Executive Summary / Key Takeaways

• TELUS Corporation (NYSE:TU) is strategically transforming from a traditional telecom provider into a diversified technology powerhouse, leveraging its world-leading PureFibre and 5G networks to drive growth in core telecom, health, agriculture, and digital experience sectors.
• The company's significant investments in AI infrastructure, including Canada's first Sovereign AI Factory, and its proprietary smart home platform, are creating distinct technological differentiators that enhance operational efficiency and unlock new, high-margin revenue streams.
• Recent financial performance in Q2 2025 demonstrates resilient TTech adjusted EBITDA growth of 4% and robust TELUS Health revenue and adjusted EBITDA growth of 16% and 29% respectively, supported by strong customer additions and aggressive cost synergy realization.
• TELUS is actively deleveraging its balance sheet through strategic asset monetizations, including the recent $1.26 billion Terrion wireless tower transaction and a projected $3 billion real estate opportunity, targeting a net debt-to-EBITDA ratio of 3x by 2027.
• Despite competitive pressures impacting mobile ARPU, TELUS's focus on profitable customer growth, product intensity, and a diversified portfolio positions it for sustained free cash flow expansion and continued dividend growth, with 2025 free cash flow confirmed at $2.15 billion.

A Converged Future: TELUS's Strategic Evolution

TELUS Corporation, a Canadian telecommunications and information technology leader, is executing a profound strategic evolution, moving beyond its foundational role as a connectivity provider to become a diversified technology solutions powerhouse. Incorporated in 1998, TELUS has a rich history of investing in critical infrastructure, notably its PureFibre and 5G networks, which management describes as "world-leading." This long-term commitment to network superiority forms the bedrock of its strategy, enabling not only robust core telecom services but also a suite of innovative offerings in health, agriculture, and digital experiences. The company's overarching strategy emphasizes profitable customer growth, operational excellence, and a relentless pursuit of efficiency, all underpinned by a customer-centric culture that has consistently delivered industry-best loyalty.

The Canadian telecommunications market, valued at an estimated USD 49.96 billion in 2025, is characterized by increasing competitive intensity, particularly with the emergence of a fourth national wireless player following recent mergers. This environment has led to consistent declines in wireless average revenue per unit (ARPU) and elevated churn rates across the industry. Despite these headwinds, the sector is projected to grow at a Compound Annual Growth Rate (CAGR) of 4.92% from 2025 to 2030, driven by data-centric services and enterprise IoT demand. TELUS's strategic response involves leveraging its technological advantages and diversified portfolio to mitigate these pressures, focusing on areas of high growth and profitability.

Technological Leadership: The AI and Fiber Advantage

At the heart of TELUS's differentiation lies its advanced technological infrastructure and innovative product development. The company's PureFibre network offers superior bandwidth and symmetry, leading to a unit cost to serve that is 30% lower than copper-based alternatives. This fiber ubiquity also significantly reduces truck rolls, improving efficiency and lowering the environmental footprint. TELUS's fiber deployment in Western Canada is considered world-leading, achieving high product intensity of 3.4 products per household, improved average revenue per home, and world-best penetration rates.

A cornerstone of TELUS's forward-looking strategy is its deep commitment to Artificial Intelligence (AI). The company has established Canada's first fully Sovereign AI Factory in Rimouski, Quebec, in partnership with NVIDIA (NVDA) and HPE (HPE). This facility, leveraging TELUS's existing world-class data centers in Rimouski and Kamloops, is designed to handle the heavy energy demands of generative AI while ensuring data sovereignty within Canadian borders. This initiative allows TELUS and its clients to develop new AI models, fine-tune existing ones, and deploy them in business operations, dramatically reducing AI deployment time and costs. The Sovereign AI Factory operates with three times greater energy efficiency than the industry average and reduces water consumption by over 75% through innovative natural cooling systems. This strategic move positions TELUS as a pivotal player in Canada's AI ecosystem, leveraging its role as an originator, carrier, deliverer, and storer of data.

Beyond infrastructure, TELUS is ingesting AI capabilities directly into its business operations and offering AI solutions externally through TELUS Digital. Internally, AI is driving productivity across go-to-market operations, from sales and service to billing and collections, yielding significant cost efficiencies. For instance, TELUS Expert Messaging, an asynchronous customer support platform, has improved first contact resolution by 9 percentage points, reduced agent attrition by 25 percentage points, and improved average handle time by 13% through AI integration. An AI-based agent trainer has enabled 80% of bottom-quartile customer service agents to become top-quartile performers within 30 days, driving a 16% uplift in customer satisfaction scores within that cohort. Externally, TELUS Digital, under new leadership, is leveraging TELUS as an innovation lab to develop and scale AI solutions for global clients, including partnerships with OpenText (OTEX) for sovereign cloud AI solutions.

TELUS's innovation extends to its smart home platform, developed in partnership with AWS (AMZN) and TELUS Digital. This device-agnostic platform enables entry into new verticals, as evidenced by the Q3 2024 launch of TELUS Smart Energy, designed to save Canadians money and reduce their environmental footprint, and TELUS HomeView, an AI-powered home security automation service. These new services, delivered over existing broadband infrastructure, exemplify TELUS's strategy to extract economies of scope from its fixed cost base, offering differentiated, non-commoditized products that enhance customer value and loyalty.

Financial Performance and Operational Momentum

TELUS's Q2 2025 results underscore its ability to deliver consistent operational and financial performance amidst a dynamic market. The company achieved total mobile and fixed customer growth of 198,000 in the quarter, driven by 167,000 mobile phone and connected device additions and 31,000 fixed customer additions. Notably, TELUS was the sole industry player to report positive net additions in the wireline sector. Postpaid mobile phone churn remained exceptionally low at 0.9%, marking the 12th consecutive year below the 1% threshold.

Financially, TTech adjusted EBITDA, including TELUS Health, grew 4% in Q2 2025, consistent with Q1 results, and its adjusted margin expanded by 100 basis points to 41.7%. This growth was propelled by a focus on profitable customer expansion, ongoing cost efficiency, and progress in asset monetization. Mobile network revenue experienced a slight decline, with mobile phone ARPU decreasing by 3.3% due to competitive pressures and lower overage and roaming revenues. However, management observed quarter-over-quarter ARPU trend improvements, indicating a stabilizing operating environment. Fixed data services revenue grew 3% year-over-year, marking the 18th consecutive quarter of positive growth, fueled by Internet, security, and automation subscriber ARPU expansion.

TELUS Health continues to be a significant growth engine, reporting operating revenue growth of 16% and adjusted EBITDA growth of 29% in Q2 2025. Its adjusted margin expanded by 180 basis points to 17.5%. Excluding Workplace Options, TELUS Health's EBITDA has grown over 20% for eight consecutive quarters. The company has realized $400 million in annualized synergies since acquiring LifeWorks (LFE.TO), surpassing its initial target, and is on track to achieve $427 million by the end of 2025. TELUS Agriculture & Consumer Goods (TAC) also demonstrated robust performance, with 16% revenue growth in Q4 2024 and over 20% in Q3 2024, driven by record sales and increasing profitability.

TELUS Digital, while facing macroeconomic and competitive challenges that led to a non-cash impairment adjustment to goodwill in Q2 2025, reported operating revenues and adjusted EBITDA in line with expectations. The impairment was attributed to factors including a higher weighted average cost of capital and lower cash flow forecasts from pricing and margin pressures.

Strategic Initiatives and Outlook

TELUS is committed to strengthening its financial position and driving long-term value. In Q2 2025, the company announced a definitive agreement with La Caisse to acquire a 49.9% interest in Terrion, a newly formed Canadian wireless tower infrastructure operator, for $1.26 billion. This initiative monetizes TELUS's world-class tower infrastructure, enhancing financial flexibility and accelerating balance sheet deleveraging. The transaction, accounted for as an equity transaction, will have no impact on debt or EBITDA and is expected to be free cash flow positive for TELUS due to interest reductions and leasing opportunities. This move is projected to reduce TELUS's leverage by approximately 0.17x on a pro forma basis, contributing to an expected leverage ratio of 3.55x exiting 2025.

The company has reiterated its 2025 financial targets: TTech (including Health) operating revenues and adjusted EBITDA growth of 2% to 4% and 3% to 5%, respectively. Consolidated capital expenditures, excluding real estate, are targeted to remain stable at $2.5 billion, with consolidated free cash flow confirmed at $2.15 billion. TELUS aims to achieve a net debt-to-EBITDA ratio of 3x by 2027, a target derived from minimizing its weighted average cost of capital, and plans to progressively remove its discounted dividend reinvestment program (DRIP) over the same period.

Beyond the tower monetization, TELUS is pursuing other significant asset monetization opportunities. Its copper decommissioning program, which will see 35 to 40 central offices decommissioned by the end of 2025, is expected to yield a gross opportunity of up to $1 billion from copper recycling (net $0.5 billion) and a substantial real estate monetization opportunity in the $3 billion range. These initiatives, coupled with continued EBITDA growth and declining capital intensity, are expected to drive meaningful free cash flow expansion.

Competitive Positioning and Risks

TELUS operates in a highly competitive Canadian telecom landscape, primarily contending with BCE Inc. and Rogers Communications Inc. . In Q2 2025, BCE (BCE) reported a 1.3% increase in consolidated revenue but a 0.9% decline in adjusted EBITDA, with wireless service revenue down approximately 3%. Rogers Communications (RCI) saw its total service revenue increase by 2% and adjusted EBITDA by 2%, but net income fell 63%, and blended mobile phone ARPU declined by 3%. AT&T (T), a U.S.-based peer, reported stronger Q2 2025 consolidated revenue growth of 3.5% and adjusted EBITDA growth of 3.5%, with postpaid phone ARPU rising 1.1%.

TELUS differentiates itself through its superior PureFibre network, industry-leading customer loyalty, and a diversified portfolio of non-commoditized services. While mobile ARPU faces industry-wide pressures, TELUS's strategic focus on product intensity—offering multiple services per household—helps to mitigate churn and enhance lifetime customer value. The company's expansion into new markets like Ontario and Quebec with its PureFibre offering, coupled with its unique product roadmap in smart home solutions, security, and health, sets it apart from competitors who may be more reliant on traditional telecom offerings.

However, TELUS faces risks from the intense competitive pricing environment, which continues to impact mobile ARPU and can lead to churn upticks in its Internet business. The macroeconomic environment, including affordability constraints for consumers, also presents challenges. Regulatory decisions, such as the CRTC's wholesale fiber framework, while enabling infrastructure sharing, could also introduce new competitive dynamics. The performance of TELUS Digital, as evidenced by the recent goodwill impairment, highlights the inherent volatility and rapid evolution within the digital experience sector.

Conclusion

TELUS Corporation is strategically positioned for sustained growth and value creation, underpinned by its world-class broadband infrastructure and a bold diversification strategy. The company's commitment to technological leadership, particularly in AI and smart home solutions, is transforming its operational efficiency and unlocking new revenue streams that are less susceptible to commoditization. Through disciplined capital allocation, aggressive cost management, and strategic asset monetizations, TELUS is actively strengthening its balance sheet and enhancing financial flexibility.

While navigating a competitive and dynamic market, TELUS's consistent focus on profitable customer growth, product intensity, and a diversified portfolio of services in health, agriculture, and digital experiences provides a robust foundation. The company's clear guidance for 2025, coupled with its long-term deleveraging targets and commitment to a sustainable dividend growth program, signals a compelling investment thesis. Investors should recognize TELUS's proactive approach to leveraging its technological advantages and strategic initiatives to drive long-term shareholder value, even as it addresses ongoing market challenges and competitive pressures.