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
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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
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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).
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• 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
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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.
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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
:
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192 • TELUS 2018 ANNUAL REPORT
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TELUS Corporation
510 West Georgia Street
Vancouver, British Columbia
Canada V6B 0M3
Phone (604) 697-8044
Printed in Canada
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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
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INVEST IN THE COMPANY THAT INVESTS IN PEOPLE