VANCOUVER, Nov. 3 /PRNewswire-FirstCall/ -- TELUS Corporation (TSX: T and T.A / NYSE: TU) today reported for the third quarter of 2006 a seven per cent increase in revenues to $2.2 billion from a year ago due to continued strong wireless and data growth. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 13% due to strong wireless and wireline growth, aided by higher 2005 expenses due to the labour disruption. Earnings per share (EPS) for the third quarter were 94 cents, compared to 53 cents for the same period a year ago. EPS this quarter included favourable tax related adjustments of 9 cents per share. When normalizing for tax and the labour disruption impacts from 2005, EPS this quarter increased 42% due primarily to EBITDA growth lower depreciation and lower financing costs. The quarterly dividend was increased by 10 cents to 37.5 cents payable on January 1, 2007.

FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- C$ in millions, except per share amounts 3 months ended September 30 (unaudited) 2006 2005 % Change ------------------------------------------------------------------------- Operating revenues 2,210.7 2,062.8 7.2 EBITDA(1) 952.4 839.7 13.4 Operating income 569.1 430.5 32.2 Income before income taxes and non-controlling interest 448.5 278.6 61.0 Net income(2) 319.6 190.1 68.1 Earnings per share (EPS), basic(2) 0.94 0.53 77.4 Capital expenditures 423.9 263.3 61.2 Cash provided by operating activities 570.4 693.5 (17.8) Free cash flow(3) 528.3 581.3 (9.1) (1) Earnings before interest, taxes, depreciation and amortization (EBITDA) is defined as Operating revenues less Operations expense less Restructuring and workforce reduction costs. See Section of Management's discussion and analysis. Restructuring and workforce reduction costs were $12.5 million in the third quarter of 2006 compared to $1.6 million in the third quarter of 2005. Net expenses from the labour disruption were $65M in the third quarter of 2005. Underlying EBITDA growth before restructuring costs and net labour disruption expenses was 6.5%, compared to same period a year ago. (2) Net income and EPS includes favourable impacts of tax recoveries and related interest of approximately $30 million or nine cents per share for the three month period in 2006, and $17 million or five cents per share for tax-related adjustments for the same period in 2005. (3) See Section of Management's discussion and analysis.

Darren Entwistle, president and CEO, said "Third quarter results showed continued wireless and data growth consistent with our national strategy, which drove strong consolidated revenue and earnings. Notably, for the first time, TELUS generated more than 50% of consolidated EBITDA from its fast growing wireless operations. We were also pleased to experience resiliency in our wireline segment as a result of strong data revenues, which offset increased competitive pressures affecting local and long distance revenues. Data revenues increased 9% supported by a 41,500 increase in our high-speed Internet base and continued growth in enhanced data and business services. TELUS remains committed to returning capital to our shareholders as evidenced by our announcement today to raise the quarterly dividend by 36%, as well as our track record and intentions for significant ongoing share repurchases."

Robert McFarlane, executive vice president and CFO, said "Strong EPS growth of 77% resulted from wireless and wireline EBITDA growth aided by the absence of labour disruption costs combined with lower depreciation and financing costs, positive tax related adjustments and the impact of ongoing share repurchases. We have updated 2006 guidance including tighter ranges, increased high speed net additions and set a higher EPS range of $3.15 to $3.25. We plan to announce 2007 annual guidance by mid-December."

"Given TELUS' strong financial results to date, positive prospects for future growth in operational cash flows and consistent with our dividend growth model approach, today we announced a significant 36% increase in our dividend. Furthermore, we also intend to renew in December our significant NCIB share repurchase program for 2007. In the event TELUS does not pursue an income trust conversion, then the combination of the higher dividend and share repurchases at our year to date run-rate, would result in a total return of capital to shareholders that approaches the level of cash distributions per unit previously announced in relation to the proposed income trust conversion."

------------------------------------------------------------------------- This news release contains statements about expected future events and financial and operating results of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward- looking statements as a number of factors could cause actual future results and events to differ materially from that expressed in the forward-looking statements. Accordingly this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for 2006 guidance, normal course issuer bid renewal and share purchases), qualifications and risk factors (including uncertainties regarding tax benefits and the company's proposal to convert to an income trust) referred to in the Management's discussion and analysis - November 1, 2006. ------------------------------------------------------------------------- OPERATING HIGHLIGHTS TELUS wireless Profitable subscriber growth continues - Revenues increased by $146 million or 17% to $1.0 billion in the third quarter of 2006, when compared with the same period in 2005 - ARPU (average revenue per subscriber unit per month) improved by $2 to $66. The data component increased by 79% to over $5 - EBITDA increased by $69 million over the third quarter of 2005 representing 17% growth. Notably, for the first time, more than 50% of TELUS' EBITDA came from wireless operations - Cost of acquisition per gross addition of $386 was down for the third straight quarter, but increased 4% year over year due to higher handset subsidies and promotional spending - Net subscriber additions were 137,200, stable quarter over quarter with 4% growth in postpaid additions to 108,600 and slightly lower prepaid loading - Blended monthly churn was slightly higher at 1.36% compared to 1.33% a year ago, while postpaid churn remained low at 1.01% - Cash flow (EBITDA less capital expenditures) increased by $43 million or 13% to $370 million in the third quarter due to higher EBITDA offset by increased capital expenditures TELUS wireline Strong data growth supports stable revenues - Revenues were flat at $1.2 billion when compared to the third quarter of 2005 due to continued data revenue growth offsetting ongoing declines in local and long distance revenues - Data revenues increased 9.2% driven by strong high speed Internet and enhanced data service growth - Long-distance revenue declined 10% to $199 million, reflecting industry trends of lower volumes, strong price competition and technological substitution - EBITDA increased by $44 million or 10%, due primarily to higher net expenses incurred in the third quarter last year from the labour disruption - Non-incumbent revenue in Central Canada increased 5.5% with EBITDA up to $9.7 million - High-speed Internet net adds were 41,500, up significantly from a year ago bringing TELUS' total Internet subscriber base to 1.1 million - Network access lines declined by 40,000 in the quarter, down 2.8% from a year ago reflecting residential line losses from ongoing competitive activity and wireless substitution - Cash flow (EBITDA less capital expenditures) was down 37% to $158 million, due to increased capital expenditures reflecting increased spending on the broadband network and strong housing growth in Western Canada CORPORATE DEVELOPMENTS TELUS reassessing income trust conversion plans

TELUS is assessing the impact of the unexpected announcement, by Canada's Finance Minister that income trusts will be taxed in a manner similar to corporations, on the company's proposal it reorganize into an income trust. As a result of the October 31 announcement, there can be no assurance at this time that TELUS will proceed with the proposed income trust conversion it announced September 11.

TELUS is disappointed at the lack of consistency in the taxation legislation environment and that the government would make such a fundamental shift in policy without giving investors and Canadian companies the benefit of consultation or notice they were considering changing the rules. The lack of consistency makes it difficult for any company to make major long-term strategic decisions. As proposed, the new trust tax policy discriminates against TELUS investors and as such TELUS considers it unfair. If TELUS completes its trust conversion as previously planned, then TELUS would not receive an equitable tax treatment compared to existing publicly traded trusts for the four years ending 2010.

Should the conversion proceed it would be accomplished by way of a plan of arrangement under the Business Corporations Act (British Columbia) that would be subject to the approval of at least 66 2/3% of the votes cast by the security holders of TELUS at a special meeting. An information circular describing the reorganization and detailing the proposed plan of arrangement would be mailed to security holders before the meeting. The reorganization would also be contingent upon receipt of all necessary regulatory and court approvals. There can be no assurance at this time that all approvals and consents required or desirable to effect the conversion will be obtained within the proposed time frame, or at all, and, accordingly, there can be no assurance that the conversion will be completed.

TELUS continues share repurchases

During the third quarter, TELUS continued to purchase shares under its Normal Course Issuer Bid. Repurchases totaled 2.1 million shares (0.74 million common and 1.33 million non-voting), for a total outlay of $120 million.

TELUS commenced its second share purchase program on December 20, 2005 with the intention, if considered advisable, to purchase and cancel, over a 12-month period, up to 12 million of its common shares and 12 million of its non-voting shares on the Toronto Stock Exchange, which represented approximately 7% of the outstanding shares. Since this program commenced, 14.0 million shares have been repurchased, for an outlay of $658 million, representing 58% of the 24 million shares authorized.

Since December 2004, TELUS has repurchased a total of 35.7 million shares for an outlay of $1.57 billion under two share repurchase programs. TELUS believes that such purchases are in the best interest of TELUS and constitute an attractive investment opportunity and desirable use of company funds that should enhance the value of the remaining shares. TELUS intends to renew the current NCIB program that expires in December 2006, for an additional 12 month period. In the absence of an income trust conversion, this would allow continued significant share purchases in 2007.

TELUS calls for regulatory change

In October, in a speech to the Canadian Chamber of Commerce in Ottawa, TELUS President and CEO Darren Entwistle called on the federal government to implement regulatory change in Canada. Current regulatory frameworks were created 15 years ago, when wireless penetration was only three per cent, and do not reflect the current industry realities. Mr. Entwistle pointed out that the new communications world is in the midst of a digital revolution where wireless and IP are collapsing distance, reducing cost and eradicating borders. He argued that the current telecommunications and broadcasting regulatory regime stifles innovation and investment and is ill equipped for the pace of the IP world. In today's environment, a free market approach and deregulation would benefit the very consumers regulations were once created to protect.

Mr. Entwistle's call for a regulatory change followed TELUS' September call to the CRTC to reform broadcasting regulation in order to harness opportunities created by emerging technologies.

TELUS continues connecting B.C. communities

TELUS is partnering with the Gwaii Trust Society to connect seven Queen Charlotte Islands communities to broadband Internet by the end of the year. In September, TELUS announced it had signed a contract with the Gwaii Trust Society to bring high-speed Internet service to island residents this year by way of the world's longest over-water radio Internet transmission. The islands communities are among 119 TELUS is investing $110 million to connect by via the Connecting Communities agreement with the provincial government by the end of 2006, making the province the most connected jurisdiction in North America. TELUS and the province partner with local Internet service providers to offer TELUS' wholesale broadband service to individual homes and businesses.

TELUS connecting Quebec communities

TELUS is connecting 48 Quebec communities to broadband by the end of 2006. The company is partnering with Industry Canada and area municipalities to bring broadband capabilities to more than 80 per cent of households in the Lower St-Lawrence region. The project cost is $6.8 million, of which TELUS is investing $2.9 million.

TELUS, CUPE-FTQ reach labour accord for Quebec employees

TELUS and the Syndicat quebecois des employees de TELUS (SQET), Local 5044 of the Canadian Union of Public Employees (CUPE-FTQ) reached a four-year labour contract ratified by the 1,000-member union local in late August. These employees will now be eligible to receive variable pay based on company performance, lump-sum payments in 2006 and 2007, and a new defined contribution pension plan. A new job evaluation program has also been implemented.

CONSUMER SOLUTIONS TELUS invests in broadband network

In September TELUS announced it is investing $600 million to enhance broadband infrastructure in the top 38 communities across British Columbia, Alberta and eastern Quebec by the end of 2009. TELUS is installing advanced equipment in more than 7,000 sites and running fibre optic cable closer to customer homes to drive faster Internet access speeds in support of new offerings, including TELUS TV.

This broadband build complements a rural capital investment program to bring high speed Internet services to more than 450 additional remote communities in British Columbia, Alberta, and eastern Quebec by 2010.

TELUS begins offering digital TV to Vancouver Lower Mainland

In the quarter, TELUS began the commercial launch of TELUS TV in select Vancouver neighbourhoods. The neighbourhood-by-neighbourhood rollout follows similar successful launches of digital TV service in Calgary and Edmonton in 2005.

Three promises - TELUS commits to wireless client satisfaction

TELUS introduced its Future Friendly Promises to reinforce its commitment to delivering the wireless industry's best experience to clients. Building upon TELUS' history of excellent client service, the Future Friendly Promises are made up of three pledges - a dependable network, fast client service and cool new phones. Together with potential customer account credits, these promises are raising the bar for client service in the wireless industry.

TELUS SPARKs with new wireless data services

TELUS continued to expand its SPARK(TM) portfolio of mobile entertainment, information and messaging services with the introduction of five new offerings.

TELUS Kid Find and TELUS Navigator are new location based services making finding family members and destinations simpler. Operating on TELUS' 1x wireless data network in British Columbia, Alberta and Ontario's Golden Horseshoe, the services combine the accuracy of traditional GPS technology with TELUS' network based location technology to provide reliable location fixes. With TELUS Kid Find, clients can use mapping technology on their mobile phones and computers to locate GPS-enabled phones. TELUS Navigator is a mobile phone-based tool that offers audible and visual turn-by-turn directions.

TELUS partnered with India's Reliance Communications to bring South Asia to the palm of our clients' hands with Apna Des. This one-stop shop for South Asian mobile content brings TELUS clients North America's largest catalogue of Bollywood content along with news, cricket updates, entertainment and cultural information direct from South Asia.

With My Email, clients with the LG 490 handset enjoy enhanced MSN Hotmail. They can read, reply, write and forward emails and even receive notification of new messages.

TELUS Mobile Search is a new mobile search tool making it easier than ever to find made-for-mobile information on-the-go. With less searching and better results, clients access downloadable information including music, ringtones, images and games, flight information, news, sports scores, lottery results, stock quotes, weather, and product rating and price points.

Cool new wireless phones

TELUS continued to expand its suite of cool products with the introduction of eight new wireless handsets and devices including the LG 490, TELUS' second phone equipped with the Fastap keypad. Fastap is the only mobile phone keypad in the world to integrate raised letter keys around the numeric keypad.

BUSINESS & PARTNER SOLUTIONS TELUS signs significant business contracts in Ontario and Alberta

In September, TELUS announced it had won a major five-year, $140 million contract to provide and manage the Government of Ontario's province-wide telecommunications network, including IT security. This contract is another significant step forward in the national growth strategy TELUS initiated in 2000.

In October, a second contract between TELUS and the Government of Ontario was announced when the Ministry of Transportation unveiled its Greater Toronto Area (GTA) Fare Card. In support of the program, TELUS secured a $14 million, 10-year contract to provide a Wide Area Network and Wireless Local Area Network solution, which will be hosted and managed out of our Toronto Data Centre.

The announcements capped a quarter that saw several other business contracts including an $8.3 million contract in Alberta with ATB Financial for call centre, voice and data IP services and a contract to provide emergency communications infrastructure to Edmonton's Capital Health service organization.

TELUS to open contact centre in Montreal

TELUS and the Government of Quebec announced the opening of a new contact centre this year in the heart of Montreal. The $3.5 million high-tech contact centre is expected to create at least 150 jobs by mid-2007, and will be responsible for supporting TELUS' small and medium-sized business clients.

Two new Ontario buildings will house TELUS team

To accommodate TELUS' growth in Central Canada, TELUS and Menkes Developments broke ground in September on a new TELUS tower in downtown Toronto at 25 York Street beside Union Station. The $250 million building will set a new standard for environmental responsibility and energy efficiency. Scheduled for occupancy in early 2009, it will bring together more than 2,000 team members located across the greater Toronto area.

In Ottawa, TELUS broke ground in June at 215 Slater Street, bringing its "Future Friendly" brand to downtown. The state-of-the-art 'green' building will bring together 300 TELUS employees who are currently located in various locations across the city in a location that is good for the environment, celebrates innovation and inspires business growth in the Ottawa community.

OTHER DEVELOPMENTS TELUS National Day of Service

On September 30, more than 5,000 TELUS team members, alumni, and their families rolled up their sleeves to make a significant difference in dozens of communities across Canada as part of the first annual TELUS National Day of Service. TELUS team members volunteered a truly scarce resource, their time and energy, to hundreds of volunteer activities in more than 30 cities and towns across Canada. This included stocking shelves at Toronto's Daily Bread Food Bank, preparing food at the Mission Bon Accueil, a non-profit community service organization in Montreal, building Habitat for Humanity homes in Edmonton, and cleaning and maintaining Victoria's Mustard Seed Street Church.

TELUS recognized for best annual report in world

The 2005 TELUS annual report was ranked best in the world by the Annual Report on Annual Reports, the only international ranking of corporate annual reports. Now in its tenth year of surveying reports from around the world, Belgium-based enterprise.com evaluated 25 aspects of corporate reporting including executive statements, strategic direction, outlook and targets, review of operations, social responsibility, risk factors and corporate governance.

TELUS scored exceptionally well for overall financial reporting, profile and business at a glance, strategy, outlook and prospects, financial highlights, the CEO's message, management's discussion and analysis (MD&A), and risk factors.

TELUS named to Dow Jones Sustainability Index for sixth straight year

In September 2006, for the sixth consecutive year, the Dow Jones Sustainability Index (DJSI), a worldwide corporate sustainability ranking, recognized TELUS as an economic, environmental and social leader. Once again, TELUS is the only North American telecommunications company included in the global index. This year, TELUS received a perfect score for its environmental reporting. Other areas for which the judges gave TELUS high marks included: environmental management, risk and crisis management, human capital development, talent attraction and retention, stakeholder engagement and social reporting.

TELUS security chief receives top recognition

TELUS' Chief Security Officer Gene McLean was named Security Director of the Year by Canadian Security Magazine. Mr McLean leads a team of 90 security specialists providing security for team members and facilities, IP networks operated by TELUS and its customers, data, and intellectual property. The team also ensures regulatory compliance and the protection of privacy of customer information.

TELUS Community Board launched in Calgary

The launch of TELUS' seventh community board, in Calgary, completed the roll out of the boards across Canada. Comprised of community leaders and local TELUS executives, each board seeks out grassroots charitable projects in each community for $500,000 in annual donations.

TELUS Skins Game aids Alberta Children's Hospital Foundation

The TELUS Skins Game visited Alberta for the first time in August. The annual Canadian summer golf classic featured five of the biggest names in the game including the legendary Jack Nicklaus and Greg Norman. More than $200,000 raised at the Banff event benefited the Alberta Children's Hospital Foundation, the designated charity this year.

Dividend declaration

The Board of Directors declared a quarterly dividend of thirty-seven and a half cents ($0.375) per share on outstanding Common and Non-Voting Shares payable on January 1, 2007 to shareholders of record on the close of business on December 11, 2006. This represents a 36.4% increase from the previous twenty-seven and a half cent quarterly dividend.

Certain products and services named in this release are trade-marks. The symbols (TM) and (R) indicate those owned by TELUS Corporation or its subsidiaries. All other trade-marks are the property of their respective owners. Forward-looking statements ------------------------------------------------------------------------- This report and Management's discussion and analysis contain statements about expected future events and financial and operating results of TELUS Corporation ("TELUS" or the "Company") that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from financial and operating targets, expectations, estimates or intentions expressed in the forward-looking statements. TELUS' intention to reorganize in its entirety as an income trust, announced on September 11, 2006, is subject to inherent risks and uncertainties, including changes arising from the October 31, 2006 announcement by the federal Minister of Finance of a proposed new Tax Fairness Plan affecting the future taxation level of income trusts and corporations. No assurance can be given that TELUS' income trust conversion will proceed, or be completed in the originally anticipated January 2007 time-frame, or that any of the anticipated benefits and implications of income trust conversion will be realized if the conversion were to proceed. Unless noted explicitly, forward-looking statements in Management's discussion and analysis are in the context of TELUS continuing as a corporation. Assumptions for 2006 guidance purposes include: economic growth consistent with recent provincial and national estimates by the Conference Board of Canada, including gross domestic product growth of 2.7% in Canada; increased wireline competition in both business and consumer markets; a Canadian wireless industry market penetration gain of 4.5 to five percentage points; up to $80 million of restructuring and workforce reduction expenses; an effective tax rate of approximately 23%; no prospective significant acquisitions or divestitures; no change in foreign ownership rules; and maintenance or improvement of investment- grade credit ratings. Factors that could cause actual results to differ materially include but are not limited to: competition; technology (including reliance on systems and information technology); regulatory developments (including wireless number portability and possible future changes to the regulatory environment); human resources; business integrations and internal reorganizations; process risks (including billing system conversion); financing and debt requirements (including share repurchases and debt redemptions); tax matters (including changes to the taxation of income trusts and corporations); health, safety and environment developments; litigation and legal matters; business continuity events (including manmade and natural threats); economic growth and fluctuations (including pension performance, funding and expenses); and other risk factors discussed herein and listed from time to time in TELUS' reports, public disclosure documents including the Annual Information Form, and other filings with securities commissions in Canada (filed on SEDAR at http://www.sedar.com/) and the United States (filed on EDGAR at http://www.sec.gov/). For further information, see Section 10: Risks and risk management of TELUS' annual 2005 Management's discussion and analysis, as well as updates reported in Section 10 of TELUS' 2006 first and second quarter Management's discussion and analyses, and this document. ------------------------------------------------------------------------- Management's discussion and analysis November 1, 2006

The following is a discussion of the consolidated financial condition and results of operations of TELUS Corporation for the three-month and nine-month periods ended September 30, 2006 and 2005, and should be read together with TELUS' interim consolidated financial statements. This discussion contains forward-looking information that is qualified by reference to, and should be read together with, the discussion regarding forward-looking statements above.

TELUS' interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which differ in certain respects from U.S. GAAP. See Note 18 to the interim consolidated financial statements for a summary of the principal differences between Canadian and U.S. GAAP as they relate to TELUS. The interim consolidated financial statements and Management's discussion and analysis were reviewed by TELUS' Audit Committee and approved by TELUS' Board of Directors. All amounts are in Canadian dollars unless otherwise specified.

TELUS has issued guidance on and reports on certain non-GAAP measures that are used by management to evaluate performance of business units, segments and the Company. In addition, non-GAAP measures are used in measuring compliance with debt covenants. Because non-GAAP measures do not have a standardized meaning, securities regulations require that non-GAAP measures be clearly defined and qualified, and reconciled with their nearest GAAP measure. For the readers' reference, the definition, calculation and reconciliation of consolidated non-GAAP measures is provided in Section 11: Reconciliation of non-GAAP measures and definition of key operating indicators.

Management's discussion and analysis contents ------------------------------------------------------------------------- Section Description ------------------------------------------------------------------------- 1. Overall performance A summary of TELUS' consolidated results for the third quarter and first nine months of 2006 ------------------------------------------------------------------------- 2. Core business, vision Examples of TELUS' activities in support of and strategy its six strategic imperatives ------------------------------------------------------------------------- 3. Key performance drivers TELUS' 2006 priorities ------------------------------------------------------------------------- 4. Capability to deliver An update on TELUS' capability to deliver results results ------------------------------------------------------------------------- 5. Results from operations A detailed discussion of operating results for the third quarter and first nine months of 2006 ------------------------------------------------------------------------- 6. Financial condition A discussion of significant changes in the balance sheet at September 30, 2006, as compared to December 31, 2005 ------------------------------------------------------------------------- 7. Liquidity and capital A discussion of cash flow, liquidity, credit resources facilities, off-balance sheet arrangements and other disclosures ------------------------------------------------------------------------- 8. Critical accounting A description of accounting estimates and estimates and changes to accounting policies accounting policy developments ------------------------------------------------------------------------- 9. Full year guidance for A confirmation and revisions, if any, to 2006 TELUS' annual guidance ------------------------------------------------------------------------- 10. Risks and risk An update of risks and uncertainties facing management TELUS and how it manages these risks ------------------------------------------------------------------------- 11. Reconciliation of non- A description, calculation and GAAP measures and reconciliation of certain measures used by definition of key management operating indicators ------------------------------------------------------------------------- 1. Overall performance 1.1 Materiality for disclosures

Management determines whether or not information is material based on whether it believes a reasonable investor's decision to buy, sell or hold securities in the Company would likely be influenced or changed if the information were omitted or misstated.

1.2 Proposed reorganization as an income trust

The federal Minister of Finance announced late on October 31, 2006, a new Tax Fairness Plan that is intended to change the relationships between the future levels of taxation of income trusts and corporations. One element of the proposed plan is a tax on distributions of business income earned by non- passive investments by publicly traded income trusts and limited partnerships (other than those which hold passive real estate investments). This is intended to make an income trust's income tax treatment more like that of public corporations. The announcement by the federal Minister of Finance indicated that for income trusts, which begin trading after October 31, 2006, the new tax measures will apply to the later of their 2007 taxation year and the taxation year in which the income trust begins to trade. The result of the application of these new proposals is expected to reduce the tax efficiency of publicly traded income trusts.

TELUS is assessing the impact of this unexpected development on the proposed reorganization of TELUS in its entirety as an income trust, announced on September 11, 2006. At that time, TELUS indicated that the conversion would be accomplished by way of a plan of arrangement under the Business Corporations Act (British Columbia) that is subject to approval of at least two thirds of the votes cast by the security holders of TELUS at a special meeting expected to be held in January 2007. It was also noted that, although the timing of the completion of the conversion process could not be predicted with certainty, management anticipated completion in late January 2007.

As a result of the announcement by the federal Minister of Finance, there can be no assurance at this time that TELUS will proceed with its proposed income trust conversion. See the related risk discussion in Section 10.5 Income trust reorganization risks.

1.3 Consolidated highlights ------------------------------------------------------------------------- ($ millions, except shares, per share Quarters ended Nine-month periods Amounts, subscribers September 30 ended Sept. 30 and ratios) 2006 2005 Change 2006 2005 Change ------------------------------------------------------------------------- Consolidated statements of income ------------------------------------------------------------------------- Operating revenues 2,210.7 2,062.8 7.2 % 6,426.4 6,056.0 6.1 % Operating income 569.1 430.5 32.2 % 1,543.7 1,350.4 14.3 % Income before taxes and non-controlling interests 448.5 278.6 61.0 % 1,154.7 889.9 29.8 % Net income 319.6 190.1 68.1 % 886.3 621.8 42.5 % Earnings per share, basic ($) 0.94 0.53 77.4 % 2.57 1.74 47.7 % Earnings per share, diluted ($) 0.92 0.53 73.6 % 2.54 1.72 47.7 % Cash dividends declared per share ($) 0.275 0.20 37.5 % 0.825 0.60 37.5 % ------------------------------------------------------------------------- Consolidated statements of cash flows ------------------------------------------------------------------------- Cash provided by operating activities 570.4 693.5 (17.8)% 2,056.5 2,109.6 (2.5)% Cash used by investing activities 451.0 263.3 71.3 % 1,253.2 979.5 27.9 % Capital expenditures 423.9 263.0 61.2 % 1,203.2 944.9 27.3 % Cash used by financing activities 126.2 249.2 (49.4)% 837.3 704.5 18.9 % ------------------------------------------------------------------------- Subscribers and other measures ------------------------------------------------------------------------- Subscriber connections(1) (thousands) at end of period 10,531 9,981 5.5 % EBITDA(2) 952.4 839.7 13.4 % 2,712.2 2,560.9 5.9 % Free cash flow(3) 528.3 581.3 (9.1)% 1,367.0 1,355.7 0.8 % ------------------------------------------------------------------------- Debt and payout ratios ------------------------------------------------------------------------- Net debt to total capitalization ratio (%) (at end (0.1) of period)(4) 45.3 45.4 pts Net debt to EBITDA ratio (12 months ended September 30)(5) 1.6 1.8 (0.2) Dividend payout ratio (%) (12 months ended September 30)(6) 39 38 1 pt ------------------------------------------------------------------------- pt, pts- percentage point(s) (1) The sum of wireless subscribers, network access lines and Internet subscribers measured at the end of the respective periods. (2) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before interest, taxes, depreciation and amortization (EBITDA). (3) Free cash flow is a non-GAAP measure. See Section 11.2 Free cash flow. (4) See Section 11.4 Definition of liquidity and capital resource measures. (5) Net debt to EBITDA, where EBITDA excludes restructuring. See Section 11.4 Definition of liquidity and capital resource measures. (6) The current annualized rate of dividend declared per share multiplied by four and divided by basic earnings per share for the 12-month trailing period. -------------------------------------------------------------------------

Highlights, as discussed in Section 5: Results from operations, include the following (comparing results for the third quarter and first nine months of 2006 to the respective periods in 2005):

- Subscriber connections increased over the 12-month period ended September 30, 2006, as the number of wireless subscribers grew by 13.7% to 4.87 million, the number of Internet subscribers grew by 9.3% to 1.08 million and the number of network access lines decreased by 2.8% to 4.58 million. - Operating revenues increased as growth in wireless revenues and wireline data revenues exceeded erosion in wireline voice local, long distance and other revenues. - Operating income grew primarily due to increased EBITDA and lower amortization of intangible assets. EBITDA increased mainly because of growth in wireless subscribers and average revenue per subscriber unit ("ARPU") as well as the absence of labour disruption related expenses in 2006 wireline EBITDA. Wireless segment EBITDA in the third quarter of 2006 was a record quarterly amount for TELUS, and exceeded wireline EBITDA for the first time. In addition, TELUS' total EBITDA for the third quarter of 2006 was a record quarterly amount since the merger of BC TELECOM and Alberta-based TELUS Corporation in 1999. - Net income and earnings per share increased due to improved operating performance, described above, as well as lower financing costs. The average numbers of shares outstanding in the third quarter and first nine months of 2006 were approximately 4% lower than the same periods in 2005 due to share repurchase programs, which contributed to increased 2006 earnings per share. In addition, Net income and earnings per share in the third quarter of 2006 included favourable tax reductions for reassessments of prior years and related interest income of approximately $30 million or nine cents per share. For the first nine months of 2006, favourable impacts of tax-related adjustments, including changes in statutory tax rates, were approximately $145 million or 42 cents per share, compared with favourable tax adjustments of approximately $75 million or 21 cents per share in the first nine months of 2005. - Based on the results for the first nine months, the Company revised its annual guidance for 2006, subject to the Forward-looking statements at the beginning of management's discussion and analysis. See Section 9: Full year guidance for 2006.

Highlights, as discussed in Section 7: Liquidity and capital resources include the following (comparing results for the third quarter and first nine months of 2006 to the respective periods in 2005):

- Cash provided by operating activities decreased primarily due to the reduction in proceeds from securitized accounts receivable. - Cash used by investing activities increased primarily due to greater capital expenditures for investments in the broadband networks in B.C., Alberta and Quebec, network access growth to serve strong housing growth in B.C. and Alberta, TELUS TV(R), strategic investments in next-generation EVDO-capable higher speed wireless network technology and continued enhancement of digital wireless capacity and coverage. - Cash used by financing activities decreased in the third quarter due mainly to lower repurchases of shares under normal course issuer bids. For the first nine months, cash used by financing activities increased mainly due to lower proceeds from issuance of shares resulting from a lower number of options being exercised and implementation of the net equity settlement feature on May 1, 2006. - Free cash flow decreased in the quarter as improved EBITDA (before restructuring charges) was more than offset by increased capital expenditures and lower interest received. For the first nine months, free cash flow increased due mainly to increased EBITDA (before restructuring charges), lower taxes and lower interest paid more than offsetting increased capital expenditures and restructuring payments. - Net debt to total capitalization at September 30, 2006 continued to be in the target range of 45 to 50%. - Net debt to EBITDA continued to be in the target range of 1.5:1 to 2.0:1. - The dividend payout ratio for the twelve-month period ended September 30, 2006 was lower than the target guideline of 45 to 55% for sustainable net earnings due mainly to actual earnings including the future income tax reduction from tax rate changes in the second quarter of 2006 and tax recoveries in the third quarter of 2006. - A dividend of 37.5 cents per share was declared for the fourth quarter of 2006 for shareholders of record on December 11, 2006, payable on January 1, 2007. This 36.4% increase in the quarterly dividend is the third successive increase announced since 2004. This level is consistent with the dividend payout guideline of 45 to 55% of sustainable net earnings, based on the midpoint of TELUS' full year guidance for 2006. 2. Core business, vision and strategy

The following discussion is qualified in its entirety by the Forward- looking statements at the beginning of Management's discussion and analysis. It is also qualified by Section 10: Risks and risk management of TELUS' annual 2005 Management's discussion and analysis, as well as updates reported in Section 10 of TELUS' 2006 first and second quarter Management's discussion and analyses, and this document.

TELUS' core business, vision and strategy were detailed in its 2005 annual Management's discussion and analysis. Recent activities in support of the Company's six strategic imperatives include the following:

Building national capabilities across data, IP (Internet protocol), voice and wireless; Focusing relentlessly on the growth markets of data, IP and wireless; and Building integrated solutions that differentiate TELUS from its competitors

In September 2006, TELUS was selected by the Ontario Ministry of Government Services to provide, manage and supply its portfolio of network services including information technology security for the entire network of the Government of Ontario. The five-year contract is expected to generate approximately $140 million of revenue. TELUS' network solution for the Government of Ontario is based on an IP platform, which allows secure transmission and electronic sharing of information, and includes videoconferencing and web conferencing services.

TELUS also announced in September 2006 that it intends to invest $600 million between 2007 and 2009 to enhance broadband infrastructure. This investment will enable emerging services and expand network coverage across British Columbia, Alberta and Eastern Quebec. The $600 million complements the approximately $190 million expected to be invested during 2006.

TELUS' broadband build is an important investment, paving the way for emerging services including high definition TELUS TV. The Company is installing advanced Internet equipment in more than 7,000 sites across its network and running fibre optic cable closer to customer homes. Bringing fibre closer to homes is expected to provide Internet access speeds of 15 to 30 megabits per second and beyond.

The broadband project complements a rural capital investment program to bring high speed Internet services to more than 450 additional remote communities in British Columbia, Alberta, and eastern Quebec by 2010. See the related risk discussion in Section 10.1 Regulatory, Price cap regulation - Disposition of funds in the deferral accounts.

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

In August 2006, TELUS and Amp'd Mobile, Inc. (Amp'd Mobile) announced an exclusive relationship for the sale and distribution of Amp'd branded services in Canada. As a result, Amp'd Mobile's highly interactive and customized mobile entertainment, information and messaging services are expected to be offered in Canada operating on TELUS' Wireless High Speed network in early 2007.

Under the terms of the Licensing and Services Agreement, Amp'd Mobile will be responsible for bringing unique entertainment content to TELUS' subscribers as well as providing optimized handsets capable of fast download speeds. TELUS will manage sales and distribution, billing, client care, network operations and pricing. TELUS will have the exclusive right to use Amp'd trademarks, premium data services, handsets and content delivery platforms in Canada. This represents an opportunity for TELUS to better reach the high value young adult market segment with Amp'd Mobile's highly differentiated, premium data and content centric services.

TELUS Ventures, the strategic venture investment division of TELUS, also announced that it made a U.S. $7.5 million equity investment in Amp'd Mobile, Inc., which is headquartered in California.

Investing in internal capabilities to build a high performance culture and efficient operations

Two new collective agreements in the Province of Quebec have been negotiated and ratified in 2006. Most recently, TELUS Quebec and Syndicat quebecois des employes de TELUS (SQET) reached a tentative agreement in July, and the membership ratified the agreement at the end of August. The agreement covers more than 1,000 office, clerical and technical employees and will remain in effect until the end of 2009. Highlights of the agreement include: introduction of a variable pay component tied to the Company's performance with a target payout of 3% in 2007 increasing to 5% in 2009, lump-sum payments of 1.75% in 2006 and one per cent in 2007 for all salaried employees, general wage increases of 1% in 2008 and 2009, an increase in the standard work week by 2.5 paid hours to 37.5 hours for approximately 200 client care representatives, and introduction of a defined contribution pension plan for new employees (current employees remain covered by existing pension arrangements).

In the first quarter of 2006, TELUS Quebec and the Syndicat des agents de maitrise de TELUS concluded negotiations for a new collective agreement covering more than 500 professional and supervisory employees. The agreement was ratified by union membership and came into effect on April 1, 2006. The agreement is a one-year contract that included a 1.75% salary increase.

3. Key performance drivers

The Company set new priorities for 2006 to advance its strategy; achieve meaningful commercial differentiation in the markets; capitalize on the technology convergence of wireless and wireline; and drive continued operating efficiency and effectiveness. The following discussion is qualified in its entirety by the Forward-looking statements at the beginning of Management's discussion and analysis. It is also qualified by Section 10: Risks and risk management of TELUS' annual 2005 Management's discussion and analysis, as well as updates reported in Section 10 of TELUS' 2006 first and second quarter Management's discussion and analyses, and this document.

In addition to the many initiatives taken in 2006 to support priorities detailed in Section 2 Core Business, vision and strategy, some additional initiatives are itemized below.

------------------------------------------------------------------------- 2006 corporate priorities across wireline and wireless ------------------------------------------------------------------------- Advance TELUS' leadership in the consumer market through: - TELUS' future friendly suite of data applications for customers at home and on the move - Best-in-class customer loyalty through cost-effective customer experience - Expanding TELUS' channel partner relationships to strengthen its distribution. Advance TELUS' position in the business market through: - Innovative solutions that enhance the competitiveness of TELUS' customers and deepen their loyalty to TELUS - Increasing the Company's share in the business market by leveraging TELUS' mobile solutions such as high-speed data - Improving delivery of managed solutions to small business customers. Advance TELUS' position in the wholesale market through: - Strengthening the Company's North American reach through innovative IP solutions - Establishing creative and preferred partnerships to grow TELUS' national customer base - Optimizing the use of partner networks to complement TELUS' network investments. Drive improvements in productivity and service excellence by: - Realizing efficiencies from the integration of wireline and wireless operations - Driving improvements in enterprise-wide productivity and customer service excellence to increase competitiveness TELUS reinforced its commitment to bringing the wireless industry's best experience to clients with the announcement of its Future Friendly Promises of a dependable network, fast client service and new phone offers. - Capturing value from TELUS' investments in technology and innovation to streamline operations. Strengthen the spirit of the TELUS team and brand, and develop the best talent in the global communications industry by: - Continuing to leverage best practices across the Company Through periodic surveys of employees, known as pulse check, TELUS obtains crucial feedback about the business. In the latest survey, notable improvements were measured in team member engagement, pride and outlook for the future. - Cultivating a business ownership culture that embraces a philosophy of "our business, our customers, our team, my responsibility" On September 30, more than 5,000 TELUS team members, alumni and family across Canada volunteered their time and energy to hundreds of volunteer activities as part of the TELUS National Day of Service. - Capitalizing on TELUS' reputation as a progressive, high-performance Company to attract and retain the best team in Canada TELUS held 28 information sessions and job fairs across Canada in the third quarter of 2006, contributing to hiring of needed talent for the future. - Providing team members innovative opportunities for growth, development and employment options. Earlier this year, TELUS was awarded with a Thomson Illuminati award for worldwide excellence in employee learning programs and practices; 2006 marked the third consecutive year in which TELUS has received a prestigious Illuminati award. ------------------------------------------------------------------------- 4. Capability to deliver results 4.1 Operational capabilities across wireline and wireless Development of a new billing system in the wireline segment

The development of a new wireline billing system progressed in the third quarter of 2006. The development includes re-engineering processes for order entry, pre-qualification, service fulfillment and assurance, customer care, collections/credit, customer contact, and information management. The expected customer service and cost benefits of this project include streamlined and standardized processes and the elimination over time of multiple legacy information systems. In the third quarter of 2006, the Company successfully implemented a pilot conversion for a sample set of customers. A commercial launch of the converged billing system platform for consumer customers in Alberta is currently planned for the first quarter of 2007, with additional phases of conversion planned over the next few years. See Section 10.4 Process risks.

Efficiency programs

TELUS' operating efficiency initiatives fall into three broad categories: outsourcing of non-core or peak-load work; consolidation of offices and call centers; and process improvement and automation.

With respect to outsourcing, TELUS has fully or partially contracted out a number of non-core functions including property management, custodial services, building maintenance, mail services, fleet maintenance, and pay phone coin counting. As a result of these outsourcing initiatives, approximately 250 employees have either accepted an offer of redeployment or a voluntary departure package.

With respect to office consolidation, to achieve greater efficiency and improve customer service, management has rationalized a number of offices into larger centers, including the consolidation of the retail office and call center in Victoria into Calgary and Edmonton, as well as consolidation of the conference operation into the BC lower mainland. Additionally, management has completed the consolidation of two field dispatch centers in greater Vancouver into Calgary. Through these initiatives, approximately 525 employees have either accepted an offer of redeployment or a voluntary departure package. The Company is also transforming to a more variable cost structure through the increased use of temporary employees, which management expects to allow better synchronization of resources with variable customer demand.

Finally, with respect to process improvement and automation, TELUS continues to focus on streamlining functional area processes, which includes building on the learnings from the deployment of management team during the 2005 labour disruption. Examples include automating directory listing functions and making process improvements in business support functions, such as human resources. Approximately $95 million has been invested in restructuring and work force reduction charges over the last four quarters.

In areas like office and call center consolidations, TELUS is experiencing short conventional payback periods, whereas in the area of outsourcing activities, implementation takes longer and paybacks can extend over several years. It should be noted, however, that all of these initiatives are expected to provide positive economic returns. See Section 10.4 Process risks.

Integration of wireline and wireless operations

The integration of wireline and wireless continues subject to the risk discussion in Section 10.3 Business integration and internal reorganizations.

4.2 Liquidity and capital resources

The following discussion is qualified in its entirety by the Forward- looking statements at the beginning of Management's discussion and analysis, as well as TELUS' annual 2005 Management's discussion and analysis Section 9.3 Financing plan for 2006 and Section 10.7 Financing and debt requirements.

At September 30, 2006, TELUS had access to undrawn credit facilities of more than $1.4 billion. The Company believes it has sufficient capability to fund its requirements from these facilities and expected cash flow from operations. The following table describes the status of TELUS' financing plan.

------------------------------------------------------------------------- 2006 financing plan and results ------------------------------------------------------------------------- TELUS' 2006 financing plan is to use free cash flow generated by its business operations to: ------------------------------------------------------------------------- - Repurchase TELUS Common Shares and TELUS Non-Voting Shares under the Normal Course Issuer Bid ("NCIB") In the first nine months of 2006, the Company repurchased approximately 5.4 million Common Shares and 7.3 million Non-Voting Shares for a total of $600.7 million. Between December 20, 2004 and September 30, 2006, the Company repurchased approximately 16.3 million Common Shares and 19.4 million Non-Voting Shares for a total of $1.57 billion under two NCIB programs. See Section 7.3 Cash used by financing activities. - Pay dividends The declared dividend for the third quarter of 2006, payable on October 1, was 27.5 cents per share, as compared to 20 cents per share one year earlier. A37.5 cent per share dividend was declared for the fourth quarter of 2006, payable on January 1, 2007. - Retain cash-on-hand for corporate purposes The balance of securitized accounts receivable decreased by $150 million during the first nine months of 2006, closing at $350 million on September 30, 2006. Amounts outstanding under the three-year credit facility and other bank facilities were $132 million at September 30, a decrease of $10 million since December 31, 2005. ------------------------------------------------------------------------- Other financing objectives included: ------------------------------------------------------------------------- - Maintain a minimum $1 billion in unutilized liquidity TELUS had available liquidity from unutilized credit facilities of more than $1.4 billion at September 30, 2006. - Maintain position of fully hedging foreign exchange exposure for indebtedness In contemplation of the planned refinancing of the 2007 (U.S. Dollar) Notes, in May 2006 the Company replaced approximately 63% of the notional value of the existing cross currency interest rate swap agreements with a like amount of new cross currency interest rate swap agreements which have a lower effective fixed interest rate and a lower effective fixed exchange rate. This replacement happened concurrent with the issuance of the 2013 (Canadian Dollar) Notes (see below); the two transactions had the composite effect of deferring, from June 2007 to June 2013, the payment of $300 million. - Give consideration to refinancing all or a portion of U.S Dollar denominated Notes due June 1, 2007 in advance of its scheduled maturity Concurrently with the above, in May 2006, the Company publicly issued $300 million 5.00%, Series CB, Notes, which mature in 2013. In contemplation of the planned refinancing of the debt maturing June 1, 2007, the Company had entered into forward starting interest rate swap agreements during 2006 that, as at September 30, 2006, have the effect of fixing the underlying interest rate on up to $500 million of replacement debt. - Preserve access to the capital markets at a reasonable cost by maintaining investment grade credit ratings and targeting improved credit ratings in the range of BBB+ to A-, or the equivalent, in the future Investment grade credit ratings from the four rating agencies that cover TELUS were maintained. The ratings assigned by three credit rating agencies are currently within TELUS' desired range, while Moody's Investors Service's "Baa2" rating for TELUS (equivalent to "BBB") is one position below TELUS' desired range. In September, following TELUS' announcement of its intention to convert to an income trust, three of four credit rating agencies that cover the Company confirmed their ratings and adjusted their outlooks to "stable" or "developing." Dominion Bond Rating Service placed their ratings "under review with developing implications." The federal government announced on October 31, 2006, a new Tax Fairness Plan that affects the future level of taxation of income trusts and corporations. TELUS is studying the implications of that announcement and it is uncertain as of November 1, 2006 what the response of credit rating agencies may be. ------------------------------------------------------------------------- 5. Results from operations 5.1 General

The Company has two reportable segments: wireline and wireless. Segmentation is based on similarities in technology, the technical expertise required to deliver the products and services, the distribution channels used and regulatory treatment. Intersegment sales are recorded at the exchange value. Segmented information is regularly reported to the Company's Chief Executive Officer (the chief operating decision maker). Segmented disclosure is reported in Note 4 of the interim consolidated financial statements.

5.2 Quarterly results summary ------------------------------------------------------------------------- ($ in millions, except per share amounts) 2006 Q3 2006 Q2 2006 Q1 2005 Q4 ------------------------------------------------------------------------- Segmented revenue (external) Wireline segment 1,200.3 1,189.9 1,198.6 1,209.9 Wireless segment 1,010.4 945.3 881.9 876.8 ------------------------------------------------------------------------- Operating revenues (consolidated) 2,210.7 2,135.2 2,080.5 2,086.7 Operations expense 1,245.8 1,207.4 1,201.1 1,316.8 Restructuring and workforce reduction costs 12.5 30.7 16.7 35.5 ------------------------------------------------------------------------- EBITDA(1) 952.4 897.1 862.7 734.4 Depreciation 325.8 335.2 339.2 346.2 Amortization of intangible assets 57.5 46.9 63.9 67.0 ------------------------------------------------------------------------- Operating income