CFA Research Challenge 2017 Vancouver Team C Executive

CFA Research Challenge 2017 Vancouver - Team C

Executive Summary Highlights Low to Moderate EBITDA and Revenue Growth Capital Intensive Industry with Limited Growth Potential Increasing Debt and Lower Expected Dividend Growth Fair Valuation with Limited Upside Risk of Regulatory Pressure and Competition Last twelve-month performance HOLD Closing Price: Target Price: $ 43. 84 $44. 63 Upside 1. 79% Source: Bloomberg. Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment SF U Decision

Business Profile Business Description • • Canada’s third largest telecom company Incumbent service provider in British Columbia and Alberta Shared network with BCE since 2008 Provider of wireless and wireline communication services as well as cloud based business solutions and EMR Management and Governance • Average tenure of TELUS executives exceed that of peers by 25%, indicating higher loyalty and lower turnover • Current CEO Darren Entwistle guided TELUS through a period of rapid growth Total Revenue Breakdown & Profile Future Expansions • TELUS intends to invest in network growth and to upgrade its broadband infrastructure • Plans to connect businesses and residential units with fibre-optic cable, by expanding rural broadband connections • Investments will increase data speed as well as capacity to support TV, internet and data service growth SF U Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

ESG Scorecard ESG scores for TELUS, BCE Inc. and Rogers Communications. TELUS BCE Inc. Rogers Communications 30. 8 16. 5 12. 7 41. 7 0. 7 34. 2 1. 07 39. 2 0. 4 92. 9 21. 4 92. 3 23. 1 53. 3 33. 3 Environmental GHG/Revenue Social Women Employee % Lost Time Incident Rate Governance Independent Directors Women Directors % • • • Organized management structure Scored the best under various ranking systems ESG leader in the industry Source: Bloomberg. ESG metrics for TELUS, BCE Inc. and Rogers Communications. Metrics TELUS BCE Inc. Rogers Communications Robeco. SAM Rank 95/100 60/100 42/100 Sustainalytics Rank 90. 9/100 89. 4/100 71. 2/100 Bloomberg ESG Disclosure 53. 5/100 56/100 50. 6/100 ISS Quality Score (1 – low risk, 10 – high risk) 1/10 10/10 CDP Climate Score 4/5 3/5 SF U Source: Bloomberg. Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Industry Overview Industry Revenue • • • Average annual revenue growth 2. 8% Growing EBITDA margin – wireless sector faster than wireline ROE decreased in recent years Debt to Equity ratio continuously increases Top five telecom companies take up 84% of the total market revenue Source: CRTC data collection. Incumbents vs New Entrants Porter’s Five Forces 6 4 2 0 SF U Source: CRTC data collection. Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Demand Drivers GDP Annual Growth Per Capita Disposable Income 3, 50% 3, 00% 2, 50% 2, 00% 1, 50% 1, 00% 0, 50% 0, 00% 4, 00% 3, 00% 2, 00% 1, 00% 0: 0: 0 12 . 0 7. 19 0 5 5 19 0. 0 7. 10 00 00 0: 0 5 Forecast 19 0. 0 7. 08 Source: Statcan, IBIS. 0: 00 0: 0 5 19 0 . 0 7. 06 . 0 7. 0: 00 0: 5 Historical 19 0 5 04 02 Source: Statcan, IBIS. 19 0 Forecast . 0 7. Historical 0: 0: 0 16 20 17 20 18 20 19 20 20 20 15 20 14 13 20 12 20 20 11 20 20 10 00 -1, 00% Population by Age Groups. SF U Source: Statcan. Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Competitive Positioning Monthly postpaid Churn Rate 1, 40% 1, 30% 1, 20% 1, 10% 1, 00% 0, 90% 0, 80% 0, 70% • Lowest churn rate and least number of filed complaints among all telecom incumbents Spectrum Licenses 2012 2013 Telus 2014 Rogers 2015 Bell Source: TELUS Annual Reports Commercial Mobile spectrum license holdings (%) • Infrastructure Investment • 50% 40% Second largest spectrum license holder with 10% increase in past six years Announced $12 Billion of investments in AB, BC, ON and QC through 2019 ARPU 30% • 20% 10% 0% Customers’ willingness to pay for premium services and customer loyalty e Sh M a ob w ili V city id eo tr on O th Te er rr s e. S t X ar pl om et liv us G lo ba ll Be Te l R og er s Small Competitors 2010 • Competition is acquired 2016 Source: Innovation, Service and Economic Development Canada Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment SF U Decision

Financial Analysis Telus Return Analysis 2013 2014 2015 2016 Total Return 1 18. 4% 16. 7% 19. 2% (5. 9%) 18. 6% Div. Yield 3. 9% 3. 8% 4. 6% 4. 4% Bond (10 Yr) 3. 3% 4. 3% 3. 6% 3. 4% P/E Ratio 16. 3% 17. 7% 18. 0% 17. 1% 16. 2% Normalized Price 2012 Historical Performance 160 140 120 100 80 2012 2013 2014 SPTSX 2015 TELUS 2016 2017 Peer Index Source: Bloomberg. Bond Yields vs TELUS’s Dividend Yield 5, 0 • • 1 Capital TELUS’s stock provided superior returns over the last 5 years Elevated P/E ratio driven by superior growth perspective High dividend stocks used as a substitution for bonds in an unstable economy Low interest rate level supports demand for equity appreciation and dividend yield Executive Summary Business Profile Yield (%) Summary 4, 0 3, 0 2, 0 1, 0 0, 0 2012 2013 5 YR Bond 2014 10 YR Bond Source: Bloomberg. Industry Overview Financial Analysis 2015 Valuation 2017 S F TELUS Div Yld U Risk Assessment 2016 Decision

Financial Analysis Financial Performance 2012 Profit Margin Peer avg. 2013 2014 2015 2016 0. 54 0. 52 0. 54 0. 49 0. 54 0. 46 0. 50 0. 42 0. 47 0. 42 Asset/Equity Peer avg. 2. 6 x 4. 3 x 2. 7 x 4. 2 x 2. 9 x 4. 0 x 3. 3 x 3. 9 x 3. 5 x 3. 9 x 15. 8% 16. 4% 18. 6% 18. 1% 15. 7% 30. 4% 25. 9% 22. 6% 21. 1% 19. 6% Summary • • • High restructuring expenses as well as revaluations of deferred income tax liabilities led to sharp decline in profit margin Changes in capital structure influences return on equity Increasing leverage puts pressure on profitability Executive Summary Business Profile Industry Overview 2012 2013 $4, 5 $4, 3 $4, 1 $3, 9 2014 Revenue $12, 8 $12, 5 $12, 0 11. 0% 11. 4% 11. 9% 11. 1% 9. 6% 13. 8% 12. 6% 12. 9% 12. 3% 12. 2% Asset Turnover Peer avg. ROE Peer avg. $10, 9 $11, 4 $4, 7 2015 EBITDA Source: Bloomberg. Customers 2012 2013 2014 2015 2016 Wireless Growth 7, 670 4. 5% 7, 807 1. 8% 8, 100 3. 8% 8, 457 4. 4% 8, 585 1. 5% Access line Growth 3, 406 -5. 2% 3, 254 -4. 5% 3, 169 -2. 6% 3, 053 -3. 7% 3, 009 -1. 4% Internet Growth 1, 359 5. 7% 1, 420 4. 5% 1, 475 3. 9% 1, 566 6. 2% 1, 661 6. 1% TV Growth 678 815 914 33. 2% 20. 2% 12. 1% 1, 002 9. 6% 1, 058 5. 6% SF Overall Growth Financial Analysis 13, 113 13, 296 13, 658 14, 078 14, 313 U 3. 0% 1. 4% 2. 7% 3. 1% 1. 7% Risk Decision Valuation Assessment

Financial Analysis TELUS’s Investments Liquidity Assessment 2012 2013 2014 2015 2016 Dividend/share $1. 22 $1. 36 $1. 52 $1. 68 $1. 84 Growth rate 22. 0% 11. 5% 11. 8% 10. 5% 10. 0% Payout ratio 66. 0% 67. 3% 65. 6% 73. 2% 68. 6% Dividend Yield Peer avg. 3. 9% 3. 8% 4. 6% 4. 4% 4. 5% 4. 2% 4. 5% 4. 4% 2012 2013 2014 Wireless Cap. Ex 2015 Wireline Cap. Ex 2016 Spectrum Source: Bloomberg. 2012 2013 2014 2015 2016 Debt/Equity 0. 86 x 0. 98 x 1. 26 x 1. 58 x 1. 64 x 5. 3 x 5. 0 x 5. 2 x 5. 3 x 4. 8 x 1. 7 x 2. 0 x 2. 2 x 2. 9 x 3. 1 x Summary • • High capital expenditures put pressure on liquidity Unsustainable dividend growth going forward Interest coverage Gross debt/ EBITDA SF U Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Valuation Overview & Inputs Current Fair Value(1) Fair Value: $42. 94 Current Price(2): $43. 84 Return: -2. 05% Recommendation: HOLD Beta – Unlevered / Levered Weighted Average Cost of Capital Unlevered Telecom Wireless Beta(3) Unlevered Telecom Wired Beta(3) 0. 58 0. 68 Wireless Weight Wired Weighted Unlevered Beta 56. 49% 43. 51% 0. 624 Debt to Equity Ratio Effective Tax Rate TELUS Levered Beta 61. 02% 26. 50% 0. 9032 Risk Free Rate Market Premium Equity Risk Premium Beta CAPM cost of equity Cost of Debt Tax Rate After-tax cost of debt Weight of Equity Weight of Debt WACC 1. 75% 9. 00% 7. 25% 0. 9032 8. 30% 3. 58% 26. 50% 2. 63% 62. 10% 37. 90% 5. 89% SF U 1) As of Jan 20 th, 2017 2) As of Feb 27 th, 2017 3) Source: Aswath Damodaran Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Relative Valuation & Output Relative Valuation (1) FY 2018 16. 06 x 16. 56 x 20. 42 x 13. 83 x 13. 11 x nm Price / Book LTM 4. 08 x 4. 53 x 2. 51 x 2. 03 x 10. 47 x 1. 76 x LTM 8. 83 x 9. 01 x 8. 28 x 7. 04 x 6. 93 x 6. 20 x Price / Earnings Enterprise / EBITDA Ticker BCE CN Equity RCI/B CN Equity SJR/B CN Equity T US Equity VZ US Equity S US Equity BCE INC ROGERS COMMUNI-B SHAW COMM-B AT&T INC VERIZON COMMUNIC SPRINT CORP Market cap $ 50, 716. 82 $ 26, 384. 68 $ 13, 747. 08 $ 330, 919. 93 $ 281, 837. 20 $ 45, 097. 14 LTM FY 2017 16. 76 x 16. 70 x 18. 80 x 17. 82 x 22. 67 x 22. 20 x 18. 35 x 14. 42 x 13. 50 x nm nm Average Canadian & US $ 139, 597. 21 $ 45, 097. 14 18. 80 x 18. 35 x 17. 82 x 16. 70 x 16. 56 x 16. 06 x 4. 08 x 3. 29 x 8. 83 x 7. 66 x 8. 56 x 7. 80 x 8. 24 x 7. 51 x T CN Equity $ 26, 027. 48 16. 89 x 16. 95 x 15. 86 x 3. 14 x 8. 15 x 8. 18 x 7. 82 x Projected EBITDA Sensitivity Analysis $45. 88 $4, 100 $4, 400 $4, 600 $4, 900 $5, 100 Thoughts: EV / EBITDA Multiple 8. 33 x 8. 58 x 8. 83 x 9. 08 x $34. 86 $36. 62 $38. 38 $40. 13 $38. 40 $40. 27 $42. 13 $43. 99 $41. 94 $43. 91 $45. 88 $47. 85 $45. 48 $47. 56 $49. 63 $51. 71 $49. 02 $51. 21 $53. 39 $55. 57 FY 2018 8. 56 x 8. 24 x 8. 41 x 8. 17 x 8. 95 x 8. 60 x 6. 95 x 6. 72 x 7. 19 x 6. 85 x 6. 72 x 6. 10 x Methodology 9. 33 x $41. 89 $45. 86 $49. 82 $53. 79 $57. 75 Terminal EBITDA Multiple Terminal Projected EBITDA Enterprise Value (min) Debt (add) Cash Equity Value Shares Outstanding Share Price 8. 83 x $4, 631 $40, 883 $14, 182 $275 $26, 977 588 million $45. 88 SF U TELUS trades in line with BCE on many multiples, undeservingly so. TELUS has more relative exposure to the wireless business and has been making large capital expenditures to create a higher return for shareholders. 1) Source: Bloomberg Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

FCF Valuation & Summary Free Cash Flow to the Firm (1) 2017 E 2018 E 2019 E 2020 E EBIT (1 -t) $ 2, 001 $ 2, 036 $ 2, 077 $ 2, 144 $ 2, 211 (add) Depreciation $ 1, 460 $ 1, 646 $ 1, 789 $ 1, 903 $ 1, 992 (min) Cap. Ex $ 2, 700 $ 2, 600 $ 2, 548 $ 2, 497 $ 2, 447 (min) Change in WC $ (560) $ (365) $ 9 $ (25) FCFF $ 1, 321 $ 1, 155 $ 1, 684 $ 1, 540 $ 1, 782 PV of FCFF $ 1, 321 $ 1, 124 $ 1, 548 $ 1, 337 $ 1, 461 $ 35, 320 (72) $ Terminal Value of FCFF Enterprise Value (min) Debt + PV of Operating Leases (add) Cash Equity Value Shares Outstanding Share Price All Valuation Free Cash Flow Valuations: Free Cash Flow to the Firm Free Cash Flow to Equity Holders Dividend Discount Model Relative Valuation: EV/EBITDA Exit Multiple P/E Exit Multiple P/Book Exit Multiple Total $40, 791 $15, 782 $310 $25, 318 588 million $43. 06 Outputs (1) Share Price: $43. 06 $34. 29 $41. 52 Weight: 30% 20% $45. 88 $50. 63 $52. 07 $42. 94 10% 10% 100% WACC Perpetual Growth Rate 2016 E Sensitivity Analysis Business Profile Industry Overview 5. 40% 5. 65% 5. 90% 6. 15% 3. 40% 1. 25% $44. 14 $40. 15 $36. 58 $33. 38 $30. 49 1. 50% $48. 07 $43. 60 $39. 63 $36. 10 $32. 92 1. 75% $52. 54 $47. 49 $43. 06 $39. 13 $35. 62 2. 00% $57. 67 $51. 93 $46. 92 $42. 52 $38. 63 2. 25% $63. 62 $57. 01 $51. 32 $46. 36 $41. 99 1 Year Target Price (1) Target Price: $44. 63 P/Book P/E EV/EBITDA DDM FCFE SF U $25, 00 $30, 00 $35, 00 $40, 00 $45, 00 $50, 00 $55, 00 $60, 00 FCFF 1) As of Jan 20 th, 2017 Executive Summary $45. 88 Financial Analysis Valuation Risk Assessment Decision

Valuation & Risk Assessment Input factors • • • Statistical Results Simulation paths Minimum Maximum Mean Skewness Kurtosis Median 5% confidence level 95% confidence level Expected return – Based on our base-case target price calculation Expected standard deviation – based on historical sigma Underlying method – Monte Carlo Simulation 100, 000 $38. 80 $50. 75 $44. 72 0. 08 0. 04 $44. 70 $42. 54 $46. 95 Stock Price Simulation - 1 year forward 9. 8% 73. 3% 16. 9% 14 Thousands 12 10 8 6 4 2 0 < Executive Summary 39 . 5 39 - 40 . 5 40 - 41 Business Profile . 5 41 - 42 . 5 42 - 43 . 5 43 Industry Overview - 44 . 5 44 45 . 5 45 - 46 Financial Analysis . 5 46 - 47 . 5 47 - 48 . 5 48 Valuation - 49 49 . 5 0 -5 Risk Assessment SF U Decision

Risk Assessment Operational Risk CE: Unexpected capital expenditures • • Natural disaster might lead to unexpected Cap. Ex Time needed to repair infrastructure and recover normal service quality Canadian Cellular Towers Map Operational Risk CR: Impact on churn rate • • • Lower service quality Reputational damage Network sharing agreement with BCE inherits risks BEC TELUS Source: ertyu. org Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

Risk Assessment Regulatory Risk AR: Decrease in ARPU due to price wars and regulations • • Canadian government encourages smaller competitors Further regulatory pressure such as spectrum license lease by smaller competitors US: American telecommunication companies enter the Canadian market • Approval through CRTC LC: Legal claims due to potential health risks • • Executive Summary Business Profile Industry Overview Financial Analysis Issues regarding potential health risks due to radiofrequency signals Tighter regulations on radiofrequency emissions Valuation Risk Assessment Decision

Risk Assessment Market Risk MR: Interest rate upside volatility • • Increasing cost of debt Substitution of TELUS stock through bonds Technology Risk TE: Technology impacts • • Executive Summary Business Profile Industry Overview Financial Analysis Continuing infrastructure investment needed New technological advancements increase the risk of substitution. Valuation Risk Assessment Decision

Decision Merits Concerns • Incumbent service provider in Western Canada with strong nationwide presence • • Solid profitability and strong cash flow base support capital expenditures • HOLD • • TELUS is trading at a lower P/E multiple with respect to its peers • Closing Price: Target Price: $ 43. 84 $44. 63 High valued Canadian telecommunication industry due to slow economic growth Ongoing competition and fast pace technology advancements Decreasing liquidity puts pressure on debt levels and dividend growth going forward Structural change in the industry leads to declining revenue from voice services Upside 1. 79% Executive Summary Business Profile Industry Overview Financial Analysis Valuation Risk Assessment Decision

THANK YOU !

Appendix A 1. Corporate Structure. TELUS Corporation National telecommunication company that provides a wide range of telecommunications products Wireless Fastest growing segment Voice and data services provide the most revenue Joint network sharing agreement with Bell Canada TELUS Mobility Attracts elder clients Requires fixed term contract. Wireline Make up 45% of the revenue; Provides various data services. Telus Home Phone Offers wired connections for fixed monthly rates. Providers unlimited calling and up to 9 calling features. Telus Internet Koodo Targets younger aged customers Fixed term contract is not required More flexibility. Offers DSL and dial up services to businesses; Currently upgrading pure fibre internet; Second most satisfactory ISP in Canada for 2016. Business Connect TELUS TV Advanced Solutions SF U

Appendix B 1 a. Executive Team. Executive Position Career History with TELUS Background Shares Darren Entwistle President and CEO Joined TELUS in 2000 served as President and CEO for fourteen years In May 2014, Darren became the Executive Chair of the Company August 2015 resumed position as CEO Bachelor of Economics (Honours) degree from Concordia University MBA in Finance from Mc. Gill University Diploma in Network Engineering from the University of Toronto Serves on the boards for the Business Council of Canada, the Gairdner Foundation and the Canadian Board Diversity Council. 626, 382 Josh Blair EVP, TELUS Health, President, Business Solutions West Chair, TELUS International Oversees TELUS Health, Payment Solutions and TELUS International Has oversight of TELUS sourcing Solutions. Serves as TELUS’ Chief Corporate Officer University of Victoria’s Bachelors of Electrical Engineering program. Graduate of the Executive Program at Queen’s School of Business. Serves on the Board of Governors and Executive Committee for the Business Council of British Columbia and the Governor’s Council of Canada. 265325 David Fuller EVP President TELUS Consumer and Small Business Solutions Joined TELUS in 2004, CMO Oversees all aspects of consumer marketing, the development and management of TELUS’ full range of products and services for consumer and small business customers. Professional engineer who holds a Master’s degree in Business Administration from York University Bachelor of Applied Science in Engineering from Queen’s University David was the country Managing Director for Bearing. Point. He has also held management positions with KPMG Consulting and Canadian Pacific. 93, 374 Doug French EVP CFO Doug held progressively senior roles, including Controller for the largest business divisions, Consumer Solutions, Business Solutions and Technology Strategy, as well as leading Corporate Accounting, Financial Reporting and Bid Governance. Eight years working experience in Ernst and Young as senior manager in auditing and accounting practice. He supported numerous clients IPO efforts including Clearnet. He holds a Bachelor of Arts (Honours), Commerce and Economics from the University of Toronto. He is also a Chartered Professional Accountant, a member of the Canadian and Ontario Institutes, and is based in Toronto. Monique Mercier EVP Corporate Affairs Chief Legal and Governance Officer Monique is now a trusted advisor to the TELUS executive leadership team and Board of Directors. Worked at BCE and Bell Canada International before joining Emergis in 1999 as Executive Vice President of Law & Human Resources Graduated from the University of Montreal Law School and holds a master's degree in politics from Oxford University. 72, 354 SF U

Appendix Eros EVP Technology Strategy Joined TELUS in 2000, Eros served as the executive vice president and CTO of TELUS Mobility. Responsible for leading TELUS’ integrated network technology strategy, guided TELUS through the acquisition of Clearnet Communications. Before joining Clearnet in 1995, Eros held senior management positions in engineering and marketing at Bell Mobility. Eros holds a Bachelor of Applied Science in Electrical Engineering from the University of Windsor. Master of Business Administration, from the Richard Ivey School of Business at Western University in Canada. He is a member of the Ontario Board of Directors for The Duke of Edinburgh's Award. 164, 847 Francois Gratton EVP President, Business Solutions East and TELUS Québec President of Quebec and Atlantic Canada since 2012 before named as EVP for business solutions for Eastern Canada. Guided TELUS through acquisition of Emergis. Mr. Gratton holds an MBA from Harvard Business School and a Bachelor of Law from the Université de Montréal. He sits on the boards of Foundation Montréal Inc. , La Presse, Gesca and Square Victoria Communications Group in addition to being a member of Le Cercle des présidents du Québec and the Harvard Business School Advisory Board. 61, 478 Sandy Mc. Intosh EVP president, People & Culture and Chief Human Resources Officer Sandy joined TELUS in 2007 and has been championing the growth and development of the TELUS team ever since, transcending traditional HR accountabilities and challenging the status quo. Serves as Vice-chair of the TELUS Toronto Community Board and Honorary Chair of the Princess Margaret Hospital One. Walk to Conquer Cancer. Sandy holds both an Executive MBA and a Master’s in Industrial Relations from Queen’s University, and graduated with honours from Carleton University in Public Administration. 37, 352 Tony Geheran EVP President Broadband Networks Leads TELUS’ Broadband Networks team – responsible for the design, implementation, marketing and deployment of the most advanced Fibre-to-the-Premise (FTTP) program in the world. Tony is a graduate of the Cranfield School of Management with a Diploma in Professional Marketing from the Figureered Institute of Marketing. He holds a Professional Certificate in Business Administration from Open University and received his Professional Qualifications in Mechanical and Electrical Engineering while serving in the Royal Navy. 64, 162 Phil Bates Executive Vicepresident, Operations and Application Development Phil Bates coordinates 3000 team members responsible for application development, release management, network and system operations, change management and support activities. Phil has more than 30 years of experience in the telecom industry in Canada and the United States and includes experience in operations, customer service, network engineering, information technology, regulatory and general management. 56, 668 Jeferrery Puritt TELUS Executive Vice-Presidentand TELUS International President & CEO Jeferrey Puritt (Jeff) is in charge of global business process, contact center and IT outsourcing clients Jeff obtained his Bachelor of Arts in Political Science from York University and has a Bachelor of Laws degree from Osgoode Hall Law School. Before joining Telus, Jeff has worked in Finance and Administration, IP applications & Business Development, New Product and Service Development, Ventures, and Mergers and Acquisitions. Spadotto SF U

Appendix B 1 b. Board of Directors. SF U

Appendix C 1 a: Communications Service Industry Revenue ($ billions) Source: CRTC data collection. Appendix C 1 b: Telecommunication Revenues (Wireline and Wireless) ($ billions) SF U Source: CRTC data collection.

Appendix C 2 a: Margins for wireline, wireless and total telecom industry. Appendix C 2 b. Return on Equity and Debt/Equity ratio for telecom industry. SF U Source: Statcan.

Appendix C 3 a: Aggregate PBIT margins for private conventional TV and discretionary services. Source: CRTC data collection. Appendix C 3 b: Revenue Generation Channels for Conventional Television Sector. SF U Source: CRTC data collection.

Appendix C 4 a: Telecommunication Revenue Distribution, by types of TSP (%) Source: CRTC data collection. Appendix C 4 b: Cross-Country Incumbents and new entrants Landscape. SF U Source: CRTC data collection.

Appendix C 5 a: Monthly household expenditures by service and by age groups. Source: Statistics Canada. In 2014, all age groups except persons 65 years and over spent the least on wireline telephone services, while also spent the most on mobile wireless services. Persons under 30 years spent the most on mobile wireless services ($114. 42 per month) and persons in the 40 to 54 age group spent the most on total communications services ($250. 42 per month). The relationship between age group and the amount spent on communications services is seen between households with persons aged less than 30 years, and households with persons aged 65 years and over. An obvious generation gap is demonstrated through their monthly communications expenditures, since the youngest generation tends to spend more on communications services, specifically on mobile wireless services. However, the oldest generation spends the least in total for communications services, while the service it spends the most for is cable and DTH ($59. 00 per month). SF U

Appendix C 5 b: Household spending on communication services, by income quintile. Household income quintiles Characteristics Average annual income Members per household Expenditures / annual income First Second $30, 520 to $53, 274 Third $53, 275 to $81, 294 Fourth $81, 295 to $124, 838 < $30, 519 Fifth > $124, 839 $19, 664 $42, 122 $67, 083 $101, 177 $201, 752 1. 5 2. 05 2. 51 2. 91 3. 4 6. 60% 4. 10% 3. 10% 2. 40% 1. 50% Source: Statistics Canada. Appendix C 5 c: Canadian wireline and mobile wireless service subscribers per 100 households, by income quintile. SF U Source: Statistics Canada.

Appendix C 6 a: Total residential connections distribution by service type (%) and percentage for hotspot locations. Source: CRTC data collection. As shown in the figure, connections to mobile wireless services represent nearly half of all household connections and Internet connections continue to expand. Landline (i. e. wireline telephone service) and BDU (e. g. cable, DTH satellite, and IPTV) connections, despite their relative declines, still comprise over one third of all subscriptions. As a whole, while mobile wireless service connections are the most widespread, the growing trend is gradual but steady. SF U

Appendix D 1 a: Wireless Service Coverage by number of providers. Source: CRTC data collection. The competitive landscape in the communication system as a whole remains mostly unchanged during recent years. Large vertically and horizontally integrated entities hold dominant market positions when most provinces have at least 2 service providers. SF U

Appendix D 1 c: Market Share in Subscribers (in Thousands) 2007 BCE Rogers TELUS MTS Sask. Tel Wind(Freedom) Videotron Public Mobile Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 6216 6497 6833 7242 7427 7681 7778 8119 8246 8381 7339 7942 8494 8977 9335 9437 9503 9450 9877 10143 5568 6129 6524 6971 7340 7670 7807 8100 8457 8507 394 435 458 484 496 497 476 481 483 490 403 511 541 569 594 608 616 618 614 0 0 0 233 403 590 676 800 940 1043 0 0 0 93 288 403 503 633 769 867 0 0 0 222 212 0 0 19920 21514 22851 24568 25884 26886 27582 28413 29390 30046 The Herfindahl-Hirschman index (HHI) is a commonly used measure of market concentration. A market with HHI below 1500 is considered as a competitive market, an HHI between 1500 to 2500 as a moderately competitive market and an HHI higher than 2500 as a highly concentrated market. In Canada, all the major telecom competitors have an HHI higher than 2500 which means that the competition in telecom industry is limited. SF U

Appendix D 1 d: Market Share in Percentage and HHI Calculation. BCE 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 31. 21% 30. 20% 29. 90% 29. 48% 28. 70% 28. 57% 28. 20% 28. 57% 28. 06% 27. 89% Rogers 36. 84% 36. 92% 37. 17% 36. 54% 36. 07% 35. 10% 34. 45% 33. 26% 33. 61% 33. 76% TELUS 27. 95% 28. 49% 28. 55% 28. 37% 28. 36% 28. 53% 28. 31% 28. 51% 28. 78% 28. 31% 1. 98% 2. 02% 2. 37% 2. 01% 2. 37% 1. 97% 2. 32% 0. 95% 1. 92% 2. 30% 1. 56% 1. 85% 2. 26% 2. 20% 1. 73% 2. 23% 2. 45% 1. 69% 2. 18% 2. 82% 1. 64% 2. 10% 3. 20% 1. 63% 2. 04% 3. 47% 0. 38% 1. 11% 1. 50% 1. 82% 0. 80% 2. 23% 0. 75% 2. 62% 2. 89% MTS Sask. Tel Wind(Freedom) Videotron Public Mobile HHI 3120. 35 3096. 14 3100. 71 3019. 45 2940. 87 2877. 61 2801. 51 2756. 47 2768. 86 2746. 57 Appendix D 1 e: Percentage of All Accepted Complaints 2013 -2014 -2015 -2016 Bell 32. 20% 36% 35. 90% Rogers 20. 98% 18. 20% 10. 50% WIND 4. 50% 7% 6. 10% TELUS 5. 76% 4. 70% 7. 00% Virgin 7. 19% 6. 10% SF U

Appendix D 2 a: Field research on Prices and Packages for major competitors. $10 -$15 $20 -$25 $30 -$40 $41 -$50 $51 -$60 TELUS 50 min 50 50 min Unlimited 150 min Unlimited 250 MB 300 min Unlimited 500 M Unlimited - Calls Messages Data Calls Messages Data Bell 20 c/min Unlimited 50 min Unlimited 150 min Unlimited 200 M 100 min Unlimited 500 M Unlimited - Rogers 30 c/min Unlimited 50 min Unlimited 150 min Unlimited 500 min Unlimited - Data Add-ons (monthly) TELUS Bell Rogers $10 100 M $15 - - 250 M $20 - - 500 M $25 500 M - $30 1 GB 1 GB $50 - - 2 GB SF U

Appendix D 2 c: Price Indices for Telephone Services, BDU services and Internet Services Compared to CPI. As measured by the CPI, average annual inflation in Canada was 1. 1% in 2015. In comparison, from 2014 to 2015, the prices of key communication services increased by 2. 8% (telephone), 2. 5% (cable, DTH satellite and IPTV) and 5. 0% (Internet). Prices for BDU services have increased each year, over the past decade. Similar to previous years, consumers spent on BDU services almost double the amount they spent on telephone services. Internet access service prices continued to rise since 2010. SF U

Appendix D 2 c: Small Competitors Analysis. MTS Sask. Tel Shaw Glentel • Largest market share in Manitoba • In the process being acquired by BCE and TELUS • Holds the majority share of subscribers in Saskatchewan • Actively improving network facilities within Saskatchewan but has no plans for geographically expansion • Successful expansion to wireless sector by acquiring Freedom Mobile • With capital and technical expertise added from Shaw, Freedom can become a potential threat to the telecom giants • Retailer of wireless communication services based on BC • Failure in expansion project in 2014 and is jointly owned by BCE and Rogers Communications Inc. • Predominant telecom services provider in Quebec with stead increase in market share Videotron • Newly launched and expanded LTE network covers 90% of Quebec’s population SF U

Appendix D 3: Survey. Q 1. Age Range of Respondents. Q 2. Years Lived in Canada. Q 3. Annual Household Income SF U

Appendix D 3: Survey. Q 4. Factors that consumers think are most important in their phone plan (score out of 100) Price of package Number of local texting, picture and video messaging Number of local minutes for voice calls The number of devices you can add to your line Number of data volume available Savings on long distance calls Attractiveness of smartphone available with plan Min 20 0 Max 100 Mean 80. 13 45. 96 Std Deviation 20. 2 30. 76 Variance 408. 11 946. 12 0 0 4 0 0 100 100 100 45. 14 30. 95 77. 77 37. 02 46. 42 22. 94 25. 58 26. 6 25. 79 33. 29 526. 08 654. 38 707. 37 664. 93 1108. 42 Q 5. Carriers used by Respondents. SF U

Appendix D 3: Survey. Q 6, Satisfaction with TELUS/Koodo. Question Very Dissatisfied Neutral Satisfied Very Satisfied Signal Strength 0. 00% 33. 33% 50. 00% 16. 67% Call & SMS charges 0. 00% 8. 33% 16. 67% 58. 33% 16. 67% Voice Quality 0. 00% 33. 33% 50. 00% 16. 67% Internet Speed 0. 00% 15. 38% 76. 92% 7. 69% Data charge 8. 33% 16. 67% 8. 33% 50. 00% 16. 67% Quality of Customer Service Promotional Offers 8. 33% 25. 00% 16. 67% 50. 00% 16. 67% 25. 00% 33. 33% 8. 33% 16. 67% Q 7. Reasons for choosing TELUS. SF U

Appendix D 3: Survey. SF U

Appendix E 1: Sensitivity Analysis for Trading Multiple Valuation Projected EPS Projected EBITDA EV / EBITDA Multiple – Appendix $45. 88 8. 33 x 8. 58 x 8. 83 x 9. 08 x 9. 33 x $ 4, 132 $34. 86 $36. 62 $38. 38 $40. 13 $41. 89 $ 4, 382 $38. 40 $40. 27 $42. 13 $43. 99 $45. 86 $ 4, 632 $41. 94 $43. 91 $45. 88 $47. 85 $49. 82 $ 4, 882 $45. 48 $47. 56 $49. 63 $51. 71 $53. 79 $ 5, 132 $49. 02 $51. 21 $53. 39 $55. 57 $57. 75 $50. 63 2. 19 2. 44 2. 69 2. 94 3. 19 P / E Multiple – Appendix 18. 3 x 18. 55 x 18. 8 x 19. 05 x $40. 07 $40. 61 $41. 16 $41. 71 $44. 64 $45. 25 $45. 86 $46. 47 $49. 22 $49. 89 $50. 63 $51. 23 $53. 79 $54. 52 $55. 26 $55. 99 $58. 36 $59. 16 $59. 96 $60. 76 19. 3 x $42. 26 $47. 08 $51. 91 $56. 73 $61. 55 $ $ $ Projected BVPS P / Book Multiple – Appendix $0. 00 3. 5764 x 3. 8264 x 4. 076 x 4. 326 x 4. 576 x $ 12. 27 $43. 90 $46. 97 $50. 04 $53. 11 $56. 17 $ 12. 52 $44. 79 $47. 92 $51. 06 $54. 19 $57. 32 $ 12. 77 $45. 69 $48. 88 $52. 07 $55. 27 $58. 46 $ 13. 02 $46. 58 $49. 84 $53. 09 $56. 35 $59. 61 $ 13. 27 $47. 48 $50. 79 $54. 11 $57. 43 $60. 75 SF U

Appendix E 2: Base Case historical and project balance sheet SF U

Appendix E 3. Base case historical and project income statement. * Note: 2016 Numbers are estimates to forecast 2017 onwards. However, we did not use 2016 numbers for our valuation. SF U

Appendix E 4. Base case historical and project cash flow statement * Note: 2016 Numbers are estimates to forecast 2017 onwards. However, we did not use 2016 numbers for our valuation. SF U

Appendix E 5. Calculation of WACC. SF U