MTS Reports Strong First Quarter Results With Sustainable Growth in Revenues

Transcription

1 Quarterly Report 1 MTS Reports Strong First Quarter Results With Sustainable Growth in Revenues for the period ending March 31, 2008 Manitoba Telecom Services Inc. First Quarter Highlights Total revenue from continuing operations up by 2.4% year-over-year EPS from continuing operations up by 13.5% EBITDA up by 2.2% Revenues from growth services up by 17.8%; now represent 42.8% of total revenues Enterprise Solutions division delivers revenue growth of 2.6% Declared dividend of $0.65 per share WINNIPEG, Manitoba, May 9, 2008 Manitoba Telecom Services Inc. ( MTS or the Company ) (TSX: MBT) today announced its results for the first quarter ended March 31, Compared to the first quarter ended March 31, 2007, total revenue from continuing operations 1 increased by 2.4% to $478.8 million, EPS 2 from continuing operations increased by 13.5% to $0.84 per share, and EBITDA from continuing operations increased by 2.2% to $168.7 million. These results mark the Company s ninth consecutive quarter of solid business performance and were driven primarily by double-digit growth in growth services and the continued strong performance of both the Consumer Markets and Enterprise Solutions divisions, with Enterprise Solutions delivering its second consecutive quarter of overall revenue growth. MTS has once again delivered on our goals by working hard, staying disciplined and executing on our strategy, said Pierre Blouin, Chief Executive Officer. We continue to build strong positive momentum in our business, and to deliver results fully in line with our 2008 guidance. We are very well positioned to deliver further sustainable growth in both our divisions, and are especially pleased by the sustained growth we have seen in Enterprise Solutions. Growth services revenues, which include wireless, high-speed Internet, digital television, converged Internet protocol ( IP ) and unified communications services, were up by 17.8% to $204.9 million in the first quarter of Growth services contributed approximately 43% of total revenue in the first quarter of 2008, which is well ahead of the 37% for the same period of

2 FINANCIAL HIGHLIGHTS in millions of dollars, except per share amounts three months ended March 31 % change Continuing Operations EPS EBITDA Free cash flow (16.7) Growth services revenues Legacy services revenues (6.7) Revenues Reported Basic EPS EBITDA (0.9) Free cash flow (27.7) Revenues MTS provides financial information on continuing operations in order to assist investors in understanding its underlying financial performance. MTS s definition of continuing operations excludes certain non-recurring items such as restructuring costs and the retroactive impact of regulatory decisions. Improved EBITDA 3, lower debt charges, lower amortization expense and fewer shares outstanding all contributed to the increase in EPS during the quarter. The 2.2% increase in EBITDA from continuing operations for the first quarter reflects the increase in growth services revenues and the positive impact of cost reduction initiatives. Free cash flow 4 from continuing operations for the first quarter was $78.7 million, as compared to $94.5 million for the same period in The change in cash flow as compared to the year-ago period is due primarily to the timing of certain capital expenditures and pension funding payments. The Company is on track to meet its cash flow guidance for the year. Double-digit gains for growth services combined with our continued success in achieving our cost reduction targets and stabilizing legacy services revenues were the key performance drivers for the quarter, said Wayne Demkey, Chief Financial Officer. We are confident that by continuing to execute our business plan we will grow revenues and profitability throughout the rest of the year. The MTS Board of Directors declared a cash dividend of $0.65 per share for the second quarter of 2008, which is payable on July 15, 2008 to shareholders of record on June 16, DIVISIONAL HIGHLIGHTS The Company s Enterprise Solutions division continued to deliver solid results and margins in the first quarter of 2008, achieving sequential and year-over-year quarterly growth in revenues and EBITDA. Next generation data revenues continued their strong performance, increasing by 27.0% over the first quarter of 2007, while the Company s IP-virtual private network customer count increased by 39.9% to 270, reflecting the continued strong demand for innovative next generation IP-based services offered to business customers

3 The Enterprise Solutions division s rainmaker mid-market national business initiative, launched in 2006 to increase sales through a new sales team focused on new accounts in key urban centers, continued its momentum into 2008 with 133 new contracts signed as at April 4, This includes a major contract signed in early January to provide a security and intelligence case management system to Passport Canada. First quarter performance in the Company s Consumer Markets division reflects the continued strong performance of growth services, and the success of the division s strategy of bundling products and services for customers. Digital television and high-speed Internet services once again delivered double-digit growth in subscribers and revenues as compared to the same period last year. Wireless customers grew by 10.8%, with wireless services revenues increasing by 11.1%, and consumer high-speed Internet customers increased by 9.7%, with Internet services revenues increasing by 21.3%. Digital television customers increased by 12.9%, with revenues increasing by 23.2% as compared to the first quarter of With over 78,000 customers, the Company s market share is 32%. MTS s service bundle plan strategy showed continued success at restraining the rate of residential access line losses, which declined at a rate in line with that of recent quarters. UPDATE ON WIRELESS INITIATIVE On March 10, 2008, MTS, the Canada Pension Plan Investment Board ( CPPIB ) and The Blackstone Group L.P. ( Blackstone ) announced that they had formed a consortium (the Consortium ) to make a deposit and submit an application to bid as a new entrant in the upcoming advanced wireless services ( AWS ) spectrum auction. MTS said it is continuing to work with its consortium partners to finalize definitive agreements. MTS is proceeding towards the auction with a clear and disciplined strategy and all of the advantages that flow from our position as a leading national telecommunications services provider with significant wireless assets and expertise OUTLOOK As announced on December 7, 2007, the Company s 2008 outlook for continuing operations is as follows: Revenues EBITDA 2008 Financial Outlook Continuing Operations 5 $1.920 B to $1.980 B $660 M to $680 M EPS $2.95 to $3.15 Free cash flow Capital expenditures $250 M to $280 M 14% to 15% of revenues For assumptions underlying the Company s 2008 outlook, refer to Material Assumptions in the Company s release dated December 31, 2007 and the first quarter 2008 Management s Discussion and Analysis ( MD&A ), which are filed on SEDAR and the Company s Web site

4 OTHER DEVELOPMENTS The following are various announcements made by the Company s major operating subsidiary, MTS Allstream Inc. ( MTS Allstream ). Enterprise Solutions division announcements On April 8, 2008, MTS Allstream announced enhancements to its video-conferencing capabilities which will significantly strengthen its unified communications services portfolio. On April 4, 2008, MTS Allstream announced that it had been awarded a contract valued at $2.4 million to provide Passport Canada with a security and intelligence case management system. On April 2, 2008, MTS Allstream announced that it had entered into a business arrangement with SecureWorks, one of North America s leading security service providers, to offer information security service solutions and professional services to its enterprise customers. The arrangement will allow MTS Allstream to expand the breadth and depth of its current managed security services portfolio. On March 26, 2008, MTS Allstream announced that it had received Nortel s Top Growth Achievement and Customer Satisfaction Excellence awards in the Canadian Elite Partner category. Consumer Markets division announcements On April 2, 2008, MTS Allstream announced the addition of 10 new channels to the already impressive television entertainment line-up offered on its digital television service, MTS TV. Customers now have the ability to choose from over 25 theme groups that include more than 250 channels, which allows them to get more of what they want at no extra charge. On March 20, 2008, MTS Allstream announced that its employees will participate in the 2008 Ability Online Centennial Cup hockey game at the MTS Centre in Winnipeg, Manitoba. This year s Centennial Cup marks the 10 th year of this annual hockey game and is part of the Company s Second Century celebration. On March 20, 2008, MTS Allstream announced the launch of its new $75 Unlimited and Surf Solution exclusive for Novatel laptop and PC mobility connectivity devices. This limited time offer gives MTS Allstream customers unlimited access to high-speed and Internet service where high-speed evolution data optimized network coverage exists in Manitoba and throughout Canada. On March 3, 2008, MTS Allstream, in collaboration with Asian Television Network International Limited, announced the addition of B4U Movies, the leading Bollywood television network, to the channel line-up of MTS TV. On February 22, 2008, MTS Allstream announced that it would work together with students from Red River College s Creative Communications and Digital Multimedia Technology program to bring several live Manitoba Moose road games to MTS TV customers. Each game will be fed by satellite to the Red River College television production centre in Winnipeg, Manitoba

5 On February 15, 2008, MTS Allstream announced that MTS TV would offer live pay-per-view boxing fights from HBO, the leader in boxing events for television. Corporate announcements On March 10, 2008, the Company, CPPIB and Blackstone announced that they had formed a consortium to make a deposit and submit an application to bid as a new entrant in the upcoming AWS spectrum auction and made a $340 million deposit in the form of letters of credit to Industry Canada. On March 3, 2008, MTS Allstream announced that it endorsed the definition of essential facilities released by the Canadian Radio-television and Telecommunications Commission ("CRTC"). MTS Allstream had made the case to the CRTC that a robust definition of essential facilities is necessary to spur competition and innovation in the Canadian telecommunications sector, particularly in the business space, and believes that this decision recognizes that fair wholesale access is crucial to delivering the competitive benefits of choice, innovation and competitive pricing. 1 EPS is earnings per share. 2 Refer to MTS s first quarter 2008 interim MD&A for the definition of continuing operations. 3 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. 4 Refer to MTS s first quarter 2008 interim MD&A for the definition of free cash flow. 5 This outlook does not reflect a potential wireless initiative

6 MANAGEMENT S DISCUSSION AND ANALYSIS Table of Contents Page Non-GAAP Measures of Performance 6 Overview 7 Results of Operations 7 Earnings Per Share 7 Revenues 8 Operating Expenses 12 Consolidated Quarterly Data 13 Liquidity and Capital Resources 14 Critical Accounting Estimates and Assumptions 16 Changes in Accounting Policies, including Initial Adoption 16 Risks and Uncertainties Outlook 18 Consolidated Financial Statements 21 Notes to Consolidated Financial Statements 25 Unless otherwise indicated, this Management s Discussion and Analysis ( MD&A ) of our financial results for the interim period ended March 31, 2008 is as at May 8, 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 months ended March 31, 2008 updates the information contained in our 2007 annual MD&A. This interim MD&A includes forward-looking statements and information (collectively, the statements ) about our corporate direction, business opportunities, financial objectives and future financial results and performance 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 anticipated opportunities and 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 statements, include, but are not limited to, the items identified in this interim MD&A under the Risks and Uncertainties and Material Assumptions sections and our 2007 annual MD&A. Please note that forward-looking statements reflect our expectations as at May 8, 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 except as required by law. Additional information relating to our company, including our Annual Information Form, is available on SEDAR at Unless otherwise stated, all amounts are expressed in Canadian dollars. 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. In the first quarter of 2008, continuing operations include cost reduction efficiencies, and exclude solvency funding to our pension plans. In the first quarter of 2007, continuing operations include cost reduction initiatives, and exclude restructuring costs and integration costs; certain tax recoveries; and the retroactive adjustment related to Telecom Decision CRTC ( Decision ) in which the Canadian Radio-television and Telecommunications Commission ( CRTC ) determined that we had been billed twice over the past several years for basic service extension features charges. 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 - 6 -

7 have for purchasing additional assets beyond our annual capital expenditure program, paying dividends, buying back shares or retiring debt. OVERVIEW MTS commenced its operations in the province of Manitoba in 1908, first as a department of the provincial government, and then as a Crown corporation that was incorporated in In 1997, the company was reorganized and continued as a publicly traded company. MTS s common shares are listed on The Toronto Stock Exchange under the trading symbol MBT. MTS is a leading national communications provider in Canada. The company is organized into two reportable operating segments, the Enterprise Solutions division and the Consumer Markets division. The company, which operates under two principal brands, MTS and Allstream, builds upon its unique combination of market leadership in Manitoba and agile competitive presence in business markets across Canada to deliver innovative telecommunications solutions that bring value to customers. MTS employs approximately 6,000 people. Enterprise Solutions division The Enterprise Solutions division, which operates under the Allstream brand nationally and under the MTS Allstream brand in Manitoba, is a leading competitor in the national business and wholesale markets. This division offers customers a portfolio of solutions tailored to the needs of medium and large businesses looking for success in a world of rapidly evolving technology Internet protocol ( IP )- based communications, unified communications, voice and data connectivity services. The Enterprise Solutions division operates an extensive national broadband fibre optic network that spans more than 24,300 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international service providers. The division s advanced services, combined with the impressive reach of a state-of-the-art network and continued leadership in technological innovation, have allowed the company to forge strong relationships with top national business customers across the country. Consumer Markets division The Consumer Markets division leads every telecommunications market segment in Manitoba, delivering a full suite of next generation wireless, high-speed Internet and data, digital television and wireline voice services under the MTS brand, as well as security and alarm monitoring services through AAA Alarm Systems Ltd., a subsidiary of MTS which also operates in other western provinces. This complete range of products is unmatched by any other provider in Manitoba, and the digital television service offered to customers in Winnipeg is recognized as one of the leading North American digital television services. With this innovative combination of products and services, the company connects people, homes and businesses everywhere. In addition, the Consumer Markets division is a leading player in the national small business telecommunications market outside Manitoba, providing customers in major Canadian centres with a range of innovative business Internet, data and voice services under the Allstream brand. RESULTS OF OPERATIONS Earnings Per Share ( EPS ) ($) three months ended % March 31 change EPS (Continuing Operations) Decision n.m. Restructuring costs -- (0.04) n.m. Basic EPS Note: EPS for the three months ended March 31 is based on weighted average shares outstanding of 64.6 million for 2008, and 66.3 million for EPS from continuing operations increased by 13.5% or $0.10 to $0.84 in the first three months of 2008, as compared to the same period last year. Contributing to this strong increase were double-digit growth in the revenues of our growth services portfolio, which includes wireless, converged IP, unified communications, digital television and high-speed Internet services, during this quarter and lower shares outstanding due to share purchases made under our normal course issuer bid (the Issuer Bid ) in the first quarter of We continue to see success in tight competitive markets and are confident in our business strategies to manage customers migrating to IP-based technology services and to reinforce our customer relationships with our bundle programs. In addition to these factors, the execution of our ongoing cost reduction initiatives contributed to our improved performance. Basic EPS increased to $0.84 from $0.80 in the first quarter of the previous year. This increase reflects strong revenues and lower shares outstanding and items that are not part of our continuing operations, such as the impact of a positive adjustment related to Decision and restructuring costs in the first quarter of

8 $ EPS (Continuing Operations) REVENUES Operating Revenues (in millions $) Q1/08 Q1/07 Revenue (Continuing Operations) % change Decision (0.8) n.m. Revenue EBITDA Q1/07 Q1/08 (in millions $) Q1/08 Q1/07 EBITDA (Continuing Operations) EBITDA (Continuing Operations) % change Decision n.m. Restructuring costs -- (3.9) n.m. EBITDA (0.9) EBITDA from continuing operations for the first three months of 2008 increased by 2.2% or $3.7 million to $168.7 million, as compared to $165.0 million in Our growth services continued to drive our performance with significant growth in unified communications, digital television, consumer Internet, converged IP applications and wireless services revenues in tangent with the success of our ongoing cost reduction initiatives. In the first quarter of 2008, consolidated EBITDA decreased to $168.7 million from $170.2 million in the same period last year. This decrease is primarily the result of the impact of Decision , which was partly offset by restructuring costs in the first quarter of Consolidated revenues from continuing operations increased by 2.4% to $478.8 million in the first quarter of 2008, as compared to $467.4 million in the first quarter of Revenues from our growth services increased significantly in the first quarter of 2008, which drove the increase in our consolidated revenues from operations. These revenues offset the decline in revenues from our legacy services. The impact of reduced network traffic from Rogers Communications Inc. ( Rogers ) and AT&T Corp. ( AT&T ) as they transition their business to their own networks is continuing with a decline of $9.3 million in the first quarter year-over-year. If these revenues were excluded, our revenues would have grown by 4.8% in the first quarter. We are pleased with the continuing solid performance of our Consumer Markets division and the steady improvements of our Enterprise Solutions division. In the first quarter of 2008, we experienced overall growth in our revenues from continuing operations in both divisions. Our Enterprise Solutions division achieved growth of 2.6% in revenues from continuing operations. The strengthening performance of our Enterprise Solutions division demonstrates the growing demand for this division s service offerings from Canadian business customers. Segmented Revenues (Continuing Operations) (in millions $) Q1/08 Q1/07 % change Growth services Legacy services (6.7) Total in millions $ Q1/07 Q1/08 Growth Services Revenues Revenues from our growth services were up by 17.8% or $31.0 million in the first quarter of 2008, as compared to the same period in Double-digit growth in unified communications, digital television, consumer Internet, converged IP applications and wireless services were key to the significant increase in our growth services this quarter. Our growth services contributed 42.8% of total revenue in the first quarter of 2008, which is well ahead of the 37.2% for the same period of

9 in millions $ Growth Services Revenues Q1/07 Q1/08 Legacy Services Revenues As expected, our revenues from legacy services were down for the three months ended March 31, 2008, primarily resulting from the migration of communications traffic by Rogers and AT&T to their own networks. Legacy services revenues decreased by 6.7% or $19.6 million to $273.9 million in the first quarter of 2008, as compared to the same period in the previous year. The impact of reduced traffic from Rogers and AT&T contributed $9.3 million to this decline and if this impact was excluded, the decrease in our legacy services revenues would be 3.5%. In addition, re-pricing and customer churn influenced year-over-year revenues. Through targeted marketing strategies and successful service bundles, we are confidently managing these impacts. We have these strategies well in place, and they are contributing to new and growing revenue streams by profitably accelerating our customer transition to growth services products. Operating Revenues (Continuing Operations) (in millions $) Q1/08 Q1/07 % change Wireless Data Local (1.1) Long distance (7.7) Other Total Our operating revenues include those earned from the provision of wireless, data, local voice, long distance voice, and other services, which include our digital television service. Wireless Services (in millions $) % change Q1/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 by 11.1% or $6.8 million to $68.1 million in the first quarter of 2008, as compared to the same period in Primarily driving this strong increase is a significant year-over-year increase in our wireless subscriber base. The strength of our wireless marketing programs factored considerably in this performance, and provides further momentum to our growth in new subscribers. As at March 31, 2008, our cellular customer base had grown by 10.8% to 399,850. While the popularity of next generation wireless data services and service features continues to grow and contribute to average revenue per user ( ARPU ), ARPU decreased by 1.1% to $54.76 this quarter. Time limited promotional offers in late 2007 and January to February 2008 increased our subscriber base substantially, however, these plans resulted in lower revenues from network access, airtime usage and roaming services, which impacted wireless ARPU this quarter. Our revenues from wireless data services grew by 82.5% year-over-year, as our customers increasingly utilized such features as text messaging and Web browsing services. in millions $ Wireless Services Revenues Q1/07 Q1/08 Data Services (in millions $) % change Q1/YTD Our data line of business includes revenues earned from providing data, Internet and professional 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 our data services increased by 7.7% or $12.4 million to $173.9 million in the first quarter of 2008, as compared to the same period in Contributing to this year-over-year increase is the strong performance of our data growth services, which was offset partly by customers transitioning from legacy services to growth services, and by reduced traffic on our network from Rogers and AT&T. If - 9 -

10 the data services revenues of these two customers are excluded from our performance, our data services revenues for the year would have shown an increase of 11.0%, which reflects the growing attractiveness of our next generation products and services. We are achieving our desired results as customers are continuing to migrate to IP solutions that utilize our state-of-the-art IP multiprotocol label switching ( MPLS ) network and customer service capabilities. Our consumer Internet services revenue continued to grow, climbing 21.3% year-over-year in the three months ended March 31, Contributing to this increase is continued growth in our consumer high-speed Internet customer base, which reached 169,795 customers as at March 31, Consumer Internet Services Revenues Our next generation data services, which include converged IP and unified communications services, strongly increased by 27.0% in the first quarter of 2008 over Higher equipment sales drove strong overall revenue growth in our data services during the quarter, along with new additional customers and volume increases from business IP domestic MPLS, network resident IP telephony, switched Ethernet, wavelength, IP trunking and consumer high-speed Internet services. Revenues from our recent acquisitions of Multinet Communications Services Inc. ( Multinet ) and ICU Technologies Inc. ( ICU Technologies ) resulted in approximately $3 million during this quarter. Next Generation Data Services Revenues in millions $ 21.3% Q1/07 Q1/08 Consumer High-Speed Internet Services Customers in millions $ 27.0% 154, ,795 Q1/07 Q1/08 The capabilities of the suite of products offered by our Enterprise Solutions division continued to be demonstrated by strong growth in our IP-virtual private network ( IP-VPN ) customer base. As at March 31, 2008, we were supporting 270 IP-VPN customers, which is 39.9% more than last year. 193 IP-VPN Customers 270 Q1/07 Q1/08 Local Services (in millions $) % change Q1/YTD (1.1) Local services revenues include basic voice connections for residential 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 a full range of local services to business customers. These services allow customers to complete calls in their local calling areas and to access long distance, cellular networks and the Internet. Local services revenues declined by 1.1% or $1.4 million to $131.2 million in the first quarter of 2008 as compared to the first quarter of Q1/07 Q1/

11 Competitive pressures continued to be felt in the Winnipeg, Manitoba market, which is the primary cause of decreased revenues from local services. However, we believe that we have positioned ourselves for long-term success by bundling our residential service offerings such as wireless, Internet, digital television and alarm services. With these programs in place, we continued to deliver best in class performance against cable company competitors. Consequently, the pace of our residential line losses has decelerated from the same period last year. In the first quarter of 2008, our residential line loss was less than 3,000. This level of line loss is consistent with the levels of line loss we experienced in previous quarters and also demonstrates the success of our service bundle plans. Our customer connections, which include network access services, high-speed Internet, wireless and digital television subscribers, increased by 3.5% as compared to the first quarter of in millions $ Local Voice Services Revenues Q1/07 Q1/08 Long Distance Services (in millions $) % change Q1/YTD (7.7) 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. in millions $ Long Distance Services Revenues Q1/07 Q1/08 Other Revenues (in millions $) % change Q1/YTD Other revenues consist of revenues earned from our digital television and home security 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 the sale and maintenance of terminal equipment. In the first three months of 2008, other revenues increased by 3.6% to $20.4 million, as compared to the same period in Strong revenues and subscriber growth from our digital television services continued to drive the increase in other revenues this quarter. Revenues from our digital television services increased by 23.2% or $2.3 million to $12.2 million in the first quarter of In addition to strong subscriber growth, driving this year-over-year increase in revenues, we also had an 8.7% increase in average revenue per subscriber ( ARPS ) to $ This strong increase in ARPS was driven by increases to our revenues from video-on-demand, pay-per-view and high-definition services as well as pricing increases to our basic television packages and certain specialty channels. Digital Television Services Revenues Year-over-year, revenues from long distance services were $85.2 million in the first quarter, reflecting a decrease of 7.7%. The effects of customer losses and competitive pricing on our Consumer Markets division were offset partially by increased network charges and more customers choosing our long distance services over dial-around competitor services. Higher cross-border volume and international rates which were offset by lower cross-border and domestic rates, impacted the market segments serviced by our Enterprise Solutions division. in millions $ Q1/07 Q1/08

12 The first quarter of the year is a seasonally slow period for digital television sales and in turn, we reduced our marketing activities during this quarter. Churn was better than planned in the quarter, which helped offset the effects of slower sales. New promotional offers, advertising and channel activities have already increased sales and net subscriber additions in the second quarter of As at March 31, 2008, our subscriber base increased by 12.9% to reach 78,101, representing a 4.0% increase of market share over last year. Our current share of the market is approximately 32%. Digital Television Services Customers 69,156 78,101 Q1/07 Q1/08 OPERATING EXPENSES Operations Expense (in millions $) % change Q1/YTD Operations expense in the three months ended March 31, 2008 increased by 6.0% or $17.6 million, as compared to the same period last year. This year-over-year increase was impacted by a one-time net positive adjustment of $9.9 million made in the first quarter of 2007 related to Decision , which reflects the retroactive impact of a competitor service for which we had been double-billed by incumbent carriers. If you exclude this amount, expenses from continuing operations were up by 2.5%, due to increases in revenue and timing differences between quarters. We continue to focus on our cost reduction initiatives. Our 2008 efficiency program achieved $16.3 million in annualized savings as at March 31, 2008, which is in line with our 2008 objective for annualized expense savings of $20 million to $30 million with this program. Partly offsetting these savings were higher expenses from our growth operations. Restructuring and Integration Expenses (in millions $) % change Q1/YTD n.m. We incurred no restructuring and integration expenses in the first quarter of this year, as compared to $3.9 million last year. The costs of our 2008 efficiency program are expected to be approximately $10 million. As at March 31, 2008, no costs were incurred under this program. We applied payments against the liabilities relating to workforce reduction elements of prior years programs in the amount of $4.7 million. This is outlined in Note 2 to our interim consolidated financial statements. Amortization Expense (in millions $) % change Q1/YTD Amortization expense in the first quarter of 2008 increased to $80.5 million, as compared to $79.0 million in the first quarter of This year-over-year increase is due primarily to the intangible asset additions from our acquisition of Multinet. Other Income (in millions $) % change Q1/YTD In the first quarter of 2008, other income was $4.1 million as compared to other income of $3.4 million in the first quarter of Other income was higher by $0.7 million primarily due to foreign exchange gains, partly offset by a decrease in interest income. Debt Charges (in millions $) % change Q1/YTD (3.1) In the first quarter, debt charges decreased to $12.5 million from $12.9 million. This decrease resulted from lower year-over-year long-term debt levels that were refinanced with short-term debt at a lower interest rate and temporary cash on hand, which were offset partially by higher costs related to our accounts receivable program. Our debt to total capitalization ratio as at March 31, 2008 was 34.3%, and continues to provide us with financial strength and flexibility going forward

13 Income Tax Expense (in millions $) % change Q1/YTD (11.1) We are able to reduce our taxable income to zero without utilizing our substantial and growing capital cost allowance ( CCA ) pools as a result of our acquisition of Allstream Inc. in 2004 along with its income tax loss carryforwards. Through the utilization of these loss carryforwards, followed by the utilization of our deferred CCA deduction, we project that we will not pay cash taxes before Income tax expense decreased to $25.6 million in the first quarter of 2008 versus $28.8 million in the first quarter of This year-over-year decrease resulted from lower income before tax and a lower effective tax rate in 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 before discontinued operations Net income and comprehensive income Earnings per share before discontinued operations Diluted earnings per share before discontinued operations Earnings per share Diluted earnings per share (in millions $, except earnings per share) Q Q Q Q Operating revenues Operating income Net income (loss) before discontinued operations Net income (loss) and comprehensive income (loss) Earnings (loss) per share before discontinued operations (6.2) (1.2) (0.09) Diluted earnings (loss) per share before discontinued operations Earnings (loss) per share Diluted earnings (loss) per share (0.09) (0.02) (0.02)

14 Our consolidated financial results for the eight most recently completed quarters reflect the ongoing performance of our business in the marketplace, as well as the following: Effective January 1, 2008, we acquired all outstanding shares of ICU Technologies for a preliminary purchase price of $4.0 million. The recognition of restructuring expenses for our 2007 efficiency program in each of the four quarters of 2007 in the amounts of $3.9 million, $2.7 million, $2.3 million and $3.0 million, listed chronologically, and the related workforce reduction initiative that we undertook in the fourth quarter of 2006 in the amount of $8.5 million. The recording of amounts respecting a number of regulatory decisions: a $5.0 million positive impact in the second quarter of 2007 and a $9.9 million positive impact in the first quarter of 2007, which are related to Decision ; and a $9.9 million retroactive positive impact from the Band F Decision 1 and a $6.7 million retroactive positive impact from the Direct Connect/Access Tandem Decisions 2, which both occurred in the second quarter of Adjustments in the amounts of $12.8 million and $25.7 million for reductions to our tax asset valuation allowance in the second and fourth quarters of 2007, respectively, and $11.8 million for reductions to our tax asset valuation allowance in the fourth quarter of Effective October 2, 2006, we sold our directories business and recorded a net gain on the sale of discontinued operations of $189.3 million in the fourth quarter of The recording of charges of $6.0 million and $58.6 million in the second quarters of 2007 and 2006, respectively, and $49.6 million in the fourth quarter of 2007 to reflect decreases in the value of our income tax asset as a result of reductions in future income tax rates. MTS Allstream s application to review and vary certain decisions relating to its Band F subsidy, Telecom Decision CRTC Direct Connect/Access Tandem Decisions means 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 LIQUIDITY AND CAPITAL RESOURCES Cash Flows from Operating Activities (in millions $) $ change Q1/YTD Cash flows from operating activities refer to cash we generate from our normal business activities. Cash flows from operating activities for the three months ended March 31, 2008 increased by $18.3 million to $93.8 million, as compared to the same period in This increase in the first quarter is mainly due to changes in working capital primarily resulting from the utilization of our accounts receivable securitization program, which were offset by increased pension funding, decreased cash from other operating activities, and decreased current tax recoveries. Cash Flows used in Investing Activities (in millions $) $ change Q1/YTD Investing activities represent cash used for acquiring, and cash received from disposing of, long-term assets and other long-term investments. In the first quarter of 2008, cash flows used in investing activities increased by $10.8 million to $58.9 million, as compared to the same period in Primarily driving this year-over-year increase is the timing of capital expenditures and our acquisition of ICU Technologies in the first quarter of The recognition of restructuring costs for our Transition Phase II cost reduction program in the first, second, third and fourth quarters of 2006 in the amounts of $3.1 million, $7.1 million, $9.8 million and $28.3 million, respectively. Included in the amount recognized in the fourth quarter of 2006 are costs associated with a workforce reduction initiative that was announced on October 2, 2006, which resulted in restructuring charges of $19.0 million. Notes: 1 Band F Decision means Telecom Decision CRTC in which the CRTC approved the application of MTS Allstream Inc. ( MTS Allstream ) to review and vary the CRTC s decision in

15 Free Cash Flow (in millions $) Q1/08 Q1/07 % change Free cash flow (Continuing Operations) (16.7) Pension solvency funding (3.9) -- n.m. Restructuring expense -- (3.9) n.m. Restructuring capital expenditures -- (2.5) n.m. Tax recoveries n.m. Decision n.m. Consolidated free cash flow (27.7) Free cash flow refers to cash flow from operating activities, less capital expenditures, and excluding changes in working capital. Free cash flow from continuing operations decreased by 16.7% to $78.7 million in the first quarter of 2008 as compared to the first quarter of This decrease is due primarily to the timing of capital expenditures in 2008 compared to 2007, and increased normal pension funding. Consolidated free cash flow decreased to $74.8 million in the first quarter of 2008, and includes items not from continuing operations as detailed in the table above. The decrease is primarily due to the timing of capital expenditures, higher pension funding, decreased consolidated EBITDA, and decreased cash from other operating activities. Cash Flows used in Financing Activities (in millions $) $ change Q1/YTD (83.9) Financing activities refer to actions we undertake to fund our operations through equity capital and borrowings. The decrease in the first quarter of 2008 for cash flows used in financing activities is primarily due to our purchase for cancellation of 1,814,700 common shares for $84.7 million under our Issuer Bid in the first quarter of No shares were purchased in the first quarter of 2008 as this Issuer Bid expired in December In the first quarter of 2008, we paid cash dividends of 42.0 million versus in first quarter of 2007, we paid cash dividends of $44.3 million. Credit Facilities (in millions $) capacity utilized at March 31/08 Medium term note program Commercial paper Accounts receivable securitization Letter of credit facility Revolving credit facility Total 1, We have arrangements in place that allow us to access the debt and commercial paper markets for funding when required. Borrowings under these facilities typically are used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations. We established our $350 million medium term note ( MTN ) program on January 18, In addition to our MTN program, we have credit facilities available in the amount of $650.0 million, which consist of a fully back-stopped commercial paper program of $150.0 million, an accounts receivable securitization program of $150.0 million, a $150.0 million non-revolving letter of credit facility, and a $200.0 million revolving credit facility. As at March 31, 2008, our commercial paper program was unutilized, while we utilized $100.0 million of our accounts receivable securitization program, $150.0 million of our non-revolving letter of credit facility, and $74.5 million of our revolving credit facility, which represent undrawn letters of credit. Of these amounts, $52.5 million represents letters of credit issued under the new Solvency Funding Relief Regulations enacted under the Pension Benefits Standards Act, 1985 (Canada), which permit the extension of pension solvency payments from a five-year amortization period to a 10-year amortization period for our defined benefit pension plans. Capital Structure (in millions $) March 31/08 December 31/07 Long-term debt Shareholders equity 1, ,404.0 Total capitalization 2, ,143.5 Debt to capitalization 34.3% 34.5% Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 34.3% as at March 31, 2008 continues to represent excellent financial strength and flexibility

16 Credit Ratings S&P Senior debentures BBB+ S&P Commercial paper A-2 DBRS Senior debentures DBRS Commercial paper BBB R-2 (high) Two leading rating agencies, Standard & Poor s ( S&P ) and DBRS Limited ( DBRS ), analyze us and assign ratings based on their assessments. We consistently have been assigned solid investment grade credit ratings. DBRS confirmed our credit ratings on December 20, 2007 at BBB on our senior debentures and R-2 (high) on our commercial paper, and maintained its stable outlook. On December 17, 2007, S&P confirmed our credit ratings on our long-term corporate credit and senior unsecured debt of BBB+, and our commercial paper of A-2. The outlook remained unchanged at negative. Outstanding Share Data as at April 29, 2008 Authorized: Unlimited number of Preference Shares of two classes issuable in one or more series Unlimited number of Common Shares of a single class Issued: Shares Number Book Value (in millions $) Common 64,631,667 1,265.5 Stock options: Options Number Weighted Average Exercise Price Per Share Outstanding 2,305,190 $42.06 Exercisable 918,830 $40.24 Contractual Obligations, Financial Instruments, Off-Balance Sheet Arrangements, and Other Financial Arrangements Our contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements remain substantially unchanged from those that were disclosed in our 2007 annual MD&A. For additional details, please consult our 2007 annual MD&A, which is available on our Web site at CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS Our critical accounting estimates and assumptions remain substantially unchanged from those that were disclosed in our 2007 annual MD&A. For additional details, please consult our 2007 annual MD&A, which is available on our Web site at CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION Our accounting policies, including initial adoption, remain substantially unchanged from those that were disclosed in our 2007 annual MD&A. For additional details, please consult our 2007 annual MD&A, which is available on our Web site at RISKS AND UNCERTAINTIES Our risks and uncertainties remain substantially unchanged from those that were disclosed in our 2007 annual MD&A, except as noted below. For additional details, please consult our 2007 annual MD&A, which is available on our Web site at Bell Mobility Agreement We and Bell Mobility have been parties to a wireless alliance that addresses competition and reciprocal services in our respective territories and provides us with access to various wireless-related platforms and products. On March 5, 2008, to qualify us to bid in the upcoming advanced wireless services ( AWS ) auction, we provided notice of termination to Bell Mobility of two agreements relating to the framework underpinning this wireless alliance. These agreements provide for continuation of services following such notice during a notice period and thereafter during a transition period. Bell disputes that they have any remaining obligations under such agreements. MTS has commenced formal proceedings to resolve this disagreement. Notwithstanding this disagreement, MTS and Bell Mobility have entered into a transition agreement which will ensure continuity of services to our customers while reserving all rights to our respective entitlements under the two agreements. We are currently finalizing our transition plan in conjunction with the AWS auction wireless opportunity. Changes in Telecommunications Policy and CRTC Regulation The telecommunications and broadcast industries in which we operate are federally regulated. We operate as both an incumbent local exchange carrier ( ILEC ) in Manitoba and as a competitive local exchange carrier nationally. In addition, pursuant to Broadcasting Decision CRTC , the CRTC granted us a Class 1 regional broadcasting distribution licence to operate as a broadcasting distribution undertaking serving Winnipeg and the surrounding areas. Current regulatory proceedings and policy issues, which present significant risk and uncertainty on our business, are described below