CEO's letter to our investors

TELUS has the right strategy − one that has been tested and proven since it was established almost nine years ago. This strategy, along with the six strategic imperatives that guide our efforts, are still as relevant today as when they were developed in 2000.

The following is a discussion of our key accomplishments as they relate to our strategic imperatives.

TELUS experienced excellent growth in data and wireless services throughout 2008. In fact, wireless and data revenue represented 69 per cent of total revenue, compared to only 28 per cent in 2000. In particular, your company experienced industry-leading wireless data revenue growth of 55 per cent and record digital wireless subscriber additions of 588,000 during the year.

This performance is driven by our extensive selection of smartphones, innovative service offerings and, importantly, the successful launch of Koodo service. Koodo expands your company’s ability to serve new customer segments, augmenting our wireless distribution, increasing client additions and complementing our full-service TELUS brand in the marketplace. Notably, Koodo received the highest score for postpaid service providers in the 2008 Canadian wireless customer satisfaction study by J.D. Power and Associates.

Canada’s relatively low wireless penetration, at 65 per cent, provides ample room for continued growth with an estimated six million new customers expected to join the industry during the next four years. Your company is well positioned to compete for and win a good portion of this business, even with certain new entrants expected to enter the market over the next two years. Our focus will be to continue providing service excellence to sustain the anticipated growth, whilst also ensuring we bring cool new devices and data-rich smartphone solutions to market.

Our technology path to 4G LTE wireless technology, using our HSPA network as an interim step, will continue to drive inno vation for Canadians. Importantly, this will complement our powerful CDMA (code division multiple access) and iDEN (integrated digital enhanced network) wireless networks. It will also significantly strengthen our competitive position by giving clients more choice with the broadest selection of wireless services and applications while simultaneously providing TELUS with access to new roaming revenue.

Our acquisition of Emergis in January 2008 is significantly advancing our leadership in healthcare, an area of strategic importance for TELUS and Canada.

During 2008, we carefully integrated 1,100 Emergis employees with the TELUS healthcare team to maintain the management and expertise of Emergis going forward. Your company has leveraged this partnership to pursue revenue opportunities in healthcare, winning a significant number of new client relationships in this strategic sector.

Signifying the seriousness of our commitment to help transform healthcare in Canada, in November, we launched TELUS Health Solutions and announced plans to invest $100 million over three years in patient-critical applications such as electronic health records. TELUS is making a difference in Canadian healthcare with applications and technology infrastructure that help citizens across Canada track, access and manage critical health information in a more timely and cost-effective fashion. Notably, we earned recognition as the 2008 Health Company of the Year by the Information Technology Association of Canada.

In 2008, we also signed an enhanced network sharing agreement with Bell Canada as part of our investment in the HSPA wireless network that is giving us the ability to offer the widest national coverage in the shortest time possible. The agreement reduces our required capital expenditures and increases the speed of the build, with the HSPA network set to launch by early 2010.

Finally, during 2008, TELUS Ventures successfully concluded its investments in Hostopia Inc., Brix Inc. and Atreus Inc., resulting in more than $10 million in proceeds. TELUS Ventures focuses on bringing innovative technologies and solutions into the company. We are continuing to make equity investments in high-tech companies that have the capabilities TELUS is desirous of implementing, and have the potential for profitable returns.

Strategic initiatives such as our new wireless network and Koodo service are reinforcing our national competitive position. Additionally, in the wireline business market, we continue to focus on and create momentum in our four key industry verticals − the public sector, healthcare, financial services and energy.

Throughout 2008, we continued building on the strength of our leadership position in winning and executing large managed data networking solutions. For example, our contract with the Government of Ontario has been fully implemented and the City of Montreal contract implementation is underway. Also, on the wireless side, we have completed the multi-year roll-out of a major contract with the Government of Canada, making TELUS the prime supplier of wireless phones for government employees.

Our implementation track record and the accompanying positive references continue to lead to success. Late in 2008, we were awarded a new seven-to-10-year contract with the Government of Quebec, worth up to $900 million, to deliver and manage the province’s next generation data network. This infrastructure will provide data connections to some 160 ministries and agencies and 350 health institutions across the province.

TELUS advanced its Future Friendly Home strategy in 2008, expanding your company’s broadband infrastructure and bringing a wider range of services to more customers. For example, TELUS TV gained increased traction in our incumbent markets of British Columbia, Alberta and Quebec, particularly when marketed with local, long distance and high-speed Internet services. TELUS is capitalizing on this momentum by expanding its broadband network to more households in its traditional territories.

TELUS continues to expand its broad suite of call centre and business process outsourcing services for the benefit of a large roster of Canadian, U.S. and international clients. These services are reliant on TELUS International’s growing contact centre outsourcing operations that are located in the Philippines, Latin America and the U.S. Recently, bilingual Spanish/English language capabilities have been added at call centre sites in three Central American countries and at a new call centre being built in Clark County, Nevada. These new sites augment the company’s capability to offer clients bilingual call centre support from diverse locations.

On the business front, we introduced a wide range of new solutions including TELUS Field Pack for Energy Services, to help keep field workers safe and connected, and three new global positioning system (GPS) solutions – TELUS Asset Tracker, TELUS Resource Tracker and TELUS Track and Dispatch − that are ideal for businesses with mobile workers. We also introduced TELUS Visual Voice Mail, the first national deployment of a service that enables customers to read their voice mail as e-mail.

We successfully completed the second large implementation of a billing and client care system in July, with the conversion of more than one million wireline consumers in British Columbia. Accordingly, we became the first telecom company in North America to consolidate legacy ordering, provisioning, customer management and billing software onto a single advanced platform. For the first time, approximately 2.5 million customers in Alberta and B.C. are on the same system, enabling front-line agents to better manage their services from a single application.

We continue to do well with innovative employee initiatives, including new recognition, training and career development programs designed to help us attract and retain the best talent in the global communications industry. In 2008, team member engagement at TELUS increased significantly by 500 basis points. Notably, this past year, TELUS was cited as one of Canada’s Human Capital Leaders by The Beacon Group. In its survey of more than 4,000 business leaders, executives consistently cited TELUS for excellence in the overall leadership of its people. Additionally, SkillSoft, a global leader in the provision of online learning solutions, honoured TELUS with its Industry Achievement Award.

Realizing internal efficiencies is an ongoing reality of our business. In late 2008 and into 2009, TELUS augmented its operational efficiency program with a series of major initiatives including:

• Streamlining our technology, network operations and IT business units into two integrated teams, enabling us to realize efficiencies in technology deployment, whilst simplifying operational support systems
• Lowering external spending by centralizing procurement and vendor management
• Reducing staffing levels and associated costs by optimizing our layers of management and spans of control, freezing management compensation and containing staff benefit costs
• Leveraging business process outsourcing to drive cost efficiencies
• Optimizing our product portfolio by decommissioning uneconomic services to simplify our go-to-market value propositions.

The TELUS brand has clearly grown in popularity and value over the years. The public instantly recognizes our advertising with its fresh white backgrounds, TELUS colours and creative use of nature and critters. This provides more time to communicate our customer value proposition, thereby increasing the effectiveness and efficiency of our marketing.

Indeed, our brand garners significant third-party recognition. In October, the TELUS brand was named as one of Strategy Magazine’s 2008 Brands of the Year. These brands stand out in their sectors for devising ingenious and entertaining ways to reach their audiences, and have been rewarded by strong consumer response. Notably, your company’s brand was determined to be worth more than $1.8 billion by Brand Finance.

TELUS continues to operate in a rapidly changing environment that includes increasing competitive intensity from cable-TV companies and national telecommunications providers. We are also operating during a recession, which is challenging our business despite telecommunications being reasonably resilient to economic downturns.

A key challenge is managing the complexity of our industry and our company, which includes business areas exhibiting strong growth and areas that are maturing or declining such as long distance and residential local telephone service. This means we need to redeploy resources and reduce costs to sustain profitability, and free up resources to invest in growth opportunities. Importantly, as we increase our focus on operational efficiency measures, we must also strive to enhance customer service.

Helping us address these challenges and remain responsive to the changing competitive and economic landscape are our three corporate priorities for 2009, which are shown in the sidebar.