TELUS
Annual Report 2018

Plain-text annual report

THE SOCIAL CAPITALISM COMPANY 2018 ANNUAL REPORT 1– 7 Corporate overview What we offer, results and highlights from 2018, and our 2019 targets 8 –15 CEO letter to investors How our leadership in social capitalism underpins our leadership in business 16 –19 Operations at a glance A brief review of our wireless and wireline operations 20 – 21 Our social purpose How we are leveraging technology to create positive outcomes 22– 29 Leadership Our Executive Leadership Team, questions and answers, Board of Directors and corporate governance 30 –192 Financial review Detailed financial disclosure, including a letter from our CFO, and other investor resources Who we are TELUS is committed to leveraging our world-leading technology to enable remarkable human outcomes in our all-connected world. We have $14.4 billion of annual revenue and 13.4 million customer connections, including 9.2 million wireless subscribers, 1.9 million high-speed Internet clients, 1.2 million residential network access lines and 1.1 million TELUS TV® customers. With the support of our talented team, we provide a wide range of communications solutions to consumers and businesses, including wireless, data, IP, voice, television, entertainment, video, and home security and automation. Through TELUS Health, we are enabling improved health outcomes for Canadians, advancing our position as the leading provider of healthcare technology solutions. TELUS International provides innovative customer experience, digital transformation and business process service solutions for clients around the globe. In support of our heartfelt philosophy to give where we live, TELUS has contributed $1.2 billion in value – through philanthropy and volunteerism – since 2000. All financial information is reported in Canadian dollars unless otherwise specified. Copyright © 2019 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. At TELUS, we believe that doing well in business involves doing good in our communities. We are committed to improving the lives of our customers and our communities by unleashing the power of the Internet to deliver the best solutions for Canadians at home, in the workplace and on the move. As a leader in social capitalism, we invest in remarkable human, social and business capital every step of the way. Together, we are connecting people to what matters most to them, enabling better health outcomes, caring for the planet our children will inherit, advancing educational opportunities for our future leaders and keeping people safe in our digital world. CREATING AN AMAZINGFUTUREWHAT WE OFFER PUTTING CUSTOMERS FIRST We are delivering exceptional experiences and providing our customers with a wide range of innovative products and services powered by leading technologies to keep them connected to what matters most. Mobile services Keeping our customers happy We are meeting our customers’ growing mobile needs with Business solutions Helping businesses succeed We offer a full suite of data solutions for businesses and the increasing speeds, capacity and coverage of our award- governments, providing a mix of traditional and cloud winning 4G LTE wireless network and our leading device lineup. technologies, fibre network connectivity, and collaboration, Over the past several years, we have introduced hundreds of security, managed IT and advisory services to accelerate customer-centric programs and services to improve our our clients’ digital transformation. Businesses are transforming customers’ experiences and continue to earn their business, their operations with our mobile, Network as a Service and wherever they go. With our customers first focus, TELUS Internet of Things solutions to increase their productivity has consistently led the Canadian industry in wireless loyalty and efficiency. and network performance, and has one of the best wireless churn rates in the world. Future friendly home services Offering innovative broadband solutions TELUS offers a wide range of telecommunications, connectivity Healthcare technology solutions Improving the delivery of healthcare At TELUS Health, we are working with healthcare providers and patients to improve information-sharing and harness the power of technology to improve healthcare for Canadians. and entertainment services to consumers in British Columbia, Our digital innovations are helping patients get a better care Alberta and Eastern Quebec. Our multi-year, multi-billion-dollar experience while easing the burden on the healthcare system. investment has expanded our gigabit-capable TELUS PureFibreTM We provide digital health solutions for physicians, pharmacies, network directly to a majority of homes across these provinces. extended healthcare providers, patients, insurers and health With TELUS PureFibre, customers can reliably connect to the authorities. We also offer employee health and wellness services. digital technologies that matter most to them, such as streaming video, smart home services and security solutions. Business process and IT solutions Extending our caring culture around the globe TELUS International is a contact centre and customer experience innovator that designs, builds and delivers next-gen digital solutions. Our services cover digital transformation, IT life cycle, advisory and digital consulting, risk management and back- office support, and are delivered by more than 32,000 team members in over 40 languages at locations across North and Central America, Asia, and Europe. 2 • TELUS 2018 ANNUAL REPORT TELUS IN 2018 Q1 Q2 • Earned the top spot in four major wireless network • Became the first TV provider in Canada to launch awards for quality, speed and/or reliability 4K HDR TV content • Passed the halfway point in our program to • Expanded Mobility for GoodTM to Quebec and Ontario, expand our TELUS PureFibre network directly to homes and businesses across our footprint • Launched the TELUS Baby Health app to help parents keep track of their baby’s health information. providing smartphones and data plans to youth aging out of foster care • Held our 13th annual TELUS Days of Giving® with more than 36,000 people volunteering around the world. Q3 Q4 • Introduced TELUS SmartHome Security and TELUS • Introduced our fastest-ever Internet service options Secure Business solutions in B.C., Alberta and boasting download speeds of 1 GB and 750 Mbps Saskatchewan • Launched the TELUS Friendly Future FoundationTM to provide youth better access to health and educationa l opportunities • Expanded Health for GoodTM to Victoria, delivering healthcare to vulnerable citizens. • Received the fewest customer complaints of any national provider in the annual Commission for Complaints for Telecom-television Services report • Engaged close to 1.7 million people in our #EndBullying campaign to take our TELUS Wise® Digital Pledge in 2018. TELUS 2018 ANNUAL REPORT • 3 WORKING RELENTLESSLY TO MAKE A DIFFERENCE2018 PERFORMANCE AT A GLANCE DELIVERING SOLID RESULTS +7.2% +4.9% +1.9% +6.6% OPERATIONS Operating revenues 2018: $14.4 billion 2017: $13.4 billion Adjusted EBITDA1 2018: $5.3 billion 2017: $5.0 billion Basic EPS 2018: $2.68 2017: $2.63 Dividends declared per share 2018: $2.10 2017: $1.97 FINANCIAL RESOURCES +24% Free cash flow1 2018: $1,197 million 2017: $966 million -$180 million Capital expenditures (excluding spectrum licences) 2018: $2.91 billion 2017: $3.09 billion +6.5% Total assets 2018: $33.1 billion 2017: $31.1 billion -0.13 times Net debt to EBITDA ratio1,2 2018: 2.54 2017: 2.67 +17% +42% +80% 33% improvement CUSTOMER CONNECTIONS3 Wireless subscriber net additions 2018: 347,000 2017: 296,000 Internet subscriber net additions 2018: 115,000 2017: 81,000 TV subscriber net additions 2018: 63,000 2017: 35,000 Residential network access line net losses 2018: (51,000) 2017: (76,000) OPERATING REVENUES ($ billions) ADJUSTED EBITDA1 ($ billions) 2018 2017 14.4 13.4 2018 2017 DIVIDENDS DECLARED PER SHARE ($) TOTAL CUSTOMER CONNECTIONS3 (millions) 2018 2017 2.10 1.97 2018 2017 5.3 5.0 13.4 13.1 4 • TELUS 2018 ANNUAL REPORT 2018 FINANCIAL AND OPERATING HIGHLIGHTS ($ in millions except per share amounts) 2018 2017 % change Applying IFRS 9 and IFRS 15 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 Dividends declared per share Dividend payout ratio (%)1 WIRELESS SEGMENT External revenue Adjusted EBITDA1 Adjusted EBITDA margin1 (%) WIRELINE SEGMENT External revenue Adjusted EBITDA1 Adjusted EBITDA margin1 (%) FINANCIAL POSITION Total assets Net debt1 Return on common equity (%)4 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 CONNECTIONS3 (in thousands at December 31) Wireless subscribers Internet subscribers Residential network access lines (NALs) Total TV subscribers Total customer connections n/m – not meaningful $ 14,368 $ 5,104 35.5 $ 5,421 $ 5,250 $ 2,837 $ 1,600 $ $ $ 2.68 2.85 2.10 78 $ 8,135 $ 3,461 42.7 $ 6,233 $ 1,789 28.2 $ 33,065 $ 13,770 16.4 $ 4,058 $ 2,914 $ 1,197 2.54 9,235 1,858 1,248 1,093 13,434 $ 13,408 $ 4,910 36.6 $ 5,027 $ 5,005 $ 2,741 $ 1,559 $ $ $ 2.63 2.77 1.97 80 $ 7,671 $ 3,286 42.7 $ 5,737 $ 1,719 28.9 $ 31,053 $ 13,422 17.1 $ 3,947 $ 3,094 $ 966 2.67 8,911 1,743 1,298 1,098 13,050 7.2 3.9 n/m 7.8 4.9 3.5 2.6 1.9 2.9 6.6 n/m 6.0 5.3 n/m 8.6 4.1 n/m 6.5 2.6 n/m 2.8 (5.8) 23.9 n/m 3.6 6.6 (3.9) (0.5) 2.9 1 2 3 4 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 more information, see Sections 1.3, 5.4, 5.5 and 11 of Management’s discussion and analysis (MD&A) in this report. Excludes restructuring and other costs. Customer connections have been revised in 2017 and 2018 to account for acquisitions and adjustments. For details, see Section 1.3 of the MD&A in this report. Net income attributed to equity shares for a 12-month trailing period, divided by the average common equity for the 12-month period. TELUS 2018 ANNUAL REPORT • 5 2018 SCORECARD AND 2019 TARGETS DRIVING OUTSTANDING PERFORMANCE 2018 scorecard At TELUS, we believe in setting annual financial targets to and lower income taxes, partly offset by increased provide clarity for investors and help drive our performance. financing and depreciation and amortization costs. Capital As the following scorecard shows, in 2018, we achieved expenditures exceeded our target as we continued to three of our four consolidated targets. Our revenue achievement focus on investments in broadband infrastructure, including reflected an increase in wireless network revenue resulting connecting more homes and businesses directly to our from growth in our wireless subscriber base, as well as fibre-optic network. growth in wireline data service revenue. Adjusted EBITDA Notably, by consistently achieving our financial targets, growth reflected higher wireless equipment margins and we have supported the return of capital to shareholders an increase in wireless network revenue, in addition to higher through our shareholder-friendly initiatives, including our Internet and TELUS Health margins and an increased multi-year dividend growth program. contribution from TELUS International. Basic earnings per For further information, see Section 1.4 of Management’s share (EPS) growth was driven by higher operating income discussion and analysis (MD&A) in this report. 2018 targets1 2018 results 2018 growth Achieved Revenues Adjusted EBITDA2 Basic EPS Growth of 4 to 6% Growth of 3 to 6% $14.37 billion 7.2% $5.25 billion 4.9% Growth of up to 6% $2.68 1.9% Capital expenditures (excluding spectrum licences) Approximately $2.85 billion $2.91 billion – 1 Reflects the 2018 targets that were announced with our first quarter 2018 results news release on May 10, 2018 to account for the adoption of IFRS 15 on January 1, 2018. For more information, see Section 1.4 of the MD&A in this report. 2 Adjusted EBITDA is a non-GAAP measure and does not have a standardized meaning under IFRS-IASB. Therefore, it is unlikely to be comparable to similar measures presented by other companies. See Section 11 of the MD&A in this report. 6 • TELUS 2018 ANNUAL REPORT 2019 targets We are guided by a number of long-term financial objectives, Revenues1 policies and guidelines, which are detailed in Section 4.3 of the MD&A. With these policies in mind, our consolidated financial targets for 2019 reflect continued growth in data services across wireless and wireline, supported by our strategic investments in advanced broadband technologies and our leading network, a team member culture of delivering customer service excellence, and our ongoing focus on operational effectiveness. TELUS’ 2019 financial targets are supportive of the Company’s multi-year dividend growth program first announced in May 2011, under which TELUS has since delivered 16 dividend increases. In 2019, TELUS plans to continue generating positive subscriber growth in its key growth segments, including wireless, high-speed Internet and TELUS TV. Increasing customer demand for reliable access and fast data services is expected to support continued customer growth. TELUS International and TELUS Health are also expected to contribute to TELUS’ growth profile. For more information and a complete set of 2019 financial targets and the assumptions on which they are based, see our fourth quarter 2018 results and 2019 targets news release issued February 14, 2019. 2019 targets Growth of 3 to 5% Growth of 8 to 10% Growth of 4 to 6% Growth of 2 to 10% Adjusted EBITDA ,3 2 Adjusted EBITDA (excluding the effects of IFRS 16) 2 Basic EPS Capital expenditures (excluding spectrum licences) Approximately $2.85 billion 1 The 2019 revenue growth target is calculated using operating revenues, excluding non-recurring equity income of $171 million arising from the sale of TELUS Garden in 2018. 2 Adjusted EBITDA is a non-GAAP measure and does not have a standardized meaning under IFRS-IASB. Therefore, it is unlikely to be comparable to similar measures presented by other companies. See Section 11 of the MD&A in this report. The 2019 Adjusted EBITDA growth target reflects the non-cash impacting application of IFRS 16, Leases in 2019. 3 Caution regarding forward-looking statements summary This annual report contains forward-looking statements including statements relating to our 2019 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 regulatory developments and government decisions, the competitive environment, technological substitution, 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 2019 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. Statements regarding our 2019 targets are presented for the purpose of assisting our investors and others in understanding certain key elements of our expected 2019 financial results as well as our objectives, strategic priorities and business outlook. Such information may not be appropriate for other purposes. TELUS 2018 ANNUAL REPORT • 7 CEO LETTER TO INVESTORS GOOD BUSINESS AND DOING GOOD ARE MUTUALLY INCLUSIVE THE SOCIAL CAPITALISM COMPANY TELUS, your Company, leads the world in respect of social capitalism. Companies that embrace social capitalism do so by using their core business to serve a greater social purpose that benefits all of their stakeholders, from shareholders and customers to our most vulnerable citizens. At TELUS, social capitalism is not supplemental to our strategy, but rather the central thesis of what we do, why we do it and what we stand for as a culture. The value we create for our stakeholders is a direct result of our collective focus on putting our communities first in our hearts, minds and actions. 8 • TELUS 2018 ANNUAL REPORT Leading the world in creating a friendlier future Inspired by our passionate social purpose, the TELUS team is helping to improve the social, economic and health outcomes of Canadians and simultaneously driving value for our shareholders. As we work to change the paradigm on health, education, the environment and social inequities, we are creating a friendlier future – one where technology breaks down barriers, keeps us safe and empowers us all to achieve our full potential. Investing to bridge digital divides, both geographic and socio-economic We know that technology is a great equalizer, but only if we all have access to it equally. Unequal access to technology is exacerbating the unacceptable social barriers facing Canadians: 40 per cent of low-income families lack consistent Internet access, putting kids at risk of falling behind in school; 350,000 young people are in government care, often experiencing an isolating transition to adulthood, unable to participate in our digital world; and 35,000 Canadians are homeless on any given night, many disconnected from the basic right in Canada to healthcare. Our TELUS team has stepped up to address these pressing social issues, making unprecedented investments in technology to bridge geographic and socio-economic divides and support more vibrant and sustainable communities. Indeed, since 2000 your Company has invested $175 billion to connect Canadians to the people, resources and information that make their lives better. Moreover, TELUS has an enviable track record of rolling out new technology and infrastructure to the breadth of our Canadian population, enabling a symmetrical urban and rural experience, ensuring all citizens have access to the digital tools to drive improved health, social and economic outcomes in their communities. Empowering underserved Canadians through our Connecting for Good programs These investments are helping to remedy many of the critical inequities facing Canadians through solutions like TELUS’ portfolio of Connecting for Good initiatives. Our life-changing programs provide TELUS-subsidized access to the technologies that underpin the success of so many Canadians at risk of being left behind in our increasingly digital society. Notably, TELUS Internet for Good offers 50,000 low-income families access to low-cost, high-speed Internet service and a computer, free online music education programming from The Royal Conservatory, as well as digital literacy training and TELUS Wise support to help them participate safely in our Darren Entwistle volunteered alongside 800 dedicated members of our TELUS family for our annual TELUS Days of Giving in Sofia, Bulgaria, where they planted 12,000 trees in the newly minted TELUS International Forest, reversing the destruction caused by severe insect damage in this previously lush environment. digital world. These resources will connect underserved families to their community and to the tools that characterize today’s learning experience. Internet for Good will provide children with opportunities such as learning a new language online, taking virtual journeys to see the Wonders of the World or learning how to play an instrument – all from the comfort of their home. We will not rest until we reach every single one of the 40 per cent of families in Canada who are lacking this fundamental resource and until all children have the same access to digital resources, social connections and educational information as their classmates. Through TELUS Mobility for Good, today, we are offering 10,000 young people aging out of foster care a free smartphone and data plan for two years. This program is empowering vulnerable youth with a vital lifeline to the tools needed to stay in touch with social workers offering support; to contact prospective employers, post-secondary institutions and healthcare providers; to access educational mobile apps and websites; and to remain connected with friends through their social networks. We will not rest until every one of the 350,000 young people currently in government care is able to begin their independent life feeling safer, more confident and connected, and better prepared for their future. Lastly, TELUS Health for Good is removing many of the barriers Canadians living on the streets face in receiving medical care and re-connecting thousands of patients to TELUS 2018 ANNUAL REPORT • 9 the public healthcare system. TELUS mobile health clinics provide essential primary medical care, including electronic health records, to these marginalized Canadians, generating 11,500 patient visits since the program’s inception in 2014. We will not rest until all 35,000 of these at-risk Canadians have access to the health and social care they need and deserve, including vital support for mental health. I am positive that the “universal” in healthcare is supposed to mean all of our citizens, not just those of us lucky enough to have an address. Fostering the responsible use of technology in our digital world Whilst connecting to technology is an essential part of our daily lives, resolving inequities through programs like Connecting for Good can only be considered successful if that technology is also being used responsibly. Unfortunately, this is not always the case. At TELUS, we understand the power of technology and all the good it can help us achieve. We also understand that technology has the potential to enable negative and cruel behaviour, such as cyberbullying and the subsequent anguish it can cause our families. Heartbreakingly, more than one million kids are cyberbullied each month, sometimes with tragic repercussions. This statistic represents an unacceptable and devastating reality that demands action. Indeed, we are holding ourselves responsible for helping address this major social issue. By way of our TELUS Wise program, we are encouraging young Canadians to become digital citizens, whilst simultaneously protecting our youth online. Through TELUS Wise, we have engaged with more than seven million Canadians, providing the tools and knowledge to stay safe online. Moreover, as part of our mission to #EndBullying, in 2018, we motivated 1.7 million Canadians to take our TELUS Wise digital pledge and join us in rising above cyberbullying. Together, with the support of Canadians from coast to coast, we will not consider our efforts successful until every young person can safely engage online and the nefarious practice of cyberbullying has been eradicated for good. Investing in technology innovation to answer our world’s most pressing social challenges Investing in leading-edge technology is imperative to prevent the next pandemic, preserve our planet and deliver on the promise of a thriving digital economy. In this regard, your Company’s technology innovation is addressing one of the most pressing social issues of our lifetime: healthcare effectiveness and efficiency. Indeed, with as much as half of all provincial budgets being invested into healthcare, Canada’s spending is one of the highest in the world and growing due to our aging population and the prevalence of chronic diseases. Helping healthcare professionals deliver better health outcomes At TELUS, we believe that by building a primary healthcare ecosystem that places the patient at the centre, we can deliver better health outcomes for our fellow Canadians, for less money spent. Importantly, using technology, we can also shift the focus from the remediation of disease to the prevention of illness. In this regard, our technology innovations are enabling better access to vital healthcare information leveraging our broadband wireless and fibre networks that are the best in the world in respect of speed, coverage and quality. By way of example, we are the leading provider of the electronic medical records that are helping physicians and pharmacists provide better care across the healthcare continuum, through secure access to patient files that detail medical history and ensure continuity of care. As the leading social capitalism company, we are using our technology to resolve critical economic inequities facing Canadians and to address our most pressing social challenges. TELUS is also focusing our innovation on improving the flow of information in the primary healthcare sector. Our ePrescribe technology is evolving our health system away from handwritten prescriptions and reducing the associated errors and sad outcomes they can entail. The digitization of prescription fulfilment not only leads to improved medication adherence but will also help to track medication misuse, which is critical in the battle against opioid addiction. In this regard, complementing the efforts of our Health for Good mobile health clinics, we are bringing critical insight into the opioid crisis plaguing our communities by means of a TELUS Health Original documentary, Painkiller: Inside the Opioid Crisis. This enlightening video, which has already been viewed 200,000 times, strives to raise awareness about this heartbreaking social tragedy and, ultimately, save lives through education. This documentary is available through our unique TELUS Healthy Living Network, which provides customers with hundreds of curated health- themed programs through TELUS Optik on Demand. Supporting employee wellness in a burdened healthcare system TELUS is driving employer-based support of health and wellness as a major thrust in answering the national healthcare burden. Employers can play a significant role in optimizing the health of their teams, leading to reduced absenteeism and elevated employee engagement that will, in turn, drive any organization’s success. Through our Medisys-on-Demand virtual care service, as well as our investment in BEACON, a digital mental health 10 • TELUS 2018 ANNUAL REPORT support service, we are helping employers support the physical and mental well-being of their employees and their families by way of a digital platform that provides personalized care from a health professional. on speed and availability or customer experience. Thanks to our award-winning network, supported by the expertise of our talented Canadian engineers and technologists, we have the infrastructure and thought leadership to deliver on our promise of connected healthcare for all Canadians. Enabling better health outcomes through better health information Your Company is committed to providing all Canadians with the tools, information and support to enable them to live healthier and happier lives. Across Canada, there are five million people who do not have a family physician and many struggle to find urgent care after hours. In an effort to address healthcare accessibility challenges, our Babylon by TELUS Health service empowers Canadians with immediate and reliable medical knowledge and support. Our smartphone application offers an expansive symptom checker powered by an extensively researched artificial intelligence engine, as well as a one-on-one virtual consultation feature, allowing patients to speak directly with a doctor within a couple of hours from the comfort of their homes or on the move. In addition, the TELUS LivingWell Companion service supports elderly Canadians in sustaining their independence by providing a constant connection to loved ones. In the case of an accident or a fall, customers simply push a button to activate a two-way conversation, or an automatic fall detection feature will be initiated. TELUS’ technology will continue transforming healthcare in ways that were unimaginable only a few years ago. Your Company is enabling a future where access to healthcare will be personal, precise, predictive, preventative and amazingly universal. Indeed, with new capabilities to capture and analyze data, healthcare will be transformed through a detailed understanding of how outcomes are influenced by genetics, environment, diet, lifestyle and medication on an individual basis. We are working toward a digital future in which healthcare professionals can readily leverage artificial intelligence alongside the insights provided through genomics, bio-analysis and imaging in order to deliver optimized preventative wellness protocols as well as disease treatments for each patient on a customized basis. Moving health information to the point of care quickly and securely We know that delivering information digitally across the healthcare continuum can only be effective if the networks carrying the information are reliable, fast, secure and expansive. In 2018, TELUS earned global recognition in network excellence from OpenSignal, J.D. Power, PCMag, Tutela and the consumer-initiated Ookla Speedtest. These leading rankings, each received consecutively for two years or more, reinforce the superiority of our network, whether assessed Smart technologies helping us care for the planet our children will inherit We are equally focused on the health of our planet. Our investments are building a more sustainable world for our future generations. By way of example, despite our country’s dispersed population and vast and rugged geography, broadband networks, ubiquitously deployed, are bridging time and distance, allowing us to live and work in the areas of our choosing without compromising productivity. Indeed, in a world of powerful wireless and fibre technology, you do not have to live in Vancouver, with its associated cost of living, to work in Vancouver. TELUS’ innovative Work Styles program is one way we are allowing people to work where and when it is most convenient and productive. Through this program, we have decreased our environmental footprint by eliminating 18,500 tonnes of carbon dioxide emissions and reducing 2.9 million hours of commuting time in 2018 alone – time that can be spent on more precious endeavours, like engaging with loved ones. Importantly, we are able to recognize our high-performing team members by endorsing their participation in our Work Styles program, thereby driving enhanced team member engagement. We are further reducing our carbon footprint by using super high-definition video-conferencing technology that mimics a face-to-face meeting, which has contributed to more than $40 million in team member travel savings since 2007, whilst increasing team collaboration across the country. Reflecting our commitment to creating workplaces built to the highest leadership in energy and environmental design (LEED) standards, our team members and operations occupy one of the largest LEED platinum footprints in all of North America. Finding digital solutions to help feed a hungry world As part of our efforts to promote sustainability and wellness, we are expanding our reach in the emerging agriculture technology sector. By leveraging technology innovation and artificial intelligence, we will help farmers and ranchers produce food for the world’s ever-expanding population more efficiently, safely and in a more environmentally friendly manner. Our efforts to optimize food production are contributing to a better yield of food supply to meet the ever- growing requirements of our planet and our fellow citizens. In addition, through our technology, we will help to answer the challenge of food traceability to ensure retailers and TELUS 2018 ANNUAL REPORT • 11 consumers can trust the health and responsible production of their food, from the farm or ranch all the way to the fork. Importantly, we are striving to provide innovative solutions to advance the agriculture sector on a worldwide basis, whilst positioning Canada as a preferred global supplier of safe, sustainable food. Enabling our digital economy to drive Canada’s competitiveness and create skilled jobs Your Company is also leveraging our investments in technology innovation to advance economic diversity and empowering our nation to drive the kind of sustainable innovation that elevates the competitiveness of our private sector. By offering the infrastructure necessary to promote innovation across the country, we are able to attract new industries and innovators, supporting the jobs of today and those that have yet to be imagined. The advantage our networks provide Canadians cannot be overstated. We cannot have a vibrant private sector without powerful, world-leading technology and robust infrastructure that is widely deployed. Indeed, by connecting Canadians to the opportunities that underpin our success, we are supporting growth and skilled job creation for Canada. Moreover, through our best-in-class networks, we are providing start-ups and home-based businesses with access to the same Internet speeds, functionality, reliability and security that large enterprises currently enjoy. Powering the success of Canadian businesses Our broadband network investments, coupled with next-generation services for businesses, such as unified communications, cloud computing and network security, are enabling Canadian organizations of all sizes to increase their productivity and enhance their contributions to our nation. We are partnering with businesses to enable their digital transformations and thereby strengthen the engagement and effectiveness of their teams, enhance the experiences they offer to their customers, increase the efficiency of their supply chain and sales channels, better leverage data insights and ultimately, increase revenue whilst rationalizing costs. We are leveraging our technology, in concert with our social innovation, to ensure every Canadian is connected safely, reliably and responsibly. By leveraging technology innovation, including machine-to- machine communications and artificial intelligence, we are helping our business clients be more efficient and productive in terms of risk management. For example, we are enabling organizations across Canada to support the safety of their field workers and long-haul drivers, secure the transmission of sensitive financial data and access vital healthcare information at the point of care. In this vein, we take to heart the undeniable fact that our networks, platforms, devices and applications enable the successful operation of every sector of our economy and thereby fuel job creation, as well as our country’s competitiveness. Setting Canada up for success by leading the way in 5G and fibre Throughout 2018, we continued to evolve our wireless network toward the 5G ecosystem that is foundational to democratizing access to the transformative technology of today and tomorrow. Moreover, your Company increased its active fibre connections by 34 per cent last year, well exceeding the Organization for Economic Co-operation and Development average, and connected our 100th fibre community along the way. Our near- ubiquitous wireless network, together with the fibre backbone that underpins it, will cost-effectively support the transformative 5G technology that will drive innovation whilst fuelling economic growth for generations to come. Indeed, in concert with the emerging artificial intelligence economy, this new ecosystem will power our smart homes, vehicles, businesses and intelligent cities, as well as the applications, devices and services that improve educational outcomes, support environmental sustainability, enable our entrepreneurial spirit and unleash human productivity. Even in a digital world, the most important connection is the human connection Perhaps most meaningfully, our social purpose is animated by a deeply human side – the TELUS team. Our unparalleled and collective commitment to being a leader in social capitalism has earned us recognition as the most philanthropic company on a global basis. It has also helped to drive world-leading engagement across our team, placing your Company within the top one per cent of employers globally, when compared against companies of similar size and composition. Putting our communities and customers first inspires team member engagement Our highly engaged, high-performing team is inspired by a sense of purpose borne from our commitment to doing good in our communities. This passion for putting our communities first motivates us to also put our customers first and earn their trust and loyalty. There is truly a synergistic relationship between what we do in business in terms of driving positive 12 • TELUS 2018 ANNUAL REPORT outcomes for our customers relative to the competition, and what we do socially to drive positive outcomes for our communities to ensure they are healthier, more sustainable and more vibrant. This, in turn, fuels heightened business performance and value for our shareholders, ultimately enabling us to reinvest in our communities. Reflecting the diversity of the communities and customers we serve Embedded within the globally admired culture we have built together is our belief that diversity creates a whole that is so much stronger than the sum of its parts. We are a team that fosters inclusion; recognizes and celebrates every team member’s unique talents, voice and abilities; and encourages our team members to always bring their whole selves to work. Our diverse and inclusive work environment facilitates a broader and more creative exchange of ideas, promotes better talent acquisition and retention, and sparks innovation. These critical attributes foster elasticity of thought, skills, knowledge and perspectives, which help us to better understand and support the needs of our diverse communities and customer base. Much of our Company’s progress with respect to diversity and inclusiveness is driven by our team members themselves. Notably, 7,100 team members volunteer in five groups that celebrate diversity and inclusiveness in Canada and in the global communities where we operate. Our groups provide support, mentorship and camaraderie for team members and their families: Abilities supports colleagues living with varied abilities; Connections links women professionals at TELUS; Eagles provides support for Aboriginal team members; Mosaic welcomes newcomers to Canada; and Spectrum connects LGBTQ team members around the globe. Our team’s commitment to inclusion extends to our TELUS Board of Directors, and by the end of 2019, we will exceed the objectives we set for ourselves regarding Board diversity, with 50 per cent of our independent directors reflecting our overall diversity objective and 42 per cent being women. The most giving company in the world Our award-winning culture of caring underpins our passion for giving. The spirited volunteerism of our 85,000 team members and retirees worldwide reinforces TELUS’ position as the most giving company in the world. Indeed, thanks to the extraordinary generosity of our TELUS family, since 2000, we have contributed $1.2 billion, through $682 million in financial support and 1.3 million days of volunteerism, to create stronger, healthier communities. Throughout 2018, the TELUS team continued to give with our hearts and our hands, including the 36,000 volunteers who participated in our hallmark TELUS Days of Giving events across the country. These dedicated members of our TELUS family supported their communities through nearly 2,000 initiatives in the year, including sorting 68,000 pounds of food at food banks, filling 13,500 backpacks with school supplies for children in need and serving 27,000 healthy meals to feed the hungry. Through our TELUS Days of Giving, we are inspiring hope and improving the circumstances of tens of thousands of our fellow citizens. Caring for our youth, today and tomorrow This passionate commitment to giving is further epitomized by our TELUS Community Boards. Our 18 Boards worldwide exemplify an innovative approach to charitable giving – one that puts decision-making in the hands of local leaders who know their communities best to ensure our resources are accessible to local grassroots organizations and yielding the desired social outcome. From the launch of our first TELUS Community Board in Edmonton in 2005, to building a much-needed school for children and their families living on the outskirts of a landfill in Guatemala City with our TELUS International team, this concept has transformed into a critical funding model focused on improving social and health outcomes for youth around the world, whether it be in education, the performing arts, science, technology, social entrepreneurship or environmental conservation. Since that first life-changing discussion in 2005, our amazing TELUS Community Boards have contributed $72 million to 7,000 grassroots programs, helping two million youth each year. Engendering social responsibility and volunteerism within our youth Building on the incredible work being done by our Community Boards, our TELUS family is also helping to enable the success of our young people in a challenging world. Through our technology innovation, we are connecting youth to the enormous educational, social and philanthropic opportunities surfaced by our digital society. Moreover, by embracing critical partnerships like those with WE Charity, we are providing our future leaders with the tools and inspiration to engage as agents of change. Indeed, as the national sponsor of WE Day since 2007, we have introduced millions of young people to the importance of volunteerism and the desire to generate lasting social change. Assuring a friendly future in perpetuity As the capstone of the good we have done in our communities over the past two decades, your Company created the TELUS Friendly Future Foundation following the sale of TELUS Garden, our corporate home in Vancouver. Enabled through an unprecedented $120 million gift from TELUS – the largest TELUS 2018 ANNUAL REPORT • 13 donation made by a publicly traded Canadian company in history and one of the largest ever in North America – the Foundation exemplifies our connection to both our communities and our customers and will build on the meaningful work being done by our TELUS Community Boards. Indeed, by reinvesting the profit from the monetization of TELUS Garden into creating a sustainable funding model to support our crucial social endeavours in perpetuity, our team is demonstrating that social capitalism is very much at the heart of our social and economic purpose. This seminal event in the history of corporate giving is a reflection of our enduring commitment to fuse technology, social innovation and human compassion to provide a friendlier future for vulnerable young Canadians. Leadership in social purpose is symbiotic with our leadership in business To us, doing well in business and doing good in our communities are mutually inclusive. Our leadership in social capitalism is reflective of our world-leading results in respect of team engagement, customer outcomes, financial results and shareholder value creation. Delivering best-in-class results Once again, in 2018, your Company achieved industry- leading customer growth, with 474,000 total net client additions across our wireless and wireline businesses, establishing a leadership margin of 111,000, or more than 30 per cent, as compared to our closest national peer. In addition, we realized industry-leading customer loyalty, inclusive of achieving the best combined retention levels on record across all of postpaid wireless, high-speed Internet and best-in-class Optik TV. Moreover, 2018 marked the fifth consecutive year in which TELUS achieved postpaid wireless churn below one per cent – a globally leading accomplishment. Indeed, our unsurpassed customer loyalty is the product of a highly engaged team, motivated by a social purpose that reflects our dual focus on putting our communities and our customers first. When customers choose to do business with TELUS, they understand it is reciprocated by the positive social outcomes we support in their communities. Your Company also delivered a strong financial performance, as reflected in our healthy revenue and EBITDA expansion. Additionally, our free cash flow grew by 24 per cent in 2018, which led the Canadian industry. Our leading wireline revenue contributed to wireline EBITDA growth that led the industry for the second consecutive year. Notably, 2018 marked our sixth year of wireline EBITDA growth, a performance unrivalled among our global incumbent peers. Delivering the best dividend growth program Thanks to our consistently strong and industry-leading operational and financial results, TELUS continues to return significant capital to our shareholders whilst maintaining a robust balance sheet and simultaneously making significant capital investments in advanced broadband technologies. In 2018, we announced two more dividend increases, in line with our current dividend growth program, which is targeting annual growth of between seven and 10 per cent through 2019. Since we established our first three-year dividend growth program in 2011, our cash dividend to shareholders has more than doubled. We have now returned $16 billion to shareholders since 2004, including $11 billion in dividends, representing over $27 per share. This is the most attractive, long-standing and consistent dividend growth program in the private sector. Delivering world-leading shareholder returns Your Company continues to be the unparalleled leader in shareholder returns over the long term. Since the beginning of 2000 through the end of 2018, your Company has generated a total shareholder return of 429 per cent, more than 250 points higher than the return for the Toronto Stock Exchange’s S&P/TSX Composite Index of 173 per cent and dramatically overshadowing the MSCI World Telecom Services Index return of negative seven per cent over the same period. During the 15 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 its incumbent peers 13 times, surpassing the second place finisher by an average of 48 percentage points over those periods. As of February 22, 2019, our total shareholder return since 2000 is 453 per cent, a substantial 111 per cent higher than our closest global peer and better than the TSX by 247 per cent. Our long-running global leadership in giving back, team member engagement, customer service excellence and total shareholder return is no coincidence, but rather, empirical proof of our social capitalism thesis and the inextricable link between the economic vibrancy of your Company and the welfare of the communities we serve. Importantly, these returns support the retirement and other savings of our more than 600,000 shareholders, as well as the millions who own TELUS shares in pension and mutual funds in Canada and around the world. Honouring our tax obligations A reflection of your Company’s enduring belief in the profound connection between the success of our business and the welfare of our communities is our commitment to tax morality. Since 2000, we have contributed $39.1 billion in total tax remittances, including payroll taxes and spectrum renewal and purchase fees, to our federal, provincial and municipal governments. Last year 14 • TELUS 2018 ANNUAL REPORT alone, we supported our communities through tax remittances totalling $2.6 billion, inclusive of remitting $586 million in payroll income taxes on behalf of our middle-class Canadian team members. By paying our taxes transparently and fairly, TELUS is supporting economic, educational, cultural, environmental and health opportunities for our fellow citizens. Building value in your Company’s brand Clearly, TELUS is establishing a leadership example in the holistic economics of what it means to conduct good business. In the same way that social capitalism is aligned with our strategy, technology investments and culture, it is also explicitly aligned with our brand and the promise it represents. Your Company remains an industry leader in brand resonance, having increased the value of the TELUS brand from a few hundred million dollars in 2000 to nearly $10 billion in 2018, as assessed by Brand Finance. Our brand value is a symbol of the trust Canadians have placed in your Company and the affinity they hold for an organization that shares their values – a company that delivers on their brand promise of a friendly future. Advancing social capitalism in 2019 and beyond Inspired by our social and business leadership over the past two decades, we are approaching 2019 with our typical sense of purpose, as reflected in the financial, community giving and social impact targets we have set for the year. This includes underlying growth in revenue of up to five per cent, EBITDA of up to six per cent and earnings per share of up to 10 per cent. In addition, our 2019 outlook for free cash flow, before income taxes, dividends and spectrum payments, is robust, at up to 29 per cent growth. Our 2019 goals for community giving and social impact include: inspiring 40,000 members of our TELUS family to volunteer for TELUS Days of Giving and contributing 1.1 million volunteer hours for the year – both increases of 10 per cent – as well as connecting a cumulative total of 60,000 vulnerable Canadians with our world-leading technology through our TELUS Internet for Good, TELUS Mobility for Good and TELUS Health for Good programs by year-end. Also, our total giving target is to contribute $50 million to charitable organizations, and to fundraise over $4 million for the TELUS Friendly Future Foundation. In addition, having surpassed our 2020 goals in energy and greenhouse gas reduction, in 2019 we will focus on making additional progress in achieving our 90 per cent waste diversion target by 2020, further reducing our environmental footprint. Our unwavering commitment to leveraging our technology to improve outcomes for our fellow citizens, combined with our track record of generating world-leading operating financial and shareholder results, defines TELUS as the leader in social capitalism – perhaps the only sustainable form of capitalism in our world today. By continuing to deliver exceptional experiences and value for our communities, customers, team members and shareholders, we will make the economic and social investments necessary to deliver on our promise of a friendly future for all. Thank you for helping advance our social purpose. Darren Entwistle Member of the TELUS team since 2000 February 22, 2019 2019 corporate priorities Our corporate priorities help guide our actions as we execute on our national growth strategy. • Honouring our customers, communities and social purpose by our team delivering on our brand promise • Leveraging our broadband networks to drive TELUS’ growth • Fuelling our future through recurring efficiency gains • Driving emerging opportunities to build scale in TELUS Health and TELUS International. TELUS 2018 ANNUAL REPORT • 15 WIRELESS OPERATIONS AT A GLANCE KEEPING OUR CUSTOMERS HAPPY Providing Canadians with world-class wireless solutions The Canadian wireless industry experienced a third consecutive Maintaining our leadership position in a growing wireless market We recorded a North American industry-leading average year of accelerating postpaid subscriber growth in 2018 with monthly postpaid churn rate of 0.89 per cent and robust postpaid more than 1.6 million net additions. Demand was stimulated subscriber growth, despite continued competitive dynamics, by the ongoing adoption of more capable smartphones and demonstrating the effectiveness of our sustained focus on putting tablets, as well as data rate plan and handset promotions customers first. We were also recognized for our significant throughout the year by the numerous wireless brands available network investments in 4G LTE and LTE advanced technologies, in each market. Carriers continued making significant capital including the integration of small-cell technology, as we earned investments to enhance their 4G LTE networks, deploying the top spot in all four major third-party network awards in 2018. new spectrum to boost data speeds and building new cell Our persistent focus on delivering an exceptional customer sites to accommodate the rapid growth in data usage. experience helped us generate industry-leading average Customer acquisition and retention costs remained elevated lifetime revenue per customer of $6,200. Our external wireless due to an ongoing market shift toward more expensive revenue grew 6.0 per cent and Adjusted EBITDA increased smartphones. 5.3 per cent in 2018, reflecting 356,000 high-value postpaid net additions, modest growth in average monthly billing per subscriber unit and our ongoing initiatives focused on efficiency. Visit telus.com/learn and find out how to get the most from your device 16 • TELUS 2018 ANNUAL REPORT +17% +$200 Wireless subscriber net additions 2018: 347,000 2017: 296,000 Lifetime revenue per customer 2018: $6,200 2017: $6,000 0.01% improvement Postpaid churn rate 2018: 0.89% 2017: 0.90% +3.6% Total wireless subscribers 2018: 9.235 million 2017: 8.911 million In 2018, we created positive outcomes by: • Enhancing the customer experience by introducing innovative and flexible options, such as Platinum plans and the Bring-It- BackTM program, which enable customers to pay less upfront We offer for the latest device • Leading 4G LTE network covering • Expanding and enhancing our 4G LTE coverage to additional 99 per cent of Canadians markets to now cover approximately 36.9 million Canadians, offering even faster data speeds • Achieving speeds up to 27 times faster than today’s LTE advanced standard in our 5G Living Lab in Vancouver, supporting a future of driverless cars and smart homes, businesses and cities, as well as healthcare applications, devices and services • Making it easier for customers to interact with TELUS by empowering them to manage their services on the My TELUS app, which saw a 24 per cent increase in active users in 2018. We also expanded our online support – including TELUS Virtual Assistant and Koodo Assist – and engaged in more than two million active conversations with customers. In 2019, we are connecting people to what matters most by: • Elevating our customers’ experience, as measured by their likelihood to recommend our products and services • Enhancing our network with the continued build-out of LTE advanced technology, deploying additional spectrum and integrating small-cell technology to improve coverage and capacity and prepare for our evolution to 5G • Growing our postpaid subscriber base and driving profitable growth in smartphone and data services, while refreshing our prepaid offerings to target new segments • Strengthening our market share in the national business sector by leveraging our integrated service offerings • Evolving our Internet of Things (IoT) solutions to help consumers simplify their daily lives and to help businesses incorporate connected devices into their operations to enhance efficiency, productivity and profitability. • The latest smartphones, tablets, mobile Internet devices, and smart home 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 destinations 2018 results – wireless +6.0% Revenue (external) 2018: $8.14 billion 2017: $7.67 billion +5.3% Adjusted EBITDA 2018: $3.46 billion 2017: $3.29 billion TELUS 2018 ANNUAL REPORT • 17 WIRELINE OPERATIONS AT A GLANCE BUILDING NEW CONNECTIONS Leading in a dynamic environment The wireline communications market is in a period of rapid Investing for growth TELUS remains one of the few established telecoms in change as a result of technological evolution, changing the world generating consistent growth in wireline revenue, customer habits and intense competition. In 2018, the industry EBITDA and customer connections. The ongoing expansion showed modest revenue growth in enhanced Internet and of our TELUS PureFibre network has put us at the forefront cloud services, which was tempered by heightened competition of delivering customers a superior Internet experience. and moderate business spending, as well as the continuing In 2018, we enhanced our Future Friendly® Home service decline in higher-margin legacy voice services. Telecom bundle with the addition of TELUS Home Security solutions, companies made significant investments in fibre-optic network which further differentiates us in the market. We continue to expansions to support their growing Internet, TV and business target high-value business segments across the country with service offerings. Carriers continued to invest in their video our comprehensive integrated wireless and wireline solutions, delivery platforms to keep pace with the changing environment, which can help our customers maximize their IT investments and TV entertainment remained a key area of growth for and achieve greater business agility. TELUS International added telecom companies. Canadian regulators continued to new customers and capabilities, in part through acquisitions, encourage facilities-based competition, which balances while TELUS Health continued to expand its reach to even more continued investment with rigorous competition in primary care providers. Our focus on these growing markets, telecom services. as well as on efficiency and effectiveness, helped TELUS generate leading wireline customer and financial results. Visit telus.com/smarthome and learn how to get connected 18 • TELUS 2018 ANNUAL REPORT +13% Data revenue 2018: $4.59 billion 2017: $4.08 billion +42% Internet subscriber net additions 2018: 115,000 2017: 81,000 +80% TV subscriber net additions 2018: 63,000 2017: 35,000 +60,000 Wireline customer connections 2018: 4.20 million 2017: 4.14 million In 2018, we created positive outcomes by: • Expanding and enhancing our gigabit-enabled fibre-optic network, TELUS PureFibre, which now reaches 1.89 million premises in B.C., Alberta and Eastern Quebec, or 61 per cent We offer of our current broadband footprint • Comprehensive high-speed Internet access • Introducing our fastest-ever Internet service options boasting download speeds of 1 Gbps and 750 Mbps, respectively • Launching Boost Wi-Fi, extending the reach of strong and reliable in-home Wi-Fi signals for our customers • Enhancing our TV offerings with 4K HDR content on Optik TV and new online and mobile app versions of Pik TV ® • Introducing TELUS Secure Business, a suite of integrated with a growing fibre-optic network • Differentiated TELUS Optik TV 4K and Pik TV service • Reliable home phone service • Home automation and security • Leading IP networks and applications smart automation, intrusion monitoring and video surveillance for businesses solutions to help small businesses run safely and smoothly • Hosting, managed IT, security and • Evolving TELUS International operations and IT consulting strategy with the acquisition of Xavient Information Systems • Growing TELUS Health’s workplace wellness services with the acquisition of a leading provider of preventative healthcare services for employers across Canada. In 2019, we are connecting people to what matters most by: • Continuing to elevate the customer experience by putting our customers first, simplifying products and delivering exceptional service, while also enhancing operational efficiency • Expanding the footprint, capabilities, speed and reliability of our TELUS PureFibre network • Growing our TV and Internet subscriber bases and promoting additional innovative services, including home security and enhanced TV functionality • Driving sales and efficiency for business customers through enhanced connectivity, tailored solutions, Internet of Things offerings and high-quality customer service • Integrating recent TELUS International acquisitions and attracting new business with our exceptional customer experience solutions and our advanced IT consulting and delivery capabilities • Increasing the reach and adoption of our innovative healthcare technology solutions to support greater collaboration and drive better patient outcomes. cloud-based services • Innovative healthcare technology solutions • Business process solutions 2018 results – wireline +8.6% Revenue (external) 2018: $6.23 billion 2017: $5.74 billion +4.1% Adjusted EBITDA 2018: $1.79 billion 2017: $1.72 billion TELUS 2018 ANNUAL REPORT • 19 OUR SOCIAL PURPOSE CREATING POSITIVE OUTCOMES We are committed to leveraging our world-leading technology to help those who need our support the most and to enable remarkable human outcomes in our all-connected world. Giving back to our communities The TELUS team is passionate about giving back and providing The Foundation represents the next evolution of our philosophy to give where we live. It provides financial grants support in the communities where we live and work. Guided by to small, grassroots charities across Canada that need help our philosophy – we give where we live® – we are committed in directly supporting youth in our communities. It builds on to driving positive social outcomes and helping to build stronger the achievements of our 13 TELUS Community Boards across and healthier communities. In 2018, TELUS, our team members Canada and ensures TELUS’ commitment to giving will be and retirees contributed $150 million to charitable and community sustained for decades. organizations and volunteered one million hours. Advancing our legacy of giving In 2018, we launched the TELUS Friendly Future Foundation, Bringing healthcare to vulnerable citizens We expanded our Health for Good program in 2018 to Vancouver, Victoria and Calgary to help reconnect marginalized citizens to an independent charitable organization founded to address the our healthcare system by deploying specially equipped mobile social and economic challenges facing Canada’s disadvantaged health clinics in communities where front-line care is urgently youth. Made possible with an unprecedented $120 million needed. These clinics on wheels – equipped with TELUS Health endowment from TELUS, the Foundation is helping vulnerable electronic medical records technology and TELUS LTE Wi-Fi youth thrive in our digital society through better access to service – bring necessary medical care to homeless citizens health and educational opportunities, enabled by technology. and underserved communities. 20 • TELUS 2018 ANNUAL REPORT 52,000 1 million $150 million 30,000 citizens reached through TELUS Wise workshops hours spent giving back contributed to charitable and community organizations Canadians supported through our Connecting for Good programs Since inception in Montreal in 2014, the program has training and tools for 50,000 low-income families in B.C., Alberta supported approximately 11,500 patient interventions, with and Quebec. Approximately 16,500 citizens are currently ongoing efforts being made to integrate these patients into the participating in this program with TELUS. broader healthcare and social support systems. In September, we announced a $5 million commitment to expand our mobile clinics in additional communities across Canada in 2019. Helping at-risk youth stay connected After launching our Mobility for Good program in B.C. in 2017, Keeping Canadians safe online As part of our long-term commitment to help youth realize their potential, we continue to invest in educational initiatives to promote friendly and responsible online behaviour. An important component of this is the work we do in support of our commitment to help we expanded the program in 2018 into Ontario and Alberta, #EndBullying and our TELUS Wise program. and launched a pilot program in Quebec, in partnership with the TELUS Wise, now in its sixth year and endorsed by the Children’s Aid Foundation of Canada and the Fondation du Canadian Association of Chiefs of Police, is a free digital literacy Centre jeunesse. Mobility for Good provides youth transitioning educational program that provides workshops and materials out of foster care with fully subsidized smartphones and data related to digital safety and cyberbullying. Through this program, plans, enabling them to stay connected to their support we are empowering youth and adults alike with tools and networks, social services, and educational and employment knowledge that can help them stay safe online and rise above opportunities. cyberbullying. In 2018 alone, we reached more than 52,000 With the recent expansion, Mobility for Good can assist participants through our TELUS Wise workshops. more than 10,000 youth who qualify for the program. Currently, Building on our goal to make the digital world a safe space, about 1,200 youth participate in Mobility for Good, a number in 2018, we asked Canadians to commit to being kind online that is expected to grow in 2019 as we continue to expand the by taking the TELUS Wise Digital Pledge. We were also able program into Manitoba and New Brunswick. to share the call to #EndBullying through other opportunities, Supporting low-income families We extended the reach of our Internet for GoodTM program to more including our 11-year partnership with WE, an international charity and educational partner. For example, as the national co-title sponsor of WE Day events, we help inspire young low-income families in November by participating in the federal leaders to drive social change and rise above to #EndBullying. government’s national Connecting Families initiative. With the Last year, 123,000 youth attended nine WE Day events expansion, we now offer access to low-cost high-speed Internet, across Canada. Enabling better outcomes for underserved citizens Through our Connecting for GoodTM programs – including Health for Good, Mobility for Good and Internet for Good – we are leveraging our technology to ensure disadvantaged citizens are connected to the people, information and opportunities that matter most to them in our all-connected world. For more information, visit telus.com/futurefriendly. TELUS 2018 ANNUAL REPORT • 21 EXECUTIVE LEADERSHIP TEAM LEADING THE WAY AND LENDING A HAND Throughout the year, we look for opportunities to make a positive impact and help build strong, healthy and sustainable communities. Here are some of the ways members of our Executive Leadership Team give back. Josh Blair volunteering at the Pacific Assistance Dogs Society (PADS) in Burnaby, B.C. Josh Blair Group President and Chief Corporate Officer, TELUS Location: Vancouver, British Columbia Joined TELUS: 1995 Executive: 2007 TELUS shareholdings: 329,487 Doug French helping with yard improvement alongside his daughter, Samantha, at PADS in Burnaby, B.C. Doug French Executive Vice-President (EVP) and Chief Financial Officer Location: Vancouver, British Columbia Joined TELUS: 2000 (Clearnet: 1996) Executive: 2016 TELUS shareholdings: 111,470 22 • TELUS 2018 ANNUAL REPORT Tony Geheran serving meals at the 2018 TELUS Retiree Holiday Dinner in Burnaby, B.C. Tony Geheran EVP and Chief Customer Officer Location: Vancouver, British Columbia Joined TELUS: 2001 Executive: 2015 TELUS shareholdings: 131,741 François Gratton sorting food at the Moisson Montréal Food Bank with his daughter, Stéphanie, and son, Alexandre, in Montreal, Quebec. François Gratton Group President, TELUS and Chair, TELUS Québec Location: Montreal, Quebec Joined TELUS: 2008 (Emergis: 2002) Executive: 2015 TELUS shareholdings: 123,652 Sandy McIntosh EVP, People and Culture, and Chief Human Resources Officer Location: Toronto, Ontario Joined TELUS: 2007 Executive: 2015 TELUS shareholdings: 128,329 Sandy McIntosh having her face painted in preparation to #ShareLove and march in the rain during the Toronto Pride Parade. Eros Spadotto EVP, Technology Strategy and Business Transformation Location: Toronto, Ontario Joined TELUS: 2000 (Clearnet: 1995) Executive: 2005 TELUS shareholdings: 176,306 Eros Spadotto planting trees with the Toronto and Region Conservation Authority. Darren Entwistle President and Chief Executive Officer More information can be found on page 27 For further information, visitit telus.com/executive TELUS shareholdings represent the total common shares and restricted stock units held as at December 31, 2018. TELUS 2018 ANNUAL REPORT • 23 QUESTIONS AND ANSWERS COMMUNICATING WITH TRANSPARENCY AND CLARITY Recently, we asked some of our senior leaders for their thoughts on questions that are top of mind for investors, such as how our investments in broadband benefit Canadians, what drives our strong wireless results, how we help businesses and why our unique culture gives us a competitive advantage. 24 • TELUS 2018 ANNUAL REPORT “We are future-proofing Canadian communities and empowering citizens in their digital life, as the Internet of Things and smart city strategies soon come to the forefront.” “Our multi-brand strategy – including TELUS, Koodo and Public Mobile offerings – enables us to provide choice and flexibility to a diverse customer base.” Zainul Mawji Jim Senko How do Canadians benefit from TELUS’ network investments? What is driving TELUS’ consistently strong wireless results? Zainul Mawji President, Home and Small Business Solutions Through our investments in our leading TELUS PureFibre network, we are addressing Canadians’ demands for improved reliability, Jim Senko President, Mobility Solutions First, we put our customers at the heart of everything we do. This focus on service excellence, transparency and proactively removing pain points for our customers has earned us faster Internet speeds and greater capacity. We are future- industry-leading mobility customer loyalty, including a postpaid proofing Canadian communities and empowering citizens in wireless churn rate below one per cent for five straight years. their digital life, as the Internet of Things (IoT) and smart city It is also reflected in the results from the annual Commission for strategies soon come to the forefront. Complaints for Telecom-television Services report, where we Our investments are also supporting Canada’s digital have consistently received the fewest complaints among our economy for small businesses, giving them the speed they need national competitors. Next, we provide our customers with the to operate locally and compete globally. Furthermore, we are speed and reliability they demand by delivering the fastest and enabling local healthcare providers, educators and businesses most reliable network in the country, as demonstrated once to draw upon the technology needed to evolve how they again by TELUS earning the top spot in all four major network deliver services. We are utilizing the power of our network to awards, including OpenSignal, J.D. Power, Ookla and PCMag. launch new capabilities, such as security and consumer health, Additionally, our multi-brand strategy – including TELUS, which increase customer value and convenience. In addition, Koodo and Public Mobile offerings – enables us to provide we are leveraging our technology to deliver social programs choice and flexibility to a diverse customer base. Furthermore, that help vulnerable citizens gain access to technology, health we are proactive in driving growth in markets where we have and educational opportunities to help them succeed in our opportunity by increasing traffic and conversion in channels, digital society. promoting self-serve options and supporting customer segments Relative to traditional technology, our investments in fibre like new Canadians and new businesses. Our cross-product also generate significant benefits for our organization, including bundling options also help generate strong results across increased customer growth and satisfaction, decreased repair consumer and small business mobility markets, as we are able rates, greater product penetration and higher lifetime revenue to achieve greater customer loyalty when our customers bundle per client, all of which contribute to increased wireline profitability. their mobility services with TV, Internet, voice, home automation Lastly, these are TELUS-funded investments, with little to no and security services. cost to municipalities or taxpayers, which is a significant benefit Beyond the consumer market, we are focused on maintaining for Canadians. strong growth in the small business mobility market, which continues to drive significant gains for our organization. TELUS 2018 ANNUAL REPORT • 25 “TELUS Business Solutions enables our customers to improve efficiency and productivity, speed up time to market, deliver a seamless customer experience, and adapt and scale as they grow.” Navin Arora “While others can imitate our products and services, our powerful culture is nearly impossible to replicate. Highly engaged team members are our greatest asset.” Andrea Wood How is TELUS helping businesses succeed? How is TELUS’ corporate culture a key differentiator? Navin Arora Andrea Wood President, TELUS Business Solutions Chief Legal and Governance Officer We are powering the digital workplace of the future. We provide businesses of all sizes – from our smallest customers to our largest enterprise organizations – with the We believe that our strong corporate culture enables us to attract, engage and retain quality team members. While others can imitate our products and services, our powerful culture is right technology and solutions that set them up to compete nearly impossible to replicate. Highly engaged team members are aggressively and accelerate their growth and success in a digital our greatest asset, as they truly differentiate us from our peers. economy. TELUS Business Solutions enables our customers One important aspect that drives team member engagement to improve efficiency and productivity, speed up time to market, is giving back. We recognize that the good we are doing in our deliver a seamless customer experience, and adapt and scale communities has a direct impact on the success of our Company, as they grow. as customers and team members choose to align themselves TELUS proudly has the fastest wireless network in Canada. with organizations that share their values. A second pillar of our Coupled with our fully integrated and extremely reliable suite culture is our priority to put our customers first, and this includes of business solutions – including collaboration tools such as something near and dear to my heart – maintaining the highest TELUS Business Connect ® , Workplace as a Service, and our standards in protecting our customers’ trust and the privacy customizable cloud communications platform; data networks and security of their data. Additionally, we monitor our team such as Network as a Service; and more advanced solutions member engagement by harvesting the insights from an annual like IoT, cybersecurity, and cloud and managed IT services – survey whereby team members offer candid feedback about we are creating meaningful value for our customers. the processes and policies that shape our Company. With a focus on efficiency, TELUS is able to compete and Finally, we build a strong culture by being champions of drive profitable growth across all business segments and one another, as illustrated by our resource groups dedicated to key industries. advancing our diverse and inclusive culture. For example, I am proud to serve as the global executive sponsor of Connections – the TELUS Women’s Network. Our diverse team enables us to better understand and reflect the complexion of all our customers. We see our strong corporate culture as a key competitive differentiator and we work hard to maintain that culture. 26 • TELUS 2018 ANNUAL REPORT Board of Directors 1 6 2 7 3 8 4 9 5 10 11 12 13 14 15 1 R.H. (Dick) Auchinleck, TELUS Chair Residence: Victoria, British Columbia Director since: 2003 TELUS shareholdings: 210,780 2 Raymond T. Chan Residence: Calgary, Alberta Director since: 2013 TELUS Committees: Pension, and Human Resources and Compensation TELUS shareholdings: 40,701 3 Stockwell Day Residence: Vancouver, British Columbia Director since: 2011 TELUS Committees: Human Resources and Compensation; and Chair, Pension TELUS shareholdings: 40,425 4 Lisa de Wilde Residence: Toronto, Ontario Director since: 2015 TELUS Committees: Corporate Governance and Pension TELUS shareholdings: 18,095 5 Darren Entwistle Residence: Vancouver, British Columbia Director since: 2000 TELUS shareholdings: 615,771 F or further information, visit telus.com/board 6 Mary Jo Haddad Residence: Oakville, Ontario Director since: 2014 TELUS Committee: Chair, Human Resources and Compensation TELUS shareholdings: 27,441 11 Sarabjit (Sabi) S. Marwah Residence: Toronto, Ontario Director since: 2015 TELUS Committees: Audit and Corporate Governance TELUS shareholdings: 25,977 7 Kathy Kinloch 12 Claude Mongeau Residence: Vancouver, British Columbia Director since: 2017 TELUS Committees: Corporate Governance, and Human Resources and Compensation TELUS shareholdings: 9,635 Residence: Montreal, Quebec Director since: 2017 TELUS Committees: Audit and Corporate Governance TELUS shareholdings: 77,107 8 William (Bill) A. MacKinnon Residence: Toronto, Ontario Director since: 2009 TELUS Committee: Audit TELUS shareholdings: 81,703 9 Christine Magee Residence: Toronto, Ontario Director since: 2018 TELUS Committee: Audit TELUS shareholdings: 3,162 13 David Mowat Residence: Edmonton, Alberta Director since: 2016 TELUS Committee: Chair, Audit TELUS shareholdings: 19,876 14 Marc Parent Residence: Montreal, Quebec Director since: 2017 TELUS Committees: Pension, and Human Resources and Compensation TELUS shareholdings: 6,830 10 John Manley 15 Denise Pickett Residence: Ottawa, Ontario Director since: 2012 TELUS Committees: Pension; and Chair, Corporate Governance TELUS shareholdings: 43,306 Residence: Toronto, Ontario Director since: 2018 TELUS Committee: Audit TELUS shareholdings: 1,930 TELUS shareholdings represent the total common shares and deferred stock units (restricted stock units for Darren Entwistle) held as at December 31, 2018. TELUS 2018 ANNUAL REPORT • 27 CORPORATE GOVERNANCE 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 to continually pursue greater transparency and ensure integrity in our actions. Evolving our Board In 2018, we announced the appointment of two new directors. directors representing diversity and 36 per cent (five members) being women. Christine Magee joined our Board in August and Denise Pickett We also signed the Catalyst Accord 2022, which calls joined in November. Together, they bring a wealth of operational on Canadian boards and CEOs to pledge to accelerate the expertise, particularly in relation to retail and customer experience. advancement of women in business by increasing the average Our committee chair succession process saw David Mowat percentage of women on boards and in executive positions replace Bill MacKinnon as Chair of the Audit Committee, with Bill in corporate Canada to 30 per cent or greater by 2022 and to remaining a member of the committee to facilitate the transition. share key metrics with Catalyst for annual benchmarking of our collective progress. Encouraging Board diversity We believe that fostering diversity provides a major competitive advantage and enables our Board to benefit from a broader range of perspectives and relevant experience that better reflects Maintaining a culture of trust and integrity Creating and sustaining a strong ethical culture is the shared our customers and the communities we serve. responsibility and commitment of all team members and essential In support of our Board diversity policy, we set objectives to to everything we do at TELUS. Our culture underpins our values have diversity represented by not less than 30 per cent of our and ensures decisions are made with the highest level of integrity Board’s independent members, and a minimum representation and respect for each other, our customers and our business. of 30 per cent of each gender. In 2018, we exceeded these Increasingly, team members are seeking advice and wanting objectives with 50 per cent (seven members) of our independent clarification on potential ethical situations, demonstrating the 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 2019 information circular or visit telus.com/governance importance our team places on adhering to high ethical standards. We review our code of ethics and conduct annually to ensure it remains relevant. In 2018, the code was enhanced with respect to expectations regarding ethical sales practices, diversity and inclusion and stronger language on sexual harassment. Each year, we also update our learning course, called Integrity, which brings to life the policies and guidelines that inform the way we work and interact with each other, and with our customers, investors, suppliers and communities. The course focuses on ethics, privacy, security and respect, and is mandatory for all team members and the majority of our contractors. 28 • TELUS 2018 ANNUAL REPORT DEDICATED TO GOOD GOVERNANCE AND INTEGRITY Late in the year, we also updated our anti-bribery and corruption policy to reflect recent industry developments and best practices and to increase understanding for team members. We are committed to earning and maintaining stakeholder trust in our privacy practices by protecting personal information and being transparent about how we collect, use and secure information. Taking a proactive approach, our dedicated Data & Trust Office regularly reviews our privacy program to ensure our commitments are consistent with changing technologies and laws and to help customers increase their understanding of our privacy practices. This includes updating our online privacy 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 training, which is mandatory for all team members and the majority • Privacy management program framework of our contractors, to ensure it remains up to date and relevant. • Enterprise risk governance and oversight For more information on privacy, visit telus.com/privacy. 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 16th consecutive year, none of • Board recruitment process and orientation programs • Mandatory continuing education sessions for the Board • Board and committee succession planning the calls that were reported to the Ethics Office in 2018 involved • CEO succession planning team members with a significant role in internal controls over • Board, committee and director evaluations • Director term limits • Share ownership guidelines for directors and executives financial reporting. Communicating with stakeholders We continue to provide timely and ongoing communication with investors to help them make sound, informed investment decisions. In 2018, we hosted four conference calls with simultaneous webcasts to all investors to discuss our quarterly results and outlook. We also participated in a number of industry-specific investor conferences and met with many institutional investors in Canada, the United States and Europe. As well, our TELUS Chair, Corporate Governance Committee Chair, and members of senior management met with the Canadian Coalition for Good Governance to discuss our governance practices. To view past and upcoming events, visit telus.com/investors. To provide shareholder feedback or comments to our Board, email board@telus.com TELUS 2018 ANNUAL REPORT • 29 CFO LETTER TO INVESTORS DELIVERING SUSTAINABLE VALUE Working collaboratively, the TELUS team delivered strong results in 2018, highlighted by our focus on creating positive outcomes for our stakeholders, delivering consistent financial performance, and putting our customers and our communities first. Elevating our leadership At TELUS, sustainability is deeply embedded in our culture and sale of TELUS Garden, our corporate headquarters in Vancouver, to establish the TELUS Friendly Future Foundation. With our we are proud of the important role our financial operations play in unprecedented $120 million endowment donation, the Foundation creating a healthier future. We believe we have a responsibility as will work to help vulnerable youth thrive in our digital society, a leading corporate citizen to create a better world for generations helping to create the friendly future our brand promise inspires. to come – it is not only the right thing to do, it is also a catalyst for strong financial performance. Our successes are based on our integrated approach to operations, finance and sustainability, Investing in our future We continued our strategic investments, driving the expansion and supported by a resilient business model reflecting the of our TELUS PureFibre technology to an additional 450,000 opportunities posed by social and environmental issues. homes and businesses in 2018. TELUS’ broadband investments Our commitment to putting our stakeholders first, which are reinforcing the backbone of our 5G network and will be supports our financial and operational success, drives us to foundational to our ability to deliver the advanced broadband lead positive change across the communities where we live, solutions that will fuel economic growth and innovation, as well as work and serve. In 2018, we elevated our leadership by providing positive social, educational and health outcomes, across Canada. continuous funding of our social purpose initiatives for the years We added 534,000 new wireless postpaid, high-speed and decades to come, directing the economic gain from the Internet and TV customers in 2018, ending the year with 30 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        “Our  commitment  to  putting  our   stakeholders  first,  which  supports  our   financial  and  operational  success,   drives  us  to  lead  positive  change   across  the  communities  where    we  live,  work  and  serve.” we  achieved  significant  growth  in  free  cash  flow  in  2018,   bolstered  by  operational  effectiveness  initiatives  to  optimize  our   cost  structure.  As  planned,  we  increased  our  dividend  twice  –    our  15th  and  16th  dividend  increases  since  2011  –  and  returned   $1.2  billion  to  shareholders  through  our  dividend  growth  program. Creating positive outcomes Looking forward, the continued execution of our proven strategy supports profitable customer growth while simultaneously delivering on our industry-leading multi-year dividend growth 13.4 million customer connections. Our customer loyalty program. This strategy, along with the unwavering efforts of continues to lead the industry, despite a heightened level of the TELUS team, has enabled us to set ambitious growth targets competitive intensity throughout the year. We earn this loyalty for 2019. I am confident that with the continued commitment through the dedicated and successful efforts of our team of our team to drive exceptional customer experiences, and members to deliver exceptional experiences on our award- our ongoing focus on cost efficiency, margin accretive customer winning network. Delivering value for shareholders In 2018, revenue grew by 7.2 per cent to $14.4 billion and growth, broadband investments and sustainable business practices, 2019 should prove to be an equally successful year for our customers, investors and communities. Adjusted EBITDA increased by 4.9 per cent to $5.25 billion. Best regards, We achieved profitable growth across both our wireline and wireless businesses, reinforcing the financial strength of our organization. These achievements reflect our team’s ongoing dedication to advancing our strategy and delivering on our number one priority of putting our customers first. Doug French In the spirit of maintaining a strong balance sheet and Executive Vice-President and Chief Financial Officer responsible stewardship of capital over the long term, February 22, 2019 Financial review 32–37 Financial and operating statistics 118 –186 Consolidated financial statements Annual  and  quarterly  financial  and  operating   information 2018  consolidated  financial  statements  and   accompanying  notes 38 –117 Management’s discussion and analysis 187–Back  cover Additional investor resources A  discussion  of  our  financial  position  and    performance   Glossary,  investor  information  and  reasons    to  invest  in  TELUS TELUS 2018 ANNUAL REPORT • 31                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Annual consolidated financial information Consolidated Statement of income (millions) Operating revenues1 Applying IFRS 9 and IFRS 15 Excluding IFRS 9 and IFRS 15 2018 2017 2016 2015 2014 2013 2012 $ 14,368 $ 13,408 $ 12,799 $ 12,502 $ 12,002 $ 11,404 $ 10,921 Operating expenses before restructuring and other costs, depreciation and amortization2 EBITDA – excluding restructuring and other costs2 Restructuring and other costs3 EBITDA2 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 8,947 5,421 317 5,104 2,267 2,837 627 34 2,176 552 8,381 5,027 117 4,910 2,169 2,741 573 – 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 – 2,168 1,662 1,906 1,926 1,768 1,620 590 426 524 501 474 416 $ 1,624 $ 1,578 $ 1,236 $ 1,382 $ 1,425 $ 1,294 $ 1,204 Net income attributable to common shares4 $ 1,600 $ 1,559 $ 1,223 $ 1,382 $ 1,425 $ 1,294 $ 1,204 Share information4 Basic total weighted average shares outstanding (millions) Year-end shares outstanding (millions) 2018 2017 2016 2015 2014 2013 2012 597 599 593 595 592 590 603 594 616 609 640 623 651 652 Basic earnings per share (EPS) $ 2.68 $ 2.63 $ 2.06 $ 2.29 $ 2.31 $ 2.02 $ 1.85 Dividends declared per common share 2.10 1.97 1.84 1.68 1.52 1.36 1.22 Financial position (millions) 2018 2017 2016 2015 2014 2013 2012 Total assets Net debt 5 Total capitalization6 Long-term debt Owners’ equity $ 33,065 $ 31,053 $ 27,729 $ 26,406 $ 23,217 $ 21,566 $ 20,445 13,770 24,099 13,265 10,341 13,422 12,652 11,953 9,393 7,592 6,577 22,833 20,546 19,566 16,809 15,576 14,223 12,256 11,604 11,182 9,458 7,936 7,672 9,055 7,454 7,493 8,015 5,711 7,686 EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS2 AND OPERATING REVENUES1 ($ billions) DIVIDENDS DECLARED PER SHARE4 AND BASIC EPS4 ($) 2018 2017 2016 2015 2014 2013 2012 5.4 5.0 4.7 4.5 4.3 4.1 3.9 14.4 2018 13.4 12.8 12.5 12.0 11.4 10.9 2017 2016 2015 2014 2013 2012 2.10 1.97 1.84 2.06 2.68 2.63 1.68 1.52 2.29 2.31 1.36 1.22 2.02 1.85 EBITDA – excluding restructuring and other costs Operating revenues Dividends declared per share Basic EPS 32 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                          Quarterly consolidated financial information Consolidated Statement of income (millions) Operating revenues1  Operating expenses before restructuring and Applying IFRS 9 and IFRS 15 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 $ 3,764 $ 3,774 $ 3,453 $ 3,377 $ 3,541 $ 3,404 $ 3,280 $ 3,183 other costs, depreciation and amortization2  2,454 2,252 2,167 2,074 2,264 2,137 2,036 1,944 EBITDA – excluding restructuring and other costs2  1,310 1,522 1,286 1,303 1,277 1,267 1,244 1,239 Restructuring and other costs3  75 173 35 34 54 23 36 4 EBITDA2  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 1,235 1,349 1,251 1,269 1,223 1,244 1,208 1,235 586 649 159 – 490 122 572 777 162 34 581 134 559 692 550 719 564 659 547 697 526 682 532 703 150 156 144 149 142 138 – 542 145 – 563 151 – 515 161 – 548 142 – 540 144 – 565 143 $ 368 $ 447 $ 397 $ 412 $ 354 $ 406 $ 396 $ 422 Net income attributable to common shares $ 357 $ 443 $ 390 $ 410 $ 353 $ 403 $ 389 $ 414 Share information Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Basic total weighted average shares outstanding (millions) Period-end shares outstanding (millions) 599 599 597 598 596 596 595 595 595 595 594 594 592 593 591 591 Basic EPS $ 0.60 $ 0.74 $ 0.66 $ 0.69 $ 0.59 $ 0.68 $ 0.66 $ 0.70 Dividends declared per common share 0.5450 0.5250 0.5250 0.5050 0.5050 0.4925 0.4925 0.4800 1 2 3 4 5 6 In the third quarter of 2018, as part of Operating revenues, we recorded equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden. 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. In the third quarter of 2018, we recorded a donation to the TELUS Friendly Future Foundation of $118 million as part of other costs. In 2016, we recorded a $305 million immediately vesting transformative compensation expense as part of other costs. Common shares and non-voting shares prior to February 4, 2013. For a definition of Net debt, see Section 11 of the MD&A in this report. Net debt plus Owners’ equity excluding Accumulated other comprehensive income (loss). Note: Certain comparative information has been restated to conform with the 2018 presentation. OPERATING REVENUES1 ($ millions) EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS2 ($ millions) Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 3,764 3,774 3,453 3,377 3,541 3,404 3,280 3,183 Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 TELUS 2018 ANNUAL REPORT • 33 1,522 1,310 1,286 1,303 1,277 1,267 1,244 1,239             Annual operating statistics Consolidated Cash flow statement information Applying IFRS 9 and IFRS 15 Excluding IFRS 9 and IFRS 15 2018 2017 2016 2015 2014 2013 2012 Cash provided by operating activities (millions) $ 4,058 $ 3,947 $ 3,219 $ 3,556 $ 3,407 $ 3,246 $ 3,219 Cash used by investing activities (millions) (2,977) (3,643) (2,923) Cash provided (used) by financing activities (millions) (1,176) (227) (87) (4,477) 1,084 (3,668) (2,389) (15) (628) (2,058) (1,100) Profitability ratios Dividend payout 1 Return on common equity 2 Debt and coverage ratios EBITDA interest coverage ratio3 Net debt to EBITDA ratio4,5 Other metrics 78% 16.4% 8.4 2.54 80% 89% 73% 66% 67% 66% 17.1% 15.4% 18.3% 17.8% 16.8% 15.6% 8.9 2.67 8.3 2.69 9.7 2.66 9.5 2.19 10.5 1.84 11.8 1.68 EBITDA5 less capital expenditures (millions) $ 2,507 $ 1,933 $ 1,740 $ 1,911 $ 1,932 $ 2,006 $ 1,926 Free cash flow (millions)6 $ 1,197 $ 966 $ 141 $ 1,078 $ 1,057 $ 1,051 $ 1,331 Capital expenditures (excluding spectrum licences) (millions) $ 2,914 $ 3,094 $ 2,968 $ 2,577 $ 2,359 $ 2,110 $ 1,981 Cash payments for spectrum licences (millions) $ 1 – $ 145 $ 2,048 $ 1,171 $ 67 Capex intensity7 20% 23% 23% 21% 20% 19% – 18% Total customer connections (000s)8 13,434 13,050 12,673 12,495 12,228 11,685 11,474 Employee-related information Total salaries and benefits (millions)5 $ 3,254 $ 3,036 $ 2,985 $ 3,007 $ 2,851 $ 2,743 $ 2,474 Total active employees9 Full-time equivalent (FTE) employees 58,000 56,900 53,600 52,900 51,300 50,500 47,700 46,600 43,700 42,700 43,400 42,300 42,400 41,400 CASH PROVIDED BY OPERATING ACTIVITIES ($ millions) CAPITAL EXPENDITURES (EXCLUDING SPECTRUM LICENCES) ($ millions) 2018 2017 2016 2015 2014 2013 2012 4,058 2018 3,947 3,219 3,556 3,407 3,246 3,219 2017 2016 2015 2014 2013 2012 34 • TELUS 2018 ANNUAL REPORT 2,914 3,094 2,968 2,577 2,359 2,110 1,981 Quarterly operating statistics Consolidated Cash flow statement information Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Applying IFRS 9 and IFRS 15 Cash provided by operating activities (millions) $ 948 $ 1,066 $ 1,206 $ 838 $ 979 $ 1,133 $ 1,126 $ 709 Cash used by investing activities (millions) Cash provided (used) by financing activities (millions) (629) (338) (621) (695) (795) (143) (932) – (734) (224) (866) (150) (1,221) (822) (328) 475 Profitability ratios Dividend payout1  Return on common equity 2 Debt and coverage ratios EBITDA interest coverage ratio3  Net debt to EBITDA ratio ,5 4 Other metrics 78% 77% 77% 76% 80% 16.4% 16.6% 16.3% 16.5% 17.1% 8.4 2.54 8.5 2.54 8.8 2.66 8.8 2.71 8.9 2.67 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a EBITDA5 less capital expenditures (millions) Free cash flow (millions)6 Capital expenditures (excluding spectrum $ $ 599 $ 760 $ 495 $ 653 $ 538 $ 446 $ 434 $ 515 122 $ 303 $ 329 $ 443 $ 274 $ 215 $ 260 $ 217 licences) (millions) $ 711 $ 762 $ 791 $ 650 $ 739 $ 821 $ 810 $ 724 Cash payments for spectrum licences (millions) – $ 1 – – – – – – Capex intensity7  19% 20% 23% 19% 21% 24% 25% 23% Total customer connections (000s)8   13,434 13,311 13,124 13,067 13,050 12,942 12,810 12,683 Employee-related information Total salaries and benefits (millions)5  $ 816 $ 831 $ 813 $ 794 $ 786 $ 754 $ 756 $ 740 n/a – not applicable 1 2 3 4 5 6 7 8 9 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. See Section 7.5 of the MD&A in this report. Net income attributed to equity shares for a 12-month trailing period, divided by the average common equity for the 12-month period. EBITDA – excluding restructuring and other costs, divided by 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. Net debt at the end of the period divided by 12-month trailing EBITDA – excluding restructuring and other costs. Excludes restructuring and other costs. For a definition of free cash flow, see Section 11 of the MD&A in this report. Capital expenditures (excluding spectrum licences) divided by Operating revenues. 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 adjustments, see Section 1.3 of the MD&A in this report. Excluding employees in TELUS International, total active employees were 25,700 in 2018, 25,700 in 2017, 25,500 in 2016, 27,000 in 2015, 27,900 in 2014, 28,300 in 2013, and 28,000 in 2012. Note: Certain comparative information has been restated to conform with the 2018 presentation. CAPEX INTENSITY 7 (%) TOTAL CUSTOMER CONNECTIONS8 (000s) Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 19 20 19 21 23 24 25 23 Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 Wireless Wireline TELUS 2018 ANNUAL REPORT • 35 13,434 13,311 13,124 13,067 13,050 12,942 12,810 12,683                   Annual segment statistics Wireless segment Network revenues (millions) Operating revenues (millions)1 Operating expenses before restructuring and other Applying IFRS 9 and IFRS 15 Excluding IFRS 9 and IFRS 15 2018 2017 2016 2015 2014 2013 2012 $ 6,025 $ 5,867 $ 6,541 $ 6,298 $ 6,008 $ 5,641 $ 5,367 $ 8,182 $ 7,714 $ 7,173 $ 6,994 $ 6,641 $ 6,177 $ 5,886 costs, depreci ation and amortization (millions) 4,636 4,407 4,146 4,107 3,884 3,543 3,415 EBITDA – excludi costs (millions)  ng restructuri ng and other Restructuring and other costs (millions)2 EBITDA (mi llions) EBITDA margin3 Capital expenditures (excluding spectrum 3,546 115 3,307 3,027 2,887 2,757 2,634 2,471 57 121 81 30 30 13 $ 3,431 $ 3,250 $ 2,906 $ 2,806 $ 2,727 $ 2,604 $ 2,458 43.3% 42.9% 42.2% 41.3% 41.5% 42.6% 42.0% l icences) (millions) $ 896 $ 978 $ 982 $ 893 $ 832 $ 712 $ 711 Cash payments for spectrum l icences (millions) $  1 – $ 145 $ 2,048 $ 1,171 $ 67 – Subscri ber gross additions (000s)4,5  Subscri ber net additions (000s)4,5 Subscri bers (000s)4,5,6,7  Wi reless market share, subscri ber-based 1,516 347 9,235 28% 1,460 1,399 1,443 1,620 1,614 1,646 296 173 176 252 307 331 8,911 8,585 8,457 8,281 7,807 7,670 29% 29% 29% 28% 27% 28% Blended monthly average billing per unit (ABPU)4,5 $ 67 $ 67 $ 65 $ 63 $ 62 $ 61 $  60 Monthly blended churn rate4,5  Monthly postpaid churn rate5 Wireline segment 1.08% 0.89% 1.11% 0.90% 1.21% 0.95% 1.26% 0.94% 1.41% 0.93% 1.41% 1.03% 1.47% 1.09% Operating revenues (millions)1 $ 6,440 $ 5,943 $ 5,878 $ 5,743 $ 5,590 $ 5,443 $ 5,246 Operating expenses before restructuring and other costs, depreci ation and amortization (millions) 4,565 4,223 4,197 4,142 4,056 3,961 3,810 EBITDA – excludi costs (millions)  ng restructuri ng and other Restructuring and other costs (millions)2 EBITDA (mi llions) EBITDA margin3 Capital expenditures (millions) Internet subscri bers (000s)8,9,10  Residentia  l network access lines (NALs) (000s)9 Tota  l TV subscribers (000s)9 1,875 202 1,720 1,681 1,601 1,534 1,482 1,436 60 358 145 45 68 35 $ 1,673 $ 1,660 $ 1,323 $ 1,456 $ 1,489 $ 1,414 $ 1,401 29.1% 28.9% 28.6% 27.9% 27.4% 27.2% 27.4% $ 2,018 $ 2,116 $ 1,986 $ 1,684 $ 1,527 $ 1,398 $ 1,270 1,858 1,248 1,093 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 TOTAL WIRELESS SUBSCRIBERS4,5,6,7 (000s) TOTAL WIRELINE SUBSCRIBERS8,9,10 (000s) 2018 2017 2016 2015 2014 2013 2012 9,235 2018 8,911 8,585 8,457 8,281 7,807 7,670 2017 2016 2015 2014 2013 2012 4,199 4,139 4,088 4,038 3,947 3,878 3,804 Postpaid Prepaid Internet subscribers TV subscribers Residential NALs 36 • TELUS 2018 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 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Applying IFRS 9 and IFRS 15 $ 1,509 $ 1,547 $ 1,497 $ 1,472 $ 1,482 $ 1,513 $ 1,457 $ 1,415 $ 2,179 $ 2,161 $ 1,941 $ 1,901 $ 2,066 $ 1,991 $ 1,874 $ 1,783 1,327 1,164 1,090 1,055 1,234 1,138 1,050 985 852 22 997 76 851 7 846 10 832 21 853 11 824 24 798 1 $ 830 $ 921 $ 844 $ 836 $ 811 $ 842 $ 800 $ 797 39.1% 46.1% 43.8% 44.5% 40.3% 42.8% 44.0% 44.8% licences) (millions) $ 253 $ 218 $ 243 $ 182 $ 233 $ 237 $ 259 $ 249 Cash payments for spectrum licences (millions) – $ 1 Subscriber gross additions (000s)5   Subscriber net additions (000s)5   419 106 427 145 – 362 91 – 308 5 – 424 98 – 399 124 – 342 83 – 295 (9) Subscribers (000s)5   9,235 9,152 9,007 8,916 8,911 8,824 8,700 8,576 Wireless market share, subscriber-based 28% 28% 29% 29% 29% 29% 29% 29% Blended monthly ABPU5 Monthly blended churn rate5 Monthly postpaid churn rate5  Wireline segment $ 67 $ 69 $ 67 $ 67 $ 67 $ 69 $ 67 $ 66 1.14% 1.03% 1.01% 1.14% 1.23% 1.05% 1.00% 1.18% 0.91% 0.87% 0.83% 0.95% 0.99% 0.86% 0.79% 0.93% Operating revenues (millions)1  $ 1,650 $ 1,677 $ 1,574 $ 1,539 $ 1,536 $ 1,475 $ 1,469 $ 1,463 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  Residential NALs (000s)9 Total TV subscribers (000s)9 1,192 1,152 1,139 1,082 1,091 1,061 1,049 1,022 458 53 525 97 435 28 457 24 445 33 414 12 420 12 441 3 $ 405 $ 428 $ 407 $ 433 $ 412 $ 402 $ 408 $ 438 27.8% 31.3% 27.6% 29.7% 29.0% 28.1% 28.6% 30.1% $ 458 $ 544 $ 548 $ 468 $ 506 $ 584 $ 551 $ 475 1,858 1,248 1,093 1,830 1,260 1,069 1,794 1,272 1,051 1,765 1,282 1,104 1,743 1,298 1,098 1,722 1,312 1,084 1,703 1,332 1,075 1,686 1,351 1,070 1 2 3 4 5 6 7 8 9 10 Includes intersegment revenue for all years; in the third quarter of 2018, we recorded equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden, where 50% was allocated to each of our segments ($85 million in wireless and $86 million in wireline). In the third quarter of 2018, we recorded a donation to the TELUS Friendly Future Foundation of $118 million as part of other costs, where 50% was allocated to each of our segments ($59 million in wireless and $59 million in wireline). In 2016, we recorded a $305 million immediately vesting transformative compensation expense as part of other costs ($70 million in wireless and $235 million in wireline). Excludes restructuring and other costs. 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. Subscribers have been adjusted in certain years. For details, see Section 5.4 of the MD&A in this report. 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. 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. Effective January 1, 2014, Internet subscribers exclude dial-up subscribers. Subscriber connections have been adjusted in certain years. For details, see Section 5.5 of the MD&A in this report. 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. Note: Certain comparative information has been restated to conform with the 2018 presentation. TELUS 2018 ANNUAL REPORT • 37                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Management’s discussion and analysis Caution regarding forward-looking statements 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. This  document  contains  forward-looking  statements  about  expected  events  and   our  financial  and  operating  performance.  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,  outlook,  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  condi- tional  verbs  such  as  aim,  anticipate,  believe,  could,  expect,  intend,  may,  plan,  predict,    seek,  should,  strive  and  will.  These  statements  are  made  pursuant  to  the  “safe   harbour”  provisions  of  applicable  securities  laws  in  Canada  and  the  United States Private Securities Litigation Reform Act of 1995. 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  state- ments.  Our  general  outlook  and  assumptions  for  2019  are  presented  in  Section 9 General trends, outlook and assumptions, and regulatory developments and proceedings  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: •   Regulatory decisions and developments  including  changes  to  our  regulatory   regime  or  the  outcomes  of  proceedings,  cases  or  inquiries  relating  to  its  applica- tion,  such  as:  the  potential  of  government  intervention  to  further  increase  wireless    competition  and  any  new  regulatory  requirements  as  a  result  of  the  CRTC’s   planned  review  to  be  commenced  in  2019  of  the  wholesale  wireless  regulatory   framework;  the  potential  for  government  intervention  concerning  the  CRTC’s   decision  on  lower-cost  data-only  plans;  changes  to  the  cost  burden  associated   with  CRTC-mandated  network  interconnections;  disputes  with  certain  munici- palities  regarding  rights-of-way  bylaws,  and  other  potential  threats  to  unitary    federal  regulatory  authority  over  telecommunications,  including  provincial  wireless    and  consumer  protection  legislation;  the  impact  of  the  CRTC’s  wireline  wholesale   services  review,  with  a  review  of  rates  and  configurations  for  wholesale  access   currently  in  progress  for  TELUS;  the  CRTC’s  forthcoming  report  on  the  retail   practices  of  Canada’s  large  telecommunications  carriers,  as  directed  by  the   Governor  in  Council;  the  Competition  Bureau’s  market  study  on  competition  in    broadband  services;  the  CRTC’s  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  CRTC’s  review  of  the  price  cap  and  local  forbearance  regimes;   the  CRTC’s  proceeding  to  create  a  mandatory  code  of  conduct  to  address   the  clarity  and  content  of  contracts  for  retail  fixed  Internet  access  and  related   issues;  broadcasting-related  issues,  such  as:  the  CRTC’s  implementation  of  new   initiatives  discussed  in  its  May  2018  report  “Harnessing  Change:  The  Future    of  Programming  Distribution  in  Canada”;  the  federal  government’s  review  of  the   Broadcasting Act,  Telecommunications Act  and  Radiocommunication Act  as   announced  on  June  5,  2018;  the  review  of  the  Copyright Act,  which  began  in   early  2018;  spectrum  and  compliance  with  licences,  including  our  compliance   with  licence  conditions,  changes  to  spectrum  licence  fees,  spectrum  policy   determinations  such  as  restrictions  on  the  purchase,  sale  and  transfer  of  spec- trum  licences,  and  the  amount  of  spectrum  TELUS  is  able  to  acquire  and  its    cost  under  the  Technical, Policy and Licensing Framework for Spectrum in the 600 MHz Band auction,  as  well  as  cost  and  availability  of  spectrum  in  the    3500  MHz  and  mmWave  bands;  the  impact  on  us  and  other  Canadian  tele- communications  carriers  of  government  or  regulatory  actions  with  respect  to    certain  countries  or  suppliers;  restrictions  on  non-Canadian  ownership  and   control  of  TELUS  Common  Shares  and  the  ongoing  monitoring  and  compliance   with  such  restrictions;  and  our  ability  to  comply  with  complex  and  changing   regulation  of  the  healthcare  and  medical  devices  industry  in  the  provinces  of   Canada  in  which  we  operate,  including  as  an  operator  of  health  clinics. •   Competitive environment  including:  our  ability  to  continue  to  retain  customers   through  an  enhanced  customer  service  experience,  including  through  the   deployment  and  operation  of  evolving  wireless  and  wireline  infrastructure;   intense  wireless  competition,  including  the  ability  of  industry  competitors  to   successfully  combine  a  mix  of  high-speed  Internet  access  (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;  the  success   of  new  products,  new  services  and  supporting  systems,  such  as  home  auto- mation  security,  and  Internet  of  Things  (IoT)  services  for  Internet-connected   devices;  wireline  voice  and  data  competition  including  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  billing  per  subscriber  unit  per  month  (ABPU),  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,  increased  data   bucket  sizes  or  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;  our  ability  to  obtain  and  offer   content  on  a  timely  basis  across  multiple  devices  on  wireless  and  TV  platforms   at  a  reasonable  cost;  vertical  integration  in  the  broadcasting  industry  resulting   in  competitors  owning  broadcast  content  services,  and  timely  and  effective   enforcement  of  related  regulatory  safeguards;  our  ability  to  compete  success- fully  in  customer  care  and  business  services  (CCBS)  given  our  competitors’   brand  recognition,  consolidation  and  strategic  alliances  as  well  as  technology   development  and,  in  our  TELUS  Health  business,  our  ability  to  compete  with   other  providers  of  electronic  medical  records  and  pharmacy  management   products,  systems  integrators  and  health  service  providers  including  those   that  own  a  vertically  integrated  mix  of  health  services  delivery,  IT  solutions,    and  related  services,  and  global  providers  that  could  achieve  expanded   Canadian  footprints. •   Technological substitution  including:  reduced  utilization  and  increased  com- moditization  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  ABPU  and  ARPU  declines  as  a  result  of,  among  other  factors,   substitution  to  messaging  and  OTT  applications;  substitution  to  increasingly   available  Wi-Fi  services;  and  disruptive  technologies,  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:  high  subscriber  demand  for  data  that  challenges  wireless   networks  and  spectrum  capacity  levels  and  may  be  accompanied  by  increases  in   delivery  cost;  our  reliance  on  information  technology  and  our  need  to  streamline   our  legacy  systems;  the  roll-out  and  evolution  of  wireless  broadband  technologies    and  systems  including  video  distribution  platforms  and  telecommunications   network  technologies  (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  suppliers  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  limitations  and  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   38 • TELUS 2018 ANNUAL REPORT       of new wireline broadband network technologies at a reasonable cost and availability and success of new products and services to be rolled out using such network technologies; 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 network technologies, 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 evolu- tion 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) including the 600 MHz spectrum auction scheduled to take place in March 2019 which will result in increased expendi- tures. Our capital expenditure levels could be impacted if we do not achieve our targeted operational and financial results. • Operational performance and business combination risks including: our reliance on legacy systems and ability to implement and support new products and services and business operations in a timely manner; our ability to imple- ment effective change management for system replacements and upgrades, process redesigns and business integrations (such as our ability 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); our ability to identify and manage new risks inherent to new service offerings that we may provide, including as a result of acquisitions, which could result in damage to our brand, our business in the relevant area or as a whole, additional exposure to litigation or regulatory proceedings; and real estate joint venture risks. • Data protection including risks that malfunctions or unlawful acts could result in the unauthorized access to, change, loss, or distribution of data, which may compromise the privacy of individuals and could result in financial loss and harm to our reputation and brand. • Security threats including intentional damage or unauthorized access to our physical assets or our IT systems and networks, which could prevent us from providing reliable service or result in unauthorized access to our information or that of our customers. • Ability to successfully implement cost reduction initiatives and realize planned savings, net of restructuring and other costs, without losing cus- tomer service focus or negatively affecting business operations. Examples of these initiatives are: our operating efficiency and effectiveness program to drive improvements in financial results; business integrations; business product simplification; business process outsourcing; offshoring and reorganizations, including any full-time equivalent (FTE) employee reduction programs; procure- ment initiatives; and real estate rationalization. Implementation of large enterprise deals, which may be adversely impacted by available resources, system limitations and degree of co-operation from other service providers. Foreign operations and our ability to successfully manage operations in foreign jurisdictions, including managing risks such as currency fluctuations. • • • Business continuity events including: our ability to maintain customer service and operate our network 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, delays and economics including as a result of government restrictions or trade actions; natural disaster threats; epidemics; pandemics; political instability in certain international locations; information security and privacy breaches, including data loss or theft of data; and the completeness and effectiveness of business continuity and disaster recovery plans and responses. • Human resource matters including: recruitment, retention and appropriate • training in a highly competitive industry, and the level of employee engagement. Financing and debt requirements including: our ability to carry out financing activities, our ability to refinance our maturing debt, our ability to maintain invest- ment grade credit ratings in the range of BBB+ or the equivalent. Our business plans and growth could be negatively affected if existing financing is not sufficient to cover our funding requirements. MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) • • Lower than planned free cash flow could constrain our ability to invest in operations, reduce debt or return capital to shareholders, and could affect our 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, 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 our financial position and outlook. Shares may be purchased under our normal course issuer bid (NCIB) when and if we consider it opportunistic, based on our financial position and outlook, and the market price of TELUS shares. There can be no assurance 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 relevant tax authorities that may differ from our interpretations; the timing and character of income and deductions, such as tax depreciation and operating expenses; tax credits or other attributes; 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 changes to the interpretation of tax laws, including as a result of changes to applicable accounting standards or tax authorities adopting more aggressive auditing practices, 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), or to negotiate and execute upon indemnity rights or other protections in respect of such claims and lawsuits; and the complexity of legal compliance in domestic and foreign jurisdictions, including compliance with competition, 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 developments 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 business spending (such as reducing invest- ments and cost structure); pension investment returns, funding and discount rates; and fluctuations in foreign exchange rates of the currencies in the regions in which we operate, and the impact of tariffs on trade between Canada and the U.S. as well as global implications of a trade conflict between the U.S. and China. These risks are described in additional detail in Section 9 General trends, outlook and assumptions, and regulatory developments and proceedings 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 state- ments. Forward-looking statements in this document describe our expectations 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 2018 ANNUAL REPORT • 39 February 14, 2019 Section Page Section 1 Introduction Preparation  of  the  MD&A   The  environment  in  which  we  operate   1.1   1.2   1.3   Highlights  of  2018   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   41 41 41 42 46 48 48 48 49 51 51 54 56 58 59 59 60 63 65 6 Changes in financial position 71 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    and  judgments   8.2   Accounting  policy  developments   9 General trends, outlook and assumptions, and regulatory developments and proceedings Telecommunications  industry  in  2018   9.1   9.2   Telecommunications  industry    general  outlook  and  trends   9.3   TELUS  assumptions  for  2019   9.4   Communications  industry  regulatory   developments  and  proceedings   68 10 Risks and risk management 10.1   Overview   10.2   Regulatory  matters   10.3   Competitive  environment   10.4   Technology   10.5   Operational  performance   10.6   Human  resources   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   40 • TELUS 2018 ANNUAL REPORT Page 73 73 73 73 74 75 76 77 77 78 82 82 82 82 87 89 89 90 92 93 95 95 97 98 101 104 107 108 109 109 112 113 114 114 117 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 The  following  sections  are  a  discussion  of  our  consolidated  financial   position  and  financial  performance  for  the  year  ended  December  31,   2018,  and  should  be  read  together  with  our  December  31,  2018,  audited   consolidated  statements  of  income  and  other  comprehensive  income,   statements  of  financial  position,  statements  of  changes  in  owners’    equity  and  statements  of  cash  flows,  and  the  related  notes  (collectively   referred  to  as  the  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  state- ments  comply  with  IFRS-IASB  and  Canadian  GAAP.  In  this  MD&A,    the  term  IFRS  refers  to  these  standards.  We  adopted  IFRS  9,  Financial Instruments,  and  IFRS  15,  Revenue from Contracts with Customers,    on  January  1,  2018,  with  retrospective  application.  See  Note 2    of  the  Consolidated  financial  statements  for  reconciliations  of  results   excluding  IFRS  15  effects.  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  reconc  iled  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 reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. This MD&A and the Consolidated financial statements were reviewed by our Audit Committee and authorized by our Board of Directors (Board) for issuance on February 14, 2019. 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 the competitive nature of our industry. Our estimates regarding our environment also form an important part of the assumptions on which our targets are based. 2018 Canadian telecom industry revenues TELUS 2018 revenues Est. $63 billion $14.4 billion TELUS subscriber connections 13.4 million TELUS 2018 dividends declared and growth $1.3 billion / 7.4% Economic growth We estimate that the rate of economic growth in Canada in 2019 will be 2.0% (2.1% in 2018), both rates being 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 that economic growth will be 2.3% in 2019 in British Columbia (B.C.) (2.2% in 2018) and 2.1% in Alberta (2.2% in 2018). The Bank of Canada’s January 2019 Monetary Policy Report estimated that economic growth in Canada will be 1.7% in 2019 (2.0% in 2018). The extent to which these economic growth estimates affect us and the timing of their impact will depend upon the actual experience of specific sectors of the Canadian economy. With respect to the national unemployment rate, Statistics Canada’s Labour Force Survey reported a rate of 5.6% for December 2018 (5.7% reported for December 2017). The unemployment rate for B.C. was 4.4% for December 2018 (4.6% for December 2017), while the unemployment rate for Alberta was 6.4% for December 2018 (6.9% for December 2017). Based on a composite of estimates from Canadian banks and other sources, we estimate that the unemployment rate in 2019 will be 5.8% In this MD&A, unless otherwise indicated, results for the year ended in Canada, 4.9% in B.C. and 6.2% in Alberta. December 31, 2018, are compared with results for the year ended December 31, 2017, adjusted for the retrospective application of IFRS 9 and IFRS 15 (for the year ended December 31, 2017). With respect to the pace of housing starts, in January 2019, Canada Mortgage and Housing Corporation reported housing starts in Canada of approximately 213,000 units in 2018 and approximately 220,000 units in 2017. Based on a composite of estimates from Canadian banks and other sources, we estimate that housing starts in Canada for 2019 will be approximately 196,000 units. TELUS 2018 ANNUAL REPORT • 41 Canadian telecommunications industry growth We estimate that Canadian telecommunications industry revenues were used to repay approximately $725 million of outstanding commer- cial paper; to fund the repayment, on maturity, of a portion of the (including TV revenue and excluding media revenue) grew by $250 million principal amount outstanding on TELUS’ Series CS Notes approximately 4% in 2018 (3% in 2017). We estimate that the Canadian due March 27, 2018; and for general corporate purposes. wireless industry grew by approximately 1.5 million new subscribers On June 12, 2018, we issued US$750 million of senior unsecured in 2018 and experienced approximately 4.2% network revenue growth. 30-year notes at 4.60%, maturing on November 16, 2048. The net Key drivers of subscriber growth included immigration and population proceeds were used to repay outstanding indebtedness, including growth; the trend toward multiple devices, including tablets; the expanding outstanding commercial paper, and for general corporate purposes. functionality of data and related applications; and mobile adoption by We have fully hedged the principal and interest obligations of the notes both younger and older generations. With respect to the wireline industry, against fluctuations in the Canadian dollar foreign exchange rate for the Canadian consumer high-speed Internet penetration rate grew by the entire term of the notes by entering into a foreign exchange derivative approximately 2% in 2018 and subscriber growth is expected to continue. (a cross currency interest rate exchange agreement), which effectively Competitive pressures continued in both the wireline consumer and converted the principal payments and interest obligations to Canadian business markets, while declines in higher-margin legacy voice services dollar obligations with a fixed interest rate of 4.41% and an issued were ongoing, partially attributable to technological substitution. (See Section 9 General trends, outlook and assumptions, and regulatory developments and proceedings, Section 10.3 Competition, and Section 10.11 Economic growth and fluctuations.) 1.3 Highlights of 2018 Home and business security-related acquisitions Throughout  2018,  we  completed  home  and  business  security  acquisitions,   including  our  January  2018  acquisition  of  the  customers,  assets  and  oper- ations  of  AlarmForce  Industries  Inc.  in  B.C.,  Alberta  and  Saskatchewan.   These  acquisitions,  combined  with  our  growing  gigabit-capable  TELUS   PureFibre  infrastructure,  were  made  with  a  view  to  accelerating  our   position  in  smart  home  and  security  services,  and  providing  us  with  the   ability  to  offer  our  customers  additional  services  as  part  of  a  bundle. and outstanding amount of $974 million (reflecting a fixed exchange rate of $1.2985). Early redemption of 2019 Notes On August 1, 2018, we executed our June 28, 2018, notice to early redeem all of our $1.0 billion 5.05% Series CG Notes due December 4, 2019. The long-term debt prepayment premium recorded was approximately $34 million before income taxes (or $0.04 per share after income taxes). Sale of TELUS Garden and donation to the TELUS Friendly Future Foundation On August 8, 2018, the TELUS Garden real estate joint venture sold the income-producing properties and the related net assets. The purchaser assumed the 3.7% mortgage and the 3.4% bonds secured by the income- producing properties. In the application of equity accounting, we recorded our share of the non-recurring gain at $171 million. Concurrently, we committed to a donation of $118 million to the TELUS Friendly Future Xavient Information Systems In February 2018, through our TELUS International (Cda) Inc. subsidiary, Foundation to help ensure that vulnerable youth can thrive in our digital society through better access to technology, health and educational we closed an acquisition of a 65% interest in Xavient Information Systems opportunities. Of this $118 million, we have donated $101 million in 2018, (Xavient), a group of information technology consulting and software including an initial donation of $100 million made in the third quarter services companies with facilities in the U.S. and India. The investment of 2018 in TELUS Corporation Common Shares acquired in the market. was made with a view to enhancing our ability to provide complex and The remainder of the committed donation may be made in TELUS higher-value information technology services, improving our related sales Corporation Common Shares or cash and is committed over a 10-year and solutioning capabilities, and acquiring multi-site redundancy in period. The Foundation will give financial grants to grassroots charities support of other facilities. Medisys Health Group Inc. In  July  2018,  we  acquired  Medisys  Health  Group  Inc.,  a  leading  provider   of  preventative  healthcare  and  wellness  services  for  workplaces  across   across Canada that need help in directly supporting underserved youth in our communities. Through these grants, the Foundation will support our TELUS Community Boards in connecting youth to the people and opportunities that matter most. Canada.  The  total  purchase  price  was  approximately  $84  million,  of  which    $79  million  was  paid  by  issuance  of  approximately  1.7  million  TELUS   Changes to the Board of Directors John Lacey, an independent director who had served as a TELUS Common  Shares.  The  investment  was  made  with  a  view  to  growing  the   director since 2000, retired from our Board in May 2018. delivery  of  employee-centred  workplace  health  and  wellness  services.    In August 2018, we welcomed Christine Magee to our Board. With  this  acquisition,  TELUS  Health  will  be  able  to  deliver  employee-  Christine is the Co-Founder and Co-Chair of Sleep Country Canada, centred  care,  backed  by  TELUS’  broadband  network  and  supported  by    the largest mattress retailer in Canada. From 1982 to 1994, Christine digital  tools  such  as  patient  portals,  virtual  care,  wellness  and  mental    worked in the banking and financial services industry at the National health  applications,  electronic  prescribing,  electronic  benefit  claims  and   Bank of Canada and Continental Bank of Canada. She is currently a secure  messaging.  The  Medisys  Health  Group  network  will  serve  as  an   member of the board of directors of Metro Inc., Woodbine Entertainment innovation  hub  for  next-generation  technology,  as  well  as  preventative  care   Group, Trillium Health Partners, Plan International Canada, and the and  wellness  programs,  so  that  patient  outcomes  can  be  measured. Advisory Council of the Talent Fund. Christine has also taken on an Long-term debt issues On March 1, 2018, we issued $600 million of senior unsecured notes at 3.625% due March 1, 2028 and $150 million through the re-opening of Series CW Notes at 4.70% due March 6, 2048. The net proceeds active mentoring role for Women’s Executive Network. The recipient of numerous awards and other recognition, Christine received the Excellence Canada Special Recognition of Achievement Award in 2017, and was appointed to the Order of Canada on July 1, 2015. 42 • TELUS 2018 ANNUAL REPORT MD&A: INTRODUCTION Christine holds an Honours Business and Administration degree from the United Way of New York City. Denise holds an MBA in Marketing the University of Western Ontario. from the Schulich School of Business at York University and earned an In November 2018, Denise Pickett joined our Board. Denise was Honours BA in Human Biology and Physiology from the University of named Chief Risk Officer and President, Global Risk, Banking and Toronto. She was named to Payment Source’s Most Influential Women Compliance, American Express in February 2018. From 1992 to the in Payments in 2018. present, Denise has held a series of progressively senior roles throughout American Express. She was Country Manager for American Express Canada and President and CEO of Amex Bank of Canada. Denise subsequently relocated to the United States, where she served as the President of American Express OPEN, the company’s small business division, and then as the President of U.S. Consumer Services. She was also a member of the board of directors of the Hudson’s Bay Company (2012 to 2018) and serves as Vice Chair of the board of directors of Consolidated highlights Business acquisition – subsequent to 2018 On January 14, 2019, we acquired a business complementary to our existing telecommunications lines of business, for consideration consisting of cash of $89 million and TELUS Corporation Common Shares of $38 million. The investment was made with a view to growing our managed network, cloud, security and unified communications services. Years ended December 31 ($ millions, except footnotes and unless noted otherwise) 2018   2017 Change Consolidated statements of income Operating revenues1   Operating income Income before income taxes Net income Net income attributable to Common Shares Adjusted Net income 2   Earnings per share (EPS) ($) Basic EPS Adjusted basic EPS2   Diluted EPS Dividends declared per Common Share ($) Basic weighted-average Common Shares outstanding (millions) Consolidated statements of cash flows Cash provided by operating activities Cash used by investing activities Acquisitions Capital expenditures3   Cash used by financing activities Other highlights Subscriber connections (thousands) 4   Earnings before interest, income taxes, depreciation and amortization (EBITDA)2   Restructuring and other costs2,5   Adjusted EBITDA6   Adjusted EBITDA margin (%) 7   Free cash flow 2   Net debt to EBITDA – excluding restructuring and other costs 2,8   (times) Notations used in MD&A: n/m – not meaningful; pts. – percentage points. Applying IFRS 9 and IFRS 15 (2017 adjusted) 14,368 13,408 2,837 2,176 1,624 1,600 1,703 2.68 2.85 2.68 2.10 597 4,058 (2,977) (280) (2,914) (1,176) 2,741 2,168 1,578 1,559 1,643 2.63 2.77 2.63 1.97 593 3,947 (3,643) (564) (3,094) (227) 13,434 13,050 5,104 317 5,250 37.0 1,197 2.54 4,910 117 5,005 37.4 966 2.67 7.2% 3.5% 0.4% 2.9% 2.6% 3.7% 1.9% 2.9% 1.9% 6.6% 0.7% 2.8% (18.3)% (50.4)% (5.8)% n/m 2.9% 3.9% n/m 4.9% (0.4) pts. 23.9% (0.13) 1 2 3 4 5 6 7 8 In the third quarter of 2018, we recorded equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden. These are non-GAAP and other financial measures. See Section 11.1 Non-GAAP and other financial measures. Capital expenditures include assets purchased but not yet paid for, and consequently differ from Cash payments for capital assets, excluding spectrum licences, as reported in the Consolidated financial statements. 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. Effective April 1, 2018, and on a prospective basis, we have adjusted cumulative subscriber connections to remove approximately 68,000 TELUS TV subscribers as we have ceased marketing our Satellite TV product. Q4 2018 opening postpaid and total subscribers, as well as associated Q4 2018 operating statistics (average revenue per subscriber unit per month (ARPU), average billing per subscriber unit per month (ABPU), and churn) have been adjusted to exclude an estimated 23,000 subscribers impacted by the CRTC’s final pro-rating ruling in June 2018, which was effective October 1, 2018. In the third quarter of 2018, we recorded a donation to the TELUS Friendly Future Foundation of $118 million as part of other costs. Adjusted EBITDA for all periods excludes restructuring and other costs (see Section 11.1 for restructuring and other cost amounts) and non-recurring gains and equity income related to real estate joint ventures. Adjusted EBITDA for 2017 excludes the MTS net recovery (as defined later in this section). Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where the calculation of the Operating revenues excludes non-recurring gains and equity income related to real estate joint ventures, and for 2017, excludes the MTS net recovery (as defined later in this section). Excluding the third quarter of 2018 equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden, the 2018 amount would be 2.62. TELUS 2018 ANNUAL REPORT • 43 Operating highlights •   Consolidated operating revenues  increased  by  $960  million  in  2018: Service  revenues  increased  by  $550  million  in  2018,  mainly  due  to   more  homes  and  businesses  directly  to  fibre,  and  bundling  these    services  together  contributed  to  combined  Internet  and  TV  subscriber   growth  of  110,000  or  3.9%  over  the  last  12  months.  We  have  made   growth  in  wireless  network  revenue  and  wireline  data  services  revenue,   partly  offset  by  the  ongoing  decline  in  legacy  wireline  voice  revenue. Equipment  revenues  increased  by  $240  million  in  2018,  largely  due   to  higher  wireless  equipment  revenue  resulting  from  a  higher  volume   TELUS  PureFibre  available  to  61%  of  our  broadband  footprint  at  the   end  of  2018.  (See  Section 5.5 Wireline segment  for  additional  details.) •   Operating income  increased  by  $96  million  in  2018,  reflecting  higher   wireless  equipment  margins  and  wireless  network  growth  driven  by  a   of  new  postpaid  contracts,  as  well  as  higher-value  smartphones  in   growing  customer  base,  in  addition  to  growth  in  EBITDA  contribution   the  sales  mix  of  gross  additions  and  retention  units. from  our  customer  care  and  business  services  (CCBS)  (formerly  busi- Other  operating  income  increased  by  $170  million  in  2018.  In  the   ness  process  outsourcing)  business.  These  factors  were  partly  offset   third  quarter  of  2018,  we  recorded  equity  income  related  to  real  estate   by  increased  costs  associated  with  a  growing  wireless  customer  base,   joint  ventures  arising  from  the  sale  of  TELUS  Garden  of  $171  million,    declines  in  wireline  legacy  voice  services,  higher  wireline  restructuring   as  previously  noted,  of  which  50%  was  allocated  to  each  of  the  wireless   and  other  costs  from  efficiency  initiatives,  and  increased  depreciation   and  wireline  segments.  Excluding  the  effect  of  equity  income  related    and  amortization. to  real  estate  joint  ventures  arising  from  the  sale  of  TELUS  Garden,   Other  operating  income  was  relatively  flat.  In  2017,  we  recorded  a   EBITDA  includes  restructuring  and  other  costs,  non-recurring   gains  and  equity  income  related  to  real  estate  joint  ventures,  and  the   non-recurring  pre-tax  recovery  of  contingent  consideration  paid  of    fourth  quarter  2017  MTS  contingent  consideration  recovery  net  of   $26  million  to  reflect  the  revised  estimate  of  qualifying  Manitoba   post-closing  adjustments  (MTS  net  recovery).  EBITDA  increased  by   Telecom  Services  Inc.  (MTS)  subscribers  acquired  (MTS  contingent   $194  million  or  3.9%  in  2018. consideration  recovery).  The  change  in  Other  operating  income   reflects  the  non-recurrence  of  the  2017  MTS  contingent  consideration   Adjusted EBITDA  excludes  restructuring  and  other  costs  and   non-recurring  gains  and  equity  income  related  to  real  estate  joint   recovery,  partly  offset  by  higher  net  gains  from  the  sale  of  property,   ventures,  as  well  as  the  2017  MTS  net  recovery.  Adjusted  EBITDA   plant  and  equipment,  and  a  decrease  in  the  provision  related  to   increased  by  $245  million  or  4.9%  for  2018.  The  increase  reflects   written  put  options  in  respect  of  non-controlling  interests. higher  wireless  equipment  margins  and  wireless  network  revenue   For  additional  details  on  operating  revenues,  see  Section 5.4 growth  driven  by  a  growing  customer  base,  in  addition  to  growth    Wireless segment  and  Section 5.5 Wireline segment. in  EBITDA  contribution  from  our  CCBS  business.  These  factors  were   •   During  2018,  our  total  subscriber connections  increased  by  384,000,   reflecting  a  4.2%  increase  in  wireless  postpaid  subscribers,  a  6.6%    increase  in  high-speed  Internet  subscribers  and,  excluding  the  Satellite   TV  subscriber  adjustment,  a  4.8%  increase  in  TELUS  TV  subscribers,   partly  offset  by  a  1.0%  decline  in  wireless  prepaid  subscribers  and  a   •   3.9%  decline  in  wireline  residential  NALs. partly  offset  by  increased  costs  associated  with  a  growing  wireless   customer  base  and  declines  in  wireline  legacy  voice  services.    (See  Section 5.4 Wireless segment  and  Section 5.5 Wireline segment   for  additional  details.) Income before income taxes  increased  by  $8  million  in  2018.    Higher  Operating  income,  as  noted  above,  was  offset  by  an  increase      Our  postpaid  wireless  subscriber  net  additions  were  356,000  in   in  Financing  costs.  The  increase  in  Financing  costs  resulted  primarily   2018,  down  23,000  from  2017,  due  to  higher  deactivations  associated   from  the  $34  million  long-term  debt  prepayment  premium  in  the  third   with  a  larger  subscriber  base  partly  offset  by  higher  gross  additions   quarter  of  2018,  higher  average  long-term  debt  outstanding  along  with    resulting  from  continued  net  new  demand  from  Canadian  consumers   and  businesses.  Our  comparatively  low  postpaid  churn  rate  was  0.89%    in  2018,  while  our  blended  churn  rate  was  1.08%  in  2018.  In  2017,   •   our  postpaid  churn  rate  was  0.90%  and  our  blended  churn  rate  was   1.11%.  (See  Section 5.4 Wireless segment  for  additional  details.)    Net  additions  of  high-speed  Internet  subscribers  were  115,000  in   a  higher  average  effective  interest  rate  in  2018,  and  higher  interest   accretion  on  provisions.  (See  Financing costs  in  Section 5.3.) Income taxes  decreased  by  $38  million  in  2018  and  the  effective  tax   rate  decreased  from  27.2%  to  25.4%.  The  decrease  in  the  effective   tax  rate  was  primarily  due  to  the  lower  capital  gain  rate  on  the  TELUS   Garden  sale,  as  well  as  a  requirement  to  revalue  deferred  tax  liabilities   2018,  up  34,000  from  2017.  The  increase  resulted  from  the  increased   for  changes  in  legislated  tax  rates  in  2017. demand  for  our  high-speed  broadband  services,  including  fibre  to    the  premises  (FTTP),  as  well  as  improved  churn  reflecting  our  focus   •   Net income attributable to Common Shares  increased  by  $41  million    in  2018.  This  increase  was  primarily  driven  by  higher  Operating  income   on  executing  our  customers  first  initiatives  and  retention  programs.   and  lower  income  taxes,  partly  offset  by  increased  Financing  costs. Net  additions  of  TELUS  TV  subscribers  were  63,000  in  2018,  up      Adjusted  Net  income  excludes  the  effects  of  restructuring  and   28,000  from  2017.  The  increase  reflects  a  lower  customer  churn  rate   other  costs,  income  tax-related  adjustments,  non-recurring  gains  and   from  stronger  retention  efforts  and  higher  gross  additions  from  our   equity  income  related  to  real  estate  joint  ventures,  the  long-term  debt   diverse  product  offerings.  Our  continued  focus  on  expanding  our   prepayment  premium  and  the  2017  MTS  net  recovery.  Adjusted  Net   addressable  high-speed  Internet  and  Optik  TV  footprint,  connecting   income  increased  by  $60  million  or  3.7%  for  the  full  year  of  2018. 44 • TELUS 2018 ANNUAL REPORT                  Reconciliation of adjusted Net income • Dividends declared per Common Share totalled $2.10 in 2018, MD&A: INTRODUCTION Years  ended  December  31  ($  millions)   2018   2017   Change Net  income  attributable   to  Common  Shares   Add  back  (deduct): Restructuring and other Applying IFRS 9 and IFRS 15 (2017 adjusted) 1,600   1,559 41 costs, after income taxes1 235   86 149   (Favourable) unfavourable income tax-related adjustments Non-recurring losses and equity losses (gains and equity income) related to real estate joint ventures, after income taxes2 Long-term  debt  prepayment    premium,  after  income  taxes   MTS net recovery (7)  21 (28) (150)  (1) (149) 25   –  – (22) 25  22   60   Adjusted Net income 1,703   1,643 1 2 Includes our third quarter of 2018 committed donation to the TELUS Friendly Future Foundation of $90 million after income taxes. Includes equity income arising from the third quarter 2018 sale of TELUS Garden of $150 million after income taxes. up 6.6% from 2017. On February 13, 2019, the Board declared a first quarter dividend of $0.5450 per share on the issued and out- standing Common Shares, payable on April 1, 2019, to shareholders of record at the close of business on March 11, 2019. The first quarter dividend increased by $0.04 per share or 7.9% from the $0.5050 per share dividend declared one year earlier, consistent with our multi- year dividend growth program described in Section 4.3 Liquidity and capital resources. Liquidity and capital resource highlights • Net debt to EBITDA – excluding restructuring and other costs was 2.54 times at December 31, 2018, down from 2.67 times at December 31, 2017, as the effect of the increase in EBITDA – excluding restructuring and other costs exceeded the effect of the increase in net debt. Excluding the third quarter of 2018 equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden, the ratio was 2.62. (See Section 4.3 Liquidity and capital resources and Section 7.5 Liquidity and capital resource measures.) • Cash provided by operating activities increased by $111 million in 2018 due to growth in EBITDA and lower restructuring and other costs disbursements, net of expense and Shares settled from Treasury. This was partly offset by other working capital changes and increased interest paid, which includes the long-term debt prepayment premium. • Basic EPS increased by $0.05 or 1.9% in 2018. This increase was • Cash used by investing activities decreased by $666 million in primarily driven by higher Operating income and lower income taxes, 2018, attributed to lower cash payments for business acquisitions, partly offset by increased Financing costs. Adjusted basic EPS excludes the effects of restructuring and other costs, income tax-related adjustments, non-recurring gains and equity income related to real estate joint ventures, the long-term debt prepayment premium and the 2017 MTS net recovery. Adjusted lower capital expenditures and non-recurring real estate joint venture receipts, net of advances arising from the sale of TELUS Garden. Acquisitions decreased by $284 million in 2018 as we made larger cash payments for business acquisitions in 2017. Capital expenditures decreased by $180 million in 2018, primarily reflecting the planned basic EPS increased by $0.08 or 2.9% for the full year of 2018. reduction in our capital spend. We have made TELUS PureFibre available to 61% of our broadband footprint at December 31, 2018. (See Section 7.3 Cash used by investing activities.) • Cash used by financing activities increased by $949 million in 2018, primarily reflecting lower issuances of long-term debt, net of redemptions and repayment, as well as Treasury shares acquired. (See Section 7.4 Cash used by financing activities.) • Free cash flow increased by $231 million in 2018, largely resulting from higher Adjusted EBITDA and lower capital expenditures, partly offset by increased interest paid. (See calculation in Section 11.1 Non-GAAP and other financial measures.) The application of IFRS 15 reflects a non-cash accounting change. As such, the underlying economics and free cash flow generated by the business are not impacted by the change. Reconciliation of adjusted basic EPS Years  ended  December  31  ($)   2018   2017   Change Basic  EPS   Add  back  (deduct): Restructuring and other costs, after income taxes, per share1 (Favourable) unfavourable income-tax related adjustments, per share Non-recurring gains and equity income related to real estate joint ventures, after income taxes, per share2 Long-term debt prepayment premium, after income taxes, per share MTS net recovery, per share Adjusted  basic  EPS   Applying IFRS 9 and IFRS 15 (2017 adjusted) 2.68   2.63 0.05 0.39   0.15 0.24 (0.01)   0.03 (0.04) (0.25)   0.04   –  2.85 – – (0.04) 2.77 (0.25) 0.04  0.04  0.08   1 2 Includes our third quarter of 2018 committed donation to the TELUS Friendly Future Foundation of $0.15 per share after income taxes. Includes equity income arising from the third quarter 2018 sale of TELUS Garden of $0.25 per share after income taxes. TELUS 2018 ANNUAL REPORT • 45             1.4 Performance scorecard (key performance measures) In 2018, we achieved three of four IFRS 15-translated consolidated targets, missing only the target for capital expenditures. Our original targets were announced on February 8, 2018 and were set excluding the impact of IFRS 15. On May 10, 2018, we announced equivalent targets that were translated to reflect the adoption of IFRS 15 herein referred to as the consolidated targets. We achieved our consolidated revenue target, primarily due to growth in wireless network revenue resulting from growth in our wireless subscriber base. Additionally, we experienced increased wireline data service revenue resulting from increases in CCBS revenue inclusive of acquisitions, Internet and enhanced data service, TELUS Health revenue, TELUS TV revenue and revenue from our home and business security lines of business, partly offset by the ongoing decline in legacy wireline voice revenue. As well, we experienced increased equipment revenues from a higher volume of new postpaid contracts and higher-value smartphones in the sales mix of gross additions and retention units. We met our Adjusted EBITDA target largely from higher wireless equipment margins and wireless network revenue growth driven by a growing customer base, in addition to growth in EBITDA contribution from our CCBS business. These factors were partly offset by increased costs associated with a growing wireless customer base and declines in wireline legacy voice services. Our basic EPS fell within our target range, driven by higher Operating income and lower income taxes, partly offset by increased Financing costs. Our capital expenditures in 2018 exceeded our consolidated target, as we made opportunistic capital expenditures prior to the year-end. We also continued to focus on investments in broadband infrastructure, including connecting more homes and businesses directly to our fibre- optic infrastructure, which resulted in TELUS PureFibre reaching 61% of our broadband footprint at year-end. These investments also support our systems reliability and operational efficiency and effectiveness, as well as 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 consolidated 2018 targets. For information related to our 2018 targets, see Section 9 General trends, outlook and assumptions, and regulatory developments and proceedings. SCORECARD Consolidated   Revenues   Adjusted EBITDA1 Basic  EPS   2018 PERFORMANCE Consolidated targets2 and growth Actual results and growth   Result An increase of 4 to 6% 2a An increase of 3 to 6% 2b An increase of up to 6% 2c $14.37 billion   7.2%   $5.25 billion   4.9% $2.68   1.9% Capital expenditures Approx.  $2.85  billion   $2.91 billion   (excluding spectrum licences) 1 2 See description in Section 11.1 Non-GAAP and other financial measures. Reflects the 2018 translated targets that were announced on May 10, 2018, to reflect the adoption of IFRS 15. The original 2018 targets were set on February 8, 2018 and were based on pre-IFRS 15 results. 2a 2b 2c The original target for Consolidated revenues excluding the impact of IFRS 15 was $13.835 to $14.100 billion, or an increase of 4 to 6%. The original target for Consolidated Adjusted EBITDA excluding the impact of IFRS 15 was $5.105 to $5.230 billion, or an increase of 4 to 7%. The original target for basic EPS excluding the impact of IFRS 15 was $2.53 to $2.68, or an increase of 3 to 9%.   Met  target   Missed  target  46 • TELUS 2018 ANNUAL REPORT           MD&A: INTRODUCTION We made the following key assumptions when we announced the 2018 targets in February 2018. ASSUMPTIONS FOR 2018 TARGETS AND RESULTS • Our economic assumptions are based on a composite of estimates from Canadian banks and other sources. Our original assumptions for 2018 were: (i) slightly slower rate of economic growth in Canada of 2.2%, down from an estimated 3.1% in 2017; (ii) for our ILEC provinces in Western Canada, economic growth in B.C. of 2.5%, down from an estimated 3.4% in 2017, and economic growth in Alberta of 2.4%, down from an estimated 3.9% in 2017. In  our  MD&A  for  the  first  quarter  of  2018,  we  revised  our  2018  economic  growth  assumption  to  2.1%  for  Canada.  In  our  MD&A  for  the  third  quarter    of  2018,  we  revised  our  2018  economic  growth  assumptions  to  2.2%  for  B.C.  and  2.2%  for  Alberta. We currently estimate that economic growth for 2018 was 2.1% for Canada, 2.2% for B.C. and 2.2% for Alberta. • Our original assumption for restructuring and other costs was approximately $135 million. In our MD&A for the third quarter of 2018, we revised our assumption for restructuring and other costs upwards to approximately $300 million to account for the committed donation of $118 million to the TELUS Friendly Future Foundation and to support ongoing and incremental operational efficiencies and personnel-related costs. Our actual 2018 amount for restructuring and other costs was $317 million. • Our assumption for income taxes was computed at a statutory rate of 26.7 to 27.3% and cash income tax payments of approximately $170 million to $230 million. Our actual results were at a statutory income tax rate of 27.0% and cash income tax payments were $197 million. • Our assumption was for stabilization in the average Canadian dollar: U.S. dollar exchange rate, which was US$0.77 in 2017. The average Canadian dollar: U.S. dollar exchange rate was US$0.77 during 2018 and closed at US$0.73 on December 31, 2018. • Our assumption was that no wireless spectrum auctions were anticipated in 2018. We participated in a wireless residual spectrum auction in 2018 resulting in Cash payment for spectrum licences of $1 million in 2018. 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 ABPU. • 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 CCBS and healthcare solutions. • Continued erosion of wireline voice revenues, resulting from technological substitution and greater use of inclusive long distance. • Continued focus on our customers first initiatives and maintaining our customers’ likelihood-to-recommend scores. • Pension plans: Defined benefit pension plan expense of approximately $97 million recorded in Employee benefits expense and approximately $14 million recorded in employee defined benefit plans net interest in Financing costs; a rate of 3.40% for discounting the obligation (2017 – 3.80%) and a rate of 3.50% for current service costs for employee defined benefit pension plan accounting purposes (2017 – 4.00%); and defined benefit pension plan funding of approximately $50 million. Actual results were: $95 million recorded in Employee benefits expense, $16 million recorded in employee defined benefit plans net interest, a rate of 3.90% for discounting the obligation, a rate of 3.50% for current service costs employee defined benefit pension plan accounting purposes, and defined benefit pension plan funding of $52 million. Further investments in broadband infrastructure, including expanding our fibre-optic infrastructure and 4G LTE capacity expansion and upgrades, as well as investments in network and systems resiliency and reliability. • TELUS 2018 ANNUAL REPORT • 47    2 Core business and strategy 2.1 Core business 2.2 Strategic imperatives We  provide  a  wide  range  of  telecommunications  products  and    Since 2000, we have maintained a proven national growth strategy. services.  Wireless  products  and  services  include  network  revenue   Our strategic intent is to unleash the power of the Internet to deliver the (data  and  voice)  and  equipment  sales  arising  from  mobile  tech- best solutions to Canadians at home, in the workplace and on the move. nologies.  Wireline  products  and  services  include  data  revenues   We also developed six strategic imperatives in 2000 that remain (which  include  revenues  from  Internet  protocol;  television;  hosting,   relevant for future growth, despite changing regulatory, technological and managed  information  technology  and  cloud-based  services;    competitive environments. We believe that a consistent focus on these customer  care  and  business  services  (CCBS)  (formerly  business   imperatives guides our actions and contributes to the achievement process  outsourcing);  certain  healthcare  solutions;  and  home  and   of our financial goals. To advance these long-term strategic imperatives business  security),  voice  revenues,  and  other  telecommunications   services  and  equipment  revenues.  We  earn  the  majority  of  our   revenue  from  access  to,  and  usage  of,  our  telecommunications   and address near-term opportunities and challenges, we confirm or set new corporate priorities each year, as further described in Section 3. Our six strategic imperatives are listed below. infrastructure,  and  from  providing  services  and  products  that    • Focusing relentlessly on growth markets of data, IP and wireless facilitate  access  to,  and  usage  of,  our  infrastructure. • Providing integrated solutions that differentiate TELUS from our competitors • Building national capabilities across data, IP, voice and wireless • Partnering, acquiring and divesting to accelerate the implementation of our strategy and focus our resources on core business • Going to market as one team under a common brand, executing a single strategy • Investing in internal capabilities to build a high-performance culture and efficient operation. 48 • TELUS 2018 ANNUAL REPORT MD&A: CORE BUSINESS AND STRATEGY, AND CORPORATE PRIORITIES 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 2018 corporate priorities. Honouring our team, customers and social purpose by delivering on our brand promise • Each  year,  we  conduct  team  member  Pulsecheck  engagement  surveys  to  gather  confidential  team  member  feedback  about  TELUS  as  a  place  to   • work  and  to  measure  our  progress  in  establishing  a  high-performance  culture.  Following  each  survey,  business  units  and  departments  make  use  of   their  Pulsecheck  results  to  review  their  current  action  plans  and  prioritize  their  ongoing  actions.  In  2018,  our  employee  engagement  score  increased    by  1  percentage  point  to  85%,  elevating  our  high-performance  culture  and  continuing  to  place  our  Company  within  the  top  10%  of  all  employers   surveyed  on  a  global  basis. In  November  2018,  the  Commission  for  Complaints  for  Telecom-television  Services  (CCTS)  issued  its  annual  report  for  the  12-month  period  ended    July  31,  2018,  and  TELUS  again  received  the  fewest  customer  complaints  among  the  national  carriers,  while  Koodo  again  received  the  fewest   complaints  among  the  national  flanker  brands.  TELUS,  Koodo  and  Public  Mobile  were  the  subjects  of  6.6%,  2.5%  and  1.0%  of  the  total  customer   complaints  accepted  by  the  CCTS,  respectively,  or  10.1%  of  total  customer  complaints,  in  aggregate,  when  approximately  28%  of  Canadian  wireless   customers  have  chosen  us  as  their  wireless  service  provider. • As  noted  in  Section 1.3,  we  committed  to  a  donation  of  $118  million  to  the  TELUS  Friendly  Future  Foundation  to  help  ensure  vulnerable  youth  thrive    in  our  digital  society  through  better  access  to  technology,  health  and  educational  opportunities.  Of  this  $118  million,  we  have  donated  $101  million    in  2018,  including  an  initial  donation  of  $100  million  that  was  made  in  the  third  quarter  of  2018  in  TELUS  Common  Shares  acquired  in  the  market.    The  remainder  of  the  committed  donation  is  committed  over  a  10-year  period. • On  February  1,  2018,  we  were  awarded  the  2018  Best  Sustainability  Report  in  the  Technology  &  Communications  sector  by  the  Finance  and   Sustainability  Initiative. • We  extended  the  reach  of  our  Mobility  for  Good  program  in  2018  to  Ontario  and  Alberta,  and  launched  a  pilot  program  in  Quebec,  in  partnership    • with  the  Children’s  Aid  Foundation  of  Canada  and  Fondation  du  Centre  Jeunesse.  Mobility  for  Good  provides  qualifying  youth  transitioning  from  foster   care  with  fully  subsidized  smartphones  and  data  plans  from  TELUS,  enabling  them  to  stay  connected  to  their  vital  support  networks. In  November  2018,  we  expanded  our  Internet  for  Good  program  by  participating  in  the  federal  government’s  new  Connecting  Families  initiative  to  help   bridge  the  digital  divide  for  Canadian  families  who  may  struggle  to  afford  Internet  access.  Internet  for  Good  provides  access  to  low-cost  high-speed   Internet,  training  and  tools  to  low-income  families. • During  2018,  we  expanded  our  Health  for  Good  program  to  Vancouver,  Victoria  and  Calgary  to  provide  healthcare  to  vulnerable  and  underserved   Canadians  by  deploying  specially  equipped  mobile  health  clinics  into  communities  where  frontline  care  is  urgently  needed.  In  September  2018,    we  announced  a  $5  million  commitment  to  expand  our  Health  for  Good  program  nationally. In  September  2018,  we  were  recognized  for  corporate  social  responsibility  by  being  named  to  the  Dow  Jones  Sustainability  North  America  Index    for  the  18th  consecutive  year.  Additionally,  we  were  named  to  the  Dow  Jones  Sustainability  World  Index  for  the  third  year  in  a  row. • • We  continued  to  promote  safe  and  responsible  behaviour  online  through  the  delivery  of  TELUS  Wise  digital  citizenship  workshops  to  more  than    52,000  youth,  adults  and  seniors  in  2018.  We  also  continued  our  partnership  with  the  WE  organization  and  focused  on  our  shared  goal  to  #EndBullying.    As  part  of  our  commitment  to  end  bullying,  we  are  asking  citizens  to  join  us  in  our  mission  to  promote  positive  behaviour  online  by  signing  the  TELUS   Wise  Digital  Pledge. • Our customers’ likelihood-to-recommend scores improved year over year for Consumer Solutions and TELUS Health. Leveraging our broadband networks to drive TELUS’ growth • We  continued  to  invest  in  our  leading-edge  broadband  technology,  which  has  enabled  the  success  of  our  Internet,  Optik  TV  and  Pik  TV  offerings,   business  services,  and  Mobility  solutions  and  helps  ready  our  network  for  5G  deployment  in  the  future. • Our  4G  LTE  infrastructure  covered  99%  of  Canada’s  population  at  December  31,  2018. • Our  high-speed  broadband  footprint  covered  more  than  3.1  million  households  and  businesses  in  B.C.,  Alberta  and  Eastern  Quebec  at  December  31,    2018,  including  approximately  1.89  million  households  and  businesses  covered  with  fibre-optic  cable  (representing  61%  of  our  broadband  footprint),   providing  these  premises  with  immediate  access  to  our  gigabit-capable  fibre-optic  infrastructure.  This  is  up  from  approximately  1.44  million   households  and  businesses  in  2017. • • In  OpenSignal’s  State  of  Mobile  Networks:  Canada  (February  2018)  report,  we  were  recognized  as  having  the  fastest  4G  download  speed  and    the  fastest  overall  download  speed. In  the  J.D.  Power  2018  Canadian  Wireless  Network  Quality  Study,  TELUS  was  ranked  Highest  Wireless  Network  Quality  Performance  in  Ontario    for  four  years  in  a  row  and  in  the  West  (including  British  Columbia,  Alberta,  Saskatchewan  and  Manitoba)  for  three  years  in  a  row. • Based  on  data  from  the  first  half  of  2018,  followed  by  data  from  the  second  half  of  2018,  we  won  Ookla’s  Mobile  Speedtest  Award  for  fastest  mobile   network  in  Canada  for  the  second  year  in  a  row.  Meanwhile,  according  to  Ookla’s  Speedtest  Global  Index  for  December  2018,  TELUS  ranked  third  in   the  word  for  the  fastest  mobile  network,  while  Canada  as  a  country  also  ranked  third  fastest  behind  Iceland  and  Norway. TELUS 2018 ANNUAL REPORT • 49 Leveraging our broadband networks to drive TELUS’ growth (continued) • • In August 2018, we were ranked as having the fastest overall download speeds nationally for the second year in a row according to OpenSignal’s State of Mobile Networks: Canada (August 2018) report. Additionally, we were ranked first in LTE speeds in two key markets – Toronto and Montreal. In PCMag’s Fastest Mobile Network Canada 2018 report released in September 2018, we were named as having the fastest mobile network nationally, for the second year in a row. We were also ranked as having the fastest network in certain markets across Canada, including Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa, Montreal, Quebec and Halifax. Additionally, Koodo was recognized as having the best wireless plan in Canada. • We were recognized as providing Canadians with the best mobile video experience in OpenSignal’s State of Mobile Video (September 2018) report. In February 2018, the Digital Technology Supercluster, with TELUS as the lead applicant, was one of the winners in the government of Canada’s • Innovation Superclusters Initiative and will receive significant funding to further develop Canada’s strengths in data collection, analytics and visualization technologies for diverse industries. The Digital Technology Supercluster was officially launched in November 2018. In April 2018, we became the first provider in Canada to offer 4K HDR content, which is available on Optik TV via Netflix and On Demand. 4K HDR dramatically enhances the picture quality of existing 4K technology by improving the colour contrast range with millions of additional colour options to each individual pixel. • • Our Pik TV offering can now be accessed directly from an Internet browser, from Apple TV (fourth generation and above) or through our Android • • or iOS mobile applications, enabling streaming on computers, smartphones and tablets. Our Pik TV media box and its support for Google Play Store applications is now an optional, complementary component of the Pik TV experience. In August 2018, we announced the debut of Travelxp 4K HDR, a global travel and lifestyle channel, available for Optik TV customers in B.C. and Alberta. This is the first time a network broadcasting 24/7 4K HDR has been available in Canada. Customers who do not yet have 4K HDR-capable TVs can still enjoy Travelxp in 4K, HD or standard definition. In September 2018, we launched the Platinum wireless rate plan, which allows customers to obtain higher-tier handsets for a lower upfront payment. We also unveiled our Bring-It-Back upgrade program, which is available to existing customers on Premium, Premium Plus and Platinum plans, and to new customers activating on Platinum plans. The Bring-It-Back program allows customers to upgrade to higher-tier smartphones with lower upfront payments and, at the end of the term, choose to either return the device or repay the original Bring-It-Back program amount. In May 2018, we expanded our voice over LTE (VoLTE) coverage across the province of Manitoba. • • We launched TELUS SmartHome Security and TELUS Secure Business in B.C., Alberta and Saskatchewan, with TELUS SmartHome Security also • offered in Eastern Quebec. TELUS SmartHome Security provides security and automation technology for residential customers. TELUS Secure Business offers security solutions that help small businesses run safely and smoothly through a suite of integrated smart automation, intrusion monitoring and video surveillance solutions. In October 2018, we launched our first LTE-M low-power wide-area (LPWA) technology deployment, which delivers a strong wireless connection to IoT (Internet of Things) devices while requiring minimal power for each transmission, helping to prolong the battery life of connected devices. It will extend the reach of our 4G LTE infrastructure further for compatible devices, penetrate deeper into buildings and underground, and enable simpler and more cost-efficient connected solutions to run efficiently on battery power for years. • To provide customers with an improved wireless calling experience, as of October 2018, customers with a VoLTE-enabled phone will be able to place and receive calls using LTE technology instead of HSPA technology while roaming in the U.S. • Throughout the year, we made a series of announcements regarding the connection of additional homes and businesses to our TELUS PureFibre infrastructure, including: •   Further  investments  of  approximately  $50  million  to  connect  additional  homes  and  businesses  in  Eastern  Quebec  by  the  end  of  2021.    These  investments  were  made  with  support  from  the  federal  government’s  Connect  to  Innovate  program  and  the  provincial  government’s    Québec  branché  program.  With  this  support,  we  are  continuing  to  deploy  our  TELUS  PureFibre  network  in  Eastern  Quebec,  which  will    connect  more  than  99%  of  Eastern  Quebec  homes  and  businesses  by  2021 •   An investment of $20 million within Port Moody, B.C. to connect by the end of 2020 •   An investment of $65 million in the city of Delta, B.C., including Tilbury and Annacis Island •   An investment of $45 million in the district of North Vancouver, B.C. •   An investment of $110 million within Richmond, B.C., including Steveston, to connect by the spring of 2019 •   An investment of $21 million within Langley City, B.C. to connect by the spring of 2019 •   An investment of $8 million within Princeton, B.C. to connect by the end of 2019. • We have now connected more than 100 communities in the Greater Quebec City and Eastern Quebec region to our TELUS PureFibre infrastructure. In December 2018, we launched Gigabit Internet and Internet 750/750, offering 1 Gps download and 940 Mbps upload speeds, and 750 Mbps • symmetrical download and upload speeds, respectively. These plans are available to all TELUS PureFibre customers in Western Canada. Fuelling our future through recurring efficiency gains • We achieved efficiency gains to continue investing in our digital transformation, including conducting an urban trial, with a leading vendor, of 5G wireless-to-the-home service using customer premises equipment. • We took steps to simplify our organizational structure in order to drive better customer outcomes. This will allow us to leverage cross-country synergies by streamlining our workflows to stay ahead of growing business complexities. • We incurred incremental restructuring and other costs with the objective of improving our operating efficiency and effectiveness. Restructuring costs associated with the rationalization of administrative, channel and network real estate were recorded in Goods and services purchased. Employee- related restructuring costs 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 expense in connection with business acquisition or disposition activity were recorded in Goods and services purchased. 50 • TELUS 2018 ANNUAL REPORT Driving emerging opportunities in TELUS Health and TELUS International MD&A: CAPABILITIES • In January 2018, we launched the TELUS Baby Health app, a free digital tool that can be used to create a health record for infants and as an educational resource for new and expecting parents. In February 2018, we acquired WEBS Inc. with a view to broadening our portfolio of health benefit management solutions. • • We completed the acquisition of a 65% interest in Xavient Information Systems, as noted in Section 1.3, which now operates as Xavient Digital – powered by TELUS International. With this acquisition, we have increased our ability to expand our global IT services offering with the addition of advanced, next-generation IT consulting and delivery capabilities, including artificial intelligence-powered digital transformation services, user interface/ user experience design, open source platform services, DevOps, and IT lifecycle services, in order to provide a more comprehensive suite of services, positioning us for future growth. • We acquired Medisys Health Group Inc., as noted in Section 1.3, with a view to enhancing our capability for delivering employee-centred workplace • • health and wellness services. In August 2018, we launched the LivingWell CompanionTM , medical alert devices that enable more independent senior living and provide peace of mind to caregivers. The devices provide 24/7 access to a trained operator and fall detection support by calling emergency contacts and dispatching an ambulance where needed while relaying important health information on the senior’s behalf. In September 2018, TELUS Health announced a partnership with Babylon, a British digital healthcare provider, to better connect patients with medical solutions through a digital healthcare smartphone app. This service will complement existing healthcare services across the country by delivering more options to Canadians for accessing quality healthcare and communicating more efficiently with healthcare practitioners from anywhere, at any time. Our 2019 corporate priorities are provided in the table below. 2019 CORPORATE PRIORITIES • Honouring our customers, communities and social purpose by our team delivering on our brand promise • • Leveraging our broadband networks to drive TELUS’ growth Fuelling our future through recurring efficiency gains • Driving emerging opportunities to build scale 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, such as smart watches. • Suite of IoT solutions to support Canadian businesses locally and internationally, including asset tracking, fleet management, remote monitoring, digital signage and security. TELUS 2018 ANNUAL REPORT • 51 WIRELESS PRODUCTS AND SERVICES FOR CONSUMERS AND BUSINESSES ACROSS CANADA Our capabilities Licensed gross national wireless spectrum holdings averaging 160.8 MHz. • • Coast-to-coast digital 4G LTE access technology: • Overall coverage of 99% of Canada’s population, with the LTE advanced (LTE-A) technology covering 93% of Canada’s population at December 31, 2018. Coverage includes domestic 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 licences 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-A, up to 1,100 Mbps; LTE, up to 150 Mbps; HSPA+, up to 42 Mbps. Average expected speeds: LTE-A, 12–250 Mbps; LTE, 12–45 Mbps; HSPA+, 4–14 Mbps.1 • Reverts to HSPA+ technology and speeds when customers are outside LTE coverage areas. • International voice and data roaming capabilities in more than 225 destinations. Competition overview • Facilities-based national competitors Rogers Wireless and Bell Mobility, as well as provincial or regionally focused telecommunications companies Shaw, Quebecor, SaskTel, Eastlink, Tbaytel and Xplornet. 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 CUSTOMER CARE AND BUSINESS SERVICES (CCBS) 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 – TELUS PureFibre, which covers 61% of our broadband footprint at December 31, 2018. Fixed high-speed Internet access (HSIA) service with email and a comprehensive suite of security solutions. Also includes HSIA over LTE, with reliable Wi-Fi, and cloud storage. TELUS offers multiple plans, including 1 Gbps download and 940 Mbps upload speeds, and 750 Mbps symmetrical download and upload speeds. TELUS TV – High-definition entertainment service with Optik TV and Pik TV. Optik TV offers extensive content options, including 4K HDR TV, On Demand content and Netflix, as well as 4K entertainment, such as live TV, On Demand content, Netflix and YouTube. Optik TV also delivers innovative features, including a wireless digital box, large PVR capacity and the ability to restart live TV in progress or from the past 30 hours. In addition, our Optik TV app allows customers to watch live TV, set recordings and access On Demand content from a smartphone, tablet or computer. Pik TV delivers a stream- lined offer for customers through our Pik TV media box or Apple TV, and is also accessible through an Internet browser or our Android or iOS mobile applications. Pik TV embraces the changing environment where content is increasingly available from over-the-top (OTT) services (see Section 3 for further information). IP connectivity for businesses – Converged voice, video and data services and Internet access, offered on a high-performing network. Also includes software-defined wide area network (SD-WAN) offerings. • • • Cloud and managed IT services – Suite of hybrid IT solutions provides traditional and cloud technologies, network connectivity, security, managed IT and cloud advisory services. • Security consulting and managed services – Cloud and on-premises solutions ensuring security for data, email, websites, networks and applications. • Unified Communications conferencing and collaboration – Full range of equipment and application solutions, including Unified Communications as a Service (UCaaS), to support meetings and webcasts by means of phone, video and Internet. • CCBS solutions, IT and digital business services through TELUS International. With more than 32,000 employees operating in 10 countries across North and Central America, Asia, and Europe, supporting customers in more than 40 languages, TELUS International offers voice and non-voice customer interaction services, and designs, builds and delivers next-generation digital solutions covering digital transformation, IT lifecycle, advisory and digital consulting, risk management, and back-office support. These solutions and services are provided across the technology, financial services, communications, gaming, travel/hospitality and healthcare industries.  1 Network speeds vary with location, signal and customer device. Compatible device required. 52 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          MD&A: CAPABILITIES Our products and services • 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, as well as employee wellness, comprehensive primary care, and workplace health and well-being services. Fixed wireless services – HSIA over LTE and wireless home phone. • • Home and business security – Real-time 24/7 central monitoring station, guard response service (where available), and wireless and hard-wired security accessibility, integrated with smart devices, such as cameras and sensors. These services are part of enabling smart homes and businesses through deploying evolving technology solutions such as home health monitoring, which was implemented in B.C. in 2018. Our capabilities • High-speed broadband footprint covered more than 3.1 million households and businesses in B.C., Alberta and Eastern Quebec at December 31, 2018. • Ongoing connection of households and businesses directly to fibre-optic cable; approximately 1.89 million households and businesses covered with TELUS PureFibre in B.C., Alberta and Eastern Quebec at December 31, 2018, and we have reached 61% of our broadband footprint. • Broadcasting distribution licences allowing us to offer digital television services in incumbent territories, as well as licences to offer commercial video-on-demand services. • Security technology to support central monitoring and guard response service (where available), integrated with automated smart devices. Field services capabilities to install, upgrade and repair security technology at customers’ 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 network, as well as competitive local exchange carrier status. • CCBS solutions, next-generation IT and digital business services with global delivery capabilities through our multinational, multi-language programs, supported by more than 32,000 employees across North America, Asia, Europe and Central America, as at December 31, 2018. • Technology solutions to assist health regions, hospitals, insurers, consumers and employers; also to improve connectivity and collaboration among healthcare providers, including physicians, nurses, pharmacists and physiotherapists. Competition overview • 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). • 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 48% in B.C. and Alberta, and 19% in Eastern Quebec in 2018, compared to 45% and 18%, respectively, in 2017. • 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. Our national telecommunications competitors Rogers Communications Inc. and BCE Inc. also offer telecommunications services for business and enterprise customers. • Various others offering VoIP-based local and long distance, as well as Internet and data services, or reselling those services. • OTT and direct-to-consumer voice and/or entertainment services, such as Skype, Netflix, Amazon Prime Video, CBS All Access and YouTube. • Satellite-based entertainment and Internet services offered by Bell Canada, Shaw Communications and Xplornet. • Competitors to our CCBS business include customized managed outsourcing solutions competitors, such as system integrators CGI Group Inc., EDS division of HP Enterprise Services and IBM. Competitors for contact centre and IT digital services include companies such as Convergys, Teleperformance, Sykes, Atento, Genpact and Sitel. Fixed wireless services. • • 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 TELUS Health’s corporate and preventative health service offerings include Medcan, Cleveland Clinic, Dialogue and Wellpoint. • Competitors for home and business security range from local to national companies, such as ADT, Chubb-Edwards, Stanley Security, Fluent Home and Brinks Home Security. TELUS 2018 ANNUAL REPORT • 53                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                4.2 Operational resources RESOURCES Our team • Approximately 58,000 employees at the end of 2018, with 26,000 employees located in Canada and 32,000 employees located internationally. • Approximately 9,480 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 8,060 employees, expires on December 31, 2021. The agreement with the Syndicat québécois des employés de TELUS (SQET), which covers approximately 740 employees, expires on December 31, 2022. The agreement with the Syndicat des agents de maîtrise de TELUS (SAMT), which covers approximately 625 employees in the TELUS Quebec region, expires on March 31, 2022. Our TELUS Sourcing Solutions Inc. subsidiary is signatory to a collective agreement with the B.C. Government and Services Employees’ Union, which covers less than 100 employees and expires on April 30, 2019. • Operations at Canadian and international locations to support CCBS solutions and digital business services for external customers, as well as for certain internal functions. • 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 management and talent reviews for our team continue to cover attrition and ongoing sourcing strategies for ready access to labour in Canada, with competition for talent in specialized or emerging skill areas presenting a challenge. To address this challenge, we continue with an innovative sourcing strategy to proactively attract and engage candidates. Additionally, for our CCBS solutions, we have ready access to labour in the U.S. for management and support positions, and in various international locations for contact centres. We also use external contractors and consultants. Learning and development programs to improve employee engagement levels and enhance our customers’ experiences. • Our brand and distribution channels • TELUS – A national telecommunications company providing a wide range of telecommunications services and products, including wireless and wireline voice and data, with a well-established and recognizable 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 distribution channel that is primarily web-based, providing 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. • TELUS Health, a national provider of telehomecare, electronic medical and health records, consumer health, benefits management, pharmacy management and preventive healthcare services. • TELUS SmartHome Security – Our brand offering security services for residential customers, launched in mid-2018. • TELUS Secure Business – Our brand offering security services for businesses, launched in mid-2018. • 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), 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 sell both wireless and wireline products and services online. 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. CCBS solutions and digital business services are supported through sales representatives and client relationship management teams. • Dedicated direct-to-consumer channel with approximately 500 field sales agents. 54 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                RESOURCES 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 infrastructure – In 2012, we launched our 4G LTE wireless technology capable of speeds of up to 110 Mbps, and today, our MD&A: CAPABILITIES wireless technology covers 99% of Canada’s population. Our LTE technology 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 ever since. In April 2016, we enhanced our LTE-A technology 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 infrastructure in June 2017 by introducing quad-band LTE-A carrier aggregation technology – this technology covers 92% of Canada’s population and enables theoretical peak speeds of 1.1 Gbps. See Leveraging our broadband networks to drive TELUS’ growth in Section 3 Corporate Priorities for additional information. • In 2014, we deployed a centralized radio access technology (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 infrastructure for rural customers in B.C., Alberta and Quebec through our Smart Hub wireless Internet solution. Today, we serve nearly 60,000 households in rural Canada that do not have the same level of access to broadband service. • We have made 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 microcells, 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 2017, we became the first operator in Canada to introduce licensed assisted access (LAA) small cells for both outdoor and indoor environments, capable of speeds up to 970 Mbps. In 2018, we continued advancing LAA technology with the fastest speeds in Canada, up to 1.1 Gbps. In 2018, we became the first operator globally to introduce LTE FDD Massive MIMO 32TRx technology on the B7 band as part of the LTE-A pro technology evolution. This technology will further enhance the capacity of our wireless infrastructure and enable a stronger customer experience. • Wireline broadband infrastructure – Our investments to deploy our gigabit-enabled TELUS PureFibre technology have brought fibre-optic connectivity deeper into our infrastructure and directly to homes and businesses. At the end of 2018, 1.89 million homes and businesses in communities across B.C., Alberta and Quebec had access to ultra-fast, symmetrical 150/150 and 750/750 Internet download and upload speeds with TELUS PureFibre. Over 100 communities now also have 1 Gbps and 750 Mbps Internet service tier options available to them. Recognizing the need for highly reliable, high-capacity connectivity with low latency to support emerging services such as virtualized networks and Internet of Things (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 started the next evolution of our wireline IP and optical core/edge technology, collapsed metro architecture, and initial deployments will continue over three years. This architecture enables a number of future requirements to support 5G and network growth, including significant per-port cost improvement, the ability to leverage software-defined networking (SDN) and network function virtualization (NFV), and improved network and service resiliency. • • We completed Phase 1 of our third-generation national dense wavelength division multiplexing (DWDM) T transport backbone (packet transport 3.0) CDC (colourless, directionless and contentionless) network overlay, connecting Alberta and Ontario. This architecture will allow network growth without the need for costly re-generation, enable optimal optical rerouting during a fibre cut and reduce network growth costs. The second phase of the build began in 2018, with anticipated completion in 2019, and the final stage is set to be completed in 2020. • We 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 infrastructure and will serve as a foundation for new services in conjunction with our wireless technology. • We have continued to innovate for our customers through our Optik TV and Pik TV platforms. In 2018, we introduced HDR (high dynamic range) colour capability to our 4K Optik TV customers, making us the first operator in Canada to deliver 4K/HDR video across live TV, video-on-demand and Netflix services. We also launched an Apple TV application for Pik TV and gave customers the option to purchase Pik TV using only a web browser. By investing in the cloudification of video infrastructure and innovative applications, we will continue to advance our priority of enabling “anytime, everywhere” content and entertainment, thereby continuing to deliver an exceptional customer experience. In 2018, we also launched TELUS Boost Wi-Fi, a network of boosters that extends the reach of strong and reliable in-home Wi-Fi signals. • 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 spaces, work centres and space for telecommunications equipment. Some buildings are constructed on leasehold land and the majority of wireless radio antennae are on towers that are situated on lands or are on buildings held under leases or licences with varying terms. We also participate in two real estate joint ventures. (See Section 7.11.) TELUS 2018 ANNUAL REPORT • 55                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    RESOURCES Our technology, systems and properties • • 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 averaging 160.8 MHz nationally. We have deployed 700 MHz, 2300 MHz, 2500 MHz, 1900 MHz, AWS-1, AWS-3 and 850 MHz spectrum to evolve our wireless infrastructure and will look to the introduction of new bands that will enable the realization of 5G technology. We intend to continue acquiring spectrum within the rules set out by ISED to meet our future capacity requirements. Intellectual property, which we own or which we have been granted the right to use, is also an essential asset for us. Intellectual property enables • us to be known and recognized in the marketplace through our brand style, trade dress, domain names and trademarks. It protects our know-how and software, systems, processes and method of doing business through copyrights, patents and information treated as confidential. It also helps us to increase our competitiveness by fostering an innovative work environment. Each form of intellectual property is important to our success. For instance, the TELUS brand plays a key role in product positioning and our Company’s reputation. We aim to maximize the value of our intangible assets in the areas of innovation and invention by ensuring that they are adequately used, protected and valued. To protect our intellectual property assets, we rely on a combination of legal protections afforded under copyright, trademark, patent and other intellectual property laws, as well as contractual provisions under licensing arrangements. Further information on recognized tangible and intangible properties can be found in Section 8.1 Critical accounting estimates and judgments. • Our broadcasting distribution licences enable us to provide entertainment services. See Broadcasting-related issues in Section 9.4 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 Gbps download speeds in a live-environment test using 3.5 GHz spectrum. • In 2018, we achieved the first 3GPP-based 5G non-standalone (NSA) technology field trial in HetNet architecture in Canada, which included both outdoor macro cells on 3.5 GHz spectrum and 28 GHz spectrum microcells. We also demonstrated a number of 5G experience use cases including live video distribution, face identification, and home security during the seventh next generation mobile networks (NGMN) Industry Conference & Exhibition held in Vancouver in November 2018. These are key milestones in our ongoing effort to unleash the benefits of 5G for Canadians. • We continue to invest in enabling systems 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 Network as a Service (NaaS) solution, the first Canadian NFV infrastructure that will power the virtualized networks of the future and enable Canadian businesses to better serve their customers with improved total cost of ownership. Looking ahead, we will continue on our journey of network virtualization in support of bringing services to customers faster. In 2018, we deployed our LTE-machine (LTE-M) technology across Canada. LTE-M is a low-power wide area network (LPWAN) technology, which is ideal for IoT because it supports large numbers of devices that transmit infrequent, short bursts of data, like IoT sensors. It will enable a plethora of IoT applications through long-range connectivity, extended battery life and carrier-grade security and quality of service. • • • Through TELUS Health’s services – such as pharmacy management, electronic medical records (EMRs) (including mobile EMRs), electronic health records, personal health records, clinical information systems, remote patient monitoring, virtual care 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 our wireless and wireline broadband network. • Through TELUS International, we continue to provide a wide array of products and services, as described in Section 4.1. These services are provided from facilities located in North America, Asia, Europe and Central America. 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,  commer- cial  paper  backstopped  by  long-term  credit  facilities  and  any  hedging    assets  or  liabilities  associated  with  Long-term  debt  items,  net  of    amounts  recognized  in  Accumulated  other  comprehensive  income),   Cash  and  temporary  investments,  and  short-term  borrowings    arising  from  securitized  trade  receivables. We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our business. In order to maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of Common Shares, purchase Common Shares for cancellation pursuant to 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 utilizing a number of measures, including our net debt to EBITDA – excluding restructuring and other costs ratio, coverage ratios and dividend payout ratios. (See definitions in Section 11.1 Non-GAAP and other financial measures.) 56 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              MD&A: CAPABILITIES Financing and capital structure management plans 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 be unchanged 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 2018 totalled $2.10 per share, an increase of $0.13 per share or 6.6% compared to the dividends declared in 2017. On February 13, 2019, the Board declared a first quarter dividend of $0.5450 per share, payable on April 1, 2019, to shareholders of record at the close of business on March 11, 2019. The first quarter dividend for 2019 reflects a cumulative increase of $0.04 per share or 7.9% from the $0.5050 per share dividend declared one year earlier. • During 2018, our dividend reinvestment and share purchase plan trustee purchased from Treasury approximately 1.8 million dividend reinvestment Common Shares for $85 million, with no discount applicable. Purchase Common Shares • In August 2018, we received approval from the Toronto Stock Exchange (TSX) to amend our 2018 NCIB expiring on November 12, 2018, to permit TELUS Communications Inc., a direct wholly owned subsidiary of TELUS Corporation, to purchase Common Shares with an aggregate fair market value of up to $105 million for donation to the TELUS Friendly Future Foundation. All other terms of the 2018 NCIB remained unchanged except that the maximum number of shares that can be purchased during the same trading day on the TSX was 238,480 shares (being 25% of the average daily trading volume for the six months ended July 31, 2018, which was equal to 953,922 shares), subject to certain exemptions for block purchases. • Under the 2018 NCIB, in August and September 2018, TELUS Communications Inc. purchased approximately 2.1 million Common Shares in aggregate • in the market for $100 million, and donated the Shares on a timely basis shortly thereafter to the TELUS Friendly Future Foundation. In December 2018, we received approval from the TSX for a new 2019 NCIB to purchase and cancel up to 8 million Common Shares for consideration of up to $250 million over a 12-month period, from January 2, 2019, to January 1, 2020, 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 14, 2019, we have not had any transactions pursuant to our 2019 NCIB. • 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 have 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 $774 million at December 31, 2018, all of which was denominated in U.S. dollars (US$569 million), compared to $1,140 million (US$908 million) at December 31, 2017. • Our net draws on the TELUS International (Cda) Inc. credit facility were $427 million ($419 million net of unamortized costs) at December 31, 2018, compared to $346 million ($339 million net of unamortized issue costs) at December 31, 2017. • Proceeds from securitized trade receivables were $100 million at December 31, 2018, unchanged from December 31, 2017. Maintain compliance with financial objectives Certain of our current financial objectives will be reviewed in 2019 for possible revision due to changes arising from the adoption of new accounting standards, notably 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 14, 2019, 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, 2018, the ratio was 2.54 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 infrastructure. Given the cash demands of upcoming spectrum auctions, the assessment of the guideline and return to the objective range remains to be determined; however, it is our intent to return to a ratio below 2.50 times in the medium term, consistent with our long-term strategy. (See Section 7.5 Liquidity and capital resource measures.) Excluding the equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden in the third quarter of 2018, the ratio was 2.62 at December 31, 2018. • 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, 2018, the historical ratio of 78% and the adjusted historical ratio of 81% 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, 2018, our unutilized liquidity on a consolidated basis was approximately $2.1 billion. (See Section 7.6 Credit facilities.) TELUS 2018 ANNUAL REPORT • 57                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Financing and capital structure management plans for 2019 At the end of 2018, our long-term debt (excluding unamortized discount) was $14.2 billion and the weighted average term to maturity was approximately 12.2 years (excluding commercial paper, the revolving 4.4 Disclosure controls and procedures and changes in internal control over financial reporting component of the TELUS International (Cda) Inc. credit facility and finance leases). Our weighted average interest rate on long-term debt Disclosure controls and procedures Disclosure controls and procedures are designed to provide reasonable (excluding commercial paper, the revolving component of the TELUS assurance that all relevant information is gathered and reported to senior International (Cda) Inc. credit facility and finance leases) was 4.18% at management, including the President and Chief Executive Officer (CEO) December 31, 2018, the same as one year earlier. Aside from Short-term and the Executive Vice-President and Chief Financial Officer (CFO), borrowings of $100 million, commercial paper of $774 million (US$569 mil- on a timely basis so that appropriate decisions can be made regarding lion), the utilized revolving component of the TELUS International (Cda) Inc. public disclosure. credit facility of $273 million (US$200 million) and finance leases of The CEO and the CFO have assessed the effectiveness of our $102 million, all of our debt was on a fixed-rate basis. disclosure controls and procedures related to the preparation of this During 2019, we may issue senior Notes to fund spectrum purchases, MD&A and the December 31, 2018, Consolidated financial statements. accelerate future debt by prepaying certain Notes, refinance maturing They have concluded that our disclosure controls and procedures debt or use for general corporate purposes. Anticipated free cash flow were effective, at a reasonable assurance level, in ensuring that material and sources of capital are expected to be more than sufficient to meet requirements. For the related risk discussion, see Section 10.7 Financing, debt requirements and returning cash to shareholders. information relating to TELUS and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which the MD&A and the Consolidated financial 500 400 • Other long-term debt • Commercial paper LONG-TERM DEBT PRINCIPAL MATURITIES AS AT DECEMBER 31, 2018 ($ millions) 2048 2046 2045 2044 2043 2028 2027 2026 2025 2024 2023 2022 2021 2020 2019 600 600 500 900 1,000 1,000 1,100 1,083 1,058 62 774 836 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 1,498 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, 2018, 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 1,501 internal control over financial reporting is effective as of December 31, 2018, and have certified TELUS’ annual filings within our annual report on 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. 1,651 Deloitte LLP, our auditor, has audited our internal control over financial reporting as of December 31, 2018. Changes in internal control over financial reporting There were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting in 2018. 58 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                MD&A: DISCUSSION OF OPERATIONS 5 Discussion of operations This section contains forward-looking statements, including those with respect to average billing per subscriber unit per month (ABPU) and average revenue per subscriber unit per month (ARPU) growth, wireless trends regarding loading and retention spending, high-speed Internet subscriber growth and various future trends. To support the transition to the new accounting standard, we believe ABPU provides management, investors and analysts with useful information to assess and evaluate our performance excluding the effects of implementing IFRS 15. ABPU represents the average monthly wireless network revenue derived from monthly service plan, roaming and usage charges, as well as monthly re-payments of the outstanding device balance owing from customers on contract (see Section 11.2 Operating indicators). 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  convergence  and  integration  of  our  wireless  and  wireline   telecommunications  infrastructure  and  technology.  The  continued  build- out  of  our  technology-agnostic  fibre-optic  infrastructure,  in  combination   with  converged  edge  technology,  has  significantly  affected  this  judgment,   as  has  the  commercialization  of  fixed-wireless  telecommunications   solutions  for  customers  and  the  consolidation  of  our  non-customer  facing   operations.  As  a  result,  it  has  become  increasingly  impractical  and   difficult  to  objectively  and  clearly  distinguish  between  our  wireless  and   Selected annual information wireline  operations  and  cash  flows.  As  we  do  not  currently  aggregate   operating  segments,  our  reportable  segments  as  at  December  31,  2018,   are  also  wireless  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).   We  applied  IFRS  9  and  IFRS  15,  both  with  a  transition  date  of   January  1,  2018,  with  retrospective  application.  Refer  to  Section 8.2 Accounting policy developments  in  this  MD&A  and  Note 2  of  the   Consolidated  financial  statements  for  further  information.  In  the  following   table,  the  selected  information  presented  below  excluding  IFRS  9  and   IFRS  15  has  been  derived  from,  and  should  be  read  in  conjunction  with,   the  audited  consolidated  financial  statements  of  TELUS  Corporation   dated  December  31,  2017. Years ended December 31 ($ in millions, except per share amounts) 2018   2017   2017   2016 Operating  revenues   Net  income   Net  income  attributable  to  Common  Shares   Net income per Common Share Basic  earnings  per  share   Diluted  earnings  per  share   Cash  dividends  declared  per  Common  Share   At  December  31  ($  millions)   Total  assets   Current  maturities  of  long-term  debt   Non-current financial liabilities1 Provisions   Long-term  debt   Other  long-term  financial  liabilities   Total  non-current  liabilities   Deferred  income  taxes   Common  equity   Applying IFRS 9 and IFRS 15 (2017 adjusted) Excluding IFRS 9 and IFRS 15 14,368   1,624   1,600   2.68   2.68   2.10   2018   13,408 1,578 1,559 2.63 2.63 1.97 2017   13,304 1,479 1,460 2.46 2.46 1.97 2017   12,799  1,236 1,223 2.06  2.06  1.84  2016 Applying IFRS 9 and IFRS 15 (2017 adjusted) Excluding IFRS 9 and IFRS 15 33,065   836   395   13,265   169   13,829   3,152   10,259   31,053 1,404 152 12,256 224 12,632 2,941 9,416 29,548 1,404 152 12,256 224 12,632 2,500 8,221 27,729   1,327   57   11,604 166   11,827   2,107   7,917    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). TELUS 2018 ANNUAL REPORT • 59 2018 REVENUE MIX – 90% WIRELESS AND DATA 10% Operating revenues: Combined wireless revenue and wireline data revenue represented approximately 90% of consolidated revenues in 2018 and approximately 89% in 2017. Excluding the effects of IFRS 9 and IFRS 15, combined wireless revenue and wireline data revenue represented approximately 87% in 2016. Total assets: Growth in Total assets includes increases in Property, plant and equipment and Intangible assets, which increased by a combined $1,021 million in 2018 and $1,198 million in 2017. These increases resulted 33% 57% primarily from our ongoing investments in broadband infrastructure, connecting additional homes and businesses directly to our fibre-optic technology, and business acquisitions. See Section 7.3 Cash used by investing activities. • Wireless • Wireline data • Wireline voice and other For changes in Long-term debt, see Section 6 Changes in financial position and Section 7.4 Cash used by financing activities. 5.2 Summary of consolidated quarterly results, trends and fourth quarter recap Summary of quarterly results ($ millions, except per share amounts) 2018 Q4 2018 Q3 2018 Q2 2018 Q1 2017 Q4 Operating  revenues1 Operating expenses 3,764 3,774 3,453 3,377 3,541 2017 Q3 3,404 2017 Q2 3,280 2017 Q1 3,183 Goods  and  services  purchased2,4 1,784 1,685 1,491 1,408 1,635 1,522 1,423 Employee  benefits  expense2 Depreciation and amortization Total operating expenses Operating income Financing costs before long-term debt prepayment premium Long-term debt prepayment premium 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  EPS3 Diluted EPS 745 586 3,115 649 159 – 490 122 368 357 0.60 0.69 0.60 740 572 2,997 777 162 34 581 134 447 443 0.74 0.74 0.74 711 559 2,761 692 150 – 542 145 397 390 0.66 0.70 0.66 700 550 2,658 719 156 – 563 151 412 410 0.69 0.73 0.69 683 564 2,882 659 144 – 515 161 354 353 0.59 0.66 0.59 638 547 2,707 697 149 – 548 142 406 403 0.68 0.70 0.68 649 526 2,598 682 142 – 540 144 396 389 0.66 0.70 0.66 Dividends declared per Common Share 0.5450 0.5250 0.5250 0.5050 0.5050 0.4925 0.4925 Additional information: EBITDA3 Restructuring  and  other  costs3,4 Non-recurring gains and equity income (non-recurring losses and equity losses) related to real estate joint ventures MTS net recovery Adjusted  EBITDA3 Cash provided by operating activities Free  cash  flow 3 1,235 75 1,349 173 1,251 35 1,269 34 1,223 54 1,244 23 1,208 36 – – 1,310 948 122 171 – 1,351 1,066 303 – – 1,286 1,206 329 – – (2) 21 1,303 1,258 838 443 979 274 – – 1,267 1,133 215 3 – 1,241 1,126 260 1,324 624 532 2,480 703 138 – 565 143 422 414 0.70 0.71 0.70 0.4800 1,235 4 – – 1,239 709 217 In the third quarter of 2018, we recorded equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden. 1 2 Goods and services purchased and Employee benefits expense amounts include restructuring and other costs. 3 4 See Section 11.1 Non-GAAP and other financial measures. In the third quarter of 2018, we recorded a donation to the TELUS Friendly Future Foundation of $118 million as part of other costs. 60 • TELUS 2018 ANNUAL REPORT MD&A: DISCUSSION OF OPERATIONS Trends The trend of year-over-year increases in consolidated revenue reflects: (i) wireless network revenue generated from growth in our subscriber base; and (ii) growth in wireline data services revenues, including customer care real estate joint ventures of $171 million arising from the sale of TELUS Garden. For additional information on wireless and wireline revenue and subscriber trends, see Section 5.4 Wireless segment and Section 5.5 Wireline segment. and business services (CCBS) (formerly business process outsourcing), The trend of year-over-year increases in Goods and services Internet and enhanced data, TELUS Health, TELUS TV services, and home purchased expense reflects increases in wireless and wireline customer and business security. Increased CCBS revenues, TELUS Health rev- service, roaming, and external labour expenses to support growth in enues, home security and business security revenues include revenues both our subscriber base and business acquisitions; increased wireline from business acquisitions. Increased Internet and TV service revenues TV costs of sales associated with a growing subscriber base; and higher are being generated by subscriber growth and higher Internet revenue per equipment expenses associated with an increase in postpaid gross customer. Year-over-year wireless equipment revenues generally increased additions and increases in higher-value smartphones in the sales mix of from a higher volume of new postpaid contracts and higher-value smart- gross additions and retention units. Goods and services purchased in the phones in the sales mix of gross additions and retention units. Operating revenues in the third quarter of 2018 include equity income related to third quarter of 2018 include a $118 million charitable donation to the TELUS Friendly Future Foundation. (See Section 1.3 for additional details.) OPERATING REVENUES ($ millions) Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS ($ millions) Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 EBITDA is a non-GAAP measure. ADJUSTED EBITDA ($ millions) Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 Q3 17 Q2 17 Q1 17 Adjusted EBITDA is a non-GAAP measure. 3,764 3,774 3,453 3,377 3,541 3,404 3,280 3,183 1,522 1,310 1,286 1,303 1,277 1,267 1,244 1,239 1,310 1,351 1,286 1,303 1,258 1,267 1,241 1,239 The general trend of year-over-year increases in net Employee benefits expense reflects increases in the number of employees resulting from business acquisitions, including those supporting CCBS revenue growth, expansion of our TELUS Health offerings and growth in our home and business security lines of business. This was partly offset by moder- ating salaries expense resulting from reductions in the number of full-time equivalent (FTE) domestic employees related to cost efficiency and effectiveness programs. The trend of year-over-year increases in Depreciation and amortization reflects increases due to growth in capital assets, which is supporting the expansion of our broadband footprint and enhanced LTE technology coverage, and growth in business acquisitions. The investments in our fibre-optic technology also support our small-cell technology strategy to improve coverage and capacity while preparing for a more efficient and timely evolution to 5G. 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 wire- less technology, and our business acquisitions, in addition to a higher average effective interest rate. Financing costs include a long-term debt prepayment premium of $34 million in the third quarter of 2018. Financing costs are net of capitalized interest, which was related to spectrum licences acquired during past wireless spectrum licence auctions. Capitalization of interest ceased in the first quarter of 2017, as cell sites were then capable of utilizing the acquired frequencies. Financing costs also includes Interest accretion on provisions and 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 been impacted by the same trends as Net income and has also been impacted by share purchases under our normal course issuer bid (NCIB) programs. See Financing and capital structure management plans within Section 4.3. The general trend of year-over-year increases in Cash provided by operating activities reflects generally higher year-over-year consolidated EBITDA. This trend was reduced by increased interest payments arising from increases in debt outstanding and year-over-year increases in fixed- term interest rates. The trend of year-over-year increases in free cash flow reflects the above factors affecting Cash provided by operating activities. TELUS 2018 ANNUAL REPORT • 61 Additionally, free cash flow was impacted by the increases in capital • Employee benefits expense in the fourth quarter of 2018 expenditures in 2017, as we connected more homes and businesses were $745 million and increased by $62 million, due to higher directly to fibre and by the end of 2018, TELUS PureFibre was available to compensation and benefit costs resulting from an increase in 61% of our broadband footprint. For further discussion on these trends, see Section 5.4 Wireless segment and Section 5.5 Wireline segment. the number of employees from business acquisitions, as well as higher employee-related restructuring and other costs related Fourth quarter recap Results  for  the  fourth  quarter  of  2018  (three-month  period  ended   December  31,  2018)  are  discussed  in  our  February  14,  2019  news  release   and  are  compared  with  results  from  the  fourth  quarter  of  2017  (three- month  period  ended  December  31,  2017),  adjusted  for  the  retrospective   application  of  IFRS  9  and  IFRS  15  (to  the  three-month  period  ended   December  31,  2017).   • Consolidated operating revenues in the fourth quarter of 2018 were $3,764 million, an increase of $223 million. • Service revenues in the fourth quarter of 2018 were $3,014 million and increased by $133 million, reflecting growth in wireless network revenue and wireline data services, partly offset by the continuing decline in wireline voice revenues. Wireless network revenue increases were driven by a growing wireless subscriber base partly offset by lower ARPU per customer. The increase in wireline data services revenue reflects increased CCBS revenue growth, including the growth in business volumes from recent busi- ness acquisitions, as well as increases in Internet and enhanced data service, TELUS Health revenues, TELUS TV revenue and revenues from our home and business security lines of business. Internet and TV revenues increased due to subscriber growth, as well as higher Internet revenue per customer. • Equipment revenues in the fourth quarter of 2018 were $699 million and increased by $103 million, primarily due to increased wireless revenue mainly from more higher-value smartphones in the sales mix of gross additions and retention units and growth in revenue per handset, as well as a higher volume of new postpaid contracts. Excluding the effects of implementing IFRS 15, equipment revenues would have increased by $13 million or 6.0% in the fourth quarter of 2018. • Other operating income in the fourth quarter of 2018 was $51 million and decreased by $13 million, mainly due to the non-recurrence of the 2017 MTS contingent consideration recovery, partly offset by higher net gains from the sale of property, plant and equipment, and a decrease in the provision related to written put options in respect of non-controlling interests. • Consolidated operating expenses in the fourth quarter of 2018 were $3,115 million, an increase of $233 million. • Goods and services purchased in the fourth quarter of 2018 were $1,784 million and increased by $149 million, largely due to higher wireless handset costs reflecting higher-value smartphones in the sales mix of gross additions and retention units, increases in employee-related and other costs related to business acqui- sitions, higher wireline product costs associated with equipment sales and TELUS Health services, higher TV content costs, and higher administrative costs to support the larger wireless customer base, partly offset by the non-recurrence of 2017 non-labour restructuring and other costs, including those associated with the migration of subscribers from MTS and customer support costs related to acquired MTS subscribers. to efficiency initiatives in the quarter. This was partly offset by lower compensation and benefit costs from a decrease in the number of domestic FTEs, excluding business acquisitions, and higher capitalized labour costs. • Depreciation in the fourth quarter of 2018 was $428 million and increased by $14 million, due to higher expenditures associated with growth in capital assets over the last 12 months, including those arising from our investments in fibre and business acquisitions. • Amortization of intangible assets in the fourth quarter of 2018 was $158 million and increased by $8 million, reflecting higher expenditures associated with the intangible asset base, including those arising from business acquisitions. • EBITDA includes restructuring and other costs, non-recurring gains and equity income related to real estate joint ventures, and the fourth quarter of 2017 MTS net recovery. EBITDA in the fourth quarter of 2018 was $1,235 million, an increase of $12 million or 1.0%. • Adjusted EBITDA excludes restructuring and other costs, non-recurring gains and equity income or net losses and equity losses related to real estate joint ventures, and the fourth quarter of 2017 MTS net recovery. Adjusted EBITDA in the fourth quarter of 2018 was $1,310 million, an increase of $52 million or 4.1%, reflecting higher wireless equipment margins and wireless network revenue growth driven by a growing customer base, in addition to growth in EBITDA contribution from our CCBS business. These factors were partly offset by increased costs associated with a growing wireless customer base and declines in wireline legacy voice services. • Net income attributable to Common Shares in the fourth quarter of 2018 was $357 million, an increase of $4 million, driven by lower income taxes, partly offset by lower Operating income and increased Financing costs. Adjusted Net income excludes the effects of restruc- turing and other costs, income tax-related adjustments, non-recurring gains and equity income related to real estate joint ventures, the long-term debt prepayment premium and the 2017 MTS net recovery. Adjusted Net income in the fourth quarter of 2018 was $409 million and increased by $13 million or 3.3%. • Basic EPS was $0.60 in the fourth quarter of 2018, an increase of $0.01 or 1.7%, driven by lower income taxes, partly offset by lower Operating income and increased Financing costs. Adjusted basic EPS excludes the effects of restructuring and other costs, income tax-related adjustments, non-recurring gains and equity income (non-recurring losses and equity losses) related to real estate joint ventures, the long-term debt prepayment premium and the 2017 MTS net recovery. Adjusted basic EPS in the fourth quarter of 2018 was $0.69 and increased by $0.03 or 4.5%. • Cash provided by operating activities was $948 million in the fourth quarter of 2018, a decrease of $31 million, primarily due to increased income taxes paid and increased share-based compensation paid, partially offset by other working capital changes. 62 • TELUS 2018 ANNUAL REPORT MD&A: DISCUSSION OF OPERATIONS • Cash used by investing activities was $629 million in the fourth quarter of 2018, a decrease of $105 million, mainly due to lower capital expenditures primarily reflecting the planned reduction in our capital spend. • Cash used by financing activities was $338 million in the fourth • Other operating income increased by $170 million in 2018, primarily due to the third quarter of 2018 equity income related to real estate joint ventures arising from the sale of TELUS Garden of $171 million, as noted in Section 1.3. Excluding the effect of equity income related to real estate joint ventures arising from the sale of TELUS Garden, quarter of 2018, an increase of $114 million, primarily reflecting lower Other operating income was relatively flat in the year, primarily due to issuances of long-term debt, net of redemptions and repayment. the non-recurrence of the 2017 MTS contingent consideration recovery, • Free cash flow was $122 million in the fourth quarter of 2018, a partly offset by higher net gains from the sale of property, plant and decrease of $152 million, primarily resulting from increased income equipment and a decrease in the provision related to written put taxes paid and increased shared-based compensation paid. options in respect of non-controlling interests. Operating expenses 5.3 Consolidated operations Years  ended  December  31  ($  in  millions)   2018   2017   Change The following is a discussion of our consolidated financial performance. Segment information in Note 5 of the Consolidated financial statements 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. Goods and services purchased Employee benefits expense Depreciation Amortization of intangible assets Applying IFRS 9 and IFRS 15 (2017 adjusted) 6,368 2,896 1,669 598 5,904 2,594 1,617 552 Operating expenses 11,531 10,667 7.9% 11.6% 3.2% 8.3% 8.1% OPERATING REVENUES ($ millions) 2018 2017 2015 Operating revenues 14,368 13,408 Years  ended  December  31  ($  in  millions)   2018   2017   Change Service    Equipment   Revenues  arising  from  contracts   with  customers   Other  operating  income   Operating  revenues   Applying IFRS 9 and IFRS 15 (2017 adjusted) 11,882   2,213   11,332 1,973 4.9% 12.2% 14,095   13,305 273   103   14,368   13,408 5.9% n/m 7.2% Consolidated operating revenues increased by $960 million in 2018. • Service revenues increased by $550 million in 2018, reflecting Consolidated operating expenses increased by $864 million in 2018. • Goods and services purchased increased by $464 million in 2018, primarily due to the third quarter of 2018 $118 million donation to the TELUS Friendly Future Foundation, as noted in Section 1.3, made in TELUS Corporation Common Shares. Excluding the effect of the donation, Goods and services purchased increased by $346 million or 5.9% in 2018, largely due to employee-related and other costs associated with business acquisitions, higher wireless handset costs reflecting higher-value smartphones in the sales mix of gross addi - tions and retention units, higher wireline product costs associated with equipment sales and TELUS Health services, and higher TV content costs. • Employee benefits expense increased by $302 million in 2018, due to higher compensation and benefit costs resulting from an increase in the number of employees from business acquisitions, as well as higher employee-related restructuring and other costs related to efficiency initiatives in the year. This was partly offset by lower compensation and benefit costs from a decrease in the number of domestic FTEs, excluding business acquisitions, and higher growth in wireless network revenue and wireline data services, partly capitalized labour costs. • Depreciation increased by $52 million in 2018 due to higher expenditures associated with growth in capital assets over the last 12 months, including those arising from our investments in fibre and business acquisitions. • Amortization of intangible assets increased by $46 million in 2018, reflecting higher expenditures associated with the intangible asset base, including those arising from business acquisitions. offset by the continuing decline in wireline voice revenues. Wireless network revenue increases reflect a growing wireless subscriber base. The increase in wireline data service revenue reflects increased CCBS revenue growth, including the growth in business volumes from recent business acquisitions, as well as increases in Internet and enhanced data service, TELUS Health revenues, TELUS TV revenue and revenues from our home and business security lines of business. Internet and TV revenues increased due to subscriber growth, as well as higher Internet revenue per customer. • Equipment revenues increased by $240 million in 2018, primarily due to increased wireless revenue mainly from a higher volume of new postpaid contracts, as well as higher-value smartphones in the sales mix of gross additions and retention units. Excluding the effects of implementing IFRS 15, equipment revenues would have increased by $68 million or 9.4% in 2018. See Note 2(c) of the Consolidated financial statements. TELUS 2018 ANNUAL REPORT • 63 Operating income Financing costs increased by $88 million in 2018, mainly due to the Years  ended  December  31  ($  in  millions)   2018 2017   Change following factors: Wireless EBITDA (see Section 5.4) Wireline EBITDA (see Section 5.5) EBITDA Depreciation and amortization (discussed above) Operating income Applying IFRS 9 and IFRS 15 (2017 adjusted) 3,431 1,673 5,104 3,250 1,660 4,910 (2,267) 2,837 (2,169) 2,741 5.5% 0.8% 3.9% n/m 3.5% Operating income increased by $96 million in 2018, while EBITDA increased by $194 million in 2018. These increases reflect higher wireless equipment margins and wireless network revenue growth driven by a • • Interest expense, before long-term debt prepayment premium increased by $46 million in 2018, primarily due to the following: • Interest on long-term debt increased by $37 million in 2018, resulting from an increase in average long-term debt balances outstanding, in addition to an increase in the effective interest rate in the respective periods. Our weighted average interest rate on long-term debt (excluding commercial paper, the revolving component of the TELUS International (Cda) Inc. credit facility and finance leases) was 4.18% at December 31, 2018, as com- pared to 4.18% one year earlier. (See Long-term debt issues and repayments in Section 7.4.) Interest accretion on provisions increased by $8 million in growing customer base, in addition to growth in EBITDA contribution 2018, attributed to written put options in respect of business from our CCBS business. These factors were partly offset by increased acquisitions. costs associated with a growing wireless customer base, declines in wireline legacy voice services, and higher wireline restructuring and other costs related to efficiency initiatives, as well as increased depreciation • In the third quarter of 2018, we recorded a long-term debt prepayment premium of $34 million before income taxes related to the early redemption of all our $1.0 billion 5.05%, Series CG Notes and amortization. Adjusted EBITDA Years  ended  December  31  ($  in  millions)   2018   2017   Change due December 4, 2019. There was no comparable activity in 2017. • Employee defined benefit plans net interest increased by $11 million in 2018, primarily due to the increase in the defined benefit plan deficit at December 31, 2017, to $334 million, up from $79 million one year Wireless Adjusted EBITDA (see Section 5.4) Wireline Adjusted EBITDA (see Section 5.5) Adjusted EBITDA Applying IFRS 9 and IFRS 15 (2017 adjusted) 3,461 3,286 5.3% earlier, partly offset by a decrease in the discount rate. • Foreign exchange (gains) losses were relatively flat in 2018. Interest income was relatively flat in the full year of 2018. • 1,789 5,250 1,719 5,005 4.1% 4.9% INTEREST EXPENSE ($ millions) Adjusted EBITDA increased by $245 million or 4.9% in 2018, reflecting higher wireless equipment margins and wireless network revenue growth driven by a growing customer base, growth in EBITDA contribution from our CCBS business and higher Internet and TELUS Health margins. 2018 2017 2015 These factors were partly offset by increased costs associated with a Income taxes growing wireless customer base, declines in wireline legacy voice services and a decline in the EBITDA contribution from our business services. Years  ended  December  31    ($  in  millions,  except  tax  rates)   Financing costs Years  ended  December  31  ($  in  millions)   2018 2017   Change Income  tax  computed  at   Interest expense, before long-term debt prepayment premium Long-term debt prepayment premium Interest expense Employee defined benefit plans net interest Foreign exchange gains Interest income Financing costs 625 34 659 17 (6) (9) 661 579 – 7.9% n/m 579 13.8% Revaluation  of  deferred    income  tax  liability  to    reflect  income  tax  rates   Adjustments  recognized  in  the  current  period  for  income  taxes  of  prior  periods   6 (5) (7) 573 n/m Other     20.0% 28.6% 15.4% Income  taxes   Income  taxes  computed  at    applicable  statutory  rates  (%)   Effective  tax  rate  (%)   659 579 2018   2017   Change Applying IFRS 9 and IFRS 15 (2017 adjusted) –  28  n/m (6)  (28)  552 27.0 25.4 (4) (12) 590 50.0% 133.3% (6.4)% 26.7 27.2 0.3 pts. (1.8) pts. Applying IFRS 9 and IFRS 15 (2017 adjusted) applicable  statutory  rates   586 578 1.4% Total income tax expense decreased by $38 million in 2018. The effective tax rate decreased to 25.4% for the year, primarily due to a requirement to revalue the deferred tax liability for higher legislated tax rates in the fourth quarter of 2017, as well as the lower capital gain rate on the TELUS Garden sale. 64 • TELUS 2018 ANNUAL REPORT COMPREHENSIVE INCOME ($ millions) 2018 2017 2015 1,908 1,418 Comprehensive income Years ended December 31 ($ in millions) 2018 2017 Change Net income 1,624 1,578 2.9% Applying IFRS 9 and IFRS 15 (2017 adjusted) Other comprehensive income (net of income taxes): Items that may be subsequently reclassified to income (48) 24 Items never subsequently reclassified to income Comprehensive income 332 1,908 n/m n/m (184) 1,418 34.6% Comprehensive income increased by $490 million in 2018, primarily as a result of changes in employee defined benefit plan re-measurement amounts largely arising from increases in the reference discount rate. Items that may be subsequently reclassified to income are composed of changes in the unrealized fair value of derivatives designated as cash flow hedges and foreign currency translation adjustments arising from translating financial statements of foreign operations. Items never subsequently reclassified to income are composed of changes in the measurement of investment financial assets and employee defined benefit plans re-measurement amounts. 5.4 Wireless segment Postpaid subscribers Blended ABPU 2018:  8,311,000 2018:  $67.30 2017:  7,978,000   +4.2% 2017:  $67.05   +0.4% Prepaid subscribers Postpaid churn rate 2018: 924,000 2018:  0.89% 2017:  933,000   (1.0)% 2017:  0.90%   (0.01)pts. Wireless trends and seasonality The historical trend over the last eight quarters in wireless network revenue reflects growth in our subscriber base, as well as higher-value smartphones in the sales mix of gross additions and retention units. There has been a general year-over-year increase in equipment revenues from a higher volume of new postpaid contracts and higher-value smartphones in the sales mix of gross additions and retention units. The general trend of year-over-year increases in subscriber net additions resulted from the success of our promotions for prepaid subscribers; the effects of market growth arising from a growing population, changing population demographics and an increasing number of customers with multiple devices; marketing efforts focused on higher-value postpaid MD&A: DISCUSSION OF OPERATIONS loading; and continuous improvements in the speed and quality of our network, combined with our improved churn rate, which reflected our focus on executing customers first initiatives. Our expenditures on network improvements increase capacity and coverage, allowing us to grow revenue through net additions of wireless subscribers. Although there have historically been significant third and fourth quarter seasonal effects that result in increased loading, competitive intensity in both the consumer and business markets and launches of new devices may impact subscriber addition results and trends for future periods. Wireless ABPU growth has been moderating, primarily due to two offsetting factors: (i) competitive pressures driving larger allotments of data and rate plans encompassing data sharing and international roaming features, as well as the consumer behavioural response to more frequent customer data usage notifications and offloading of data traffic to increasingly available Wi-Fi hotspots; and (ii) an increased mix of higher-priced rate plans, such as data share plans, in addition to more higher-value smartphones in the sales mix of gross additions and retention units, and an increased proportion of higher-value postpaid customers in the subscriber mix in 2018. As a result of increased com- petitive pressures, customers have been able to gain access to higher network speeds and larger allotments of data included for a given price point, further limiting ABPU expansion. The economic environment, consumer behaviour, the regulatory environment, device selection and other factors also impact ABPU, and as a consequence, there cannot be assurance that ABPU will return to growth in the coming quarters. The trend of our comparatively low postpaid and blended churn rates reflects our customers first efforts, our retention programs and our focus on building and maintaining our high-quality network. We may experience pressure on our postpaid churn rate if the level of competitive intensity increases, in part due to increased promotional activity, if there is an increase in customers on expired or no contracts, or due to regu- latory changes. Accordingly, our wireless segment historical operating results and trends may not be reflective of results and trends for future periods. The effects of implementation of IFRS 15 are most pronounced in our wireless results. Although the measurement of the total revenue recognized over the life of a contract is largely unaffected by the new standard, the effect of IFRS 15 implementation generally accelerates the recognition of contract revenue relative to the associated cash inflows, which are unchanged. While the underlying transaction economics do not differ, during periods of sustained growth in the number of wireless subscriber contract additions (assuming comparable contract-lifetime per unit cash inflows), revenues under IFRS 15 would appear to be greater than would have been the case prior to IFRS 15. With respect to costs, the measurement of the total costs of contract acquisition and contract fulfilment over the life of a contract is unaffected by the new standard, but the timing of recognition is affected. The new standard results in our costs of contract acquisition and contract fulfilment, to the extent that they are material, being capitalized and subsequently recognized as an expense over the life of a contract on a rational, systematic basis con- sistent 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 previous practice (immediate expen- sing of such costs). We will be implementing IFRS 16 on January 1, 2019, TELUS 2018 ANNUAL REPORT • 65 the effects of which will be more pronounced in our wireless results due Total wireless operating revenues increased by $468 million in 2018. to the relative prevalence of lease-in activity in the wireless business, and will impact trends in wireless EBITDA-based operating metrics; however, implementation will not have any impact on economics or cash flows. (See Section 8.2 Accounting policy developments for additional details.) Wireless operating indicators At  December  31   Subscribers1 (000s): Postpaid Prepaid Total Postpaid proportion of subscriber base (%) HSPA+  population  coverage2 (millions) LTE  population  coverage2 (millions) 2018   2017   Change 8,311 924 9,235 90.0 37.0 36.9 7,978 933 8,911 89.5 36.7 36.6 4.2% (1.0)% 3.6% 0.5 pts. 0.8% 0.8% Years ended December 31 2018 2017 Change Subscriber gross additions1 (000s): Applying IFRS 9 and IFRS 15 (2017 adjusted) Postpaid Prepaid Total Subscriber net additions1 (000s): Postpaid Prepaid Total ABPU, per month1,3 ($) ARPU, per month1,3 ($) Churn, per month1,2 (%) Blended Postpaid 1,150 366 1,516 356 (9) 347 67.30 56.08 1.08 0.89 1,140 0.9% 320 14.4% 1,460 3.8% 379 (83) 296 67.05 56.55 (6.1)% n/m 17.2% 0.4% (0.8)% 1.11 (0.03) pts. 0.90 (0.01) pts. 1 2 3 Q4 2018 opening postpaid and total subscribers, as well as associated Q4 2018 operating statistics (ARPU, ABPU and churn), have been adjusted to exclude an estimated 23,000 subscribers impacted by the CRTC’s final pro-rating ruling in June 2018, which was effective October 1, 2018. Including network access agreements with other Canadian carriers. See Section 11.2 Operating indicators. These are industry measures useful in assessing operating performance of a wireless company, but are not measures defined under IFRS-IASB. Operating revenues – Wireless segment Years  ended  December  31  ($  in  millions)   2018 2017 Change Applying IFRS 9 and IFRS 15 (2017 adjusted) WIRELESS NETWORK REVENUE ($ millions) 2018 2017 2015 6,025 5,867 Network revenue  from  external  customers  increased  by  $158  million    in  2018  or  2.7%,  reflecting:  (i)  growth  in  the  subscriber  base;  and    (ii)  a  larger  proportion  of  customers  selecting  higher-priced  rate  plans   with  larger  data  buckets  or  periodically  topping  up  their  data  buckets.   These  were  partly  offset  by  declining  chargeable  data  usage  and  the   competitive  environment  putting  pressure  on  base  rate  plan  prices    in  the  current  and  prior  periods.  Monthly ABPU  was  $67.30  in  2018,   reflecting  an  increase  of  $0.25  or  0.4%,  as  growth  from  customers   selecting  plans  with  larger  data  buckets,  the  introduction  of  our    Platinum  rate  plan  and  more  higher-value  smartphones  in  the  sales    mix  of  gross  additions  and  retention  units  was  partly  offset  by  declines    in  chargeable  data  usage  and  the  competitive  pressures  on  base  rate   plan  prices  mentioned  above.  Monthly ARPU  was  $56.08  in  2018,   reflecting  a  decrease  of  $0.47  or  0.8%  due  to  the  declines  in  chargeable   data  usage  and  competitive  pressures  on  base  rate  plan  prices   mentioned  above. • Gross subscriber additions were 1,516,000 in 2018, reflecting an increase of 56,000. Postpaid gross additions increased by 10,000 in 2018 due to the success of our promotions and marketing efforts focused on higher-value postpaid and smart-  phone loading, as well as demographic shifts, and growth, in the Canadian population, partly offset by the non-recurrence of an aggressive holiday rate plan offer that stimulated significant traffic in the prior year. Prepaid gross activations increased by 46,000 in 2018, mainly as a result of successful promotions and expanded prepaid channels. • Our postpaid churn rate was 0.89% in 2018, as compared to 0.90% in 2017. The comparatively low postpaid churn rate during 2018 reflects our focus on executing customers first initiatives and retention programs and our leading network quality, partly offset by incremental deactivations from competitive intensity. Our blended churn rate was 1.08% in 2018, as compared to 1.11% in 2017. The improvement in our blended churn rate reflects aforementioned improvements in postpaid churn rates and improve- ments in prepaid churn rates, as well as an increase in the mix of postpaid subscribers compared to prepaid subscribers 6,025 5,867 2.7% in our subscriber base. Network  revenue   Equipment  and    other  service  revenues   1,992 1,768 12.7% Revenues  arising  from    contracts  with  customers   Other  operating  income1   External  operating  revenues   Intersegment  revenues   Wireless  operating  revenues   8,017 118 8,135 47 8,182 7,635 36 7,671 43 7,714 5.0% n/m 6.0% 9.3% 6.1%  1 Includes equity income related to real estate joint ventures allocated to the wireless segment of $85 million (50% of the total of $171 million) arising from the sale of TELUS Garden recorded in the third quarter of 2018. • Net subscriber additions reflect postpaid net additions of 356,000 in 2018, compared to 379,000 in 2017. The decline is attributed to higher numbers of deactivations associated with a larger subscriber base, partly offset by higher numbers of gross additions. In 2018, our prepaid subscriber base decreased by 9,000, as compared to a decrease of 83,000 in 2017. Total net subscriber additions were 347,000 in 2018, reflecting a year-over-year improvement of 51,000 compared to 2017. 66 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        MD&A: DISCUSSION OF OPERATIONS Equipment and other service revenues increased by $224 million in 2018, due to more higher-value smartphones in the sales mix of gross additions and retention units, growth in revenue per handset and a higher volume of new postpaid contracts. With the implementation of IFRS 15, equipment revenues are allocated a much larger portion of bundle Other goods and services purchased increased by $61 million in 2018, mainly due to the third quarter of 2018 donation to the TELUS Friendly Future Foundation, as noted in Section 1.3, of which 50% of the total of $118 million was allocated to each of the wireless and wireline segments. Excluding the effect of the donation, Other goods and services purchased revenues, particularly for our wireless segment, as, in contrast to the increased by $2 million in 2018, mainly due to higher administrative costs accounting principles that were superseded, IFRS 15 does not constrain supporting the larger customer base, partly offset by the non-recurrence the measurement of equipment revenue in bundled arrangements of 2017 customer support costs related to acquired MTS subscribers. to amounts that are received at the time of activation of handsets. The measurement of equipment revenue and service revenue is determined by allocating the minimum transaction price (the “minimum spend” amount required in a contract with a customer) based upon Employee benefits expense  increased  by  $36  million  in  2018,  primarily   due  to  higher  labour-related  restructuring  costs  related  to  efficiency  initia- tives,  partly  offset  by  higher  capitalized  labour  costs  and  lower  FTEs. the stand-alone selling prices of the contracted equipment and services EBITDA – Wireless segment included in the minimum transaction price. For clarity, the application of IFRS 15 does not affect our cash flows from operations or the under- lying economics of our relationships with customers. See Note 1(e) and Note 2(a), (c) of the Consolidated financial statements. Other operating income increased by $82 million in 2018, mainly due to the third quarter of 2018 equity income related to real estate joint ventures arising from the sale of TELUS Garden, as noted in Section 1.3, of which 50% of the total of $171 million was allocated to each of the wireless and wireline segments. Excluding the effect of the equity income related to real estate joint ventures arising from the sale of TELUS Garden, the change in Other operating income decreased by $3 million in 2018, mainly due to the non-recurrence of the 2017 MTS contingent con- sideration recovery, partly offset by higher net gains from the sale of property, plant and equipment. Intersegment revenues represent network services that are eliminated upon consolidation along with the associated wireline expenses. Operating expenses – Wireless segment Years  ended  December  31  ($  in  millions)   2018   2017   Change Goods  and  services  purchased: Applying IFRS 9 and IFRS 15 (2017 adjusted) Equipment  sales  expenses   1,960   1,805 Network  operating  expenses   Marketing  expenses   Other1,2   Employee  benefits  expense1   841   393   867   690   826 373 806 654 Wireless  operating  expenses   4,751   4,464 8.6% 1.8% 5.4% 7.6% 5.5% 6.4% 1 2 Includes restructuring and other costs. See Section 11.1 Non-GAAP and other financial measures. Includes a donation to the TELUS Friendly Future Foundation allocated to the wireless segment of $59 million (50% of the total of $118 million) recorded in other costs in the third quarter of 2018. Wireless operating expenses increased by $287 million in 2018. Equipment sales expenses increased by $155 million in 2018, reflecting an increase in higher-value smartphones in the sales mix of gross additions and retention units, and an increase in new postpaid contracts. Network operating expenses increased by $15 million in 2018, mainly due to increased roaming expenses. Marketing expenses increased by $20 million in 2018, primarily due to higher commissions and higher advertising spend. Years  ended  December  31  ($  in  millions,  except  margins)   2018   2017   Change Applying IFRS 9 and IFRS 15 (2017 adjusted) EBITDA 3,431 3,250 5.5% Add  back  restructuring  and  other  costs  included  in  EBITDA1 Deduct  non-recurring  gains  and   equity  income  related  to  real  estate  joint  ventures2 Deduct MTS net recovery Adjusted  EBITDA3 EBITDA margin (%) Adjusted  EBITDA  margin4 (%) 115 57 n/m (85) – 3,461 41.9 42.7 – (21) n/m n/m 3,286 5.3% 42.1 (0.2) pts. 42.7 – pts. 1 2 3 4 Includes a donation to the TELUS Friendly Future Foundation allocated to the wireless segment of $59 million (50% of the total of $118 million) recorded in other costs in the third quarter of 2018. Includes equity income related to real estate joint ventures allocated to the wireless segment of $85 million (50% of the total of $171 million) arising from the sale of TELUS Garden recorded in the third quarter of 2018. See description under EBITDA in Section 11.1 Non-GAAP and other financial measures. Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where the calculation of Operating revenues excludes non-recurring gains and equity income related to real estate joint ventures, and for 2017, excludes the MTS net recovery. Wireless EBITDA increased by $181 million or 5.5% in 2018. Wireless Adjusted EBITDA increased by $175 million or 5.3% in 2018, reflecting higher equipment margins and network revenue growth driven by a larger customer base, partly offset by higher administrative costs and increased customer support costs due to growth in the subscriber base, as well as increased network operating expenses. WIRELESS EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS ($ millions) 2018 2017 2015 WIRELESS ADJUSTED EBITDA ($ millions) 2018 2017 2015 3,546 3,307 3,461 3,286 TELUS 2018 ANNUAL REPORT • 67                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             5.5 Wireline segment Wireline operating indicators High-speed Internet subscriber net additions TELUS TV subscriber net additions 2018: 115,000 2017:  81,000 2018:  63,000 2017:  35,000 Residential NAL net losses 2018: (51,000) 2017:  (76,000) Total wireline subscriber net additions 2018:  127,000 2017:  40,000 Wireline trends The trend over the last eight quarters of increases in wireline service revenue reflects growth in high-speed Internet and enhanced data services, CCBS revenues, TELUS TV revenues, TELUS Health revenues, and home and business security revenues, and is partly offset by declin- ing wireline voice revenues and equipment revenues. The increases in Internet and TV service revenues are being generated by subscriber At December 31 (000s) 2018 2017 Change Subscriber connections: High-speed Internet subscribers TELUS  TV  subscribers1 Residential NALs Total  wireline  subscriber    connections1 1,858 1,093 1,248 1,743 1,098 1,298 6.6% (0.5)% (3.9)% 4,199 4,139 1.4% Years ended December 31 (000s) 2018 2017 Change Subscriber connection net additions (losses): High-speed Internet TELUS TV Residential NALs Total wireline subscriber 115 63 (51) 81 35 42.0% 80.0% (76) 32.9% connection net additions 127 40 n/m  1 Effective April 1, 2018, and on a prospective basis, we have adjusted cumulative subscriber connections to remove approximately 68,000 TELUS TV subscribers as we have ceased marketing our Satellite TV product. Excluding the impacts of this adjustment, total TELUS TV subscriber connections would have increased by 4.8%. growth and higher Internet revenue per customer resulting from Operating revenues – Wireline segment Years  ended  December  31  ($  in  millions)   2018   2017   Change upgrades to faster speeds, larger data usage rate plans and expan-  sion of our fibre footprint. We expect continued high-speed Internet subscriber base growth as the economy grows and as we continue our investments in expanding our fibre-optic infrastructure. The total number of TELUS TV subscribers has increased as a result of our Data services Voice services lower customer churn rate and diverse product offerings. Residential network access line (NAL) losses continue to reflect the ongoing trend of substitution to wireless and Internet-based services, but have been partly mitigated by the success of our bundled service offerings. The trend of declining wireline voice revenues is due to technological substitution, greater use of inclusive long distance coupled with lower long distance minutes used, and intensification of competition in the small and medium-sized business market. The general trend of increasing TELUS Health revenues has been driven by both organic growth and business acquisitions. The migration of business products and services offerings to IP services yield inherently lower margins compared to some legacy business products and service offerings. We expect the rate of growth of CCBS revenues to increase as a result of business acquisition growth and a recovery of organic growth. The trends in wireline EBITDA-based operating metrics will be impacted by our adoption of IFRS 16, as discussed further in Section 8.2 Accounting policy developments. Other services and equipment Revenues arising from contracts with customers Other operating income1   External operating revenues Intersegment revenues Wireline operating revenues Applying IFRS 9 and IFRS 15 (2017 adjusted) 4,588 1,084 406 6,078 155 6,233 207 6,440 4,076 12.6% 1,216 (10.9)% 378 7.4% 5,670 7.2% 67 5,737 206 5,943 n/m 8.6% 0.5% 8.4%  1 Includes equity income related to real estate joint ventures allocated to the wireline segment of $86 million (50% of the total of $171 million) arising from the sale of TELUS Garden recorded in the third quarter of 2018. Total wireline operating revenues increased by $497 million in 2018. WIRELINE EXTERNAL REVENUE ($ millions) 2018 2017 2015 6,233 5,737 68 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        MD&A: DISCUSSION OF OPERATIONS • Data services revenues increased by $512 million in 2018. The increase was primarily due to: (i) growth in CCBS revenues, primarily due to growth in business volumes resulting from both business acquisitions and organic growth; (ii) increased Internet and enhanced data service revenues, reflecting higher revenue per Other operating income increased by $88 million in 2018, mainly due to the third quarter of 2018 equity income related to real estate joint ventures arising from the sale of TELUS Garden, as noted in Section 1.3, of which 50% of the total of $171 million was allocated to each of the wireless and wireline segments. Excluding the effect of customer as a result of upgrades to faster Internet speeds, larger the equity income related to real estate joint ventures arising from the data usage Internet rate plans and certain rate changes, as well as sale of TELUS Garden, Other operating income increased by $3 million a 6.6% increase in our high-speed Internet subscribers over the last in 2018 due to gains on the sale of certain assets, partly offset by a 12 months; (iii) increased TELUS Health revenues, driven by both decrease in amounts recognized from the regulatory price cap deferral business acquisitions and organic growth; (iv) revenues from our account for the provisioning of broadband Internet services to eligible home and business security lines of business; and (v) increased rural and remote communities. TELUS TV revenues, reflecting subscriber growth of 4.8% over the last 12 months, excluding the Satellite TV subscriber adjustment. This growth was partly offset by the ongoing decline in legacy data services. Intersegment revenues represent services including CCBS provided to the wireless segment. Such revenue is eliminated upon consolidation together with the associated expenses in wireless. • Voice services revenues decreased by $132 million in 2018, Operating expenses – Wireline segment NALs in 2018, as compared to a 5.5% decline in residential Goods and services purchased ,2 1 reflecting the ongoing decline in legacy revenues from technological substitution, greater use of inclusive long distance plans and price plan changes. We experienced a 3.9% decline in residential NALs in 2017. • Other services and equipment revenues increased by $28 million in 2018, mainly due to higher data and voice equipment sales. • Wireline subscriber connection net additions were 127,000 in 2018, reflecting an increase of 87,000. • Net additions of high-speed Internet subscribers were 115,000 in 2018, reflecting an increase of 34,000 driven by increased customer demand for our high-speed broadband services, including fibre to the premises, as well as improved churn reflecting our focus on executing customers first initiatives and retention programs. Our continued focus on connecting more homes and businesses directly to fibre (with TELUS PureFibre available to 61% of our broadband footprint at the end of 2018), expanding and enhancing our addressable high-speed Internet and Optik TV footprint, and bundling these services together contributed to combined Internet and TV subscriber growth of 110,000 over the last 12 months. • Net additions of TELUS TV subscribers were 63,000 in 2018, reflecting an increase of 28,000 due to a lower customer churn rate from stronger retention efforts and higher gross additions in response to our diverse product offerings. • Residential NAL losses were 51,000 in 2018, as compared to NAL losses of 76,000 in 2017. The residential NAL losses continue to reflect the trend of substitution to wireless and Internet-based services, partially mitigated by the success of our stronger retention efforts. Years  ended  December  31  ($  in  millions)   2018   2017   Change Employee benefits expense1   Wireline operating expenses Applying IFRS 9 and IFRS 15 (2017 adjusted) 2,561 2,206 4,767 2,343 1,940 4,283 9.3% 13.7% 11.3% 1 2 Includes restructuring and other costs. See Section 11.1 Non-GAAP and other financial measures. Includes a donation to the TELUS Friendly Future Foundation allocated to the wireline segment of $59 million (50% of the total of $118 million) recorded in other costs in the third quarter of 2018. Total wireline operating expenses increased by $484 million in 2018. Goods and services purchased increased by $218 million in 2018, primarily due to the third quarter of 2018 donation to the TELUS Friendly Future Foundation, as noted in Section 1.3, of which 50% of the total of $118 million was allocated to each of the wireless and wireline segments. Excluding the effect of the donation, Goods and services purchased increased by $159 million in 2018, mainly due to higher product costs associated with equipment sales and TELUS Health services, higher TV content costs mainly driven by our growing TV subscriber base (excluding the Satellite TV subscriber adjustment), and increases in external labour, employee-related and other costs related to business acquisitions. Employee benefits expense increased by $266 million in 2018, mainly due to increases in compensation and benefit costs resulting from an increase in the number of employees from business acquisi- tions and higher labour-related restructuring costs related to efficiency initiatives in the year. These increases were partly offset by a decrease in the number of domestic FTEs, excluding business acquisitions, and higher capitalized labour costs, including contract acquisition and fulfilment costs. TELUS 2018 ANNUAL REPORT • 69                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           EBITDA – Wireline segment Years  ended  December  31    ($  in  millions,  except  margins)   2018   2017   Change increased contribution from our CCBS business arising primarily from Wireline EBITDA increased by $13 million or 0.8% in 2018. Wireline Adjusted EBITDA increased by $70 million or 4.1% in 2018, reflecting an EBITDA   1,673   1,660 0.8% Applying IFRS 9 and IFRS 15 (2017 adjusted) Add  back  restructuring  and  other    costs  included  in  EBITDA1   Deduct  non-recurring  gains  and    equity  income  related  to    real  estate  joint  ventures2   Adjusted  EBITDA3   EBITDA  margin  (%)   Adjusted  EBITDA  margin  (%)   4 202   60  n/m (86)   1,789   26.0 28.2 (1)  1,719 n/m 4.1% 27.9 (1.9) pts. 28.9 (0.7) pts. 1 2 3 4 Includes a donation to the TELUS Friendly Future Foundation allocated to the wireline segment of $59 million (50% of the total of $118 million) recorded in other costs in the third quarter of 2018. Includes equity income related to real estate joint ventures allocated to the wireline segment of $86 million (50% of the total of $171 million) arising from the sale of TELUS Garden recorded in the third quarter of 2018. See description under EBITDA in Section 11.1 Non-GAAP and other financial measures. Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where the calculation of Operating revenues excludes non-recurring gains and equity income related to real estate joint ventures. business acquisitions, higher Internet and TELUS Health margins, and higher margins in other services and equipment, partly offset by the continued declines in legacy voice services and a decline in the EBITDA contribution from our business services. WIRELINE EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS ($ millions) 2018 2017 2015 WIRELINE ADJUSTED EBITDA ($ millions) 2018 2017 2015 1,875 1,720 1,789 1,719 70 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                MD&A: CHANGES IN FINANCIAL POSITION 6 Changes  in  financial  position Financia  l position at December 31 ($ mi llions) 2018   2017 Change Change includes: Current assets Applying IFRS 9 and IFRS 15 (2017 adjusted) Cash and temporary investments, net 414 509 Accounts receivable 1,600 1,614 (95) (14) Income and other taxes receivable 3 96 (93) Inventories   376 380 (4) Contract assets 860 757  103 Prepaid expenses 539 493 Current derivative assets 49 18 Current liabilities Short-term borrowings 100 100 Accounts payable and accrued liabil ities 2,570 2,460  46  31  – 110  See Section 7 Liquidity and capital resources n roaming revenue accruals, as well as recei A decrease i     pt of vendor credits and a 2017 refund for MTS subscribers not migrated to TELUS, partly offset by an i ncrease in sales and subscriber growth Refunds received, as well as Income and other taxes payabl e for the current year, which more than offset Income and othe r taxes receivable for prior years A decrease i   cost mix of smartphones n volume of handsets, partly offset by a higher  An i ncrease primarily driven by a higher number of contracte subscribers, as well as higher contract amounts per subscrib n the period i   d er, ncrease in costs i  An i with a customer ncurred to obtai   n or fulfi     ll a contract ncrease in the nomi  An i items and a favourable change in the spread between the rate at the balance sheet date. hedging rate and the actua  l nal amounts of U.S. currency hedgin g  See Section 7.7 Sale of trade receivables  An i ncrease in network-rel other employee-related liabil of accounts payable and wireless handset purchases. See Note 23 of the Consolidated financia  l statements ated accruals and payroll and ities, partly offset by the timi   ng Income and other taxes payable Dividends payable 218 326 34 299 184  27 Current i ncome tax expense i   n excess of instalments Effects of an increase in the dividend rate, as well as an n the number of shares outstanding ncrease i   i Advance billings and customer deposits 653 632  21 ncrease in advance billings reflecting increased wireless  An i subscriber growth duri Consolidated financia  l statements ng the year. See Note 24 of the Provisions   129 78  51 ng provisions exceeded restructuring  New restructuri disbursements. See Note 25 of the Consolidated financia  l statements Current maturities of long-term debt 836 1,404 (568) Current derivative liabil ities  9 33 (24) Working capital (Current assets subtracting Current liabilities) (1,000) (1,173) 173 A decrease i   of $250 of our 1.50% Notes, Series CS in March 2018 n outstanding commerci al paper and maturation A decrease i   hedging items. n the nomi nal amounts of U.S. currency TELUS normally has a negative working capital position. ng and capital structure management plans i   n  See Financi Section 4.3 and the Liquidity risk discussion in Section 7.9. TELUS 2018 ANNUAL REPORT • 71                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Financial  position  at  December  31  ($  millions)   2018   2017   Change   Change  includes: Non-current assets Applying IFRS 9 and IFRS 15 (2017 adjusted) Property,  plant  and  equipment,  net   12,091 11,368 723 Intangible  assets,  net   10,956   10,658 298 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 Goodwill,  net   Contract assets 4,733   4,236 497   Acquisitions including Xavient Information Systems, Medisys Health Group Inc., and home and business security companies 458   396 62  Other long-term assets 986   528 458  An increase primarily driven by a higher number of contracted subscribers, as well as higher contract amounts per subscriber, in the period An increase in pension assets resulting from actuarial gains 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, a favourable change in the spread between the hedging rate and the actual rate at the balance sheet date, and a net increase in investments. See Note 20 of the Consolidated financial statements. Non-current liabilities Provisions     728   511 217  An increase due to written put options in connection with a business acquisition in respect of non-controlling interests. See Note 25 of the Consolidated financial statements Long-term  debt   13,265   12,256 1,009  See Section 7.4 Cash used by financing activities Other  long-term  liabilities   738   847 (109) Deferred  income  taxes   3,152   2,941 211   A decrease in pension and post-retirement liabilities resulting from actuarial gains primarily arising from financial assumption changes in the pension plans, as well as a decrease in the nominal amounts of U.S. currency hedging items and a favourable change in the spread between the hedging rate and the actual rate at the balance sheet date. See Note 27 of the Consolidated financial statements An increase in temporary differences between the accounting and tax basis of assets and liabilities, including employee benefit plan re-measurements recorded in Other comprehensive income. Owners’ equity Common  equity   10,259 9,416 843   See Consolidated statements of changes in owners’ equity in the Consolidated financial statements Non-controlling  interests   82   42 40   See Consolidated statements of changes in owners’ equity in the Consolidated financial statements. 72 • TELUS 2018 ANNUAL REPORT           MD&A: LIQUIDITY AND CAPITAL RESOURCES 7 Liquidity and capital resources This  section  contains  forward-looking  statements,  including  those  with   •   Restructuring  and  other  costs,  net  of  disbursements  and  Shares    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)   2018   2017   Change Applying IFRS 9 and IFRS 15 (2017 adjusted) Cash  provided  by  operating  activities   4,058   settled  from  Treasury  represented  a  net  change  of  $199  million  in  2018.    This  was  largely  attributed  to  our  donation  to  the  TELUS  Friendly   Future  Foundation,  as  noted  in  Section 1.3,  in  addition  to  an  increase   in  restructuring  and  other  costs  expense  not  yet  disbursed  related  to   improving  our  overall  cost  structure  and  operational  effectiveness. •   Interest  paid,  net  of  interest  received  increased  by  $74  million,    largely  due  to  the  long-term  debt  prepayment  premium  described  in   Section 5.3,  in  addition  to  an  increase  in  the  average  long-term  debt   balance,  along  with  a  higher  average  effective  interest  rate  in  2018. •   For  a  discussion  of  Other  operating  working  capital  changes,   see  Section 6 Changes in financial position  and  Note 31(a)  of  the   Consolidated  financial  statements. CASH PROVIDED BY OPERATING ACTIVITIES ($ millions) Cash  used  by  investing  activities   Cash  used  by  financing  activities   Increase  (decrease)  in  Cash  and    temporary  investments,  net   Cash  and  temporary  investments,    net,  beginning  of  period   Cash  and  temporary  investments,    net,  end  of  period   (2,977)   (1,176)   3,947 (3,643) (227) 111  666  (949) (95)   77 (172) 2018 2017 2015 7.2 Cash provided by operating activities Analysis of changes in cash provided by operating activities Years  ended  December  31  ($  millions)   2018   2017   Change 2018 2017 2015 509   414   432 77  509 (95) CASH USED BY INVESTING ACTIVITIES ($ millions) 4,058 3,947 2,977 3,643 EBITDA  (see  Section 5.4 and  Section 5.5)   Restructuring  and  other  costs,    net  of  disbursements  and    Shares  settled  from  Treasury   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   Cash  provided  by    operating  activities   Applying IFRS 9 and IFRS 15 (2017 adjusted) 7.3 Cash used by investing activities 5,104 4,910 194 Analysis of changes in cash used by investing activities 178 (21) 199 42 6 15 17 27 (11) (606) (532) (74) (197) (191) (6) (469) (251) (218) 4,058   3,947 111  Years  ended  December  31  ($  millions)   2018   2017   Change Cash payments for capital assets, excluding spectrum licences Cash payments for spectrum licences Cash payments for acquisitions, net Real estate joint ventures receipts, net of advances (advances, net of receipts) Proceeds on dispositions and Other Applying IFRS 9 and IFRS 15 (2017 adjusted) (2,874) (3,081) (1) (280) 162 16 – (564) (8) 10 Cash used by investing activities (2,977) (3,643) 207 (1) 284 170 6 666 •   The  decrease  in  Cash  payments  for  capital  assets,  excluding   spectrum  licences  for  2018  was  primarily  composed  of: •   A  decrease  in  capital  expenditures  of  $180  million  in  2018    (see  Capital expenditure measures  table  and  discussion  below). •   Lower  capital  expenditure  payments  with  respect  to  payment   timing  differences,  as  the  change  in  associated  Accounts  payable   and  accrued  liabilities  increased  by  $74  million  in  2018. TELUS 2018 ANNUAL REPORT • 73                                                                                                                                                                 • In 2018, we made cash payments for business acquisitions, including 7.4 Cash used by financing activities Medisys Health Group Inc., home and business security-related acqui- sitions including certain assets of AlarmForce Industries Inc., 65% of Xavient Information Systems (Xavient) and other individually immaterial acquisitions complementary to our existing lines of business. This is compared to business acquisition activity in 2017, which included 55% of Voxpro Limited, certain assets of Manitoba Telecom Services Inc. and the Kroll Computer Systems Inc. transaction. • Real estate joint ventures receipts, net of advances increased by $170 million in 2018, attributed to funds repaid to us and earnings distributed from the TELUS Garden real estate joint venture arising from the sale of TELUS Garden, as noted in Section 1.3. CAPITAL EXPENDITURES (EXCLUDING SPECTRUM LICENCES) ($ millions) 2018 2017 2015 2,914 3,094 Capital expenditure measures Years  ended  December  31    ($  in  millions,  except  capital  intensity)   Capital  expenditures1 Wireless  segment   Wireline  segment   Consolidated   Wireless  segment  capital  intensity  (%)   Wireline  segment  capital  intensity  (%)   Consolidated  capital  intensity (%)   2   2018   2017   Change Applying IFRS 9 and IFRS 15 (2017 adjusted) 896   2,018   2,914   11   31   20   978 2,116 3,094 13 36 23 (8.4)% (4.6)% (5.8)% (2) pts. (5) pts. (3) pts. 1 2 Capital expenditures include assets purchased but not yet paid for, and therefore differ from Cash payments for capital assets, excluding spectrum licences, as presented on the Consolidated statements of cash flows. See Section 11.1 Non-GAAP and other financial measures. Wireless segment capital expenditures decreased by $82 million in 2018, as we incurred costs in 2017 to update our radio access network technology in Ontario and Quebec, which was completed in the second quarter of 2017. Wireline segment capital expenditures decreased by $98 million in 2018, primarily reflecting the planned reduction in our capital spend. We continued connecting additional homes and businesses directly to our fibre-optic technology and our investments support systems reliability and operational efficiency and effectiveness. These investments support our high-speed Internet and TELUS TV subscriber growth, as well as our customers’ demand for faster Internet speeds, and extend the reach and functionality of our business and healthcare solutions. At December 31, 2018, we made TELUS PureFibre available to 61% of our broadband footprint. Analysis of changes in cash used by financing activities Years  ended  December  31  ($  millions)   2018   2017   Change   Dividends  paid  to  holders   of  Common  Shares   Treasury  shares  acquired   Repayment  of  short-term    borrowings,  net   Long-term  debt  issued,  net  of    Applying IFRS 9 and IFRS 15 (2017 adjusted) (1,141)   (100)   (67) (1,082) – – (59) (100)   (67) redemptions  and  repayment   123   865 (742) Issue  of  shares  by  subsidiary    to  non-controlling  interests   Other     24   (15)   (1) (9) 25   (6) (1,176) (227) (949) Dividends paid to holders of Common Shares In  connection  with  dividends  declared  during  2018,  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  2018,  cash   dividends  paid  to  the  holders  of  Common  Shares  increased  by  $59  million,    which  reflects  higher  dividend  rates  under  our  dividend  growth  program   (see  Section 4.3),  as  well  as  an  increase  in  the  number  of  shares  out- standing.  During  2018,  the  Trustee  purchased  dividend  reinvestment   Common  Shares  for  $85  million,  with  no  discount  applicable. In January 2019, we paid dividends of $303 million to the holders of Common Shares and the Trustee purchased dividend reinvestment Common Shares from Treasury for $23 million, totalling $326 million. Treasury shares acquired As noted in Section 1.3, an initial donation of $100 million to the TELUS Friendly Future Foundation was made in TELUS Corporation Common Shares acquired in the market in the third quarter of 2018. Repayment of short-term borrowings, net In connection with our third quarter of 2018 acquisition of Medisys Health Group Inc., we repaid short-term borrowings of $62 million. Long-term debt issues and repayments For the full year of 2018, long-term debt issues net of repayments were $123 million, a decrease of $742 million, primarily composed of: • A net decrease in commercial paper, including foreign exchange effects, of $366 million to a balance of $774 million (US$569 million) at December 31, 2018, from a balance of $1,140 million (US$908 million) at December 31, 2017. 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, including foreign exchange effects, of $81 million (US$37 million). As at December 31, 2018, net draws were $427 million ($419 million net of unamortized issue costs), all of which were denominated in U.S. dollars (US$313 million). As at December 31, 2017, net draws were $346 million ($339 million net of unamortized issue costs), all of which were denominated in U.S. dollars (US$276 million). The increase in net draws on the TELUS International (Cda) Inc. credit facility was used to fund the acquisition of 65% of Xavient. The credit facility is non-recourse to TELUS Corporation. 74 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 MD&A: LIQUIDITY AND CAPITAL RESOURCES • The March 1, 2018, issues of $600 million of senior unsecured Series CX notes at 3.625% due March 1, 2028, and $150 million through the re-opening of Series CW notes at 4.70% due March 6, 2048. For additional information on these notes, refer to Note 26(b) of the Consolidated financial statements. • The June 2018 issue of US$750 million of senior unsecured 30-year notes at 4.60% due November 16, 2048. We have fully hedged the principal and interest obligations of the notes against fluctuations in the Canadian dollar foreign exchange rate for the entire term of the notes by entering into a foreign exchange derivative (a cross currency interest rate exchange agreement), which effectively converted the principal payments and interest obligations to Canadian dollar obliga- tions with a fixed interest rate of 4.41% and an issued and outstanding amount of $974 million (reflecting a fixed exchange rate of $1.2985). • The March 2018 repayment of $250 million of Series CS notes. • The August 1, 2018, early full redemption of $1 billion of Series CG notes at 5.05% due December 4, 2019. The long-term debt prepayment premium recorded in the three-month period ended September 30, 2018, was $34 million before income taxes. In comparison, for the full year of 2017, long-term debt issues net of repayments were $865 million and were primarily composed of: • A net increase in commercial paper, including foreign exchange effects, of $527 million from a balance of $613 million (US$456 million) at December 31, 2016. • An increase in net draws on the TELUS International (Cda) Inc. credit facility, including foreign exchange effects, of $6 million (US $23 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). Issue of shares by subsidiary to non-controlling interests In connection with our first quarter of 2018 acquisition of 65% of Xavient, our TELUS International (Cda) Inc. subsidiary issued shares to non-  controlling interests. 7.5 Liquidity and capital resource measures Net debt was $13.8 billion at December 31, 2018, an increase of $0.4 billion when compared to one year earlier, resulting mainly from the issuances of the US$750 million of senior unsecured notes, $600 million of Series CX notes and $150 million through the re-opening of Series CW notes as described in Section 7.4, as well as lower Cash and temporary investments, net. These increases were partially offset by a net reduction of commercial paper outstanding, the repayment of Series CS Notes and the early redemption of Series CG Notes as described in Section 7.4. The calculation of Net debt will be impacted by the application of IFRS 16, Leases, as described in Section 8.2 and Note 2(b) of the Consolidated financial statements. Fixed-rate debt as a proportion of total indebtedness was 91% as at December 31, 2018, up from 89% one year earlier, mainly due to a net decrease in commercial paper, which emulates floating-rate debt, as well as the June 2018 note issuance and the two unsecured note issuances in the first quarter of 2018 described in Section 7.4. This was partly offset by an increase in the amounts drawn on the TELUS International (Cda) Inc. credit facility, which is non-recourse to TELUS Corporation, and the early redemption of Series CG Notes. Net debt to EBITDA – excluding restructuring and other costs    ratio  was  2.54  times,  as  measured  at  December  31,  2018,  down  from   • The March 2017 issues of US$500 million of senior unsecured notes 2.67  times  one  year  earlier,  partly  attributed  to  current  year  equity   at 3.70%, due September 15, 2027, and $325 million of senior income  related  to  real  estate  joint  ventures  arising  from  the  sale  of  TELUS   unsecured notes at 4.70% due March 6, 2048. Garden.  Excluding  the  equity  income  related  to  real  estate  joint  ventures   • The March 2017 repayment of $700 million of Series CD Notes. of  $171  mill ion  arising  from  the  sale  of  TELUS  Garden,  the  ratio  was    The average term to maturity of our long-term debt (excluding commercial paper, the revolving component of the TELUS International (Cda) Inc. credit facility and finance leases) was approximately 12.2 years as at December 31, 2018, increasing from approximately 10.7 years as at December 31, 2017. Additionally, our weighted average cost of long-term debt (excluding commercial paper, the revolving component of the TELUS International (Cda) Inc. credit facility and finance leases) was 4.18% as at both December 31, 2018, and 2017. NET INCREASE IN LONG-TERM DEBT ($ millions) 2018 123 2017 2015 865 AVERAGE TERM TO MATURITY OF LONG-TERM DEBT (years) 2018 2017 2015 12.2 10.7 2.62  times  as  at  December  31,  2018.  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,  2018,  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   $3.6  billion  and  the  elevated  strategic  capital  investments  in  our  fibre-  optic  infrastructure,  partially  offset  by  growth  in  EBITDA  –  excluding    restructuring  and  other  costs.  These  acquired  licences  have  more  than   doubled  our  national  spectrum  holdings  and  represent  an  investment    to  extend  our  network  capacity  to  support  continuing  data  consumption   growth,  as  well  as  growth  in  our  wireless  customer  base.  Given  the  cash   demands  of  upcoming  spectrum  auctions,  the  assessment  of  this  guide- line  and  return  to  the  objective  range  remains  to  be  determined;  however,   it  is  our  intent  to  return  to  a  ratio  below  2.50  times  in  the  medium  term,   consistent  with  our  long-term  strategy.  While  this  ratio  exceeds  our  long- term  objective  range,  we  are  well  in  compliance  with  the  leverage  ratio   covenant  in  our  credit  facilities,  which  states  that  we  may  not  permit  our   net  debt  to  operating  cash  flow  ratio  to  exceed  4.00:1.00  (see  Section 7.6 Credit facilities).  The  calculation  of  EBITDA  –  excluding  restructuring  and   other  costs  will  be  impacted  by  the  application  of  IFRS  16  as  described   in  Section 8.2  and  Note 2(b)  of  the  Consolidated  financial  statements. TELUS 2018 ANNUAL REPORT • 75 EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS ($ millions) EBITDA – EXCLUDING RESTRUCTURING AND OTHER COSTS INTEREST COVERAGE (times) 5,421 2018 5,027 2017 2015 8.4 8.9 2018 2017 2015 EBITDA is a non-GAAP measure. 2014 Liquidity and capital resource measures As at, or years ended, December 31 Components of debt and coverage ratios ($ millions) 1 Net debt 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, the revolving  component of the TELUS International (Cda) Inc. credit facility and finance leases) (years) Weighted average interest rate on long-term debt (excluding commercial paper, the revolving component of the TELUS International (Cda) Inc. credit facility and finance leases) (%) Net debt to EBITDA – excluding restructuring and other costs 2 (times) 1, Coverage ratios1  (times) Earnings  coverage   EBITDA  –  excluding  restructuring  and  other  costs  interest  coverage   Other measures1  (%) Dividend  payout  ratio   Dividend  payout  ratio  of  adjusted  net  earnings   2018 2017 Change Applying IFRS 9 and IFRS 15 (2017 adjusted) 13,770 5,421 644 13,422 5,027 567 91 12.2 4.18 2.54 4.4   8.4   78   81 89 10.7 4.18 2.67 4.8 8.9 80 80 348 394 77 2 pts. 1.5 – pts. (0.13) (0.4) (0.5) (2) pts. 1 pt. 1 2 See  Section 11.1 Non-GAAP and other financial measures. Excluding the third quarter of 2018 equity income related to real estate joint ventures of $171 million arising from the sale of TELUS Garden, the ratio was 2.62 at December 31, 2018. Earnings coverage ratio for 2018 was 4.4 times, down from 4.8 times one year earlier. An increase in income before borrowing costs and earnings per share. We currently expect that we will be within our objective range when considered on a prospective dividend payout income taxes increased the ratio by 0.1, while an increase in borrowing ratio basis within the medium term. The historical measures for the costs reduced the ratio by 0.5. EBITDA – excluding restructuring and other costs interest coverage   ratio  for  2018  was  8.4  times,  down  from  8.9  times  one  year  earlier.   Growth  in  EBITDA  –  excluding  restructuring  and  other  costs  increased   the  ratio  by  0.6,  while  an  increase  in  net  interest  costs  reduced  the    ratio  by  1.1. 12-month period ended December 31, 2018, are presented for illustrative purposes in evaluating our target guideline, and both exceeded the objective range. 7.6 Credit facilities At December 31, 2018, we had available liquidity of approximately Dividend payout ratios: Actual dividend payout decisions will continue to be subject to our Board’s assessment and the determination of our $1.5 billion from the TELUS revolving credit facility and approximately $205 million of available liquidity from the TELUS International (Cda) 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 Inc. credit facility. 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. 76 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     MD&A: LIQUIDITY AND CAPITAL RESOURCES TELUS revolving credit facility We have a $2.25 billion (or U.S. dollar equivalent) revolving credit facility with a syndicate of financial institutions, which was renewed in May 2018 and which extended the expiration date from May 31, 2021 to May 31, 2023. The revolving credit facility is used for general corporate purposes, including the backstop of commercial paper, as required. TELUS revolving credit facility at December 31, 2018 ($ millions) Five-year revolving facility1    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 – (774) Available  liquidity 1,476 Our  revolving  credit  facility  contains  customary  covenants,  including    a  requirement  that  we  not  permit  our  consolidated  leverage  ratio  to   Other letter of credit facilities At  December  31,  2018,  we  had  $184  million  of  letters  of  credit  outstand- exceed  4.00  to  1.00  and  that  we  not  permit  our  consolidated  coverage   ing  (2017  –  $224  million)  issued  under  various  uncommitted  facilities;   ratio  to  be  less  than  2.00  to  1.00  at  the  end  of  any  financial  quarter.  As  at   such  letter  of  credit  facilities  are  in  addition  to  the  ability  to  provide  letters   December  31,  2018,  our  consolidated  leverage  ratio  was  approximately   of  credit  pursuant  to  our  committed  bank  credit  facility.  Available  liquidity   2.54  to  1.00,  and  our  consolidated  coverage  ratio  was  approximately  8.42   under  various  uncommitted  letters  of  credit  facilities  was  $131  million  at   to  1.00.  These  ratios  are  expected  to  remain  well  within  the  covenants.   December  31,  2018.  We  have  arranged  incremental  letters  of  credit  to   There  are  certain  minor  differences  in  the  calculation  of  the  leverage  ratio   allow  us  to  participate  in  Innovation,  Science  and  Economic  Development   and  coverage  ratio  under  the  revolving  credit  facility,  as  compared  with   Canada’s  600  MHz  wireless  spectrum  auction  that  is  to  be  held  in  March   the  calculation  of  Net  debt  to  EBITDA  –  excluding  restructuring  and  other   2019.  Under  the  terms  of  the  auction,  communications  between  bidders   costs  and  EBITDA  –  excluding  restructuring  and  other  costs  interest   that  would  provide  insights  into  bidding  strategies,  including  reference   coverage.  Historically,  the  calculations  have  not  been  materially  different.   to  preferred  blocks,  technologies  or  valuations,  are  precluded  until  the   The  covenants  are  not  impacted  by  revaluation,  if  any,  of  Property,  plant   deadline  for  the  final  payment  in  the  auction.  Disclosure  of  the  precise   and  equipment,  Intangible  assets  or  Goodwill  for  accounting  purposes.   amount  of  our  letters  of  credit  could  be  interpreted  as  a  signal  of  bidding   Continued  access  to  our  credit  facilities  is  not  contingent  on  maintaining   intentions.  The  maximum  amount  of  letters  of  credit  that  any  individual   a  specific  credit  rating. participant  could  be  required  to  deliver  is  approximately  $880  million. Commercial paper TELUS Corporation has an unsecured commercial paper program, which is backstopped by our revolving credit facility, enabling us to issue 7.7 Sale of trade receivables commercial paper up to a maximum aggregate amount of $1.4 billion TELUS Communications Inc., a wholly owned subsidiary of TELUS, is a as at December 31, 2018, including a U.S. dollar-denominated commercial party to an agreement with an arm’s-length securitization trust associated paper program for up to US$1.0 billion within this maximum aggregate with a major Schedule I Canadian bank, under which it is able to sell amount. Foreign currency forward contracts are used to manage currency an interest in certain trade receivables for an amount up to a maximum risk arising from issuing commercial paper denominated in U.S. dollars. of $500 million. The agreement is in effect until December 31, 2021 The commercial paper program is to be used for general corporate purposes, including, but not limited to, capital expenditures and investments. Our ability to reasonably access the commercial paper market in Canada and the U.S. is dependent on our credit ratings (see Section 7.8 Credit ratings). TELUS International (Cda) Inc. credit facility As  at  December  31,  2018,  TELUS  International  (Cda)  Inc.  had  a  bank   credit  facility,  secured  by  its  assets,  expiring  on  December  20,  2022,    with  a  syndicate  of  financial  institutions.  The  credit  facility  is  composed   of  a  US$350  million  (2017  –  US$350  million)  revolving  component  and    an  amortizing  US$120  million  (2017  –  US$120  million)  term  loan  com- ponent.  The  credit  facility  is  non-recourse  to  TELUS  Corporation.  As  at   (2017 – December 31, 2018), and available liquidity was $400 million as at December 31, 2018. (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 credit rating was exceeded as of February 14, 2019. 7.8 Credit ratings December  31,  2018,  $427  million  ($419  million  net  of  unamortized  issue   There were no changes to our investment grade credit ratings during costs)  was  outstanding,  all  of  which  was  denominated  in  U.S.  dollars   (US$313  million),  with  the  revolving  component  having  a  weighted   average  interest  rate  of  4.22%. 2018, or as of February 14, 2019. 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.) TELUS 2018 ANNUAL REPORT • 77                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               7.9 Financial instruments, commitments and contingent liabilities Financial instruments Our financial instruments, their accounting classification 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. Risks Market risks Financial  instrument   Accounting classification Credit   Liquidity Currency   Interest rate Other  price Measured at amortized cost Accounts receivable Contract assets Construction credit facilities advances to real estate joint venture Short-term obligations Accounts payable Provisions Long-term debt Measured at fair value AC1 AC1 AC1 AC1 AC1 AC1 AC1 Cash and temporary investments FVTPL2 Long-term investments (not subject to significant influence)3 FVTPL/FVOCI3 Foreign exchange derivatives4 Share-based compensation derivatives4 FVTPL2 FVTPL2 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 X 1 2 3 4 For accounting recognition and measurement purposes, classified as amortized cost (AC). For accounting recognition and measurement purposes, classified as fair value through net income (FVTPL). Unrealized changes in the fair values of financial instruments are included in net income unless part of a cash flow hedging relationship. The effective portion of unrealized changes in the fair values of financial instruments held for hedging are included in other comprehensive income. Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured. For accounting recognition and measurement purposes, on an investment-by-investment basis, long-term investments are classified as either fair value through net income or fair value through other comprehensive income (FVOCI). 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. Derivatives that are part of an established and documented cash flow hedging relationship are accounted for as held for hedging. We believe that classification as held for hedging results in a better matching of the change in the fair value of the derivative financial instrument with the risk exposure being hedged. In respect of hedges of anticipated transactions, hedge gains/losses are included with the expenditure and are expensed when the transaction is recognized in our results of operations. We have selected this method as we believe that it results in a better matching of the hedge gains/losses with the risk exposure being hedged. Derivatives that are not part of a documented cash flow hedging relationship are accounted for as held for trading and thus are measured at fair value through net income. Credit risk Credit risk arises from Cash and temporary investments, Accounts We maintain allowances for lifetime expected credit losses related to doubtful accounts. Current economic conditions receivable, Contract assets and derivative financial instruments. (including forward-looking macroeconomic data), historical infor- We mitigate credit risk as follows: mation (including credit agency reports, if available), reasons for • Credit risk associated with Cash and temporary investments is the accounts being past-due and line of business from which managed by ensuring that these financial assets are placed with the customer Accounts receivable arose are all considered when governments, major financial institutions that have been accorded determining whether to make allowances for past-due accounts. strong investment grade ratings by a primary rating agency, and/or The same factors are considered when determining whether to other creditworthy counterparties. An ongoing review is performed write off amounts charged to the allowance for doubtful accounts to evaluate changes in the status of counterparties. against the customer Accounts receivable. The doubtful accounts • Credit risk associated with Accounts receivable is inherently managed expense is calculated on a specific-identification basis for cus- by the size and diversity of our large customer base, which includes tomer Accounts receivable above a specific balance threshold substantially all consumer and business sectors in Canada. We follow and on a statistically derived allowance basis for the remainder. a program of credit evaluations of customers and limit the amount of credit extended when deemed necessary. As at December 31, 2018, No customer Accounts receivable are written off directly to the doubtful accounts expense. the weighted average age of past-due customer Accounts receivable was 56 days (2017 – 60 days). 78 • TELUS 2018 ANNUAL REPORT MD&A: LIQUIDITY AND CAPITAL RESOURCES • Credit risk associated with Contract assets is inherently managed Our  foreign  exchange  risk  management  includes  the  use  of  foreign   by the size and diversity of our large customer base, which includes currency  forward  contracts  and  currency  options  to  fix  the  exchange   substantially all customer and business sectors in Canada. We follow rates  on  a  varying  percentage,  typically  in  the  range  of  50  to  75%,  of  our   a program of credit evaluations of customers and limit the amount domestic  short-term  U.S.  dollar-denominated  transactions  and  commit- of credit extended when deemed necessary. ments  and  all  U.S.  dollar-denominated  commercial  paper.  Other  than  in   We  maintain  allowances  for  lifetime  expected  credit  losses   related  to  contract  assets.  Current  economic  conditions,  historical   information  (including  credit  agency  reports,  if  available),  and  the    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   line  of  business  from  which  the  contract  asset  arose  are  all  con- commercial  paper,  we  designate  the  forward  rate. sidered  when  determining  impairment  allowances.  The  same  factors   We are also exposed to currency risk in that the fair value or future are  considered  when  determining  whether  to  write  off  amounts   cash flows of our U.S. Dollar Notes and our TELUS International (Cda) Inc. charged  to  the  impairment  allowance  for  contract  assets  against   credit facility U.S. dollar borrowings could fluctuate because of changes Contract  assets. in foreign exchange rates. Currency hedging relationships have been • Counterparties to our share-based compensation cash-settled established for the related semi-annual interest payments and the principal equity forward agreements and foreign exchange derivatives are payment at maturity in respect of the U.S. Dollar Notes; we designate only major financial institutions that have been accorded investment grade the spot element of these instruments as the hedging item; the forward ratings by a primary credit rating agency. The dollar amount of credit element is wholly immaterial. As the functional currency of our TELUS exposure under contracts with any one financial institution is limited International (Cda) Inc. subsidiary is the U.S. dollar, fluctuations in foreign and counterparties’ credit ratings are monitored. We do not give or exchange rates affecting its borrowings are reflected as a foreign currency receive collateral on swap agreements and hedging items due to our translation adjustment within other comprehensive income. 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. 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 Interest rate risk Changes in market interest rates will cause fluctuations in the fair values or future cash flows of temporary investments, construction credit facility 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 and fixed interest rates and as a result, their fair values will fluctuate with 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. liquidity and our liquidity requirements according to our actual needs; If the balance of short-term investments includes dividend-paying maintaining an agreement to sell trade receivables to an arm’s-length equity instruments, we could be exposed to interest rate risk. securitization trust; maintaining bilateral bank facilities and syndicated Due to the short-term nature of the applicable rates of interest charged, credit facilities; maintaining a commercial paper program; maintaining the fair value of the construction credit facility advances made to the an in-effect shelf prospectus; continuously monitoring forecast and real estate joint venture is not materially affected by changes in market actual cash flows; and managing maturity profiles of financial assets interest rates; associated cash flows representing interest payments and financial liabilities. will be affected until such advances are repaid. 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, 2018, we had liquidity of more than $1.5 billion available from unutilized credit facilities (see Section 7.6 Credit facilities) and $400 million available under our trade receivables securitization program (see Section 7.7 Sale of trade receivables), and we could offer $2.5 billion of debt or equity securities pursuant to a shelf prospectus that is in effect until June 2020. 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. 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 This adheres to our objective of generally maintaining at least $1 billion item is not material. of available liquidity. We believe that our investment grade credit ratings All  of  our  currently  outstanding  long-term  debt,  other  than  commer- contribute to reasonable access to capital markets. The expected maturities of our undiscounted financial liabilities do not differ significantly from the contractual maturities, other than as shown in the table in Note 4(c) of the Consolidated financial statements. 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. cial  paper  and  amounts  drawn  on  our  credit  facilities,  is  fixed-rate  debt   (see  Section 7.5).  The  fair  value  of  fixed-rate  debt  fluctuates  with  changes   in  market  interest  rates;  absent  early  redemption,  the  related  future  cash   flows  will  not  change.  Due  to  the  short  maturities  of  commercial  paper,   its  fair  value  is  not  materially  affected  by  changes  in  market  interest  rates,   but  the  associated  cash  flows  representing  interest  payments  may  be   affected  if  the  commercial  paper  is  rolled  over.   Amounts drawn on our short-term and long-term credit facilities will be affected by changes in market interest rates in a manner similar to commercial paper. TELUS 2018 ANNUAL REPORT • 79 Other price risk • Long-term investments: We are exposed to equity price risk arising The  fair  values  of  the  derivative  financial  instruments  we  use  to   manage  our  exposure  to  currency  risk  are  estimated  based  upon  quoted    from investments classified as fair value through other comprehensive market  prices  in  active  markets  for  the  same  or  similar  financial  instru- income. Such investments are held for strategic rather than trading ments  or  on  the  current  rates  offered  to  us  for  financial  instruments  of  the   purposes. same  maturity,  as  well  as  discounted  future  cash  flows  determined  using   • Share-based compensation derivatives: We are exposed to other current  rates  for  similar  financial  instruments  of  similar  maturities  subject   price risk arising from cash-settled share-based compensation to  similar  risks  (such  fair  value  estimates  being  largely  based  on  the   (appreciating Common Share prices increase both the expense Canadian  dollar:  U.S.  dollar  forward  exchange  rate  as  at  the  statement    and the potential cash outflow). Certain cash-settled equity swap of  financial  position  dates). agreements have been entered into that fix the cost associated The fair values of the derivative financial instruments we use to 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,  2018  and  2017  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 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 derivative financial instruments that we measure at fair value on a recurring basis subsequent to initial recognition 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 of these financial instruments. The fair values are determined directly instruments that are classified as cash flow hedging items, as well as gains by reference to quoted market prices in active markets. and losses arising from derivative instruments that are classified as held The fair values of our investment financial assets are based on for trading and that are not designated as being in a hedging relationship, 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 and their locations within the Consolidated statements of income and other comprehensive income, are detailed in Note 4(i) of the Consolidated financial statements. prices in active markets. 80 • TELUS 2018 ANNUAL REPORT Commitments and contingent liabilities Contractual obligations as at December 31, 2018 MD&A: LIQUIDITY AND CAPITAL RESOURCES 2019 2020 2021 2022 2023 2024–2028 Thereafter Total ($ mi llions) Short-term borrowings Interest obligations Principal obligations1 Long-term debt Interest obligations Principal maturities2 Finance leases Interest obligations Principal maturities2 Construction credit facilities commitment 3 Minimum operating lease payments 3,4 Occupancy costs3 Purchase obligations5 Operating expenditures Property, plant and equipment, and Intangible assets 3 – 3 565 784 1,349 3 52 55 45 242 104 499 178 677 Non-interest bearing financia  l liabil ities 2,372 Other obligations Total (39) 4,808 3 – 3 559 1,008 1,567 1 50 51 – 228 101 3 100 103 484 1,083 1,567 – – – – 201 95 134 100 50 184 251 (5) 6 106 102 (6) – – – 435 1,651 2,086 – – – – 167 88 70 2 72 18 (5) – – – 386 500 886 – – – – 145 83 69 – 69 19 (6) – – – 1,439 4,801 6,240 – – – – 408 243 176 – 176 20 (70) 2,380 2,168 2,426 1,196 7,017 – – – 3,446 4,298 7,744 – – – – 385 99 9 – 9 – (132) 8,105  9 100 109 7,314 14,125 21,439 4 102 106 45 1,776 813 1,057 236 1,293 2,782 (263) 28,100 1 2 3 4 5 See Section 7.7 Sale of trade receivables. See Long-term debt maturity chart in Section 4.3. 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. Total minimum operating lease payments include approximately 28% in respect of our five largest leases for office premises over various terms, with expiry dates that range between 2024 and 2039 with a weighted average term of approximately 13 years; and approximately 34% in respect of wireless site leases with a weighted average term of approximately 14 years. Total minimum operating lease payments with related party lessor is immaterial. See Note 19 of the Consolidated financial statements. Where applicable, purchase obligations reflect foreign exchange rates at December 31, 2018. 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 property infringement claims) seeking damages and other relief are flows, with the exception of the items disclosed in Note 29(a) of the Consolidated financial statements. This is a significant judgment for us (see Section 8.1 Critical accounting estimates and judgments). pending against us and, in some cases, other wireless carriers and tele- communications service providers. As well, we have received notice of, or are aware of, certain possible claims (including intellectual property infringement claims) against us and, in some cases, other wireless carriers and telecommunications service providers. (See the related risk discus- sion 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 prelim- inary nature of some claims; uncertain damage theories and demands; an incomplete factual record; uncertainty concerning legal theories and pro- cedures 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 the related transactions, historically we have not made significant payments under these indemnifications. As at December 31, 2018, we had no liability recorded in respect of our indemnification obligations. TELUS 2018 ANNUAL REPORT • 81                     7.10 Outstanding share information Outstanding shares (millions) Common Shares Common  Share  options  –    all  exercisable  (one  for  one)   December  31,   2018   January  31,   2019 599 600 Transactions with real estate joint ventures In 2018, we had transactions with real estate joint ventures, which are related parties to us, as set out in Note 21 of our Consolidated financial statements. For the TELUS Garden real estate joint venture, during the <1 <1 year ended December 31, 2018, the real estate joint venture sold the income-producing properties and the related net assets. 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 and consist of our Board of Directors and our Executive Leadership Team. Total compensation expense for key management personnel was $64 million The purchaser assumed the 3.7% mortgage and the 3.4% bonds secured by the income-producing properties. In the application of equity accounting, we recorded our share of the non-recurring gain at $171 million. Concurrently, we committed to a donation of $118 million, of which an initial donation of $100 million was made in TELUS Corporation Common Shares acquired in the market. See Section 1.3 and Note 28(b) of the Consolidated financial statements for additional details. in 2018, as compared to $50 million in 2017. The increase in compen- For  the  TELUS  Sky  real  estate  joint  venture,  commitments  and    sation expense for key management personnel was due to greater contingent  liabilities  include  construction-related  contractual  commitments   share-based compensation primarily arising from metrics affecting performance condition-based restricted stock units. See Note 30(a) of the Consolidated financial statements for additional details. Transactions with defined benefit pension plans We provided management and administrative services to our defined benefit pension plans. Charges for these services were on a cost recovery basis and were immaterial. 8 Accounting matters 8.1 Critical accounting estimates and judgments Our significant accounting policies are described in Note 1 of the Consolidated financial statements for the year ended December 31, 2018. 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 at the date of the financial statements; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting estimates 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. through  to  2019  (approximately  $35  million  at  December  31,  2018)    and  construction  financing  ($342  million  with  three  Canadian  financial   institutions  as  66 2⁄ %  lender  and  T US  as  331 EL 3 ⁄3%  lender).  As  well,    we  have  entered  into  a  lease  agreement  with  the  TELUS  Sky  real  estate   joint  venture. • 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 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 telecommunications infrastructure; we believe that 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 transactions as principals or as our agents. Upon due consideration of the relevant indicators, we believe that the decision to consider the re-sellers to be acting, solely for accounting purposes, as our agents is more representative of the economic substance of the transactions, as we are the primary obligor to the end-user customers. 82 • TELUS 2018 ANNUAL REPORT MD&A: ACCOUNTING MATTERS The effect of this judgment is that no equipment revenue is As a result, it has become increasingly difficult and impractical recognized upon the transfer of inventory to third-party re-sellers. to objectively and clearly distinguish between our wireless and • We  compensate  third-party  re-sellers  and  our  employees  for   wireline operations and cash flows, and the assets from which those generating  revenues,  and  we  must  exercise  judgment  as  to  whether   cash flows arise. Our judgment as to whether these operations can such  sales-based  compensation  amounts  are  costs  incurred  to   continue to be judged to be individual components of the business obtain  contracts  with  customers  that  should  be  capitalized  (see   Note 20  of  the  Consolidated  financial  statements).  We  believe  that   compensation  amounts  tangentially  attributable  to  obtaining  a   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 contract  with  a  customer,  because  the  amount  of  such  compen- cash flows arise, is evidence of their increasing interdependence; sation  could  be  affected  in  ways  other  than  by  simply  obtaining   this may result in the unification of the wireless cash-generating unit that  contract,  should  be  expensed  as  incurred;  compensation   and the wireline cash-generating unit as a single cash-generating amounts  directly  attributable  to  obtaining  a  contract  with  a  customer    unit for impairment testing purposes in the future. As our business should  be  capitalized  and  subsequently  amortized  on  a  sys- continues to evolve, new cash-generating units may develop. tematic  basis,  consistent  with  the  satisfaction  of  our  associated   • The view that our spectrum licences granted by Innovation, Science performance  obligations.   and Economic Development Canada will likely be renewed; that we Judgment  must  also  be  exercised  in  the  capitalization    intend to renew them; that we believe we have the financial and of  costs  incurred  to  fulfill  revenue-generating  contracts  with    customers.  Such  fulfilment  costs  are  those  incurred  to  set  up,   activate  or  otherwise  implement  services  involving  access  to,    operational ability to renew them; and, thus, that they have an indefinite life, as discussed further in Note 18(e) of the Consolidated financial statements. or  usage  of,  our  telecommunications  infrastructure  that  would    • In  connection  with  the  annual  impairment  testing  of  intangible  assets   not  otherwise  be  capitalized  as  property,  plant  and  equip- ment  and  intangible  assets  (see  Note 20  of  the  Consolidated    financial  statements).   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   • The decision to depreciate and amortize any property, plant, when  determining  their  carrying  amounts.  These  judgments  are   equipment and intangible assets that are subject to amortization necessary  because  of  the  convergence  that  our  wireless  and  wireline   on a straight-line basis, as we believe that this method reflects telecommunications  infrastructure  technology  and  operations  have   the consumption of resources related to the economic lifespan experienced  to  date,  and  because  of  our  continuous  development.   of those assets better than an accelerated method and is more There  are  instances  in  which  similar  judgments  must  also  be  made  in   representative of the economic substance of the underlying use respect  of  future  capital  expenditures  in  support  of  both  wireless  and   of those assets. • The  preparation  of  financial  statements  in  accordance  with  generally   accepted  accounting  principles  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    (see  Note 5  of  the  Consolidated  financial  statements).  A  significant   judgment  we  make  is  in  respect  of  distinguishing  between  our  wireless   and  wireline  operations  and  cash  flows  (and  this  extends  to  alloca- tions  of  both  direct  and  indirect  expenses  and  capital  expenditures).   The  clarity  of  such  distinction  has  been  increasingly  affected  by  the    wireline  operations,  which  are  a  component  of  the  determination  of   recoverable  amounts  used  in  the  annual  impairment  testing,  as  dis- cussed  further  in  Note 18(f)  of  the  Consolidated  financial  statements. In respect of claims and lawsuits, as discussed further in Note 29(a) of the Consolidated financial statements, the determination of whether an item is a contingent liability or whether an outflow of resources is probable and thus needs to be accounted for as a provision. 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. convergence  and  integration  of  our  wireless  and  wireline  telecommuni- Our critical accounting estimates and assumptions are described below. cations  infrastructure  technology  and  operations.  Less  than  one-half    of  the  operating  expenses  included  in  the  segment  performance    measure  reported  to  our  chief  operating  decision-maker  during  the    years  ended  December  31,  2018  and  2017,  are  direct  costs;  judgment,   largely  based  upon  historical  experience,  is  applied  in  apportioning   indirect  expenses  which  are  not  objectively  distinguishable  between   our  wireless  and  wireline  operations. Recently,  our  judgment  was  that  our  wireless  and  wireline   telecommunications  infrastructure  technology  and  operations  had   not  experienced  sufficient  convergence  to  objectively  make  their   respective  operations  and  cash  flows  practically  indistinguishable.   The  continued  build-out  of  our  technology-agnostic  fibre-optic  infra- structure,  in  combination  with  converged  edge  network  technology,   has  significantly  affected  this  judgment,  as  has  the  commercialization   of  fixed-wireless  telecommunications  solutions  for  customers  and    the  consolidation  of  our  non-customer  facing  operations. General • In determining our critical accounting estimates, we consider trends, commitments, events or uncertainties that we reasonably expect to materially affect our 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. TELUS 2018 ANNUAL REPORT • 83                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       • 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 Contract assets Inventories Operating  expenses   Operating   revenues   Goods  and   services   purchased   Employee   benefits   expense   Depreciation   X X3 X X X X X X X X Amortization   of  intangible   assets   X1 X3 Employee defined  benefit  plans  re-measurements2 Financing   costs   X X X X 1 2 3 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. Other comprehensive income – Item never subsequently reclassified to income. Accounting estimate impact due to internal labour capitalization rates. • All critical accounting estimates are uncertain at the time an The recoverability of Intangible assets with indefinite lives; estimate is made and affect the following Consolidated statements of income and other comprehensive income line items: Income taxes the recoverability of Goodwill • The carrying values of Intangible assets with indefinite lives and (except for estimates about Goodwill) and Net income. Similarly, all Goodwill are periodically tested for impairment, and this test represents critical accounting estimates affect the following Consolidated state- a significant estimate for us. ments of financial position line items: Current assets (Income and • The recoverable amounts of the cash-generating units’ assets have other taxes receivable), Current liabilities (Income and other taxes been determined based on a fair value less costs of disposal calcu- payable), Deferred income tax liabilities and Common equity (retained lation. There is a material degree of uncertainty with respect to the earnings) and Non-controlling interests. The discussion of each critical estimates of the recoverable amounts of the cash-generating units’ accounting estimate does not differ between our two segments, assets, given the necessity of making key economic assumptions wireless and wireline, unless explicitly noted. about the future. The fair value less costs of disposal and value-in-use Intangible assets, net; Goodwill, net; and Property, plant and equipment, net calculations both use future cash flows and growth projections (includ- ing judgments about the allocation of future capital expenditures supporting both wireless and wireline operations); associated economic General • The Intangible assets, net, line item represents approximately 33% of risk assumptions and estimates of the likelihood of achieving key oper- ating metrics and drivers; estimates of future generational infrastructure Total assets as at December 31, 2018 (34% as at December 31, 2017). capital expenditures; and the future weighted average cost of capital. Included in Intangible assets are spectrum licences, which represent • See Note 18(f) of the Consolidated financial statements for further approximately 26% of Total assets as at December 31, 2018 (28% as discussion of methodology and sensitivity testing. at December 31, 2017). • The Goodwill, net, line item represents approximately 14% of Total assets as at December 31, 2018 and 2017. • The Property, plant and equipment, net, line item on our Consolidated statements of financial position represents approximately 37% of Total assets as at December 31, 2018 and 2017. • If our estimates of the useful lives of assets were incorrect, we could experience increased or decreased charges for amortization or depreciation in the future. If the future were to differ adversely from The estimated useful lives of assets; the recoverability of tangible assets • The estimated useful lives of assets are determined by a continuing program of asset life studies. The recoverability of assets with finite lives is significantly impacted by the estimated useful lives of assets. • Assumptions underlying the estimated useful lives of assets include the timing of technological obsolescence, competitive pressures and future infrastructure utilization plans. our best estimate of key economic assumptions and associated cash Employee defined benefit pension plans flows were to materially decrease, we could potentially experience future material impairment charges in respect of our Property, plant and equipment assets, Intangible assets or Goodwill. If Intangible assets with indefinite lives were determined to have finite lives at some point in the future, we could experience increased charges for amortization of Intangible assets. Such charges in and of them- selves do not result in a cash outflow and would not immediately affect our liquidity. Certain actuarial and economic assumptions used in determining defined benefit pension costs, accrued pension benefit obligations and pension plan assets • We review industry practices, trends, economic conditions and data provided by actuaries when developing assumptions used in the determination of defined benefit pension costs and accrued pension benefit obligations. Pension plan assets are generally valued using market prices; however, some assets are valued using market estimates when market prices are not readily available. 84 • TELUS 2018 ANNUAL REPORT MD&A: ACCOUNTING MATTERS Actuarial  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  dis- count  rate,  which  is  used  to  determine  the  accrued  benefit  obligation,   is  based  upon  the  yield  on  long-term,  high-quality  fixed-term  invest- ments.  The  discount  rate  is  set  annually  at  the  end  of  each  calendar   year,  based  upon  yields  on  long-term  corporate  bond  indices  in   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  tempo- rary  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   consultation  with  actuaries,  and  is  reviewed  quarterly  for  significant   upon  the  amounts  recorded  in  the  financial  statements  and  are,   changes.  Future  increases  in  compensation  are  based  upon  the   therefore,  subject  to  accounting  estimates  that  are  inherent  in    current  benefits  policies  and  economic  forecasts.  We  have  examined   those  balances.  The  tax  basis  of  assets  and  liabilities,  as  well  as    our  respective  pension  obligation  and  current  service  cost  durations   the  amount  of  undeducted  income  tax  losses,  are  based  upon    and  observed  a  10-year  difference  in  duration.  As  individual  discount   the  assessment  and  measurement  of  tax  positions,  as  noted  above.   rates  more  accurately  reflect  the  obligation  and  current  service  cost,   Assumptions  as  to  the  timing  of  reversal  of  temporary  differences   commencing  in  2018,  we  applied  a  dual  discount  rate  methodology. include  expectations  about  the  future  results  of  operations  and  future   • On an annual basis, at a minimum, the defined benefit pension plan cash  flows.  The  com position  of  income  tax  liabilities  is  reasonably   assumptions are assessed and revised as appropriate. When the likely  to  change  from  period  to  period  because  of  changes  in  the   defined benefit pension plan key assumptions fluctuate significantly estimation  of  these  significant  uncertainties. relative to their immediately preceding year-end values, actuarial gains • This accounting estimate is in respect of material asset and liability (losses) arising from such significant fluctuations are recognized on line items on our Consolidated statements of financial position an interim basis. Assumptions used in determining defined benefit comprising less than 1% of Total assets as at December 31, 2018 pension costs, accrued pension benefit obligations and pension plan and 2017, and approximately 10% of Total liabilities and owners’ equity assets include life expectancy, discount rates, market estimates and as at December 31, 2018 and 2017. If the future were to adversely rates of future compensation increases. Material changes in overall differ from our best estimate of the likelihood of tax positions being financial performance and financial statement line items would arise sustained, the amount of tax expected to be incurred, the future from reasonably likely changes, because of assumptions that have results of operations, the timing of reversal of deductible temporary been revised to reflect updated historical information and updated differences and taxable temporary differences, and the tax rates economic conditions, in the material assumptions underlying this estimate. See Note 15 of the Consolidated financial statements for further analysis. 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 • This  accounting  estimate  related  to  employee  defined  benefit  pension   in an increase or acceleration of cash outflows at an earlier time plans  is  in  respect  of  components  of  the  Operating  expenses  line   than might otherwise be expected. item,  Financing  costs  line  item  and  Other  comprehensive  income  line   item  on  our  Consolidated  statements  of  income  and  other  compre- Provisions for asset retirement obligations hensive  income.  If  the  future  were  to  adversely  differ  from  our  best   Certain economic assumptions used in provisioning estimate  of  assumptions  used  in  determining  defined  benefit  pension   costs,  accrued  benefit  obligations  and  pension  plan  assets,  we  could   for asset retirement obligations • Asset retirement obligation provisions are recognized for statutory, experience  future  increased  (or  decreased)  defined  benefit  pension   contractual or legal obligations, normally when incurred, associated expense,  financing  costs  and  charges  to  Other  comprehensive  income. with the retirement of Property, plant and equipment (primarily certain Income tax assets and liabilities items of outside plant and wireless site equipment) when those obligations result from the acquisition, construction, development The amount and composition of income tax assets and income and/or normal operation of the assets. The obligations are measured tax liabilities, including the amount of unrecognized tax benefits • Assumptions  underlying  the  composition  of  income  tax  assets    initially at fair value, determined using present value methodology, and the resulting costs are capitalized as a part of the carrying value and  liabilities  are  based  upon  an  assessment  of  the  technical  merits   of the related asset. of  tax  positions.  Income  tax  benefits  on  uncertain  tax  positions    • On an annual basis, at a minimum, assumptions underlying are  recognized  only  when  it  is  more  likely  than  not  that  the  ultimate   the provisions for asset retirement obligations include expectations, determination  of  the  tax  treatment  of  a  position  will  result  in  the   which may span numerous decades, about inflation, discount related  benefit  being  realizable;  however,  this  does  not  mean  that    rates and any changes in the amount or timing of the underlying tax  authorities  cannot  challenge  these  positions.  Income  tax  assets   future cash flows. Material changes in financial position would and  liabilities  are  measured  at  the  amount  that  is  expected  to  be   arise from reasonably likely changes, because of assumptions that realized  or  incurred  upon  ultimate  settlement  with  taxation  authorities.   Such  assessments  are  based  upon  the  applicable  income  tax  legis- have been revised to reflect updated historical information and updated economic conditions, in the material assumptions underlying lation,  regulations,  interpretations  and  jurisprudence,  all  of  which  in    this estimate. The capitalized asset retirement cost is depreciated turn  are  subject  to  change  and  interpretation. on the same basis as the related asset, and the discount accretion • Current income tax assets and liabilities are estimated based is included in the Consolidated statements of income and other upon the amount of income tax that is calculated as being owed comprehensive income as a component of Financing costs. to taxation authorities, net of periodic instalment payments. TELUS 2018 ANNUAL REPORT • 85                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       • This  accounting  estimate  is  in  respect  of  the  asset  retirement  obli- • Investments  are  included  in  the  Other  long-term  assets  line  item   gations  component  of  the  Provisions  line  item  on  our  Consolidated   on  our  Consolidated  statements  of  financial  position,  which  itself   statements  of  financial  position,  and  this  component  comprises   comprises  approximately  3%  of  Total  assets  as  at  December  31,  2018   approximately  1%  of  Total  liabilities  and  owners’  equity  as  at   (2017  –  2%).  If  the  allowance  for  recoverability  of  long-term  investments   December  31,  2018  and  2017.  If  the  provisions  for  asset  retirement   were  to  be  inadequate,  we  could  experience  an  increased  charge    obligations  were  to  be  inadequate,  we  could  experience  a  charge    to  Other  operating  income  in  the  future.  Such  a  provision  for  recover- to  Goods  and  services  purchased  in  the  future.  A  charge  for    ability  of  long-term  investments  does  not  result  in  a  cash  outflow.   an  inadequate  asset  retirement  obligation  provision  would  result   When  there  is  clear  and  objective  evidence  of  an  increase  in  the  fair   in  a  cash  outflow  proximate  to  the  time  that  the  asset  retirement   value  of  an  investment,  which  may  be  indicated  by  either  a  recent    obligation  is  satisfied. Provisions related to business combinations 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   sale  of  shares  by  another  current  investor  or  the  injection  of  new    cash  into  the  entity  by  a  new  or  existing  investor,  we  recognize  the   after-tax  increase  in  value  in  Other  comprehensive  income  (change    in  unrealized  fair  value  of  available-for-sale  financial  assets).   Accounts receivable interests.  We  provide  written  put  options  to  the  remaining  selling   shareholders  whereby  they  could  put  the  remaining  non-controlling   General • When determining our allowance for doubtful accounts, we consider interests  at,  or  after,  a  specified  date.  The  acquisition-date  fair  values   the business area that gave rise to the Accounts receivable, conduct of  the  puttable  shares  held  by  the  non-controlling  shareholders  are   a statistical analysis of portfolio delinquency trends and perform recorded  as  provisions. specific account identification. • On  an  annual  basis,  at  a  minimum,  the  provisions  for  written    • These accounting estimates are in respect of the Accounts receivable put  options  are  assessed  and  revised  as  appropriate.  The  provi- line item on our Consolidated statements of financial position, which sions  for  written  put  options  have  been  determined  based  on  the   comprises approximately 5% of Total assets as at December 31, 2018 net  present  values  of  estimated  future  earnings  results;  there  is   and 2017. If the future were to differ adversely from our best estimates a  material  degree  of  uncertainty  with  respect  to  the  estimates  of   of the fair value of the residual cash flows and the allowance for future  earnings  results  given  the  necessity  of  making  key  economic   doubtful accounts, we could experience an increase in the doubtful assumptions  about  the  future.  The  amounts  of  provisions  for  written   accounts expense in the future. Such doubtful accounts expense put  options  are  reasonably  likely  to  change  from  period  to  period   in and of itself does not result in a cash outflow. because  of  changes  in  the  estimation  of  future  earnings  and  foreign   exchange  movements. • This accounting estimate is in respect of the provisions for written put options in respect of the non-controlling interests 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, 2018 (2017 – less than 1%). If the provisions for written put options were to be inadequate, we could experience a charge to Operating revenues in the future. The allowance for doubtful accounts • The estimate of our allowance for doubtful accounts could materially change from period to period because the allowance is a function of the balance and composition of Accounts receivable, which can vary on a month-to-month basis. The variability of the balance of Accounts receivable arises from the variability of the amount and composition of Operating revenues and from the variability of Accounts receivable collection performance. A charge for an inadequate written put option provision would result Contract assets in a cash outflow proximate to the time that the written put option is exercised. 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 General • We  maintain  allowances  for  lifetime  expected  credit  losses  related  to   contract  assets.  Current  economic  conditions,  historical  information   (including  credit  agency  reports,  if  available),  and  the  line  of  business   from  which  the  contract  asset  arose  are  all  considered  when  deter- mining  impairment  allowances.  The  same  factors  are  considered  when   determining  whether  to  write  off  amounts  charged  to  the  impairment   allowance  for  contract  assets  against  contract  assets. historical results to past expectations. • The  most  significant  assumptions  underlying  the  recoverability    The impairment allowance • These  accounting  estimates  are  in  respect  of  the  Contract  assets  line   of  long-term  investments  are  related  to  the  achievement  of  future    items  on  our  Consolidated  statements  of  financial  position,  which  com- cash  flow  and  operating  expectations.  Our  estimate  of  the  recover- ability  of  long-term  investments  could  change  from  period  to  period    prise  approximately  4%  of  Total  assets  as  at  December  31,  2018  and   2017.  If  the  future  were  to  differ  adversely  from  our  best  estimates  of   due  to  the  recurring  nature  of  the  recoverability  assessme  nt  and    the  fair  value  of  the  residual  cash  flows  and  the  impairment  allowance   due  to  the  nature  of  long-term  investments  (we  do  not  control    for  contract  assets,  we  could  experience  an  increase  in  the  impairment   the  investees). allowance  for  contracts  against  contract  assets  in  the  future.  Such   impairment  allowance  in  and  of  itself  does  not  result  in  a  cash  outflow. 86 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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. • 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, 2018 and 2017. 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 IFRS 9, Financial Instruments 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.    Our  financial  performance  is  currently  not  materially  affected  by  the   retrospective  application  of  the  standard,  nor  is  our  financial  position. MD&A: ACCOUNTING MATTERS The  effects  of  the  timing  of  revenue  recognition  and  the  classification   of  revenue  are  most  pronounced  in  our  wireless  results.  Although  the   measurement  of  the  total  revenue  recognized  over  the  life  of  a  contract  is   largely  unaffected  by  the  new  standard,  the  prohibition  of  the  use  of  the   limitation  cap  methodology  accelerates  the  recognition  of  total  contract   revenue,  relative  to  both  the  associated  cash  inflows  from  customers  and   our  previous  practice  (using  the  limitation  cap  methodology);  however,   cash  inflows  are  unaffected.  The  acceleration  of  the  recognition  of  con- tract  revenue  relative  to  the  associated  cash  inflows  also  results  in  the   recognition  of  an  amount  reflecting  the  resulting  difference  as  a  contract    asset.  Although  the  underlying  transaction  economics  do  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   previous  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. We have applied the new standard retrospectively, subject to associated decisions in respect of transitional provisions and permitted practical expedients. The contract asset initially recorded upon transition to the new standard represents revenues that will not be, and have not been, reflected at any time in our periodic results of operations, but that would have been if not for the transition to the new standard; 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. 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  is  unaffected  by  the  new   standard,  but  the  timing  of  recognition  is.  The  new  standard  results  in  our    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.  The  International   costs  of  contract  acquisition  and  contract  fulfilment,  to  the  extent  that   they  are  material,  being  capitalized  and  subsequently  recognized  as  an    expense  over  the  life  of  a  contract  on  a  rational,  systematic  basis  con- Accounting  Standards  Board  and  the  Financial  Accounting  Standards   sistent  with  the  pattern  of  the  transfer  of  goods  or  services  to  which  the    Board  of  the  United  States  worked  on  this  joint  project  to  clarify  the  prin- asset  relates.  Although  the  underlying  transaction  economics  would    ciples  for  the  recognition  of  revenue.  The  new  standard  was  released  in    not  differ,  during  periods  of  sustained  growth  in  the  number  of  customer   May  2014  and  supersedes  existing  standards  and  interpretations,  including   IAS  18,  Revenue.  We  have  applied  the  standard  retrospectively  to  prior   reporting  periods,  subject  to  permitted  and  elected  practical  expedients. connection  additions,  assuming  comparable  per  unit  costs  of  contract   acquisition  and  contract  fulfilment,  absolute  profitability  measures  would   appear  to  be  greater  than  under  the  previous  practice  (immediate   The effects of the new standard and the materiality of those effects expensing  of  such  costs).   will vary by industry and entity; the effects of our retrospective application are set out in Note 2(c) of the Consolidated financial statements. Like many other telecommunications companies, we are materially affected by its application, primarily in respect of the timing of revenue recognition, the classification of revenue, the capitalization of the costs of obtaining a contract with a customer and the capitalization of the costs of contract fulfilment (as defined by the new standard). Implementation Our operations and associated systems are complex and our accounting for millions of multi-year contracts with our customers was affected. Significantly, in order to give effect to the new accounting methodology, incremental compilation of historical data was necessary for our millions of already existing multi-year contracts with our customers that were in-scope for purposes of transitioning to the new standard. Revenue – timing of recognition; classification The timing of revenue recognition and the classification of our revenues as either service revenues or equipment revenues are affected, since After a multi-year expenditure of time and effort, we developed the accounting policies, estimates, judgments and processes necessary to transition to the new standard. Upon completion of the implementation the allocation of consideration in multiple element arrangements (solutions of these items, which included the critical incremental requirements for our customers that may involve deliveries of multiple services and of our information technology systems, we completed the incremental products that occur at different points in time and/or over different periods compilation of historical data and the related accounting for that data, of time) is no longer affected by the limitation cap methodology previously all of which is necessary to transition to the new standard. required by generally accepted accounting principles. TELUS 2018 ANNUAL REPORT • 87   We are using the following practical expedients provided for in, the presentation of the payments of the “principal” component of leases and transitioning to, the new standard: that would currently be accounted for as operating leases as a cash • No restatement for contracts that were completed as at January 1, flow use within financing activities under the new standard. 2017, or earlier. We will be applying the standard retrospectively, with the cumulative • No  restatement  for  contracts  that  were  modified  prior  to  January  1,   effect of the initial application of the new standard recognized at the date 2017.  The  aggregate  effect  of  all  such  modifications  will  be  reflected   of initial application, January 1, 2019, subject to permitted and elected when  identifying  satisfied  and  unsatisfied  performance  obligations   practical expedients; such method of application would not result in the and  the  transaction  prices  to  be  allocated  thereto  and  when  deter- retrospective adjustment of amounts reported for periods prior to fiscal mining  the  transaction  prices. 2019. The nature of the transition method selected is such that the lease • No disclosure of the aggregate transaction prices allocated to the population as at January 1, 2019, and the discount rates determined remaining unfulfilled, or partially unfulfilled, performance obligations contemporaneously, will be the basis for the cumulative effects recorded for periods ending prior to January 1, 2018. as of that date. IFRS 16, Leases In January 2016, the International Accounting Standards Board 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. The International Accounting Standards Board 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, Implementation As a transitional practical expedient permitted by the new standard, we will not reassess whether contracts are, or contain, leases as at January 1, 2019, applying 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 introducing a single lessee accounting model. being, or containing, leases applying the criteria of the new standard. 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  right-of-use  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.   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 an acceleration of the timing of lease expense recognition for leases that would currently be accounted for as operating leases; the International Accounting Standards Board 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 we will be similarly affected. The presentation on the statement of income and other comprehensive income required by the new standard will result in the presentation of most non-executory lease expenses as depreciation of right-of-use lease assets and financing costs arising from lease liabilities, rather than as a part of goods and services purchased (executory lease expenses will remain a part of goods and services purchased); reported operating income would thus be higher under the new standard. IFRS 3, Business Combinations In  October  2018,  the  International  Accounting  Standards  Board  amended   IFRS  3,  Business Combinations,  seeking  to  clarify  whether  an  acquisi- tion  transaction  results  in  the  acquisition  of  an  asset  or  the  acquisition    of  a  business.  The  amendments  are  effective  for  acquisition  transactions    on  or  after  January  1,  2020,  although  earlier  application  is  permitted.    The  amended  standard  has  a  narrower  definition  of  a  business,  which   could  result  in  the  recognition  of  fewer  business  combinations  than  under    the  current  standard;  the  implication  of  this  is  that  amounts  which  may   have  been  recognized  as  goodwill  in  a  business  combination  under  the   current  standard  may  now  be  recognized  as  allocations  to  net  identifiable   assets  acquired  under  the  amended  standard  (with  an  associated  effect    in  an  entity’s  results  of  operations  that  would  differ  from  the  effect  of   goodwill  having  been  recognized).  We  are  currently  assessing  the  impacts    and  transition  provisions  of  the  amended  standard;  however,  we  expect   that  we  will  apply  the  standard  prospectively  from  January  1,  2020.    The  effects,  if  any,  of  the  amended  standard  on  our  financial  performance   and  disclosure  will  be  dependent  on  the  facts  and  circumstances  of    any  future  acquisition  transactions. Relative to the results of applying the current standard, although actual cash flows will be unaffected, the lessee’s statement of cash flows Other issued standards Other issued standards required to be applied for periods beginning on will reflect increases in cash flows from operating activities offset equally or after January 1, 2019, are expected to have no significant effect on our by decreases in cash flows from financing activities. This is the result of financial performance or disclosure. 88 • TELUS 2018 ANNUAL REPORT   MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS, AND REGULATORY DEVELOPMENTS AND PROCEEDINGS 9 General trends, outlook and assumptions, and regulatory developments and proceedings 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 2018 We estimate that Canadian telecommunications industry revenues (including TV and excluding media) grew by approximately 4% to approximately $63 billion in 2018. Wireless and data services continue to drive ongoing industry growth. Consumer communications and data consumption behaviours continue to demonstrate a strong preference for data-rich applications and data-intensive smartphones and tablets. TELUS’ revenues of $14.4 billion represented approximately 23% 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, healthcare, customer care and business services (CCBS) solutions, and home and business security has more than offset the decline in demand for legacy services. Wireless Based  on  publicly  reported  results  and  estimates,  in  2018,  the  Canadian   While the general trend towards more moderate ABPU growth, compared to past years, was anticipated, we continue to work diligently to better monetize robust growth in data services while simultaneously delivering a strong value for money proposition to our customers. To this end, we are focusing intensely on quality margin accretive customer growth and strong ABPU performance through our consistent strategic execution of premium smartphone loading, which includes driving higher- value data and share plan adoption. Moreover, we are also focusing on the other levers available to us in an environment of moderating ABPU growth to ensure we continue to deliver on our wireless EBITDA growth objectives, including: • Continuing to drive volume growth through high-quality loading on the back of strong ongoing industry growth • Seeking new sources of wireless revenue, such as Internet of Things (IoT) or Internet of Everything, machine-to-machine (M2M) and security applications • Exploring and securing new channel strategies with attractive associated economic characteristics • Pursuing smart bundling opportunities across wireless and wireline to achieve better economies of scope and enhance lifetime revenue per customer wireless  industry  experienced  network  revenue  growth  of  approximately   • Driving  better  roaming  growth  by  further  encouraging  customers   4.2%  and  adjusted  EBITDA  growth  of  approximately  7.3%.  TELUS  wire- travelling  abroad  to  adopt  and  use  our  Easy  Roam®  offering,  which   less  network  revenue  growth  was  2.7%,  and  TELUS  wireless  Adjusted   now  covers  more  than  125  countries,  as  well  as  securing  in-roaming   EBITDA  grew  by  5.3%. opportunities  for  those  travelling  to  Canada   We  estimate  that  the  Canadian  wireless  industry  added  approximately   • Working persistently to enhance the efficiency of the flow from revenue 1.5  million  new  subscriber  units  in  2018,  compared  to  approximately   to EBITDA, or the flow from ABPU to average margin per subscriber 1.3  million  in  2017.  This  was  supported  by  immigration  and  population   unit per month (AMPU), in order to buttress and enhance our operating growth;  the  trend  toward  multiple  devices,  including  tablets;  the  expanding   margins, including the organizational and management structure functionality  of  data  and  related  applications;  and  the  adoption  of  mobile   streamlining we undertook in the second half of 2018. devices  and  services  by  both  younger  and  older  generations.  The  wireless    penetration  rate  increased  to  approximately  89%  in  Canada,  with  further    increases  in  penetration  expected  to  continue  in  2019.  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. The Canadian wireless industry continues to be highly competitive and capital-intensive, with carriers continuing to expand and enhance their broadband wireless networks including material investments in spectrum. Wireline Canada’s four major cable-TV companies had an estimated base In 2018, the wireless market was again characterized by high levels of approximately 3.8 million telephony subscribers at the end of 2018. of retention and acquisition activity and the associated high costs of This represents a national consumer market share of approximately device subsidies on two-year contracts, a heightened level of competitive 42.2%, up from approximately 41.5% in 2017. Other non-facilities-based intensity, and the continued adoption of higher-value, data-centric smart- competitors also offer local and long distance voice over IP (VoIP) services phones. Growth in blended average billing per subscriber unit per month and resell high-speed Internet solutions. This competition, along with (ABPU) has moderated due to declines in chargeable data usage and technological substitution by wireless services, is continuing to erode larger allotments of data driven by competitive pressures, in addition to the number of residential network access lines and associated local other moderating factors such as: the popularity of data sharing plans; and long distance revenues, as expected. more frequent customer friendly data usage notifications; and an evolving Although the consumer high-speed Internet market is maturing, customer mix shift towards non-traditional wireless devices. These factors are being offset by continuing robust customer growth and growing with a penetration rate of approximately 86% in Western Canada and 85% across Canada, subscriber growth is expected to continue overall data usage, including customers selecting higher rate plans with over the coming years. The four major cable-TV companies had an larger data buckets on high-value smartphones and a larger proportion estimated 6.9 million Internet subscribers at the end of 2018 (50% of postpaid customers in the subscriber mix. market share), up 3% from approximately 6.7 million at the end of 2017. TELUS 2018 ANNUAL REPORT • 89 Telecommunications companies had approximately 6.7 million Internet Industry ABPU growth is expected to continue growing at a more subscribers (49% market share), up 4% from approximately 6.5 million modest rate than seen in recent years. at the end of 2017. We continue to make moderate gains in market While LTE and LTE-A technologies increase download speeds, share as a result of the expansion of our fibre-optic infrastructure and encourage data usage and improve the customer experience, growth the pull-through of subscribers from our IP-based TELUS TV service. While Canadians still watch conventional TV, digital platforms are playing an increasingly important role in the broadcasting industry. Popular online video services are providing Canadians with more choice in data traffic demands pose challenges to wireless access technology. (See High demand for data challenges wireless networks and may be accompanied by increases in delivery cost in Section 10.4 Technology.) To better manage this data traffic, Canadian providers continue to evolve about where, when and how to access their video content. In 2018, their networks. Innovation, Science, and Economic Development Canada Canadian IP TV providers increased their subscriber base by an estimated (ISED) announced the auction of 600 MHz spectrum in March 2019, 6% to 2.8 million as a result of expanded network coverage, enhanced including spectrum set aside for non-incumbent companies, with further differentiated service offerings, and marketing and promotions focused on spectrum auctions expected in 2020 and 2021. IP TV. Despite this IP TV growth, the combined cable-TV and satellite-TV M2M and IoT technologies connect communications-enabled subscriber penetration rate declined. We estimate that the four major remote devices via wireless technologies, allowing them to exchange cable-TV companies have approximately 5.6 million TV subscribers or key information and share processes. Advanced platforms and networks a 51% market share, a slight decrease from 52% at the end of 2017. are already in place in industries such as healthcare, utilities, agriculture The balance of industry subscribers were served by satellite-TV and and fleet management, with deployment ongoing in other industries, regional providers. including vehicle insurance, retail, food services and consumer utilities. In 2018, Rogers launched Ignite TV in Ontario, based on the These and other industries are looking to IoT, combined with other Comcast X1 TV platform, while Quebecor announced its intention to applications, to generate value from their connections. IoT represents unveil Helix, also based on the Comcast X1 TV platform in 2019. a meaningful opportunity for growth in mobility products and services, Our IP-based Optik TV platform continues to offer numerous service with secure connectivity, customer value and efficiency. While M2M leadership advantages over this cable platform, including: flexible pricing applications generally have lower average revenue per subscriber unit per plans and packaging available to all customers; picture clarity and month (ARPU), they tend to generate high service volumes with low or quality; content depth and breadth; and the number of ways customers no subsidy costs, thereby supporting both revenue growth and margins. can access content, including wireless set-top boxes, Restart TV, higher 5G has begun to play a mainstream role in technology evolution and capacity PVR and the Optik TV app, which offers more than twice the innovation globally, and is an important component of meeting Canada’s number of live TV channels at home or on the go compared to our cable and TELUS’ efforts to further bridge the digital divide and connect rural competitor. Notably, we are the only Canadian TV service provider offering Canadians. Investing in 5G will drive capex savings by allowing us to live 4K HDR channels and 4K HDR on-demand movies, including the provide high-speed Internet services over wireless in less urban areas, latest Hollywood blockbusters and the latest movies and series from as well as improved cost savings and innovative services in industrial Netflix, which has named TELUS the #1 network for streaming Netflix in automation, transportation and telehealth. Driven by significantly faster Canada in November and December of 2018 (based on the Netflix ISP speeds, lower latencies, improved reliability and attractive economics, Speed Index rankings for Canadian Providers as of November/December 5G will enable a host of new applications: for industries, 5G will enable 2018), as well as 4K sports content, more HD content, more on-demand remote operations, industrial control and manufacturing automation; content, more over-the-top (OTT) content with Netflix, YouTube, TED Talks for consumers, home automation, autonomous vehicles, and wireless- and the National Film Board of Canada, and we are the multicultural to-the-home connectivity with speeds comparable to wired access content leader in Western Canada. technologies; and for healthcare, converged solutions for hospitals, The  national  Canadian  telecom  providers  continue  to  acquire  and   clinics and remote patient monitoring. 5G is essential to Canada’s digital otherwise  develop  capabilities  in  home  security.  In  the  first  quarter  of  2018,    future and is expected to generate significant innovation, growth and TELUS  acquired  all  of  the  customers,  assets  and  operations  of  AlarmForce    productivity. Mobile 5G wireless technology is up to 100 times faster than Industries  Inc.  in  B.C.,  Alberta  and  Saskatchewan.  Additionally  through- current 4G technology. out  2018,  we  made  other  smaller  home  and  business  security-related   Enabling  a  robust  and  reliable  5G  experience  for  Canadians  will   acquisitions.  These  acquisitions  were  made  to  strengthen  our  opportunity   require  complementary  wireless  spectrum  bands  to  support  the  needs  of   to  offer  attractive  bundled  solutions  and  advance  our  connected  home   a  diverse  subscriber  base.  Low  band  spectrum,  such  as  600  MHz  which   strategy  while  accelerating  our  entry  into  smart  home  solutions. will  be  auctioned  by  ISED  in  early  2019,  is  valuable  as  it  covers  wide  areas   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, and growth in IoT and M2M devices. In addition, consumers continue to replace wireline access with wireless access and related data services. These trends are expected to continue to drive a growing demand for wireless data services for the foreseeable future. and  penetrates  well  into  buildings,  thus  improving  coverage  in  urban  and   suburban  areas.  This  low  band  spectrum  will  play  a  vital  role  in  bringing   5G  to  Canadians  and  as  such,  it  is  an  important  resource  for  Canada  as   wireless  operators  build  out  5G  in  rural  areas.  High  bandwidth  spectrum,   such  as  millimetre  wave  (mmWave)  is  valuable  as  it  can  enable  speeds    up  to  100  times  faster  than  600  MHz  spectrum,  however,  does  not    have  the  same  coverage  characteristics  to  penetrate  well  into  buildings.   This  high-bandwidth  spectrum  and  the  associated  faster  connection   speeds  will  help  unlock  new  technologies  such  as  virtual  and  augmented   reality.  Current  trials  show  that  mmWave  delivers  the  richest  5G  experi- ence,  albeit  in  a  localized  fashion.  3.5  GHz  spectrum  is  important  to  the   5G  ecosystem  as  it  able  to  support  both  the  coverage  characteristics  of   90 • TELUS 2018 ANNUAL REPORT     MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS, AND REGULATORY DEVELOPMENTS AND PROCEEDINGS low band spectrum with the speed characteristics of mmWave spectrum, to approximately 1.89 million homes and businesses, reaching 61% of albeit at slightly lower speeds. This spectrum will be integral to low our broadband footprint. Advances in LTE wireless technology and latency communications services including autonomous monitoring and our extensive LTE access technology also allow us to target otherwise vehicle-to-everything communication. Current trials show 3.5 GHz is key for broader 5G coverage. See Section 9.4 Communications industry regulatory developments and proceedings for further details on upcoming spectrum auctions. Wireline The traditional wireline telecommunications market is expected to remain very competitive in 2019 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 incumbent operating areas of B.C. and Alberta, it is estimated that 48% of households no longer have a fixed line and 29% of households no longer have a broadcast TV service in 2018. While we are a key provider of these substitution services, the decline in this legacy business is continuing as expected, although network access line (NAL) losses slowed considerably in 2018. 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 OTT streaming services in order to compete for a share of viewership as viewing habits and consumer demand evolve. Studies suggest that 45% of Canadian households had a subscription to Netflix at the end of 2018. Other underserved areas with a fixed wireless solution, and 5G is widely expected to offer vastly expanded opportunities in this regard. Combining wireline  local  and  long  distance  voice  services  with   wireless  and  high-speed  Internet  access  and  entertainment  services,   telecommunications  companies  can  focus  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  broad- band  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 network. The lines between wireline access and wireless access will con- tinue to blur, as the way we deliver services to customers – and the way our customers use those services – continue to evolve. 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 being able to select the most efficient way to deliver services across our footprint. We do not expect to have to build fibre to every home; instead we believe that there will be opportunities to deliver services to some areas within our broadband footprint wirelessly with 5G. Additional wireline capabilities In the business market (enterprise and small and medium-sized streaming TV services are expected to launch services in Canada businesses, or SMB), the convergence of IT and telecommunications, in the upcoming years. facilitated by the ubiquity of IP, continues to shape the competitive TV providers are monitoring OTT developments and evolving environment, with non-traditional providers increasingly blurring the lines their content and market strategy to compete with these non-traditional of competition and business models. Cable-TV companies continue to offerings. Bell Media offers a content streaming service through its make investments to better compete in the highly contested SMB space. expanded Crave TV offering. We view OTT as an opportunity to add Telecommunications companies like TELUS are providing network-centric further capabilities to our linear and on-demand assets, providing managed applications that leverage their significant FTTP investments, customers with flexible options to choose the content they want and while IT service providers are bundling network connectivity with their encourage greater customer use of the TELUS high-speed Internet proprietary software as service offerings. Although our business-to- and wireless technologies. We continue to enhance our Optik TV service business (B2B) line of business was dilutive to our EBITDA in 2018, we are by adding content and capabilities, including ultra-high-definition 4K aggressively pursuing opportunities to stabilize this business, return to content, and by entering into multicultural content and distribution deals growth and enhance margins in future years. with OTT content providers such as Netflix and Crave TV. TELUS The development of IP-based platforms providing combined IP continues to offer Pik TV, an attractive OTT-friendly basic TV offering voice, data and video solutions creates potential cost efficiencies that that allows customers to access live TV and streaming services like compensate, in part, for the loss of margins resulting from the migration Netflix and YouTube, conveniently and affordably, through a self-install from legacy to IP-based services. New opportunities exist for integrated media box, Apple TV, Internet browser or our Android and iOS solutions and business process outsourcing that could have a greater mobile applications. business impact than traditional telecommunications services. Data sec- Telecommunications companies continue to make significant urity represents both a challenge and an opportunity for TELUS to provide capital investments in broadband networks, with a focus on fibre to the customers with our data security solutions. Increasingly, businesses are premises or home (FTTP/FTTH) to maintain and enhance their ability looking to partner with their communications service provider to address to support enhanced IP-based services and higher broadband speeds. their business goals and challenges, and to tailor cloud-based solutions Cable-TV companies continue to evolve their cable networks with the for their needs that leverage telecommunications in ways not imagined gradual roll-out of the DOCSIS 3.1 platform. Although this platform 10 years ago. Cloud computing is changing service delivery to always-on increases speed in the near term and is cost-efficient, it does not offer and everything-as-a-service, and strong growth is expected in this area. the same advanced capabilities as FTTP over the longer term, such TELUS offers Network as a Service capabilities that provide businesses as fast symmetrical upload and download speeds. At the end of 2018, the option of an IT network as a service over the Internet, mirrored across our Optik TV footprint covered more than 3.1 million households and multiple locations, based on a self-serve platform that reduces deployment businesses, with approximately 97% having access to speeds of at cycles and reliance on IT specialists. Our home and business security least 50 Mbps, enabling us to deliver a better customer experience. in Western Canada is powered by our broadband network and integrates In addition, at the end of 2018, our fibre-optic infrastructure was available the latest smart devices to improve the lives of Canadians. TELUS 2018 ANNUAL REPORT • 91   Healthcare  is  expected  to  be  a  continued  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  compete  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  connec- tivity,  provides  an  open  platform  that  can  support  the  development  and   delivery  of  even  more  advanced  health  applications.  In  2018,  our  home   health  monitoring  service  was  implemented  in  B.C.  following  an  earlier   successful  pilot  that  demonstrated  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  scheduling  online  reminders  and  automatic  refills,   has  enabled  patients  to  refill  more  than  four  million  prescriptions  online    in  2018.  Our  acquisition  of  Medisys  Health  Group  Inc.  will  allow  us  to    deliver  employee-centred  care  with  each  clinic  outfitted  with  the  full  suite   of  TELUS  Health  solutions,  thereby  providing  us  further  opportunities    to  scale  our  TELUS  Health  business. TELUS  International  (TI),  our  global  CCBS  and  digital  services   provider,  continues  its  expansion  through  organic  growth  and  strategic   acquisitions  (see  Section 1.3 Highlights of 2018  for  further  details).    TI  is  a  global  customer  experience  innovator  that  designs,  builds  and   delivers  next-generation  digital  services  for  some  of  the  world’s  most   demanding,  discerning  and  disruptive  tech  brands.  TELUS  Corporation    is  TI’s  largest  customer.  From  TI’s  successful  inception  13  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  clients  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,  in  order  to    provide  a  more  comprehensive  suite  of  services  to  existing  and  pro- spective  clients.  These  capabilities  include  artificial  intelligence-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.  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  continues  to  change  our  industry  rapidly,  customer   demand  continues  to  evolve  and  grow,  and  Canada  shifts  to  a  more  digital   economy,  we  are  committed  to  evolving  our  business  and  offering  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  differentiation  and  growth. 9.3 TELUS assumptions for 2019 In 2019, 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 network; 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  2019  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  2018  results  and  trends  discussed  in   Section 5.  Our  key  assumptions  include  the  following: • Slightly slower rate of economic growth in Canada in 2019, estimated to be 2.0% (2.1% in 2018). For our incumbent local exchange carrier (ILEC) provinces in Western Canada, we estimate that economic growth in B.C. will be 2.3% in 2019 (2.2% in 2018), and that economic growth in Alberta will be 2.1% in 2019 (2.2% in 2018). • No material adverse regulatory rulings or government actions. • Continued intense wireless and wireline competition in both consumer and business markets. • Continued increase in wireless industry penetration of the Canadian market. • Ongoing subscriber adoption of, and upgrades to, data-intensive smartphones, as customers seek more mobile connectivity to the Internet. • Wireless revenue growth resulting from improvements in subscriber loading with continued competitive pressure on 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, reflecting an increase in high-speed Internet and TELUS TV subscribers, speed upgrades, rate plans with larger data usage and expansion of our broadband infra- structure, as well as growth in customer care and business services, healthcare solutions, and home and business security offerings. • Continued erosion of wireline voice revenue, resulting from techno- logical substitution and greater use of inclusive long distance. • 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 $79 million recorded in Employee benefits expense; a rate of 3.90% for discounting the obligation and a rate of 4.00% for current service costs for employee defined benefit pension plan accounting purposes; and defined benefit pension plan funding of approximately $52 million. • Restructuring and other costs of approximately $100 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 business acquisitions. • Income taxes: Income taxes computed at applicable statutory rate of 26.7 to 27.3% and cash income tax payments of approximately $600 million to $680 million (2018 – $197 million). 92 • TELUS 2018 ANNUAL REPORT   MD&A: GENERAL TRENDS, OUTLOOK AND ASSUMPTIONS, AND REGULATORY DEVELOPMENTS AND PROCEEDINGS • Further investments in broadband infrastructure as we have reached 61% of our broadband footprint at December 31, 2018, including fibre- Spectrum Outlook 2018 –2022 On June 6, 2018, ISED published the Spectrum Outlook 2018 –2022. optic network expansion and 4G LTE capacity and upgrades, as well There is a risk that bands identified as promising for mobile service will as investments in network and systems resiliency and reliability. not be allocated for mobile service or will be delayed in being allocated • Participation in the ISED wireless spectrum auction for 600 MHz or assigned as the Spectrum Outlook is not a binding forecast of future spectrum band, currently expected in March 2019. spectrum assignments. However, any such delay or failure to allocate • Stabilization in the average Canadian dollar: U.S. dollar exchange rate would generally impact all Canadian mobile service providers and not (U.S. 77 cents in 2018). just us specifically. • Continued deployment of access-agnostic technology in our network. 9.4 Communications 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), ISED, the Minister of Canadian Heritage and Multiculturalism, and the Competition Bureau. 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 10.2 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 transfers, coverage obligations, research and development obligations, annual reporting, and obligations concerning mandated roaming and antenna site sharing with competitors. 600 MHz spectrum repurposing On August 14, 2015, ISED published its Decision on repurposing the 600 MHz Band, SLPB-004-15. In its decision, ISED announced its intention 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. In August 2017, ISED initiated its Consultation on a Technical, Policy and Licensing Framework for Spectrum in the 600 MHz Band and on March 28, 2018, ISED released its Technical, Policy and Licensing Framework for the 600 MHz spectrum auction. ISED announced a 30 MHz set-aside for facilities-based providers who serve less than 10% of the national subscriber share and are actively providing commercial telecommuni- cation services to the general public in the licensed area of interest. The asymmetric design of the auction framework, which sets aside a significant portion of the spectrum under auction exclusively for certain carriers (as defined in the framework), raises the risk that we will not be able to acquire all the spectrum we need in the auction process or that we will be required to pay more than we might otherwise pay. The auction will commence on March 12, 2019. Repurposing the 3500 MHz spectrum to support 5G On December 18, 2014, ISED released its Decisions Regarding Policy Changes in the 3500 MHz Band (3475 – 3650 MHz) and a New Licensing Process noting the band would be fundamentally reallocated for flexible (mobile and fixed) use in the near future. On June 6, 2018, ISED released its Consultation on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Consultation on Changes to the 3800 MHz Band, proposing to claw back 56 to 66% of the band from fixed wireless incumbents (predominantly Inukshuk, which is a joint venture owned by Bell and Rogers, and Xplornet) and to auction the amount clawed back in 2020. In our consultation response, we called for a 100% clawback in large population centres. After ISED issues a transition decision, it will then consult on a licensing framework (i.e. auction rules and conditions of licence) for the 3500 MHz band. There is a risk that the transition decision and the auction rules will favour certain carriers over us and impact our ability to acquire 3500 MHz band spectrum. Repurposing mmWave spectrum to support 5G On June 5, 2017, ISED issued a Consultation on Releasing Millimetre Wave Spectrum to Support 5G, proposing to release 3.25 GHz of millimetre wave (mmWave) spectrum for licensed use and 7 GHz for licence-exempt use largely in line with recent U.S. mmWave develop- ments. On June 6, 2018, ISED released an Addendum to the Consultation on Releasing Millimetre Wave Spectrum to Support 5G, proposing to release an additional 1 GHz of spectrum in the 26.5–27.5 GHz range. After issuing a repurposing decision, ISED will then consult on a licensing framework (i.e. auction rules and conditions of licence) for the mmWave bands. There is a risk that the repurposing decisions and the auction rules will favour certain carriers over us and impact our ability to acquire mmWave band spectrum. Regulatory and federal government reviews The CRTC and the federal government have initiated public proceedings to review various matters. They are discussed below. Wireline wholesale services follow-up 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 Internet service provider (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, Cogeco, Rogers and Videotron). The CRTC initiated a follow-up proceeding to determine the technical configurations, appropriate costs and wholesale cost- based rates in those regions. TELUS 2018 ANNUAL REPORT • 93 The FTTP follow-up activities directed in Telecom Policy CRTC 2015-326 remain ongoing. For the second phase, which involves FTTP wholesale services for the rest of Canada (including our serving territories), in the broadband industry; and increase its knowledge and understanding of the competitive dynamics of the broadband industry, and the telecom- munications industry more generally, to inform the Bureau’s future work. a proceeding on technical configurations commenced in 2017 and the We are participating in this proceeding and filed our initial submissions associated cost study and tariff review will follow. The timing of the FTTP with the Bureau on August 31, 2018. It is undertaking further stakeholder follow-up activities will also be affected by the recent application filed engagement and research, as well as information analysis. The Bureau by the Canadian Network Operators Consortium Inc. (CNOC) to review intends to publish a draft report in spring 2019, at which point it will hold the wholesale high-speed Internet access services framework. The CRTC public consultations and then publish a final report. has conducted a process to examine CNOC’s proposed interim relief, and a decision on this is pending. The CRTC has also asked parties to comment on the substantive elements of CNOC’s application. In any event, we anticipate 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 network, it is too early to determine the impact this decision will have on us in the longer term. The provision of access to unbundled local loops (ULLs) to competitors had not been mandated as of July 22, 2018, subject to the approval of an application setting out a test for ULL forbearance, which addresses areas where forbearance for retail voice service was predicated on the availability of ULLs. We filed such an application on January 19, 2018, and on September 11, 2018, the CRTC approved our application, which means that our provision of ULLs is based on commercial arrangements rather than a CRTC-approved tariff. CRTC report on sales practices of large telecommunications carriers On June 14, 2018, the Governor in Council directed the CRTC, pursuant to section 14 of the Telecommunications Act, to provide a report, by no later than February 28, 2019, regarding the retail sales practices of Canada’s large telecommunications carriers. The CRTC was directed to examine claims of aggressive or misleading sales practices concerning telecommunications services, the prevalence and impact on consumers, and potential solutions. On July 16, 2018, the CRTC issued a notice of consultation commencing its inquiry. We participated actively in this proceeding, highlighted the customer service successes associated with our customers first journey, and proposed a code of conduct con- solidating existing regulations with no further substantive regulation. The CRTC received written submissions from parties and intervenors in August and September 2018, an oral hearing was held in October 2018, and parties and intervenors made final written submissions Phase-out of the local service subsidy regime On June 26, 2018, the CRTC issued Phase-out of the local service subsidy regime, Telecom Regulatory Policy CRTC 2018-213. In this decision, the CRTC determined that it would phase out the existing local service subsidy over three years, from January 1, 2019 to December 31, 2021. In September 2018, the Independent Telecommu- nications Providers Association (ITPA), which represents small ILECs, brought an application to the CRTC to review and vary this decision. In its application, the ITPA seeks to keep the existing local service subsidy regime in place. If upheld, the impact of this decision is not expected to be material. Review of the price cap and local forbearance regimes Simultaneously with the release of the Phase-out of the local service subsidy regime decision noted above, the CRTC issued Review of the price cap and local forbearance regimes, Telecom Notice of Consultation CRTC 2018-214. In this proceeding, the CRTC intends to review, among other things: pricing constraints for residential local exchange services; whether compensation to ILECs is required given that the local service subsidy is being eliminated further to the Phase-out of the local service subsidy regime decision; whether there is still a need for an exogenous factor mechanism in the price cap regimes; and whether changes are necessary to test for local forbearance. It is too early to determine the impact of this proceeding. Initial submissions were filed on October 10, 2018. Code of conduct for retail Internet services On November 9, 2018, the CRTC issued Call for comments – Proceeding to establish a mandatory code for Internet services, Telecom Notice of Consultation CRTC 2018-422. In this proceeding, the CRTC is consid- ering establishing a mandatory code of conduct to address the clarity on November 9, 2018. While we feel that the CRTC’s current regulations of contracts for retail fixed access Internet services and related issues. allow the CRTC to adequately regulate sales practices, until the CRTC Among other things, the CRTC is proposing mandating the provision releases its report in 2019, it is too early to determine any new potential of a critical information summary, limiting early cancellation fees, and impacts on us. Competition Bureau market study on competition in broadband services On May 10, 2018, the Competition Bureau commenced a market study to better understand the competitive dynamics of Canada’s broadband Internet services industry. The Bureau states that the purpose of the study is to better understand these market outcomes and the competitive dynamics of Canadian broadband markets more generally, including whether resellers are fulfilling their role in placing increased competitive discipline on traditional telephone and cable companies. The Bureau expects to publish the results of the study in a public report, which may include recommendations to relevant government authorities, as appropriate. The Bureau states that the study will enable it to, among other things: make informed regulatory interventions regarding steps that regulators or policymakers could take to further support competition requiring that ISPs offer a cooling-off period for customers who sign term contracts. In our written submissions filed December 19, 2018, we stressed that TELUS already undertakes many of these initiatives as part of our customers first initiatives, but argued that certain proposals should not be adopted, including, among other things, certain restrictions, early cancellation fees and the CRTC’s proposal to give a new code retrospective effect. The proceeding remains ongoing, with a decision anticipated by the end of 2019. It is too early to determine the impact of this proceeding on us. Broadcasting-related issues Broadcasting licences held by TELUS Our regional licences to operate broadcasting distribution undertakings in B.C. and Alberta have been granted renewals in Broadcasting Decision CRTC 2018-267, which extend the licence terms to August 31, 2023. 94 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Our regional broadcasting distribution licence to serve Quebec has also been granted an additional administrative renewal, which has extended the current licence terms to March 31, 2019. A renewal of our regional licence to operate broadcasting distribution undertakings in Quebec Review of the Telecommunications Act and the Broadcasting Act On June 5, 2018, the federal government announced a joint review of the Telecommunications Act and the Broadcasting Act to be conducted by a panel of seven experts, which will have until January 31, 2020 to provide is expected by the end of the first quarter of 2019. Our licence to operate its final recommendations. Written submissions in response to the panel’s a national video-on-demand service was renewed to August 31, 2023, call for comments were filed by January 11, 2019, and the panel expects as part of Broadcasting Decision CRTC 2018-20. to issue an interim report in the spring of 2019 on what it has heard during CRTC ordered to report back to federal government on distribution models of the future On September 22, 2017, the Governor in Council 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. On May 31, 2018, the CRTC issued its report, titled Harnessing Change: The Future of Programming this consultation process. At this time, we do not know the impact of the review and any resulting amendments to the Telecommunications Act, the Broadcasting Act or the Radiocommunication Act (all three of which form the main legislative framework for communications). 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 via parliamentary committee was announced Distribution in Canada, which provides an overview of the state of in December 2017. Both the Standing Committee on Industry, Science programming content distribution in Canada and sets out some options for change to the policy framework for consideration. This report will likely form part of the record for the joint review of the Broadcasting Act and Telecommunications Act by a panel of experts as described below. The CRTC has also announced in its forecast of activities for 2019 to and Technology and the Standing Committee on Canadian Heritage are engaged in reviewing aspects of the Copyright Act and its policy framework. The expected completion timeline for this review is early 2019. The policy approach for copyright has traditionally been based on a balance of interests of creators and consumers, and as a result, 2020 that it intends to implement some of the new initiatives discussed changes to the Copyright Act are not expected to have a negative in its report. Further consultations are anticipated but the outcomes material impact on us. are not expected to have any negative material impact on us. 10 Risks and risk management 10.1 Overview Our business activities expose us 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 In our approach to risk governance, accountability for the management of risks and reporting of risk information is clearly defined. 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 our risk governance culture, and our code of ethics and conduct directs team members to meet the highest standards of risk oversight responsibilities outlined in the Board’s and the Board integrity in all business decisions and actions. 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 the risks they oversee 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 Responsibilities for risk management We take a multi-step approach to managing risks, with responsibility shared across the organization. The first line of assurance is executive and operating management, and its members are expected to inte- grate risk management into core decision-making processes (including strategic planning processes) and day-to-day operations. We have risk management and compliance functions across the organization, in areas including Finance, Legal, Data and Trust (which includes Privacy), Security and other business operational areas, which form the second line of assurance. These functions establish policies, provide guidance and expertise, and work collaboratively with management to monitor the design and operation of controls. Internal Audit is the third line of assurance, providing independent assurance regarding the effectiveness and efficiency of risk management and controls across all areas of with clear risk management leadership and transparent communi- our business. cations, supported by our Board and Executive Leadership Team. TELUS 2018 ANNUAL REPORT • 95 Definition of business risk We  define  business  risk  by  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,  pro- cedures  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, if 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. Events outside and within TELUS present us with both risks and opportunities. We strive to avoid taking on undue risk, and we work to ensure alignment of risks with business strategies, objectives, values and risk tolerances; in turn, we also aim to take advantage of opportunities that may emerge. Risk and control assessment process We have in place multi-level enterprise risk and control assessment processes that solicit and incorporate insights of leaders from all areas of TELUS and enable us to track multi-year trends in key risks and the control environment across the organization. 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 ENTERPRISE KEY RISK PROFILE VP Risk Management and Chief Internal Auditor Multi-level enterprise risk and control assessment process BUSINESS OPERATIONS AND ACTIVITIES MULTI-LEVEL ENTERPRISE RISK AND CONTROL ASSESSMENT PROCESSES Annual risk and control assessment We conduct a comprehensive annual review that includes: • • • Consideration of recent internal and external audits, SOX (Sarbanes-Oxley Act of 2002) compliance and risk Interviews with executive leaders Information from our ongoing strategic planning process management activities • An extensive 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. Board members complete an annual assessment providing perspectives on our key risks, risk appetite, and approach to enterprise risk management. 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. 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. They are also incorporated into our strategic planning, operational risk management and performance management processes. Quarterly risk assessment Other specific risk assessments 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 of inherent and residual risk, identify key risk mitigation activities, and provide quarterly key risk updates and assurance to the Audit Committee and other Board committees. We conduct ongoing and/or detailed risk assessments for 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) and for specific audit engagements. Results of risk assessments are evaluated, prioritized, updated and integrated into decision-making, policies and processes, as well as the key risk profile, throughout the year. 96 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Principal risks and uncertainties The following subsections describe our principal risks and uncertainties technology  in  a  cost-effective  manner  in  our  advanced  3G  and  4G  net- works  without  any  security  incidents.  In  building  our  3G  and  4G  national   and associated risk mitigation activities. The significance of these risks is networks,  we  have  collaborated  closely  with  the  Government  of  Canada   such that they alone or in combination may have material impacts on our for  many  years  to  ensure  robust  protections  across  all  equipment  used.   business operations, results, reputation and brand, as well as the valuation This  has  included  complying  with  a  series  of  security  protocols  that   approaches taken by investment analysts when they evaluate TELUS. effectively  ban  Chinese  equipment  from  our  core  networks  and  limit  such    Although we believe the measures taken to mitigate risks described equipment  to  the  less  sensitive  radio  and  antenna  portions.  We  are  con- below are reasonable, there can be no expectation or assurance that they tinuing  to  work  with  the  government  as  it  conducts  this  cybersecurity    will effectively mitigate or fully address the risks described or that new review  and  we  have  yet  to  select  a  vendor  for  our  5G  network.  Given  the    developments and risks will not materially affect our operations or financial range  of  potential  outcomes  of  the  cybersecurity  review,  the  impact    results. Forward-looking statements in this section and elsewhere in this on  Canadian  wireless  service  providers  cannot  currently  be  predicted.    MD&A are based on the assumption that our risk mitigation measures will be effective. See Caution regarding forward-looking statements. 10.2 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 Communications industry regula- tory developments and proceedings,  imposes  conditions  on  the  products    and  services  that  we  provide  and  the  ways  in  which  we  provide  them.   A  decision  prohibiting  the  deployment  of  Huawei  technology  without   compensation  or  other  accommodations  being  made  by  the  Government   of  Canada  could  have  a  material,  non-recurring,  incremental  increase    in  the  cost  of  TELUS’  5G  network  deployment  and,  potentially,  the  timing    of  such  deployment.  In  the  case  of  a  ban,  there  is  a  risk  that  the  Canadian    telecom  market  would  undergo  a  structural  change,  as  a  reduction  to  an   only  two  global  supplier  environment  could  permanently  affect  the  cost   structure  of  5G  equipment  for  all  operators.  See  Section 10.4 Supplier risks. Risk mitigation:  We  attempt  to  mitigate  regulatory  risks  through  our   advocacy  at  all  levels  of  government,  including  our  participation  in  CRTC    and  federal  government  proceedings,  studies,  reviews  and  other  consul- The  regulatory  regime  sets  forth,  among  other  matters,  rates,  terms  and   tations;  representations  before  provincial  and  municipal  governments    conditions  for  the  provision  of  telecommunications  services,  licensing   pertaining  to  telecommunications  issues;  legal  proceedings  impacting   of  broadcast  services,  licensing  of  spectrum  and  radio  apparatus,  and   our  operations  at  all  levels  of  the  courts;  and  other  relevant  inquiries   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 Communications industry regulatory developments and proceedings, there is no certainty that the positions 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, what services we provide or manage our network, 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 network. 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 subject to different regulations in certain provinces, and can be subject to political intervention. See also Legal and ethical compliance in Section 10.9 Litigation and legal matters. Government  or  regulatory  actions  with  respect  to  certain  countries  or   suppliers  may  impact  us  and  other  Canadian  telecommunications  carriers.    The  Government  of  Canada  is  currently  conducting  a  cybersecurity  review   of  international  suppliers  of  next-generation  network  equipment  and  tech- nologies,  focused  on  Huawei  Technologies,  to  evaluate  potential  risks  to    the  development  of  5G  networks  in  Canada.  A  decision  on  5G  technology   in  Canada  is  expected  in  the  coming  months.  Over  the  last  decade,    (such  as  those  relating  to  the  exclusive  federal  jurisdiction  over    telecommunications),  as  described  in  Section 9.4 Communications industry regulatory developments and proceedings.  See  also  Vertical integration into broadcast content ownership by competitors  in    Section 10.3 Competitive environment. Spectrum and compliance with licences We require access to radio spectrum in order to operate our wireless business. The allocation and use of spectrum in Canada are governed by Innovation, Science and Economic Development Canada (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 competitive services, including our ability to improve our current services and offer 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  radio  authoriza- tion  and  spectrum  licence  and  renewal  conditions  and  plan  to  participate   our  partnership  with  Huawei  has  allowed  us  to  utilize  the  most  advanced   in  future  wireless  spectrum  auctions.  We  continue  to  advocate  with   TELUS 2018 ANNUAL REPORT • 97 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 preferential treatment is not required for advanced wireless services (AWS) entrants, including for 5G services, most notably for entrants that 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,    10.3 Competitive environment 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,   our  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. 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,   Risk mitigation:  Our  top  corporate  priority  is  putting  customers  first    and  earning  our  way  to  industry  leadership  in  the  likelihood  to  recom- mend  from  our  clients.  In  fact,  55%  of  the  scorecard  we  use  internally   to  measure  our  corporate  performance  is  weighted  to  team  member   engagement  and  customer  experience.  Effective  and  fair  compensation   plans  are  part  of  achieving  high  team  member  engagement  and  include   measures  on  how  well  we  serve  the  customer  –  through  the  eyes  of    future  CRTC  or  Canadian  Heritage  determinations,  or  events  beyond  our   the  customer.  To  enhance  the  customer  experience,  we  continue  to   control,  could  result  in  us  ceasing  to  be  in  compliance  with  the  relevant   invest  in  our  products  and  services,  system  and  network  reliability,  team   legislation.  If  such  a  development  were  to  occur,  the  ability  of  our  subsidi- aries  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. 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      Under  the  Telecommunications  Regulations,  in  order  to  maintain   our  competitors.  With  respect  to  sales  practices,  our  primary  perfor- our  eligibility  to  operate  certain  of  our  subsidiaries  that  are  deemed  to   mance  objective  for  our  call  centre  team  members  in  sales  functions    be  Canadian  carriers  by  law,  among  other  requirements,  the  level  of   is  customer  satisfaction. non-Canadian  ownership  of  TELUS  Common  Shares  cannot  exceed   33 1⁄3%  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: Intense wireless competition is expected to continue At the end of 2018, there were nine facilities-based wireless competitors operating in Canada: three national carriers (TELUS Rogers and Bell), and six regional carriers. (See Competition overview in Section 4.1.) In addition, the national carriers each operate three distinct brands to better compete (a) Canadians beneficially own and control less than 80% of the issued across various customer segments. In late 2018, Quebecor’s Videotron and outstanding voting shares of the parent corporation and less launched Fizz, its second wireless brand, to target the prepaid segment, than 80% of the votes while in Manitoba, Xplornet launched Xplore Mobile. (b) The chief executive officer is a non-Canadian or   All  wireless  competitors  use  various  promotional  offers  to  attract   (c) Less than 80% of the directors of the parent corporation are Canadian. customers,  including  price  discounting  on  both  handsets  and  rate  plans,   Risk mitigation: As we are a holding corporation of Canadian carriers, the Telecommunications Regulations give us certain powers to monitor and control the level of non-Canadian ownership of our Common Shares. These powers have been incorporated into our Articles and 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, the TELUS Board of Directors appointed an independent programming committee to make all programming decisions relating to its licensed broadcasting undertakings. large  allotments  of  data,  flat-rate  pricing  for  voice  and  data,  and  bundling   with  wireline  services.  Such  promotional  activity,  as  well  as  the  sustained   consumer  appetite  for  higher-value  smartphones,  combined  with  the   effect  of  the  ongoing  Canadian  dollar  to  U.S.  dollar  exchange  rate  impli- cations,  may  continue  to  lead  to  higher  costs  of  acquisition  and  retention.   Meanwhile,  more  inclusive  rate  plans,  including  international  roaming  and   larger  allotments  of  data  for  data  sharing,  and  substitution  by  increasingly   available  Wi-Fi  networks  could  lead  to  a  reduction  in  chargeable  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.)   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 Communications industry regulatory developments and proceedings. 98 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Risk mitigation:  Our  4G  wireless  technology  covers  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   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 our legacy voice and data revenue, selection  and  expand  roaming  capability  to  more  than  225  destinations.   as businesses seek to shift fixed local line, long distance and/or voicemail Faster  data  download  speeds  provided  by  these  technologies  enable   services to the new lower-priced cloud-centric market paradigm. 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,  in   addition  to  our  full-service  TELUS  brand,  we  also  offer  two  flanker  brands   –  Koodo  Mobile  and  Public  Mobile.  We  believe  that  by  leveraging  our   three  brands  through  uniquely  targeted  value  propositions  and  distinct   distribution  and  web-based  channels,  as  well  as  by  bundling  wireless   services  with  our  home  services  in  our  incumbent  markets,  we  are  well   positioned  to  compete  with  other  wireless  service  providers.   We  continue  our  disciplined  long-term  strategy  of  investing  in  our   growth  areas  and  executing  upon  our  customers  first  priority.  We  intend    to  continue  to  market  and  distribute  innovative  and  differentiated  wire- less  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  develop- ment  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  initiatives  to  drive   improvements  in  EBITDA.  (See  Reorganizations and integration of acquisitions  in  Section 10.5.) 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 Consumer In  the  consumer  wireline  market,  cable-TV  companies  and  other   competitors  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  addition,  Canadian  cable   competitors  are  investing  in  next-generation  TV  platforms.  In  2017,    Shaw  Communications,  our  primary  cable  competitor  in  Alberta  and   B.C.,  launched  BlueSky  TV,  licensing  the  X1  platform  developed    by  Comcast,  a  U.S.-based  cable  company.  In  2018,  Rogers  launched   Ignite  TV  in  Ontario,  based  on  the  same  Comcast  X1  platform,  and   Quebecor  has  announced  its  intention  to  unveil  Helix,  a  TV  offering    also  based  on  the  Comcast  X1  TV  platform,  in  2019  in  Quebec.   Meanwhile,  Cogeco  Communications,  which  provides  cable  services    in  part  of  our  incumbent  footprint  in  Quebec,  announced  it  is  part- nering  with  MediaKind  to  offer  its  customers  the  MediaFirst  platform.    The  MediaFirst  platform  is  the  same  IP  TV  platform  used  to  deliver   TELUS  TV.  At  the  same  time,  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  an  improvement  in  the  performance  and  speed  of  satellite-based   Internet  access  services  and  enhanced  their  competiveness.  Erosion   of  our  residential  network  access  lines  (NALs)  is  expected  to  continue   due  to  this  competition  and  ongoing  technological  substitution  by   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.  In  our  TELUS  Health  business,  we  compete  with  other   providers  of  electronic  medical  records  and  pharmacy  management   products,  systems  integrators  and  health  service  providers  including   those  that  own  a  vertically  integrated  mix  of  health  services  delivery,    IT  solutions,  and  related  services,  and  global  providers  that  could   achieve  expanded  Canadian  footprints. networks, multi-protocol label switching IP platforms and emerging software-defined networking solutions. These transitions continue to Risk mitigation:  We  are  making  significant  investments  in  our  broadband   infrastructure,  including  connecting  more  homes  and  businesses  directly   create both uncertainties and opportunities. Legacy data revenues and to  our  gigabit-capable  fibre-optic  network.  These  investments  meet  cus- margins continue to decline, and this has been only partially offset by tomer  demand  for  faster  Internet  service,  including  symmetrical  download    growth in demand and/or migration of customers to IP-based platforms. and  upload  speeds,  expand  the  coverage  of  our  high-speed  Internet   IP-based solutions are also subject to downward pricing pressure, service,  and  extend  the  coverage,  capability  and  content  lineup  of  our    lower margins and technological evolution. Business In the business wireline market, traditional facilities-based competitors continue to compete based on network footprint and reliability, while over-the-top (OTT) providers emphasize price, flexibility and convenience. 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 offer low-cost data storage and cloud computing services. 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  customers  in  underserved  communities  a  fixed  wire- less  Internet  service  over  our  LTE  access  technology,  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. We are continuing to evolve IP TV services by enabling ultra-high definition 4K HDR content, integrating our services with TELUS 2018 ANNUAL REPORT • 99   conversational interfaces, and increasing our focus on and investment in services in our incumbent areas of B.C., Alberta and Eastern Quebec, growing multicultural segments. Meanwhile, customers can now stream investments are being made in our broadband network, including our live TV on their laptop, tablet or smartphone with the Pik TV app, as well fibre-optic technology, in order to increase speeds, improve network as through Apple TV. We also continue to invest in other product and reliability, expand our reach and provide an industry-leading customer service development initiatives, including smart home and connected experience. We also continue to introduce and enhance innovative home capabilities, home security and monitoring, and consumer health products and services such as Pik TV, enable ultra-high definition 4K solutions. We continue to enhance our TV content capabilities with HDR content, include integrated bundled offers across our services, greater choice and flexibility of channels in theme packs and on an and invest in customer-focused initiatives to improve our customers’ individual basis, a wider variety of multicultural content, OTT solutions experience. The adoption of new technologies and products is pursued that can be streamed or accessed directly through a set-top box to improve the efficiency of our service offerings. and enabling ultra-high definition 4K HDR content.   We  continue  to  add  to  our  capabilities  in  the  business  market  through   prudent  product  development  initiatives,  including  new  advanced  cloud- Broadcasting We  offer  IP  TV  services  to  more  than  three  million  households  and    based  solutions  such  as  Network  as  a  Service  (NaaS),  a  combination    businesses  in  B.C.,  Alberta  and  Eastern  Quebec,  and  we  continue    of  acquisitions  and  partnerships,  a  focus  on  key  vertical  markets  (public   targeted  roll-outs  in  new  areas.  Our  TV  services  provide  numerous    sector,  healthcare,  financial  services,  energy,  agriculture  and  telecom- interactivity  and  customization  advantages  over  those  of  our  primary   munications  wholesale)  and  expansion  of  solution  sets  in  the  enterprise   cable-TV  competitor.  In  2018,  we  added  63,000  TV  subscribers,    market,  as  well  as  our  modular  approach  in  the  small  and  medium-sized   ending  the  year  with  a  total  of  1.1  million  TV  subscribers.  In  2019  and   business  (SMB)  market  (including  services  such  as  TELUS  Business   beyond,  there  can  be  no  assurance  that  subscriber  growth  rates  will    Connect)  and  Internet  of  Things  (IoT)  solutions.  In  addition,  we  also   be  maintained  or  that  we  will  achieve  planned  revenue  growth  and   have  retention  plans  in  place  to  mitigate  the  loss  of  business  customers   greater  operating  efficiency  in  the  context  of  a  high  level  of  industry   as  their  needs  evolve.  Through  TELUS  Health,  we  have  leveraged  our   market  penetration,  a  declining  overall  market  for  retail  TV  services,    systems,  proprietary  solutions  and  third-party  solutions  to  extend  our   and  actions  by  our  competitors  and  content  suppliers.  In  addition,   footprint  in  healthcare  and  benefit  from  the  investments  in  eHealth  being   competition  from  OTT  services,  content  piracy  and  signal  theft  could    made  by  governments.  Additionally,  through  our  customer  care,  CCBS   also  affect  subscriber  and  revenue  growth  by  accelerating  the  discon- and  our  multi-site  customer  service  centres,  we  enable  experiences  that   nection  of  TV  services  or  reducing  spending  on  those  services. 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, TELUS Health and TI. Technological  advances  have  blurred  the  boundaries  between  broad- casting,  Internet  and  telecommunications.  (See  Section 10.4 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,  switching  to  messaging  and  OTT  applica- tions.  We  expect  pressure  from  customer  acquisition  efforts  and  content    Risk mitigation:  We  have  broadened  the  addressable  market  for  our    IP  TV  services  through  the  deployment  of  advanced  broadband  tech- nologies,  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  capabil- ities  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  HDR  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, which 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    distribution,  costs  and  pricing  to  continue  across  most  product  and   basis  across  multiple  devices.  We  have  demonstrated  that  it  is  not   service  categories  and  market  segments  in  the  industry.   necessary  to  own  content  in  order  to  make  it  accessible  to  customers   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 us 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 on  an  economically  attractive  basis,  provided  there  is  timely  and  strict   enforcement  of  the  CRTC’s  regulatory  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. 100 • TELUS 2018 ANNUAL REPORT   MD&A: RISKS AND RISK MANAGEMENT 10.4 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  our  main  technology  risks  and  uncertainties  and  a  descrip- tion  of  how  we  proactively  address  them. We  also  plan  to  combine  our  licensed  spectrum  with  unlicensed    supplementary  spectrum,  as  network  and  device  ecosystems  evolve   to  support  licensed  assisted  access  (LAA)  technology.  The  spectrum   licences  previously  used  for  our  CDMA  access  technology  have  been   repurposed  for  use  with  LTE  technology.  Our  public  Wi-Fi  service  increas- ingly  integrates  seamlessly  with  our  4G  access  technology  and  offloads   data  traffic  from  our  wireless  spectrum  to  a  continually  growing  number   of  available  Wi-Fi  hotspots.  Our  deployment  of  small-cell  technology,   High demand for data challenges wireless networks coupled  with  both  licensed  and  licence-exempt  spectrum  technologies,   and may be accompanied by increases in delivery cost The  demand  for  wireless  data  services  continues  to  grow  rapidly,  driven   helps  us  achieve  a  more  efficient  utilization  of  our  spectrum  holdings. by  ongoing  broadband  penetration,  growing  personal  connectivity  and    Roll-out and evolution of wireless broadband networking,  improvements  in  the  affordability  and  selection  of  smartphones    and  high-usage  data  devices,  richer  multimedia  services  and  applica- technologies and systems As  part  of  a  natural  4G  access  technology  progression,  we  are  committed   tions,  IoT  services  (including  machine-to-machine  data  applications  and    to  LTE-A  and  LTE  technology  to  support  the  medium-term  and  long- other  wearable  technology),  growth  in  cloud-based  services  and  changes    term  growth  of  our  mobile  broadband  services.  Our  business  depends   arising  from  wireless  price  competition,  including  larger  allotments  of   on  the  deployment  of  wireless  technology.  The  repurposing  of  spectrum   data  in  rate  plans.  For  example,  according  to  the  CRTC  Communications   holdings  must  be  managed  appropriately  to  ensure  optimal  use  of  capital   Monitoring  Report  2018,  the  average  data  usage  per  subscriber  over   and  resources.  Overall,  as  wireless  broadband  technologies  and  systems   mobile  wireless  networks  increased  by  30%  in  2017,  while  the  total  measure   evolve,  there  is  the  risk  that  our  future  capital  expenditures  may  be  higher,   of  retail  wireless  data  revenue  increased  by  7.8%  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   as  our  ongoing  technology  investments  could  involve  costs  higher  than   those  historically  recorded.  See  also  Supplier risks.   Meanwhile,  5G  technology  is  evolving  rapidly  and  the  world’s  first   levels  at  competitive  cost  structures. Risk mitigation: Our ongoing investments in our 4G LTE technology, including LTE advanced (LTE-A) 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 deploy newer standards-based technologies that are ready for commercial implementation to the network in order to provide higher-  performance connectivity solutions. In addition, the evolution to LTE-A technologies is supported by our investments in IP network, IP/ fibre back-haul to cell sites, including our small cells, and a software-  upgradeable radio infrastructure. The LTE-A 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 access technology covers 99% of Canada’s population, while our LTE-A access technology covers 93% of the Canadian population, up from 88% at the end of 2017. 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. The architecture of our intelligence and content capabilities is located at the edge of our mobility network, close to our customers. The distributed smaller-scale computing power and storage deliver services faster while managing the ongoing 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. We are now deploying those licences as required to provide added capacity to mitigate risks from growing data traffic. standards-based  commercial  launches  are  expected  in  2019,  while   smartphones  are  generally  expected  to  support  5G  technology  by  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  spectrum  was  auctioned  for  fixed  wireless  access   (FWA)  between  2004  and  2009;  it  is  currently  not  licensed  for  mobile   applications  and  is  largely  held  by  Inukshuk  (a  joint  venture  owned    by  Bell  and  Rogers)  in  most  urban  markets.  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  we  and  the  other  regional  operators   could  end  up  with  less  3.5  GHz  spectrum  and  would  not  be  able  to  com- pete  equally  in  the  provision  of  higher  network  speeds  and  5G  capacity.    Meanwhile,  if  ISED  releases  3.5  GHz  spectrum  for  mobile  use  before  the    3.5  GHz  auction  concludes,  current  holders  would  have  access  to  5G    spectrum  before  us  and  could  gain  a  competitive  time  to  market  advantage.   With  regard  to  the  other  spectrum  bands,  mmWave  is  expected  to  be   used  for  very  high  data  demand  locations  in  which  customers  are  not  only   very  close  to  the  antenna  but  also  have  an  unobstructed  view  of  the  trans- mitting  site,  as  traffic  on  this  spectrum  is  limited  in  propagation  to  hundreds   of  metres  and  cannot  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.   In  Canada,  the  600  MHz  auction  will  commence  in  March  2019  with  ISED   auctioning  a  total  of  70  MHz,  including  a  set-aside  of  30  MHz  for  regional   service  providers.  There  is  a  risk  that  we  may  not  be  able  to  provide  5G   services  on  600  MHz  at  the  same  level  of  capability  as  regional  wireless   carriers.  Furthermore,  as  a  result  of  the  government  set-aside,  there  is  no   guarantee  that  rural  Canada,  which  600  MHz  propagation  is  best  suited   for,  will  realize  the  full  potential  of  5G  networks  since  30  MHz  will  be  set   aside  for  smaller  carriers  and  possibly  only  deployed  in  urban  centres. TELUS 2018 ANNUAL REPORT • 101 Risk mitigation:  Our  practice  is  to  continually  optimize  capital  investments   in  order  to  ensure  reasonable  payback  periods  for  generating  positive   very  low  bandwidth  usage.  These  factors,  including  the  growing  customer   demand  for  access  to  Wi-Fi  outside  the  home  and  OTT  services  on   cash  flows  from  investments  and  flexibility  in  considering  future  tech- demand  on  any  device,  may  drive  increased  churn  rates  for  our  wireless,   nology  evolutions.  Some  capital  investments,  such  as  wireless  towers,   leasehold  improvements  and  power  systems,  are  technology-neutral. Our wireless access technologies evolve through software upgrades to support enhancements in systems based on the third-generation partnership project (which unites seven telecommunications standards TELUS  TV  and  high-speed  Internet  services,  and  add  further  pressure    on  our  revenue  streams.  (See  Intense wireless competition is expected to continue  in  Section 10.3 Competitive environment  and  OTT services present challenges to network capacity and conventional business models   below.)  Advanced  self-learning  technologies  and  automation  (e.g.  artificial    development organizations and provides their members with a stable intelligence  and  robotic  process  automation)  will  change  the  way  we   environment to produce the reports and specifications that define manage  our  operations  and  support  customer  experience  innovation. 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. We maintain close co-operation with our network technology suppliers and operator partners in order to influence and benefit from developments in 5G, LTE-A, LTE and Wi-Fi technologies. In order to influence the timing, rules and policy regarding 3.5 GHz spectrum, we have emphasized to ISED the need for early, fair and timely access to 3.5 GHz spectrum for all operators in order to ensure that Canada continues to lead all G7 countries in terms of wireless speeds and capabilities. We are arguing for a fair treatment of this spectrum band and for ISED to accelerate its release for mobile use to all industry players while avoiding a head start for specific operators. (Refer to Section 10.2 Regulatory matters.) ISED is currently expected to auction the spectrum in late 2020, and assuming successful participation in the Risk mitigation:  Since  early  2014,  we  have  worked  with  thousands    of  businesses  and  many  major  sports  and  entertainment  venues  as  we   continue  to  expand  our  public  Wi-Fi  infrastructure.  This  public  Wi-Fi    service  is  part  of  our  network  strategy  of  deploying  small  cells  that  inte- grate  seamlessly  with  our  4G  wireless  access  technology,  automatically   shifting  our  smartphone  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    and  medium-sized  enterprises  and  improves  customers’  likelihood-to-  recommend.  Integration  of  home  Wi-Fi  increases  the  propensity  for   higher  data  usage  on  smartphones  within  and  outside  the  home,  helping   to  drive  the  uptake  of  our  Internet  service.  In  addition  to  the  availability    of  our  Wi-Fi  service,  we  have  unified  communications  offerings,  including   Business  Connect  with  Ring  Central  and  TC2  with  Cisco.  Our  IoT  port- folio  is  also  growing,  with  the  addition  of  services  such  as  Connected   Vehicle,  GEOTrac,  TELUS  Alert  and  Assist  and  a  number  of  others.    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. Supplier risks auction, operationalizing the spectrum will commence in 2021. Supplier limitations or disruption, restructuring of vendors or In order to prepare for the future deployment of mmWave spectrum, we continue to conduct 5G trials in the mmWave spectrum bands. discontinuance of products may affect our network and services We  have  relationships  with  multiple  vendors,  including  large  cloud    Our trials have established a platform that will form the basis for evaluating service  providers  such  as  Amazon  and  Microsoft,  which  are  important  in   our future 5G use cases and will help us prepare for network planning supporting  network  and  service  evolution  plans  and  delivery  of  services   in the mmWave bands. Additionally, we continue to collaborate with to  our  customers.  Our  vendors  may  experience  business  difficulties,   ISED, sharing trial results in discussions to help guide the regulator as it privacy  and/or  security  incidents,  and  government  or  regulatory  pres- finalizes its decisions on establishing the policy and timing for the release sures.  They  may  restructure  their  operations,  be  consolidated  with  other   of mmWave spectrum for 5G. The auction for mmWave spectrum is suppliers,  discontinue  products  or  sell  their  operations  or  products  to   expected to occur in 2021. Furthermore, our investment in small cells will other  vendors.  Government  or  regulatory  actions  with  respect  to  certain   help us densify our network and mitigate potential speed and capacity countries  or  suppliers  may  also  affect  our  ability  to  use  the  products   disadvantages created by 3.5 GHz availability, as well as improve future or  technology  of  certain  vendors  that  we  use  or  that  we  currently  plan   mmWave deployment feasibility, cost and time to market. to  use.  Any  of  these  events  could  affect  the  future  development  and   Disruptive technology A paradigm shift with the consumer adoption of alternative technologies, support  of  products  or  services  we  use,  and  ultimately,  the  success  of    upgrades  and  evolution  of  technology  that  we  offer  our  customers,   such  as  our  IP  TV  solutions  and  the  roll-out  and  evolution  of  our  wireless   such as video and voice OTT offerings (e.g. Netflix, FaceTime) and broadband  technologies  and  systems.  There  can  be  no  guarantee  that   increasingly available Wi-Fi networks, has the potential to negatively affect the  outcome  of  any  particular  vendor  strategy  including  a  decision  or   our revenue streams. For example, Wi-Fi networks are being used to deliver various entertainment services to customers beyond the home. requirement  to  discontinue  use  of  a  supplier’s  products  or  technology  will   not  affect  the  services  that  we  provide  to  our  customers,  or  that  we  will   OTT content providers are competing for a share of entertainment not  incur  additional  costs  or  delays  in  continuing  to  provide  services  or   viewership. OTT may also impact business segment services by enabling deploying  our  technologies  and  systems.  We  may  not  be  able  to  replace   capabilities that in the past were associated with telecommunications a  supplier  or  vendor  on  a  timely  basis  or  without  incurring  additional   service providers (e.g. Skype, cloud-based services, roaming). On the cost.  Certain  customer  needs  and  preferences  may  not  be  aligned  with   other hand, the proliferation of low-power wide-area (LPWA) IoT networks our  vendor  selection  or  product  and  service  offering,  which  may  result    opens up new revenue opportunities, combined with the challenges of in  limitations  on  growth  or  loss  of  existing  business. 102 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Supplier concentration and market power In certain cases the number of suppliers of a product, service or technology Risk mitigation:  In  line  with  industry  best  practice,  our  approach  is  to    separate  business  support  systems  (BSS)  from  operational  support    that we use is limited. The popularity of certain models of smartphones systems  (OSS)  and  underlying  network  technology.  Our  aim  is  to  decouple    and tablets has led us to rely on certain manufacturers, which may the  introduction  of  new  network  technologies  from  the  services  we  sell   increase their market power and adversely affect our ability to purchase to  customers  so  that  both  can  evolve  independently.  This  allows  us  to   certain products at an affordable cost. In addition, owners of popular optimize  network  investments  while  limiting  the  impact  on  customer   broadcasting content may raise their distribution charges and attempt to services,  and  also  facilitates  the  introduction  of  new  services.  In  addition,   renegotiate the broadcasting distribution agreements we have with them, due  to  the  maturing  nature  of  telecommunications  vendor  software,   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 10.3. An increase in supplier concentration affecting products, technology and equipment or services that we use 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  installation  of   those  platforms  at  numerous  global  telecommunications  companies.    We  have  established  a  next-generation  BSS/OSS  framework  to  ensure   or offer to our customers may adversely affect our business, operations that,  as  new  services  and  technologies  are  developed,  they  are  part    or financial results, including by increasing the cost of acquisition or of  the  next-generation  framework  that  will  ease  the  retirement  of  legacy   the time required to deploy technology and systems. systems  in  accordance  with  TeleManagement  Forum’s  next-generation   Risk mitigation:  As  a  leading  network  aggregator,  we  partner  with    several  network  equipment  suppliers  and  work  with  numerous  inter- national  and  domestic  vendors  to  deliver  the  best  possible  experience    for  our  customers.  We  consider  possible  vendor  strategies  and/or   restructuring  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  we  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 limit our reliance 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   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    operations  systems  and  software  program.  As  part  of  our  fibre  roll-out,    we  have  invested  in  new  operational  support  systems  that  are  consoli- dating  our  legacy  systems  and  simplifying  our  current  environment.   This  will  improve  our  ability  to  support  and  maintain  our  systems  with   newer,  more  resilient  technology.  We  also  continue  to  make  significant   investments  in  system  resiliency  and  reliability  in  support  of  our    ongoing  customer  first  initiatives. 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 involving access to our broadband infrastructure. This solution is being deployed and is replacing legacy analogue telephone service in areas that are served by our 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 platform currently in use. 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 by fibre-based facilities. 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. Digital-only broadband access may not be feasible or financially 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 a 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 our current 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. staff,  or  fail  to  understand  and  streamline  our  significant  number  of  legacy    systems  and  proactively  meet  constantly  evolving  business  requirements,   Risk mitigation: We continue to deploy residential IP-based voice technologies in communities served by our fibre-based facilities, and we any  such  failure  could  have  an  adverse  effect  on  our  business  and   work with vendors and the industry to assess the technical applicability financial  performance. and evolving cost profiles of proactively migrating legacy customers TELUS 2018 ANNUAL REPORT • 103 onto IP-based platforms while striving to meet CRTC commitments and OTT services present challenges to network capacity customer expectations. Our ongoing investments in advanced broadband network technologies, including fibre-to-the-premises (FTTP), should and conventional business models OTT services compete directly with pay-TV, video and wireless and enable a smoother future evolution of IP-based telephony. We are also wireline voice and messaging services. OTT video services, in particular, working with manufacturers to optimize the operations, cost structure and have rapidly become the largest source of traffic on the North American life expectancy of analogue systems and solutions so that some of this Internet backbone. OTT service providers do not invest in, or own, networks infrastructure can be adapted for integration into the overall evolution and growth in their services presents Internet service providers (ISPs) towards IP. Additionally, IP-based solutions that we are currently deploying and network owners with the challenge of preventing network congestion. are capable of supporting a wide range of customers and services, which While we have designed an IP-based network that has not experienced helps limit our exposure to any one market segment. Going forward, as significant congestion problems through 2018, there can be no assurance our wireless services evolve, we will continue to assess the opportunity that we will not experience such congestion in the future. to further consolidate separate technologies within a single voice service environment. One example is the integration 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  convenient.   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: As more OTT service 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, for the challenges posed by OTT service providers. These investments include the ongoing build-out of our fibre-optic infrastructure, 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, make popular OTT services easy to access by including them as selections that are available directly through each of 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 10.3 Competitive environment. Capital expenditure levels and potential future outlays Risk mitigation: We mitigate implementation risk through modular architectures, lab investments, employee trials, partnering with system for spectrum licences may be impacted by our operating and financial results, as well as our ability to carry out integrators where appropriate, purchasing hardware that is common to most other North American IP based technology deployments and financing activities Our  capital  expenditure  levels  are  affected  by  our  network  initiatives,   introducing virtualization technologies, where feasible. We are also active including  the  ongoing  connection  of  more  homes  and  businesses  directly   in a number of standards bodies, such as the Metro Ethernet Forum to  our  fibre-optic  infrastructure;  our  ongoing  deployment  of  newer   and IP Sphere, in order to help influence a new IP infrastructure strategy technologies  such  as  5G;  the  deployment  of  newly  acquired  spectrum;   that leverages standards-based functionality, which could further investments  in  network  resiliency  and  reliability;  growing  subscriber   simplify our network. demand  for  data;  evolving  systems  and  business  processes;  implemen- tation  of  efficiency  initiatives;  support  for  large  complex  deals;  and    Delivery of fibre-based facilities leveraged by IP telephony participation  in  future  wireless  spectrum  auctions  held  by  ISED.  There   solutions is expensive and complex, with long implementation can  be  no  assurance  that  investments  in  capital  assets  and  wireless   schedules The  deployment  of  fibre-based  facilities  in  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  for  communities    in  which  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 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 intended to improve our productivity and competitiveness. See Reorganizations and integration of acquisitions and Implementation of large enterprise deals in Section 10.5. For a discussion of financing risks and risk mitigation activities, see Section 10.7 Financing, debt requirements and returning cash to shareholders. 10.5 Operational performance copper-based access facility by deploying line access gateway technology that connects our customers’ generic equipment with the IP telephony Systems and processes We routinely have numerous complex systems and process change platforms, which gives us a more cost-effective way to provide those initiatives underway. There can be no assurance that the full complement customers with the reliability and enhanced capabilities of these solutions. of our various systems and process change initiatives, including those 104 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT required  to  improve  delivery  of  customer  services  and  support  manage- ment  decision-making,  will  be  successfully  implemented  or  that  funding   and  sufficiently  skilled  resources  will  be  available  to  complete  all  key   initiatives  planned.  There  is  a  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    Our Internet data centres have security threat detection and mitigation capabilities, and certain data centres and networks undergo yearly external independent third-party audits that include assessment of our logical, physical and policy-based security and privacy controls. We have a vulnerability management program in place that monitors both our Internet-facing and internal network and systems in order to track and address vulnerabilities that may be detected. To support the security of our customers’ credit card transactions, financial  results.  Additionally,  the  ongoing  acquisition  and  post-merger   we use security technologies such as encryption and segmentation, and integration  of  various  Health,  international  and  other  operations  may  carry    we adhere to the principle of least privilege. We maintain these practices short-term  risks  from  operational  continuity,  competition  and  process   and review their effectiveness on a regular basis, considering industry governance  perspectives. Risk mitigation:  We  have  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    initiatives  that  includes  reasonable  risk  identification  and  contingency   planning,  scope  and  change  control,  and  resource  and  quality  manage- ment.  We  generally  also  complete  reasonable  functional,  performance   and  revenue  assurance  testing,  as  well  as  capturing  and  applying  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. 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. We or our 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 suppliers, or may compromise other sensitive information. 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 IT 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, 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  network  for  unlawful,  unethical    or  improper  purposes.  Attacks  may  use  a  variety  of  techniques  that   include  the  targeting  of  individuals  and  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  con- sequences  of  cyberattacks  on  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,  network  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   and design features such as audit, logging, encryption and access sanction.  The  costs  of  such  events  may  include  liability  for  information   control restrictions are recommended, when appropriate and possible. loss,  as  well  as  the  costs  of  repairs  to  infrastructure  and  systems  and    As part of our systems and software development life cycle and quality any  retention  incentives  offered  to  customers  and  business  partners.   assurance processes, privacy and security controls are also tested before new systems are fully deployed. Our  insurance  may  not  cover,  or  fully  reimburse  us  for,  these  costs    and  losses.  See  also  Data protection  above. TELUS 2018 ANNUAL REPORT • 105 Risk mitigation:  We  have  implemented  technical  and  administrative  meas- ures  to  mitigate  the  risk  of  threats,  attacks  and  other  disruptive  events.   We have a post-merger integration team that works with our business units and the operations they acquire, applying an integration model based Our  security  program  addresses  risk  through  a  number  of  mech anisms,   on learnings from previous integrations, which enhances and accelerates including  the  implementation  of  controls  based  on  policies,  standards   the standardization of our business processes and is intended to preserve and  methodologies  that  are  aligned  with  recognized  industry  frameworks   the unique qualities of each acquired operation. and  practices,  the  monitoring  of  external  activities  by  potential  attackers,   For further details of our acquisitions made during the year ended regular  evaluations  of  our  most  important  assets  through  our  Crown   December 31, 2018, see Highlights of 2018 in Section 1.3. Jewels  program,  the  identification  and  regular  re-evaluation  of  our  known   security  risks,  regular  reviews  of  our  standards  and  policies  to  ensure  they   address  current  needs  and  threats,  and  business  continuity  and  recovery   Implementation of large enterprise deals Large enterprise deals may be characterized by the need to anticipate, planning  processes  that  would  be  invoked  in  the  event  of  a  disruption. understand and respond to complex and multi-faceted customer-specific   We  incorporate  security  provisions  into  new  initiatives  through  a   enterprise requirements, including customized systems and reporting standard  secure-by-design  process  and  methodology,  and  re-assess  our   requirements, service credits that lower revenues, and significant upfront security  posture  over  the  life  cycle  of  our  systems.  Our  technical  capabil- expenses and capital expenditures involved in implementing the contracts. ities  help  us  identify  security-related  events,  respond  to  possible  threats   There can be no assurance that service implementation will proceed as and  adjust  our  security  posture  appropriately.  Additionally,  our  approach  to   planned and expected efficiencies will be achieved, which may impact cyber  hygiene  includes  regular  vulnerability  assessments  and  the  prioritiz- return on investment or projected margins. We may also be constrained by ation  and  remediation  of  any  identified  exposure  through  patching  or  other   limits on available staff and system resources or by the level of co-operation mechanisms.  Our  security  office  works  with  law  enforcement  and  other   from other service providers, which may in turn limit the number of large agencies  to  address  the  ongoing  threat  of  cyberattacks  and  disruptions.   contracts that can be implemented concurrently in a given period and/or While  we  have  reasonable  physical  security  and  cybersecurity  programs   increase our costs related to such implementations. in  place,  there  can  be  no  assurance  that  specific  security-related  incidents   will  not  materially  affect  our  operations  and  financial  results. Reorganizations and integration of acquisitions We  carry  out  a  number  of  unique  operational  consolidation,  cost  reduction    and  rationalization  initiatives  each  year  that  are  intended  to  improve  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  full-time  equivalent  (FTE)  employee  reduc- tion  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 and other corporate policies, such as ethics and privacy policies, employee transfers and moves, information systems integration, optimization of service offerings and the establishment of control over new operations. Such activities may not be conducted efficiently and effectively, which may negatively impact our 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 change through a formalized business transformation function by leveraging the expertise, Risk mitigation:  We  expect  to  continue  being  selective  as  to  which    new  large  contracts  we  bid  on,  and  we  continue  to  focus  our  efforts    on  the  SMB  market  and  mid-market.  We  have  a  sales  and  bid  gov- ernance  process  in  place,  which  involves  the  preparation,  review  and   sign-off  of  bids,  as  well  as  all  related  due  diligence  and  authorizations.   For  each  new  large  enterprise  deal,  we  look  to  leverage  systems    and  processes  developed  in  previous  contract  wins  while  incorporating   others  as  required,  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 contract work to identify areas that may require additional focus and to document any systemic issues and learnings in project implementations that could be relevant for 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  with  notice;   infrastructure  and  security  challenges;  employee  recruitment  and    retention;  customer  concentration;  technological  advances  in  robotic   process  automation  (RPA)  and  artificial  intelligence;  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  currency  exchange  rate  fluctuations.    There  can  be  no  assurance  that  international  initiatives  and  risk  mitigation   key learnings and effective practices developed in recent years during the efforts  will  provide  the  benefits  and  efficiencies  expected,  or  that  there   implementation of mergers, business integrations and efficiency-related will  not  be  significant  difficulties  in  combining  different  management  struc- 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. tures  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   apply  to  our  international  operations. 106 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Risk mitigation:  We  invest  in  service  development  and  process  improve- ments,  and  we  regularly  survey  customers  for  feedback  and  monitor  quality    The  program  focuses  on  mitigating  the  impacts  of  a  disruption  to  our   facilities,  workforce,  technology  and  supply  chain.  Although  we  have  busi- of  service  metrics  so  that  we  can  proactively  address  our  customers’   ness  continuity  planning  processes  in  place,  there  can  be  no  assurance    concerns  and  exceed  their  expectations.  Our  sales  focus  on  winning  new   that  specific  events  or  a  combination  of  events  will  not  disrupt  our   clients,  as  well  as  our  strategic  business  acquisitions,  limit  our  customer   operations  or  materially  affect  our  financial  results.   concentration  risk  on  an  ongoing  basis  and  add  to  our  RPA  and  digital   Ongoing risk-based optimization of our disaster recovery capabilities service  capabilities.  In  2016,  we  entered  an  agreement  with  Baring  Private    for our IT and telecommunications network assets is a key focus for Equity  Asia  to  acquire  a  35%  non-controlling  interest  in  TELUS  International   preventing outages and limiting their impact on our operations and cus- (TI),  which  positions  TI  well  to  leverage  Baring  Private  Equity  Asia’s  deep   tomers. We are focused on driving closer alignment of IT and network Asian  markets  presence  and  worldwide  experience,  and  to  tap  into  its   recovery capabilities with business requirements. However, while disaster global  network  in  order  to  further  expand  TI’s  operations.  Our  IT  systems   undergo  security  and  privacy  assessments  (see  Data protection  and   Security  above).  We  make  significant  investments  in  support  of  our  team   members,  including  high-end  workplace  facilities,  competitive  benefits,   ongoing  training  and  development,  and  recurring  surveys  to  identify  and   recovery is a focus for us, not all of our systems have recovery and continuity capabilities. Real estate joint venture (TELUS Sky) We have entered into joint ventures to develop real estate projects, address  areas  of  concern.  We  maintain  a  diverse  base  of  operations,    including the TELUS Sky project in Calgary. Risks associated with our with  facilities  located  in  North  America,  Asia,  Europe  and  Central  America,   real estate joint ventures include possible construction-related cost which  helps  minimize  country-specific  risks,  gives  us  the  ability  to  serve   overruns, financing risks, reputational risks and the uncertainty of future customers  in  multiple  languages  and  in  multiple  time  zones,  and  provides   demand, especially during market downturns. There can be no assurance network  redundancy  and  contingency  planning  opportunities.  International   that the real estate project will be completed on budget or on time, or operational  practices  are  monitored  for  alignment  with  changes  in  regu- will obtain lease commitments as planned. Accordingly, we are exposed lation,  best  practices  and  customer  expectations,  as  well  as  the  privacy,    to the risk of loss on our investment and loan amounts, and a potential integrity,  anti-bribery  and  procurement  policies  of  our  domestic  Canadian   inability to service debt payments should a project’s business plan not operations,  as  appropriate.  We  also  utilize  foreign  currency  forward  con- tracts  to  mitigate  currency  risks  (see  Currency risk  in  Section 7.9 Financial instruments, commitments and contingent liabilities). 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 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 network, information technology, 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. our brand expectations. Risk mitigation: To develop TELUS Sky in Calgary, we have estab- lished a joint venture with partners experienced in large commercial and residential real estate projects – Westbank and Allied REIT. For projects in progress, budget-overrun risks have been miti-  gated through fixed-price supply contracts, expert project management oversight and insurance for certain risks. Construction 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 in Vancouver to streamline and improve the cost-effectiveness of TELUS Sky. Additionally, we have retained independent third-party consultants to assist in identifying other potential cost and time savings, and we continue to monitor economic conditions which may have impacts on the TELUS Sky See Concerns related to the environment in Section 10.10. real estate joint venture and consider mitigation strategies Risk mitigation: We have an enterprise-wide business continuity program that is aligned with our corporate priorities, which include 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 2018, such as the wildfires in British Columbia and the spring flooding in British Columbia, 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 learnings from prior events. Our business continuity program aligns with the current standards and business practices, and encompasses provisions for mitigation, preparedness, response, recovery and ongoing program improvements. as required. 10.6 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, the inability to attract and retain employees with essential or evolving skills, 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. Changes in technology are also shifting the set of skills needed by our team, and we face competition from other global players for these same skills. TELUS 2018 ANNUAL REPORT • 107 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 critical Ability to refinance maturing debt At December 31, 2018, our long-term debt was approximately $14.2 billion, with maturities in certain years from 2019 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 skills or talents that are scarce in the marketplace. to low-cost funding. At December 31, 2018, we had $774 million of We have a succession planning process to identify top talent for key commercial paper outstanding, all of which was denominated in U.S. management positions. dollars (US$569 million). When we issue commercial paper, it must   Additionally,  we  work  continuously  to  raise  the  level  of  our  employee   be refinanced on an ongoing basis in order to realize the cost savings engagement.  We  believe  that  our  strong  employee  engagement  con- relative to borrowing on the $2.25 billion credit facility. Capital market tinues  to  be  supported  by  our  focus  on  the  customer  and  team  member   conditions may prohibit the roll-over of commercial paper at low rates. 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  employee  engagement,  including  performance   development,  career  opportunities,  learning  and  development,  recogni- tion,  diversity  and  inclusiveness,  health  and  wellness  programs,  our  Work   Styles®  program  (e.g.  facilitating  working  remotely  from  home  or  other   alternative  work  locations),  and  our  community  volunteerism.  The  level    of  our  employee  engagement  continues  to  place  our  organization  within   the  top  10%  of  all  employers  surveyed.  See  also  Section 10.10 Team member health, wellness and safety. Risk mitigation:  We  successfully  completed  a  number  of  debt  transactions   in  2017  and  2018  (see  Section 7.4).  As  a  result,  the  average  term  to  matur ity    of  our  long-term  debt  (excluding  commercial  paper,  the  revolving  com- ponent  of  the  TELUS  International  credit  facility  and  finance  leases)  was    12.2  years  at  December  31,  2018  (as  compared  to  10.7  years  at  Decem- ber  31,  2017).  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.   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 requirements 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, including us. External capital market conditions could potentially affect our ability to make strategic investments and meet ongoing capital funding requirements. Risk mitigation: We may finance future capital funding 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 June 2020, under which we can offer up to $2.5 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, 2023 ($1.5 billion available at December 31, 2018), 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 until December 31, 2021, 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, 2018 (see Section 7.7 Sale of trade receivables). A reduction in credit ratings could affect our cost of capital and access to capital There can be no assurance that we will maintain or improve current credit ratings. 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. A reduction in our ratings, from the current BBB+ or equivalent, could result in an increase to our cost of capital. Risk mitigation: We manage our capital structure and adjust 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. Four credit rating agencies currently have ratings that are in line with this target. 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  current  intention  to  return   capital  to  shareholders  could  constrain  our  ability  to  invest  in  our  oper- ations  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  expectations,  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  advantageous,  based  on   our  financial  position  and  outlook,  and  the  market  price  of  our  Common   Shares.  For  further  detail  on  our  multi-year  dividend  growth  program    and  2019  NCIB  program,  see  Section 4.3 Liquidity and capital resources. 108 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT Risk mitigation: Our Board of Directors reviews and approves the declara- tion of a dividend each quarter, and the amount of the dividend, based TELUS International operates in a number of foreign jurisdictions, including Barbados, Bulgaria, El Salvador, Guatemala, India, Ireland, on a number of factors, including our financial position and outlook. This Philippines, Romania, the United Kingdom and the United States, assessment is subject to various assumptions and the impact of various risks and uncertainties, including those described in this Section 10. Financial instruments Our financial instruments, and the nature of credit risks, liquidity risks and market risks to which they may be subject, 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 that a general tendency by domestic and foreign tax collection authorities to adopt more interpretations and aggressive auditing practices could adversely affect our 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), and differences in the applicable tax base and tax rates, legislation and tax treaties, where applicable, as well as currency and language differences. In addition, the telecommunications industry faces unique issues that lead to uncertainty in the application of tax laws and the division of tax between domestic and foreign jurisdictions. Furthermore, there has been a more intense focus by the media and by political and tax authorities on taxation, both domestically and internation- ally, 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 financial condition and operating results We collect and pay significant amounts of indirect taxes, such as goods the principles underlying and guiding the roles of team members, their responsibilities and personal conduct, the method of conducting busi- and services taxes, harmonized sales taxes, provincial sales taxes, sales ness in relation to tax law and the approaches to working relationships and use taxes and value-added taxes, to various tax authorities. As our with external tax authorities and external advisors. This policy recognizes operations are complex and the related tax interpretations, regulations, the requirement to comply with all relevant tax laws. The components legislation and jurisprudence that pertain to our activities are subject to necessary for the effective control and mitigation of tax risk are outlined continual change and evolving interpretation, the final determination of the in the policy, as is the delegation of authority to management for taxation of many transactions is uncertain. Moreover, the implementation addressing tax matters in accordance with Board and Audit Committee of new legislation in itself has its own complexities, including those of communication guidelines. execution where multiple systems are involved, and the interpretation In giving effect to this policy, we maintain an internal Taxation of new rules as they apply to specific transactions, products and services. department comprised of professionals who stay current on domestic We have significant current and deferred income tax assets and and foreign tax obligations, supplemented where appropriate with liabilities, income tax expenses and cash tax payments. Income tax external advisors. This team reviews systems and process changes for amounts are based on our estimates, applying accounting principles compliance with applicable domestic and international taxation laws that recognize the benefit of income tax positions only when it is more and regulations. Its members are also responsible for the specialized likely than not that the ultimate determination of the tax treatment of a accounting required for income taxes. position will result in the related benefit being realized. The assessment Material transactions are reviewed by our Taxation department of the likelihood and amount of income tax benefits, as well as the timing so that transactions of an unusual or non-recurring nature are assessed of realization of such amounts, can materially affect the determination from multiple risk-based perspectives. Tax-related transaction risks are of Net income or cash flows. We expect the income taxes calculated at regularly communicated to, and re-assessed by, our Taxation department applicable statutory rates to range between 26.7% and 27.3% in 2019. as a check to initial exposure assessments. As a matter of regular practice, These expectations can change as a result of changes in interpretations, large transactions are reviewed by external tax advisors, while other third- regulations, legislation or jurisprudence. party advisors may also be engaged to express their views as to the The timing of the monetization of deferred income tax accounts is potential for tax liability. We continue to review and monitor our activities uncertain, as it is dependent on our future earnings and other events. so that we can take action to comply with any related regulatory, legal The amounts of deferred income tax liabilities are also uncertain, as the and tax obligations. In some cases, we also engage external advisors to amounts are based upon substantively enacted future income tax rates review our systems and processes for tax-related compliance. The advice that were in effect at the time of deferral, which can be changed by tax provided and tax returns prepared by such advisors and counsel are authorities. As well, the amounts of cash tax payments and current and reviewed for reasonableness by our internal Taxation department. 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 10.9 Litigation and legal matters determination of the actual amounts of indirect taxes payable or receiv- able, income taxes payable or receivable, deferred income tax liabilities, Investigations, claims and lawsuits Given the size of our organization, investigations, claims and lawsuits taxes on certain items included within capital and income tax expense. seeking damages and other relief are regularly threatened or pending Therefore, there can be no assurance that taxes will be payable as against us. The growing diversity of our service offerings, which now anticipated and/or that the amount and timing of receipt or use of the includes communication, health, and security services, may increase tax-related assets will be as currently expected. these risks. It is not currently possible for us to predict the outcome of TELUS 2018 ANNUAL REPORT • 109 such matters due to various factors, including: the preliminary nature merits of their claims. In appropriate cases, we are pursuing settlements of some claims; uncertain damage theories and demands; incomplete that we consider to be in our best interests. We regularly assess our factual records; the uncertain nature of legal theories and procedures business practices and actively monitor class action developments in and their resolution by the courts, at both the trial and the appellate levels; Canada and the United States in order to identify and minimize the and the unpredictable nature of opposing parties and their demands. risk of further class actions against us. 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, Civil liability in the secondary market Like other public companies, we are subject to civil liability for misrepre- based upon legal assessments and the information presently available, sentations in written disclosure and oral statements, and liability for fraud that it is unlikely that any liability relating to existing investigations, claims and market manipulation. and lawsuits, 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 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- person to specifically designated members of senior management, obligations and reduce our exposure to, and the effect on us of, legal provides a protocol for communicating with investment analysts and claims. We also maintain a team of legal professionals who advise on investors, as well as oral presentations, and outlines the communi-  and manage risks related to claims and possible claims. See other cation approach to issues. Our Disclosure Committee reviews key risk mitigation steps discussed below. disclosure documents. Class actions We are a defendant in a number of certified and uncertified class Legal and ethical compliance We rely on our employees, officers, Board of Directors, key suppliers actions. Over the past decade or more, we have observed a willingness and other business partners to demonstrate behaviour consistent on the part of claimants to launch class actions whereby a representa- with applicable legal and ethical standards in all jurisdictions within tive plaintiff seeks to pursue a legal claim on behalf of a large group which we operate, including, but not limited to, anti-bribery laws of persons. The number of class actions filed against us has varied from and regulations. Situations might occur where individuals intentionally year to year, with claimants continually looking to expand the matters or inadvertently do not adhere to our policies, applicable laws and in respect of which they file class actions. The adoption by governments regulations or contractual obligations. For instance, there could be of increasingly stringent consumer protection and privacy legislation cases in which the personal information of a customer or employee is may increase the number of class actions by creating new causes collected, retained, used or disclosed in a manner that is not fully com- of action, or may decrease the number of class actions by improving pliant with legislation, contractual obligations or our policies. In the case clarity in the areas of consumer marketing and contracting and the of TELUS Health and our recently acquired medical clinics, personal protection of privacy. A successful class action lawsuit, by its nature, information includes sensitive health information about individuals who could result in a sizable damage award that could negatively affect are our customers or healthcare providers’ end customers. In addition, 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. there could be situations in which compliance programs may not be fully adhered to, or in which parties may have a different interpretation of the requirements of particular legislative provisions. As our TELUS Health team and recently acquired medical clinics offer new services (such as virtual care and electronic prescription), including in some cases to consumers and in other cases through third-party partnerships, new risks arise across parameters such as dependence on third-party suppliers for legal compliance and/or compliance with medical pro- fessional standards, as well as a heightened possibility of political intervention. The acquisition of medical clinics in 2018 and resulting direct participation in providing healthcare services increases our exposure to the risks of non-compliance and political intervention. These various situations expose us to the risk of litigation and the possibility of damages, sanctions and fines, or of being disqualified from bidding on contracts, and may negatively affect our financial Risk mitigation: We are vigorously defending each of the class actions brought against us, including opposing certification of uncertified or operating results, reputation and brand. We continue to expand our activities into the United States class actions. Certification is a procedural step that determines whether and other countries. When operating in foreign jurisdictions, we are a particular lawsuit may be prosecuted by a representative plaintiff on required to comply with local laws and regulations, which may differ behalf of a class of individuals. Certification of a class action does not substantially from Canadian laws and add to the regulatory, legal determine the merits of the claim, so that, if we were unsuccessful in and tax exposures that we face. In certain cases, foreign laws with defeating certification, the plaintiffs would still be required to prove the extra-territorial application may also impose obligations on us. 110 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT For example, the EU’s General Data Protection Regulation (GDPR) came into force in May 2018, and applies to many of our business Intellectual property and proprietary rights Technology evolution also brings additional legal risks and uncer- customers who, in turn, pass those obligations on to us as their service tainties. The intellectual property and proprietary rights of owners and provider. When we acquire companies, they could have past records developers of hardware, software, business processes and other of non-compliance with laws and regulations and/or may have taken technologies may be protected under statute, such as patent, copyright actions that could give rise to litigation. Risk mitigation: Although we cannot predict outcomes with certainty, we believe 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 limiting risks. We have an anti-bribery and corruption policy, a comprehensive code of ethics and conduct for our employees, officers and Board of Directors, and mandatory annual integrity training for employees, officers and identified contractors. We also have a supplier code of conduct and a toll-free EthicsLine for anonymous reporting by anyone who may have concerns or complaints to bring forward. We conduct targeted mandatory training on our anti-  bribery and corruption policies, 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 processes and controls in place in order to facilitate legal compliance and to report on compliance to the Audit Committee.   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  beyond  Canada.   We  also  engage  external  counsel  and  advisors  qualified  in  the  relevant   foreign  jurisdictions  to  provide  regulatory,  legal  and  tax  advice,  as  appro- priate.  In  advance  of  the  coming  into  force  of  the  GDPR,  we  launched    a  GDPR  readiness  program  to  prepare  us  to  review  our  own  direct  and   indirect  compliance  obligations  and  to  assist  our  customers  in  their   compliance  efforts. When we acquire a company, we conduct due diligence, obtain standard industry representations and warranties relating to the acquired assets and liabilities, and assess any risks related to litigation disclosed to us. Defects in software and failures in data or transaction processing We provide certain applications and managed services to our customers and industrial design legislation, or under common law, such as trade secrets. With the growth and development of technology-based indus- tries, 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 limit 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, the number of 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 ourselves 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, our TELUS Health team depends on its ability to protect the proprietary aspects of its technology. The failure to adequately do so 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 that involve the management, processing, sharing and/or storing of data, differ from management’s assessments and assumptions, a material including sensitive personal medical records, and the transfer of funds. adjustment to our financial position and the results of our operations Software defects or failures in data or transaction processing could lead could result. Management’s assessments and assumptions include that to substantial damage claims (including privacy and medical claims). reliable estimates of the exposure cannot be made for the majority of For instance, a defect in a Health application could lead to personal injury these claims, considering the continued uncertainty relating to the validity or unauthorized access to personal information, while a failure in trans- of the intellectual property at issue, whether or not technology used by action processing could result in the transfer of funds to the wrong recipient. See Data protection above. us infringes upon that intellectual property, and the nature of the damages that will be sought by the plaintiffs. 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 dis- 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, claimers, indemnities and limitations of liability in most cases), as well it is our practice to seek and obtain contractual protections consistent as insurance coverage, to limit our exposure to these types of legal with standard industry practices to help mitigate the risks of intellectual claims. However, there can be no assurance that all team members property infringements. Whenever creating or inventing technology and will follow our processes at all times or that we have indemnities applications, it is our practice to protect our intellectual property rights and limitations of liability covering all cases. through litigation and other means. TELUS 2018 ANNUAL REPORT • 111 10.10 Health, safety and environment Team member health, well-being and safety Lost work time resulting from team member illness or injury can negatively 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 take a holistic and proactive approach to team members’ health that involves health risk prevention, early intervention, employee and family assistance, assessment and support services, disability management, and accommodation and return to work services. Our health and Concerns related to the environment A detailed report of our environmental risk mitigation activities can be found in our sustainability report at telus.com/sustainability.   Environmental  issues  affecting  our  business  include: Climate-related risk Our operations are exposed to climate-related physical risks, such as from the consequences of increasing severity and frequency of extreme weather events and rising global temperatures, as well as transition risks related to climate change, such as the impact of changes in policy or implementation of the lower-emission technology. well-being strategy encourages our team members to develop optimal personal health through five dimensions of well-being: physical, psycho- Waste and waste recycling; water consumption; spills and releases Several  areas  of  our  operations  are  subject  to  environmental  consider- logical, financial, social and environmental. To promote safe work ations,  such  as  the  handling  and  disposal  of  waste,  electronic  waste  or   practices, we offer training and orientation programs for team members other  residual  materials,  the  management  of  our  water  use,  and  spills  and   and contractors who access our facilities. There can be no assurance releases  from  our  operations.  Some  areas  of  our  operations  are  subject   that these health, well-being and safety programs and practices to  evolving  and  increasingly  stringent  federal,  provincial  and  local  environ- will be effective in all situations. mental,  health  and  safety  laws  and  regulations.  Such  laws  and  regulations   impose  requirements  with  respect  to  matters  such  as  the  release  of   Concerns related to radio frequency emissions certain  substances  into  the  environment,  corrective  and  remedial  action   from mobile phones and wireless towers We understand there are public concerns over potential impacts concerning  such  releases,  and  the  proper  handling  and  management    of  certain  substances,  including  wastes.  Evolving  public  expectations   associated with low levels of non-ionizing radio frequency (RF) emissions and  increasingly  stringent  laws  and  regulations  could  result  in  increased   from mobile phones and cell towers. costs  of  compliance,  while  failure  to  recognize  and  adequately  respond    To address these concerns, we look to recognized experts with peer- to  the  same  could  result  in  penalties,  regulatory  scrutiny  or  damage  to   reviewed findings, as well as government agencies, to provide guidance our  reputation  and  brand. 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 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 emission exposure, since children are typically more sensitive to a variety of environmental agents. We also offer information and advice with respect to RF 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:  Our  approach  to  climate-related  risk  consists  of  a   governance  component  that  has  Board  oversight  and  a  management   program  with  climate  change  impact  assessments;  a  strategic  compon- ent  that  includes  energy  management  programs,  business  continuity   planning  and  readiness  activities;  a  risk  management  component  that   incorporates  a  climate-related  risk  assessment  as  part  of  our  ongoing   enterprise  risk  management  processes,  as  well  as  disclosure  in  our  sus- tainability  report  of  our  performance  in  managing  these  risks;  and  the    use  of  metrics  to  assess  climate-related  risks  and  opportunities  and  of   targets  for  greenhouse  gas  (GHG)  emissions,  including  disclosure  of  our   actions  and  progress  towards  these  targets  in  our  sustainability  report.   Our  corporate  target  is  a  25%  reduction  in  CO2e  from  2010  levels  by  2020   and  a  10%  reduction  in  energy  use  over  the  same  period.  We  have  also   invested  in  renewable  energy  solutions  and  green  building  technology.   We utilize an ISO 14001:2015 certified environmental management system (EMS) to identify and control the environmental impacts associated with our operations. The EMS is audited annually to ensure compliance with standard applicable regulatory requirements. Within the EMS, we have specific programs for the management of waste and waste recycling, water consumption, and spills and releases. Our e-waste management program specifies approved recycling channels for both external and internal electronic products. We regularly examine our waste streams to Risk mitigation:  Canada’s  federal  government  is  responsible  for  estab- lishing  safe  limits  for  signal  levels  of  radio  devices.  We  are  confident  that   identify new ways of reducing our impact on the environment through the diversion of waste from landfills, and we have a corporate target of the  mobile  handsets  and  devices  we  sell,  and  our  cell  towers  and  other   diverting 90% of waste from landfill by the end of 2020. Our waste and associated  devices,  comply,  in  all  material  respects,  with  all  applicable   recycling strategy is focused on education and awareness programs, Canadian  and  U.S.  government  safety  standards.  We  continue  to  monitor as well as the expansion of recycling infrastructure in our administrative new  published  studies,  government  regulations  and  public  concerns   buildings. Our spills and releases program includes the tracking and about  the  health  impacts  of  RF  exposure. reporting of spills and releases, as well as risk-based assessments of any affected property and implementation of remedial solutions. 112 • TELUS 2018 ANNUAL REPORT MD&A: RISKS AND RISK MANAGEMENT 10.11 Economic growth and fluctuations Slow or uneven economic growth and fluctuating oil prices may adversely affect us We  estimate  that  economic  growth  in  Canada  will  be  approximately  2.0%   in  2019  (see  Economic growth  in  Section 1.2),  but  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   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 continuing weakness in the Canadian dollar relative to the U.S. dollar. Risk mitigation:  While  economic  risks  cannot  be  completely  mitigated,   our  top  priority  of  putting  customers  first  and  pursuing  global  leadership   consumers  to  reduce  discretionary  spending,  even  in  a  growing  economy.   in  the  likelihood  of  our  clients  to  recommend  our  products,  services  and   Further  risks  to  the  Canadian  economy  include  rising  interest  rates,  a   people,  supports  our  efforts  to  acquire  and  retain  customers  through   weakening  housing  market,  and  uncertainty  related  to  trade  issues,  includ- the  economic  fluctuations  that  affect  them  and  us.  We  will  also  support   ing  the  ongoing  imposition  of  tariffs.  Meanwhile,  trade  conflicts  between   customers  negatively  affected  by  fluctuating  oil  prices  with  cost-effective   countries,  as  well  as  other  economic  and  political  uncertainties,  may  also   solutions  that  help  them  realize  efficiencies  in  their  operations,  and  we   have  global  implications,  as  supply  chains  are  increasingly  integrated. 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 us or our competitors. will  continue  to  pursue  cost  reduction  and  efficiency  initiatives  in  our  own    business  (see  discussion  in  Section 3 Corporate priorities).  See  Section 4.3 Liquidity and capital resources  for  our  capital  structure  financial  policies   and  plans.  Our  foreign  currency  exchange  rate  risk  management  includes   Weakness in the extractive energy sector that began in 2015 has had the  use  of  foreign  currency  forward  contracts  and  currency  options  to    a significant impact on Western Canada, which is evident in lower levels fix  the  exchange  rates  on  U.S.  dollar-denominated  transactions,  commit- of investment and employment, especially in Alberta. A particular risk ments,  commercial  paper  and  U.S.  Dollar  Notes,  but  does  not  eliminate   for Alberta is the spread between global oil prices and Alberta-based oil this  risk  entirely. prices, with Alberta-based oil selling below global prices due to the difficulties of bringing oil to market. As a result, an energy-related recovery has been more muted in Alberta than it would have been if the spread Pension funding Economic and capital market fluctuations could adversely affect were smaller. This was partially mitigated by declining costs in non- the investment performance, funding and expense associated with the extractive industries, such as manufacturing. The previous lower growth defined benefit pension plans that we sponsor. Our pension funding obli- rates in Western Canada continued to reverse through 2018 after a gations are based on certain actuarial assumptions relating to expected robust economic performance in 2017, with economic growth in 2018 plan asset returns, salary escalation, retirement ages, life expectancy, estimated to be 2.5% in Alberta and 2.3% in British Columbia, the performance of the financial markets and future interest rates. as compared to 2.2% for Canada. The employee defined benefit pension plans, in aggregate with the Fluctuating  oil  prices,  along  with  housing  market  and  consumer    application of the asset ceiling, were in a $57 million surplus position 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  in  the  carrying  value  of  our   assets,  including,  but  not  limited  to,  our  intangible  assets  with  indefinite   at December 31, 2018 (compared to a $334 million deficit position at the end of 2017). Our solvency position, as determined under the Pension Benefits Standards Act, 1985, was estimated to be a surplus of $257 mil-  lion (compared to a $482 million surplus position at the end of 2017). lives  (spectrum  licences  and  goodwill).  Impairments  in  the  carrying    There can be no assurance that our pension expense and funding value  of  our  assets  would  result  in  a  charge  to  earnings  and  a  reduction   of our defined benefit pension plans will not increase in the future and in  owners’  equity,  but  would  not  affect  cash  flow.  Furthermore,  fluctu- thereby negatively impact earnings and/or cash flow. Defined benefit ating  interest  rates  may  have  an  impact  on  consumer  behaviour,  as  debt    funding risks may arise if total pension liabilities exceed the total value of service  burdens  increase  and  Canadian  households  experience  a   the respective plan assets in trust funds. Unfunded differences may arise reduction  in  disposable  income.   from lower than expected investment returns, changes to mortality and A further risk to Canada is trade with the U.S. While the North other assumptions, reductions in the discount rate used to value pension American Free Trade Agreement (NAFTA) has been renegotiated as liabilities, changes to statutory funding requirements and actuarial losses. the U.S.-Mexico-Canada Agreement (USMCA), tariffs remain in place While employee defined benefit pension plan re-measurements will cause and the cost of trade has gone up in certain areas. Further, a trade fluctuations in other comprehensive income, these re-measurements conflict emerging between the United States and China may have global will never be subsequently reclassified to income. implications, as supply chains are increasingly integrated. In  2018,  the  Canadian  dollar  exchange  rate  with  the  U.S.  dollar    was  volatile,  with  the  Canadian  dollar  generally  weakening  over  the  year,   from  roughly  USD:CAD  1.26  to  1.35.  Fluctuating  oil  prices  and  certain   U.S.  monetary  policy  changes  may  put  further  downward  pressure   on  the  Canadian  dollar  relative  to  the  U.S.  dollar  in  2019.  This  will  be   particularly  pronounced  if  the  Federal  Reserve  increases  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.    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 in 2019 is $36 million ($50 million in 2018.) TELUS 2018 ANNUAL REPORT • 113     11 Definitions  and  reconciliations 11.1 Non-GAAP and other financial measures We have issued guidance on and report certain non-GAAP measures that are used to evaluate the performance of TELUS, as well as to determine compliance with debt covenants and to manage our capital structure. As non-GAAP measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulations require such measures to be clearly defined, qualified and reconciled with their nearest GAAP measure. Adjusted Net income and adjusted basic earnings per share: These measures are used to evaluate performance at a consolidated Dividend payout ratio of adjusted net earnings:  This  ratio  is  a  his- torical  measure  calculated  as  the  sum  of  the  last  four  quarterly  dividends   declared  per  Common  Share,  as  reported  in  the  financial  statements,   divided  by  adjusted  net  earnings  per  share.  Adjusted  net  earnings  per   share  is  basic  earnings  per  share,  as  used  in  the  Dividend payout ratio,  adjusted  to  exclude  the  gain  on  the  exchange  of  wireless  spectrum   licences,  gains  and  equity  income  related  to  real  estate  joint  ventures,   provisions  related  to  business  combinations,  long-term  debt  prepayment   premium  (when  applicable)  and  income  tax-related  adjustments. Calculation of Dividend payout ratio of adjusted net earnings level and exclude items that may obscure the underlying trends in business Years ended December 31 ($) performance. These measures should not be considered alternatives to Net income and basic earnings per share in measuring TELUS’ perfor- mance. Items that may, in management’s view, obscure the underlying Numerator – sum of the last four quarterl  y ared per Common Share dividends decl trends in business performance include significant gains or losses asso- Adjusted net earnings ($ millions): 2018 2017 Applying IFRS 9 and IFRS 15 (2017 adjusted) 2.10 1.97 ciated 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 Reconciliation of adjusted Net income and Reconciliation of adjusted 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 expendi- tures 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  ($)   Numerator  –  Sum  of  the  last  four  quarterly   dividends  declared  per  Common  Share   Denominator  –  Net  income  per  Common  Share   Ratio  (%) 2018   2017 Applying IFRS 9 and IFRS 15 (2017 adjusted) 2.10 2.68 78 1.97  2.46  80   Net income attributable to Common Shares 1,600 1,559 Deduct non-recurring gains and equity income related to real estate joint ventures, after income taxes Provisions related to business combinations, after income taxes (Deduct net favourable) add back net  unfavourable income tax-related adjustments Add back long-term debt prepayment premium, after income taxes Add back initial and committed donation to TELUS Friendly Future Foundation, after income taxes Denominator – Adjusted net earnings per Common Share Adjusted ratio (%) (150) (17) (7) 25  90 1,541 2.58 81 (1) (22) 21 –  – 1,557 2.46 80 Earnings coverage: This measure is defined in the Canadian Securities Administrators’ National Instrument 41-101 and related instruments, and is calculated as follows: Calculation of Earnings coverage Years ended December 31 ($ millions, except ratio) 2018 2017 Net income attributable to Common Shares Income taxes (attributable to Common Shares) Borrowing costs (attributable to Common Shares)1 Numerator Denominator – Borrowing costs Ratio (times) Applying IFRS 9 and IFRS 15 (2017 adjusted) 1,600 542 630 2,772 630 4.4 1,559 583 562 2,704 562 4.8 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. 114 • TELUS 2018 ANNUAL REPORT             MD&A: DEFINITIONS AND RECONCILIATIONS 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.    Free cash flow: We report this measure as a supplementary indicator of our operating performance. It should not be considered an alternative to the measures in the Consolidated statements of cash flows. Free cash flow 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. EBITDA  should  not  be  considered  an  alternative  to  Net  income  in   It provides an indication of how much cash generated by operations is measuring  TELUS’  performance,  nor  should  it  be  used  as  an  exclusive   available after capital expenditures (excluding purchases of spectrum measure  of  cash  flow.  EBITDA  as  calculated  by  TELUS  is  equivalent   licences) that may be used to, among other things, pay dividends, repay to  Operating  revenues  less  the  total  of  Goods  and  services  purchased   debt, purchase shares or make other investments. Free cash flow may expense  and  Employee  benefits  expense. be supplemented from time to time by proceeds from divested assets 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 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 long-term 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)  2018    2017 Net income Financing  costs   Income taxes Depreciation   Amortization of intangible assets EBITDA Add  back  restructuring  and    other  costs  included  in  EBITDA   EBITDA – excluding restructuring and other costs Deduct  non-recurring  gains  and  equity  income   related  to  real  estate  joint  ventures   Deduct MTS net recovery Adjusted EBITDA 661 552   1,669 598   5,104 573 590 1,617 552 4,910 317 117 5,421 5,027 (171) – 5,250 (1) (21) 5,005 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. or financing activities. The application of IFRS 15 reflects a non-cash accounting change. As such, the underlying economics and free cash flow generated by the business are not impacted by the change. Free cash flow calculation Years ended December 31 ($ millions) 2018   2017 EBITDA Deduct  non-cash  gains  from  the  sale    of  property,  plant  and  equipment   Applying IFRS 9 and IFRS 15 (2017 adjusted) Restructuring  and  other  costs,    net  of  disbursements   1,624   1,578 Deduct  non-recurring  gains  and    equity  income  related  to  real  estate   joint  ventures   Donation  to  TELUS  Friendly  Future    Foundation  in  TELUS  Common  Shares   Effects  of  contract  asset,  acquisition    Applying IFRS 9 and IFRS 15 (2017 adjusted) 5,104 4,910 (49) 78 (171) 100 (7) (22) (1) – and  fulfilment*   (203) (135) Items  from  the  Consolidated  statements    of  cash  flows: Share-based compensation, net Net  employee  defined  benefit    plans  expense   Employer  contributions  to  employee    defined  benefit  plans   Interest paid Interest received Capital  expenditures  (excluding  spectrum  licences)   Other Free cash flow before income taxes Income taxes paid, net of refunds Free cash flow 6 95 (53) (608) 9 17 82 (67) (539) 7 (2,914) (3,094) – 1,394 (197) 1,197 6 1,157 (191) 966 *See the following page for the reconciliation of effects of contract asset, acquisition and fulfilment. TELUS 2018 ANNUAL REPORT • 115     Reconciliation of effects of contract asset, acquisition and fulfilment Calculation of Net debt Years ended December 31 ($ millions) 2018 2017 As at December 31 ($ millions) From Note 6(c) of the Consolidated financial statements: Applying IFRS 9 and IFRS 15 (2017 adjusted) Net additions arising from operations 1,455 1,270 Amounts billed in period and thus reclassified to accounts receivable (1,284) (1,166) Long-term debt including current maturities Debt issuance costs netted against long-term debt Derivative (assets) liabilities, net 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) Cash and temporary investments, net Short-term borrowings (1) 2 (3) (3) 321 (290) 308 (271) 203 135 Net debt 2018 2017 Applying IFRS 9 and IFRS 15 (2017 adjusted) 14,101 13,660 93 (73) 73 93 (37) (414) 100 5 (509) 100 13,770 13,422 Change in impairment allowance, net Other From Note 20 of the Consolidated  al statements: financi Additions – Total Amortization – Total Effects of contract asset, acquisition and fulfilment Our method of calculating Free cash flow has been revised in 2018 to reflect the discretionary nature of the donation to the TELUS Friendly Future Foundation that fundamentally transformed our operating model in respect of philanthropic giving. 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) 2018 2017 Free cash flow Add (deduct): Capital expenditures (excluding  spectrum licences) Adjustments to reconcile to Cash provided by operating activities Cash provided by operating activities Applying IFRS 9 and IFRS 15 (2017 adjusted) 1,197 966 2,914 3,094 (53) 4,058 (113) 3,947 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    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 net interest and recoveries on redemption and repayment of debt, calculated on a 12-month trailing basis. No recoveries on redemption and repayment of debt were recorded in 2018 and 2017. Expenses recorded for the long-term debt prepayment premium, if any, are included in net interest cost. Net interest cost was $644 million in 2018 and $567 million in 2017. Restructuring and other costs:  With  the  objective  of  reducing    ongoing  costs,  we  incur  associated  incremental,  non-recurring  restruc- turing  costs.  We  may  also  incur  atypical  charges,  which  are  included    in  other  costs,  when  undertaking  major  or  transformational  changes  to   that  are  not  covered  by  available  Cash  and  temporary  investments.  The   our  business  or  operating  models.  In  addition,  we  include  incremental   nearest  IFRS  measure  to  net  debt  is  Long-term  debt,  including  Current   maturities  of  Long-term  debt.  Net  debt  is  a  component  of  the  Net debt to EBITDA – excluding restructuring and other costs  ratio. external  costs  incurred  in  connection  with  business  acquisition  or   disposition  activity,  as  well  as  litigation  costs,  in  the  context  of  significant   losses  and  settlements,  in  other  costs. Components of restructuring and other costs Years ended December 31 ($ millions) 2018 2017 Goods and services purchased Employee benefits expense Restructuring and other costs included in EBITDA Applying IFRS 9 and IFRS 15 (2017 adjusted) 181 136 317 81 36 117 116 • TELUS 2018 ANNUAL REPORT MD&A: DEFINITIONS AND RECONCILIATIONS 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 billing per subscriber unit per month (ABPU) for wireless subscribers is calculated as network revenue derived from monthly Wireless subscriber unit (subscriber) is defined as an active mobile recurring revenue-generating unit (e.g. mobile phone, tablet or mobile Internet key) with a unique subscriber identifier (SIM or IMEI number). In addition, TELUS has a direct billing or support relationship with the user of each device. Subscriber units exclude machine-to-machine devices (a subset of the Internet of Things), such as those used for asset tracking, remote control monitoring and meter readings, vending machines and service plan, roaming and usage charges, as well as monthly re-payments wireless automated teller machines. of the outstanding device balance owing from customers on contract; divided by the average number of subscriber units on the network during the period and is expressed as a rate per month. Average revenue per subscriber unit per month (ARPU) for wireless subscribers is calculated as network revenue derived from monthly 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 service plan, roaming and usage charges; divided by the average number NALs, as the impact of migrating from voice lines to IP services has led of subscriber units on the network during the period and is expressed to business NAL losses without a similar decline in revenue, thus as a rate per month. diminishing its relevance as a key performance indicator. Churn per month (or churn) is calculated as the number of subscriber units deactivated during a given period divided by the average number of subscriber units on the network during the period, and is expressed as a rate per month. Blended churn refers to the aggregate average of both prepaid and postpaid churn. A TELUS, Koodo or Public Mobile brand prepaid wireless subscriber is deactivated when the subscriber has no usage for 90 days following expiry of the prepaid credits. TELUS 2018 ANNUAL REPORT • 117 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, 2018. 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, 2018. ness of the Company’s internal control over financial reporting as of December 31, 2018, in accordance with the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control Deloitte LLP, an Independent Registered Public Accounting Firm, audited the Company’s Consolidated financial statements for the year ended December 31, 2018, and as stated in the Report of Independent 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, 2018. 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 14, 2019 February 14, 2019 118 • TELUS 2018 ANNUAL REPORT Report of independent registered public accounting firm To the Shareholders and Board of Directors of TELUS Corporation Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of TELUS Corporation and subsidiaries (the Company) as at December 31, 2018 and 2017, the related consolidated statements of income and other comprehensive income, changes in owners’ equity and cash flows, for the years then ended, and the related notes, (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, 2018 and 2017, and its financial performance and its cash flows for each of the years then ended, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for revenue from contracts with Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstate- ment of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. customers due to the adoption of IFRS 15 on January 1, 2018, and has Chartered Professional Accountants retrospectively adjusted the 2017 financial statements, including the February  14,  2019 disclosure of the January 1, 2017 retrospectively adjusted consolidated Vancouver, Canada statement of financial position. We have served as the Company’s auditor since 2002. TELUS 2018 ANNUAL REPORT • 119 CONSOLIDATED FINANCIAL STATEMENTSReport of independent registered public accounting firm To the Shareholders and Board of Directors Definition and Limitations of Internal Control of TELUS Corporation 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, 2018, 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, 2018, 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), the consolidated financial statements as of and for the year ended December 31, 2018 of the Company and our report dated February 14, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in accounting for revenue from contracts with customers in the year ended December 31, 2018 due to the adoption of IFRS 15. 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 regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections internal control over financial reporting and for its assessment of the of any evaluation of effectiveness to future periods are subject to effectiveness of internal control over financial reporting, included in the the risk that controls may become inadequate because of changes accompanying Report of Management on Internal Control over Financial in conditions, or that the degree of compliance with the policies or Reporting. Our responsibility is to express an opinion on the Company’s procedures may deteriorate. internal control over financial reporting based on our audit. 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. We conducted our audit in accordance with the standards of the Chartered Professional Accountants PCAOB. Those standards require that we plan and perform the audit to February  14,  2019 obtain reasonable assurance about whether effective internal control Vancouver, Canada over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control 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. 120 • TELUS 2018 ANNUAL REPORT Consolidated statements of income and other comprehensive income Years ended December 31 (millions except per share amounts) Note   2018   2017  6  7  8 17  18   9 10  11 Operating Revenues Service Equipment Revenues arisi ng from contracts with customers Other operating i ncome Operating Expenses Goods and services purchased Employee benefits expense Depreciation Amortization of intangible assets Operating Income Financi ng costs Income Before Income Taxes Income taxes Net Income Other Comprehensive Income   Items that may subsequently be recl assified to income Change in unrealized fair value of derivatives designated as cash flow hedges Foreign currency translation adjustment arisi ng from translating financi al statements of foreign operations Items never subsequently reclassified to income Change in measurement of i nvestment financia  l assets Employee defined benefit plan re-measurements Comprehensive Income Net Income Attributable to: Common Shares Non-controlling i nterests Comprehensive Income Attributable to: Common Shares Non-controlling i nterests 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. TELUS 2018 ANNUAL REPORT • 121 (Note 2(c)) (adjusted – Note 2(c)) $ 11,882 $ 11,332 2,213 14,095   273   14,368   6,368   2,896   1,669   598   1,973 13,305 103 13,408 5,904 2,594 1,617 552 11,531   10,667 2,837 661   2,176   552   1,624   (18) (30) (48) (1) 333   332   284   2,741 573 2,168 590 1,578  19    5  24  (12)  (172)  (184)  (160) $ 1,908   $   1,418 $ 1,600   $   1,559 24    19 $ 1,624   $   1,578 $ 1,898   $   1,395 10    23 $ 1,908   $   1,418 $ 2.68   $ 2.68   $     2.63 $     2.63 597   597   593 593 CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                           Consolidated statements of financial position As at (millions) Assets Current assets Cash and temporary investments, net Accounts receivable Income and other taxes receivable Inventories Contract assets Prepaid expenses Current derivative assets 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 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: Note December 31, 2018 December 31, 2017 January 1, 2017 (Note 2(c)) (adjusted – Note 2(c)) (Note 2(c)) $ 414 1,600 $  509 1,614 $  432 1,462 3 376 860 539 49 96 380 757 493 18 9 320 700 443 11 3,841 3,867 3,377 12,091 10,956 4,733 458 986 29,224 $ 33,065 11,368 10,658 4,236 396 528 27,186 $ 31,053 10,464 10,364 3,787 352 733 25,700 $ 29,077 $ 100 2,570 $  100 2,460 $  100 2,330 218 326 653 129 836 9 4,841 728 13,265 738 3,152 17,883 22,724 10,259 82 10,341 $ 33,065 34 299 632 78 1,404 33 5,040 511 12,256 847 2,941 16,555 21,595 9,416 42 9,458 37 284 584 124 1,327 12 4,798 395 11,604 736 2,511 15,246 20,044 9,014 19 9,033 $ 31,053 $ 29,077 6(b) 1(l) 6(c) 20 4(h) 17 18 18 6(c) 20 22 23 13 24 25 26 4(h) 25 26 27 10 28 29 David  L.  Mowat   Director   R.H.  Auchinleck Director 122 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Consolidated statements of changes in owners’ equity Common  equity Equity  contributed   Common Shares (Note 28)  Note Number of shares   Share   capital   Contributed   surplus   Retained   earnings   Accumulated   other comprehensive   income   Non- controlling   interests   Total Total (millions) Balance as at January 1, 2017 As previously reported 590 $ 5,029 $ 372 $ 2,474 $ 42 $  7,917 $ 19 $  7,936 IFRS 9, Financial Instruments transitiona  l amount 2(a), 11 IFRS 15, Revenue from Contracts with Customers transitiona  l amount As adjusted  Net i ncome Other comprehensive income Dividends   Dividends rei optiona  l nvested and cash payments Share option award net-equity  2(c)  2(c) 11   13   13(b), 14(c) settlement feature 14(d) Issue of shares i  n busi combination   ness Other   –   –  –  – 590 5,029   –   –   –   2   1   2   –  –  –  –  71  2 100  3   –   3 (3)   –   –  –   – 372   –   –   –   – (2)   –   – 1,097 3,574 1,559 (172) (1,167)   –   – –    –      –   39   –   8   –   –   – –    –    1,097 9,014 1,559 (164) (1,167)   71   – 100    3      –   19   19   4   –   –   –   –   – 1,097 9,033 1,578 (160) (1,167)  71  – 100  3 Bal ance as at December 31, 2017   595 $ 5,205 $ 370 $ 3,794    $ 47    $   9,416    $ 42 $   9,458 Bal ance as at January 1, 2018 As previously reported 595 $ 5,205 $ 370 $ 2,595 $ 51 $ 8,221 $ 42 $ 8,263 – 4 (4) – –  – IFRS 9, Financi al Instruments transitiona  l amount   2(a), 11   IFRS 15, Revenue from Contracts with Customers    transitiona  l amount   2(c)   – – – – – 1,195 As adjusted Net  income   Other comprehensive income Dividends    11   13   Dividends rei optional   nvested and    cash payments   13(b), 14(c)   Treasury shares acqui red 16(c), 28(b)   Shares settled from Treasury 16(c), 28(b)   Share option award net-equity settlement feature    Issue of shares i  n business    combination   Change i  n ownership    nterests of subsidi i  ary 14(d)   18(b)   31(a)   595 5,205 370 3,794 – – – 2 (2) 2 – 2 – – – – 86 (100) 100 – – – – – – 1 (1) 98 – – 14 1,600 333 (1,253) – – – – – – – 47 – 1,195 9,416 1,600 (35) 298 – (1,253) 86 (100) 100 – 98 – – – – – – – 42 24 (14) – – – – – – 1,195 9,458 1,624 284 (1,253) 86 (100) 100  – 98 44 14 30 Bal ance as at December 31, 2018 599 $ 5,390 $ 383 $ 4,474 $ 12 $ 10,259 $ 82 $ 10,341 The accompanying notes are an integral part of these consolidated financial statements. TELUS 2018 ANNUAL REPORT • 123 CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                          Consolidated statements of cash flows Years ended December 31 (millions)  Note 2018   2017 Operating Activities  Net i ncome Adjustments to reconcile net i ncome to cash provided by operating activities: Depreciation and amortization Deferred i ncome taxes Share-based compensation expense, net Net employee defi ned benefit plans expense Employer contri butions to employee defi ned benefit plans Non-current  contract  assets  Income from equity accounted i nvestments Shares settled from Treasury Other   Net change i   n non-cash operating working capita  l Cash provided by operating activities  Investing Activities Cash payments for capita  l assets, excludi ng spectrum l icences Cash payment for spectrum licences Cash payments for acquisitions, net Real estate joint ventures advances Real   estate joint venture recei  pts Proceeds on dispositions Other   Cash used by investing activities Financing Activities   Dividends  paid  to  holders  of  Common  Shares   Treasury shares acqui red Issue  (repayment)  of  short-term  borrowings,  net  Long-term debt issued Redemptions and repayment of long-term debt Issue of shares by subsidiary to non-controlling interests Other Cash used by financi ng activities Cash Position Increase (decrease) in cash and temporary i nvestments, net Cash and temporary i nvestments, net, beginning of period Cash and temporary i nvestments, 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)   7, 21 16(c) 31(a) 31(a) 18(a) 18(b) 21(c) 21(c) 31(b) 13(a)  26  26 31(a) (Note 2(c)) (adjusted – Note 2(c)) $ 1,624   $ 1,578 2,267   74   6   95   (53) (62)   (170) 100   (79)   256   4,058   2,169 467  17  82  (67)  (44)  (4)    –  (32)  (219) 3,947 (2,874)  (3,081) (1) (280) (22) 184   38   (22)    – (564) (26)  18  28  (18) (2,977)  (3,643) (1,141) (100) (67)   5,500   (5,377) 24   (15) (1,176) (95) 509   $ 414   $ (608) $ 9   $ (197)  (1,082)    –  –   6,367  (5,502)  (1)  (9)  (227)  77 432 $ 509 $    (539) $         7 $    (191) 124 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                             Notes to consolidated financial statements December 31, 2018 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; customer care and business services (formerly business process outsourcing); and home and business security. TELUS Corporation was incorporated under the Company Act (British Columbia) on October 26, 1998, under the name BCT.TELUS Communications Inc. (BCT). On January 31, 1999, pursuant to a court-approved plan of arrangement under the Canada Business 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 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   6.   Revenue  from  contracts  with  customers   7.   Other  operating  income   8.   Employee  benefits  expense   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   16.   Restructuring  and  other  costs   Floor 7, 510 West Georgia Street, Vancouver, British Columbia, V6B 0M3. CONSOLIDATED FINANCIAL POSITION FOCUSED The terms “TELUS”, “we”, “us”, “our” or “ourselves” are used 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   126 133 140 142 149 151 152 153 153 153 155 156 156 157 160 166 167 168 172 173 174 176 176 176 177 178 181 182 182 184 185 TELUS 2018 ANNUAL REPORT • 125 CONSOLIDATED FINANCIAL STATEMENTS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) Financi  al i nstruments – 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, 2018 and 2017, were authorized by our Board of Directors for issue on February 14, 2019. (a) Consolidation Our consolidated financial statements include our accounts and (e) Revenue recognition  (f) Depreciation, amortization and impairment (g) Translation of foreign currencies (h) Income and other taxes  (i) Share-based compensation (j  ) Employee future benefit plans FINANCIAL POSITION FOCUSED (k) Cash and temporary investments, net  (l) Inventories the accounts of all of our subsidiaries, the principal one of which is (m) Property, plant and equipment; 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 are considered principal subsidiaries at any particular point in time. intangible assets (n) Leases   (o) 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 (b) Use of estimates and judgments The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect: the reported amounts of assets and liabilities at the date of the financial statements; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. 126 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                          CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1 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 E C N A C F N G S I I I • The  recoverability  of  intangible  assets  with   • Certain  actuarial  and  economic   indefinite  lives  (see  Note 18(e)  for  discussion   of  key  assumptions) • The  recoverability  of  goodwill  (see  Note 18(e)   r e h g H i for  discussion  of  key  assumptions) 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  amounts  and   • The  estimated  useful  lives  of  assets    composition  of  income  and  other  tax    assets  and  liabilities,  including  the    amounts  of  unrecognized  tax  benefits • Amounts  for  net  identifiable  assets  acquired   in  business  combinations  and  provisions   related  to  business  combinations   r e w o L • The  recoverability  of  long-term  investments (see  (f)  following) • Certain  economic  assumptions  used  in   provisioning  for  asset  retirement  obligations   (see  (m)  following) • The  recoverability  of  tangible  and  intangible   assets  subject  to  amortization • Determination  of  the  allowance  for  doubtful   accounts  and  the  impairment  allowance    for  contract  assets • Determination  of  the  allowance  for  inventory   obsolescence Judgments Examples  of  our  significant  judgments,  apart  from  those  involving   obligor  to  the  end-user  customers.  The  effect  of  this  judgment  is    that  no  equipment  revenue  is  recognized  upon  the  transfer  of   estimation,  include  the  following:   inventory  to  third-party  re-sellers. •   Assessments  about  whether  line  items  are  sufficiently  material  to   •   We  compensate  third-party  re-sellers  and  our  employees  for    warrant  separate  presentation  in  the  primary  financial  statements   generating  revenues,  and  we  must  exercise  judgment  as  to   and,  if  not,  whether  they  are  sufficiently  material  to  warrant  separate   whether  such  sales-based  compensation  amounts  are  costs   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.   incurred  to  obtain  contracts  with  customers  that  should  be   capitalized  (see  Note 20).  We  believe  that  compensation  amounts   tangentially  attributable  to  obtaining  a  contract  with  a  customer,   Due  consideration  is  given  to  the  view  that  it  is  reasonable  to  expect   because  the  amount  of  such  compensation  could  be  affected   differing  opinions  of  what  is,  and  is  not,  material. in  ways  other  than  by  simply  obtaining  that  contract,  should  be   •   In  respect  of  revenue-generating  transactions,  we  must  make    expensed  as  incurred;  compensation  amounts  directly  attributable   judgments  that  affect  the  timing  of  the  recognition  of  revenue.    See  Note 2(a)  for  significant  changes  to  IFRS-IASB  which  significantly   affect  the  timing  of  the  recognition  of  revenue  and  the  classification    to  obtaining  a  contract  with  a  customer  should  be  capitalized    and  subsequently  amortized  on  a  systematic  basis,  consistent   with  the  satisfaction  of  our  associated  performance  obligations. of  revenues  presented  as  either  service  or  equipment  revenues.   Judgment  must  also  be  exercised  in  the  capitalization  of  costs   •   We  must  make  judgments  about  when  we  have  satisfied  our   incurred  to  fulfill  revenue-generating  contracts  with  customers.   performance  obligations  to  our  customers,  either  over  a  period  of   Such  fulfilment  costs  are  those  incurred  to  set  up,  activate  or   time  or  at  a  point  in  time.  Service  revenues  are  recognized  based   otherwise  implement  services  involving  access  to,  or  usage  of,   upon  customers’  access  to,  or  usage  of,  our  telecommunications   our  telecommunications  infrastructure  that  would  not  otherwise   infrastructure;  we  believe  that  this  method  faithfully  depicts  the   transfer  of  the  services,  and  thus  the  revenues  are  recognized  as   be  capitalized  as  property,  plant  and  equipment  and  intangible   assets  (see  Note 20).   the  services  are  made  available  and/or  rendered.  We  consider    •   The  decision  to  depreciate  and  amortize  any  property,  plant,   our  performance  obligations  arising  from  the  sale  of  equipment    equipment  and  intangible  assets  that  are  subject  to  amortization   to  have  been  satisfied  when  the  equipment  has  been  delivered    to,  and  accepted  by,  the  end-user  customers  (see  (e)  following).   on  a  straight-line  basis,  as  we  believe  that  this  method  reflects  the   consumption  of  resources  related  to  the  economic  lifespan  of  those   •   Principally  in  the  context  of  revenue-generating  transactions   assets  better  than  an  accelerated  method  and  is  more  representative   involving  wireless  handsets,  we  must  make  judgments  about   of  the  economic  substance  of  the  underlying  use  of  those  assets.   whether  third-party  re-sellers  that  deliver  equipment  to  our  cus- • The  preparation  of  financial  statements  in  accordance  with  generally   tomers  are  acting  in  the  transactions  as  principals  or  as  our  agents.   accepted  accounting  principles  requires  management  to  make   Upon  due  consideration  of  the  relevant  indicators,  we  believe   judgments  that  affect  the  financial  statement  disclosure  of  information   that  the  decision  to  consider  the  re-sellers  to  be  acting,  solely  for   regularly  reviewed  by  our  chief  operating  decision-maker  used    accounting  purposes,  as  our  agents  is  more  representative  of  the   economic  substance  of  the  transactions,  as  we  are  the  primary   to  make  resource  allocation  decisions  and  to  assess  performance   (segment  information,  Note 5).  A  significant  judgment  we  make   Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. TELUS 2018 ANNUAL REPORT • 127                                                              is  in  respect  of  distinguishing  between  our  wireless  and  wireline   operations  and  cash  flows  (and  this  extends  to  allocations  of  both   (c) Financial instruments – recognition and measurement In respect of the recognition and measurement of financial instruments, direct  and  indirect  expenses  and  capital  expenditures).  The  clarity  of   we have adopted the following policies: such  distinction  has  been  increasingly  affected  by  the  convergence   • Regular-way purchases or sales of financial assets or financial and  integration  of  our  wireless  and  wireline  telecommunications   liabilities (purchases or sales that require actual delivery of financial infrastructure  technology  and  operations.  Less  than  one-half  of  the   assets or financial liabilities) are recognized on the settlement date. operating  expenses  included  in  the  segment  performance  measure   We have selected this method as the benefits of using the trade date reported  to  our  chief  operating  decision-maker  during  the  years   method were not expected to exceed the costs of selecting and ended  December  31,  2018  and  2017,  are  direct  costs;  judgment,   implementing that method. largely  based  upon  historical  experience,  is  applied  in  apportioning   • Transaction costs, other than in respect of items held for trading, indirect  expenses  which  are  not  objectively  distinguishable  between   are added to the initial fair value of the acquired financial asset or our  wireless  and  wireline  operations. financial liability. We have selected this method as we believe that Recently, our judgment was that our wireless and wireline it results in a better matching of the transaction costs with the telecommunications infrastructure technology and operations had periods in which we benefit from the transaction costs. not experienced sufficient convergence to objectively make their respective operations and cash flows practically indistinguishable. (d) Hedge accounting The continued build-out of our technology-agnostic fibre-optic infra- structure, in combination with converged edge network technology, has significantly affected this judgment, as has the commercialization of fixed-wireless telecommunications solutions for customers and the consolidation of our non-customer facing operations. As a result, it has become increasingly difficult and impractical to objectively and clearly distinguish between our wireless and wireline operations and cash flows, and the assets from which those General We apply hedge accounting to the financial instruments used to: establish designated currency hedging relationships for certain U.S. dollar-denominated future purchase commitments and debt repayments, as set out in Note 4(a) and (d); and fix the compensation cost arising from specific grants of restricted stock units, as set out in Note 4(f) and discussed further in Note 14(b). cash flows arise. Our judgment as to whether these operations can continue to be judged to be individual components of the business Hedge accounting The purpose of hedge accounting, in respect of our designated hedging and discrete operating segments may change. relationships, is to ensure that counterbalancing gains and losses The increasing impracticality of objectively distinguishing between are recognized in the same periods. We have chosen to apply hedge our wireless and wireline cash flows, and the assets from which those accounting as we believe this is more representative of the economic cash flows arise, is evidence of their increasing interdependence; substance of the underlying transactions. this may result in the unification of the wireless cash-generating unit In order to apply hedge accounting, a high correlation (which indicates and the wireline cash-generating unit as a single cash-generating effectiveness) is required in the offsetting changes in the risk-associated unit for impairment testing purposes in the future. As our business values of the financial instruments (the hedging items) used to establish continues to evolve, new cash-generating units may develop. the designated hedging relationships and all, or a part, of the asset, • The view that our spectrum licences granted by Innovation, Science liability or transaction having an identified risk exposure that we have and Economic Development Canada will likely be renewed; that taken steps to modify (the hedged items). We assess the anticipated we intend to renew them; that we believe we have the financial and effectiveness of designated hedging relationships at inception and their operational ability to renew them; and thus, that they have an indefinite life, as discussed further in Note 18(e). In connection with the annual impairment testing of intangible assets • 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 with indefinite lives and goodwill, there are instances in which we notional amount of the hedging item and the principal amount of the must exercise judgment in allocating our net assets, including shared corporate and administrative assets, to our cash-generating units when determining their carrying amounts. These judgments are 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 necessary because of the convergence that our wireless and wireline hedging item and the principal amount of the hedged item, or from a telecommunications infrastructure technology and operations have previously effective designated hedging relationship becoming ineffective, experienced to date, and because of our continuous development. is reflected in the Consolidated statements of income and other com- There are instances in which similar judgments must also be made prehensive income as Financing costs if in respect of long-term debt, as in respect of future capital expenditures in support of both wireless Goods and services purchased if in respect of U.S. dollar-denominated and wireline operations, which are a component of the determination future purchase commitments, or as Employee benefits expense if in of recoverable amounts used in the annual impairment testing, as discussed further in Note 18(f). In respect of claims and lawsuits, as discussed further in Note 29(a), the determination of whether an item is a contingent liability or whether • an outflow of resources is probable and thus needs to be accounted for as a provision. 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 Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. 128 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1 amounts necessary to reflect the fair value of the designated cash flow Lease accounting is applied to an accounting unit if it conveys to a hedging items recorded in the Consolidated statements of financial customer the right to use a specific asset but does not convey the risks position is recognized as a component of Other comprehensive income, as set out in Note 11. and/or benefits of ownership. Our revenues are recorded net of any value-added and/or sales taxes In the application of hedge accounting to the compensation cost billed to the customer concurrent with a revenue-generating transaction. arising from share-based compensation, the amount recognized in the We use the following revenue accounting practical expedients provided determination of net income is the amount that counterbalances the difference between the quoted market price of our Common Shares at for in IFRS 15, Revenue from Contracts with Customers: • No adjustment of the contracted amount of consideration for the the statement of financial position date and the price of our Common effects of financing components when, at the inception of a contract, Shares in the hedging items. we expect that the effect of the financing component is not significant at the individual contract level. (e) Revenue recognition See Note 2(a) for significant changes to IFRS-IASB which significantly affect the timing of the recognition of revenue and the classification of • 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 any revenues presented as either service or equipment revenues. remaining unfulfilled, or partially unfulfilled, performance obligations, 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 and business security) and voice revenues) from access to, exclusion of amounts arising from contracts originally expected to have a duration of one year or less, as well as amounts arising from contracts under which we may recognize and bill revenue in an amount that corresponds directly with our completed performance obligations. Contract assets Many of our multiple element arrangements arise from bundling the sale and usage of, our telecommunications infrastructure. The majority of of equipment (e.g. a wireless handset) with a contracted service period. the balance of our revenues (wireless equipment and other) arises from Although the customer receives the equipment at contract inception and providing services and products facilitating access to, and usage of, the revenue from the associated completed performance obligation is our telecommunications infrastructure. recognized at that time, the customer’s payment for the equipment will We offer complete and integrated solutions to meet our customers’ effectively be received rateably over the contracted service period to needs. These solutions may involve deliveries of multiple services and the extent it is not received as a lump-sum amount at contract inception. products (our performance obligations) 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 required, the performance obligations The difference between the equipment revenue recognized and the associated amount cumulatively billed to the customer is recognized on the Consolidated statements of financial position as a contract asset. of these multiple element arrangements are identified, the transaction Contract assets may also arise in instances where we give consider- price for the entire multiple element arrangement is determined and ation to a customer. When we receive no identifiable, separable benefit allocated among the performance obligations based upon our relative for consideration given to a customer, the amount of the consideration stand-alone selling prices for each of them, and our relevant revenue is recorded as a reduction of revenue rather than as an expense. recognition policies are then applied, so that revenue is recognized Such amounts are included in the determination of transaction prices when, or as, we satisfy the performance obligations. (We estimate that for allocation purposes in multiple element arrangements. approximately two-thirds of our revenues arise from multiple element • Some forms of consideration given to a customer, effectively at con- arrangements.) To the extent that variable consideration is included tract inception, such as rebates (including prepaid non-bank cards) in determining the minimum transaction price, it is constrained to the and/or equipment, are considered to be performance obligations in a “minimum spend” amount required in a contract with a customer. multiple element arrangement. Although the performance obligation Service revenues arising from contracts with customers typically have is satisfied at contract inception, the customer’s payment associated variable consideration, because customers have the ongoing ability to with the performance obligation will effectively be received rateably both add and remove features and services, and because customer over the associated contracted service period. The difference between usage of our telecommunications infrastructure may exceed the base the revenue arising from the satisfied performance obligation and the amounts provided for in their contracts. associated amount cumulatively reflected in billings to the customer Our contracts with customers do not have a significant financing is recognized on the Consolidated statements of financial position as component. Excepting both equipment-related upfront payments that a contract asset. may be required under the terms of contracts with customers and • Other forms of consideration given to a customer, either at contract in-store “cash and carry” sales of equipment and accessories, payments inception or over a period of time, such as discounts (including are typically due 30 days from the billing date. Billings are typically prepaid bank cards), may result in us receiving no identifiable, separ- rendered on a monthly basis. able benefit and thus are not considered performance obligations. Multiple contracts with a single customer are normally accounted Such consideration is recognized as a reduction of revenue rateably for as separate arrangements. In instances where multiple contracts are over the term of the contract. The difference between the consider- entered into with a customer in a short period of time, the contracts are ation provided and the associated amount recognized as a reduction reviewed as a group to ensure that, as with multiple element arrange- of revenue is recognized on the Consolidated statements of financial ments, their relative transaction prices are appropriate. position as a contract asset. Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. TELUS 2018 ANNUAL REPORT • 129                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Contract liabilities Advance billings are recorded when billing occurs prior to provision of Non-high cost serving area deferral account In an effort to foster competition for residential basic service in non- the associated services; such advance billings are recognized as revenue high cost serving areas, the concept of a deferral account mechanism in the period in which the services and/or equipment are provided (see Note 24). Similarly, and as appropriate, upfront customer activation and connection fees are deferred and recognized over the average was introduced by the CRTC in 2002 as an alternative to mandating price reductions. We use the liability method of accounting for the deferral account. We discharge the deferral account liability by undertaking quali- expected term of the customer relationship. fying actions. We recognize the amortization (over a period no longer than Costs of contract acquisition and contract fulfilment Costs of contract acquisition (typically commissions) and contract fulfilment costs are capitalized and recognized as an expense, generally over the life of the contract on a systematic and rational basis consistent with the pattern of the transfer of goods or services to which the asset relates. The amortization of such costs is included in the Consolidated statements of income and other comprehensive income as a component 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 income, as set out in Note 7. (f) Depreciation, amortization and impairment Depreciation and amortization Assets are depreciated on a straight-line basis over their estimated of Goods and services purchased, with the exception of amounts paid to useful lives as determined by a continuing program of asset life studies. our employees, which are included as Employee benefits expense. Depreciation includes amortization of assets under finance leases and The total cost of wireless equipment sold to customers and advertising amortization of leasehold improvements. Leasehold improvements are and promotion costs related to initial customer acquisition are expensed normally amortized over the lesser of their expected average service as incurred; the cost of equipment we own that is situated at customers’ life or the term of the lease. Intangible assets with finite lives (intangible premises and associated installation costs are capitalized as incurred. assets subject to amortization) are amortized on a straight-line basis Costs of advertising production, advertising airtime and advertising space are expensed as incurred. 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). The CRTC has established a mechanism to subsidize local exchange carriers, such as ourselves, that provide residential basic telephone service to high cost serving areas. The CRTC has determined the per over their estimated useful lives, which are reviewed at least annually and adjusted as appropriate. As referred to in (b), the use of a straight-line basis of depreciation and amortization is a significant judgment for us. Estimated  useful  lives  for  the  majority  of  our  property,  plant  and   equipment  subject  to  depreciation  are  as  follows: Network assets Outside plant Inside plant Wireless site equipment Balance of depreciable property, plant and equipment Estimated useful lives1 17 to 40 years 4 to 25 years 5 to 7 years 3  to  40  years 1   The composite depreciation rate for the year ended December 31, 2018, was 5.0% (2017 – 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. Estimated useful lives for the majority of our intangible assets subject to amortization are as follows: Wireline subscriber base Customer contracts and related customer relationships Estimated  useful  lives 25 years 4 to 10 years 2 to 10 years 5 to 30 years network access line/per band subsidy rate for all local exchange carriers. Software We recognize the subsidy on an accrual basis by applying the subsidy Access to rights-of-way and other rate to the number of residential network access lines we provide in high cost serving 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 We recognize product revenues, including amounts related to wireless Impairment – general Impairment testing compares the carrying values of the assets or cash-generating units being tested with their recoverable amounts (the recoverable amount being the greater of an asset’s or a cash-generating unit’s value in use or its fair value less costs to sell); as referred to in (b), this is a significant estimate for us. Impairment losses are immediately recognized to the extent that the carrying value of an asset or a cash- handsets sold to re-sellers and customer premises equipment, when the generating unit exceeds its recoverable amount. Should the recoverable products are both delivered to and accepted by the end-user customers, amounts for impaired assets or cash-generating units subsequently irrespective of which supply channel delivers the product. With respect increase, the impairment losses previously recognized (other than in to wireless handsets sold to re-sellers, we consider ourselves to be the respect of goodwill) may be reversed to the extent that the reversal is principal and primary obligor to the end-user customers. Revenues from not a result of “unwinding of the discount” and that the resulting carrying operating leases of equipment are recognized on a systematic and rational values do not exceed the carrying values that would have been the basis (normally a straight-line basis) over the term of the lease. result if no impairment losses had been recognized previously. Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. 130 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1 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 (h) 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 infrastructure utilization plans; these considerations could also indicate the current year. Deferred income tax assets and liabilities are recognized that the carrying value of an asset may not be recoverable. If the carrying for temporary differences between the tax and accounting bases of assets value of an asset were not considered to be recoverable, an impairment and liabilities, and also for any benefits of losses and Investment Tax 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 the time of our annual test. 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 our 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. (g) Translation of foreign currencies Trade transactions completed in foreign currencies are translated into Canadian dollars at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in 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 Note 9. Hedge accounting is applied in specific instances, as discussed further in (d) preceding. Credits available to be carried forward to future years for tax purposes that are more likely than not to be realized. The amounts recognized 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 domestic and foreign 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; however, this does not mean that tax authorities cannot challenge these positions. 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). (i) Share-based compensation General When share-based compensation vests in its entirety at one future point in time (cliff vesting), we recognize the expense on a straight-line basis over the vesting period. When share-based compensation vests in tranches We have foreign subsidiaries that do not have the Canadian dollar (graded vesting), we recognize the expense using the accelerated expense as their functional currency. Foreign exchange gains and losses arising attribution method. An estimate of forfeitures during the vesting period from the translation of these foreign subsidiaries’ accounts into Canadian is made at the date of grant of such share-based compensation; this dollars subsequent to January 1, 2010, the date of our transition to estimate is adjusted to reflect actual experience. IFRS-IASB, are reported as a component of other comprehensive income, as set out in Note 11. 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). Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. TELUS 2018 ANNUAL REPORT • 131                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Similarly, we accrue a liability for the notional subset of our restricted but  not  cleared  by  the  related  banks  as  at  the  statement  of  financial   stock units with market performance conditions using a fair value deter- position  date.  Cash  and  temporary  investments,  net,  are  classified  as   mined using a Monte Carlo simulation. The expense for restricted stock a  liability  in  the  statement  of  financial  position  when  the  total  amount  of   units that do not ultimately vest is reversed against the expense that all  cheques  written  but  not  cleared  by  the  related  banks  exceeds  the   was previously recorded in their respect. amount  of  cash  and  temporary  investments.  When  cash  and  temporary   Share option awards A fair value for share option awards is determined at the date of grant and that fair value is recognized in the financial statements. Proceeds arising from the exercise of share option awards are credited to share capital, as are the recognized grant-date fair values of the exercised share option awards. Share option awards that have a net-equity settlement feature, as set out in Note 14(d), are accounted for as equity instruments. We have 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. (j) 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   the  product  of  the  plan’s  surplus  (deficit)  multiplied  by  the  discount  rate,   is  included  as  a  component  of  Financing  costs,  as  set  out  in  Note 9.   An amount reflecting the effect of differences between the discount 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 comprehensive income, as set out in Note 11 and Note 15. We determine the maximum economic benefit available from the plans’ assets on the basis of reductions in future contributions to the plans. investments,  net,  are  classified  as  a  liability,  they  may  also  include   overdraft  amounts  drawn  on  our  bilateral  bank  facilities,  which  revolve   daily  and  are  discussed  further  in  Note 22.   (l) Inventories Our inventories primarily consist of wireless handsets, parts and accessories totalling $320 million at year-end (December 31, 2017 – $322 million (adjusted – Note 2(c)); January 1, 2017 – $268 million (Note 2(c)) and communications equipment held for resale. Costs of goods sold for the year ended December 31, 2018, totalled $2,144 million (2017 – $1,975 million (adjusted – Note 2(c)). (m) Property, plant and equipment; intangible assets General Property,  plant  and  equipment  and  intangible  assets  are  recorded    at  historical  cost,  which  for  self-constructed  property,  plant  and  equ ip- ment  includes  materials,  direct  labour  and  applicable  overhead  costs.    For  internally  developed,  internal-use  software,  the  historical  cost   recorded  includes  materials,  direct  labour  and  direct  labour-related    costs.  Where  property,  plant  and  equipment  construction  projects    are  of  sufficient  size  and  duration,  an  amount  is  capitalized  for  the  cost   of  funds  used  to  finance  construction,  as  set  out  in  Note 9.  The  rate   for  calculating  the  capitalized  financing  cost  is  based  on  the  weighted   average  cost  of  borrowing  we  experience  during  the  reporting  period.   When we sell property, plant and/or equipment, the net book value is netted against the sale proceeds and the difference, as set out in Note 7, is included in the Consolidated statements of income and other comprehensive income as Other operating income. On an annual basis, at a minimum, the defined benefit plan key assumptions are assessed and revised as appropriate; as referred to in (b), these are significant estimates for us. When the defined benefit plan key assumptions fluctuate significantly relative to their immediately Asset retirement obligations Provisions for liabilities, as set out in Note 25, are recognized for statutory, contractual or legal obligations, normally when incurred, associated with the retirement of property, plant and equipment (primarily certain items of preceding year-end values, actuarial gains (losses) arising from such outside plant and wireless site equipment) when those obligations result significant fluctuations are recognized on an interim basis. Defined contribution plans We use defined contribution accounting for the Telecommunication Workers Pension Plan and the British Columbia Public Service Pension Plan, which cover certain of our employees and provide defined benefits to their members. In the absence of any regulations governing the calculation of the share of the underlying financial position and plan per- formance attributable to each employer-participant, and in the absence of 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 with International Accounting Standard 19, Employee Benefits. from the acquisition, construction, development and/or normal operation 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 as a part of the carrying value of the related asset. In subsequent per- iods, the provisions for these liabilities are 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 retirement cost is depreciated on the same basis as the related asset and the discount accretion, as set out in Note 9, is included in the Consolidated statements of income and other com- prehensive income as a component of Financing costs. (k) Cash and temporary investments, net Cash  and  temporary  investments,  which  may  include  investments  in   money  market  instruments  that  are  purchased  three  months  or  less  from   maturity,  are  presented  net  of  outstanding  items,  including  cheques  written   (n) Leases Leases are classified as finance or operating depending upon the terms and conditions of the contracts. See Note 2 for significant changes to IFRS-IASB which are not yet effective, but which we will apply in fiscal 2019 and which, on an individual lease basis, will significantly affect the Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment. 132 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           CONSOLIDATED FINANCIAL STATEMENTS: NOTE 2 timing of the recognition of operating lease expenses and their recognition We account for our other investments as available-for-sale at their in the Consolidated statement of financial position, as well as their fair values unless they are investment securities that do not have quoted classification in both the Consolidated statement of income and other market prices in an active market or do not have other clear and objective comprehensive income and the Consolidated statement of cash flows. evidence of fair value. When we do not account for our available-for-sale Where we are the lessee, asset values recorded under finance investments at their fair values, we use the cost basis of accounting, leases are amortized on a straight-line basis over the period of expected whereby the investments are initially recorded at cost and earnings from use. Obligations recorded under finance leases are reduced by lease those investments are recognized only to the extent received or receivable. payments net of imputed interest. (o) 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- identification basis. Unless there is a significant or prolonged decline in the value of an significant influence using the equity method of accounting, whereby the available-for-sale investment, the carrying values of available-for-sale investments are initially recorded at cost and subsequently adjusted to investments are adjusted to their estimated fair values, and the amount recognize our share of earnings or losses of the investee companies and of any such adjustment is included in the Consolidated statement of any earnings distributions received. The excess of the cost of an equity income and other comprehensive income as a component of other investment over its underlying book value at the date of acquisition, comprehensive income. When there is a significant or prolonged decline except for goodwill, is amortized over the estimated useful lives of the in the value of an investment, the carrying value of any such investment underlying assets to which the excess cost is attributed. accounted for using the equity, available-for-sale or cost method is Similarly, we account for our interests in the real estate joint ventures, reduced to its estimated fair value, and the amount of any such reduction discussed further in Note 21, using the equity method of accounting. Unrealized gains and losses from transactions with (including contribu- tions to) the real estate joint ventures are deferred in proportion to our remaining interest in the real estate joint ventures. is included in the Consolidated statement of income and other compre- 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 •   Amendments  to  standards  arising  from  Annual Improvements to IFRSs 2015–2017 Cycle  were  required  to  be  applied  for  years   beginning  on  or  after  January  1,  2019;  such  application  has  had    no  effect  on  our  financial  performance  or  disclosure. •   Amendments  to  standards  arising  from  Annual Improvements to IFRSs 2014–2016 Cycle  were  required  to  be  applied  for  years   beginning  on  or  after  January  1,  2017  (for  IFRS  12,  Disclosure of Interests in Other Entities),  and  January  1,  2018  (for  the  balance   of  the  amendments);  such  application  has  had  no  effect  on  our   •   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    measurement  of  financial  instruments,  a  single  forward-looking   “expected  loss”  impairment  model  and  a  reformed  approach  to   hedge  accounting.  Our  financial  performance  is  currently  not    materially  affected  by  the  retrospective  application  of  the  standard,   nor  is  our  financial  position,  as  set  out  in  (c)  following. The  previous  measurement  category  and  carrying  amount  of    our  portfolio  investments  (see  Note 20)  determined  in  accordance   with  IAS  39,  Financial Instruments: Recognition and Measurement   and  the  measurement  category  and  carrying  amount  determined   financial  performance  or  disclosure. under  the  new  standard  are  as  follows: As at (millions) December 31, 2017 January 1, 2017 As previously reported IFRS 9 effects As currently reported As previously reported IFRS 9 effects As currently reported Classified as Available-for-sale financial assets Fair value through net income1 Fair value through other comprehensive income $ 41 – – $ 41 $ (41) 20 21 $ – $ – 20 21 $ 41 $ 62 – – $ 62 $ (62) 41 21 $ – $ – 41 21 $ 62 1 Arising from the classification of investments as accounted for at fair value through net income under the new standard, as at December 31, 2017, $4 (January 1, 2017 – $3), net of income tax effects of $1 (January 1, 2017 – $1), has been adjusted to retained earnings from accumulated other comprehensive income. TELUS 2018 ANNUAL REPORT • 133                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • IFRS 15, Revenue from Contracts with Customers, is required to be applied for years beginning on or after January 1, 2018. The International Accounting Standards Board and the Financial Costs of contract acquisition; costs of contract fulfilment – timing of recognition Similarly, the measurement of the total costs of contract acquisition Accounting Standards Board of the United States worked and contract fulfilment over the life of a contract is unaffected by the on this joint project to clarify the principles for the recognition new standard, but the timing of recognition is. The new standard of revenue. The new standard was released in May 2014 and results in our costs of contract acquisition and contract fulfilment, to supersedes existing standards and interpretations, including IAS 18, Revenue. We have applied the standard retrospectively to prior reporting periods, subject to permitted and elected practical expedients. the extent that they are material, being capitalized and subsequently 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 The effects of the new standard and the materiality of those transaction economics would not differ, during periods of sustained effects vary by industry and entity; the effects of our retrospective application are set out in (c) following. Like many other telecom- munications companies, we are materially affected by its application, 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 primarily in respect of the timing of revenue recognition, the greater than under the previous practice (immediate expensing classification of revenue, the capitalization of the costs of obtaining of such costs). a contract with a customer and the capitalization of the costs of contract fulfilment (as defined by the new standard). Implementation Our operations and associated systems are complex and our Revenue – timing of recognition; classification The timing of revenue recognition and the classification of our accounting for millions of multi-year contracts with our customers was affected. Significantly, in order to give effect to the new revenues as either service revenues or equipment revenues are accounting methodology, incremental compilation of historical affected, since the allocation of consideration in multiple element data was necessary for our millions of already existing multi-year arrangements (solutions for our customers that may involve deliveries contracts with our customers that were in-scope for purposes of multiple services and products that occur at different points in of transitioning to the new standard. time and/or over different periods of time) is no longer affected by After  a  multi-year  expenditure  of  time  and  effort,  we  developed  the   the limitation cap methodology previously required by generally accounting  policies,  estimates,  judgments  and  processes  necessary  to   accepted accounting principles. transition  to  the  new  standard.  Upon  completion  of  the  implementation   The  effects  of  the  timing  of  revenue  recognition  and  the    of  these  items,  which  included  the  critical  incremental  requirements    classification  of  revenue  are  most  pronounced  in  our  wireless  results.   of  our  information  technology  systems,  we  completed  the  incremental   Although  the  measurement  of  the  total  revenue  recognized  over   compilation  of  historical  data  and  the  related  accounting  for  that  data,   the  life  of  a  contract  is  largely  unaffected  by  the  new  standard,  the   all  of  which  is  necessary  to  transition  to  the  new  standard.   prohibition  of  the  use  of  the  limitation  cap  methodology  accelerates  the   We are using the following practical expedients provided for in, recognition  of  total  contract  revenue,  relative  to  both  the  associated   and transitioning to, the new standard: cash  inflows  from  customers  and  our  previous  practice  (using  the    limitation  cap  methodology);  as  set  out  in  (c)  following,  cash  inflows   are  unaffected.  The  acceleration  of  the  recognition  of  contract   • No restatement for contracts that were completed as at January 1, 2017, or earlier. • No restatement for contracts that were modified prior to revenue  relative  to  the  associated  cash  inflows  also  results  in  the   January 1, 2017. The aggregate effect of all such modifications recognition  of  an  amount  reflecting  the  resulting  difference  as  a   will be reflected when identifying satisfied and unsatisfied per- contract  asset.  Although  the  underlying  transaction  economics   formance obligations and the transaction prices to be allocated do  not  differ,  during  periods  of  sustained  growth  in  the  number  of   thereto, and when determining the transaction prices. wireless  subscriber  connection  additions,  assuming  comparable   • No disclosure of the aggregate transaction prices allocated contract-lifetime  per  unit  cash  inflows,  revenues  would  appear    to remaining unfulfilled, or partially unfulfilled, performance to  be  greater  than  under  the  previous  practice  (using  the  limitation   obligations for all periods ending prior to January 1, 2018. cap  methodology).  Wireline  results  arising  from  transactions  that   include  the  initial  provision  of  subsidized  equipment  or  promotional   pricing  plans  will  be  similarly  affected. We  have  applied  the  new  standard  retrospectively,  subject   to  associated  decisions  in  respect  of  transitional  provisions  and   permitted  practical  expedients.  The  contract  asset  initially  recorded   upon  transition  to  the  new  standard  represents  revenues  that  will    not  be,  and  have  not  been,  reflected  at  any  time  in  our  periodic  results   (b) Standards, interpretations and amendments to standards not yet effective and not yet applied • In January 2016, the International Accounting Standards Board 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. The International Accounting Standards Board and the Financial Accounting Standards Board of the United States of  operations,  but  that  would  have  been  if  not  for  the  transition  to    worked together to modify the accounting for leases, generally by the  new  standard;  the  effect  of  this  “pulling  forward”  of  revenues  is    eliminating lessees’ classification of leases as either operating leases expected  to  be  somewhat  muted  by  the  composite  ongoing  inception,    or finance leases and, for IFRS-IASB, introducing a single lessee maturation  and  expiration  of  millions  of  multi-year  contracts  with    accounting model. our  customers.   134 • TELUS 2018 ANNUAL REPORT   The most significant effect of the new standard will be the lessee’s recognition of the initial present value of unavoidable future IFRS 16, Leases, will affect the fiscal 2019 opening amounts to be reported in our fiscal 2019 Consolidated statements of financial lease payments as right-of-use lease assets and lease liabilities position as follows: CONSOLIDATED FINANCIAL STATEMENTS: NOTE 2 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. 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 an acceleration of the timing of lease expense recognition for leases that would currently be accounted for as operating leases; the International Accounting Standards Board 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 we will be similarly affected. The presentation on the statement of income and other comprehensive income required by the new standard will result in the presentation of most non-executory lease expenses as depreciation of right-of-use lease assets and financing costs arising from lease liabilities, rather than as a part of goods and services purchased (executory lease expenses will remain a part of goods and services purchased); reported oper- ating 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 offset equally by decreases in cash flows from financing activities. This is the result of the presentation of the payments of the “principal” component of leases that would currently be accounted for as operating leases as a cash flow use within financing activities under the new standard. We will be applying the standard retrospectively, with the cumula- tive effect of the initial application of the new standard recognized at the date of initial application, January 1, 2019, subject to permitted and elected practical expedients; such method of application would not result in the retrospective adjustment of amounts reported for periods prior to fiscal 2019. The nature of the transition method selected is such that the lease population as at January 1, 2019, and the discount rates determined contemporaneously, will be the basis for the cumulative effects recorded as of that date. Implementation As a transitional practical expedient permitted by the new standard, we will not reassess whether contracts are, or contain, leases as at January 1, 2019, applying 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. As  at  January  1,  2019  (billions)   Non-current assets Property, plant and equipment, net Current liabilities Provisions Current maturities Excluding   effects  of   IFRS  16   IFRS  16   effects   Pro  forma $ 12.1 $ 1.0 $ 13.1 $     0.1 $       * $    0.1 of long-term debt $     0.8 $ 0.2 $    1.0 Non-current liabilities Provisions Long-term debt Other long-term liabil ities Deferred income taxes Owners’ equity $     0.7 $ 13.3 $     0.7 $     3.2 $       * $ 1.1 $      *   $ (0.1) $    0.7 $ 14.4 $    0.7 $    3.1   Retai ned earnings $     4.5 $ (0.2) $    4.3 Accumulated other comprehensive income Non-controlling interests *Amounts less than $0.1 billion.  $      *   $    0.1  $    *  $      *    $      * $   0.1 The weighted average discount rate reflected in the lease liability recognized on transition was 4.55%. The difference between the total of the minimum lease payments set out in Note 19 and the additions to long-term debt set out in the table above arises because of the effect of discounting the minimum lease payments (approximately two- thirds of the difference) and because the minimum lease payments set out in Note 19 include payments for leases that have commencement dates subsequent to December 31, 2018 (approximately one-third of the difference). • In October 2018, the International Accounting Standards Board amended IFRS 3, Business Combinations, seeking to clarify whether an acquisition transaction results in the acquisition of an asset or the acquisition of a business. The amendments are effective for acquisition transactions on or after January 1, 2020, although earlier application is permitted. The amended standard has a narrower definition of a business, which could result in the recognition of fewer business combinations than under the current standard; the impli- cation of this is that amounts which may have been recognized as goodwill in a business combination under the current standard may now be recognized as allocations to net identifiable assets acquired under the amended standard (with an associated effect in an entity’s results of operations that would differ from the effect of goodwill having been recognized). We are currently assessing the impacts and transition provisions of the amended standard; however, we expect that we will apply the standard prospectively from January 1, 2020. The effects, if any, of the amended standard on our financial perform- ance and disclosure will be dependent on the facts and circumstances of any future acquisition transactions. TELUS 2018 ANNUAL REPORT • 135                                                                                                                                                                                            (c) Impacts of application of new standards in fiscal 2018 IFRS  15,  Revenue from Contracts with Customers,  affected  our  Consolidated  statements  of  income  and  other  comprehensive  income  as  follows: Years ended December 31 (mi llions except per share amounts) 2018 2017 Operating revenues Service   Equipment Revenues arisi ng from contracts with customers Other operating income1 Operating expenses Goods and services purchased Employee benefits expense Depreciation Amortization of intangible assets Operating income Financi ng costs Income before income taxes Income taxes Net income Other comprehensive income1 Comprehensive income1 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    Excluding effects of IFRS 15 IFRS 15 effects As currently reported Excludi  ng effects of IFRS 15 IFRS 15 effects As currently reported $ 13,130 $ (1,248) $ 11,882   $ 12,478 $ (1,146) $ 11,332 792 13,922 273 14,195 6,388 2,906 1,669 598 11,561 2,634 661 1,973 497 1,476 284 1,421 173 – 173 (20) (10) – – (30) 203 – 203 55 148 – 2,213   14,095   273   14,368   6,368   2,896   1,669   598   724 13,202 103 13,305 5,935 2,595 1,617 552 11,531   10,699 2,837   661   2,176   552   1,624   284   2,606 573 2,033 553 1,480 (160) 1,249 103     – 103 (31) (1)     –     – (32) 135     – 135   37   98     – 1,973 13,305 103 13,408 5,904 2,594 1,617 552 10,667 2,741 573 2,168 590 1,578  (160) $ 1,760 $ 148 $ 1,908   $   1,320  $        98 $   1,418 $ 1,452 $ 148 $ 1,600   $   1,461  $        98 $   1,559 24 – 24     19     –  19 $ 1,476 $ 148 $ 1,624   $   1,480  $        98 $   1,578 $ 1,750 $ 148 $ 1,898   $   1,297  $        98 $   1,395 10 – 10     23     –  23 $ 1,760 $ 148 $ 1,908   $   1,320  $        98 $   1,418 $ 2.43 $ 0.25 $ 2.68 $     2.46    $ 2.43 $ 0.25 $ 2.68   $     2.46   $     0.17    $     0.17    $     2.63   $     2.63   1   For the year ended December 31, 2017, other operating income and the change in measurement of investment financial assets included within other comprehensive income increased and decreased, respectively, by $1 arising from the designation of financial assets as being accounted for either at fair value through net income or at fair value through other comprehensive income. Such designation of financial assets is required due to the retrospective implementation of IFRS 9, Financial Instruments. 136 • TELUS 2018 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 Years ended December 31 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 Amount of IFRS 15 effect (increase (decrease) in millions except per share amounts) Allocation of transaction price (affecting timing of revenue recognition) Costs incurred to obtain or fulfill a contract with a customer Total 2018 2017 2018 2017 2018 2017 $ (1,248) $ 1,421 $ $ $ – – 47 $ 126 $ 0.21 $ 0.21 $ (1,146) $ 1,249 $ $ $ $ 5 – 27 71 $ $ – – $ (20) $ (10) $ 8 $ $ – – $  (36) $  (1) $  10 $ (1,248) $ 1,421 $ $ $ (20) (10) 55 $ (1,146) $ 1,249 $  $  $ (31) (1) 37 $ 22 $  27 $ 148 $ 98 $ 0.12 $ 0.12 $ 0.04 $ 0.04 $ 0.05 $ 0.05 $ 0.25 $ 0.25 $ 0.17 $ 0.17 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 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 2018 ANNUAL REPORT • 137                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  IFRS 15, Revenue from Contracts with Customers, affected our Consolidated statements of financial position as follows: As at (millions) December 31, 2018 December 31, 20171 January 1, 2017 Excluding   effects of IFRS 15 IFRS 15 effects As currently   reported   Excluding   effects  of   IFRS  15   IFRS  15   effects   As  currently   reported   Excluding   effects  of   IFRS  15   IFRS  15   effects   As  currently   reported Assets Current assets Cash and temporary investments, net $ 414 $ Accounts receivable 1,609 Income and other taxes receivable Inventories Contract assets Prepaid expenses Current derivative assets 3 374 – 278 49 – (9) – 2 860 261 – $ 414 $  509 $ 1,600 1,623 3 376 860 539 49 96 378 – 260 18 2,727 1,114 3,841 2,884 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 12,091 10,956 4,733 – 876 28,656 – – – 458 110 568 12,091 10,956 4,733 458 986 11,368 10,658 4,236 – 421 29,224 26,683 – (9) – 2 757 233 – 983 – – – 396 107 503 $  509 $  432 $ 1,614 1,471 96 380 757 493 18 9 318 – 233 11 3,867 2,474 11,368 10,658 4,236 396 528 10,464 10,364 3,787 – 640 27,186 25,255 – (9) – 2 700 210 – 903 – – – 352 93 445 $  432 1,462 9 320 700 443 11 3,377 10,464 10,364 3,787 352 733 25,700 $ 31,383 $ 1,682 $ 33,065 $ 29,567 $ 1,486 $ 31,053 $ 27,729 $ 1,348 $ 29,077 Short-term borrowings $ 100 $ – $ 100 $  100 $ 2,570 2,460 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 2,570 218 326 810 129 836 9 – – – (157) – – – 218 326 653 129 836 9 4,998 (157) 4,841 Non-current liabilities Provisions Long-term debt Other long-term liabilities Deferred income taxes Liabilities Owners’ equity 728 13,265 738 2,656 17,387 22,385 – – – 496 496 339 728 511 13,265 12,256 738 3,152 17,883 22,724 Common equity 8,916 1,343 10,259 Non-controlling interests 82 – 82 8,998 1,343 10,341 34 299 782 78 1,404 33 5,190 847 2,500 16,114 21,304 8,221 42 8,263 – – – – (150) – – – (150) – – – 441 441 291 1,195 – 1,195 $  100 $  100 $ 2,460 2,330 34 299 632 78 1,404 33 5,040 37 284 737 124 1,327 12 4,951 511 395 12,256 11,604 847 2,941 16,555 21,595 9,416 42 9,458 736 2,107 14,842 19,793 7,917 19 7,936 – – – – (153) – – – (153) – – – 404 404 251 1,097 – 1,097 $  100 2,330 37 284 584 124 1,327 12 4,798 395 11,604 736 2,511 15,246 20,044 9,014 19 9,033 1 Goodwill and non-current provisions have been adjusted as set out in Note 18(c). $ 31,383 $ 1,682 $ 33,065 $ 29,567 $ 1,486 $ 31,053 $ 27,729 $ 1,348 $ 29,077 138 • TELUS 2018 ANNUAL REPORT   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: Allocation of transaction price (affecting timing of revenue recognition) Amount of IFRS 15 effect  (increase  (decrease)  in  millions) Costs incurred to obtain or fulfill a contract with a customer Dec. 31, 2018 Dec.  31,    2017   Jan.  1,   2017 Dec. 31, 2018 Dec.  31,    2017   Jan.  1,   2017 Dec. 31,   2018   Total Dec.  31,    2017   Jan.  1,    2017 $ $ (9) 2 $ 860 $  $ (9) 2 $ 757 $  $ (9) 2 $ 700 $ $ $ – – – $ $ $ – – – $ $ $ – – – $ $ (9) 2 $ $  (9) 2 $ $  (9) 2 $ 860 $  757 $  700 $ – $ – $ – $ 261 $ 233 $ 210 $ 261 $  233 $  210 $ 458 $ – $ (157) $ 396 $ 1,072 $ 396 $ – $ (150) $ 349 $ 947 $ 352 $ – $ (153) $ 322 $ 876 $ – $ 110 $ – $ 100 $ 271 $ – $ 107 $ – $  92 $ 248 $ – $  93 $ – $  82 $ 221 $ 458 $ 110 $  396 $  107 $  352 $  93 $ (157) $ (150) $ (153) $ 496 $ 1,343 $  441 $ 1,195 $  404 $ 1,097 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 Retained earnings 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 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 be, and have not been, reflected at any time in our periodic results of operations, but would have been if not for the transition to the new standard; 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. TELUS 2018 ANNUAL REPORT • 139 IFRS  15,  Revenue from Contracts with Customers,  affected  our  Consolidated  statements  of  cash  flows  as  follows: Years  ended  December  31  (millions)   2018 2017 Operating Activities Net  income1 Adjustments  to  reconcile  net  income  to  cash    provided  by  operating  activities: Depreciation  and  amortization  Deferred  income  taxes  Share-based  compensation  expense,  net  Net  employee  defined  benefit  plans  expense  Employer  contributions  to  employee  defined    benefit  plans  Non-current  contract  assets   Income  from  equity  accounted  investments  Shares  settled  from  Treasury  Other1 Net  change  in  non-cash  operating  working  capital  Excluding   effects of IFRS 15 IFRS 15 effects As currently   reported   Excluding   effects  of   IFRS  15   IFRS  15   effects   As  currently   reported $ 1,476 $ 148 $ 1,624 $ 1,480   $   98    $ 1,578   2,267 19 6 95 (53) – (170) 100 (76) 394 – 55 – – – (62) – – (3) (138) $ – 2,267    2,169 74   6   95   (53)   (62)   (170)   100   (79)   256    430     17     82     (67)   –     (4)   –    (18)   (142)   $ 4,058 $ 3,947    –    37    –   –   –     (44)   –   –   (14)    (77)   $     –     2,169    467    17    82    (67)  (44)  (4) –   (32)  (219) $ 3,947   Cash  provided  by  operating  activities   $ 4,058 1   For  the  year  ended  December  31,  2017,  net  income  and  other  increased  and  decreased,  respectively,  by  $1  arising  from  the  designation  of  financial  assets  as  being  accounted  for   either  at  fair  value  through  net  income  or  at  fair  value  through  other  comprehensive  income.  Such  designation  of  financial  assets  is  required  due  to  the  retrospective  implementation    of  IFRS  9,  Financial Instruments.   3 Capital  structure  financial  policies General Our objective when managing capital is to maintain a flexible capital struc- business. In order to maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of Common Shares, ture that optimizes the cost and availability of capital at acceptable risk. purchase Common Shares for cancellation pursuant to normal course In the management of capital and in its definition, we include issuer bids, issue new shares, issue new debt, issue new debt to replace common equity (excluding accumulated other comprehensive income), existing debt with different characteristics and/or increase or decrease long-term debt (including long-term credit facilities, commercial paper the amount of trade receivables sold to an arm’s-length securitization trust. backstopped by long-term credit facilities and any hedging assets or During 2018, our financial objectives, which are reviewed annually, liabilities associated with long-term debt items, net of amounts recog- were unchanged from 2017. We believe that our financial objectives are nized in accumulated other comprehensive income), cash and temporary supportive of our long-term strategy. investments, and short-term borrowings arising from securitized We monitor capital utilizing a number of measures, including: net debt trade receivables. to earnings before interest, income taxes, depreciation and amortization We manage our capital structure and make adjustments to it in light (EBITDA*) – excluding restructuring and other costs ratio; coverage of changes in economic conditions and the risk characteristics of our ratios; and dividend payout ratios. *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. 140 • TELUS 2018 ANNUAL REPORT       CONSOLIDATED FINANCIAL STATEMENTS: NOTE 3 Debt and coverage ratios Net debt to EBITDA – excluding restructuring and other costs is and other costs are measures that do not have any standardized meanings prescribed by IFRS-IASB and are therefore unlikely to be calculated as net debt at the end of the period, divided by 12-month comparable to similar measures presented by other companies. trailing EBITDA – excluding restructuring and other costs. This measure, The calculation of these measures is set out in the following table. historically, is substantially similar to the leverage ratio covenant in Net debt is one component of a ratio used to determine compliance our credit facilities. Net debt and EBITDA – excluding restructuring with debt covenants. As at, or for the 12-month periods ended, December 31 ($ in millions) Objective 2018 2017 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 Coverage ratios Earnings coverage5 EBITDA – excluding restructuring and other costs interest coverage6 $ 13,770 $ 5,421 $ 644 2.54 4.4 8.4 $ 13,422 $  5,027 $  567 2.67 4.8 8.9 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 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 Net debt EBITDA Restructuring and other costs EBITDA – excluding restructuring and other costs Note 26 2018 2017 $ 14,101 $ 13,660 93 (73) 73 93 (37) (414) 100 5 (509) 100 $ 13,770 $ 13,422 22 5 6 5 16 $ 5,104 317 (adjusted – Note 2(c)) $  4,910 117 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, 2018, 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 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 Note 26(d)); the calculation of the debt ratio is substantially similar to the calculation of the leverage ratio covenant in our credit facilities. 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. 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. Net debt to EBITDA – excluding restructuring and other costs was 2.54 times as at December 31, 2018, down from 2.67 times one year earlier. The effect of the increase in net debt was exceeded by the 2 EBITDA – excluding restructuring and other costs is calculated as follows: Years ended December 31 Note 2018 2017 $ 5,421 $  5,027 effect of growth in EBITDA – excluding restructuring and other costs. The earnings coverage ratio for the twelve-month period ended December 31, 2018, was 4.4 times, down from 4.8 times one year earlier. Higher borrowing costs reduced the ratio by 0.6 and an increase in income before borrowing costs and income taxes increased the ratio by 0.1. The EBITDA – excluding restructuring and other costs interest coverage ratio for the twelve-month period ended December 31, 2018, was 8.4 times, down from 8.9 times one year earlier. Growth in EBITDA – excluding restructuring and other costs increased the ratio by 0.6, while an increase in net interest costs reduced the ratio by 1.1. TELUS 2018 ANNUAL REPORT • 141                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Dividend payout ratio The dividend payout ratio presented is a historical measure calculated as the sum of the last four quarterly dividends declared per Common 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, net gains and equity income from real estate joint ventures, provisions related to business combinations, immediately vesting transformative compensation expense, long-term debt prepayment premium and income tax-related adjustments. For the 12-month periods ended December 31 ($ in millions) Dividend payout ratio Dividend payout ratio of adjusted net earnings Objective 65%–75%1 2018 78% 2017 80% 81% 80% 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 2018 2017 Net income attributable to Common Shares $ 1,600 Gain and net equity income related to real estate redevelopment project, after income taxes Business combination-related provisions, after income taxes Income tax-related adjustments Long-term debt prepayment premium, after income taxes Initial and committed donation to TELUS Friendly Future Foundation, after income taxes (150) (17) (7) 25 90 (adjusted – Note 2(c)) $ 1,559 (1) (22) 21 – – Adjusted net earnings attributable to Common Shares $ 1,541 $ 1,557 4 Financial instruments (a) Risks – overview Our financial instruments, their accounting classification 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 Contract assets 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 Accounting classification AC1 AC1 AC1 AC1 AC1 AC1 AC1 Cash and temporary investments FVTPL2 Long-term investments (not subject to significant influence)3 FVTPL/FVOCI3 Foreign exchange derivatives4 Share-based compensation derivatives4 FVTPL2 FVTPL2 Risks Market risks Credit Liquidity Currency Interest rate Other price 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 X 1 2 3 For accounting recognition and measurement purposes, classified as amortized cost (AC). For accounting recognition and measurement purposes, classified as fair value through net income (FVTPL). Unrealized changes in the fair values of financial instruments are included in net income unless the instrument is part of a cash flow hedging relationship. The effective portion of unrealized changes in the fair values of financial instruments held for hedging are included in other comprehensive income. Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured. For accounting recognition and measurement purposes, on an investment-by-investment basis, long-term investments are classified as either fair value through net income or fair value through other comprehensive income (FVOCI). 4 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. Derivatives that are part of an established and documented cash flow hedging relationship are accounted for as held for hedging. We believe that classification as held for hedging results in a better matching of the change in the fair value of the derivative financial instrument with the risk exposure being hedged. In respect of hedges of anticipated transactions, hedge gains/losses are included with the related expenditure and are expensed when the transaction is recognized in our results of operations. We have selected this method as we believe that it results in a better matching of the hedge gains/losses with the risk exposure being hedged. Derivatives that are not part of a documented cash flow hedging relationship are accounted for as held for trading and thus are measured at fair value through net income. 142 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTE 4 Derivative financial instruments We  apply  hedge  accounting  to  financial  instruments  used  to  establish   hedge  accounting  relationships  for  U.S.  dollar-denominated  transactions   and  to  fix  the  cost  of  some  share-based  compensation.  We  believe  that   our  use  of  derivative  financial  instruments  for  hedging  or  arbitrage  assists   us  in  managing  our  financing  costs  and/or  lessening  the  uncertainty   associated  with  our  financing  or  other  business  activities.  Uncertainty   associated  with  currency  risk  and  other  price  risk  is  lessened  through   our  use  of  foreign  exchange  derivatives  and  share-based  compensation   derivatives  that  effectively  swap  floating  currency  exchange  rates  and   share  prices  for  fixed  rates  and  prices.  When  entering  into  derivative   financial  instrument  contracts,  we  seek  to  align  the  cash  flow  timing  of   the  hedging  items  with  that  of  the  hedged  items.  The  effects  of  this  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: As at (millions) December 31, 2018 December 31, 2017 January 1, 2017 Cash and temporary investments, net Accounts receivable Contract assets Derivative assets $ 414 1,600 1,318 103 $ 3,435 (adjusted – Note 2(c)) $  509 1,614 1,153 24 (Note 2(c)) $  432 1,462 1,052 17 $ 3,300 $ 2,963 Cash and temporary investments, net Credit risk associated with cash and temporary investments is managed a program of credit evaluations of customers and limit the amount of credit extended when deemed necessary. by ensuring that these financial assets are placed with: governments; As at December 31, 2018, the weighted average age of customer major financial institutions that have been accorded strong investment accounts receivable was 30 days (December 31, 2017 – 26 days; grade ratings by a primary rating agency; and/or other creditworthy January 1, 2017 – 26 days) and the weighted average age of past-due counterparties. An ongoing review evaluates changes in the status customer accounts receivable was 56 days (December 31, 2017 – 60 days; of counterparties. 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 January 1, 2017 – 61 days). Accounts are considered to be past due (in default) when customers have failed to make the contractually required 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  (millions)   December 31, 2018   December  31,  2017   January  1,  2017 Gross Allowance Net1 Gross Allowance  Net1 Gross Allowance Net1 Customer accounts receivable, net of allowance for doubtful accounts Less than 30 days past (adjusted – Note 2(c)) (Note 2(c)) billing date $ 762 $ (13) $ 749   $     905 $ (10) $     895 $     899 $ (11) $     888 30–60 days past billi ng date 61–90 days past billi ng date More than 90 days past billing date 354 80 67 (10) (8) (22) 344   72   185   60 45   62 $ 1,263 $ (53) $ 1,210   $ 1,212 (8) (8) (17) $ (43) 177   52 185   44 (9) (9) 176  35 45    80   $ 1,169 $ 1,208 (25) $ (54) 55 $ 1,154 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 (see Note 6(b)). We maintain allowances for lifetime expected credit losses related amounts charged to the customer accounts receivable allowance to doubtful accounts. Current economic conditions (including for doubtful accounts that were written off but were still subject forward-looking macroeconomic data), historical information (including to enforcement activity as at December 31, 2018, totalled $353 million credit agency reports, if available), reasons for the accounts being past due and the line of business from which the customer accounts (December 31, 2017 – $298 million; January 1, 2017 – $231 million). The doubtful accounts expense is calculated on a specific-identification receivable arose are all considered when determining whether to make basis for customer accounts receivable above a specific balance allowances for past-due accounts. The same factors are considered threshold and on a statistically derived allowance basis for the remainder. when determining whether to write off amounts charged to the allowance No customer accounts receivable are written off directly to the doubtful for doubtful accounts against the customer accounts receivable; accounts expense. TELUS 2018 ANNUAL REPORT • 143                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       The following table presents a summary of the activity related to our allowance for doubtful accounts. Years ended December 31 (millions) Balance, beginning of period Additions (doubtful accounts expense) Accounts written off, net of recoveries Other Balance, end of period 2018 $ 43 56 (55) 9 2017 $ 54 54 (66) 1 $ 53 $ 43 Contract assets Credit risk associated with contract assets 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 (millions) Contract assets, net of impairment allowance To be billed and thus reclassified to accounts receivable during: The 12-month period December 31, 2018 December 31, 2017 January 1, 2017 Gross Allowance Net (Note 6(c)) Gross Allowance Net (Note 6(c)) (Note 2(c)) Gross Allowance Net (Note 6(c)) (Note 2(c)) ending one year hence $ 1,068 $ (51) $ 1,017 $  958 $ (51) $  907 $  901 $ (48) $  853 The 12-month period ending two years hence Thereafter 466 15 (22) (1) 444 14 407 11 (22) – 385 11 359 15 (21) (1) 338 14 $ 1,549 $ (74) $ 1,475 $ 1,376 $ (73) $ 1,303 $ 1,275 $ (70) $ 1,205 We maintain allowances for lifetime expected credit losses related to contract assets. Current economic conditions, historical information (including credit agency reports, if available), and the line of business from which the contract asset arose are all considered when determining (c) Liquidity risk As a component of our capital structure financial policies, discussed further in Note 3, we manage liquidity risk by: • maintaining a daily cash pooling process that enables us to manage impairment allowances. The same factors are considered when our available liquidity and our liquidity requirements according to determining whether to write off amounts charged to the impairment our actual needs; allowance for contract assets against contract assets. • maintaining an agreement to sell trade receivables to an 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 arm’s-length securitization trust and bilateral bank facilities (Note 22), a commercial paper program (Note 26(c)) and syndicated credit facilities (Note 26(d),(e)); • maintaining an in-effect shelf prospectus; • continuously monitoring forecast and actual cash flows; and • managing maturity profiles of financial assets and financial liabilities. Our debt maturities in future years are as disclosed in Note 26(g). As at December 31, 2018, we could offer $2.5 billion of debt or equity those of our counterparties. While we are exposed to the risk of potential securities pursuant to a shelf prospectus that is in effect until June 2020 credit losses due to the possible non-performance of our counterparties, (2017 – $1.2 billion pursuant to a shelf prospectus that was in effect until we consider this risk remote. Our derivative liabilities do not have credit April 2018). We believe that our investment grade credit ratings contribute risk-related contingent features. 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. 144 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           CONSOLIDATED FINANCIAL STATEMENTS: NOTE 4 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,   2018   (millions)    Non-interest bearing financial liabilities Construction credit facilities commitment2 (Note 21) Short-term borrowings1 Long-term debt1 (Note 26) Finance leases1 (Note 26) Currency swap agreement amounts to be exchanged3 Currency swap agreement amounts to be exchanged (Receive) Pay Other (Receive) Pay Total 2019 2020 2021 2022 2023 2024–2028 Thereafter $ 2,372 $ 3 $ 45 $ 1,349 $ 55 $ (877) $ 851 $ – $ (542) $ 516 $ 3,772 251 102 18 19 20 – 3 103 – – – – – – – – – – 1,567 1,567 2,086 886 6,240 7,744 51 – – – – – (95) (95) (95) (95) 89 89 89 89 (1,917) (1,964) 1,847 1,832 1 – 1 – – – – – – – – – – – – – – – 1,867 1,766 2,099 899 6,190 7,612 Total $ 2,782 $ 109 $ 45 $ 21,439 $ 106 $ (5,138) $ 4,886 $ 2 $ (542) $ 516 $ 24,205 Total (Note 26(h)) $ 21,293 1   Cash outflows in respect of interest payments on our short-term borrowings, commercial paper, finance leases and amounts drawn under our credit facilities (if any) have been calculated based upon the interest rates in effect as at December 31, 2018. 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, 2018. 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,   2017 (millions)    Non-interest   bearing   financial   liabilities   Construction credit  facilities commitment (Note 21)   2 Long-term debt1 (Note 26)   Short-term   borrowings1   Currency swap agreement  amounts   to  be  exchanged 3   Currency  swap    agreement  amounts    to  be  exchanged (Receive)   Pay   (Receive)   Pay   Total 2018 2019 2020 2021   2022 2023–2027 Thereafter Total $ 2,232 $ 103 $ 67 $  1,928 $ (1,188) $   1,206 $ (545) $ 557 $   4,360   40   19   95   18   16 –   –   –   –   –   – –   –   –   –   –   – – 1,531 1,480 1,480 1,913 5,796 5,634 (44) (44) (44) (44)   46   46   46   46 (1,591) 1,679 – –   –   –   –   –   – –   –   –   –   –   – – 1,573 1,501 1,577 1,933 5,900 5,634 $ 2,420    $ 103    $ 67    $ 19,762    $ (2,955)   $   3,069    $ (545)   $ 557 $ 22,478   Total   $ 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 were 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. TELUS 2018 ANNUAL REPORT • 145                                                                                   (d) Currency risk Our functional currency is the Canadian dollar, but certain routine revenues and operating costs are denominated in U.S. dollars and All of our currently outstanding long-term debt, other than commercial paper and amounts drawn on our credit facilities (Note 26(c), (e)), is 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 Note 26(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 borrowings could fluctuate because of changes in foreign exchange rates. Currency hedging relationships have been established Long-term investments We are exposed to equity price risk arising from investments classified as fair value through other comprehensive income. 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 for the related semi-annual interest payments and the principal payment compensation (appreciating Common Share prices increase both the at maturity in respect of the U.S. Dollar Notes; we designate only the expense and the potential cash outflow). Certain cash-settled equity swap spot element of these instruments as the hedging item; the forward agreements have been entered into that fix the cost associated with our element is wholly immaterial. As the functional currency of our TELUS International (Cda) Inc. subsidiary is the U.S. dollar, fluctuations in foreign exchange rates affecting its borrowings are reflected as a foreign currency translation adjustment within other comprehensive income. estimate of TELUS Corporation restricted stock units which are expected to vest and are not subject to performance conditions (Note 14(b)). (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, 2018 and 2017, 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 equity instruments, we could be exposed to interest rate risk. from share-based compensation at the reporting date has been Due to the short-term nature of the applicable rates of interest charged, determined based upon a hypothetical change taking place at the the fair value of the construction credit facility advances made to the relevant statement of financial position date. The relevant notional real estate joint venture is not materially affected by changes in market number of Common Shares at the statement of financial position date, interest rates; the associated cash flows representing interest payments which includes those in the cash-settled equity swap agreements, will be affected until such advances are repaid. has been used in the calculations. As short-term obligations arising from bilateral bank facilities, which Income tax expense, which is reflected net in the sensitivity typically have variable interest rates, are rarely outstanding for periods analysis, reflects the applicable statutory income tax rates for the that exceed one calendar week, interest rate risk associated with this reporting 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. 146 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     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 basis point change in interest rates Interest rates increase Interest rates decrease 25%2 change in Common Share price3 Price increases Price decreases CONSOLIDATED FINANCIAL STATEMENTS: NOTE 4 Net income Other comprehensive income Comprehensive income 2018 2017 2018 2017 2018 2017 $ (1) $ 1 $ (2) $ 2 $ – $ 5 $ (1) $  1 $ (3) $  3 $ (8) $ 14 $ (33) $ 33 $ 2 $ (1) $ (1) $ 1 $ (15) $ 15 $ 1 $ – $ 13 $ (13) $ (34) $ 34 $ – $ 1 $ (1) $ 6 $ (16) $ 16 $  (2) $ 3 $ 5 $ 1 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 12-month data period and calculated on a monthly basis, the volatility of our Common Share price as at December 31, 2018, was 10.9% (2017 – 7.0%). 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  fair  values  of  our  investment  financial  assets  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   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).   in  active  markets.   The  fair  values  of  the  derivative  financial  instruments  we  use  to  manage   Derivative The derivative financial instruments that we measure at fair value on our  exposure  to  currency  risk  are  estimated  based  on  quoted  market   a recurring basis subsequent to initial recognition are set out in the prices  in  active  markets  for  the  same  or  similar  financial  instruments    following table. or  on  the  current  rates  offered  to  us  for  financial  instruments  of  the  same   TELUS 2018 ANNUAL REPORT • 147         As at December 31 (mi llions) 2018 2017 Maximum maturity date Designation Fair value1 and carrying value Notional amount Maximum maturity date Fai   r value1 and carrying value Notiona  l amount Price or rate Price or rate Current Assets2 Derivatives  used  to  manage Currency  risk  arising  from      U.S.  dollar-denominated    purchases   HFH3 2019 $ 414 $ 25 US$1.00: C$1.28 2018 $     110 $  2 US$1.00: C$1.24 Currency risk arising from U.S. dollar revenues Changes in share-based HFT4 2019 $ 74 1 US$1.00: C$1.36 2018 $        71 1 US$1.00: C$1.25 compensation costs (Note 14(b)) HFH3 2019 $ 63 2 $ 45.46 2018 $  73 14 $ 40.91 Currency risk arising from U.S. dollar-denominated long-term debt (Note 26(b)–(c)) Other Long-Term Assets2 Derivatives  used  to  manage Changes  in  share-based    HFH3 2019 $ 761 21 US$1.00: C$1.33 2018 $  124 1 US$1.00: C$1.24 $ 49 $ 18 compensation  costs  (Note 14(b))   HFH3  – $ – $ – –   2019   $      63    $   6   $ 45.46   Currency  risks  arising  from      U.S.  dollar-denominated    long-term  debt5  (Note 26(b)–(c))   HFH3  2048   $ 3,134 54 US$1.00: C$1.28   –   $        –   –    –   $ 54 $   6   Current Liabilities2 Derivatives  used  to  manage Currency  risk  arising  from      U.S.  dollar-denominated    purchases   HFH3  2019   $ 11 $ – US$1.00: C$1.36   2018   $    376    $ 14 US$1.00:  C$1.30 Currency  risk  arising  from      U.S.  dollar  revenues   Changes  in  share-based    HFT4  2019   $ 18 – US$1.00: C$1.36   –    $        –   $ 47.39   –    $        –   –    –    –   –   compensation  costs  (Note 14(b))   HFH3  2019   $ 2 Currency  risk  arising  from      U.S.  dollar-denominated    long-term  debt  (Note 26(b)–(c))   HFH3  –   $ – Interest  rate  risk  associated      with  non-fixed  rate  credit  facility    amounts  drawn  (Note 26(e))     Interest  rate  risk  associated      with  planned  refinancing    HFH3  2019   $ 8 – – – of  debt  maturing   HFH3  2019   $ 250 9 $ 9    Other Long-Term Liabilities2 Derivatives  used  to  manage Changes  in  share-based    –   2018   $ 1,036   18    US$1.00:  C$1.28 2.64%   –    $        –   –    –   2.40%, GOC 10-year term   2018   $    300    1    $ 33 2.14%,  GOC    10-year  term compensation  costs  (Note 14(b))   HFH3  2020   $ 67 $ 3 $ 48.71    –    $        –  $   –    –   Currency  risk  arising  from      U.S.  dollar-denominated    long-term  debt5  (Note 26(b)–(c))   HFH3  2027   $ 991 2 US$1.00: C$1.33   2027   $ 1,910    76    US$1.00:  C$1.32 Interest  rate  risk  associated      with  non-fixed  rate  credit  facility    amounts  drawn  (Note 26(e))     HFH3  2022   $ 145 1 $ 6 2.64%   –    $        –   –    –   $ 76 Fair value measured at reporting date using significant other observable inputs (Level 2). 1 2   Derivative financial assets and liabilities are not set off. 3   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. 4 Designated as held for trading (HFT) and classified as fair value through net income upon initial recognition; hedge accounting is not applied. 5   As set out in (d), we designate only the spot element as the hedging item. As at December 31, 2018, the foreign currency basis spread included in the fair value of the derivative instruments, and which is used for purposes of assessing hedge ineffectiveness, was $29 (December 31, 2017 – $4; January 1, 2017 – $(1)). 148 • TELUS 2018 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)   2018   Carrying value Fair value   Carrying  value   $ 14,101 $ 14,209 $ 13,660    2017 Fair  value $ 14,255   (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) Note   2018 2017   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 2018   2017 Arising  from  U.S.  dollar-denominated  purchases   $ 39 $   (23)   Goods and services purchased $ 6 $     (5) Arising from U.S. dollar-denominated long-term debt1 26(b)–(c) Derivatives used to manage other market risk Arising  from  changes  in  share-based   194   233 (109) (132)   Financing  costs 241 247 (146) (151) compensation  costs    14(b) (8)   24 Employee  benefits  expense 2 17 $ 225 $ (108) $ 249 $ (134) 1 Amounts recognized in other comprehensive income are net of the change in the foreign currency basis spread (which is used for purposes of assessing hedge ineffectiveness) included in the fair value of the derivative instruments; such amount for the year ended December 31, 2018, was $25 (2017 – $5). 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   2018   $ –   2017 $     3   5 Segment information General Operating segments are components of an entity that engage in segment includes data revenues (which include Internet protocol; television; hosting, managed information technology and cloud-based business activities from which they earn revenues and incur expenses services; customer care and business services (formerly business (including revenues and expenses related to transactions with the process outsourcing); certain healthcare solutions; and home and busi- other component(s)), the operations of which can be clearly distinguished ness security), voice and other telecommunications services revenues and for which the operating results are regularly reviewed by a chief (excluding wireless arising from mobile technologies), and equipment operating decision-maker to make resource allocation decisions and sales. Segmentation has been based on similarities in technology (mobile to assess performance. As we do not currently aggregate operating versus fixed), the technical expertise required to deliver the services and segments, our reportable segments as at December 31, 2018, are also products, customer characteristics, the distribution channels used and wireless and wireline. The wireless segment includes network revenues and equipment sales arising from mobile technologies. The wireline regulatory treatment. Intersegment sales are recorded at the exchange value, which is the amount agreed to by the parties. TELUS 2018 ANNUAL REPORT • 149                                   The  segment  information  regularly  reported  to  our  Chief  Executive  Officer  (our  chief  operating  decision-maker),  and  the  reconciliations  thereof    to  our  products  and  services  view  of  revenues,  other  revenues  and  income  before  income  taxes,  are  set  out  in  the  following  table. Years  ended  December  31  (millions)   2018   2017   2018   2017   2018   2017 2018   2017 Wireless Wireline   Eliminations   Consolidated (adjusted – Note 2(c)) (adjusted – Note 2(c)) (adjusted – Note 2(c)) $ 6,054 $ 5,896   $ 5,828 $ 5,436   $ – $     – $ 11,882 $ 11,332   Operating revenues External  revenues Service   Equipment  1,963  1,739  250  234   Revenues  arising  from    contracts  with  customers  8,017 Other  operating  income  Intersegment  revenues  EBITDA1 CAPEX,  excluding    118 8,135 47 $ 8,182 $ 3,431  7,635   36   7,671   43  6,078 155 6,233 207 $ 7,714   $ 6,440 $ 3,250   $ 1,673  5,670    67    5,737   206  $ 5,943 $ 1,660 – – – – – –  – –  2,213   1,973 14,095  13,305   273 103  14,368  13,408   (254) $ (254) $ –  (249) –   – $ (249) $ 14,368 $ 13,408   $      – $ 5,104 $   4,910 spectrum  licences2 $ 896 $    978 $ 2,018 $ 2,116 $ – $       – $ 2,914 $   3,094 Operating revenues – external  (above) $ 14,368 $ 13,408 Goods  and  services  purchased  Employee  benefits  expense  EBITDA  (above)  Depreciation  Amortization Operating income Financing  costs 6,368 2,896   5,104   1,669 598 2,837 661  5,904    2,594    4,910    1,617    552    2,741    573   Income before income taxes   $ 2,176 $   2,168  1  2 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. 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   of  property,  plant,  equipment  and/or  intangible  assets  located  outside   the  basis  of  the  location  where  the  goods  and/or  services  are  provided.   of  Canada.  As  at  December  31,  2018,  on  a  historical  cost  basis,  we  had   We  do  not  have  significant  revenues  that  we  attribute  to  countries  other    $546  million  (2017  –  $262  million)  of  goodwill  located  outside  of  Canada. 150 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                      CONSOLIDATED FINANCIAL STATEMENTS: NOTE 6 6 Revenue  from  contracts  with  customers (a) Revenues In  the  determination  of  the  minimum  transaction  prices  in  contracts    transaction  prices  allocated  to  remaining  unfulfilled,  or  partially  unfulfilled,   future  contracted  performance  obligations  and  the  timing  of  when    with  customers,  amounts  are  allocated  to  fulfilling,  or  completion    we  might  expect  to  recognize  the  associated  revenues;  actual  amounts   of  fulfilling,  future  contracted  performance  obligations.  These  unfulfilled,   could  differ  from  these  estimates  due  to  a  variety  of  factors,  including  the   or  partially  unfulfilled,  future  contracted  performance  obligations  are   unpredictable  nature  of:  customer  behaviour;  industry  regulation;  the   largely  in  respect  of  services  to  be  provided  over  the  duration  of  the   economic  environments  in  which  we  operate;  and  competitor  behaviour. contract.  The  following  table  sets  out  our  aggregate  estimated  minimum   As at December 31 (millions) 2018   2017 Estimated minimum transaction price allocated to remaining unfulfilled, or partially unfulfilled, performance obligations to be recognized as revenue in a future period1,2 During the 12-month period ending one year hence During the 12-month period ending two years hence Thereafter $ 2,306 $ 2,075 933 24 856 24 $ 3,263 $ 2,955  1  2 Excludes constrained variable consideration amounts, amounts arising from contracts originally expected to have a duration of one year or less and, as a permitted practical expedient, amounts arising from contracts that are not affected by revenue recognition timing differences arising from transaction price allocation or from contracts under which we may recognize and bill revenue in an amount that corresponds directly with our completed performance obligations. IFRS-IASB requires the explanation of when we expect to recognize as revenue the amounts disclosed as the estimated minimum transaction price allocated to remaining unfulfilled, or partially unfulfilled, performance obligations. The estimated amounts disclosed are based upon contractual terms and maturities. Actual minimum transaction price revenues recognized, and the timing thereof, will differ from these estimates primarily due to the frequency with which the actual durations of contracts with customers do not match their contractual maturities. (b) Accounts receivable As at (millions) Customer accounts receivable As previously reported Transitional amount As adjusted Accrued receivables – customer Allowance for doubtful accounts Accrued receivables – other Note   December 31, 2018   December 31, 2017 January  1,  2017 2(c) 4(b) $ 1,263 – 1,263 175 (53) 1,385 215 $ 1,600 $ 1,221 $ 1,217 (9) 1,212 143 (43) 1,312 302 (9) 1,208 131 (54) 1,285 177 $ 1,614 $ 1,462 TELUS 2018 ANNUAL REPORT • 151                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                (c) Contract assets Years ended December 31 (millions) Balance, beginning of period Transitional amount As adjusted Net additions arising from operations Amounts billed in period and thus reclassified to accounts receivable1 Change in impairment allowance, net Other Balance, end of period To be billed and thus reclassified to accounts receivable during: The 12-month period ending one year hence The 12-month period ending two years hence Thereafter Balance, end of period Reconciliation of contract assets presented in the Consolidated statements of financial position – current Gross contract assets Reclassification to contract liabilities of contracts with contract assets less than contract liabilities Reclassification from contract liabilities of contracts with contract liabilities less than contract assets Note 2(c) 4(b) 24 24 2018 $ 1,303 – 1,303 1,455 (1,284) (1) 2 2017 $        – 1,205 1,205 1,270 (1,166) (3) (3) $ 1,475 $ 1,303 $ 1,017 $  907 444 14 385 11 $ 1,475 $ 1,303 $ 1,017 $  907 (3) (4) (154) $ 860 (146) $  757 1 For the year ended December 31, 2018, amounts billed for our wireless segment and reclassified to accounts receivable totalled $1,180 (2017 – $1,060). 7 Other  operating  income Years ended December 31 (millions) Note 2018 2017 in a central fund, from all registered Canadian telecommunications Government assistance, including deferral account amortization Investment income, gain (loss) on disposal of assets and other Changes in business combination-related accrued receivable and provisions Interest income 21(c) 17 3 21 230 $ 23 $  32 that are then disbursed to incumbent local exchange carriers as subsidy service providers (including voice, data and wireless service providers) payments to partially offset the costs of providing residential basic telephone services in non-forborne high cost serving areas. The subsidy payment disbursements are based upon a total subsidy requirement calculated on a per network access line/per band subsidy rate. For the year ended December 31, 2018, our subsidy receipts were $18 million 45 26 – $ 273 $ 103 (2017 – $19 million). The CRTC currently determines, at a national level, the total annual We receive government assistance, as defined by IFRS-IASB, from a contribution requirement necessary to pay the subsidies and then number of sources and include such amounts received in Other operating collects contribution payments from the Canadian telecommunications income. We recognize such amounts on an accrual basis as the subsidized service providers, calculated as a percentage of their CRTC-defined services are provided or as the subsidized costs are incurred. telecommunications service revenue. The final contribution expense rate CRTC subsidy Local exchange carriers’ costs of providing the level of residential basic telephone services that the CRTC requires to be provided in high cost serving areas are greater than the amounts the CRTC allows the local for 2018 was 0.54% and the interim rate for 2019 has been set at 0.60%. Government of Quebec Salaries for qualifying employment positions in the province of Quebec, mainly in the information technology sector, are eligible for tax credits. exchange carriers to charge for the level of service. To ameliorate the In respect of such tax credits, for the year ended December 31, 2018, situation, the CRTC directs the collection of contribution payments, we recorded $4 million (2017 – $7 million). 152 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 CONSOLIDATED FINANCIAL STATEMENTS: NOTES 7–10 8 Employee  benefits    expense 10 Income  taxes Years  ended  December  31  (millions) Note   2018   2017 (a) Expense composition and rate reconciliation Employee benefits expense – gross Wages  and  salaries   Share-based  compensation   Pensions  –  defined  benefit    Pensions  –  defined  contribution Restructuring  costs    Other   Capitalized internal labour costs, net Contract  acquisition  costs   Capitalized   Amortized   Contract  fulfilment  costs Capitalized   Amortized   Property,  plant  and  equipment   Intangible  assets  subject  to  amortization   14 15(b) 15(f) 16(a) 20 20 (adjusted – Note 2(c)) $ 2,800 $ 2,594   136   95   88 126    163    3,408    (55)    45    (3)    3     (332)    (170)    (512)   128 82   88   26  156   3,074   (47) 48   (4) 2   (321) (158) (480) Years ended December 31 (millions) 2018   2017 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 (adjusted – Note 2(c)) $ 483 $ 205 (5)   478 (82)  123   of temporary differences 75 361 Revaluation  of  deferred  income  tax  liability    to  reflect  future  income  tax  rates  – 28   Adjustments  recognized  in  the  current  period    for  income  taxes  of  prior  periods  (1) 74 78   467 $ 552 $ 590   Our  income  tax  expense  and  effective  income  tax  rate  differ  from    those  calculated  by  applying  the  applicable  statutory  rates  for  the   following  reasons: $ 2,896 $ 2,594   Years ended December 31 ($ in millions) 2018   2017 Income taxes computed at applicable statutory rates $ 586 27.0% $ 578    26.7% (adjusted – Note 2(c)) 9 Financing  costs Years  ended  December  31  (millions) Note   2018   2017 Revaluation  of  deferred    income tax liability to reflect future income tax rates Adjustments  recognized    in  the  current  period  for    income  taxes  of  prior  periods   – – 28   1.3 (6) (0.3)   (28) (1.3)   (4) (12) (0.2) (0.6) $ 552 25.4%   $ 590 27.2% Interest expense   Interest  on  long-term  debt    Interest  on  short-term  borrowings    and  other   Interest  accretion  on  provisions    25  Long-term  debt  prepayment  premium   26(b)  Employee defined benefit plans net interest   Foreign exchange Interest income 15(b), (g)   $ 598 $ 561   Other Income  tax  expense  per    Consolidated  statements    of  income  and  other    comprehensive  income   6   21   34  5   13    –  659    579 17   (6)   670 (9)    6    (5)  580    (7) $ 661 $ 573   TELUS 2018 ANNUAL REPORT • 153       (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: Property,  plant   and  equipment   and  intangible   assets  subject  to   amortization   Intangible   assets  with   indefinite  lives   Contract   assets  and   liabilities   Net   pension  and   share-based   compensation   amounts   Provisions   not  currently   deductible   Losses   available  to   be  carried   forward1   Partnership   income   unallocated   for  income   tax  purposes   Other Net  deferred   income  tax   liability (millions) As at January 1, 2017 As previously reported $  870 $ 1,457 $      – $   (48)   $ (148) $ (6) $ (18) $ (5) $ 2,102 IFRS  15,  Revenue from Contracts with Customers    transitional  amount  (Note 2(c)) As adjusted 2 Deferred  income  tax  expense    recognized  in Net  income  (Note 2(c))   Other comprehensive income Deferred  income  taxes  charged   directly  to  owners’  equity    and  other   – 870 348 – 3 As at December 31, 2017 3 1,221 – 1,457 84 – 20 1,561 404 404 37 – – 441 – (48) (11) (61) – (120) – (148) 8 – – (140) Deferred  income  tax  expense   recognized  in   Net income Other comprehensive income Deferred  income  taxes  charged   directly  to  owners’  equity    and  other   14 – 78 – 55 – (20) 119 (10) – (2) 79 – – (54) – (6) (1) – – (7) 1 – – – (18) (3) 4 (3) (20) (44) (6) 1 – (5) 404 2,506 5 – – – – – – 467 (57) 20 2,936 74 113 24 As at December 31, 20184 $ 1,233 $ 1,718 $ 496 $ (21) $ (204) $ (6) $ (69) $ – $ 3,147 1 We expect to be able to utilize our non-capital losses prior to expiry. 2 Deferred tax liability of $2,511, net of deferred tax asset of $5 (included in Other long-term assets). 3 Deferred tax liability of $2,941, net of deferred tax asset of $5 (included in Other long-term assets). 4 Deferred tax liability of $3,152, net of deferred tax asset of $5 (included in Other long-term assets). 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 against ships exceeding their tax base, for which no deferred income tax liabilities realized taxable capital gains. We expect to include a net capital loss have been recognized because the parent is able to control the timing carry-forward of $NIL (2017 – $NIL) in our Canadian income tax returns. of the reversal of the difference and it is probable that it will not reverse During the year ended December 31, 2018, we recognized the benefit in the foreseeable future. In our specific instance, this is relevant to of $NIL (2017 – $4 million) 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, 2018, as we are in a position to control the timing and manner of the reversal we recorded Investment Tax Credits of $10 million (2017 – $12 million). of the temporary differences, which would not be expected to be Of this amount, $6 million (2017 – $7 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 balance reverse in the foreseeable future. We are in a position to control the 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. 154 • TELUS 2018 ANNUAL REPORT   CONSOLIDATED FINANCIAL STATEMENTS: NOTE 11 11 Other  comprehensive  income Items that may subsequently be 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  market  risks   Prior  period   (gains)  losses   transferred  to   net  income   Gains   (losses)   arising   Total Prior  period   (gains)  losses   transferred  to   net  income   Gains   (losses)   arising   Total Total Item  never   reclassified   to  income   Item  never reclassified   to  income Cumulative foreign   currency   translation   adjustment   Change  in   measurement   of  investment   financial  assets   Accumulated other   compre-  hensive   income   Employee   defined   benefit  plan   re-measurements   Other   compre-  hensive   income $ (22) $     2 $ (20) $ 48 $ 16 $ 44 $ (132) $   (21)   $ 151 $ 27 – (22) 19 6 13 $ 24 $   6    $ (17) $   (5)   – 2 7 1 6 – (20) 26 7 19 – 48 5 – 5 (3) 13 (14) (2) (12) (3) 41 17 5 12 $   (9)   $     8   $   (1)   $ 53 $   1   $ 53 $ (234) $ (217) (62) (57) $ (172) $ (160) $ (9) $ 8 $ (1) $ 53 $ 5 $ 57 $ 233 $ 40 – (9) – 8 – (1) $ (247) (14) $ (8) $ (2) (10) (24) $ (44) (4) $ (2) $ – (10) $ (19) (2) (8) (6) (18) – 53 (30) – (30) (4) 1 (1) – (1) (4) 53 (55) (6) (49) $ 452 $ 397 119 113 $ 333 $ 284 $ – $ (19) $ 23 $ – $ 4 $ 12 (8) $ 4 (millions) Accumulated  balance  as   at  January  1,  2017 As previously reported IFRS  9,  Financial Instruments    transitional  amount    (Note 2(a))   As adjusted Other  comprehensive    income  (loss) Amount arising Income taxes Net Accumulated  balance  as   at  December  31,  2017   Accumulated  balance  as    at  January  1,  2018 As previously reported IFRS  9,  Financial Instruments    transitional  amount    (Note 2(a))   As adjusted Other  comprehensive    income  (loss) Amount arising Income taxes Net Accumulated balance as at December 31, 2018 Attributable to: Common Shares Non-controlling    interests  TELUS 2018 ANNUAL REPORT • 155                                                                                                                                                                                                                                                                                                                                                                                                                                                         12 Per share amounts Basic net income per Common Share is calculated by dividing net income Years ended December 31 (millions) 2018 2017 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 reconciliations 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  597 593 – – 597 593 For the years ended December 31, 2018 and 2017, no outstanding TELUS Corporation share option awards were excluded in the calculation of diluted net income per Common Share. 13 Dividends per share (a) Dividends declared Years ended December 31 (millions except per share amounts) 2018   Common Share dividends Effective Per share Declared Paid to shareholders Declared Total Effective Per share Paid  to shareholders   2017 Total Quarter 1 dividend Quarter 2 dividend Quarter 3 dividend Quarter 4 dividend Mar. 9, 2018 $ 0.5050 Apr. 2, 2018 $ 299 Mar. 10, 2017 $ 0.4800 Apr. 3, 2017 $  283 June 8, 2018 Sep. 10, 2018 Dec. 10, 2018 0.5250 0.5250 0.5450 $ 2.1000 July 3, 2018 Oct. 1, 2018 Jan. 2, 2019 315 313 326 $ 1,253 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 On February 13, 2019, the Board of Directors declared a quarterly dividend of $0.5450 per share on our issued and outstanding Common (b) Dividend Reinvestment and Share Purchase Plan We have a Dividend Reinvestment and Share Purchase Plan under Shares payable on April 1, 2019, to holders of record at the close of which eligible holders of Common Shares may acquire additional business on March 11, 2019. The final amount of the dividend payment Common Shares by reinvesting dividends and by making additional depends upon the number of Common Shares issued and outstanding optional cash payments to the trustee. In respect of Common Shares at the close of business on March 11, 2019. whose eligible shareholders have elected to participate in the plan, dividends declared during the year ended December 31, 2018, of $54 million (2017 – $58 million) were to be reinvested in Common Shares acquired by the trustee from Treasury, with no discount applicable. 156 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTES 12–14 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 (mi llions) 2018 Restricted stock units Employee share purchase plan Share option awards Note (b) (c) (d) Employee benefits expense Associated operating cash outflows Statement of cash flows adjustment $ 99 $ (98) 37 5 (37) – $ 141 $ (135) $ 1 – 5   $ 6 Employee benefits expense $  83 37   1 Associated operating cash outflows 2017 Statement of cash flows adjustment $  (67) $ 16 (37)   – –  1 $ 121 $ (104) $ 17 For the year ended December 31, 2018, 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 cash-settled equity forward agreements of $9 million either cliff or graded; the majority of restricted stock units outstanding (2017 – $14 million). For the year ended December 31, 2018, the income are cliff-vesting. The associated liability is normally cash-settled. tax benefit arising from share-based compensation was $37 million (2017 – $32 million). (b) Restricted stock units 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 General We use restricted stock units as a form of retention and incentive performance condition (with a weighting of 25%) and the total shareholder 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 market value of the corresponding Common Shares at the grant date, stock units during the life of the restricted stock unit. Due to the notional and thus the notional subset has been included in the presentation of our dividend mechanism, the grant-date fair value of restricted stock units restricted stock units with only service conditions. The recurring estimate, equals the fair market value of the corresponding equity shares at the 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 2018 2017 3,037,881 155,639 3,193,520 466,917 3,660,437 3,327,464 154,452 3,481,916 463,357 3,945,273 TELUS 2018 ANNUAL REPORT • 157                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            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 2018 Weighted average grant- date fair value Number of restricted stock units1 Non-vested Vested 2017 Weighted average grant- date fair value 3,481,916 – – 32,848 $ 41.87 $ 41.00 3,390,979 – 1,769,092 208,503 – 359 (1,963,722) 1,963,722 – (1,933,546) (302,269) 3,193,520 – – – 63,383 $ 45.72 $ 46.32 $ 40.34 $ 40.08 $ 43.16 1,825,688 206,715 (1,766,680) 1,766,680 – (1,698,008) (174,786) (65,387) $ 44.85 $ 44.89 3,481,916 – – 32,848 – 29,108 – 455 $ 41.71 $ 38.09 $ 43.56 $ 43.98 $ 43.73 $ 43.63 $ 42.88 $ 41.87 $ 41.00  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,  2018,  is  set  out   in  the  following  table. Vesting  in  years  ending  December  31   2019 2020   Number  of   fixed-cost   restricted   stock  units   1,439,418    1,369,272 2,808,690 Our  fixed  cost   per  restricted   stock  unit   $ 45.53 $ 48.71    Number  of   variable-cost   restricted   stock  units   219,443    369,734 589,177    Total  number  of    non-vested    restricted    stock  units1 1,658,861 1,739,006   3,397,867  1 Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition vesting in the years ending December 31, 2019. 158 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                    CONSOLIDATED FINANCIAL STATEMENTS: NOTE 14 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 2018 2017 US$ denominated Canadian $ denominated US$ denominated Canadian $ denominated Number of restricted stock units Weighted average grant-date fair value Number of restricted stock units Weighted   average   grant-date fair value   Number of restricted stock units Non-vested Vested Weighted   average   grant-date   fair  value   Number  of   restricted   stock  units   Weighted   average grant-date fair  value Outstanding, beginning of period Non-vested Vested 374,786 US$ 24.45 – $ –   163,785 – US$ 21.90 – $         –   – US$ – 32,299 $ 21.36 – – US$         –   32,299 $ 21.36 Issued – initial award 197,495 US$ 28.07 Vested Exercised – US$ – – US$ – Forfeited and cancelled (10,569) US$ 26.28 – – – – $ –   213,768 – US$ 26.40 $ –   $ –   (208) – 208 US$ 24.10 (208) US$ 24.10 $ –   (2,559) – US$ 24.10 Outstanding,  end  of  period Non-vested Vested 561,712 US$ 25.68 – $ – 374,786    – US$ 24.45   – US$ – 32,299 $ 21.36 –    – US$         –    32,299 $ 21.36   – – – – – $         –   $         –   $         –   $         –   $         –   (c) Employee share purchase plan We have an employee share purchase plan under which eligible the share option awards is based on a Government of Canada yield curve that is current at the time of grant. The expected lives of the share option employees up to a certain job classification can purchase our Common awards are based on our historical share option award exercise data. Shares through regular payroll deductions. In respect of Common Shares Similarly, expected volatility considers the historical volatility in the price of held within the employee share purchase plan, Common Share dividends our Common Shares for TELUS Corporation share options and average declared during the year ended December 31, 2018, of $34 million historical volatility in the prices of a peer group’s shares in respect of (2017 – $31 million) were to be reinvested in Common Shares acquired TELUS International (Cda) Inc. share options. The dividend yield is the by the trustee from Treasury, with no discount applicable. annualized dividend current at the time of grant divided by the share option award exercise price. Dividends are not paid on unexercised share option (d) Share option awards awards and are not subject to vesting. 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 pensation.  We  apply  the  fair  value  method  of  accounting  for  share-based an exercise price equal to the fair market value at the time of grant. compensation  awards  granted  to  officers  and  other  employees.  Share   Share option awards granted under the plan may be exercised over option  awards  typically  have  a  three-year  vesting  period  (the  requisite   specific periods not to exceed seven years from the time of grant. service  period).  The  vesting  method  of  share  option  awards,  which  is    No share option awards were granted in fiscal 2018 or 2017. determined  on  or  before  the  date  of  grant,  may  be  either  cliff  or  graded;  all   These share option awards have a net-equity settlement feature. share  option  awards  granted  subsequent  to  2004  have  been  cliff-vesting.   The optionee does not have the choice of exercising the net-equity The weighted average fair value of share option awards granted is settlement feature; it is at our option whether the exercise of a share calculated by using the Black-Scholes model (a closed-form option pricing option award is settled as a share option or settled using the net-equity model). The risk-free interest rate used in determining the fair value of settlement feature. TELUS 2018 ANNUAL REPORT • 159                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    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 740,471 (402,528) (2,046) (9,733) 326,164 2018 Weighted   average share   option price   $ 26.99 $ 25.26 $ 29.19 $ 23.24 $ 29.22 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  1 2   The total intrinsic value of share option awards exercised for the year ended December 31, 2018, was $8 million (2017 – $15 million), reflecting a weighted average price at the dates of exercise of $46.04 per share (2017 – $44.63 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. All  outstanding  TELUS  Corporation  share  options  are  vested,  their  range  of  prices  is  $28.56–$31.69  per  share  and  their  weighted  average  remaining  contractual  life  is  0.4  years.   TELUS International (Cda) Inc. share options Employees  may  receive  equity  share  options  (equity-settled)  to  purchase   awards  granted  under  the  plan  may  be  exercised  over  specific  periods   not  to  exceed  ten  years  from  the  time  of  grant.  All  equity  share  option   TELUS  International  (Cda)  Inc.  common  shares  at  a  price  equal  to,  or   awards  and  most  phantom  share  option  awards  have  a  variable  payout   a  multiple  of,  the  fair  market  value  at  the  time  of  grant  and/or  phantom   (0%–100%)  that  depends  upon  the  achievement  of  TELUS  International   share  options  (cash-settled)  that  provide  them  with  exposure  to  TELUS   (Cda)  Inc.  financial  performance  and  non-market  quality-of-service   International  (Cda)  Inc.  common  share  price  appreciation.  Share  option   performance  conditions. The following table presents a summary of the activity related to the TELUS International (Cda) Inc. share option plan. Years  ended  December  31   2018 2017 US$ 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   748,626 US$ 30.12 53,832 Granted   Forfeited   111,281 US$ 27.81 (1,172) US$ 27.70 – – Outstanding,  end  of  period   858,735 US$ 29.83 53,832 $ 21.36 $ –   $ –   $ 21.36 573,354    US$ 30.86   53,832    175,272    US$ 27.70   –    US$        –    –    –   748,626    US$ 30.12   53,832    $ 21.36   $         –   $        –   $ 21.36   1 2 The  range  of  share  option  prices  is  US$21.90–US$40.26  per  TELUS  International  (Cda)  Inc.  equity  share  and  the  weighted  average  remaining  contractual  life  is  8.4  years. The  weighted  average  remaining  contractual  life  is  7.5  years. 15 Employee future benefits We  have  a  number  of  defined  benefit  and  defined  contribution  plans    is determined by the average of the best five years of remuneration in that  provide  pension  and  other  retirement  and  post-employment  benefits   the last ten years preceding retirement. to  most  of  our  employees.  As  at  December  31,  2018  and  2017,  all  regis- tered  defined  benefit  pension  plans  were  closed  to  substantially  all  new   participants  and  substantially  all  benefits  had  vested.  The  benefit  plans   in  which  our  employees  are  participants  reflect  developments  in  our   corporate  history. TELUS Corporation Pension Plan Management and professional employees in Alberta who joined us Pension Plan for Management and Professional Employees of TELUS Corporation This  defined  benefit  pension  plan,  which  with  certain  limited  exceptions   ceased  accepting  new  participants  on  January  1,  2006,  and  which    comprises  approximately  one-quarter  of  our  total  defined  benefit  obli- gation  accrued,  provides  a  non-contributory  base  level  of  pension    benefits.  Additionally,  on  a  contributory  basis,  employees  annually  can   prior to January 1, 2001, and certain unionized employees who joined choose  increased  and/or  enhanced  levels  of  pension  benefits  above   us prior to June 9, 2011, are covered by this contributory defined benefit the  base  level.  At  an  enhanced  level  of  pension  benefits,  the  plan  has   pension plan, which comprises slightly more than one-half of our total indexation  of  100%  of  the  annual  increase  in  a  specified  cost-of-living   defined benefit obligation accrued. The plan contains a supplemental index,  to  an  annual  maximum  of  2%.  Pensionable  remuneration    benefit account that may provide indexation of up to 70% of the annual is  determined  by  the  annualized  average  of  the  best  60  consecutive   increase in a specified cost-of-living index. Pensionable remuneration months  of  remuneration.   160 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15 TELUS Québec Defined Benefit Pension Plan This contributory defined benefit pension plan, which ceased accepting 100%  of  the  contributions  of  employees  up  to  5%  of  their  pensionable   earnings  and  80%  of  employee  contributions  greater  than  that.  Member- new participants on April 14, 2009, covers any employee not governed ship  in  a  defined  contribution  pension  plan  is  generally  voluntary  until    by a collective agreement in Quebec who joined us prior to April 1, 2006, any non-supervisory employee governed by a collective agreement an  employee’s  third-year  service  anniversary.  In  the  event  that  annual   contributions  exceed  allowable  maximums,  excess  amounts  are  in   who joined us prior to September 6, 2006, and certain other unionized certain  cases  contributed  to  a  non-registered  supplementary  defined   employees. The plan comprises approximately one-tenth of our total contribution  pension  plan. defined benefit obligation accrued. The plan has no indexation and pensionable remuneration is determined by the average of the best four years of remuneration. TELUS Edmonton Pension Plan This  contributory  defined  benefit  pension  plan  ceased  accepting  new    participants  on  January  1,  1998.  Indexation  is  60%  of  the  annual  increase    Other defined benefit plans Other defined benefit plans, which are all non-contributory and, as at December 31, 2018 and 2017, 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. in  a  specified  cost-of-living  index  and  pensionable  remuneration  is  deter- mined  by  the  annualized  average  of  the  best  60  consecutive  months  of    (a) Defined benefit pension plans – funded status overview Information concerning our defined benefit pension plans, in aggregate, remuneration.  The  plan  comprises  less  than  one-tenth  of  our  total  defined   is as follows: benefit  obligation  accrued.   Other defined benefit pension plans In  addition  to  the  foregoing  plans,  we  have  non-registered,  non-  contributory  supplementary  defined  benefit  pension  plans,  which  have   the  effect  of  maintaining  the  earned  pension  benefit  once  the  allowable   maximums  in  the  registered  plans  are  attained.  As  is  common  with   non-registered  plans  of  this  nature,  these  plans  are  typically  funded  only   as  benefits  are  paid.  These  plans  comprise  less  than  5%  of  our  total   defined  benefit  obligation  accrued. We have three contributory non-indexed defined benefit pension Current service cost Past service cost Interest expense Actuaria  l loss (gai n) arising from: Demographic assumptions Financial assumptions As at December 31 (mi llions) 2018 2017 Present value of the defined benefit obligations Balance, beginning of year $ 9,419 $ 8,837 plans arising from a pre-merger acquisition, which comprise less than 1% of our total defined benefit obligation accrued; these plans ceased Settlements Benefits paid accepting new participants in September 1989. During the year ended Balance, end of year 8,723 9,419 December 31, 2018, these plans were settled. Telecommunication Workers Pension Plan Certain employees in British Columbia are covered by a negotiated-cost, Plan assets Fair value, beginning of year Return on plan assets 9,195 8,873 target-benefit union pension plan. Our contributions are determined in Notional interest income on accordance with provisions of negotiated labour contracts, the current plan assets at discount rate 306 330 one of which expires December 31, 2021, and are generally based on Actua  l return on plan assets employee gross earnings. We are not required to guarantee the benefits (less) greater than discount rate or assure the solvency of the plan, and we are not liable to the plan for other participating employers’ obligations. For the years ended Settlements Contributions December 31, 2018 and 2017, our contributions comprised a significant proportion of the employer contributions to the union pension plan; similarly, a significant proportion of the plan participants were our active and retired employees. British Columbia Public Service Pension Plan Certain employees in British Columbia are covered by a public service pension plan. Contributions are determined in accordance with provisions of labour contracts negotiated by the Province of British Columbia and are generally based on employee gross earnings. Defined contribution pension plans We offer three defined contribution pension plans, which are contributory, 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 Employer contributions (d) Employees’ contributions Benefits paid Administrative fees Fair value, end of year Effect of asset ceiling limit Beginning of year Change End of year Fair value of plan assets at end of year, net of asset ceiling limit 8,780 9,085 Funded status – plan surplus (deficit) $ 57 $    (334) The measurement date used to determine the plan assets and defined benefit obligations accrued was December 31. 108   1 318 (62)   (588)   (16)   (457)   100 (2) 331  77 526  – (450) (51) (16) 52 20 (457)   (6)   360  –  66  22 (450) (6) 9,043 9,195 (110)   (153)   (263)   (115)  5 (110) TELUS 2018 ANNUAL REPORT • 161                                                                                                                                                                   (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) $ 88 1 Financing costs (Note 9) $ – – 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   – – – – 6 – – – – $ 95 Other comprehensive   income   (Note 11) $ – – – 51 – 51 – (62) (588) (650) 318 (306) 4 16 – – – – – 2018 Total   $ 88 1 318 (255) 4 67 6 (62)   (588)   (650)   Employee   benefits   expense   (Note 8)   $ 78 (2) – – – – 6 –    –    –    –    $ 82   Other   comprehensive   income   (Note 11)   $ – – – (360) – (360) – 77   526    603    2017 Total $ 78 (2) 331 (690) 4 (355) 6 77   526   603   (9)   (9) Financing   costs   (Note 9)   $ – – 331 (330) 4 5 – –   –    –    –    $       5    $  234   $  321   149 149   $ 16 $ (450) $ (339)  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. 162 • TELUS 2018 ANNUAL REPORT     CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15 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 (Notes 20, 27) 2018 PBSR   solvency   position1   Defined  benefit   obligations   accrued   Plan  assets   Difference   (Notes 20, 27)   2017 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 $ 7,479 $ 7,982 $ 503 $ 360 $ 8,116 $ 8,272 $ 156 $ 451 1,038 206 1,244 798 – 798 (240) (206) (446) (84) N/A2 (84) 1,099 204 1,303 813 – 813 (286) (204) (490) (61) N/A2 (61) $ 8,723 $ 8,780 $ 57 $ 276 $ 9,419 $ 9,085 $ (334) $ 390 $ 1,960 469 6,294 $ 8,723 $ 2,285 560 6,574 $ 9,419  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 positions in this table as at December 31, 2018 and 2017, are interim estimates and updated estimates, respectively. The interim estimate as at December 31, 2017, was a net surplus of $255. Interim  estimated  solvency  ratios  as  at  December  31,  2018,  ranged  from  94%  to  106%  (2017  –  updated  estimate  is  95%  to  108%;  interim  estimate  was  90%  to  105%)  and  the  estimated   three-year  average  solvency  ratios,  adjusted  as  required  by  the  PBSR,  ranged  from  95%  to  106%  (2017  –  updated  estimate  is  94%  to  105%;  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%  (2017  –  3.00%).  A  hypothetical  decrease  of  25  basis  points  in  the  composite  weighted   average  discount  rate  would  result  in  a  $303  decrease  in  the  PBSR  solvency  position  as  at  December  31,  2018  (2017  –  $316);  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. 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. 2 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) 2018 2017 2018 2017 2018 2017 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 $ 1,048 1,943 $ 1,385 1,867 $ 821 $ 1,129 581 853 $ 227 1,362 $  256 1,014 1,494 1,243 30 1,631 338 1,316 9,043 1,512 1,208 31 1,659 486 1,047 9,195 1,369 1,389 – – – 8 – – – – 38 – 125 1,243 30 1,631 330 1,316 123 1,208 31 1,659 448 1,047 $ 2,779 $ 3,409 $ 6,264 $ 5,786 (263) (110) $ 8,780 $ 9,085 TELUS 2018 ANNUAL REPORT • 163   As at December 31, 2018, pension benefit trusts that we administered 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 $2 million (2017 – $3 million) (see (c) – Allowable and prohibited investment types). As at December 31, 2018 and 2017, pension benefit trusts that we administered did not lease real estate to us. return bonds to provide inflation protection, consistent with the indexed nature of some defined benefit obligations. Real estate investments are used to provide diversification of plan assets, hedging of potential long-term inflation and comparatively stable investment income. Future benefit payments Estimated future benefit payments from our defined benefit pension Relationship between plan assets and benefit obligations With the objective of lowering the long-term costs of our defined benefit plans, calculated as at December 31, 2018, are as follows: pension plans, we purposely mismatch plan assets and benefit obliga- Years ending December 31 (millions) 2019 2020 2021 2022 2023 2024–2028 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, 2018, the present value-weighted average timing of estimated cash flows for the obligations (duration) of the defined benefit pension plans was 13.0 years (2017 – 13.9 years) and of the other defined benefit plans was 6.4 years (2017 – 6.8 years). Compensation for liquidity $  455 460 466 472 476 2,451 issues that may have otherwise arisen from the mismatching of plan (c) Plan investment strategies and policies Our primary goal for the defined benefit pension plans is to ensure the security of the retirement income and other benefits of the plan members 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 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 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. Asset allocations Our defined benefit pension plans’ target asset allocations and actual asset allocations are as follows: Years ended December 31 Equity securities Debt securities Real estate Other Target allocation 2019 25–55% 40–75% 10–30% 0–10% Percentage of plan assets at end of year 2018 33% 52% 15% – 2017 35% 53% 12% – 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 average solvency ratios, our funding may include the provision of letters of credit. As at December 31, 2018, undrawn letters of credit in the amount of $174 million (2017 – $188 million) secured certain obli- gations of the defined benefit pension plans, including non-registered, unfunded plans. 164 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTE 15 Our  best  estimate  of  fiscal  2019  employer  contributions  to  our  defined   benefit  plans  is  approximately  $36  million  for  defined  benefit  pension   plans.  This  estimate  is  based  upon  the  mid-year  2018  annual  funding   Financial assumptions The  discount  rate,  which  is  used  to  determine  a  plan’s  defined  benefit   obligations  accrued,  is  based  upon  the  yield  on  long-term,  high-  valuations  that  were  prepared  by  actuaries  using  December  31,  2017,   quality  fixed-term  investments,  and  is  set  annually.  The  rate  of  future   actuarial  valuations.  The  funding  reports  are  based  on  the  pension   increases  in  compensation  is  based  upon  current  benefits  policies    plans’  fiscal  years,  which  are  calendar  years.  The  next  annual  funding   and  economic  forecasts. valuations  are  expected  to  be  prepared  mid-year  2019. The significant weighted average actuarial assumptions arising (e) Assumptions As referred to in Note 1(b), management is required to make significant estimates related to certain actuarial and economic assumptions that are used in determining defined benefit pension costs, defined benefit obligations accrued and pension plan assets. These significant estimates are of a long-term nature, consistent with the nature of employee future benefits. Demographic assumptions In determining the defined benefit pension expense recognized in net income for the years ended December 31, 2018 and 2017, we utilized from these estimates and adopted in measuring our defined benefit obligations accrued are as follows: 2018 2017 Discount rate1 used to determine: Net benefit costs for the year ended December 31 3.40% 3.80% Defined benefit obligations accrued as at December 31 Current service cost in subsequent fisca  l year 3.90% 4.00% 3.40% 3.50% Rate of future increases in compensation used to determine: Net benefit costs for the year ended December 31 2.70% 2.51% the Canadian Institute of Actuaries CPM 2014 mortality tables. Defined benefit obligations accrued as at December 31 2.80% 2.70% 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 2018 Change in expenses Change in obligations 2017 Change in expenses $ 242 $ 11 $ 270 $ 10 $ 292 $ (27) $ 16 $ (3) $ 337 $ (34) $ 16 $ (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 (g) Other defined benefit plans For the year ended December 31, 2018, other defined benefit plan current as follows: Years ended December 31 (millions) 2018 2017 Union pension plan and public service pension plan contributions Other defined contribution pension plans $ 22 66 $ 88 $ 23 65 $ 88 service cost was $NIL (2017 – $NIL), financing cost was $1 million (2017 – $1 million) and other re-measurements recorded in other comprehensive income were $2 million (2017 – $NIL). Estimated future benefit payments from our other defined benefit plans, calculated as at December 31, 2018, are $1 million annually for the five-year period from 2019 to 2023 and $6 million for the five-year period from 2024 to 2028. We expect that our 2019 union pension plan and public service pension plan contributions will be approximately $22 million. TELUS 2018 ANNUAL REPORT • 165                                                                                                                                                                                                                                       16 Restructuring  and  other  costs (a) Details of restructuring and other costs With the objective of reducing ongoing costs, we incur associated incremental non-recurring restructuring costs, as discussed further in (b) following. We may also incur atypical charges when undertaking major external costs incurred in connection with business acquisition or disposition activity, as well as litigation costs, in the context of significant losses or settlements, in other costs. Restructuring and other costs are presented in the Consolidated or transformational changes to our business or operating models or statements of income and other comprehensive income, as set out in post-acquisition business integration. We include incremental atypical the following table: Years ended December 31 (millions) 2018 2017 2018 Restructuring (b) Other (c) Goods and services purchased Employee benefits expense $ 52 126 $ 178 $ 66 26 $ 92 $ 129 10 $ 139 2017 (adjusted – Note 2(c)) $ 15 10 $ 25 Total 2018 $ 181 136 $ 317 2017 (adjusted – Note 2(c)) $  81 36 $ 117 (b) Restructuring provisions Employee-related provisions and other provisions, as presented in Note 25, include amounts in respect of restructuring activities. In 2018, restructuring activities included ongoing and incremental efficiency (c) Other During the year ended December 31, 2018, incremental external costs were incurred in connection with business acquisition activity. In connection with business acquisitions, non-recurring atypical initiatives, including personnel-related costs and rationalization of business integration expenditures that would be considered neither real estate. These initiatives were intended to improve our long-term restructuring costs nor part of the fair value of the net assets acquired operating productivity and competitiveness. have been included in other costs. As well, we fundamentally trans- formed our operating model in respect of our philanthropic giving. We made an initial donation to the TELUS Friendly Future Foundation of $100 million of TELUS Corporation Common Shares; we have committed to subsequent donations of $18 million. 166 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTES 16–17 17 Property, plant and equipment (millions) At cost As at January 1, 2017 Additions2 Additions arising from business acquisitions Dispositions, retirements and other Assets under construction put into service As at December 31, 2017 Additions2 Additions arising from business acquisitions 18(b) Dispositions, retirements and other Assets under construction put into service As at December 31, 2018 Accumulated depreciation As at January 1, 2017 Depreciation Dispositions, retirements and other As at December 31, 2017 Depreciation Dispositions, retirements and other Note Network assets1 Buildings and leasehold improvements Other1 Land Assets under construction $ 28,284 $ 2,954 $ 1,021 $ 55 972 25 (1,724) 1,167 28,724 1,039 4 (767) 956 51 8 (63) 127 44 9 (48) 69 3,077 1,095 27 13 56 100 37 9 (52) 85 – – (7) – 48 – – – – $ 592 1,426 – – (1,363) 655 1,265 – – (1,141) $ 29,956 $ 3,273 $ 1,174 $ 48 $ 779 $ 35,230 $ 19,950 $ 1,836 $  656 $ – $ 1,396 (1,708) 19,638 1,431 (769) 106 (58) 1,884 115 51 115 (62) 709 123 (43) – – – – – Total $ 32,906 2,493 42 (1,842) – 33,599 2,368 26 (763) – – – – – – – – $ 22,442 1,617 (1,828) 22,231 1,669 (761) $ 23,139 655 779 $ 11,368 $ 12,091 As at December 31, 2018 $ 20,300 $ 2,050 $ 789 $ – Net book value As at December 31, 2017 As at December 31, 2018 $  9,086 $ 9,656 $ 1,193 $ 1,223 $  386 $ 385 $ 48 $ 48 $ $ $ 1 2 As at December 31, 2018, the net carrying amount of assets under finance leases included in network assets was $100 (2017 – $NIL) and included in other was $1 (2017 – $NIL). For the year ended December 31, 2018, additions include $(15) (2017 – $7) in respect of asset retirement obligations (see Note 25). As at December 31, 2018, our contractual commitments for the acquisition of property, plant and equipment totalled $177 million over a period ending December 31, 2022 (2017 – $184 million over a period ending December 31, 2019). TELUS 2018 ANNUAL REPORT • 167 18 Intangible assets and goodwill (a) Intangible assets and goodwill, net Customer   contracts,    related  customer   relationships  and   subscriber  base   Intangible assets subject to amortization Intangible assets  with   indefinite  lives   Access  to   rights-of-way   and  other   Software Assets  under   construction   Total Spectrum   licences   Total   intangible   assets   Goodwill1 Total intangible assets  and   goodwill (millions) At cost As at January 1, 2017 $ 485 $ 4,295 $  93 $ 212 $ 5,085 $ 8,693 $ 13,778 $ 4,151 $ 17,929 Additions Additions arising from business acquisitions Dispositions, retirements and other Assets under construction put into service Net foreign exchange differences As at December 31, 2017 Additions Additions arising from business acquisitions (b) Dispositions, retirements and other Assets under construction put into service Net foreign exchange differences – 74 134 (61) – – 558 – 219 (138) – (1) 101 (209) 406 – 4,667 69 19 (248) 585 – 5 – (1) – – 97 5 – 1 – – 538 617 – – (406) – 344 582 – – (585) – 235 (271) – – 5,666 656 238 (385) – (1) – – – – – 617 235 (271) – – – 617 452 – – (3) 687 (271) – (3) 8,693 14,359 4,600 18,959 1 – – – – 657 – 657 238 (385) – (1) 456 – – 41 694 (385) – 40 As at December 31, 2018 $ 638 $ 5,092 $ 103 $ 341 $ 6,174 $ 8,694 $ 14,868 $ 5,097 $ 19,965 Accumulated amortization As at January 1, 2017 $ 323 $ 3,032 $  59 $ Amortization Dispositions, retirements and other As at December 31, 2017 Amortization 48 (61) 310 56 Dispositions, retirements and other (140) 500 (202) 3,330 538 (247) 4 (2) 61 4 – As at December 31, 2018 $ 226 $ 3,621 $ 65 $ Net book value – – – – – – – $ 3,414 $ 552 (265) 3,701 598 (387) $ 3,912 $ – – – – – – – $  3,414 $  364 $  3,778 552 (265) 3,701 598 (387) – – 552 (265) 364 4,065 – – 598 (387) $ 3,912 $ 364 $ 4,276 As at December 31, 2017 $ 248 $ 1,337 As at December 31, 2018 $ 412 $ 1,471 $  36 $ 38 $ 344 $ 1,965 $ 8,693 $ 10,658 $ 4,236 $ 14,894 $ 341 $ 2,262 $ 8,694 $ 10,956 $ 4,733 $ 15,689  1 Accumulated amortization of goodwill is amortization recorded prior to 2002; there are no accumulated impairment losses in the accumulated amortization of goodwill. The goodwill additions arising from business acquisitions for the year ended December 31, 2017, have been adjusted as set out in (c). As at December 31, 2018, our contractual commitments for the acquisition of intangible assets totalled $59 million over a period ending December 31, 2021 (2017 – $36 million over a period ending December 31, 2020). 168 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTE 18 (b) Business acquisitions AlarmForce Industries On January 4, 2018, we acquired the customers, assets and operations of AlarmForce Industries Inc. in British Columbia, Alberta and Saskatchewan, 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. The primary factor that contributed to the recognition of goodwill acquisition  of  the  initial  65%  interest,  the  non-controlling  shareholders   provided  us  with  a  purchased  call  option,  which  substantially  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). Not all of the amount assigned to goodwill is expected to be deductible for income tax purposes. was the earnings capacity of the acquired business in excess of the net tangible and intangible assets acquired (such excess arising from the Medisys Health Group Inc. On July 19, 2018, we acquired Medisys Health Group Inc., a business acquired workforce and the benefits of acquiring an established business). complementary to our existing lines of healthcare business. The investment The amount assigned to goodwill is not expected to be deductible for was made with a view to growing the delivery of employee-centred income tax purposes. workplace health and wellness services. Xavient Information Systems On February 6, 2018, through our TELUS International (Cda) Inc. subsidiary, we acquired 65% of Xavient Information Systems, a group of information technology consulting and software services companies with facilities in the United States and India. The investment was made with a view to enhancing our ability to provide complex and higher- 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). None of the amount assigned to goodwill is expected to be deductible for income tax purposes. value information technology services, improving our related sales and solutioning capabilities and acquiring multi-site redundancy in support Individually immaterial transactions During  the  year  ended  December  31,  2018,  we  acquired  100%  ownership   of other facilities. of  businesses  complementary  to  our  existing  lines  of  business.  The  pri- In respect of the 65% acquired business, we concurrently provided mary  factor  that  gave  rise  to  the  recognition  of  goodwill  was  the  earnings    a written put option to the remaining selling shareholders; the written put capacity  of  the  acquired  businesses  in  excess  of  the  net  tangible  and   option for the remaining 35% of the economic interest would become intangible  assets  acquired  (such  excess  arising  from  the  low  level  of   exercisable no later than December 31, 2020. The acquisition-date fair tangible  assets  relative  to  the  earnings  capacities  of  the  businesses).    value of the puttable shares held by the non-controlling shareholders has been recorded as a provision (see Note 25). Also concurrent with our A  portion  of  the  amounts  assigned  to  goodwill  may  be  deductible    for  income  tax  purposes.   TELUS 2018 ANNUAL REPORT • 169                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Acquisition-date fair values Acquisition-date fair values assigned to the assets acquired and liabilities assumed are set out in the following table: As  at  acquisition-date  fair  values   (millions)    Assets Current  assets Cash   Accounts  receivable 2   Other   Non-current  assets Property,  plant  and  equipment Buildings  and  leasehold  improvements   Other   Intangible  assets  subject  to  amortization3 Customer  contracts  and    related  customer  relationships   Software   Other   Total  identifiable  assets  acquired   Liabilities Current  liabilities Short-term  borrowings   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: Home  and  business  security-related   TELUS  Health-related AlarmForce   Industries   Individually   immaterial   transactions   Xavient   Information   Systems   Medisys   Health   Group  Inc.1   Individually   immaterial   transactions   Total   Individually   immaterial   transactions   Total   Total $   –    $   1   $     1   $     8   $     3    $   –   $     3    $   –   $   12   –    1   1    –    1    13    –    –   14    15    –    –    1   –   1    –   –    1    1   2    –    –   1    –    –   13    –    –   13    14    –    –    1   –   1    –   –    3    3   4    –   1   2   –    1   26   –    –   27   29    –    –   2   –   2   –   –   4    4   6    13    55    10    47   23   102   33   3   44   1   5   100    –    4   110    154    6   29   –   –   35   –   2   –   2   37   117    244    15    2   20    12    3    72    4   1   92    112    62    13    5   2   82    1   8    20    29    111    1    83    2   –   2   –   –   10    10   –   20   22    –   –   1   –   1   –   –   –   –   1   21    16    17    2   22    12    3   82    14    1   112    134    62    13    6   2   83    1   8    20    29    112    22    99    4   –   4    –   4   11   5   –   20    24    –   4   1   –   5    –   –   –   –    5   19   11   54   6   72   13   13   219   19   5   269   341   68   46   9   2   125   1   10   24   35   160   181   456   $ 68    $ 57    $ 125    $ 361    $   84    $ 37    $ 121    $ 30    $ 637   Cash  consideration   $ 68    $ 54    $ 122    $ 125    $     3    $ 29    $   32    $ 11    $ 290   Accounts  payable  and  accrued  liabilities   Provisions   Issue  of  TELUS  Corporation    Common  Shares   Issue  of  shares  by  a  subsidiary    to  a  non-controlling  interest   –   –    –    –    3   –    –    –    3   –   –    –   15   202    2   –   –   79    19    –    3   5   –   –    5    5    –   –   79   19   –    –   23   207   98   19   $ 68    $ 57    $ 125    $ 361    $   84    $ 37    $ 121    $ 30    $ 637   1 2 3 The purchase price allocation, primarily in respect of customer contracts, related customer relationships and leasehold interests and deferred income taxes, had not been finalized as of the date of issuance 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 the books and records of Medisys Health Group Inc. Upon having sufficient time to review the books and records of Medisys Health Group Inc., we expect to finalize our purchase price allocation. The fair value of accounts receivable is equal to the gross contractual amounts receivable and reflects the best estimates at the acquisition dates of the contractual cash flows expected to be collected. Customer contracts and customer relationships (including those related to customer contracts) are expected to be amortized over periods of 6 to 10 years; software is expected to be amortized over a period of 5 years. 170 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                       CONSOLIDATED FINANCIAL STATEMENTS: NOTE 18 Pro forma disclosures The  following  pro  forma  supplemental  information  represents  certain   results  of  operations  as  if  the  business  acquisitions  noted  above  had   been  completed  at  the  beginning  of  the  fiscal  2018  year. Year ended December 31, 2018 (millions except per share amounts) Operating revenues Net income Net income per Common Share Basic Diluted As reported1  Pro forma2 $ 14,368 $ 14,468 $  1,624 $  1,628 $  $  2.68 2.68 $  $  2.68 2.68 1 Operating  revenues  and  net  income  for  the  year  ended  December  31,  2018,   2 include:  $17  and  $NIL,  respectively,  in  respect  of  AlarmForce  Industries;  $166  and   $2,  respectively,  in  respect  of  Xavient  Information  Systems;  and  $48  and  $NIL,   respectively,  in  respect  of  Medisys  Health  Group  Inc. Pro  forma  amounts  for  the  year  ended  December  31,  2018,  reflect  the  acquired   businesses.  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  property,  plant  and  equipment  depreciation,   intangible  asset  amortization,  financing  and  other  charges  as  a  result    of  the  acquisitions,  net  of  the  related  tax  effects.   (c) Business acquisition – prior period 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.  As  at  December  31,  2017,  the   purchase  price  allocation  had  not  been  finalized.  During  the  three-month   period  ended  March  31,  2018,  preliminary  acquisition-date  values  assigned    for  goodwill  and  provisions  were  finalized  and  each  was  increased  by   $19  million;  as  required  by  IFRS-IASB,  comparative  amounts  have  been   adjusted  so  as  to  reflect  those  increases  effective  the  acquisition  date.   (d) Business acquisition – subsequent to reporting period On  January  14,  2019,  we  acquired  a  business  complementary  to  our   existing  telecommunications  lines  of  business,  for  consideration  con- sisting  of  cash  of  $89  million  and  TELUS  Corporation  Common  Shares   of  $38  million.  The  investment  was  made  with  a  view  to  growing  our   managed  network,  cloud,  security  and  unified  communications  services. As of February 14, 2019, our initial provision for the net identifiable assets acquired is in the range of $30 million – $40 million; as is cus- tomary in a business acquisition transaction, until the time of acquisition of  control,  we  did  not  have  full  access  to  the  books  and  records  of  the   acquired  business.  Upon  having  sufficient  time  to  review  the  books  and    records  of  the  acquired  business,  as  well  as  obtaining  new  and  addi- tional  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. (e) 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. (f) Impairment testing of intangible assets with indefinite lives and goodwill General As referred to in Note 1(f), 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  carrying  values  allocated  to  intangible  assets  with  indefinite  lives  and  goodwill  are  set  out  in  the  following  table. As at December 31 (mi llions) Wireless Wireline Intangible  assets    with  indefinite  lives   2018 $ 8,694 – 2017 $ 8,693  – $ 8,694 $ 8,693 Goodwill   Total 2018 $ 2,861 1,872 $ 4,733 20171   2018 2017 $ 2,860 1,376 $ 4,236 $ 11,555 $ 11,553 1,872 1,376 $ 13,427 $ 12,929 1 The  goodwill  balance  for  wireline  as  at  December  31,  2017,  has  been  adjusted  as  set  out  in  (c). The recoverable amounts of the cash-generating units’ assets have   We  validate  our  recoverable  amount  calculation  results  through  a   been determined based on a fair value less costs of disposal calculation. There is a material degree of uncertainty with respect to the estimates market-comparable  approach  and  an  analytical  review  of  industry  facts   and  facts  that  are  specific  to  us.  The  market-comparable  approach  uses   of the recoverable amounts of the cash-generating units’ assets, given current  (at  time  of  test)  market  consensus  estimates  and  equity  trading   the necessity of making key economic assumptions about the future. prices  for  U.S.  and  Canadian  firms  in  the  same  industry.  In  addition,    Recoverable amounts based on fair value less costs of disposal are we  ensure  that  the  combination  of  the  valuations  of  the  cash-generating   categorized as Level 3 fair value measures. units  is  reasonable  based  on  our  current  (at  time  of  test)  market  value. TELUS 2018 ANNUAL REPORT • 171                               Key assumptions The fair value less costs of disposal calculation uses discounted cash of the wireless cash-generating unit and the wireline cash-generating unit; these growth rates do not exceed the long-term average growth flow projections that employ the following key assumptions: future cash rates observed in the markets in which we operate. flows and growth projections (including judgments about the allocation of future capital expenditures to support both wireless and wireline We believe that any reasonably possible change in the key assumptions on which the calculation of the recoverable amounts of operations); associated economic risk assumptions and estimates of our cash-generating units is based would not cause the cash-generating the likelihood of achieving key operating metrics and drivers; estimates units’ carrying values (including the intangible assets with indefinite of future generational infrastructure capital expenditures; and the future weighted average cost of capital. We consider a range of reasonably possible amounts to use for key assumptions and decide upon amounts lives and the goodwill allocated to each cash-generating unit) to exceed their recoverable amounts. If the future were to adversely differ from management’s best estimates for the key assumptions and associated that represent management’s best estimates of market amounts. In the cash flows were to be materially adversely affected, we could potentially normal course, we make changes to key assumptions so that they experience future material impairment charges in respect of our reflect current (at time of test) economic conditions, updates of historical intangible assets with indefinite lives and goodwill. information used to develop the key assumptions and changes (if any) in our debt ratings. The key assumptions for cash flow projections are based upon our approved financial forecasts, which span a period of three years and are discounted, for December 2018 annual impairment test purposes, at a consolidated post-tax notional rate of 7.0% (2017 – 7.0%). For impairment testing valuations, cash flows subsequent to the three-year projection period are extrapolated, for December 2018 annual impairment test purposes, using perpetual growth rates of 2.00% (2017 – 2.25%) for each Sensitivity testing Sensitivity testing was conducted as a part of the December 2018 annual impairment test, a component of which was hypothetical changes in the future weighted average cost of capital. Stress testing included a scenario of moderate declines in annual cash flows with all other assumptions being held constant; under this scenario, we would be able to recover the carrying values of our intangible assets with indefinite lives and goodwill for the foreseeable future. 19 Leases We occupy leased premises in various locations and have the right with our telecommunications infrastructure, more so than for any other of use of land, buildings and equipment under operating leases. Most of leased asset, routinely includes periods covered by options to extend the our leases for real estate that we use for office or network (including lease terms, as we are reasonably certain to extend such leases. wireless site) purposes typically have extension options which we use For the year ended December 31, 2018, operating lease expenses, to protect our investment in leasehold improvements (including wireless which are net of the amortization of deferred gains on the sale-leaseback site equipment) and to mitigate relocation risk, and/or which reflect the of buildings and the occupancy costs associated with leased real estate, importance of the underlying right-of-use lease assets to our operations. were $243 million (2017 – $245 million); occupancy costs associated with Our judgment of lease terms for leased real estate utilized in connection leased real estate totalled $99 million (2017 – $90 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 lessor2 $ 240 $ 222 195 161 139 681 $ 1,638 2 6 6 6 6 112 $ 138 2018 Total $ 242 228 201 167 145 793 Operating leases with arm’s-length lessors1 Operating leases with related party lessors2 $  218 $  6 191 169 147 122 534 12 13 13 13 208 $ 265 $ 1,776 $ 1,381 2017 Total $  224 203 182 160 135 742 $ 1,646 1 2 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, 2018, commitments for occupancy costs under operating leases totalled $813 (2017 – $816). As set out in Note 21(c), we have entered into leases with real estate joint ventures. This table includes 100% of the minimum lease payment amounts due under these leases; of the total, $46 (2017 – $109) is due to our economic interest in the real estate joint venture and $92 (2017 – $156) is due to our partners’ economic interests in the real estate joint venture. 172 • TELUS 2018 ANNUAL REPORT     CONSOLIDATED FINANCIAL STATEMENTS: NOTES 19–20 Of the total amount above as at December 31, 2018: • Approximately 28% (2017 – 33%) was in respect of our five largest 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 leases, all of which were for office premises over various terms, affect the timing of the recognition of operating lease expenses and their with expiry dates ranging from 2024 to 2039 (2017 – ranging from recognition in the Consolidated statement of financial position, as well 2024 to 2036); the weighted average remaining term of these as their classification in the Consolidated statement of income and other leases is approximately 13 years (2017 – 13 years). comprehensive income and the Consolidated statement of cash flows. • Approximately 34% (2017 – 29%) was in respect of wireless site leases; the weighted average remaining term of these leases is approximately 14 years (2017 – 14 years). 20 Other  long-term  assets As at (millions) Pension assets Costs incurred to obtain or fulfill a contract with a customer Portfolio investments1 Prepaid maintenance Real estate joint venture advances Real estate joint ventures Derivative assets Other Note December 31, 2018 December 31, 2017 January 1, 2017 (adjusted – Note 2(c)) $ 156 (Note 2(c)) $ 358 15(b) 21(c) 21(c) 4(h) $ 503 110 70 55 69 5 54 120 $ 986 107 41 57 47 15 6 99 $ 528 93 62 62 21 30 6 101 $ 733 2017 Total 1 Fair value measured at reporting date using significant other observable inputs (Level 2). The costs incurred to obtain and fulfill contracts with customers are set out in the following table: Years ended December 31 (millions) Balance, beginning of period As previously reported Transitional amount As adjusted Additions Amortization Balance, end of period Current1 Non-current Costs incurred to Obtain contracts with customers Fulfill contracts with customers 2018 Total Costs incurred to Obtain contracts with customers Fulfill contracts with customers $ 329 $ 11 $ 340 $ – $ – $ – – 329 313 (286) $ 356 $ 256 100 $ 356 – 11 8 (4) $ 15 $ 5 10 $ 15 – 340 321 (290) $ 371 $ 261 110 $ 371 295 295 304 (270) $ 329 $ 230 99 $ 329 8 8 4 (1) $ 11 $  3 8 $ 11 303 303 308 (271) $ 340 $ 233 107 $ 340 1 Presented on the Consolidated statements of financial position in prepaid expenses. TELUS 2018 ANNUAL REPORT • 173 21 Real estate joint ventures (a) General In 2011, we partnered, as equals, with an arm’s-length party in a The purchaser assumed the 3.7% mortgage and the 3.4% bonds secured by the income-producing properties. 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, During the year ended December 31, 2018, the real estate joint venture Alberta. The new-build tower, scheduled for completion in 2019, sold the income-producing properties and the related net assets. is to be built to the LEED Platinum standard. (b) Real estate joint ventures – summarized financial information As at December 31 (millions) 2018 2017 As at December 31 (millions) 2018 2017 Assets Current assets Liabilities and owners’ equity Current liabilities Cash and temporary investments, net $ 11 $  20 Accounts payable and accrued liabilities $ 19 $  13 Escrowed deposits for tenant inducements and liens Other Non-current assets Property under development – investment property Investment property Other 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 4 2 17 256 – – 256 1 4 25 194 221 35 450 Owners’ equity TELUS1 Other partners – 15 34 207 – – 207 241 13 19 32 5 10 28 141 27 208 376 404 29 42 71 1 The equity amounts recorded by the real estate joint venture differ from those recorded by us by the amount of the deferred gai ns on our real estate contributed and the valuation provision we have recorded in excess of that recorded by the real estate joint venture. $ 273 $ 475 $ 273 $ 475 Years ended December 31 (millions) 2018 2017 Revenue From investment property From sale of residential condominiums Other operating income Depreciation and amortization Interest expense 1 Net income and comprehensive income 2 $ 21 $ – $ 345 $ $ 5   6 $ 322 $  34 $  19 $ $  $  $    –  8  8 (6) 1 2 During the year ended December 31, 2018, the real estate joint ventures capitalized $8 (2017 – $3) of financing costs. 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 and comprehensive income. 174 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTE 21 (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 2018 Total   Loans  and   receivables1   Equity2   2017 Total Related to real estate joint ventures’ statements of income and other comprehensive income Comprehensive income attributable to us3   $ – $ 171 $ 171 $    –    $   2    $   2   Related to real estate joint ventures’ statements of financial position Items not affecting currently reported cash flows Recognition  of  gain  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 Financing costs paid to us Funds repaid to us and earnings distributed Net increase (decrease) Real estate joint ventures carrying amounts Balance, beginning of period Balance, end of period – 3 22 (3) – 22 47 $ 69 – – – – (181) (10) 15 $ 5 – 3 22 (3) (181) 12 62 $ 74 – – 26 – – 26 21 $ 47 1 – – – (18) (15) 30 $ 15 1 – 26 – (18) 11 51 $ 62 1 2 3 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)). We  account  for  our  interests  in  the  real  estate  joint  ventures  using  the  equity  method  of  accounting.   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  and  comprehensive   income;  a  provision  for  income  taxes  is  made  in  determining  the  comprehensive  income  attributable  to  us. Prior to the sale of the TELUS Garden income-producing properties, during the year ended December 31, 2018, the TELUS Garden real estate joint venture recognized $7 million (2017 – $12 million) of revenue from our TELUS Garden office tenancy; of this amount, one-half was due to our economic interest in the real estate joint venture and one-half was 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.   first  fixed  and  floating  charge  mortgages  over  the  underlying  real  estate   assets.  The  construction  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,  2018,  the  real  estate  joint  venture’s  construction- As at December 31 (millions) Note 2018 2017 related  contractual  commitments  were  approximately  $35  million  through   Construction credit facilities to  2019  (2017  –  $82  million  through  to  2019). commitment – TELUS Corporation 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  33 1⁄3%  lender)  to  provide  $342  million  of  construction   financing  for  the  project.  The  construction  credit  facilities  contain   customary  real  estate  construction  financing  representations,  warranties   and  covenants  and  are  secured  by  demand  debentures  constituting   Undrawn Advances Construction credit facilities    commitment – other 4(c) $ 45 $  67 69 114 228 $ 342 47 114 228 $ 342 TELUS 2018 ANNUAL REPORT • 175                                                                                                                                                                                                                                                                                                                                                                                                                                   22 Short-term borrowings 24 Advance  billings  and   customer  deposits On July 26, 2002, one of our subsidiaries, TELUS Communications Inc., entered into an agreement with an arm’s-length securitization trust associated with a major Schedule I bank under which it is able to sell an interest in certain trade receivables up to a maximum of $500 million (2017 – $500 million). The term of this revolving-period securitization agreement ends December 31, 2021 (2017 – December 31, 2018), and it requires minimum cash proceeds of $100 million from monthly sales of interests in certain trade receivables. TELUS Communications Inc. is required to maintain a credit rating of at least BB (2017 – BB) from Dominion Bond Rating Service or the securitization trust may require the sale program to be wound down prior to the end of the term. 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. When we sell our trade receivables, we retain reserve accounts, which are retained interests in the securitized trade receivables, and servicing rights. As at December 31, 2018, we had sold to the trust (but continued to recognize) trade receivables of $120 million (2017 – $119 million). As at (millions) December 31,   2018   December  31,    2017   Advance billings $ 535 Deferred  customer  activation    and  connection  fees   Customer deposits Regulatory deferral accounts Contract liabilities Other 10 13 – 558 95 (adjusted – Note 2(c)) $ 506 13 21 1 541 91 January  1,    2017 (Note 2(c)) $ 456 17 15 8 496 88 $ 653 $ 632 $ 584 Contract liabilities represent our future performance obligations to customers in respect of services and/or equipment and for which we have received consideration from the customer or for which an amount is due from the customer. Our contract liability balances, and the changes in those balances, are set out in the following table: Short-term borrowings of $100 million (2017 – $100 million) are com- Years ended December 31 (millions) Note prised of amounts advanced to us by the arm’s-length securitization Balance, beginning of period 2018 $ 780 2017 $ 732 trust pursuant to the sale of trade receivables. The balance of short-term borrowings (if any) is comprised of amounts drawn on our bilateral bank facilities. 23 Accounts  payable    and  accrued  liabilities As at December 31 (millions) Accrued liabilities Payroll and other employee-related liabilities Restricted stock units liability Trade accounts payable Interest payable Other 2018 2017 $ 1,159 $ 1,066 429 72 403 66 1,660 1,535 686 157 67 717 147 61 $ 2,570 $ 2,460 Revenue  deferred  in  previous  period    and  recognized  in  current  period   Net additions arising from operations Regulatory deferral account drawdown Additions  arising  from    business  combinations   18(b) Balance, end of period Current Non-current Deferred revenues Deferred  customer  activation    and  connection  fees   27 Reconciliation of contract liabilities presented in the consolidated statements of financial position – current (689) 708 – 9 $ 808 $ 715 78 15 (670) 718 (7) 7 $ 780 $ 691 71 18 $ 808 $ 780 Gross contract liabilities $ 715 $ 691 Reclassification  to  contract  assets    for  contracts  with  contract  liabilities    less  than  contract  assets   Reclassification  from  contract  assets    for  contracts  with  contract  assets    less  than  contract  liabilities   (154) (146) (3) (4) $ 558 $ 541 176 • TELUS 2018 ANNUAL REPORT   25 Provisions (millions) As at January 1, 2017 Additions Reversal Use Interest effect2   Effects of foreign exchange, net As at December 31, 2017 Additions Reversal Use Interest effect2 Effects of foreign exchange, net As at December 31, 2018 Current Non-current As at December 31, 2017 Current Non-current As at December 31, 2018 CONSOLIDATED FINANCIAL STATEMENTS: NOTES 22–25 Asset   retirement   obligation   $ 339 Employee-  related    $  77 13 (53) (6) 58 – 351 6 – (10) (11) – $ 336 $  6 345 $ 351 $ 8 328 $ 336 39 (5) (75) – – 36 124 – (72) – – $ 88 $  35 1 $  36 $ 84 4 $ 88 Written  put   options1  $ – 90 (11) – 2 1 82 207 (17) (13) 10 21 $ 290 $ – 82 $  82 $ 9 281 $ 290 Other   $ 103 58 (1) (40) – – 120 72 (5) (44) – – $ 143 $  37 83 $ 120 $ 28 115 $ 143 Total $ 519 200 (70) (121) 60 1 589 409 (22) (139) (1) 21 $ 857 $  78 511 $ 589 $ 129 728 $ 857 1 2 The additions for the year ended December 31, 2017, for written put options have been adjusted as set out in Note 18(c). The difference of $(22) (2017 – $47) between the asset retirement obligation interest effect in this table and the amount included in 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. Asset retirement obligation We  establish  provisions  for  liabilities  associated  with  the  retirement  of   Written put options In  connection  with  certain  business  acquisitions,  we  have  established   property,  plant  and  equipment  when  those  obligations  result  from  the   provisions  for  contingent  consideration  and  for  written  put  options   acquisition,  construction,  development  and/or  normal  operation  of    in  respect  of  non-controlling  interests.  Cash  outflows  for  contingent   the  assets.  We  expect  that  the  cash  outflows  in  respect  of  the  balance   consideration  are  expected  on  a  current  basis.  Provisions  for  written  put   accrued  as  at  the  financial  statement  date  will  occur  proximate  to    options  are  determined  based  on  the  net  present  value  of  estimated   the  dates  these  assets  are  retired. future  earnings  results  and  require  us  to  make  key  economic  assumptions   Employee-related The  employee-related  provisions  are  largely  in  respect  of  restructuring   activities  (as  discussed  further  in  Note 16(b)).  The  timing  of  the  cash   outflows  in  respect  of  the  balance  accrued  as  at  the  financial  statement   date  is  substantially  short-term  in  nature.   about  the  future.  No  cash  outflows  for  the  written  put  options  are   expected  prior  to  their  initial  exercisability  in  2020. TELUS 2018 ANNUAL REPORT • 177                                                                                                                                                                                                                                                                                                                                                                                                                                                     Other The provisions for other include: legal claims; non-employee-related In respect of legal claims, we establish provisions, when warranted, after taking into account legal assessments, information presently restructuring activities; and contract termination costs and onerous available, and the expected availability of recourse. The timing contracts related to business acquisitions. Other than as set out of cash outflows associated with legal claims cannot be reasonably following, we expect that the cash outflows in respect of the balance determined. accrued as at the financial statement date will occur over an In connection with business acquisitions, we have established indeterminate multi-year period. provisions for contingent consideration, contract termination costs 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. and onerous contracts acquired. 26 Long-term  debt (a) Details of long-term debt As at December 31 (millions) Note 2018 2017 TELUS Corporation notes TELUS Corporation commercial paper TELUS Communications Inc. debentures TELUS International (Cda) Inc. credit facility Finance leases Long-term debt Current Non-current Long-term debt (b) (c) (e) (f) (g) $ 12,186 $ 11,561 774 620 419 102 1,140 620 339 – (b) TELUS Corporation notes The  notes  are  senior  unsecured  and  unsubordinated  obligations    and  rank  equally  in  right  of  payment  with  all  of  our  existing  and  future   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  that,  among  other  things,  place  limitations  on  our  ability,    $ 14,101 $ 13,660 and  the  ability  of  certain  of  our  subsidiaries,  to:  grant  security  in  respect   $ 836 $  1,404 13,265 12,256 $ 14,101 $ 13,660 of  indebtedness;  enter  into  sale-leaseback  transactions;  and  incur    new  indebtedness. 178 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTE 26 Principal face amount Outstanding at financial statement date Redemption present value spread Basis points Cessation date Originally issued $1.0 billion $1.0 billion $NIL 45.54 $1.0 billion $500 million $500 million $1.1 billion $1.1 billion $600 million $600 million $400 million $400 million N/A N/A Dec. 15, 2022 Jan. 2, 2024 Oct. 1, 2042 N/A 474 405 365 475 355 Effective interest rate 2 5.13% 5.08% 3.36% 3.41% 4.41% 3.65% 5.18% 3.24% Series1 Issued Maturity Issue price 5.05% Notes, Series CG December 2009 December 20193 $994.19 5.05% Notes, Series CH July 2010 July 2020 3.35% Notes, Series CJ December 2012 March 2023 3.35% Notes, Series CK April 2013 4.40% Notes, Series CL April 2013 April 2024 April 2043 3.60% Notes, Series CM November 2013 January 2021 $997.44 $998.83 $994.35 $997.68 $997.15 5.15% Notes, Series CN November 2013 November 2043 $995.00 3.20% Notes, Series CO April 2014 4.85% Notes, Series CP Multiple6 April 2021 April 2044 3.75% Notes, Series CQ September 2014 January 2025 4.75% Notes, Series CR September 2014 January 2045 1.50% Notes, Series CS March 2015 March 2018 2.35% Notes, Series CT March 2015 March 2022 4.40% Notes, Series CU March 2015 January 2046 3.75% Notes, Series CV December 2015 March 2026 $997.39 $400 million $400 million 505 May 26, 2043 $500 million $500 million 305 Mar. 5, 2021 $987.916 4.93%6 $500 million6 $900 million6 465 Oct. 5, 2043 $997.75 $992.91 $999.62 $997.31 $999.72 $992.14 3.78% 4.80% 1.51% 2.39% 4.40% 3.84% $800 million $800 million 38.55 Oct. 17, 2024 $400 million $400 million 51.55 July 17, 2044 $250 million $NIL N/A7 N/A $1.0 billion $1.0 billion 35.55 Feb. 28, 2022 $500 million $500 million 60.55 July 29, 2045 $600 million $600 million 53.55 Dec. 10, 2025 2.80% U.S. Dollar Notes8 September 2016 February 2027 US$991.89 2.89% US$600 million US$600 million 3.70% U.S. Dollar Notes10 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 CW Multiple11 March 2048 $998.0611 4.71%11 $325 million11 $475 million11 58.55 Sept. 6, 2047 3.625% Notes, Series CX February 2018 March 2028 $989.49 3.75% $600 million $600 million 375 Dec. 1, 2027 4.60% U.S. Dollar Notes12 June 2018 November 2048 US$987.60 4.68% US$750 million US$750 million 259 May 16, 2048 1 2 3 4 5 6 7 8 9 10 11 12 Interest is payable semi-annually. The notes require 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. The effective interest rate is that which the notes would yield to an initial debt holder if held to maturity. On June 28, 2018, we exercised our right to early redeem, on August 1, 2018, all of our 5.05% Notes, Series CG. The long-term debt prepayment premium recorded in the three-month period ended September 30, 2018, was $34 million before income taxes (see Note 9). 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. 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, Series CU, Series CW and Series CX notes, for which 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. $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%. The notes were not redeemable at our option, other than in the event of certain changes in tax laws. We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) that 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). 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. We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) that 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). $325 million of 4.70% Notes, Series CW were issued in March 2017 at an issue price of $990.65 and an effective interest rate of 4.76%. This series of notes was reopened in February 2018 and a further $150 million of notes were issued at an issue price of $1,014.11 and an effective interest rate of 4.61%. We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) that effectively converted the principal payments and interest obligations to Canadian dollar obligations with a fixed interest rate of 4.41% and an issued and outstanding amount of $974 million (reflecting a fixed exchange rate of $1.2985). (c) TELUS Corporation commercial paper TELUS Corporation has an unsecured commercial paper program, in U.S. dollars. Commercial paper debt is due within one year and is classified as a current portion of long-term debt, as the amounts are which is backstopped by our $2.25 billion syndicated credit facility (see (d)) and is to be used for general corporate purposes, including capital expenditures and investments. This program enables us to fully supported, and we expect that they will continue to be supported, by the revolving credit facility, which has no repayment requirements within the next year. As at December 31, 2018, we had $774 million of issue commercial paper, subject to conditions related to debt ratings, commercial paper outstanding, all of which was denominated in up to a maximum aggregate amount at any one time of $1.4 billion U.S. dollars (US$569 million), with an effective weighted average (2017 – $1.4 billion). Foreign currency forward contracts are used to man- interest rate of 3.02%, maturing through June 2019. age currency risk arising from issuing commercial paper denominated TELUS 2018 ANNUAL REPORT • 179                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           (d) TELUS Corporation credit facility As at December 31, 2018, TELUS Corporation had an unsecured revolving $2.25 billion bank credit facility, renewed in May 2018 and expiring on May 31, 2023 (2017 – expiring on May 31, 2021), with a syndicate of financial institutions, which is to be used for general As at December 31 (millions) Net available Backstop of commercial paper Gross available 2018 2017 $ 1,476 $ 1,110 774 1,140 $ 2,250 $ 2,250 corporate purposes, including the backstopping of commercial paper. We had $184 million of letters of credit outstanding as at December 31, TELUS Corporation’s credit facility bears interest at prime rate, 2018 (2017 – $224 million), issued under various uncommitted facilities; U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank such letter of credit facilities are in addition to the ability to provide offered rate (LIBOR) (all such terms as used or defined in the credit letters of credit pursuant to our committed bank credit facility. We have facility), plus applicable margins. The credit facility contains customary arranged incremental letters of credit to allow us to participate in representations, warranties and covenants, including two financial Innovation, Science and Economic Development Canada’s 600 MHz quarter-end ratio tests. These tests are that our net debt to operating wireless spectrum auction that is to be held in March 2019. Under cash flow ratio must not exceed 4.00:1.00 and our operating cash flow the terms of the auction, communications between bidders that would to interest expense ratio must not be less than 2.00:1.00, all as defined provide insights into bidding strategies, including reference to preferred in the credit facility. blocks, technologies or valuations, are precluded until the deadline for Continued access to TELUS Corporation’s credit facility is not the final payment in the auction. Disclosure of the precise amount of contingent upon TELUS Corporation maintaining a specific credit rating. our letters of credit could be interpreted as a signal of bidding intentions. The maximum amount of letters of credit that any individual participant could be required to deliver is approximately $880 million. (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 10.65% Debentures, Series 3 9.65% Debentures, Series 52  Issued June 1991 April 1992 Maturity June 2021 April 2022 8.80% Debentures, Series B September 1995 September 2025 Principal face amount Issue price Originally issued Outstanding at financial statement date Redemption present value spread (basis points) $998.00 $972.00 $995.10 $175 million $175 million N/A (non-redeemable) $150 million $249 million N/A (non-redeemable) $200 million $200 million 153 1 2 3 Interest  is  payable  semi-annually. 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. 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 by any mortgage, pledge or other charge and are governed by certain covenants, including a negative pledge and a limitation on issues of additional debt, subject to a debt to capitalization ratio and an interest coverage test. Effective June 12, 2009, TELUS Corporation guaranteed the payment of the debentures’ principal and interest. (f) TELUS International (Cda) Inc. credit facility As at December 31, 2018, TELUS International (Cda) Inc. had a bank credit facility, secured by its assets, expiring on December 20, 2022, with a syndicate of financial institutions. The credit facility is comprised of a US$350 million (2017 – US$350 million) revolving component and an amortizing US$120 million (2017 – US$120 million) term loan component. The credit facility is non-recourse to TELUS Corporation. As at December 31, 2018, $427 million ($419 million net of unamortized issue costs) was outstanding, all of which was denominated in U.S. dollars (US$313 million), with the revolving component having a weighted average interest rate of 4.22%. As at December 31 (millions) Available Outstandi  ng Revolving component Term loan component1 2018 Total  ng Revolvi component US$ 150 US$ N/A US$ 150 US$ 193 200 113 313    157 Term loan component US$ N/A 119 2017 Total US$ 193  276 US$ 350 US$ 113 US$ 463   US$ 350 US$ 119 US$ 469  1 We have entered into a receive-floating interest rate, pay-fixed interest rate exchange agreement that effectively converts our interest obligations on the debt to a fixed rate of 2.64%. 180 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            CONSOLIDATED FINANCIAL STATEMENTS: NOTE 27 TELUS  International  (Cda)  Inc.’s  credit  facility  bears  interest  at  prime    rate,  U.S.  Dollar  Base  Rate,  a  bankers’  acceptance  rate  or  London  inter- bank  offered  rate  (LIBOR)  (all  such  terms  as  used  or  defined  in  the  credit   facility),  plus  applicable  margins.  The  credit  facility  contains  customary    representations,  warranties  and  covenants,  including  two  financial  quarter-  end  ratio  tests.  These  tests  are  that  TELUS  International  (Cda)  Inc.’s   The  term  loan  is  subject  to  an  amortization  schedule  which  requires   that  5%  of  the  principal  advanced  be  repaid  each  year  of  the  term  of  the   agreement,  with  the  balance  due  at  maturity. (g) Finance leases Finance  leases  are  subject  to  amortization  schedules,  which  results    net  debt  to  operating  cash  flow  ratio  must  not  exceed  3.25:1.00  and  its   in  the  principal  being  repaid  over  various  periods  of  approximately  two   operating  cash  flow  to  debt  service  (interest  and  scheduled  principal   repayment)  ratio  must  not  be  less  than  1.50:1.00,  all  as  defined  in  the   credit  facility. years.  The  weighted  average  interest  rate  on  finance  leases  was  2.87%    as  at  December  31,  2018.  See  Note 2(b)  for  details  of  significant  changes   to  IFRS-IASB  that  are  not  yet  effective  and  have  not  yet  been  applied. (h) Long-term debt maturities Anticipated requirements to meet long-term debt repayments, calculated upon such long-term debts owing as at December 31, 2018, are as follows: Composite long-term debt denominated in Canadian dollars U.S. dollars Years ending December 31 (millions) 2019   2020   2021   2022   2023   2024–2028   Thereafter   Future cash outflows in respect of composite long-term debt principal  repayments   Future cash outflows in respect of associated like carrying costs2   interest and Undiscounted contractua maturities (Note 4(c)) l    Long-term debt $   –    1,000    1,075    1,249    500    3,300    3,275   Finance leases $   52  50  –  –  –  –  – Total Long-term debt Currency swap agreement amounts to be exchanged (Receive)1  Pay Total Total $  52   $ 784 $  (776) $  755 $ 763 $   815    1,050    1,075    1,249    500    3,300    3,275    8  8   402    –   1,501   1,023    –  –  –  –  –  –  –  –  (1,501)  (1,023)  1,459  974  8    8    402  – 1,459  974 1,058   1,083   1,651    500   4,759   4,249   10,399  102 10,501    3,726  (3,300)    3,188    3,614  14,115  5,408   4  5,412     1,906 (1,838)    1,698     1,766     7,178   $ 15,807 $ 106   $ 15,913 $ 5,632   $ (5,138)   $ 4,886   $ 5,380   $ 21,293   1 2 Where applicable, principal-related cash flows reflect foreign exchange rates at December 31, 2018. 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, 2018. 27 Other long-term liabilities As at December 31 (millions) Contract liabilities Other Deferred revenues Pension benefit liabilities Other post-employment benefit liabilities Restricted stock unit and deferred share unit liabilities Derivative liabilities Other Deferred customer activation and connection fees Note 24 2018 $ 78 2017 $  71 15(b) 15(g) 4(h) 7 85 446 45 63 6 78 723 10 81 490 47 68 76 67 829 24 15 $ 738 18 $ 847 TELUS 2018 ANNUAL REPORT • 181                                               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 2018 2017 1 billion 1 billion 2 billion 1 billion 1 billion 2 billion Only holders of Common Shares may vote at our general meetings, with each holder of Common Shares entitled to one vote per Common Share held at all such meetings so long as not less than 66 2⁄3% of the 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 voluntary or involuntary, or any other distribution of our assets among our shareholders for the purpose of winding up our affairs, preferences are as follows: First Preferred Shares; Second Preferred Shares; and finally Common Shares. As at December 31, 2018, approximately 47 million Common Shares were reserved for issuance, from Treasury, under a share option plan (see Note 14(d)). 29 Contingent liabilities (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. 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. In July 2018, we received approval to amend the normal course issuer bid to allow a wholly owned subsidiary to purchase our Common Shares, to a maximum amount of $105 million, for donation to a charitable foundation we have established (see Note 16(c)). In December 2018, 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 January 2, 2019, to January 1, 2020. Common Share transactions by our wholly owned subsidiary are presented in the Consolidated statement of changes in owners’ equity as treasury share transactions. (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, other wireless carriers and telecommunications service providers. As well, we have received notice of, or are aware of, certain possible claims (including intellectual Certified class actions Certified class actions against us include the following: Per minute billing class action In 2008 a class action was brought in Ontario against us alleging breach of contract, breach of the Ontario Consumer Protection Act, breach of the Competition Act and unjust enrichment, in connection with our practice of “rounding up” wireless airtime to the nearest minute and property infringement claims) against us and, in some cases, other charging for the full minute. The action sought certification of a national wireless carriers and telecommunications service providers. class. In November 2014, an Ontario class only was certified by the 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 Ontario Superior Court of Justice in relation to the breach of contract, breach of Consumer Protection Act, and unjust enrichment claims; all appeals of the certification decision have now been exhausted. demands; an incomplete factual record; uncertainty concerning legal At the same time, the Ontario Superior Court of Justice declined to stay theories and procedures and their resolution by the courts, at both the the claims of our business customers notwithstanding an arbitration trial and the appeal levels; and the unpredictable nature of opposing clause in our customer service agreements with those customers. parties and their demands. This latter decision was appealed and on May 31, 2017, the Ontario However, subject to the foregoing limitations, management is of Court of Appeal dismissed our appeal. The Supreme Court of Canada the opinion, based upon legal assessments and information presently available, that it is unlikely that any liability, to the extent not provided granted us leave to appeal this decision and has now heard our appeal; we are awaiting the Court’s decision. 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. 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. 182 • TELUS 2018 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS: NOTES 28–29 In 2011, the Supreme Court of Canada upheld a stay of all of the causes It has not yet proceeded to an authorization hearing. The Ontario class 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 wireless services with us in the period from January 21, 1999, to April 2010. We have appealed the certification decision. 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. Subject to a number of conditions, including court approval, we have now settled both the British Columbia and the Alberta class actions. Uncertified class actions Uncertified class actions against us include: 9-1-1 class actions In 2008 a class action was brought in Saskatchewan against us and other Canadian telecommunications carriers alleging that, among other matters, we failed to provide proper notice of 9-1-1 charges to the public, have been deceitfully passing them off as government charges, and have charged 9-1-1 fees to customers who reside in areas where 9-1-1 service is not available. The plaintiffs advance causes of action in breach of contract, misrepresentation and false advertising and seek certification of a national class. A virtually identical class action was filed in Alberta at the same time, but the Alberta Court of Queen’s Bench declared that class action expired against us as of 2009. No steps have been taken in this proceeding since 2016. Electromagnetic field radiation class actions In 2013 a class action was brought in British Columbia against us, action alleges negligence, breach of express and implied warranty, breach of the Competition Act, unjust enrichment, and waiver of tort. No steps have been taken in this proceeding since it was filed and served. Handset subsidy class action In 2016 a class action was brought in Quebec against us and other telecommunications carriers alleging that we breached the Quebec Consumer Protection Act and the Civil Code of Quebec by making false or misleading representations relating to the handset subsidy provided to our wireless customers, and by charging our wireless customers inflated rate plan prices and termination fees higher than those permitted under the Act. The claim was later amended to also seek compensation for amounts paid by class members to unlock their mobile devices. This action has not yet proceeded to an authorization hearing. 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 communications between devices, including cellular telephones, and base stations on our 4G LTE network infringe three third-party patents. The Plaintiff has since abandoned its claims in respect of two of the three patents. The claims based on the third patent are set to be tried in the fourth quarter of 2019. Other claims Claims and possible claims received by us include: Area code 867 blocking claim In 2018 a claim was brought against us alleging breach of a Direct Connection Call Termination Services Agreement, breach of a duty of good faith, and intentional interference with economic relations. The plaintiffs allege that we have improperly blocked calls to area code 867 (including to customers of a plaintiff), for which a second plaintiff provides wholesale session initiation trunking services. The plaintiffs seek other telecommunications carriers, and cellular telephone manufacturers damages of $135 million. alleging that prolonged usage of cellular telephones causes adverse health effects. The British Columbia class action alleges: strict liability; negligence; failure to warn; breach of warranty; breach of competition, consumer protection and trade practices legislation; negligent misrepre- sentation; breach of a duty not to market the products in question; and waiver of tort. Certification of a national class is sought. No steps have been taken in this proceeding since 2014. In 2015 a class action was brought in Quebec against us, other telecommunications carriers, and various other defendants alleging that electromagnetic field radiation causes adverse health effects, contravenes the Quebec Environmental Quality Act, creates a nuisance, and constitutes an abuse of right pursuant to the Quebec Civil Code. The authorization hearing for this matter occurred in May 2018 and on June 27, 2018, the Quebec Superior Court dismissed the authorization application. That decision is now final. 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 continued 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. (b) Indemnification obligations In the normal course of operations, we provide indemnification in Public Mobile class actions In 2014 class actions were brought against us in Quebec and Ontario conjunction with certain transactions. The terms of these indemnification obligations range in duration. These indemnifications would require on behalf of Public Mobile’s customers, alleging that changes to the us to compensate the indemnified parties for costs incurred as a result technology, services and rate plans made by us contravene our statutory of failure to comply with contractual obligations, or litigation claims or and common law obligations. In particular, the Quebec action alleges that our actions constitute a breach of the Quebec Consumer Protection Act, the Quebec Civil Code, and the Ontario Consumer Protection Act. 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 TELUS 2018 ANNUAL REPORT • 183                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           will depend on future events and conditions and therefore cannot be See Note 21(d) for details regarding our guarantees to the real estate reasonably estimated. Where appropriate, an indemnification obligation joint ventures. is recorded as a liability. Other than obligations recorded as liabilities As at December 31, 2018, we had no liability recorded in respect of at the time of the related transactions, historically we have not made our indemnification obligations. significant payments under these indemnifications. 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. Total  compensation  expense  for  key  management  personnel,  and  the   composition  thereof,  is  as  follows: Years ended December 31 (m illions)   Short-term benefits Post-employment pension 1  and other benefits Share-based compensation2 2018   $ 12   8   44   2017 $ 12  4  34 $ 64   $ 50 1 2 Our Executive Leadership Team members are members of our Pension Plan for Management and Professional Employees of TELUS Corporation and certain other non-registered, non-contributory supplementary defined benefit pension plans. For the year ended December 31, 2018, share-based compensation expense is net of $NIL (2017 – $4) of the effects of derivatives used to manage share-based compensation costs (Note 14(b)). As disclosed in Note 14, we made initial awards of share-based compensation in 2018 and 2017, including, as set out in the following table, to our key management personnel. As most of these awards are cliff-vesting or graded-vesting and have multi-year requisite service periods, the related expense will be recognized rateably over a period of years and thus only a portion of the 2018 and 2017 initial awards are included in the amounts in the table above. Years ended December 31 2018 ($ i  n mi llions) Awarded in period Number of restricted stock units 608,849 Notional value1 $ 28 Grant-date fair value1 $ 36   Number of restricted stock units 686,595 Notiona  l value1 $ 30 2017 Grant-date r value1 fai   $ 30 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)). The liability amounts accrued for share-based compensation awards benefits and accrual of pension service in lieu of notice, and 50% of base to key management personnel are as follows: As at December 31 (millions) Restricted stock units Deferred share units1 2018 $ 41 21 $ 62 2017 $ 40 24 $ 64  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, 2018, $6 (2017 – $14) was paid out. Employment agreements with members of the Executive Leadership Team typically provide for severance payments if an executive’s employ- ment is terminated without cause: generally 18–24 months of base salary, salary in lieu of an annual cash bonus. In the event of a change in control, Executive Leadership Team members are not entitled to treatment any different than that given to our other employees with respect to non-vested share-based compensation. (b) Transactions with defined benefit pension plans During the year ended December 31, 2018, 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 (2017 – $6 million). (c) Transactions with real estate joint ventures During the years ended December 31, 2018 and 2017, we had transactions with the real estate joint ventures, which are related parties, as set out in Note 21. 184 • TELUS 2018 ANNUAL REPORT                                                                    CONSOLIDATED FINANCIAL STATEMENTS: NOTES 30–31 31 Additional statement of cash flow information (a) Statements of cash flows – operating activities, investing activities and financing activities Years ended December 31 (millions) 2018 2017 Years ended December 31 (millions) Note 2018 2017 Operating activities Net change in non-cash operating working capital Accounts receivable Inventories Contract assets Prepaid expenses Accounts payable and accrued liabilities Income and other taxes receivable and payable, net Advance billings and customer deposits Provisions (adjusted – Note 2(c)) Investing activities Cash payments for capital assets, excluding spectrum licences $ 74 $  (70) Capital asset additions 4 (103) (46) (11) 277 12 49 (60) (57) (50) 126 (90) 41 (59) $ 256 $ (219) Gross capital expenditures Property, plant and equipment Intangible assets Additions arising from finance leases Additions arising from non-monetary transactions 17 18 $ (2,383) $ (2,486) (657) (617) (3,040) (3,103) 102 24 – 9 Capital expenditures (2,914) (3,094) Asset retirement obligations netted (included) in additions 15 (7) Other non-cash items included above Change in associated non-cash investing working capital Non-cash change in asset retirement obligation Financing activities Issue of shares by subsidiary to non-controlling interests (2,899) (3,101) 47 (27) (22) 25 47 20 $ (2,874) $ (3,081) Issue of shares $ 43 $ Non-monetary issue of shares in business combination Cash proceeds on share issuance Transaction costs and other 18(b) (19) 24 – 24 $ $  – – – (1) (1) TELUS 2018 ANNUAL REPORT • 185 (b) Changes in liabilities arising from financing activities Year ended December 31, 2017 Year ended December 31, 2018 Statement of cash flows Non-cash changes Statement of cash flows Non-cash changes As at Jan. 1, 2017 Issued or received Redemptions, repayments or payments Foreign exchange movement (Note 4(i)) As at Dec. 31, 2017 Redemptions, repayments or payments Issued or received Foreign exchange movement (Note 4(i)) Other As at Dec. 31, 2018 Other – – – – $  (1,152) 70 $  (1,082) $ – $ $ $ – – – – $ 1,167 $  299 $ (70) $ 1,097 $ – $  $  – 299 100 $ $ – – – $ (1,226) $ – $ 1,253 $ 326 85 $ (1,141) 26 $ (93) – – (85) $ 1,168 (1) $ 68 $ $ – 326 100 $ $ (millions) Dividends payable to holders of Common Shares Dividends reinvested in shares from Treasury Short-term borrowings Long-term debt $  284 $ – 284 100 $  $  $ $ $ TELUS Corporation notes $ 11,367 990 $  (700) $ (91) $ (5) $ 11,561 $ 1,725 $ (1,250) $ 170 $ (20) $ 12,186 TELUS Corporation commercial paper TELUS Communications Inc. debentures TELUS International (Cda) Inc. credit facility Finance leases 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 613 619 332 – 5,295 (4,710) – 82 – – (56) – 20 4,710 12,951 11,077 (4,746) (10,212) (58) – (20) – 149 (20) – 1 1 – 1,140 3,678 (4,115) 620 339 – – 97 – – (50) (3) 71 – 33 – – – – 105 774 620 419 102 (40) (43) 93 13,753 4,115 9,615 (4,074) (9,492) (241) 33 34 (73) 119 14,028 – (4,710) 4,710 – – – (4,115) 4,115 – – – $ 12,951 $  6,367 $  (5,502) $ (20) $ (43) $ 13,753 $ 5,500 $ (5,377) $ 33 $ 119 $ 14,028 186 • TELUS 2018 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. 5G (fifth generation): The next generation of converged wireless technologies, expected to provide higher speeds, improved coverage and lower latency, which is critical as the number of connected devices continues to increase rapidly. Technical standards for 5G remain in development. 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 fibre to the premises and FTTN denotes fibre to the node or neighbourhood. GPON (gigabit-capable passive optical network): A fibre-based transmission technology that can deliver data download speeds of up to 2.4 Gbps and upload speeds of up to 1.2 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). HSPA+ dual-cell technology can double those download speeds. ILEC (incumbent local exchange carrier): An established telecommunications company providing local telephone service. Non-ILEC refers to 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). IoT (Internet of Things): 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 TV (Internet protocol television): A television service (offered as Optik TV and Pik TV at TELUS) 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 (or through an app for Pik TV). 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. LTE (long-term evolution): The leading 4G global wireless technology standard. LTE advanced (LTE-A) and LTE advanced pro offer higher speeds and greater capacity, moving networks closer to 5G. LTE is capable of delivering manufacturer-rated wireless data download speeds of up to 150 Mbps (typical speeds of 12 to 45 Mbps), and LTE-A can offer speeds nearly 10 times higher (in select regions). M2M (machine-to-machine): Technologies and networked devices that are able to exchange information and perform actions without human intervention. NCIB (normal course issuer bid): 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. OTT (over-the-top): Content, services and applications in a video format, for which delivery occurs through a medium other than the established video delivery infrastructure. Small cell: Low-powered radio access nodes that can operate in licensed and unlicensed spectrum within a limited 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 IoT technology to provide solutions for businesses and consumers. 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. Wi-Fi (wireless fidelity): Networking technology that allows any user with an enabled device to connect to a wireless access point or hotspot in high-traffic 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 2018 ANNUAL REPORT • 187                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Investor information Stock exchanges and TELUS trading symbols Toronto Stock Exchange (TSX) Common  shares   T   CUSIP: 87971M103 New York Stock Exchange (NYSE) Common  shares   TU   CUSIP: 87971M103 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, 2018 ESTIMATED SHARE OWNERSHIP 20.9% • Total outstanding shares were 598,673,961 • TELUS team members held 15,629,208 shares in employee share plans, equivalent to 2.6% of the total number of outstanding shares, which collectively made team members our third largest TELUS shareholder Dividend policy and dividend growth programs The January 2019 quarterly dividend paid was $0.5450, or $2.18 on an annualized basis, representing an 8% increase over the previous year. Our long-term dividend payout ratio guideline is 65 to 75% of prospective sustainable net earnings. In May 2016, we provided share- holders with additional clarity on our intentions regarding our dividend growth program. We plan to continue with two dividend increases per year through 2019, normally announced in May and November, and are targeting the increase to be circa seven to 10% annually. Since 2004, we have raised our dividend 23 times; 16 of these have occurred since 2011, when we introduced our dividend growth program. Notwithstanding this, dividend decisions will continue to be dependent on earnings and free cash flow and subject to the Board’s assessment and determination of TELUS’ financial situation, capital requirements and economic outlook on a quarterly basis. There can be no assurance that the Company will maintain its dividend growth program through 2019. TELUS advises that, unless noted otherwise, all quarterly dividends paid since January 2006 are eligible dividends under the Income Tax Act. Under this legislation, Canadian residents may be entitled to enhanced dividend tax credits that reduce the income tax otherwise payable. For more information, visit telus.com/dividends. TOTAL DIVIDENDS DECLARED TO SHAREHOLDERS ($ millions) • Canada • Foreign 79.1% • We estimate that approximately 70% of TELUS shares were held by institutional investors and 30% by retail investors • Registered shareholders of common shares totalled 38,211. The Canadian Depository for Securities (CDS) represents one registration and holds securities for many non-registered shareholders. We estimate that TELUS had more than 605,000 non-registered shareholders at year-end. 2018 2017 2016 2015 2014 2013 2012 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 being 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. 1,253 1,167 1,091 1,011 935 866 794 Visit telus.com/drisp or contact Computershare for information and enrolment forms 2019 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 9 December 10 March 11 June 10 September 10 December 11 April 1 July 2 October 1 May 9 August 2 November 7 January 2, 2020 February 13, 2020  1 2 Dividends are subject to Board of Directors’ approval. Shares purchased on this date forward will not be entitled to the dividend payable on the corresponding dividend payment date. 188 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Normal course issuer bid programs Our 2018 normal course issuer bid (NCIB) program, under which we in 2016 for $45 million on behalf of an employee benefit plan, where substantially all were distributed to team members. In addition, 2.1 million purchased, but did not cancel, 2.1 million common shares for $100 million, shares were purchased in 2018 for $100 million and subsequently donated concluded in November. Further, we received TSX approval for our 2019 to the TELUS Friendly Future Foundation. All other shares purchased NCIB program to purchase and cancel up to eight million of our out- were cancelled. standing shares valued up to $250 million over the 12-month period We will purchase shares only when and if we consider it opportunistic. ending January 1, 2020. The share purchase program is subject to the Board’s assessment and Since beginning our multi-year share purchase program in May 2013 determination and there can be no assurance that the share purchase through to the end of 2018, we have purchased a total of 70 million shares program will be completed or maintained. for $2.6 billion. Of these amounts, 1.0 million shares were purchased 2012 $   $   1.85 1.22 66% 2.04 $   $ 32.55 3.7%   18 2017 Q1 44.41 42.22 43.17 69.9 0.4800 2017 Q1 33.89 31.28 32.48 24.2 0.361 Per-share data Basic earnings Dividends decl ared Dividends decl per cent of basic earnings ared as Free cash flow1  Common shares Closing price Dividend yield Price to earnings ratio Applying IFRS 9 and IFRS 15 2018 $ 2.68 $ 2.10 78% $ 2.01 $ 45.25 4.6%  17 2017 $   $   2.63 1.97 75% 1.63 $   $ 47.62 4.1%   18 2016 $   $   2.06 1.84 89% 0.24 $   $ 42.75 4.3%   21 2015 $   $   2.29 1.68 73% 1.79  $   $ 38.26 4.4%   17 2014 $   $   2.31 1.52 66% 1.72 $   $ 41.89 3.6%   18 2013 $   $   2.02 1.36 67% 1.64 $   $ 36.56 3.7%   18 1 For a definition of free cash flow, see Section 11 of Management’s discussion and analysis in this report. Share prices and volumes Toronto Stock Exchange Common shares (T) (C$ except volume)  High Low Close Volume (mi llions) Year 2018 49.15 43.88 45.25 249.8 Q4 48.37 43.88 45.25 76.0 Q3 49.15 46.20 47.61 48.9 Q2 47.15 44.14 46.70 58.8 Dividend decl ared (per share) 2.10 0.5450 0.5250 0.5250 0.5050 2018  Q1 Year 2017  Q4  Q3  Q2 47.60 44.18 45.24 66.1 48.94 42.22 47.62 245.0 1.97 48.94 44.60 47.62 56.9 0.5050 46.10 43.30 44.88 51.3 0.4925 46.29 42.93 44.77 66.9 0.4925 New York Stock Exchange Common shares (TU) (US$ except volume) Year 2018  High Low Close Volume (mi llions) Dividend decl ared (per share) 38.20 32.46 33.14 95.2 1.620 Q4 37.24 32.46 33.14 26.5 0.410 Q3 37.70 35.19 36.84 20.9 0.403 Q2 36.23 34.37 35.51 20.9 0.405 2018 Q1 Year 2017 38.20 34.28 35.16 26.9 0.402 38.50 31.28 37.87 102.5 1.518 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 TELUS 2018 ANNUAL REPORT • 189 INVESTOR INFORMATION                                                                                                                                                                                                                                           TELUS SHARES: FIVE-YEAR DAILY CLOSING PRICES ($) 50 40 30 20 $45.25 $33.14 T Toronto Stock Exchange (C$) TU New York Stock Exchange (NYSE) (US$) 10 Q1 Q2 2014 Q3 Q4 Q1 Q2 2015 Q3 Q4 Q1 Q2 2016 Q3 Q4 Q1 Q2 2017 Q3 Q4 Q1 Q2 Q3 Q4 2018 TELUS TOTAL SHAREHOLDER RETURN COMPARISON ($) Assuming an investment of $100 on December 31, 2013 and reinvestment of dividends 175 150 125 100 $153 $122 $106 TELUS common shares S&P/TSX Composite Index MSCI World Telecom Index 75 Q1 Q2 2014 Q3 Q4 Q1 Q2 2015 Q3 Q4 Q1 Q2 2016 Q3 Q4 Q1 Q2 2017 Q3 Q4 Q1 Q2 Q3 Q4 2018 TELUS Corporation notes Canadian dollar Notes Coupon rate  Face value  Maturing LONG-TERM DEBT PRINCIPAL MATURITIES AS AT DECEMBER 31, 2018 ($ millions) Series CH  Series CJ   Series CK  Series CL  Series CM  Series CN  Series CO  Series CP1 Series CQ  Series CR  Series CT  Series CU  Series CV  Series CW 2 Series CX  U.S. dollar Notes U.S. dollar Notes U.S. dollar Notes 5.05%  3.35%  3.35%  4.40%  3.60%  5.15%  3.20%  4.85%  3.75%  4.75%  2.35%  4.40%  3.75%  4.70%  3.625%  2.80%  3.70%  4.60%  $1.0 billion  $500 million  $1.1 billion  $600 million  $400 million  $400 million  $500 million  $900 million  $800 million  $400 million  $1.0 billion  $500 million  $600 million  $475 million  $600 million  US$600 million  US$500 million  US$750 million  July 2020 March 2023 April 2024 April 2043 January 2021 November 2043 April 2021 April 2044 January 2025 January 2045 March 2022 January 2046 March 2026 March 2048 March 2028 February 2027 September 2027 November 2048  1 2 Includes $500 million originally issued in April 2014 and $400 million issued   in December 2015. Includes $325 million originally issued in March 2017 and $150 million issued   in February 2018. Credit rating summary As of December 31, 2018  DBRS Ltd.  TELUS Corporation Standard &   Poor’s Rating  Services  Moody’s  Investors   Service  Fitch  Ratings Notes  BBB (high)  BBB+  Commercial paper  R-2 (high)  A-2  Baa1  P-2  BBB+ – TELUS Communications Inc. Debentures  BBB (high)  BBB+  –  BBB+ 2048 2046 2045 2044 2043 2028 2027 2026 2025 2024 2023 2022 2021 2020 2019 500 400 600 600 500 1,498 • Other long-term debt • Commercial paper 900 1,000 1,000 1,100 1,083 1,058 1,501 1,651 62 774 836 At the end of 2018, the average term to maturity of our long-term debt  (excluding commercial paper, the revolving component of the TELUS  International credit facility and finance leases) was 12.2 years, compared  to 10.7 years at the end of 2017. For a detailed list of long-term debt of  the Company and our subsidiaries, see Note 26 of the Consolidated  financial statements. 190 • TELUS 2018 ANNUAL REPORT Key TELUS events for investors • Announced two quarterly dividend increases consistent with our dividend growth program, with 2018 dividends declared of $2.10 • Issued a total of $1.7 billion in senior unsecured notes in 2018, Analyst coverage As of February 2019, 19 equity analysts covered TELUS. For a full list, see analyst coverage on telus.com/investors. in several financings, with 10-year and 30-year maturities. We also early redeemed $1 billion in senior unsecured 5.05% notes with Information for security holders outside of Canada Cash dividends paid to shareholders resident in countries with which a December 2019 maturity Canada has an income tax convention are usually subject to Canadian • Ended the year with a net debt to EBITDA ratio of 2.54 times non-resident withholding tax of 15%. If you have any questions, contact • Acquired all of the customers, assets and operations of AlarmForce Computershare. For individual investors who are U.S. citizens and/or Industries Inc. in B.C., Alberta and Saskatchewan from BCE Inc., U.S. residents, quarterly dividends paid on TELUS shares are considered providing us with a unique opportunity to accelerate our entry into qualified dividends under the Internal Revenue Code and may be eligible smart home solutions for special U.S. tax treatment. • Acquired 65% of Xavient Information Systems (Xavient), a group of information technology consulting and software services companies with facilities in the United States and India. This investment enhances TELUS International’s ability to provide complex and higher-value Foreign ownership monitoring – non-Canadian common shares Under federal legislation, total non-Canadian ownership of common information technology services, improves our related sales and shares of Canadian telecommunications companies, including TELUS, solutioning capabilities, and gives us multi-site redundancy in support is limited to 33 1⁄3%. of other facilities For registered shareholders and shares trading on the TSX, a • Acquired Medisys Health Group Inc., a leading provider of preventative reservation system controls and monitors this level. This system requires healthcare and wellness services for workplaces across Canada. non-Canadian purchasers of common shares to obtain a reservation This acquisition will enable TELUS Health to deliver employee-centred care, backed by TELUS’ broadband network and supported by digital tools such as patient portals, virtual care, wellness and mental 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 health applications, electronic prescribing, electronic benefit claims for registration. and secure messaging. Awards • Earned the top spot in four major network awards, including For shares trading on the NYSE, non-Canadian ownership is monitored by utilizing the Depository Trust & Clearing Corporation’s SEG-100 Account program. All TELUS common shares held by non-Canadians must be transferred to this account (no reservation OpenSignal, J.D. Power, Ookla and PCMag, for the quality, speed application is required). and/or reliability of our wireless network • Recognized for annual reporting excellence in the 2018 Annual Mergers and acquisitions – shareholder impacts Report on Annual Reports by ReportWatch for the TELUS 2017 telus.com/m&a Visit for information on how your shareholdings have annual report and ranked as one of the top 20 reports in the world been affected by various merger and acquisition transactions. Information • Acknowledged for corporate social responsibility by being included is also available regarding capital gains, valuation dates and share prices in the: for 1971 and 1994. • Dow Jones Sustainability World Index for the third year in a row • Dow Jones Sustainability North America Index for the 18th consecutive year • Corporate Knights Best 50 Corporate Citizens in Canada for the 12th time • Business as a Force for Good awards by the INSEAD National Alumni Association Canada in the category of corporate social responsibility • Received the BEST Award for excellence in employee learning and development from the Association for Talent Development for the 13th time • Earned global recognition as one of the Achievers 50 Most Engaged Workplaces. TELUS 2018 ANNUAL REPORT • 191 INVESTOR INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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 37,000 of our shareholders receive the annual report by e-delivery. For more information For questions regarding: For questions regarding additional financial or statistical information, industry and Company developments, or the latest news releases • Direct registration system (DRS) advice or accounts and investor presentations, contact: • Dividend payments and the dividend reinvestment and share 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:    (604)  697-8044 TELUS general information phone:   1-800-308-5992 (604)  432-2151 Ethics Line As part of our ethics policy, this hotline allows team members and 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 192 • TELUS 2018 ANNUAL REPORT                                                                                                                                                                                                                                                         telus.com @telus Instagram.com/telus facebook.com/telus youtube.com/telus Linkedin.com/company/telus TELUS Corporation 510 West Georgia Street Vancouver, British Columbia Canada V6B 0M3 Phone (604) 697-8044 Printed in Canada Please recycle WHY INVEST IN TELUS Putting customers first Focusing relentlessly on delivering Our social purpose Leveraging our technology to create Robust shareholder returns Delivering on our multi-year dividend exceptional customer experiences to meaningful outcomes for the benefit of growth model by returning more than further differentiate our competitive our customers and communities $1.2 billion to our shareholders in 2018 position Proven growth strategy Driving profitable revenue and customer Technology leadership Enhancing our world-class broadband Strong financial profile Maintaining a strong balance sheet and networks to elevate the customer investment grade credit ratings, enabling growth through the collective efforts experience, enhance reliability and ready access to capital markets of our highly engaged team sustain future growth Commitment to operational efficiency Amplifying our cost efficiency efforts Disciplined capital allocation Balancing investments to support long-term growth with returning capital disclosure Transparent disclosure Providing award-winning financial, corporate governance and sustainability and enhancing our effectiveness in to shareholders serving our growing customer base telus.com/annualreport telus.com/rapportannuel INVEST IN THE COMPANY THAT INVESTS IN PEOPLE

Continue reading text version or see original annual report in PDF format above