MTS Reports Third Quarter Results Fourth Quarter 2006 Cash Dividend Declared

Transcription

1 Quarterly Report 3 MTS Reports Third Quarter Results Fourth Quarter 2006 Cash Dividend Declared Year to date 2006 financial performance consistent with full-year outlook Free cash flow from continuing operations grows 25.1% to $248.9 million in first nine months Double-digit growth in wireless, digital television, next generation data connectivity and high-speed Internet revenues Enterprise Solutions division reports third quarter EBITDA margin 220 basis points better than last year IP-VPN ( Internet Protocol-Virtual Private Network ) base continues to climb, reaching 158 customers HDTV ( High Definition Television ) service launched in Winnipeg Directories business sold for $281 million Cost reduction program target increased to $120 million -- $78 million in annualized expense savings achieved at September 30 th Winnipeg, Manitoba, November 6, 2006 Manitoba Telecom Services Inc. ( MTS or the Company ) (TSX: MBT) today reported solid third quarter results. The Board of Directors also declared the fourth quarter cash dividend at $0.65 per share. The fourth quarter dividend is payable on January 15, 2007 to shareholders of record at the close of business on December 15, Our third quarter results clearly demonstrate that we are making good progress in positioning our business for long-term success in the Canadian communications industry, said Pierre Blouin, Chief Executive Officer. After nine months, our financial results are tracking right on plan. We have delivered significant, tangible results from our business review. Importantly, the Enterprise Solutions division continues to make solid progress. I m pleased to report that this division has improved its third quarter EBITDA margin by 220 basis points over last year continuing the trend of improved margins over the last three quarters. FINANCIAL HIGHLIGHTS CONTINUING OPERATIONS 1 for the period ending September 30, 2006 (in millions of three months ended September 30 nine months ended September 30 dollars) Revenues , ,481.8 EBITDA Basic EPS Free Cash Flow Note: The Company provides financial information on continuing operations in order to assist investors with understanding the Company s underlying financial performance. The Company s definition of continuing operations excludes certain items such as the Company s directories business which has been reclassified as discontinued operations, following the announced sale of this business in the third quarter of

2 Consistent with the Company s expectations for 2006, results from continuing operations include EPS of $0.62 in the third quarter and $1.93 year to date, representing a slight increase over 2005; EBITDA of $162.7 million as compared to $160.9 million in the third quarter of 2005 and up modestly by 0.4% in the first nine months of 2006 to $493.0 million; and a year-over-year decline in revenues by approximately 4.8% to $477.9 million in the third quarter; and by 3.0% to $1,437.4 million in the nine months ended September 30, The year-over-year change in revenues is in line with the Company s outlook and reflects managing the ongoing transition from legacy services to growth services. Free cash flow was up strongly in the quarter by 24.3% to $70.7 million and by 25.1% to $248.9 million in the first nine months of the year. The strength of our free cash flow provides full support for our dividend, which at approximately $175 million represents one of the highest yields of any common stock listed on the TSX, said Wayne Demkey, Chief Financial Officer. MTS Allstream Inc. s ( MTS Allstream ) growth services also posted very strong performance, collectively increasing by approximately 14%, representing $62 million in new revenues in An important contributor to the Company s 2006 financial performance is the very strong results it is achieving in aligning the cost structure. When we initially established our cost reduction program, we had a target of $100 million in annualized cost savings after two years, commented Mr. Demkey. Through very diligent efforts, we have been able to accelerate the program, and we now expect to achieve $120 million in annualized cost savings by the end of $20 million more in savings, a year ahead of plan. At September 30, 2006, work had been completed to achieve $78 million of these recurring annualized cost savings. So far this year, realized cost savings were $21 million in the third quarter, and $69 million in the first nine months of the year. The Enterprise Solutions division had a solid third quarter, consistent with its overall strategy to grow its non-legacy revenue base in a manner that drives improved profitability to the organization. Revenues of approximately $262 million were basically flat to what was generated in the second quarter of In the third quarter, it posted EBITDA performance of $49.5 million. Underlying these results was ongoing strong performance from the Enterprise Solutions division s growth areas. Next generation data connectivity revenues climbed by 54.1% and IP-VPN customers increased to 158, reflecting the attractiveness and growing demand for MTS Allstream innovative next generation IP-based services to business customers. The Enterprise Solutions division also made good progress winning new business with customers in the quarter including PRIMUS Canada, Greyhound, Franklin Templeton, Government of Newfoundland and Labrador, The Windsor-Essex Catholic District School Board and Hydro One. In the Consumer Markets division, wireless revenues and cellular customers grew by 12.8% and 12.4% respectively, with strong increases from digital television as customers climbed by 27.2%, and high-speed Internet customers increased by 16.6% from a year earlier. The Company experienced strong net ads from TV in October. At 2,300 it is the highest monthly increase so far in 2006, and puts our TV market share at approximately 25%. Also, an additional 3,700 TV customers were added in the third quarter through our acquisition of Valley Cable Vision located in southern Manitoba. The Company s back-to-school student campaign, launched in the fall to promote wireless and internet, showed excellent results. The number of additions doubled over last year s results to more than 5,000 new customers. The continuing strong performance of the Consumer Markets - 2 -

3 division reflects the Company s status as the clear communications leader in Manitoba. Customers continued to choose MTS Allstream as their supplier of multiple communications services. At the end of the third quarter, 73% of MTS TV customers were also MTS high-speed Internet customers, reflecting an increase over the last year. FINANCIAL HIGHLIGHTS REPORTED (in millions of three months ended September 30 nine months ended September 30 dollars) Operating Revenues , ,486.1 EBITDA Operating Income Net Income Basic EPS Free Cash Flow 48.1 (9.8) Total Capital Assets 7 1, , , ,502.9 Note: The Company s directories business has been reclassified as discontinued operations following the sale of this business. In accordance with this treatment, in the Financial Highlights Reported table above, only net income and Basic EPS include results from the directories business. In the third quarter of 2006, basic EPS was $0.60 compared to $0.67 in the third quarter of Over the same period revenue and EBITDA each decreased respectively from $507.7 million to $477.9 million and from $161.8 million to $152.9 million. In addition to the changes in continuing operations described above, the reported results were lower due to the impact from a positive retroactive regulatory decision in the third quarter of 2005 of $5.9 million, and higher restructuring and integration costs of $4.8 million in the third quarter of Year to date results reflect these same factors, and in addition, basic EPS includes non-cash adjustments to income tax expense in each of the second quarters of 2006 ($0.86) and 2005 ($0.14) to reflect changes to future income tax rates. As well, in the second quarter of 2005, a favourable non-cash gain of $1.07 was recorded in relation to the settlement of prior year's tax audits. Year to date reported results for revenue and EBITDA also reflect the impact of various positive retroactive regulatory decisions received in the second quarter of 2006 and the first quarter of OUTLOOK The Company s 2006 financial outlook from continuing operations remains unchanged. On August 14, 2006, the Company entered into a definitive agreement to sell its directories business. This transaction closed on October 2, As prescribed by the Canadian Institute of Chartered Accountants Handbook, the directories business has been classified as discontinued operations in MTS s financial statements. In the table below, the 2006 financial outlook has been provided excluding the directories business to facilitate the evaluation of performance from continuing operations on the same basis as the prescribed reporting format that is reflected in MTS s financial statements

4 2006 Financial Outlook Continuing Operations (includes directories business) (excludes directories business) Revenues $1.925 B to $1.975 B $1.885 B to $1.935B EBITDA $655 M to $680 M $630 M to $655 M EPS $2.35 to $2.65 $2.10 to $2.40 Free Cash Flow $285 M to $310 M $260 M to $285 M Capital Expenditures $270 M $270 M Pension Solvency Funding On June 2, 2006, the federal government released draft amendments to the solvency funding regulations for federally regulated pension plans. Once the amended regulations come into effect, MTS anticipates filing revised actuarial funding valuation reports, which are expected to reduce its annual solvency payments. If new regulations had come into effect earlier in 2006; the Company s total solvency payments for 2006 would be approximately $65 million to $70 million. Since the new regulations are not expected to come into effect in time to impact 2006 funding, the Company s total 2006 solvency payments will be approximately $90 million to $95 million. Future solvency funding requirements will depend on the results of annual actuarial funding valuations which are affected by various factors, such as return on plan assets, changes in solvency liability discount rates, and any further action taken by the government on the requirements associated with solvency valuations. BUSINESS REVIEW On January 31, 2006, the Company announced that it would conduct a comprehensive business review to strengthen the fundamental business and evaluate its competitive position and strategic opportunities for creating and delivering long-term shareholder value. Since launching this review, the Company finalized its 2006 business plan and has delivered three quarters of financial performance that are solidly on track in relation to its outlook for the year. The performance of the Enterprise Solutions division has been improved by focusing on profitable operations, and the overall MTS Allstream cost structure has been strengthened with annualized recurring cost reductions of $78 million achieved so far in An important element of the business review is an assessment of the Company s asset base to identify core and non-core assets. To date, non-core real estate holdings have been identified and listed for sale, and on August 14, 2006, the sale of MTS Allstream s directories business to Yellow Pages Group Co. was announced. This transaction closed on October 2, As part of our overall business review, there has been a comprehensive analysis underway on multiple scenarios including important potential growth strategies for the business, said Mr. Blouin. In light of last week s announcement by the federal government regarding income trusts, we will be fully analyzing the implications of the proposed new legislation as it has implications for some of the scenarios. The Company continues to benefit from its substantial $4 billion in accumulated tax deductions (consisting of $1.8 billion in tax losses and $2.2 billion in unutilized capital cost allowance). Taken together, MTS Allstream does not anticipate paying cash taxes until

5 The Company indicated that it is near the end of the business review process, and expects to provide a 2007 outlook and related business plans by year-end OTHER DEVELOPMENTS MTS Allstream announces Voluntary Reduction Program for Manitoba employees On October 2, 2006, MTS Allstream announced a Voluntary Reduction Program for its Consumer Markets division in Up to 325 workforce reductions, or 10% of that division, are targeted by this initiative, which represents an element of the Company s ongoing Transition Phase II cost reduction program ( TP2 cost reduction program ). Announced in November 2005, the TP2 cost reduction program is designed to improve MTS Allstream s cost structure and position it to grow profitably in the rapidly changing telecommunications industry. Annualized savings from this voluntary program are estimated at approximately $22 million and the cost associated with this program is expected to be approximately $20 million to $25 million. Hydro One awards MTS Allstream with three-year extension to data services contract On October 18, 2006, MTS Allstream announced that it had secured a three-year extension to its existing data services contract with Hydro One, the largest electricity delivery company in Ontario. With this extension of their existing ten-year relationship, MTS Allstream will continue to provide Hydro One with data services that focus on speed, low delay and reliability of data transfer, while delivering dedicated connectivity for bandwidth-intensive applications requiring real-time transport of voice, data and video. Hydro One s business demands constant access to a robust, reliable data network and MTS Allstream assists Hydro One with consistently meeting these demands by equipping it with the power and performance it needs for several applications including and Intranet information sharing. MTS Allstream expands Wi-Fi network On October 23, 2006, MTS Allstream announced that it had expanded its wireless Internet service to more than sixty Manitoba locations and offers access to more than 300 locations across Canada. Access to the over 300 nationally-located Wi-Fi HotSpots is provided to MTS High Speed Internet and MTS Mobility customers through a relationship with FatPort, a significant operator of public Wi-Fi HotSpots in Canada. The MTS Allstream Wi-Fi HotSpots in Manitoba are located in Winnipeg, Headingley, Brandon, Virden, and Morris at key places such as the MTS Centre, tourist attractions and dozens of other locations including shopping centres, coffee shops, restaurants, and truck stops. Plans exist to further expand MTS Allstream s Wi-Fi network over the next year. MTS Allstream acquires Valley Cable Vision On September 12, 2006, MTS Allstream announced that it had purchased all of the shares of Valley Cable Vision (1997) Limited, a successful rural cable and Internet provider in southern Manitoba with 3,700 subscribers. This transaction advances MTS Allstream s strategy of being Manitoba s leading full-service provider of wireline, wireless, broadband Internet, and television services

6 High Definition TV available to MTS TV customers On August 24, 2006, MTS Allstream announced the latest in home entertainment with the introduction of MTS HDTV service. With MTS HDTV, customers who appreciate the next level in home entertainment can have the total experience right in their own home. MTS TV s high definition service provides the range to enjoy all of today s hit shows and live sports with a crystal clear picture and amazing digital sound, and also includes the popular MTS features of Video On Demand, On Demand and TV Call Display. PRIMUS Canada awards two-year contract extension to MTS Allstream On September 18, 2006, MTS Allstream announced that it had secured a two-year extension to its existing contract with PRIMUS Telecommunications Canada Inc. ( PRIMUS Canada ), the country s largest alternative communications carrier. Over the past seven years, MTS Allstream and PRIMUS Canada have forged a solid partnership that has enabled PRIMUS Canada to offer innovative products to a greater number of customers across Canada. Under the terms of this contract, MTS Allstream will continue to supply PRIMUS Canada with IP data networking, long distance and local services to support PRIMUS Canada s residential and commercial business across Canada. MTS Allstream solutions support new Manitoba emergency dispatch centre On September 21, 2006, MTS Allstream announced that it had been selected by the Manitoba Government to power the communications requirements of the new Medical Transportation Coordination Centre ( MTCC ). The MTCC is a dedicated dispatch centre for all rural and northern Manitoba emergency medical services, including northern medivacs. With communications technology provided by MTS Allstream, the MTCC is enabled to shorten ambulance response times and deploy emergency medical resources more efficiently. MTS Allstream equipped the MTCC s eight agent positions with CML Sentinel FleetNet Dispatch workstations and installed a CML ECS-1000 switch to route the call traffic in and out of the centre. In addition, MTS Allstream will support MTCC s communications operations with a five-year managed services contract and will provide ongoing digital network access. Manitoba Blue Cross moves forward with MTS Allstream On September 19, 2006, MTS Allstream announced that Manitoba Blue Cross had selected MTS Allstream for communications solutions to centralize its head office operations and move its communications systems to an IP-based platform. MTS Allstream s communications support will enable Manitoba Blue Cross to complete the move effectively and to better serve its agents and customers once the move is completed. The project with Manitoba Blue Cross is an excellent example of how MTS Allstream can help customers make important operational changes, while simultaneously positioning them with state-of-the-art, IP-enabled technology they will need for future success. MTS Allstream submits comments on the federal government s proposed Policy Direction to the CRTC On August 16, 2006, MTS Allstream announced that it had submitted its comments in response to the federal government s proposed policy direction to the Canadian Radio-television and Telecommunications Commission ( CRTC ). MTS Allstream supports the goals articulated in the policy direction. These goals include ensuring that the Canadian telecommunications regulatory system is more modern, flexible and efficient, and the industry is internationally competitive and successful so that Canadian consumers will benefit from a stronger competitive environment that will bring greater choice and even lower prices and better - 6 -

7 services. MTS Allstream strongly recommended that mandated fair access to wholesale services continue in order to ensure a stronger competitive environment, especially in the business market sector. 1 Refer to MTS s third quarter 2006 interim MD&A for the definition of continuing operations. 2 Excludes basic EPS. 3 The prior period figures have been reclassified to conform to the current year s presentation of discontinued operations. 4 EBITDA is earnings before interest, taxes, amortization, other income and discontinued operations. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian generally accepted accounting principles) as a measure of liquidity. 5 EPS is earnings per share. 6 Refer to MTS s third quarter 2006 interim MD&A for the definition of free cash flow as at September 30; 2005 as at December

8 MANAGEMENT S DISCUSSION AND ANALYSIS Unless otherwise indicated, this Management s Discussion and Analysis ( MD&A ) of our financial results for the period ended September 30, 2006 is as at November 6, In this MD&A, we, our, and us refer to Manitoba Telecom Services Inc. ( MTS ). This interim MD&A should be read in conjunction with our interim consolidated financial statements and the discussion and analysis that accompanies our audited consolidated financial statements for the year ended December 31, This interim MD&A for the three and nine months ended September 30, 2006 updates the information contained in our second quarter 2006 interim MD&A, our first quarter 2006 interim MD&A, and our 2005 annual MD&A. This interim MD&A includes forward-looking statements about our corporate direction and financial objectives that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking information. Examples of statements that constitute forward-looking information may be identified by words such as believe, expect, project, anticipate, could, target, forecast, intend, plan, outlook, and other similar terms. Factors that could cause actual results to differ materially from those expected, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in such forward-looking information, include, but are not limited to, the items identified in the Risks and Uncertainties section and the Material Assumptions identified in the Outlook section of this interim MD&A, our second quarter 2006 interim MD&A, our first quarter 2006 interim MD&A, and our 2005 annual MD&A. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information relating to our company, including our Annual Information Form, is available on SEDAR at NON-GAAP MEASURES OF PERFORMANCE In this MD&A, we provide information concerning continuing operations, EBITDA and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by Canadian generally accepted accounting principles ( GAAP ), and are not necessarily comparable to similarly titled measures used by other companies. Continuing Operations We provide information that refers to our performance from continuing operations to assist investors in understanding the performance of our company. Continuing operations in the first nine months of 2006 include synergies and exclude our directories business, which has been classified as discontinued operations; restructuring costs; the retroactive adjustment related to Telecom Decision CRTC in which the Canadian Radio-television and Telecommunications Commission ( CRTC ) approved MTS Allstream Inc. s ( MTS Allstream ) application to review and vary the CRTC s decision in MTS Allstream s application to review and vary certain decisions relating to its Band F subsidy, Telecom Decision CRTC (the Band F Decision ); the adjustment related to Aliant Telecom, Bell Canada, MTS Allstream, SaskTel and TCI Approval of rates on a final basis for Access Tandem service, Telecom Decision CRTC and Aliant Telecom, Bell Canada, MTS Allstream, SaskTel and TCI Approval of rates on a final basis for Direct Connection service, Telecom Decision CRTC ( the Direct Connect/Access Tandem Decisions ); solvency funding to our pension plans; the impact of changes in income tax rates on our tax asset; and the taxes recoverable related to the sale of our investment in Bell West Inc. (the Bell West gain ). Continuing operations in the first nine months of 2005 include synergies and exclude our directories business, which has been classified as discontinued operations; restructuring costs; the estimated net positive retroactive portion of the impact from the decision of the CRTC in Competitor Digital Network Services, Telecom Decision CRTC (the CDNA Decision ) and the positive retroactive portion associated with the Band F Decision; the gain arising from the sale of our investment in a wireless venture; a non-cash gain associated with the settlement of prior years tax audits; the impact of changes in income tax rates on our tax asset; solvency funding to our pension plans; and the taxes paid related to the Bell West gain. EBITDA We define EBITDA as earnings before interest, taxes, amortization, other income and discontinued operations. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity. Free Cash Flow We define free cash flow as cash flow from operating activities, less capital expenditures, and excluding changes in working capital. Free cash flow is the amount of discretionary cash flow that we have for purchasing additional assets beyond our annual capital expenditure program, paying dividends, buying back shares or retiring debt

9 OVERVIEW MTS is a leading national communications provider in Canada, which earned $2.017 billion in revenue and net income of $213.7 million in Our objective is to build upon our many strengths as an agile national competitor and services innovator, and to ensure that we are profitably focused on our growth opportunities, particularly those being driven by customers migrating to Internet Protocol ( IP ) solutions, wireless, Internet and digital television services in Manitoba. In the first quarter of 2006, we announced changes to our organizational structure. Under this new structure, we have created a Consumer Markets division and an Enterprise Solutions division. Our Consumer Markets division is focused on the consumer and small business segments. Our Enterprise Solutions division is focused on the mid to large enterprise business markets across the country. Through this structure, which is centred around the customer, we believe that we are better positioned to compete in the marketplace and facilitate cost-effective operations. The financial and operating information, and any associated discussion in this MD&A, respecting our Consumer Markets division (formerly our MTS (Manitoba) division) and our Enterprise Solutions division (formerly our Allstream (National) division), are presented on the same basis as each division s respective predecessor organization. We expect to begin reporting segmented information for the Consumer Markets division and the Enterprise Solutions division as soon as activities are completed to ensure that all of our systems are updated to reflect the new structure and that the information we report is complete and accurate. On August 14, 2006, we entered into a definitive agreement to sell our directories business. This transaction closed on October 2, As prescribed by the Canadian Institute of Chartered Accountants ( CICA ) Handbook, the directories business results have been classified as discontinued operations in our financial statements (see Note 5 to our financial statements). Consumer Markets division: the primary telecommunications provider in Manitoba which operates under the MTS brand. We serve residential and small business customers with a full suite of wireline voice, high-speed Internet and data, next generation wireless, digital television, and security and alarm monitoring services. Enterprise Solutions division: a customer-focused, agile innovator which offers a world-class portfolio of business solutions, including voice and data connectivity, infrastructure management and information technology ( IT ) services to business and wholesale customers. Our Enterprise Solutions division, which operates under our Allstream brand, has built a strong market share position that spans the country, and includes many of Canada s largest companies, as well as federal, provincial and municipal governments. On November 29, 2005 we launched our Transition Phase II cost reduction program ( TP2 cost reduction program ) to position the company to grow profitably and improve our cash flows in the rapidly changing telecommunications industry. Our TP2 cost reduction program builds on the success of our initial integration project by refining our market focus and aligning our cost structure for long-term competitive success. The TP2 cost reduction program represents a further integration of our two operating divisions, which is expected to achieve a minimum of $100 million in expense savings over the next two years. RESULTS OF OPERATIONS Earnings Per Share ( EPS ) ($) three months ended September EPS (Continuing Operations) Discontinued Operations Restructuring Costs (0.09) (0.04) Retroactive Band F Decision Basic EPS Note: EPS for the three months ended September 30 is based on weighted average shares outstanding of 68.1 million for 2006, and 67.7 million for EPS from continuing operations was $0.62 in the third quarter of 2006, which is slightly up from $0.61 as compared to the same period in Our Enterprise Solutions division and our Consumer Markets division delivered solid results from their respective growth services, and achieved excellent gains in reducing costs, which helped to offset the impacts of continuing strong competition and technology migration to lower priced IP-based services by customers in our industry. Higher amortization expense, which was offset by lower income tax expense due to lower statutory income tax rates and higher other income, contributed to increased EPS in the third quarter of 2006, as compared to the same period in Basic EPS was $0.60 in the third quarter of 2006, as compared to $0.67 in the same quarter during These results also reflect a number of additional items that did not arise from continuing operations, which include restructuring costs during the third quarter of both 2005 and 2006; the positive retroactive impact from the Band F Decision in 2005; and discontinued operations

10 0.61 EPS (Continuing Operations) these include a non-cash gain associated with the settlement of prior years tax audits, restructuring costs, a future tax rate adjustment due to a decrease in statutory income tax rates, positive adjustments related to the CDNA Decision and the Band F Decision, as well as the gain on the sale of our ownership interest in a wireless venture and discontinued operations. $ EBITDA (in millions $) Q3/06 Q3/05 YTD/06 YTD/05 EBITDA (Continuing Operations) Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 EPS ($) nine months ended September EPS (Continuing Operations) Discontinued Operations Tax Audit Settlement Restructuring Costs (0.18) (0.19) Future Tax Rate Adjustment (0.86) (0.14) Retroactive Band F Decision Retroactive Direct Connect/Access Tandem Decisions Retroactive CDNA Decision Gain on Sale of Wireless Venture Basic EPS Note: EPS for the nine months ended September 30 is based on weighted average shares outstanding of 68.0 million for 2006, and 67.7 million for EPS from continuing operations was $1.93 in the first nine months of 2006, which was slightly up from $1.92 as compared to the same period in Our Enterprise Solutions division and our Consumer Markets division delivered solid results from their respective growth services, and achieved excellent gains in reducing costs, which helped to offset the impacts of competition and technology migration by customers of our industry. Higher amortization expense, as well as lower income tax expense due to lower statutory rates, contributed to EPS in the first nine months of 2006, as compared to the same period in Basic EPS was $1.23 in the first nine months of 2006, as compared to $2.94 in These results reflect a number of items that did not arise from continuing operations. In 2006, these include a future tax rate non-cash adjustment due to a decrease in statutory income tax rates, positive adjustments related to the retroactive Band F Decision and the retroactive Direct Connect/Access Tandem Decisions, restructuring costs, and discontinued operations. In 2005, Restructuring Costs (9.8) (5.0) (20.0) (21.3) Retroactive Band F Decision Retroactive Direct Connect/Access Tandem Decisions Retroactive CDNA Decision in millions $ EBITDA (Continuing Operations) EBITDA EBITDA from continuing operations was essentially unchanged at $162.7 million in the third quarter of 2006 and $493.0 million year to date. These results reflect growth in wireless, digital television and Internet services, which were offset by declines in legacy services in our Consumer Markets division, as well as strong improvements in revenues from our Enterprise Solutions division s next generation services which were offset by pressure due to aggressive pricing in the long distance and legacy data services markets. Also contributing to these results are our cost reduction initiatives, which have realized consolidated savings across our organization of $69 million as at September 30, Consolidated EBITDA was $152.9 million in the third quarter of 2006 versus $161.8 million a year earlier, and $489.6 million in the first nine months of 2006 versus $479.8 million in These results include impacts from restructuring costs and regulatory decisions as detailed in the above table Q3/05 Q4/05 Q1/06 Q2/06 Q3/06

11 REVENUES Operating Revenues (in millions $) Q3/06 Q3/05 YTD/06 YTD/05 Data Local Long Distance Wireless Other Total , ,486.1 Our operating revenues include those earned from the provision of data, local voice, long distance voice, wireless and other services, which includes digital television service. in millions $ Operating Revenues (Continuing Operations) Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Consolidated revenues were $477.9 million in the third quarter of 2006 and $1,447.3 million year to date. These are lower primarily due to decreased revenues from long distance, local and data services. Partly offsetting these results were strong increases in revenues from growth services in our Enterprise Solutions division, including next generation data connectivity, as well as strong increases from wireless, digital television, and Internet services in our Consumer Markets division. With respect to year to date, IT services associated with our acquisition of Delphi Solutions Corp. ( Delphi ) on July 5, 2005 also contributed to growth in revenues. In addition, our revenues were impacted by a number of retroactive regulatory adjustments. In the second quarter of 2006, we received a retroactive payment of $9.9 million associated with the Band F Decision, while in the third quarter of 2005, we received an earlier retroactive payment of $5.9 million which also is associated with the Band F Decision, and in the first quarter of 2005, we received a $1.6 million retroactive charge associated with the CDNA Decision. Operating Revenues (in millions $) Q3/06 Q3/05 YTD/06 YTD/05 Revenue (Continuing Operations) Retroactive Band F Decision Retroactive CDNA Decision , , (1.6) Revenue , ,486.1 Data Services (in millions $) % change Q (3.0) YTD (1.5) Our data line of business includes revenues earned from providing data, Internet and IT services. Data services connect data, video and voice networks to establish private connections across office locations and to integrate traffic over highly secure networks. We provide a wide range of Internet connectivity services to meet the needs of residential customers in Manitoba and business customers across the country. We also offer numerous hosting and security services to business customers across Canada. Revenues from data services were $165.6 million in the third quarter of 2006, as compared to $170.7 million in the corresponding period in Revenues were $495.8 million in the first nine months of 2006 versus $503.4 million for the same period in Included in our year to date results comparison is a $1.6 million retroactive charge associated with the CDNA Decision, which occurred in the first quarter of The quarterly and year to date performance reflects increases in revenues from next generation data connectivity services, year to date IT services due to our acquisition of Delphi, and Internet services. These increases helped to offset lower legacy data connectivity revenues, which, in part, were attributable to our changing relationship with AT&T Corp. The strong performance in our next generation data connectivity revenues reflects customer migration to IP-based solutions and our Enterprise Solutions division s ability to deliver leading edge solutions to our customers. Our IP virtual private network customer base has grown strongly, increasing to 158 as at September 30, Strong growth in our high-speed Internet customer base in Manitoba also continues in As at September 30, 2006, our high-speed Internet customer base totalled 140,564, translating into strong year-over-year growth of 16.6%

12 in millions $ Data Services Revenues Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 one of the most advanced suites of communications offerings of any operator in North America, and we are confident in our ability to continue to compete successfully in the Manitoba market. in millions $ Local Voice Services Revenues Local Services (in millions $) % change Q (9.4) YTD (1.0) Local services revenues from our Consumer Markets division include basic voice connections for residential and business customers, including enhanced calling features (such as Call Answer, Call Display, Call Waiting and 3-Way Calling), payphone revenue, wholesale revenues from services provided to third parties, as well as contribution revenue. Through our Enterprise Solutions division, we provide a full range of local services to business customers on a national basis. These services allow customers to complete calls in their local calling areas and to access long distance, cellular networks and the Internet. The local products provided by our Enterprise Solutions division offer a uniform service across all major markets in Canada. Local services revenues in the third quarter of 2006 were $134.4 million as compared to $148.4 million in the same period of the previous year, and on a year to date basis, decreased modestly from $424.1 million in 2005 to $419.8 million in These decreases primarily reflect the competitive local telephony environment in Winnipeg. Partly offsetting the pressure on the revenues of our Consumer Markets division were increased revenues from higher wholesale revenues by our Enterprise Solutions division. The modest decrease in year to date revenues reflects the impact of the competitive environment in which our Consumer Markets division operates, which was offset by higher retroactive payments associated with the Band F Decision which we received during 2006 and 2005 in the amounts of $9.9 million and $5.9 million, respectively, and higher wholesale revenues from our Enterprise Solutions division. Competition from cable telephony offerings began in the local Manitoba market in mid-2005, which has contributed to an 8.2% decrease in residential network access service year-over-year. Our Consumer Markets division has Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Long Distance Services (in millions $) % change Q (15.9) YTD (15.7) Long distance services enable residential customers in Manitoba and business customers across Canada to communicate with destinations outside the local exchange. Our long distance voice service portfolio includes basic, domestic, cross-border and international outbound long distance, basic and enhanced toll-free services, calling cards and audio conferencing, as well as a variety of enhanced long distance services and features. Long distance revenues were $99.0 million in the third quarter of 2006, as compared to $117.7 million in the previous year. In the first nine months of 2006, long distance revenues decreased to $304.0 million from $360.5 million in These results reflect competitive pressures that are associated with pricing across all market segments. Our Consumer Markets division continued to experience decreased revenue due to local line losses and customer migration to lower priced plans along with wireless and substitutions. Lower rates in the domestic, cross-border and international markets, which were partly offset by higher volumes in these markets, negatively impacted the long distance revenues of our Enterprise Solutions division

13 in millions $ Long Distance Services Revenues Other Revenues (in millions $) % change Q YTD Other revenues consist of revenues earned from our digital television services and miscellaneous items. Our digital television service is offered across our broadband network platform and is targeted at residential customers in Winnipeg. Miscellaneous revenues primarily consist of security and alarm monitoring services, and the sale and maintenance of terminal equipment. Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Wireless Services (in millions $) % change Q YTD Our wireless portfolio consists of cellular, wireless data, paging and group communications services that we offer in the Manitoba market. Revenues from wireless services increased to $61.5 million in the third quarter of 2006, representing year-over-year growth of 12.8%. Wireless revenues for the first nine months of 2006 increased by 13.0% on a year-over-year basis to reach $173.0 million. Strong customer growth, complemented by increased average monthly revenue per user ( ARPU ), was the primary contributor to these solid levels of performance. Our cellular customer base grew by 12.4% to 343,260 as at September 30, The expanding popularity of our wireless services, including related data features such as text messaging, and other enhanced features, also continued to drive increased utilization rates, and contributed to an ARPU of $56.53 for the first nine months of the year, representing a 1.2% improvement over the same period in the previous year. Other revenues climbed by 6.1% to $17.4 million in the third quarter of 2006 from $16.4 million in 2005, and on a year to date basis, from $45.0 million to $54.7 million. These increases were primarily due to strong revenue growth from digital television services. For the nine months ended September 30, 2006, digital television revenues increased by 44.4% to $23.1 million. This increase reflects strong year-over-year growth in customers and video on demand service revenues. Our subscriber base increased to 59,442 as at September 30, 2006, representing an increase of 27.2% and we also acquired 3,700 Valley Cable Vision television customers. in millions $ Other Revenues Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 in millions $ Wireless Services Revenues Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 OPERATING EXPENSES Operations Expense (in millions $) % change Q (7.5) YTD (4.8) In the third quarter of 2006, operations expense experienced a decrease of 7.5%, as compared to For the nine months ended September 30, 2006, operations expense was $937.7 million, as compared to $985.0 million in the

14 same period of Contributing to these year-over-year decreases are lower expenses flowing from our TP2 cost reduction program, which contributed approximately $69 million in realized savings in the first nine months of Partly offsetting the savings were higher expenses for our growth operations, and for year to date the acquisition of Delphi. Transition Phase II Cost Reduction Program In late 2005, we undertook an extensive, two-year cost reduction program, known as our TP2 cost reduction program, to achieve annualized savings of a minimum of $100 million. As at September 30, 2006, we have completed activities that represent annualized expense savings of $78 million. We describe these as achieved annualized expense savings. In the first nine months of 2006, we have realized savings of $69 million. This means we have taken $69 million of expense out of our cost base in the first nine months of To achieve the minimum target of $100 million in savings, we expect to incur approximately $100 million in one-time costs. The table below summarizes our estimates of how these costs will be recorded in 2005 and 2006: Q Restructuring and Integration Expense $35.4 M 2006 Forecast Costs * $35 M to $45 M Q Restructuring and Integration Expense** Total Estimated Cost of Program $20 M to $25 M $100 M * These costs are expected to be comprised of both expense and capital expenditure items. ** Associated with our Voluntary Reduction Program that was announced on October 2, The majority of the $100 million in total expected costs will be cash flowed in These costs are comprised of $35.4 million in severance costs accrued in 2005, and $35 million to $45 million that will be charged in 2006, as either an expense or a capital expenditure depending on the nature of the item, and $20 million to $25 million in severance costs associated with our Voluntary Reduction Program (targeting up to 325 positions), which was announced on October 2, To September 30, 2006, $24.1 million has been paid against the severance accrued in 2005, $20 million has been expensed, and $1.9 million has been recorded as a capital expenditure. Restructuring Costs (in millions $) % change Q YTD (6.1) Restructuring costs associated with our cost reduction program were $9.8 million in the third quarter and $20.0 million in the first nine months of In the first nine months of 2005, we incurred $21.3 million in restructuring expense associated with previous cost reduction programs. Amortization Expense (in millions $) % change Q YTD Amortization expense was $83.1 million in the third quarter of 2006, as compared to $79.1 million in the same period of the previous year. Year to date amortization expense increased by 4.3% to $244.9 million in 2006, as compared to $234.7 million in These increases resulted from increases in plant in service and in deferred wireless amortization costs. Other Income (in millions $) % change Q n.m. YTD (47.7) Other income was $3.0 million in the third quarter of 2006, versus $1.1 million in the previous year. This increase was primarily due to a gain on a sale of property. In the first nine months of 2006, other income decreased to $3.4 million from $6.5 million in This decrease is primarily attributable to a $2.7 million gain realized in the first quarter of 2005 on the disposition of our investment in a wireless venture. Debt Charges (in millions $) % change Q YTD Debt charges were marginally higher year-over-year at $15.6 million in the third quarter and $46.3 million year to date. These increases primarily reflect higher levels of short-term interest in 2006 versus 2005, and were partly offset by lower long-term interest costs due to maturing debt. As at September 30, 2006, we had $895.1 million of outstanding debt, as compared to $1,004.2 million as at December 31, Our debt to total capitalization ratio at September 30, 2006 was 39.1%, and continues to provide us with financial strength and flexibility going forward

15 Income Tax Expense (in millions $) % change Q (19.9) YTD n.m. We have the benefit of substantial loss carryforwards, as a result of our acquisition in 2004 of Allstream Inc. ( Allstream ), which allows us to reduce our taxable income to zero without utilizing our substantial and growing capital cost allowance ( CCA ) pools. Through the utilization of the loss carryforwards, followed by utilization of our deferred CCA deduction, we project that we will not pay cash taxes any earlier than Our income tax expense in the third quarter of 2006 decreased by 19.9% to $21.4 million, as compared to $26.7 million in the same quarter of the previous year. This decrease is largely due to lower before tax income earned during the third quarter of 2006 than in the third quarter of Year to date, income tax expense increased from $18.0 million in 2005 to $131.5 million in 2006 due to several non-cash adjustments which were made during these periods. In the second quarter of 2006, we recorded a $58.6 million non-cash charge, to reflect a decrease in the book value of our income tax asset, as a result of a reduction in future income tax rates. A similar adjustment of $9.6 million was recorded in the second quarter of 2005 for a reduction in future income tax rates in Manitoba. As well, in the second quarter of 2005, a non-cash gain of $72.5 million associated with the settlement of prior years tax audits was recorded. All of these adjustments to income tax expense are non-cash impacting. CONSOLIDATED QUARTERLY DATA Unaudited quarterly financial data for our eight most recently completed quarters is presented below: (in millions $, except earnings per share) Q Q Q Q Operating Revenues Operating Income Net Income (Loss) before discontinued operations 35.8 (6.2) Net Income (Loss) 40.5 (1.2) Earnings (Loss) Per Share before discontinued operations Diluted Earnings (Loss) Per Share before discontinued operations Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share (in millions $, except earnings per share) 0.53 (0.09) (0.09) (0.02) (0.02) Q Q Q Q Operating Revenues Operating Income Net Income before discontinued operations Net Income Earnings Per Share before discontinued operations Diluted Earnings Per Share before discontinued operations Earnings Per Share Diluted Earnings Per Share