Fostering wireless competition in Canada without hurting its citizens

Fostering wireless competition in Canada without hurting its citizens July 2013

2 Fostering wireless competition in Canada without hurting its citizens How current policy could unintentionally hurt Canadians by Decreasing the tremendous economic investments made by Canadian carriers Discouraging economic investments in healthcare and education Discouraging economic investments in rural communities Increasing prices for consumers Eroding the value of Canadian companies Devaluing the pensions of citizens Triggering job losses in Canada Providing preferential treatment to foreign entrants Risking the privacy of citizens How to support Canadians and foster competition 1. Ensure that any foreign entrant, such as Verizon, be required to build their own network rather than being able to piggyback on the networks Canadian carriers have invested billions to build. 2. Level the playing field so Canadian carriers have the same access to spectrum in the upcoming auction as foreign carriers. 3. Level the playing field so Canadian companies can compete equally with foreign entities when looking to acquire a new wireless entrant.

3 Our industry s economic contributions since 2000 Operating Investments (consolidated Operating expenses + Capital expenditures) Cumulative Operating Investments 382 420 ($ billion) Data includes BCE, Rogers and TELUS 348 314 283 251 217 187 158 131 104 80 52 30 27 24 27 27 29 30 34 32 31 33 35 37 22 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E Our industry has contributed $420 billion in Canada since 2000 while supporting 370,000 employees and retirees

4 Wireless industry cash flow 27 year history Annual wireless industry cash flows (current dollar equivalent) Cumulative wireless industry cash flows (current dollar equivalent) AWS spectrum auction 700 MHz spectrum auction Source: Wall Report, Bloomberg, company reports, TELUS (Cash Flow estimates from Wall Report to 2005 plus company reports, TELUS reports and calculations to 2014E) Industry is only barely cash flow positive after 27 years of investment

5 OECD global wireless pricing comparisons Independent reports show wireless pricing in Canada is average when compared to developed world Impressive achievement given the challenging and sparsely populated geography we serve and world leading network upgrades to latest technology 90.00 80.00 70.00 60.00 *Cost of 100 Calls + 2GB Mobile Data G7 countries 50.00 40.00 30.00 20.00 10.00 0.00 Canadian wireless pricing is favourable compared to world peers Source: OECD 2013 report

6 G7 wireless pricing comparisons according to independent OECD report 90.00 235/km 2 Based on cost of 100 Calls & 2GB Mobile Data Population Density of people per sq. km 80.00 350/km 2 70.00 60.00 34/km 2 205/km 2 3.5/km 2 50.00 40.00 30.00 257/km 2 119/km 2 20.00 10.00 0.00 Germany Japan United States Italy Canada United Kingdom France Canadian wireless pricing is favourable compared to G7 Source: OECD 2013 report

7 Canada s service plans as compared to G7 according to OECD report Service Plan Low usage (30 calls + 100 MB data) Medium usage (100 calls + 500 MB data) Medium-high usage (300 calls + 1 GB data) High usage (900 calls + 2 GB data) High data, low call usage (100 calls + 2 GB data) Rank 4 th least expensive 4 th least expensive 5 th least expensive 4 th least expensive 3 rd least expensive On average, Canada ranks 4 th least expensive when compared to G7 Source: OECD 2013 report

8 Wireless pricing comparisons according to CRTC-commissioned Wall report 90 34/km 2 ARPU & Population Density 80 70 60 350 350/km 2 3.5 3.5/km 2 Based on ARPU Population Density of people per sq. km 50 40 116 257/km 2 119/km 2 3 3/km 2 30 20 10 0 U.S. Japan Canada UK France Australia Canadian wireless pricing is favourable compared to U.S. Source: Wall Report & world book

9 Voice minutes per month comparison according to independent OECD report 400 Voice minutes per month 350 300 250 200 150 100 50 0 U.S Canada France UK Italy Japan Germany Monthly voice minutes in North America far exceeds the rest of the G7

10 North America amongst the world leaders in mobile data usage 700,000 600,000 613,699 Mobile data usage (TB / month) 500,000 400,000 378,611 300,000 276,405 200,000 100,000 116,012 96,617 95,905 0 Asia Pacific North America Western Europe Central and Eastern Europe Latin America Middle East and Africa Canadians spend more time online than anybody else in the world an average of 45 hours/month - Canadian Internet Registration Authority Source: Cisco VNI Mobile Forecast, 2013

Canada offers exceptionally fast mobile download speeds in comparison to Western European Peers 11 70 Average advertised mobile download speeds (Mb/s) September 2012 60 60 55 54 Average advertised mobile download speeds September 2012 50 40 30 30 29 28 25 23 22 21 20 10 16 14 13 9 8 8 0 Source: OECD 2013 Report

12 iphone 5 16GB retail cost comparison Cost $199 $199 $980 $390 $407 $787 $134 Min. monthly rate plan spend $70 $80 $47.50 $80 $27.50 $21.70 $65 Term 2 years 2 years 2 years 2 years 2 years 2 years 30 months Country Canada U.S. Spain France Germany Portugal Italy Predominant technology deployment LTE LTE HSPA HSPA HSPA LTE HSPA Customers receive excellent value for their iphone 5 as TELUS heavily subsidizes the cost of the device by more than $500 Prices converted to CAN $

13 Canada investing more on telecom infrastructure according to OECD report $300.00 74% Investment per capita $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 Canada U.S. France OECD Japan Italy UK Spain Germany Canada s telecom infrastructure investment per capita effectively double that of OECD average

14 Wireless competitors in G7 countries and revenue share of top players Number of competitors Revenue share of top carrier Country population (millions) Population density (people/ Sq. KM) LTE coverage Projected increase / decrease in wireless competitors Canada 10 36% 35 3.5 77% Increase U.S. 5 35% 314 34 95% Fewer France 4 44% 64 119 30% Increase Germany 4 34% 82 235 54% No change Italy 4 36% 61 205 25% No change Japan 3 50% 128 350 70% No change U.K. 4 29% 63 257 55% Fewer Source: As of December 2012. BoA Merrill Lynch, National Carriers Canada has the highest level of competition amongst all G7 countries by a wide margin and is the only country in the world with three network operators (Bell, Rogers, TELUS) each offering LTE services to over 77% of the population

15 At 63% Canada s smartphone penetration is three times the world average 80% 70% 60% 50% 76% 67% 63% 60% 60% 59% 58% 58% Smartphone subscribers as a % of total subscribers 53% 46% 40% 38% 37% 35% 33% 30% 29% 29% 25% 24% 23% 23% 21% 20% 20% 19% 18% 20% 10% 12% 11% 10% 10% 6% 0% Source: KPCB Internet Trends Report 2013 & Informa Global smartphone penetration only at 21%

16 Canadian telecom price growth significantly lower than other industries Statistics Canada Canadian Consumer Price Index (CPI) average annual growth 2002-2012 2012 = $1.97 2012 = $1.63 2012 = $1.63 7% Gasoline 5% Cable 5% Energy 2002 = $1.00 2002 = $1.00 2002 = $1.00 2012 = $1.34 2012 = $1.22 Food Shelter 3% 2% 1% 2012 = $1.10 Communications & Telephone services 2002 = $1.00 2002 = $1.00 2002 = $1.00 Intense competition in telecom has led to lower price growth than other competitive industries

17 Current policy could increase industry pricing for consumers Cost of a 16GB iphone 5 $199 $199 Activation fee $0 $35 Term 2 years 2 years Minimum required monthly spend $70 $80 Total cost over term $1,879 $2,154 Data notifications Yes Yes Western Europe Data Roaming $5 / MB $20 / MB Bring your own device discount Up to $20 No National pricing for TELUS and Verizon Canadians receive better value for money with TELUS than Americans receive with Verizon

18 U.S. carriers have hidden fees Activation fee $0 $35 Monthly admin fee $0 $0.60 - $1.50 / month Federal universal service fee $0 $0.15 - $0.40 / month Upgrade fees $0 Up to $30 TELUS clear and simple pricing means the price you see is the price you pay

19 Government intervention causes massive value erosion for TELUS TELUS shareholder value lost ($ billion) Gov t announces AWS spectrum auction rules (2007) (4.2) AWS spectrum auction gaming (2008) (2.7) Gov t denies Mobilicity acquisition & clarifies spectrum transfer rules (2013) (1.6) Verizon/Wind talks reported in press (2013) (1.2) Press report Verizon bid $700M for Wind (2013) (2.3) Total value lost $(12) billion TELUS investors have lost $12 billion due to government intervention in sector

20 Verizon entry speculation = massive value erosion for Canadian companies Value lost ($ billion) TELUS (5.1) BCE (5.0) Rogers (4.4) Total value lost $(14.5) billion *May 22, 2013 to June 27, 2013 Canadian investors, including pensioners have lost $14.5 billion

Analysts views of value erosion Verizon entry speculation June 27, 2013 21 Analyst Tim Casey, BMO Capital Markets Drew McReynolds, RBC Greg MacDonald, Macquarie Comments Downgrading large-cap telecom/cable stocks with the most exposure to wireless and upgrading those least exposed. Specifically, we are downgrading TELUS and Rogers to Market Perform (from Outperform) and upgrading Shaw and BCE to Outperform (from Market Perform). There is growing uncertainty regarding wireless competition that we believe is causing a re-rating of incumbent wireless businesses. As such, we are upgrading shares of large incumbent providers with relatively low exposure to wireless. Shaw, which abandoned its wireless strategy in 2011, has no exposure to the sector. Verizon entering Canada would be a game changer for the Canadian wireless market given the company s significant resources and scale. We have maintained ratings on the telcos but upgraded Shaw from Underperform to Neutral given the stronger fund flows likely directed to its lack of wireless exposure. Glen Campbell, BoA, ML Maher Yaghi, Desjardins Shaw is hardly cheap, but we believe investors are attracted by its lack of wireless exposure. For investors concerned about Verizon, our view is that BCE, Québecor and Bell Aliant are best positioned to weather the storm. BCE remains the least exposed to wireless among the incumbents. Government should not orchestrate winners and losers in wireless and wireline

22 Devaluing Canadian pensions and impacting Canadian jobs Canadian pension plans TELUS alone has close to 320,000 registered and non-registered individual shareholders who hold TELUS shares in their retirement and other savings, and rely on dividend payments from TELUS for income ($794M dividends declared in 2012). TELUS shares are held in public pension funds across Canada. The vast majority of Canadians own shares of TELUS through one or more of these funds. TELUS shares are held by the major Canadian banks, mutual funds, insurance companies and investment firms that are custodians of the pensions of employees of companies and other organizations, as well as individual retirement savings for the future of millions of Canadians. Approximately 100 pension funds and investment firms hold from 500,000 TELUS shares up to tens of millions of shares 56% of TELUS shares are held by Canadian pension and investment firms who invest funds on behalf of pension plans, pensioners and other investors including their RSPs and other retirement savings. Canadian jobs TELUS, BCE and Rogers employ 122,000 Canadians Verizon employs 195,000, equivalent to only 1.6 times the number of employees for a company that has 3 times the annual revenue of the Canadian companies combined Canadian companies would be forced to reduce jobs to compete on an uneven playing field with foreign companies who have economies of scale far greater than BCE, TELUS and Rogers combined Robustness of telecom growth is supporting economic value of public & private Canadian pension plans and 122,000 Canadian jobs

Verizon on granting special favours to some competitors over others in the context of the 600 MHz auction in the U.S. 23.I think the industry should be concerned about kind of picking winners and losers... We have been very vocal in a responsible way with everyone in Washington about the importance of a level playing field. If you start eliminating companies that can pay for the spectrum, I don't think that anyone will be pleased with how that is monetized. And at least I wouldn't be pleased to not have a level playing field and having the opportunity to compete in a free market environment. -Dan Mead, President & CEO of Verizon Wireless May 8, 2013 Verizon at Jeffries Global Technology, Media and Telecom Conference

Verizon Reply Comments to the FCC on the 600 MHz Auction March 12, 2013 24 T-Mobile s and Sprint s request for special treatment and protection against bidding competition should be viewed against the backdrop of their financial ability to bid robustly for spectrum. These are not mom and pop businesses lacking the resources or sophistication to compete for the pool of available spectrum. T-Mobile has more than 34 million customers and annual revenues of more than $21 billion, has recently received a $3 billion cash breakup fee (in addition to valuable AWS spectrum) from AT&T in the wake of their aborted merger, and is owned by Deutsche Telekom. That deep-pocketed parent, which is partly owned by the Government of Germany and which had revenues last year of nearly $59 billion, has provided T-Mobile with financing to acquire MetroPCS for $1.5 billion, thereby substantially improving T-Mobile s spectrum holdings and increasing its customer base by 25%. REPLY COMMENTS OF VERIZON AND VERIZON WIRELESS Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 March 12, 2013

Verizon Reply Comments to the FCC on the 600 MHz Auction March 12, 2013 25 And Sprint, whose revenue last year was over $35 billion, is in the midst of a $20 billion transaction with SoftBank that includes an $8 billion cash infusion provided specifically so that it can compete more effectively. Both companies are clearly capable of bidding robustly to the extent acquiring 600 MHz spectrum fits into their business plans and the auction will be successful only if they are required to engage in meaningful competition for the available spectrum on a level playing field with other bidders. The Commission should not countenance these companies efforts to foreclose other carriers access to spectrum and lower their own costs of obtaining spectrum to the detriment of the Spectrum Act s fiscal objectives. REPLY COMMENTS OF VERIZON AND VERIZON WIRELESS Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 March 12, 2013

26 TELUS consistent position on foreign investment restrictions "We believe in market liberalization. We don't think that there should be any artificial regulation or fettered access to international capital markets. We want to enjoy that on a fluid basis. We are not in favour of a tilted playing field where one segment of the market, according to certain terms and conditions, gets liberalized when another segment of the market does not. We don't think that that's fair." Darren Entwistle, TELUS President and CEO Globe and Mail, January 28, 2013 "If foreign ownership restrictions are going to be lifted and we're going to see a liberalization in that particular area then it should be a level playing field. Darren Entwistle, TELUS President and CEO Canadian Press, May 6, 2010 "We are 'pro' the removal of foreign ownership restrictions. We don't want to see any artificial regulations in place that fetter our fluid access to the capital markets. But we want to make sure that if foreign ownership restrictions are removed, that they are removed uniformly -- for example, that they don't get removed for the new entrants but remain in place" for the traditional, regionally based telecoms. Darren Entwistle, TELUS President and CEO Vancouver Sun, May 1, 2003 "Free market forces should reign. We're supportive of the removal of foreign ownership restrictions in a considered fashion." Darren Entwistle, TELUS President and CEO Globe and Mail, November 18, 2002

27 Unintended consequences of the current policy The current policy framework was intended to support small, start-up entrants; however, has enabled a loophole that now allows large foreign entrants to take advantage of government policy. Enabling huge foreign corporations to benefit three times over through: 1. The purchase of new wireless entrants with depressed market values resulting from a limited pool of potential acquirers; 2. Gaining subsidized wireless spectrum through their exclusive opportunity to purchase the new wireless entrants; and 3. Obtaining twice the 700 MHz spectrum at a lower overall price based on the current auction rules.

28 Summary Canadians enjoy a very competitive wireless industry, with prices not only comparable to the rest of the developed world but actually lower than in the U.S. Canada s investment in telecommunications infrastructure is almost double the average of OECD countries and provides world leading coverage, speed and reliability, despite our nation s challenging and sparsely populated geography. BCE, Rogers and TELUS support 370,000 employees and retirees in Canada and contribute over $50 billion each year to our nation s economy including extensive funding for charities and not-for-profits. Industry observers believe a foreign entrant such as Verizon would focus purely on serving major urban markets if they are not required to build out networks to the broader population. This, in turn, could force BCE, Rogers and TELUS to focus our investments in a similar manner in order to effectively compete. We welcome any competitor, of any size. However, with a market capitalization nearly twice that of BCE, Rogers and TELUS combined and almost four times as many customers, we don't believe Verizon needs any special favours as they look to enter the Canadian market.

29 Our position on policy change in order to foster fair competition We believe the federal government needs to level the playing field and not give foreign competitors special treatment at the expense of Canadian jobs and investments by: 1. Ensuring that any foreign entrant, such as Verizon, be required to build their own network rather than being able to piggyback on the networks Canadian carriers have invested billions of dollars to build. 2. Leveling the playing field so Canadian carriers have the same access to spectrum in the upcoming auction as foreign carriers. As it stands, Verizon would be allowed to buy two blocks of spectrum while longstanding Canadian carriers could only buy one. 3. Level the playing field so Canadian companies can compete equally with foreign entities when looking to acquire a new wireless entrant.

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