dealers and network. Also in 2017, retirement of
legacy CDMA network asset costs and accumulated depreciation was
approximately $1 billion.
Wireline segment capital expenditures increased by $130 million
in 2017 due to continuing investments in our broadband infrastructure,
including connecting more homes and businesses directly to our
fibre-optic network, and investments to support systems reliability and
operational efficiency and effectiveness. These investments support our
high-speed Internet and TELUS TV subscriber growth, as well as our
customers’ demand for faster Internet speeds, and extend the reach
and functionality of our Business and healthcare solutions. Additionally,
the increase during the year was also attributed to readying TELUS TV
product in preparation for deployment, as well as increased investments
in Business Solutions to upgrade our offerings in managed Internet,
virtual private network, wide area network and cloud solutions. We also
made infrastructure upgrades in TELUS Health.
Years ended December 31 ($ millions)
2017
2016
Change
Dividends paid to holders
of Common Shares
Purchases of Common Shares
for cancellation
Long-term debt issued, net of
(1,082)
(1,070)
(12)
–
(179)
179
redemptions and repayment
865
883
(18)
Issue of shares by subsidiary
to non-controlling interests
Other
(1)
(9)
(227)
294
(15)
(87)
(295)
6
(140)
Dividends paid to the holders of Common Shares
In connection with dividends declared during 2017, the dividend reinvest-
ment and share purchase plan trustee (Trustee) purchased shares from
Treasury for the dividend reinvestment and share purchase plan instead
of acquiring Common Shares in the stock market. During 2017, cash
dividends paid to the holders of Common Shares increased, reflecting
higher dividend rates under our dividend growth program, partly offset
by the Trustee purchasing Common Shares from Treasury. During 2017,
the Trustee purchased approximately 2 million dividend reinvestment
Common Shares for $91 million, with no discount applicable. In January
2018, we paid dividends of $279 million to the holders of Common
Shares and the Trustee purchased dividend reinvestment Common
Shares from Treasury for $20 million, totalling $299 million.
Purchases of Common Shares for cancellation
No Common Shares were purchased for cancellation in 2017.
Long-term debt issues and repayments
For the full year of 2017, long-term debt issues net of repayments were
$865 million, a decrease of $18 million, primarily composed of:
• A net increase in commercial paper, including foreign exchange
effects, of $527 million to a balance of $1,140 million (US$908 million)
at December 31, 2017 from $613 million (US$456 million) at Decem-
ber 31, 2016. Our commercial paper program, when utilized, provides
low-cost funds and is fully backstopped by the five-year committed
credit facility (see Section 7.6 Credit facilities).
• An increase in net draws on the TELUS International (Cda) Inc.
credit facility of $6 million ($7 million net of unamortized issue costs)
(US$23 million). As at December 31, 2017, net draws were $346 million
($339 million net of unamortized issue costs), all of which were
denomin ated in U.S. dollars (US$276 million). As at December 31,
2016, net draws were $340 million ($332 million net of unamortized
issue costs), all of which were denominated in U.S. dollars
(US$253 million).
• The March 2017 issues of US$500 million of senior unsecured
notes at 3.70% due September 15, 2027, and $325 million of senior
unsecured notes at 4.70% due March 6, 2048. For the U.S. issuance,
we have fully hedged the principal and interest obligations of the
notes against fluctuations in the Canadian dollar: U.S. dollar foreign
exchange rate for the entire term of the notes by entering into
foreign exchange derivatives (cross currency interest rate exchange
agreements). These derivatives effectively converted the principal
payments and interest obligations to Canadian dollar obligations with
70 • TELUS 2017 ANNUAL REPORT
an effective fixed interest rate of 3.41% and an effective issued
and outstanding amount of $667 million (reflecting a fixed exchange
rate of $1.3348). For additional information on these notes, refer to
Note 26(b) of the Consolidated financial statements.
• The March 2017 repayment of $700 million of Series CD Notes.
In comparison, for the full year of 2016, long-term debt issues net of
repayments were $883 million and were composed of:
• A net increase in commercial paper, including foreign exchange
effects, of $357 million from a balance of $256 million
(US$185 million) at December 31, 2015.
• Net draws on the TELUS International (Cda) Inc. credit facility
of $340 million ($332 million net of unamortized issue costs)
(US$253 million).
• The September 2016 public issue of US$600 million of senior
unsecured notes at 2.80%, due February 16, 2027.
• The May 2016 repayment of $600 million of Series CI Notes.
The average term to maturity of our long-term debt (excluding commercial
paper and the revolving component of the TELUS International (Cda) Inc.
credit facility) increased to approximately 10.7 years at December 31, 2017,
compared to approximately 10.4 years at December 31, 2016. Additionally,
our weighted average cost of long-term debt (excluding commercial
paper and the revolving component of the TELUS International (Cda) Inc.
credit facility) was 4.18% at December 31, 2017, as compared to 4.22%
at December 31, 2016.
NET INCREASE IN LONG-TERM DEBT
($ millions)
865
883
2017
2016
2015
2014
AVERAGE TERM TO MATURITY OF LONG-TERM DEBT
(years)
MD&A: LIQUIDITY AND CAPITAL RESOURCES
7.5 Liquidity and capital resource
measures
Net debt was $13.4 billion at December 31, 2017, an increase of $0.8 billion
when compared to one year earlier, resulting mainly from a net increase
in commercial paper outstanding in addition to the issuances of the
US$500 million of senior unsecured notes and the $325 million of senior
unsecured notes, partially offset by the repayment of Series CD Notes,
as described in Section 7.4.
Fixed-rate debt as a proportion of total indebtedness was 89% as
at December 31, 2017, down from 92% one year earlier, mainly due to
the increase in commercial paper, which emulates floating-rate debt,
partly offset by the two unsecured note issuances in 2017 described in
Section 7.4.
Net debt to EBITDA – excluding restructuring and other costs ratio
was 2.73 times, as measured at December 31, 2017, up from 2.69 one
year earlier. Our long-term objective for this measure is within a range
of 2.00 to 2.50 times, which we believe is consistent with maintaining
investment grade credit ratings in the range of BBB+, or the equivalent,
and providing reasonable access to capital. As at December 31, 2017,
this ratio remains outside of the long-term objective range due to prior
issuances of incremental debt primarily for the acquisition in 2014 and
2015 of spectrum licences for approximately $3.6 billion, and the elevated
strategic capital investments in our fibre-optic network, partially offset
by growth in EBITDA – excluding restructuring and other costs. These
acquired licences have more than doubled our national spectrum holdings
and represent an investment to extend our network capacity to support
continuing data consumption growth, as well as growth in our wireless
customer base. We expect this ratio to decline in 2018 and we continue
to expect it to return to within the objective range in the medium term,
consistent with our long-term strategy. While this ratio exceeds our long-
2,719
term objective range, we are well in compliance with the leverage ratio
covenant in our credit facilities, which states that we may not permit our
net debt to operating cash flow ratio to exceed 4.00:1.00 (see Section 7.6
Credit facilities).
2017
2016
2015
2014
10.7
10.4
11.1
Issue of shares by subsidiary to non-controlling interests
In June 2016, we announced the completion of the agreement whereby
a subsidiary issued shares to Baring Private Equity Asia, which acquired
a 35% non-controlling interest in TELUS International (Cda) Inc. Cash
proceeds net of issue costs were $294 million as at December 31, 2016.
There was no comparable activity in 2017.
EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS
($ millions)
2017
2016
2015
2014
EBITDA is a non-GAAP measure.
EBITDA – EXCLUDING RESTRUCTURING
AND OTHER COSTS INTEREST COVERAGE
(times)
2017
2016
2015
2014
4,913
4,708
4,488
8.7
8.3
9.7
TELUS 2017 ANNUAL REPORT • 71
Liquidity and capital resource measures
As at, or years ended, December 31
2017
2016
Change
Components of debt
and coverage ratios1 ($ millions)
Net debt
13,422
12,652
EBITDA – excluding restructuring
and other costs
Net interest cost
Debt ratios
Fixed-rate debt as a proportion
of total indebtedness (%)
Average term to maturity of
long-term debt (excluding
commercial paper) (years)
Weighted average interest rate
on long-term debt (excluding
commercial paper) (%)
Net debt to EBITDA – excluding
restructuring and other
costs1 (times)
Coverage ratios1 (times)
Earnings coverage
EBITDA – excluding restructuring
4,913
4,708
567
566
89
92
(3) pts.
10.7
10.4
0.3
4.18
4.22
(0.04) pts.
2.73
2.69
0.04
4.6
4.0
770
205
1
0.6
0.4
and other costs interest coverage
8.7
8.3
Other measures1 (%)
Dividend payout ratio of
adjusted net earnings
Dividend payout ratio
80
80
77
89
3 pts.
(9) pts.
1 See Section 11.1 Non-GAAP and other financial measures.
Earnings coverage ratio for 2017 was 4.6 times, up from 4.0 times one
year earlier. An increase in income before borrowing costs and income
taxes increased the ratio by 0.7, while an increase in borrowing costs
reduced the ratio by 0.1.
EBITDA – excluding restructuring and other costs interest coverage
ratio for 2017 was 8.7 times, up from 8.3 times one year earlier. Growth
in EBITDA – excluding restructuring and other costs increased the
ratio by 0.4.
Dividend payout ratios: Actual dividend payout decisions will continue
to be subject to our Board’s assessment and the determination of our
financial position and outlook, as well as our long-term dividend payout
objective range of 65 to 75% of prospective net earnings per share.
The disclosed basic and adjusted dividend payout ratios are historical
measures utilizing the last four quarters of dividends declared and earn-
ings per share. We currently expect that we will be within our objective
range when considered on a prospective dividend payout ratio basis
within the medium term. The historical measures for the 12-month period
ended December 31, 2017, are presented for illustrative purposes in
evaluating our target guideline and both exceeded the objective range.
7.6 Credit facilities
At December 31, 2017, we had available liquidity of more than $1.1 billion
from the TELUS revolving credit facility, approximately $242 million of
available liquidity from the TELUS International (Cda) Inc. credit facility
and $116 million available from uncommitted letters of credit facilities.
In addition, we had $400 million available under our trade receivables
securitization program (see Section 7.7 Sale of trade receivables). We are
well within our objective of generally maintaining at least $1.0 billion of
available liquidity.
TELUS revolving credit facility
We have a $2.25 billion (or U.S. dollar equivalent) revolving credit facility with a syndicate of financial institutions that expires on May 31, 2021.
The revolving credit facility is used for general corporate purposes, including the backstop of commercial paper, as required.
TELUS revolving credit facility at December 31, 2017
($ millions)
Five-year revolving facility 1
1 Canadian dollars or U.S. dollar equivalent.
Expiry
May 31, 2021
Size
2,250
Drawn
–
Outstanding
undrawn letters
of credit
Backstop
for commercial
paper program
–
(1,140)
Available
liquidity
1,110
Our revolving credit facility contains customary covenants, including a
requirement that we not permit our consolidated leverage ratio to exceed
Commercial paper
TELUS Corporation has an unsecured commercial paper program,
4.00 to 1.00 and that we not permit our consolidated coverage ratio to be
which is backstopped by our revolving credit facility, enabling us to issue
less than 2.00 to 1.00 at the end of any financial quarter. Our consolidated
commercial paper up to a maximum aggregate amount of $1.4 billion
leverage ratio was approximately 2.73 to 1.00 as at December 31, 2017,
at December 31, 2017, including a U.S. dollar-denominated commercial
and our consolidated coverage ratio was approximately 8.66 to 1.00 as
paper program for up to US$1.0 billion within this maximum aggregate
at December 31, 2017. These ratios are expected to remain well above
amount. Foreign currency forward contracts are used to manage currency
the covenants. There are certain minor differences in the calculation
risk arising from issuing commercial paper denominated in U.S. dollars.
of the leverage ratio and coverage ratio under the revolving credit facility,
as compared with the calculation of Net debt to EBITDA – excluding
The commercial paper program is to be used for general corporate
purposes, including, but not limited to, capital expenditures and invest-
restructuring and other costs and EBITDA – excluding restructuring and
ments. Our ability to reasonably access the commercial paper market
other costs interest coverage. Historically, the calculations have not been
in Canada and the U.S. is dependent on our credit ratings (see Section 7.8
materially different. The covenants are not impacted by revaluation, if
Credit ratings).
any, of Property, plant and equipment, Intangible assets or Goodwill for
accounting purposes. Continued access to our credit facilities is not
contingent on maintaining a specific credit rating.
72 • TELUS 2017 ANNUAL REPORT
MD&A: LIQUIDITY AND CAPITAL RESOURCES
TELUS International (Cda) Inc. credit facility
As at December 31, 2017, TELUS International (Cda) Inc. had a bank
credit facility, secured by its assets, expiring on December 20, 2022
(2016 – May 31, 2021), with a syndicate of financial institutions. The credit
facility is composed of a US$350 million (2016 – US$115 million) revolving
component and an amortizing US$120 million (2016 – US$215 million)
term loan component. The credit facility is non-recourse to TELUS
Corporation. As at December 31, 2017, $346 million ($339 million net of
unamortized issue costs) was outstanding, all of which was denominated
in U.S. dollars (US$276 million), with a weighted average interest rate of
3.32%.Subsequent to December 31, 2017, an incremental $94 million
(US$75 million) was drawn. See Note 18(c) of the Consolidated financial
statements for additional detail.
Other letter of credit facilities
7.7 Sale of trade receivables
TELUS Communications Inc., a wholly owned subsidiary of TELUS, is a
party to an agreement with an arm’s-length securitization trust associated
with a major Schedule I Canadian bank, under which it is able to sell
an interest in certain trade receivables for an amount up to a maximum
of $500 million. The agreement is in effect until December 31, 2018, and
available liquidity was $400 million as at December 31, 2017. (See Note 22
of the Consolidated financial statements.) Sales of trade receivables in
securitization transactions are recognized as collateralized Short-term
borrowings and thus do not result in our de-recognition of the trade
receivables sold.
TELUS Communications Inc. is required to maintain at least a BB
credit rating by DBRS Ltd., or the securitization trust may require the sale
program to be wound down prior to the end of the term. The necessary
At December 31, 2017, we had $224 million of letters of credit outstanding
credit rating was exceeded as of February 8, 2018.
(2016 – $210 million) issued under various uncommitted facilities; such
letter of credit facilities are in addition to the ability to provide letters of
credit pursuant to our committed bank credit facility. Available liquidity
under various uncommitted letters of credit facilities was $116 million
at December 31, 2017.
7.8 Credit ratings
There were no changes to our investment grade credit ratings during
2017, or as of February 8, 2018. We believe adherence to most of
our stated financial policies (see Section 4.3), coupled with our efforts
to maintain a constructive relationship with banks, investors and credit
rating agencies, continues to provide reasonable access to capital
markets. (See discussion of risks in Section 10.7 Financing, debt
requirements and returning cash to shareholders.)
7.9 Financial instruments, commitments and contingent liabilities
Financial instruments
Our financial instruments and the nature of certain risks that they may be subject to are set out below and described in Note 4 of the Consolidated
financial statements. Our policies in respect of the recognition and measurement of financial instruments are described in Note 1(c) of the Consolidated
financial statements.
Financial instrument
Measured at amortized cost
Recognition and measurement
accounting classification
Risks
Market risks
Credit
Liquidity
Currency
Interest rate
Other price
Accounts receivable
Loans and receivables
X
Construction credit facilities advances
to real estate joint venture
Short-term obligations
Accounts payable
Provisions
Long-term debt
Measured at fair value
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Cash and temporary investments
Fair value through Net income
Long-term investments
(not subject to significant influence)1
Available-for-sale
Foreign exchange derivatives2
Fair value through Net income; part
of a cash flow hedging relationship
Share-based compensation derivatives2
Fair value through Net income; part
of a cash flow hedging relationship
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
1 Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured.
2 Use of derivative financial instruments is subject to a policy which requires that no derivative transaction is to be entered into for the purpose of establishing a speculative or leveraged
position (the corollary being that all derivative transactions are to be entered into for risk management purposes only) and sets criteria for the creditworthiness of the transaction
counterparties.
TELUS 2017 ANNUAL REPORT • 73
Credit risk
Credit risk arises from Cash and temporary investments, Accounts
Our debt maturities in future years are as disclosed in the long-term
debt principal maturities chart in Section 4.3. As at December 31, 2017,
receivable and derivative financial instruments. We mitigate credit risk
we had liquidity of more than $1.1 billion available from unutilized credit
as follows:
facilities (see Section 7.6 Credit facilities) and $400 million available under
• Credit risk associated with Cash and temporary investments is
our trade receivables securitization program (see Section 7.7 Sale of
managed by ensuring that these financial assets are placed with
trade receivables), and we could offer $1.2 billion of debt or equity
governments, major financial institutions that have been accorded
securities pursuant to a shelf prospectus that is in effect until April 2018.
strong investment grade ratings by a primary rating agency, and/or
This adheres to our objective of generally maintaining at least $1 billion
other creditworthy counterparties. An ongoing review is performed
of available liquidity. We believe that our investment grade credit ratings
to evaluate changes in the status of counterparties.
contribute to reasonable access to capital markets.
• Credit risk associated with Accounts receivable is inherently managed
The expected maturities of our undiscounted financial liabilities do
by the size and diversity of our large customer base, which includes
not differ significantly from the contractual maturities, other than as shown
substantially all consumer and business sectors in Canada. We follow
in the table in Note 4(c) of the Consolidated financial statements.
a program of credit evaluations of customers and limit the amount of
credit extended when deemed necessary. As at December 31, 2017,
the weighted average age of past-due customer Accounts receivable
was 60 days (2016 – 61 days).
We maintain allowances for lifetime expected credit losses
related to doubtful accounts. Current economic conditions (including
forward-looking macroeconomic data), historical information (including
credit agency reports, if available), reasons for the accounts being
past-due and line of business from which the customer Accounts
receivable arose are all considered when determining whether to make
allowances for past-due accounts. The same factors are considered
when determining whether to write off amounts charged to the
allowance for doubtful accounts against the customer Accounts
receivable. The doubtful accounts expense is calculated on a
specific-identification basis for customer Accounts receivable above
a specific balance threshold and on a statistically derived allowance
basis for the remainder. No customer Accounts receivable are
written off directly to the doubtful accounts expense.
• Counterparties to our share-based compensation cash-settled
equity forward agreements and foreign exchange derivatives are
major financial institutions that have been accorded investment grade
ratings by a primary credit rating agency. The dollar amount of credit
Currency risk
Our functional currency is the Canadian dollar, but certain routine
revenues and operating costs are denominated in U.S. dollars and some
inventory purchases and capital asset acquisitions are sourced inter-
nationally. The U.S. dollar is the only foreign currency to which we have
a significant exposure.
Our foreign exchange risk management includes the use of foreign
currency forward contracts and currency options to fix the exchange
rates on a varying percentage, typically in the range of 50 to 75%, of our
domestic short-term U.S. dollar-denominated transactions and commit-
ments and all U.S. dollar-denominated commercial paper. Other than in
respect of U.S. dollar-denominated commercial paper, we designate only
the spot element of these instruments as the hedging item; the forward
element is wholly immaterial; in respect of U.S. dollar-denominated
commercial paper, we designate the forward rate.
We are also exposed to currency risk in that the fair value or future
cash flows of our U.S. Dollar Notes and our TELUS International (Cda) Inc.
credit facility U.S. dollar borrowings could fluctuate because of changes
in foreign exchange rates. Currency hedging relationships have been
established for the related semi-annual interest payments and the prin-
cipal payment at maturity in respect of the U.S. Dollar Notes.
exposure under contracts with any one financial institution is limited
and counterparties’ credit ratings are monitored. We do not give or
Interest rate risk
Changes in market interest rates will cause fluctuations in the fair values
receive collateral on swap agreements and hedging items due to our
or future cash flows of temporary investments, construction credit facility
credit rating and those of our counterparties. While we are exposed to
the risk of potential credit losses due to the possible non-performance
of our counterparties, we consider this risk remote. Our derivative
advances made to the real estate joint ventures, short-term obligations,
long-term debt and interest rate swap derivatives.
When we have temporary investments, they have short maturities
liabilities do not have credit risk-related contingent features.
and fixed interest rates and as a result, their fair values will fluctuate with
Liquidity risk
Liquidity risk is the risk that we may not have cash available to satisfy our
financial obligations as they come due. As a component of our capital
structure financial policies, discussed in Section 4.3 Liquidity and capital
resources, we manage liquidity risk by: maintaining a daily cash pooling
process that enables us to manage our available liquidity and our liquidity
requirements according to our actual needs; maintaining an agreement
to sell trade receivables to an arm’s-length securitization trust; main-
taining bilateral bank facilities and syndicated credit facilities; maintaining
a commercial paper program; maintaining an in-effect shelf prospectus;
continuously monitoring forecast and actual cash flows; and managing
maturity profiles of financial assets and financial liabilities.
changes in market interest rates; absent monetization prior to maturity,
the related future cash flows will not change due to changes in market
interest rates.
If the balance of short-term investments includes dividend-paying
equity instruments, we could be exposed to interest rate risk.
Due to the short-term nature of the applicable rates of interest charged,
the fair value of the construction credit facilities advances made to the
real estate joint venture is not materially affected by changes in market
interest rates; associated cash flows representing interest payments
will be affected until such advances are repaid.
As short-term obligations arising from bilateral bank facilities, which
typically have variable interest rates, are rarely outstanding for periods
that exceed one calendar week, interest rate risk associated with this
item is not material.
74 • TELUS 2017 ANNUAL REPORT
MD&A: LIQUIDITY AND CAPITAL RESOURCES
Short-term borrowings arising from the sales of trade receivables to
of these financial instruments. The fair values are determined directly by
an arm’s-length securitization trust are fixed-rate debt. Due to the short
reference to quoted market prices in active markets.
maturities of these borrowings, interest rate risk associated with this
The carrying values of our investments accounted for using the cost
item is not material.
method do not exceed their fair values. The fair values of our investments
All of our currently outstanding long-term debt, other than commer-
accounted for as available-for-sale are based on quoted market prices
cial paper and amounts drawn on our credit facilities, is fixed-rate debt
in active markets or other clear and objective evidence of fair value.
(see Section 7.5). The fair value of fixed-rate debt fluctuates with changes
The fair value of our Long-term debt is based on quoted market prices
in market interest rates; absent early redemption, the related future cash
in active markets.
flows will not change. Due to the short maturities of commercial paper,
The fair values of the derivative financial instruments we use to man-
its fair value is not materially affected by changes in market interest rates,
age our exposure to currency risks are estimated based upon quoted
but the associated cash flows representing interest payments may be
market prices in active markets for the same or similar financial instru-
affected if the commercial paper is rolled over.
ments or on the current rates offered to us for financial instruments of the
Amounts drawn on our short-term and long-term credit facilities will
same maturity, as well as discounted future cash flows determined using
be affected by changes in market interest rates in a manner similar to
current rates for similar financial instruments of similar maturities subject
commercial paper.
Other price risk
• Long-term investments: We are exposed to equity price risk arising
from investments classified as available-for-sale. Such investments
are held for strategic rather than trading purposes.
• Share-based compensation derivatives: We are exposed to other
price risk arising from cash-settled share-based compensation
(appreciating Common Share prices increase both the expense
and the potential cash outflow). Certain cash-settled equity swap
agreements have been entered into that fix the cost associated
with our estimate of our restricted stock units which are expected to
vest and are not subject to performance conditions (see Note 14(b)
of the Consolidated financial statements).
Market risks
Net income and Other comprehensive income for the years ended
December 31, 2017 and 2016 could have varied if the Canadian dollar:
U.S. dollar exchange rate and our Common Share price varied by
reasonably possible amounts from their actual statement of financial
position date amounts.
The sensitivity analysis of our exposure to market risks is shown in
Note 4(g) of the Consolidated financial statements.
Fair values – General
The carrying values of Cash and temporary investments, Accounts
receivable, short-term obligations, Short-term borrowings, Accounts
payable and certain provisions (including restructuring provisions)
approximate their fair values due to the immediate or short-term maturity
to similar risks (such fair value estimates being largely based on the
Canadian dollar: U.S. dollar forward exchange rate as at the statement
of financial position dates).
The fair values of the derivative financial instruments we use to
manage our exposure to increases in compensation costs arising from
certain forms of share-based compensation are based upon fair value
estimates of the related cash-settled equity forward agreements provided
by the counterparty to the transactions (such fair value estimates being
largely based on our Common Share price as at the statement of
financial position dates).
The financial instruments that we measure at fair value on a recurring
basis in periods subsequent to initial recognition and the level within the
fair value hierarchy at which they are measured are as set out in Note 4(h)
of the Consolidated financial statements.
Fair values – Derivative and non-derivative
The derivative financial instruments that we measure at fair value on a
recurring basis subsequent to initial recognition, and our Long-term debt,
which is measured at amortized cost, and the fair value thereof, are set
out in tables in Note 4(h) of the Consolidated financial statements.
Recognition of derivative gains and losses
Gains and losses, excluding income tax effects, arising from derivative
instruments that are classified as cash flow hedging items, as well as gains
and losses arising from derivative instruments that are classified as held
for trading and that are not designated as being in a hedging relationship,
and their locations within the Consolidated statements of income and
other comprehensive income, are detailed in Note 4(i) of the Consolidated
financial statements.
TELUS 2017 ANNUAL REPORT • 75
Commitments and contingent liabilities
Contractual obligations as at December 31, 2017
($ millions)
Short-term borrowings
Interest obligations
Principal obligations1
Long-term debt
Interest obligations
Principal maturities2
Construction credit facilities commitment3
Minimum operating lease payments3,4
Occupancy costs3
Purchase obligations5
Operating expenditures
Property, plant and equipment,
and Intangible assets
Non-interest bearing financial liabilities
Other obligations
Total
2018
2019
2020
2021
2022
Thereafter
Total
3
100
103
531
1,397
1,928
67
224
95
420
183
603
2,232
51
5,303
–
–
–
523
1,008
1,531
–
203
91
130
33
163
40
2
–
–
–
472
1,008
1,480
–
182
87
114
4
118
19
2
–
–
–
397
1,083
1,480
–
160
84
78
–
78
76
2
–
–
–
348
1,565
1,913
–
135
80
74
–
74
18
2
–
–
–
3,725
7,705
11,430
–
742
379
3
100
103
5,996
13,766
19,762
67
1,646
816
275
1,091
–
275
16
88
220
1,311
2,401
147
2,030
1,888
1,880
2,222
12,930
26,253
1 See Section 7.7 Sale of trade receivables.
2 See Long-term debt maturity chart in Section 4.3.
3 Construction credit facilities reflect loan amounts for a real estate joint venture, a related party. Minimum operating lease payments and occupancy costs include transactions with real
estate joint ventures. See Section 7.11 Transactions between related parties.
4 Total minimum operating lease payments include approximately 33% in respect of our five largest leases for office premises over various terms, with expiry dates that range between
2024 and 2036 with a weighted average term of approximately 13 years; and approximately 29% in respect of wireless site leases with a weighted average term of approximately
17 years. Total minimum operating lease payments with related parties are immaterial. See Note 19 of the Consolidated financial statements.
5 Where applicable, purchase obligations reflect foreign exchange rates at December 31, 2017. Purchase obligations include future operating and capital expenditures that have been
contracted for at the current year-end and include the most likely estimates of prices and volumes, where necessary. As purchase obligations reflect market conditions at the time the
obligation was incurred for the items being purchased, they may not be representative of future years. Obligations from personnel supply contracts and other such labour agreements
have been excluded.
Claims and lawsuits
A number of claims and lawsuits (including class actions and intellectual
flows, with the exception of the items disclosed in Note 29(a) of the
Consolidated financial statements. This is a significant judgment for us
property infringement claims) seeking damages and other relief are
(see Section 8.1 Critical accounting estimates).
pending against us and, in some cases, numerous other wireless carriers
and telecommunications service providers. As well, we have received
notice of, or are aware of, certain possible claims (including intellectual
property infringement claims) against us. (See the related risk discussion
in Section 10.9 Litigation and legal matters.)
It is not currently possible for us to predict the outcome of such
claims, possible claims and lawsuits due to various factors, including:
the preliminary nature of some claims; uncertain damage theories and
demands; an incomplete factual record; uncertainty concerning legal
theories, procedures and their resolution by the courts, at both the trial
and the appeal levels; and the unpredictable nature of opposing parties
and their demands.
However, subject to the foregoing limitations, management is of
the opinion, based upon legal assessments and information presently
available, that it is unlikely that any liability, to the extent not provided
for through insurance or otherwise, would have a material effect on
our financial position and the results of our operations, including cash
Indemnification obligations
In the normal course of operations, we provide indemnification in
conjunction with certain transactions. The terms of these indemnification
obligations range in duration. These indemnifications would require
us to compensate the indemnified parties for costs incurred as a result
of failure to comply with contractual obligations or litigation claims or
statutory sanctions or damages that may be suffered by an indemnified
party. In some cases, there is no maximum limit on these indemnification
obligations. The overall maximum amount of an indemnification obligation
will depend on future events and conditions and therefore cannot be
reasonably estimated. Where appropriate, an indemnification obligation
is recorded as a liability. Other than obligations recorded as liabilities
at the time of such transactions, historically we have not made significant
payments under these indemnifications.
As at December 31, 2017, we had no liability recorded in respect
of our indemnification obligations.
76 • TELUS 2017 ANNUAL REPORT
MD&A: ACCOUNTING MATTERS
7.10 Outstanding share information
Transactions with defined benefit pension plans
Outstanding shares (millions)
Common Shares
Common Share options –
all exercisable (one for one)
December 31,
2017
January 31,
2018
We provided management and administrative services to our defined
benefit pension plans. Charges for these services were on a cost
595
595
recovery basis and were immaterial.
1
1
Transactions with real estate joint ventures
In 2017, we had transactions with real estate joint ventures, which
are related parties to us, as set out in Note 21 of our Consolidated
7.11 Transactions between related parties
Transactions with key management personnel
Our key management personnel have authority and responsibility for
overseeing, planning, directing and controlling our activities. They consist
of our Board of Directors and our Executive Leadership Team. Total
compensation expense for key management personnel was $50 million
in 2017, as compared to $54 million in 2016. See Note 30(a) of the
Consolidated financial statements for additional details.
financial statements.
As at December 31, 2017, the proportion of space leased in the
TELUS Garden office tower was approximately 99%.
For the TELUS Sky real estate joint venture, commitments and
contingent liabilities include construction-related contractual commitments
through to 2019 (approximately $82 million at December 31, 2017)
and construction financing ($342 million with three Canadian financial
institutions as 66 2⁄3% lender and TELUS as 331⁄3% lender).
8 Accounting matters
8.1 Critical accounting estimates
Our significant accounting policies are described in Note 1 of the
Consolidated financial statements for the year ended December 31, 2017.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to
make estimates, assumptions and judgments that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Our critical accounting esti-
mates and significant judgments are generally discussed with the Audit
Committee each quarter.
Examples of our significant judgments, apart from those involving
estimation, include the following:
• Assessments about whether line items are sufficiently material to
warrant separate presentation in the primary financial statements
and, if not, whether they are sufficiently material to warrant separate
presentation in the notes to the financial statements. In the normal
course, we make changes to our assessments regarding materiality
for presentation so that they reflect current economic conditions.
Due consideration is given to the view that it is reasonable to expect
differing opinions of what is, and is not, material.
•
In respect of revenue-generating transactions, we must make
judgments that affect the timing of the recognition of revenue. See
Section 8.2 Accounting policy developments below and Note 2 of
our Consolidated financial statements for significant changes to
IFRS-IASB which are not yet effective and have not yet been applied,
but which will significantly affect the timing of the recognition of
revenue and the classification of revenues presented as either service
or equipment revenues.
• We must make judgments about when we have satisfied our
performance obligations to our customers, either over a period
of time or at a point in time. Service revenues are recognized
based upon customers’ access to, or usage of, our telecommu-
nications infrastructure; we believe this method faithfully depicts
the transfer of the services, and thus the revenues are recognized
as the services are made available and/or rendered. We consider
our performance obligations arising from the sale of equipment
to have been satisfied when the equipment has been delivered to,
and accepted by, the end-user customers.
• Principally in the context of revenue-generating transactions
involving wireless handsets, we must make judgments about
whether third-party re-sellers that deliver equipment to our
customers are acting in the transaction as principals or as our
agents. Upon due consideration of the relevant indicators,
we believe the decision to consider the re-sellers to be acting,
solely for accounting purposes, as our agents is more repre-
sentative of the economic substance of the transactions, as we
are the primary obligor to the end-user customers. The effect
of this judgment is that no equipment revenue is recognized
upon the transfer of inventory to third-party re-sellers.
• The decision to depreciate and amortize any property, plant,
equipment and intangible assets that are subject to amortization,
on a straight-line basis, as we believe that this method reflects the
consumption of resources related to the economic lifespan of those
assets better than an accelerated method and is more representative
of the economic substance of the underlying use of those assets.
• The preparation of financial statements in accordance with GAAP
requires management to make judgments that affect the financial
statement disclosure of information regularly reviewed by our
chief operating decision-maker used to make resource allocation
decisions and to assess performance (segment information,
see Note 5 of our Consolidated financial statements). A significant
judgment we make is in respect of distinguishing between our
wireless and wireline operations and cash flows, such distinction
TELUS 2017 ANNUAL REPORT • 77
having been significantly affected by the convergence and integration
These judgments are necessary because of the convergence
of our wireless and wireline telecommunications infrastructure
that our wireless and wireline telecommunications infrastructure
technology and operations. Less than one-half of the operating
technology and operations have experienced to date, and because
expenses included in the segment performance measure currently
of our continuous development. There are instances in which
reported to our chief operating decision-maker are direct costs;
similar judgments must also be made in respect of future capital
judgment, largely based upon historical experience, is applied in
expenditures in support of both wireless and wireline operations,
apportioning indirect costs which are not objectively distinguishable
which are a component of the determination of recoverable
between our wireless and wireline operations.
amounts used in the annual impairment testing, as discussed
Through December 31, 2015, our judgment was that our wireless
further in Note 18(e) of the Consolidated financial statements.
and wireline telecommunications infrastructure technology and oper-
•
In respect of claims and lawsuits, as discussed further in Note 29(a)
ations had not experienced sufficient convergence to objectively make
of the Consolidated financial statements, the determination of
their respective operations and cash flows practically indistinguishable.
whether an item is a contingent liability or whether an outflow of
The continued build-out of our technology-agnostic fibre-optic infra-
resources is probable and thus needs to be accounted for as
structure, in combination with converged edge network technology,
a provision.
has significantly affected this judgment, as has the commercialization
of fixed-wireless solutions.
It has become increasingly impractical to objectively distinguish
between our wireless and wireline operations and cash flows,
Examples of the significant estimates and judgments that we make,
and their relative significance and degree of difficulty, are as set out in
the graphic in Note 1 of the Consolidated financial statements.
and the assets from which those cash flows arise. Our judgment
Our critical accounting estimates and assumptions are described below.
as to whether these operations can continue to be judged to
be individual components of the business and discrete operating
segments may change.
The increasing impracticality of objectively distinguishing between
our wireless and wireline cash flows, and the assets from which those
cash flows arise, is evidence of their increasing interdependence;
this may result in the unification of the wireless cash-generating unit
and the wireline cash-generating unit as a single cash-generating
unit for impairment testing purposes in the future. As our business
continues to evolve, new cash-generating units may develop.
• The view that our spectrum licences granted by Innovation, Science
and Economic Development Canada (ISED) will likely be renewed
by ISED, that we intend to renew them, that we believe we have
the financial and operational ability to renew them and, thus, that
they have an indefinite life, as discussed further in Note 18(d)
of the Consolidated financial statements.
•
In connection with the annual impairment testing of Intangible
assets with indefinite lives and Goodwill, there are instances
in which we must exercise judgment in allocating our net assets,
including shared corporate and administrative assets, to our
cash-generating units when determining their carrying amounts.
General
•
In determining our critical accounting estimates, we consider trends,
commitments, events or uncertainties that we reasonably expect
to materially affect the methodology or assumptions. Our statements
in this MD&A regarding such consideration are made subject to
the Caution regarding forward-looking statements.
•
In the normal course, we make changes to assumptions under-
lying all critical accounting estimates so that they reflect current
economic conditions, updated historical information used to
develop the assumptions, and changes in our credit ratings, where
applicable. Unless indicated otherwise in the discussion below,
we expect that no material changes in overall financial performance
and financial statement line items would arise either from reason-
ably likely changes in material assumptions underlying the estimate
or from selection of a different estimate from within a range of
valid estimates.
• Our critical accounting estimates affect line items on the
Consolidated statements of income and other comprehensive
income, and line items on the Consolidated statements of
financial position, as follows:
Consolidated statements of income and other comprehensive income
Consolidated statements of financial position
Intangible assets, net, and Goodwill, net
Employee defined benefit pension plans
Property, plant and equipment, net
Provisions for asset retirement obligations
Provisions related to business combinations
Investments
Accounts receivable
Inventories
Operating expenses
Operating
revenues
Goods and
services
purchased
Employee
benefits
expense
Depreciation
X
X3
X
X
X
X
X
X
X
Amortization
of intangible
assets
X1
X3
Employee
defined
benefit plans
costs re-measurements2
Financing
X
X
X
X
1 Accounting estimate, as applicable to Intangible assets with indefinite lives and Goodwill, primarily relates to spectrum holdings and accordingly affects our wireless cash-generating unit.
2 Other comprehensive income – Item never subsequently reclassified to income.
3 Accounting estimate impact due to internal labour capitalization rates.
78 • TELUS 2017 ANNUAL REPORT
MD&A: ACCOUNTING MATTERS
• All critical accounting estimates are uncertain at the time an
The estimated useful lives of assets; the recoverability
estimate is made and affect the following Consolidated statements
of income and other comprehensive income line items: Income taxes
of tangible assets
• The estimated useful lives of assets are determined by a continuing
(except for estimates about Goodwill) and Net income. Similarly, all
program of asset life studies. The recoverability of assets with finite
critical accounting estimates affect the following Consolidated state-
lives is significantly impacted by the estimated useful lives of assets.
ments of financial position line items: Current assets (Income and
• Assumptions underlying the estimated useful lives of assets include
other taxes receivable), Current liabilities (Income and other taxes
the timing of technological obsolescence, competitive pressures
payable), Deferred income tax liabilities and Common equity (retained
and future infrastructure utilization plans.
earnings) and Non-controlling interest. The discussion of each critical
accounting estimate does not differ between our two segments,
Employee defined benefit pension plans
wireless and wireline, unless explicitly noted.
Certain actuarial and economic assumptions used in determining
Intangible assets, net; Goodwill, net; and Property, plant
and equipment, net
defined benefit pension costs, accrued pension benefit obligations
and pension plan assets
• We review industry practices, trends, economic conditions and
General
• The Intangible assets, net, line item represents approximately 36% of
data provided by actuaries when developing assumptions used in
the determination of defined benefit pension costs and accrued
Total assets as at December 31, 2017 (37% as at December 31, 2016).
pension benefit obligations. Pension plan assets are generally valued
Included in Intangible assets are spectrum licences, which represent
using market prices; however, some assets are valued using market
approximately 29% of Total assets as at December 31, 2017 (31% as
estimates when market prices are not readily available. Actuarial
at December 31, 2016).
• The Goodwill, net, line item represents approximately 14% of Total
assets as at December 31, 2017 and 2016.
support is obtained for interpolations of experience gains and losses
that affect the employee defined benefit plan actuarial gains and
losses and accrued pension benefit obligations. The discount rate,
• The Property, plant and equipment, net, line item on our Consolidated
which is used to determine the accrued benefit obligation, is based
statements of financial position represents approximately 38% of
upon the yield on long-term, high-quality fixed-term investments.
Total assets as at December 31, 2017 and 2016.
The discount rate is set annually at the end of each calendar year,
•
If our estimated useful lives of assets were incorrect, we could experi-
based upon yields on long-term corporate bond indices in consultation
ence increased or decreased charges for amortization or depreciation
with actuaries, and is reviewed quarterly for significant changes.
in the future. If the future were to differ adversely from our best esti-
Future increases in compensation are based upon the current benefits
mate of key economic assumptions and associated cash flows were
policies and economic forecasts. We have examined our respective
to materially decrease, we could potentially experience future material
pension obligation and current service cost durations and observed
impairment charges in respect of our Property, plant and equipment
a 10-year difference in duration. As individual discount rates more
assets, our Intangible assets or our Goodwill. If Intangible assets with
accurately reflect the obligation and current service cost, commencing
indefinite lives were determined to have finite lives at some point in
in 2017, we applied a dual discount rate methodology.
the future, we could experience increased charges for amortization of
• On an annual basis, at a minimum, the defined benefit pension plan
Intangible assets. Such charges in and of themselves do not result in
assumptions are assessed and revised as appropriate. When the
a cash outflow and would not immediately affect our liquidity.
defined benefit pension plan key assumptions fluctuate significantly
The recoverability of Intangible assets with indefinite lives;
the recoverability of Goodwill
• The carrying values of Intangible assets with indefinite lives and
Goodwill are periodically tested for impairment and this test represents
a significant estimate for us.
• The recoverable amounts of the cash-generating units’ assets
have been determined based on a fair value less costs of disposal
calculation. There is a material degree of uncertainty with respect to
the estimates of the recoverable amounts of the cash-generating
units’ assets, given the necessity of making key economic assumptions
about the future. The fair value less costs of disposal and value-in-
use calculations both use future cash flows and growth projections
(including judgments about the allocation of future capital expenditures
supporting both wireless and wireline operations); associated eco-
nomic risk assumptions and estimates of the likelihood of achieving
key operating metrics and drivers; estimates of future generational
infrastructure capital expenditures; and the future weighted average
cost of capital.
• See Note 18(e) of the Consolidated financial statements for further
discussion of methodology and sensitivity testing.
relative to their immediately preceding year-end values, actuarial gains
(losses) arising from such significant fluctuations are recognized on
an interim basis. Assumptions used in determining defined benefit
pension costs, accrued pension benefit obligations and pension plan
assets include life expectancy, discount rates, market estimates and
rates of future compensation increases. Material changes in overall
financial performance and financial statement line items would arise
from reasonably likely changes, because of assumptions that have
been revised to reflect updated historical information and updated
economic conditions, in the material assumptions underlying this
estimate. See Note 15 of the Consolidated financial statements for
further analysis.
• This accounting estimate related to employee defined benefit pension
plans is in respect of components of the Operating expenses line
item, Financing costs line item and Other comprehensive income line
item on our Consolidated statements of income and other compre-
hensive income. If the future were to adversely differ from our best
estimate of assumptions used in determining defined benefit pension
costs, accrued benefit obligations and pension plan assets, we could
experience future increased (or decreased) defined benefit pension
expense, financing costs and charges to Other comprehensive income.
TELUS 2017 ANNUAL REPORT • 79
Income tax assets and liabilities
The amount and composition of income tax assets and income
tax liabilities, including the amount of unrecognized tax benefits
• Assumptions underlying the composition of income tax assets
and liabilities are based upon an assessment of the technical merits
of tax positions. Income tax benefits on uncertain tax positions
are recognized only when it is more likely than not that the ultimate
determination of the tax treatment of a position will result in the
related benefit being realizable. Income tax assets and liabilities are
measured at the amount that is expected to be realized or incurred
upon ultimate settlement with taxation authorities. Such assessments
are based upon the applicable income tax legislation, regulations,
interpretations and jurisprudence, all of which in turn are subject to
change and interpretation.
• Current income tax assets and liabilities are estimated based upon
the amount of income tax that is calculated as being owed to taxation
authorities, net of periodic instalment payments. Deferred income
tax liabilities are composed of the tax effect of temporary differences
between the carrying amount and tax basis of assets and liabilities,
as well as the income tax effect of undeducted income tax losses.
The timing of the reversal of temporary differences is estimated and
the income tax rate substantively enacted for the periods of reversal
is applied to the temporary differences. The carrying amounts
of assets and liabilities are based upon the amounts recorded in
the financial statements and are, therefore, subject to accounting
estimates that are inherent in those balances. The tax basis of
assets and liabilities, as well as the amount of undeducted income
obligations result from the acquisition, construction, development
and/or normal operation of the assets. The obligations are measured
initially at fair value, determined using present value methodology,
and the resulting costs are capitalized as a part of the carrying value
of the related asset.
• On an annual basis, at a minimum, assumptions underlying
the provisions for asset retirement obligations include expectations,
which may span numerous decades, about inflation, discount
rates and any changes in the amount or timing of the underlying
future cash flows. Material changes in financial position would
arise from reasonably likely changes, because of assumptions that
have been revised to reflect updated historical information and
updated economic conditions, in the material assumptions underlying
this estimate. The capitalized asset retirement cost is depreciated
on the same basis as the related asset, and the discount accretion
is included in the Consolidated statements of income and other
comprehensive income as a component of Financing costs.
• This accounting estimate is in respect of the asset retirement obli-
gations component of the Provisions line item on our Consolidated
statements of financial position, and this component comprises
approximately 1% of Total liabilities and owners’ equity as at
December 31, 2017 and 2016. If the provisions for asset retirement
obligations were to be inadequate, we could experience a charge
to Goods and services purchased in the future. A charge for
an inadequate asset retirement obligation provision would result
in a cash outflow proximate to the time that the asset retirement
obligation is satisfied.
tax losses, are based upon the assessment and measurement
Provisions related to business combinations
of tax positions, as noted above. Assumptions as to the timing
of reversal of temporary differences include expectations about
the future results of operations and future cash flows. The com-
position of income tax liabilities is reasonably likely to change from
period to period because of changes in the estimation of these
significant uncertainties.
• This accounting estimate is in respect of material asset and liability
line items on our Consolidated statements of financial position
comprising less than 1% of Total assets as at December 31, 2017
and 2016, and approximately 9% of Total liabilities and owners’
equity as at December 31, 2017 (8% as at December 31, 2016).
If the future were to adversely differ from our best estimate of the
likelihood of tax positions being sustained, the amount of tax
expected to be incurred, the future results of operations, the timing
of reversal of deductible temporary differences and taxable temporary
differences, and the tax rates applicable to future years, we could
experience material current income tax adjustments and deferred
income tax adjustments. Such current and deferred income
tax adjustments could result in an increase or acceleration of cash
outflows at an earlier time than might otherwise be expected.
Provisions for asset retirement obligations
Certain economic assumptions used in provisioning
for asset retirement obligations
• Asset retirement obligation provisions are recognized for statutory,
contractual or legal obligations, normally when incurred, associated
with the retirement of Property, plant and equipment (primarily certain
items of outside plant and wireless site equipment) when those
Provisions for written put options
•
In connection with certain business acquisitions, we have estab-
lished provisions for written put options in respect of non-controlling
interests. We provide written put options to the remaining selling
shareholders whereby they could put the remaining non-controlling
interests at, or after, a specified date. The acquisition-date fair values
of the puttable shares held by the non-controlling shareholders are
recorded as provisions.
• On an annual basis, at a minimum, the provisions for written put
options are assessed and revised as appropriate. The provisions for
written put options have been determined based on the net present
values of estimated future earnings results; there is a material degree
of uncertainty with respect to the estimates of future earnings results
given the necessity of making key economic assumptions about the
future. The amount of provisions for written put options are reasonably
likely to change from period to period because of changes in the
estimation of future earnings.
• This accounting estimate is in respect of the provisions for written
put options in respect of non-controlling interests component of
the Provisions line item on our Consolidated statements of financial
position, and this component comprises less than 1% of Total
liabilities and owners’ equity as at December 31, 2017, and NIL as
at December 31, 2016. If the provisions for written put options were
to be inadequate, we could experience a charge to Operating
Revenues in the future. A charge for an inadequate written put option
provision would result in a cash outflow proximate to the time that
the written put option is exercised.
80 • TELUS 2017 ANNUAL REPORT
MD&A: ACCOUNTING MATTERS
Investments
The recoverability of long-term investments
• We assess the recoverability of our long-term investments on a regular,
recurring basis. The recoverability of investments is assessed on a
specific-identification basis, taking into consideration expectations
about future performance of the investments and comparison of
historical results to past expectations.
• The most significant assumptions underlying the recoverability of
long-term investments are related to the achievement of future cash
flow and operating expectations. Our estimate of the recoverability
of long-term investments could change from period to period due to
the recurring nature of the recoverability assessment and due to
the nature of long-term investments (we do not control the investees).
•
Investments are included in the Other long-term assets line item
on our Consolidated statements of financial position, which itself
comprises approximately 1% of Total assets as at December 31, 2017
(2% as at December 31, 2016). If the allowance for recoverability
• Assumptions underlying the allowance for inventory obsolescence
include future sales trends and offerings and the expected inventory
requirements and inventory composition necessary to support
these future offerings. Our estimate of the allowance for inventory
obsolescence could materially change from period to period due
to changes in product offerings and the level of consumer acceptance
of those products.
• This accounting estimate is in respect of the Inventories line item on
our Consolidated statements of financial position, which comprises
approximately 1% of Total assets as at December 31, 2017 and 2016.
If the allowance for inventory obsolescence were to be inadequate,
we could experience a charge to Goods and services purchased in
the future. Such an inventory obsolescence charge does not result
in a cash outflow.
8.2 Accounting policy developments
of long-term investments were to be inadequate, we could experi-
IFRS 9, Financial Instruments
ence an increased charge to Other operating income in the future.
IFRS 9, Financial Instruments, is required to be applied for years
Such a provision for recoverability of long-term investments does
beginning on or after January 1, 2018, with retrospective application.
not result in a cash outflow. When there is clear and objective
The new standard includes a model for the classification and measure-
evidence of an increase in the fair value of an investment, which
ment of financial instruments, a single forward-looking “expected loss”
may be indicated by either a recent sale of shares by another current
impairment model and a reformed approach to hedge accounting.
investor or the injection of new cash into the entity from a new or
We will make an accounting policy choice relative to impairment, and
existing investor, we recognize the after-tax increase in value in Other
will be using the lifetime expected credit loss approach. Based upon
comprehensive income (change in unrealized fair value of available-
current facts and circumstances, we do not expect our financial
for-sale financial assets).
Accounts receivable
General
• When determining our allowance for doubtful accounts, we consider
the business area that gave rise to the Accounts receivable, conduct
a statistical analysis of portfolio delinquency trends and perform
specific account identification.
• These accounting estimates are in respect of the Accounts receivable
line item on our Consolidated statements of financial position, which
comprises approximately 5% of Total assets as at December 31, 2017
and 2016. If the future were to differ adversely from our best estimates
of the fair value of the residual cash flows and the allowance for
doubtful accounts, we could experience an increase in the doubtful
accounts expense in the future. Such doubtful accounts expense
in and of itself does not result in a cash outflow.
performance or disclosure to be materially affected by the application
of the standard.
IFRS 15, Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, is required to be
applied for years beginning on or after January 1, 2018, such date
reflecting the one-year deferral approved by the International Accounting
Standards Board (IASB) on July 22, 2015; we are retrospectively
applying the new standard effective January 1, 2018. The IASB and
the Financial Accounting Standards Board of the United States
worked on this joint project to clarify the principles for the recognition
of revenue. The new standard was released in May 2014 and super-
sedes existing standards and interpretations, including IAS 18, Revenue.
In April 2016, the IASB issued Clarifications to IFRS 15, Revenue from
Contracts with Customers, clarifying application of some of the more
complex aspects of the standard.
The effects of the new standard and the materiality of those effects
The allowance for doubtful accounts
• The estimate of our allowance for doubtful accounts could materially
will vary by industry and entity. Like many other telecommunications
companies, we are materially affected by its application, as set out in
change from period to period due to the allowance being a function of
the balance and composition of Accounts receivable, which can vary
Note 2(c) of the Consolidated financial statements, primarily in respect
of the timing of revenue recognition, the classification of revenues,
on a month-to-month basis. The variability of the balance of Accounts
and the capitalization of costs of obtaining a contract with a customer
receivable arises from the variability of the amount and composition
(as defined by the new standard).
of Operating revenues and from the variability of Accounts receivable
collection performance.
Inventories
The allowance for inventory obsolescence
• We determine our allowance for inventory obsolescence based upon
expected inventory turnover, inventory aging, and current and future
expectations with respect to product offerings.
Revenue – timing of recognition; classification
The timing of revenue recognition and the classification of revenues
as either service revenues or equipment revenues will be affected,
since the allocation of consideration in multiple element arrangements
(solutions for our customers that may involve deliveries of multiple
services and products that occur at different points in time and/or
over different periods of time) will no longer be affected by the current
limitation cap methodology.
TELUS 2017 ANNUAL REPORT • 81
The effects of the timing of revenue recognition and the classification
of revenue are expected to be most pronounced in our wireless results.
Although the measurement of the total revenue recognized over the
life of a contract will be largely unaffected by the new standard, the pro-
hibition of the use of the limitation cap methodology will accelerate the
recognition of total contract revenue, relative to both the associated cash
inflows from customers and our current practice (using the limitation cap
methodology). The acceleration of the recognition of contract revenue
relative to the associated cash inflows will also result in the recognition
of an amount reflecting the resulting difference as a contract asset.
Although the underlying transaction economics would not differ, during
periods of sustained growth in the number of wireless subscriber con-
nection additions, assuming comparable contract-lifetime per unit cash
inflows, revenues would appear to be greater than under the current
practice (using the limitation cap methodology). Wireline results arising
from transactions that include the initial provision of subsidized equipment
or promotional pricing plans will be similarly affected.
Costs of contract acquisition; costs of contract fulfilment –
timing of recognition
Similarly, the measurement of the total costs of contract acquisition and
contract fulfilment over the life of a contract will be unaffected by the new
standard, but the timing of recognition will be. The new standard will result
in our wireless and wireline costs of contract acquisition and contract
fulfilment, to the extent that they are material, being capitalized and subse-
quently recognized as an expense over the life of a contract on a rational,
systematic basis consistent with the pattern of the transfer of goods or
services to which the asset relates. Although the underlying transaction
economics would not differ, during periods of sustained growth in the
number of customer connection additions, assuming comparable per unit
costs of contract acquisition and contract fulfilment, absolute profitability
measures would appear to be greater than under the current practice
(immediately expensing such costs).
Implementation
With a view to enhancing the clarity, comparability and utility of our
financial information post-implementation of the standard, we will apply
the standard retrospectively, subject to permitted and elected practical
expedients. We are using the following practical expedients provided for
in, and transitioning to, the new standard:
• No restatement for contracts that were completed as at January 1,
2017, or earlier.
• No restatement for contracts that were modified prior to January 1,
2017. The aggregate effect of all such modifications will be reflected
when identifying satisfied and unsatisfied performance obligations
and the transaction prices to be allocated thereto and when deter-
mining the transaction prices.
• No disclosure of the aggregate transaction prices allocated to the
remaining unfulfilled, or partially unfulfilled, performance obligations
for periods ending prior to January 1, 2018.
For purposes of applying the new standard on an ongoing basis, we are
using the following practical expedients provided for in the new standard:
• No adjustment of the contracted amount of consideration for the
effects of financing components when, at the inception of the contract,
we expect that the effect of the financing component is not significant
at the individual contract level.
• No deferral of contract acquisition costs when the amortization period
for such costs would be one year or less.
• When estimating minimum transaction prices allocated to the
remaining unfulfilled, or partially unfulfilled, performance obligations,
exclusion of amounts arising from contracts originally expected to
have a duration of one year or less, as well as amounts arising from
contracts in which we may recognize and bill revenue in an amount
that corresponds directly with our completed performance obligations.
For purposes of applying the new standard on an ongoing basis, we
must also make incremental judgments in respect of the new standard:
In respect of revenue-generating transactions, we must make
•
judgments about how to determine the transaction prices and how
to allocate those amounts among the associated performance
obligations. It is our judgment that, where applicable, it is most appro-
priate to use a contract’s minimum transaction price (the “minimum
spend” amount required in a contract with a customer) as the
contract’s transaction price as it best reflects the enforceable rights
and obligations of the contract. The contract’s transaction price is
allocated based upon the stand-alone selling prices of the contracted
equipment and services included in the minimum transaction price.
• We compensate third-party re-sellers and our employees for gener-
ating revenues, and we must exercise judgment as to whether such
sales-based compensation amounts are costs incurred to obtain
contracts with customers that should be capitalized. We believe that
compensation amounts tangentially attributable to obtaining a contract
with a customer, because the amount of such compensation could
be affected in ways other than simply obtaining that contract, should
be expensed as incurred; compensation amounts directly attributable
to obtaining contracts with customers should be capitalized and
subsequently amortized on a systematic basis, consistent with the
satisfaction of our associated performance obligations.
Judgment must also be exercised in the capitalization of costs incurred to
fulfill revenue-generating contracts with customers. Such fulfilment costs
are those incurred to set up, activate or otherwise implement access to, or
usage of, our telecommunications infrastructure that would not otherwise
be capitalized as property, plant and equipment and intangible assets.
IFRS 16, Leases
In January 2016, the IASB released IFRS 16, Leases, which is required
to be applied for years beginning on or after January 1, 2019, and which
supersedes IAS 17, Leases. We are currently assessing the impacts and
transition provisions of the new standard; however, we are currently
considering applying the new standard retrospectively, effective
January 1, 2019. The IASB and the Financial Accounting Standards
Board of the United States worked together to modify the accounting
for leases, generally by eliminating lessees’ classification of leases as
either operating leases or finance leases and, for IFRS-IASB, introducing
a single lessee accounting model.
The most significant effect of the new standard will be the lessee’s
recognition of the initial present value of unavoidable future lease payments
as lease assets and lease liabilities on the statement of financial position,
including those for most leases that would be currently accounted for as
operating leases. Both leases with durations of 12 months or less and
leases for low-value assets may be exempted.
The measurement of the total lease expense over the term of a lease
will be unaffected by the new standard. However, the new standard will
result in the timing of lease expense recognition being accelerated for
leases which would currently be accounted for as operating leases; the
IASB expects that this effect may be muted by a lessee having a portfolio
of leases with varying maturities and lengths of term, and we expect that
82 • TELUS 2017 ANNUAL REPORT
MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS
we will be similarly affected. The presentation on the statement of income
and other comprehensive income required by the new standard will
result in most non-executory lease expenses being presented as amor-
tization of lease assets and financing costs arising from lease liabilities,
rather than as a part of goods and services purchased; reported operating
income would thus be higher under the new standard.
Relative to the results of applying the current standard, although the
actual cash flows will be unaffected, the lessee’s statement of cash flows
will reflect increases in cash flows from operating activities offset equally
by decreases in cash flows from financing activities. This is the result of
the payments of the “principal” component of leases that would currently
be accounted for as operating leases being presented as a cash flow
use within financing activities under the new standard.
Implementation
As a transitional practical expedient permitted by the new standard, we
do not expect to reassess whether contracts are, or contain, leases as at
January 1, 2019, using the criteria of the new standard; as at January 1,
2019, only contracts that were previously identified as leases applying
IAS 17, Leases and IFRIC 4, Determining whether an Arrangement con-
tains a Lease, will be a part of the transition to the new standard. Only
contracts entered into (or changed) after January 1, 2019, will be assessed
for being, or containing, leases using the criteria of the new standard.
Other issued standards
Other issued standards required to be applied for periods beginning on
or after January 1, 2018, are expected to have no significant effect on our
financial performance or disclosure.
9 General trends, outlook and assumptions
This section contains forward-looking statements, which should be read
together with the Caution regarding forward-looking statements at the
beginning of this MD&A.
9.1 Telecommunications industry in 2017
We estimate that Canadian telecommunications industry revenues
(including TV and excluding media) grew by approximately 3% to approx-
imately $62 billion in 2017. Wireless and data services continue to drive
ongoing industry growth. Consumer communication and entertainment
consumption behaviours continue to demonstrate a strong preference
for data-rich applications and data-intensive smartphones and tablets.
TELUS’ revenues of $13.3 billion represented approximately 21%
of industry revenues, with wireless products and services representing
57% of our total revenues. In our wireline business, growth in high-speed
Internet access, enhanced data, TV and business process outsourcing
services has more than offset the decline in demand for legacy services.
Wireless
Based on publicly reported results and estimates, in 2017, the Canadian
wireless industry experienced network revenue growth of approximately
7% and EBITDA growth of approximately 7%. TELUS wireless network
revenue growth was 6.5%, and TELUS wireless Adjusted EBITDA
grew by 5.2%.
We estimate that the Canadian wireless industry added approximately
1.3 million new subscriber units in 2017, compared to approximately
one million in 2016. This was supported by immigration and population
growth; the trend toward multiple devices, including tablets; the expanding
functionality of data and related applications; and mobile adoption by both
younger and older generations. The wireless penetration rate increased
to approximately 86% in Canada, with further increases in penetration
expected to continue in 2018. By comparison, the wireless penetration rate
in the U.S. is well over 100%, while in Europe and Asia it is even higher,
suggesting an opportunity for continued growth in Canada.
In 2017, the wireless market was characterized by heightened retention
and acquisition activity and the associated high costs of device subsidies
on two-year contracts, a heightened level of competitive intensity,
and the continued adoption of higher-value, data-centric smartphones.
While higher handset costs, increased subsidies and the frequency of
customer device upgrades put pressure on industry margins, adoption
of the latest smartphones generally has a positive impact on average
revenue per subscriber unit per month (ARPU) and churn rates. Blended
ARPU also continues to increase as data consumption on 4G LTE and
LTE advanced (LTE-A) devices and networks rises, and as consumers
continue to adopt higher bucket and shared family data plans, as well as
Premium Plus rate plans, which offer higher device subsidies upfront for
a higher recurring monthly fee.
The Canadian wireless industry continues to be highly competitive and
capital-intensive. In March, BCE acquired Manitoba Telecom Services
(MTS). At the same time, TELUS acquired a portion of MTS’ postpaid
wireless subscribers and dealer locations in Manitoba. Both companies
committed to incremental investments in the province of Manitoba. TELUS
has invested more than $70 million in Manitoba over the past two years.
In June, Shaw Communications announced the divestiture of its
U.S. call centre subsidiary, and used a portion of the proceeds to fund
the acquisition of the 700MHz and 2500 MHz spectrum licences from
Quebecor Media Inc. Shaw’s Freedom Mobile has since focused on the
build-out of an urban LTE network in major cities in Alberta, B.C. and
Ontario. Shaw reached an agreement with Apple Inc. enabling it to offer
iPhone products beginning in December 2017. Shaw’s re-farming of
AWS-1 spectrum and deployment of 2,500 MHz spectrum is expected
to be completed in 2018, and will make older smartphone versions
(iPhones and Galaxy) compatible with Freedom’s LTE network.
Wireline
Canada’s four major cable-TV companies had an estimated base of
approximately 4 million telephony subscribers at the end of 2017. This
represents a national consumer market share of approximately 42%, up
from approximately 40% in 2016. Other non-facilities-based competitors
also offer local and long distance voice over IP (VoIP) services and resell
high-speed Internet solutions. This competition, along with technological
substitution to wireless services, continues to erode the number of
residential network access lines and associated local and long distance
revenues, as expected.
TELUS 2017 ANNUAL REPORT • 83
Although the consumer high-speed Internet market is maturing,
with a penetration rate of approximately 85% in Western Canada and
83% across Canada, subscriber growth is expected to continue over the
coming years. The four major cable-TV companies had an estimated
6.7 million Internet subscribers at the end of 2017 (50% market share), up
3% from approximately 6.5 million at the end of 2016. Telecommunications
companies had approximately 6.5 million Internet subscribers (48% market
share), up 3% from approximately 6.3 million at the end of 2016. We con-
tinue to make moderate market share gains, due to the expansion of our
fibre-optic network and the pull-through of subscribers from our IP-based
TELUS TV service.
While Canadians still watch traditional TV, digital platforms are playing
an increasingly important role in the broadcasting industry. Popular
online video services are providing Canadians with more choice about
where, when and how to access their video content. In 2017, Canadian
IP TV pro viders increased their subscriber base by an estimated 6% to
2.7 mil lion through expanded network coverage, enhanced differentiated
service offerings, and marketing and promotions focused on IP TV.
Despite this IP TV growth, combined cable-TV and satellite-TV subscriber
penetration was flat. We estimate that the four major cable-TV com-
panies have approximately 5.8 million TV subscribers or a 52% market
share, consistent with 52% at the end of 2016. The balance of industry
subscribers were served by satellite-TV and regional providers.
In 2017, our primary Western Canadian cable-TV competitor, Shaw
Communications, launched BlueSky TV, based on Comcast’s X1 TV
platform, offered alongside larger Internet data plans introduced in the
second half of 2016. Both Rogers and Quebecor have announced their
intention to adopt the Comcast X1 TV platform in 2018. Our IP-based
Optik TV platform continues to have numerous service leadership
advantages over this cable platform, including: flexible pricing, plans and
packaging available to all customers; picture clarity and quality; content
depth and breadth, including 4K content, as well as more HD, video
on demand, sports, multicultural and OTT content, such as 4K Netflix
and the latest YouTube app, that can be paired with a smartphone or
tablet to allow casting; and the number of ways customers can access
content, including wireless set-top boxes, Restart TV, higher capacity
PVR and Optik TV on the go with two times the number of live TV
channels compared to our cable competitor.
9.2 Telecommunications industry
general outlook and trends
Wireless
Wireless growth continues to be driven by increasing data usage and
adoption, including: higher-value smartphones, shared family data plans
and tablets, as well as growth in machine-to-machine (M2M) devices and
the Internet of Things (IoT). In addition, consumers continue to replace
wireline access with wireless access and related data services. These
trends are expected to continue to increase the demand for wireless data
for the foreseeable future. Industry ARPU growth is expected to continue,
although perhaps at a more modest rate.
While LTE and LTE-A technologies increase download speeds,
encourage data usage and improve the customer experience, increasing
data traffic demands pose challenges to wireless networks. (See High
demand for data challenges wireless networks and may be accompanied
by increases in delivery cost in Section 10.3 Technology.)
M2M and IoT technologies connect communications-enabled remote
devices via wireless networks, allowing them to exchange key information
and processes. Advanced platforms and networks are already in place
in industries such as utilities, agriculture and fleet management, with
deployment ongoing in other industries such as vehicle insurance, retail,
food services, consumer utilities and healthcare. These and other indus-
tries are looking to IoT, combined with other applications, to drive value
from their connections. IoT represents a meaningful opportunity for
growth in mobility products and services in terms of secure connectivity,
customer value and efficiency. While M2M applications generally have
lower ARPU, they tend to generate high service volumes with low or no
subsidy costs, thereby supporting both revenue growth and margins.
Digital identity is the common enabler for online service delivery and a
driver of Canada’s digital economy. TELUS is taking a leadership position
in this space, facilitating a user-centric, private and secure experience.
5G has begun to play a mainstream role in technology evolution and
innovation globally. Investing in 5G will drive capex savings by allowing us
to provide high-speed Internet services over wireless in less urban areas,
as well as improved cost savings and innovative services in industrial
automation, transportation and telehealth. Driven by significantly faster
speeds, lower latencies, improved reliability and attractive economics,
5G will enable a host of new applications: for industries, remote operations,
industrial control, and manufacturing automation; for consumers, home
automation, autonomous vehicles, as well as wireless to the home con-
nectivity with speeds comparable to wired networks; and for healthcare,
converged solutions for hospitals, clinics and remote patient monitoring.
5G is essential to Canada’s digital future and is expected to generate sig-
nificant innovation, growth and productivity. Therefore, TELUS is requesting
Innovation, Science and Economic Development Canada (ISED) and other
policy makers to launch consultations as soon as possible on 3.5 GHz
and mmWave spectrum so that Canada does not risk missing the early
deployment of the next major technological evolution. Current trials show
that mmWave delivers the richest 5G experience, albeit in a localized
fashion, whereas 3.5 GHz is key for broader 5G coverage. TELUS main-
tains the world’s fastest 5G network trial speed, at just under 30 Gbps.
Wireline
The traditional wireline telecommunications market is expected to remain
very competitive in 2018 as technology substitution – such as the broad
deployment of higher-speed Internet; the use of email, messaging and
social media as alternatives to voice services; and the growth of wireless
and VoIP services – continues to replace higher-margin legacy voice
revenues. In our traditional operating areas of B.C. and Alberta, it is
estimated that 45% of households no longer have a fixed line and 26%
of households no longer have a broadcast TV service. Although we
are a key provider of these substitution services, the decline in this legacy
business continues as anticipated. Our long-standing growth strategy
remains focused on wireless, data and IP-centric wireline capabilities.
The popularity of viewing TV and on-demand content anywhere,
particularly on handheld devices, is expected to continue to grow as
customers adopt services that enable them to view content on multiple
screens. Streaming media providers continue to enhance over-the-top
(OTT) streaming services in order to compete for a share of viewership
in response to evolving viewing habits and consumer demand. Studies
suggest that 41% of Canadian households had a subscription to Netflix
at the end of 2017. Amazon Prime video streaming service launched
in Canada in late 2016, and other streaming TV services are expected
to follow with service launches in Canada.
84 • TELUS 2017 ANNUAL REPORT
TV providers are monitoring OTT developments and evolving their
content and market strategy to compete with these non-traditional
offerings. Bell Media offers a content streaming service through Crave
TV. We view OTT as an opportunity to add increased capabilities to our
linear and on-demand assets, provide customers with flexible options
to choose the content they want and encourage greater customer use
of the TELUS high-speed Internet and wireless networks. We continue
to enhance our Optik TV service with additional content and capabilities,
including ultra-high-definition 4K content, multi-cultural content and dis-
tribution deals with OTT content providers such as Netflix and Crave TV.
In April, TELUS launched a new OTT-friendly basic TV offering called
Pik TV, which allows customers to access live TV and streaming apps
like Netflix and YouTube, flexibly and affordably, through a self-install
media box.
Telecommunications companies continue to make significant capital
investments in broadband networks, with a focus on fibre to the premises
or home (FTTP/FTTH) to maintain and enhance their ability to support
enhanced IP-based services and higher broadband speeds. Cable-TV
companies continue to evolve their cable networks with the gradual
roll-out of the DOCSIS 3.1 platform. Although this platform increases
speed in the near term and is cost-efficient, it does not offer the same
advanced capabilities as FTTP over the longer term. Our Optik TV
capable footprint covers more than 3 million households and businesses,
with approximately 93% having access to speeds of at least 50 Mbps,
enabling us to deliver a better customer experience. In addition, at the
end of 2017, our fibre-optic network was available to approximately
1.44 million homes and businesses. Advances in LTE wireless technology
and our extensive LTE network also increas ingly allow us to target
otherwise underserved areas with a fixed wireless solution.
Combining wireline local and long distance voice services with
wireless and high-speed Internet access and entertainment services,
telecommunications companies are focused on offering bundled
products to achieve competitive differentiation and provide customers
with more flexibility and choice on networks that can reliably support
these services. Our broadband investments, including the build-out
of our FTTP broadband network, our premium differentiated IP-based
Optik TV service and integrated bundled service offerings, continue to
enhance our competitive position and customer loyalty relative to our
main cable-TV competitor.
As the industry moves to 5G wireless in the coming years, we expect
to be operating on, and providing services over, a more converged net-
work. The lines between wireline and wireless will continue to blur based
on how we deliver services to customers and how customers use those
services. As our broadband network continues to expand and 5G begins
to be commercialized in the coming years, we expect to benefit from the
flexibility of determining the most efficient way to deliver services across
our footprint. We do not expect to have to build fibre to every home,
but rather we believe that there will be options to support parts of our
broadband footprint wirelessly with 5G.
TELUS is also a member of the Canadian Digital Supercluster and
the Smart Agri-food Supercluster consortiums that have been shortlisted
to phase two of the application process for funding through the federal
government’s Innovation Superclusters Initiative. The mission of the
Supercluster consortiums with which we are involved is to leverage the
power of data collection, analysis and visualization in order to realize
innovations that deliver economic growth, new skilled jobs and improved
health, social and environmental outcomes that benefit Canadians from
coast to coast to coast.
MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS
Additional wireline capabilities
In the business market (enterprise and small and medium-sized
businesses, or SMB), the convergence of IT and telecommunications,
facilitated by the ubiquity of IP, continues to shape the competitive
environment, with non-traditional providers increasingly blurring the lines
of competition and business models. Cable-TV companies continue to
make investments to better compete in the highly contested SMB space.
Telecommunications companies like TELUS are providing network-centric
managed applications that leverage their significant FTTP investments,
while IT service providers are bundling network connectivity with their
proprietary software as service offerings.
The development of IP-based platforms providing combined IP
voice, data and video solutions creates potential cost efficiencies that
compensate, in part, for the loss of margins resulting from the migration
from legacy to IP-based services. New opportunities exist for integrated
solutions and business process outsourcing that could have a greater
business impact than traditional telecommunications services. Data sec-
urity represents both a challenge and an opportunity for TELUS to provide
customers with our data security solutions. Increasingly, businesses are
looking to partner with their communications service provider to address
their business goals and challenges, and to tailor cloud-based solutions
for their needs that leverage telecommunications in ways not imagined
10 years ago. Cloud computing is changing service delivery to always-on
and everything-as-a-service, and strong growth is expected in this area.
TELUS offers Network as a Service capabilities that provide businesses
the option of an IT network as a service over the Internet, mirrored
across multiple locations, based on a self-serve platform that reduces
deployment cycles and reliance on IT specialists.
Healthcare is expected to be a growth area in future years, based
on an aging population in Canada, an increasing emphasis on chronic
disease management, and the potential benefits that technology can
deliver in terms of efficiency and effectiveness within the sector. We are
leveraging our expanding broadband network to increase the availability,
integration and effectiveness of our innovative tools and applications
across the primary care ecosystem in order to position ourselves to com-
pete for the anticipated future growth in this sector. These tools include
personal health records to facilitate self-management of healthcare
data, electronic drug prescriptions with online insurance validation by
the physician, and home health monitoring devices and data capture
with caregiver oversight. The digitization of everyday functions in the
healthcare ecosystem, combined with broadband network connectivity,
provides an open platform that can support the development and delivery
of even more advanced health applications. Our home health monitoring
is being implemented in B.C. following a successful pilot which demon-
strated reductions in hospitalizations, positive patient experiences and
significant cost reductions. Pharma Space®, our online pharmacy service
that helps patients manage their prescriptions through features like sched-
uling online reminders and automatic refills, is now being accessed by
more than 300,000 customers. In 2017, TELUS commenced a partnership
with Canada Health Infoway to develop and administer PrescribeIT, an
open, national e-prescribing service. Our acquisition of Kroll Computer
Systems enhanced geographic reach, expertise and the quality of our
product offering as a national pharmacy management services provider.
In 2017, we also launched MedDialog, a national clinical solution that allows
doctors to communicate electronically with other physicians regarding
care of their patients directly from their electronic medical records.
TELUS International (TI), our leading global business process and
information technology (IT) outsourcing provider, continues its expansion
TELUS 2017 ANNUAL REPORT • 85
through organic growth and strategic acquisitions (see Section 1.3
Highlights of 2017 for further details). From our successful inception
12 years ago in the Philippines, established to support TELUS’ growing
customer service needs, TI has grown exponentially in size, scope
and geographic diversity to deliver exceptional customer experiences
for some of the world’s most iconic brands from sites in North and
Central America, Europe and Asia. Notably, the acquisition of Xavient
Information Systems, a global IT consulting and next-generation software
services company, accelerates TI’s ability to expand its global IT services
offering with the addition of advanced, next-generation IT consulting
and delivery capabilities, including Artificial Intelligence (AI)-powered
Digital Transformation services, User Interface/User Experience (UI/UX)
design, Open Source Platform services, Cloud services, OTT solutions,
IoT, Big Data services, DevOps, and IT Lifecycle services, in order to
provide a more comprehensive suite of services to existing and pro-
spective clients. TI strengthens TELUS’ ability to provide global clients
with leading, differentiated services that align with our top priority of
delivering the best customer experience to all our customers.
As technology in our industry continues to change rapidly and cus-
tomer demand continues to grow, and as Canada evolves toward a more
digital economy, we are committed to evolving our business to offer innov-
ative and reliable services and thought leadership in core future growth
areas that are complementary to our traditional business. This – along
with our intense focus on leadership in delivering an enhanced customer
experience – positions us for continued differ entiation and growth.
9.3 TELUS assumptions for 2018
In 2018, we expect growth in both wireless and wireline EBITDA,
driven by the continued high demand for data services and high-speed
Internet access in our wireless and wireline products and services; our
consistent strategic focus on our core wireless and wireline capabilities
(see Section 2.2 Strategic imperatives, Section 3 Corporate Priorities and
Section 4 Capabilities); significant ongoing investments in our leading
broadband networks; continued efforts to enhance operational efficiency;
and our sustained focus on an enhanced customer experience across
all areas of our operations.
Our assumptions in support of our 2018 outlook are generally based
on the industry analysis above, including our estimates regarding eco-
nomic and telecom industry growth (see Section 1.2 The environment in
which we operate), as well as our 2017 results and trends discussed in
Section 5. Our key assumptions include the following:
• Slightly slower rate of economic growth in Canada in 2018, estimated
to be 2.2% (3.1% in 2017). For our incumbent local exchange carrier
(ILEC) provinces in Western Canada, we estimate that economic
growth in B.C. will be 2.5% in 2018 (3.4% in 2017), and that economic
growth in Alberta will be 2.4% in 2018 (3.9% in 2017).
• No material adverse regulatory rulings or government actions.
• Continued intense wireless and wireline competition in both consumer
and business markets.
• An increase in wireless industry penetration of the Canadian market.
• Ongoing subscriber adoption of, and upgrades to, data-intensive smart-
phones, as customers want more mobile connectivity to the Internet.
• Wireless revenue growth resulting from growth in both postpaid
subscriber loading and blended ARPU.
• Continued pressure on wireless acquisition and retention expenses,
dependent on gross loading and customer renewal volumes,
competitive intensity and customer preferences.
• Continued growth in wireline data revenue, resulting from an increase
in high-speed Internet and TELUS TV subscribers, speed upgrades
and expanding broadband infrastructure, as well as business
outsourcing and healthcare solutions.
• Continued erosion of wireline voice revenue, resulting from techno-
logical substitution and greater use of inclusive long distance and
lower wholesale volumes.
• Continued focus on our customers first initiatives and maintaining
our customers’ likelihood-to-recommend scores.
• Employee defined benefit pension plans: Pension plan expense
of approximately $97 million recorded in Employee benefits expense
and approximately $14 million recorded in employee defined benefit
pension plans net interest in Financing costs; a 3.40% rate for dis-
counting the obligation and a 3.50% rate for current service costs for
employee defined benefit pension plan accounting purposes; and
defined benefit pension plan funding of approximately $50 million.
• Restructuring and other costs of approximately $135 million for
continuing operational effectiveness initiatives, with margin enhance-
ment initiatives to mitigate pressures related to intense competition,
technological substitution, repricing of our services, increasing sub-
scriber growth and retention costs, and integration costs associated
with the home security customer acquisition.
Income taxes: Income taxes computed at applicable statutory rate
of 26.7 to 27.3% and cash income tax payments of approximately
$170 to $230 million (2017 – $191 million). Cash tax payments are
expected to be relatively consistent with 2017.
•
• Further investments in broadband infrastructure as we approach
nearly 50% of our targeted coverage footprint, including expanding
our fibre-optic network and 4G LTE capacity expansion and upgrades,
as well as investments in network and systems resiliency and reliability.
• No wireless spectrum auctions anticipated in 2018.
• Stabilization in the average Canadian dollar: U.S. dollar exchange rate
(U.S. 77 cents in 2017).
9.4 Telecommunications industry
regulatory developments and
proceedings
Our telecommunications, broadcasting and radiocommunication services
are regulated under federal laws by various authorities, including the
Canadian Radio-television and Telecommunications Commission (CRTC),
Innovation, Science and Economic Development Canada (ISED) and the
Minister of Canadian Heritage.
The following is a summary of certain significant regulatory devel-
opments and proceedings relevant to our business and our industry.
This summary is not intended to be a comprehensive legal analysis and
description of all of the specific issues described. Although we have indi-
cated where we do not currently expect the outcome of a development
or proceeding to be material to us, there can be no assurance that the
expected outcome will occur or that our current assessment of its likely
impact on us will be accurate. See Section 10.4 Regulatory matters.
Radiocommunication licences and spectrum-related matters
ISED regulates, among other matters, the allocation and use of radio
spectrum in Canada and licenses radio apparatus, frequency bands and/
or radio channels within various frequency bands to service providers and
private users. The department also establishes the terms and conditions
attaching to such radio authorizations, including restrictions on licence
86 • TELUS 2017 ANNUAL REPORT
transfers, coverage obligations, research and development obligations,
annual reporting, and obligations concerning mandated roaming and
antenna site sharing with competitors.
600 MHz spectrum repurposing decision released
On August 14, 2015, ISED published Decision on Repurposing the
600 MHz Band, SLPB-004-15. In its decision, ISED announced its inten-
tion to jointly repack the 600 MHz band in line with the U.S. and to adopt
the 70 MHz mobile band plan arising from the Federal Communications
Commission (FCC) Incentive Auction. On August 4, 2017, ISED released a
Consultation on a Technical, Policy and Licensing Framework for Spectrum
in the 600 MHz band that proposed a 30 MHz set aside for facilities-
based operators with less than 10% mobile subscriber market share.
An auction of 600 MHz spectrum in Canada is not expected until
2019 and there is a high risk that the final rules favour certain carriers.
On June 5, 2017, ISED released a Consultation on Releasing
Millimetre Wave Spectrum to Support 5G. It is expected that ISED will
publish its decision on this consultation in 2018 and then consult on
licensing frameworks (i.e. auction rules and conditions of licence) for the
28 GHz and 37–40 GHz bands. There is a risk that any auction rules
favour certain carriers.
On October 6, 2017, ISED released a Consultation on the Spectrum
Outlook 2018– 2022. There is a risk that bands identified as promising
for mobile service are not allocated for mobile service or are delayed in
being allocated.
Regulatory and federal government reviews
The CRTC and the federal government have initiated public proceedings
to review various matters. They are discussed below.
CRTC decision on Review of the Wireless Code
On June 15, 2017, the CRTC issued Review of the Wireless Code,
Telecom Regulatory Policy CRTC 2017-200. The major changes to the
Wireless Code relate to: (i) the removal of unlocking fees and the require-
ment to sell all devices unlocked as of December 1, 2017; (ii) changes to
the bill management features about how the $50 data usage cap and
$100 data roaming cap are calculated and how consent to obtain addi-
tional usage is obtained; and (iii) amendments to the mandated trial
period for customers who obtain a postpaid wireless contract. Changes
to the Wireless Code were to be implemented by December 1, 2017.
On November 16, 2017, TELUS filed an application to the CRTC seeking
an extension to the new bill management requirements to March 31, 2018.
The CRTC has not yet ruled on this request, but we do not expect a sig-
nificant impact on TELUS regardless of whether the extension is granted.
TELUS completed its implementation process for all other requirements
by the December 1, 2017 deadline.
CRTC decision to require pro-rated refunds
On May 5, 2016, the CRTC issued Quebecor Media Inc. – Prohibition
of 30-day cancellation policies – Application regarding pro-rated refunds
for cancelled services, Telecom Decision CRTC 2016-171, in which the
CRTC, among other things, mandated that all service providers are to
provide pro-rated refunds to customers who cancel telecommunications
and broadcasting service contracts. This decision was unexpected, in
that it was contradicted by guidance that TELUS and third parties had
received from CRTC staff following a 2014 CRTC decision regarding
prohibition of a notice period for cancellation of services and in light of
past decisions on the Wireless Code and notice of cancellation policies
that had not mandated pro-rated refunds. The decision impacts billing
systems, with no transition period provided to implement the required
MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS
changes. On July 4, 2016, TELUS filed an application with the CRTC
seeking guidance and clarification that the decision does not apply with
respect to wireless services with a subsidized device, usage-based
services and local telephone service in non-forborne exchanges. TELUS
also requested an extension of time to implement the decision. At the
CRTC’s request, TELUS filed further submissions on August 14, 2017, and
September 5, 2017. The CRTC has yet to issue a decision on this matter.
The potential impact of this decision is not expected to be material.
Wireline wholesale services followup
On July 22, 2015, the CRTC released Review of wholesale wireline services
and associated policies, Telecom Regulatory Policy CRTC 2015-326.
The major component of this decision was that the CRTC ordered the
introduction of a disaggregated wholesale high-speed Internet access
service for ISP competitors. This will include access to FTTP facilities.
This requirement is being phased in geographically beginning in the
largest markets in Ontario and Quebec (i.e. in the serving territories of
Bell Aliant, Bell Canada, Cogeco, Rogers and Videotron). The CRTC
initiated a followup proceeding to determine the technical configurations,
appropriate costs and wholesale cost-based rates in those regions.
The FTTP followup activities directed in Telecom Policy CRTC 2015-326
remain ongoing. Associated tariff and cost study reviews have been com-
pleted for Bell, Rogers, Videotron and Cogeco and a decision is pending.
For the second phase, which involves FTTP wholesale services for the
rest of Canada (including TELUS’ serving territories), a proceeding on
technical configurations commenced in 2017, and the associated cost
study and tariff review will follow. TELUS anticipates no material adverse
impact in the short term from the CRTC’s decision. Given the phased
implementation of the mandated provision of wholesale access to our
FTTP networks, it is too early to determine the impact this decision will
have on TELUS in the longer term. The determination that the provision
of access to unbundled local loops to competitors will no longer be
mandated and will be phased out over a three-year transition period
is not expected to have a material impact on TELUS.
Wireless wholesale services roaming tariffs
On May 5, 2015, the CRTC determined that it would regulate the
wholesale GSM-based domestic roaming rates that TELUS, Rogers and
Bell charge other wireless carriers. Proposed final tariff rates were filed
by TELUS, Rogers and Bell on November 23, 2015, based on the CRTC’s
Phase II costing approach. A decision on the final rates from the CRTC
is pending. Interim rates are currently in place. While TELUS does not
currently expect that the decision will have a negative material impact,
the impact will be assessed once the final wholesale roaming rates have
been approved.
Governor in Council’s order to the CRTC to reconsider wireless
service providers’ wholesale mobile roaming service tariffs
The Governor in Council has ordered the CRTC to reconsider Wholesale
mobile wireless roaming service tariffs – Final terms and conditions,
Telecom Decision CRTC 2017-56. The CRTC has been ordered to recon-
sider whether Wi-Fi networks could be considered as a home network for
service providers seeking mandated roaming. The CRTC’s reconsideration
is to be completed by March 31, 2018. In response to this request, the
CRTC has issued Reconsideration of Telecom Decision 2017-56 regarding
final terms and conditions for wholesale mobile wireless roaming service,
Telecom Notice of Consultation CRTC 2017-259, thereby initiating a
proceeding to review this matter. Subsequent to the Governor in Council’s
order, TNW Wireless Inc. brought an application requesting the CRTC to
TELUS 2017 ANNUAL REPORT • 87
order TELUS and Bell Mobility to each provide wholesale roaming for a
primarily Wi-Fi based service offering. The CRTC will render its decision
in TNC 2017-259 and then consider whether TNW Wireless is entitled
to mandated roaming. The proceeding initiated by TNC 2017-259 is now
complete and a decision is pending from the Commission. It is too early
to determine what impact a decision further to TNC 2017-259 may have
on TELUS. This decision may broaden competition in wireless services
if mandated roaming is allowed. The CRTC has stated that it will not
rule on the TNW application until after it has rendered a decision in the
proceeding initiated by TNC 2017-259.
Phase-out of local service subsidy regime
On April 6, 2017, the CRTC issued Telecom Notice of Consultation
CRTC 2017-92, in which it sought comments on its proposed approach
to the phase-out of the local service subsidy regime and associated
policies. This notice is part of the followup activities resulting from
Modern telecommunications services – The path forward for Canada’s
digital economy, Telecom Regulatory Policy CRTC 2016-496, issued
on December 21, 2016. TELUS continues to have the obligation to
provide local telephone service in all exchanges, which our competitors
do not have. TELUS participated in this proceeding to seek greater pricing
flexibility in regulated high cost exchanges if subsidies are removed and
to ensure that we are compensated for any obligation to serve. TELUS
and other parties filed their final comments in this proceeding on
September 29, 2017. A decision is expected in 2018. It is too early
to determine the potential impact of the proceeding on TELUS.
Development of the CRTC’s new broadband funding regime
On April 25, 2017, the CRTC issued Development of the Commission’s
broadband funding regime, Telecom Notice of Consultation CRTC 2017-112.
This consultation follows on the CRTC’s Modern telecommunications
services decision issued on December 21, 2016, in which the CRTC set
a new universal service objective that included fixed and mobile wireless
broadband Internet access services and stated that it would begin to
shift the focus of its current regulatory frameworks from wireline voice
services to broadband in order to assist in expanding the availability and
adoption of broadband Internet access services. The CRTC also set out
its preliminary views on the establishment of a new broadband funding
mechanism in that decision. In Notice of Consultation 2017-112, the CRTC
called for comments on the various issues pertaining to the establish-
ment of the new broadband funding regime, including governance of the
new fund, operating and accountability frameworks, as well as eligibility
and assessment criteria for proposed projects. The CRTC also sought
comments on its preliminary views on the new broadband fund set out
in Telecom Regulatory Policy 2016-496. TELUS filed its final submission
on December 18, 2017, and is now awaiting the CRTC’s decision.
It is too early to determine the potential impact that this proceeding
may have on TELUS.
9-1-1 networks
On March 29, 2016, the CRTC issued Establishment of a regulatory
framework for next generation 9-1-1 in Canada, Telecom Notice of
Consultation CRTC 2016-116. The CRTC announced this proceeding to
establish a regulatory framework for next generation 9-1-1 services that
will take into account the evolving public safety needs of Canadians,
in that next generation 9-1-1 services will provide access to new and
innovative 9-1-1 capabilities. TELUS participated in an oral hearing phase
of the proceeding in mid-January 2017 and filed its final comments on
January 31, 2017. It is not expected that the CRTC’s review will have a
material impact on TELUS’ operations.
Review of tariffs for aggregated wholesale
high-speed access services
The CRTC is conducting a review of cost studies and rates associated
with aggregated wholesale high-speed access services, which are
services provided by incumbent local exchange carriers (ILECs) and cable
companies on their respective DSL and cable facilities to ISPs, which
then resell high-speed Internet services. Aggregated wholesale services
are expected to be phased out once disaggregated wholesale services
are in place. The review is now complete and a decision from the CRTC
is pending. It is not expected that the outcome of this review will have
a material impact on TELUS.
Broadcasting-related issues
Broadcasting distribution undertaking licences held by TELUS
TELUS’ regional licences to operate broadcasting distribution undertakings
in B.C. and Alberta were granted a series of administrative renewals,
which extended the licence terms to May 31, 2018. TELUS has filed
applications for new broadcasting distribution licences to serve markets
in British Columbia and Alberta that exceed the 20,000 subscriber
threshold for exemption, and a public hearing was held in October 2017
to consider these applications. TELUS’ regional broadcasting distribution
licence to serve Quebec expires in August 2018, and as part of the
renewal process, TELUS has filed an application to return its province-
wide regional licences in favour of operating on an exempt basis in each
of its currently licensed serving areas in Quebec. In July 2014, the CRTC
approved our application for a licence to operate a national pay-per-view
service (scheduled to expire on August 31, 2020). TELUS’ licence to
operate a national video-on-demand service was renewed to August 31,
2023 as part of Broadcasting Decision CRTC 2018-20.
Enforcement of vertical integration framework
In September 2011, the CRTC announced a policy framework to address
concerns relating to the potential incentive for anti-competitive behaviour
by companies that own both programming services and distribution
networks (vertically integrated broadcasting companies). The CRTC sub-
sequently introduced a new code of conduct through amendments to
the various broadcasting regulations and exemption orders. Following the
CRTC’s “Let’s Talk TV” proceeding in 2014, the CRTC further expanded
its ability to deal with anti-competitive conduct by replacing the code of
conduct with a new Wholesale Code that has been made enforceable
by conditions of licence. This new Wholesale Code includes many new
provisions to address abusive practices by vertically integrated broad-
casting companies regarding the carriage of their programming services.
In particular, the new Wholesale Code sets out a list of prohibited conduct
and criteria to determine the fair market value of programming services
in order to ensure that vertically integrated entities are prevented from
artificially inflating the cost of services for their competitors. Bell Canada
was granted leave to appeal the CRTC’s decision relating to the new
Wholesale Code and the appeal was heard at the Federal Court of Appeal
November 14, 2017.
Without timely and strict enforcement of the vertical integration
safeguards, there is a risk that vertically integrated competitors could
unfairly raise programming costs for non-vertically integrated companies
such as TELUS, and/or attempt to withhold content on digital media
platforms, such as Internet and mobile platforms, or otherwise disadvan-
tage us in our ability to attract and retain wireless or Optik TV customers.
See Vertical integration into broadcast content ownership by competitors
in Section 10.2.
88 • TELUS 2017 ANNUAL REPORT
MD&A: RISKS AND RISK MANAGEMENT
Review of Canada’s cultural policies
On September 28, 2017, the Minister of Canadian Heritage announced
a new policy framework for a Creative Canada. This policy framework
focuses on 1) investing in Canadian creators and cultural entrepreneurs;
2) promoting discovery and distribution of Canadian content at home
and globally; and 3) strengthening public broadcasting and support for
local news. The Minister has indicated in her official speech unveiling this
new policy framework that the federal government would not support
any new levy on Internet service providers, similar to the levy on broad-
casting distribution undertakings. As a result, this new policy framework
is not expected to have any negative material impact on TELUS.
Review and modernizing of the Broadcasting Act
and Telecommunications Act
In its budget announcement on March 22, 2017, the federal government
recognized the impact of the digital age on Canada’s media and broad-
casting industries and indicated its intention to review and modernize the
Broadcasting Act and the Telecommunications Act, looking specifically
at issues relating to content creation in the digital age, net neutrality and
cultural diversity. This announcement dovetails with CRTC consultations
regarding distribution models of the future, described below. It is not
expected to have any material negative impact on TELUS.
CRTC ordered to report back to federal government
on distribution models of the future
On September 22, 2017, the Governor-in-Council (federal cabinet) issued
an Order in Council pursuant to section 15 of the Broadcasting Act to
request that the CRTC hold hearings and report on distribution models
of the future and how Canadians will access programming. The deadline
for the CRTC’s report back to the federal government is June 1, 2018.
On October 12, 2017, the CRTC launched a two-phase consultation pro-
cess, which began with a written process on December 1, 2017. TELUS
participated in the first phase, and will participate in the second phase by
the February 13, 2018, deadline. While the CRTC’s report to the federal
government will likely form part of the record for the parallel review of the
Broadcasting Act and Telecommunications Act, it is not expected to have
any negative material impact on TELUS.
Review of the Copyright Act and Copyright Board
The Copyright Act’s mandated five-year review was due in 2017 and
the process for review was announced in December 2017. Hearings are
to be conducted by the Standing Committee for Industry, Science and
Technology, in co-operation with the Standing Committee on Canadian
Heritage, and are expected to begin in early 2018. The policy approach
for copyright has traditionally been based on a balance of interests of
creators and consumers. As a result, changes to the Copyright Act are
not expected to have any negative material impact on TELUS.
North American Free Trade Agreement Negotiations
The Office of the United States Trade Representative has released its sum-
mary of objectives for the renegotiation of the North American Free Trade
Agreement (NAFTA) between Canada, the United States and Mexico. The
United States government has identified a number of items, including trade
in services (including telecommunications services), digital trade in goods
and services and cross-border data flows, intellectual property (including
copyright) and competition policy, among others, as potential items for
negotiation. The Government of Canada has since outlined Canada’s 10
priorities for NAFTA renegotiation, none of which include detailed telecom-
munications or intellectual property objectives. On the issue of cultural
exemptions, the Government of Canada has clearly stated that it is com-
mitted to maintaining the current exemption for the cultural industries found
in NAFTA. NAFTA negotiations have begun and are ongoing. It remains
unclear what issues will be negotiated, the outcome of negotiations, and
the potential impact that the NAFTA negotiations may have on TELUS.
10 Risks and risk management
10.1 Overview
In the normal course of our business activities, we are exposed to both
risks and opportunities. Risk oversight and management processes are
integral elements of our risk governance and strategic planning efforts.
Board risk governance and oversight
We maintain strong risk governance and oversight practices, with
risk oversight responsibilities as outlined in the Board’s and the Board
committees’ terms of reference. The Board is responsible for ensuring
the identification of material risks to our business and overseeing
the implementation of appropriate systems and processes to identify,
monitor and manage material risks.
In addition:
• Risks on the enterprise key risk profile are assigned for Board or
committee oversight
• Board committees provide updates to the Board on risks overseen
by those committees based on their respective terms of reference
• Board or Board committees may request risk briefings by our executive
risk owners. The Vice-President, Risk Management and Chief Internal
Auditor attends and/or receives a summary of these briefings.
Risk governance and culture
We have a strong risk governance culture across TELUS that starts
with clear risk management leadership and transparent communications,
supported by our Board and Executive Leadership Team. Accountability
for the management of risks and reporting of risk information is clearly
defined through our approach to risk governance. Training and awareness
programs, appropriate resources and risk champions help to ensure we
have the risk management competencies necessary to support effective
decision-making across the organization. Ethics are integral to TELUS’
risk governance culture and our code of ethics and conduct directs team
members to meet the highest standards of integrity in business decisions
and actions.
Responsibilities for risk management
We use a multi-step approach to manage risks, with responsibility
shared across the organization. The first line of defence is executive and
operating management, whose members have integrated risk manage-
ment into core decision-making processes (including strategic planning
processes) and day-to-day operations. We have risk management and
compliance functions across the organization, including Finance, Legal,
TELUS 2017 ANNUAL REPORT • 89
Privacy, Security and Business Continuity offices, which form the second
line of defence. These functions work collaboratively with management
to monitor the design and operation of controls. Internal Audit is the
third line of defence and provides independent assurance regarding the
effectiveness and efficiency of risk management and controls across
all aspects of the business.
Definition of business risk
We define business risk as the degree of exposure associated with
the achievement of key strategic, financial, organizational and process
objectives in relation to the effectiveness and efficiency of operations,
the reliability and integrity of financial reporting, compliance with laws,
regulations, policies, procedures and contracts, and safeguarding of
assets within an ethical organizational culture.
Our enterprise risks arise primarily from our business environment
and are fundamentally linked to our strategies and business objectives.
We strive to proactively mitigate our risk exposures through performance
planning, business operational management and risk response strategies,
which can include mitigating, transferring, retaining and/or avoiding risks.
For example, residual exposure for certain risks is mitigated through
insurance coverage, where we judge this to be efficient and commercially
viable. We also mitigate risks through contract terms, as well as through
contingency planning and other risk response strategies, as appropriate.
We strive to avoid taking on undue risk whenever possible and work
to ensure alignment of risks with business strategies, objectives, values
and risk tolerances.
TELUS ENTERPRISE RISK GOVERNANCE AND MANAGEMENT
BOARD OF DIRECTORS
Risk governance and oversight
COMMITTEES
Executive risk
briefings
Board and
committee-
specific oversight
accountabilities
EXECUTIVE LEADERSHIP TEAM
Executive risk ownership and reporting
CEO
CFO
VP Risk
Management
and Chief
Internal Auditor
ENTERPRISE KEY RISK PROFILE
Level 3
Level 2
Level 1
BUSINESS OPERATIONS
AND ACTIVITIES
Risk and control assessment process
We use a three-level enterprise risk and control assessment process that solicits and incorporates the input of team members from all areas of TELUS
and enables us to track multi-year trends in key risks and the control environment across the organization.
THREE-LEVEL ENTERPRISE RISK AND CONTROL ASSESSMENT PROCESS
Level one:
Annual risk and
control assessment
Level two:
Quarterly risk
assessment
Level three:
Granular risk
assessment
Annually, we undertake a comprehensive review that brings together interviews with executive leaders, information from
our ongoing strategic planning process, consideration of recent internal and external audits, SOX (Sarbanes-Oxley Act of
2002) compliance and risk management activities, and an enterprise-wide risk and control environment assessment aligned
with the COSO (Committee of Sponsoring Organizations of the Treadway Commission) enterprise risk management and
internal control integrated frameworks.
The assessment is widely distributed to our leadership team (including all executive vice-presidents and vice-presidents)
and a random sample of management professional team members. More than 1,600 individuals participated in the
assessment in 2017.
Key enterprise risks are identified, defined and prioritized. Risk appetite and effectiveness of risk management integration
are evaluated by risk category and fraud risks are considered. Executive-level risk owners are assigned for each key risk
and Board and committee risk oversight responsibilities are defined in our Board Policy and Terms of Reference.
Board members also complete an annual assessment in which they provide perspectives on our key risks and approach
to enterprise risk management, and gauge our risk appetite by risk category.
Results of the assessments are shared with senior management, our Board of Directors and the Audit Committee
and inform the development of our risk-focused internal audit program, which is approved by the Audit Committee.
Risk assessments are also incorporated into our strategic planning, operational risk management and performance
management processes.
We conduct quarterly risk assessment reviews with our executive-level risk owners and designated risk primes across
all business units to capture and communicate changing business risks, assess perceptions on inherent and residual risk,
identify key risk mitigation activities, and provide quarterly updates and assurance to the Audit Committee and other
applicable Board committees.
We conduct granular risk assessments for specific audit engagements and various risk management, strategic and
operational initiatives (e.g. strategic planning, project and environmental management, safety, business continuity planning,
network and IT vulnerability, and fraud and ethics). The results of the multiple risk assessments are evaluated, prioritized,
updated and integrated into the key risk profile, policies and processes throughout the year.
90 • TELUS 2017 ANNUAL REPORT
Principal risks and uncertainties
The following subsections describe our principal risks and uncertainties
and associated risk mitigation activities. The significance of these risks
is such that they alone or in combination may have material impacts on
our business operations, results, reputation and brand, as well as the
valuation used by investment analysts to evaluate TELUS.
Although we believe the measures taken to mitigate risks described
in each risk section below are reasonable, there can be no expectation
or assurance that they will effectively mitigate or fully address the risks
described or that new developments and risks will not materially affect
our operations or financial results. Forward-looking statements in this
section and elsewhere in this MD&A are based on the assumption that
our risk mitigation measures will be effective. See Caution regarding
forward-looking statements.
10.2 Competition
Customer experience
Our customers’ loyalty and their likelihood to recommend TELUS are
both dependent upon our ability to provide a service experience that
meets or exceeds their expectations. Consequently, if our service experi-
ence or sales practices do not meet or exceed customer expectations,
TELUS’ reputation and brand could suffer, potentially resulting in higher
rates of customer churn. Meanwhile, our profitability could be negatively
impacted should customer net additions decrease and/or the costs to
acquire and retain customers increase.
Risk mitigation: Our top corporate priority is putting customers first and
earning our way to industry leadership in the likelihood to recommend
from our clients. In addition, 55% of our scorecard is weighted to team
member engagement and customer experience. Effective and fair com-
pensation plans are part of achieving high team member engagement
and include measures on how well we serve the customer – through the
eyes of the customer. To enhance the customer experience, we continue
to invest in our products and services, system and network reliability,
team members and system and process improvements. Additionally,
we endeavour to introduce innovative products and services, enhance
our current services with integrated bundled offers and invest in customer-
focused initiatives to bring greater transparency and simplicity to our
customers, all in order to help differentiate our services from those of
our competitors. With respect to sales practices at TELUS, the primary
performance objective for TELUS call centre team members in sales
functions is customer satisfaction levels. TELUS has a policy in place
requiring that each customer enjoy any new TELUS service for a min-
imum of 60 days before the customer service representative involved is
rewarded in any fashion. (See Strategic imperatives in Section 2.2 and
Corporate priorities in Section 3.)
Intense wireless competition is expected to continue
At the end of 2017, there were eight facilities-based wireless competitors
operating in Canada, three national carriers, including TELUS, Rogers
and Bell, along with five other regional carriers. (See Competition overview
in Section 4.1.) Shaw Communications’ Freedom Mobile will lead to
increased competitive intensity in wireless services across major urban
markets in B.C., Alberta and Ontario. In addition, the national carriers
each operate three distinct brands to better compete across various
customer segments. In late 2017, BCE launched its third brand, Lucky
Mobile, a new service targeting the prepaid segment. Lucky Mobile will
MD&A: RISKS AND RISK MANAGEMENT
initially be available to customers in B.C., Alberta and Ontario and is
expected to increase the competitive intensity for prepaid services.
Also in 2017, BCE completed its acquisition of Manitoba Telecom
Services (MTS). The acquisition also included a sale of certain MTS
wireless customers and retail locations to both TELUS and Xplornet
Communications. As part of regulatory approval, BCE also divested
certain wireless spectrum licences previously held by MTS to Xplornet.
All wireless competitors use various promotional offers to attract
customers, including price discounting on both handsets and rate plans,
large allotments of data, flat-rate pricing for voice and data, and bundling
with other wireline services. Such promotional activity, as well as the
sustained consumer appetite for higher-value smartphones, combined
with the effect of the ongoing weakness in the Canadian dollar to U.S.
dollar exchange rate, may continue to lead to higher costs of acquisition
and retention. Meanwhile, more inclusive rate plans, including larger
allotments of data for data sharing and international roaming, and sub-
stitution to increasingly available Wi-Fi networks could lead to pressure
on data usage, resulting in pressure on average revenue per subscriber
unit per month (ARPU) and customer churn. (See Wireless trends and
seasonality in Section 5.4.) In addition, changes to the Wireless Code
(see Regulatory and federal government reviews in Section 9.4), including
the removal of unlocking fees and the requirement to sell all devices
unlocked as of December 1, 2017, may increase the risk of customer churn.
We also expect increased competition based on the use of unlicensed
spectrum to deliver higher-speed data services, such as the use of
Wi-Fi networks to deliver entertainment to customers beyond the home.
In addition, satellite operators such as Xplornet are augmenting their
existing high-speed Internet access (HSIA) services by launching high-
throughput satellites. See also Section 9.4 Telecommunications industry
regulatory developments and proceedings.
Risk mitigation: Our 4G wireless networks cover approximately 99%
of Canada’s population, facilitated by network access agreements with
Bell Canada and SaskTel. Wireless 4G technologies have enabled us to
establish and maintain a strong position in smartphone and data device
selection and expand roaming capability to more than 225 countries.
Faster data download speeds provided by these technologies enable
delivery of our Optik on the go service to mobile devices when customers
are beyond the reach of Wi-Fi.
To compete more effectively in a variety of customer segments, we
also offer two flanker brands, Koodo Mobile and Public Mobile. These two
brands are in addition to our full-service TELUS brand. We believe that by
leveraging our three brands through uniquely targeted value propositions
and distinct distribution channels, including web-based channels, we are
well positioned to compete with other wireless providers.
We continue our disciplined long-term strategy of investing in the
growth areas of our Company and executing upon our customers first
priority. We intend to continue to market and distribute innovative and
differentiated wireless services; offer bundled wireless services (e.g. voice,
text and data), including data sharing plans; invest in our extensive
network and systems to support customer service; evolve technologies;
invest in our distribution channels; and acquire the use of spectrum to
facilitate service development and the expansion of our subscriber base,
as well as to address the accelerating growth in demand for data usage.
Our investments in our fibre-optic network are supporting our small-cell
technology strategy to improve coverage, capacity and back-haul while
preparing for a more efficient and timely evolution to a converged 5G
network. In addition, we continue to implement operational effectiveness
TELUS 2017 ANNUAL REPORT • 91
initiatives to drive improvements in EBITDA. (See Reorganizations and
integration of acquisitions in Section 10.6.)
Wireline voice and data competition
We expect competition to remain intense from traditional telephony,
data, IP and information technology (IT) service providers, as well as from
VoIP-focused competitors in both consumer and business markets. This
competitive intensity, including the use of various promotional offers, also
places pressures on ARPU, churn and costs of acquisition and retention.
The industry continues to transition from legacy voice infrastructure
to IP telephony and Unified Communications, and from legacy data
platforms to mature data platforms such as Ethernet, IP virtual private
networks, multi-protocol label switching IP platforms and emerging
software-defined networking solutions. These transitions continue to
create both uncertainties and opportunities. Legacy data revenues and
margins continue to decline, and this has been only partially offset by
growth in demand and/or migration of customers to IP-based platforms.
IP-based solutions are also subject to downward pricing pressure,
lower margins and technological evolution.
Business
In the business wireline market, traditional facilities-based competitors
continue to compete on the basis of network footprint and reliability, while
over-the-top (OTT) providers emphasize price, flexibility and ease of use.
Having made significant investments in voice over IP (VoIP), security and IT
services for business, cable-based competitors are using price discounting
to drive new customer acquisition and retention. In addition, larger cloud
service providers, such as Amazon and Microsoft, leverage global scale to
deliver low-cost data storage and cloud computing services, but lack the
depth and breadth of capabilities to deliver integrated solutions, as well
as the local implementation and adoption support required for customers
to realize the full value of their investments in managed IT and security
services. Rapidly advancing technologies, such as software-defined
networks and virtualized network functions, enable the layering of new
services in cloud-centric solutions. Evolving customer needs represent
both a growth opportunity and a risk to TELUS’ legacy voice and data
revenue, as businesses seek to migrate fixed local line, long distance
and/or voicemail services to the new cloud-centric market paradigm.
Consumer
In the consumer wireline market, cable-TV companies and other com-
petitors continue to combine a mix of residential local VoIP, long distance,
HSIA and, in some cases, wireless services under one bundled and/or
discounted monthly rate, along with their existing broadcast or satellite-
based TV services. In 2017, Shaw Communications, our primary cable
competitor in Alberta and B.C., continued to offer deeply discounted
promotional offers, including bundled Internet and BlueSky TV offers.
BlueSky TV is Shaw’s next-generation TV service, licensing the platform
developed by Comcast, a U.S.-based cable company. In 2017, other
Canadian cable companies, including Rogers Communications and
Quebecor, have announced plans to license the Comcast TV platform.
Rogers plans to begin rolling out its next-generation TV service in 2018,
while Quebecor has not announced its roll-out schedule. In addition,
Canadian cable competitors continue to increase the speed of their HSIA
offerings and their roll-out of Wi-Fi services in metropolitan areas. To a
lesser extent, other non-facilities-based competitors offer local and long
distance VoIP services over the Internet and resell HSIA solutions.
Technological innovation has resulted in a dramatic improvement in the
performance and speed of satellite-based Internet access services and
significantly enhanced their competiveness. Xplornet recently launched
a high-throughput low orbit 4G broadband satellite, allowing it to provide
high-speed Internet access services with speeds and performance
comparable to or better than available wireline Internet access service.
Erosion of our residential network access lines (NALs) is expected to
continue due to this competition and ongoing technological substitution
to wireless and VoIP. Legacy voice revenues are also expected to
continue to decline. It is expected that competition in the consumer
space will remain intense.
Risk mitigation: To improve our competitive position, we are making
significant investments in our wireline broadband infrastructure, including
connecting more homes and businesses directly to our gigabit-capable
fibre-optic network. These investments meet customer demand for faster
Internet service, including symmetrical download and upload speeds,
expand the coverage of our high-speed Internet service and extend the
coverage, capability and content lineup of our IP-based TV services,
including Optik TV in B.C., Alberta and Eastern Quebec and Pik TV in
Western Canada (see Broadcasting below). Additionally, we offer cus-
tomers in underserved communities a fixed wireless Internet service over
our LTE network, further expanding our broadband reach. Our broadband
investments extend the reach and functionality of our business and
healthcare solutions and will support a more efficient and timely evolution
to a converged 5G network.
The provision of our IP TV services and service bundles helps us
attract and pull through Internet subscriptions and mitigate residential NAL
losses. TELUS Satellite TV service in B.C. and Alberta, made possible
through an agreement with Bell Canada, complements our expanding
IP TV service footprint and enables us to serve households where our
IP TV service is not currently available. We also continue to invest in other
product development initiatives, including connected home capabilities,
such as home security and monitoring, and consumer health solutions.
In 2017, we launched Pik TV, a new self-install TV service created to
embrace the changing environment where content is increasingly available
from OTT services. The new TV service provides a streamlined offer for
customers who have ceased and/or never subscribed for TV services.
Pik TV customers can access live TV and On Demand channels, as well
as popular OTT services and certain other apps, and the Pik TV app lets
customers watch certain channels on the go on their tablet or smartphone.
Pik TV complements our full-service Optik TV service offering. We also
continue to enhance our TV content capabilities through greater choice
and flexibility by offering specific channel theme packs and channels on
an individual basis, and increased multi-cultural content, as well as by
embracing OTT solutions and facilitating those services directly through
the set-top box, and enabling ultra-high definition 4K content.
We continue to add to our capabilities in the business market through
prudent product development initiatives, including new advanced cloud-
based solutions, a combination of acquisitions and partnerships, a focus
on key vertical markets (public sector, healthcare, financial services,
energy and telecommunications wholesale) and expansion of solution
sets in the enterprise market, as well as our modular approach in the
small and medium-sized business (SMB) market (including services
such as TELUS Business Connect) and Internet of Things (IoT) solutions.
In addition, we also have retention plans in place to mitigate the loss of
business customers as their needs evolve. Through TELUS Health, we
have leveraged our systems, proprietary solutions and third-party solutions
to extend our footprint in healthcare and benefit from the investments in
eHealth being made by governments. Additionally, through our business
92 • TELUS 2017 ANNUAL REPORT
process outsourcing services and our multi-site customer service centres,
we enable experiences that realize efficiencies, cost savings and
business growth for our customers.
Technological substitution may adversely affect
market share, volume and pricing
We face technological substitution across all key business lines and
market segments, including the consumer, SMB and large enterprise
markets.
Technological advances have blurred the boundaries between broad-
casting, Internet and telecommunications. (See Section 10.3 Technology.)
Wireless carriers and cable-TV companies continue to expand their
offerings and launch next-generation TV platforms, resulting in intensified
competition for high-speed Internet services in residential and certain
SMB markets, as well as for TV services and local access and long dis-
tance. OTT services such as Netflix, Amazon Prime Video and YouTube
compete for share of viewership, which may accelerate the disconnection
of TV services or affect subscriber and revenue growth in our TV and
entertainment services. Wireless voice ARPU continues to decline as a
result of, among other factors, substitution to messaging and OTT appli-
cations. We expect industry pressure from customer acquisition efforts
and content distribution, costs and pricing to continue across most
product and service categories and market segments.
Risk mitigation: Our IP TV and OTT multimedia initiatives provide the
next generation of IP TV and, importantly, tie our OTT environment to
one platform, enabling TELUS to be agile in the delivery of OTT services,
such as Netflix and YouTube. They also facilitate cloud-based media
delivery and ultimately everything on demand, on any device, on any
network. Active monitoring of competitive developments and internal
prototyping in product and geographic markets enable us to respond
rapidly to competitor offers and leverage our full suite of integrated
wireless and wireline solutions and national reach, and we also monitor
global telecom carriers for their next-generation OTT offers. To mitigate
losses in legacy services in our incumbent areas of B.C., Alberta
and Eastern Quebec, investments are being made in our broadband
networks, including our fibre-optic network, in order to increase
speeds, improve network reliability, expand our reach and provide an
industry-leading customer experience. We also continue to enhance
and introduce innovative products and services, such as Pik TV, enable
ultra-high definition 4K content, provide integrated bundled offers across
our services, and invest in customer-focused initiatives to improve our
customers’ experience. The adoption of new technologies and products
is pursued to improve the efficiency of our service offerings.
Broadcasting
We offer IP TV services to more than three million households and busi-
nesses in B.C., Alberta and Eastern Quebec, and we continue targeted
roll-outs in new areas. Our TV services provide numerous interactivity
and customization advantages over cable-TV and we have achieved
significant market share with more than 1.0 million TV subscribers at
December 31, 2017. However, there can be no assurance that subscriber
growth rates will be maintained, or that we will achieve planned revenue
growth and greater operating efficiency, in the context of a high level
of industry market penetration, a declining overall market for paid-TV
services and actions by our competitors and content suppliers. In addition,
competition from OTT services, content piracy and signal theft could
also affect subscriber and revenue growth by accelerating the discon-
nection of TV services or reducing spending on those services.
MD&A: RISKS AND RISK MANAGEMENT
Risk mitigation: We have broadened the addressable market for our IP TV
services through the deployment of advanced broadband technologies,
including the continued expansion of our fibre-optic network to homes and
businesses in communities across B.C., Alberta and Eastern Quebec.
We continue to introduce new features and capabilities to our TV services,
including OTT offerings such as Netflix and YouTube, and strengthen our
leadership position in Western Canada in the number of high-definition linear
channels, video-on-demand services and ultra-high definition 4K content.
Vertical integration into broadcast content ownership
by competitors
We are not currently seeking to be a broadcast content owner, but some
of our competitors own and continue to acquire broadcast content assets.
Greater vertical integration could result in content being withheld from us
or being made available to us at inflated prices or on unattractive terms.
Risk mitigation: Our strategy is to aggregate, integrate and make access-
ible content and applications for our customers’ enjoyment, on a timely
basis across multiple devices. We do not believe it is necessary to own
content in order to make it accessible to customers on an economically
attractive basis, provided there is timely and strict enforcement of the
CRTC’s regulatory vertical integration safeguards to prevent abusive
practices by vertically integrated competitors.
We support a regime under the Broadcasting Act that ensures all
Canadian consumers continue to have equitable access to broadcast
content irrespective of the distributor or platform they choose. We con-
tinue to advocate for the timely and strict enforcement of the CRTC vertical
integration safeguards and for further meaningful safeguards, as required.
We also actively intervene in broadcast licence renewals of vertically
integrated competitors. (See Enforcement of vertical integration framework
in Section 9.4 Telecommunications industry regulatory developments
and proceedings.)
10.3 Technology
Technology is a key enabler of our business; however, its evolution brings
risks and uncertainties, as well as opportunities. We maintain short-term
and long-term strategies to optimize our selection and timely use of tech-
nology while minimizing the associated costs, risks and uncertainties.
Following are the main technology risks and uncertainties for TELUS and
a description of how we proactively address them.
High demand for data challenges wireless networks
and may be accompanied by increases in delivery cost
The demand for wireless data services continues to grow rapidly, driven
by greater broadband penetration, growing personal connectivity and
networking, increasing affordability and selection of smartphones and
high-usage data devices, richer multimedia services and applications,
IoT services (including machine-to-machine (M2M) data applications
and other wearable technology), growth in cloud-based services and
wireless price competition. Given the highly competitive wireless market
in Canada, we expect that wireless data revenues will grow more slowly
than demand for bandwidth. For example, according to the CRTC
Communications Monitoring Report 2017, the average data usage per
subscriber over mobile wireless networks increased by 25% in 2016,
while the CRTC’s measure of retail wireless data revenue increased by
9.4% over the same period. Rising data traffic levels and the fast pace
of data device innovation present challenges to providing adequate
capacity and maintaining high service levels.
TELUS 2017 ANNUAL REPORT • 93
Risk mitigation: Our ongoing investments in our 4G LTE network, including
LTE advanced technology, as well as foundational investments in early
5G capabilities, allow us to manage data capacity demands by more
effectively utilizing the spectrum we hold. We intend to implement further
standards-based technologies that are ready for commercial deployment
to these networks in order to provide higher-performance connectivity solu-
tions. In addition, the evolution to LTE advanced technologies is supported
by our investments in IP networks, IP/fibre back-haul to cell sites, including
our small cells, and a software-upgradeable radio infrastructure. The LTE
advanced expansion is expected to further increase network capacity and
speed, reduce delivery costs per megabyte, enable richer multimedia
applications and services, and deliver a superior subscriber experience.
Our 4G LTE network covers 99% of Canada’s population, up from 97%
at the end of 2016. Meanwhile, our LTE advanced network covers 88%
of the Canadian population, up from 74% at the end of 2016.
Mobile network infrastructure investment will increasingly be directed
to systems based on network function virtualization (NFV) that offer
greater capacity for computing and storage, higher resiliency, and more
flexible software design. Our large-scale move to national, geographically
distributed data centres that use generalized commercial off-the-shelf
computing and storage solutions enables the utilization of broad-scale
NFV and software-defined network technologies, which will allow us
to virtualize much of our infrastructure and will also facilitate a common
control plane for coordination of our virtualized and non-virtualized network
assets. We architect the intelligence and content capabilities to reside at
the edge of our mobility network close to our customers. The distributed
smaller-scale computing power and storage deliver faster services better,
while managing the traditional need to continually scale the IP/fibre core
network infrastructure.
Rapid growth of wireless data volumes requires optimal and efficient
utilization of our spectrum holdings, which have more than doubled
through our 2014 and 2015 purchases of 700 MHz, AWS-3 and 2500 MHz
spectrum licences and provide added capacity to mitigate risks from
growing data traffic. We began deploying 700 MHz and 2500 MHz spec-
trum holdings and we plan to utilize other spectrum licences purchased
in recent years in combination with unlicensed supplementary spectrum,
as network and device ecosystems evolve. The spectrum licences
previously used for our CDMA network are being repurposed for use with
LTE technology. Our public Wi-Fi service increasingly integrates seam-
lessly with our 4G network and offloads data traffic from our wireless
spectrum to a continually growing number of available Wi-Fi hotspots.
Our deployment of small-cell technology, coupled with both licensed and
licence-exempt spectrum technologies, further increases the efficient
utilization of our spectrum holdings.
Roll-out and evolution of wireless broadband
technologies and systems
As part of a natural 4G network progression, we are committed to LTE
advanced, LTE and HSPA+ technology to support medium-term and
long-term growth of mobile broadband services. Our business depends
on the deployment of wireless technology. We began a staged decom-
missioning of our iDEN network in 2016, while continuing to support our
Mike® private network customers. The repurposing of spectrum holdings
must be managed appropriately to ensure optimal use of capital and
resources. Overall, as wireless broadband technologies and systems
evolve, there is the risk that our future capital expenditures may be higher
as our ongoing technology investments could involve costs higher than
those historically recorded.
Meanwhile, 5G technology is evolving rapidly and the world’s first
standards-based commercial launches are expected in 2019, while
smartphones are generally expected to support 5G technology in late
2019 or 2020. It is expected that early 5G ecosystems will operate on
three distinct spectrum bands: 3.5 GHz, millimetre wave (mmWave)
spectrum (28 GHz and 37–40 GHz) and 600 MHz. Globally, 3.5 GHz
spectrum is becoming the primary band for 5G mobile coverage.
In Canada, 3.5 GHz was auctioned for fixed wireless access (FWA)
between 2004 and 2009; it is currently not licensed for mobile applica-
tions and is largely held by Inukshuk (a joint venture owned by Bell and
Rogers) in most urban markets. Innovation, Science and Economic
Development Canada (ISED) is expected to claw back a portion of
Inukshuk’s 3.5 GHz spectrum holdings and re-auction it for flexible
use (permitting the deployment for mobile applications, such as 5G).
Depending on the amount of 3.5 GHz spectrum clawed back and
re-auctioned, there is a risk that TELUS and the other regional operators
could end up with less 3.5 GHz spectrum and would not be able to
compete equally on network speeds and 5G capacity. Meanwhile, if ISED
converts 3.5 GHz spectrum to mobile use before the 3.5 GHz auction
concludes, current holders would have access to 5G spectrum before
TELUS and could gain a time to market advantage.
With regard to the other spectrum bands, mmWave is expected to
be used for very high data demand locations where customers are not
only very close to the antenna but also have an unobstructed view of the
transmitting site, as this spectrum is limited in propagation to hundreds
of metres and can’t cover large areas or penetrate obstacles or buildings.
Services using this particular spectrum are expected to be an alternative
to fibre to the home (FTTH) deployments. The 600 MHz spectrum band
is being targeted for 5G in the United States, particularly by T-Mobile
USA. The 600 MHz auction is expected to proceed in Canada in 2019;
ISED’s initial proposals for the 600 MHz auction rules included a set-
aside of 30 MHz out of 70 MHz of 600 MHz spectrum for regional service
providers. Depending on the final rules set by ISED, there is a risk that
TELUS may not be able to provide 5G services on 600 MHz at the same
level of capability as regional wireless carriers. Furthermore, there is no
guarantee that rural Canada, which 600MHz propagation is best suited
for, will realize the full potential of 5G networks.
Risk mitigation: Our practice is to continually optimize capital investments
in order to ensure reasonable payback periods for generating positive
cash flows from investments and flexibility in considering future tech-
nology evolutions. Some capital investments, such as wireless towers,
leasehold improvements and power systems, are technology-neutral.
Our wireless networks evolve through software upgrades to support
enhancements in systems based on the third generation partnership
project (a project that unites seven telecommunications standard develop-
ment organizations and provides their members with a stable environment
to produce the reports and specifications that define third generation
partnership technologies) and the Institute of Electrical and Electronics
Engineers that improve performance, capacity and speed. We expect
to be able to leverage the economies of scale and handset variety of the
North American and global ecosystems.
Reciprocal network access agreements, principally with Bell Canada,
have facilitated our deployment of wireless technologies for the benefit
of our customers and provided the means for us to better manage our
capital expenditures. These agreements are expected to provide ongoing
cost savings, as well as the flexibility to invest in service differentiation
and support systems.
94 • TELUS 2017 ANNUAL REPORT
MD&A: RISKS AND RISK MANAGEMENT
We maintain close co-operation with our network technology
suppliers and operator partners in order to influence and benefit from
developments in LTE advanced, LTE, HSPA+ and Wi-Fi technologies.
service. Our customer service delivery sites experiment with different
automation and self-learning tools to assess the impact such technology
may have on customer experiences and operating efficiencies.
In order to influence the timing, rules and policy regarding the 3.5 GHz
spectrum, TELUS has highlighted to ISED the need for early, fair and
timely access to 3.5 GHz for all operators in order to ensure that Canada
stays at the top of the G8 countries in terms of wireless speeds and
capabilities. TELUS is arguing for a fair treatment of this band and for
ISED to accelerate its release for mobile use to all industry players while
avoiding a head start for specific operators.
In its responses to the 600 MHz consultation, TELUS suggested
alternate proposals, including a reduction of the set-aside from 30 MHz
to 20 MHz (to create a fair opportunity for all operators to compete for
600 MHz spectrum for 5G), and the elimination of a spectrum set-aside
in rural markets where TELUS has demonstrated a strong track record
of deployment in contrast to regional players and their historical focus on
only the largest urban markets.
In order to prepare for the future deployment of mmWave spectrum,
TELUS has continued to conduct 5G trials in the mmWave spectrum
bands. TELUS’ trials have established a platform which will form the basis
for evaluating TELUS’ future 5G use cases and will help TELUS prepare
for network planning in the mmWave bands. Additionally, TELUS will
continue to collaborate with ISED, sharing trial results in discussions to
help guide the regulator as it finalizes its decisions on establishing the
policy and timing for the release of mmWave spectrum for 5G. The auction
for mmWave spectrum is expected to occur in the 2020–2021 timeframe.
Furthermore, TELUS investment in small cells will help TELUS densify
its network and mitigate potential speed and capacity disadvantages
created by 3.5 GHz availability, as well as improve future mmWave
deployment feasibility, cost and time to market.
Disruptive technology
A paradigm shift with the consumer adoption of alternative technologies,
such as video and voice OTT offerings (e.g. Netflix, FaceTime) and
increasingly available Wi-Fi networks, has the potential to negatively affect
TELUS revenue streams. For example, Wi-Fi networks are being used to
deliver various entertainment services to customers beyond the home.
OTT content providers are competing for a share of entertainment viewer-
ship. These factors, including increasing consumer demand for access
to Wi-Fi outside of their home, and OTT services on demand, on any
device, may drive increased churn rates for our wireless, TELUS TV and
high-speed Internet services. (See Intense wireless competition is expected
to continue in Section 10.2 Competition and OTT services present chal-
lenges to network capacity and conventional business models below.)
Advanced self-learning technologies and automation will change the way
we manage our operations and support customer experience innovation.
Risk mitigation: Since early 2014, we have worked with thousands of
businesses and many major sports and entertainment venues to continue
to expand our public Wi-Fi network. This public Wi-Fi service is part of
our network strategy of deploying small cells that increasingly integrates
seamlessly with our 4G wireless network, automatically shifting our smart-
phone customers to Wi-Fi and offloading data traffic from our wireless
spectrum. Integrated public Wi-Fi infrastructure build activity naturally
extends service and channel opportunities with small-medium enterprises
and improves customers’ likelihood-to-recommend. Integration of home
Wi-Fi increases propensity for higher data usage on smartphones within
and outside the home, while benefiting, in part, uptake of TELUS Internet
Supplier risks
Restructuring of vendors or discontinuance of products
may affect our networks and services
We have relationships with a number of vendors, including large cloud
service providers such as Amazon and Microsoft, which are important in
supporting network and service evolution plans and delivery of services
to our customers. Vendors may experience business difficulties, privacy
and/or security incidents, restructure their operations, be consolidated
with other suppliers, discontinue products or sell their operations or
products to other vendors, which could affect the future development
and support of products or services we use, and ultimately, the success
of upgrades and evolution of technology that we offer our customers,
such as TELUS TV. There can be no guarantee that the outcome of any
particular vendor strategy will not affect the services that we provide
to our customers, or that we will not incur additional costs to continue
providing services. Certain customer needs and preferences may not
be aligned with our vendor selection or product and service offering,
which may result in limitations on growth or loss of existing business.
Supplier concentration and market power
The popularity of certain models of smartphones and tablets has resulted
in a growing reliance on certain manufacturers, which may increase their
market power and adversely affect our ability to purchase certain products
at an affordable cost. In addition, owners of popular broadcasting content
may raise their distribution charges and attempt to renegotiate broadcast-
ing distribution agreements we have with them, which could adversely
affect our entertainment service offerings and/or profitability. See also
Wireline in Section 9.2, Broadcasting-related issues in Section 9.4 and
Vertical integration into broadcast content ownership by competitors in
Section 10.2.
Risk mitigation: We consider possible vendor strategies and/or restruc-
turing outcomes when planning for our future growth, as well as the
maintenance and support of existing equipment and services. We have
reasonable contingency plans for different scenarios, including working
with multiple vendors, maintaining ongoing strong vendor relations with
periodic reviews of vendor performance and working closely with other
product and service users to influence vendors’ product or service
development plans. In addition, we regularly monitor the risk profile of
our key vendors and review the applicable terms and conditions of our
agreements to determine whether additional contractual safeguards
are required, and promote our Supplier Code of Conduct based upon
generally accepted standards of ethical business conduct.
In respect of supplier market power, we offer and promote alternative
devices or programming content to provide greater choice for consumers
and to help lessen our dependence on a few key suppliers.
Support systems will be increasingly critical
to operational efficiency
We have a large number of interconnected operational and business
support systems, and their complexity has been continually increasing,
which can affect system stability and availability. The development
and launch of a new service typically requires significant systems devel-
opment and integration efforts. Effective management of all associated
TELUS 2017 ANNUAL REPORT • 95
development and ongoing operational costs is a significant factor in
maintaining a competitive position and profit margins. As next-generation
services are introduced, they must work with next-generation systems,
frameworks and IT infrastructures, while being compatible with legacy
services and support systems. There can be no assurance that any of
our proposed IT systems or process change initiatives will be implemented
successfully, that they will be implemented in accordance with antici-
pated timelines, or that sufficiently skilled personnel will be available to
complete such initiatives. If we fail to implement and maintain appropriate
IT systems on a timely basis, fail to create and maintain an effective
governance and operating framework to support the management of
staff, or fail to understand and streamline our significant number of legacy
systems and proactively meet constantly evolving business requirements,
any such failure could have an adverse effect on our business and
financial performance.
Risk mitigation: In line with industry best practice, our approach is to
separate business support systems (BSS) from operational support
systems (OSS) and underlying network technology. Our aim is to decouple
the introduction of new network technologies from the services we sell
to customers so that both can evolve independently. This allows us to
optimize network investments while limiting the impact on customer
services, and also facilitates the introduction of new services. In addition,
due to the maturing nature of telecommunications vendor software,
we adopt industry standard software for BSS/OSS functions and avoid
custom development where possible. This enables us to leverage vendor
knowledge and industry practices acquired through the implementation
of those platforms at numerous global telecommunications companies.
We have established a next-generation BSS/OSS framework to ensure
that, as new services and technologies are developed, they are part
of the next-generation framework that will ease the retirement of legacy
systems in accordance with TeleManagement Forum’s next-generation
operations systems and software program. We also continue to make
significant investments in system resiliency and reliability in support of
our ongoing customers first initiatives.
Evolving wired broadband access technology standards may
outpace projected access infrastructure investment lifetimes
The technology standards for broadband access over copper loops
to customer premises are evolving rapidly, enabling higher broadband
access speeds. The evolution is fuelled by consumer demand for faster
connectivity, the need to address growing competitor capabilities and
offerings, the increasing use of OTT applications and the delivery of
IP TV, all of which require greater bandwidth. In general, the evolution to
higher broadband access speeds is achieved by deploying fibre-optic
cable further out from the central office, thus shortening the copper
loop portion of the access network, and by using faster modem
technologies on the shortened copper loop. However, new access
technologies are evolving faster than the historical investment cycle for
access infrastructure. The introduction of these new technologies and
the pace of adoption could result in requirements for additional capital
funding not currently planned, as well as shorter estimated useful lives
for certain existing infrastructure, which would increase depreciation and
amortization expenses.
Risk mitigation: To advance our broadband network, we are actively
deploying fibre-to-the-premises (FTTP) technologies across our
incumbent footprint in B.C., Alberta and Eastern Quebec. FTTP tech-
nology supports significantly greater bandwidth, including symmetrical
download and upload speeds. We also continue to invest in our
fibre-to-the-neighbourhood (FTTN) technology to maintain our ability
to support competitive services – most recently, the upgrade to
VDSL2 and bonding technologies.
In addition, we actively monitor the development and carrier
acceptance of competing proposed FTTx standards (such as FTTP
and fibre-to-the-distribution point or FTTDp). One or more of these
fibre-based solutions may be a more practical technology to deploy in
brownfield neighbourhoods or multiple dwelling units than the current
xDSL deployments on copper loops. We are exploring business models
for financially viable deployment of fibre-based technologies in areas
currently connected by copper.
The evolution of these access architectures and corresponding
standards, enabled with quality of service standards and network traffic
engineering, all support our strategy to deliver IP-based Internet, voice
and video services over a common broadband access infrastructure.
IP-based telephony as a replacement for legacy analogue
telephony is evolving and cost savings are uncertain
We continue to monitor the evolution of IP-based telephony technologies
and service offerings, and we have developed a consumer solution for
IP-based telephony through access to our broadband infrastructure. This
solution is being deployed and is replacing legacy analogue telephone
service in areas that are served by fibre-based facilities. The solution can
be expanded to provide additional telephone services over the existing
analogue service infrastructure and is designed to replace the current
platform in use today. We are also in the process of deploying our next-
generation IP telephony solution for business users, which is intended
to replace existing business VoIP platforms, as well as addressing areas
that are served through fibre access. We are deploying converged
IP solutions in the consumer segment that deliver telephony, video
and Internet access on the same broadband infrastructure. However,
the exchange of information between service providers with different
broadband infrastructures is still at an early stage.
Our long-term technology strategy is to move all services to IP
to simplify our network, reduce costs, enable advanced solutions and
converge wireless and wireline services. Pursuing this strategy fully
would involve transitioning our standard telephone service offering to
IP-based telephony and phasing out legacy analogue-based telephone
service. We could support this strategy by discontinuing regular
analogue telephone lines and using digital-only broadband access lines.
However, digital-only broadband access may not be feasible or finan-
cially viable in many areas for some time, particularly in rural and remote
areas. Accordingly, we expect to support both legacy and IP-based
voice systems for some time and incur costs to maintain both systems.
There is a risk that investments in IP-based voice systems may not be
accompanied by a reduction in the costs of maintaining legacy voice
systems. There is also the risk that IP-based access infrastructure and
corresponding IP-based telephony platforms may not be in place in
time to avoid the need for some reinvestment in traditional switching
platforms to support the legacy public switched telephone network
access base in certain areas, which could result in some investment
in line adaptation in non-broadband central offices.
Risk mitigation: We continue to deploy residential IP-based voice
technologies into fibre-based communities, and we work with vendors
and the industry to assess the technical applicability and evolving
cost profiles of proactively migrating legacy customers onto IP-based
96 • TELUS 2017 ANNUAL REPORT
platforms while striving to meet CRTC commitments and customer
expectations. Our ongoing investments in advanced broadband network
technologies, including FTTP, should enable a smoother future evolution
of IP-based telephony. We are also working with manufacturers to
optimize the operations, cost structure and life expectancy of analogue
systems and solutions so that some of this infrastructure can be adapted
to a point where it will form part of the overall evolution towards IP.
Additionally, IP-based solutions that we are currently deploying are
capable of supporting a wide range of customers and services, which
helps limit our exposure to any one market segment. Going forward,
as our wireless services evolve, we will continue to assess the opportunity
to further consolidate separate technologies into a single voice service
environment. One example is the consolidation of our new IP-based
consumer VoIP solution into the same platform that supports wireless
telephony. We are looking at opportunities to rationalize our existing
legacy voice infrastructure in order to manage costs. We are also
working with our vendors and partners to reduce the cost structure
of VoIP deployments.
Convergence in a common IP-based application environment
for telephony, Internet and video is complex
The convergence of wireless and wireline services in a common IP-based
application environment, delivered over a common IP-based network,
provides opportunities for cost savings and for the rapid development
of more advanced services that are also more flexible and easier to use.
However, the transformation from separate systems to a common envi-
ronment is very complex and could be accompanied by implementation
errors, design issues and system instability.
Risk mitigation: We mitigate implementation risk through modular
architectures, lab investments, employee trials, partnering with system
integrators where appropriate, using hardware that is common to most
other North American IP-based technology deployments and introducing
virtualization technologies, where feasible. We are also active in a number
of standards bodies, such as the Metro Ethernet Forum and IP Sphere,
in order to help influence a new IP infrastructure strategy that leverages
standards-based functionality, which could further simplify our networks.
Delivery of fibre-based facilities leveraged by IP telephony
solutions is expensive and complex, with long implementation
schedules
The delivery of fibre-based facilities to new communities and regions
requires significant investment and planning, as well as long implementa-
tion schedules. This may rule it out as a viable alternative in communities
where the legacy voice equipment requires immediate replacement.
It may not be cost-effective to deliver fibre-optic network access to
customers who subscribe only to home phone services, which would
prevent full migration away from legacy technologies.
Risk mitigation: We mitigate schedule risk by continuing to maintain
our legacy switching environments and striving to maintain the necessary
technological expertise, access to replacement hardware and regular
maintenance programs. We support delivery of IP telephony through a
copper-based access facility by deploying line access gateway technology
that connects our customers’ generic equipment with the IP telephony
platforms, which gives us a more cost-effective way to provide those
customers with the reliability and enhanced capabilities of these solutions.
MD&A: RISKS AND RISK MANAGEMENT
OTT services present challenges to network capacity
and conventional business models
OTT services compete directly with traditional pay-TV, video and
wireless and wireline voice and messaging services. OTT video services,
in particular, have rapidly become the largest source of traffic on the
North American Internet backbone. OTT service providers do not invest
in, or own, networks and growth in their services presents Internet service
providers (ISPs) and network owners with the challenge of preventing
network congestion. While we have designed an IP-based network that
has not experienced significant congestion problems through 2017, there
can be no assurance that we will not experience such congestion in
the future.
Risk mitigation: As additional OTT providers launch services and offer
higher-resolution video over the Internet, we continue to make investments
in our network to support greater capacity. We are also developing new
responses and service offerings, such as more flexible data plans, to
the challenges posed by the OTT providers. These investments include
the ongoing build-out of our fibre-optic network, including multi-year
investments to connect homes and businesses in B.C., Alberta and
Eastern Quebec to our gigabit-capable network.
In addition, our IP TV offerings, including Optik TV and Pik TV, easily
make popular OTT services accessible, by making them directly available
through our TV offerings. For further discussion of our IP TV offerings,
see Wireline voice and data competition, Technological substitution may
adversely affect market share, volume and pricing and Broadcasting
in Section 10.2 Competition.
Capital expenditure levels and potential future outlays
for spectrum licences may be impacted by our operating
and financial results, as well as our ability to carry out
financing activities
Our capital expenditure levels are affected by our broadband initiatives,
including connecting more homes and businesses directly to fibre;
our ongoing deployment of newer wireless technologies such as 5G;
utilizing newly acquired spectrum; investments in network resiliency and
reliability; increasing subscriber demand for data; evolving systems and
business processes; implementing efficiency initiatives; supporting large
complex deals; and participation in future wireless spectrum auctions
held by ISED. There can be no assurance that investments in capital
assets and wireless spectrum licences will not be affected by future
operating and financial results.
Risk mitigation: We carry out a number of unique initiatives each year
that are aimed at improving our productivity and competitiveness.
See Reorganizations and integration of acquisitions and Implementation
of large enterprise deals in Section 10.6. For a discussion of financing
risks and risk mitigation activities, see Section 10.7 Financing, debt
requirements and returning cash to shareholders.
10.4 Regulatory matters
The regulatory regime under which we operate, including the laws,
regulations, and decisions in regulatory proceedings and court cases,
reviews, appeals, policy announcements, and other developments
such as those described in Section 9.4 Telecommunications industry
regulatory developments and proceedings, imposes conditions on
the products and services that we provide and how we provide them.
TELUS 2017 ANNUAL REPORT • 97
The regulatory regime sets forth, among other matters, rates, terms and
conditions for the provision of telecommunications services, licensing
of broadcast services, licensing of spectrum and radio apparatus, and
restrictions on ownership and control by non-Canadians.
Changes to our regulatory regime
Changes to the regulatory regime under which we operate, including
changes to laws and regulations, could materially and adversely affect
our business, results of operations, operating procedures and profitability.
Such changes may not be anticipated or, where they are anticipated,
our assessment of their impact on us and our business may not be
accurate. While we are involved or intervene in proceedings, court cases
or inquiries related to the application of the regulatory regime, such as
those described in Section 9.4 Telecommunications industry regulatory
developments and proceedings, there is no certainty that the positions
that we advocate in such proceedings will be adopted or that our
prediction of the likely outcomes of such proceedings will be accurate.
Changes to our regulatory regime could increase our costs, restrict or
impede the way we provide our services or manage our networks,
or alter customer perceptions of our operations. The further regulation of
our broadband, wireless and other activities and any related regulatory
decisions could also restrict our ability to compete in the marketplace and
limit the return we can expect to achieve on past and future investments
in our networks. Additionally, through TELUS Health, we are entering into
new areas such as virtual care and electronic prescriptions, which are
less predictable from a regulatory regime perspective, can be regulated
differently in certain provinces, and can be subject to political intervention.
Risk mitigation: TELUS attempts to mitigate regulatory risks through its
participation in CRTC and federal government proceedings, legal pro-
ceedings impacting our operations and other relevant inquiries (such as
those relating to the exclusive federal jurisdiction over telecommunications),
as described in Section 9.4 Telecommunications industry regulatory
developments and proceedings. See also Vertical integration into broad-
cast content ownership by competitors in Section 10.2 Competition.
Spectrum and compliance with licences
We require access to radio spectrum to operate our wireless business.
The allocation and use of spectrum in Canada are governed by ISED,
which establishes spectrum policies, determines spectrum auction
frameworks, issues licences, and sets radio authorization conditions.
While we believe that we are substantially in compliance with our radio
authorization conditions, there can be no assurance that we will be
found to comply with all radio authorization conditions, or if we are found
not to be compliant, that a waiver will be granted or that the costs to be
incurred to achieve compliance will not be significant. Any failure to comply
with the radio authorization conditions could result in the revocation of
our licences and/or the imposition of fines. Our ability to provide com-
petitive services, including by improving our current services and offering
new services on a timely basis, is also dependent on our ability to obtain
access to new spectrum licences at a reasonable cost as they are made
available. The revocation of, or a material limitation on, certain of our
spectrum licences, or our failure to obtain access to new spectrum as it
becomes available, could have a material adverse effect on our business,
results of operations and financial condition by, among other things,
negatively affecting both the quality and reliability of our network and
service offering, and our brand, and thereby impeding our ability to
attract or retain our customers.
Risk mitigation: We continue to strive to comply with all licence and
renewal conditions and plan to participate in future wireless spectrum
auctions. We continue to advocate to the federal government for fair
spectrum auction rules so that mobile wireless companies like TELUS
can bid on an equal footing with other competitors for spectrum blocks
available at auction and can purchase spectrum licences available
for sale from competitors. We continue to strongly advocate that prefer-
ential treatment is not required for advanced wireless services (AWS)
entrants who are now part of established, sophisticated and well-financed
cable companies.
Restrictions on non-Canadian ownership and control
We are subject to Canadian ownership and control restrictions,
including restrictions on the ownership of our Common Shares by non-
Canadians, imposed by the Canadian Telecommunications Common
Carrier Ownership and Control Regulations under the Telecommunications
Act (collectively, the Telecommunications Regulations) and the Direction
to the CRTC (Ineligibility of Non-Canadians), as ordered by the Governor
in Council pursuant to the Broadcasting Act (the Broadcasting Direction).
Although we believe that we are in compliance with the relevant legislation,
there can be no assurance that a future CRTC or Canadian Heritage
determination, or events beyond our control, will not result in us ceasing
to be in compliance with the relevant legislation. If such a development
were to occur, the ability of our subsidiaries to operate as Canadian carriers
under the Telecommunications Act or to maintain, renew or secure licences
under the Radiocommunication Act and the Broadcasting Act could be
jeopardized and our business could be materially adversely affected.
Under the Telecommunications Regulations, to maintain our eligibility
to operate certain of our subsidiaries that are deemed to be Canadian
carriers by law, among other requirements, the level of non-Canadian
ownership of TELUS Common Shares cannot exceed 331⁄3% and we
must not otherwise be controlled by non-Canadians. The Broadcasting
Direction further provides for a qualified corporation, which can be a
subsidiary corporation whose parent corporation or its directors do not
exercise control or influence over any programming decisions of the
subsidiary corporation where:
(a) Canadians beneficially own and control less than 80% of the
issued and outstanding voting shares of the parent corporation
and less than 80% of the votes
(b) the chief executive officer is a non-Canadian or
(c) less than 80% of the directors of the parent corporation
are Canadian.
Risk mitigation: The Telecommunications Regulations give TELUS, which
is a holding corporation of Canadian carriers, certain powers to monitor
and control the level of non-Canadian ownership of our Common Shares.
These powers have been incorporated into TELUS’ Articles and were
extended to ensure compliance under both the Broadcasting Act and the
Radiocommunication Act (under which the requirements for Canadian
ownership and control were subsequently cross-referenced to the
Telecommunications Act). These powers include the right to: (i) refuse to
register a transfer of Common Shares to a non-Canadian; (ii) require a
non-Canadian to sell any Common Shares; and (iii) suspend the voting
rights attached to the Common Shares held by non-Canadians in inverse
order of registration. We have reasonable controls in place to monitor
foreign ownership levels through a reservation and declaration system.
On August 10, 2017, in response to levels of foreign ownership of shares
exceeding 20% and in accordance with the Broadcasting Direction,
98 • TELUS 2017 ANNUAL REPORT
the TELUS Board of Directors appointed an independent programming
committee to make all programming decisions relating to its licensed
broadcasting undertakings.
10.5 Human resources
Employee retention, recruitment and engagement
Our success depends on the abilities, experience and engagement
of our team members. The loss of key employees through attrition
and retirement – or any deterioration in overall employee morale and
engagement resulting from organizational changes, unresolved
collective agreements or ongoing cost reduction initiatives – could
have an adverse impact on our growth, business and profitability
and our efforts to enhance the customer experience.
The level of employee engagement at TELUS continues to place
our organization within the top 10% of all employers surveyed.
Risk mitigation: We aim to attract and retain key employees through
both monetary and non-monetary approaches. Our compensation and
benefits program is designed to support our high-performance culture
and is both market-driven and performance-based. Where required,
we implement targeted retention solutions for employees with talents
that are scarce in the marketplace.
We also have a succession planning process to identify and develop
employees for key management positions.
Additionally, we strive to continuously improve our employee engage-
ment. We believe that our relatively strong employee engagement score
continues to be influenced by our focus on the customer experience, our
success in the marketplace and our social purpose. We plan to continue
our focus on other non-monetary factors that are clearly aligned with
engagement, including performance management, career opportunities,
training and development, recognition, our Work Styles® program
(e.g. facilitating working remotely from home or other alternative work
locations), and our community volunteerism. See also Section 10.10
Team member health, wellness and safety.
10.6 Operational performance
Systems and processes
We have numerous complex systems and process change initiatives
underway. There can be no assurance that the full complement of our
various systems and process change initiatives, including those required
to improve delivery of customer services and support management
decision-making, will be successfully implemented or that funding and
sufficiently skilled resources will be available to complete all key initiatives
planned. There is risk that certain projects may be deferred or cancelled
and the expected benefits of such projects may be deferred or unrealized.
Moreover, any ineffectiveness in the change management required to
protect our complex systems and limit service disruptions could adversely
impact our customer service, operating performance and financial results.
Additionally, ongoing acquisition and post-merger integration of various
TELUS Health Services operations may carry short-term risks from oper-
ational continuity, competition and process governance perspectives.
Risk mitigation: TELUS has change management policies, processes
and controls in place, based upon industry best practices. In general,
we strive to ensure that system development and process change are
prioritized, and we apply a project management approach to such
MD&A: RISKS AND RISK MANAGEMENT
changes that includes reasonable risk identification and contingency
planning, scope and change control, and resource and quality manage-
ment. We also generally complete reasonable functional, performance
and revenue assurance testing, as well as capturing and using any
lessons learned. Where a change involves major system and process
conversions, we often move our business continuity planning and
emergency management operations centre to a heightened state of
readiness in advance of the change.
Reorganizations and integration of acquisitions
We carry out a number of unique operational consolidation, cost reduction
and rationalization initiatives each year that are aimed at improving our
productivity and competitiveness. Examples of these initiatives include
operational effectiveness programs to drive improvements in EBITDA,
including business integrations; business process outsourcing; offshoring
and reorganizations, including any full-time equivalent (FTE) employee
reduction programs; procurement initiatives; and real estate rationalization.
We may record significant cash and non-cash restructuring charges
and other costs for such initiatives, which could adversely impact our
operating results. There can be no assurance that all planned initiatives
will be completed, or that such initiatives will provide the expected
benefits or will not have a negative impact on our customer service, work
processes, employee engagement, operating performance and financial
results. Additional revenue and operational effectiveness initiatives will
continue to be assessed and implemented, as required.
Post-acquisition activities include the review and alignment of
accounting policies, corporate policies such as ethics and privacy
policies, employee transfers and moves, information systems integration,
optimization of service offerings and establishment of control over new
operations. Such activities may not be conducted efficiently and effect-
ively, which may negatively impact service levels, competitive position
and financial results. There can be no assurance that we will be able to
successfully and efficiently integrate acquisitions, complete divestitures
or establish partnerships in a timely manner, and realize expected
strategic benefits.
Risk mitigation: We focus on and manage organizational changes through
a formalized business transformation function by leveraging the expertise,
key learnings and effective practices developed in recent years during the
implementation of mergers, business integrations and efficiency-related
reorganizations. We also have formal senior executive level reviews of
major competitive enhancement programs, with monthly updates from
key business units and a comprehensive tracking program to ensure
all initiatives are tracked and properly governed.
We have a post-merger integration (PMI) team that works in lockstep
with acquiring business units and the acquired organizations, applying
an integration model based on learnings from previous integrations,
which enhances and accelerates the standardization of our business
processes and is intended to preserve the unique qualities of each
acquired operation.
During the year ended December 31, 2017, we completed a number
of acquisitions. See Highlights of 2017 in Section 1.3 for further details.
Implementation of large enterprise deals
Large enterprise deals may be characterized by the need to anticipate,
understand and respond to complex and multi-faceted customer-specific
enterprise requirements, including customized systems and reporting
requirements, service credits that lower revenues, and significant upfront
expenses and capital expenditures required to implement the contracts.
TELUS 2017 ANNUAL REPORT • 99
There can be no assurance that service implementation will proceed
as planned and expected efficiencies will be achieved, which may
impact return on investment or projected margins. We may also be con-
strained by limits on available staff and system resources, by the level of
co-operation from other service providers, which may in turn limit the
number of large contracts that can be implemented concurrently in a
given period and/or increase our costs related to such implementations.
Risk mitigation: We expect to continue being selective as to which new
large contracts we will bid on and we continue to focus our efforts on
the SMB market and mid market. We have a sales and bid governance
process in place, which involves preparation, review and signoff of
bids, with all of the related due diligence and authorizations. For each
new large enterprise deal, we look to leverage existing systems and
processes from previous contract wins while adding additional systems
using a controlled methodology to form a new custom solution.
We also follow standard industry practices for project management,
including executive and senior level governance and project oversight,
commitment of appropriate project resources, tools and supporting
processes, and proactive project-specific risk assessments and risk
mitigation planning. As well, we conduct independent project reviews
and internal audits of previous work to identify areas that may require
additional focus and to identify any systemic issues and learnings in
project implementations that could be shared among other future large
enterprise deals.
Foreign operations
Our international operations present certain risks, which include:
competition in foreign markets and industries such as business process
and IT outsourcing; customer rights to terminate contracts on notice;
infrastructure and security challenges; employee recruitment and retention;
customer concentration; country-specific risks (such as differences in
and changes to political, economic and social systems, including changes
to legal and regulatory regimes); different taxation regimes; differences
in type, exposure to and frequency of natural disasters; and foreign cur-
rency exchange fluctuations. There can be no assurance that international
initiatives and risk mitigation efforts will provide the benefits and efficien-
cies expected, or that there will not be significant difficulties in combining
different management and cultures, which could have a negative impact
on operating and financial results. See also Legal and ethical compliance
in Section 10.9 Litigation and legal matters and Business continuity
below, which may affect our international operations.
Risk mitigation: Our strategy is to differentiate ourselves by focusing on
the continued development of our team, as well as our culture of giving
where we live. In addition, we invest in service development and process
improvements, and we regularly survey customers for feedback and
monitor quality of service metrics to ensure we proactively address our
customers’ concerns and exceed their expectations. Our sales focus on
winning new clients, as well as our strategic business acquisitions, are
diminishing our customer concentration risk on a continuing basis. In
addition, in 2016, TELUS entered an agreement with Baring Private Equity
Asia to acquire a 35% non-controlling interest in TELUS International (TI).
Through this collaboration, TI is well positioned to leverage Baring Private
Equity Asia’s deep Asian markets presence and worldwide experience,
and tap into its global network in order to further expand TI’s operations.
Our IT systems undergo a security and privacy assessment early in their
development life cycle, where privacy and security controls are tested
before any new systems are deployed. We use security technologies and
adhere to certain standards, reviewing their effectiveness regularly to
remain abreast of changes in the threat landscape. We make significant
investments in support of our team members, including high-end work-
place facilities, competitive benefits, ongoing training and development
and recurring surveys to resolve areas of concern. We maintain a
diverse base of operations, with facilities located in the North America,
Asia, Europe and Central America. This diversity provides us with an
opportunity to minimize country-specific risks and the ability to serve
customers in multiple languages and in multiple time zones. It also pro-
vides us with network redundancy and contingency planning opportunities
and the ability to divert operations in emergency situations. We continue
to improve our international operations by updating operational practices
to incorporate changes in regulation, best practices and customer expect-
ations, including to our privacy, integrity, anti-bribery and procurement
policies. We share best practices between international and domestic
Canadian operations, as appropriate, and ensure that internal controls
are implemented, tested, monitored and maintained. We also utilize
foreign currency forward contracts, as well as hedge accounting on a
limited basis, to mitigate currency risks (see Currency risk in Section 7.9
Financial instruments, commitments and contingent liabilities).
Data protection
We operate data centres and collect and manage data in our business
and on behalf of our customers (including, in the case of TELUS Health,
sensitive health information). Some of our efficiency initiatives rely on
the offshoring of internal functions to our personnel in other countries or
outsourcing to partners located in Canada and abroad. To be effective,
these arrangements require us to allow personnel in other countries and
domestic and foreign partners to have access to this data.
TELUS or its partners may be subject to software, equipment or
other system malfunctions, or thefts or other unlawful acts that result in
the unauthorized access to, or change, loss or destruction of, our data.
There is a risk that such malfunctions or unlawful acts may compromise
the privacy of individuals, including our customers, employees and sup-
pliers. Despite our efforts to implement controls in domestic and offshore
operations and at our partners’ operations, unauthorized access to data
could lead to data being lost, compromised or used for inappropriate
purposes that could, in turn, result in financial loss (loss of subscribers
or damage to our ability to attract new ones), harm our reputation and
brand, expose us to claims of damages by customers and employees,
and impact our customers’ ability to maintain normal business operations
and deliver critical services. Also see Legal and ethical compliance in
Section 10.9 Litigation and legal matters and Security discussed below.
Risk mitigation: Certain new TELUS information technology systems
undergo a security and privacy assessment early in their development
life cycle, pursuant to which data that is to be used and/or collected
is reviewed and classified, and design features such as audit, logging,
encryption and access control restrictions are recommended, when
applicable or possible. As part of TELUS’ systems and software develop-
ment life cycle and quality assurance processes, privacy and security
controls are also tested before new systems are fully deployed.
Our Internet data centres (IDCs) have security threat detection and
mitigation capabilities, and certain data centres and networks undergo
yearly external independent third-party audits. A core component of
that audit and certification process is the assessment of TELUS’ logical,
physical and policy-based security and privacy controls. Further, we have
a vulnerability management program in place that monitors both our
100 • TELUS 2017 ANNUAL REPORT
Internet-facing and internal network and systems in order to track and
mitigate vulnerabilities that may be detected.
To ensure the security of our customers’ credit card transactions,
we use security technologies such as encryption and segmentation,
and we adhere to the principle of least privilege. We maintain these
practices and review their effectiveness on a regular basis, giving con-
sideration to industry standards and changes in the constantly evolving
threat landscape.
Another component of our strategy is the stipulation that data generally
resides in our facilities in Canada, with the deployment of infrastructure
that supports partner connectivity to view our systems. We require part-
ners and service providers to comply with privacy and security measures,
including the reporting of any possible data-related threats. Personnel
in other countries are provided with remote views of authorized data only
and, where applicable, without the data being stored on local systems.
These personnel are also required to comply with physical and process
restrictions and participate in training designed to help prevent and detect
unauthorized access to, or use of, our data.
Our strategy also includes reactive planning and business continuity
planning processes that would be invoked in the event of a breach.
There can be no assurance that our controls will prove effective in
all instances.
Security
We have a number of assets that are subject to intentional threats.
These include physical assets that are subject to security risks such
as vandalism and/or theft, including (but not limited to) distributive
copper cable, corporate stores, network and telephone switch centres,
and elements of corporate infrastructure, as well as IT systems and
networks that we operate. The latter are subject to cyberattacks, which
are intentional attempts to disrupt our business or gain unauthorized
access to our information systems and networks for unlawful, unethical
or improper purposes. Attacks may use a variety of techniques that
include targeting individuals, the use of sophisticated malicious software
and hardware or a combination of both to evade the technical and
administrative safeguards that are in place (including firewalls, intrusion
prevention systems, active monitoring, etc.). The risk and consequences
of cyberattacks against our assets could surpass physical security
risks and consequences because of the rapidly evolving nature and
sophistication of these threats.
A successful disruption of our systems, networks and infrastructure
or those of our third parties, vendors and partners, may prevent us from
providing reliable service, impact the operations of our network or allow
for the unauthorized interception, destruction, use or dissemination of our
information or our customers’ information. Such disruption or unauthor-
ized access to information could cause us to lose customers or revenue,
incur expenses, and experience reputational and goodwill damages.
It could also subject us to litigation or governmental investigation and
sanction. The costs of such events may include liability for information
loss, as well as the costs of repairs to infrastructure and systems and any
retention incentives offered to customers and business partners. Our
insurance may not cover, or fully reimburse us for, these costs and losses.
Risk mitigation: We have implemented technical and administrative
measures to mitigate the risk of threats, attacks and other disruptive
events. Our security program addresses risk through a number of mech-
anisms, including implementing controls based on policies, standards
and methodologies that are aligned with recognized industry frameworks
MD&A: RISKS AND RISK MANAGEMENT
and practices, monitoring of external activities by potential attackers,
regular evaluation of our most important assets through our Crown
Jewels program, the identification and regular re-evaluation of our known
security risks, as well as regular review of our standards and policies to
ensure they address current needs and threats, and business continuity
and recovery planning processes that would be invoked in the event
of a disruption.
We are building security into new initiatives through a standard secure-
by-design process and methodology and constantly re-assessing our
security posture through the full life cycle of our systems. Our technical
capabilities help us identify security events, respond to possible threats
and adjust our security posture appropriately. Additionally, our approach
to cyber hygiene includes regular security vulnerability assessments and
the prioritization and remediation of any identified issue through patching
or other mechanisms. TELUS’ Security Office works with law enforcement
and other agencies to address the ongoing threat of cyberattacks and
dis ruptions. While TELUS has reasonable physical security and cyberse-
curity programs in place, there can be no assurance that specific security
incidents will not materially affect our operations and financial results.
Business continuity
We are a key provider of essential telecommunications infrastructure
in Canada, along with operations and infrastructure in North America,
Asia, Europe and Central America. Our networks, information tech-
nology, physical assets, team members, business functions, supply
chain and business results may be materially impacted by exogenous
threats, including:
• Natural hazards, such as forest fires, severe weather, earthquakes
and other natural disasters
• Disruptions of critical infrastructure, such as power and
telecommunications
• Human-caused threats, such as cyberattacks, labour disputes,
theft, vandalism, sabotage, and political and civil unrest
• Public health threats, such as pandemics.
Risk mitigation: We have an enterprise-wide business continuity program,
which is aligned with our corporate philosophy that includes ensuring
the safety of our team members, minimizing the impacts of threats to our
facilities and business operations, maintaining service to our customers
and keeping our communities connected. These priorities have been
demonstrated in a number of disruptive events in 2017, such as the British
Columbia wildfires and the severe spring flooding in Ontario and Quebec.
Mitigation initiatives to address severe weather threats have been an
increasing focus and we have operationalized enhanced severe weather
monitoring, notification of key stakeholders, incident management
processes and climate incident playbooks that leverage the learnings
from prior events.
Our business continuity program aligns with the latest standards
and business practices, and encompasses mitigation, preparedness,
response, recovery and ongoing program improvements. The program
focuses on mitigating the impacts of a disruption to our facilities, work-
force, technology and supply chain. Although we have business continuity
planning processes in place, there can be no assurance that specific
events or a combination of events will not disrupt our operations or
materially affect our financial results.
Ongoing risk-based optimization of our disaster recovery capabilities
for our IT and telecommunications network assets is a key focus
for preventing outages and reducing impacts to our operations and
TELUS 2017 ANNUAL REPORT • 101
cus tomers. We are focused on driving closer alignment of IT and network
recovery capabilities with business requirements. However, while disaster
recovery is a focus for TELUS, not all of our systems have recovery and
continuity capabilities.
Real estate joint ventures (TELUS Garden and TELUS Sky)
Risks associated with our real estate joint ventures include possible
construction-related cost overruns, financing risks, reputational risks and
the uncertainty of future demand, especially during market downturns.
There can be no assurance that the real estate joint ventures will be
completed on budget or on time, or will obtain lease commitments as
planned. Accordingly, we are exposed to the risk of loss on our investment
and loan amounts, and a potential inability to service debt payments
should a project’s business plan not be successfully realized. Additionally,
reputational risks arise from the possibility that we may be unable to
meet our stated commitments and/or that the quality of the development
may not be consistent with TELUS brand expectations.
Risk mitigation: We have established joint ventures with partners
experienced in large commercial and residential real estate projects
to develop TELUS Garden (Westbank) in Vancouver and TELUS Sky
(Westbank and Allied REIT) in Calgary. The TELUS Garden residential
condominium project was substantially pre-sold prior to the commence-
ment of construction, and all of the residential condominium units were
transferred to the purchasers by the end of 2017. At the same time, lease
commitments for the TELUS Garden office project represented 99% of
leasable space, while the retail space within the TELUS Garden residential
project was 99% leased.
For projects in progress, budget-overrun risks have been mitigated
with fixed-price supply contracts (97% of TELUS Sky has had tenders
approved and contracts awarded), expert project management oversight
and insurance for certain risks. Costs for TELUS Sky continue to be
consistent with the approved budget plan and we are applying the
knowledge and experience gained on the TELUS Garden project to
streamline and improve the cost-effectiveness of TELUS Sky.
In response to the current economic conditions in Calgary, the
TELUS Sky partnership has taken a number of steps to better position
the development for success, including: moving to a single-phase
occupancy to delay the start dates of any potential office leases from
the first quarter of 2018 to the first quarter of 2019; revising revenue
projections and adjusting tenant inducements to align with current
market expectations; and evaluating various approaches to adjusting
the mix between office and residential, as well as creating a wider
range of residential offerings to address current market demand.
10.7 Financing, debt requirements
and returning cash to shareholders
Our business plans and growth could be negatively affected if
existing financing is not sufficient to cover funding requirements
Risk factors, such as disruptions in capital markets, regulatory require-
ments for an increase in bank capitalization, a reduction in lending
activity in general, or a reduction in the number of Canadian chartered
banks as a result of reduced activity or consolidation, could reduce the
availability of capital or increase the cost of such capital for investment
grade corporate issuers, such as TELUS. External capital market condi-
tions could potentially affect our ability to make strategic investments
and meet ongoing capital funding requirements.
Risk mitigation: We may finance future capital requirements with
internally generated funds, borrowings under the unutilized portion of
our bank credit facilities, use of securitized trade receivables, use of
commercial paper and/or the issuance of debt or equity securities.
We have a shelf prospectus in effect until April 2018, under which we
can offer up to $1.2 billion of debt or equity securities as of the date
of this MD&A. We believe that our investment grade credit ratings,
coupled with our efforts to maintain a constructive relationship with
banks, investors and credit rating agencies, continue to provide
reasonable access to capital markets.
To enable us to meet our financial objective of generally maintaining
$1 billion of available liquidity, we have a $2.25 billion credit facility that
expires on May 31, 2021 ($1.1 billion available at December 31, 2017),
as well as availability under other bank credit facilities (see Section 7.6
Credit facilities). In addition, TELUS Communications Inc. (TCI) has an
agreement with an arm’s-length securitization trust under which it is able
to sell an interest in certain of its trade receivables up to a maximum of
$500 million, of which $400 million was available at December 31, 2017
(see Section 7.7 Sale of trade receivables).
Ability to refinance maturing debt
At December 31, 2017, our long-term debt was approximately $13.8 billion,
with maturities in certain years from 2018 to 2048 (see the Long-term
debt principal maturities chart in Section 4.3). We operate a commercial
paper program (maximum of $1.4 billion) that currently permits access
to low-cost funding. At December 31, 2017, we had $1,140 million of
commercial paper outstanding, all of which was denominated in U.S.
dollars (US$908 million). When we issue commercial paper, it must
be refinanced on an ongoing basis in order to realize the cost savings
relative to borrowing on the $2.25 billion credit facility. Capital market
conditions may prohibit the roll-over of commercial paper at low rates.
Risk mitigation: We successfully completed a number of debt trans-
actions in 2016 and 2017 (see Section 7.4). As a result, the average term
to maturity of our long-term debt (excluding commercial paper and the
revolving component of the TELUS International credit facility) was
10.7 years at December 31, 2017 (as compared to 10.4 years at Decem-
ber 31, 2016). Foreign currency forward contracts are used to manage
currency risk arising from issuing commercial paper and long-term
debt denominated in U.S. dollars (excluding the TELUS International
credit facility). Our commercial paper program is fully backstopped
by our $2.25 billion credit facility.
A reduction in TELUS credit ratings could affect
our cost of capital and access to capital
Our cost of capital could increase and our access to capital could
be affected by a reduction in the credit ratings of TELUS and/or TCI.
There can be no assurance that we will maintain or improve current
credit ratings.
Risk mitigation: We manage our capital structure and make adjustments
to it in light of changes in economic conditions and the risk characteristics
of our telecommunications infrastructure. We have financial policies in
place that are reviewed annually and are intended to help maintain our
existing investment grade credit ratings in the range of BBB+ or the
equivalent. The four credit rating agencies that rate TELUS currently have
ratings that are in line with this target. A reduction in our ratings, from
the current BBB+ or equivalent, could result in a modest increase in our
funding cost but would not be expected to impact our ability to access
102 • TELUS 2017 ANNUAL REPORT
the public debt markets. Access to our $2.25 billion credit facility would
be maintained, even if our ratings were reduced to below BBB+.
Lower than planned free cash flow could constrain our ability to
invest in operations, reduce debt or return capital to shareholders
While future free cash flow and sources of capital are expected to be
sufficient to meet current requirements, our intention to return capital to
shareholders could constrain our ability to invest in our operations for
future growth. Funding of future spectrum licence purchases, funding of
defined benefit pension plans and any increases in corporate income tax
rates will reduce the after-tax cash flow otherwise available to return as
capital to our shareholders. Should actual results differ from our expecta-
tions, there can be no assurance that we will not change our financing
plans, including our intention to pay dividends according to our payout
policy guideline and to maintain our multi-year dividend growth program.
Shares may be purchased under our normal course issuer bid (NCIB)
when and if we consider it opportunistic, based on the Company’s financial
position and outlook, and the market price of our Common Shares. For
further detail on our multi-year dividend growth program and 2018 NCIB
program, see Section 4.3 Liquidity and capital resources.
Risk mitigation: Our Board of Directors reviews and approves the
dividend each quarter, based on a number of factors, including our
financial position and outlook.
Financial instruments
Our financial instruments, and the nature of credit risks, liquidity risks and
market risks that they may be subject to, are described in Section 7.9
Financial instruments, commitments and contingent liabilities.
10.8 Taxation matters
We are subject to the risk that income and commodity
tax amounts, including tax expense, may be materially different
than anticipated, and a general tendency by tax collection
authorities to adopt more interpretations and aggressive auditing
practices could adversely affect our financial condition and
operating results
We collect and pay significant amounts of commodity taxes, such
as goods and services taxes, harmonized sales taxes, provincial sales
taxes, sales and use taxes and value-added taxes, to various tax
authorities. As our operations are complex and the related tax interpre-
tations, regulations, legislation and jurisprudence that pertain to our
activities are subject to continual change and evolving interpretation,
the final outcome of the taxation of many transactions is uncertain.
Moreover, the implementation of new legislation in itself has its own
complexities, including those of execution where multiple systems
are involved, and interpretation of new rules as they apply to specific
transactions, products and services.
We have significant current and deferred income tax assets and
liabilities, income tax expenses and cash tax payments. Income tax
amounts are based on our estimates, using accounting principles that
recognize the benefit of income tax positions only when it is more likely
than not that the ultimate determination of the tax treatment of a position
will result in the related benefit being realized. The assessment of the
likelihood and amount of income tax benefits, as well as the timing of
realization of such amounts, can materially affect the determination
of Net income or cash flows. We expect the income taxes computed at
MD&A: RISKS AND RISK MANAGEMENT
applicable statutory rates to range between 26.7% and 27.3% in 2018.
These expectations can change as a result of changes in interpretations,
regulations, legislation or jurisprudence.
The timing concerning the monetization of deferred income tax
accounts is uncertain, as it is dependent on our future earnings and
other events. The amounts of deferred income tax liabilities are also
uncertain, as the amounts are based upon substantively enacted future
income tax rates that were in effect at the time, which can be changed
by tax authorities. As well, the amounts of cash tax payments and current
and deferred income tax liabilities are also based upon our anticipated
mix of revenues among the jurisdictions in which we operate, which is
also subject to change.
The audit and review activities of tax authorities affect the ultimate
determination of the actual amounts of commodity taxes payable or
receivable, income taxes payable or receivable, deferred income tax
liabilities, taxes on certain items included within capital and income
tax expense. Therefore, there can be no assurance that taxes will be
payable as anticipated and/or that the amount and timing of receipt
or use of the tax-related assets will be as currently expected.
TELUS International operates in certain foreign jurisdictions, including
Barbados, Bulgaria, El Salvador, Guatemala, India, Ireland, Philippines,
Romania, the United Kingdom and the United States, which increases
our exposure to multiple forms of taxation.
Generally, each jurisdiction has taxation peculiarities in the forms
of taxation imposed (e.g. value-added tax, gross receipts tax, stamp
and transfer tax, and income tax), legislation and tax treaties, where
applicable, as well as currency and language differences. In addition,
the telecommunications industry faces unique issues that lead to uncer-
tainty in the application of tax laws and the division of tax between
domestic and foreign jurisdictions. Furthermore, there has been a more
intense political, media and tax authority focus on taxation, with an
intent to enhance tax transparency and to address perceived tax abuses.
Accordingly, our activities may increase our exposure to tax risks, from
both a financial and a reputational perspective.
Risk mitigation: We follow a comprehensive tax conduct and risk
management policy that was adopted by our Board. This policy outlines
the principles underlying and guiding the roles of team members, their
responsibilities and personal conduct, the method of conducting business
in relation to tax law and the approaches to working relationships with
external tax authorities and external advisors. This policy recognizes the
requirement to comply with all relevant tax laws. The components neces-
sary for the effective control and mitigation of tax risk are outlined in the
policy, as is the delegation of authority to management on tax matters in
accordance with Board and Audit Committee communication guidelines.
In giving effect to this policy, we maintain an internal Taxation
department composed of professionals who stay current on domestic
and foreign tax obligations, supplemented where appropriate with
external advisors. This team reviews systems and process changes for
compliance with applicable domestic and international taxation laws
and regulations. Its members are also responsible for the specialized
accounting required for income taxes.
Material transactions are reviewed by our Taxation department
so that transactions of an unusual or non-recurring nature are assessed
from multiple risk-based perspectives. Tax-related transaction risks
are regularly communicated to, and reassessed by, our Taxation depart-
ment as a check to initial exposure assessments. As a matter of regular
practice, large transactions are reviewed by external tax advisors, while
TELUS 2017 ANNUAL REPORT • 103
other third-party advisors may also be engaged to express their views
as to the potential for tax liability. We continue to review and monitor our
activities so we can take action to comply with any related regulatory,
legal and tax obligations. In some cases, we also engage external advisors
to review TELUS’ systems and processes for tax-related compliance.
The advice provided and tax returns prepared by such advisors and
counsel are reviewed for reasonableness by our internal taxation team.
10.9 Litigation and legal matters
Investigations, claims and lawsuits
Given TELUS’ size, investigations, claims and lawsuits seeking damages
and other relief are regularly threatened or pending against us. It is not
currently possible for us to predict the outcome of such matters due to
various factors, including: the preliminary nature of some claims; unproven
damage theories and demands; incomplete factual records; the uncer-
tain nature of legal theories and procedures and their resolution by the
courts, at both the trial and the appellate levels; and the unpredictable
nature of opposing parties and their demands. There can be no assurance
that financial or operating results will not be negatively impacted by any
of these factors.
Subject to the foregoing limitations, management is of the opinion,
based upon legal assessments and the information presently available,
that it is unlikely that any liability, to the extent not provided for through
insurance or otherwise, would have a material effect on our financial
position and the results of our operations, excepting the items disclosed
herein and in Note 29(a) of the Consolidated financial statements.
Risk mitigation: We believe that we have in place reasonable policies
and processes designed to enable compliance with legal and contractual
obligations and reduce our exposure to, and the effect on us of, legal
claims. We also maintain a team of legal professionals who advise on
and manage risks related to claims and possible claims. See other risk
mitigation steps discussed below.
Class actions
We are defendant in a number of certified and uncertified class actions.
Over the past decade or more, we have observed a willingness on
the part of claimants to launch class actions whereby a representative
plaintiff seeks to pursue a legal claim on behalf of a large group of
persons. The number of class actions filed against us has varied from
year to year, with claimants continually looking to expand the matters in
respect of which they file class actions. The adoption by governments
of increasingly stringent consumer protection legislation may increase
the number of class actions by creating new causes of action, or may
decrease the number of class actions by improving clarity in the area
of consumer marketing and contracting. A successful class action
lawsuit, by its nature, could result in a sizable damage award that could
negatively affect a defendant’s financial or operating results. Certified
and uncertified class actions against us are detailed in Note 29(a) of the
Consolidated financial statements.
Assessment of class actions
We believe that we have good defences to each of these certified and
uncertified class actions. Should the ultimate resolution of these actions
differ from management’s assessments and assumptions, a material
adjustment to our financial position and the results of our operations
could result. Management’s assessments and assumptions include
that reliable estimates of the exposure cannot be made for the majority
of these class actions, considering continued uncertainty relating
to the causes of action that may ultimately be pursued by the plaintiffs
and certified by the courts and the nature of the damages that may
be sought by the plaintiffs.
Risk mitigation: We are vigorously defending each of the class actions
brought against TELUS or pursuing settlements that we deem to be
beneficial for us. This includes opposing certification of uncertified class
actions. Certification is a procedural step that determines whether a
particular lawsuit may be prosecuted by a representative plaintiff on
behalf of a class of individuals. Certification of a class action does not
determine the merits of the claim, so that, if we were unsuccessful
in defeating certification, the plaintiffs would still be required to prove
the merits of their claims. We regularly assess our business practices
and actively monitor class action developments in Canada and the
United States in order to identify and minimize the risk of further class
actions against us.
Civil liability in the secondary market
Like other Canadian public companies, we are subject to civil liability for
misrepresentations in written disclosure and oral statements, and liability
for fraud and market manipulation. Such legislation has been adopted in
most provinces and territories.
Risk mitigation: We continually monitor legal developments and annually
re-evaluate our disclosure practices and procedures. In addition, we
periodically consult external advisors to review our disclosure practices
and procedures and the extent to which they are documented. We have
a corporate disclosure policy that restricts the role of Company spokes-
persons to specifically designated members of senior management,
provides a protocol for communicating with investment analysts and
investors, as well as oral presentations, and outlines the communication
approach to issues, and our Disclosure Committee reviews key
disclosure documents.
Legal and ethical compliance
We rely on our employees, officers, Board of Directors, key suppliers
and other business partners to demonstrate behaviour consistent with
applicable legal and ethical standards in all jurisdictions within which we
operate, including, but not limited to, anti-bribery laws and regulations.
Situations might occur where individuals intentionally or inadvertently do
not adhere to our policies, applicable laws and regulations or contractual
obligations. For instance, there could be cases in which the personal
information of a TELUS customer or employee is collected, retained,
used or disclosed in a manner that is not fully compliant with legislation,
contractual obligations or TELUS policies. In the case of TELUS Health,
personal information includes sensitive health information about individuals
who are our customers or healthcare providers’ end customers. In addi-
tion, there could be situations where compliance programs may not be
fully adhered to, or where parties may have a different interpretation of
the requirements of particular legislative provisions. With TELUS Health
beginning to offer new services (such as virtual care and electronic
prescription), including directly to consumers and in some cases using
third-party partnerships, new risks arise across parameters such as
dependence on third-party suppliers for legal compliance / compliance
with medical professional standards, as well as the increased possibility
of political intervention. These various situations may expose us to
litigation and the possibility of damages, sanctions and fines, or of being
104 • TELUS 2017 ANNUAL REPORT
disqualified from bidding on contracts, and may negatively affect our
financial or operating results, reputation and brand.
We continue to expand our activities into the United States and other
countries. When operating in foreign jurisdictions, we are required to
comply with local laws and regulations, which may differ substantially
from Canadian laws and add to the regulatory, legal and tax exposures
that we face.
Risk mitigation: Although we cannot predict outcomes with certainty,
we believe that we have reasonable policies, controls and processes
in place, and levels of awareness sufficient for proper compliance, and
that these are having a positive effect on reducing risks. We have a
comprehensive code of ethics and conduct for our employees, including
officers and Board of Directors, and mandatory annual integrity training
for employees, officers and identified contractors, as well as a toll-free
EthicsLine for anonymous reporting by anyone who may have concerns
or complaints to bring forward. In early 2012, we implemented our
supplier code of conduct. In 2013, a specific anti-bribery and corruption
policy was approved by the Board of Directors and communicated to
team members. We conduct targeted mandatory training on anti-bribery
and corruption, as well as on our business sales code of conduct, and
we have mandatory annual training on privacy for all of our team members.
We have a designated Chief Data and Trust Officer, whose role is to work
across the enterprise to ensure that the business has appropriate pro-
cesses and controls in place to facilitate legal compliance and to report
on compliance to the Audit Committee. For example, as a proactive
measure on privacy compliance, we require a privacy impact assessment
to be carried out in the development stage for projects involving the use
of customer or team member personal information.
We have an established review process to ensure that regulatory,
legal and tax requirements are considered when pursuing opportunities
outside of Canada. On an ongoing basis, we review our international
structure, systems and processes to ensure that we mitigate regulatory,
legal and tax risks, as our business activities expand outside Canada.
We also engage with external counsel and advisors qualified in the
relevant foreign jurisdictions to provide regulatory, legal and tax advice,
as appropriate.
Defects in software and failures in data or transaction processing
We provide certain applications and managed services to our custom-
ers that involve the management, processing and/or storing of data,
including sensitive personal medical records, and the transfer of funds.
Software defects or failures in data or transaction processing could
lead to substantial damage claims (including privacy and medical claims).
For instance, a defect in a TELUS Health application could lead to
personal injury or unauthorized access to personal information, while
a failure in transaction processing could result in the transfer of funds
to the wrong recipient.
Risk mitigation: We believe that we have in place reasonable policies,
controls, processes (such as quality assurance programs in software
development procedures) and contractual arrangements (such as
disclaimers, indemnities and limitations of liability in most cases), as well
as insurance coverage, to reduce our exposure to these types of legal
claims. However, there can be no assurance that our processes will be
followed by all team members at all times and that we have indemnities
and limitations of liability covering all cases.
MD&A: RISKS AND RISK MANAGEMENT
Intellectual property and proprietary rights
Technology evolution also brings additional legal risks and uncertainties.
The intellectual property and proprietary rights of owners and developers
of hardware, software, business processes and other technologies may
be protected under statute, such as patent, copyright and industrial
design legislation, or under common law, such as trade secrets. With
the growth and development of technology-based industries, the value
of these intellectual property and proprietary rights has increased.
Significant damages may be awarded in intellectual property infringement
claims advanced by rights holders. In addition, defendants may incur
significant costs to defend such claims, and that possibility may prompt
defendants to settle claims more readily, in part to mitigate those costs.
Both of these factors may also encourage intellectual property rights
holders to pursue infringement claims more aggressively.
Given the vast array of technologies and systems that we use to
deliver products and services, and the rapid change and complexity of
such technologies, disputes over intellectual property and proprietary
rights can reasonably be expected to increase. As a user of technology,
we receive communications from time to time, ranging from solicitations
to demands and legal actions from third parties claiming ownership rights
over intellectual property used by us and asking for settlement payments
or licensing fees for the continued use of such intellectual property.
There can be no assurance that we will not be faced with other sig-
nificant claims based on the alleged infringement of intellectual property
rights, whether such claims are based on a legitimate dispute over
the validity of the intellectual property rights or their infringement, or are
advanced for the primary purpose of extracting a settlement. We may
incur significant costs in defending TELUS against infringement claims,
we may suffer significant damages and we could lose the right to use
technologies that are essential to our operations should any infringement
claim prove successful. As a developer of technology, TELUS Health
depends on its ability to protect the proprietary aspects of its technology.
The failure to do so adequately could materially affect our business.
However, policing unauthorized use of our intellectual property may be
difficult and costly.
Assessment of intellectual property claims
We believe that we have good defences to each of the intellectual
property claims against us. Should the ultimate resolution of these claims
differ from management’s assessments and assumptions, a material
adjustment to our financial position and the results of our operations
could result. Management’s assessments and assumptions include that
reliable estimates of the exposure cannot be made for the majority of
these claims considering continued uncertainty relating to the validity of
the intellectual property at issue, whether or not technology used by us
infringes upon that intellectual property, and the nature of the damages
that will be sought by the plaintiffs.
Risk mitigation: We incorporate many technologies into our products
and services. However, we are not primarily in the business of creating or
inventing technology. In acquiring products and services from suppliers,
it is our practice to seek and obtain contractual protections consistent
with standard industry practices to help mitigate the risks of intellectual
property infringements. Whenever creating or inventing technology (in the
case of TELUS Health), it is the practice of TELUS Health to protect its
intellectual property rights through litigation and other means.
TELUS 2017 ANNUAL REPORT • 105
10.10 Health, safety and environment
Team member health, wellness and safety
Lost work time resulting from team member illness or injury can nega-
tively affect organizational productivity and employee benefit costs.
Risk mitigation: To support team members’ overall well-being and to
achieve a positive effect on absenteeism in the workplace, we support
a holistic and proactive approach to team members’ health that involves
early intervention, health risk prevention, employee and family assistance,
assessment and support services, and disability management. Our health
and wellness strategy encourages our team members to develop optimal
personal health through five dimensions of well-being, including physical,
psychological, financial, social and environmental. To promote safe work
practices, we offer training and orientation programs for team members,
contractors and suppliers who access our facilities. There can be no
assurance that these health, wellness and safety programs and practices
will be effective in all situations.
Concerns related to radio frequency emissions
from mobile phones and wireless towers
TELUS understands there are public concerns over potential impacts
associated with low levels of non-ionizing radio frequency (RF) emissions
from mobile phones and cell towers.
To address these concerns, TELUS looks to recognized experts
with peer-reviewed findings, as well as government agencies, to provide
guidance on potential risks. While a small number of epidemiological
studies have revealed that exposure to RF fields might be linked to certain
cancers, other studies have not supported this association. Furthermore,
animal laboratory studies have found no evidence that RF fields are
carcinogenic for laboratory rodents or cause damage to DNA.
The International Agency for Research on Cancer (IARC) and Health
Canada have advised mobile phone users that they can take practical
measures to reduce their exposure to RF emissions, such as limiting the
length of cellphone calls, using hands-free devices and replacing cell-
phone calls with text messages. In addition, Health Canada encourages
parents to take these same measures to reduce their children’s RF emis-
sion exposure, since children are typically more sensitive to a variety of
environmental agents. We also offer information and advice with respect
to radio frequency emissions on our website at telus.com/support.
There can be no assurance that future studies, government regula-
tions or public concerns about the health effects of RF emissions will
not have an adverse effect on our business and prospects. For example,
public concerns or government action could reduce subscriber growth
and usage, and costs could increase as a result of the need to modify
handsets, relocate wireless towers and address any incremental legal
requirements and product liability lawsuits that might arise or have arisen.
See Class actions in Section 10.9 Litigation and legal matters.
Risk mitigation: Canada’s federal government is responsible for
establishing safe limits for signal levels of radio devices. We are confident
that the handsets and devices we sell, and our wireless towers and other
associated devices, comply, in all material respects, with all applicable
Canadian and U.S. government safety standards. We continue to monitor
new published studies, government regulations and public concerns
about the health impacts of RF exposure.
Concerns related to the environment
A detailed report of our environmental risk mitigation activities can be
found in our annual sustainability report at telus.com/sustainability.
Environmental issues affecting our business include:
Climate change
Failure of climate change mitigation and adaptation efforts is identified
as one of the largest global risks in terms of impact, according to a
World Economic Forum 2017 report. This could affect our business
operations through potential disruption of our operations, damage to our
infrastructure and the effects on the communities we serve caused by
events such as those described in Section 10.6 Operational performance.
Waste and waste recycling; water consumption
Several areas of our operations raise environmental considerations,
such as the handling and disposal of waste, electronic waste or other
residual materials, appropriate management of our water use and the
appropriate handling of materials and electronic equipment we use
or sell. Aspects of our operations are subject to evolving and increasingly
stringent federal, provincial and local environmental, health and safety
laws and regulations. Such laws and regulations impose requirements
with respect to matters such as the release of substances into the
environment, corrective and remedial action concerning such releases,
and the proper handling and management of substances, including
wastes. Evolving public expectations and increasingly stringent laws and
regulations could result in increased costs of compliance, while failure
to recognize and adequately respond to the same could result in fines,
regulatory scrutiny, or damage to our reputation and brand.
Fuel systems
We own or lease a large number of properties. We have fuel systems
for backup power generation at some of these properties that enable
us to provide reliable service, but they also pose an environmental risk.
Because diesel spills or releases from these systems are infrequent,
a significant portion of this risk is associated with sites contaminated
by our earlier practices or by previous owners.
Failure to recognize and adequately respond to changing government
and public expectations regarding environmental matters could result
in fines, regulatory scrutiny or damage to our brand.
Risk mitigation: Our climate change strategy includes a mitigation compo-
nent focusing on absolute energy use and carbon dioxide emission (CO2e)
equivalent reduction; an adaptation component focusing on business
continuity planning and readiness for the potential effects of a changing
climate on our operations (see Section 10.6 Operational performance);
and an innovation component to help customers realize their climate
change targets through product and service solutions. Our target is a
25% reduction in CO2e from 2010 levels by 2020 and a 10% reduction
in energy use over the same period. We are working to achieve these
targets through a comprehensive energy management program focused
on real estate transformation and consolidation (including leadership in
energy and environmental design (LEED) standards certification), as well
as network efficiency and technology upgrades. Greater use of video-
conferencing and teleconferencing solutions in lieu of travel, decreasing
the size and improving the efficiency of our fleet, and educating our
team members are also helping us to reach our targets. We have also
invested in renewable energy solutions and green building technology.
We have an e-waste management program that specifies approved
recycling channels for both our external and internal electronic products.
106 • TELUS 2017 ANNUAL REPORT
We regularly examine our waste streams to identify new ways of reducing
our impact on the environment through the diversion of waste from land-
fills, and we have corporate waste diversion targets focused on reducing
our landfilled waste by the end of 2020. Our waste and recycling strategy
is focused on education and awareness programs, as well as the expan-
sion of recycling infrastructure in our administrative buildings.
Fuel systems risk is being addressed through a program to install
containment and monitoring equipment at sites with systems of qualifying
size. All of our remote sites, which rely on diesel generators for 24/7
power, have been fully upgraded with industry-leading spill containment.
We are also leveraging our wireless network and using IoT technology
to monitor these sites remotely. We have an ongoing program to assess
and remediate contamination issues relating to historical activities and we
disclose and report on these issues to regulatory bodies, as appropriate.
10.11 Economic growth and fluctuations
Slow or uneven economic growth and fluctuating oil
prices may adversely affect us
We estimate economic growth in Canada will be approximately 2.2% in
2018 (see Economic growth in Section 1.2), but this growth may be influ-
enced by developments outside of Canada. In addition, macroeconomic
risks in Canada continue to include concerns about fluctuating oil prices
and high levels of consumer and mortgage debt, which may cause con-
sumers to reduce discretionary spending, even in a growing economy.
Economic uncertainty may cause consumers and business customers
to delay new service purchases, reduce volumes of use, discontinue use
of services or seek lower-priced alternatives from TELUS or from com-
petitors. Weakness in the extractive energy sector beginning in 2015 has
had a significant impact on Western Canada, including lower levels
of investment and employment. This was partially mitigated by declining
costs in non-extractive industries, such as manufacturing, which may
experience growth if the U.S. dollar strengthens. The prolonged economic
downturn in Western Canada improved significantly through 2017, with
economic growth projected to be 3.9% in Alberta and 3.4% in British
Columbia for 2017, as compared to 3.1% for Canada. Additionally, fore-
casts point to moderating but still positive growth in Western Canada
in 2018. However, fluctuating oil prices, along with housing market and
consumer debt risks in the Canadian economy, could adversely impact
our customer growth, revenue, profitability and free cash flow, and could
potentially require us to record impairments to the carrying value of our
assets, including, but not limited to, our intangible assets with indefinite
lives (spectrum licences and goodwill). Impairments to the carrying value
of our assets would result in a charge to earnings and a reduction in
owners’ equity, but would not affect cash flow.
A further risk to the Canadian economy is the ongoing negotiation
with the United States and Mexico around the North American Free Trade
Agreement (NAFTA). While NAFTA negotiations occurred throughout
most of 2017, recent reports suggest that there may be a stalemate over
key issues, leaving the entire agreement at risk. If the NAFTA Agreement
were to be terminated, this would result in significant trade-related risk
in the Canadian economy.
In 2017, the Canadian dollar exchange rate with the U.S. dollar
was volatile. Fluctuating oil prices, as well as the U.S. presidential admin-
istration’s activities and certain U.S. monetary policy changes, may put
further downward pressure on the Canadian dollar relative to the U.S.
MD&A: RISKS AND RISK MANAGEMENT
dollar in 2018. This will be particularly pronounced if the Federal Reserve
hikes overnight rates at a faster pace than the Bank of Canada, as a
growing interest rate differential would lift the U.S. dollar. Certain of our
revenues, capital asset acquisitions and operating costs are denominated
in U.S. dollars. Therefore, a continuing weakness in the Canadian dollar
to U.S. dollar exchange rate may negatively impact our financial and
operating results. Additionally, certain capital asset acquisitions and
inventory purchases from outside Canada, although priced in Canadian
dollars, may be negatively impacted by a continuing weakness in the
Canadian dollar to U.S. dollar exchange rate.
Risk mitigation: While economic risks cannot be completely mitigated,
our top priority of putting customers first and pursuing global leadership
in the likelihood of our clients to recommend our products, services and
people, support our efforts to acquire and retain customers. We will also
support customers negatively affected by fluctuating oil prices with cost-
effective solutions that help them realize efficiencies in their operations,
and we will continue to pursue cost reduction and efficiency initiatives in
our own business (see discussions in Section 2.2 Strategic imperatives
and Section 3 Corporate priorities). See Section 4.3 Liquidity and capital
resources for our capital structure financial policies and plans. Our foreign
currency exchange risk management includes the use of foreign cur-
rency forward contracts and currency options to fix the exchange rates
on U.S. dollar-denominated transactions, commitments, commercial
paper and U.S. Dollar Notes, but does not eliminate this risk entirely.
Pension funding
Economic and capital market fluctuations could adversely affect
the investment performance, funding and expense associated with the
defined benefit pension plans that we sponsor. Our pension funding
obligations are based on certain actuarial assumptions relating to expected
plan asset returns, salary escalation, retirement ages, life expectancy,
the performance of the financial markets and future interest rates.
The employee defined benefit pension plans, in aggregate, were in
a $334 million deficit position at December 31, 2017 (as compared to a
$79 million deficit position at the end of 2016). Our solvency position,
as determined under the Pension Benefits Standards Act, 1985, was
estimated to be a surplus of $255 million (as compared to a $253 million
surplus position at the end of 2016). There can be no assurance that
our pension expense and funding of our defined benefit pension plans
will not increase in the future and thereby negatively impact earnings
and/or cash flow. Defined benefit funding risks may arise if total pension
liabilities exceed the total value of the respective plan assets in trust funds.
Unfunded differences may arise from lower than expected investment
returns, changes to mortality and other assumptions, reductions in
the discount rate used to value pension liabilities, changes to statutory
funding requirements and actuarial losses. While employee defined
benefit pension plan re-measurements will cause fluctuations in other
comprehensive income, these re-measurements will never be subse-
quently reclassified to income.
Risk mitigation: We seek to mitigate this risk through the application of
policies and procedures designed to control investment risk and through
ongoing monitoring of our funding position. Our best estimate of cash
contributions to our defined benefit pension plans is $50 million in 2018
($66 million in 2017).
TELUS 2017 ANNUAL REPORT • 107
11 Definitions and reconciliations
11.1 Non-GAAP and
other financial measures
We have issued guidance on and report certain non-GAAP measures that
are used to evaluate the performance of TELUS, as well as to determine
compliance with debt covenants and to manage our capital structure.
As non-GAAP measures generally do not have a standardized meaning,
they may not be comparable to similar measures presented by other
issuers. Securities regulations require such measures to be clearly defined,
qualified and reconciled with their nearest GAAP measure.
Adjusted Net income and adjusted basic earnings per share:
These measures are used to evaluate performance at a consolidated
level and exclude items that may obscure the underlying trends in
business performance. These measures should not be considered
alternatives to Net income and basic earnings per share in measuring
TELUS’ performance. Items that may, in management’s view, obscure
the underlying trends in business performance include significant
gains or losses associated with real estate development partnerships,
gains on exchange of wireless spectrum licences, restructuring and
other costs, long-term debt prepayment premiums (when applicable),
income tax-related adjustments, asset retirements related to restructuring
activities and gains arising from business combinations. (See Analysis
of Net income and Analysis of basic EPS in Section 1.3.)
Capital intensity: This measure is calculated as capital expenditures
(excluding spectrum licences) divided by total operating revenues. This
measure provides a basis for comparing the level of capital expenditures
to those of other companies of varying size within the same industry.
Dividend payout ratio: This is a historical measure calculated as the
sum of the last four quarterly dividends declared per Common Share,
as reported in the financial statements, divided by the sum of basic
earnings per share for the most recent four quarters for interim reporting
periods. For fiscal years, the denominator is annual basic earnings per
share. Our objective range for the annual dividend payout ratio is on a
prospective basis, rather than on a trailing basis, and is 65 to 75% of
sustainable earnings per share on a prospective basis. (See Section 7.5
Liquidity and capital resource measures.)
Calculation of Dividend payout ratio
Years ended December 31 ($)
2017
2016
Dividend payout ratio of adjusted net earnings: This ratio is a historical
measure calculated as the sum of the last four quarterly dividends declared
per Common Share, as reported in the financial statements, divided by
adjusted net earnings per share. Adjusted net earnings per share is basic
earnings per share, as used in the Dividend payout ratio, adjusted to
exclude the gain on the exchange of wireless spectrum licences, net gains
and equity income from real estate joint venture developments, provisions
related to business combinations, immediately vesting transformative
compensation (transformative compensation) expense, long-term debt pre-
payment premium (when applicable) and income tax-related adjustments.
Calculation of Dividend payout ratio of adjusted net earnings
Years ended December 31 ($)
2017
2016
Numerator – sum of the last four quarterly
dividends declared per Common Share
1.97
1.84
Adjusted net earnings ($ millions):
Net income attributable to Common Shares
1,460
1,223
Deduct net gains and equity income from
real estate joint venture developments,
after income taxes
Deduct gain on the exchange of wireless
spectrum licences, after income taxes
Provisions related to business combinations,
(1)
–
(16)
(13)
after income taxes
(22)
15
Add back transformative compensation expense,
after income taxes
–
224
Add back net unfavourable (deduct net favourable)
income tax-related adjustments
Denominator – Adjusted net earnings
per Common Share
Adjusted ratio (%)
21
(17)
1,458
1,416
2.46
80
2.39
77
Earnings coverage: This measure is defined in the Canadian Securities
Administrators’ National Instrument 41-101 and related instruments, and
is calculated as follows:
Calculation of Earnings coverage
Years ended December 31 ($ millions, except ratio)
Net income attributable to Common Shares
Income taxes (attributable to Common Shares)
Borrowing costs (attributable to Common Shares)1
2017
1,460
546
562
2016
1,223
423
540
2,568
2,186
562
4.6
540
4.0
Numerator – sum of the last four quarterly
dividends declared per Common Share
Denominator – Net income per Common Share
Ratio (%)
1.97
2.46
80
1.84
2.06
89
Numerator
Denominator – Borrowing costs
Ratio (times)
1
Interest on Long-term debt plus Interest on short-term borrowings and other plus
long-term debt prepayment premium, adding back capitalized interest and deducting
borrowing costs attributable to non-controlling interests.
108 • TELUS 2017 ANNUAL REPORT
EBITDA (earnings before interest, income taxes, depreciation
and amortization): We have issued guidance on and report EBITDA
because it is a key measure used to evaluate performance at a consoli-
dated level. EBITDA is commonly reported and widely used by investors
and lending institutions as an indicator of a company’s operating per-
formance and ability to incur and service debt, and as a valuation metric.
EBITDA should not be considered an alternative to Net income in
measuring TELUS’ performance, nor should it be used as an exclusive
measure of cash flow. EBITDA as calculated by TELUS is equivalent
to Operating revenues less the total of Goods and services purchased
expense and Employee benefits expense.
We calculate EBITDA – excluding restructuring and other costs,
as it is a component of the EBITDA – excluding restructuring and
other costs interest coverage ratio and the Net debt to EBITDA –
excluding restructuring and other costs ratio.
We may also calculate Adjusted EBITDA to exclude items of
an unusual nature that do not reflect our ongoing operations and should
not, in our opinion, be considered in a valuation metric, or should not be
included in an assessment of our ability to service or incur debt.
EBITDA reconciliation
Years ended December 31 ($ millions)
Net income
Financing costs
Income taxes
Depreciation
Amortization of intangible assets
EBITDA
Add back restructuring and
2017
1,479
573
553
1,617
552
4,774
2016
1,236
520
426
1,564
483
4,229
other costs included in EBITDA1
139
479
EBITDA – excluding restructuring
and other costs
Deduct gain on the exchange of wireless
spectrum licences
Deduct net gains and equity income from
real estate joint venture developments
Deduct MTS net recovery
Adjusted EBITDA
–
(1)
(21)
(15)
(26)
–
4,891
4,667
1
Includes transformative compensation expense of $305 million recorded in other
costs in the fourth quarter of 2016.
EBITDA – excluding restructuring and other costs interest
coverage: This measure is defined as EBITDA – excluding restructuring
and other costs, divided by Net interest cost, calculated on a 12-month
trailing basis. This measure is similar to the coverage ratio covenant in
our credit facilities, as described in Section 7.6 Credit facilities.
MD&A: DEFINITIONS AND RECONCILIATIONS
Free cash flow calculation
Years ended December 31 ($ millions)
EBITDA
2017
4,774
2016
4,229
Deduct gain on the exchange of wireless
spectrum licences
Deduct net gains and equity income
from real estate joint venture developments
Deduct non-cash gains from the
sale of property, plant and equipment
Restructuring and other costs, net of disbursements
Items from the Consolidated statements of cash flows:
Share-based compensation
Net employee defined benefit plans expense
Employer contributions to employee
defined benefit plans
Interest paid
Interest received
-
–
(1)
(7)
(21)
17
82
(67)
(539)
7
(15)
(26)
(17)
24
(2)
93
(71)
(510)
4
Capital expenditures (excluding spectrum licences)
(3,094)
(2,968)
Other
Free cash flow before income taxes
Income taxes paid, net of refunds
Free cash flow
6
1,157
(191)
966
–
741
(600)
141
The following reconciles our definition of free cash flow with cash
provided by operating activities.
Free cash flow reconciliation with
Cash provided by operating activities
Years ended December 31 ($ millions)
Free cash flow
Add (deduct):
2017
966
2016
141
Adjustments to reconcile to Cash provided by
operating activities
Cash provided by operating activities
(113)
3,947
110
3,219
Net debt: We believe that net debt is a useful measure because it repre-
sents the amount of Short-term borrowings and long-term debt obligations
that are not covered by available Cash and temporary investments. The
nearest IFRS measure to net debt is Long-term debt, including Current
maturities of Long-term debt. Net debt is a component of the Net debt
to EBITDA – excluding restructuring and other costs ratio.
Calculation of Net debt
As at December 31 ($ millions)
2017
2016
Long-term debt including current maturities
13,660
12,931
4,913
4,708
Capital expenditures (excluding spectrum licences)
3,094
2,968
Free cash flow: We report this measure as a supplementary indicator of
our operating performance. It should not be considered an alternative to
Debt issuance costs netted against long-term debt
Derivative liabilities, net
73
93
67
20
the measures in the Consolidated statements of cash flows. Free cash flow
Accumulated other comprehensive income amounts
excludes certain working capital changes (such as trade receivables and
trade payables), proceeds from divested assets and other sources and
uses of cash, as found in the Consolidated statements of cash flows. It pro-
vides an indication of how much cash generated by operations is available
after capital expenditures (excluding purchases of spectrum licences) that
may be used to, among other things, pay dividends, repay debt, purchase
arising from financial instruments used to manage
interest rate and currency risks associated with
U.S. dollar-denominated long-term debt
(excluding tax effects)
Cash and temporary investments
Short-term borrowings
shares or make other investments. Free cash flow may be supplemented
Net debt
from time to time by proceeds from divested assets or financing activities.
5
(509)
100
(34)
(432)
100
13,422
12,652
TELUS 2017 ANNUAL REPORT • 109
Net debt to EBITDA – excluding restructuring and other costs:
This measure is defined as net debt at the end of the period divided
by 12-month trailing EBITDA – excluding restructuring and other costs.
Our long-term policy guideline for this ratio is from 2.00 to 2.50 times.
(See discussion in Section 7.5 Liquidity and capital resource measures.)
This measure is similar to the leverage ratio covenant in our credit
facilities, as described in Section 7.6 Credit facilities.
Net interest cost: This measure is the denominator in the calculation
of EBITDA – excluding restructuring and other costs interest
coverage. Net interest cost is defined as financing costs, excluding
capitalized long-term debt interest, employee defined benefit plans
11.2 Operating indicators
The following measures are industry metrics that are useful in assessing
the operating performance of a wireless and wireline telecommunications
entity, but do not have a standardized meaning under IFRS-IASB.
Average revenue per subscriber unit per month (ARPU) for wireless
subscribers is calculated as network revenue divided by the average
number of subscriber units on the network during the period and is
expressed as a rate per month.
Churn per month (or churn) is calculated as the number of subscriber
units deactivated during a given period divided by the average number of
net interest and recoveries on redemption and repayment of debt,
subscriber units on the network during the period and is expressed as a
calculated on a 12-month trailing basis. No recoveries on redemption
rate per month. A TELUS, Koodo or Public Mobile brand prepaid wireless
and repayment of debt were recorded in 2017 and 2016. Expenses
subscriber is deactivated when the subscriber has no usage for 90 days
recorded for the long-term debt prepayment premium, if any, are included
following expiry of the prepaid credits.
in net interest cost. Net interest cost was $567 million in 2017 and
$566 million in 2016.
Wireless subscriber unit (subscriber) is defined as an active mobile
recurring revenue-generating unit (e.g. mobile phone, tablet or mobile
Restructuring and other costs: With the objective of reducing
ongoing costs, we incur associated incremental, non-recurring restruc-
Internet key) with a unique subscriber identifier (SIM or IMEI number).
In addition, TELUS has a direct billing or support relationship with the
turing costs. We may also incur atypical charges, which are included
user of each device. Subscriber units exclude machine-to-machine
in other costs, when undertaking major or transformational changes to
devices (a subset of the Internet of Things), such as those used for
our business or operating models. In addition, we include incremental
asset tracking, remote control monitoring and meter readings, vending
external costs incurred in connection with business acquisition or
disposition activity, as well as litigation costs, in the context of significant
losses and settlements, in other costs.
In the fourth quarter of 2016, we made transformative compensation
lump-sum payments to substantially all of our existing unionized and
non-unionized Canadian-situated workforces that were recorded in
other costs.
machines and wireless automated teller machines.
Wireline subscriber connection is defined as an active recurring
revenue-generating unit that has access to stand-alone services, including
fixed Internet access, TELUS TV and residential network access lines
(NALs). In addition, TELUS has a direct billing or support relationship with
the user of each service. Reported subscriber units exclude business
NALs, as the impact of migrating from voice lines to IP services has led to
Components of restructuring and other costs
business NAL losses without a similar decline in revenue, thus diminishing
Years ended December 31 ($ millions)
Goods and services purchased
Employee benefits expense1
Restructuring and other costs
included in EBITDA
2017
103
36
139
2016
62
417
479
1
Includes transformative compensation expense of $305 million recorded in other
costs in the fourth quarter of 2016.
its relevance as a key performance indicator.
110 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Report of management on internal control
over financial reporting
Management of TELUS Corporation (TELUS, or the Company) is
Based on the assessment referenced in the preceding paragraph,
responsible for establishing and maintaining adequate internal control
management has determined that the Company’s internal control over
over financial reporting and for its assessment of the effectiveness of
financial reporting is effective as of December 31, 2017. In connection
internal control over financial reporting.
with this assessment, no material weaknesses in the Company’s internal
TELUS’ President and Chief Executive Officer and Executive
control over financial reporting were identified by management as of
Vice-President and Chief Financial Officer have assessed the effective-
December 31, 2017.
ness of the Company’s internal control over financial reporting as of
Deloitte LLP, an Independent Registered Public Accounting Firm,
December 31, 2017, in accordance with the criteria established in Internal
audited the Company’s Consolidated financial statements for the year
Control – Integrated Framework (2013) issued by the Committee of
ended December 31, 2017, and as stated in the Report of Independent
Sponsoring Organizations of the Treadway Commission. Internal control
Registered Public Accounting Firm, they have expressed an unqualified
over financial reporting is a process designed by, or under the super-
opinion on the effectiveness of the Company’s internal control over
vision of, the President and Chief Executive Officer and the Executive
financial reporting as of December 31, 2017.
Vice-President and Chief Financial Officer and effected by the Board of
Directors, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.
Due to its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements on a timely basis. Also, projec-
tions of any evaluation of the effectiveness of internal control over financial
Doug French
Darren Entwistle
reporting to future periods are subject to the risk that the controls may
Executive Vice-President
President
become inadequate because of changes in conditions, or that the
and Chief Financial Officer
and Chief Executive Officer
degree of compliance with the policies or procedures may deteriorate.
February 8, 2018
February 8, 2018
TELUS 2017 ANNUAL REPORT • 111
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of TELUS Corporation
of the PCAOB. Those standards require that we plan and perform
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of
TELUS Corporation and subsidiaries (the Company), which comprise the
consolidated statements of financial position as at December 31, 2017
and December 31, 2016, the consolidated statements of income and
other comprehensive income, consolidated statements of changes in
owners’ equity and consolidated statements of cash flows for the years
then ended, and the related notes, including a summary of significant
accounting policies and other explanatory information (collectively referred
to as the financial statements).
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31,
2017 and December 31, 2016, and its financial performance and its
cash flows for the years then ended, in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement, whether due to fraud or
error. Those standards also require that we comply with ethical require-
ments. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the
PCAOB. Further, we are required to be independent of the Company
in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and to fulfill our other ethical
responsibilities in accordance with these requirements.
An audit includes performing procedures to assess the risks of
material misstatement of the financial statements, whether due to fraud
or error, and performing procedures that respond to those risks. Such
procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. The procedures
selected depend on our judgment, including the assessment of the risks
Report on Internal Control over Financial Reporting
We have also audited, in accordance with the standards of the Public
of material misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal
Company Accounting Oversight Board (United States) (PCAOB), the
control relevant to the Company’s preparation and fair presentation of
Company’s internal control over financial reporting as of December 31,
the financial statements in order to design audit procedures that are
2017, based on criteria established in Internal Control – Integrated
appropriate in the circumstances. An audit also includes evaluating the
Framework (2013) issued by the Committee of Sponsoring Organizations
appropriateness of accounting policies and principles used and the
of the Treadway Commission and our report dated February 8, 2018,
reasonableness of accounting estimates made by management, as well
expressed an unqualified opinion on the Company’s internal control over
as evaluating the overall presentation of the financial statements.
financial reporting.
Basis for Opinion
We believe that the audit evidence we have obtained in our audits
is sufficient and appropriate to provide a reasonable basis for our
audit opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of
these financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards
Board, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free
Deloitte LLP
from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards and the standards
Chartered Professional Accountants
Vancouver, Canada
February 8, 2018
We have served as the Company’s auditor since 2002.
112 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of TELUS Corporation
Definition and Limitations of Internal Control
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TELUS
Corporation and subsidiaries (the Company) as of December 31, 2017,
based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control
– Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB)
and Canadian generally accepted auditing standards, the consolidated
financial statements as of and for the year ended December 31, 2017,
of the Company and our report dated February 8, 2018, expressed an
unmodified/unqualified opinion on those financial statements.
over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
Basis for Opinion
The Company’s management is responsible for maintaining effective
regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material
internal control over financial reporting and for its assessment of the
effect on the financial statements.
effectiveness of internal control over financial reporting, included in the
Because of its inherent limitations, internal control over financial
accompanying Report of Management on Internal Control over Financial
reporting may not prevent or detect misstatements. Also, projections
Reporting. Our responsibility is to express an opinion on the Company’s
of any evaluation of effectiveness to future periods are subject to
internal control over financial reporting based on our audit. We are a
the risk that controls may become inadequate because of changes
public accounting firm registered with the PCAOB and are required to
in conditions, or that the degree of compliance with the policies or
be independent with respect to the Company in accordance with the
procedures may deteriorate.
U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit
Deloitte LLP
included obtaining an understanding of internal control over financial
Chartered Professional Accountants
reporting, assessing the risk that a material weakness exists, testing
Vancouver, Canada
and evaluating the design and operating effectiveness of internal control
February 8, 2018
based on the assessed risk, and performing such other procedures as
we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
TELUS 2017 ANNUAL REPORT • 113
Consolidated statements of income
and other comprehensive income
Years ended December 31 (millions except per share amounts)
Note
2017
2016
7
8
17
18
9
10
11
Operating Revenues
Service
Equipment
Revenues arising from contracts with customers
Other operating income
Operating Expenses
Goods and services purchased
Employee benefits expense
Depreciation
Amortization of intangible assets
Operating Income
Financing costs
Income Before Income Taxes
Income taxes
Net Income
Other Comprehensive Income
Items that may subsequently be reclassified to income
Change in unrealized fair value of derivatives designated as cash flow hedges
Foreign currency translation adjustment arising from translating financial
statements of foreign operations
Change in unrealized fair value of available-for-sale financial assets
Item never subsequently reclassified to income
Employee defined benefit plans re-measurements
Comprehensive Income
Net Income Attributable to:
Common Shares
Non-controlling interests
Comprehensive Income Attributable to:
Common Shares
Non-controlling interests
Net Income Per Common Share
12
Basic
Diluted
Total Weighted Average Common Shares Outstanding
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
114 • TELUS 2017 ANNUAL REPORT
$ 12,478
$ 12,000
724
13,202
102
13,304
5,935
2,595
1,617
552
725
12,725
74
12,799
5,631
2,939
1,564
483
10,699
10,617
2,605
573
2,032
553
1,479
19
5
(11)
13
(172)
(159)
2,182
520
1,662
426
1,236
(20)
5
–
(15)
–
(15)
$ 1,320
$ 1,221
$ 1,460
$ 1,223
19
13
$ 1,479
$ 1,236
$ 1,297
$ 1,206
23
15
$ 1,320
$ 1,221
$ 2.46
$ 2.46
$ 2.06
$ 2.06
593
593
592
593
Consolidated statements of financial position
CONSOLIDATED FINANCIAL STATEMENTS
As at December 31 (millions)
Assets
Current assets
Cash and temporary investments, net
Accounts receivable
Income and other taxes receivable
Inventories
Prepaid expenses
Current derivative assets
Non-current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill, net
Other long-term assets
Liabilities and Owners’ Equity
Current liabilities
Short-term borrowings
Accounts payable and accrued liabilities
Income and other taxes payable
Dividends payable
Advance billings and customer deposits
Provisions
Current maturities of long-term debt
Current derivative liabilities
Non-current liabilities
Provisions
Long-term debt
Other long-term liabilities
Deferred income taxes
Liabilities
Owners’ equity
Common equity
Non-controlling interests
Contingent Liabilities
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Directors:
William A. MacKinnon
Director
R.H. Auchinleck
Director
TELUS 2017 ANNUAL REPORT • 115
Note
2017
2016
$ 509
$ 432
1,623
1,471
96
378
260
18
9
318
233
11
2,884
2,474
11,368
10,658
4,217
421
26,664
$ 29,548
10,464
10,364
3,787
640
25,255
$ 27,729
$ 100
2,460
$ 100
2,330
34
299
782
78
1,404
33
5,190
492
12,256
847
2,500
16,095
21,285
8,221
42
8,263
37
284
737
124
1,327
12
4,951
395
11,604
736
2,107
14,842
19,793
7,917
19
7,936
$ 29,548
$ 27,729
6
1(p)
4(h)
17
18
18
20
22
23
13
24
25
26
4(h)
25
26
27
10(b)
28
29
Consolidated statements of changes in owners’ equity
Common equity
Equity contributed
Common Shares (Note 28)
(millions)
Note
Number of
shares
Share Contributed
surplus
capital
Retained
earnings
Accumulated
other
comprehensive
income
Non-
controlling
interests
Total
Total
Balance as at January 1, 2016
594
$ 5,050
$ 135
$ 2,428
$ 59 $ 7,672
$ –
$ 7,672
Net income
Other comprehensive income
Dividends
11
13
Treasury shares acquired
14(a), 28(b)
Shares settled from Treasury
14(a), 28(b)
Share option award net-equity
settlement feature
14(d)
Normal course issuer bid
purchase of Common Shares
Reversal of opening liability
for automatic share purchase
plan commitment pursuant
to normal course issuer bids
for Common Shares
28(b)
Change in ownership interests
of subsidiary
1(a), 31(b)
–
–
–
(1)
1
–
(4)
–
–
–
–
–
(45)
44
–
–
–
–
–
2
(2)
1,223
–
(1,091)
–
(3)
–
(36)
–
(129)
14
–
46
–
239
–
–
1,223
13
1,236
(17)
(17)
–
–
–
–
–
–
–
(1,091)
(45)
41
–
(165)
60
239
2
–
–
–
–
–
–
4
(15)
(1,091)
(45)
41
–
(165)
60
243
Balance as at December 31, 2016
590
$ 5,029
$ 372
$ 2,474
$ 42 $ 7,917
$ 19
$ 7,936
Balance as at January 1, 2017
590
$ 5,029
$ 372
$ 2,474
$ 42 $ 7,917
$ 19
$ 7,936
Net income
Other comprehensive income
Dividends
Dividends reinvested and
optional cash payments
Share option award net-equity
11
13
settlement feature
14(d)
Issue of shares in business
combination
Other
–
–
–
2
1
2
–
–
–
–
71
2
100
3
–
–
–
–
(2)
–
–
1,460
(172)
(1,167)
–
–
–
–
–
9
–
–
–
–
–
1,460
(163)
(1,167)
71
–
100
3
19
1,479
4
–
–
–
–
–
(159)
(1,167)
71
–
100
3
Balance as at December 31, 2017
595
$ 5,205
$ 370
$ 2,595
$ 51 $ 8,221
$ 42
$ 8,263
The accompanying notes are an integral part of these consolidated financial statements.
116 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statements of cash flows
Years ended December 31 (millions)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Note
2017
2016
$ 1,479
$ 1,236
Depreciation and amortization
Deferred income taxes
Share-based compensation expense, net
Net employee defined benefit plans expense
Employer contributions to employee defined benefit plans
Other
Net change in non-cash operating working capital
Cash provided by operating activities
Investing Activities
Cash payments for capital assets, excluding spectrum licences
Cash payments for spectrum licences
Cash payments for acquisitions, net
Real estate joint ventures advances and contributions
Real estate joint ventures receipts
Proceeds on dispositions
Other
Cash used by investing activities
Financing Activities
Dividends paid to holders of Common Shares
Purchases of Common Shares for cancellation
Long-term debt issued
Redemptions and repayment of long-term debt
Issue of shares by subsidiary to non-controlling interests
Other
Cash used by financing activities
Cash Position
Increase in cash and temporary investments, net
Cash and temporary investments, net, beginning of period
Cash and temporary investments, net, end of period
Supplemental Disclosure of Operating Cash Flows
Interest paid
Interest received
Income taxes paid, net
The accompanying notes are an integral part of these consolidated financial statements.
10
14(a)
15(b),(g)
31(a)
31(a)
18(b)
21(c)
21(c)
31(b)
13(a)
28(b)
26
26
1(a)
2,169
430
17
82
(67)
(21)
(142)
3,947
2,047
(42)
(2)
93
(71)
29
(71)
3,219
(3,081)
(2,752)
–
(564)
(26)
18
28
(18)
(145)
(90)
(33)
103
3
(9)
(3,643)
(2,923)
(1,082)
–
6,367
(5,502)
(1)
(9)
(227)
77
432
(1,070)
(179)
5,726
(4,843)
294
(15)
(87)
209
223
$ 509
$ 432
$ (539)
$ 7
$ (191)
$ (510)
$ 4
$ (600)
TELUS 2017 ANNUAL REPORT • 117
Notes to consolidated financial statements
December 31, 2017
Notes to consolidated financial statements
Page
TELUS Corporation is one of Canada’s largest telecommunications
companies, providing a wide range of telecommunications services
and products, including wireless and wireline voice and data. Data
services include: Internet protocol; television; hosting, managed infor-
mation technology and cloud-based services; healthcare solutions;
business process outsourcing; and home security.
TELUS Corporation was incorporated under the Company Act
GENERAL APPLICATION
1. Summary of significant accounting policies
2. Accounting policy developments
3. Capital structure financial policies
4. Financial instruments
CONSOLIDATED RESULTS OF OPERATIONS FOCUSED
5. Segment information
(British Columbia) on October 26, 1998, under the name BCT.TELUS
6. Revenue from contracts with customers
Communications Inc. (BCT). On January 31, 1999, pursuant to
7. Other operating income
a court-approved plan of arrangement under the Canada Business
8. Employee benefits expense
Corporations Act among BCT, BC TELECOM Inc. and the former
Alberta-based TELUS Corporation (TC), BCT acquired all of the shares
of BC TELECOM Inc. and TC in exchange for Common Shares and
Non-Voting Shares of BCT, and BC TELECOM Inc. was dissolved.
On May 3, 2000, BCT changed its name to TELUS Corporation and in
February 2005, TELUS Corporation transitioned under the Business
Corporations Act (British Columbia), successor to the Company Act
(British Columbia). TELUS Corporation maintains its registered office at
9. Financing costs
10. Income taxes
11. Other comprehensive income
12. Per share amounts
13. Dividends per share
14. Share-based compensation
15. Employee future benefits
Floor 7, 510 West Georgia Street, Vancouver, British Columbia, V6B 0M3.
16. Restructuring and other costs
The terms “TELUS”, “we”, “us”, “our” or “ourselves” are used
CONSOLIDATED FINANCIAL POSITION FOCUSED
to refer to TELUS Corporation and, where the context of the narrative
permits or requires, its subsidiaries.
17. Property, plant and equipment
18. Intangible assets and goodwill
19. Leases
20. Other long-term assets
21. Real estate joint ventures
22. Short-term borrowings
23. Accounts payable and accrued liabilities
24. Advance billings and customer deposits
25. Provisions
26. Long-term debt
27. Other long-term liabilities
28. Common Share capital
29. Contingent liabilities
OTHER
30. Related party transactions
31. Additional statement of cash flow information
119
126
132
133
139
140
141
141
142
142
144
145
145
146
149
155
156
157
162
162
163
165
165
165
166
167
169
170
170
173
174
118 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1
1 Summary of significant accounting policies
Our consolidated financial statements are expressed in Canadian
dollars. The generally accepted accounting principles that we use are
International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS-IASB) and Canadian generally
accepted accounting principles.
Generally accepted accounting principles require that we disclose
the accounting policies we have selected in those instances where we
have been obligated to choose from among various accounting policies
that comply with generally accepted accounting principles. In certain
other instances, including those in which no selection among policies is
allowed, we are also required to disclose how we have applied certain
Accounting policy
GENERAL APPLICATION
(a) Consolidation
(b) Use of estimates and judgments
(c) Financial instruments –
recognition and measurement
accounting policies. In the selection and application of accounting
(d) Hedge accounting
policies we consider, among other factors, the fundamental qualitative
RESULTS OF OPERATIONS FOCUSED
characteristics of useful financial information, namely relevance and
faithful representation. In our assessment, our required accounting
policy disclosures are not all equally significant for us, as set out in the
accompanying table; their relative significance for us will evolve over
time as we do.
These consolidated financial statements for each of the years
ended December 31, 2017 and 2016, were authorized by our Board
of Directors for issue on February 8, 2018.
(a) Consolidation
Our consolidated financial statements include our accounts and
(e) Revenue recognition
(f) Government assistance
(g) Cost of acquisition and advertising costs
(h) Research and development
(i) Depreciation, amortization and impairment
(j) Translation of foreign currencies
(k) Income and other taxes
(l) Share-based compensation
(m) Employee future benefit plans
FINANCIAL POSITION FOCUSED
the accounts of all of our subsidiaries, the principal one of which is
(n) Cash and temporary investments, net
TELUS Communications Inc., in which we have a 100% equity interest.
TELUS Communications Inc. includes substantially all of our wireless
and wireline operations.
Our financing arrangements and those of our wholly owned
subsidiaries do not impose restrictions on inter-corporate dividends.
On a continuing basis, we review our corporate organization and
effect changes as appropriate so as to enhance the value of TELUS
Corporation. This process can, and does, affect which of our subsidiaries
(o) Sales of trade receivables
(p) Inventories
(q) Property, plant and equipment;
intangible assets
(r) Leases
(s) Investments
Accounting policy
requiring a more significant
choice among policies
and/or a more significant
application of judgment
Yes
No
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
are considered principal subsidiaries at any particular point in time.
In connection with the issuance of shares to Baring Private Equity Asia,
During the year ended December 31, 2016, there was a change in
our ownership interest in our TELUS International (Cda) Inc. subsidiary,
we have also arranged bank financing in the subsidiary company,
as set out in Note 26(f).
which encompasses our TELUS International operations, resulting from
the issuance of shares to Baring Private Equity Asia for approximately
$302 million, exclusive of net transaction costs. We continue to control
(b) Use of estimates and judgments
The preparation of financial statements in conformity with generally
and consolidate this subsidiary, and the shares it issued to Baring
accepted accounting principles requires management to make
Private Equity Asia are accounted for as a 35% non-controlling interest.
estimates, assumptions and judgments that affect: the reported amounts
Associated with this transaction, an amount equal to 35% of the net
of assets and liabilities at the date of the financial statements; the
book value of the subsidiary has been credited to non-controlling interest
disclosure of contingent assets and liabilities at the date of the financial
in our Consolidated statements of changes in owners’ equity, and the
statements; and the reported amounts of revenues and expenses during
net balance of the proceeds has been credited to contributed surplus.
the reporting period. Actual results could differ from those estimates.
TELUS 2017 ANNUAL REPORT • 119
Estimates
Examples of the significant estimates and assumptions that we make, and their relative significance and degree of difficulty, are set out in the graphic below.
Higher
Lower
DEGREE OF DIFFICULTY
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• The recoverability of intangible assets
with indefinite lives (see Note 18(e) for
discussion of key assumptions)
• The recoverability of goodwill (see Note 18(e)
for discussion of key assumptions)
• Certain actuarial and economic
assumptions used in determining defined
benefit pension costs and accrued
pension benefit obligations (see Note 15(e)
for discussion of key assumptions)
• Determination of the amount and
• The estimated useful lives of assets
composition of income and other tax
assets and liabilities, including the
amount of unrecognized tax benefits
(see (i) following)
• Certain economic assumptions used in
provisioning for asset retirement obligations
(see (q) following)
• Amounts for net identifiable assets acquired
in business combinations and provisions
related to business combinations
• The recoverability of long-term investments
• The recoverability of tangible and intangible
• Determination of the allowance
assets subject to amortization
for doubtful accounts
• Determination of the allowance
for inventory obsolescence
Judgments
that no equipment revenue is recognized upon the transfer of
Examples of our significant judgments, apart from those involving
inventory to third-party re-sellers.
estimation, include the following:
• The decision to depreciate and amortize any property, plant,
• Assessments about whether line items are sufficiently material to
equipment and intangible assets that are subject to amortization
warrant separate presentation in the primary financial statements
on a straight-line basis, as we believe that this method reflects the
and, if not, whether they are sufficiently material to warrant separate
consumption of resources related to the economic lifespan of those
presentation in the notes to the financial statements. In the normal
assets better than an accelerated method and is more representative
course, we make changes to our assessments regarding materiality
of the economic substance of the underlying use of those assets.
for presentation so that they reflect current economic conditions.
• The preparation of financial statements in accordance with generally
Due consideration is given to the view that it is reasonable to expect
accepted accounting principles requires management to make
differing opinions of what is, and is not, material.
judgments that affect the financial statement disclosure of information
•
In respect of revenue-generating transactions, we must make
regularly reviewed by our chief operating decision-maker used to make
judgments that affect the timing of the recognition of revenue. See
resource allocation decisions and to assess performance (segment
Note 2(b) for significant changes to IFRS-IASB which are not yet
information, Note 5). A significant judgment we make is in respect of
effective and have not yet been applied, but which will significantly
distinguishing between our wireless and wireline operations and cash
affect the timing of the recognition of revenue and the classification
flows, such distinction having been significantly affected by the conver-
of revenues presented as either service or equipment revenues.
gence and integration of our wireless and wireline telecommunications
• We must make judgments about when we have satisfied our
infrastructure technology and operations. Less than one-half of the
performance obligations to our customers, either over a period
operating expenses included in the segment performance measure
of time or at a point in time. Service revenues are recognized based
currently reported to our chief operating decision-maker are direct
upon customers’ access to, or usage of, our telecommunications
costs; judgment, largely based upon historical experience, is applied
infrastructure; we believe that this method faithfully depicts the
in apportioning indirect costs which are not objectively distinguishable
transfer of the services, and thus the revenues are recognized
between our wireless and wireline operations.
as the services are made available and/or rendered. We consider
Through December 31, 2015, our judgment was that our wireless
our performance obligations arising from the sale of equipment
and wireline telecommunications infrastructure technology and opera-
to have been satisfied when the equipment has been delivered
tions had not experienced sufficient convergence to objectively make
to, and accepted by, the end-user customers (see (e) following).
their respective operations and cash flows practically indistinguishable.
• Principally in the context of revenue-generating transactions
The continued build-out of our technology-agnostic fibre-optic infra-
involving wireless handsets, we must make judgments about
structure, in combination with converged edge network technology,
whether third party re-sellers that deliver equipment to our cus-
has significantly affected this judgment, as has the commercialization
tomers are acting in the transaction as principals or as our agents.
of fixed-wireless solutions.
Upon due consideration of the relevant indicators, we believe
It has become increasingly impractical to objectively distinguish
that the decision to consider the re-sellers to be acting, solely for
between our wireless and wireline operations and cash flows, and the
accounting purposes, as our agents is more representative of the
assets from which those cash flows arise. Our judgment as to whether
economic substance of the transactions, as we are the primary
these operations can continue to be judged to be individual compo-
obligor to the end-user customers. The effect of this judgment is
nents of the business and discrete operating segments may change.
120 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1
The increasing impracticality of objectively distinguishing between
corporate and administrative assets, to our cash-generating units
our wireless and wireline cash flows, and the assets from which those
when determining their carrying amounts. These judgments are
cash flows arise, is evidence of their increasing interdependence;
necessary because of the convergence that our wireless and wireline
this may result in the unification of the wireless cash-generating unit
telecommunications infrastructure technology and operations have
and the wireline cash-generating unit as a single cash-generating
experienced to date, and because of our continuous development.
unit for impairment testing purposes in the future. As our business
There are instances in which similar judgments must also be made
continues to evolve, new cash-generating units may develop.
in respect of future capital expenditures in support of both wireless
• The view that our spectrum licences granted by Innovation, Science
and wireline operations, which are a component of the determination
and Economic Development Canada will likely be renewed; that
of recoverable amounts used in the annual impairment testing,
we intend to renew them; that we believe we have the financial and
as discussed further in Note 18(e).
operational ability to renew them; and thus, that they have an
•
In respect of claims and lawsuits, as discussed further in Note 29(a),
indefinite life, as discussed further in Note 18(d).
the determination of whether an item is a contingent liability or whether
•
In connection with the annual impairment testing of intangible assets
an outflow of resources is probable and thus needs to be accounted
with indefinite lives and goodwill, there are instances in which we
for as a provision.
must exercise judgment in allocating our net assets, including shared
(c) Financial instruments – recognition and measurement
In respect of the recognition and measurement of financial instruments, we have adopted the following policies:
Financial instrument
Measured at amortized cost
Accounts receivable
Construction credit facilities advances to real estate joint ventures
Short-term obligations
Accounts payable
Provisions
Long-term debt
Measured at fair value
Cash and temporary investments
Long-term investments (not subject to significant influence)4
Foreign exchange derivatives
Share-based compensation derivatives
Accounting classification
Fair value
through net
income1,2
Loans and
receivables
Available-
for-sale3
Other
financial
liabilities
Part of a cash
flow hedging
relationship3
X**
X**
X**
X**
X**
X**
X*
X*
X*
X***
X
X
* Will be classified as fair value through net income upon application of IFRS 9, Financial Instruments, as discussed further in Note 2(b).
** Will be classified as amortized cost upon application of IFRS 9, Financial Instruments, as discussed further in Note 2(b).
*** On an investment-by-investment basis, will be classified as either fair value through net income or fair value through other comprehensive income upon application of IFRS 9,
Financial Instruments, as discussed further in Note 2(b).
1 Classification includes financial instruments held for trading. Certain qualifying financial instruments that are not required to be classified as held for trading may be classified as
held for trading if we so choose.
2 Unrealized changes in the fair values of financial instruments are included in net income.
3 Unrealized changes in the fair values of financial instruments classified as available-for-sale, or the effective portion of unrealized changes in the fair values of financial instruments
held for hedging, are included in other comprehensive income.
4 Long-term investments over which we do not have significant influence are classified as available-for-sale. In respect of investments in securities for which the fair values can be
reliably measured, we determine the classification on an investment-by-investment basis at the time of initial recognition.
• Trade receivables that may be sold to an arm’s-length securitization
In respect of hedges of anticipated transactions, hedge gains/
trust are accounted for as loans and receivables. We have selected
losses are included with the expenditure and are expensed when
this classification as the benefits of selecting the available-for-sale
the transaction is recognized in our results of operations. We have
classification were not expected to exceed the costs of selecting and
selected this method as we believe that it results in a better matching
implementing that classification.
of the hedge gains/losses with the risk exposure being hedged.
• Long-term investments over which we do not have significant
Derivatives that are not part of a documented cash flow hedging
influence are accounted for as available-for-sale. We have selected
relationship are accounted for as held for trading and thus are
this classification as we believe that it better reflects management’s
measured at fair value through net income.
investment intentions.
• Regular-way purchases or sales of financial assets or financial
• Derivatives that are part of an established and documented cash
liabilities (purchases or sales that require actual delivery of financial
flow hedging relationship are accounted for as held for hedging.
assets or financial liabilities) are recognized on the settlement date.
We believe that classification as held for hedging results in a better
We have selected this method as the benefits of using the trade
matching of the change in the fair value of the derivative financial
date method were not expected to exceed the costs of selecting
instrument with the risk exposure being hedged.
and implementing that method.
TELUS 2017 ANNUAL REPORT • 121
• Transaction costs, other than in respect of items held for trading,
(e) Revenue recognition
are added to the initial fair value of the acquired financial asset or
financial liability. We have selected this method as we believe that
it results in a better matching of the transaction costs with the
periods in which we benefit from the transaction costs.
(d) Hedge accounting
General
General
We earn the majority of our revenues (wireless: network revenues
(voice and data); wireline: data revenues (which include: Internet protocol;
television; hosting, managed information technology and cloud-based
services; business process outsourcing; certain healthcare solutions; and
home security) and voice revenues) from access to, and usage of, our
telecommunications infrastructure. The majority of the balance of our
We apply hedge accounting to the financial instruments used to:
revenues (wireless equipment and other) arises from providing services
establish designated currency hedging relationships for certain U.S.
and products facilitating access to, and usage of, our telecommunica-
dollar-denominated future purchase commitments and debt repayments,
tions infrastructure.
as set out in Note 4(a) and (d); and fix the compensation cost arising
We offer complete and integrated solutions to meet our
from specific grants of restricted stock units, as set out in Note 4(f) and
customers’ needs. These solutions may involve deliveries of multiple
discussed further in Note 14(b).
Hedge accounting
The purpose of hedge accounting, in respect of our designated hedging
relationships, is to ensure that counterbalancing gains and losses
are recognized in the same periods. We have chosen to apply hedge
accounting as we believe this is more representative of the economic
substance of the underlying transactions.
In order to apply hedge accounting, a high correlation (which indicates
effectiveness) is required in the offsetting changes in the risk-associated
values of the financial instruments (the hedging items) used to establish
the designated hedging relationships and all, or a part, of the asset,
liability or transaction having an identified risk exposure that we have
taken steps to modify (the hedged items). We assess the anticipated
effectiveness of designated hedging relationships at inception and their
actual effectiveness for each reporting period thereafter. We consider
a designated hedging relationship to be effective if the following critical
terms match between the hedging item and the hedged item: the
notional amount of the hedging item and the principal amount of the
hedged item; maturity dates; payment dates; and interest rate index
(if, and as, applicable). As set out in Note 4(i), any ineffectiveness, such
as would result from a difference between the notional amount of the
hedging item and the principal amount of the hedged item, or from a
previously effective designated hedging relationship becoming ineffective,
is reflected in the Consolidated statements of income and other com-
prehensive income as Financing costs if in respect of long-term debt, as
Goods and services purchased if in respect of U.S. dollar-denominated
future purchase commitments or as Employee benefits expense if in
respect of share-based compensation.
Hedging assets and liabilities
In the application of hedge accounting, an amount (the hedge value) is
recorded in the Consolidated statements of financial position in respect
of the fair value of the hedging items. The net difference, if any, between
the amounts recognized in the determination of net income and the
amounts necessary to reflect the fair value of the designated cash flow
hedging items recorded in the Consolidated statements of financial
position is recognized as a component of Other comprehensive income,
as set out in Note 11.
In the application of hedge accounting to the compensation cost
arising from share-based compensation, the amount recognized in the
determination of net income is the amount that counterbalances the
difference between the quoted market price of our Common Shares at
the statement of financial position date and the price of our Common
Shares in the hedging items.
services and products that occur at different points in time and/or
over different periods of time; as referred to in (b), this is a significant
judgment for us. As appropriate, these multiple element arrangements
are separated into their component accounting units, consideration
is measured and allocated among the accounting units based upon
their relative fair values (derived using Company-specific objective
evidence) and our relevant revenue recognition policies are then applied
to the accounting units. (We estimate that approximately two-thirds
of our revenues arise from multiple element arrangements.) A limitation
cap restricts the consideration allocated to services or products
currently transferred in multiple element arrangements to an amount
that is not contingent upon either delivering additional items or meeting
other specified performance conditions. A new revenue accounting
standard, which has not yet been applied but must be adopted by
January 1, 2018, prohibits the use of a limitation cap, as discussed
further in Note 2.
When we receive no identifiable, separable benefit for consideration
given to a customer (e.g. discounts and rebates), the consideration is
recorded as a reduction of revenue rather than as an expense.
Multiple contracts with a single customer are normally accounted
for as separate arrangements. In instances where multiple contracts are
entered into with a customer in a short period of time, the contracts are
reviewed as a group to ensure that, as with multiple element arrange-
ments, their relative fair values are appropriate.
Lease accounting is applied to an accounting unit if it conveys to a
customer the right to use a specific asset but does not convey the risks
and/or benefits of ownership.
Our revenues are recorded net of any value-added and/or sales taxes
billed to the customer concurrent with a revenue-generating transaction.
Voice and data
We recognize revenues on an accrual basis and include an estimate of
revenues earned but unbilled. Wireless and wireline service revenues are
recognized based upon access to, and usage of, our telecommunications
infrastructure and upon contract fees.
Advance billings are recorded when billing occurs prior to provision
of the associated services; such advance billings are recognized as
revenue in the period in which the services are provided. Similarly,
and as appropriate, upfront customer activation and connection fees
are deferred and recognized over the average expected term of the
customer relationship.
We use the liability method of accounting for the amounts of our
quality of service rate rebates that arise from the jurisdiction of the
Canadian Radio-television and Telecommunications Commission (CRTC).
122 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1
The CRTC has established a mechanism to subsidize local exchange
development costs are amortized over the life of the related commercial
carriers, such as ourselves, that provide residential basic telephone service
production, or in the case of serviceable property, plant and equipment,
to high cost serving areas. The CRTC has determined the per network
are included in the appropriate property group and are depreciated over
access line/per band subsidy rate for all local exchange carriers. We recog-
the group’s estimated useful life.
nize the subsidy on an accrual basis by applying the subsidy rate to the
number of residential network access lines we provide in high cost serving
(i) Depreciation, amortization and impairment
areas, as discussed further in Note 7. Differences, if any, between interim
and final subsidy rates set by the CRTC are accounted for as a change in
estimate in the period in which the CRTC finalizes the subsidy rate.
Other and wireless equipment
Depreciation and amortization
Assets are depreciated on a straight-line basis over their estimated
useful lives as determined by a continuing program of asset life studies.
Depreciation includes amortization of assets under finance leases and
We recognize product revenues, including amounts related to wireless
amortization of leasehold improvements. Leasehold improvements are
handsets sold to re-sellers and customer premises equipment, when the
normally amortized over the lesser of their expected average service life or
products are both delivered to and accepted by the end-user customers,
the term of the lease. Intangible assets with finite lives (intangible assets
irrespective of which supply channel delivers the product. With respect
subject to amortization) are amortized on a straight-line basis over their
to wireless handsets sold to re-sellers, we consider ourselves to be the
estimated useful lives, which are reviewed at least annually and adjusted
principal and primary obligor to the end-user customers. Revenues from
as appropriate. As referred to in (b), the use of a straight-line basis of
operating leases of equipment are recognized on a systematic and rational
basis (normally a straight-line basis) over the term of the lease.
depreciation and amortization is a significant judgment for us.
Estimated useful lives for the majority of our property, plant and
Non-high cost serving area deferral account
In an effort to foster competition for residential basic service in non-
high cost serving areas, the concept of a deferral account mechanism
was introduced by the CRTC in 2002 as an alternative to mandating
price reductions. We use the liability method of accounting for the
equipment subject to depreciation are as follows:
Network assets
Outside plant
Inside plant
deferral account. We discharge the deferral account liability by under-
Wireless site equipment
Estimated useful lives1
17 to 40 years
4 to 25 years
5 to 7 years
taking qualifying actions. We recognize the amortization (over a period
Balance of depreciable property, plant and equipment
3 to 40 years
no longer than three years) of a proportionate share of the deferral
account as qualifying actions are completed. Such amortization is
included as a component of government assistance in Other operating
1 The composite depreciation rate for the year ended December 31, 2017, was 5.0%
(2016 – 5.0%). The rate is calculated by dividing depreciation expense by an average
of the gross book value of depreciable assets over the reporting period.
income, as set out in Note 7.
Estimated useful lives for the majority of our intangible assets subject to
Estimated useful lives
25 years
4 to 10 years
2 to 10 years
5 to 30 years
(f) Government assistance
We recognize government assistance amounts on an accrual basis as the
subsidized services are provided or as the subsidized costs are incurred.
amortization are as follows:
Wireline subscriber base
Customer contracts, related customer relationships
As set out in Note 7, government assistance amounts are included in the
and leasehold interests
Consolidated statements of income and other comprehensive income
Software
as Other operating income.
(g) Cost of acquisition and advertising costs
The total cost of wireless equipment sold to customers and any com-
Access to rights-of-way and other
Impairment – general
Impairment testing compares the carrying values of the assets or
missions and advertising and promotion costs related to initial customer
cash-generating units being tested with their recoverable amounts (the
acquisition are expensed as incurred; the cost of equipment we own that
recoverable amount being the greater of an asset’s or a cash-generating
is situated at customers’ premises and associated installation costs are
unit’s value in use or its fair value less costs to sell); as referred to in
capitalized as incurred. Costs of acquiring customers that are expensed
(b), this is a significant estimate for us. Impairment losses are immediately
are included in the Consolidated statements of income and other compre-
recognized to the extent that the carrying value of an asset or cash-
hensive income as a component of Goods and services purchased, with
generating unit exceeds its recoverable amount. Should the recoverable
the exception of amounts paid to our employees, which are included as
amounts for impaired assets or cash-generating units subsequently
Employee benefits expense. Costs of advertising production, advertising
increase, the impairment losses previously recognized (other than in
airtime and advertising space are expensed as incurred.
respect of goodwill) may be reversed to the extent that the reversal is
See Note 2(b) for significant changes to IFRS-IASB which we will
apply commencing with our fiscal year ended December 31, 2018,
not a result of “unwinding of the discount” and that the resulting carrying
values do not exceed the carrying values that would have been the
and which will significantly affect the timing of the recognition of costs
result if no impairment losses had been previously recognized.
of acquiring customers.
(h) Research and development
Research and development costs are expensed unless development
costs meet certain identifiable criteria for capitalization. Capitalized
Impairment – property, plant and equipment; intangible assets
subject to amortization
The continuing program of asset life studies considers such items as the
timing of technological obsolescence, competitive pressures and future
infrastructure utilization plans; these considerations could also indicate
TELUS 2017 ANNUAL REPORT • 123
that the carrying value of an asset may not be recoverable. If the carrying
that are more likely than not to be realized. The amounts recognized
value of an asset were not considered to be recoverable, an impairment
loss would be recorded.
Impairment – intangible assets with indefinite lives; goodwill
The carrying values of intangible assets with indefinite lives and goodwill
are periodically tested for impairment. The frequency of the impairment
testing is generally the reciprocal of the stability of the relevant events and
circumstances, but intangible assets with indefinite lives and goodwill
must, at a minimum, be tested annually; we have selected December as
our annual test date.
We assess our intangible assets with indefinite lives by comparing
the recoverable amounts of our cash-generating units to their carrying
values (including the intangible assets with indefinite lives allocated to a
cash-generating unit, but excluding any goodwill allocated to a cash-
generating unit). To the extent that the carrying value of a cash-generating
unit (including the intangible assets with indefinite lives allocated to
the cash-generating unit, but excluding any goodwill allocated to the
cash-generating unit) exceeds its recoverable amount, the excess amount
would be recorded as a reduction in the carrying value of intangible
assets with indefinite lives.
Subsequent to assessing intangible assets with indefinite lives,
we assess goodwill by comparing the recoverable amounts of cash-
generating units to their carrying values (including the intangible assets
with indefinite lives and the goodwill allocated to a cash-generating unit).
To the extent that the carrying value of a cash-generating unit (including
the intangible assets with indefinite lives and the goodwill allocated
to the cash-generating unit) exceeds its recoverable amount, the excess
amount would first be recorded as a reduction in the carrying value
of goodwill and any remainder would be recorded as a reduction in
the carrying values of the assets of the cash-generating unit on a
pro-rated basis.
in respect of deferred income tax assets and liabilities are based upon
the expected timing of the reversal of temporary differences or the
usage of tax losses and the application of the substantively enacted
tax rates at the time of reversal or usage.
We account for any changes in substantively enacted income tax rates
affecting deferred income tax assets and liabilities in full in the period in
which the changes are substantively enacted. We account for changes
in the estimates of tax balances for prior years as estimate revisions in
the period in which changes in the estimates arise; we have selected this
approach as its emphasis on the statement of financial position is more
consistent with the liability method of accounting for income taxes.
Our operations are complex and the related tax interpretations,
regulations, legislation and jurisprudence are continually changing.
As a result, there are usually some tax matters in question that result in
uncertain tax positions. We only recognize the income tax benefit of an
uncertain tax position when it is more likely than not that the ultimate
determination of the tax treatment of the position will result in that benefit
being realized. We accrue an amount for interest charges on current tax
liabilities that have not been funded, which would include interest and
penalties arising from uncertain tax positions. We include such charges
in the Consolidated statements of income and other comprehensive
income as a component of Financing costs.
Our research and development activities may be eligible to earn
Investment Tax Credits, for which the determination of eligibility is a
complex matter. We only recognize Investment Tax Credits when there
is reasonable assurance that the ultimate determination of the eligibility
of our research and development activities will result in the Investment
Tax Credits being received, at which time they are accounted for using
the cost reduction method, whereby such credits are deducted from the
expenditures or assets to which they relate, as set out in Note 10(c).
(j) Translation of foreign currencies
Trade transactions completed in foreign currencies are translated into
(l) Share-based compensation
General
Canadian dollars at the rates of exchange prevailing at the time of the
When share-based compensation vests in its entirety at one future point in
transactions. Monetary assets and liabilities denominated in foreign
time (cliff vesting), we recognize the expense on a straight-line basis over
currencies are translated into Canadian dollars at the rate of exchange in
the vesting period. When share-based compensation vests in tranches
effect at the statement of financial position date, with any resulting gain
or loss recorded in the Consolidated statements of income and other
comprehensive income as a component of Financing costs, as set out in
(graded vesting), we recognize the expense using the accelerated expense
attribution method. An estimate of forfeitures during the vesting period
is made at the date of grant of such share-based compensation; this
Note 9. Hedge accounting is applied in specific instances, as discussed
estimate is adjusted to reflect actual experience.
further in (d) preceding.
We have foreign subsidiaries that do not have the Canadian dollar
as their functional currency. Foreign exchange gains and losses arising
from the translation of these foreign subsidiaries’ accounts into Canadian
dollars subsequent to January 1, 2010, the date of our transition to
IFRS-IASB, are reported as a component of other comprehensive income,
as set out in Note 11.
(k) Income and other taxes
We follow the liability method of accounting for income taxes; as referred
to in (b), this is a significant estimate for us. Under this method, current
income taxes are recognized for the estimated income taxes payable for
Restricted stock units
In respect of restricted stock units without market performance conditions,
as set out in Note 14(b), we accrue a liability equal to the product of the
number of vesting restricted stock units multiplied by the fair market
value of the corresponding Common Shares at the end of the reporting
period (unless hedge accounting is applied, as set out in (d) preceding).
Similarly, we accrue a liability for the notional subset of our restricted
stock units with market performance conditions using a fair value deter-
mined using a Monte Carlo simulation. The expense for restricted stock
units that do not ultimately vest is reversed against the expense that
was previously recorded in their respect.
the current year. Deferred income tax assets and liabilities are recognized
Share option awards
for temporary differences between the tax and accounting bases of assets
A fair value for share option awards is determined at the date of grant
and liabilities, and also for any benefits of losses and Investment Tax
and that fair value is recognized in the financial statements. Proceeds
Credits available to be carried forward to future years for tax purposes
arising from the exercise of share option awards are credited to share
124 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1
capital, as are the recognized grant-date fair values of the exercised
share option awards.
(o) Sales of trade receivables
Sales of trade receivables in securitization transactions are recognized
Share option awards that have a net-equity settlement feature, as
as collateralized short-term borrowings and thus do not result in our
set out in Note 14(d), are accounted for as equity instruments. We have
de-recognition of the trade receivables sold.
selected the equity instrument fair value method of accounting for the
net-equity settlement feature as it is consistent with the accounting
treatment afforded to the associated share option awards.
(m) Employee future benefit plans
Defined benefit plans
We accrue amounts for our obligations under employee defined benefit
plans and the related costs, net of plan assets. The cost of pensions and
other retirement benefits earned by employees is actuarially determined
using the accrued benefit method pro-rated on service and management’s
best estimates of salary escalation and the retirement ages of employees.
In the determination of net income, net interest for each plan, which is
(p) Inventories
Our inventories primarily consist of wireless handsets, parts and
accessories (totalling $320 million (2016 – totalling $266 million)) and
communications equipment held for resale. Inventories are valued
at the lower of cost and net realizable value, with cost being determined
on an average cost basis. Previous write-downs to net realizable value
are reversed if there is a subsequent increase in the value of the related
inventories. Costs of goods sold for the year ended December 31, 2017,
totalled $1.95 billion (2016 – $1.84 billion).
(q) Property, plant and equipment; intangible assets
the product of the plan’s surplus (deficit) multiplied by the discount rate,
General
is included as a component of Financing costs, as set out in Note 9.
Property, plant and equipment and intangible assets are recorded
An amount reflecting the effect of differences between the discount
at historical cost, which for self-constructed property, plant and equip-
rate and the actual rate of return on plan assets is included as a com-
ponent of employee defined benefit plan re-measurements within Other
ment includes materials, direct labour and applicable overhead costs.
For internally developed, internal-use software, the historical cost
comprehensive income, as set out in Note 11 and Note 15. We determine
recorded includes materials, direct labour and direct labour-related
the maximum economic benefit available from the plans’ assets on the
costs. Where property, plant and equipment construction projects
basis of reductions in future contributions to the plans.
are of sufficient size and duration, an amount is capitalized for the cost
On an annual basis, at a minimum, the defined benefit plan key
assumptions are assessed and revised as appropriate; as referred to
of funds used to finance construction, as set out in Note 9. The rate
for calculating the capitalized financing cost is based on our weighted
in (b), these are significant estimates for us. When the defined benefit
average cost of borrowing experienced during the reporting period.
plan key assumptions fluctuate significantly relative to their immediately
When we sell property, plant and/or equipment, the net book value
preceding year-end values, actuarial gains (losses) arising from such
is netted against the sale proceeds and the difference, as set out in
significant fluctuations are recognized on an interim basis.
Note 7, is included in the Consolidated statements of income and other
Defined contribution plans
comprehensive income as Other operating income.
We use defined contribution accounting for the Telecommunication
Asset retirement obligations
Workers Pension Plan and the British Columbia Public Service Pension
Provisions for liabilities, as set out in Note 25, are recognized for statutory,
Plan, which cover certain of our employees and provide defined benefits
contractual or legal obligations, normally when incurred, associated with
to their members. In the absence of any regulations governing the
the retirement of property, plant and equipment (primarily certain items of
calculation of the share of the underlying financial position and plan per-
outside plant and wireless site equipment) when those obligations result
formance attributable to each employer-participant, and in the absence of
from the acquisition, construction, development and/or normal operation
contractual agreements between the plans and the employer-participants
related to the financing of any shortfall (or distribution of any surplus),
we account for these plans as defined contribution plans in accordance
of the assets; as referred to in (b), this is a significant estimate for us.
The obligations are measured initially at fair value, which is determined
using present value methodology, and the resulting costs are capitalized
with International Accounting Standard 19, Employee Benefits.
as a part of the carrying value of the related asset. In subsequent periods,
(n) Cash and temporary investments, net
Cash and temporary investments, which may include investments
the liability is adjusted for the accretion of discount, for any changes
in the market-based discount rate and for any changes in the amount
or timing of the underlying future cash flows. The capitalized asset
in money market instruments that are purchased three months or less
retirement cost is depreciated on the same basis as the related asset
from maturity, are presented net of outstanding items, including cheques
and the discount accretion, as set out in Note 9, is included in the
written but not cleared by the related banks as at the statement of finan-
Consolidated statements of income and other comprehensive income
cial position date. Cash and temporary investments, net, are classified
as a component of Financing costs.
as a liability in the statement of financial position when the total amount
of all cheques written but not cleared by the related banks exceeds the
amount of cash and temporary investments. When cash and temporary
(r) Leases
Leases are classified as finance or operating depending upon the terms
investments, net, are classified as a liability, they may also include
and conditions of the contracts. See Note 2 for significant changes to
overdraft amounts drawn on our bilateral bank facilities, which revolve
IFRS-IASB which are not yet effective, but which we will apply in fiscal
daily and are discussed further in Note 22.
2019, and which will significantly affect the timing of the recognition of
operating lease expenses and their recognition in the Consolidated
statement of financial position, as well as their classification in both the
TELUS 2017 ANNUAL REPORT • 125
Consolidated statement of income and other comprehensive income
We account for our other investments as available-for-sale at their
and the Consolidated statement of cash flows.
fair values unless they are investment securities that do not have quoted
Where we are the lessee, asset values recorded under finance
market prices in an active market or do not have other clear and objective
leases are amortized on a straight-line basis over the period of expected
evidence of fair value. When we do not account for our available-for-sale
use. Obligations recorded under finance leases are reduced by lease
investments at their fair values, we use the cost basis of accounting,
payments net of imputed interest.
whereby the investments are initially recorded at cost and earnings from
those investments are recognized only to the extent received or receivable.
(s) Investments
We account for our investments in companies over which we have
The costs of investments sold or the amounts reclassified from other
comprehensive income to earnings are determined on a specific-
significant influence using the equity method of accounting, whereby the
identification basis.
investments are initially recorded at cost and subsequently adjusted to
Unless there is a significant or prolonged decline in the value of an
recognize our share of earnings or losses of the investee companies and
available-for-sale investment, the carrying values of available-for-sale
any earnings distributions received. The excess of the cost of an equity
investments are adjusted to their estimated fair values, and the amount
investment over its underlying book value at the date of acquisition,
of any such adjustment is included in the Consolidated statement of
except for goodwill, is amortized over the estimated useful lives of the
income and other comprehensive income as a component of other
underlying assets to which the excess cost is attributed.
comprehensive income. When there is a significant or prolonged decline
Similarly, we account for our interests in the real estate joint ventures,
discussed further in Note 21, using the equity method of accounting.
in the value of an investment, the carrying value of any such investment
accounted for using the equity, available-for-sale or cost method is
Unrealized gains and losses from transactions with (including contribu-
reduced to its estimated fair value, and the amount of any such reduction
tions to) the real estate joint ventures are deferred in proportion to our
is included in the Consolidated statement of income and other compre-
remaining interest in the real estate joint ventures.
hensive income as Other operating income.
2 Accounting policy developments
(a) Initial application of standards, interpretations
and amendments to standards and interpretations
in the reporting period
In January 2016, the International Accounting Standards Board
Accounting Standards Board on July 22, 2015; we are retrospectively
applying the new standard effective January 1, 2018. The International
Accounting Standards Board and the Financial Accounting Standards
Board of the United States worked on this joint project to clarify
released Amendments to IAS 7, Statement of Cash Flows as a part of
the principles for the recognition of revenue. The new standard was
its Disclosure Initiative. The amendments are required to be applied for
released in May 2014 and supersedes existing standards and inter-
years beginning on or after January 1, 2017; we applied them commen-
pretations, including IAS 18, Revenue. In April 2016, the International
cing with the year ended December 31, 2016, as set out in Note 31(b),
Accounting Standards Board issued Clarifications to IFRS 15,
and such application has had no material effect on our financial
Revenue from Contracts with Customers, clarifying application
performance or disclosure.
of some of the more complex aspects of the standard.
Annual Improvements to IFRSs 2012–2014 Cycle are required to be
The effects of the new standard and the materiality of those effects
applied for years beginning on or after January 1, 2016, and such appli-
will vary by industry and entity. Like many other telecommu nications
cation has had no effect on our financial performance or disclosure.
companies, we are materially affected by its application, as set out
(b) Standards, interpretations and amendments
to standards not yet effective and not yet applied
•
IFRS 9, Financial Instruments, is required to be applied for years
beginning on or after January 1, 2018, with retrospective application.
The new standard includes a model for the classification and measure-
ment of financial instruments, a single forward-looking “expected loss”
impairment model and a reformed approach to hedge accounting.
We will make an accounting policy choice relative to impairment, and
we will be using the lifetime expected credit loss approach. Based
upon current facts and circumstances, we do not expect our financial
performance or disclosure to be materially affected by the application
of the standard.
•
IFRS 15, Revenue from Contracts with Customers, is required
to be applied for years beginning on or after January 1, 2018, such
date reflecting the one-year deferral approved by the International
in (c) following, primarily in respect of the timing of revenue recogni-
tion, the classification of revenues, and the capitalization of costs of
obtaining a contract with a customer (as defined by the new standard).
Revenue – timing of recognition; classification
The timing of revenue recognition and the classification of revenues
as either service revenues or equipment revenues will be affected,
since the allocation of consideration in multiple element arrangements
(solutions for our customers that may involve deliveries of multiple
services and products that occur at different points in time and/or
over different periods of time) will no longer be affected by the current
limitation cap methodology.
The effects of the timing of revenue recognition and the
classification of revenue are expected to be most pronounced in
our wireless results. Although the measurement of the total revenue
recognized over the life of a contract will be largely unaffected by
126 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 2
the new standard, the prohibition of the use of the limitation cap
• When estimating minimum transaction prices allocated to
methodology will accelerate the recognition of total contract revenue,
the remaining unfulfilled, or partially unfulfilled, performance
relative to both the associated cash inflows from customers and
obligations, exclusion of amounts arising from contracts originally
our current practice (using the limitation cap methodology).
expected to have a duration of one year or less, as well as
The acceleration of the recognition of contract revenue relative to
amounts arising from contracts in which we may recognize and
the associated cash inflows will also result in the recognition of
bill revenue in an amount that corresponds directly with our
an amount reflecting the resulting difference as a contract asset.
completed performance obligations.
Although the underlying transaction economics would not differ,
during periods of sustained growth in the number of wireless
subscriber connection additions, assuming comparable contract-
lifetime per unit cash inflows, revenues would appear to be
greater than under the current practice (using the limitation cap
methodology). Wireline results arising from transactions that
include the initial provision of subsidized equipment or promotional
pricing plans will be similarly affected.
For purposes of applying the new standard on an ongoing basis,
we must also make incremental judgments in respect of the
new standard:
•
In respect of revenue-generating transactions, we must make
judgments about how to determine the transaction prices
and how to allocate those amounts among the associated
performance obligations. It is our judgment that, where applicable,
it is most appropriate to use a contract’s minimum transaction
Costs of contract acquisition; costs of contract fulfilment –
price (the “minimum spend” amount required in a contract with a
timing of recognition
customer) as the contract’s transaction price as it best reflects the
Similarly, the measurement of the total costs of contract acquisition
enforceable rights and obligations of the contract. The contract’s
and contract fulfilment over the life of a contract will be unaffected
transaction price is allocated based upon the stand-alone selling
by the new standard, but the timing of recognition will be. The new
prices of the contracted equipment and services included in the
standard will result in our wireless and wireline costs of contract
minimum transaction price.
acquisition and contract fulfilment, to the extent that they are material,
• We compensate third-party re-sellers and our employees for gen-
being capitalized and subsequently recognized as an expense over
erating revenues, and we must exercise judgment as to whether
the life of a contract on a rational, systematic basis consistent with the
such sales-based compensation amounts are costs incurred
pattern of the transfer of goods or services to which the asset relates.
to obtain contracts with customers that should be capitalized.
Although the underlying transaction economics would not differ, during
We believe that compensation amounts tangentially attributable
periods of sustained growth in the number of customer connection
to obtaining a contract with a customer, because the amount of
additions, assuming comparable per unit costs of contract acquisition
such compensation could be affected in ways other than by simply
and contract fulfilment, absolute profitability measures would appear
obtaining the contract, should be expensed as incurred; compen-
to be greater than under the current practice (immediately expensing
sation amounts directly attributable to obtaining a contract with a
such costs).
Implementation
With a view to enhancing the clarity, comparability and utility of our
financial information post-implementation of the standard, we will
apply the standard retrospectively, subject to permitted and elected
practical expedients. We are using the following practical expedients
provided for in, and transitioning to, the new standard:
• No restatement for contracts that were completed as at January 1,
2017, or earlier.
customer should be capitalized and subsequently amortized on a
systematic basis, consistent with the satisfaction of our associated
performance obligations.
Judgment must also be exercised in the capitalization of costs
incurred to fulfill revenue-generating contracts with customers.
Such fulfilment costs are those incurred to set up, activate or
other wise implement services involving access to, or usage of, our
telecommunications infrastructure that would not otherwise be
capitalized as property, plant and equipment and intangible assets.
• No restatement for contracts that were modified prior to January 1,
•
In January 2016, the International Accounting Standards Board
2017. The aggregate effect of all such modifications will be
released IFRS 16, Leases, which is required to be applied for years
reflected when identifying satisfied and unsatisfied performance
beginning on or after January 1, 2019, and which supersedes IAS 17,
obligations and the transaction prices to be allocated thereto and
Leases. We are currently assessing the impacts and transition pro-
when determining the transaction prices.
visions of the new standard; however, we are currently considering
• No disclosure of the aggregate transaction prices allocated to the
applying the new standard retrospectively, effective January 1, 2019.
remaining unfulfilled, or partially unfulfilled, performance obligations
The International Accounting Standards Board and the Financial
for periods ending prior to January 1, 2018.
Accounting Standards Board of the United States worked together
For purposes of applying the new standard on an ongoing basis,
we are using the following practical expedients provided for in the
new standard:
• No adjustment of the contracted amount of consideration for
the effects of financing components when, at the inception of the
contract, we expect that the effect of the financing component is
not significant at the individual contract level.
• No deferral of contract acquisition costs when the amortization
period for such costs would be one year or less.
to modify the accounting for leases, generally by eliminating lessees’
classification of leases as either operating leases or finance leases
and, for IFRS-IASB, introducing a single lessee accounting model.
The most significant effect of the new standard will be the lessee’s
recognition of the initial present value of unavoidable future lease
pay ments as lease assets and lease liabilities on the statement of
financial position, including those for most leases that would currently
be accounted for as operating leases. Both leases with durations of
12 months or less and leases for low-value assets may be exempted.
TELUS 2017 ANNUAL REPORT • 127
The measurement of the total lease expense over the term of
offset equally by decreases in cash flows from financing activities.
a lease will be unaffected by the new standard. However, the new
standard will result in the timing of lease expense recognition being
This is the result of the payments of the “principal” component of
leases that would currently be accounted for as operating leases
accelerated for leases which would currently be accounted for as oper-
being presented as a cash flow use within financing activities under
ating leases; the International Accounting Standards Board expects
the new standard.
that this effect may be muted by a lessee having a portfolio of leases
with varying maturities and lengths of term, and we expect that we
will be similarly affected. The presentation on the statement of income
and other comprehensive income required by the new standard
will result in most non-executory lease expenses being presented as
amortization of lease assets and financing costs arising from lease lia-
bilities, rather than as a part of goods and services purchased; reported
operating income would thus be higher under the new standard.
Relative to the results of applying the current standard, although
actual cash flows will be unaffected, the lessee’s statement of cash
flows will reflect increases in cash flows from operating activities
Implementation
As a transitional practical expedient permitted by the new standard,
we do not expect to reassess whether contracts are, or contain,
leases as at January 1, 2019, using the criteria of the new standard;
as at January 1, 2019, only contracts that were previously identified
as leases applying IAS 17, Leases and IFRIC 4, Determining whether
an Arrangement contains a Lease, will be a part of the transition
to the new standard. Only contracts entered into (or changed) after
January 1, 2019, will be assessed for being, or containing, leases
applying the criteria of the new standard.
(c) Impacts of application of IFRS 15, Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, will affect the fiscal 2017 comparative amounts to be reported in our fiscal 2018 Consolidated
statements of income and other comprehensive income as follows:
Year ended December 31, 2017 (billions except per share amounts)
Operating Revenues
Service
Equipment
Revenues arising from contracts with customers
Other operating income
Operating Expenses
Goods and services purchased
Employee benefits expense
Depreciation
Amortization of intangible assets
Operating Income
Financing costs
Income Before Income Taxes
Income taxes
Net Income
Other Comprehensive Income
Comprehensive Income
Net Income Attributable to:
Common Shares
Non-controlling interests
Comprehensive Income Attributable to:
Common Shares
Non-controlling interests
Net Income Per Common Share
Basic
Diluted
*Amounts less than $0.1 billion.
128 • TELUS 2017 ANNUAL REPORT
As currently
reported
IFRS 15
effects
Pro forma
$ 12.5
$ (1.2)
$ 11.3
0.7
13.2
0.1
13.3
5.9
2.6
1.6
0.6
10.7
2.6
0.6
2.0
0.5
1.5
(0.2)
$ 1.3
$ 1.5
*
$ 1.5
1.3
0.1
–
0.1
*
*
–
–
*
0.1
–
0.1
*
0.1
–
$ 0.1
$ 0.1
–
$ 0.1
$ 1.3
$ 0.1
*
$ 1.3
$ 2.46
$ 2.46
–
$ 0.1
$ 0.15
$ 0.15
2.0
13.3
0.1
13.4
5.9
2.6
1.6
0.6
10.7
2.7
0.6
2.1
0.5
1.6
(0.2)
$ 1.4
$ 1.6
*
$ 1.6
$ 1.4
*
$ 1.4
$ 2.61
$ 2.61
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 2
The effects of the transition to IFRS 15 on the line items in the preceding table are set out below:
Amount of IFRS 15 effects
(increase (decrease) in billions except per share amounts)
Allocation of transaction price (affecting timing of revenue recognition)
Costs incurred to obtain or fulfill a contract with a customer
Year ended December 31, 2017
Operating revenues
Service
Equipment
Goods and services purchased
Employee benefits expense
Income taxes
Net income attributable to:
Common Shares
Net income per Common Share
Basic
Diluted
*Amounts less than $0.1 billion.
$ (1.2)
$ 1.3
$ *
$ –
$ *
$ –
$ –
$ *
$ *
$ *
Total
$ (1.2)
$ 1.3
$ *
$ *
$ *
$ 0.1
$ *
$ 0.1
$ 0.11
$ 0.11
$ 0.04
$ 0.04
$ 0.15
$ 0.15
Previously, costs incurred to obtain or fulfill a contract with a customer were expensed
as incurred. The new standard requires that such costs be capitalized and subsequently
recognized as an expense over the life of the contract on a rational, systematic basis
consistent with the pattern of the transfer of goods or services to which the asset relates.
This has the effect of reducing the costs recognized in the period arising from
contracts with customers entered into during the period, offset by the amortization of
capitalized costs arising from contracts with customers entered into in previous periods.
Previously, a “limitation cap” constrained the recognition of revenue in a multiple element arrangement
to an amount that was not contingent upon either delivering additional items or meeting other specified
performance conditions. The new standard requires that amounts contingently billable and collectible
in the future are to be recognized currently as revenue to the extent we have currently satisfied our
performance obligations to the customer; this is the new standard’s most significant effect on us.
For a contract with a customer, this has the effect of allocating more of the consideration to equipment
revenue, which is recognized at the inception of the contract, and less to future service revenue.
TELUS 2017 ANNUAL REPORT • 129
IFRS 15, Revenue from Contracts with Customers, will affect the fiscal 2017 comparative amounts to be reported in our fiscal 2018 Consolidated
statements of financial position as follows:
As at (billions)
December 31, 2017
January 1, 2017
As currently
reported
IFRS 15
effects
Pro forma
Excluding
effects of
IFRS 15
IFRS 15
effects
Pro forma
Assets
Current assets
Cash and temporary investments, net
$ 0.5
$ –
$ 0.5
$ 0.4
$ –
$ 0.4
Accounts receivable
Income and other taxes receivable
Inventories
Contract assets**
Prepaid expenses
Non-current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill, net
Contract assets**
Other long-term assets
Liabilities and Owners’ Equity
Current liabilities
Short-term borrowings
Accounts payable, accrued liabilities and other
Dividends payable
Advance billings and customer deposits
Provisions
Current maturities of long-term debt
Non-current liabilities
Provisions
Long-term debt
Other long-term liabilities
Deferred income taxes
Liabilities
Owners’ equity
1.6
0.1
0.4
–
0.3
2.9
11.4
10.6
4.2
–
0.4
26.6
$ 29.5
*
–
*
0.8
0.2
1.0
–
–
–
0.4
0.1
0.5
$ 1.5
1.6
0.1
0.4
0.8
0.5
3.9
11.4
10.6
4.2
0.4
0.5
27.1
$ 31.0
1.5
–
0.3
–
0.2
2.4
10.5
10.4
3.8
–
0.6
25.3
$ 27.7
*
–
*
0.7
0.2
0.9
–
–
–
0.3
0.1
0.4
$ 1.3
1.5
–
0.3
0.7
0.4
3.3
10.5
10.4
3.8
0.3
0.7
25.7
$ 29.0
$ 0.1
$ –
$ 0.1
$ 0.1
$ –
$ 0.1
2.4
0.3
0.8
0.1
1.4
5.1
0.5
12.3
0.8
2.5
16.1
21.2
8.3
$ 29.5
–
–
(0.1)
–
–
(0.1)
–
–
–
0.4
0.4
0.3
1.2
2.4
0.3
0.7
0.1
1.4
5.0
0.5
12.3
0.8
2.9
16.5
21.5
9.5
2.4
0.3
0.8
0.1
1.3
5.0
0.4
11.6
0.7
2.1
14.8
19.8
7.9
–
–
(0.2)
–
–
(0.2)
–
–
–
0.4
0.4
0.2
1.1
2.4
0.3
0.6
0.1
1.3
4.8
0.4
11.6
0.7
2.5
15.2
20.0
9.0
$ 1.5
$ 31.0
$ 27.7
$ 1.3
$ 29.0
* Amounts less than $0.1 billion.
** Will be measured at and classified as amortized cost upon application of IFRS 9, Financial Instruments, as discussed further in (a).
130 • TELUS 2017 ANNUAL REPORT
The effects of the transition to IFRS 15 on the line items in the preceding table are set out below:
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 2
As at
Current assets
Accounts receivable
Inventories
Contract assets, net
Prepaid expenses and other
Non-current assets
Contract assets, net
Other long-term assets
Advance billings and customer deposits
Deferred income taxes
Common equity
Retained earnings
* Amounts less than $0.1 billion.
Allocation of transaction price (affecting timing of revenue recognition)
Amount of IFRS 15 effects (increase (decrease) in billions)
Dec. 31, 2017
Jan. 1, 2017
Dec. 31, 2017
Jan. 1, 2017
Dec. 31, 2017
Jan. 1, 2017
Costs incurred to obtain or fulfill a contract with a customer
Total
Total
$ *
$ *
$ 0.8
$ –
$ 0.4
$ –
$ (0.1)
$ 0.3
$ *
$ *
$ 0.7
$ –
$ 0.3
$ –
$ (0.2)
$ 0.3
$ –
$ –
$ –
$ 0.2
$ –
$ 0.1
$ –
$ 0.1
$ –
$ –
$ –
$ 0.2
$ –
$ 0.1
$ –
$ 0.1
$ *
$ *
$ 0.8
$ 0.2
$ 0.4
$ 0.1
$ (0.1)
$ 0.4
$ *
$ *
$ 0.7
$ 0.2
$ 0.3
$ 0.1
$ (0.2)
$ 0.4
$ 1.0
$ 0.9
$ 0.2
$ 0.2
$ 1.2
$ 1.1
Previously, costs incurred to obtain or fulfill a contract with a
customer were expensed as incurred. The new standard requires
that such costs be capitalized and subsequently recognized as
an expense over the life of the contract on a rational, systematic
basis consistent with the pattern of the transfer of goods or
services to which the asset relates.
Increases in the amount of costs capitalized in the period arising
from contracts with customers entered into during the period are
offset by the amortization of capitalized costs arising from contracts
with customers entered into in previous periods.
Previously, a “limitation cap” constrained the recognition of revenue in a multiple element arrangement
to an amount that was not contingent upon either delivering additional items or meeting other specified
performance conditions. The new standard requires that amounts contingently billable and collectible
in the future are to be recognized currently as revenue to the extent we have currently satisfied our
performance obligations to the customer; this is the new standard’s most significant effect on us.
The difference between the revenue recognized currently and the amount currently collected/
collectible is recognized on the statement of financial position as a contract asset.
The contract asset recorded at January 1, 2017, represents revenues that will not have been reflected
at any time in our periodic results of operations, but, absent the transition to the new standard, would have
been; the effect of this “pulling forward” of revenues is expected to be somewhat muted by the composite
ongoing inception, maturation and expiration of millions of multi-year contracts with our customers.
IFRS 15, Revenue from Contracts with Customers, will affect the fiscal 2017 comparative amounts to be reported in our fiscal 2018 Consolidated
statement of cash flows as follows:
Year ended December 31, 2017 (billions)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Net employee defined benefit plans expense
Employer contributions to employee defined benefit plans
Other
Net change in non-cash operating working capital
Cash provided by operating activities
* Amounts less than $0.1 billion.
As currently
reported
IFRS 15
effects
Pro forma
$ 1.5
$ 0.1
$ 1.6
2.2
0.4
0.1
(0.1)
(0.1)
(0.1)
$ 3.9
–
*
–
–
*
(0.1)
$ –
2.2
0.4
0.1
(0.1)
(0.1)
(0.2)
$ 3.9
TELUS 2017 ANNUAL REPORT • 131
3 Capital structure financial policies
General
Our objective when managing capital is to maintain a flexible capital struc-
During 2017, our financial objectives, which are reviewed annually,
were unchanged from 2016. We believe that our financial objectives are
ture that optimizes the cost and availability of capital at acceptable risk.
supportive of our long-term strategy.
In the management of capital and in its definition, we include
We monitor capital utilizing a number of measures, including:
common equity (excluding accumulated other comprehensive income),
net debt to earnings before interest, income taxes, depreciation and
long-term debt (including long-term credit facilities, commercial paper
amortization (EBITDA*) – excluding restructuring and other costs ratio;
backstopped by long-term credit facilities and any hedging assets or
coverage ratios; and dividend payout ratios.
liabilities associated with long-term debt items, net of amounts recog-
nized in accumulated other comprehensive income), cash and temporary
investments, and short-term borrowings arising from securitized
trade receivables.
Debt and coverage ratios
Net debt to EBITDA – excluding restructuring and other costs is
calculated as net debt at the end of the period divided by 12-month
We manage our capital structure and make adjustments to it in
trailing EBITDA – excluding restructuring and other costs. This measure,
light of changes in economic conditions and the risk characteristics of
historically, is substantially similar to the leverage ratio covenant in
our telecommunications infrastructure. In order to maintain or adjust
our credit facilities. Net debt and EBITDA – excluding restructuring
our capital structure, we may adjust the amount of dividends paid to
and other costs are measures that do not have any standardized
holders of Common Shares, purchase Common Shares for cancellation
meanings prescribed by IFRS-IASB and are therefore unlikely to be
pursuant to normal course issuer bids, issue new shares, issue new
debt, issue new debt to replace existing debt with different characteristics,
comparable to similar measures presented by other companies.
The calculation of these measures is set out in the following table.
and/or increase or decrease the amount of trade receivables sold to
Net debt is one component of a ratio used to determine compliance
an arm’s-length securitization trust.
with debt covenants.
As at, or for the 12-month periods ended, December 31 ($ in millions)
Objective
2017
2016
Components of debt and coverage ratios
Net debt1
EBITDA – excluding restructuring and other costs2
Net interest cost3
Debt ratio
Net debt to EBITDA – excluding restructuring and other costs
2.00–2.504
$ 13,422
$ 4,913
$ 567
2.73
4.6
8.7
$ 12,652
$ 4,708
$ 566
2.69
4.0
8.3
Coverage ratios
Earnings coverage5
EBITDA – excluding restructuring and other costs interest coverage6
1 Net debt is calculated as follows:
As at December 31
Long-term debt
Debt issuance costs netted against
long-term debt
Derivative (assets) liabilities, net
Accumulated other comprehensive
Note
26
2017
2016
$ 13,660
$ 12,931
73
93
67
20
income amounts arising from financial
instruments used to manage interest
rate and currency risks associated
with U.S. dollar-denominated long-term
debt (excluding tax effects)
Cash and temporary investments, net
Short-term borrowings
22
Net debt
5
(509)
100
(34)
(432)
100
$ 13,422
$ 12,652
2 EBITDA – excluding restructuring and other costs is calculated as follows:
Years ended December 31
EBITDA
Restructuring and other costs
EBITDA – excluding restructuring
and other costs
Note
5
16
2017
$ 4,774
139
2016
$ 4,229
479
$ 4,913
$ 4,708
3 Net interest cost is defined as financing costs, excluding employee defined benefit
plans net interest, recoveries on long-term debt prepayment premium and repayment
of debt, calculated on a 12-month trailing basis (expenses recorded for long-term
debt prepayment premium, if any, are included in net interest cost).
4 Our long-term objective range for this ratio is 2.00–2.50 times. The ratio as at
December 31, 2017, is outside the long-term objective range. We may permit, and
have permitted, this ratio to go outside the objective range (for long-term investment
opportunities), but we will endeavour to return this ratio to within the objective range
in the medium term, as we believe that this range is supportive of our long-term
strategy. We are in compliance with our credit facilities leverage ratio covenant, which
states that we may not permit our net debt to operating cash flow ratio to exceed
4.00:1.00 (see Note 26(d)); the calculation of the debt ratio is substantially similar to
the calculation of the leverage ratio covenant in our credit facilities.
5 Earnings coverage is defined as net income before borrowing costs and income
tax expense, divided by borrowing costs (interest on long-term debt; interest on
short-term borrowings and other; long-term debt prepayment premium), and adding
back capitalized interest.
6 EBITDA – excluding restructuring and other costs interest coverage is defined
as EBITDA – excluding restructuring and other costs, divided by net interest
cost. This measure is substantially similar to the coverage ratio covenant in our
credit facilities.
*EBITDA does not have any standardized meaning prescribed by IFRS-IASB and is therefore unlikely to be comparable to similar measures presented by other issuers; we define EBITDA
as operating revenues less goods and services purchased and employee benefits expense. We have issued guidance on, and report, EBITDA because it is a key measure that management
uses to evaluate the performance of our business, and it is also utilized in measuring compliance with certain debt covenants.
132 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 3–4
Net debt to EBITDA – excluding restructuring and other costs was
net gains and equity income from real estate joint ventures, provisions
2.73 times as at December 31, 2017, up from 2.69 one year earlier.
related to business combinations, immediately vesting transformative
The increase in net debt increased the ratio by 0.16, which was largely
compensation expense, long-term debt prepayment premium and
offset by growth in EBITDA – excluding restructuring and other costs,
income tax-related adjustments.
which decreased the ratio by 0.12. The earnings coverage ratio for
the twelve-month period ended December 31, 2017, was 4.6 times,
up from 4.0 times one year earlier. Higher borrowing costs reduced
the ratio by 0.1 and higher income before borrowing costs and income
taxes increased the ratio by 0.7. The EBITDA – excluding restructuring
and other costs interest coverage ratio for the twelve-month period
ended December 31, 2017, was 8.7 times, up from 8.3 times one year
earlier. Growth in EBITDA – excluding restructuring and other costs
increased the ratio by 0.4.
Dividend payout ratio
The dividend payout ratio presented is a historical measure calculated
Share, as recorded in the financial statements, divided by the sum
of basic earnings per share for the most recent four quarters for interim
reporting periods (divided by annual basic earnings per share if the
reported amount is in respect of a fiscal year). The dividend payout ratio
of adjusted net earnings presented, also a historical measure, differs
in that it excludes the gain on exchange of wireless spectrum licences,
4 Financial instruments
For the 12-month periods ended
December 31 ($ in millions)
Dividend payout ratio
Dividend payout ratio of
adjusted net earnings
Objective
65%–75%1
2017
80%
2016
89%
80%
77%
1 Our objective range for the dividend payout ratio is 65%–75% of sustainable earnings
on a prospective basis; we currently expect that we will be within our target guideline
on a prospective basis within the medium term. Adjusted net earnings attributable to
Common Shares is calculated as follows:
12-month periods ended December 31
Net income attributable to Common Shares
Gain and net equity income related to real estate
redevelopment project, after income taxes
after income taxes
Provisions related to business combinations,
after income taxes
Immediately vesting transformative compensation
expense, after income taxes
Income tax-related adjustments
2017
2016
$ 1,460
$ 1,223
(1)
–
(22)
–
21
(16)
(13)
15
224
(17)
Adjusted net earnings attributable to Common Shares
$ 1,458
$ 1,416
as the sum of the last four quarterly dividends declared per Common
Gain on exchange of wireless spectrum licences,
(a) Risks – overview
Our financial instruments, and the nature of certain risks to which they may be subject, are set out in the following table.
Financial instrument
Measured at amortized cost
Accounts receivable
Construction credit facilities advances to real estate joint venture
Short-term obligations
Accounts payable
Provisions (including restructuring accounts payable)
Long-term debt
Measured at fair value
Cash and temporary investments
Long-term investments (not subject to significant influence)1
Foreign exchange derivatives2
Share-based compensation derivatives2
Credit
Liquidity
Currency
Interest rate
Other price
Risks
Market risks
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
1 Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured.
2 Use of derivative financial instruments is subject to a policy which requires that no derivative transaction is to be entered into for the purpose of establishing a speculative or
leveraged position (the corollary being that all derivative transactions are to be entered into for risk management purposes only) and sets criteria for the creditworthiness of
the transaction counterparties.
Derivative financial instruments
compensation. We believe that our use of derivative financial instruments
As set out in Note 1(d), we apply hedge accounting to financial
for hedging or arbitrage assists us in managing our financing costs and/or
instruments used to establish hedge accounting relationships for U.S.
lessening the uncertainty associated with our financing or other business
dollar-denominated transactions and to fix the cost of some share-based
activities. Uncertainty associated with currency risk (see (d) following for
TELUS 2017 ANNUAL REPORT • 133
explanation of how such risk arises and the extent of the risk exposure
Cash and temporary investments, net
that we manage) and other price risk (see (f) following for explanation of
Credit risk associated with cash and temporary investments is managed
how such risk arises and the extent of the risk exposure that we manage)
by ensuring that these financial assets are placed with: governments;
is lessened through our use of foreign exchange derivatives and share-
major financial institutions that have been accorded strong investment
based compensation derivatives that effectively swap currency exchange
grade ratings by a primary rating agency; and/or other creditworthy
rates and share prices from floating rates and prices to fixed rates and
counterparties. An ongoing review evaluates changes in the status
prices. When entering into derivative financial instrument contracts,
of counterparties.
we seek to align the cash flow timing of the hedging items with that of
the hedged items. The effects of the risk management strategy and
its application are set out in (i) following.
(b) Credit risk
Excluding credit risk, if any, arising from currency swaps settled on a
gross basis, the best representation of our maximum exposure (excluding
income tax effects) to credit risk, which is a worst-case scenario and
does not reflect results we expect, is set out in the following table:
Accounts receivable
Credit risk associated with accounts receivable is inherently managed
by the size and diversity of our large customer base, which includes
substantially all consumer and business sectors in Canada. We follow
a program of credit evaluations of customers and limit the amount of
credit extended when deemed necessary.
As at December 31, 2017, the weighted average age of customer
accounts receivable was 26 days (2016 – 26 days) and the weighted
average age of past-due customer accounts receivable was 60 days
As at December 31 (millions)
2017
2016
(2016 – 61 days). Accounts are considered to be past due (in default)
Cash and temporary investments, net
$ 509
$ 432
when the customers have failed to make the contractually required
Accounts receivable
Derivative assets
1,623
24
1,471
17
$ 2,156
$ 1,920
payments when due, which is generally within 30 days of the billing
date. Any late payment charges are levied at an industry-based
market or negotiated rate on outstanding non-current customer
account balances.
As at December 31 (millions)
Note
Gross
Allowance
2017
Net1
Gross
Allowance
2016
Net1
Customer accounts receivable, net
of allowance for doubtful accounts
Less than 30 days past billing date
$ 909
$ (5)
$ 904
$ 908
$ (11)
$ 897
30–60 days past billing date
61–90 days past billing date
More than 90 days past billing date
185
60
67
6
$ 1,221
(8)
(8)
(22)
$ (43)
177
52
45
185
44
80
$ 1,178
$ 1,217
(9)
(9)
(25)
$ (54)
176
35
55
$ 1,163
1 Net amounts represent customer accounts receivable for which an allowance had not been made as at the dates of the Consolidated statements of financial position.
We maintain allowances for lifetime expected credit losses related
The following table presents a summary of the activity related to our
to doubtful accounts. Current economic conditions (including forward-
allowance for doubtful accounts.
looking macroeconomic data), historical information (including credit
agency reports, if available), reasons for the accounts being past due
and line of business from which the customer accounts receivable arose
are all considered when determining whether to make allowances for
past-due accounts. The same factors are considered when determining
Years ended December 31 (millions)
Balance, beginning of period
Additions (doubtful accounts expense)
Accounts written off, net of recoveries
whether to write off amounts charged to the allowance for doubtful
Other
2017
$ 54
54
(66)
1
2016
$ 52
58
(65)
9
accounts against the customer accounts receivable; amounts that had
Balance, end of period
$ 43
$ 54
been written off from the allowance for doubtful accounts but were still
subject to enforcement activity as at December 31, 2017, were $298 million
(2016 – $231 million). The doubtful accounts expense is calculated on
a specific-identification basis for customer accounts receivable above
a specific balance threshold and on a statistically derived allowance
basis for the remainder. No customer accounts receivable are written
off directly to the doubtful accounts expense.
Derivative assets (and derivative liabilities)
Counterparties to our share-based compensation cash-settled equity
forward agreements and foreign exchange derivatives are major financial
institutions that have been accorded investment grade ratings by a
primary credit rating agency. The total dollar amount of credit exposure
under contracts with any one financial institution is limited and counter-
parties’ credit ratings are monitored. We do not give or receive collateral
on swap agreements and hedging items due to our credit rating and
those of our counterparties. While we are exposed to the risk of potential
credit losses due to the possible non-performance of our counterparties,
we consider this risk remote. Our derivative liabilities do not have credit
risk-related contingent features.
134 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 4
(c) Liquidity risk
As a component of our capital structure financial policies, discussed
• maintaining an in-effect shelf prospectus;
• continuously monitoring forecast and actual cash flows; and
further in Note 3, we manage liquidity risk by:
• managing maturity profiles of financial assets and financial liabilities.
• maintaining a daily cash pooling process that enables us to manage
our available liquidity and our liquidity requirements according to
our actual needs;
• maintaining an agreement to sell trade receivables to an arm’s-length
securitization trust (Note 22);
• maintaining bilateral bank facilities (Note 22) and syndicated credit
facilities (Note 26(d), (f));
• maintaining a commercial paper program (Note 26(c));
Our debt maturities in future years are as disclosed in Note 26(g). As at
December 31, 2017, we could offer $1.2 billion of debt or equity securities
pursuant to a shelf prospectus that is in effect until April 2018 (2016 –
$2.2 billion). We believe that our investment grade credit ratings contribute
to reasonable access to capital markets.
We closely match the contractual maturities of our derivative
financial liabilities with those of the risk exposures they are being used
to manage.
The expected maturities of our undiscounted financial liabilities do not differ significantly from the contractual maturities, other than as noted below.
The contractual maturities of our undiscounted financial liabilities, including interest thereon (where applicable), are set out in the following tables:
Non-derivative
Derivative
Composite long-term debt
As at
December 31, 2017
(millions)
Non-interest
bearing
financial
liabilities
Construction
credit facilities
commitment2
(Note 21)
Short-term
borrowings1
Long-term
debt1
(Note 26)
Currency swap
agreement amounts
to be exchanged3
Currency swap
agreement amounts
to be exchanged
(Receive)
Pay
(Receive)
Pay
Total
2018
2019
2020
2021
2022
Thereafter
Total
$ 2,232
$ 103
$ 67
$ 1,928
$ (1,188)
$ 1,206
$ (545)
$ 557
$ 4,360
40
19
76
18
16
–
–
–
–
–
–
–
–
–
–
1,531
1,480
1,480
1,913
(44)
(44)
(44)
(44)
46
46
46
46
11,430
(1,591)
1,679
–
–
–
–
–
–
–
–
–
–
$ 2,401
$ 103
$ 67
$ 19,762
$ (2,955)
$ 3,069
$ (545)
$ 557
1,573
1,501
1,558
1,933
11,534
$ 22,459
Total (Note 26(g))
$ 19,876
1 Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based
upon the interest rates in effect as at December 31, 2017.
2 The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2019.
3 The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt
currency swaps receive column, have been determined based upon the currency exchange rates in effect as at December 31, 2017. The hedged U.S. dollar-denominated long-term debt
contractual amounts at maturity, in effect, are reflected in the long-term debt currency swaps pay column as gross cash flows are exchanged pursuant to the currency swap agreements.
Non-derivative
Derivative
Composite long-term debt
As at
December 31, 2016
(millions)
Non-interest
bearing
financial
liabilities
Construction
credit facilities
commitment2
(Note 21)
Short-term
borrowings1
Long-term
debt1
(Note 26)
Currency swap
agreement amounts
to be exchanged3
Currency swap
agreement amounts
to be exchanged
(Receive)
Pay
Other
(Receive)
Pay
Total
2017
2018
2019
2020
2021
Thereafter
Total
$ 1,949
$ 1
$ 93
$ 1,832
$ (634)
$ 634
$ 3
$ (475)
$ 469
$ 3,872
227
16
9
9
5
102
–
–
–
–
–
–
–
–
–
750
1,498
1,447
1,711
(23)
(23)
(23)
(23)
23
23
23
23
11,584
(930)
921
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,079
1,514
1,456
1,720
11,580
$ 2,215
$ 103
$ 93
$ 18,822
$ (1,656)
$ 1,647
$ 3
$ (475)
$ 469
$ 21,221
Total
$ 18,813
1 Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based
upon the interest rates in effect as at December 31, 2016.
2 The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2018.
3 The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt
currency swaps receive column, have been determined based upon the currency exchange rates in effect as at December 31, 2016. The hedged U.S. dollar-denominated long-term debt
contractual amounts at maturity, in effect, are reflected in the long-term debt currency swaps pay column as gross cash flows are exchanged pursuant to the currency swap agreements.
TELUS 2017 ANNUAL REPORT • 135
(d) Currency risk
Our functional currency is the Canadian dollar, but certain routine
All of our currently outstanding long-term debt, other than commercial
paper and amounts drawn on our credit facilities (Note 26(d), (f)), is
revenues and operating costs are denominated in U.S. dollars and
fixed-rate debt. The fair value of fixed-rate debt fluctuates with changes
some inventory purchases and capital asset acquisitions are sourced
in market interest rates; absent early redemption, the related future cash
internationally. The U.S. dollar is the only foreign currency to which
flows will not change. Due to the short maturities of commercial paper,
we have a significant exposure.
its fair value is not materially affected by changes in market interest rates,
Our foreign exchange risk management includes the use of foreign
but the associated cash flows representing interest payments may be
currency forward contracts and currency options to fix the exchange rates
affected if the commercial paper is rolled over.
on a varying percentage, typically in the range of 50% to 75%, of our
Amounts drawn on our short-term and long-term credit facilities
domestic short-term U.S. dollar-denominated transactions and commit-
will be affected by changes in market interest rates in a manner similar
ments and all U.S. dollar-denominated commercial paper. Other than in
to commercial paper.
respect of U.S. dollar-denominated commercial paper, we designate only
the spot element of these instruments as the hedging item; the forward
(f) Other price risk
element is wholly immaterial; in respect of U.S. dollar-denominated
commercial paper, we designate the forward rate.
As discussed further in Note 26(b) and (f), we are also exposed to
currency risk in that the fair value or future cash flows of our U.S. Dollar
Notes and our TELUS International (Cda) Inc. credit facility U.S. dollar
Long-term investments
We are exposed to equity price risk arising from investments classified
as available-for-sale. Such investments are held for strategic rather than
trading purposes.
borrowings could fluctuate because of changes in foreign exchange rates.
Share-based compensation derivatives
Currency hedging relationships have been established for the related
We are exposed to other price risk arising from cash-settled share-based
semi-annual interest payments and the principal payment at maturity in
compensation (appreciating Common Share prices increase both the
respect of the U.S. Dollar Notes; we designate only the spot element of
expense and the potential cash outflow). Certain cash-settled equity swap
these instruments as the hedging item; the forward element is wholly
agreements have been entered into that fix the cost associated with our
immaterial. As the functional currency of our TELUS International (Cda) Inc.
estimate of TELUS Corporation restricted stock units which are expected
subsidiary is the U.S. dollar, fluctuations in foreign exchange rates affecting
to vest and are not subject to performance conditions (Note 14(b)).
its borrowings are reflected as a foreign currency translation adjustment
within other comprehensive income.
(g) Market risks
Net income and other comprehensive income for the years ended
(e) Interest rate risk
Changes in market interest rates will cause fluctuations in the fair values
December 31, 2017 and 2016, could have varied if the Canadian dollar:
U.S. dollar exchange rate and our Common Share price varied by
or future cash flows of temporary investments, construction credit facility
reasonably possible amounts from their actual statement of financial
advances made to the real estate joint venture, short-term obligations,
position date amounts.
long-term debt and interest rate swap derivatives.
The sensitivity analysis of our exposure to currency risk at the
When we have temporary investments, they have short maturities
reporting date has been determined based upon a hypothetical change
and fixed interest rates and as a result, their fair values will fluctuate with
taking place at the relevant statement of financial position date. The U.S.
changes in market interest rates; absent monetization prior to maturity,
dollar-denominated balances and derivative financial instrument notional
the related future cash flows will not change due to changes in market
amounts as at the statement of financial position dates have been used
interest rates.
in the calculations.
If the balance of short-term investments includes dividend-paying
The sensitivity analysis of our exposure to other price risk arising from
equity instruments, we could be exposed to interest rate risk.
share-based compensation at the reporting date has been determined
Due to the short-term nature of the applicable rates of interest charged,
based upon a hypothetical change taking place at the relevant statement
the fair value of the construction credit facilities advances made to the
of financial position date. The relevant notional number of Common
real estate joint venture is not materially affected by changes in market
Shares at the statement of financial position date, which includes those
interest rates; the associated cash flows representing interest payments
in the cash-settled equity swap agreements, has been used in the
will be affected until such advances are repaid.
calculations.
As short-term obligations arising from bilateral bank facilities, which
Income tax expense, which is reflected net in the sensitivity analysis,
typically have variable interest rates, are rarely outstanding for periods
reflects the applicable statutory income tax rates for the reporting
that exceed one calendar week, interest rate risk associated with this
periods.
item is not material.
Short-term borrowings arising from the sales of trade receivables to
an arm’s-length securitization trust are fixed-rate debt. Due to the short
maturities of these borrowings, interest rate risk associated with this item
is not material.
136 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 4
Years ended December 31
(increase (decrease) in millions)
Reasonably possible changes in market risks1
10% change in C$: US$ exchange rate
Canadian dollar appreciates
Canadian dollar depreciates
25%2 change in Common Share price3
Price increases
Price decreases
Net income
Other comprehensive income
Comprehensive income
2017
2016
2017
2016
2017
2016
$ (1)
$ 1
$ (8)
$ 14
$ (1)
$ 1
$ (8)
$ 8
$ (15)
$ 15
$ 13
$ (13)
$ (4)
$ 6
$ 16
$ (16)
$ (16)
$ 16
$ 5
$ 1
$ (5)
$ 7
$ 8
$ (8)
1 These sensitivities are hypothetical and should be used with caution. Changes in net income and/or other comprehensive income generally cannot be extrapolated because
the relationship of the change in assumption to the change in net income and/or other comprehensive income may not be linear. In this table, the effect of a variation in a particular
assumption on the amount of net income and/or other comprehensive income is calculated without changing any other factors; in reality, changes in one factor may result in changes
in another, which might magnify or counteract the sensitivities.
The sensitivity analysis assumes that we would realize the changes in exchange rates; in reality, the competitive marketplace in which we operate would have an effect on
this assumption.
No consideration has been made for a difference in the notional number of Common Shares associated with share-based compensation awards made during the reporting
period that may have arisen due to a difference in the Common Share price.
2 To facilitate ongoing comparison of sensitivities, a constant variance of approximate magnitude has been used. Reflecting a twelve-month data period and calculated on a monthly
basis, the volatility of our Common Share price as at December 31, 2017, was 7.0% (2016 – 13.1%).
3 The hypothetical effects of changes in the price of our Common Shares are restricted to those which would arise from our share-based compensation awards that are accounted
for as liability instruments and the associated cash-settled equity swap agreements.
(h) Fair values
General
The carrying values of cash and temporary investments, accounts receiv-
able, short-term obligations, short-term borrowings, accounts payable and
certain provisions (including restructuring provisions) approximate their
fair values due to the immediate or short-term maturity of these financial
instruments. The fair values are determined directly by reference to quoted
market prices in active markets.
The carrying values of our investments accounted for using the cost
method do not exceed their fair values. The fair values of our investments
accounted for as available-for-sale are based on quoted market prices
in active markets or other clear and objective evidence of fair value.
The fair value of our long-term debt is based on quoted market prices
in active markets.
The fair values of the derivative financial instruments we use to
manage our exposure to currency risk are estimated based on quoted
market prices in active markets for the same or similar financial instru-
ments or on the current rates offered to us for financial instruments of the
same maturity, as well as discounted future cash flows determined using
current rates for similar financial instruments of similar maturities subject
to similar risks (such fair value estimates being largely based on the
Canadian dollar: U.S. dollar forward exchange rate as at the statement
of financial position dates).
The fair values of the derivative financial instruments we use to
manage our exposure to increases in compensation costs arising from
certain forms of share-based compensation are based on fair value
estimates of the related cash-settled equity forward agreements provided
by the counterparty to the transactions (such fair value estimates being
largely based on our Common Share price as at the statement of
financial position dates).
The financial instruments that we measure at fair value on a recurring basis in periods subsequent to initial recognition and the level within the fair
value hierarchy at which they are measured are set out in the following table.
Carrying value
Quoted prices in active
markets for identical items
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
Fair value measurements at reporting date using
As at December 31 (millions)
2017
2016
2017
2016
2017
2016
2017
2016
Assets
Foreign exchange derivatives
Share-based compensation derivatives
Available-for-sale portfolio investments
$ 4
$ 10
20
41
7
62
$ 65
$ 79
Liabilities
Foreign exchange derivatives
$ 108
$ 30
Share-based compensation derivatives
Starting interest rate derivatives
–
1
3
–
$ 109
$ 33
$ –
–
–
$ –
$ –
–
–
$ –
$ –
$ 4
$ 10
–
–
20
41
7
62
$ –
$ 65
$ 79
$ –
$ 108
$ 30
–
–
–
1
3
–
$ –
$ 109
$ 33
$ –
–
–
$ –
$ –
–
–
$ –
$ –
–
–
$ –
$ –
–
–
$ –
TELUS 2017 ANNUAL REPORT • 137
Derivative
The derivative financial instruments that we measure at fair value on a recurring basis subsequent to initial recognition are set out in the following table.
As at December 31 (millions)
2017
2016
Maximum
maturity
date
Designation
Fair value
and
Notional carrying
value
amount
Maximum
maturity
date
Price or rate
Fair value
and
carrying
value
Notional
amount
Price or rate
Current Assets1
Derivatives used to manage
Currency risk arising from
U.S. dollar-denominated
purchases
HFH2
2018
$ 110
$ 2 US$1.00:C$1.24
2017
$ 263
$ 7 US$1.00:C$1.30
Currency risk arising from
U.S. dollar-denominated
purchases
HFT3
–
$ –
–
–
2017
$ 8
– US$1.00:C$1.28
Currency risk arising from
U.S. dollar revenues
Changes in share-based
HFT3
2018
$ 71
1 US$1.00:C$1.25
2017
$ 4
– US$1.00:C$1.34
compensation costs (Note 14(b))
HFH2
2018
$ 73
14
$ 40.91
2017
$ 6
1
$ 41.00
Currency risk arising from
U.S. dollar-denominated
long-term debt (Note 26(b)–(c))
HFH2
2018
$ 124
1 US$1.00:C$1.24
2017
$ 191
3 US$1.00:C$1.32
$ 18
$ 11
Other Long-Term Assets1
Derivatives used to manage
Changes in share-based
compensation costs (Note 14(b))
HFH2
2019
$ 63
$ 6
$ 45.46
2018
$ 69
$ 6
$ 40.77
Current Liabilities1
Derivatives used to manage
Currency risk arising from
U.S. dollar-denominated
purchases
HFH2
2018
$ 376
$ 14 US$1.00:C$1.30
2017
$ 69
$ 2 US$1.00:C$1.38
Currency risk arising from
U.S. dollar revenues
Changes in share-based
HFT3
–
$ –
compensation costs (Note 14(b))
HFH2
–
$ –
–
–
–
–
2017
$ 124
5 US$1.00:C$1.34
2017
$ 65
3
$ 45.76
Currency risk arising from
U.S. dollar-denominated
long-term debt (Note 26(b)–(c))
HFH2
2018
$ 1,036
18 US$1.00:C$1.28
2017
$ 422
2 US$1.00:C$1.35
Interest rate risk associated
with planned refinancing
of debt maturing
HFH2
2018
$ 300
1
2.14%, GOC
10-year term
–
–
–
–
$ 33
$ 12
Other Long-Term Liabilities1
Derivatives used to manage
Currency risk arising from
U.S. dollar-denominated
long-term debt (Note 26(b)–(c))
HFH2
2027
$ 1,910
$ 76 US$1.00:C$1.32
2027
$ 1,036
$ 21 US$1.00:C$1.32
1 Derivative financial assets and liabilities are not set off.
2 Designated as held for hedging (HFH) upon initial recognition (cash flow hedging item); hedge accounting is applied. Unless otherwise noted, hedge ratio is 1:1 and is established
by assessing the degree of matching between the notional amounts of hedging items and the notional amounts of the associated hedged items.
3 Designated as held for trading (HFT) upon initial recognition; hedge accounting is not applied.
138 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 5
Non-derivative
Our long-term debt, which is measured at amortized cost, and the fair value thereof, are set out in the following table.
As at December 31 (millions)
Long-term debt (Note 26)
2017
Carrying value
Fair value
Carrying value
$ 13,660
$ 14,255
$ 12,931
2016
Fair value
$ 13,533
(i) Recognition of derivative gains and losses
The following table sets out the gains and losses, excluding income tax effects, arising from derivative instruments that are classified as cash flow
hedging items and their location within the Consolidated statements of income and other comprehensive income.
Credit risk associated with such derivative instruments, as discussed further in (b), would be the primary source of hedge ineffectiveness.
There was no ineffective portion of derivative instruments classified as cash flow hedging items for the periods presented.
Years ended December 31 (millions)
2017
2016
Location
Derivatives used to manage currency risk
Amount of gain (loss) recognized
in other comprehensive income
(effective portion) (Note 11)
Gain (loss) reclassified from other comprehensive
income to income (effective portion) (Note 11)
Amount
2017
2016
Arising from U.S. dollar-denominated purchases
$ (23)
$ (12)
Goods and services purchased
$ (5)
$ (9)
Arising from U.S. dollar-denominated
long-term debt (Note 26(b)–(c))
Derivatives used to manage other price risk
Arising from changes in share-based
compensation costs (Note 14(b))
(109)
(132)
(54)
(66)
Financing costs
(146)
(151)
(20)
(29)
24
19
Employee benefits expense
$ (108)
$ (47)
17
$ (134)
8
$ (21)
The following table sets out the gains and losses arising from derivative instruments that are classified as held for trading and that are not designated
as being in a hedging relationship, and their location within the Consolidated statements of income and other comprehensive income.
Years ended December 31 (millions)
Derivatives used to manage currency risk
Gain (loss) recognized in income on derivatives
Location
Financing costs
2017
$ 3
2016
$ (2)
5 Segment information
General
Operating segments are components of an entity that engage in
from mobile technologies. The wireline segment includes wireline data
revenues (which include Internet protocol; television; hosting, managed
business activities from which they earn revenues and incur expenses
information technology and cloud-based services; business process
(including revenues and expenses related to transactions with the other
outsourcing; certain healthcare solutions; and home security), voice and
component(s)), the operations of which can be clearly distinguished
other telecommunications services revenues (excluding wireless arising
and the operating results of which are regularly reviewed by a chief
from mobile technologies), and equipment sales. Segmentation is based
operating decision-maker to make resource allocation decisions and
on similarities in technology (mobile versus fixed), the technical expertise
to assess performance.
required to deliver the services and products, customer characteristics,
As at December 31, 2017, we do not currently aggregate operating
the distribution channels used and regulatory treatment. Intersegment
segments, and thus our reportable segments as at December 31, 2017,
are also wireless and wireline. The wireless segment includes network
sales are recorded at the exchange value, which is the amount agreed
to by the parties.
revenues (mobile data and mobile voice) and equipment sales arising
TELUS 2017 ANNUAL REPORT • 139
The segment information regularly reported to our Chief Executive Officer (our chief operating decision-maker) through December 31, 2017,
and the reconciliations thereof to our revenues and income before income taxes, are set out in the following table.
Years ended December 31 (millions)
2017
2016
2017
2016
2017
2016
2017
2016
Wireless
Wireline
Eliminations
Consolidated
Operating revenues
External revenues
Service
Equipment
$ 6,994
$ 6,569
$ 5,484
$ 5,431
$ –
$ –
$ 12,478
$ 12,000
505
509
219
216
Revenues arising from
contracts with customers
7,499
Other operating income
Intersegment revenues
EBITDA1 contribution
CAPEX, excluding
36
7,535
43
$ 7,578
$ 3,099
7,078
37
7,115
58
$ 7,173
$ 2,906
5,703
66
5,769
206
$ 5,975
$ 1,675
5,647
37
5,684
194
$ 5,878
$ 1,323
–
–
–
–
–
–
–
–
724
725
13,202
12,725
102
74
13,304
12,799
(249)
$ (249)
$ –
(252)
–
–
$ (252)
$ 13,304
$ 12,799
$ –
$ 4,774
$ 4,229
spectrum licences2
$ 978
$ 982
$ 2,116
$ 1,986
$ –
$ –
$ 3,094
$ 2,968
Operating revenues – external (above)
$ 13,304
$ 12,799
Goods and services purchased
Employee benefits expense
EBITDA (above)
Depreciation
Amortization
Operating income
Financing costs
5,935
2,595
4,774
1,617
552
2,605
573
5,631
2,939
4,229
1,564
483
2,182
520
Income before income taxes
$ 2,032
$ 1,662
1 Earnings before interest, income taxes, depreciation and amortization (EBITDA) does not have any standardized meaning prescribed by IFRS-IASB and is therefore unlikely to
be comparable to similar measures presented by other issuers; we define EBITDA as operating revenues less goods and services purchased and employee benefits expense.
We have issued guidance on, and report, EBITDA because it is a key measure that management uses to evaluate the performance of our business, and it is also utilized in
measuring compliance with certain debt covenants.
2 Total capital expenditures (CAPEX); see Note 31(a) for a reconciliation of capital expenditures, excluding spectrum licences to cash payments for capital assets, excluding spectrum
licences reported in the Consolidated statements of cash flows.
Geographical information
We attribute revenues from external customers to individual countries on
than Canada (our country of domicile), nor do we have significant amounts
the basis of the location where the goods and/or services are provided.
of property, plant, equipment, intangible assets and/or goodwill located
We do not have significant revenues that we attribute to countries other
outside of Canada.
6 Revenue from contracts with customers
Accounts receivable
As at December 31 (millions)
Customer accounts receivable
Accrued receivables – customer
Allowance for doubtful accounts
Accrued receivables – other
Note
4(b)
4(b)
2017
2016
$ 1,221
$ 1,217
143
(43)
1,321
302
131
(54)
1,294
177
$ 1,623
$ 1,471
140 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 6–8
7 Other operating income
Years ended December 31 (millions)
Note
2017
2016
that are then disbursed to incumbent local exchange carriers as
Government assistance, including
deferral account amortization
Investment income, gain on disposal
of assets and other
Change in business combination-related
accrued receivable
Interest income
18(b)
21(c)
$ 32
$ 36
basic telephone services in non-forborne high cost serving areas.
subsidy payments to partially offset the costs of providing residential
44
26
–
$ 102
$ 74
The subsidy payments are based upon a total subsidy requirement
37
calculated on a per network access line/per band subsidy rate.
For the year ended December 31, 2017, our subsidy receipts were
–
1
$19 million (2016 – $20 million).
The CRTC currently determines, at a national level, the total annual
contribution requirement necessary to pay the subsidies and then
collects contribution payments from the Canadian telecommunications
We receive government assistance, as defined by IFRS-IASB, from
service providers, calculated as a percentage of their CRTC-defined
a number of sources and include such amounts received in Other
telecommunications service revenue. The final contribution expense rate
operating income.
CRTC subsidy
Local exchange carriers’ costs of providing the level of residential
basic telephone services that the CRTC requires to be provided in high
for 2017 was 0.60% and the interim rate for 2018 has been set at 0.54%.
For the year ended December 31, 2017, our contributions to the central
fund, which are accounted for as goods and services purchased, were
$27 million (2016 – $23 million).
cost serving areas are greater than the amounts the CRTC allows the
local exchange carriers to charge for the level of service. To ameliorate
Government of Quebec
Salaries for qualifying employment positions in the province of Quebec,
the situation, the CRTC directs the collection of contribution payments,
mainly in the information technology sector, are eligible for tax credits.
in a central fund, from all registered Canadian telecommunications
In respect of such tax credits, for the year ended December 31, 2017,
service providers (including voice, data and wireless service providers)
we recorded $7 million (2016 – $6 million).
8 Employee benefits expense
Years ended December 31 (millions)
2017
Note
Total
Traditional
Transformative
compensation
(Note 16(c))
2016
Total
Employee benefits expense – gross
Wages and salaries
Share-based compensation1
Pensions – defined benefit
Pensions – defined contribution
Other defined benefits
Restructuring costs1
Other
Capitalized internal labour costs
Property, plant and equipment
Intangible assets subject to amortization
14
15(b)
15(f)
15(g)
16(b)
$ 2,594
128
82
88
–
26
156
3,074
(321)
(158)
(479)
$ 2,548
$ 185
$ 2,733
114
92
89
1
112
153
3,109
(314)
(161)
(475)
67
–
41
–
–
12
305
–
–
–
181
92
130
1
112
165
3,414
(314)
(161)
(475)
1 For the year ended December 31, 2017, $(7) (2016 – $4) of share-based compensation expense (recovery) was included in restructuring costs.
$ 2,595
$ 2,634
$ 305
$ 2,939
TELUS 2017 ANNUAL REPORT • 141
9 Financing costs
10 Income taxes
Years ended December 31 (millions)
Note
2017
2016
(a) Expense composition and rate reconciliation
Interest expense
Interest on long-term debt – gross
$ 561
$ 538
Capitalized long-term debt interest1
18(a)
Interest on long-term debt – net
Interest on short-term borrowings
and other
Interest accretion on provisions
25
Employee defined benefit plans
net interest
Foreign exchange
Interest income
15(b),(g)
–
561
5
13
579
6
(5)
580
(7)
(52)
486
4
12
502
6
15
523
(3)
1 Long-term debt interest at a composite rate of 3.31% was capitalized to intangible
assets with indefinite lives in the comparative period.
$ 573
$ 520
Years ended December 31 (millions)
2017
2016
Current income tax expense
For the current reporting period
Adjustments recognized in the current period
for income taxes of prior periods
Deferred income tax expense (recovery)
Arising from the origination and reversal
of temporary differences
Revaluation of deferred income tax liability
to reflect future statutory income tax rates
Adjustments recognized in the current period
for income taxes of prior periods
$ 205
$ 506
(82)
123
324
28
78
430
(38)
468
(64)
(4)
26
(42)
$ 553
$ 426
Our income tax expense and effective income tax rate differ from
those calculated by applying the applicable statutory rates for the
following reasons:
Years ended December 31 ($ in millions)
2017
2016
Income taxes calculated at
applicable statutory rates
$ 541 26.6% $ 444 26.7%
Revaluation of deferred
income tax liability to reflect
future income tax rates
Adjustments recognized
in the current period for
income taxes of prior periods
Other
Income tax expense per
Consolidated statements
of income and other
comprehensive income
28
1.3
(4)
(0.2)
(4)
(0.2)
(12)
(0.8)
(12)
(0.5)
(2)
(0.1)
$ 553 27.2%
$ 426 25.6%
142 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 9–10
(b) Temporary differences
We must make significant estimates in respect of the composition of our
income tax interpretations, regulations, legislation and jurisprudence
are continually changing. As a result, there are usually some income tax
deferred income tax liability. Our operations are complex and the related
matters in question.
Temporary differences comprising the net deferred income tax liability and the amounts of deferred income taxes recognized in the Consolidated
statements of income and other comprehensive income and the Consolidated statements of changes in owners’ equity are estimated as follows:
(millions)
Property, plant
and equipment
and intangible
assets subject to
amortization
Intangible
assets with
indefinite lives
Net
Partnership
pension and
income
unallocated
share-based
for income compensation
amounts
tax purposes
Reserves
not currently
deductible
Losses
available to
be carried
forward1
Net deferred
income tax
liability
Other
As at January 1, 2016
$ 785
$ 1,380
$ 195
$ (45)
$ (160)
$ (3)
$ 3
$ 2,155
Deferred income tax expense recognized in
Net income
Other comprehensive income
Deferred income taxes charged
directly to owners’ equity and other
As at December 31, 20162
Deferred income tax expense recognized in
Net income
Other comprehensive income
Deferred income taxes charged
directly to owners’ equity and other
85
–
–
870
348
–
3
77
–
–
1,457
84
–
20
(200)
–
–
(5)
5
–
–
(7)
4
–
(48)
(11)
(61)
–
12
–
–
(148)
8
–
–
As at December 31, 20173
$ 1,221
$ 1,561
$ –
$ (120)
$ (140)
1 We expect to be able to utilize our non-capital losses prior to expiry.
2 Deferred tax liability of $2,107, net of deferred tax asset of $5 (included in Other long-term assets).
3 Deferred tax liability of $2,500, net of deferred tax asset of $5 (included in Other long-term assets).
(3)
–
–
(6)
(1)
–
(6)
(10)
(5)
(18)
(3)
4
(42)
(6)
(5)
2,102
430
(57)
–
$ (7)
(3)
20
$ (20)
$ 2,495
IFRS-IASB requires the separate disclosure of temporary differences
arising from the carrying value of investments in subsidiaries and partner-
(c) Other
We have net capital losses, and such losses may only be applied
ships exceeding their tax base, for which no deferred income tax liabilities
against realized taxable capital gains. We expect to include a net capital
have been recognized because the parent is able to control the timing
loss carry-forward of $NIL (2016 – $4 million) in our Canadian income tax
of the reversal of the difference and it is probable that it will not reverse
returns. During the year ended December 31, 2017, we recognized the
in the foreseeable future. In our specific instance, this is relevant to
benefit of $4 million (2016 – $NIL) of net capital losses.
our investments in Canadian subsidiaries and Canadian partnerships.
We conduct research and development activities, which are eligible
We are not required to recognize such deferred income tax liabilities,
to earn Investment Tax Credits. During the year ended December 31, 2017,
as we are in a position to control the timing and manner of the reversal
we recorded Investment Tax Credits of $12 million (2016 – $5 million).
of the temporary differences, which would not be expected to be
Of this amount, $7 million (2016 – $1 million) was recorded as a reduction
exigible to income tax, and it is probable that such differences will not
of property, plant and equipment and/or intangible assets and the
reverse in the foreseeable future. We are in a position to control the
balance was recorded as a reduction of Goods and services purchased.
timing and manner of the reversal of temporary differences in respect
of our non-Canadian subsidiaries, and it is probable that such
differences will not reverse in the foreseeable future.
TELUS 2017 ANNUAL REPORT • 143
11 Other comprehensive income
Items that may subsequently be reclassified to income
Item never
reclassified
to income
Change in unrealized fair value of derivatives designated
as cash flow hedges in current period (Note 4(i))
Derivatives used to
manage currency risk
Derivatives used to
manage other price risk
Gains
(losses)
arising
Prior period
(gains) losses
transferred to
net income
Total
Gains
(losses)
arising
Prior period
(gains) losses
transferred to
net income
Total
Total
Cumulative
foreign
currency
Change in Accumulated
unrealized
other
compre-
fair value of
hensive
translation available-for-sale
income
financial assets
adjustment
Employee
defined
benefit plans
re-measurements
Other
compre-
hensive
income
(millions)
Accumulated
balance as at
January 1, 2016
Other comprehensive
income (loss)
Amount arising
Income taxes
$ (66)
$ (18)
Net
Accumulated
balance as at
December 31, 2016
Other comprehensive
income (loss)
Amount arising
Income taxes
$ (132)
$ (21)
Net
Accumulated
balance as at
December 31, 2017
Attributable to:
Common Shares
Non-controlling
interests
$ 6
$ (6)
$ –
$ 43
$ 16
$ 59
$ 29
(37)
$ 9
(9)
(28)
(22)
$ 19
$ 5
$ (8)
11
(26)
$ (2)
3
8
(6)
(20)
5
–
5
–
–
–
(21)
(6)
(15)
$ –
$ (21)
–
(6)
$ –
$ (15)
2
(20)
48
16
44
$ 151
19
$ 27
6
13
$ 24
$ 6
$ (17)
$ (5)
7
1
6
26
7
19
5
–
5
(13)
(2)
(11)
18
5
13
$ (234)
$ (216)
(62)
(57)
$ (172)
$ (159)
$ (9)
$ 8 $ (1)
$ 53
$ 5
$ 57
$ 51
6
$ 57
As at December 31, 2017, our estimate of the net amount of existing
other comprehensive income and are expected to be reclassified to
gains (losses) arising from the unrealized fair value of derivatives
net income in the next twelve months, excluding income tax effects,
designated as cash flow hedges that are reported in accumulated
is $5 million.
144 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 11–13
12 Per share amounts
Basic net income per Common Share is calculated by dividing net income
Years ended December 31 (millions)
2017
2016
attributable to Common Shares by the total weighted average number
of Common Shares outstanding during the period. Diluted net income
Basic total weighted average number
of Common Shares outstanding
per Common Share is calculated to give effect to share option awards
and restricted stock units.
The following table presents the reconciliation of the denominators
of the basic and diluted per share computations. Net income was equal
to diluted net income for all periods presented.
Effect of dilutive securities
Share option awards
Diluted total weighted average number
of Common Shares outstanding
593
592
–
1
593
593
For the years ended December 31, 2017 and 2016, no outstanding
TELUS Corporation share option awards were excluded in the
computation of diluted net income per Common Share.
13 Dividends per share
(a) Dividends declared
Years ended December 31
(millions except per share amounts)
2017
Common Share dividends
Effective
Per share
Declared
Paid to
shareholders
Declared
Total
Effective
Per share
Paid to
shareholders
2016
Total
Quarter 1 dividend
Quarter 2 dividend
Quarter 3 dividend
Quarter 4 dividend
Mar. 10, 2017
$ 0.4800
Apr. 3, 2017
$ 283
Mar. 11, 2016
$ 0.44
Apr. 1, 2016
$ 261
June 9, 2017
Sep. 8, 2017
Dec. 11, 2017
0.4925
0.4925
0.5050
$ 1.9700
July 4, 2017
Oct. 2, 2017
Jan. 2, 2018
293
292
299
$ 1,167
June 10, 2016
Sep. 9, 2016
Dec. 9, 2016
0.46
0.46
0.48
$ 1.84
July 4, 2016
Oct. 3, 2016
Jan. 3, 2017
274
272
284
$ 1,091
On February 7, 2018, the Board of Directors declared a quarterly dividend
Common Shares from Treasury or having the trustee acquire Common
of $0.5050 per share on our issued and outstanding Common Shares
Shares in the stock market. We may, at our discretion, offer Common
payable on April 2, 2018, to holders of record at the close of business on
Shares at a discount of up to 5% from the market price under the Plan.
March 9, 2018. The final amount of the dividend payment depends upon
In respect of Common Share dividends declared during the year
the number of Common Shares issued and outstanding at the close of
business on March 9, 2018.
ended December 31, 2017, $58 million (2016 – $59 million) was to be
reinvested in Common Shares acquired by the trustee from Treasury
(2016 – in the stock market), with no discount applicable.
(b) Dividend Reinvestment and Share Purchase Plan
We have a Dividend Reinvestment and Share Purchase Plan under which
Under the share purchase feature of the Plan, eligible shareholders
can make optional cash payments to purchase our Common Shares
eligible holders of Common Shares may acquire additional Common
at the market price without brokerage commissions or service charges;
Shares by reinvesting dividends and by making additional optional cash
such purchases are subject to a minimum investment of $100 per
payments to the trustee. Under this Plan, we have the option of offering
transaction and a maximum investment of $20,000 per calendar year.
TELUS 2017 ANNUAL REPORT • 145
14 Share-based compensation
(a) Details of share-based compensation expense
Reflected in the Consolidated statements of income and other comprehensive income as Employee benefits expense and in the Consolidated statements
of cash flows are the following share-based compensation amounts:
Years ended December 31 (millions)
2017
Restricted stock units1
Transformative compensation2
Employee share purchase plan3
Share option awards
Note
(b)
16(c)
(c)
(d)
Employee
benefits
expense
Associated
operating
cash outflows
Statement
of cash flows
adjustment
Employee
benefits
expense
Associated
operating
cash outflows
$ 83
$ (67)
$ 16
$ 81
$ (83)
$ (2)
–
37
1
–
(37)
–
–
–
1
64
40
–
(64)
(40)
–
–
–
–
$ 121
$ (104)
$ 17
$ 185
$ (187)
$ (2)
2016
Statement
of cash flows
adjustment
1 The expense arising from restricted stock units was net of cash-settled equity swap agreement effects (see Note 4(i)). Within employee benefits expense (see Note 8), restricted stock
unit expense of $90 (2016 – $77) is presented as share-based compensation and the balance is included in restructuring costs.
2 As set out in Note 16(c), in 2016 we made immediately vesting, transformative compensation lump-sum payments to substantially all of our existing unionized and non-unionized
Canadian-sited workforces. For the unionized and non-unionized workforces, approximately 40% of the after-tax value of such qualifying lump-sum payments was paid in our Common
Shares (see Note 28(b)) by way of an employee benefit plan trust.
As a result of our being considered for accounting purposes to control an employee benefit plan trust that was used to effect these Common Share payments, such transactions have
been recognized as treasury stock transactions and we have applied the cost method of accounting. As at December 31, 2016, the employee benefit plan trust held no Common Shares.
3 Employees who received an immediately vesting, transformative compensation lump-sum payment in 2016 contributed a percentage of their payment to the employee share purchase
plan consistent with their regular compensation payment, as further described in (c). Our associated employer expense and contributions were $NIL (2016 – $3).
For the year ended December 31, 2017, the associated operating cash
(the requisite service period). The vesting method of restricted stock
outflows in respect of restricted stock units were net of cash inflows
units, which is determined on or before the date of grant, may be
arising from the cash-settled equity swap agreements of $14 million
either cliff or graded; the majority of restricted stock units outstanding
(2016 – $9 million). For the year ended December 31, 2017, the income
are cliff-vesting. The associated liability is normally cash-settled.
tax benefit arising from share-based compensation was $32 million
(2016 – $49 million).
(b) Restricted stock units
General
TELUS Corporation restricted stock units
We also award restricted stock units that largely have the same features as
our general restricted stock units, but have a variable payout (0%–200%)
that depends upon the achievement of our total customer connections
performance condition (with a weighting of 25%) and the total shareholder
We use restricted stock units as a form of retention and incentive
return on our Common Shares relative to an international peer group of
compensation. Each restricted stock unit is nominally equal in value
telecommunications companies (with a weighting of 75%). The grant-
to one equity share and is nominally entitled to the dividends that
date fair value of the notional subset of our restricted stock units affected
would arise thereon if it were an issued and outstanding equity share.
by the total customer connections performance condition equals the fair
The notional dividends are recorded as additional issuances of restricted
stock units during the life of the restricted stock unit. Due to the notional
market value of the corresponding Common Shares at the grant date,
and thus the notional subset has been included in the presentation of our
dividend mechanism, the grant-date fair value of restricted stock units
equals the fair market value of the corresponding equity shares at the
restricted stock units with only service conditions. The recurring estimate,
which reflects a variable payout, of the fair value of the notional subset
grant date. The restricted stock units generally become payable when
of our restricted stock units affected by the relative total shareholder return
vesting is complete and typically vest over a period of 33 months
performance condition is determined using a Monte Carlo simulation.
The following table presents a summary of outstanding TELUS Corporation non-vested restricted stock units.
Number of non-vested restricted stock units as at December 31
Restricted stock units without market performance conditions
Restricted stock units with only service conditions
Notional subset affected by total customer connections performance condition
Restricted stock units with market performance conditions
Notional subset affected by relative total shareholder return performance condition
2017
2016
3,327,464
154,452
3,481,916
463,357
3,945,273
3,260,745
130,234
3,390,979
390,703
3,781,682
146 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 14
The following table presents a summary of the activity related to TELUS Corporation restricted stock units without market performance conditions.
Years ended December 31
Outstanding, beginning of period
Non-vested
Vested
Issued
Initial award
In lieu of dividends
Vested
Settled in cash
Forfeited and cancelled
Outstanding, end of period
Non-vested
Vested
Number of restricted stock units1
Non-vested
Vested
2017
Weighted
average grant-
date fair value
3,390,979
–
–
29,108
1,825,688
206,715
–
455
(1,766,680)
1,766,680
–
(1,698,008)
(174,786)
(65,387)
3,481,916
–
–
32,848
$ 41.71
$ 38.09
$ 43.56
$ 43.98
$ 43.73
$ 43.63
$ 42.88
$ 41.87
$ 41.00
Number of restricted stock units1
Non-vested
Vested
3,564,412
–
–
29,008
1,942,446
209,027
–
381
(2,024,130)
2,024,130
–
(2,004,126)
(300,776)
(20,285)
3,390,979
–
–
29,108
2016
Weighted
average grant-
date fair value
$ 41.42
$ 40.00
$ 39.74
$ 41.63
$ 39.31
$ 39.29
$ 35.70
$ 41.71
$ 38.09
1 Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition.
With respect to certain issuances of TELUS Corporation restricted stock units, we have entered into cash-settled equity forward agreements that fix
our cost; that information, as well as a schedule of non-vested TELUS Corporation restricted stock units outstanding as at December 31, 2017, is set out
in the following table.
Vesting in years ending December 31
2018
2019
Number of
fixed-cost
restricted
stock units
1,792,286
1,385,734
3,178,020
Our fixed cost
per restricted
stock unit
$ 40.91
$ 45.46
Number of
variable-cost
restricted
stock units
28,951
274,945
303,896
Total number of
non-vested
restricted
stock units1
1,821,237
1,660,679
3,481,916
1 Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition.
TELUS International (Cda) Inc. restricted stock units
We also award restricted stock units that largely have the same features as the TELUS Corporation restricted stock units, but have a variable
payout (0%–150%) that depends upon the achievement of TELUS International (Cda) Inc. financial performance and non-market quality-of-service
performance conditions.
The following table presents a summary of the activity related to TELUS International (Cda) Inc. restricted stock units.
Years ended December 31
2017
2016
US$ denominated
Canadian $ denominated
US$ denominated
Canadian $ denominated
Number of
restricted stock units
Non-vested
Vested
Grant-date
fair value
Number
of vested
restricted Grant-date
fair value
stock units
Number of
non-vested
restricted
stock units
Grant-date
fair value
Number of
restricted stock units
Non-vested
Vested
Grant-date
fair value
Outstanding,
beginning of period
Non-vested
163,785
– US$ 21.90
–
$ –
– US$ –
Vested
–
– US$ –
32,299
$ 21.36
– US$ –
–
–
Issued – initial award
213,768
US$ 26.40
Vested
Exercised
(208)
–
208 US$ 24.10
(208) US$ 24.10
Forfeited and cancelled
(2,559)
– US$ 24.10
–
–
–
–
Outstanding,
end of period
$ –
163,785 US$ 21.90
32,299
$ –
$ –
$ –
– US$ –
– US$ –
– US$ –
(32,299)
32,299
$ 21.36
–
–
–
$ –
$ –
$ 21.36
–
–
–
–
–
–
$ –
$ –
–
$ –
32,299
$ 21.36
Non-vested
374,786
– US$ 24.45
–
$ –
163,785 US$ 21.90
Vested
–
– US$ –
32,299
$ 21.36
– US$ –
TELUS 2017 ANNUAL REPORT • 147
(c) Employee share purchase plan
We have an employee share purchase plan under which eligible
service period), but may vest over periods of up to five years. The vesting
method of share option awards, which is determined on or before the date
employees up to a certain job classification can purchase our Common
of grant, may be either cliff or graded; all share option awards granted
Shares through regular payroll deductions by contributing between 1%
subsequent to 2004 have been cliff-vesting.
and 20% of their pay; for more highly compensated job classifications,
The weighted average fair value of share option awards granted
employees may contribute between 1% and 55% of their pay. For every
is calculated by using the Black-Scholes model (a closed-form option
dollar contributed by an employee, up to a maximum of 6% of eligible
pricing model). The risk-free interest rate used in determining the fair
employee pay, we are required to make a contribution at a percentage
value of the share option awards is based on a Government of Canada
between 20% and 40%. For the years ended December 31, 2017 and
yield curve that is current at the time of grant. The expected lives of
2016, we contributed 40% for employees up to a certain job classification;
the share option awards are based on our historical share option
for more highly compensated job classifications, we contributed 35%.
award exercise data. Similarly, expected volatility considers the historical
We record our contributions as a component of Employee benefits
volatility in the price of our Common Shares for TELUS Corporation
expense and our contribution vests on the earlier of a plan participant’s
share options and average historical volatility in the prices of a peer
last day in our employ or the last business day of the calendar year of
group’s shares in respect of TELUS International (Cda) Inc. share options.
our contribution, unless the plan participant’s employment is terminated
with cause, in which case the plan participant will forfeit any in-year
contribution from us.
The dividend yield is the annualized dividend current at the time of
grant divided by the share option award exercise price. Dividends are
not paid on unexercised share option awards and are not subject
In respect of Common Shares held within the employee share pur-
to vesting.
chase plan, Common Share dividends declared during the year ended
December 31, 2017, of $31 million (2016 – $27 million) were to be
reinvested in Common Shares acquired by the trustee from Treasury
(2016 – in the stock market), with no discount applicable.
(d) Share option awards
General
We use share option awards as a form of retention and incentive com-
TELUS Corporation share options
Employees may receive options to purchase Common Shares at a price
equal to the fair market value at the time of grant. Share option awards
granted under the plan may be exercised over specific periods not
to exceed seven years from the time of grant. No share options were
awarded in fiscal 2017 or 2016.
These share option awards have a net-equity settlement feature.
The optionee does not have the choice of exercising the net-equity
pensation. We apply the fair value method of accounting for share-based
settlement feature; it is at our option whether the exercise of a share
compensation awards granted to officers and other employees. Share
option award is settled as a share option or settled using the net-equity
option awards typically have a three-year vesting period (the requisite
settlement feature.
The following table presents a summary of the activity related to the TELUS Corporation share option plan.
Years ended December 31
Outstanding, beginning of period
Exercised1
Forfeited
Expired
Outstanding, end of period2
Number of
share options
1,417,693
(652,926)
(3,908)
(20,388)
740,471
2017
Weighted
average share
option price
$ 24.49
$ 21.90
$ 27.56
$ 16.31
$ 26.99
Number of
share options
2,375,596
(925,682)
(13,112)
(19,109)
1,417,693
2016
Weighted
average share
option price
$ 22.96
$ 20.75
$ 24.49
$ 15.29
$ 24.49
1 The total intrinsic value of share option awards exercised for the year ended December 31, 2017, was $15 million (2016 – $19 million), reflecting a weighted average price at the dates
of exercise of $44.63 per share (2016 – $41.06 per share). The difference between the number of share options exercised and the number of Common Shares issued (as reflected in
the Consolidated statements of changes in owners’ equity) is the effect of our choosing to settle share option award exercises using the net-equity settlement feature.
2 All outstanding TELUS Corporation share options are vested, their range of prices is $23.08–$31.69 per share and their weighted average remaining contractual life is 0.9 years.
TELUS International (Cda) Inc. share options
awards granted under the plan may be exercised over specific periods
Employees may receive equity share options (equity-settled) to purchase
not to exceed ten years from the time of grant. All equity share option
TELUS International (Cda) Inc. common shares at a price equal to, or
awards and most phantom share option awards have a variable payout
a multiple of, the fair market value at the time of grant and/or phantom
(0%–100%) that depends upon the achievement of TELUS International
share options (cash-settled) that provide them with exposure to TELUS
(Cda) Inc. financial performance and non-market quality-of-service
International (Cda) Inc. common share price appreciation. Share option
performance conditions.
148 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15
The following table presents a summary of the activity related to the TELUS International (Cda) Inc. share option plan.
Years ended December 31
2017
2016
US$ denominated
Canadian $ denominated
US$ denominated
Canadian $ denominated
Number of
share options
Weighted
average share
option price1
Number of
share options
Share
option price2
Number of
share options
Weighted
average share
option price1
Number of
share options
Share
option price2
Outstanding,
beginning of period
573,354
US$ 30.86
53,832
Granted
175,272
US$ 27.70
–
Outstanding, end of period
748,626
US$ 30.12
53,832
$ 21.36
$ –
$ 21.36
–
US$ –
573,354
US$ 30.86
573,354
US$ 30.86
–
53,832
53,832
$ –
$ 21.36
$ 21.36
1 The range of share option prices is US$21.90–US$40.25 per TELUS International (Cda) Inc. equity share and the weighted average remaining contractual life is 9.2 years
(2016 – 10.0 years).
2 The weighted average remaining contractual life is 8.5 years (2016 – 9.5 years).
15 Employee future benefits
We have a number of defined benefit and defined contribution plans
TELUS Québec Defined Benefit Pension Plan
that provide pension and other retirement and post-employment benefits
This contributory defined benefit pension plan, which ceased accepting
to most of our employees. As at December 31, 2017 and 2016, all regis-
new participants on April 14, 2009, covers any employee not governed
tered defined benefit pension plans were closed to substantially all
by a collective agreement in Quebec who joined us prior to April 1, 2006,
new participants and substantially all benefits had vested. The benefit
any non-supervisory employee governed by a collective agreement
plans in which our employees are participants reflect developments
who joined us prior to September 6, 2006, and certain other unionized
in our corporate history.
TELUS Corporation Pension Plan
Management and professional employees in Alberta who joined us
prior to January 1, 2001, and certain unionized employees who joined
employees. The plan comprises approximately one-tenth of our total
defined benefit obligation accrued. The plan has no indexation and
pensionable remuneration is determined by the average of the best
four years of remuneration.
us prior to June 9, 2011, are covered by this contributory defined benefit
TELUS Edmonton Pension Plan
pension plan, which comprises slightly more than one-half of our total
This contributory defined benefit pension plan ceased accepting new
defined benefit obligation accrued. The plan contains a supplemental
participants on January 1, 1998. Indexation is 60% of the annual increase
benefit account that may provide indexation of up to 70% of the annual
in a specified cost-of-living index and pensionable remuneration is deter-
increase in a specified cost-of-living index. Pensionable remuneration
mined by the annualized average of the best 60 consecutive months of
is determined by the average of the best five years of remuneration in the
remuneration. The plan comprises less than one-tenth of our total defined
last ten years preceding retirement.
benefit obligation accrued.
Pension Plan for Management and Professional
Employees of TELUS Corporation
Other defined benefit pension plans
In addition to the foregoing plans, we have non-registered, non-
This defined benefit pension plan, which with certain limited exceptions
contributory supplementary defined benefit pension plans, which have
ceased accepting new participants on January 1, 2006, and which
the effect of maintaining the earned pension benefit once the allowable
comprises approximately one-quarter of our total defined benefit obliga-
maximums in the registered plans are attained. As is common with
tion accrued, provides a non-contributory base level of pension benefits.
non-registered plans of this nature, these plans are typically funded only
Additionally, on a contributory basis, employees annually can choose
as benefits are paid. These plans comprise less than 5% of our total
increased and/or enhanced levels of pension benefits above the base
defined benefit obligation accrued.
level. At an enhanced level of pension benefits, the plan has indexation
We have three contributory non-indexed defined benefit pension
of 100% of the annual increase in a specified cost-of-living index, to an
plans arising from a pre-merger acquisition, which comprise less than
annual maximum of 2%. Pensionable remuneration is determined by the
1% of our total defined benefit obligation accrued; these plans ceased
annualized average of the best 60 consecutive months of remuneration.
accepting new participants in September 1989.
TELUS 2017 ANNUAL REPORT • 149
Defined contribution pension plans
Fair value at beginning of year
8,873
8,641
Telecommunication Workers Pension Plan
Certain employees in British Columbia are covered by a negotiated-cost,
(a) Defined benefit pension plans – funded status overview
Information concerning our defined benefit pension plans, in aggregate,
target-benefit union pension plan. Our contributions are determined in
is as follows:
As at December 31 (millions)
2017
2016
Present value of the defined benefit obligations
Balance at beginning of year
$ 8,837
$ 8,620
accordance with provisions of negotiated labour contracts, the current
one of which expires December 31, 2021, and are generally based on
employee gross earnings. We are not required to guarantee the benefits or
assure the solvency of the plan, and we are not liable to the plan for other
participating employers’ obligations. For the years ended December 31,
2017 and 2016, our contributions comprised a significant proportion of the
employer contributions to the union pension plan; similarly, a significant
Current service cost
Past service cost
Interest expense
proportion of the plan participants were our active and retired employees.
Actuarial loss (gain) arising from:
British Columbia Public Service Pension Plan
Certain employees in British Columbia are covered by a public service
Demographic assumptions
Financial assumptions
pension plan. Contributions are determined in accordance with provisions
Benefits paid
of labour contracts negotiated by the Province of British Columbia and
Balance at end of year
are generally based on employee gross earnings.
Plan assets
We offer three defined contribution pension plans, which are contributory,
Return on plan assets
and these are the pension plans that we sponsor that are available to
our non-unionized and certain of our unionized employees. Employees,
annually, can generally choose to contribute to the plans at a rate of
between 3% and 6% of their pensionable earnings. Generally, we match
Notional interest income on
plan assets at discount rate
Actual return on plan assets
greater than discount rate
100% of the contributions of employees up to 5% of their pensionable
Contributions
earnings and 80% of employee contributions greater than that. Member-
Employer contributions (d)
ship in a defined contribution pension plan is generally voluntary until
Employees’ contributions
an employee’s third-year service anniversary. In the event that annual
contributions exceed allowable maximums, excess amounts are in
certain cases contributed to a non-registered supplementary defined
contribution pension plan.
Other defined benefit plans
Other defined benefit plans, which are all non-contributory and, as at
December 31, 2017 and 2016, non-funded, are comprised of a healthcare
plan for retired employees and a life insurance plan, both of which ceased
accepting new participants on January 1, 1997.
Benefits paid
Administrative fees
Fair value at end of year
Effect of asset ceiling limit
Beginning of year
Change
End of year
100
(2)
331
77
526
(450)
9,419
109
2
340
25
184
(443)
8,837
330
360
66
22
(450)
(6)
339
247
70
25
(443)
(6)
9,195
8,873
(115)
5
(110)
(74)
(41)
(115)
Fair value of plan assets at end of year,
net of asset ceiling limit
9,085
8,758
Funded status – plan surplus (deficit)
$ (334)
$ (79)
The plan surplus (deficit) is reflected in the Consolidated statements
of financial position as follows:
As at December 31 (millions)
Note
2017
2016
Funded status – plan surplus (deficit)
Pension benefit plans
Other benefit plans
Presented in the Consolidated statements
of financial position as:
Other long-term assets
Other long term liabilities
$ (334)
$ (79)
(47)
(47)
$ (381)
$ (126)
20
27
$ 156
$ 358
(537)
$ (381)
(484)
$ (126)
The measurement date used to determine the plan assets and defined
benefit obligations accrued was December 31.
150 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15
(b) Defined benefit pension plans – details
Expense
Our defined benefit pension plan expense (recovery) was as follows:
Years ended December 31 (millions)
Employee
benefits
expense
(Note 8)
Other
Financing comprehensive
income
(Note 11)
costs
(Note 9)
$ 78
$ –
$ –
Recognized in
Current service cost
Past service costs
Net interest; return on plan assets
Interest expense arising from defined
benefit obligations accrued
Return, including interest income,
on plan assets1
Interest effect on asset ceiling limit
Administrative fees
Re-measurements arising from:
Demographic assumptions
Financial assumptions
Changes in the effect of limiting
net defined benefit assets
to the asset ceiling
(2)
–
–
–
–
–
6
–
–
–
–
331
(330)
4
5
–
–
–
–
–
2017
Total
$ 78
(2)
331
(690)
4
(355)
6
77
526
603
Employee
benefits
expense
(Note 8)
Other
Financing comprehensive
income
(Note 11)
costs
(Note 9)
2016
Total
$ 84
$ –
$ –
$ 84
2
–
–
–
–
6
–
–
–
–
–
340
(339)
3
4
–
–
–
–
–
–
–
(247)
–
(247)
–
25
184
209
2
340
(586)
3
(243)
6
25
184
209
38
38
–
–
(360)
–
(360)
–
77
526
603
(9)
(9)
1 The interest income on the plan assets portion of the employee defined benefit plans net interest amount included in Financing costs reflects a rate of return on plan assets equal to
the discount rate used in determining the defined benefit obligations accrued.
$ 82
$ 5
$ 234
$ 321
$ 92
$ 4
$ –
$ 96
TELUS 2017 ANNUAL REPORT • 151
Disaggregation of defined benefit pension plan funding status
Defined benefit obligations accrued are the actuarial present values of benefits attributed to employee services rendered to a particular date.
Our disaggregation of defined benefit pension plan surpluses and deficits at year-end is as follows:
As at December 31 (millions)
Defined benefit
obligations
accrued
Plan assets
Difference
2017
PBSR Defined benefit
obligations
accrued
solvency
position1
Plan assets
Difference
2016
PBSR
solvency
position1
Pension plans that have plan
assets in excess of defined
benefit obligations accrued
Pension plans that have defined
benefit obligations accrued
in excess of plan assets
Funded
Unfunded
Defined benefit obligations
accrued owed to:
Active members
Deferred members
Pensioners
$ 8,116
$ 8,272
$ 156
$ 335
$ 7,610
$ 7,968
$ 358
$ 320
1,099
204
1,303
813
–
813
(286)
(204)
(490)
(80)
N/A2
(80)
1,034
193
1,227
790
–
790
(244)
(193)
(437)
(67)
N/A2
(67)
$ 9,419
$ 9,085
$ (334)
$ 255
$ 8,837
$ 8,758
$ (79)
$ 253
$ 2,285
560
6,574
$ 9,419
$ 2,140
557
6,140
$ 8,837
1 The Office of the Superintendent of Financial Institutions, by way of the Pension Benefits Standards Regulations, 1985 (PBSR) (see (d)), requires that a solvency valuation be performed on a
periodic basis. The actual PBSR solvency positions are determined in conjunction with mid-year annual funding reports prepared by actuaries (see (d)); as a result, the PBSR solvency posi-
tions in this table as at December 31, 2017 and 2016, are interim estimates and updated estimates, respectively. The interim estimate as at December 31, 2016, was a net surplus of $294.
Interim estimated solvency ratios as at December 31, 2017, ranged from 90% to 105% (2016 – updated estimate is 92% to 105%; interim estimate was 93% to 107%) and the
estimated three-year average solvency ratios, adjusted as required by the PBSR, ranged from 93% to 104% (2016 – updated estimate is 92% to 103%; interim estimate was 93% to 104%).
The solvency valuation effectively uses the fair value (excluding any asset ceiling limit effects) of the funded defined benefit pension plan assets (adjusted for theoretical wind-up
expenses) to measure the solvency assets. Although the defined benefit obligations accrued and the solvency liabilities are calculated similarly, the assumptions used for each differ,
primarily in respect of retirement ages and discount rates, and the solvency liabilities, due to the required assumption that each plan is terminated on the valuation date, do not reflect
assumptions about future compensation levels. Relative to the experience-based estimates of retirement ages used for purposes of determining the defined benefit obligations accrued,
the minimum no-consent retirement age used for solvency valuation purposes may result in either a greater or lesser pension liability, depending upon the provisions of each plan.
The solvency positions in this table reflect composite weighted average discount rates of 3.00% (2016 – 3.10%). A hypothetical decrease of 25 basis points in the composite weighted
average discount rate would result in a $316 decrease in the PBSR solvency position as at December 31, 2017 (2016 – $303); these sensitivities are hypothetical, should be used with
caution, are calculated without changing any other assumption and generally cannot be extrapolated because changes in amounts may not be linear.
2 PBSR solvency position calculations are not required for the three pension plans arising from a pre-merger acquisition or for the non-registered, unfunded pension plans.
Fair value measurements
Information about the fair value measurements of our defined benefit pension plan assets, in aggregate, is as follows:
As at December 31 (millions)
2017
2016
2017
2016
2017
2016
Fair value measurements at reporting date using
Total
Quoted prices in active
markets for identical items
Other
Asset class
Equity securities
Canadian
Foreign
Debt securities
Issued by national, provincial or local governments
Corporate debt securities
Asset-backed securities
Commercial mortgages
Cash, cash equivalents and other
Real estate
Effect of asset ceiling limit
$ 1,385
$ 1,172
$ 1,129
$ 1,135
$ 256
$ 37
1,867
1,876
853
1,189
1,014
687
1,512
1,208
31
1,659
486
1,047
9,195
(110)
1,463
1,317
31
1,107
1,151
756
8,873
(115)
$ 9,085
$ 8,758
1,389
1,362
–
–
–
38
–
–
–
–
29
–
123
1,208
31
1,659
448
1,047
101
1,317
31
1,107
1,122
756
$ 3,409
$ 3,715
$ 5,786
$ 5,158
152 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15
As at December 31, 2017, we administered pension benefit trusts that
cash flow and providing greater scope for the management of the bond
held no TELUS Corporation Common Shares and held debt of TELUS
component of the plan assets. Debt securities also may include real
Corporation with a fair value of approximately $3 million (2016 – $3 million)
return bonds to provide inflation protection, consistent with the indexed
(see (c) – Allowable and prohibited investment types). As at December 31,
nature of some defined benefit obligations. Real estate investments
2017 and 2016, pension benefit trusts that we administered did not lease
are used to provide diversification of plan assets, hedging of potential
real estate to us.
Future benefit payments
long-term inflation and comparatively stable investment income.
Relationship between plan assets and benefit obligations
Estimated future benefit payments from our defined benefit pension
With the objective of lowering the long-term costs of our defined benefit
plans, calculated as at December 31, 2017, are as follows:
pension plans, we purposely mismatch plan assets and benefit obliga-
Years ending December 31 (millions)
2018
2019
2020
2021
2022
2023–2027
$ 446
454
458
465
471
2,440
(c) Plan investment strategies and policies
Our primary goal for the defined benefit pension plans is to ensure the
tions. This mismatching is effected by including equity investments in the
long-term asset mix, as well as fixed income securities and mortgages
with durations that differ from those of the benefit obligations.
As at December 31, 2017, the present value-weighted average timing
of estimated cash flows for the obligations (duration) of the defined benefit
pension plans was 13.9 years (2016 – 13.6 years) and of the other defined
benefit plans was 6.8 years (2016 – 7.3 years). Compensation for liquidity
issues that may have otherwise arisen from the mismatching of plan
assets and benefit obligations is provided by broadly diversified investment
holdings (including cash and short-term investments) and cash flows from
dividends, interest and rents from those diversified investment holdings.
security of the retirement income and other benefits of the plan members
Asset allocations
and their beneficiaries. A secondary goal is to maximize the long-term
rate of return on the defined benefit plans’ assets within a level of risk
Our defined benefit pension plans’ target asset allocations and actual
asset allocations are as follows:
acceptable to us.
Risk management
We consider absolute risk (the risk of contribution increases, inadequate
plan surplus and unfunded obligations) to be more important than relative
return risk. Accordingly, the defined benefit plans’ designs, the nature and
maturity of defined benefit obligations and the characteristics of the plans’
memberships significantly influence investment strategies and policies.
We manage risk by specifying allowable and prohibited investment types,
setting diversification strategies and determining target asset allocations.
Allowable and prohibited investment types
Allowable and prohibited investment types, along with associated
guidelines and limits, are set out in each plan’s required Statement of
Investment Policies and Procedures (SIPP), which is reviewed and
approved annually by the designated governing body. The SIPP guide-
lines and limits are further governed by the permitted investments and
lending limits set out in the Pension Benefits Standards Regulations, 1985.
As well as conventional investments, each fund’s SIPP may provide for
the use of derivative products to facilitate investment operations and to
manage risk, provided that no short position is taken, no use of leverage
is made and no guidelines and limits established in the SIPP are violated.
Internally and externally managed funds are not permitted to directly
invest in our securities and are prohibited from increasing grandfathered
investments in our securities; any such grandfathered investments were
made prior to the merger of BC TELECOM Inc. and TELUS Corporation,
our predecessors.
Diversification
Our strategy for investments in equity securities is to be broadly diversified
across individual securities, industry sectors and geographical regions.
A meaningful portion (20%–30% of total plan assets) of the plans’ invest-
ment in equity securities is allocated to foreign equity securities with the
intent of further diversifying plan assets. Debt securities may include
a meaningful allocation to mortgages, with the objective of enhancing
Years ended December 31
Equity securities
Debt securities
Real estate
Other
Target
allocation
2018
20–50%
40–75%
5–25%
0–10%
Percentage of plan
assets at end of year
2017
35%
53%
12%
–
2016
34%
57%
9%
–
100%
100%
(d) Employer contributions
The determination of the minimum funding amounts necessary for sub-
stantially all of our registered defined benefit pension plans is governed
by the Pension Benefits Standards Act, 1985, which requires that,
in addition to current service costs being funded, both going-concern
and solvency valuations be performed on a specified periodic basis.
• Any excess of plan assets over plan liabilities determined in the
going-concern valuation reduces our minimum funding requirement
for current service costs, but may not reduce the requirement to an
amount less than the employees’ contributions. The going-concern
valuation generally determines the excess (if any) of a plan’s assets
over its liabilities on a projected benefit basis.
• As of the date of these consolidated financial statements, the
solvency valuation generally requires that a plan’s average solvency
liabilities, determined on the basis that the plan is terminated on
the valuation date, in excess of its assets (if any) be funded, at a
minimum, in equal annual amounts over a period not exceeding
five years. So as to manage the risk of overfunding the plans, which
results from the solvency valuation for funding purposes utilizing
the average solvency ratios, our funding may include the provision
of letters of credit. As at December 31, 2017, undrawn letters of
credit in the amount of $188 million (2016 – $175 million) secured
certain obligations of the defined benefit pension plans, including
non-registered, unfunded plans.
TELUS 2017 ANNUAL REPORT • 153
Our best estimate of fiscal 2018 employer contributions to our defined
Financial assumptions
benefit plans is approximately $50 million for defined benefit pension
The discount rate, which is used to determine a plan’s defined benefit
plans. This estimate is based upon the mid-year 2017 annual funding
obligations accrued, is based upon the yield on long-term, high-quality
valuations that were prepared by actuaries using December 31, 2016,
fixed-term investments, and is set annually. The rate of future increases
actuarial valuations. The funding reports are based on the pension
in compensation is based upon current benefits policies and economic
plans’ fiscal years, which are calendar years. The next annual funding
forecasts.
valuations are expected to be prepared mid-year 2018.
The significant weighted average actuarial assumptions arising
(e) Assumptions
As referred to in Note 1(b), management is required to make significant
from these estimates and adopted in measuring our defined benefit
obligations accrued are as follows:
2017
2016
estimates related to certain actuarial and economic assumptions
Discount rate1 used to determine:
that are used in determining defined benefit pension costs, defined
benefit obligations accrued and pension plan assets. These significant
Net benefit costs for the year ended December 31
3.80%
4.00%
Defined benefit obligations accrued as at
estimates are of a long-term nature, consistent with the nature of
December 31
employee future benefits.
Demographic assumptions
In determining the defined benefit pension expense recognized in net
Current service cost in subsequent fiscal year
Rate of future increases in compensation
used to determine:
3.40%
3.50%
3.80%
4.00%
income for the years ended December 31, 2017 and 2016, we utilized
Net benefit costs for the year ended December 31
2.51%
3.00%
the Canadian Institute of Actuaries CPM 2014 mortality tables.
Defined benefit obligations accrued as at
December 31
2.70%
2.51%
1 The discount rate disclosed in this table reflects the computation of an average
discount rate that replicates the timing of the obligation cash flows.
Sensitivity of key assumptions
The sensitivity of our key assumptions for our defined benefit pension plans was as follows:
Years ended, or as at, December 31
Increase (decrease) (millions)
Sensitivity of key demographic assumptions
to an increase of one year1 in life expectancy
Sensitivity of key financial assumptions to a
hypothetical decrease of 25 basis points1 in:
Discount rate
Rate of future increases in compensation
Change in
obligations
2017
Change in
expense
Change in
obligations
2016
Change in
expense
$ 270
$ 11
$ 228
$ 10
$ 337
$ (34)
$ 16
$ (3)
$ 310
$ (27)
$ 17
$ (3)
1 These sensitivities are hypothetical and should be used with caution. Favourable hypothetical changes in the assumptions result in decreased amounts, and unfavourable hypothetical
changes in the assumptions result in increased amounts, of the obligations and expenses. Changes in amounts based on a variation in assumptions of one year or 25 basis points
generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. Also, in this table, the effect of a variation in a
particular assumption on the change in obligations or change in expenses is calculated without changing any other assumption; in reality, changes in one factor may result in changes
in another (for example, increases in the discount rate may result in changes in expectations about the rate of future increases in compensation), which might magnify or counteract
the sensitivities.
(f) Defined contribution plans – expense
Our total defined contribution pension plan costs recognized were as follows:
Years ended December 31 (millions)
Union pension plan and public service pension plan contributions
Other defined contribution pension plans
2017
Total
$ 23
65
$ 88
Traditional
$ 26
63
$ 89
Transformative
compensation
(Notes 8, 16(c))
$ 36
5
$ 41
2016
Total
$ 62
68
$ 130
We expect that our 2018 union pension plan and public service pension plan contributions will be approximately $25 million.
(g) Other defined benefit plans
For the year ended December 31, 2017, other defined benefit current
comprehensive income were $NIL (2016 – $NIL). Estimated future
benefit payments from our other defined benefit plans, calculated as at
service cost was $NIL (2016 – $1 million), financing cost was $1 million
December 31, 2017, are $2 million annually for the five-year period from
(2016 – $2 million) and other re-measurements recorded in other
2018 to 2022 and $7 million for the five-year period from 2023 to 2027.
154 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 16
16 Restructuring and other costs
(a) Details of restructuring and other costs
With the objective of reducing ongoing costs, we incur associated
costs incurred in connection with business acquisition or disposition
activity, as well as litigation costs, in the context of significant losses or
incremental, non-recurring restructuring costs, as discussed further in (b)
settlements, in other costs.
following. We may also incur atypical charges when undertaking major
Restructuring and other costs are presented in the Consolidated
or transformational changes to our business or operating models, as
statements of income and other comprehensive income, as set out in
discussed further in (c) following. We also include incremental external
the following table:
Years ended December 31 (millions)
Goods and services purchased
Employee benefits expense
Restructuring (b)
Other (c)
Total
2017
$ 66
26
$ 92
2016
$ 62
112
$ 174
2017
$ 37
10
$ 47
2016
$ –
305
$ 305
2017
$ 103
36
$ 139
2016
$ 62
417
$ 479
(b) Restructuring provisions
Employee-related provisions and other provisions, as presented in
For the year ended December 31, 2016, other costs were in
respect of immediately vesting, transformative compensation expense
Note 25, include amounts in respect of restructuring activities. In 2017,
for substantially all of our existing unionized (see Note 29(c)) and
restructuring activities included ongoing and incremental efficiency
non-unionized Canadian-situated workforces; a portion of the expense
initiatives, including personnel-related costs and rationalization of
is considered share-based compensation for accounting purposes,
real estate. These initiatives were intended to improve our long-term
as set out in Note 14(a). The compensation vested immediately, and thus
operating productivity and competitiveness.
was expensed when incurred, as there was no requisite service period
(c) Other costs
For the year ended December 31, 2017, incremental external costs were
Canadian-situated workforce was compensation in respect of collective
agreement concessions that moderate future labour costs and underpin
incurred in connection with business acquisition activity. In connection with
productivity improvements, as well as in lieu of salary increases that
our acquisition of a portion of Manitoba Telecom Services Inc. postpaid
would otherwise have been effective July 1, 2016, 2017 and 2018;
wireless subscribers, as discussed further in Note 18(b), non-recurring
the one-time payment to our non-unionized Canadian-situated workforce
atypical business integration expenditures that would be considered
was in lieu of general salary increases that would otherwise have been
of the recipients. The one-time payment to our existing unionized
neither restructuring costs nor part of the fair value of the net assets
awarded in 2017 and 2018.
acquired have been included in other costs.
TELUS 2017 ANNUAL REPORT • 155
17 Property, plant and equipment
Note
Network
assets
Buildings and
leasehold
improvements
Other
Land
Assets under
construction
Total
(millions)
At cost
As at January 1, 2016
Additions1
Additions arising from business acquisitions
Dispositions, retirements and other
Assets under construction put into service
As at December 31, 2016
Additions1
Additions arising from business acquisitions
18(b)
Dispositions, retirements and other
Assets under construction put into service
As at December 31, 2017
Accumulated depreciation
As at January 1, 2016
Depreciation
Dispositions, retirements and other
As at December 31, 2016
Depreciation
Dispositions, retirements and other
As at December 31, 2017
Net book value
As at December 31, 2016
As at December 31, 2017
$ 27,191
$ 2,847
$ 1,120
$ 55
$ 413
$ 31,626
762
–
(739)
1,070
28,284
972
25
(1,724)
1,167
45
1
(78)
139
2,954
51
8
(63)
127
39
1
(223)
84
1,021
44
9
(48)
69
–
–
–
–
55
–
–
(7)
–
1,472
–
–
(1,293)
592
1,426
–
–
(1,363)
2,318
2
(1,040)
–
32,906
2,493
42
(1,842)
–
$ 28,724
$ 3,077
$ 1,095
$ 48
$ 655
$ 33,599
$ 19,351
$ 1,810
$ 729
$ –
$ –
$ 21,890
1,357
(758)
19,950
1,396
(1,708)
99
(73)
1,836
106
(58)
108
(181)
656
115
(62)
–
–
–
–
–
–
–
–
–
–
1,564
(1,012)
22,442
1,617
(1,828)
$ 19,638
$ 1,884
$ 709
$ –
$ –
$ 22,231
$ 8,334
$ 9,086
$ 1,118
$ 1,193
$ 365
$ 386
$ 55
$ 48
$ 592
$ 655
$ 10,464
$ 11,368
1 For the year ended December 31, 2017, additions include $7 (2016 – $(40)) in respect of asset retirement obligations (see Note 25).
As at December 31, 2017, our contractual commitments for the acquisition of property, plant and equipment totalled $184 million over a period ending
December 31, 2019 (2016 – $436 million over a period ending December 31, 2020).
156 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 17–18
18 Intangible assets and goodwill
(a) Intangible assets and goodwill, net
Intangible assets subject to amortization
Customer
contracts,
related
customer
relationships
and leasehold
interests
Intangible
assets with
indefinite lives
Access to
Software
rights-of-way Assets under
construction
and other
Total
Spectrum
licences
Total
intangible
assets
Goodwill1
Total
intangible
assets and
goodwill
(millions)
At cost
As at January 1, 2016
$ 473
$ 3,801
$ 90
$ 216
$ 4,580
$ 8,480
$ 13,060
$ 4,125
$ 17,185
Additions
Additions arising from
business acquisitions
Dispositions, retirements and other
(including capitalized interest
(see Note 9))
Assets under construction
put into service
Net foreign exchange differences
As at December 31, 2016
Additions
Additions arising from
business acquisitions (b)
Dispositions, retirements and other
Assets under construction
put into service
Net foreign exchange differences
–
12
–
–
–
485
–
134
(61)
–
–
50
4
(137)
577
–
4,295
74
101
(209)
406
–
4
–
(3)
2
–
93
5
–
(1)
–
–
575
629
164
793
–
793
–
16
–
16
22
38
–
(140)
49
(91)
–
–
4
(91)
–
4
–
–
–
–
–
–
5,085
8,693
13,778
4,151
17,929
617
235
(271)
–
–
–
–
–
–
–
617
–
617
235
(271)
–
–
433
–
–
(3)
668
(271)
–
(3)
(579)
–
212
538
–
–
(406)
–
As at December 31, 2017
$ 558
$ 4,667
$ 97
$ 344
$ 5,666
$ 8,693
$ 14,359
$ 4,581
$ 18,940
Accumulated amortization
As at January 1, 2016
$ 280
$ 2,739
$ 56
$ –
$ 3,075
$ –
$ 3,075
$ 364
$ 3,439
Amortization
Dispositions, retirements and other
As at December 31, 2016
Amortization
Dispositions, retirements and other
43
–
323
48
(61)
436
(143)
3,032
500
(202)
4
(1)
59
4
(2)
–
–
–
–
–
483
(144)
3,414
552
(265)
–
–
–
–
–
483
(144)
–
–
483
(144)
3,414
364
3,778
552
(265)
–
–
552
(265)
As at December 31, 2017
$ 310
$ 3,330
$ 61
$ –
$ 3,701
$ –
$ 3,701
$ 364
$ 4,065
Net book value
As at December 31, 2016
$ 162
$ 1,263
As at December 31, 2017
$ 248
$ 1,337
$ 34
$ 36
$ 212
$ 1,671
$ 8,693
$ 10,364
$ 3,787
$ 14,151
$ 344
$ 1,965
$ 8,693
$ 10,658
$ 4,217
$ 14,875
1 Accumulated amortization of goodwill is amortization recorded prior to 2002; there are no accumulated impairment losses in the accumulated amortization of goodwill.
As at December 31, 2017, our contractual commitments for the acquisition of intangible assets totalled $36 million over a period ending
December 31, 2020 (2016 – $82 million over a period ending December 31, 2020).
TELUS 2017 ANNUAL REPORT • 157
(b) Business acquisitions
Voxpro Limited
Manitoba Telecom Services Inc. postpaid wireless
On May 2, 2016, BCE Inc. announced that it had entered into a definitive
agreement to acquire all issued and outstanding shares of Manitoba
Telecom Services Inc.; as of September 30, 2016, all court and share-
holder approvals had been obtained; as of February 15, 2017, all
regulatory approvals had been obtained; and the transaction closed
on March 17, 2017. In June 2016, we submitted a notification and
advanced ruling request to the Competition Bureau regarding our
previously announced agreement in principle with BCE Inc., pursuant to
which we intended to acquire a portion of Manitoba Telecom Services
Inc.’s postpaid wireless subscribers, certain network assets and dealer
locations in Manitoba, upon the successful completion of BCE Inc.’s
acquisition of Manitoba Telecom Services Inc.
On April 1, 2017, we acquired postpaid wireless customer contracts,
certain network assets and rights to 15 retail locations in Manitoba.
The primary reason for this acquisition is to increase the number of our
postpaid wireless subscribers in Manitoba and to enhance our distribution
of wireless products and customer services across all of Manitoba.
The primary factor that contributed to the recognition of goodwill
was the earnings capacity of the acquired business in excess of the net
tangible and intangible assets acquired (such excess arising from the
On August 31, 2017, we acquired 55% of Voxpro Limited, a business
process outsourcing and contact centre services company with facilities
in Ireland, the United States and Romania. The investment was made
with a view to expanding further into supporting customers providing
Internet-related services and products, bolstering sales capabilities
in our chosen markets, and acquiring multi-site redundancy in support
of other facilities.
In respect of the 55% acquired business, we concurrently provided
a written put option to the remaining selling shareholders under which
they could put the remaining 45% of the shares commencing in 2021.
The acquisition-date fair value of the puttable shares held by the non-
controlling shareholders has been recorded as a provision (see Note 25).
Also concurrent with our acquisition of the initial 55% interest, the
non-controlling shareholders provided us with a purchased call option,
which mirrors the written put option.
The primary factor that contributed to the recognition of goodwill
was the earnings capacity of the acquired business in excess of the net
tangible and intangible assets acquired (such excess arising from the
acquired workforce and the benefits of acquiring an established business).
The amount assigned to goodwill is not expected to be deductible for
income tax purposes.
benefits of acquiring established businesses in multiple locations).
Individually immaterial transactions
The amount assigned to goodwill is not expected to be deductible
During the years ended December 31, 2017 and 2016, we acquired
for income tax purposes.
Kroll Computer Systems Inc.
On May 15, 2017, we acquired 100% of Kroll Computer Systems Inc.,
the primary reason for which is to enhance our geographic reach and
the quality of our product offering as a national pharmacy management
services provider.
The primary factor that contributed to the recognition of goodwill
was the earnings capacity of the acquired business in excess of the net
tangible and intangible assets acquired (such excess arising from the
acquired workforce and the benefits of acquiring an established business).
The amount assigned to goodwill is expected to be deductible for
income tax purposes.
100% ownership of multiple businesses complementary to our existing
lines of business. The primary factor that contributed to the recognition
of goodwill was the earnings capacity of the acquired businesses in
excess of the net tangible and intangible assets acquired (such excess
arising from: the low levels of tangible assets relative to the earnings
capacity of the businesses; expected synergies; the benefits of acquiring
established businesses with certain capabilities in their industries;
and the geographic presence of the acquired businesses). A portion
of the amounts assigned to goodwill may be deductible for income
tax purposes.
158 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 18
Acquisition-date fair values
The acquisition-date fair values assigned to the assets acquired and liabilities assumed are set out in the following table:
Manitoba Telecom
Services Inc.
postpaid wireless
Kroll Computer
Systems Inc.
Voxpro Limited1
Individually
immaterial
transactions
Total
$ –
$ 1
$ 3
$ –
$ 4
(millions)
Assets
Current assets
Cash
Accounts receivable2
Other
Non-current assets
Property, plant and equipment
Network assets
Buildings and leasehold improvements
Other
Intangible assets subject to amortization3
Customer contracts, customer relationships
(including those related to customer contracts)
and leasehold interests
Software
Total identifiable assets acquired
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Advance billings and customer deposits
Provisions
Non-current liabilities
Provisions
Other long-term liabilities
Deferred income taxes
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
Acquisition effected by way of:
Cash consideration
Accrued receivable4
Accounts payable and accrued liabilities
Provisions
Issue of TELUS Corporation Common Shares
Pre-existing relationship effectively settled
9
7
16
23
–
–
54
–
77
93
1
2
7
10
6
–
18
24
34
59
207
$ 266
$ 306
(40)
–
–
–
–
$ 266
3
–
4
–
–
1
26
101
128
132
1
4
–
5
3
–
–
3
8
124
126
$ 250
20
4
27
–
8
8
38
–
54
81
19
–
–
19
–
1
5
6
25
56
85
$ 141
$ 150
$ 58
–
–
–
100
–
$ 250
–
–
60
–
23
–
1
1
2
–
–
16
–
18
19
–
1
–
1
–
–
–
–
1
18
15
$ 33
$ 31
–
2
–
–
–
32
12
48
25
8
9
134
101
277
325
21
7
7
35
9
1
23
33
68
257
433
$ 690
$ 545
(40)
2
60
100
23
$ 141
$ 33
$ 690
1 The purchase price allocation, primarily in respect of customer relationships, had not been finalized as of the date of these consolidated financial statements. As is customary in
a business acquisition transaction, until the time of acquisition of control, we did not have full access to Voxpro Limited’s books and records. Upon having sufficient time to review
Voxpro Limited’s books and records, we expect to finalize our purchase price allocation.
Prior to acquisition, we had advanced $23 to Voxpro Limited; this pre-existing relationship was effectively settled at the date of the business combination with no gain or loss recognized.
2 The fair value of the accounts receivable is equal to the gross contractual amounts receivable and reflects the best estimates at the acquisition date of the contractual cash flows
expected to be collected.
3 Customer contracts and customer relationships (including those related to customer contracts) are expected to be amortized over a period of 8 to 10 years; software is expected to
be amortized over a period of 10 years.
4 The total transaction price is a function of the number of qualifying postpaid wireless subscribers acquired. If less than the targeted number of qualifying postpaid wireless subscribers
is acquired, the total transaction price will be reduced on a pro-rated basis; a receivable has been accrued for the estimate of such reduction, net of associated adjustments.
To the extent that the actual number of qualifying wireless subscribers acquired is greater (less) than provided for in the purchase price allocation, such adjustment to the transaction
price will result in a charge (recovery) recorded in Other operating income, reflecting treatment as a contingent consideration deposit; during the year ended December 31, 2017, we recorded
a change in the contingent consideration receivable of $26 (Note 7). We have accrued our best estimate of the amount of the contingent consideration deposit we expect to recover.
TELUS 2017 ANNUAL REPORT • 159
Pro forma disclosures
Xavient Information Systems
The following pro forma supplemental information represents certain
On February 6, 2018, through our TELUS International (Cda) Inc.
results of operations as if the business acquisitions noted above had
subsidiary, we acquired 65% of Xavient Information Systems, a group
been completed at the beginning of the fiscal 2017 year.
of information technology consulting and software services companies
Year ended December 31, 2017
(millions except per share amounts)
Operating revenues
Net income
Net income per Common Share
Basic
Diluted
As reported1
Pro forma2
$ 13,304
$ 13,426
$ 1,479
$ 1,474
$ 2.46
$ 2.45
$ 2.46
$ 2.45
1 As reported operating revenues and net income include $49 and $20, respectively,
in respect of the operations of Manitoba Telecom Services Inc. postpaid wireless
(excluding the change in the contingent consideration receivable (Note 7)), $17 and
$NIL, respectively, in respect of the operations of Kroll Computer Systems Inc.,
and $51 and $NIL, respectively, in respect of the operations of Voxpro Limited.
2 Pro forma amounts reflect the acquired businesses. In respect of Manitoba Telecom
Services Inc. postpaid wireless, pro forma adjustments for revenues and goods
and services purchased are not available as the seller’s information systems were
not configured to capture such information; as a proxy, the revenues and goods
and services purchased amounts for the three-month period ended June 30, 2017,
have been used for pro forma purposes. The results of the acquired businesses have
been included in our Consolidated statements of income and other comprehensive
income effective the dates of acquisition.
The pro forma supplemental information is based on estimates and
assumptions that are believed to be reasonable. The pro forma supple-
mental information is not necessarily indicative of our consolidated
financial results in future periods or the actual results that would have
been realized had the business acquisitions been completed at the
beginning of the periods presented. The pro forma supplemental infor-
mation includes incremental intangible asset amortization, financing
and other charges as a result of the acquisitions, net of the related
tax effects.
(c) Business acquisitions – subsequent
to reporting period
AlarmForce Industries
On January 4, 2018, we acquired 100% of the customers, assets and
operations of AlarmForce Industries Inc. in British Columbia, Alberta
and Saskatchewan, for cash consideration of approximately $69 million;
the primary reason for which is to leverage our telecommunications
infrastructure and expertise to continue to enhance connected home,
business, security and health services for our customers.
As of February 8, 2018, our initial provision for the net identifiable
assets acquired is in the range of $10 million–$20 million; as is customary
in a business acquisition transaction, until the time of acquisition of
control, we did not have full access to the relevant portions of the books
and records of AlarmForce Industries. Upon having sufficient time to
review the relevant portions of the books and records of AlarmForce
Industries, as well as obtaining new and additional information about the
related facts and circumstances as of the acquisition date, we will adjust
the provisional amounts for identifiable assets acquired and liabilities
assumed and thus finalize our purchase price allocation.
with facilities in the United States and India, for consideration of
approximately $144 million (US$115 million) in cash and approximately
$19 million (US$15 million) in TELUS International (Cda) Inc. common
shares. The investment was made with a view to enhancing our ability
to provide complex and higher-value information technology services,
improve our related sales and solutioning capabilities and acquire
multi-site redundancy in support of other facilities.
In respect of the 65% acquired business, we concurrently provided
a written put option to the remaining selling shareholders; the written
put option for the remaining 35% of the economic interest would become
exercisable no later than December 31, 2020. The acquisition-date fair
value of the puttable shares held by the non-controlling shareholders will
be recorded as a provision in the three-month period ended March 31,
2018; we currently estimate that such fair value would be in the range of
$150 million (US$120 million). Also concurrent with our acquisition of the
initial 65% interest, the non-controlling shareholders provided us with a
purchased call option, which substantially mirrors the written put option.
As of February 8, 2018, our initial provision for the net identifiable
assets acquired is in the range of $95 million–$125 million (US$75 million–
US$100 million); as is customary in a business acquisition transaction,
until the time of acquisition of control, we did not have full access to the
books and records of Xavient Information Systems. Upon having sufficient
time to review the books and records of Xavient Information Systems,
as well as obtaining new and additional information about the related facts
and circumstances as of the acquisition date, we will adjust the provisional
amounts for identifiable assets acquired and liabilities assumed and
thus finalize our purchase price allocation.
(d) Intangible assets with indefinite lives –
spectrum licences
Our intangible assets with indefinite lives include spectrum licences
granted by Innovation, Science and Economic Development Canada
which are used for the provision of both mobile and fixed wireless
services. The spectrum licence policy terms indicate that the spectrum
licences will likely be renewed. We expect our spectrum licences to
be renewed every 20 years following a review of our compliance with
licence terms. In addition to current usage, our licensed spectrum
can be used for planned and new technologies. As a result of our
assessment of the combination of these significant factors, we currently
consider our spectrum licences to have indefinite lives and, as referred
to in Note 1(b), this represents a significant judgment for us.
160 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 18
(e) Impairment testing of intangible assets with indefinite lives and goodwill
General
As referred to in Note 1(i), the carrying values of intangible assets with indefinite lives and goodwill are periodically tested for impairment and, as referred
to in Note 1(b), this test represents a significant estimate for us, while also requiring significant judgments to be made.
The allocated carrying values of intangible assets with indefinite lives and goodwill are set out in the following table.
As at December 31 (millions)
Wireless
Wireline
Intangible assets
with indefinite lives
2017
2016
$ 8,693
$ 8,693
–
–
$ 8,693
$ 8,693
Goodwill
Total
2017
$ 2,860
1,357
$ 4,217
2016
2017
2016
$ 2,647
$ 11,553
$ 11,340
1,140
1,357
1,140
$ 3,787
$ 12,910
$ 12,480
The recoverable amounts of the cash-generating units’ assets have
The key assumptions for cash flow projections are based upon our
been determined based on a fair value less costs of disposal calculation.
approved financial forecasts, which span a period of three years and are
There is a material degree of uncertainty with respect to the estimates
discounted, for December 2017 annual test purposes, at a consolidated
of the recoverable amounts of the cash-generating units’ assets, given
post-tax notional rate of 7.0% (2016 – 7.0%). For impairment testing
the necessity of making key economic assumptions about the future.
valuations, cash flows subsequent to the three-year projection period are
Recoverable amounts based on the fair value less costs of disposal are
extrapolated, for December 2017 annual test purposes, using perpetual
categorized as Level 3 fair value measures.
growth rates of 2.25% (2016 – 2.0%) for each of the wireless cash-
We validate our recoverable amount calculation results through a
generating unit and the wireline cash-generating unit; these growth
market-comparable approach and an analytical review of industry facts
rates do not exceed the long-term average growth rates observed
and facts that are specific to us. The market-comparable approach uses
in the markets in which we operate.
current (at time of test) market consensus estimates and equity trading
We believe that any reasonably possible change in the key
prices for U.S. and Canadian firms in the same industry. In addition,
assumptions on which the calculation of the recoverable amounts of our
we ensure that the combination of the valuations of the cash-generating
cash-generating units is based would not cause the cash-generating
units is reasonable based on our current (at time of test) market value.
units’ carrying values (including the intangible assets with indefinite lives
Key assumptions
The fair value less costs of disposal and the value in use calculations
both use discounted cash flow projections that employ the following
key assumptions: future cash flows and growth projections (including
judgments about the allocation of future capital expenditures to support
both wireless and wireline operations); associated economic risk
and the goodwill allocated to each cash-generating unit) to exceed their
recoverable amounts. If the future were to adversely differ from manage-
ment’s best estimates of key assumptions and associated cash flows
were to be materially adversely affected, we could potentially experience
future material impairment charges in respect of our intangible assets
with indefinite lives and goodwill.
assumptions and estimates of the likelihood of achieving key operating
Sensitivity testing
metrics and drivers; estimates of future generational infrastructure
Sensitivity testing was conducted as a part of the December 2017 annual
capital expenditures; and the future weighted average cost of capital.
impairment test, a component of which was hypothetical changes in the
We consider a range of reasonably possible amounts to use for key
future weighted average cost of capital. Stress testing included a scenario
assumptions and decide upon amounts that represent management’s
of moderate declines in annual cash flows with all other assumptions
best estimates of market amounts. In the normal course, we make
being held constant; under this scenario, we would be able to recover the
changes to key assumptions so that they reflect current (at time of test)
carrying values of our intangible assets with indefinite lives and goodwill
economic conditions, updates of historical information used to develop
for the foreseeable future.
the key assumptions and changes (if any) in our debt ratings.
TELUS 2017 ANNUAL REPORT • 161
19 Leases
We occupy leased premises in various locations and have the right of
sale-leaseback of buildings and the occupancy costs associated with
use of land, buildings and equipment under operating leases. For the
leased real estate, were $191 million (2016 – $176 million); occupancy
year ended December 31, 2017, real estate and vehicle operating lease
costs associated with leased real estate totalled $128 million (2016 –
expenses, which are net of the amortization of deferred gains on the
$133 million).
As referred to in Note 16, we have consolidated our administrative real estate holdings and, in some instances, this has resulted in subletting land
and buildings. The future minimum lease payments under operating leases are as follows:
As at December 31 (millions)
Years ending
1 year hence
2 years hence
3 years hence
4 years hence
5 years hence
Thereafter
Operating
leases with
arm’s-length
lessors1
Operating
leases with
related party
lessors2
2017
Total
Operating
leases with
arm’s-length
lessors1
Operating
leases with
related party
lessors2
$ 218
$ 6
$ 224
$ 211
$ 6
191
169
147
122
534
$ 1,381
12
13
13
13
208
$ 265
203
182
160
135
742
192
171
147
125
599
$ 1,646
$ 1,445
6
12
13
13
220
$ 270
2016
Total
$ 217
198
183
160
138
819
$ 1,715
1
Immaterial amounts for minimum lease receipts from sublet land and buildings have been netted against the minimum lease payments in this table. Minimum lease payments exclude
occupancy costs and thus will differ from future amounts reported for operating lease expenses. As at December 31, 2017, commitments for occupancy costs under operating leases
totalled $816 (2016 – $869).
2 As set out in Note 21(c), we have entered into leases with the real estate joint ventures. This table includes 100% of the minimum lease payment amounts due under these leases;
of the total, $109 (2016 – $112) is due to our economic interests in the real estate joint ventures and $156 (2016 – $158) is due to our partners’ economic interests in the real estate
joint ventures.
Of the total amount above as at December 31, 2017:
• Approximately 33% (2016 – 34%) was in respect of our five largest
leases, all of which were for office premises over various terms,
with expiry dates ranging from 2024 to 2036 (2016 – ranging from
2024 to 2036); the weighted average remaining term of these
leases is approximately 13 years (2016 – 14 years).
• Approximately 29% (2016 – 30%) was in respect of wireless site
leases; the weighted average remaining term of these leases
is approximately 17 years (2016 – 17 years).
20 Other long-term assets
As at December 31 (millions)
Pension assets
Investments
Note
15(a)
2017
$ 156
2016
$ 358
41
57
47
15
62
62
21
30
105
$ 421
107
$ 640
Most of our leases for real estate that we use for office or network
Prepaid maintenance
(including wireless site) purposes typically have extension options which
we use to protect our investment in leasehold improvements (including
wireless site equipment) and/or which reflect the importance of the
underlying right-of-use lease assets to our operations.
See Note 2(b) for details of significant changes to IFRS-IASB
which are not yet effective and have not yet been applied, but which
will significantly affect the timing of the recognition of operating lease
expenses and their recognition in the Consolidated statement of
financial position, as well as their classification in the Consolidated
statement of income and other comprehensive income and the
Consolidated statement of cash flows.
Real estate joint venture advances
Real estate joint ventures
21(c)
21(c)
Other
162 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 19–21
21 Real estate joint ventures
(a) General
In 2011, we partnered, as equals, with an arm’s-length party in a
neigh bouring new-build residential condominium tower was built to the
LEED Gold standard.
residential condominium, retail and commercial real estate redevelop-
In 2013, we partnered, as equals, with two arm’s-length parties
ment project, TELUS Garden, in Vancouver, British Columbia. TELUS
(one of which is our TELUS Garden partner) in a residential, retail and
is a tenant in TELUS Garden, which is now our global headquarters.
commercial real estate redevelopment project, TELUS Sky, in Calgary,
The new-build office tower received 2009 Leadership in Energy
Alberta. The new-build tower, scheduled for completion in 2019,
and Environmental Design (LEED) Platinum certification, and the
is to be built to the LEED Platinum standard.
(b) Real estate joint ventures – summarized financial information
As at December 31 (millions)
2017
2016
As at December 31 (millions)
2017
2016
Assets
Current assets
Liabilities and owners’ equity
Current liabilities
Cash and temporary investments, net
$ 20
$ 15
Accounts payable and accrued liabilities
$ 13
$ 18
Escrowed deposits for tenant
inducements and liens
Sales contract deposits held
by arm’s-length trustee
Other
Property under development –
residential condominiums
(subject to sales contracts)
Non-current assets
Property under development –
investment property
Investment property
Sales contract deposits
Payable
Held by arm’s-length trustee
Current portion of 3.7% mortgage
and senior secured 3.4% bonds
Construction holdback liabilities
Non-current liabilities
Construction credit facilities
3.7% mortgage due September 2024
Senior secured 3.4% bonds due July 2025
Liabilities
Owners’ equity
TELUS1
Other partners
1
–
4
–
25
194
256
450
5
2
6
13
41
121
261
382
$ 475
$ 423
–
–
5
10
28
141
27
208
376
404
29
42
71
$ 475
3
2
4
7
34
63
–
213
276
310
48
65
113
$ 423
1 The equity amounts recorded by the real estate joint ventures differ from those recorded by us by the amount of the deferred gains on our real estate contributed and the valuation
provision we have recorded in excess of that recorded by one of the real estate joint ventures.
Years ended December 31 (millions)
2017
2016
Revenue
From investment property
From sale of residential condominiums
Depreciation and amortization
Interest expense1
Net income (loss) and comprehensive
$ 34
$ 19
$ 8
$ 8
$ 34
$ 262
$ 8
$ 10
income (loss)2
$ (6)
$ 72
1 During the year ended December 31, 2017, the real estate joint ventures capitalized
$3 (2016 – $4) of financing costs.
2 As the real estate joint ventures are partnerships, no provision for income taxes of
the partners is made in determining the real estate joint ventures’ net income (loss)
and comprehensive income (loss).
TELUS 2017 ANNUAL REPORT • 163
(c) Our real estate joint ventures activity
Our real estate joint ventures investment activity is set out in the following table.
Years ended December 31 (millions)
Loans and
receivables1
Equity2
2017
Total
Loans and
receivables1
Equity2
2016
Total
Related to real estate joint ventures’ statements
of income and other comprehensive income
Comprehensive income (loss) attributable to us3
$ –
$ 2
$ 2
$ –
$ 33
$ 33
Related to real estate joint ventures’ statements
of financial position
Items not affecting currently reported cash flows
Recognition of gain initially deferred
on our real estate initially contributed
Construction credit facilities financing costs
charged by us and other (Note 7)
Cash flows in the current reporting period
Construction credit facilities
Amounts advanced
Amounts repaid
Financing costs paid to us
Repayment of funds advanced
Funds repaid to us and earnings distributed
Net increase (decrease)
Real estate joint ventures carrying amounts
Balance, beginning of period
Valuation provision
Balance, end of period
–
–
26
–
–
–
–
26
21
–
$ 47
1
–
–
–
–
–
(18)
(15)
30
–
$ 15
1
–
26
–
–
–
(18)
11
51
–
$ 62
–
1
33
(63)
(1)
(18)
–
(48)
69
–
$ 21
8
–
–
–
–
–
(21)
20
25
(15)
$ 30
8
1
33
(63)
(1)
(18)
(21)
(28)
94
(15)
$ 51
1 Loans and receivables are included in our Consolidated statements of financial position as Real estate joint venture advances and are comprised of advances under construction
credit facilities (see (d)) and, prior to its repayment during the year ended December 31, 2016, an $18 mortgage on the TELUS Garden residential condominium tower.
2 We account for our interests in the real estate joint ventures using the equity method of accounting.
3 As the real estate joint ventures are partnerships, no provision for income taxes of the partners is made in determining the real estate joint ventures’ net income (loss) and comprehensive
income (loss); provision for income taxes is made in determining the comprehensive income (loss) attributable to us.
During the year ended December 31, 2017, the TELUS Garden real estate joint venture recognized $12 million (2016 – $11 million) of revenue from
our TELUS Garden office tenancy; of this amount, one-half is due to our economic interest in the real estate joint venture and one-half is due to our
partner’s economic interest in the real estate joint venture.
(d) Commitments and contingent liabilities
Construction commitments
The TELUS Sky real estate joint venture is expected to spend a total
of approximately $400 million on the construction of a mixed-use tower.
As at December 31, 2017, the real estate joint venture’s construction-
related contractual commitments were approximately $82 million through
to 2019 (2016 – $121 million through to 2018).
Construction credit facilities
The TELUS Sky real estate joint venture has a credit agreement with
three Canadian financial institutions (as 66 2⁄3% lender) and TELUS
Corporation (as 331⁄3% lender) to provide $342 million of construction
financing for the project. The TELUS Garden real estate joint venture
had a credit agreement with two Canadian financial institutions
(as 50% lender) and TELUS Corporation (as 50% lender) to provide
construction financing for the residential condominium project;
as at December 31, 2016, all outstanding amounts had been repaid.
The construction credit facilities contain customary real estate
construction financing representations, warranties and covenants and
are secured by demand debentures constituting first fixed and floating
charge mortgages over the underlying real estate assets. The construc-
tion credit facilities are available by way of bankers’ acceptance or
prime loan and bear interest at rates in line with similar construction
financing facilities.
As at December 31 (millions)
Note
2017
2016
Construction credit facilities
commitment – TELUS Corporation
Undrawn
Advances
Construction credit facilities
commitment – other
4(c)
$ 67
$ 93
47
114
228
$ 342
21
114
228
$ 342
164 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 22–24
22 Short-term borrowings
On July 26, 2002, one of our subsidiaries, TELUS Communications Inc.,
When we sell our trade receivables, we retain reserve accounts,
entered into an agreement with an arm’s-length securitization trust
which are retained interests in the securitized trade receivables, and
associated with a major Schedule I bank under which it is able to sell
servicing rights. As at December 31, 2017, we had sold to the trust
an interest in certain trade receivables up to a maximum of $500 million
(but continued to recognize) trade receivables of $119 million (2016 –
(2016 – $500 million). This revolving-period securitization agreement
$116 million). Short-term borrowings of $100 million (2016 – $100 million)
term ends December 31, 2018, and it requires minimum cash proceeds
are comprised of amounts advanced to us by the arm’s-length securi-
of $100 million from monthly sales of interests in certain trade receivables.
tization trust pursuant to the sale of trade receivables.
TELUS Communications Inc. is required to maintain a credit rating of
The balance of short-term borrowings (if any) is comprised of
at least BB (2016 – BB) from Dominion Bond Rating Service or the
amounts drawn on our bilateral bank facilities.
securitization trust may require the sale program to be wound down
prior to the end of the term.
23 Accounts payable
and accrued liabilities
24 Advance billings and
customer deposits
As at December 31 (millions)
Accrued liabilities
Payroll and other employee-related liabilities
Restricted stock units liability
2017
2016
As at December 31 (millions)
$ 1,066
$ 1,013
Advance billings
403
66
460
55
Deferred customer activation
and connection fees
1,535
1,528
Customer deposits
Trade accounts payable
Interest payable
Other
Regulatory deferral accounts
717
147
61
578
144
80
$ 2,460
$ 2,330
2017
$ 747
2016
$ 697
13
21
1
17
15
8
$ 782
$ 737
TELUS 2017 ANNUAL REPORT • 165
25 Provisions
(millions)
As at January 1, 2016
Additions1
Use
Reversal
Interest effect 2
Foreign exchange effects
As at December 31, 2016
Additions1
Use
Reversal 3
Interest effect 2
Foreign exchange effects
As at December 31, 2017
Current
Non-current
As at December 31, 2016
Current
Non-current
As at December 31, 2017
Asset
retirement
obligation
$ 377
15
(9)
–
(44)
–
339
13
(6)
(53)
58
–
$ 351
$ 11
328
$ 339
$ 6
345
$ 351
Employee-
related
$ 109
113
(141)
(4)
–
–
77
39
(75)
(5)
–
–
$ 36
$ 76
1
$ 77
$ 35
1
$ 36
Written put
options
$ 46
Other
$ 98
Total
$ 630
17
(54)
–
1
(10)
–
71
–
(11)
2
1
$ 63
$ –
–
$ –
$ –
63
$ 63
54
(41)
(8)
–
–
103
58
(40)
(1)
–
–
$ 120
$ 37
66
$ 103
$ 37
83
$ 120
199
(245)
(12)
(43)
(10)
519
181
(121)
(70)
60
1
$ 570
$ 124
395
$ 519
$ 78
492
$ 570
1 Employee-related additions are net of share-based compensation of $(7) (2016 – $4).
2 The difference of $47 (2016 – $(55)) between the interest effect in this table and the amount disclosed in Note 9 is in respect of the change in the discount rates applicable to the
provision, such difference being included in the cost of the associated asset(s) by way of being included with (netted against) the additions detailed in Note 17.
3 The written put option reversal is an adjustment to the Voxpro Limited purchase price allocation disclosed in Note 18(b).
Asset retirement obligation
We establish provisions for liabilities associated with the retirement
Other
The provisions for other include: legal claims; non-employee related
of property, plant and equipment when those obligations result from
restructuring activities (as discussed further in Note 16); and contract
the acquisition, construction, development and/or normal operation
termination costs and onerous contracts related to business acquisitions.
of the assets. We expect that the cash outflows in respect of the balance
Other than as set out following, we expect that the cash outflows in
accrued as at the financial statement date will occur proximate to the
respect of the balance accrued as at the financial statement date will
dates these assets are retired.
Employee-related
The employee-related provisions are largely in respect of restructuring
occur over an indeterminate multi-year period.
As discussed further in Note 29, we are involved in a number of legal
claims and we are aware of certain other possible legal claims. In respect
of legal claims, we establish provisions, when warranted, after taking
activities (as discussed further in Note 16(b)). The timing of the cash
into account legal assessments, information presently available, and the
outflows in respect of the balance accrued as at the financial statement
expected availability of recourse. The timing of cash outflows associated
date is substantially short-term in nature.
with legal claims cannot be reasonably determined.
Written put options
In connection with certain business acquisitions, we have established
provisions for contingent consideration, contract termination costs and
onerous contracts acquired. In respect of contract termination costs
provisions for written put options in respect of non-controlling interests.
and onerous contracts acquired, cash outflows are expected to occur
In connection with certain business acquisitions, we have established
No cash outflows for the written put options outstanding at December 31,
2017, are expected prior to their initial exercisability in 2021.
through mid-2018.
166 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 25–26
26 Long-term debt
(a) Details of long-term debt
As at December 31 (millions)
TELUS Corporation notes
TELUS Corporation commercial paper
TELUS Communications Inc. debentures
TELUS International (Cda) Inc. credit facility
Long-term debt
Current
Non-current
Long-term debt
Note
2017
2016
(b) TELUS Corporation notes
The notes are senior, unsecured and unsubordinated obligations
(b)
(c)
(e)
(f)
$ 11,561
$ 11,367
and rank equally in right of payment with all of our existing and future
1,140
620
339
613
619
332
$ 13,660
$ 12,931
$ 1,404
$ 1,327
12,256
11,604
unsecured, unsubordinated obligations, are senior in right of payment to
all of our existing and future subordinated indebtedness, and are effec-
tively subordinated to all existing and future obligations of, or guaranteed
by, our subsidiaries. The indentures governing the notes contain certain
covenants which, among other things, place limitations on our ability
and the ability of certain of our subsidiaries to: grant security in respect
of indebtedness; enter into sale-leaseback transactions; and incur
$ 13,660
$ 12,931
new indebtedness.
Series1
Issued
Maturity
Issue price
Principal face amount
Effective
interest
rate2
Originally
issued
Outstanding
at financial
statement date
Redemption
present value spread
Basis
points
Cessation date
4.95% Notes, Series CD
March 2007
March 2017
$999.53
4.96%
$700 million
$NIL
243
5.05% Notes, Series CG4
December 2009
December 2019
$994.19
5.13%
5.05% Notes, Series CH 4
July 2010
July 2020
$997.44
5.08%
$1.0 billion
$1.0 billion
$1.0 billion
45.53
$1.0 billion
473
N/A
N/A
N/A
3.35% Notes, Series CJ4
December 2012 March 2023
$998.83
3.36%
$500 million
$500 million
405 Dec. 15, 2022
3.35% Notes, Series CK4
April 2013
4.40% Notes, Series CL4
April 2013
April 2024
April 2043
$994.35
3.41%
$1.1 billion
$1.1 billion
365
Jan. 2, 2024
$997.68
4.41%
$600 million
$600 million
475 Oct. 1, 2042
3.60% Notes, Series CM4
November 2013
January 2021
$997.15
3.65%
$400 million
$400 million
353
N/A
5.15% Notes, Series CN4
November 2013
November 2043
$995.00
5.18%
$400 million
$400 million
505 May 26, 2043
3.20% Notes, Series CO4
April 2014
4.85% Notes, Series CP4
Multiple6
April 2021
April 2044
$997.39
3.24%
$500 million
$500 million
305 Mar. 5, 2021
$987.916
4.93%6
$500 million6
$900 million6
465 Oct. 5, 2043
3.75% Notes, Series CQ4
September 2014
January 2025
$997.75
3.78%
$800 million
$800 million
38.55 Oct. 17, 2024
4.75% Notes, Series CR4
September 2014
January 2045
$992.91
4.80%
$400 million
$400 million
51.55
July 17, 2044
1.50% Notes, Series CS4
March 2015
March 2018
$999.62
1.51%
$250 million
$250 million
N/A7
N/A
2.35% Notes, Series CT4
March 2015
March 2022
$997.31
2.39%
$1.0 billion
$1.0 billion
35.55
Feb. 28, 2022
4.40% Notes, Series CU4 March 2015
January 2046
$999.72
4.40%
$500 million
$500 million
60.55
July 29, 2045
3.75% Notes, Series CV4
December 2015 March 2026
$992.14
3.84%
$600 million
$600 million
53.55
Dec. 10, 2025
2.80% U.S. Dollar Notes4,8 September 2016
February 2027
US$991.89
2.89%
US$600 million
US$600 million
3.70% U.S. Dollar Notes4,10 March 2017
September 2027 US$998.95
3.71%
US$500 million
US$500 million
209
209
Nov. 16, 2026
June 15, 2027
4.70% Notes, Series CW4 March 2017
March 2048
$990.65
4.76%
$325 million
$325 million
58.55
Sept. 6, 2047
Interest is payable semi-annually.
1
2 The effective interest rate is that which the notes would yield to an initial debt holder if held to maturity.
3 The notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and not more than 60 days’ prior notice. The redemption price is
equal to the greater of (i) the present value of the notes discounted at the Government of Canada yield plus the redemption present value spread, or (ii) 100% of the principal amount
thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption.
4 This series of notes requires us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase
upon the occurrence of a change in control triggering event, as defined in the supplemental trust indenture.
5 At any time prior to the respective maturity dates set out in the table, the notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and
not more than 60 days’ prior notice. The redemption price is equal to the greater of (i) the present value of the notes discounted at the Government of Canada yield plus the redemption
present value spread calculated over the period to maturity, other than in the case of the Series CT and Series CU notes, where it is calculated over the period to the redemption present
value spread cessation date, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption. On or after the
respective redemption present value spread cessation dates set out in the table, the notes are redeemable at our option, in whole but not in part, on not fewer than 30 and not more
than 60 days’ prior notice, at redemption prices equal to 100% of the principal amounts thereof.
6 $500 million of 4.85% Notes, Series CP were issued in April 2014 at an issue price of $998.74 and an effective interest rate of 4.86%. This series of notes was reopened in December 2015
and a further $400 million of notes were issued at an issue price of $974.38 and an effective interest rate of 5.02%.
7 The notes are not redeemable at our option, other than in the event of certain changes in tax laws.
8 We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) which effectively converted the principal payments and interest obligations to
Canadian dollar obligations with a fixed interest rate of 2.95% and an issued and outstanding amount of $792 million (reflecting a fixed exchange rate of $1.3205).
9 At any time prior to the respective maturity dates set out in the table, the notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and
not more than 60 days’ prior notice. The redemption price is equal to the greater of (i) the present value of the notes discounted at the U.S. Adjusted Treasury Rate plus the redemption
present value spread calculated over the period to the redemption present value spread cessation date, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid
interest, if any, will be paid to the date fixed for redemption. On or after the respective redemption present value spread cessation dates set out in the table, the notes are redeemable
at our option, in whole but not in part, on not fewer than 30 and not more than 60 days’ prior notice, at redemption prices equal to 100% of the principal amounts thereof.
10 We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) which effectively converted the principal payments and interest obligations
to Canadian dollar obligations with a fixed interest rate of 3.41% and an issued and outstanding amount of $667 million (reflecting a fixed exchange rate of $1.3348).
TELUS 2017 ANNUAL REPORT • 167
(c) TELUS Corporation commercial paper
TELUS Corporation has an unsecured commercial paper program,
general corporate purposes, including the backstopping of com-
mercial paper.
which is backstopped by our $2.25 billion syndicated credit facility
TELUS Corporation’s credit facility bears interest at prime rate,
(see (d)) and is to be used for general corporate purposes, including
U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank
capital expenditures and investments. This program enables us to
offered rate (LIBOR) (all such terms as used or defined in the credit
issue commercial paper, subject to conditions related to debt ratings,
facility), plus applicable margins. The credit facility contains customary
up to a maximum aggregate amount at any one time of $1.4 billion
representations, warranties and covenants, including two financial
(2016 – $1.4 billion). Foreign currency forward contracts are used to man-
quarter-end ratio tests. These tests are that our net debt to operating
age currency risk arising from issuing commercial paper denominated
cash flow ratio must not exceed 4.00:1.00 and our operating cash
in U.S. dollars. Commercial paper debt is due within one year and is
flow to interest expense ratio must not be less than 2.00:1.00, all as
classified as a current portion of long-term debt, as the amounts are
defined under the credit facility.
fully supported, and we expect that they will continue to be supported,
Continued access to TELUS Corporation’s credit facility is not
by the revolving credit facility, which has no repayment requirements
contingent on TELUS Corporation maintaining a specific credit rating.
within the next year. As at December 31, 2017, we had $1,140 million of
commercial paper outstanding, all of which was denominated in
U.S. dollars (US$908 million), with an effective weighted average
interest rate of 1.83%, maturing through April 2018.
(d) TELUS Corporation credit facility
As at December 31, 2017, TELUS Corporation had an unsecured
revolving $2.25 billion bank credit facility, expiring on May 31, 2021,
with a syndicate of financial institutions, which is to be used for
As at December 31 (millions)
Net available
Backstop of commercial paper
Gross available
2017
2016
$ 1,110
$ 1,637
1,140
613
$ 2,250
$ 2,250
We had $224 million of letters of credit outstanding as at December 31,
2017 (2016 – $210 million), issued under various uncommitted facilities;
such letter of credit facilities are in addition to the ability to provide letters
of credit pursuant to our committed bank credit facility.
(e) TELUS Communications Inc. debentures
The Series 3 and 5 Debentures were issued by a predecessor corporation of TELUS Communications Inc., BC TEL, under a Trust Indenture dated
May 31, 1990. The Series B Debentures were issued by a predecessor corporation of TELUS Communications Inc., AGT Limited, under a Trust Indenture
dated August 24, 1994, and a supplemental trust indenture dated September 22, 1995.
Series1
Issued
10.65% Debentures, Series 3
June 1991
9.65% Debentures, Series 52
April 1992
Maturity
June 2021
April 2022
Principal face amount
Issue price
Originally issued
Outstanding
at financial
statement date
Redemption
present value spread
(basis points)
$998.00
$972.00
$175 million
$175 million
N/A (non-redeemable)
$150 million
$249 million
N/A (non-redeemable)
8.80% Debentures, Series B
September 1995
September 2025
$995.10
$200 million
$200 million
153
Interest is payable semi-annually.
1
2 Series 4 Debentures were exchangeable, at the holder’s option, effective on April 8 of any year during the four-year period from 1996 to 1999, for Series 5 Debentures; $99 million of
Series 4 Debentures were exchanged for Series 5 Debentures.
3 At any time prior to the maturity date set out in the table, the debentures are redeemable at our option, in whole at any time, or in part from time to time, on not less than 30 days’
prior notice. The redemption price is equal to the greater of (i) the present value of the debentures discounted at the Government of Canada yield plus the redemption present value
spread, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption.
The debentures became obligations of TELUS Communications Inc.
pursuant to an amalgamation on January 1, 2001, are not secured
(f) TELUS International (Cda) Inc. credit facility
As at December 31, 2017, TELUS International (Cda) Inc. had a bank credit
by any mortgage, pledge or other charge and are governed by certain
facility, secured by its assets, expiring on December 20, 2022, (2016 –
covenants, including a negative pledge and a limitation on issues of
May 31, 2021), with a syndicate of financial institutions. The credit facility
additional debt, subject to a debt to capitalization ratio and an interest
is comprised of a US$350 million (2016 – US$115 million) revolving com-
coverage test. Effective June 12, 2009, TELUS Corporation guaranteed
ponent and an amortizing US$120 million (2016 – US$215 million) term
the payment of the debentures’ principal and interest.
loan component. The credit facility is non-recourse to TELUS Corporation.
As at December 31, 2017, $346 million ($339 million net of unamortized
issue costs) was out standing, which was denominated in U.S. dollars
(US$276 million), with a weighted average interest rate of 3.32%.
Subse quent to December 31, 2017, an incremental $94 million
(US$75 million) was drawn (see Note 18(c)).
168 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 27
As at December 31 (millions)
Available
Outstanding
Revolving
component
Term loan
component
2017
Total
Revolving
component
Term loan
component
2016
Total
US$ 193
US$ N/A
US$ 193
US$ 72
US$ N/A
US$ 72
157
119
276
43
210
253
US$ 350
US$ 119
US$ 469
US$ 115
US$ 210
US$ 325
TELUS International (Cda) Inc.’s credit facility bears interest at prime rate,
its operating cash flow to debt service (interest and scheduled principal
U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank
repayment) ratio must not be less than 1.50:1.00, all as defined in the
offered rate (LIBOR) (all such terms as used or defined in the credit facility),
credit facility.
plus applicable margins. The credit facility contains customary represen-
The term loan is subject to an amortization schedule which requires
tations, warranties and covenants, including two financial quarter-end
that 5% of the principal advanced be repaid each year of the term of the
ratio tests. These tests are that TELUS International (Cda) Inc.’s net debt
agreement, with the balance due at maturity.
to operating cash flow ratio generally must not exceed 3.25:1.00 and
(g) Long-term debt maturities
Anticipated requirements to meet long-term debt repayments, calculated upon such long-term debts owing as at December 31, 2017, for each of the
next five fiscal years are as follows:
Long-term debt denominated in
Canadian dollars
U.S. dollars
Derivative liability
Years ending December 31 (millions)
Debt
Debt
(Receive)1
Pay
Total
Total
2018
2019
2020
2021
2022
Thereafter
$ 250
$ 1,147
$ (1,144)
$ 1,160
$ 1,163
$ 1,413
1,000
1,000
1,075
1,249
6,325
8
8
8
316
1,380
–
–
–
–
–
–
–
–
(1,380)
1,460
8
8
8
316
1,460
1,008
1,008
1,083
1,565
7,785
Future cash outflows in respect of long-term
debt principal repayments
10,899
2,867
(2,524)
2,620
2,963
13,862
Future cash outflows in respect of associated
interest and like carrying costs2
5,506
490
(431)
449
508
6,014
Undiscounted contractual maturities (Note 4(c))
$ 16,405
$ 3,357
$ (2,955)
$ 3,069
$ 3,471
$ 19,876
1 Where applicable, principal-related cash flows reflect foreign exchange rates at December 31, 2017.
2 Future cash outflows in respect of associated interest and like carrying costs for commercial paper and amounts drawn under our credit facilities (if any) have been calculated based
upon the rates in effect at December 31, 2017.
27 Other long-term liabilities
As at December 31 (millions)
Note
2017
2016
Pension and other post-employment
benefit liabilities
Deferred revenues
Restricted stock unit and
deferred share unit liabilities
Derivative liabilities
Other
Deferred customer activation
and connection fees
15(a)
$ 537
$ 484
81
68
76
67
829
72
62
21
73
712
18
$ 847
24
$ 736
TELUS 2017 ANNUAL REPORT • 169
Only holders of Common Shares may vote at our general meetings,
Normal course issuer bid period:
with each holder of Common Shares entitled to one vote per Common
September 15, 2015 – September 14, 2016
Share held at all such meetings so long as not less than 66 2⁄3% of the
September 30, 2016 – September 29, 20171
issued and outstanding Common Shares are owned by Canadians.
With respect to priority in payment of dividends and in the distribution of
assets in the event of our liquidation, dissolution or winding-up, whether
Total excluding employee benefit plan trust transactions
Employee benefit plan trust transactions
28 Common Share capital
(a) General
Our authorized share capital is as follows:
As at December 31
First Preferred Shares
Second Preferred Shares
Common Shares
2017
2016
1 billion
1 billion
2 billion
1 billion
1 billion
2 billion
voluntary or involuntary, or any other distribution of our assets among our
shareholders for the purpose of winding up our affairs, preferences are
1
as follows: First Preferred Shares; Second Preferred Shares; and finally
Common Shares.
As at December 31, 2017, approximately 48 million Common Shares
were reserved for issuance, from Treasury, under a share option plan
(see Note 14(d)).
(b) Purchase of Common Shares for cancellation
pursuant to normal course issuer bid
As referred to in Note 3, we may purchase a portion of our Common
Shares for cancellation pursuant to normal course issuer bids in order
to maintain or adjust our capital structure. During the year ended
December 31, 2016, we purchased a number of our Common Shares
for cancellation, through the facilities of the Toronto Stock Exchange,
the New York Stock Exchange and/or alternative trading platforms
29 Contingent liabilities
or otherwise as may be permitted by applicable securities laws and
regulations, including privately negotiated block purchases, as set out
in the following table; there was no corresponding activity during the
year ended December 31, 2017.
Year ended December 31
(millions except footnote amounts)
Common
Shares
2016
Cost
$ 130
35
165
4
$ 169
3
1
4
–
4
In November 2017, we received approval for a normal course issuer bid to purchase
and cancel up to 8 million of our Common Shares (up to a maximum amount of
$250 million) from November 13, 2017, to November 12, 2018. Additionally, we may
enter into an automatic share purchase plan with a broker for the purpose of permitting
us to purchase our Common Shares under the normal course issuer bid at times
when we would not be permitted to trade in our own Common Shares during internal
blackout periods, including during regularly scheduled quarterly blackout periods.
Such purchases are determined by the broker in its sole discretion based on para-
meters we have established. We record a liability and charge share capital and retained
earnings for purchases that may occur during such blackout periods based upon the
parameters of the normal course issuer bid as at the statement of financial position date.
The excess of the purchase price over the average stated value of
Common Shares purchased for cancellation is charged to retained
earnings. We cease to consider the Common Shares to be outstanding
on the date of our purchase of the Common Shares, although the actual
cancellation of the Common Shares by the transfer agent and registrar
occurs on a timely basis on a date shortly thereafter.
(a) Claims and lawsuits
General
A number of claims and lawsuits (including class actions and intellectual
property infringement claims) seeking damages and other relief are
pending against us and, in some cases, numerous other wireless carriers
and telecommunications service providers. As well, we have received
notice of, or are aware of, certain possible claims (including intellectual
property infringement claims) against us.
It is not currently possible for us to predict the outcome of such
claims, possible claims and lawsuits due to various factors, including:
the preliminary nature of some claims; uncertain damage theories
and demands; an incomplete factual record; uncertainty concerning
legal theories and procedures and their resolution by the courts,
at both the trial and the appeal levels; and the unpredictable nature
of opposing parties and their demands.
However, subject to the foregoing limitations, management
is of the opinion, based upon legal assessments and information
presently available, that it is unlikely that any liability, to the extent
not provided for through insurance or otherwise, would have a
material effect on our financial position and the results of our
operations, including cash flows, with the exception of the items
enumerated following.
170 • TELUS 2017 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS: NOTES 28–29
Certified class actions
Certified class actions against us include the following:
System access fee class actions
In 2004, a class action was brought in Saskatchewan against a number
of past and present wireless service providers, including us, which
alleged breach of contract, misrepresentation, unjust enrichment and
violation of competition, trade practices and consumer protection
legislation across Canada in connection with the collection of system
access fees. In September 2007, a national opt-in class was certified
by the Saskatchewan Court of Queen’s Bench in relation to the unjust
enrichment claim only; all appeals of this certification decision have
now been exhausted. In February 2008, the Saskatchewan Court of
Queen’s Bench granted an order amending the certification order
so as to exclude from the class of plaintiffs any customer bound by an
arbitration clause with us. All appeals of this decision have now been
exhausted. In addition to the 2004 class action brought in Saskatchewan,
fourteen additional class actions were brought against us and other
wireless service providers in the period 2004 to date in connection with
the collection of system access fees in nine provinces. None of these
additional fourteen class actions has ever been certified, and all have
now been dismissed, discontinued or stayed.
Per minute billing class action
In 2008, a class action was brought in Ontario against us alleging breach
Call set-up time class actions
In 2005, a class action was brought against us in British Columbia
alleging that we have engaged in deceptive trade practices in charging
for incoming calls from the moment the caller connects to the network,
and not from the moment the incoming call is connected to the recipient.
In 2011, the Supreme Court of Canada upheld a stay of all of the causes
of action advanced by the plaintiff in this class action, with one exception,
based on the arbitration clause that was included in our customer
service agreements. The sole exception was the cause of action based
on deceptive or unconscionable practices under the British Columbia
Business Practices and Consumer Protection Act, which the Supreme
Court of Canada declined to stay. In January 2016, the British Columbia
Supreme Court certified this class action in relation to the claim under
the Business Practices and Consumer Protection Act. The class is limited
to residents of British Columbia who contracted with us for wireless
services in the period from January 21, 1999, to April 2010. We have
appealed the certification decision and the appeal hearing is expected
to occur in March 2018. A companion class action was brought against
us in Alberta at the same time as the British Columbia class action.
The Alberta class action duplicates the allegations in the British Columbia
action, but has not proceeded to date and is not certified.
Uncertified class actions
Uncertified class actions against us include:
of contract, breach of the Ontario Consumer Protection Act, breach
of the Competition Act and unjust enrichment, in connection with our
9-1-1 class actions
In 2008, a class action was brought in Saskatchewan against us and
practice of “rounding up” wireless airtime to the nearest minute and
other Canadian telecommunications carriers alleging that, among other
charging for the full minute. The action sought certification of a national
matters, we failed to provide proper notice of 9-1-1 charges to the public,
class. In November 2014, an Ontario class only was certified by the
have been deceitfully passing them off as government charges, and
Ontario Superior Court of Justice in relation to the breach of contract,
have charged 9-1-1 fees to customers who reside in areas where 9-1-1
breach of the Consumer Protection Act and unjust enrichment claims;
service is not available. The plaintiffs advance causes of action in breach
all appeals of the certification decision have now been exhausted.
of contract, misrepresentation and false advertising and seek certification
At the same time, the Ontario Superior Court of Justice declined to stay
of a national class. A virtually identical class action was filed in Alberta
the claims of our business customers notwithstanding an arbitration
at the same time, but the Alberta Court of Queen’s Bench declared that
clause in our customer service agreements with those customers.
class action expired against us as of 2009. No steps were taken in this
This latter decision was appealed and on May 31, 2017, the Ontario
proceeding in 2017.
Court of Appeal dismissed our appeal. We have sought leave to
appeal this decision to the Supreme Court of Canada.
Unilateral rate amendments class actions
In 2012, a class action was brought against us in Quebec alleging that
Electromagnetic field radiation class actions
In 2013, a class action was brought in British Columbia against us,
other telecommunications carriers, and cellular telephone manufacturers
alleging that prolonged usage of cellular telephones causes adverse
we improperly unilaterally amended customer contracts to increase various
health effects. The British Columbia class action alleges: strict liability;
wireless rates for optional services, contrary to the Quebec Consumer
negligence; failure to warn; breach of warranty; breach of competition,
Protection Act and the Civil Code of Quebec. On June 13, 2013, the
consumer protection and trade practices legislation; negligent misrepre-
Superior Court of Quebec authorized this matter as a class action.
sentation; breach of a duty not to market the products in question; and
This class action follows on a non-material 2008 class action brought
waiver of tort. Certification of a national class is sought, but the action has
in Quebec alleging that we improperly unilaterally amended customer
not proceeded to date and no steps were taken in 2016 or 2017. In 2015,
contracts to charge for incoming SMS messages. On April 8, 2014,
judgment was granted in part against us in the 2008 class action.
We had appealed that judgment, but have now settled both the 2008
a class action was brought in Quebec against us, other telecommunica-
tions carriers, and various other defendants alleging that electromagnetic
field radiation causes adverse health effects, contravenes the Quebec
and 2012 class actions. This settlement received court approval in
June 2016, is being implemented and has been fully accounted for
Environmental Quality Act, creates a nuisance, and constitutes an abuse
of right pursuant to the Quebec Civil Code. This action has not yet
in our financial statements.
proceeded to an authorization hearing.
TELUS 2017 ANNUAL REPORT • 171
Public Mobile class actions
In 2014, class actions were brought against us in Quebec and Ontario
(b) Indemnification obligations
In the normal course of operations, we provide indemnification in
on behalf of Public Mobile’s customers, alleging that changes to the
conjunction with certain transactions. The terms of these indemnification
technology, services and rate plans made by us contravene our statutory
obligations range in duration. These indemnifications would require
and common law obligations. In particular, the Quebec action alleges
us to compensate the indemnified parties for costs incurred as a result
that our actions constitute a breach of the Quebec Consumer Protection
of failure to comply with contractual obligations, or litigation claims or
Act, the Quebec Civil Code, and the Ontario Consumer Protection Act.
statutory sanctions, or damages that may be suffered by an indemnified
It has not yet proceeded to an authorization hearing. The Ontario class
party. In some cases, there is no maximum limit on these indemnification
action alleges negligence, breach of express and implied warranty, breach
obligations. The overall maximum amount of an indemnification obliga-
of the Competition Act, unjust enrichment, and waiver of tort. No steps
tion will depend on future events and conditions and therefore cannot be
have been taken in this proceeding since it was filed and served.
reasonably estimated. Where appropriate, an indemnification obligation
Promotional pricing class action
In 2016, a class action was brought in Quebec against us, other
telecommunications carriers, and various other defendants alleging that
we violated the Quebec Consumer Protection Act by enticing Quebec
consumer customers to contract with us by providing goods or services
to them at a reduced price, or free as a trial, for a fixed period and, at
the end of the fixed period, charging them the regular price if they did
not take steps to either renegotiate or cancel their contract with us.
The plaintiff has agreed to discontinue this claim against us, and the
court authorized the discontinuation of the class action against us on
July 13, 2017.
Handset subsidy class action
In 2016, a class action was brought in Quebec against us and other
is recorded as a liability. Other than obligations recorded as liabilities
at the time of the related transactions, historically we have not made
significant payments under these indemnifications.
See Note 21(d) for details regarding our guarantees to the real estate
joint ventures.
As at December 31, 2017, we had no liability recorded in respect of
our indemnification obligations.
(c) Concentration of labour
In 2015, we commenced collective bargaining with the Telecommunications
Workers Union, United Steel Workers Local Union 1944 to renew the
collective agreement that expired on December 31, 2015; the expired
contract covered approximately 40% of our Canadian workforce as
at December 31, 2015.
telecommunications carriers alleging that we breached the Quebec
On October 3, 2016, the Telecommunications Workers Union, United
Consumer Protection Act and the Civil Code of Quebec by making false
Steel Workers Local Union 1944 and ourselves announced that the two
or misleading representations relating to the handset subsidy provided
parties had reached a tentative five-year collective agreement which
to our wireless customers, and by charging our wireless customers inflated
would be subject to ratification by members of the Telecommunications
rate plan prices and termination fees higher than those permitted under
Workers Union, United Steel Workers Local Union 1944. On November 23,
the Act. This action has not yet proceeded to an authorization hearing.
2016, the Telecommunications Workers Union, United Steel Workers
Intellectual property infringement claims
Claims and possible claims received by us include:
4G LTE network patent infringement claim
A patent infringement claim was filed in Ontario in 2016 alleging that com-
Local Union 1944 announced that its members had voted to accept
the October 3, 2016, tentative agreement. The terms and conditions of
the new collective agreement are effective from November 27, 2016,
to December 31, 2021, and covered approximately 37% of our Canadian
workforce as at December 31, 2016.
munications between devices, including cellular telephones, and base
In December 2016, a new collective agreement between the Syndicat
stations on our 4G LTE network infringe three third-party patents. The trial
des agents de maîtrise de TELUS and ourselves was ratified by a majority
for this matter has been scheduled to commence on October 28, 2019.
Summary
We believe that we have good defences to the above matters. Should
the ultimate resolution of these matters differ from management’s
assessments and assumptions, a material adjustment to our financial
position and the results of our operations, including cash flows, could
result. Management’s assessments and assumptions include that reliable
estimates of any such exposure cannot be made considering the con-
tinued uncertainty about: the nature of the damages that may be sought
by the plaintiffs; the causes of action that are being, or may ultimately be,
pursued; and, in the case of the uncertified class actions, the causes of
action that may ultimately be certified.
of its members. This collective agreement took effect on April 1, 2017,
and will expire on March 31, 2022.
A new collective agreement between the Syndicat québécois des
employés de TELUS and ourselves was also ratified in December 2016.
The new agreement is effective from January 1, 2018 to December 31,
2022. The Syndicat québécois des employés de TELUS collective
agreement in effect at the time of ratification remained in effect until
its expiry on December 31, 2017.
172 • TELUS 2017 ANNUAL REPORT
30 Related party transactions
(a) Transactions with key management personnel
Our key management personnel have authority and responsibility for
overseeing, planning, directing and controlling our activities and consist
of our Board of Directors and our Executive Leadership Team.
CONSOLIDATED FINANCIAL STATEMENTS: NOTE 30
Total compensation expense for key management personnel, and
the composition thereof, is as follows:
Years ended December 31 (millions)
Short-term benefits
Post-employment pension1 and other benefits
Share-based compensation2
2017
$ 12
4
34
$ 50
2016
$ 12
7
35
$ 54
1 Our Executive Leadership Team members are either members of our Pension Plan for
Management and Professional Employees of TELUS Corporation and non-registered,
non-contributory supplementary defined benefit pension plans, or members of one of
our defined contribution pension plans.
2 For the year ended December 31, 2017, share-based compensation expense was net of
$4 (2016 – $2) of the effects of derivatives used to manage share-based compensation
costs (Note 14(b)). For the year ended December 31, 2017, share-based compensation
expense (recovery) of $(7) (2016 – $4) was included in restructuring costs (Note 16).
As disclosed in Note 14, we made initial awards of share-based compensation in 2017 and 2016, including, as set out in the following table, to our key
management personnel. As most of these awards are cliff-vesting or graded-vesting and have multi-year requisite service periods, the expense will be
recognized ratably over a period of years and thus only a portion of the 2017 and 2016 initial awards are included in the amounts in the table above.
Years ended December 31
($ in millions)
Awarded in period
Number of
restricted
stock units
686,595
Notional
value1
$ 30
2017
Grant-date
fair value1
Number of
restricted
stock units
$ 30
585,759
2016
Grant-date
fair value1
$ 15
Notional
value1
$ 23
1 Notional value is determined by multiplying the Common Share price at the time of award by the number of units awarded. The grant-date fair value differs from the notional value
because the fair values of some awards have been determined using a Monte Carlo simulation (see Note 14(b)).
As at December 31, 2017, no share options outstanding were held by
Employment agreements with members of the Executive Leadership
key management personnel (including retirees). During the year ended
Team typically provide for severance payments if an executive’s employ-
December 31, 2017, key management personnel (including retirees)
ment is terminated without cause: generally 18–24 months of base salary,
exercised 17,716 share options (2016 – 169,522 share options) that had
benefits and accrual of pension service in lieu of notice, and 50% of base
an intrinsic value of less than $1 million (2016 – $4 million) at the time of
salary in lieu of an annual cash bonus. In the event of a change in control,
exercise, reflecting a weighted average price at the date of exercise of
Executive Leadership Team members are not entitled to treatment any
$44.84 (2016 – $42.47).
different than that given to our other employees with respect to non-vested
The liability amounts accrued for share-based compensation awards
share-based compensation.
to key management personnel are as follows:
As at December 31 (millions)
Restricted stock units
Deferred share units1
2017
$ 40
24
$ 64
2016
$ 25
32
$ 57
(b) Transactions with defined benefit pension plans
During the year ended December 31, 2017, we provided management
and administrative services to our defined benefit pension plans; the
charges for these services were on a cost recovery basis and amounted
to $6 million (2016 – $6 million).
1 Our Directors’ Deferred Share Unit Plan provides that, in addition to his or her
annual equity grant of deferred share units, a director may elect to receive his or her
annual retainer and meeting fees in deferred share units, Common Shares or cash.
Deferred share units entitle directors to a specified number of, or a cash payment
based on the value of, our Common Shares. Deferred share units are paid out when
a director ceases to be a director, for any reason, at a time elected by the director
in accordance with the Directors’ Deferred Share Unit Plan; during the year ended
December 31, 2017, $14 (2016 – $4) was paid out.
(c) Transactions with real estate joint ventures
During the years ended December 31, 2017 and 2016, we had transactions
with the real estate joint ventures, which are related parties, as set out
in Note 21.
TELUS 2017 ANNUAL REPORT • 173
31 Additional statement of cash flow information
(a) Statements of cash flows –
operating activities and investing activities
Years ended December 31 (millions)
2017
2016
Net change in non-cash operating
working capital
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income and other taxes receivable
and payable, net
Advance billings and customer deposits
Provisions
$ (70)
$ (45)
(60)
(27)
126
(90)
38
(59)
42
(20)
126
(128)
(28)
(18)
$ (142)
$ (71)
Years ended December 31 (millions)
Note
2017
2016
Cash payments for capital assets,
excluding spectrum licences
Capital asset additions, excluding
spectrum licences
Gross capital expenditures
Property, plant and equipment
Intangible assets
Additions arising from
non-monetary transactions
Capital expenditures
Asset retirement obligations
netted (included) in additions
Other non-cash items included above
Change in associated non-cash
investing working capital
Non-cash change in asset
retirement obligation
17
18
$ (2,486)
$ (2,358)
(617)
(3,103)
(629)
(2,987)
9
19
(3,094)
(2,968)
(7)
40
(3,101)
(2,928)
(27)
231
47
20
(55)
176
$ (3,081)
$ (2,752)
(b) Changes in liabilities arising from financing activities
Year ended December 31, 2016
Year ended December 31, 2017
Statement of cash flows
Non-cash changes
Statement of cash flows Non-cash changes
(millions)
Dividends payable to holders
of Common Shares
As at
Jan. 1,
2016
Issued or
received
Redemptions,
repayments
Foreign
exchange
or movement
(Note 4(i))
payments
Other
Dec. 31, Issued or
received
2016
payments
Redemptions,
repayments
Foreign
exchange
or movement
(Note 4(i))
As at
As at
Dec. 31,
2017
Other
$ 263 $ –
$ (1,070)
$ – $ 1,091 $ 284 $ –
$ (1,152)
$ – $ 1,167 $ 299
Dividends reinvested in shares from Treasury
–
–
–
–
–
–
–
70
–
(70)
–
$ 263 $ –
$ (1,070)
$ – $ 1,091 $ 284 $ –
$ (1,082)
$ – $ 1,097 $ 299
Purchase of Common Shares for cancellation1 $ 10 $ –
$ (179)
$ – $ 169 $ – $ –
$ –
$ – $ – $ –
Short-term borrowings
Long-term debt
TELUS Corporation notes
$ 100 $ 3
$ (3)
$ – $ – $ 100 $ –
$ –
$ – $ – $ 100
$ 11,164 $ 785
$ (600)
$ 19 $ (1) $ 11,367 $ 990
$ (700)
$ (91) $ (5) $ 11,561
TELUS Corporation commercial paper
TELUS Communications Inc. debentures
256
618
–
4,568
(4,181)
TELUS International (Cda) Inc. credit facility
–
373
–
(42)
Derivatives used to manage currency risk
arising from U.S. dollar-denominated
long-term debt – liability (asset)
To eliminate effect of gross settlement of derivatives
used to manage currency risk arising from
U.S. dollar-denominated long-term debt
(14)
4,181
12,024
9,907
(4,201)
(9,024)
(30)
–
9
11
9
–
1
(8)
43
35
613
619
332
5,295
(4,710)
–
82
–
(56)
(58)
–
(20)
–
1
1
1,140
620
339
20
4,710
(4,746)
12,951
11,077
(10,212)
149
(20)
(40)
(43)
93
13,753
–
(4,181)
4,181
–
–
–
(4,710)
4,710
–
–
–
$ 12,024 $ 5,726
$ (4,843)
$ 9 $ 35 $ 12,951 $ 6,367
$ (5,502)
$ (20) $ (43) $ 13,753
Issue of shares by subsidiary to non-controlling interest
Gross proceeds on share issuance
$ 302
$ –
$ – $ (302) $ – $ –
$ –
$ – $ – $ –
Transaction costs
Income taxes charged directly to contributed surplus2
To eliminate effect of gross settlement of transaction costs
–
–
302
(8)
(8)
–
(8)
8
–
–
–
–
12
47
(243)
–
4
47
51
–
–
–
–
–
(1)
–
(1)
–
–
–
–
–
–
(3)
(3)
–
3
44
47
–
$ 294
$ –
$ – $ (243) $ 51 $ –
$ (1)
$ – $ (3) $ 47
1 Normal course issuer bid transactions, including employee benefit plan trust transactions (see Note 28(b)).
2
Income taxes charged directly to contributed surplus were comprised of a current income tax charge of $(3) (2016 – $50) and a deferred income tax recovery of $NIL (2016 – $3).
174 • TELUS 2017 ANNUAL REPORT
GLOSSARY
Glossary
4G (fourth generation): Wireless technologies, including HSPA+, LTE,
LTE advanced and LTE advanced pro, as defined by the International
Telecommunications Union.
LAA (licensed assisted access): An LTE feature that makes use of
unlicensed spectrum in combination with licensed spectrum to deliver
a performance boost for mobile device users.
5G (fifth generation): The next generation of converged wireless
technologies, expected to provide higher Internet speeds, improved
coverage and lower latency, which is critical as the number of
connected devices continues to increase rapidly. 5G technical
standards remain in development.
AWS (advanced wireless services) spectrum: Spectrum in the
1.7 and 2.1 GHz frequency ranges that is utilized in North America for
4G services. It is commonly used in urban and suburban areas.
Fibre-optic network: Hair-thin glass fibres along which light pulses are
transmitted. Optical fibre networks are used to transmit large amounts of
data between locations at high upload and download speeds.
FTTx (fibre to the x): A collective term for any broadband network
architecture using optical fibre to replace all or part of the existing
copper local loops. FTTH denotes fibre to the home, FTTP denotes
premises and FTTN denotes node or neighbourhood.
GPON (gigabit-capable passive optical network): A fibre-based
transmission technology that can deliver data download speeds of up
to 2.5 Gbps and upload speeds of up to 1.25 Gbps.
HSPA+ (high-speed packet access plus): A 4G technology capable
of delivering manufacturer-rated wireless data download speeds of up
to 21 Mbps (typical speeds of 4 to 6 Mbps expected). HSPA+ dual-cell
technology can double those download speeds.
ILEC (incumbent local exchange carrier): An established
telecommunications company providing local telephone service.
Internet of Things (IoT): A network of uniquely identifiable end points
(or things) that interact without human intervention, most commonly
over a wireless network. These systems collect, analyze and act on
information in real time and can be deployed to enable the creation of
smart connected businesses, homes, cars and cities.
IP (Internet protocol): A packet-based protocol for delivering data
across networks.
IP-based network: A network designed using IP and QoS (quality
of service) technology to reliably and efficiently support all types
of customer traffic, including voice, data and video. An IP-based
network allows a variety of IP devices and advanced applications to
communicate over a single common network.
IP TV (Internet protocol television): A television service that uses
a two-way digital broadcast signal sent through a network by way
of a streamed broadband connection to a dedicated set-top box.
The TELUS service is offered as Optik TV and Pik TV.
LTE (long-term evolution): The leading 4G global wireless industry
technology standard. LTE advanced and LTE advanced pro offer higher
speeds and greater capacity, moving networks closer to 5G.
M2M (machine-to-machine): Technologies and networked devices
that are able to exchange information and perform actions without any
human assistance.
Non-ILEC (non-incumbent local exchange carrier): The
telecommunications operations of TELUS outside its traditional ILEC
operating territories, where TELUS competes with the incumbent
telephone company (e.g. Ontario and most of Quebec).
Normal course issuer bid (NCIB): A program that enables a company
to purchase its own shares, typically for cancellation, through exchanges
or private purchases over a set period of time.
Over-the-top (OTT): Content, services and applications in a video
format, for which the delivery occurs through a medium other than the
established video delivery infrastructure.
Roaming: A service offered by wireless network operators that allows
subscribers to use their mobile phones while in the service area of
another operator.
Small cell: Low-powered radio access nodes that can operate in
licensed and unlicensed spectrum within a small range to provide
densification and capacity to a macro wireless network.
Spectrum: The range of electromagnetic radio frequencies used in the
transmission of voice, data and video. The capacity of a wireless network
is in part a function of the amount of spectrum licensed and utilized by
the carrier.
VoIP (voice over Internet protocol): The transmission of voice signals
over the Internet or IP network.
Wave 3 solutions: Next-generation wireless offerings that use Internet of
Things technology to provide solutions to businesses and consumers.
Wi-Fi (wireless fidelity): Networking technology that allows any user
with a Wi-Fi-enabled device to connect to a wireless access point or
hotspot in high-traffic public locations.
xDSL: A fibre-to-the-node IP technology that allows existing telephone
lines to carry voice, data and video.
For financial definitions, see Section 11
of Management’s discussion and analysis
TELUS 2017 ANNUAL REPORT • 175
Investor information
Stock exchanges and TELUS trading symbols
Toronto Stock Exchange (TSX)
Common shares
T
CUSIP: 87971M103
New York Stock Exchange (NYSE)
Dividend policy and dividend growth program
The January 2018 quarterly dividend paid was $0.5050, or $2.02 on an
annualized basis, representing a 7.1% increase over the previous year.
Our long-term dividend payout ratio guideline is 65 to 75% of
prospective sustainable net earnings. In May 2016, we provided share-
Common shares
TU
CUSIP: 87971M103
holders with additional clarity on our intentions regarding our dividend
growth program. We plan to continue with two dividend increases per
year through 2019, normally announced in May and November, and are
targeting the increase to continue to be circa seven to 10% annually.
Since 2004, we have raised our dividend 21 times; 14 of these have
occurred since 2011, when we introduced our dividend growth program.
Notwithstanding this, dividend decisions will continue to be dependent
on earnings and free cash flow and subject to the Board’s assessment
and determination of TELUS’ financial situation, capital requirements and
economic outlook on a quarterly basis. There can be no assurance that
the Company will maintain its dividend growth program through 2019.
TELUS advises that, unless noted otherwise, all quarterly dividends
paid since January 2006 are eligible dividends under the Income Tax Act.
Under this legislation, Canadian residents may be entitled to enhanced
dividend tax credits that reduce the income tax otherwise payable. More
information is available on telus.com/dividends.
TOTAL DIVIDENDS DECLARED TO SHAREHOLDERS
($ millions)
Member of
• S&P/TSX Composite Index
• MSCI World Telecom Index
• S&P/TSX 60 Index
• Jantzi Social Index
• S&P/TSX Telecom Index
• FTSE4Good Index
• Dow Jones Sustainability World Index
• Dow Jones Sustainability North America Index
• STOXX Global ESG Leaders indices
• Euronext Vigeo Index: World 120
Share ownership facts as at December 31, 2017
ESTIMATED
SHARE OWNERSHIP
19.5%
80.5%
¢ Canada
¢ Foreign
• Total outstanding shares were 594,573,092
• TELUS team members held 16,007,747
shares in employee share plans,
equivalent to 2.7% of the total number
of outstanding shares, which collectively
made team members our fourth largest
shareholder
• We estimate that approximately 70% of
TELUS shares were held by institutional
investors and 30% by retail investors
• Registered shareholders of common
shares totalled 37,946. The Canadian
Depository for Securities (CDS)
represents one registration and holds securities for many non-registered
shareholders. We estimate that TELUS had more than 511,000 non-
registered shareholders at year-end.
2017
2016
2015
2014
2013
2012
2011
Dividend reinvestment and share purchase plan
Investors may take advantage of the automatic dividend reinvestment and share purchase plan to acquire
additional common shares without fees. Under this plan, eligible shareholders can have their dividends
reinvested automatically into additional shares. TELUS may elect to purchase common shares in the open
market or by issuance from treasury (less a discount, if any, of up to 5%). TELUS will provide advance
notification to participants if and when an election is made to change the method of purchasing common
shares. Currently, shares are issued from treasury with no discount.
We also offer a share purchase feature, under which eligible shareholders can, on a monthly basis,
buy TELUS shares (maximum $20,000 per calendar year and minimum $100 per transaction) without
brokerage commissions or service charges.
This plan is managed by Computershare Trust Company of Canada.
2018 expected dividend1 and earnings dates
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Ex-dividend dates2
Dividend record dates
Dividend payment dates
Earnings release dates
March 8
June 7
September 7
December 10
March 9
June 8
September 10
December 11
April 2
July 3
October 1
May 10
August 3
November 8
January 2, 2019
February 14, 2019
1 Dividends are subject to Board of Directors’ approval.
2 Shares purchased on this date forward will not be entitled to the dividend payable on the corresponding dividend payment date.
176 • TELUS 2017 ANNUAL REPORT
1,167
1,091
1,011
935
866
794
715
Visit telus.com/drisp
or contact
Computershare for
information and
enrolment forms
INVESTOR INFORMATION
Normal course issuer bid programs
In September, our 2017 normal course issuer bid (NCIB) program
ending November 12, 2018. No shares have been purchased under the
2018 program.
concluded. Under that program, we purchased 1.96 million common
Since the beginning of our multi-year share purchase program in
shares for $80 million. Of this amount, 978,416 shares were purchased
May 2013 through to the end of 2017, we have purchased a total of 68 mil-
on behalf of an employee benefit plan trust and 983,693 shares were
lion shares for $2.5 billion. We will purchase shares only when and if we
purchased and cancelled. Further, we received TSX approval for our
consider it opportunistic. The share purchase program is subject to the
2018 NCIB program to purchase and cancel up to eight million of our
Board’s assessment and determination and there can be no assurance
outstanding shares valued up to $250 million over the 12-month period
that the share purchase program will be completed or maintained.
2017
$ 2.46
$ 1.97
80%
$ 1.62
$ 47.62
4.1%
19
2016
$ 2.06
$ 1.84
89%
$ 0.24
2015
$ 2.29
$ 1.68
73%
$ 1.81
2014
$ 2.31
$ 1.52
66%
$ 1.74
2013
$ 2.02
$ 1.36
67%
$ 1.69
2012
$ 1.85
$ 1.22
66%
$ 2.04
2011
$ 1.74
$ 1.1025
63%
$ 1.53
$ 42.75
$ 38.26
$ 41.89
$ 36.56
$ 32.55
$ 28.82
4.3%
21
4.4%
17
3.6%
18
3.7%
18
3.7%
18
3.8%
17
Per-share data
Basic earnings
Dividends declared
Dividends declared as
per cent of basic earnings
Free cash flow
Common shares
Closing price
Dividend yield
Price to earnings ratio
Share prices and volumes
Toronto Stock Exchange
Common shares (T)
(C$ except volume)
High
Low
Close
Volume (millions)
New York Stock Exchange
Common shares (TU)
(US$ except volume)
Year 2017
High
Low
Close
Volume (millions)
Dividend declared (per share)
38.50
31.28
37.87
102.5
1.518
Year 2017
48.94
42.22
47.62
245.0
Q4
48.94
44.60
47.62
56.9
Q3
46.10
43.30
44.88
51.3
Q2
46.29
42.93
44.77
66.9
Dividend declared (per share)
1.97
0.5050
0.4925
0.4925
2017
Q1
Year 2016
44.39
35.51
42.75
279.5
1.84
44.41
42.22
43.17
69.9
0.48
2017
Q4
43.68
40.97
42.75
63.5
0.48
Q4
33.22
30.31
31.85
14.3
0.357
Q3
44.39
41.54
43.29
48.8
0.46
Q3
34.12
31.50
33.00
11.4
0.351
Q2
42.38
39.11
41.60
73.9
0.46
Q2
32.82
30.64
32.20
12.7
0.351
2016
Q1
42.59
35.51
42.28
93.2
0.44
2016
Q1
32.96
24.34
32.53
17.3
0.325
Q4
38.50
35.47
37.87
25.1
0.397
Q3
36.94
34.04
35.97
25.9
0.395
Q2
34.84
32.06
34.52
27.3
0.365
Q1
Year 2016
33.89
31.28
32.48
24.2
0.361
34.12
30.31
31.85
55.6
1.384
TELUS 2017 ANNUAL REPORT • 177
TELUS SHARES: FIVE-YEAR DAILY CLOSING PRICES
($)
50
40
30
20
T Toronto Stock Exchange (C$)
TU New York Stock Exchange (NYSE) (US$)1
10
Q1
Q2
2013
Q3
Q4
Q1
Q2
2014
Q3
Q4
Q1
Q2
2015
Q3
Q4
Q1
Q2
2016
Q3
Q4
Q1
Q2
Q3
Q4
2017
b l TU
1 Common shares were listed and began trading on the NYSE on February 4, 2013. Prior to that, our former non-voting share class traded on the NYSE under the symbol TU.
h NYSE
h NYSE
20 3 P i
d d
F b
d b
di
C
d
d
h
h
h
h
li
f
l
i
TELUS TOTAL SHAREHOLDER RETURN COMPARISON
($)
Assuming an investment of $100 on December 31, 2012 and reinvestment of dividends
250
200
150
100
$180
$155
$151
TELUS common shares
MSCI World Telecom Index
S&P/TSX Composite Index
50
Q1
Q2
2013
Q3
Q4
Q1
Q2
2014
Q3
Q4
Q1
Q2
2015
Q3
Q4
Q1
Q2
2016
Q3
Q4
Q1
Q2
Q3
Q4
2017
TELUS Corporation Notes
Canadian dollar Notes
Series CG
Series CH
Series CJ
Series CK
Series CL
Series CM
Series CN
Series CO
Series CP1
Series CQ
Series CR
Series CS
Series CT
Series CU
Series CV
Series CW
U.S. dollar Notes
U.S. dollar Notes
Rate
Face value
Maturing
5.05%
$1.0 billion
5.05%
$1.0 billion
3.35%
$500 million
3.35%
$1.1 billion
4.40%
$600 million
3.60%
$400 million
5.15%
$400 million
3.20%
$500 million
4.85%
$900 million
3.75%
$800 million
4.75%
$400 million
1.50%
$250 million
2.35%
$1.0 billion
4.40%
$500 million
3.75%
$600 million
$325 million
4.70%
2.80% US$600 million
3.70% US$500 million
December 2019
July 2020
March 2023
April 2024
April 2043
January 2021
November 2043
April 2021
April 2044
January 2025
January 2045
March 2018
March 2022
January 2046
March 2026
March 2048
February 2027
September 2027
1 Includes $500 million originally issued in April 2014 and $400 million issued in
December 2015.
LONG-TERM DEBT PRINCIPAL MATURITIES
AS AT DECEMBER 31, 2017
($ millions)
2048
2046
2045
2044
2043
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
325
500
400
600
500
¢ Other long-term debt
¢ Commercial paper
900
1,000
1,000
1,100
1,083
1,008
1,008
1,380
1,565
257
1,140
1,397
Credit rating summary
As of December 31, 2017
TELUS Corporation
Standard &
Poor’s Rating
Services
DBRS Ltd.
Notes
BBB (high)
BBB+
Commercial paper
R-2 (high)
A-2
TELUS Communications Inc.
Moody’s
Investors
Service
Baa1
P-2
Fitch
Ratings
BBB+
–
At the end of 2017, the average term to maturity of our long-term debt
(excluding commercial paper and the revolving component of the TELUS
International credit facility) was 10.7 years, compared to 10.4 years at
the end of 2016. For a detailed list of long-term debt of the Company and
our subsidiaries, see Note 26 of the Consolidated financial statements.
Debentures
BBB (high)
BBB+
–
BBB+
178 • TELUS 2017 ANNUAL REPORT
INVESTOR INFORMATION
Key TELUS investment events
• Announced two quarterly dividend increases consistent with our
dividend growth program, with 2017 dividends declared of $1.97,
representing a 7.1% increase from our 2016 dividends declared
Analyst coverage
As of February 2018, 20 equity analysts covered TELUS. For a detailed list,
see the investor information section on telus.com/investors.
of $1.84
•
Issued US$500 million in senior unsecured notes with a 10-year
Information for security holders outside of Canada
Cash dividends paid to shareholders resident in countries with which
maturity at 3.70% due September 15, 2027 and $325 million in senior
Canada has an income tax convention are usually subject to Canadian
unsecured notes with a 31-year maturity at 4.70% due March 6, 2048
non-resident withholding tax of 15%. If you have any questions, contact
• Received TSX approval for our 2018 NCIB program to purchase and
Computershare. For individual investors who are U.S. citizens and/or
cancel up to eight million common shares valued up to $250 million
U.S. residents, quarterly dividends paid on TELUS shares are considered
over a 12-month period
qualified dividends under the Internal Revenue Code and may be eligible
• Acquired Manitoba Telecom Services (MTS) postpaid wireless
for special U.S. tax treatment.
subscribers, certain network assets and rights to 15 MTS retail
locations from BCE following its acquisition of MTS
• Complementing the geographic reach and quality of TELUS
Health’s national pharmacy management services by acquiring
Kroll Computer Systems
• Expanded TELUS International’s outsourcing and information
Foreign ownership monitoring – non-Canadian
common shares
Under federal legislation, total non-Canadian ownership of common
shares of Canadian telecommunications companies, including TELUS,
is limited to 33 1⁄3%.
technology consulting and software services business with our
For registered shareholders and shares trading on the TSX, a
acquisitions of Voxpro Limited in 2017 and Xavient Information
reservation system controls and monitors this level. This system requires
Systems in early 2018.
Awards
• Received a Gold Award in Corporate Reporting and the Award of
non-Canadian purchasers of common shares to obtain a reservation
number from Computershare by contacting the Reservations Unit at
1-877-267-2236 (toll-free) or telusreservations@computershare.com.
The purchaser is notified within two hours if common shares are available
Excellence in Corporate Governance Disclosure from the Chartered
for registration.
Professional Accountants of Canada, marking the 23rd consecutive
For shares trading on the NYSE, non-Canadian ownership is
year that TELUS has been recognized
monitored by utilizing the Depository Trust & Clearing Corporation’s
• Placed first in the world in the telecommunications sector in the 2017
SEG-100 Account program. All TELUS common shares held by
Annual Report on Annual Reports by ReportWatch for the TELUS
non-Canadians must be transferred to this account (no reservation
2016 annual report
application is required).
• Recognized for corporate social responsibility by being included
in the:
• Dow Jones Sustainability North America Index for the
17th consecutive year
Mergers and acquisitions – shareholder impacts
Visit telus.com/m&a for information on how your shareholdings may
have been affected by various merger and acquisition transactions.
• Dow Jones Sustainability World Index for the second year in a row
Information is also available regarding capital gains, valuation dates
• Canada 200 for the Carbon Disclosure Project
and share prices for 1971 and 1994.
• Corporate Knights Best 50 Corporate Citizens in Canada for the
11th time
• Received the BEST Award for excellence in employee learning and
development from the Association for Talent Development for the
12th time
• Acknowledged for business continuity excellence for our response to
the 2016 Fort McMurray wildfires with the:
• Americas Award for Most Effective Recovery, from the Business
Continuity Institute
• Award of Excellence for Response and Recovery of the Year,
from the Disaster Recovery Institute International.
TELUS sustainability report
Visit telus.com/sustainability for information on our sustainable
business practices.
TELUS 2017 ANNUAL REPORT • 179
e-delivery of shareholder documents
We invite you to sign up for electronic delivery of TELUS information by visiting telus.com/electronicdelivery. The benefits of
e-delivery include access to important Company documents in a convenient, timely and environmentally friendly way that also
reduces printing and mailing costs. Approximately 26,000 of our shareholders receive the annual report by e-delivery.
For more information
For questions on:
For questions regarding additional financial or statistical information,
• Direct registration system (DRS) advice or accounts
industry and Company developments, or the latest news releases
• Dividend payments and the dividend reinvestment and share
and investor presentations, contact:
purchase plan
• Change of address and e-delivery of shareholder documents
• Transfer or loss of share certificates and estate settlements
• Exchange of share certificates due to a merger or acquisition
Contact the transfer agent and registrar:
Computershare Trust Company of Canada
1-800-558-0046 or 1-514-982-7129 (outside North America)
email: telus@computershare.com
visit: computershare.com
TELUS Investor Relations
1-800-667-4871 or +1-604-643-4113 (outside North America)
email: ir@telus.com
visit: telus.com/investors
TELUS executive office
510 West Georgia Street
Vancouver, British Columbia
Canada V6B 0M3
phone:
1-604-697-8044
TELUS general information
1-800-308-5992
phone:
EthicsLine
As part of our ethics policy, this hotline allows team members and
1-604-432-2151
others to anonymously and confidentially raise accounting, internal
Auditors
Deloitte LLP
controls and ethical inquiries or complaints.
phone: 1-888-265-4112
visit: telus.ethicspoint.com
180 • TELUS 2017 ANNUAL REPORT
telus.com
@telus
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facebook.com/telus
youtube.com/telus
Linkedin.com/company/telus
TELUS Corporation
510 West Georgia Street
Vancouver, British Columbia
Canada V6B 0M3
Phone 1-604-697-8044
Printed in Canada
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WHY INVEST IN TELUS
We are investing for long-term growth
Putting customers first
Focusing on customer service
Proven growth strategy
Delivering industry-leading
Profitable growth
Driving continued profitable revenue
excellence and technology
performance by consistently
and customer growth in consumer
leadership to further strengthen our
executing on our winning long-
and business markets
differentiated competitive position
term growth strategy focused
and enhance the customer
on data and wireless
experience
Disciplined capital
allocation
Balancing capital investments to
World-class networks
Enhancing our advanced broadband
networks to elevate the customer
Robust shareholder
returns
Returning more than $1.1 billion
support long-term growth with
experience, enhance reliability and
to shareholders in 2017 and
returning capital to our shareholders
sustain future growth
through our multi-year dividend
growth program
$15.1 billion since 2004 through
our shareholder-friendly initiatives
Commitment to
operational efficiency
Continuing to enhance our
Strong financial profile
Maintaining a strong balance sheet
Transparent disclosure
Providing award-winning financial,
and solid investment grade credit
corporate governance and
operational effectiveness to drive
ratings, enabling ready access to
atings, enabling ready access to
sustainability ddddisclosure
sustainability disclosure
ongoing improvements in customer
capital market funding
apital market funding
service and cash flow generation
telus.com/annualreport
telus.com/rapportannuel