**Exhibit 99.3**

 

 

 

**TELUS Corporation**

**Annual Information Form**

**for the year ended December 31, 2008**

** **

** **

**March 13, 2009**

 

----

 
| **CAUTION REGARDING FORWARD-LOOKING STATEMENTS**            | **3**  |
|-------------------------------------------------------------|--------|
| **CORPORATE STRUCTURE**                                     | **4**  |
| **EXCHANGE RATE INFORMATION**                               | **5**  |
| **GENERAL DEVELOPMENT OF  THE BUSINESS**                    | **6**  |
| **DESCRIPTION OF THE  BUSINESS AND GENERAL DEVELOPMENTS**   | **6**  |
| **EMPLOYEE RELATIONS**                                      | **17** |
| **CAPITAL ASSETS AND  GOODWILL**                            | **18** |
| **RISK FACTORS**                                            | **19** |
| **ALLIANCES**                                               | **19** |
| **LEGAL PROCEEDINGS AND  REGULATORY ACTIONS**               | **20** |
| **FOREIGN OWNERSHIP  RESTRICTIONS**                         | **22** |
| **REGULATION**                                              | **23** |
| **COMPETITION**                                             | **31** |
| **DIVIDENDS DECLARED**                                      | **34** |
| **CAPITAL  STRUCTURE OF TELUS**                             | **35** |
| **RATINGS**                                                 | **37** |
| **DIRECTORS  AND OFFICERS**                                 | **40** |
| **MARKET  FOR SECURITIES**                                  | **42** |
| **INTERESTS  OF EXPERTS**                                   | **43** |
| **AUDIT  COMMITTEE**                                        | **44** |
| **MATERIAL  CONTRACTS**                                     | **46** |
| **TRANSFER  AGENTS AND REGISTRARS**                         | **46** |
| **ADDITIONAL INFORMATION**                                  | **46** |
| **APPENDIX A:  TERMS OF REFERENCE FOR THE AUDIT COMMITTEE** | **47** |

 

2

----

# ** **

# **CAUTION REGARDINGFORWARD-LOOKING STATEMENTS**

 

This documentcontains forward-looking statements about expected future events and financialand operating results of TELUS Corporation and its subsidiaries (collectively,TELUS or the Company). By their nature, forward-looking statements require theCompany to make assumptions, and forward-looking statements are subject toinherent risks and uncertainties. There is significant risk that assumptions,predictions and other forward-looking statements will not prove to be accurate.Readers are cautioned not to place undue reliance on forward-looking statementsas a number of factors could cause actual future results, conditions, actionsor events to differ materially from the targets, expectations, estimates orintentions expressed.  Except as requiredby law, the Company disclaims any intention or obligation to update or reviseany forward-looking statements, and reserves the right to change, at any timeat its sole discretion, its current practice of updating annual targets andguidance.

 

Factorsthat could cause actual results to differ materially include, but are notlimited to:

 

Competition(including more active price competition and the likelihood of new wirelesscompetitors beginning to offer services in late 2009 and into 2010 as a resultof the 2008 advanced wireless services (AWS) spectrum auction); economic growthand fluctuations (including the global credit crisis, and pension performance,funding and expenses); capital expenditure levels (increasing in 2009 andpotentially in future years due to the Company’s fourth generation (4G)wireless deployment strategy and any new Industry Canada wireless spectrumauctions); financing and debt requirements (including ability to carry outrefinancing activities and fund share repurchases); tax matters (includingacceleration or deferral of required payments of significant amounts of cashtaxes); human resource developments; business integrations and internalreorganizations (including ability to successfully implement cost reductioninitiatives); technology(including reliance on systems and information technology, broadband andwireless technology options, choice of suppliers and suppliers’ ability tomaintain and service their product lines, expected technology and evolutionpath and transition to 4G technology, expected future benefits and performanceof high-speed packet access (HSPA) / long-term evolution (LTE) wirelesstechnology, successful implementation of the network build and sharingarrangement with Bell Canada to achieve cost efficiencies and reduce deployment risks, successfuldeployment and operation of new wireless networks and successful introductionof new products, services and supporting systems); regulatory approvals anddevelopments (including interpretation and application of tower sharing androaming rules, the design and impact of future spectrum auctions, the review of new media and Internet trafficmanagement practices, and possible changes to foreign ownership restrictions);process risks (including conversion of legacy systems and billing systemintegrations, and implementation of large complex deals); health, safety andenvironmental developments; litigation and legal matters; business continuityevents (including manmade and natural threats); any prospectiveacquisitions or divestitures; andother risk factors discussed herein or listed from time to time in TELUS’reports and public disclosure documents including its annual report, financialstatements, management’s discussion and analysis, and other filings withsecurities commissions in Canada (on SEDAR at http:///sedar.com) and theUnited States (on EDGAR at http:///sec.gov). Refer, in particular, to the assumptionscontained in sub-section 1.5 and the risk factors contained in section 10 ofthe Company’s 2008 management’s discussion and analysis entitled “Financial and operating targets for 2009”and “Risks and risk management”,respectively.

 

3

----

# ** **

# **CORPORATESTRUCTURE**

# ** **

***Name, Address and Incorporation***

 

TELUS was incorporated under the *Company Act* (British Columbia) (the BC Company Act) on October 26,1998 under the name BCT.TELUS Communications Inc. (BCT).  On January 31, 1999, pursuant to acourt-approved plan of arrangement under the *CanadaBusiness Corporations Act* among BCT, BC TELECOM Inc. (BC TELECOM)and the former Alberta-based TELUS Corporation (TC), BCT acquired all of theshares of BC TELECOM and TC in exchange for Common Shares and Non-Voting Sharesof BCT, and BC TELECOM was dissolved.  OnMay 3, 2000, BCT changed its name to TELUS Corporation and in February 2005,the Company transitioned under the *Business Corporations Act*(British Columbia), successor to the BC Company Act. TELUS maintains itsregistered office at Floor 21, 3777 Kingsway, Burnaby, British Columbia (B.C.)and its executive office at Floor 8, 555 Robson Street, Vancouver, B.C.

 

***Intercorporate Relationships andTELUS Subsidiaries***

 

As of December 31, 2008, the only materialsubsidiary of TELUS was TELUS Communications Inc. (TCI), being the onlysubsidiary which owned assets that constitute more than 10 per cent of theconsolidated assets of TELUS as at December 31, 2008 and generated salesand operating revenues that exceed 10 per cent of the consolidated sales andoperating revenues of TELUS for the year ended December 31, 2008.

 

TELUS’ wireline and wireless businesses wereformerly located in TCI and TELE-MOBILE Company (TELE-MOBILE),respectively.  In 2005, TELUS announcedthe merger of those segments into a single operating structure (thewireline-wireless merger).  This waspartly effected by way of a legal entity restructure on March 1, 2006 (the2006 legal entity restructure), at which time TELUS combined its wireline andwireless businesses into TELUS Communications Company (TCC).

 

TCC isa partnership organized under the laws of B.C. whose partners are TCI andTELE-MOBILE.  Immediately prior to the2006 legal entity restructure, 3817873 Canada Inc., a partner in TELE-MOBILE,was continued into Alberta as 1219723 Alberta ULC.

 

As part of a year-end internal reorganization in2008, Emergis Inc. (Emergis), a TELUS subsidiary acquired in January 2008,became a partner of TELE-MOBILE. In addition, TELUS Services Inc. and TELUSCommunications (Québec) Inc. converted their shareholding in TCI from preferredshares to ordinary shares.

 

4

----

 

The following organization chart sets forth therelationships between these subsidiaries and partnerships, as well as theirrespective jurisdictions of incorporation or establishment and TELUS ownershipas at December 31, 2008:

 

 

In this Annual Information Form, references to TELUSor the Company are to TELUS Corporation and all of its subsidiaries andpartnerships as a whole, except where it is clear that these terms mean onlyTELUS Corporation.  Unless the contextotherwise requires, TELUS wireline refers to the wireline businesses carried onprimarily through TCC presently and primarily through TCI prior to thewireline-wireless merger, and TELUS Mobility or TELUS wireless refers to thewireless businesses carried on through TCC presently and through TELE-MOBILEprior to the wireline-wireless merger.

 

# **EXCHANGE RATE INFORMATION**

# ** **

TELUS publishes itsconsolidated financial statements in Canadian dollars.  In this Annual Information Form, except whereotherwise indicated, all references to dollars or $ are to Canadian dollars.  The Bank of Canada noon spot exchange rate onMarch 10, 2009 was Cdn. $1.2797 = U.S. $1.00.  The following table sets forth, for the datesindicated, certain exchange rate information based on the noon spot rate:

 
| December 29, 2006 |   | 1.1653 |
|------------------------|--------|--------|
| December 31, 2007 |   | 0.9881 |
| December 31, 2008 |   | 1.2246 |

 

5

----

 

# **GENERALDEVELOPMENT OF THE BUSINESS**

# ** **

TELUS is a leading nationaltelecommunications company in Canada, offering a wide range of wireline andwireless communications products and services including data, voice andentertainment.  In 2008, TELUS**generated $9.65 billion in annual revenue and had 11.6million subscriber connections including 6.13 million wireless subscribers,4.25 million wireline network access lines and 1.22 million Internetsubscribers.  As a result of TELUS’national growth strategy, revenue grew by 6.4 per cent in 2008 and totalcustomer connections increased by 448,000.

 

***Three Year History***

 

During the three-year period ended December 31,2008, TELUS undertook a number of acquisitions, internal reorganizations andbusiness development opportunities.

 

In the third quarter of 2008, TELUS purchased theremaining interests in Ambergris Solutions Inc. (TELUS InternationalPhilippines), in which TELUS first acquired a controlling interest in 2005.

 

In January 2008, TELUS madea small acquisition of privately held Fastvibe, a provider of web-streamingsolutions for business to strengthen the Company’s technology solutionsportfolio.

 

On November 29, 2007, TELUS and Emergis,a business process outsourcer specializing in the healthcare and financialservices sectors, announced that they had entered into a support agreementpursuant to which TELUS agreed to make an all-cash offer to acquire by way of atake over bid all the outstanding common shares of Emergis at $8.25 pershare.  On January 17, 2008, 6886116Canada Ltd., a wholly-owned subsidiary of TCI, had purchased approximately 94per cent of the issued and outstanding common shares of Emergis on a fullydiluted basis.  6886116 Canada Ltd.exercised its statutory rights under the *Canada BusinessCorporations Act*and purchased the remaining common shares ofEmergis by compulsory acquisition.  Theapproximate total purchase price of the Emergis common shares was $743million.  A corporate reorganization ofEmergis was completed immediately prior to the completion of its purchase.  The common shares of Emergis have beende-listed from the Toronto Stock Exchange and Emergis is no longer a reportingissuer.

 

In 2006, TELUS strengthened its IT capabilities byacquiring Assurent Secure Technologies, a Canadian information technologysecurity services and research company.

 

6

----

 

# **DESCRIPTION OFTHE BUSINESS AND GENERAL DEVELOPMENTS**

# ** **

***Organization***

 

TELUS is the largest incumbent telecommunicationscompany in western Canada and one of the largest telecommunications companiesin Canada.  The Company is organized intofour customer facing business units:

 

·                  Consumer Solutions, which provideswireline and wireless Internet Protocol (IP) data services, voice andentertainment services to households and individuals across Canada;

 

·                  Business Solutions, which deliversinnovative wireline and wireless data, IP, voice and business processoutsourcing solutions to small and medium-sized businesses and entrepreneurs,and brings customized wireline and wireless voice and data, IP, InformationTechnology (IT) and e.business solutions to large multinational, corporate andpublic sector customers;

 

·                  TELUS Québec, which focuses on theunique needs of the Québec marketplace by offering businesses and consumerscomprehensive and integrated wireless and wireline telecommunicationssolutions, including data, Internet and voice; and

 

·                  Partner Solutions, which providesservices to wholesale customers, including telecommunications carriers,resellers, Internet service providers (ISPs), wireless communicationscompanies, competitive local access providers and cable-TV operators.

 

These customer facing business units receiveessential support from the business capabilities units comprised of TechnologyStrategy and Business Transformation and Technology Operations, as well as fromthe business enabling units comprised of Finance (which includes corporate development,regulatory affairs and government relations) and Human Resources (whichincludes corporate communications and enterprise services).

 

***Wireline and wireless segments***

 

TELUS has two reportable segments: wireline andwireless.

 

In the wireline segment, TELUSoffers the following solutions:****voice —phone service with long distance and call management services such as voice mail,call display and call waiting, and the sale, rental and maintenance oftelephone equipment; Internet — secure high-speed or dial-up access with acomprehensive suite of security and entertainment services; TELUS TV® — digitalentertainment service with high-definition (HD) TV, personal video recorder(PVR), Video on Demand and Pay Per View services; data — IP networks, privateline, switched services, network wholesale, network management and hosting;converged voice and data solutions — integrated and hosted IP telephonysolutions through TELUS IP-One® services; hosting and infrastructure — managedIT and infrastructure solutions delivered through TELUS’ IP networks andconnected to the Company’s Internet data centres; security solutions — managedand non-managed solutions to protect business networks, messaging and data, inaddition to security consulting services; and customized solutions — globalmulti-language contact centre solutions including CallCentreAnywhere, remoteagent solutions with TELUS AgentAnywhere®, interactive voice response (IVR) andspeech recognition services, conferencing and collaboration services, andperformance optimization, human resource and health and safety outsourcingsolutions.

 

7

----

 

In the wireless segment, TELUSoffers the following solutions: digital voice - PCS (postpaid and Pay & Talk® prepaid)and Mike all-in-one (iDEN); Push to TalkTM capability on both Mike (DirectConnect®) and PCS (Instant Talk®); Internet and data services including TELUSMobile TV®, TELUS Mobile Radio®, TELUS Mobile Music®, web browsing, WindowsLive Messenger, social networking, text and picture messaging, and downloadablegames, videos, ringtones and images; and data devices including smartphones and wireless connectcards available for use on wireless high-speed and Mike packet data networks.

 

TELUS earns the majority of its revenue (voice, dataand wireless network revenue) from access to, and usage of, itstelecommunication infrastructure.  Themajority of the balance of TELUS’ revenue (other revenue and wireless equipmentrevenue) arises from providing products that facilitate access to, and usageof, TELUS’ telecommunication infrastructure.

 

***TELUS’ national growth strategy***

 

Since 1999, the Company has been pursuing a nationalwireline and wireless growth strategy outside Alberta and B.C. into the rest ofCanada.  This has been implemented byboth organic growth and through a series of wireline and wirelessacquisitions.  This has provided TELUSwith a regional full service wireline presence in eastern Québec throughacquisitions in 1999 and 2000 and ongoing investments in facilities, marketingand distribution focused on the business market in urban centres of Québec andOntario.  In 2000, TELUS acquirednational digital wireless communications networks and subscribers, spectrum,employees, and infrastructure and sales distribution channels primarily incentral and eastern Canada through the purchase of Clearnet CommunicationsInc., and has continued to invest in and grow the business.

 

TELUS’ approach to the businessmarket is through a focus on growth in central Canada as well as, nationally, afocus on key vertical markets of healthcare, financial services, energy and thepublic sector.  For example, in January 2008,TELUS completed its acquisition of Emergis, a business process outsourcerspecializing in the healthcare and financial services sectors, who deliverssolutions to major insurance companies, financial institutions, governmentagencies, hospitals, pharmacies, large corporations, and real estate lawyersand notaries.  Emergis was integratedwith TELUS’ own health care resources to form TELUS Health Solutions in November 2008.  TELUS Health Solutions develops and managessolutions that automate transactions and the secure exchange ofinformation.  TELUS Health Solutions hasexpertise in electronic health-related claims processing, health records systems,pharmacy management solutions, point-of-sale transaction processing, cashmanagement and loan document processing and registration.

 

***TELUS’ networks***

 

The Company has a coast-to-coast fibre optic network, whichinterconnects cities between Halifax and Vancouver and extends into the U.S.via points of presence in Albany, Ashburn, Palo Alto, Boston, Buffalo, Chicago,Detroit, New York and Seattle.  Thisnetwork is fully integrated with TELUS’ extensive metropolitan networks inAlberta and B.C. and connects into networks constructed in Montréal, Ottawa,Toronto and other cities.

 

8

----

 

*TELUS wireline networks*

 

TELUS’ national fibre optic backbone networkdelivers traditional telephony, data services and IP-based phone solutionsacross Canada that interconnects the network in Alberta and B.C. with majorcentres in Ontario and Québec.  Thisfibre optic network is supplemented by new local fibre optic networks in some54 competitive local exchange carrier (CLEC) exchanges or metropolitanareas.  TELUS’ network interconnects withthe networks of carriers in the U.S. for the exchange of U.S. and internationaltraffic.

 

*TELUS wireless networks*

 

TELUS is one of three national Canadianfacilities-based wireless service providers, and offers wireless voice and dataservices to consumers and businesses nationally on two networks.

 

As a result of the AWS auction for spectrum in the 2GHz range held in mid-2008, TELUS acquired an average of 16.2 MHz ofspectrum nationally for $882 million (see *TELUS*— *wireless segment* for further discussionon TELUS’ wireless strategies).

 

TELUS also holds a significant mobile spectrumposition of up to 45 MHz PCS and cellular spectrum and as much as 55 MHz inmany areas with the inclusion of its iDEN network spectrum.

 

An enhanced network sharing agreement with BellCanada was entered into in 2008, using existing 1,900 MHz and 850 MHzspectrum, in respect of a high-speed packet access, or HSPA, network currentlyunder construction with services expected to be launched commercially by early2010.  (See *TELUS — wireless segment*for further discussion.)

 

*PCS/cellular networks*

 

TELUS owns and operates a national digital PCSnetwork and digital cellular facilities in Alberta, B.C., and eastern Québec, with 40 to 45 MHz of PCS spectrumthroughout all major population regions of Canada.  Itsnational PCS wireless network utilizes 1X, CDMA (code division multipleaccess), and EVDO and EVDO Rev A digital technology.

 

TELUS expanded its network coverage throughroaming/resale agreements entered into in 1999 (the Roaming/Resale Agreements),principally with Bell Canada and certain of its affiliates.  These agreements expanded TELUS’ digital PCScoverage areas outside of major urban markets in Ontario, Québec and AtlanticCanada and were subsequently amended to include 1X and the EVDO high-speednetwork.  At the end of 2008, TELUS’national digital networks, combined with coverage provided by theRoaming/Resale Agreements, reached approximately 32.6 million Canadians.  In 2004, TELUS and Verizon Wireless expandedtheir Canada and U.S. roaming arrangements under a consolidated long-termroaming agreement to improve each other’s ability to provide more consistentand comprehensive roaming services to each other’s customers.  Substantially all of TELUS’ digitalsubscribers are provided extended coverage in Canada, the U.S. and variousother countries through analogue and digital roaming arrangements with othercarriers by means of dual-mode or tri-mode, dual-band handsets.

 

Beginning in late 2005, EVDO services wereintroduced in major centres across Canada offering to customers averagewireless data transfers at speeds of approximately 400 — 

 

9

----

 

700 kilobits per second.  In 2007 and the first part of 2008, TELUS continuedthe enhancement of digital wireless capacity and coverage and continued its investment inhigher-speed wireless EVDO Rev A network technology, which now reaches 88 percent of Canadians, when Roaming/Resale Agreements are considered, and enablesroaming to more than 230 cities in the U.S.

 

TELUS also operates analogue specialized mobileradio (SMR) systems in most major urban centres in Canada and paging networksin Alberta, B.C. and eastern Québec.

 

*iDEN networ**k*

 

TELUS also owns and operates Canada’s only national enhanced specializedmobile radio (ESMR) network.  ESMR digital wireless businesscommunications services are offered under the Mike trademark using iDENtechnology from Motorola.  The Mike networkcovers the larger population centres and surrounding areas in Alberta, B.C.,Manitoba, Ontario and Québec, and many non-urban areas and transport corridorsin Ontario, Québec and western Canada. The Mike network utilizes frequencies in the 800 MHz range which havepropagation advantages over higher frequencies such as those used in digital1900 MHz PCS networks, resulting in more cost effective geographiccoverage.  While the amount of 800 MHzspectrum licenced to TELUS varies by region, TELUS has ten to 17 MHz of ESMRspectrum available for its Mike network in Montréal, Toronto and Vancouver,Canada’s three most populous metropolitan areas.  The Mike service is marketed primarilythrough independent and corporate-owned dealers to businesses and other organizationsas a digital PCS-like service with the added benefit of Mike’s Direct ConnectTMPush to TalkTM functionality, which provides low-cost instant connectivity forwork groups.

 

In 2006, Sprint/Nextel completed a mandatory shiftof channels (rebanding) for its iDEN service due to concerns from the FederalCommunications Commission (FCC) about interference with public safetyoperations.  Part of the TELUS Mikenetwork utilizes channels under control of the FCC and discussions are underwayto determine if TELUS will be required to shift some of the channels for itsiDEN service to address similar concerns in selected areas along theCanada/U.S. border.  See “800 MHzRe-banding” on page 29 of this Annual Information Form.

 

***TELUS - wireline segment***

 

TELUS operates as an ILEC (incumbent local exchangecarrier) in Alberta, B.C. and eastern Québec where it provides comprehensivelocal, long distance, data, Internet and information services and is aCLEC(competitive local exchange carrier or non-ILEC), offering services tobusinesses primarily in central Canada. TELUS’ ILEC operations serve a population of approximately 7.8 millionin its incumbent western Canada service territory, and a population of morethan 500,000 in its incumbent eastern Québec territory.  On a combined basis, wireline servicesaccounted for revenue of $5,021 million for the year ended December 31,2008 ($4,810 million for the year ended December 31, 2007)representing 52 per cent of the total revenue of TELUS for 2008 (53 per cent ofthe total revenue of TELUS for 2007).

 

10

----

 

*Local*

 

Local wireline services allow customers to completecalls in their local calling areas and to access long distance networks,wireless networks and the Internet.  Inaddition to local calling, local services generally include enhanced callingfeatures, such as call display, call waiting, call forwarding and voice mail;Centrex for business customers; public pay telephones; and competitive longdistance carrier access.  Local access orexchange service is the largest component of local wireline service, and isgenerally provided on a monthly flat rate basis.

 

TELUS’ network can provide services to almost everyurban and rural home and business in incumbent territories in B.C., Alberta andeastern Québec.  However, in the face ofgrowing competition and technological substitution, TELUS’ wireline residentialaccess line services are provided to an estimated 66 per cent of households inB.C. and Alberta, while approximately 12 per cent of households subscribe toonly wireless telephone services (from all wireless service providers includingTELUS).  Competition is also active inthe business market, such that approximately 70 per cent of TELUS’ totalbusiness lines are forborne from price regulation.

 

CLECs operating in Canada provide service to theircustomers over facilities they have constructed or leased from ILECs in a givenregion or by reselling the local services of the ILECs (including TELUS).  CLECs that use their own facilities orfacilities leased from TELUS are eligible to receive a subsidy when theyprovide service to residential customers living in high cost areas where TELUS,as an ILEC, receives a per customer subsidy.

 

TELUS is competing outside its incumbent territoriesas a non-dominant carrier and has obtained approval to operate as a CLEC incertain targeted markets in central Canada where it concentrates on providingwireline services to businesses.  TELUSis continuing to pursue CLEC status in other areas in central and easternCanada.

 

*Long distance*

 

Wireline long distance services interconnectcustomers in different local calling areas, and provide domestic andinternational connectivity.  TELUS offersits residential and business customers a range of long distance savings plans,billing options, and call options.  Thelargest component of wireline long distance services is message toll services,which are transmitted through fibre optic cables, cable carrier systems and satellite channels.  National and international wireline longdistance services are provided through TELUS’ national network and by way ofinterconnecting with the networks of other facilities-based carriers andresellers.

 

*Data, Internet and IT services*

 

TELUS provides “traditional” (or legacy) dataservices and “enhanced” data services. Traditional data services include circuit switched, packet switched anddedicated private lines.  Enhanced dataservices provide greater functionality to the customer, allowing a customer tocompress their telecommunications applications onto a singleinfrastructure.  The primary enhanceddata services offered by TELUS are Internet access, private Intranets, widearea network outsourcing and electronic commerce.  Customers may 

 

11

----

 

choose from a wide range of data services to suitthe complexity of their requirements, including required speed and volume.

 

TELUS is the second largest ISP in Alberta and B.C.,and the fourth largest wireline ISP in Canada. As at December 31, 2008, TELUS had 1,220,000 wireline Internetsubscribers, including 1,096,000 high-speed Internet subscribers.  In 2008, the number of high-speed subscribersincreased by 7.5 per cent.  TELUS hasseen an increase in the use of data services such as business Intranets bybusiness customers and in the use of personal computer and Internet access byresidential customers.  TELUS also offersa range of broadcast, teleconferencing and advanced intelligent networkservices — services that can be customized to meet the specific needs ofindividual customers through software changes to network switches.  These services include special numberservices such as toll free 1-800 and 1-900 and enhanced call routing.

 

Throughgrowth, investment and strategic acquisitions in prior years, TELUS also became a leading manageddata-hosting provider in Canada with a national network of intelligent Internetdata centres.

 

TELUS provides businesses with IT services such asIT outsourcing, application development and sustainment, and national ITconsulting.  As a provider of Web hostingservices, TELUS also offers managed hosting, co-location including shared Weband e-mail hosting services, media streaming, data storage and securityservices.  In addition, TELUS offersmanaged applications services and software such as online backup Web conferencing,expense management, customer relationship management and sales forceautomation.  These services are availableacross Canada and can be enhanced by connection with TELUS’ infrastructurethrough points of presence throughout Alberta and B.C., and in Winnipeg,Regina, Saskatoon, and many cities in Ontario and Québec.

 

*Recent efficiency initiatives*

 

TELUS continues to focus on enhancing operationalefficiency and effectiveness in its wireline business.  In 2006, TELUS fully or partially contractedout a number of non-core functions including property management, custodialservices, building maintenance, mail services, fleet maintenance, and pay phonecoin counting.  In addition, managementrationalized a number of offices into larger centres and completed theconsolidation of two field dispatch centres. In addition, a number of processimprovement and automation initiatives were undertaken.

 

In 2007, efficiency activities were somewhatcurtailed due in part to a major implementation of a consolidated order entryand billing system in Alberta to some one million customers which brought aboutthe need for extra labour in the short term.

 

In 2008, there was a heightened focus to identifyopportunities which deliver continuous cost improvements through network evolution,workforce and process optimization, and system enhancements. Effort wasrefocused on operational efficiency initiatives, including re-directingresources to growing parts of the business, optimization of layers ofmanagement and spans of control to reduce staff, organization-wide expensecontrol, increased use of business process outsourcing and internaloff-shoring, rationalization of products in low-value activities, andcommencing a multi-year program to consolidate vendor management and reduce the

 

12

----

 

number of vendors. In addition to teamredeployments, reductions in positions were made in December 2008 andearly 2009, mostly in management ranks.

 

*Recentdevelopments — consumer*

 

Animportant element of the Company’s wireline revenue growth strategy is theTELUS Future Friendlyâ Home initiative in its incumbent serviceareas.  TELUS offers a suite ofintegrated, advanced digital and wireless services that leverage itssignificant investments in high-speed Internet. In 2008, TELUS continued the expansion of its digital televisionservice, TELUS TV®, in Calgary, Edmonton, Vancouver, Fort McMurray, GrandePrairie, Rimouski and Whistler. Product enhancements were made during the yearwith the launch of HD and PVR functionality. In 2008, TELUS also continuedenhancing its broadband infrastructure under a three-year, $600 millionprogram first announced in the fall of 2006.  This investment is enabling emerginghigh-speed Internet services and expanded network coverage across B.C., Albertaand eastern Québec.  The broadband project complements a ruralcapital investment program to bring high-speed Internet services to more than450 additional remote communities B.C., Alberta and eastern Québec by 2010. (See “Management’sDiscussion and Analysis — Section 10. Risks and risk management — 10.2Technology” in TELUS’ 2008 Annual Report — Financial Review.)

 

TheCompany continued its transformational billing initiative to re-engineerprocesses in the wireline segment for order entry, pre-qualification, servicefulfillment and assurance, customer care, billing, collections/credit, customercontract and information management.  In2008, TELUS successfully implemented its consolidation of multiple order entryand billing systems into one unified customer care platform for more than onemillion B.C. customers, following the implementation of the same program forone million Alberta customers in 2007. The expected benefits of this projectinclude streamlined and standardized processes and the elimination over time ofmultiple legacy information systems.

 

In2007, the CRTC granted residential local exchange forbearance in markets whereincumbents are facing increasing competitive pressure. To date, TELUS hasreceived approval for deregulation of wireline residential phone service in 96exchanges (about 80 per cent of residential lines in non-high cost servingareas) across B.C., Alberta and Québec. This is expected to positively impactTELUS’ competitiveness by providing improved pricing, marketing and bundlingflexibility.

 

*Recentdevelopments — business*

 

TELUS’ approach to the business market is throughgrowth in central Canada as well as nationally, with a focus on the keyvertical markets of healthcare, financial services, the public sector and theenergy sector.

 

As noted on page 8, TELUS advanced its capabilitiesin the healthcare and financial services sectors with the January 2008acquisition of Emergis.  Emergis’ serviceportfolio and eastern presence provides a good geographical and service fitwith TELUS’ services in the west.

 

InDecember, 2008, the Company was selected by the Government of Quebec, through acompetitive bid process, to deliver and manage the province’s next generationdata 

 

13

----

 

network,the Réseau intégré de télécommunications multimédias. The contract is for aterm of seven to 10 years and worth up to $900 million over the term of thecontract, the largest contract in TELUS’ history.

 

In2007, TELUS won several major enterprise contracts, including a five-year $200million transaction with the Department of National Defense for its nationaland international locations.

 

In2006, in addition to several other multi-million dollar contracts, TELUS secureda five-year $140 million contract with the Government of Ontario toprovide fully managed network access services.

 

In 2006, TELUS strengthened its IT capabilities byacquiring Assurent Secure Technologies, a world-leading Canadian informationtechnology security services and research company. TELUS is leveraging Assurent’sglobal reputation and expertise to provide solutions that help customersprotect their assets, identities, and information.

 

Inthe small business market, TELUS is pursuing growth with TELUS Business One®, aportfolio of solutions tailored to the needs of small business customers.  In 2007, TELUS expanded the solutionsavailable, which now include connectivity, security and a range of powerfulIP-based tools customized for smaller clients. In 2008, TELUS continued to tailor its solutions by leveraging itsmarket leading suite of smartphones, mobile applications and converged wirelessand wireline solutions.

 

In 2008, TELUS expanded its international holding bypurchasing the remaining interests in TELUS International Philippines, in whichTELUS first acquired a controlling interest in 2005. This international callcentre capability provides support for TELUS’ bids to offer competitive callcentre services to potential new clients.

 

The following table sets forth certain statisticalinformation with respect to the wireline segment as at December 31 in eachof the last three years:

 

**Wirelinesegment**

 
| ** **                                      | ** ** | **2008**     | ** ** | **2007**     | ** ** | **2006**     | ** ** |
|-------------------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|
| Network access lines  (000’s)              |       | 4,246   |       | 4,404   |       | 4,548   |       |
| High-speed Internet net additions (000s)        |       | 76      |       | 103     |       | 154     |       |
| High-speed Internet subscribers (000’s)    |       | 1,096   |       | 1,020   |       | 917     |       |
| Dial-up Internet net reductions (000’s)    |       | (31)         |       | (39)         |       | (42)         |       |
| Dial-up Internet subscribers (000’s)  |       | 124     |       | 155     |       | 194     |       |
| Total Internet subscribers (000’s)         |       | 1,220   |       | 1,175   |       | 1,111   |       |
| Full-time equivalent employees (1)              |       | 27,700  |       | 25,700  |       | 23,900  |       |
| Total employees                                 |       | 28,000  |       | 26,100  |       | 24,200  |       |

 

----

(1) Full-timeequivalent (FTE) employees include TELUS International FTE employees (8,000 in2008, 6,700 in 2007 and 4,900 in 2006) and Emergis FTE employees (1,100 in 2008as a result of the January acquisition).

 

14

----

 

***TELUS — wireless segment***

 

TELUS is a national wireless provider with 6.13million consumer and business subscribers, and extensive coverage to 32.6million people or 98 per cent of Canada’s population, when Roaming/Resale Agreementsare considered.  TELUS providesintegrated digital wireless voice, data and Internet services on a digital PCS(CDMA) network, including 1X and high-speed (EVDO and EVDO Rev A) datacapabilities on a third generation high-speed network, business service on theiDEN-based Mike network and Push To Talk (PTT) services with both the Mike iDENnetwork and PCS network (Instant Talk®).

 

For the year ended December 31, 2008, thewireless segment accounted for revenue of $4,632 million($4,264 million for the year ended December 31, 2007),representing approximately 48 per cent of the total revenue of TELUS in 2008(47 per cent of the total revenue of TELUS for 2007).

 

In 2008, TELUS won and was awarded 59 licences ofAWS spectrum in the 2 GHz range in an auction held by Industry Canada.  The average spectrum won by TELUS was 16.2MHz nationally, which increases TELUS’ strong spectrum position, and isexpected to provide capacity for the introduction of future 4G (fourthgeneration) service offerings.  (See “Management’s Discussion and Analysis — Section 10.Risks and risk management —10.1 Competition” in TELUS’ 2008 Annual Report —Financial Review.)

 

In September 2008, the Company turned down itsfirst generation, analogue wireless network, deployed in the mid-1980s, as thisnetwork had reached the end of its useful service life and had only 27,600 remainingsubscribers.  The deactivation of thisnetwork made available more spectrum for digital capacity and allows theCompany to focus on improvements in the current third generation (3G) networkand prepare for future fourth generation (4G) services.

 

In October 2008, TELUS announced it had chosenlong-term evolution (LTE) as the technology path for its 4G wireless broadbandnetwork, and as an interim step, the Company immediately started a nationalbuild of a next generation wireless service to be launched commercially byearly 2010, based on the latest version of HSPA technology using existing 1900MHz and 850 MHz spectrum.  The HSPAservice is expected to augment TELUS’ existing wireless service portfolio andposition the Company for an optimal future transition to LTE.  TELUS’ existing portfolio of wirelessservices includes CDMA (code division multiple access) providing access to 3Ghigh-speed data services (EVDO Rev A), and iDEN-based Mike service, the Company’sPush To Talk network and business service. LTE is an emerging worldwide 4G technology that has gained support frommany of the world’s largest carriers and manufacturers, but it is not expectedto be available commercially for a number of years.  The benefits of the investment in HSPA areexpected to include increased international roaming for existing TELUScustomers, access to increased global roaming revenues for TELUS, fasternetwork speeds, lower handset costs and greater device selection due to thelarger HSPA device ecosystem, and lower network development and ongoingoperating costs. TELUS plans to support its CDMA and iDEN (Mike service)customers for the foreseeable future.  (See “Management’s Discussion and Analysis — Section 10.Risks and risk management — 10.2 Technology” in TELUS’ 2008 Annual Report —Financial Review.)

 

15

----

 

The Company selected two suppliers, Nokia SiemensNetworks and Huawei Technologies, for TELUS’ next generation wirelessnetwork.  TELUS also announced it hasentered into an HSPA network sharing agreement with Bell Canada.  This agreement builds on and enhances anagreement signed in 2001 and is expected to enable TELUS to lower the cost,accelerate deployment of the next generation wireless voice and data serviceson a national basis, optimize cell-site utilization, and maximize potentialoperating efficiencies.  (See “Management’s Discussion and Analysis — Section 10.Risks and risk management — 10.1 Competition” in TELUS’ 2008 Annual Report —Financial Review.)

 

A key development was the March 2008launch of TELUS’ wireless postpaid Koodo Mobile® brand and service to betteraddress segments of the wireless market and complement the fully featured TELUSbrand service. The expected benefits of this basic brand include moreflexibility in serving various market segments, increasing postpaid customeradditions, and improving client retention programs.

 

In 2007, Canadian carriers including TELUSsuccessfully implemented wireless number portability (WNP), which gaveconsumers and businesses the ability to change carriers without changing theirtelephone number.

 

TELUS’ EVDO network was upgraded to higher speedEVDO Revision A services in 2007, which are now available to approximately 88per cent of Canadians when Roaming/Resale Agreements are included.

 

16

----

 

The following table sets forth certain statisticalinformation with respect to the wireless segment as at December 31 in eachof the last three years:

 

**Wireless segment**

 
| ** **                                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net subscriber additions  (000’s) (1)     |       | 561      |       | 515      |       | 535      |       |
| Gross subscriber additions  (000’s)       |       | 1,655    |       | 1,434    |       | 1,293    |       |
| Wireless subscribers  (000’s) (1)         |       | 6,129    |       | 5,568    |       | 5,056    |       |
| Penetration rate (2)                           |       | 18.8     | %          | 17.5     | %          | 16.2     | %          |
| Wireless market share,  subscriber based       |       | 28       | %          | 27       | %          | 27       | %          |
| Average monthly revenue  per subscriber unit   |       | $        | 63         |     | $          | 64       |       | $ | 63 |   |
| Minutes of use per  subscriber per month (MOU) |       | 411      |       | 404      |       | 403      |       |
| Cost of acquisition, per  gross addition       |       | $        | 346        |     | $          | 395      |       | $ | 412 |   |
| Monthly deactivations  (churn rate)            |       | 1.57     | %          | 1.45     | %          | 1.33     | %          |
| Digital population  coverage (millions)        |       | 32.6     |       | 31.6     |       | 31.0     |       |
| Full-time equivalent  employees                |       | 8,200    |       | 7,700    |       | 7,200    |       |
| Total employees                                |       | 8,600    |       | 8,100    |       | 7,700    |       |

 

----

(1)                                     Netof the impact of TELUS’ analogue network turndown in Q3 2008 which reduced netsubscribers by 27,600.

 

(2)                                     Subscribersdivided by population coverage.

 

# **EMPLOYEERELATIONS**

# ** **

As at December 31, 2008,TELUS employed approximately 36,600 employees, including employees in TELUSInternational.  Approximately 14,650employees wereunionized (10,620 in the wireline segmentand 4,030 in the wireless segment).

 

On November 20, 2005, afive-year collective agreement came into effect covering approximately 13,300employees in both the wireline and wireless segments.  The agreement (the TWU Collective Agreement),which expires on November 19, 2010, replaced six previously separatecollective agreements and applies to all unionized employees represented by theTelecommunications Workers Union (TWU) located predominantly in B.C., Alberta,Ontario and Québec.

 

***Wireline segment***

 

The TWU representsapproximately 8,960 unionized employees in TELUS’ wireline operations acrossCanada.  These employees are covered bythe TWU Collective Agreement. Approximately 1,060 office, clerical and technical employees in thewireline segment in Québec are represented by the Syndicat Québécois des employés de TELUS, under a collective agreement which expires on December 31,2009.  In September of 2008, TELUSsigned a collective agreement with the Syndicat des Agents de Maîtrise de TELUS(SAMT) covering approximately 480professional and supervisory employees in TELUS’ wireline operations in Québec.This collective agreement expires on December 31, 2011.  TELUS Sourcing Solutions Inc., which employsapproximately 120 unionized employees in the payroll and human resourcesservices business, is signatory to three separate collective agreements in theprovinces of Alberta and B.C.

 

17

----

 

***Wireless segment***

 

TELUS’ wireless operations employed approximately 4,030  unionizedemployees in two separate bargaining units, with the majority of them beingclerical and technical employees across Canada in the TWU’s national bargainingunit and a small number of professional and supervisory employees represented by the SAMT in Québec under a collective agreement that expired on March 31,2007 and is being renegotiated in the first quarter of 2009.

 

***Collective bargaining***

 

Renewalnegotiations for the collective agreement with the SAMT in the wireless segmentcommenced in 2008 and continue into 2009. The terms of the expired agreementwill continue to apply until a new collective agreement is ratified. (See “Management’sDiscussion and Analysis — Section 10. Risks and risk management — 10.4Human Resources” in TELUS’ 2008 Annual Report — Financial Review).

 

# **CAPITAL ASSETSAND GOODWILL**

# ** **

As at December 31, 2008,the total investment of TELUS in capital assets and goodwill was recorded at anet book value of $16.0 billion on a consolidatedbasis.  Goodwill, which represents theexcess of cost of acquired businesses over the fair value attributed to the netidentifiable assets, had a net book value of $3.6 billion.

 

The principal capital assetsof TELUS consist of telecommunications property, plant and equipment and intangibleassets and do not lend themselves to description by exact location.  As at December 31, 2008, the totalinvestment of TELUS in capital assets was recorded at a net book value of$12.5 billion on a consolidated basis. Such assets, located principally in Alberta, B.C., Ontario and Québec,include network facilities, relay and transmission towers, switching equipment,terminal devices, computers, motor vehicles, tools and test equipment,furniture, office equipment and intangible assets.  Spectrum licences, which had a net book valueof $3.8 billion as at December 31, 2008, comprise the majority ofidentifiable intangible assets included in capital assets.

 

With the exception of terminaldevices located at customer premises, most of the Company’s communicationsplant and equipment are located on land owned or leased, or on rights-of-wayobtained, by TELUS.

 

The real properties of TELUSinclude: (i) office space and related parking facilities; (ii) workcentres for field service and materials management personnel; and (iii) spacefor exchange, toll and mobile radio equipment. A small number of buildings are constructed on leasehold land and themajority of the relay stations for TELUS’ public service radio-telephonenetwork are situated on lands held under leases or licences for varyingterms.  The network facilities of TELUSare constructed under or along streets or highways pursuant to rights-of-waygranted by the owners of land including municipalities and on land owned by theCrown or on freehold land owned by TELUS. Other communications property, plant and equipment consist of plantunder construction and materials and supplies used for construction and repairpurposes.  Identifiable intangible assetsinclude wireless spectrum licences, subscriber base and computer software.

 

18

----

 

TELUS monitors its operationsfor compliance with applicable environmental requirements and standards, andimplements preventative and remedial actions as required.  TELUS’ business of telecommunicationsservices does not generate significant waste products that would be consideredhazardous.  For these reasons, remedialaction has not been significant to the ongoing operations and expenditures ofTELUS.

 

***Value of intangible assets and goodwill***

 

The carrying value ofintangible assets with indefinite lives, and goodwill, are periodically testedfor impairment using a two-step impairment test.  The frequency of the impairment testgenerally is the reciprocal of the stability of the relevant events andcircumstances, but intangible assets with indefinite lives and goodwill must,at a minimum, be tested annually.  TheCompany has selected December as its annual test time.  No impairment amounts arose from the December 2008,2007 and 2006 annual tests.  The test isapplied to each of the Company’s two reporting units: wireline and wireless,which reporting units are identified in accordance with the criteria in theCanadian Institute of Chartered Accountants (CICA) Handbook section for intangibleassets and goodwill.

 

Intangible assets with finitelives (intangible assets subject to amortization) are amortized on astraight-line basis over their estimated lives; estimated lives are reviewed atleast annually and are adjusted as appropriate.

 

# **RISK FACTORS**

# ** **

The risk factors in TELUS’2008 Annual Report and Management’s Discussion and Analysis are herebyincorporated by reference.  The 2008Annual Report and Management’s Discussion and Analysis are available at sedar.com.

 

# **ALLIANCES**

# ** **

***Verizon software and related technology andservices***

 

Concurrently with the 2004sale by Verizon Inc. of its equity interest in TELUS (the Verizon Sale),Verizon and TELUS adjusted their business relationships to reflect changes intheir business requirements since their business alliance was firstestablished.

 

In particular, there weresignificant amendments to the January 1, 2001 alliance agreement betweenTELUS and Verizon (the Verizon Agreement) under which TELUS retained exclusiverights to a limited set of specified Verizon trademarks and service marks,software and other technology in connection with the provision ofTelecommunications Services (as defined in the Verizon Agreement) in Canada,and Verizon remained subject to a non-compete covenant on the provision ofTelecommunications Services in Canada. The Verizon Agreement expired on December 31, 2008.

 

In most instances, TELUS has aright to use the specified Verizon software and technology on a non-exclusivebasis following the expiry of the agreement.

 

19

----

 

***Directory business***

 

TELUS directories are published by the Yellow Pages Group,pursuant to a series of commercial arrangements that were first entered into in2001, when TELUS sold its directory advertising services business to VerizonInformation Services — Canada Inc. (VIS), a subsidiary of Verizon.  At that time, various TELUS subsidiaries andVIS entered into a series of commercial arrangements whereby VIS acquired theexclusive right to publish TELUS directoriesand provide on-line directories on TELUS portals, in Canada and within 40 milesof the Canada-U.S. border, for an initial term of 30 years with certain renewalrights thereafter, and TELUS agreed not to compete with this business for theterm of the agreement.

 

In 2004, Verizon announced that it had sold VIS toAdvertising Directory Solutions Holdings Inc. (ADSHI), an affiliate of BainCapital.   In 2005, the Yellow Pages Groupannounced that it, through Yellow Pages Income Fund, had purchased ADSHIfrom an affiliate of Bain Capital.

 

# **LEGALPROCEEDINGS AND REGULATORY ACTIONS**

# ** **

*Investigations, claims and lawsuits*

 

Given the sizeof TELUS, investigations, claims and lawsuits seeking damages and other reliefare regularly threatened or pending against the Company and its subsidiaries.TELUS cannot predict with any certainty the outcome of such actions and assuch, there can be no assurance that results will not be negativelyimpacted.  The Company believes that ithas put in place reasonable policies, processes and awareness designed toenable compliance with legal obligations and reduce exposure to legal claims.

 

*TELUS Corporation Pension Plan and TELUSEdmonton Pension Plan*

 

Two lawsuitswere commenced in Alberta in 2001 and 2002, respectively, by plaintiffsalleging to be either members or business agents of the TWU, and suingallegedly on behalf of all current or future beneficiaries of the TELUSCorporation Pension Plan and the TELUS Edmonton Pension Plan, respectively. TheTELUS Corporation Pension Plan related action named the Company, certain of itsaffiliates and certain present and former trustees of the TELUS CorporationPension Plan as defendants, and claims damages in the sum of $445 million.The TELUS Edmonton Pension Plan related action named the Company, certain ofits affiliates and certain individuals who are alleged to be trustees of theTELUS Edmonton Pension Plan as defendants, and claims damages in the sum of$15.5 million. The statements of claim were subsequently amended in 2002by the plaintiffs to include allegations, *inter alia*,that benefits provided under the two pension plans are less advantageous thanthose provided under their respective former pension plans, contrary toapplicable legislation, that insufficient contributions were made to the plansand contribution holidays were taken and that the defendants wrongfully usedthe diverted funds, and that administration fees and expenses were improperlydeducted.  The Company believes that ithas good defences to the actions. As a term of the 2005 settlement reachedbetween TCI and the TWU that resulted in a collective agreement, the TWU hasagreed to not provide any direct or indirect financial or other assistance tothe plaintiffs in these actions, and to communicate to the plaintiffs

 

20

----

 

the TWU’s desire and recommendation that these proceedings be dismissedor discontinued. However, the Company has been advised by the TWU that theplaintiffs have not agreed to dismiss or discontinue these actions, and theCompany has not been informed of any change in this regard.

 

*Certified class action*

 

A class action was brought in 2004 under class action legislation inSaskatchewan against a number of past and present wireless service providersincluding the Company. The claim alleges that each of the carrier defendants isin breach of contract and has violated competition, trade practices andconsumer protection legislation across Canada in connection with the collectionof system access fees, and seeks to recover direct and punitive damages in an unspecifiedamount. Similar proceedings were commenced in other provinces. A national classwas certified on September 17, 2007 by the Saskatchewan Court of Queen’sBench. On February 20, 2008, the same court removed from the class allcustomers of the Company who are bound by an arbitration clause,applying two recent decisions of the Supreme Court of Canada. The Company has applied for leave toappeal the 2007 certification decision. Certification is a procedural step. Ifthe Company is unsuccessful on appeal of the certification decision, theplaintiff would still be required to prove the merits of the claim.

 

The Company believes that it has good defences to the action.

 

*Uncertified class actions*

 

TELUS and certain subsidiaries are defendants in a number ofuncertified class actions. The Company has observed an increased willingness onthe part of claimants to launch class actions whereby a representativeplaintiff seeks to pursue a legal claim on behalf of a large group of persons.A successful class action lawsuit, by its nature, could result in a sizabledamage award that negatively affects a defendant’s results.

 

One such lawsuit is a class action brought on June 26, 2008, inthe Saskatchewan Court of Queen’s Bench alleging that, among other things,Canadian telecommunications carriers including the Company have failed toprovide proper notice of 9-1-1 charges to the public and have been deceitfullypassing it off as government charges. The plaintiffs seek restitution anddirect and punitive damages in an unspecified amount. The Company is assessingthe merits of this claim, but the potential for liability and magnitude ofpotential loss cannot be readily determined at this time.  Certification is a procedural step thatdetermines whether a particular lawsuit may be prosecuted by a representativeplaintiff on behalf of a class of persons. Certification of a class action doesnot determine the merits of the claim, so that if the Company were unsuccessfulin defeating certification, the plaintiffs would still be required to prove themerits of their claims.

 

*Intellectual property and proprietary rights*

 

Technology evolution brings additional legal risks and uncertainties.The intellectual property and proprietary rights of owners and developers ofhardware, software, business processes and other technologies may be protectedunder statute, such as patent, copyright and industrial design legislation, orunder common law, such as trade secrets. With the growth and development oftechnology-based industries, the value of these intellectual property andproprietary rights has increased. Significant damages may be awarded inintellectual property infringement claims advanced by rights holders. Inaddition, defendants may incur significant costs to defend such claims and thatpossibility may prompt defendants to settle claims more readily, in part tomitigate those 

 

21

----

 

costs. Both of these factors may incent intellectual property rightsholders to more aggressively pursue infringement claims.

 

Given the vast array of technologies and systems used by TELUS and itsaffiliates to deliver their products and services, and with the rapid changeand complexity of such technologies, disputes over intellectual property andproprietary rights can reasonably be expected to increase. As a user oftechnology, TELUS and its affiliates receive from time to time communications,ranging from solicitations to demands and legal actions, from third partiesclaiming ownership rights over intellectual property used by TELUS and itsaffiliates and asking them to pay a settlement or licensing fees for thecontinued use of such intellectual property. There can be no assurance thatTELUS and its affiliates will not be faced with significant claims based on thealleged infringement of intellectual property rights, whether such claims arebased on a legitimate dispute over the validity of the intellectual propertyrights or their infringement, or whether such claims are advanced for theprimary purpose of extracting a settlement. TELUS and its affiliates may incursignificant costs in defending infringement claims, and may suffer significantdamages and lose the right to use technologies that are essential to theiroperations should any infringement claim prove successful.

 

While TELUS and its affiliates incorporate many technologies into theirproducts and services, they are not primarily in the business of creating orinventing technology. In acquiring products and services from suppliers, it isthe practice of TELUS and its affiliates to seek and obtain contractualprotections consistent with industry practices, to help mitigate the risks ofintellectual property infringements.

 

# **FOREIGN OWNERSHIP RESTRICTIONS**

# ** **

Certain subsidiaries ofTELUS or partnerships in which TELUS has a controlling interest, as Canadiancarriers, holders of radio authorizations or licences, and holders ofbroadcasting licences, are required by the Telecommunications Act (Canada) (theTelecommunications Act), the Radiocommunication Act (Canada) (theRadiocommunication Act) and a Direction to the CRTC (Ineligibility ofNon-Canadians) given under the Broadcasting Act (Canada) (the Broadcasting Act)to be Canadian-owned and controlled. Each of the Canadian carriers, under the Telecommunications Act, isconsidered to be Canadian-owned and controlled as long as: (a) not lessthan 80 per cent of the members of its board of directors are individualCanadians; (b) Canadians beneficially own not less than 80 per cent of itsissued and outstanding voting shares; and (c) it is not otherwisecontrolled in fact by persons who are not Canadians.  Substantially the same rules apply underthe Radiocommunication Act and the Broadcasting Act.  After the 2006 legal entity restructure,TELUS filed with the CRTC the requisite documentation affirming TCC’s status asa Canadian carrier. TELUS further intends that TCC will remain controlled byTELUS and that it will ensure that TCC remains “Canadian” for the purposes ofthese ownership requirements.

 

The Telecommunications Actalso provides that in order for a company that holds shares in a carrier to beconsidered Canadian, not less than 66-2/3 per cent of the issued andoutstanding voting shares of that company must be owned by Canadians and thatsuch company must not otherwise be controlled in fact by non-Canadians.  Accordingly, not less than 66-2/3 per cent ofthe issued and outstanding voting shares of TELUS must be owned by Canadiansand TELUS must not otherwise be controlled in fact by non-Canadians.  To the best of TELUS’ knowledge, Canadiansbeneficially own and control 

 

22

----

 

in the aggregate not lessthan 66-2/3 per cent of the issued and outstanding Common Shares of TELUS andTELUS is not otherwise controlled in fact by non-Canadians.

 

The regulations under theTelecommunications Act provide Canadian carriers and carrier holding companies,such as TELUS, with the time and ability to rectify ineligibility resultingfrom insufficient Canadian ownership of voting shares.  Under these regulations, such companies mayrestrict the issue, transfer and ownership of shares, if necessary, to ensurethat they and their subsidiaries remain qualified under such legislation.  For such purposes, in particular but withoutlimitation, a company may, in accordance with the provisions contained in suchregulations:

 

(i)            refuse to accept any subscription for anyvoting shares;

 

(ii)           refuse to allow any transfer of voting sharesto be recorded in its share register;

 

(iii)          suspend the rights of a holder of votingshares to vote at a meeting of its shareholders; and

 

(iv)          sell, repurchase or redeem any voting shares.

 

To ensure that TELUS remainsCanadian and that any subsidiary of TELUS, including TCC, is and continues to beeligible to operate as a telecommunications common carrier under theTelecommunications Act, to be issued radio authorizations or radio licences asa radiocommunications carrier under the Radiocommunication Act, or to be issuedbroadcasting licences under the Broadcasting Act, provisions substantiallysimilar to the foregoing have been incorporated into TELUS’ Articles permittingthe directors to make determinations to effect any of the foregoing actions.

 

# **REGULATION**

# ** **

***General***

 

The provision of telecommunicationsservices and broadcasting services in Canada is regulated by the CanadianRadio-television and Telecommunications Commission (the CRTC) pursuant to theTelecommunications Act and the Broadcasting Act, respectively.  In addition, the provision of cellular andother wireless services using radio spectrum is also subject to regulation andlicensing by Industry Canada pursuant to the Radiocommunication Act.

 

The Telecommunications Actgives the CRTC the power to regulate the provision of telecommunicationsservices, and to forbear from regulating (i.e. not subject to rate regulation) certainservices or classes of services if they are subject to a degree of competitionwhich is sufficient to protect the interests of customers.  However, even when the CRTC forbears fromprice regulation in respect of a service, it can continue to regulate theseservices for certain other matters such as network access and interconnection.

 

23

----

 

***Local forbearance***

 

TheCRTC and federal government have implemented several changes to the regulatoryregime for local telecommunications services. On December 14,2006, the Governor in Council issued a direction to the CRTC to rely on marketforces to the maximum extent feasible; to ensure technological and competitiveneutrality and enable competition from new technologies; to use tariff approvalmechanisms that are as minimally intrusive as possible; to complete a review ofthe framework for mandated access to wholesale services; to publish andmaintain performance standards for its various processes; and, to continue toexplore new ways of streamlining its processes.

 

On April 4, 2007, theGovernor in Council issued Order in Council P.C. 2007-532 and varied a previousCRTC local forbearance decision (Decision 2006-15) by changing the criteria forlocal forbearance for residential and business local exchange services.  Instead of requiring at least 25 per centmarket share loss in large local forbearance regions, the Order in Council requirestwo independent facilities-based competitors (of which one can be a wirelessservice provider) capable of serving at least 75 per cent of the residentiallines in a local exchange area.  Forbusiness local exchange service, forbearance is granted when onefacilities-based competitor is able to serve at least 75 per cent of thebusiness lines in the relevant exchange.

 

The Order in Council reducedthe number of quality of service indicators that must be met for the six-monthperiod prior to the forbearance application. The Order in Council also removed restrictions on winbacks (actions toregain customers who have switched to a competing service provider) andpromotions by the incumbent telephone companies.

 

Since the Order in Councilwas issued, TELUS has obtained forbearance for local residential service in 96exchanges in B.C., Alberta and Québec (about 80 per cent of residential linesin non-high-cost serving areas).  TELUShas also obtained forbearance for local business service in 47 exchanges inB.C., Alberta and Québec (about 70 per cent of business lines).

 

On April 4, 2007, theGovernor in Council also issued Order in Council P.C. 2007-533, whicheffectively required TELUS and the other incumbent telephone companies to setup an ombudsman service to resolve complaints between consumer and smallbusiness customers and providers of forborne retail telecommunicationsservices, including local and long distance telephone service, Internet accessservice, and wireless service.  TELUS andother telecommunications service providers created the Commissioner forComplaints for Telecommunications Services (CCTS), and TELUS became a foundingmember on July 23, 2007.  InDecision 2007-130 (released December 21, 2007), the CRTC ordered a numberof changes to CCTS’ structure and mandate and made membership mandatory formost telecommunications service providers as of February 1, 2008.  In Decision 2008-46 (released May 30,2008), the CRTC limited the time period for mandatory membership in CCTS fortelecommunications service providers to three years and stated that it wouldinitiate a review of CCTS after three years. CCTS has the authority to investigate, make recommendations, andultimately to render decisions that are binding on its members with respect toeligible complaints from their consumer and small business customers.  CCTS can assess a monetary award of up to$5,000 for direct damages actually sustained by a customer of a CCTS membercompany.

 

The major categories oftelecommunications services provided by TELUS that remain subject to rateregulation are Competitor Services, Public Telephone Services, Services withFrozen Rates and Other Capped Services. The rates for Residential and Business 

 

24

----

 

Services in exchanges whereforbearance has not yet been granted are also still regulated by the CRTC.

 

***Price cap regulation***

 

Price cap regulationcontinues to apply to a basket of local services provided by ILECs. TELUS issubject to price cap regulation as an ILEC in Alberta, B.C. and eastern Québec.

 

On April 30, 2007, theCRTC issued Decision 2007-27 and established an open-ended price cap regime.The CRTC removed the productivity adjustment from the Residential Services innon-high-cost serving areas price cap basket and the Other Capped Servicesprice cap basket.  For the CompetitorServices price cap basket, the CRTC reduced the productivity adjustment frominflation (as measured by the chain-weighted Gross Domestic Product PriceIndex) minus 3.5 per cent, to inflation minus 3.2 per cent.  The Commission moved residential optionallocal services and service bundles containing residential local exchangeservice to the Uncapped Services basket (no upward pricing constraints).

 

The CRTC capped residentialservice rates in urban areas at existing levels and limited annual rateincreases in rural areas to the rate of inflation (to a maximum of five percent).  However, the CRTC removedrestrictions on rate de-averaging for residential local service and optionallocal services.  Subsequent to the pricecap decision, the CRTC also removed restrictions on rate de-averaging forbusiness and pay telephone services (Decision 2007-106).

 

In 2002, the CRTCincorporated a deferral account mechanism to which was added an amount equivalentto the cumulative annual productivity adjustments for residential services innon-high cost serving areas, less an amount to compensate for certain mandatedprice reductions (generally for competitor wholesale services).

 

In February 2006, theCRTC determined in Decision 2006-9 that the funds accumulated in the ILECdeferral accounts could be used to expand broadband services to rural andremote communities and to improve accessibility to telecommunications servicesfor individuals with disabilities.  Afterreceiving proposals from the ILECs in response to Decision 2006-9, the CRTClaunched a further proceeding in November 2006 (Public Notice 2006-15) tofurther explore the ILECs’ proposals.  OnJuly 6, 2007, the CRTC issued Decision 2007-50 which partially approvedTELUS’ broadband expansion proposal for 115 locations in TELUS’ ILEC territory.

 

On January 17, 2008, the CRTC released Decision 2008-1 whichidentified an additional 119 rural and remote communities in TELUS’ incumbentoperating territories that are eligible for broadband expansion using deferralaccount funds.  In addition, the decisionapproved the use of approximately five per cent of the accumulated balance ofTELUS’ deferral account for improving access to telecommunications services forpersons with disabilities.  The CRTC alsodetermined that any funds remaining in TELUS’ deferral account, other thanthose required to implement the broadband expansion and accessibilityinitiative, shouldbe rebated to the Company’s residential local customers in non-high costserving areas.

 

There have been a series ofescalating court actions since the issuance of CRTC TelecomDecision 2006-9 and Telecom Decision 2008-1 and the litigants haveincluded 

 

25

----

 

the Consumers Association ofCanada, the National Anti-Poverty Organization, Bell Canada and the Company.The consumer groups have appealed to the courts to direct that rebates be madeto local telephone subscribers rather than have the accumulated deferralaccount funds used for purposes determined by the CRTC, as noted above. BellCanada has appealed to the courts that the CRTC has exceeded its jurisdictionto the extent it approved rebates from the deferral account. The Company’sappeal likewise argues that the CRTC exceeded its jurisdiction.  The appeal is based on the fact that therates in question were made “final” and were found to be “just and reasonable”by the CRTC. As a result, the  funds inthe deferral account are the property of the Company and cannot be rebated tocustomers.  The Supreme Court of Canadahas granted a stay of CRTC Telecom Decision 2006-9 in so far as it requires arebate to local telephone subscribers. The appeals pertaining to thedisposition of the accumulated amounts in the deferral account by the consumergroups, Bell Canada and the Company are currently scheduled to be heard by theSupreme Court of Canada in March 2009. The Company anticipates a decisionon this matter in the latter half of 2009. There is no guaranteethat the ILECs will be able to proceed with their proposals for the use ofdeferral account funds pending the outcome of such appeals.  TELUS would still be obligated to implementthe accessibility initiatives.

 

***Local competition framework***

 

The regulatory framework forlocal services competition has a number of components, the more important ofwhich are summarized below.

 

*Essential Services*

 

The CRTC requires ILECs likeTELUS to make certain “essential facilities” available to competitors, at ratesbased on the ILEC’s incremental cost plus an approved mark-up.  In December 2007, the CRTC completed anextensive review of the regulatory framework for essential services initiatedby Public Notice 2006-14.

 

On March 3, 2008, theCRTC issued Decision 2008-17 which set out, among other matters, a three tofive year phase-out process after which time various non-essential serviceswill no longer be subject to regulation. Services subject to phase out include fibre-based access and transportservices, higher speed competitor digital network (CDN) access, all speeds ofother CDN services, Ethernet services, and operator services.  During the phase-out period, ILECs arepermitted to negotiate “off-tariff”, competitor-specific supply arrangements,for services subject to phase out, without Commission approval.  For all other mandated wholesale services(including unbundled local loops, low-speed CDN access facilities, asymmetricdigital subscriber line (ADSL) access service and co-location services), thereis no change to the pricing principles. As well, these facilities remain subject to mandated supply until marketconditions change.  Any party can applyin the future to remove the mandated supply obligations for these facilitiesbased on changes in market conditions.

 

On December 11, 2008,the CRTC issued Decision 2008-116 which determined that new wholesale serviceswill be subject to regulation by the CRTC. The CRTC will allow the ILECs to apply for forbearance for new serviceswhere conditions warrant, failing which these new wholesale services must beoffered in conformity with the CRTC’s Decision 2008-17 wholesaleframework.  In Decision 2008-117, alsoissued on December 11, 2008, the CRTC determined that the ILECs arerequired to provide wholesale ADSL speeds to match any new retail ADSL speedsthat they offer to retail 

 

26

----

 

customers.  The CRTC subsequently confirmed, in TelecomOrder CRTC 2009-111 issued on March 3, 2009, that this wholesale matching requirementextends to all new retail ADSL access services offered over an access path thatincludes copper facilities.  In Decision2008-118, issued on December 11, 2008, the CRTC maintained wholesaleEthernet access and transport services as non-essential subject tophase-out.  This determination willresult in the deregulation of these services after five and three years,respectively.

 

*Contribution and portable subsidies*

 

The cost to local exchange carriers of providing thebasic level of residential services in high-cost serving areas (as required bythe CRTC) is higher than the amounts the CRTC allows the local exchangecarriers to charge for the level of service. Accordingly, the CRTC collects contribution payments from all Canadiantelecommunication service providers (including voice, data and wireless serviceproviders) that are then disbursed as portable subsidy payments to subsidizethe costs of providing residential telephone services in these high-costserving areas.  The portable subsidypayments are paid based upon a total subsidy requirement calculated on a perline/per band subsidy rate. The CRTC currently determines, at a national level,the total contribution requirement necessary to pay the portable subsidies andthen collects contribution payments from the Canadian telecommunication serviceproviders, calculated as a percentage of their telecommunication servicerevenue.  Entertainment, Internet, pagingand terminal equipment revenues are exempt from the revenue charge.  In November 2008, the CRTC finalized thecontribution revenue percentage charge for 2008 at 0.87 per cent and also setan interim rate for 2009 at 0.87 per cent.

 

*Implementation of phase IIwireless enhanced 911 (E9-1-1) services*

 

On February 2,2009, the CRTC issued Telecom Policy CRTC 2009-40, directing Canadian wirelessservice providers to implement wireless phase II E9-1-1 service by February 1,2010, and ruling that wireless service providers are responsible for their owncosts of implementation. Wireless phase II E9-1-1 services are intended toautomatically provide E9-1-1 call centres with more precise locationinformation when a person calls 9-1-1 emergency services from their wirelesshandsets. Wireless phase II E9-1-1 services are designed to provide the caller’slocation using a GPS-based system, a triangulation method using the nearestcellular towers, or a combination thereof. The CRTC has ordered all Canadianwireless providers to implement wireless phase II E9-1-1 services in the sameareas where wireline E9-1-1 services were already available by February 1,2010 (stage 1). The CRTC is expected to issue a decision on stage 2 of phase IIE9-1-1 (providing mid-call location updates) after a working group tables itsrecommendations later in 2009. TELUS is working to meet the requirements ofthis CRTC decision, but there can be no assurance that TELUS can successfullyimplement the first stage of wireless phase II E9-1-1 services across itsentire wireless operating territory by February 1, 2010.

 

***Qualityof service***

 

The CRTC monitors quality of service for retailservices in non-forborne areas.  On November 8,2008, the CRTC issued Decision 2008-105 which made significant changes to theretail quality of service monitoring regime that applies to the ILECs innon-forborne areas.  The CRTC eliminatedthe retail rate adjustment plan and reduced the number of quality of serviceindicators being monitored from 17 to three.

 

27

----

 

The CRTC also monitors quality of service for competitorservices and enforces a rate adjustment plan and associated rebates for ILECsthat do not meet approved quality of service standards for these services.

 

***Regulation of wirelessservices***

 

The use of radio spectrum issubject to regulation and licensing by Industry Canada pursuant to theRadiocommunication Act, which is administered by Industry Canada.  All of TELUS’ wireless communicationsservices depend on the use of radio frequencies.  While economic regulation of wirelessservices falls under CRTC jurisdiction, wireless services have, generally, beensubject to regulatory forbearance.

 

The Minister of Industry hasthe authority to suspend or revoke radio spectrum licences if the licenceholder has contravened the Radiocommunication Act, regulations or terms andconditions of its licence and after giving the holder of the licence areasonable opportunity to make representations. Licence revocation is rare; licences are usually renewed upon expiration(see “Management’s Discussion and Analysis — Section 10. Risks and riskmanagement — 10.3 Regulatory” in TELUS’ 2008 Annual Report — Financial Review).

 

*WirelessNumber Portability*.  Wireless number portability(WNP) enables consumers to retain their telephone number when switching betweenservice providers or between wireline and wireless service. In Decision2005-72, the CRTC directed Bell Mobility, Rogers Wireless Inc. and the wirelessdivision of TELUS to fully implement WNP by September 2007.  TELUS has successfully completed thisimplementation. Canada was the second country in the world after the UnitedStates to offer complete number portability (wireless-to-wireless,wireless-to-wireline and wireline-to-wireless). TELUS has experienced modestlyhigher churn rates since the introduction of WNP. The initial post-WNP phase ofpent-up demand to switch has subsided, but churn rates may be permanentlyhigher in the future.

 

***Radiocommunications spectrumlicences***

 

TELUS holdsradiocommunication spectrum licences and authorizations for a variety ofwireless services and applications, both mobile and fixed.  TELUS holds significant 1.9 GHz PCS spectrumthroughout Canada, is the leading holder of 800 MHz SMR/ESMR spectrum in all ofthe major Canadian markets, and holds 25 MHz of cellular 800 MHz spectrum in Alberta,B.C. and eastern Québec.  In addition,TELUS holds various radio spectrum licences for fixed services in the 24/38GHz, 2.3/3.5 GHz band throughout Canada, paging services, analogue two-wayradio services, and legacy mobile-telephone and other miscellaneous wirelessservices.

 

*Licence terms and renewals*. Currently, spectrum licences inCanada for PCS and cellular spectrum will expire in 2011 and 2013 (see “Management’sDiscussion and Analysis — Section 10. Risks and risk management — 10.3Regulatory” in TELUS’ 2008 Annual Report — Financial Review).  The spectrum licences for the auctioned 24/38GHz, 2.3/3.5 GHz and PCS spectrum have a ten-year term from the date ofissuance.  Most other radiocommunicationsspectrum licences are renewed annually (see 

 

28

----

 

“Management’s Discussion andAnalysis — Section 10. Risks and risk management — 10.3 Regulatory” in TELUS’ 2008 Annual Report —Financial Review).

 

*Spectrum auction.* On February 16, 2007, Industry Canada released a discussion paperfor the then-upcoming auction for AWS spectrum in various spectrum bands.  On November 28, 2007, the Ministerreleased a policy framework on how the auction would be conducted.  The major elements included a set aside fornew entrants of 40 MHz of the available 90 MHz of AWS spectrum, mandatedroaming, and mandated tower and site sharing requirements at commercial ratessubject to binding arbitration.  On February 27,2008, Industry Canada clarified its decision on roaming indicating that newentrants are required to build before roaming and that resale will not bemandated, but rather left to commercial negotiations between relevantparties.  Terms of roaming and tower andsite sharing will be based on commercial terms and subject to bindingarbitration where commercial negotiations are not successful.  Final conditions of licence were subsequentlyreleased on February 29, 2008.  Theauction began on May 27, 2008 and ended July 21, 2008.

 

TELUS was successful inobtaining AWS spectrum licences covering a national footprint and will haveincreased capacity for advanced wireless services. Besides Rogers and BellCanada, licences were provisionally awarded to several new wireless serviceproviders including Shaw Communications Inc., Quebecor Media Inc., GlobaliveWireless LP., Bragg Communications Inc., Data & Audio-VisualEnterprises Wireless Inc., BMT Holdings and six smaller firms.

 

*700 MHz Spectrum*: The U.S. had a spectrum auctionfor the 700 MHz spectrum in early 2008.  This spectrum is currently assigned to over-the-air broadcasters andbecame mobile in the U.S. in 2009. The CRTC has set a shut-down date for analogtelevision transmission in Canada by August 31, 2011.  After this date, no licences for analogtransmission will be issued or renewed, thereby eventually freeing up thisspectrum.  On January 19, 2008,Industry Canada initiated an auction consultation process for spectrum at 700MHz strictly covering public safety usage. A consultation process for commercial use is expected to be announcedbefore the analog TV shut down in 2011. There is no guarantee that the Canadian government will not reservespectrum for new entrants or that it will not, as was done in the U.S., adoptsome elements of open access for some of this spectrum.

 

*2.5/2.6GHz*: Industry Canada had previouslyannounced plans to auction certain unlicenced spectrum at 2.6GHz and clawbackspectrum at 2.5/2.6 GHz for mobile and fixed wireless services.  A consultation on this spectrum is expectedto be announced, presumably sometime between 2009 and before expiration ofcurrent licences in 2011.  TELUS does notcurrently hold spectrum in these bands.

 

*800 MHz Re-banding*: In 2004, the FCC released aReport and Order adopting a plan to resolve interference to public safety radiosystems in the 800 MHz band in the U.S. Sprint Nextel’s ESMR system was identified as the primary contributor ofthis interference. The U.S. is planning to realign the band so that PublicSafety systems would be relocated to the bottom of the 800 MHz band and SprintNextel’s ESMR system would operate in the upper part of the band.

 

In Canada, the TELUS Mike(ESMR) network also uses this same frequency spectrum. Because of the waylicensing is carried out for the Mike network (i.e. each site is 

 

29

----

 

analyzed and licencedindividually), TELUS and Industry Canada have been able to minimize the numberof Public Safety interference issues to a few across Canada (compared to morethan 1500 in the U.S.).

 

However, TELUS has anexisting Special Co-Ordination Procedure (SCP), endorsed by both IndustryCanada and the FCC, wherein TELUS and Sprint-Nextel utilize each other’schannels within their respective ESMR networks at specific border areas acrossthe country. These channels serve to increase the number of available channelsavailable to both networks to better serve the area. The re-alignment threatensthe continued use of the channels specified in the SCP.

 

While discussions with boththe Canadian and U.S. regulators indicate that TELUS should be able to continueto have access to a certain number of SCP channels in the border areas, untilsuch time as the U.S. announces their final decision, there is no assurancethat TELUS will be able to continue to use these channels.

 

***Broadcasting services***

 

TheBroadcasting Act governs all types of broadcasting activities includingcommercial off-air radio and television broadcasting, the operation of otherprogramming services such as specialty and pay television, as well as thedistribution of television services through cable or satellite undertakings.

 

TheBroadcasting Act and its regulations give the CRTC the authority to issuelicences for specific categories of broadcasting undertakings and to regulatethe content provided and rates charged by each category of broadcastingundertaking.  In August 1996, thefederal government issued its policy under which “telecommunications commoncarriers” (as defined in the Telecommunications Act) would be allowed to applyfor broadcasting distribution undertaking (BDU) licences to provide cabletelevision service.  In 1997, the CRTCconfirmed that new entrant BDUs, including telecommunications common carriers,would not be rate regulated and would not have an obligation to serve.  However, the CRTC confirmed that new entrantswould have to meet all the same content and carriage obligations as incumbentBDUs.

 

TELUShas been licenced by the CRTC to operate Class 1 Regional BDUs in each ofB.C., Alberta and Québec utilizing its IP facilities.  TELUS also holds a national licence tooperate a video-on-demand programming service. All of TELUS’ services are fully digital and thus benefit from the moreflexible regulatory regime regarding BDU packaging established by the CRTC in itsDigital Migration Framework.

 

*Licencerenewals*:  The TELUSbroadcasting licences are set to expire in 2009 and the renewal process forthese licences commenced in 2008.  TELUSdoes not expect any difficulties in obtaining these renewals for further sevenyear terms.

 

*Policy framework review for broadcastingdistribution and specialty and pay television services:*  The CRTC issued a revisedpolicy forbroadcasting distribution undertakings in Broadcasting Public Notice 2008-100.In this policy, the CRTC increased contribution requirements of distributionundertakings by one percent of grossrevenues. This policy also altered the framework regarding the offering ofdistant over-the-air television signals, which will likely make the offering oftime-shifting packages more expensive. The new policy framework also providesfor new flexibility for broadcasting distribution undertakings in

 

30

----

 

packaging of Canadian andforeign programming services. These changes will take effect at the same timeas the digital conversion of analogue over-the-air signals in August 2011.

 

In addition, the CRTC hasinitiated a proceeding to review its exemption orders regarding new mediabroadcasting undertakings (which dates back to 1999) and mobile televisionbroadcasting undertakings (which was issued in 2005).  The CRTC has a policy of reviewing itsexemption orders every five years.  TheCRTC has launched a public hearing (Broadcasting Notice of Public Hearing2008-11) for this review and initial comments have been filed.  Some of the proposals made in this firstround of comments were considered by the CRTC at an oral hearing that began in February 2009and included mandating a contribution requirement for ISPs to create a fund tosubsidize the creation of Canadian new media content and implementingincentives for the promotion of Canadian new media content on theInternet.  These proposals all raisesignificant jurisdictional, public policy and enforcement issues for the CRTCbut there can be no assurance that the CRTC will not attempt to implement somemeasures to benefit Canadian new media content. A decision is expected by the end of 2009.

 

***Internet access services***

 

The CRTC has also initiateda separate proceeding to investigate the Internet traffic management practicesof Canadian ISPs.  This follows a November2008 decision by the CRTC denying a request to have Bell Canada halt itstraffic shaping (or throttling) of peer-to-peer file sharing applicationtraffic on its wholesale ADSL access service. The CRTC’s review of Internet traffic management practices includes bothwholesale and retail services and encompasses such issues as the growth ofInternet traffic and how this has affected ISP networks and what (if any)practices might violate the unjust discrimination or control of content rules inthe Telecommunications Act.  An oralhearing is scheduled for July 2009 and a decision (which may set out somebroad principles or guidelines under which the Commission will review futurecontested Internet traffic management practices) is expected by the end of 2009.

 

# **COMPETITION**

# ** **

TELUS expects continuedstrong competition in the wireline and wireless businesses in all principalmarkets and geographic areas.  Thefollowing is a summary of the competitive environment in each of TELUS’principal markets and geographic areas.

 

***Wirelinesegment***

 

TELUS’ wireline telephonycompetitive environment is divided into two regions, ILEC and non-ILEC, basedon its treatment under CRTC rules.

 

TELUS has always experienced competition for data services.  Long distance and local access voice serviceshave faced competition since 1993 and 1998, respectively.

 

TELUS is an ILEC in Alberta, B.C. and parts of Québec, while itoperates as a CLEC in the rest of Canada. In mid-2007 the CRTC forbore from price regulating the provision ofresidential local telephone service in Fort McMurray, Alberta.  Since that time, the CRTC has forborne fromregulating approximately 80 per cent of TELUS’ residential customer market and70 per cent of its business market. Forbearance allows TELUS pricing flexibility for most customers inforborne exchanges but does not remove caps on prices for stand-alone basicresidential telephone customers.  WhereTELUS competes as a 

 

31

----

 

CLEC, it is forborne from regulation. TELUS has higher market share in areas where it is the ILEC; however,competition has been increasing over time.

 

Within TELUS’ ILEC territories, a number of competitors offer voice anddata services through a combination of their own facilities and unbundlednetwork elements provided by TELUS. The primary competitors are: BCE Inc.including its subsidiary Bell Canada, Shaw Communications, MTS Allstream (asubsidiary of Manitoba Telecom Services Inc), Rogers Communications Inc., andPrimus Telecommunications Canada.  Anumber of these competitors have built extensive local fibre optic networks inTELUS’ ILEC service territories.  All ofthese competitors are increasingly integrating and bundling voice and dataservices in order to provide both discounted and more extensive serviceofferings to customers.

 

In addition to providing telephony services, TELUS is an ISP inAlberta, B.C., and in parts of Ontario and Québec.  In the residential sector and, to someextent, the business sector, cable-TV companies are also providing high-speedInternet services and represent significant competition to the ILECs.  Shaw Communications is TELUS’ primarycompetitor in the provisioning of high-speed Internet and residential telephoneservices to consumers in Alberta and B.C. In the Québec ILEC region, the Company’s primary competitors are Cogecoand Videotron.

 

In recent years, a number ofnew Internet-based competitors have entered the market for local and longdistance voice services in TELUS’ ILEC and non-ILEC regions.  These competitors utilize voice over Internetprotocol (VoIP) technologies to offer customers phone service over existingInternet connections. In the past few years, non-facilities based VoIP serviceproviders (such as Vonage and Skype) have had some success.  However, the cable-TV companies (such as ShawCommunications, Rogers Communications, Videotron, Cogeco) have been the most successfulVoIP competitors having captured an estimated 2.6 million VoIP servicesubscribers by the end of 2008.  TELUSexpects competition to remain intense especially because VoIP competitors arelargely free from regulatory burden, thereby offering them significantflexibility in competing against ILECs such as TELUS (particularly innon-forborne areas).

 

TELUS also faces competitionfrom companies without wireline networks. Wireless service providers offer rate plans and services that areintended to compete directly with ILEC local services.  Resellers of primary local exchange servicesand smaller competitors in niches such as dial-around plans and calling cardservices have been operating in Alberta and B.C. for several years and alsocompete with TELUS’ ILEC operations.

 

In its non-ILEC territories,TELUS’ major competitors for wireline voice and data services are the incumbentcarriers.  In most cases, thesecompetitors are subsidiaries or affiliates of BCE Inc.  The other primary competitors are MTSAllstream and Rogers Communications Inc. with increasing competition fromcable-TV companies and municipal hydro company owned telecommunicationsproviders.

 

A significant development onthe competitive front in 2008 was the termination of the definitive agreementto acquire BCE Inc. by a consortium of private equity investors.  Instead, BCE Inc. remains a public company.  (See “Management’sDiscussion and Analysis – Section 1. Introduction, performance summary andtargets - 1.2 Canadian economy and telecommunications industry” in TELUS’ 2008Annual Report – Financial Review.)

 

32

----

 

System integrators such asIBM Canada and HP also represent a competitive threat to TELUS in both ITservices as well as the business market for higher bandwidth and other data andvoice network management and network integration services.

 

***Wirelesssegment***

 

TELUS offers wireless voice and data services to consumers andbusinesses nationally on both the ESMR (branded Mike) and the PCS/cellularnetworks and competes in both the prepaid and postpaid markets.

 

TELUS’ primary competitorsare Bell and Rogers - both have national networks, a broad offering of wirelessvoice and data services for consumers and businesses and a large existingcustomer base.  Regional competitorsinclude Sasktel and MTS; these firms have coverage in very specific geographicregions and are key competitors in those particular markets.

 

In April 2005, VirginMobile began offering services across Canada. Virgin Mobile is a Mobile Virtual Network Operator (MVNO) which is ownedin part by Bell and utilizes the Bell network for the provisioning ofservices.  In addition, both Bell andRogers are supporting other MVNO partnerships with cable-TV companies (such asEastlink) and other resellers (such as President’s Choice, Petro-Canada and7-Eleven).  To compete with MVNOs andother basic brands for price-sensitive clients, Bell and Rogers are promotingtheir respective basic brand offerings through strategies such as per secondbilling and extended hours on free nights and weekend calling.  In March 2008, TELUS successfully launchedits basic postpaid Koodo Mobile brand and service to better address segments of the wireless market and complement the fullyfeatured TELUS brand service. Competition within the wireless market is anticipated to remain intense.

 

As a result of the 2008 AWSspectrum auction, new wireless entrants as outlined on page 29 areexpected to commence operations in all regions of the country in the comingyears.  The operational details andlaunch timing of these new wireless entrants continue to evolve but some haveannounced plans to begin service in late 2009 and early 2010.  Additionally, there is the possibility thatthe upcoming 700 MHz and 2.5/ 2.6 GHz auctions will lead to the entry ofadditional wireless providers on a regional and/or national basis in a fewyears.

 

New entrants will benefitfrom mandated roaming and tower/site access and from the lower prices paid forset-aside spectrum compared to the open spectrum purchased by incumbents duringthe 2008 spectrum auction.  Several AWSauction participants such as regional cable operators (e.g., Videotron) and newentrants (e.g., Globalive) are expected to deploy discount strategies in orderto gain market share.   (See “Management’s Discussion and Analysis – Section 10.Risks and risk management – 10.1 Competition” in TELUS’ 2008 Annual Report –Financial Review.

 

TELUS offers a number ofwireless Internet offerings using the networks noted above as well as wirelessLAN services such as WiFi (802.11) in “hotspots” and other areas utilizingunlicenced spectrum.  In offeringwireless Internet and LAN access services, TELUS competes, to a limited extent,with wireline business Internet access providers.

 

33

----

 

TELUS also competes withnumerous national, regional and local paging companies for paging customers inAlberta, B.C. and eastern Québec.  Italso competes with major equipment manufacturers for private radio engineeredsystems.

 

***Otheremerging competitive services***

 

A number of additionallonger term factors are expected to increase competition in the communicationsindustry such as the continuing convergence of cable-TV, satellite, computer,wireline and wireless technologies.

 

In November 2005, TELUScommercially launched TELUS TV within select neighbourhoods in the Edmonton andCalgary markets.  TELUS TV is nowavailable in Alberta in Calgary, Edmonton, Grande Prairie and Fort McMurray; inBritish Columbia in Vancouver, Whistler and the Lower Mainland area; and inQuébec in Rimouski.  Additional servingareas in these three provinces are targeted for 2009.  TELUS has also begun offering HD capabilityin select areas through the deployment of ADSL2+ technology.  (See “Management’sDiscussion and Analysis – Section 10. Risks and risk management – 10.1Competition” in TELUS’ 2008 Annual Report – Financial Review.)

 

In this segment, TELUScompetes with established cable-TV video providers, such as Shaw Communicationsand Cogeco, and with direct-to-home broadcast satellite companies, such as BellTV and Star Choice.

 

Competition is also intensein other emerging markets such as multimedia conferencing, Web hosting, informationsecurity services, contact centre setup, application management, and humanresource business process outsourcing. TELUS took a significant step forward in the advancement of its growthstrategy with its acquisition of Emergis, which was integrated with TELUS’ ownhealth care resources to form TELUS Health Solutions (See Description of theBusiness and General Developments.) TELUS Health Solutions develops and manages solutions that automatetransactions and the secure exchange of information.  TELUS Health Solutions has expertise inelectronic health-related claims processing, health records systems, pharmacymanagement solutions, point-of-sale transaction processing, cash management andloan document processing and registration. The acquisition of Emergis is expected to enable TELUS to furtherenhance its reputation as an organization that understands these industries andcan deliver innovative solutions to increase their efficiency and the servicethey provide to Canadians.

 

# **DIVIDENDSDECLARED**

# ** **

The dividends per CommonShare and Non-Voting Share declared with respect to each quarter by TELUS,during the three-year period ended December 31, 2008, are shown below.

 
| **Quarter ended ****(1)** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| March 31                       |       | $        | 0.45       |     | $          | 0.375    |       | $ | 0.275 |   |
| June 30                        |       | $        | 0.45       |     | $          | 0.375    |       | $ | 0.275 |   |
| September 30                   |       | $        | 0.45       |     | $          | 0.375    |       | $ | 0.275 |   |
| December 31                    |       | $        | 0.475      |     | $          | 0.45     |       | $ | 0.375 |   |

 

----

(1) Paid on the firstbusiness day of the next month.

 

34

----

 

TELUS’Board of Directors reviews its dividend rate quarterly.  On November 7, 2008, TELUS announcedthat it was increasing its dividend to $0.475 per share on the issued andoutstanding Common and Non-Voting Shares.  This 5.6 per cent increase was consistent withthe Company’s forward-looking dividend payout ratio guideline of 45 to 55 percent of sustainable net earnings first set in October 2004.  TELUS’ quarterly dividend rate will depend onan ongoing assessment of free cash flow generation and financial indicatorsincluding leverage, dividend yield and payout ratio.

 

# **CAPITAL STRUCTURE OF TELUS**

# ** **

The authorized capital of TELUS consists of4,000,000,000 shares, divided into: 1) 1,000,000,000 Common Shares without parvalue; 2) 1,000,000,000 Non-Voting Shares without par value; 3) 1,000,000,000First Preferred shares without par value and; 4)  1,000,000,000 SecondPreferred shares without par value.  TheCommon Shares and Non-Voting Shares are listed for trading on the Toronto StockExchange and the Non-Voting Shares are listed for trading on the New York StockExchange.  See “Market for Securities”.

 

***TELUS Common Shares andTELUS Non-Voting Shares***

 

Subject to theprior rights of the holders of First Preferred shares and Second Preferredshares, the Common Shares and the Non-Voting Shares are entitled to participateequally with each other with respect to the payment of dividends and thedistribution of assets of TELUS on the liquidation, dissolution or winding upof TELUS.

 

Neither theCommon Shares nor the Non-Voting Shares can be subdivided, consolidated,reclassified or otherwise changed unless the other class is changed in the samemanner.

 

The holders ofthe Common Shares are entitled to receive notice of, attend, be heard and voteat any general meeting of the members of TELUS on the basis of one vote perCommon Share held.  The holders ofNon-Voting Shares are entitled to receive notice of, attend and be heard at allgeneral meetings of the members of TELUS and are entitled to receive all noticesof meetings, information circulars and other written information from TELUSthat the holders of Common Shares are entitled to receive from TELUS, but arenot entitled to vote at such general meetings unless otherwise requiredby law.  Holders of Common Sharesare entitled to vote by a separate resolution for each director rather than aslate.

 

In order toensure that the holders of the Non-Voting Shares can participate in any offerwhich is made to the holders of the Common Shares (but is not made to theholders of Non-Voting Shares on the same terms), which offer, by reason ofapplicable securities legislation or the requirements of a stock exchange onwhich the Common Shares are listed, must be made to all or substantially allthe holders of Common Shares who are in any province of Canada to which therequirement applies (an Exclusionary Offer), each holder of Non-Voting Shareswill, for the purposes of the Exclusionary Offer only, be permitted to convertall or part of the Non-Voting Shares held into an equivalent number of CommonShares during the applicable conversion period. In certain circumstances (namely, the delivery of certificates, atspecified times, by holders of 50 per cent or more of the issued andoutstanding Common Shares to the effect that they will not, among 

 

35

----

 

other things,tender to such Exclusionary Offer or make an Exclusionary Offer), theseconversion rights will not come into effect.

 

If all of the Telecommunications Act, theRadiocommunication Act and the Broadcasting Act are changed so thatthere is no restriction on any non-Canadians holding Common Shares, holders ofNon-Voting Shares will have the right to convert all or part of theirNon-Voting Shares into Common Shares on a one for one basis, and TELUS will havethe right to require holders of Non-Voting Shares who do not make such anelection to convert such shares into an equivalent number of Common Shares.

 

TELUS willprovide notice to each holder of Common Shares before a general meeting ofmembers at which holders of Non-Voting Shares will be entitled to vote as aclass.  In such event, holders of CommonShares will have the right to convert all or part or their Common Shares intoNon-Voting Shares on a one for one basis provided and to the extent that TELUSand its subsidiaries remain in compliance with the foreign ownership provisionsof the Telecommunications Act, theRadiocommunication Act and the Broadcasting Act.

 

The CommonShares are subject to constraints on transfer to ensure TELUS’ ongoing compliancewith the foreign ownership provisions of the Telecommunications Act, the Radiocommunication Act and the BroadcastingAct.  As well, holders of CommonShares will have the right, if approved by the Board of Directors of TELUS, toconvert Common Shares into Non-Voting Shares in order that TELUS be incompliance with the foreign ownership provisions of the Telecommunications Act, the Radiocommunication Act and the BroadcastingAct.

 

In all otherrespects, each Common Share and each Non-Voting Share have the same rights andattributes.

 

***First Preferred shares***

 

The First Preferred sharesmay be issued from time to time in one or more series, each series comprisingthe number of shares, and having attached thereto the designation, rights,privileges, restrictions and conditions which the board of directors of TELUS determinesby resolution and subject to filing an amendment to the Notice of Articles andArticles of TELUS.  No series of FirstPreferred shares may have attached thereto the right to vote at any generalmeeting of TELUS or the right to be convertible into or exchangeable for CommonShares.  Except as required by law, theTELUS holders of the First Preferred shares as a class are not entitled toreceive notice of, attend or vote at any meeting of the members of TELUS.  The First Preferred shares rank prior to theSecond Preferred shares, Common Shares and Non-Voting Shares with respect topriority in payment of dividends and in the distribution of assets in the eventof liquidation, dissolution or winding up of TELUS.

 

 ***SecondPreferred shares***

 

The Second Preferred sharesmay be issued from time to time in one or more series, each series comprisingthe number of shares, and having attached thereto the designation, rights,privileges, restrictions and conditions, which the board of directors of TELUSdetermines by resolution and subject to filing an amendment to the Notice ofArticles and Articles of TELUS. No series of Second Preferred shares may have 

 

36

----

 

attached thereto the rightto vote at any general meeting of TELUS or the right to be convertible into orexchangeable for Common Shares.  Exceptas required by law, the holders of the Second Preferred shares as a class arenot entitled to receive notice of, attend or vote at any meeting of the membersof TELUS.  The Second Preferred sharesrank, subject to the prior rights of the holders of the First Preferred shares,prior to the Common Shares and Non-Voting Shares with respect to priority inpayment of dividends and in the distribution of assets in the event ofliquidation, dissolution or winding up of TELUS.

 

***TELUS Rights Plan***

 

TELUS adopteda shareholder rights plan (the Rights Plan) in March 2000 and issued oneright (a Series A Right) in respect of each Common Share outstanding as atsuch date and issued one right (a Series B Right) in respect of eachNon-Voting Share outstanding as of such date. The Rights Plan has a term of 10 years subject to shareholderconfirmation every three years.  The RightsPlan was amended and confirmed as amended by the shareholders first in 2003 andagain in 2005 and 2008.  Each Series BRight, other than those held by an Acquiring Person (as defined in the RightsPlan) and certain of its related parties, entitles the holder in certaincircumstances following the acquisition by an Acquiring Person of 20 per centor more of the voting shares of TELUS (otherwise than through the “PermittedBid” requirements of the Rights Plan) to purchase from TELUS $320 worth ofNon-Voting Shares for $160 (i.e. at a 50 per cent discount).

 

# **RATINGS**

# ** **

Ratingsinformation contained in “Management’s Discussion and Analysis – Section 7.Liquidity and capital resources – 7.7 Credit Ratings” in TELUS’ 2008 AnnualReport – Financial Review is hereby incorporated by reference.  TELUS’ 2008 Annual Report and Management’sDiscussion and Analysis are available at sedar.com.  Credit ratings are not recommendations topurchase, hold or sell securities and do not address the market price orsuitability of a specific security for a particular investor.  In addition, real or anticipated changes inthe rating assigned to a security will generally affect the market value ofthat security.  There can be no assurancethat a rating will remain in effect for any given period of time or that arating will not be revised or withdrawn entirely by a rating agency in thefuture.

 

A descriptionof the rating categories applied to TELUS as at December 31, 2008 fromeach agency is below.  The outlook ortrend for TELUS from four agencies was stable.

 
| **Institution** | ** ** | **Rating**                                                                                                                                                                                                             | ** ** | **Outlook**                                                                                                                                                                                                                                                    |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Fitch**       |       | “BBB” ratings indicate that there  is currently expectation of low credit risk. The capacity for payment of  financial commitments is considered adequate but adverse changes in  circumstances and economic |       | An Outlook indicates the direction a rating is likely to move over a  one to two-year period. Outlooks may be positive, stable or negative. A  positive or negative Rating Outlook does not imply a rating change is  inevitable. Similarly, ratings for which |

 

37

----

 
| **Institution** | ** ** | **Rating**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **Outlook**                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **      |       | conditions are more likely to  impair this capacity. This is the lowest investment grade category.

 

The modifiers “+” or “-” may be  appended to ratings “AA” to “CCC” to denote relative status within major  rating categories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | outlooks are ‘stable’ could be upgraded or downgraded before an  outlook moves to positive or negative if circumstances warrant such an  action.                                                                                                                                                                                                                                                            |
| ** **      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **DBRS**        |       | Long-term debt rated “A” is of satisfactory  credit quality. Protection of interest and principal is still substantial,  but the degree of strength is less than that of AA rated entities.

 

While “A” is a respectable rating, entities in  this category are considered to be more susceptible to adverse economic  conditions and have greater cyclical tendencies than higher-rated securities.

 

Long-term debt rated “BBB” is of adequate credit  quality. Protection of interest and principal is considered acceptable, but  the entity is fairly susceptible to adverse changes in financial and economic  conditions, or there may be other adverse conditions present which reduce the  strength of the entity and its rated securities.

 

The ratings from “AA” to “CCC” are denoted by  the subcategories “high” and “low”. The absence of either a “high” or “low”  designation indicates the rating is in the “middle” of the category.

 

DBRS’ short-term debt rating scale is meant  to give an indication of the risk that a borrower will not fulfill its  near-term debt obligations in a timely manner. The ratings range from R-1 (high) to D. Short-term debt rated R-1  (low) is of satisfactory credit quality. The overall strength and outlook for  key liquidity, debt, and profitability ratios is not normally as favourable  as with higher rating categories, but these considerations |       | Each DBRS rating category is  appended with one of three rating trends - “Positive”, “Stable”, or  “Negative”. The rating trend helps to give the investor an understanding of  DBRS’s opinion regarding the outlook for the rating in question. However, the  investor must not assume that a positive or negative trend necessarily  indicates that a rating change is imminent. |

 

38

----

 
| **Institution**  | ** ** | **Rating**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **Outlook**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       |       | are still respectable. Any  qualifying negative factors that exist are considered manageable, and the  entity is normally of sufficient size to have some influence in its industry.                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| ** **       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **S&P**      |       | An  obligator rated ‘BBB’ exhibits adequate protection parameters. However,  adverse economic conditions or changing circumstances are more likely to lead  to a weakened capacity of the obligor to meet its financial commitments.

 

The  ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus  sign to show relative standing within the major rating categories.                                                                                                                                        |       | Rating  outlooks assess the potential direction of a long term credit rating over the  intermediate term (typically six months to two years). An outlook is not  necessarily a precursor to a rating change or CreditWatch placement. Outlooks  may be positive, negative, stable, or developing and they accompany all  long-term credit ratings except those on CreditWatch.                                                                                                                     |
| ** **       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **Moody’s** |       | Obligations rated “Baa” are subject to moderate  credit risk. They are considered medium-grade and as such may possess certain  speculative characteristics.

 

Moody’s  appends numerical modifiers 1, 2, and 3 to each generic rating classification  from ‘Aa’ through ‘Caa’.  The modifier 1 indicates that the obligation ranks in the higher end of its  generic rating category; the modifier 2 indicates a mid-range ranking; and  the modifier 3 indicates a ranking in the lower end of that generic rating  category. |       | Moody’s  also provides a rating outlook which is an opinion regarding the likely  direction of a rating over the medium term. Where assigned, rating outlooks  fall into the following four categories: Positive (POS), Negative (NEG),  Stable (STA), and Developing (DEV – contingent upon an event.

 

Ratings Under Review (RUR) designation indicates that the issuer has one or more  ratings under review for possible change, and thus overrides the outlook  designation. |

 

39

----

 

# **DIRECTORS AND OFFICERS**

# ** **

***Directors***

 

The names, municipalities ofresidence and principal occupations of the directors of TELUS and the date eachsuch person became a director of TELUS are as set out below.  Currently, there are 12 directors on theTELUS Board.  Each was elected at TELUS’annual and special meeting on May 8, 2008 for a one year term.

 
| **Directors of TELUS   (Name and municipality of residence)**          | ** ** | **Director    since****(1)** | ** ** | **Principal  occupation**                                                                  |
|------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------------------------------------------------------------------|
|                                                                   |       |                         |       |                                                                                       |
| R.H. (Dick) Auchinleck (4 - Chair) (5)   Calgary, Alberta         |       | 2003                         |       | Presiding Director, ConocoPhillips (oil and gas)                                           |
| A. Charles Baillie (3 -  Chair) (5)   Toronto, Ontario            |       | 2003                         |       | Chair, Alberta Management Investment Corporation (pension investment  corporation)         |
| Micheline Bouchard (2)   Montréal, Québec               |       | 2004                         |       | Corporate Director                                                                         |
| R. John Butler (3) (4)   Edmonton, Alberta                   |       | 1995                         |       | Counsel, Bryan & Company (law firm)                                               |
| Brian A. Canfield (5)   Point Roberts, Washington                 |       | 1989                         |       | Chair, TELUS Corporation                                                                   |
| Pierre Y. Ducros(2)   Montréal, Québec                  |       | 2005                         |       | President of P. Ducros & Associés Inc. (investment and  administration firm) |
| Darren Entwistle   Vancouver, B.C.                                     |       | 2000                         |       | President and Chief Executive Officer, TELUS Corporation                                   |
| Ruston E.T. Goepel (2)   Vancouver, B.C.                          |       | 2004                         |       | Senior Vice President, Raymond James Financial Ltd. (investment firm)                      |
| John S. Lacey (3) (4)   Toronto, Ontario                     |       | 2000                         |       | Chairman, Advisory Board, Tricap Restructuring Fund (investment fund)                      |
| Brian F. MacNeill (2 - Chair)   Calgary, Alberta                  |       | 2001                         |       | Chairman, Petro Canada (oil and gas company)                                               |
| Ronald P. Triffo (2)   Edmonton, Alberta                          |       | 1995                         |       | Chairman, Stantec Inc. (engineering company)                                               |
| Donald Woodley (4) (5 — Chair)   Mono Township, Ontario |       | 1998                         |       | Corporate Director                                                                         |

 

----

(1)            TELUS or itspredecessors

(2)            Member of AuditCommittee

(3)            Member of HumanResources and Compensation Committee

(4)            Member of CorporateGovernance Committee

(5)            Member of PensionCommittee

 

All of the directors ofTELUS have held the principal occupations set forth above or executivepositions with the same companies or firms referred to, or with affiliates orpredecessors thereof, for the past five years except as follows: MichelineBouchard was President and CEO, ART Advanced Research Technologies Inc. from2002 to July

 

40

----

 

2006; and Don Woodley was interim CEO and President of GENNUM Corporationfrom November 2005 to September 2006.

 

***Executive Officers***

 

The name, municipality ofresidence and present and principal occupations of each of the executiveofficers of TELUS, as of March 10, 2009, are as follows:

 
| **Executive Officers of TELUS   (Name and municipality of residence)** | ** ** | **Position held with TELUS**                                                     |
|------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|
| Josh  BlairVancouver, B.C.                                             |       | Executive Vice President,  Human Resources                                       |
|                                                                   |       |                                                                             |
| Brian A. Canfield   Point Roberts, Washington                          |       | Chair                                                                            |
|                                                                   |       |                                                                             |
| Darren Entwistle   Vancouver, B.C.                                     |       | President and Chief  Executive Officer                                           |
|                                                                   |       |                                                                             |
| Robert  G. McFarlane   Vancouver, B.C.                                 |       | Executive Vice President  and Chief Financial Officer                            |
|                                                                   |       |                                                                             |
| Joe  M. Natale   Toronto, Ontario                                      |       | Executive Vice President  and President, Business Solutions                      |
|                                                                   |       |                                                                             |
| Karen RadfordWestmount, Québec                                    |       | Executive Vice President  and President, TELUS Québec and Partner Solutions |
|                                                                   |       |                                                                             |
| Kevin  A. SalvadoriVancouver, B.C.                                     |       | Executive Vice President,  Business Transformation and Technology Operations     |
|                                                                   |       |                                                                             |
| Eros SpadottoToronto,  Ontario                                         |       | Executive Vice President,  Technology Strategy                                   |
|                                                                   |       |                                                                             |
| John WatsonToronto,  Ontario                                           |       | Executive Vice President  and President, Consumer Solutions                      |

 

All of theofficers above have been engaged for the past five years with TELUS, its subsidiaries,affiliates or predecessors thereof.

 

***TELUS shares held bydirectors and executive officers***

 

As at March 10, 2009,the directors and executive officers of TELUS, as a group, beneficially owned,directly or indirectly, or exercised control or direction over 304,255 Common Shares, which represented approximately 0.17 percent of the outstanding Common Shares and 326,518 Non-Voting Shares, whichrepresented approximately 0.23 per cent of the outstanding Non-VotingShares.

 

41

----

 

***Cease trade orders,bankruptcies, penalties or sanctions***

 

Other than as disclosed, for the ten years ended March 10,2009, TELUS is not aware that any current director or executive officer ofTELUS had been a director or executive officer of any issuer which, while thatperson was acting in that capacity, or within a year of that person ceasing toact in that capacity, became bankrupt or made a proposal under any legislationrelating to bankruptcy or insolvency or was subject to or instituted anyproceedings, arrangement or compromise with creditors or had a receiver,receiver manager or trustee appointed to hold its assets.  In December 1998, John Lacey was askedby a group of shareholders to lead the Loewen restructuring, as Chairman of theBoard, a position he held at the time of Loewen’s filing under Chapter 11 ofthe U.S.Bankruptcy Code and the Companies’ Creditors ArrangementAct (Canada) (CCAA).  In March 2006,Mr. Lacey was appointed to the board of directors of Stelco Inc. (Stelco)as a nominee of Tricap Management Limited (Tricap).  Stelco filed for bankruptcy protection underthe CCAA in January 2004.  Mr. Lacey’sappointment as a director was part of a court supervised restructuring, fromwhich Stelco emerged on March 31, 2006 and pursuant to which Tricap hadthe right to appoint four of Stelco’s nine directors.  Charles Baillie was formerly a director ofDana Corporation, which filed for bankruptcy in March 2006 under Chapter11 of the U.S. Bankruptcy Code.  He ceasedto be director when the company emerged from bankruptcy on February 1,2008.  Robert G. McFarlane was a directorof Ascalade Communications Inc. (Ascalade) until his resignation in February 2008.  In March 2008, Ascalade filed forbankruptcy protection under the CCAA.

 

Other than as disclosed, for the ten years ended March 10, 2009,TELUS is not aware that any current director or executive officer of TELUS hadbeen a director, chief executive officer or chief financial officer of anyissuer which was the subject of a cease trade or similar order while thatperson was acting in that capacity, or was subject to such an order issuedafter the director or executive officer ceased to be a director, chiefexecutive officer or chief financial officer and resulted from an event thatoccurred while that person was acting in that capacity, or any order whichdenied such company access to any exemption under securities legislation for aperiod of more than 30 consecutive days. On June 14, 2006, and at the request of Cognos Incorporated(Cognos), the Ontario Securities Commission (OSC) issued a cease trade orderagainst all directors of Cognos, including Pierre Ducros, in connection with adelay in filing its annual report with Canadian regulators.  The delay was related to a review by theUnited States Securities and Exchange Commission (SEC) of the way Cognosallocated revenue between post-contract customer support and licence fees.  The OSC lifted the cease trade order on August 3,2006 after the SEC concluded that it did not object to Cognos’ revenuerecognition policy.  Mr. Ducrosceased to be a director of Cognos in February 2008 after its takeover byIBM.

 

# **MARKET FOR SECURITIES**

# ** **

TELUS’ Common Shares andNon-Voting Shares are listed on the Toronto Stock Exchange (TSX) under “T” and “T.A”respectively and the TELUS Non-Voting Shares are listed on the New York StockExchange under “TU”.  Monthly shareprices and volumes for 2008 are listed below:

 

42

----

 

***TSX – Common and Non-VotingShares***

 
| ** ** | ** ** | **Common Shares** | ** ** | **Non-Voting Shares** | ** ** |
|------------|------------|------------------------|------------|----------------------------|------------|
| **Month**  | ** ** | **High($)**            | ** ** | **Low($)**                 | ** ** | **Volume** | ** ** | **High($)** | ** ** | **Low($)** | ** ** | **Volume** | ** ** |
| January    |       | 49.90                  |       | 41.05                      |       | 25,908,530 |   | 48.49 |   | 39.41 |   | 16,683,564 |   |
| February   |       | 47.43                  |       | 41.51                      |       | 16,656,575 |   | 46.15 |   | 39.86 |   | 11,943,287 |   |
| March      |       | 45.70                  |       | 41.55                      |       | 22,194,256 |   | 44.55 |   | 40.12 |   | 16,139,951 |   |
| April      |       | 47.48                  |       | 43.66                      |       | 15,124,703 |   | 45.87 |   | 43.14 |   | 7,630,807 |   |
| May        |       | 48.87                  |       | 45.30                      |       | 15,566,827 |   | 47.14 |   | 43.65 |   | 9,950,596 |   |
| June       |       | 47.78                  |       | 42.10                      |       | 15,991,253 |   | 46.31 |   | 40.26 |   | 11,142,203 |   |
| July       |       | 43.75                  |       | 37.30                      |       | 19,255,629 |   | 42.21 |   | 35.33 |   | 12,306,319 |   |
| August     |       | 42.79                  |       | 37.50                      |       | 14,422,852 |   | 41.99 |   | 35.77 |   | 10,943,030 |   |
| September  |       | 43.76                  |       | 36.01                      |       | 25,541,546 |   | 42.00 |   | 35.29 |   | 10,581,303 |   |
| October    |       | 43.65                  |       | 34.12                      |       | 24,579,348 |   | 40.50 |   | 31.83 |   | 10,290,592 |   |
| November   |       | 43.66                  |       | 33.80                      |       | 17,477,074 |   | 41.12 |   | 31.46 |   | 11,888,739 |   |
| December   |       | 39.50                  |       | 32.27                      |       | 19,241,286 |   | 36.91 |   | 29.70 |   | 11,037,789 |   |

 

***NYSE – Non-Voting Shares***

 
| **Month** | ** ** | **High ($ U.S.)** | ** ** | **Low ($ U.S.)** | ** ** | **Volume** | ** ** |
|-----------|------------|-----------------------------|------------|----------------------------|------------|------------|------------|
| January   |       | 48.87                       |       | 38.41                      |       | 2,427,366  |       |
| February  |       | 47.44                       |       | 39.53                      |       | 1,591,157  |       |
| March     |       | 45.18                       |       | 39.24                      |       | 3,165,402  |       |
| April     |       | 45.34                       |       | 42.54                      |       | 1,450,204  |       |
| May       |       | 47.89                       |       | 43.20                      |       | 1,794,966  |       |
| June      |       | 46.40                       |       | 39.83                      |       | 1,619,915  |       |
| July      |       | 41.02                       |       | 34.52                      |       | 2,626,018  |       |
| August    |       | 39.01                       |       | 34.35                      |       | 1,977,760  |       |
| September |       | 39.12                       |       | 33.26                      |       | 3,166,237  |       |
| October   |       | 37.32                       |       | 26.83                      |       | 6,079,218  |       |
| November  |       | 35.48                       |       | 24.48                      |       | 4,635,774  |       |
| December  |       | 29.55                       |       | 24.19                      |       | 7,164,778  |       |

 

# **INTERESTS OF EXPERTS**

# ** **

Deloitte &Touche LLP, Chartered Accountants, are the auditors of the Company and areindependent within the meaning of the Rules of Professional Conduct of theInstitute of Chartered Accountants of British Columbia.

 

43

----

 

# **AUDIT COMMITTEE**

# ** **

The Audit Committee of the Company supportsthe Board in fulfilling its oversight responsibilities regarding the integrityof the Company’s accounting and financial reporting, internal controls anddisclosure controls, legal and regulatory compliance, ethics policy andtimeliness of filings with regulatory authorities, the independence andperformance of the Company’s external and internal auditors, the management ofthe Company’s risk, credit worthiness, treasury plans and financial policy andwhistleblower and complaint procedures.  Acopy of the Audit Committee’s Terms of Reference is attached as Appendix A tothis Annual Information Form.

 

The current members of the Audit Committee are Brian F. MacNeill(Chair), Micheline Bouchard, Pierre Y. Ducros, Ruston E. T. Goepel and RonaldP. Triffo.  Each member of the AuditCommittee is independent and financially literate within the meaning ofMultilateral Instrument 52-110 “Audit Committees” and the Board has determinedthat Brian MacNeill is an audit committee financial expert and has accountingor related financial management expertise. The following lists the relevant education and experience of the membersof TELUS’ Audit Committee that is relevant to his or her role on the committee.

 

**Brian MacNeill** chairs the AuditCommittee.  He holds a Bachelor of Commercefrom Montana State University and has over 35 years of experience in accountinghaving earned his Certified Public Accounting designation (California) and hisChartered Accountant designation (Canada). In 1995, Mr. MacNeill was made a Fellow of the CharteredAccountants of Alberta.  Mr. MacNeillserved as Chief Executive Officer of Enbridge Inc. from 1990 until hisretirement in 2001.  Prior to that, heserved as Chief Operating Officer of Enbridge and held numerous financialpositions with various Canadian companies.

 

**Micheline Bouchard** holds a Bachelor of AppliedScience (Engineering Physics) and a Master of Applied Science (ElectricalEngineering) from Ecole Polytechnique. She served as President and CEO of ARTAdvanced Research Technologies, a biomedical company, from 2002 until July 2006and prior to that, she held senior executive positions at both MotorolaInc. and Motorola Canada Limited.  Ms. Bouchardis currently a director and a member of the audit committee of HomeCapital/Home Trust and Citadel Group of Funds. She has previously served on eight audit committees, and served as chairfor two of them.

 

**Pierre Y. Ducros**obtained a Bachelor of ArtsDegree from the Université de Paris at Collège Stanislas in Montréal and aBachelor of Engineering (Communications) degree from McGill University.  Mr. Ducros was President and ChiefExecutive Officer of DMR Consulting Group, Inc. (Canada), an informationtechnology services company, which he co-founded in 1973.  Mr. Ducros has also held various managementpositions at IBM Canada Limited and serves on the board of a number of otherpublic companies.

 

**Ruston E.T. Goepel** holds a Bachelor ofCommerce from the University of British Columbia and has over 35 years ofexperience in the investment banking industry. He is currently Senior Vice President with Raymond James FinancialLtd.  Mr. Goepel is a director ofseveral public companies, and currently serves as a member of the auditcommittee of Baytex Energy Trust.

 

44

----

 

**Ronald P. Triffo**obtained a Bachelor ofApplied Science from the University of Manitoba and an MSc (Engineering) fromthe University of Illinois.  Mr. Triffois the Chairman and a director of Stantec Inc., an engineering andinternational professional services company where he served in variousexecutive management positions for more than 25 years. He is the Chairman ofthe Alberta Ingenuity Fund and the past Chairman of ATB Financial.

 

***Audit, audit-related andnon-audit services***

 

All requests for non-prohibited audit, audit-related and non-auditservices provided by TELUS’ external auditor and its affiliates to TELUS arerequired to be pre-approved by the Audit Committee of TELUS’ Board ofDirectors.  To enable this, TELUS hasimplemented a process by which all requests for services involving the ExternalAuditor are routed for review by the VP Risk Management and Chief InternalAuditor to validate that the requested service is a non-prohibited service andto verify that there is a compelling business reason for the request.  If the request passes this review, it is thenforwarded to the Chief Financial Officer for further review.  Pending the Chief Financial Officer’saffirmation, the request is then presented to the Audit Committee for its review,evaluation and pre-approval or denial at its next scheduled quarterlymeeting.  If the timing of the request isurgent, it is provided to the Audit Committee Chair for his review, evaluationand pre-approval or denial on behalf of the Audit Committee (with the fullcommittee’s review at the next scheduled quarterly meeting).  Throughout the year, the Audit Committeemonitors the actual versus approved expenditure for each of the approvedrequests.

 

The following table is a summary of billing by Deloitte &Touche LLP, as external auditors of TELUS, during the period from January 1,2008 to December 31, 2008:

 
| **Type of work** | ** ** | **Deloitte & Touche** | ** **    | **%**      | ** ** |
|----------------------------|------------|-------------------------------------|---------------|------------|------------|
| Audit fees                 |       | $                                   | 3,783,672     |       | 94.3       |   |
| Audit-related fees         |       | $                                   | 184,500       |       | 4.6        |   |
| Tax fees                   |       | $                                   | 45,410        |       | 1.1        |   |
| All other fees             |       | —                              |          | —     |       |
| **Total**                  | ** ** | **$**                               | **4,013,582** | ** ** | **100**    | ** ** |

 

The following table is a summary of billing by Deloitte &Touche LLP, as external auditors of TELUS, during the period from January 1,2007 to December 31, 2007:

 
| **Type of work** | ** ** | **Deloitte & Touche** | ** **    | **%**      | ** ** |
|----------------------------|------------|-------------------------------------|---------------|------------|------------|
| Audit fees                 |       | $                                   | 4,087,308     |       | 94.6       |   |
| Audit-related fees         |       | $                                   | 203,191       |       | 4.7        |   |
| Tax fees                   |       | $                                   | 30,000        |       | 0.7        |   |
| All other fees             |       | —                              |          | —     |       |
| **Total**                  | ** ** | **$**                               | **4,320,499** | ** ** | **100.0**  | ** ** |

 

45

----

 

# **MATERIAL CONTRACTS**

# ** **

TCI is a party to anagreement with an arm’s-length securitization trust associated with a majorSchedule I bank, under which TCI is able to sell an interest in certain ofits trade receivables up to a maximum of $650 million. As a result ofselling the interest in certain of the trade receivables on a fully servicedbasis, a servicing liability is recognized on the date of sale and is, in turn,amortized to earnings over the expected life of the trade receivables. A March 31,2008 amendment resulted in the term being extended to July 17, 2009, forthis revolving-period securitization agreement.

 

TCI is required to maintainat least a BBB (low) credit rating by DBRS Ltd. or the securitization trust mayrequire the sale program to be wound down. The necessary credit rating wasexceeded by three levels at A (low) as of February 11, 2009.

 

# **TRANSFER AGENTS AND REGISTRARS**

# ** **

The Company’s transfer agent and registrar is Computershare TrustCompany of Canada.  Computersharemaintains the Company’s registers at 600, 530 - 8th Avenue SW, Calgary, AlbertaT2P 3S8.

 

# **ADDITIONALINFORMATION**

# ** **

Additional informationrelating to TELUS may be found on SEDAR at sedar.com and EDGAR at sec.gov.  Additional information regarding directors’and officers’ remuneration, indebtedness and options to purchase securities, iscontained in the TELUS information circular dated March 13, 2009 for theannual general meeting to be held on May 7, 2009.  Additional financial information, includingsupplementary quarterly financial data and the audited consolidated financialstatements of TELUS for the year ended December 31, 2008, is set out inthe 2008 Annual Report – Financial Review. All of the above information can also be found at telus.com.

 

46

----

 

# **APPENDIX A:  TERMS OF REFERENCEFOR THE AUDIT COMMITTEE**

# ** **

The Board has established anAudit Committee (the Committee) to assist the Board in fulfilling its oversightresponsibilities regarding the integrity of the Company’s accounting andfinancial reporting, the Company’s internal controls and disclosure controls,the Company’s legal and regulatory compliance, the Company’s ethics policy andtimeliness of filings with regulatory authorities, the independence andperformance of the Company’s external and internal auditors, the management ofthe Company’s risks, the Company’s credit worthiness, treasury plans andfinancial policy and the Company’s whistleblower and complaint procedures.

 

**1.****                                      MEMBERSHIP**

 

1.1                                 TheCommittee will have a minimum of three members, including the chair of theCommittee.  The Board, following therecommendation of the Corporate Governance Committee, will appoint and removethe members of the Committee by a majority vote.  The members will sit on the Committee at thepleasure of the Board.

 

1.2                                 TheBoard, following the recommendation of the Corporate Governance Committee, willappoint the chair of the Committee from the Committee’s members by a majorityvote.  The chair of the Committee willhold such position at the pleasure of the Board.

 

1.3                                 Allmembers of the Committee will be Independent Directors.

 

1.4                                 Allmembers of the Committee will be financially literate, as defined in accordancewith applicable securities laws and standards of the stock exchanges on whichthe Company’s securities are listed.

 

1.5                                 Atleast one member of the Committee will be an audit committee financial expert,as defined in accordance with applicable securities laws, and at least onemember of the Committee will have accounting or related financial managementexpertise, as defined in accordance with applicable securities laws.

 

**2.****                                     ****MEETINGS**

 

2.1                                 TheCommittee will meet at least once each quarter and otherwise as necessary.  Any member of the Committee may call meetingsof the Committee.

 

2.2                                 Alldirectors of the Company, including management directors, may attend meetingsof the Committee provided, however, that no director is entitled to vote atsuch meetings and is not counted as part of the quorum for the Committee if heor she is not a member of the Committee.

 

2.3                                 Notwithstandingsection 2.2 above, the Committee will, as a regular feature of each regularlyscheduled meeting, hold an in-camera session with the external auditors andseparately with the internal auditors, without management or managementdirectors present.   The Committee may,however, hold other in-camera sessions with such members of management presentas the Committee deems appropriate.

 

47

----

 

2.4                                 TheCorporate Secretary or his or her nominee will act as Secretary to theCommittee.

 

2.5                                 TheCommittee will report to the Board on its meetings and each member of the Boardwill have access to the minutes of the Committee’s meetings, regardless ofwhether the director is a member of the Committee.

 

2.6                                 Theexternal auditors of the Company will receive notice of every meeting of theCommittee and may request a meeting of the Committee be called by notifying thechair of the Committee of such request.

 

**3.****                                     ****QUORUM**

 

3.1                                 The quorum necessary for thetransaction of business at Committee meetings will be a majority of the membersof the Committee.  A quorum onceestablished is maintained even if members of the Committee choose to leave themeeting prior to conclusion.

 

**4.****                                     ****DUTIES**

 

The Board hereby delegates tothe Committee the following duties to be performed by the Committee on behalfof and for the Board:

 

## ***4.1***                               Financial Reporting

## *** ***

Prior to public disclosure, the Committee will review and recommend tothe Board, and where applicable, to the boards of the Company’s subsidiarieswhich are reporting issuers, for approval:

 

a)                                      theannual audited consolidated financial statements and interim unauditedconsolidated financial statements of the Company and those of its subsidiariesthat are reporting issuers, as defined in accordance with applicable securitieslaws;

 

b)                                     the interim and annualmanagement’s discussion and analysis of financial condition and results ofoperations (MD&A) of the Company and those of its subsidiaries that arereporting issuers, as defined in accordance with applicable securities laws;

 

d)                                     earningspress releases and earnings guidance, if any;

 

e)                                      Management’s Statement onFinancial Reporting; and

 

f)                                        all other material financialpublic disclosure documents of the Company and those of its subsidiaries thatare reporting issuers, including prospectuses, press releases with financialresults and the Annual Information Form.

 

48

----

 

## ***4.2***                               External Auditors

## *** ***

The external auditors will report directly to the Committee and theCommittee will:

 

a)                                      appoint the externalauditors, subject to the approval of the shareholders, and determine thecompensation of the external auditors;

 

b)                                     oversee the work of theexternal auditors and review and approve the annual audit plan of the externalauditors, including the scope of the audit to be performed and the degree ofco-ordination between the plans of the external and internal auditors.  The Committee will discuss with the internalauditors, the external auditors and management, the adequacy and effectivenessof the disclosure controls and internal controls of the Company and elicit recommendationsfor the improvement of such controls or particular areas where new or moredetailed controls or procedures are desirable. Particular emphasis will be given to the adequacy of internal controlsto prevent or detect any payments, transactions or procedures that might bedeemed illegal or otherwise improper;

 

c)                                      meet regularly with theexternal auditors without management present and ask the external auditors toreport any significant disagreements with management regarding financialreporting, the resolution of such disagreements and any restrictions imposed bymanagement on the scope and extent of the audit examinations conducted by theexternal auditors;

 

d)                                     pre-approve all audit,audit-related and non-audit services to be provided to the Company or any ofits subsidiaries, by the external auditors (and its affiliates), in accordancewith applicable securities laws;

 

e)                                      annually review thequalifications, expertise and resources and the overall performance of theexternal audit team and, if necessary, recommend to the Board the terminationof the external auditors or the rotation of the audit partner in charge;

 

f)                                        at least annually, obtain andreview a report by the external auditors describing: the firm’s internalquality-control procedures; any material issues raised by the most recentinternal quality control review, or peer review of the firm, or by any inquiryor investigation by governmental or professional authorities, within thepreceding five years, respecting one or more independent audits carried out bythe firm, and any steps taken to deal with such issues; and  all relationships between the externalauditors and the Company;

 

g)                                     annually assess and confirmthe independence of the external auditors and require the external auditors todeliver an annual report to the Committee regarding its independence, suchreport to include disclosure regarding all engagements (and fees relatedthereto) by the Company and relationships which may impact the objectivity andindependence of the external auditors;

 

49

----

 

h)                                     require the external auditorsto deliver an annual acknowledgement in writing to the Committee that theshareholders, as represented by the Board and the Committee, are its primaryclient;

 

i)                                         review post-audit ormanagement letters, containing recommendations of the external auditors andmanagement’s response;

 

j)                                         review reports of theexternal auditors; and

 

k)                                      pre-approve the hiring ofemployees and former employees of current and former auditors in accordancewith applicable securities laws and TELUS policies.

 

Notwithstandingsection 4.2(d) above, the Committee may delegate the pre-approval ofaudit, audit-related and non-audit services to any one member of the Committee,provided, however, a report is made to the Committee on any pre-approval ofsuch services at the Committee’s first scheduled meeting following thepre-approval.

 

## ***4.3***                               Internal Auditors

## *** ***

## ***The internal auditors willreport functionally to the Committee and administratively to the ChiefFinancial Officer and the Committee will:***

## *** ***

## ***a)***                                      review and approvemanagement’s appointment, termination or replacement of the Chief InternalAuditor;

## *** ***

## ***b)***                                     oversee the work of theinternal auditors including reviewing and approving the annual internal auditplan and updates thereto;

## *** ***

## ***c)***                                      review the report of theinternal auditors on the status of significant internal audit findings,recommendations and management’s responses and review any other reports of theinternal auditors; and

## *** ***

## ***d)***                                     review the scope ofresponsibilities and effectiveness of the internal audit team, its reportingrelationships, activities, organizational structure and resources, itsindependence from management, its credentials and its working relationship withthe external auditors.

## *** ***

Theinternal auditors will report quarterly to the Committee on the results ofinternal audit activities and will also have direct access to the chair of theCommittee when the internal auditors determine it is necessary.

 

## ***4.4***                               Whistleblower, Ethics and Internal Controls Complaint Procedures

## *** ***

The Committee will ensurethat the Company has in place adequate procedures for:

 

a)                                      the receipt,retention and treatment of complaints received by the Company regardingaccounting, internal controls or auditing matters; and

 

50

----

 

b)                                     the confidential,anonymous submission by employees of the Company of concerns regardingquestionable accounting or auditing matters.

 

The CEO or CFO will report to the Committee, and the Committee willreview such reports, on any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the Company’sinternal controls.  Where the CEO, CFOand/or the Chief Internal Auditor are named in a complaint, the Director ofEthics and Internal Controls will speak directly with the Chair of theCommittee.

 

The Chief Internal Auditor will report to the Committee, and theCommittee will consider such reports, on the results of the investigation ofwhistleblower, ethics and internal controls complaints.

 

**4.5****                               Accountingand Financial Management**

 

The Committee will review:

 

a)                                      withmanagement and the external auditors, the Company’s major accounting policies,including the impact of alternative accounting policies and key managementestimates and judgments that could materially affect the financial results andwhether they should be disclosed in the MD&A;

 

b)                                     emerging accounting issues and theirpotential impact on the Company’s financial reporting;

 

c)                                      significant judgments, assumptions andestimates made by management in preparing financial statements;

 

d)                                     the evaluation by either the internal orexternal auditors of management’s internal control systems, and management’sresponses to any identified weaknesses;

 

e)                                      theevaluation by management of the adequacy and effectiveness in the design andoperation of the Company’s disclosure controls and internal controls forfinancial reporting;

 

f)                                        auditsdesigned to report on management’s representations on the effectiveness andefficiency of selected projects, processes, programs or departments;

 

g)                                     management’sapproach for safeguarding corporate assets and information systems, theadequacy of staffing of key financial functions and their plans forimprovements; and

 

h)                                     internalinterim and post implementation reviews of major capital projects.

 

51

----

 

**4.6****                               CreditWorthiness, Treasury Plans and Financial Policy**

 

The Committee will review with management:

 

a)                                      theCompany’s financial policies and compliance with such policies;

 

b)                                     thecredit worthiness of the Company;

 

c)                                      theliquidity of the Company; and

 

d)                                     importanttreasury matters including financing plans.

 

**4.7****                              ****Legal/Regulatory Matters andEthics**

 

The Committee willreview:

 

a)                                      with management,the external auditors and legal counsel, any litigation, claim or othercontingency, including any tax assessment, that could have a material effectupon the financial position or operating results of the Company;

 

b)                                     annually,management’s relationships and compliance with regulators, and the accuracy andtimeliness of filings with regulatory authorities; and

 

c)                                      annually, theethics policy, management’s approach to business ethics and corporate conductand the program used by management to monitor compliance with the policy.

 

**4.8****                              ****Risk Management**

 

The Committee will:

 

a)                                      consider reportson the annual enterprise business risk assessment and updates thereto;

 

b)                                     consider reportson the business continuity disaster recovery plan(s) for the Company;

 

c)                                      consider reportson the insurance coverage of the Company;

 

d)                                     consider reportson financial risk management including derivative exposure and policies;

 

e)                                      monitor, onbehalf of the Board, the Company’s compliance with environmental legislationand the adequacy of the Company’s environmental budget expenditures;

 

f)                                        monitor, onbehalf of the Board, the Company’s health and safety policies and receive andreview regular reports concerning the Company’s health and safety programs,policies and results from the Chief Internal Auditor and the Chief ComplianceOfficer;

 

52

----

 

g)                                     review andrecommend to the Board for approval environmental policies and procedureguidelines and any amendments or changes thereto;

 

h)                                     report to theBoard, and require management to report to the Committee, on environmentalmatters each quarter; and

 

i)                                         review otherrisk management matters as from time to time the Committee may considersuitable or the Board may specifically direct.

 

### ***4.9****                              **Other*

### ** **

The Committee will review:

 

a)                                      the expenses ofthe Chair of the Board and CEO and will assess the Company’s policies andprocedures with respect to the Executive Leadership Team members’ expenseaccounts and perquisites, including their use of corporate assets;

 

b)                                     the proposeddisclosure concerning the Committee to be included in the Company’s AnnualInformation Form to verify, among other things, that it is in compliancewith applicable securities law requirements;

 

c)                                      significantrelated party transactions and actual and potential conflicts of interestrelating thereto to verify their propriety and that disclosure is appropriate;

 

d)                                     the disclosurepolicy of the Company; and

 

e)                                      at least onceannually, and evaluate the adequacy of these Terms of Reference and theCommittee’s performance, and report its evaluation and any recommendations forchange to the Corporate Governance Committee.

 

TheCommittee will also have such other duties and responsibilities as aredelegated to it and review such other matters as, from time to time, arereferred to it by the Board.

 

### ***5.****                                     **Authority*

### ** **

The Committee, in fulfilling its mandate, will have the authority to:

 

a)                                      engage and set compensation forindependent counsel and other advisors;

 

b)                                     communicatedirectly with the Chief Financial Officer, internal and external auditors,Chief Compliance Officer and Chief General Counsel;

 

c)                                      delegate tasks toCommittee members or subcommittees of the Committee; and

 

d)                                     access appropriatefunding as determined by the Committee to carry out its duties.

 

53

----