TELUS Corporation

Good morning, everyone, and welcome to the TELUS 2021 Q3 earnings conference call. I would like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.

Hello, everyone, and thank you for joining us today. Our third quarter 2021 results, news release, MD&A and financial statements, and detailed supplemental investor information were posted on our website this morning at telus.com slash investors. On our call today, we have remarks by Darren Infusel, President and CEO of John Raines, incoming president of Telus Agriculture, Jim Senko, EVP Mobility Solutions, and Doug French, EVP and CFO. In addition, for the Q&A portion of our call, we will be joined by Zainal Malji, EVP Home Solutions, and Tony Guerin, EVP and Chief Customer Officer. Briefly on slide two, this presentation and answers to questions contain forward-looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly, actual performance could differ from statements made today, so we ask that you do not place undue reliance upon them. We disclaim any obligation to update forward-looking statements except as required by law, and we refer you to the risks and assumptions as outlined in our public disclosures, including our third quarter 2021 MD&A, our 2020 annual MD&A, and followings with securities commissions in Canada and the U.S. With that, over to you, Darren.

Thank you, Ronaldo, and hello, everyone. For the third quarter, our team once again achieved strong operational and financial results. Our ongoing execution excellence continues to demonstrate the consistent combination of industry-leading profitable customer growth and strong financial performance coming from across our business. Our robust performance reflects the effectiveness of our globally leading customer-centric culture and broadband networks underpinned by our highly engaged team and their passion for delivering outstanding connected experiences. This contributed to leading total mobile and fixed customer net additions of 320,000 in the quarter, an all-time quarterly record for Telus, supported by industry-best client loyalty across our key wireless and wireline product lines. Notably, blended mobile phone, pure fiber internet, optic TV, security, and voice churn are all below 1% on a year-to-date basis. Moreover, our results were buttressed by a highly differentiated and potent asset mix geared towards high-growth, technology-oriented verticals, which I'm going to elaborate on in just a minute. Looking at our consolidated financial results for the third quarter, we achieved industry-leading year-over-year growth of 7% across both revenue and EBITDA. And when excluding the impact of share-based compensation at TI, our Q3 consolidated EBITDA growth would have been 8.5%. This performance is illustrative of our unmatched capabilities and competitive position that we will continue to leverage to our advantage as the economic recovery progresses. Looking now at our mobile operating results, Telus achieved robust industry-leading customer growth of 245,000 net additions, up close to 25% on a year-over-year basis. This included 135,000 mobile phones and 110,000 connected device net new customers, up 24,000 and 23,000 on a respective basis. Impressively, connected device customer additions represented an all-time record high for our organization, something to build upon yet again going forward. Notably, with respect to this momentum on connected devices, TELUS was recently named GM Canada's 5G network provider for their OnStar connected vehicle service. This represents the first time GM has selected a domestic communications company to provide connected vehicle services for their Canadian customers. This historic alliance will leverage the skill, customer centricity and passion of our collective teams in a potent combination with our expansive world-leading 5G network to enable an unparalleled experience that will keep GM's customers and our fellow citizens safe and connected. Importantly, our team yet again delivered another quarter of best-in-class loyalty results. Blended mobile phone churn was 0.9%, an improvement of nine basis points over this time last year. This performance is backed by strong digital capabilities and superior service offerings over our world-leading broadband networks and potent customers-first culture that has served us so well. At a time when the human connection continues to be more important than ever, TELUS has been named the fastest mobile operator in Canada by U.S.-based Ookla for the fifth year in a row in their Q3 Canada Market Report for 2021. In addition, our team earned the top spot in six of the seven categories in UK-based OpenSignal's August 2021 mobile network experience, the Canada report. Notably, OpenSignal found TELUS's wireless download speed of 73.9 megabits per second to be 6% faster than the second-place finisher and close to 30% faster than the third-place finisher. This represents the 10th time TELUS has received a top ranking from OpenSignal, including being recognized as having the fastest mobile network in the world in 2020, a true reflection of the incredible expertise and dedication of our entire team led by Aerospedaro. With the ongoing operationalization of New Spectrum and expansion of our national 5G network TELUS will continue to offer Canadians globally leading network reliability, globally leading speed, coverage, and low latency. These technology attributes matter because they drive continuous innovation that enables the diversity, the productivity, and the competitiveness of our country's private sector, supporting economic growth, and job creation and sustainability. Additionally, these technology investments in our network strengthen connections to help us answer society's most pressing social challenges, challenges that we're looking to answer in health, education, food security, and environmental sustainability, whilst improving economic equality for the benefit of all Canadians. Closing on mobile, network revenue was up 3.7%, reflective of our focus on high-quality customer growth and excellent base management. In a few minutes, Jim's going to have the opportunity to provide further commentary on our outstanding results within our wireless business. Turning now to our fixed operating results. Dana and her team once again delivered impressive wireline data revenue growth of 13%, supported by great results on the B2B front from Naveen and his organization. This ongoing data revenue expansion was supported by another quarter of robust customer growth. Third quarter internet net additions of 46,000 represented our best third quarter results compared to all pre-pandemic periods since 2003, in spite of being down slightly compared to Q3 last year, which was, of course, flattered by pandemic-related impacts. Importantly, continued double-digit residential internet ARPU growth bodes exceedingly well for future lifetime economics of our fast-growing fiber-based internet product line. TELUS continues to drive strong TV attach rates, with TV net addition of 10,000. Notably, we remain the only provider in North America to consistently deliver positive TV growth quarter in and quarter out, as customers recognize the unique value of our flexible packaging and integrated over-the-top streaming. Whilst residential voice line losses of 11,000 were up slightly over last year, when market activity was muted in the early stages of the pandemic, our leading security and home automation net additions of 30,000 increased by 12,000 compared to one year ago, reflecting the strength of our digital capabilities and continued expansion of our home and security automation bundle. In total, we achieved robust, industry-best overall wireline product net additions of 75,000 in the third quarter of 2021. This was driven by our unique and highly attractive bundled offers available to customers across our superior product portfolio, as well as our strong customer loyalty, coupled with our team's focus on leveraging the distinctive competitive differentiation inherent in our expanding pure fiber network that Tony and the team have been building. Indeed, fixed net additions continue to be enhanced by our significant investments in fiber and 5G wireless technologies, including our ongoing accelerated broadband expansion program being stewarded by Tony and Eros and their teams through 2022 that's yielding such significant beneficial results for this organization, both operationally and economically. Indeed, these generational investments will fuel enhanced customer growth and operating efficiencies and drive positive cash flow benefits as we complete our expedited broadband build and retire our remaining copper infrastructure in the next 18 months. This is going to be a unique accomplishment in the global telecommunications sector. Turning now to TELUS Health, our team drove double-digit year-over-year health services revenue growth in the quarter, whilst achieving important milestones as we continue to meaningfully scale our health operations. This included reaching over 19 million lives covered, an increase of over 20%, on a year-over-year basis, realizing nearly 138 million digital health transactions during the third quarter alone, and finally adding close to 1 million new virtual healthcare members over the last 12 months, representing a 64% increase over last year, with 2.3 million members now using our virtual care solutions. TELUS will continue to leverage our leading position in healthcare technology solutions to deliver improved health outcomes for citizens through access to better health information, which of course has never been more critical. Furthermore, at TELUS Agriculture, or TAG, through our team's ongoing efforts to scale and integrate this unique business, we remain on track to generate annual revenues in agriculture in excess of $400 million in 2021. We will continue to expect this business to drive double-digit expansion in revenue and EBITDA contribution, clearly illustrative of the value we are creating as the globally leading provider of agriculture technology solutions. Earlier this past week, we announced John Raines as the president of Telus Agriculture. With over 20 years of global experience in digital agriculture, data science, and farming, John is exceedingly well positioned to lead the ongoing evolution of this critical area of our business. Indeed, leveraging his tremendous expertise, John will focus on driving growth opportunities throughout our agriculture business, using technology innovation, artificial intelligence, and human ingenuity to optimize the agribusiness production chain, including helping farmers and ranchers to produce and deliver food for the world's ever-expanding population, and to do it more efficiently, more effectively, more safely, and of course, more sustainably. I look forward to supporting John and the TELUS Agriculture team in further progressing our goal of connecting the entire agricultural value chain with smart, secure, end-to-end technology and software solutions to ensure a safer and more nutritious food supply for citizens around the world. Following my remarks, John will share a few words regarding his vision for TELUS Agriculture. Overall, third quarter revenue for T-TECH operating segments increased by more than 4% on a year-over-year basis, while EBITDA was up in excess of 7% or 8% on an organic basis. Doug's going to provide further details on our T-TECH financials in just a minute. Turning now to our DLCX segment. Earlier today TI announced strong double-digit revenue and EBITDA growth with increased profitability for the third quarter. These continued strong results demonstrate TI's position as the partner of choice for premier digital customer experiences for clients around the world as they look to our talented team to deliver end-to-end next-gen digital solutions and services powering a differentiated customer experience. This includes a unique and unparalleled mix of content moderation, data annotation, and artificial intelligence capabilities. Doug is also going to provide further details on DLCX Financials during his commentary. To conclude, Our significant ongoing broadband network investments further enable the continued advancement of our financial and operational performance, strengthening our confidence in the robust outlook for our business and the long-term sustainability of our industry-leading dividend growth program. The 5.2% dividend increase announced today represents the 21st since 2011. with our program now, unbelievably, in its 11th year. Since 2004, TELUS has now returned more than $20 billion to shareholders, including over $15 billion in dividends, representing approximately $15 per share. Future dividend growth and affordability will be buttressed by strong EBITDA growth and value creation in our core TELUS TI, health, and agriculture businesses. It is also going to be supported by lower future capital expenditures consistent with the preliminary guidance we have provided for significantly reduced capital investments of $2.5 billion or less beginning in 2023 and the meaningful resulting free cash flow expansion that we expect and that we are going to deliver as an organization and do so on a continuous perspective basis. Finally, I'd like to take this opportunity to recognize our TELUS team members and retirees who continue to demonstrate their unwavering support for our communities, and they do it better than anyone else globally. Reinforcing our longstanding dedication to working collaboratively with indigenous communities, in September, we introduced TELUS's reconciliation commitment. Developed in partnership with and in support of indigenous peoples across the country, our commitment to reconciliation acts as a cornerstone of our action plan and other related activities moving forward. By way of example, In October, we launched our TELUS Mobility for Good for Indigenous Women at Risk program, through which we are providing free smartphones and data plans to Indigenous women at risk or surviving violence. In addition, this week TELUS announced a $1 million commitment to digitize, promote, and distribute the interactive, authentic experience of the Witness Blanket. in partnership with the Canadian Museum for Human Rights and Indigenous artist, Kerry Newman. Created to pay homage to the children and families impacted by Canada's residential school system, the original witness blanket is a 12-meter-long art installation that features 887 objects gathered from 77 residential school communities across Canada, such as letters, photos, stories, clothing, art, and fragments of buildings. Our team's efforts will help to ensure the digital witness blanket will have a lasting and powerful impression on every Canadian, standing as a national monument to recognize the atrocities of the residential school era and promise to truth-telling going forward. I remain exceedingly proud of and grateful for the entire TELUS team for their exemplification of our leadership in social capitalism as we deliver outstanding results for all of our stakeholders. On that note, I'd like to turn the call over to John. John, over to you, and welcome to TELUS.

Thank you, Darren, and hello, everyone. It's an honor to be invited to the call today. I'm very pleased to join such an outstanding organization and accelerate our work in data science across the agriculture food chain. One of the reasons I'm so excited to join TELUS is the company's unique position as a pure play data science and digital agriculture business. This offers us a tremendous competitive advantage. For some perspective, the World Economic Forum estimates the global ag industry at approximately two and a half trillion, and the global food industry at over eight trillion. I believe TELUS AG is well positioned to capitalize on this amazing opportunity through significant new value creation across the agriculture food chain. As a data science company, we have the opportunity to deliver a whole new level of lead generation data insights that serve farmers and agriculture retailers, as well as grocers and consumers, generating value from the farm gate to the dinner plate. The other reason is that TELUS Agriculture's social purpose really resonates for me. My family is actively involved in production agriculture, annually growing corn and soybeans, and tenant farming cotton and peanuts. Agriculture is truly my life's passion. TELUS's mission to ensure a safe, secure, and plentiful global food supply for future generations is very meaningful, and I'm glad to be a part of making it happen. Over the course of the next few weeks, I'll be working closely with the TELUS Ag Leadership Team to quickly get up to speed on the business and ensure we deliver on our commitments in 2021, and as importantly, establish actionable plans to accelerate our business in 2022 and beyond. I look forward to speaking to you again soon. Thanks, everyone. And Jim, over to you.

Thank you, John. For the third quarter, we achieved another strong set of mobile customer additions and loyalty results. Total Q3 mobile phone customer additions were 135,000, up 25,000 year-over-year, bringing our year-to-date total to a healthy 255,000, and that's up 25% over the same pandemic period in 2019. Customers see our value. Network and customer experience leadership, investment in local communities, and offering valuable services for the entire household. Zainal and I and our teams have had an incredibly strong working relationship, which is driving great product intensity outcomes across mobility and home services. Product intensity combined with our customer experience is helping TELUS lead the industry in mobility churn, as Darren shared earlier. 2021 will mark the eighth straight year of postpaid churn below 1%, and our year-to-date postpaid churn result is only 0.7%. Sustained low churn enables us to focus on high-value customer growth. We continue to focus on profitable customer growth, avoiding uneconomical promotional offers, especially in the flanker segment. And to that end, we focus on strong underlying financial results. I'm so very proud that our network revenue surpassed 2019 pre-pandemic levels for the third straight year, a testament to our consistent focus on high-value customer growth. ARPU is flat on a year-over-year basis. Our base management programs are offsetting ongoing roaming pressures. Data overage now represents only single-digit percentage of ARPU. Underlying ARPU health is coming from a mixed shift towards unlimited plans. And that's coming both from existing customers stepping up to unlimited plans and a shift in new additions towards unlimited plans. In Q3, 77% of all rate plan changes were either step-ups or flats. And this has been great because every quarter that number is increasing. We expect this trend to continue as we transition to 5G and all the benefits that it will enable from a speed, reliability, and video quality perspective. In Q3, TELUS 5G network has expanded to 253 new markets, reaching a total of 633 communities. representing 64% of the population. And by the end of the year, we will cover approximately 70% of the population with 5G. On the roaming front, recovery is steady and controlled. Roaming revenue as a percentage to pre-pandemic 2019 levels is approximately 50%. And as we progress through Q4 and into 2022, I expect to see steady improvements in that trend as borders open and travel recovers. But we're also seeing favorable equipment margin and OPEX trends. Maintaining discipline on promotions, increasing certified pre-owned sales, customers holding their devices longer are all leading to lower costs of acquisition. And to that end, extent, we are increasingly seeing mobile clinic play a key role in the certified pre-owned and BYD. Digital and omni-channel investments are driving higher sales productivity. Higher digital and direct-to-consumer channel mix is holding despite the resurgence of retail traffic. While conversion rates in our retail stores are are increasing shift to unlimited plans are reducing bill shock and substantially reducing bill shock related customer credits so as we move forward our value proposition remains very strong very collaborative culture leading to a great household product intensity outcome Combined with network and experience leadership, we see ongoing low churn, which is driving high-value customer mix. Investments in our communities are further driving strong brand loyalty. We are enjoying efficiencies from our digital and omni platforms, while productivity of our retail channels continues to increase. We are well-positioned to continue these strong wireless performance outcomes. We have a strong track record throughout COVID. We are confident moving forward. And I can tell you, as a team, our culture has never been stronger. Doug, over to you.

Thank you, Jim. And hello, everyone. In Q3, we continued a proven track record of profitable customer growth and robust financial returns. all powered by our customers' first focus and superior asset mix. Our mobile network revenue grew for the fifth consecutive quarter, increasing 3.7% year-over-year, reflecting stable mobile ARPU, while including a modest uptick in roaming revenue of approximately $9 million year-over-year, and our consistent focus on high-quality customer additions and effective base management. Compared to the pre-pandemic Q3 2019, the network revenue is up 0.6%, reflecting the strong momentum we've built through quality loading, step-ups to our unlimited data plans, all delivered alongside a lower cost to serve structure and increase customer satisfaction. As Jim outlined, roaming revenue is just below 50% of pre-pandemic levels. We anticipate travel to gradually increase as we move into Q4 and into 2021. Also, data overage now represents a low single-digit percentage of our ARPU. These trends set us up for stronger ARPU and network revenue growth in 2022 and beyond. Fixed data service revenue increased by 13%, showcasing our execution of targeting profitable customer growth, including double-digit internet ARPU on a year-over-year basis. We continue to be successful in driving higher product intensity in our fiber areas with an average of three products per household in addition to our strong home and mobile loading that Jim referenced. For health services revenue, we reported 12% growth in the quarter. This robustness speaks to Telus Health's diversified revenue streams, some of which continue to be impacted by the pandemic related. such as our clinics and HBM services, offset by the continued adoption of digital health solutions, including virtual care. In total, T-TECH revenue grew by 4.1%, and adjusted EVA-DA increased by 7.4%, reflecting quality growth from all products. DLCX operating revenues grew 23%, with robust growth across all industry verticals, but particularly strong growth in tech and games as well as e-commerce and fintech. This growth reflects successful new customer wins and growth within our existing customer base, including expanding services offered to those existing customers. Business acquisitions also supported the strong third quarter growth. Most notably, Lionbridge AI, which is being rebranded to Telos International AI Data Solutions. The LPX adjusted EBITDA increased about 5% with a strong top-line growth, partially offset by two main factors. The mark-to-mark adjustment on share-based compensation as a result of Telos International's strong share price performance and the impact of foreign exchange from the strengthening Canadian dollar. Normalized for these impacts, DLCX-adjusted EBITDA growth would have been 23%, aligned with TELUS International's reported growth rate that they announced today. A reconciliation of these reporting differences are provided on slides 17 and 18 of our posted investor presentation. Consolidated revenue and adjusted EBITDA grew by 6.7% and 7.1%, respectively, in the quarter. Notably, our consolidated adjusted EBITDA is also up an impressive 7% compared to pre-pandemic Q3 2019 despite the continued related headwinds including roaming. These results reflect across our diversified and differentiated business lines and execution excellence throughout our organization. In addition, the non-cash mark-to-market share-based compensation expense in TI, our consolidated EBITDA growth would have been 8.5%. Heading into Q4, we expect consolidated EBITDA growth to remain in the same range as this quarter, on track to deliver our full year 2021 results within our original guidance range set in February. This quarter, we generated free cash flow of $203 million, up 26% from the prior year. The increase in the quarter was primarily due to strong EBITDA growth, lower handset contracts, and lower cash taxes, partially offset by our accelerated CapEx program, which continues to proceed as planned. Although Q4 free cash flow is seasonally lower due to handset loading and renewals, our full year free cash flow is trending in line or above our annual target. Our strong year-to-date free cash flow of $734 million reflects our execution, excellence, and cash flow management throughout a dynamic environment. Our balance sheet remains very healthy, including total available liquidity over $3.6 billion, while our net debt to EVTA leverage ratio ended the quarter at $3.19, down from $3.45 at year-end. We continue to work towards delivering over the median term led by our margin expansion, strong EBITDA growth, and cash flow generation, particularly in 2023, as we also expect a significant decline in our capital expenditures at the conclusion of our accelerated broadband build. Over the near and long-term, deleveraging opportunities may also be considered, including divestiture of non-core assets, as well as real estate monetization opportunities as part of our deferred decommissioning program. In addition, we have no significant debt maturities in 2022. Importantly, with our healthy balance sheet and financial flexibility coupled with an attractive cash flow outlook, we remain committed to our long-term standing dividend growth program and payout ratio guidelines, notably excluding our accelerated broadband capital investments which was pre-funded with equity. Our dividend payout ratio at the end of Q3 was 75% in line with our targeted range. To conclude, our third quarter results reflect our customers' first culture, our execution consistency, and our commitment to sustainable long-term value creation for all stakeholders. I look forward to the continuing strong operating momentum and advancing our growth strategy further as we close out 2021 and into 2022. With that, Robert, back to you.

Thanks, Doug. Mihai, can we proceed with the questions now, please?

Yes, of course. First question comes from Jeff Phan from Scotiabank. Please go ahead, Jeff.

Thank you. Good morning, good afternoon. Your connected device numbers had a record quarter. Wondering if you can talk a little bit about the devices and the services that's driving the unit growth. Wondering if the GM deal contributed to that already or if there are some things that you can call out. And then, is there a way for us to assess the revenue contribution or future opportunity that comes from this, just from your service revenue? Any way for us to sort of assess that opportunity? Thanks a lot.

I'll take this one, Jeff. Thank you. We set a record on the connected device front, as you have duly noted. That result isn't flattered by the strategic deal that we've consummated with GM. That's all on the come. That's prospective voting for us. That's not material to the performance results that we have just posted. In terms of where it's coming from, it really is from a myriad of sources, which I think bodes well, the fact that it's not coming from a singular area, but from a ton of different areas within our B2B construct, and that's really exciting. Examples, just so you can get a sense of it, tell us from a workforce productivity point of view, a workforce safety point of view, a workforce engagement point of view, we have a very significant set of solutions for connected workers focused on promoting safety and enhancing productivity. And, you know, the relationships that we have on this front and the significant partnerships that we have as it relates to our channel strategy are tremendously fruitful for us. And we've got customers in this area from BC Hydro to various provincial governments, to CP Rail, to construction companies. It, for us, is a tremendous opportunity, and it continues to grow. And again, back to operations, administration, maintenance, monitoring, information, data analytics, analytics, threat protection, real-time alerts and tracking of workforce personnel. That's significant. Other areas that have been critical for us is our smart city push, something that we want to do also in concert with our fast-growing security business. Again, we've got significant customers and we have significant third-party relationships that are driving our IoT loading. And the opportunities in this space are plentiful as it relates to public safety, traffic optimization considerations, relationships that we've fostered even through our venture capital business with investments in companies like Myovision from a traffic management point of view. Other areas for us that are extremely potent is fleet management. And I think as it relates to fleet management and vehicles, transportation considerations and the like, particularly on a Canadian, pan-North American basis, this has been extremely successful for us. And we've made some smart acquisitions in this space with companies like Focus and Skyhawk that are driving some of the loading that you have seen. And key relationships, again, across Canada with various municipalities, energy companies, including what we're doing in Ontario with Hydro One and with a number of companies through a consortium in the province of Quebec as it relates to the light rail system in Montreal. Other areas for us that are growing fruitfully are business analytics. As a result, the partnerships we have with companies like Purple, TELUS's analytics, business analytics solutions are allowing customers in the retail and hospitality sector to harness location-based data on premises to enhance their client experience and also find new and innovative ways to market their products and services and find new customers. And then the last thing, Jeff, for us in this space is what we're going to do on IoT in health and ag. And clearly, in that particular space, the opportunity set is absolutely voluminous. And I cannot... emphasize enough that the opportunity here isn't just as it relates to devices and sensors that have an attractive ARPU and AMPPU, but how we integrate it into our solutions overall and what we do in respect of data analytics, particularly when you think about it within the 5G construct and the data monetization opportunity to drive better food outcomes in ag and better health outcomes on the health front is extremely significant to say the least. And the other thing is that diversity isn't just related to the sectors and the uses and the customers that I've articulated. Our IoT business is strong on retail and it's exceedingly strong on wholesale when you think about our B2B2C offerings. And where to look for it showing up in our financials? Look for it in two areas. Look for it driving our ARPU prospectively as we lead the industry in scaling our IoT solutions. And look for the flow through from ARPU to AMPU because the margins that we generate on the IoT front are extremely attractive indeed. And then finally, look for ancillary returns when it comes to data monetization from dynamic insights all the way up to artificial intelligence. This is also a great combination area for us between TELUS and TI, given the overlapping business pieces here with our digital platforms.

Okay?

Thank you, Dan.

Did I give you enough of a presentation?

That's a great answer. Thank you. Thanks, Jeff.

Mihai, next question, please. Of course. Next question comes from Jerome Dubreuil from Desjardins. Please go ahead.

Yes, thank you. In terms of cooperative commissioning, where are we exactly in terms of assessing this opportunity? Have you completed the process in certain areas and what would be your initial takeaways in terms of client reaction and also in terms of potential cost savings. And then as a follow-up, on the cost front of the commissioning operation, are there maybe additional one-time OPEX that we should be expecting for maybe more next year from the operation? and would they be included in restructuring also? Thank you.

Okay. Well, I got into trouble on the last call for stealing Tony and Zeynel's thunder. So I'll learn from my past mistake and I'll hand it over to Tony and Zeynel to comment in terms of their answer to that multi-part question.

Thanks, Darren. Hi, Jerome. With respect to copper-to-fiber migration, we expect to be down to around 12% of copper-served subs in our fiber footprint by the end of this year. And then we'll aim to be substantially complete by the end of 2022, early 2023. And largely, that gives us a little bit of a tactical lever as to the degree to which we push hard or ease back, subject to other demand on our capacity for new subscriber growth elsewhere in our footprint. So it's quite a handy lever because if demand is low, we can gear up and do more, and if demand is high, we can ease back. With respect to our learnings, we've turned down a couple of central offices completely from copper services, and they've given us great insight as to, one, the challenge of doing that and how do you manage a migration. In some cases, you have legacy serve copper customers with voice-only requirements, and they're quite happy with that capability. So our ability to communicate with them effectively and lead them through the process and put them on ultimately a more reliable technology path is one that we've well practiced as we've gone through those two turndowns I referenced. Secondly, it has highlighted the opportunities for considerable efficiency both in a real estate footprint from the central office real estate that we have and the space we need for future service technologies versus the legacy copper footprint, which means there's a significant development and rationalization opportunity ahead of us with substantive real estate in attractive locations in most towns and cities across our service area. And then for customers, increasingly the customers that only have copper for voice service are a very fast diminishing group, and increasingly everyone else sees the benefit of the portfolio of products we can layer on top of a very reliable, fast, fiber-connected household. I think it offers a great roadmap, and Zeynep can expand on this, for overlaying future services and much higher service customer penetration. The reliability factors for us are significant, with about 35% less repairs on fiber relative to copper. there's an efficiency that we can garner from supporting one network versus two. So as you can imagine, as we amp up this program, we would expect to see considerable operating efficiencies being released to the business and giving us opportunity to redirect capacity or harvest those efficiencies. Zainal, would you like to top up?

Sure. Thanks, Tony. And thanks again for the question. Maybe I'll just highlight a couple of other contributing points to what Tony laid out. The first, Jerome, it answers your question around the one-time costs. What I wanted to highlight is the synergies that we have exploited in terms of driving our copper decommissioning process. What I mean by that is you've seen us be very assertive on the product intensity front. As we drive product intensity, Doug highlighted that We have three products per household in our fiber footprint at this point, and that grew 8%. And so as we continue to grow that product intensity, we are continuing to drive the copper decommissioning in parallel. The second point is around the churn wind that we get with the copper decommissioning. and the ARPU list that we get. So in addition to the repair rate, the economics are very strong because we get the added margin accretion from those two components. And finally, with respect to the future of our fiber footprint, we have a strong outlay of several capabilities in terms of both the Internet and roadmap with pure fiber X and our rollout of two and a half gigabits which has the opportunity to expand to 10 gigabits and and that is you know highly and significantly advanced relative to the cable DOCSIS footprint and of course symmetrical so we're very confident in our ability to continue to grow step ups as we migrate and an incorrect increased product intensity and and to realize the contributed economics across both AMPU and margin accretion across our repair rates and churn improvement in terms of increased customer lifetime value. And finally, that gives us a really great opportunity to leverage our strong customer experience to deliver more products, which you'll see coming through our roadmap in the coming quarters.

From a restructuring perspective, We have, to date, there is no decommissioning cause going through restructuring. We will look at when there's a complete shutdown of an MSO or a potential to remove copper from poles or wherever it may be, that there could be a restructuring charge. We will be transparent when that occurs. But to date, there has been none.

Great. Hopefully, no one has gotten into trouble for this answer. Thank you.

Thanks, Jerome. Mihaly, next question, please.

Yes, of course. And before we move on to the next question, I would just like to remind everyone to press star 1 if you want to ask a question. So please press star 1. And next question comes from Simon Flannery.

Please go ahead. Right. Thank you. Good morning. So continued strong momentum with the mobile ads, the Internet ads. And we've seen a great quarter for the industry. And we've heard pent up demand being a significant driver with the COVID reopening. So it'd be great to get some sense of what you think the sustainability of the industry growth and your growth is going to be, because we've certainly seen in the U.S., broadband in particular slow down on the cable side of things. So any sense of how you see this over the next few quarters and how much of this quarter was driven by that kind of unlock phenomenon? Thanks.

Thanks, Simon. Jim, why don't you go first and then hand it over to Zainal so we cover both bookends on the broadband front.

Thanks. Jim, are you on mute?

Sorry, I guess you can't be on mute and answer the question. There's definitely some froth in the market, you know, driving some pent-up demand. We definitely felt that in Q3. I would just like to say a few things, though. Like, I think I really genuinely believe our core value proposition is resonating. You know, the network and customer experience leadership is Combining that with mobile and home bundling is leading to sustained churn performance, which really helps us on nets and also to be judicious on what promotions we decide to execute on and not. And I also think the investments in simplification, our device programs and digital are allowing us to be very flexible between retail channels and direct to consumers channels. And we've done really well. And when retail traffic comes back, we're there. And retail traffic pulls back because of COVID concerns, we're there. And I think that's driving some of the consistency. The third thing is, Zainal and I are doing very well with bundling across and cross-selling our portfolios, which allows us to, you know, bring in to play a lot of the data analytic investments that we've made and even artificial intelligence to make sure that, you know, we're reaching out to customers that have a high probability of buying from us, which has been good. And then I think the last thing, and this is what I'm really excited about, is there is a trend towards more BYOD. And the CPO market is increasing. And our acquisition of Mobile Clinic is starting to bear fruit for us in terms of a number of things. One, they buy, sell, refurbish CPOs, which is increasing our CPO inventory. They are a nice place to refer customers who are not ready to upgrade their devices to repair their devices so they can keep them longer. And frankly, we're starting to see some nice success on pulling through activations on the back of CPO sales from mobile clinic. And then when you factor in the distribution footprint aligns really well in some markets where we have lower market share. So markets frothy, our value proposition is resonating, our digital investments are getting a lot of flexibility or more ways to get out that traffic, bundling is really working for us, and mobile clinic is really starting to take advantage of that BYOD market. And so we are really confident and really happy with what we're seeing there.

Great. Thank you.

Thanks. Thanks, Jim. On the fixed side, Darren referenced some minor inflationary impacts from the peak of the COVID period last year. But our broadband growth prospects look very, very strong. And I think there's some very core fundamentals that support that. Our accelerated fiber footprint is yielding great results. We're seeing our value proposition resonate incredibly well in the marketplace in terms of customers making the choice for fiber. And we are also going to see an impact of the expansion of that footprint and the capabilities that 5G will bring to deliver continued superiority. But more so than that, we also have the superiority of the individual products in our bundle and the breadth of our bundle. And so those touch points give us the opportunity to expand our conversations with customers and attract customers that are interested in different aspects of our bundle and to leverage that from an intensity perspective. And then finally, I think we've demonstrated that we sweat our assets very well. We take a very holistic community-based approach We drive intensity into the market, and we leave no stone unturned in terms of areas like the decommissioning that we spoke to. So we feel really strong and confident about our broadband roadmap and our capabilities and our ability to continue providing differentiated customer value that's resonating in the market.

Okay. Many thanks. Thanks, Simon. Mihai, next question, please.

Of course. Next question comes from Vince Valentini from TD Securities. Please go ahead, Vince.

Thank you very much. First, I just want to clarify something on Tony's comment. He said you expect to be down to 12% on copper by the end of this year. The release states you're at 12% at the end of the third quarter, but I think you may be talking apples and oranges there. The 12% by the end of the year would include phone-only customers as opposed to the 12% now that's just TV and Internet.

Sorry, Vince, you're right. It's 12% at the end of Q3, which is down from 15% at the beginning of the year. We will be making measured progress continually now between now and end of 2022, and that's copper served customers in our fiber footprint.

Okay, so it'll be lower than 12% by the end of 2021?

Yes.

Gotcha. Okay, thank you. I don't know if Doug wants to take this one, but since you've switched to the new reporting segments, this is the first time we've seen T-TECH segment EBITDA margins go up year over year. They're up 120 basis points, which, as you know, I've been wanting to see for some time. Can you give any sense as to whether that's mostly or partially driven by the turnaround in the wireline segment Or is that mostly just driven by wireless?

It's the combination of both. So we are seeing good momentum on the wireline side in all the products. As we mentioned, we had the J curve with ag, and we're on an approach to integration and starting to drive more margins on that front. Healthcare was impacted by COVID as well. as we talked about between our clinical and HBM environment. And so that's starting to recover and the margin accretion from that in addition to the growth in our virtual care platforms is contributing. We then have our, you know, the copper to fiber discussion that we've just been going through and the product intensity that Zainal highlighted also contributing to margin opportunities and enhancement And Tony referred to the reductions in truck rolls and repairs. All of that is combining where we're getting a good contribution from wireline as well as wireless. Rolling on wireless obviously would be contributing to that as well. And I think you're going to see a continued steady as you go on that margin enhancement as all of those items continue to improve over time. We also have our business segment that's been negative for the DA growth for a while. Wireless in it has been extremely strong. And so business is actually positive on a consolidated, say, product basis between wireline and wireless. And the wireline margins, which were still in the negative growth trajectory, are continuing to improve. We'll see that in 2022 as well. So very optimistic that we'll continue to see that on our base. I think mix could obviously impact the average, but positive momentum across the board.

Thanks, Doug. I'm going to throw in one more clarification type thing. You've said your broadband or residential internet ARPU is up over, or you're up double digits, so over 10% year over year, and your subscribers are up 6.5%. I just want to make sure I put those two together. You're saying your residential internet revenue would be up at least 17% year over year?

I don't have the exact 17%, but our internet or our data revenue is up over 12%, so there'd be some give and takes between the business side and consumer, but you're in the ballpark, and and we'll look into the exact number for a little bit later.

Great. Thank you. Vince, the only other thing to add on the comprehensive answer that Doug gave as it relates to margins and margins on a go-forward basis that I think are notable, number one is our digital efficiency is supporting a better OpEx profile for this organization holistically across care, channels, sales, so on and so forth. I think that's a notable element as it relates to where we could take margins prospectively as we carry on with that digital transformation. And then the second area may be a paid advertisement, but it's the support of TI and leveraging the efficiency of the TI organization across both wireline and wireless, as Doug alluded to, and also TI supporting the scaling and the maturation of our emerging businesses as well.

That will also buttress our margins prospectively on a recurring basis. Robert, go ahead, or Nihai, go ahead.

Next question, Nihai, please.

All right. Next question comes from Drew McReynolds from RBC. Please go ahead.

Yeah, thank you very much. Just two from me. First, following up on Doug's response to Vince's question, just on the business market, maybe, Doug, can you give an update on where things stand from an economic standpoint as we come out of COVID here, as well as on the competitive side? Good to see the kind of renewed momentum in that segment, which I think has been in the works for a while. And then secondly, just a, I guess, technical question to the extent, you know, is there any sense of when that 3,500 megahertz spectrum will ultimately be released here? Is that, you know, a Q4 thing or do we get a delay here into 2022? Thank you.

On the business side, we've, I've been very open on how we approach business from an economic perspective. So we do not chase consumer or business that does not fall into that category. With the challenges that we've seen on the slowdown of investment, we've seen, you know, and the migration from legacy to digital platforms and business, that is where we've seen the margin pressure and the growth slowdown. I think we have seen, as we've brought in new products, which, as Darren highlighted, fit into that digital category as well, that are easier to implement, less customized, and extremely user-friendly. That is going to allow us to continue to drive the margins and growth in biz economics. I would suggest, even on a roaming front, that biz will be a slower recovery And as you see, we go into 2022, we are expecting both wireline and wireless products to start contributing as we get through later into 2022. But I would say it's going to be slow and steady as you see the economy recover, especially in the small, medium business area.

Hey, Doug, just to top up on the business side, of course, we see the exciting aspects of 5G really are B2B and machine-to-machine applications and capabilities, similar to the GM ones Darren referenced earlier. So clearly, that's an area where business and our advanced fiber penetration and great 5G coverage will really allow our business team to take advantage of those capabilities and applications as they come to market maturity. So we would expect to see the 5G rollout really driving potential growth EBITDA contribution enhancements across our business space.

And on the $3,500, Darren, unless you had other insight, I do not have any updates on the exact timing of that.

I think 2022 is the right assumption as per the comment made earlier.

Thank you.

Mihai, we have time for one more question, please. All right, next question comes from Matthew Griffiths from Bank of America. Please go ahead.

Thanks for taking the question. I wanted to go back to the 12% of the remaining subs or customers in the copper footprint that are going to be migrated hopefully by the end of 2022. Does that represent an acceleration of the pace that you have been migrating customers in the past? And kind of related to that is the, I know you have been successful in increasing the product intensity as customers move over to fiber. I was curious about how long a tail that has. Is there a big step up that you see on day one, or are we going to see a long tail past 2022, where the product intensity from this cohort and previous year's cohorts of migrated customers will be continuing to experience an increase in intensity, just trying to get a longer-term outlook on kind of net ad trajectory.

Thanks. Hey, Matt, maybe I'll start and then I'll hand to Zainal to pick it up. But in terms of the 12%, when we first launched our Fiber program back in 2013, we were clearly looking to grow net new subscribers and we focused on those customers that wanted the portfolio of services and those customers that were existing customers that were happy with their existing service arrangement, we kind of left behind. The copper-fiber migration is really now revisiting those customers, see if their circumstances and needs have changed by way of having additional services or because now it's opportune for us to go change them and migrate them. And the beautiful thing about the copper to fiber migration program is it really allows us to leverage our workforce to the optimum level. If we're, as I said, in high demand, we can turn it down. If we have repairs anyway, we can go out and do the migration while we're doing a repair. And if we get a demand request, we can do a migration at that juncture. So we have a kind of tactical leave that we can pull hard or slow down, pull back on. So that kind of is dictating our flow, and it really is down to us to look at market by market, community by community, what is the right optimum speed for us to go at. So we certainly picked up a pace over the last few years, and now we're on a measured pace to close out, and we're leveraging the capacity as it exists, so we're optimally deploying our field resources and making sure that if other product demands are there, we can direct the capacity to that and we can slow down a little bit on the migration. With respect to the customer intensity for penetration increase once they come onto fiber, as I said before, we have a very fast diminishing segment of the customer base that really is just landline only now. Everyone else is really attuned to internet, and once you're into internet, you see the benefits of our symmetrical speeds and the capabilities that can offer for a multi-device connected home where that symmetrical speed is essential for consistent performance. The Wi-Fi expansion within the home and then the optic TV platform and now the smart security and in future home automation efforts mean that the opportunity to drive product intensity grows. And I'll pass to Zane now to talk about the segment of customers we're seeing adopt early and how the rest of the base is fast-following.

Thanks, Tony. Yeah, so as I mentioned, you know, we're leveraging that opportunity when customers want to add products to accelerate that migration process. And when we do that, we're future-proofing their environment so that products that we add later on will either be much easier to deploy or actually can be self-deployed in a do-it-yourself manner. But when you think about the fact that, you know, our current product intensity is at three per fiber household, And we are unique in the market in that we have a minimum of seven core product capabilities already with a growing portfolio in the quarters to come. So if you look at online security, health products, what we're doing on video and our ability to penetrate in that environment, and our demonstrated ability to lean into disruption to enter new product categories, That gives us a long-tail opportunity that we're actually very excited about because we can continue, as Jim highlighted, to leverage our personalization, our analytics, our data science to understand the needs of customers and ensure that we're supporting their needs as their digital life expands. So we're going to continue that journey, and we hope to continue it in a much more margin-accretive and lower-cost-of-acquisition manner because we're rolling out the decommissioning and enabling future-proof fiber capabilities going forward. And in addition to that, our XGS roadmap, which I spoke to in terms of PureFiberX, does not require material upgrades and costly upgrades. There are device connectivity requirements to continue advancing that roadmap, but that can be done in a much more cost-streamlined way. So we're investing now for the future All of these investments are in our disclosure and in our targets, and we're excited about the roadmap that we can bring to fruition for our customers.

And there won't be a long tail, just so that point in terms of your question is answered categorically. The magnitude of the challenge in terms of copper facilities is just over 200,000 lines We have a public goal to have that decommissioned by 2023. My comments during my opening remarks in that regard. If you look at our history as it relates to retiring technologies on both the wireless front and on the wireline front, it's part and parcel with what we do. And so to the extent to which there's a legacy base, in that timeframe, then we will undertake a mandatory migration so that we get the entirety of our base from a homogenous point of view on the same technology and can retire the legacy technology that has served us so well for the last 100 years. And in doing so, we unleash significant cost efficiencies And then secondly, we open ourselves up to the ARPU accretion, the multi-product penetration, and the lower churn, and the automated relationship with the customer so that in the future, when we're provisioning clients, we can do it digitally versus requiring the physicality of a truck roll. And we think that is a tremendous opportunity, particularly when we think about the synergistic context with 5G. and all that that portends on a home automation base.

Great. Thank you.

Thanks, Matt, and thank you, everyone, for joining us today. Please feel free to reach out to the IR team with any follow-ups, and take care, everyone.

Everyone, this concludes the TELUS 2021 Q3 Earnings Conference Call. Thank you for your participation, and have a nice day.