Morning, everybody. Thanks for attending CIBC's Eastern Conference. I'm Stephanie Price, the Telecom Analyst with CIBC. Up next, we've got TELUS for a fireside chat. We're very pleased to have Gopi Chande, CFO of TELUS, here to provide us with an update. Welcome, Gopi.
Thank you, Stephanie.
You just recently stepped into the CFO role at TELUS. Can you talk a little bit about how you think about the business today, what you consider the core pieces of TELUS, and how you think about TELUS evolving over the next few years?
For sure. Stephanie, we got to know each other-
Yes
Through TELUS Digital. For me, it's been 17 years at TELUS. Prior to that, classically trained CA with KPMG. The last few years, as I mentioned, as CFO at TELUS Digital. Just back into this role for the last three months. Definitely some work for Victor and myself in terms of really assessing what's core and what are good businesses that perhaps belong with others. What I can say definitively is what is core for us is our telecom business and the AI data infrastructure assets that go with it. As you follow us over the next six, 12, 18 months, it is going to be a simplification to that focus. For the other businesses, we continue our strategic review of what is core, what is not.
There's businesses in there that are performing well, there's businesses in there that are struggling, and so we're looking at each of them and saying, "How does this fit within TELUS?" We have great customers, great employees, but some of those would be better served with others.
This is a refocus of our assets, also a little bit of our culture, also a little bit of back to customer first. It's exciting times.
When you think about refocus of the culture, what do you think about there and what are you working on?
For sure. A few different themes. These aren't going to be in any order. A return to a real focus on profitability.
Whenever I say that, the question is: Were you not focused on profitability before? Of course, that isn't the case. But really a ruthless focus, whether you're looking at capital or whether you're looking at where you're expanding into, where you're loading. I'll use the example of what we're doing in the east-
Sure
Where we've refined our strategy there is the economics make the most sense when we build.
There is an extraordinary opportunity of about, we believe, up to 1 million homes in Ontario and Quebec that don't have fiber to them. We look at that, and we look at the economics of that versus TPIA and what we have been investing in doing there. So again, just really refining. There is no good or bad from the past.
Yeah
There is just the economics that we have now. So a focus on profitability, I would say is one. A focus on simplification. Again, pausing all M&A. We have been
Yeah
very acquisitive, and some of that has been very profitable and some hasn't. More than anything, it's added a complexity to the way we do business. The team is excited to have that level of focus and simplicity. Then some new folks around the table. We have David Fuller joining us today in the room. We have Victor, who many of you from CIBC know. So just resetting how the leadership team works together and goes forward together. Regaining our customer first crown. Again, I'd say there is a lot that we do that is good, that is customer focused, but that used to be the primary lens and getting back to that.
The other piece in Q2 was the reset of the dividend and the announcement of the discount on the dividend reinvestment plans being terminated. Can you talk a little bit about where you expect that additional cash flow to be redirected to, and how investors should think about the approach to dividends here?
For sure. So a 55% cut, CAD 2.7 billion in capital between now and 2028. We are committed for that to go to decrease our leverage. If I can foray into our leverage story for a moment. Generally, I do think our balance sheet is quite strong and compared to our peers, stronger than our peers. That isn't the primary lens we're taking. The lens we're taking is we want flexibility, and that was factored into our decision with regards to the dividend cut. When you make that cut, you want to make it once.
We took a look at the macroeconomic factors. We took a look at where we were compared to industry on our payout ratio, on yield. That felt like the right amount. It gave us flexibility in terms of moving closer to our leverage target. As I look forward, lots of opportunities once we've hit our leverage target.
Yeah.
We've said 3.0x or lower by 2028.
Yeah.
Once we've achieved that, once we're squarely in our new payout ratio, that's when I'd love to look at whether it's increasing the dividend and/or buybacks or a combination thereof. That's the timeframe and the structure we're looking at.
That makes sense. CapEx guide was also increased with Q2 results, and you just mentioned 1 million homes in Ontario and Quebec that don't have fiber.
Yeah.
How should investors think about your approach to CapEx here?
For sure. One of the harder things in July was with the guidance call down, calling up CapEx.
Yeah.
That certainly isn't a position that we would like to be in. There were some unique factors in 2026 that got us into that position. One was around inflation and some of the secondary order effects from chipsets and again, transparently something that we should have had more line of sight into and planned for. The second factor is completing the build of our Kamloops Data Center. There's been some thought that all of that capital for GPUs, it wasn't.
It's a modest amount to complete our data centers. The third were good projects that we had on the go, which are to support our customer experience and the customer being able to digitally work with us to make the experience better. As we reviewed them, they were all good projects, and it didn't make sense to stop them at 85% or 75% done. We did decide to continue those projects, but have already begun planning for 2027.
I can say confidently that 2027 will be lower than 2026. I don't say that because I called up 2026, so there's no games being played over here. As I look at the buckets of what would be different in 2027, there's a few. One, as we aim towards product intensity, there were some products that we were developing internally that we haven't had the highest ROIC on. So, again, with Dave coming in, really looking at strategically where do we want to build versus where will we partner. That's one category. The second is the number of projects we do. So being much tighter on the return on investment on each. Again, how many projects can you have on base management? How many projects can you have on digitization, and how do you refine those? We've paused all M&A.
That will certainly help in terms of the incremental investments year-over-year. Again, a really refined look at our success space capital. That is a material amount of the capital that we spend. Looking at how do we look at those business models differently from a profitability point of view, whether that's in the security space or whether that is when we were building or when we were using peers Internet and some of the success-based capital we were putting and investing there and just didn't have the returns. The combination of those items gives me comfort that we will be lower next year. We are aiming towards 10% capital intensity in telecom.
And then just to answer your last question around when we speak about fiber and when we speak about AI data centers, et cetera, those are intended to be in consultation with partners.
Okay.
When we speak about both, they are not in conflict with our leverage commitment.
Okay
This can evolve over time after 2028, is the way I am looking at it. Both the areas of fiber and AI have sufficient margins where it does make sense to bring in a partner and share some of that margin through financing, and that can evolve over time as our balance sheet gets more flexible. We are building and have built arrangements where we can buy back assets, or we can adjust how we work with the partners.
Okay
Want to make sure that we have got those strategic growth areas stoked, but not at the cost of our leverage ratio.
Okay. Are there any questions in the audience?
Question on, I do not know if the data I am looking at is correct, but TELUS is the one that is losing more share recently to Quebecor market share gains. Is that a reflection of, as you said, focus on profitability and hence market share is less relevant as we fix this? How do you think about market share and profitability? Maybe just explain why you think TELUS is the one losing the most, and how you think about that?
I will just repeat the question for the audience on the web. The question is basically around wireless market share and how TELUS is thinking about their share of wireless market share at this point, if I can paraphrase.
Yeah. Would be happy to talk to you about the data you are seeing. We are actually seeing quite a bit of favorability in terms of what we are seeing in terms of loading in wireless. We are happy with where we are in general. We are seeing a more stable market than what we saw in Q1. As we looked back to school, it was more disciplined than what we have seen before.
Yeah.
We're seeing stability in both prepaid, the pricing around prepaid. What it's doing is it's pushing folks to our premium and our postpaid brand, which is excellent for us. Again, when you have stability, you're seeing lower churn. We aren't seeing that same data from either a porting aspect or from a loading aspect. We are mindful of what our peers are up to, and in particular with Quebecor, as you mentioned. Again, to the extent we haven't seen a material effect of them coming west and into our core area yet.
To the extent they do, again, we're mindful of what they're able to bring versus what we have in terms of bundling, in terms of name recognition, and then also being very mindful around how we compete and whether you compete with your flanker brand or your premium brand, and really differentiating what we can bring to the table. Haven't seen that same data, but happy to follow up with you afterwards to see if we're missing anything.
I think Charles' question might have been around net adds versus margins and how you think about-
Yeah
The two there.
Absolutely
And the trade-off.
Yes, I don't mind going further down that path where there really is a refocus to profitability, and not completely at the expense of net adds. But there are several decisions we're making where you get the right profitable outcome, and you see that in our results. We're one of the few in our industry where this is our third consecutive quarter of ARPU growth. Again, it's still in the negative zone, but we're looking forward shortly when that flips to positive. But ultimately where we're trying to focus our team and our business is on the profitable load. And we do think that's the right longer term strategy. It will raise some variability in terms of what you see in our loading metrics. But again, for mobility in particular, we're quite happy with what we're seeing.
I'll ask you a bit of a question that you are maybe not going to answer exactly, but how should investors think about flowing the network revenue growth and the timeline back to kind of the ARPU growth in that current environment with that mindset?
For sure. Yes, I will not forecast-
I didn't think so.
ARPU, you know me well. But again, all of the themes that I shared before.
Yeah.
Seeing the stability is helping us, seeing the discipline is helping us, bifurcating where we're pushing premium and providing a premium outcome. That is helping. You'll see it in our ARPU metrics, you'll see it in our growth. And for us, it's stay the course.
Yeah
And stay in that discipline space. That's what you'll see from us.
Okay. All right. Maybe switching over to wireline. TELUS continues to get a leading share of industry net adds, even though lower immigration has brought down the entire industry nets. How do you think about TELUS's positioning in wireline and your ability to continue to take share? I think you answered the question on TPIA-
Yeah
A little bit earlier, but maybe you could touch on TPIA as well.
Yeah. The economics we are seeing for now on TPIA are not what we expect them to be.
Yeah.
That is a good example where we will not chase the load-
Yeah
We will chase the economics. Where we are seeing opportunity is when we own the fiber and where we build.
Okay.
We are seeing an opportunity of 1 million households in Ontario and Quebec.
Okay
They do not have fiber. This is not over-building fiber where they do not have fiber, and they are not far rural areas.
Okay.
They are Kitchener, Waterloo, they are Laval. We are looking at each of those on a community by community basis to assess profitability. It is an area we have experience from the build that we have done in the West, and we believe the penetration gains that we can get quickly are meaningful. We believe that there is a national good to this. The core infrastructure assets of Canada and the Sovereign AI Factory angle is core in terms of having that fiber network be as pervasive as possible. We think there's an excellent angle there and done with partners. Again, very mindful that while AI and some of this fiber growth will be some of our areas that grow, in the near term, we need to do that with partners.
Right.
That's how we're thinking, balancing the opportunity with our financing and seeing some good traction there.
Okay. As you mentioned, we know each other from TELUS Digital.
Yeah.
Small part of TELUS' overall EBITDA, but obviously a bit of a weaker performance and a customer step down-
Yeah
With Q2. How do you think about TELUS Digital going forward, and what do you think of the options there?
For sure. TELUS Digital is definitely a tale of a few stories.
In terms of how the various businesses underneath it are working. We knew it would be a challenge. We knew when we brought it into TELUS that there would be pieces that would be growing and pieces that weren't, and to be able to do that with a bit more insulation and longer view would be a good way to do it. Some of those theses are playing out and some aren't. So where we are seeing some success is in our core CX business. That is 50% of our business. That is our call centers, our contact centers, and the thesis is bringing AI to those call centers and contact centers. To be very specific, that means training agents with AI assist.
Yeah.
That includes reviewing calls with AI, and we're seeing better customer experience through that. We're seeing way higher retention through that. While that's a sector that's decreasing, we're actually increasing or staying stable, and so we're quite pleased with where that is at. The other area that's working as planned is through the WillowTree acquisition and some of the digital services we provide. We're seeing higher volume in our pipeline year-over-year.
Okay.
Every company is figuring out what is the digital experience, how we use LLMs, how we build either LLMs or medium small size models. All of that interest is there. The flip side to that is the size of the contract has gone down.
What would have been a CAD 10 million contract is a CAD 4 million contract. That's not us, that's the industry in terms of-
Yeah
Again, how AI is influencing coding and whatnot. That is mid in terms of how we expected it would play out. Then the two that are behaving differently than we expected, first trust and safety. It's an area that for a few years was excellent in terms of the work with the hyperscalers. But what we've seen more as of late, is that where AI used to do 95% of the work and humans the last 5%, many of the hyperscalers are just taking a gamble and just saying, "We're just not going to have humans do this. Yes, there might be a fine because we go offside, but the fine is worth it compared to the investment." That has happened faster than we expected, and that was a key component of one of the Q2 factors.
Then the other one is in our AI and data solution business.
Okay.
That business was originally from our Lionbridge AI acquisition, and early days it was data annotation.
Yeah.
It was if you're on Google Search, is it a cat or a dog? If you're on Apple Maps, it is a house or a pool. It evolved from that. We evolved with it to more expert tuning of LLMs. In the last 12, 18 months, there's been a shift with the hyperscalers some in terms of acquisitions they made and who they're doing work with or what they're doing internally, and secondly, who is the next largest buyer of these materials or these services. Some of the huge growth opportunities are in robotics. How do you get a robot to learn what a human is doing? What is the model that helps treat there? We have a lot of expertise in that space. The other one is in autonomous vehicles.
Again, different car makers are in this space or out of this space, but again, using work that we've done that is transferable.
Yeah.
Where we've found a miss is our go to market, and we have been slower to get the proof of concepts which turn into the larger deals. Through Q2 we did reset how we plan to go to market. That is the area that's got the variability that I'm watching for.
Yeah.
There is possibility for that. When you close the deal there, it's a large deal. To the extent we don't get the traction, there could be further stress on it. Back to your question on what's core and what isn't core, there's aspects of TELUS Digital that are absolutely embedded in TELUS and very complementary either to the work that we do in call centers and/or our digital transformation. Then there's other areas that are rapidly transforming.
Okay.
We're doing the assessment like we are with other strategic assets, which of those are best in our hands.
Right
Or where would those belong or do better elsewhere because of the investments that could be made there. Still some work to be done.
Yeah. Part of TELUS Digital or part of the AI strategy is data centers.
Yeah.
Sovereign AI Factory is representing a positioning opportunity in the Canadian market. How does your AI strategy, and specifically the data centers, fit within your core telecom business?
Yeah, great question. Excited about the opportunity there. We are thinking about our AI strategy really in three chapters. The third chapter, you will hear more on November 6th in terms of how we are fleshing that out, but I would love to give you a preview. First of all, Chapter 1, which sometimes gets skipped over, and that is when we build fiber to other people building data centers.
Okay.
If you think about a data center going up, everyone is talking about the power that has got to go there. There has got to be the fiber connectivity that goes there.
Right.
That is a great business. It is right in our area of things that we do well. It is sticky in terms of when people make that investment.
As CFO, what I love is 75% or more of that capital is typically funded. While there is a CapEx investment, there isn't as much of a cash hit. That is an area we're in and we continue to be in. We think that that's good for our business. We think that that is good for Canada, having the strong fiber network as part of the AI data infrastructure.
That's Chapter 1. Chapter 2, you've heard us speak around our Sovereign AI play.
Yes.
We have two data centers that we have from before, one of which we completed just this year in Kamloops, but we also have Rimouski. The economics, when you already have built the data center, already have fiber coming to it, already have the racks and the equipment there, that is one where the economics of owning the GPUs actually makes sense.
Okay.
When we speak about owning GPUs, it is only in this narrow focus right now. What we're seeing there is we're seeing incredible demand. Some of that is just demand worldwide. Some of it is sovereign demand. So having conversations with governments, with folks who have health data, with university research.
Again, really understanding who has your data, who could turn it on and off, who would it have to be handed over to. We are the only completely sovereign play there, and we are seeing a lot of interest there. We are being very mindful of how we think about GPUs and the risk associated with them. Our accounting life is much longer than the ROIC that we see on them. Again, being cautious how we sign contracts, where we are optimizing dollars in that second chapter. The wider opportunity then is in the third chapter.
The third chapter is about where else do we want to play in this space? I think we have the right to play and the right to win in terms of the relationships we have with utilities, the right of ways that we already have, our experience with multiple different developers and builders. People are used to us holding their data.
Then we can move up the chain there, in terms of any other digital solutions. Some more work for us to do to flesh that out. Again, that chapter would be with a partner.
Okay.
It is expensive to do the build and to get the fiber to it. Again, lots of partners who are interested in working with us on that.
Maybe let's switch over to TELUS Health. You've talked about the ongoing look at the core business, and obviously there's been a process in place with TELUS Health-
Yeah
For a while. How do you think about TELUS Health here and the opportunities or the range of outcomes you could see for that business?
For sure. I think about TELUS Health really as three major parts. There's our retirement benefits solutions, Payvider, which is the interchange between medical providers and then employer or the
Yeah
EAP business as people think about it. So each of those performing a little bit differently. There is one that's in market.
Okay.
I won't go into a lot of detail because it's very close to closing.
So we're hoping that that is one that we speak of on November 6th or before.
Okay.
Then as we think about the other ones, again, really thinking through, we don't need to be in a fire sale. But having said that, we do want to show momentum, and we do want to figure out what places we want to play and where we don't. So if I fast-forward 12 months, possible that we're hanging on to one of those three, possible we have none of those.
Okay.
We are looking at what is the optimal outcome for those businesses. Again, we don't want to unnecessarily spook our customers or our employees.
Right.
This is not something we have to sell quickly. As we look at each of those businesses, they behave a little bit different, and there's interest in all of them. We're figuring out what is the strategic optimal way to address.
You said a few times in November we'll have more details.
Yeah.
How should investors think about what those details will look like? What should investors be expecting in Q3?
For sure. Yeah, thank you. I feel like I'm throwing out November 6th a lot. So really, there are three things in our mind that are on investors' minds and that we would like to talk more about. One is our transformation program.
Okay.
That is both in the telecom space and in the global business platform space. It will be both around, it will be focused on where there will be top-line growth and where there will be some cost opportunities, whether that is on EBITDA or CapEx. Again, that is one we want to give more details on. What are the areas we are focused in? Transformation is not new for TELUS. We do cost takeout every year. But we are looking at this on a process basis, so we want to give some more details around where we expect to find that.
Okay
What the run rate going into 2028 might be, so people can-
Okay
Understand what the order of magnitude is. So that is number one. Number two is around this AI data strategy.
Again, we know we've left some question marks around where will we be in the GPUs, where will we build, where won't be, where will we partner. So you've heard some of that from me, but with more specificity
Okay
on November 6th. Then the last piece is on asset monetization. So to the extent there are any that are closed, November 6th or before, and to the extent there's any more that we want to talk about around decisions that we've made on the overall portfolio. So those are the three incremental items besides Q3 results you'll hear from us.
Okay. Are there any last-minute questions from the audience? All right. In closing, we've talked a lot, and obviously you're busy over there. You and Victor are busy over there-
Yeah
At TELUS right now. What's the one key message you'd like investors to retain from our discussion today and the thesis going forward?
For sure. I appreciate you giving me that opportunity because we often talk about some of the businesses that are not core.
Yeah.
Really, it's a year of transition. We're working with urgency. But the key takeaway is our telecom business, which is 90% of our EBITDA, is stable. It's doing well. We're seeing some green shoots in mobility. You'll get more information to fill in that story November 6th on telecom with regards to transformation with some of the growth sectors in AI, again, related to telecom, and then with asset monetization so that there's demonstrated momentum for the focus and the simplicity working towards our telecom business.
All right. Looking forward to it. Thanks so much, Gopi.
Thank you, Stephanie.