Consolidate unsecured debt

Business Editors

NEW YORK--(BUSINESS WIRE)--July 23, 2002

Fitch Ratings has initiated coverage of TELUS Corp., assigning a 'BBB' rating to its senior unsecured debt. The rating applies to TELUS Corp.'s C$1.5 billion 3-year bank facility and the C$800 million 364-day revolver (both are pari-passu with the public debt), the C$1.6 billion senior unsecured notes and the US$3.3 billion senior unsecured notes as well as TELUS Communications, Inc.'s C$1.0 billion debentures and C$220 million of medium term notes. The Rating Outlook for TELUS is Negative.

The rating incorporates TELUS' prospects for continued strong local and long distance market share in its incumbent local exchange carrier (ILEC) region, the prospects for strong growth in its digital subscriber line (DSL) and wireless businesses over the next two years, the lack of strong competitive threats, and the effects of recent regulatory decisions. Fitch believes the company is well positioned as an incumbent carrier in its primary markets of Western Canada and Eastern Quebec and is exhibiting growth out of region (Ontario and parts of Quebec). At the end of the first quarter 2002, TELUS held a 97% local market share in its ILEC region and a 79% long distance market share, and Fitch does not anticipate much attrition in these markets.

TELUS has undertaken a number of initiatives to counteract the impact of recent regulatory decisions on its financial performance. An important consideration in the rating is the recently implemented operational efficiency program, which is an effort to streamline its operations and reduce costs. TELUS will consolidate 66 customer contact centers into 28 and close 33 of 40 retail stores in Alberta and British Columbia by year-end 2002. The company also offered a voluntary departure package to qualified union employees. TELUS expects total headcount reductions from these changes to amount to 6,000, or 25% of TELUS Communications' workforce. Fitch expects the company to begin to realize benefits of the program toward the end of 2002 and on a larger scale in 2003. In addition, TELUS has embarked on an aggressive cash management strategy that Fitch believes may offset the cash impacts of the regulatory decisions. The company substantially reduced its dividend effective the fourth quarter of 2001 and changed its dividend reinvestment program, which should save C$300 million per year, has put in place tax strategies to make use of losses obtained through the 2000 acquisition of Clearnet and has substantially reduced its capital expenditures from C$2.6 billion in 2001 to what we expect will be close to the lower end of the C$1.8 to 2.0 billion guidance range for 2002.

At the end of 2001, TELUS' Debt/EBITDA and EBITDA/Interest ratios were 3.4x and 4.1x, respectively (net of a deferred cross-currency foreign exchange hedge asset and not including convertible securities or proceeds from the company's accounts receivable securitization program). At the end of 1Q'02, these metrics had deteriorated to 3.5x and 3.6x, respectively, primarily due to the negative effects of the recent regulatory decisions on revenue and EBITDA. The company's financial performance statistics are expected to strengthen from these levels during the course of 2002 and into 2003 due to the continued growth in the wireless business, through the effects of the efficiency program, and, in 2003, through lower losses in its non-ILEC business. As a result, Fitch expects both Debt/EBITDA and EBITDA/Interest to remain essentially unchanged at 3.5x in 2002.

Fitch believes TELUS has adequate liquidity to meet moderate cash shortfalls anticipated for 2002 and prior to it achieving free cash flow positive results for the year 2003. At March 31, 2002, the company had well in excess of $1 billion of unutilized available liquidity under its credit facilities and is projected to maintain similar liquidity throughout the next year. The bank facilities are unsecured and while there are limitations on the amounts TELUS may borrow given its current financial performance, a substantial portion of the facilities are available given Fitch's expectations for its operating results and debt levels. Finally, the company is expected to put into place an expanded accounts receivable program.

TELUS' product portfolio is broad, which enables it to provide a bundled offering to its business and residential customers, a benefit Fitch believes is pivotal for continued success. While the company has taken measures to improve its credit profile, a Negative Outlook will be in place until the full effects of the regulatory decisions are apparent and the results of the operational efficiency programs are realized.

TELUS is one of the largest Canadian providers of telecommunications services. Through its TELUS Communications and TELUS Mobility business segments, the company offers a wide array of communications products, including both wireline and wireless services.