TELUS Reports Results for First Quarter 2016

VANCOUVER, BRITISH COLUMBIA — (Marketwired) — 05/05/16 — (TSX: T)(NYSE: TU) – TELUS Corporation

Consolidated operating revenue up 2.6 per cent, EBITDA up 3.1 per cent

Continued leadership in customer experience, with wireless postpaid churn of 0.97 per cent

Company confirms industry-leading 2016 financial growth targets

Quarterly dividend increased 10 per cent to 46 cents per share

Extending dividend growth program targeting 7 to 10 per cent annual growth for 2017 through 2019

Announces up to $250 million annual share purchase program targeted for 2017 through 2019

TELUS strikes deal to expand wireless customer base in Manitoba

Baring Private Equity Asia to acquire 35 per cent stake in TELUS International

Agreement with Baring Private Equity Asia values TELUS International at an enterprise value of $1.2 billion

TELUS to receive proceeds from TELUS International of approximately $600 million; proceeds support continued expansion of its broadband networks in Canada

TELUS Corporation–s consolidated operating revenue grew 2.6 per cent to $3.1 billion in the first quarter of 2016 from a year earlier, driven by continued data revenue growth in both wireless and wireline operations. Wireline data revenue increased 10 per cent leading to 3.7 per cent growth in external wireline revenue. Wireless data revenue increased 8.3 per cent from a year ago, leading to overall wireless network revenue growth of 2.5 per cent. Earnings before interest, income taxes, depreciation and amortization (EBITDA) was impacted by a $31 million increase in restructuring and other costs. When excluding restructuring and other costs from both periods, EBITDA was up 3.1 per cent to $1.2 billion, reflecting growth in TELUS– wireless and wireline operations and operational efficiencies. EBITDA including restructuring and other costs increased by 0.4 per cent from a year ago.

“Our revenue and EBITDA growth in the first quarter reflect the quality and resiliency of our operations despite ongoing economic challenges, most notably in Alberta. We continued to deliver on core elements of our consistent and winning strategy, including sustaining our leadership in customer loyalty, wireline EBITDA growth and wireless postpaid churn of 0.97 per cent,” said Darren Entwistle, President and CEO.

“The extension of our multi-year dividend growth program through 2019 reflects the Company–s confidence in future market opportunities stemming from our enduring growth strategy. Building on the consistency of previous multi-year dividend growth initiatives, our new program will target between seven and 10 per cent annual dividend growth from 2017 through to 2019, and will continue to be complemented by our synergistic discretionary share purchase program of up to $250 million per year over the next three years. We have established the balance sheet and operational performance to launch and complete these shareholder-friendly programs and are proud of our track record. Between 2004 and April 2016 TELUS has returned $13 billion to shareholders, including $7.9 billion in dividends and $5.1 billion in share buybacks, representing nearly $22 per share,” Mr. Entwistle added.

Mr. Entwistle also commented, “Today, we are announcing the next step in our company–s growth journey by way of an agreement with Baring Private Equity Asia, which will acquire a long-term, 35 per cent stake in TELUS International. This partnership will integrate TELUS International–s world class customer service and team engagement with Baring Private Equity Asia–s extensive Asian markets presence and worldwide experience to tap into new growth opportunities for TELUS International–s global business process outsourcing, IT and customer service operations. Importantly, the proceeds of approximately $600 million will further enhance TELUS– already strong balance sheet and contribute to our long-standing strategy of advancing our broadband wireline and wireless networks to support Canada–s digital economy for generations to come.”

John Gossling, TELUS Executive Vice-President and CFO said, “Our results for the first quarter reflect strong execution by the TELUS team and ongoing benefits from our operational efficiency initiatives. Against the backdrop of a highly competitive marketplace, we continue to deliver on our balanced capital allocation strategy that not only supports our long-term growth objectives, but also allows us to consistently return capital to shareholders.”

Net income and basic earnings per share (EPS) were affected by higher restructuring and other costs; an increase in depreciation and amortization expense reflecting, in part, TELUS– higher asset base from ongoing investments in its fibre optic and 4G LTE networks; and higher financing costs. Adjusted net income, excluding the effects of restructuring and other costs, decreased 3.0 per cent to $414 million, while adjusted EPS of $0.70 was unchanged from the prior year. On a reported basis, net income decreased 9.1 per cent to $378 million, while basic earnings per share (EPS) decreased 6.8 per cent to $0.64.

CONSOLIDATED FINANCIAL HIGHLIGHTS

In wireless, data revenue was driven by subscriber growth, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and increased data usage, partially offset by the effects of an economic slowdown, particularly in Alberta. Wireline data revenue growth was generated by growth in TELUS International–s business process outsourcing services, an increase in Internet and enhanced data service revenue from continued high-speed Internet subscriber growth and higher revenue per customer, continued TELUS TV subscriber growth and higher TELUS Health revenues.

In the first quarter of 2016, TELUS attracted 31,000 net wireless postpaid, high-speed Internet and TV customers. This included 12,000 high-speed Internet subscribers, 11,000 TELUS TV customers and 8,000 wireless postpaid customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a decline in wireless prepaid customers. TELUS– total wireless subscriber base is up 1.2 per cent from a year ago to 8.4 million, high-speed Internet connections have increased 6.7 per cent to 1.6 million, and TELUS TV subscribers are higher by 8.4 per cent to just over 1 million.

In the quarter, TELUS continued to deliver leading wireless customer churn on a national basis with a monthly postpaid churn rate of 0.97 per cent. This is the tenth quarter in the past 11 that TELUS– postpaid churn rate was below 1 per cent, despite increasing competitive pressures due to the simultaneous expiration of two-year and three-year contracts commencing in June 2015. Blended churn of 1.26 per cent in the first quarter of 2016 is TELUS– lowest first quarter churn rate since becoming a national carrier 16 years ago. This further exemplifies the success of TELUS– differentiated customers first culture and its ongoing focus on delivering outstanding customer service, coupled with attractive new products and services.

Free cash flow of $108 million in the first quarter was lower by $163 million from a year ago, primarily due to higher income tax payments, mainly reflecting a higher final income tax payment for the 2015 income tax year, an increase in interest paid, and higher restructuring disbursements partially offset by lower share-based compensation payments.

In the first quarter of 2016, TELUS returned $313 million to shareholders including $263 million in dividends paid and $50 million in share purchases under its 2016 normal course issuer bid (NCIB) program. Through the end of April, TELUS has returned $574 million to shareholders, including $524 million in dividends paid and the purchase of 1.3 million shares for $50 million.

Dividend Declaration – increased to 46 cents per quarter

The TELUS Board of Directors has declared a quarterly dividend of 46 cents ($0.46) Canadian per share on the issued and outstanding Common Shares of the Company payable on July 4, 2016 to holders of record at the close of business on June 10, 2016.

This second quarter dividend represents a four cent increase from the $0.42 quarterly dividend paid on July 2, 2015 and is the eleventh dividend increase since TELUS announced its original multi-year dividend growth program in May 2011. Over this period, TELUS– dividend is higher by 75 per cent.

TELUS announces intention to extend multi-year dividend growth and share purchase programs

TELUS announced its intention to target ongoing semi-annual dividend increases, with the annual increase in the range of seven to 10 per cent from 2017 through to the end of 2019. This announcement further extends TELUS– multi-year dividend growth program originally announced in May 2011 and initially extended in May 2013 and provides investors with ongoing clarity with respect to TELUS– dividend growth model.

Notwithstanding this target, dividend decisions will continue to be subject to our Board–s assessment and the determination of our financial situation and outlook on a quarterly basis. Our long-term dividend payout ratio guideline is 65 to 75 per cent of prospective net earnings. There can be no assurance that we will maintain a dividend growth program through 2019.

TELUS also announced its intention to renew its normal course issuer bid (NCIB) program in each year of the next three years in order to permit purchases for up to $250 million in each such calendar year. This announcement extends TELUS– share purchase program originally announced in May 2013. There can be no assurance that TELUS will complete its 2016 NCIB or that it will renew and complete its NCIB program in each of the next three years as these decisions depend on the assessment and determination of TELUS– Board of Directors from time to time on the basis of TELUS– financial position and outlook.

TELUS to expand wireless customer base in Manitoba

TELUS has reached an agreement in principle with Bell Canada Enterprises (BCE) that will see approximately one-third of Manitoba Telecom Services (MTS) postpaid wireless customers become TELUS customers once the purchase of MTS by BCE concludes. As part of the agreement, Bell will also assign one-third of MTS– dealer locations in Manitoba to TELUS. Thanks to the skill and passion of our team members, TELUS has earned one of the world–s best levels of customer loyalty. TELUS intends to bring the same outstanding customer service it offers across Canada to the benefit of clients in Manitoba. The agreement is subject to approval from the Competition Bureau and other conditions.

TELUS announces Baring Private Equity Asia to acquire 35 per cent stake in TELUS International; agreement with Baring Private Equity Asia values TELUS International at $1.2 billion

TELUS has entered into an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35 per cent non-controlling interest in TELUS International (TI), a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia–s deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI–s operations. In addition, this transaction will allow TELUS to direct substantial capital to investments throughout Canada, including the expansion of its fibre-optic network to more communities, its advanced wireless network and the support of healthcare. TELUS will retain majority ownership and control of TI and does not expect significant changes in the support it provides to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, TELUS has also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, TELUS will receive proceeds of approximately $600 million. The agreement is subject to customary closing conditions.

This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2019, the 2016 annual targets and guidance, the proposed purchase of MTS by BCE and the transfer of a certain portion of MTS– postpaid wireless subscribers and retail locations to TELUS (the “Transaction”) and the agreement between TELUS International and Baring Private Equity Asia (the “TI-Baring Transaction”) that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There can be no assurance that the conditions to closing of the MTS-BCE transaction will be satisfied, including, without limitation, the relevant regulatory approvals or that the conditions to closing of the Transaction will be satisfied or that the associated benefits for TELUS shareholders and customers of the Transaction will be realized or that the Transaction will occur on the terms contemplated in this news release. Furthermore, there can be no assurance that the conditions to closing of the TI-Baring Transaction will be satisfied, that the associated benefits of the transaction for TELUS shareholders and customers will be realized or that growth plans for TELUS International will be realized. There is significant risk that the forward-looking statements will not prove to be accurate. The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2016 annual targets and guidance, semi-annual dividend increases through 2019 and our ability to sustain and complete our multi-year share purchase program through 2019), qualifications and risk factors referred to in the accompanying first quarter Management–s discussion and analysis and in the 2015 annual report, 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.

First Quarter 2016 Operating Highlights

TELUS wireless

TELUS wireline

Corporate Highlights

TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members by:

About TELUS

TELUS (TSX: T)(NYSE: TU) is Canada–s fastest-growing national telecommunications company, with $12.6 billion of annual revenue and 12.4 million subscriber connections, including 8.4 million wireless subscribers, 1.4 million residential network access lines, 1.6 million high-speed Internet subscribers and 1.0 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada–s largest healthcare IT provider.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed $440 million to charitable and not-for-profit organizations and volunteered more than 6.8 million hours of service to local communities since 2000. Created in 2005 by President and CEO Darren Entwistle, TELUS– 11 Canadian community boards and 4 International boards have led the Company–s support of grassroots charities and have contributed more than $54 million in support of over 4,900 local charitable projects, enriching the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

For more information about TELUS, please visit telus.com.

Access to Quarterly results information

Interested investors, the media and others may review this quarterly earnings news release, management–s discussion and analysis, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information, and our full 2015 annual report at telus.com/investors.

TELUS– first quarter 2016 conference call is scheduled for May 5, 2016 at 3:00pm ET (12:00pm PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on May 5 until June 15, 2016 at 1-855-201-2300. Please use reference number 1196520# and access code 77377#. An archive of the webcast will also be available at telus.com/investors and a transcript will be posted on the website within a few business days.

TELUS CORPORATION

Management–s discussion and analysis

2016 Q1

Caution regarding forward-looking statements

This document contains forward-looking statements about expected events and the financial and operating performance of TELUS Corporation. The terms TELUS, the Company, we, us and our refer to TELUS Corporation and where the context of the narrative permits or requires, its subsidiaries. Forward-looking statements include statements relating to annual targets, outlook, updates, our multi-year dividend growth program, our multi-year share purchase program, and trends. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, strategy, target and other similar expressions, or future or conditional verbs such as aim, anticipate, believe, predict, could, expect, intend, may, plan, seek, should, strive and will. By their nature, forward-looking statements do not refer to historical facts, are subject to inherent risks and require us to make assumptions. There is significant risk that forward-looking statements will not prove to be accurate. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements. An update to our assumptions for 2016 is presented in Section 9 Update to assumptions in this Management–s discussion and analysis (MD&A).

Factors that could cause actual performance to differ materially from the forward-looking statements made herein and in other TELUS filings include, but are not limited to, the following:

Management–s discussion and analysis

May 5, 2016

Contents

1. Introduction

Our discussion in this section is qualified in its entirety 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 the consolidated financial position and financial performance of TELUS for the three-month period ended March 31, 2016, and should be read together with TELUS– March 31, 2016, condensed interim consolidated financial statements (subsequently referred to as the interim 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 interim consolidated financial statements comply with IFRS-IASB and Canadian GAAP and have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our use of the term IFRS in this MD&A is a reference to these standards. In our discussion, we also use certain non-GAAP financial measures, such as earnings before interest, income taxes, depreciation and amortization (EBITDA), to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in Section 11.1. All amounts are in Canadian dollars, unless otherwise specified.

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 interim consolidated financial statements were reviewed by TELUS– Audit Committee and authorized by the Board of Directors for issuance on May 5, 2016.

1.2 The environment in which we operate

Economic growth

We currently estimate that economic growth in Canada will be approximately 1.4% in 2016 and approximately 2.0% in 2017, 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 in British Columbia will be approximately 2.5% in both 2016 and 2017, and that economic growth (contraction) in Alberta will be in the range of (1.0) to (1.5)% in 2016 and approximately 1.6% in 2017, in part due to low oil prices. The Bank of Canada–s April 2016 Monetary Policy Report estimated economic growth for Canada at 1.7% in 2016 and 2.3% in 2017. In respect of the national unemployment rate, Statistics Canada–s Labour Force Survey reported a rate of 7.1% for March 2016 (7.1% reported for December 2015 and 6.8% reported for March 2015).

Regulatory developments

There were a number of regulatory developments in the first quarter of 2016. See Section 10.1 Regulatory matters.

1.3 Consolidated highlights

Investment in TELUS International (Cda.) Inc. (TI)

Subsequent to March 31, 2016, we reached an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35% non-controlling interest in TI, a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia–s deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI–s operations. In addition, this transaction will allow us to direct substantial capital to investments throughout Canada, including the expansion of our fibre-optic network to more communities, our advanced wireless network and the support of healthcare. We will retain majority ownership and control of TI and we do not expect significant changes in the support we provide to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, we have also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, we expect to monetize approximately $600 million to TELUS. The agreement is subject to customary closing conditions.

Multi-year dividend growth program

On May 5, 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. This announcement further extends our dividend program originally announced in May 2011 and initially extended in May 2013. Notwithstanding this target, dividend decisions will continue to be subject to our Board–s assessment and the determination of our financial situation and outlook on a quarterly basis. Our long-term dividend payout ratio guideline is 65 to 75% of prospective net earnings. There can be no assurance that we will maintain a dividend growth program through 2019. See Section 4.3 Liquidity and capital resources.

Share purchase program

On May 5, 2016, we announced our intention to renew our normal course issuer bid (NCIB) program in each year of the next three years in order to permit purchases for up to $250 million in each such calendar year. This announcement extends our share purchase program originally announced in May 2013. There can be no assurance that we will complete our 2016 NCIB or that we will renew and complete our NCIB program in each of the next three years as these decisions depend on the assessment and determination of our Board from time to time on the basis of the Company–s financial position and outlook. See Section 4.3 Liquidity and capital resources.

Operating highlights

Liquidity and capital resource highlights

2. Core business and strategy

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of this MD&A.

Our core business was described in our 2015 annual MD&A. The following are business updates grouped under our strategic imperatives.

Focusing relentlessly on growth markets of data, IP and wireless

External wireless revenues and wireline data revenues totalled $2.7 billion in the first three months of 2016, up by $120 million or 4.7% from the same period in 2015, while wireline voice and other revenues and wireline Other operating income totalled $413 million in the first quarter of 2016, down $40 million or 8.8% from the same period in 2015. Combined wireless revenues and wireline data revenues represented 87% of TELUS– consolidated revenues for the first three months of 2016, as compared to 85% in the same period in 2015.

Providing integrated solutions that differentiate TELUS from our competitors

On March 1, 2016, we launched new Lite basic TV plans on both our Optik and satellite TV services, offering another choice to customers looking for smaller basic channel services. These new plans, as well as our existing offers of small theme packs, are in harmony with the Canadian Radio-television and Telecommunications Commission–s (CRTC–s) goal to make greater choice available to our TV customers and provide more freedom for Canadian viewers to subscribe to the channels they really want to watch. Even prior to the commencement of the CRTC–s consultation to amend the television regulatory framework in 2014, we began focusing on providing television services that more closely reflect customer demand, as opposed to larger programming packages with higher aggregate prices.

Building national capabilities across data, IP, voice and wireless

In May 2016, we completed a spectrum licence assignment and rationalization agreement with Xplornet Communications Inc., a Canadian-based broadband Internet provider. In the agreement, we transferred 3500 MHz fixed wireless access spectrum licences in secondary and tertiary regions, as well as monetary consideration, in exchange for Xplornet–s 2300 MHz spectrum licences in similar regions. The associated spectrum licence transfer application was approved by Innovation, Science and Economic Development Canada (ISED) on April 21, 2016. This spectrum exchange will allow for more robust mobile and fixed wireless broadband access for Canadians, as each party in the transaction can more effectively utilize these licences within their networks. The 2300 MHz spectrum has a robust ecosystem of network infrastructure and devices, and will complement TELUS– existing 2300 MHz spectrum holdings in Montreal, Quebec City and key markets in Western Canada, giving us spectrum in this band in nearly every market.

Partnering, acquiring and divesting to accelerate the implementation of our strategy and focus our resources on core business

In February 2016, we partnered with Microsoft and Avanade, a leading global provider of innovative digital business and technology services in the Microsoft ecosystem, to offer Skype for Business. Powered by TELUS, Skype for Business offers a full suite of enterprise-grade communications and collaboration tools that includes voice and video calls, instant messaging and online meetings. This service is delivered as a fully managed private cloud solution from our network of intelligent Internet data centres located across Canada, and is available through a single interface on nearly any device.

In March 2016, the Canada Green Building Council awarded the TELUS Garden office tower with leadership in energy and environmental design (LEED) platinum certification. This is the highest LEED rating a building can receive and reinforces our commitment to technological innovation and environmental stewardship. In partnership with Westbank Projects Corp., the one-million-square foot TELUS Garden development includes 450,000 square feet of office space, 65,000 square feet of retail space, and a residential tower currently being built to LEED gold standards.

Subsequent to March 31, 2016, we reached an agreement with Baring Private Equity Asia, an Asian-based investment firm which advises funds that manage over $13 billion (U.S.$10 billion) in assets, for it to acquire a 35% non-controlling interest in TELUS International (Cda.) Inc. (TI), a global provider of customer service, IT and business process outsourcing services. The agreement values TI at $1.2 billion. Through this collaboration, TI is well positioned to leverage Baring Private Equity Asia–s deep Asian markets presence and worldwide experience, and tap into its global network in order to further expand TI–s operations. In addition, this transaction will allow us to direct substantial capital to investments throughout Canada, including the expansion of our fibre-optic network to more communities, our advanced wireless network and the support of healthcare. We will retain majority ownership and control of TI and we do not expect significant changes in the support we provide to TI, including services such as facilities, network, IT, branding and media support. In connection with the transaction, we have also arranged an incremental $425 million in bank financing, which is secured by assets of TI and its subsidiaries, expires in 2021 and is non-recourse to TELUS Corporation. Through this transaction and the incremental debt within TI, we expect to monetize approximately $600 million to TELUS. The agreement is subject to customary closing conditions.

Going to market as one team under a common brand, executing a single strategy

Our top corporate priority is putting customers first as we strive to consistently deliver exceptional client experiences and become the most recommended company in the markets we serve. In March 2016, the Commissioner for Complaints for Telecommunications Services (CCTS) issued its mid-year report and, once again, TELUS received the lowest customer complaints of the national carriers and Koodo received the lowest customer complaints of the national flanker brands. TELUS, Koodo and Public Mobile received 6.8%, 2.3% and 0.6% of the total customer complaints submitted to the CCTS, respectively, or 9.7% of total customer complaints, in aggregate, when we have approximately 28.5% of Canadian wireless customers.

3. Corporate priorities for 2016

Our corporate priorities for 2016 were listed in our 2015 annual MD&A.

4. Capabilities

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of this MD&A.

4.1 Principal markets addressed and competition

For a full discussion of our principal markets and an overview of competition, please refer to Section 4.1 of our 2015 annual MD&A. On March 1, 2016, the Western Canada-based cable-TV company, Shaw Communications Inc., announced the completion of its acquisition of Wind Mobile Corp. for $1.6 billion, effectively making Shaw the fourth wireless carrier in B.C., Alberta and Ontario. It also provides Shaw with the opportunity to develop a converged wireless and wireline network in B.C. and Alberta.

On May 2, 2016, BCE Inc. announced that it had entered into a definitive agreement to acquire all issued and outstanding common shares of Manitoba Telecom Services Inc. (MTS) for approximately $3.1 billion and assume outstanding net debt of approximately $0.8 billion. The agreement is subject to customary closing conditions, including court, shareholder and regulatory approvals, and is expected to close in late 2016 or early 2017. In addition, we announced an agreement in principle with BCE Inc. pursuant to which we will acquire approximately one-third of MTS– postpaid wireless subscribers and be assigned one-third of MTS– dealer locations in Manitoba, dependent on the successful completion of BCE Inc.–s acquisition of MTS.

4.2 Operational resources

For a discussion of our Operational resources, please refer to Section 4.2 of our 2015 annual MD&A. The following discussion reflects changes that have occurred since the filing date of our 2015 annual MD&A.

Wireless segment

In the first quarter of 2016, we continued to deliver leading customer churn on a national basis. Our monthly postpaid churn rate was 0.97% in the first quarter of 2016, representing the 10th quarter in the past 11 quarters that our postpaid churn rate was below 1%, despite increasing competitive pressures from the coterminous expirations of two-year and three-year contracts commencing in June 2015. Blended churn of 1.26% in the first quarter of 2016 represented our lowest first quarter churn rate since we became a national carrier 16 years ago. This further exemplifies the success of our differentiated customers first culture, our ongoing focus on delivering outstanding customer service, coupled with attractive new products and services, and our retention programs.

During the first quarter of 2016, we continued our deployment of 700 MHz and 2500 MHz wireless spectrum licences acquired during Innovation, Science and Economic Development Canada–s (ISED) wireless spectrum auctions, which we have begun to operationalize for the benefit of our customers. Since the middle of 2013, we have invested more than $3.6 billion to acquire wireless spectrum licences in spectrum auctions and other transactions, which has more than doubled our national spectrum holdings, in support of our top corporate priority of putting customers first. Wireless data consumption has been increasing rapidly and we have responded by investing to extend the capacity of our network to support the additional data consumption and growth in our wireless customer base.

At March 31, 2016, our 4G LTE network covered nearly 97% of Canada–s population, up from 92% of the population covered at March 31, 2015. Furthermore, we continue to invest in our LTE advanced network roll-out, which covered nearly 50% of Canada–s population at March 31, 2016. Outside of LTE advanced and LTE coverage areas, the LTE devices we offer also operate on our HSPA+ network, which covered 99% of Canada–s population at March 31, 2016.

Wireline segment

We continue to invest in urban and rural communities with commitments to deliver broadband network capabilities to as many Canadians as possible. We are expanding our fibre footprint by connecting more homes and businesses directly to fibre. Our investment in fibre is analyzed on a community-by-community basis to ensure each project will generate appropriate economic returns. Throughout 2015 and 2016, we have made announcements regarding multi-billion dollar investments to bring our fibre-optic network to cities across B.C., Alberta and Eastern Quebec. We have also increased broadband Internet speeds, expanded our IP TV video-on-demand library and high-definition content, and enhanced marketing of data products and bundles. As well, we have continued to invest in our state-of-the art Internet data centres (IDCs), creating an advanced and regionally diverse computing infrastructure in Canada.

At March 31, 2016, our high-speed broadband coverage reached approximately 2.9 million households and businesses in B.C., Alberta and Eastern Quebec, including approximately 0.75 million homes and businesses covered by fibre-optic cable, which now provides these premises with immediate access to our gigabit-capable fibre-optic network.

4.3 Liquidity and capital resources

Capital structure financial policies

Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at acceptable risk.

In the management of capital and in its definition, we include Common Share equity (excluding Accumulated other comprehensive income), Long-term debt (including long-term credit facilities, commercial paper backstopped by long-term credit facilities and any associated hedging assets or liabilities, net of amounts recognized in Accumulated other comprehensive income), Cash and temporary investments, and 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 telecommunications infrastructure. To maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of Common Shares, purchase shares for cancellation pursuant to our normal course issuer bids (NCIBs), issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of trade receivables sold to an arm–s-length securitization trust.

We monitor capital by utilizing a number of measures, including the net debt to EBITDA – excluding restructuring and other costs ratio and the dividend payout ratios. See definitions in Section 11.1.

Financing and capital structure management plans

4.4 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.

5. Discussion of operations

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of this MD&A.

5.1 General

Our operating segments and reportable segments are wireless and wireline. Segmented information in Note 5 of the interim consolidated financial statements is regularly reported to our Chief Executive Officer (CEO) (the chief operating decision-maker).

5.2 Summary of consolidated quarterly results and trends

Trends

The consolidated revenue trend continues to reflect year-over-year increases in: (i) wireless network revenues generated from moderating growth in the subscriber base due to the impacts of the economic slowdown, particularly in Alberta, slower growth in wireless postpaid market penetration, increased competitive intensity and higher handset and rate plan prices, as well as moderating growth in average revenue per subscriber unit per month (ARPU) driven by a larger proportion of higher-rate two-year plans in our subscriber base, a more favourable postpaid subscriber mix, and increases in data usage; (ii) wireless equipment revenue that has generally increased due to customer preference for higher-value smartphones and higher retention volumes, especially in 2015 as two-year and three-year customer contracts began to expire coterminously, partly offset by more customers on expired contracts delaying renewals in part due to increasing handset and rate plan costs; and (iii) growth in wireline data revenues, driven by business process outsourcing, Internet, enhanced data services, and TELUS TV and TELUS Health services. This growth was partially offset by the continued declines in wireless and wireline voice revenues.

The wireless data revenue growth trend is moderating as it is impacted by competitive pressures driving larger allotments of data provided in rate plans, including data sharing and international data roaming features and plans, and unlimited messaging rate plans, as well as customer reactions to increased frequency of real-time data usage notifications and offloading of data traffic from our wireless network to increasingly available Wi-Fi hotspots. We introduced two-year wireless rate plans in July 2013, which have impacted acquisition and retention trends, as well as data usage, as subscribers optimize unlimited talk and text and shared data plans. ARPU is expected to continue to increase over time, though at lower growth rates, as a result of the continued growth in data usage and the ongoing shift in our subscriber base towards higher-value postpaid customers. However, the level of ARPU is highly dependent on competition, the economic situation, consumer behaviour, government decisions, device selection and other factors, and, as a consequence, there cannot be any assurance that ARPU growth will continue to materialize.

Retention spending as a percentage of network revenue has increased year over year from 12.1% in the first quarter of 2015 to 13.5% in the first quarter of 2016, mainly from an increase in the sales mix of higher-subsidy smartphones. Due to the coterminous expiration of two-year and three-year contracts beginning on June 3, 2015, we have experienced a higher volume of contract renewals than previously experienced prior to June 3, 2015. We expect this trend to continue. We also expect to experience continuing pressure on our postpaid subscriber churn if increased competitive intensity continues, in part due to an increase in customers on expired contracts. Accordingly, our wireless segment historical operating results and trends prior to the coterminous expiration of two-year and three-year contracts may not be reflective of results and trends for future periods.

Historically, there has been significant third and fourth quarter seasonality due to higher wireless subscriber additions, an increase in related acquisition costs and equipment sales, and higher retention costs due to contract renewals. Typically, these impacts can also be more pronounced around popular device launches. Wireless EBITDA usually decreases sequentially from the third to the fourth quarter, due to seasonal loading volumes. However, with the coterminous expiration of two-year and three-year contracts commencing June 2015, this trend may vary from the past trend. Subscriber additions have typically been lowest in the first quarter. Historically, monthly wireless ARPU has experienced seasonal sequential increases in the second and third quarters, reflecting higher levels of usage and roaming in the spring and summer, followed by seasonal sequential declines in the fourth and first quarters. This seasonal effect on ARPU is expected to diminish in the future, as unlimited nationwide voice plans become more prevalent and chargeable usage and long distance spikes become less pronounced.

The trend of increasing wireline data revenue reflects growth in business process outsourcing supported by customer demand in all regions, growth in high-speed Internet and enhanced data services, including increases in usage and adoption of higher-speed services, the continuing but moderating expansion of our TELUS TV subscriber base (up 8.4% in the 12-month period ended March 31, 2016), growth in TELUS Health solutions and certain rate increases. Higher Internet service revenues are due to a larger high-speed Internet subscriber base (up 6.7% in the 12-month period ended March 31, 2016), bundling of offers with Optik TV service, expansion of our broadband network footprint, the introduction of usage-based billing and certain rate increases. A general trend of declining wireline voice revenues is due to competition from voice over IP (VoIP) service providers (including cable-TV competitors), resellers and facilities-based competitors, as well as technological substitution to wireless and IP-based services and applications, increased competition in the small and medium-sized business market, and the impact of the economic slowdown and associated customers– re-sizing of services.

The trend in Goods and services purchased expense generally reflects increasing wireless equipment expenses associated with higher-value smartphones in the sales mix, higher non-labour restructuring and other costs mainly from real estate rationalization, and increasing wireless customer service, administrative, external labour and distribution channel expenses to support moderating growth in our subscriber base.

The trend in Employee benefits expense reflects increases in compensation and employee-related restructuring costs, as well as a higher number of employees to support increased business process outsourcing revenues, partly offset by a lower number of domestic employees in part due to the reduction of full-time equivalent (FTE) positions announced in November 2015 and higher capitalized labour costs associated with increased capital expenditures.

The general trend in Depreciation and amortization reflects increases due to growth in capital assets in support of the expansion of our broadband footprint and enhanced LTE network coverage, as well as adjustments related to our continuing program of asset life studies.

The general trend in Financing costs reflects an increase in long-term debt outstanding associated with significant investments in wireless spectrum licences acquired during wireless spectrum auctions in 2014 and 2015. Financing costs also include the Employee defined benefit plans net interest expense that has decreased for 2016, primarily due to the decrease in the defined benefit plan deficit at December 31, 2015, as compared to one year earlier, partly offset by an increase in the discount rate. Moreover, Financing costs are net of capitalized interest related to spectrum licences acquired during the wireless spectrum auctions held by Innovation, Science and Economic Development Canada (ISED), which we expect to deploy into our existing network in future periods (capitalized long-term debt interest is $17 million in the first quarter of 2016, as compared to $NIL in the first quarter of 2015 and $45 million during fiscal year 2015). Financing costs for the eight periods shown include varying amounts of foreign exchange gains or losses and varying amounts of interest income, including $20 million of interest income in the second quarter of 2015 resulting from the settlement of prior years– income tax-related matters. In addition, Financing costs in the third quarter of 2014 included long-term debt prepayment premiums of approximately $13 million.

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 period for income tax of prior periods, including any related after-tax interest on reassessments. The trend in basic EPS also reflects the impact of share purchases under our normal course issuer bid (NCIB) program.

The trend in Cash provided by operating activities reflects relatively flat consolidated EBITDA, higher restructuring and other costs disbursements, higher income tax payments in 2016, and increased interest payments related to our financing activities. The trend in free cash flow reflects the factors affecting Cash provided by operating activities, as well as increases in capital expenditures (excluding spectrum licences), but excludes the effects of certain changes in working capital, such as trade accounts receivable and trade accounts payable.

5.3 Consolidated operations

The following is a discussion of our consolidated financial performance. Segmented information in Note 5 of the interim consolidated financial statements is regularly reported to our CEO (the chief operating decision-maker). We discuss the performance of our segments in Section 5.4 Wireless segment,Section 5.5 Wireline segment and capital expenditures in Section 7.3 Cash used by investing activities.

Operating income decreased year over year by $39 million in the first quarter of 2016, reflecting a decline in wireline EBITDA of $7 million due to higher labour-related restructuring costs (see Section 5.5) and increases in depreciation and amortization of $44 million discussed above, partly offset by growth in wireless EBITDA of $12 million (see Section 5.4). Year-over-year wireless EBITDA growth was lower primarily due to higher retention spend and labour-related restructuring costs.

Total income tax expense decreased by $8 million in the first quarter of 2016 when compared to the same period in 2015, primarily due to a decline in income before income taxes. Our effective tax rate increased to 26.9% in the first quarter of 2016 from 26.2% in the same period in 2015, primarily due to increases to the Alberta and New Brunswick provincial corporate tax rates thereby increasing the weighted average statutory income tax rate, as well as a $1 million non-cash adjustment to revalue deferred income tax liabilities for the New Brunswick tax rate change.

Comprehensive income decreased by $368 million in the first quarter of 2016 when compared to the same period in 2015, primarily due to decreases in employee defined benefit plan re-measurement amounts and a decline in Net income. Items that may be subsequently reclassified to income are composed of changes in the unrealized fair value of derivatives designated as cash flow hedges, foreign currency translation adjustments arising from translating financial statements of foreign operations, and changes in the unrealized fair value of available-for-sale investments.

5.4 Wireless segment

Network revenues from external customers increased year over year by $38 million in the first quarter of 2016. Data network revenue increased year over year by 8.3% in the first quarter of 2016, reflecting growth in the subscriber base, a larger proportion of higher-rate two-year plans in the revenue mix, a more favourable postpaid subscriber mix, and higher data usage from the continued adoption of smartphones and other data-centric wireless devices, as well as greater use of applications and the expansion of our LTE network coverage. Voice network revenue decreased year over year by 4.2% in the first quarter of 2016 due to the increased adoption of unlimited nationwide voice plans and continued but moderating substitution to data services.

Equipment and other revenues decreased year over year by $8 million in the first quarter of 2016, mainly due to lower gross additions and retention volumes, as well as lower Black–s Photography revenue from the closure of stores in August 2015, partly offset by higher-value smartphones in the sales mix and gains associated with the sale of redundant property, plant and equipment during the first quarter of 2016.

Intersegment revenue in the wireless segment represents network services provided to the wireline segment. Such revenues are eliminated upon consolidation along with the associated expenses.

Equipment sales expenses increased year over year by $15 million in the first quarter of 2016, reflecting an increase in higher-value smartphones in the sales mix and increasing handset costs, partly offset by lower gross additions and retention volumes, and lower cost of sales from the closure of Black–s Photography stores in August 2015.

Network operating expenses were relatively flat year over year in the first quarter of 2016, primarily due to higher maintenance costs offset by ongoing operational efficiencies.

Marketing expenses were relatively flat year over year in the first quarter of 2016, primarily due to an increase in advertising and promotions expenses, offset by lower commission expenses driven by lower gross additions and retention volumes.

Other goods and services purchased decreased year over year by $3 million in the first quarter of 2016, reflecting a decline in administrative costs from operational efficiencies, lower bad debt provisions and lower non-labour restructuring and other costs, partly offset by the expansion of our distribution channels and increases in external labour costs.

Employee benefits expense increased year over year by $4 million in the first quarter of 2016, reflecting $8 million higher labour-related restructuring costs from efficiency initiatives, inflationary compensation increases and lower capitalized labour costs, partly offset by lower salaries and wages driven by a reduction in FTEs from our ongoing operational efficiency initiatives and lower share-based compensation expenses.

Wireless EBITDA increased by $12 million in the first quarter of 2016 when compared to the same period in 2015. Wireless EBITDA – excluding restructuring and other costs increased year over year by $15 million, reflecting network revenue growth driven by a larger customer base and higher ARPU, as well as ongoing operational efficiency initiatives, partly offset by higher retention spend and increased external labour and distribution channel expenses.

5.5 Wireline segment

Other operating income decreased year over year by $8 million in the first quarter of 2016 as a result of a decrease in amounts recognized from the regulatory price cap deferral account for provisioning broadband Internet services to eligible rural and remote communities, as well as an increase in the provision related to written put options in respect of non-controlling interests.

Intersegment revenue represents services provided to the wireless segment. Such revenue is eliminated upon consolidation along with the associated expenses.

Wireline EBITDA decreased year over year by $7 million in the first quarter of 2016, primarily from higher labour-related restructuring and other costs and continued declines in legacy voice services, partly offset by growth in data service and equipment revenues. EBITDA – excluding restructuring and other costs increased year over year by 5.1%, as compared to a revenue increase of 3.9%, reflecting improving margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health services, as well as execution on cost efficiency programs.

6. Changes in financial position

7. Liquidity and capital resources

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of this MD&A.

7.1 Overview

Our capital structure financial policies, financing plan and report on financing and capital structure management plans are described in Section 4.3.

7.2 Cash provided by operating activities

Cash provided by operating activities decreased year over year by $155 million in the first quarter of 2016.

7.3 Cash used by investing activities

Cash used by investing activities decreased year over year by $266 million in the first quarter of 2016 and included the following:

Wireless segment capital expenditures decreased year over year by $68 million in the first quarter of 2016, due to lower spending on the deployment of spectrum. During the first three months of 2016, we continued our deployment of the 700MHz spectrum and the 2500MHz spectrum, as well as continued to invest in system and network resiliency and reliability in support of our ongoing customers first initiatives and to ready the network and systems for future retirement of legacy assets. Wireless segment capital intensity of 10% in the first quarter of 2016 was down from 15% in the same period in 2015.

Wireline segment capital expenditures increased year over year by $51 million in the first quarter of 2016, due to continued investment in our wireline broadband infrastructure, including connecting more homes and businesses directly to our fibre-optic network. This investment supports our high-speed Internet and Optik TV subscriber growth, as well as customers– demand for faster Internet speeds, and extends the reach and functionality of our healthcare solutions. We also continued to make investments in system and network resiliency and reliability. Wireline segment capital intensity was 30% in the first quarter of 2016, up from 28% in the same period in 2015.

7.4 Cash provided by financing activities

Net cash provided by financing activities was $352 million in the first quarter of 2016, as compared to $1.7 billion net cash provided by financing activities in the same period in 2015. Financing activities included the following:

Dividends paid to the holders of Common Shares

Dividends paid to the holders of Common Shares totalled $263 million in the first quarter of 2016, an increase of $19 million from the first quarter of 2015. The increase reflects higher dividend rates under our dividend growth program (see Section 4.3), partially offset by lower outstanding shares resulting from shares purchased and cancelled under our NCIB program. Subsequent to March 31, 2016, we paid dividends of $261 million to the holders of Common Shares in April 2016.

Purchase of Common Shares for cancellation

In the first quarter of 2016, we purchased approximately 1 million shares under our NCIB program. See Section 4.3 for details of our planned multi-year share purchase program.

Short-term borrowings

Short-term borrowings are composed primarily of amounts advanced to us from an arm–s-length securitization trust pursuant to the transfer of receivables securitization transactions (see Section 7.7 Sale of trade receivables). Proceeds were $100 million at March 31, 2016, consistent with the balance at March 31, 2015.

Long-term debt issues and repayments

Long-term debt issues, net of repayments, were $675 million in the first quarter of 2016, which was primarily from an increase in commercial paper during the first quarter of 2016 from $256 million at December 31, 2015, to $891 million at March 31, 2016, all of which were denominated in U.S. dollars (U.S. $686 million).

In comparison, Long-term debt issues, net of repayments, in the first quarter of 2015 were $2.1 billion and were composed of:

Our average term to maturity of long-term debt (excluding commercial paper) has decreased to approximately 10.8 years at March 31, 2016, compared to approximately 11.1 years at March 31, 2015. Additionally, our weighted average cost of long-term debt (excluding commercial paper) was 4.32% at March 31, 2016, as compared to 4.42% at March 31, 2015.

7.5 Liquidity and capital resource measures

Net debt was $12.4 billion at March 31, 2016, an increase of $2.4 billion when compared to one year earlier, resulting from incremental debt issued (primarily for the acquisition of 2500 MHz spectrum in August 2015), as well as a decrease in Cash and temporary investments, in part from the final payment of $1.2 billion in April 2015 related to the acquisition of AWS-3 spectrum licences.

Fixed-rate debt as a proportion of total indebtedness was 92% at March 31, 2016, down from 95% one year earlier, due to an increase in commercial paper, which emulates floating-rate debt.

Net debt to EBITDA – excluding restructuring and other costs ratio was 2.74 times for the 12-month period ended March 31, 2016, up from 2.30 times one year earlier. Our long-term objective for this measure is within a range of 2.00 to 2.50 times, which we believe is consistent with maintaining investment grade credit ratings in the range of BBB+, or the equivalent, and providing reasonable access to capital. As at March 31, 2016, this ratio was outside of the long-term objective range due to the issuance of incremental debt primarily for the acquisition of spectrum licences, which were auctioned in unprecedented amounts and in atypical concentrations during 2014 and 2015, partly offset by growth in EBITDA – excluding restructuring and other costs. These acquired licences have more than doubled our national spectrum holdings and represent an investment to extend our network capacity to support continuing data consumption growth, as well as growth in our wireless customer base. We 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. 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).

Earnings coverage ratio for the 12-month period ended March 31, 2016, was 4.6 times, down from 5.2 times one year earlier. Higher borrowing costs reduced the ratio by 0.5, while a decline in income before borrowing costs and income taxes reduced the ratio by 0.1.

EBITDA – excluding restructuring and other costs interest coverage ratio for the 12-month period ended March 31, 2016, was 9.2 times, down from 9.4 times one year earlier. An increase in net interest costs reduced the ratio by 0.6, while growth in EBITDA – excluding restructuring and other costs increased the ratio by 0.4. See Section 7.6 Credit facilities.

Dividend payout ratios: Actual dividend payout decisions will continue to be subject to our Board–s assessment and the determination of our financial position and outlook, as well as our long-term dividend payout ratio guideline of 65 to 75% of prospective net earnings. The disclosed basic and adjusted dividend payout ratios are historical measures utilizing the last four quarters of dividends declared and earnings per share, and are presented for illustrative purposes in evaluating our target guideline. The basic and adjusted dividend payout ratios for the 12-month period ended March 31, 2016, were not within the target range primarily due to increased restructuring and other costs largely from a reduction of full-time equivalent (FTE) positions announced in November 2015. Illustrating the effects of increased restructuring and other costs, if such costs had been entirely excluded, the adjusted payout ratio would have been 67% for the 12-month period ending March 31, 2016, as compared to 62% for the same period in 2015.

7.6 Credit facilities

At March 31, 2016, we had available liquidity of $1.4 billion from unutilized credit facilities and $128 million available from uncommitted letters of credit facilities, as well as $400 million available under our trade receivables securitization program (see Section 7.7). This adheres to our objective of generally maintaining at least $1.0 billion of available liquidity.

Revolving credit facility

We have a $2.25 billion (or U.S. dollar equivalent) revolving credit facility with a syndicate of 15 financial institutions that was renewed in the second quarter of 2014 and expires on May 31, 2019. The revolving credit facility is used for general corporate purposes, including the backstop of commercial paper, as required.

TELUS credit and other bank credit facilities at March 31, 2016

Our revolving credit facility contains customary covenants, including a requirement that we not permit our consolidated leverage ratio to exceed 4.00

  telus-corporation