VANCOUVER, BRITISH COLUMBIA, Nov 6, 2014 (Marketwired via COMTEX) -- For the third quarter of 2014, TELUS Corporation (T) TU, +0.03% reported consolidated operating revenue growth of 5.4 per cent from a year earlier, for the first time surpassing quarterly revenue of $3.0 billion. Earnings before interest, income taxes, depreciation and amortization (EBITDA) increased by 2.9 per cent to $1.07 billion. EBITDA excluding restructuring and other like costs increased by 4.3 per cent to $1.1 billion. Net income of $355 million was flat year-over-year, while adjusted net income increased by 6.0 per cent to $387 million. Basic earnings per share (EPS) rose by 3.6 per cent to $0.58, while adjusted EPS increased by 10 per cent to $0.64.

Darren Entwistle, TELUS Executive Chair said, "Our strong third quarter results reflect the significant and ongoing benefits of a global leader in employee engagement and a TELUS team that continues to embrace our company's top priority to put customers first in everything we do. Indeed, as a result of this commitment, TELUS delivered an industry-best 136,000 net new customer connections, record lifetime revenue per customer and an industry-leading postpaid customer loyalty rate of 0.90 per cent. Moreover, our leading results reflect the continuity of our Customers First strategy launched in 2008, which has focused on listening to our customers and making real changes to meet their needs in order to provide a truly differentiated experience. Our team's steadfast execution of this strategy is reflected in the just-released CCTS Annual Report in which complaints against TELUS have declined 53 per cent since 2011. Notably, this is the third consecutive year that TELUS has had the lowest number of complaints amongst Canada's major carriers, reflecting the power of our customer first culture in action."

Mr. Entwistle added, "In addition to the strategic long-term investments we are making to meet the needs of our customers and drive our future growth, we are simultaneously returning significant amounts of cash to our shareholders through our multi-year share purchase and dividend growth programs. In this regard, we further enhanced our track record by completing our 2014 share purchase program during the quarter, returning $500 million to our shareholders, and building upon the $1 billion NCIB program completed in 2013. Notably, the combined value of the two share purchase programs, plus nearly $1.8 billion in dividends paid, total $3.3 billion that we have returned to our shareholders since the beginning of 2013. To further demonstrate our commitment to this program, we announced in October that we would accelerate the start of our 2015 NCIB program to purchase and cancel up to $500 million in additional TELUS shares. Finally, I am also pleased to announce today that we are raising our quarterly dividend by 11.1 per cent year-over-year to 40 cents per share. This is our eighth increase since announcing our multi-year dividend growth program in May 2011."

Joe Natale, TELUS President and CEO said, "TELUS' performance in the third quarter demonstrates that putting customers first delivers consistent results. Our recent CCTS scores, combined with our industry-leading postpaid churn rate, clearly distinguish TELUS as the telecom industry's customer service leader."

"We are committed to delivering upon what Canadians deserve from their telecom, Internet and TV provider, while simultaneously growing our businesses and producing meaningful returns for our shareholders," Mr. Natale added.

John Gossling, TELUS Executive Vice-President and CFO said, "In the third quarter, TELUS continued to maintain the strongest balance sheet in our industry. Our strength was further enhanced by the successful issuance of $1.2 billion of new low-cost long term debt in September, which significantly increased our liquidity to more than $2 billion. As a result of the new debt issue, the average term to maturity of our long-term debt was extended to 11.2 years, compared to 5.5 years at the end of 2012, and our average cost of long-term debt has decreased to 4.72 per cent compared to 5.44 per cent at the end of 2012. As a result of our stable financial position, TELUS has the unique ability to make strategic investments in our advanced broadband networks and services for the benefit of all our customers, while returning significant capital to our shareholders."

CONSOLIDATED FINANCIAL HIGHLIGHTS

---------------------------------------------------------------------------- C$ and in millions, except per Three months ended share amounts September 30 Per cent (unaudited) 2014 2013 change ---------------------------------------------------------------------------- Operating revenues 3,028 2,874 5.4 Operating expenses before depreciation and amortization 1,963 1,839 6.7 EBITDA(1)(2) 1,065 1,035 2.9 EBITDA excluding restructuring and other like costs(1)(2)(3) 1,095 1,050 4.3 Net income 355 356 (0.3) Adjusted net income(4) 387 365 6.0 Basic earnings per share (EPS) 0.58 0.56 3.6 Adjusted EPS(4) 0.64 0.58 10.3 Capital expenditures 657 555 18.4 Free cash flow(5) 219 365 (40.0) Total customer connections(6) 13.55 13.27 2.1 (1) EBITDA does not have any standardized meaning prescribed by IFRS-IASB. We have issued guidance on and report EBITDA because it is a key measure used to evaluate performance at a consolidated and segmented level. For further definition and explanation, see Section 11.1 in the accompanying 2014 third quarter Management's discussion and analysis. (2) EBITDA for the third quarter of 2014 includes a negative impact of $4 million from the inclusion of Public Mobile. (3) For the third quarter of 2014 and 2013, restructuring and other like costs were $30 million and $15 million, respectively. (4) Adjusted net income and Adjusted EPS do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding (after income taxes): 1) restructuring and other like costs; 2) long-term debt pre-payment premium; and 3) income tax- related adjustments. For further analysis of the aforementioned items see Section 1.3 in the accompanying 2014 third quarter MD&A. (5) Free cash flow does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation, see Section 11.1 in the accompanying 2014 third quarter Management's discussion and analysis. (6) Sum of active wireless subscriber units (excluding Public Mobile subscribers, which are all prepaid), network access lines, total Internet access subscribers and TELUS TV subscribers (Optik TV(TM) and TELUS Satellite TV(R) subscribers). Effective with the fourth quarter of 2013, and on a prospective basis, we have adjusted postpaid wireless subscribers to remove Mike(R) subscribers, as we have ceased marketing the Mike product and started to turn down the iDEN network. Cumulative subscriber connections include an October 1, 2013 adjustment to remove from the postpaid wireless subscriber base approximately 94,000 Mike subscribers representing those who, in our judgment, are unlikely to migrate to our new services.

Consolidated revenue growth was generated by strength in both wireless and wireline operations, with network wireless revenue up 6.6 per cent and wireline revenue up 2.5 per cent from a year ago. In wireless, revenue was primarily driven by continued subscriber growth and higher data usage as a result of continued smartphone adoption and the expansion of TELUS' LTE network coverage. Wireline strength was driven by data revenue growth of 7.1 per cent, generated primarily by high-speed Internet subscriber growth and higher revenue per customer, and TELUS TV subscriber growth. Data revenue from both wireless and wireline operations increased by 14 per cent over the same period a year ago to $1.65 billion.

TELUS attracted a total of 136,000 net new customer connections (excluding Public Mobile) in the quarter, driven by the gain of 113,000 wireless postpaid customers, 23,000 TELUS TV subscribers and 22,000 high-speed Internet customers, partially mitigated by the moderating loss of residential access lines. TELUS' total wireless subscriber base is up 2.3 per cent from a year ago to 8.0 million, high-speed Internet connections are up 5.7 per cent to 1.45 million, and TELUS TV subscribers are up 14 per cent to 888,000.

TELUS' ongoing customers first focus delivered a strong nine basis point year-over-year improvement in monthly postpaid wireless subscriber churn to a record low 0.90 per cent, the fifth consecutive quarter this important metric was below one per cent.

Free cash flow of $219 million was lower by 40 per cent from a year ago as higher EBITDA was more than offset primarily by higher capital expenditures (excluding spectrum licences), interest and income tax payments.

TELUS returned $385 million to shareholders in the third quarter, consisting of $234 million in dividends paid and $151 million in share purchases under its 2014 normal course issuer bid (NCIB) program, which was completed at the end of September. Year-to-date through the end of October, TELUS returned $1.4 billion to shareholders consisting of $913 million in dividends and the purchase of 13.6 million shares for approximately $524 million under its 2014 and advanced 2015 NCIB programs.

TELUS' 2014 consolidated capital expenditures target, as described in TELUS' fourth quarter 2013 results and 2014 financial target news release issued on February 13, 2014, has been revised and TELUS now anticipates full year consolidated capital expenditures of approximately $2.3 billion compared to its previously estimated 2014 target of $2.2 billion. The Company plans to continue its network-focused investments in advanced broadband wireless and wireline technologies, and in customers' first initiatives.

Reflecting the successful integration efforts of Public Mobile in 2014, TELUS' revised expectation for consolidated and wireless EBITDA for 2014 is to be negatively impacted by less than $20 million (previously $40 million).

The preceding disclosure respecting TELUS' 2014 financial targets and assumptions contains forward-looking information and is fully qualified by the 'Caution regarding forward-looking statements' at the beginning of the accompanying Management's discussion and analysis for the third quarter of 2014 and are based on management's expectations and assumptions as set out in TELUS' fourth quarter 2013 results and 2014 financial target news release and in Section 9 entitled 'General outlook and assumptions' in TELUS' 2013 annual report.

This news release contains statements about financial and operating performance of TELUS (the Company) and future events, including with respect to future dividend increases and normal course issuer bids through 2016 and the 2014 annual targets that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the assumptions (including assumptions for the 2014 annual guidance, semi-annual dividend increases through 2016 and our ability to sustain and complete our multi-year share purchase programs through 2016), qualifications and risk factors referred to in the first, second and accompanying third quarter Management's discussion and analysis, in the 2013 annual report, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

Operating Highlights

TELUS wireless

-- Wireless network revenues increased by $95 million or 6.6 per cent to $1.54 billion in the third quarter of 2014, compared to the same period a year ago. This growth was driven by continued subscriber base expansion, higher data usage as a result of a continued increase in smartphone adoption, the expansion of TELUS' LTE network coverage, higher wholesale data roaming revenues and increased customer adoption of higher rate two-year plans. -- Blended ARPU (excluding Public Mobile) increased by 3.2 per cent to $64.51, reflecting TELUS' sixteenth consecutive quarter of year-over- year growth. -- Monthly postpaid subscriber churn declined nine basis points year-over- year to 0.90 per cent. Blended monthly churn (excluding Public Mobile) was down 11 basis points to reach an all-time record low of 1.25 per cent. TELUS' low blended churn rate reflects the Company's successful customers first service approach, investments in customer retention as well as a greater proportion of postpaid clients in TELUS' subscriber base. -- Total wireless net additions (excluding Public Mobile) of 113,000 increased by 8.7 per cent over the same period a year ago. Postpaid net adds growth of 113,000 increased by 6.6 per cent, while prepaid net additions (excluding Public Mobile) were flat. The total wireless subscriber base (excluding Public Mobile) was up 2.3 per cent or 179,000 from a year ago to 8.0 million. Higher-value postpaid subscribers represent 87.5 per cent of TELUS' total subscriber base (excluding Public Mobile). -- Smartphone subscribers now represent 80 per cent of TELUS' postpaid base, up from 75 per cent a year ago. -- Wireless EBITDA increased by $20 million or 2.9 per cent to $700 million over last year due primarily to network revenue growth, partially offset by higher retention costs to support leading postpaid subscriber churn. EBITDA excluding restructuring and other like costs and the negative impact from Public Mobile was $720 million, an increase of 5.1 per cent. -- Wireless EBITDA less capital expenditures decreased by $37 million to $449 million in the quarter as higher EBITDA was more than offset by higher capital expenditures on broadband network infrastructure, including the deployment of 700 MHz spectrum and system resiliency and reliability initiatives in support of ongoing customers first programs.

TELUS wireline

-- External wireline revenues increased by $33 million or 2.5 per cent to $1.34 billion in the third quarter of 2014, when compared with the same period a year ago. This growth was generated by increased data revenue, partially offset by continued declines in legacy voice local and long- distance revenues. -- Data service and equipment revenues increased by $57 million or 7.1 per cent, due to continued high-speed Internet subscriber growth and higher revenue per customer, a higher TELUS TV subscriber base, increased TELUS Health revenues, and growth in business process outsourcing services. -- Total TV net additions of 23,000 were lower by 11,000 from the same quarter last year, due primarily to slower market growth. The total TV subscriber base of 888,000 increased by 112,000 or 14 per cent from a year ago. -- High-speed Internet net additions of 22,000 increased by 3,000 over the same quarter a year ago. The high-speed subscriber base of 1.45 million is up 79,000 or 5.7 per cent from a year ago. -- Total network access lines (NALs) declined by 21,000 in the quarter compared to a loss of 40,000 a year ago. Residential NAL losses of 24,000 reflects an improvement of 9,000 or 27 per cent over the same period a year ago, while business NALs grew by 3,000 compared to a loss of 7,000 a year ago. These improvements reflect the success of TELUS' customers first initiatives and bundling strategy, as well as the implementation of voice and data services for several business customers, offset by ongoing wireless and Internet substitution and competition. -- Wireline EBITDA of $365 million increased by $10 million or 3.1 per cent year-over-year, while EBITDA excluding restructuring and other like costs increased by $11 million or 3.3 per cent. The improvement primarily reflects continued high-speed Internet, enhanced data and TELUS TV revenues as well as ongoing operating efficiency initiatives. -- Wireline EBITDA less capital expenditures declined to $(41) million as higher EBITDA was more than offset by higher capital expenditures that are supporting TELUS' long-term growth. Capital expenditures increased over the same period last year to support business service growth, ongoing investments in customers first initiatives and broadband network infrastructure expenditures, including connecting more homes and businesses directly to our fibre optic broadband network.

Dividend Declaration - increased to 40 cents per quarter, up 11.1 per cent from a year ago

The TELUS Board of Directors has declared a quarterly dividend of 40 cents ($0.40) Canadian per share on the issued and outstanding Common Shares of the Company payable on January 2, 2015 to holders of record at the close of business on December 11, 2014. This fourth quarter dividend represents a four cent or 11.1 per cent increase from the $0.36 quarterly dividend paid on January 2, 2014.

This new quarterly dividend is the eighth increase under TELUS' dividend growth program originally announced in May 2011 and extended through 2016, wherein the company plans to continue with two dividend increases per year, normally announced in May and November, of circa 10 per cent annually. Notwithstanding this, dividend decisions will continue to be dependent on earnings and free cash flow and subject to the Board's assessment and determination of TELUS' financial situation and outlook on a quarterly basis. There can be no assurance that the company will maintain its dividend growth program through to 2016.

About TELUS

TELUS (T) TU, +0.03% is Canada's fastest-growing national telecommunications company, with $11.8 billion of annual revenue and 13.5 million customer connections, including 8.0 million wireless subscribers, 3.2 million wireline network access lines, 1.45 million Internet subscribers and 888,000 TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada's largest healthcare IT provider.

In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed more than $350 million to charitable and not-for-profit organizations and volunteered 5.4 million hours of service to local communities since 2000. Created in 2005 by Executive Chairman Darren Entwistle, TELUS' 11 community boards across Canada have led the company's support of grassroots charities and will have contributed $47 million in support of 3,700 local charities organizations by the end of 2014, enriching the lives of more than two million Canadian children and youth. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition.

For more information about TELUS, please visit telus.com.

Access to Quarterly results information

Interested investors, the media and others may review this quarterly earnings news release, management's discussion and analysis, quarterly results slides, audio and transcript of investor webcast call, supplementary financial information and our full 2013 annual report at telus.com/investors.

TELUS' third quarter 2014 conference call is scheduled for November 6, 2014 at 9:30 a.m. ET (6:30 a.m. PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on November 6 until December 15 at 1-855-201-2300. Please use reference number 1166789# and access code 92105#. An archive of the webcast will also be available at telus.com/investors and a transcript will be posted on the website within a few business days.

TELUS CORPORATION

Management's discussion and analysis

2014 Q3

Caution regarding forward-looking statements

This document contains forward-looking statements about expected future events and financial and operating performance of TELUS Corporation. The terms TELUS, the Company, we, us or our refer to TELUS Corporation and where the context of the narrative permits or requires, its subsidiaries. Forward-looking statements include, but are not limited to, statements relating to annual targets, outlook, guidance and updates, our multi-year dividend growth program, our multi-year share purchase programs, and trends. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. By their nature, forward-looking statements do not refer to historical facts, are subject to inherent risks and uncertainties, and require us to make assumptions. There is significant risk that assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause future performance, conditions, actions or events to differ materially from the stated targets, expectations, estimates or intentions. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements. An update on our general outlook and assumptions for 2014 is in Section 9 General outlook and assumptions in the Management's discussion and analysis (MD&A).

Factors that could cause actual performance to differ materially from the forward-looking statements made herein and in other TELUS filings include, but are not limited to:

-- Competition including: continued intense rivalry across all services among established telecommunications companies, advanced wireless services (AWS) entrants, cable-TV providers, other communications companies and emerging over-the-top (OTT) services; the potential entry of new competitors; active price and brand competition; competition for wireless spectrum; our ability to continue to retain customers through an enhanced customer service experience; network access line (NAL) losses; subscriber additions and retention volumes and associated costs for wireless, TV and high-speed Internet services; pressures on wireless average revenue per subscriber unit per month (ARPU) from promotional activity from competitors, market conditions and government actions, flat-rate pricing trends for voice and data, inclusive long distance plans for voice, and increasing availability of Wi-Fi networks for data; and our ability to obtain and offer content across multiple devices on wireless and TV platforms at a reasonable cost. -- Regulatory decisions and developments including: the federal government's stated intention to further increase wireless competition, reduce roaming costs on wireless networks in Canada and require further unbundling of TV channels and eliminate paper bill charges; the Competition Bureau's recommendation to the Canadian Radio-television and Telecommunications Commission (CRTC) that it should implement remedies to provide more favourable roaming access terms to new entrant service providers; future spectrum auctions (including limitations on established wireless providers, spectrum set-aside favouring smaller carriers and other advantages provided to new and foreign participants, and the amount and cost of spectrum acquired); restrictions on the purchase, sale and transfer of spectrum licences; the outcome of the CRTC review of mandated wholesale services, including consideration of mandated competitor access to fibre-to-the-premises facilities; vertical integration by competitors into broadcast content ownership and timely and effective enforcement of regulatory safeguards; ongoing monitoring and compliance with restrictions on non-Canadian ownership of TELUS Common Shares; interpretation and application of tower sharing and roaming rules; the non-harmonization between provincial consumer protection legislation, in particular in light of the new CRTC mandatory national Wireless Code (the Code), which came into effect on December 2, 2013 and possible operational challenges from the Code, resulting from two and three-year customer contracts ending coterminously in 2015. -- Technological substitution including: reduced utilization and increased commoditization of traditional wireline voice local and long distance services from impacts of OTT applications and wireless substitution, and overall slower market growth in the wireline segment; increasing numbers of households that have only wireless and/or Internet-based telephone services; continuation of wireless voice ARPU declines through, among others, substitution to messaging and OTT applications, such as Skype; substitution to Wi-Fi services from wireless services; and OTT Internet protocol (IP) services that may displace TV and entertainment services or impact revenue. -- Technology including: subscriber demand for data that challenges wireless networks and spectrum capacity levels; our reliance on legacy systems and information technology; technology options, evolution paths and roll-out plans for wireline and wireless networks (including broadband initiatives, such as fibre to the home, and wireless small- cell deployment); our reliance on wireless network access agreements; choice of suppliers and suppliers' ability to maintain and service their product lines; wireless handset supplier concentration and market power; the performance of long-term evolution (LTE) wireless technology; our ability to address our near-term spectrum deficiency in certain geographical areas with recently acquired spectrum (including the spectrum in the 700 MHz band) and redeployment of existing spectrum holdings; our ability to obtain additional spectrum capacity through future spectrum auctions and from third parties to address increasing demand for data; deployment and operation of new wireless networks and success of new products, new services and supporting systems; network reliability and change management (including migration risks, related to technology and customer retention, to new, more efficient Internet data centres (IDCs) and realizing the expected benefits); timing of decommissioning of certain legacy wireline networks and services to reduce operating costs, timing of decommissioning of CDMA and iDEN wireless networks to redeploy spectrum and reduce operating costs, and the associated subscriber migration and retention risks; availability of resources and ability to build out adequate broadband capacity; and success of upgrades and evolution of TELUS TV(R) technology, which depend on third-party suppliers. -- Economic growth and fluctuations including: the strength and persistence of economic growth in Canada that may be influenced by economic developments outside of Canada; future interest rates; inflation; pension investment returns, funding and discount rates; and Canada: U.S. dollar exchange rates. -- Capital expenditure levels, including: potential outlays for spectrum licences in spectrum auctions or from third parties, due to our wireless deployment strategy for LTE and future technologies, wireline broadband initiatives, subscriber demand for data, new IDC initiatives, and the Industry Canada wireless spectrum auctions for AWS-3 spectrum (1755 - 1780 MHz, 2155 - 2180 MHz), as well as for 2.5 GHz (2500 - 2690 MHz) bands currently expected in March 2015 and April 2015, respectively. -- Financing and debt requirements including ability to carry out refinancing activities. -- Ability to sustain dividend growth program of circa 10% per annum through 2016 and ability to sustain and complete multi-year share purchase programs through 2016. These programs may be affected by factors such as regulatory and government decisions, competitive environment, economic performance in Canada, our earnings and free cash flow, and levels of capital expenditures and spectrum licence purchases. Quarterly dividend decisions are subject to our Board of Directors' (Board) assessment and determination based on the Company's financial position and outlook. Share purchase programs may be affected by the change in our intention to purchase shares, and the assessment and determination of our Board from time to time. Consequently, there can be no assurance that these programs will be maintained through 2016. -- Human resource matters including: recruitment, retention and appropriate training in a highly competitive industry. -- Ability to successfully implement cost reduction initiatives and realize planned savings, net of restructuring and other like costs, without losing customer service focus or negatively impacting business operations. Initiatives include: our earnings enhancement program to drive improvements in earnings before interest, income taxes, depreciation and amortization (EBITDA), business integrations; business process outsourcing; internal offshoring and reorganizations; procurement initiatives; and consolidation of real estate. -- Process risks including: our reliance on legacy systems and ability to implement and support new products and services and business operations; our ability to implement effective change management for system replacements and upgrades; process redesigns and business integrations; implementation of large enterprise deals that may be adversely impacted by available resources and degree of co-operation from other service providers; our ability to successfully manage operations in foreign jurisdictions; information security and privacy breaches, including data loss or theft; and real estate joint venture development risks. -- Tax matters including: complex tax laws that may be subject to interpretation by the tax authorities that may be different from ours; changes in tax laws, including tax rates; elimination of income tax deferrals through the use of different tax year-ends for operating partnerships and corporate partners; and international tax complexity and compliance. -- Business continuity events including: our ability to maintain customer service and operate our networks in the event of human-caused threats such as electronic attacks and human errors; equipment failures that could cause various degrees of network outages; supply chain disruptions; natural disaster threats; epidemics and pandemics; and the effectiveness of business continuity and disaster recovery plans and responses. -- Litigation and legal matters including: our ability to successfully defend class actions pending against us and legal compliance complexity domestically and in foreign jurisdictions. -- Acquisitions or divestitures including: our ability to successfully integrate acquisitions or complete divestitures in a timely manner, and realizing expected strategic benefits. -- Health, safety and environmental developments and other risk factors discussed herein and listed from time to time in our reports and public disclosure documents, including our annual report, annual information form, and other filings with securities commissions or similar regulatory authorities in Canada (on SEDAR at sedar.com) and in our filings with the Securities and Exchange Commission (SEC) in the United States, including Form 40-F (on EDGAR at sec.gov). Section 10: Risks and risk management in this MD&A is incorporated by reference in this cautionary statement.

Management's discussion and analysis (MD&A)

November 6, 2014

Contents

---------------------------------------------------------------------------- Section Description ---------------------------------------------------------------------------- 1. Introduction 1.1 Preparation of the MD&A 1.2 The environment in which we operate 1.3 Consolidated highlights ---------------------------------------------------------------------------- 2. Core business and strategy ---------------------------------------------------------------------------- 3. Corporate priorities for 2014 ---------------------------------------------------------------------------- 4. Capabilities 4.1 Principal markets addressed and competition 4.2 Operational resources 4.3 Liquidity and capital resources 4.4 Changes in internal control over financial reporting ---------------------------------------------------------------------------- 5. Discussion of 5.1 General operations 5.2 Summary of consolidated quarterly results and trends 5.3 Consolidated operations 5.4 Wireless segment 5.5 Wireline segment ---------------------------------------------------------------------------- 6. Changes in financial position ---------------------------------------------------------------------------- 7. Liquidity and 7.1 Overview capital resources 7.2 Cash provided by operating activities 7.3 Cash used by investing activities 7.4 Cash provided (used) by financing activities 7.5 Liquidity and capital resource measures 7.6 Credit facilities 7.7 Sale of trade receivables 7.8 Credit ratings 7.9 Financial instruments, commitments and contingent liabilities 7.10 Outstanding share information 7.11 Transactions between related parties ---------------------------------------------------------------------------- 8. Accounting matters 8.1 Critical accounting estimates 8.2 Accounting policy developments ---------------------------------------------------------------------------- 9. General outlook and assumptions ---------------------------------------------------------------------------- 10. Risks and risk 10.1 Regulatory matters management ---------------------------------------------------------------------------- 11. Definitions and 11.1 Non-GAAP financial measures reconciliations 11.2 Wireless operating indicators ----------------------------------------------------------------------------

1. Introduction

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of Management's discussion and analysis (MD&A).

1.1 Preparation of the MD&A

The following sections are a discussion of the consolidated financial position and financial performance of TELUS for the three-month and nine-month periods ended September 30, 2014, and should be read together with TELUS' September 30, 2014 condensed interim consolidated financial statements (subsequently referred to as the interim consolidated financial statements). The generally accepted accounting principles (GAAP) we use are the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our interim consolidated financial statements comply with IFRS-IASB and Canadian GAAP and have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our use of the term IFRS in this MD&A is a reference to these standards. In our discussion, we also use certain non-GAAP financial measures, such as earnings before interest, income taxes, depreciation and amortization (EBITDA), to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in Section 11.1. All amounts are in Canadian dollars, unless otherwise specified.

Our disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. The MD&A and the interim consolidated financial statements were reviewed by TELUS' Audit Committee and approved by TELUS' Board of Directors for issuance on November 6, 2014.

1.2 The environment in which we operate

Economic growth

We estimate economic growth in Canada could be 2.3% in 2014 and 2.5% in 2015, based on a composite of estimates from Canadian banks and other sources. The Bank of Canada's October 2014 Monetary Policy Report estimated economic growth for Canada at 2.25% in 2014 and 2.50% in 2015. In respect of the national unemployment rate, Statistics Canada's Labour Force Survey reported a rate of 6.8% for September 2014 (7.2% reported in December 2013; 6.9% reported in September 2013).

Latest regulatory developments

On July 28, 2014, Industry Canada opened its Consultation on a Policy, Technical and Licensing Framework for Advanced Wireless Services in the Bands 1755 - 1780 MHz and 2155 - 2180 MHz (AWS-3). In this framework, the Minister of Industry proposes to auction 50 MHz of AWS-3 spectrum in March 2015 in advance of the April 2015 2500 MHz auction and set aside 30 MHz (or 60%) of the spectrum for wireless carriers with less than 10% national and 20% provincial wireless subscriber market share.

On September 8, 2014, the CRTC continued its Let's Talk TV review, where it sought comments from industry stakeholders on a broad range of topics, including how basic packages should be structured, pick and pay, over-the-top (OTT) services and vertical integration, as well as penetration-based rate cards. We submitted public comments on June 27, 2014, during a consultation phase, where we proposed measures to tackle some of the challenges existing in the current industry structure. Outcomes of this review are expected in the first half 2015.

On September 29, 2014, the CRTC initiated the oral hearing phase of its proceeding to review wholesale mobile wireless services. During the hearing, the CRTC heard submissions from various parties, including the Competition Bureau, consumer groups, new entrants, and established wireless carriers. Matters in issue included roaming, tower sharing, rate setting for wholesale services, and other wholesale arrangements such as Mobile-Virtual-Network-Operators (MVNOs). The Commission's decision is expected in the first half of 2015.

For additional information, see Section 10.1 Regulatory matters.

1.3 Consolidated highlights

Closing of $1.2 billion debt offeringandearly redemption of $500 million 5.95% Series CE Notes

On September 10, 2014, we closed a debt offering of $1.2 billion in senior unsecured notes in two series, an $800 million offering at 3.75%, due January 17, 2025, and a $400 million offering at 4.75%, due January 17, 2045. The net proceeds were used to repay indebtedness consisting of (a) advances on the 2014 credit facility and commercial paper issued to fund a substantial portion of the early redemption, on September 8, 2014, of our $500 million Series CE Notes, and (b) other outstanding commercial paper, which had been originally incurred for general corporate purposes. The long-term debt prepayment premium recorded in the three-month period ended September 30, 2014, was approximately $13 million before income taxes (or $0.02 per share after income taxes).

Share purchase programs

On September 23, 2014, we successfully completed our 2014 normal course issuer bid (NCIB) program, purchasing approximately 13 million of our Common Shares and returning $500 million to shareholders. The average share purchase price was $38.45. The purchased shares represent 2.1% of the shares outstanding prior to commencement of the NCIB. On September 29, 2014, we announced that we had received approval from the Toronto Stock Exchange (TSX) for a new NCIB program (2015 NCIB) to purchase and cancel up to 16 million Common Shares up to a maximum amount of $500 million over a 12-month period, commencing October 1, 2014. This represents up to an additional 2.6% of outstanding TELUS Common Shares at the date of the NCIB notice to the TSX. Our Board believes such share purchases are in the best interest of TELUS and that they constitute an attractive investment opportunity and desirable use of TELUS funds that should enhance the value of the remaining shares.

Additionally, we entered into an automatic share purchase plan with a broker to allow us to purchase our Common Shares under our NCIB during internal blackout periods, including during regularly scheduled quarterly blackout periods. Such purchases are determined by the broker in its sole discretion based on parameters established by us. As at October 31, 2014, pursuant to our 2015 NCIB, we had purchased approximately 0.6 million Common Shares for cancellation for $24 million, at an average price of $38.90 per share.

There can be no assurance that we will complete our 2015 NCIB or renew the NCIB program for 2016. For additional information on our multi-year share purchase programs, see Section 4.3. Also see Caution regarding forward-looking statements - Ability to sustain and complete multi-year share purchase programs through 2016.

Consolidated highlights

---------------------------------------------------------------------------- Third quarters ended Nine-month periods ended September 30 September 30 ---------------------------------------------------------- ($ millions, unless noted otherwise) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Consolidated statements of income ---------------------------------------------------------------------------- Operating revenues 3,028 2,874 5.4% 8,874 8,456 4.9% Operating income 606 590 2.7% 1,849 1,725 7.2% Income before income taxes 482 481 0.2% 1,508 1,388 8.6% Net income (1) 355 356 (0.3)% 1,113 1,004 10.9% Net income per equity share (2) Basic (basic EPS) ($) 0.58 0.56 3.6% 1.80 1.55 16.1% Diluted ($) 0.58 0.56 3.6% 1.80 1.55 16.1% Dividends declared per equity share (2) ($) 0.38 0.34 11.8% 1.12 1.00 12.0% Basic weighted- average equity shares outstanding (2) (millions) 613 633 (3.2)% 617 646 (4.5)% ---------------------------------------------------------------------------- Consolidated statements of cash flows ---------------------------------------------------------------------------- Cash provided by operating activities 1,037 1,084 (4.3)% 2,490 2,520 (1.2)% Cash used by investing activities (611) (552) (10.7)% (2,955) (1,602) (84.5)% Capital expenditures (excluding spectrum licences) (3) (657) (555) (18.4)% (1,789) (1,533) (16.7)% Cash provided (used) by financing activities (257) (772) 66.7% 355 (993) 135.8% ---------------------------------------------------------------------------- Other highlights ---------------------------------------------------------------------------- Subscriber connections (4) (thousands) 13,545 13,270 2.1% EBITDA (5) 1,065 1,035 2.9% 3,215 3,067 4.8% Restructuring and other like costs included in EBITDA (5) 30 15 100.0% 49 65 (24.6)% EBITDA - excluding restructuring and other like costs (5) 1,095 1,050 4.3% 3,264 3,132 4.2% EBITDA - excluding restructuring and other like costs margin (5) (6) (%) 36.2 36.5 (0.3)pts. 36.8 37.0 (0.2)pts. Free cash flow (5) 219 365 (40.0)% 720 915 (21.3)% Net debt to EBITDA - excluding restructuring and other like costs(4) (times) 2.18 1.80 0.38 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Notations used in MD&A: n/m - Not meaningful; pts. - Percentage points. (1) See Analysis of net income and Analysis of basic EPS in Operating highlights. (2) Equity shares: Common Shares since February 4, 2013; Common Shares and Non-Voting Shares prior to February 4, 2013. (3) Capital expenditures (excluding spectrum licences) include assets purchased, but not yet paid for, and consequently differ from cash payments for capital assets (excluding spectrum licences) on the condensed interim consolidated statements of cash flows. (4) The sum of active wireless subscriber units (excluding Public Mobile subscribers, which are all prepaid), NALs, Internet access subscribers and TELUS TV subscribers (Optik TV(TM) and TELUS Satellite TV(R) subscribers), measured at the end of the respective periods based on information in billing and other systems. Effective with the second quarter of 2013 and on a prospective basis, wireless machine-to-machine (M2M) subscribers have been removed from the subscriber base to align with emerging industry practice. Cumulative subscriber connections include an April 1, 2013 opening balance adjustment to remove approximately 76,000 M2M subscribers. Effective with the fourth quarter of 2013, and on a prospective basis, we have adjusted postpaid wireless subscribers to remove Mike(R) subscribers, as we have ceased marketing the Mike product and started to turn down the iDEN network. Cumulative subscriber connections include an October 1, 2013 adjustment to remove from the postpaid wireless subscriber base approximately 94,000 Mike subscribers, representing those who, in our judgment, are unlikely to migrate to our new services. (5) Non-GAAP financial measures. See Section 11.1. (6) EBITDA -- excluding restructuring and other like costs, as a percentage of operating revenues. ----------------------------------------------------------------------------

Operating highlights

-- Consolidatedoperating revenues increased year over year by $154 million or 5.4% in the third quarter of 2014 and by $418 million or 4.9% in the first nine months of 2014. Combined wireless and wireline data revenues were $1.65 billion in the third quarter of 2014 and $4.76 billion in the first nine months of 2014, up by $208 million in the quarter and by $582 million in the first nine months of 2014, representing a 14% increase as compared to the same periods in 2013. Wireless network revenues increased by $95 million or 6.6% in the third quarter and by $252 million or 6.0% for the nine-month period, as a result of subscriber additions, growth in data usage, increased wholesale data roaming revenues, effects of higher rate two-year plans, as well as revenues from Public Mobile, partly offset by declines in voice revenue due to the increased adoption of unlimited nationwide voice plans, and continued but moderating substitution to data services and features. Wireline data revenues increased year over year by $57 million or 7.1% in the third quarter and by $204 million or 8.7% in the first nine months of 2014 due to revenue growth in Internet and enhanced data services, TELUS TV, TELUS Health services, business process outsourcing, as well as gains from the sale of certain real estate assets and other investments. These increases in wireline data revenues were partly offset by ongoing declines in legacy wireline voice revenues. Consolidated operating revenues, excluding Public Mobile, were $3.0 billion, or an increase of 4.7% in the third quarter of 2014, and $8.8 billion, or an increase of 4.1% in the first nine months of 2014. Excluding Public Mobile, wireless blended average revenue per subscriber unit per month (ARPU) was $64.51 in the third quarter of 2014, up $2.02 or 3.2% from the same period in 2013. For the first nine months of 2014, wireless blended ARPU was $62.76, up $1.54 or 2.5% from the same period in 2013. These increases were driven by growth in data usage and roaming, and a higher overall postpaid mix, partly offset by a decline in voice revenue. Postpaid subscribers represented 87.5% of the total subscriber base at September 30, 2014, compared to 86.2% at September 30, 2013. -- During the 12-month period ended September 30, 2014, our subscriber connections (excluding Public Mobile) increased by 275,000, inclusive of wireless adjustments made for Mike subscribers on October 1, 2013. This growth reflects a 2.3% increase in wireless subscribers (excluding Public Mobile), 14% growth in TELUS TV subscribers and a 5.7% increase in high-speed Internet subscribers, partly offset by a 2.7% decline in total network access lines (NALs). Our postpaid wireless subscriber net additions (excluding Public Mobile) were 113,000 in the third quarter and 239,000 in the first nine months of 2014, as compared to 106,000 in the third quarter and 265,000 in the first nine months of 2013. The increase in postpaid net subscriber additions in the third quarter of 2014 is due to greater availability of iconic devices launched in the quarter, compared to the same period in 2013, and a reduction in our postpaid churn rate. Our monthly postpaid subscriber churn rates were 0.90% in the third quarter and 0.93% in the first nine months of 2014, as compared to 0.99% in the third quarter and 1.05% in the first nine months of 2013, matching our lowest postpaid churn rates recorded in the second quarter of 2006. Blended churn in the third quarter of 2014 of 1.25% represents our lowest churn since we became a national carrier 14 years ago. -- Consolidated EBITDA increased year over year by $30 million or 2.9% in the third quarter of 2014 and by $148 million or 4.8% in the first nine months of 2014. EBITDA excluding restructuring and other like costs increased year over year by $45 million or 4.3% in the third quarter of 2014 and by $132 million or 4.2% in the first nine months of 2014. These increases reflect growth in wireless network revenues and wireline data revenues, improving Internet and TV margins, and a lower wireless cost of acquisition, partly offset by higher wireless retention costs. Consolidated EBITDA, excluding Public Mobile and restructuring and other like costs, was $1.1 billion in the third quarter and $3.3 billion in the first nine months of 2014, an increase of 4.5% and 4.7%, respectively, from the comparable periods in 2013. -- Operating income increased year over year by $16 million or approximately 2.7% in the third quarter of 2014 and by $124 million or 7.2% in the first nine months of 2014. The increases in the third quarter of 2014 and the first nine months of 2014 resulted from year- over-year EBITDA growth partly offset by an increase in total depreciation and amortization expenses. -- Income before income taxes increased year over year by $1 million or 0.2% in the third quarter of 2014 and by $120 million or 8.6% in the first nine months of 2014. Higher operating income in the third quarter of 2014 was partly offset by an increase in financing cost of approximately $13 million for the early redemption of Series CE Notes in September 2014. Higher financing costs were partly offset by lower employee defined benefit plan net interest. The increase in income before income taxes in the first nine months of 2014 included the financing costs of $23 million expense for the early redemption of Series CF Notes in May 2013. -- Income taxes increased year over year by $2 million or 1.6% in the third quarter of 2014. In the first nine months of 2014, income taxes increased by $11 million or 2.9%, primarily reflecting higher pre-tax income. Income taxes in the first nine months of 2013 included a second quarter $22 million adjustment to revalue deferred income tax liabilities, as a result of the increase in the B.C. provincial corporate income tax rate, from 10% to 11%, effective April 1, 2013. -- Net income decreased year over year by $1 million or 0.3% in the third quarter of 2014 and increased by $109 million or 10.9% in the first nine months of 2014. Net income in the third quarter was flat due to higher restructuring and other like costs for cost structure reduction initiatives as part of our earnings enhancement program, Public Mobile integration costs and the debt prepayment premium. Excluding these items, net income increased year over year by $22 million or 6.0% in the third quarter of 2014 and by $72 million or 6.6%, in the first nine months of 2014. Analysis of Net income ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 ($ millions) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Net income 355 356 (0.3)% 1,113 1,004 10.9% Add back (deduct): Restructuring and other like costs, after income taxes 22 11 100.0% 36 49 (26.5)% Long-term debt prepayment premium, after income taxes 10 - 100.0% 10 17 (41.2)% Unfavourable (favourable) income tax-related adjustments (see Section 5.2) - (2) 100.0% (2) 15 n/m ---------------------------------------------------------------------------- Net income excluding the above items 387 365 6.0% 1,157 1,085 6.6% ---------------------------------------------------------------------------- -- Basic earnings per share (EPS) increased year over year by $0.02 or 3.6% in the third quarter of 2014 and by $0.25 or 16% in the first nine months of 2014. The impact of Public Mobile on basic EPS was a decrease of $0.01 in the third quarter of 2014 and $0.03 in the first nine months of 2014. The reduction in the number of shares from our 2014 NCIB program, net of share option exercises, contributed approximately $0.02 to the year-over-year increase in basic EPS in the third quarter and $0.08 in the first nine months of 2014, with the balance driven by higher EBITDA. Analysis of basic EPS ($) ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Basic EPS 0.58 0.56 3.6% 1.80 1.55 16.1% Add back: Restructuring and other like costs after income taxes, per share 0.04 0.02 100% 0.06 0.08 (25.0)% Long-term debt prepayment premium after income taxes, per share 0.02 - 100% 0.02 0.03 (33.3)% Unfavourable income tax-related adjustments, per share (see Section 5.2) - - n/m - 0.02 (100.0)% ---------------------------------------------------------------------------- Basic EPS excluding the above items 0.64 0.58 10.3% 1.88 1.68 11.9% ---------------------------------------------------------------------------- -- Dividends declared per equity share were $0.38 in the third quarter of 2014, up 12% from the third quarter of 2013. On November 5, 2014, the Board declared a fourth quarter dividend of $0.40 per share on the issued and outstanding Common Shares of the Company, payable on January 2, 2015, to shareholders of record at the close of business on December 11, 2014. The fourth quarter dividend increased by $0.04 per share or 11% from the $0.36 per share dividend declared one year earlier, consistent with our multi-year dividend growth program described in Section 4.3. -- Effects of the acquisition of Public Mobile Holdings Inc. On November 29, 2013, we acquired 100% of Public Mobile, a Canadian wireless communications operator focused on the Toronto and Montreal markets. The investment was made with the objective of growing our wireless segment operations, including acquiring additional spectrum licences. The migration of Public Mobile customers to our 4G network was completed in the third quarter of 2014. The contribution of Public Mobile to our financial results in the three- month and nine-month periods ended September 30, 2014 increased wireless revenues by $19 million in the third quarter of 2014 and by $68 million in the first nine months of 2014, decreased wireless EBITDA by $4 million in the third quarter of 2014 and by $16 million in the first nine months of 2014, and reduced net income by $5 million in the third quarter of 2014 or approximately $0.01 per share, and by $17 million in the first nine months of 2014 or approximately $0.03 per share. Public Mobile has been fully integrated into our systems and networks and is expected to contribute positive EBITDA in future periods. Liquidity and capital resource highlights -- Net debt to EBITDA - excluding restructuring and other like costs was 2.18 times at September 30, 2014, down from 2.21 times at June 30, 2014, as a result of growth in EBITDA excluding restructuring and other like costs and relatively flat net debt. Our long-term policy guideline range for this ratio is from 1.50 to 2.00 times. At the end of the third quarter of 2014, this ratio was outside of the long-term policy guideline range due to the funding of the purchase for $1.14 billion of the 700 MHz spectrum licences in April 2014. We continue to aspire to return to the policy guideline but given the cash demands of upcoming spectrum auctions and other requirements, the timing of such return remains to be determined. While the ratio temporarily exceeds our long- term policy guideline, we are meeting our revolving credit facility covenants, which include a requirement that we not permit TELUS' consolidated Leverage Ratio (as defined in the credit facility) to exceed 4.00 to 1.00, see Section 7.5. -- Cash provided by operating activities decreased year over year by $47 million in the third quarter and by $30 million in the first nine months of 2014. The decreases resulted mainly from higher income tax payments and working capital changes, partly offset by increased consolidated EBITDA for the three and nine-month periods in 2014, and for the nine- month period, by lower contributions to employee defined benefit plans. -- Cash used by investing activities increased year over year by $59 million in the third quarter and by $1.35 billion in the first nine months of 2014, mainly due to increased capital expenditures and, for the nine-month period, the payment for the 700 MHz spectrum acquisition. Capital expenditures (excluding spectrum licences) increased year over year by $102 million in the third quarter and by $256 million in the nine-month period, mainly due to our continued focus on investment in wireline and wireless broadband infrastructure to enhance our network coverage, speed and capacity, including the 700 MHz spectrum rollout and the LTE expansion, connecting more homes and businesses directly to fibre-optic cable, as well as in network and system resiliency and reliability to support our ongoing customers first initiatives and our growing subscriber base, and to ready the network and systems for future retirement of legacy assets. -- Cash used by financing activities decreased year over year by $515 million in the third quarter, due to a decrease in long-term debt issued, net of repayments, partly offset by lower payments for the purchase and cancellation of our Common Shares under our NCIB programs, compared to the same period in 2013. In the first nine months of 2014, cash provided by financing activities was $355 million, compared to cash used by financing activities of $993 million in the first nine months of 2013, due to an increase in long-term debt issued, net of repayments, and lower payments for the purchase and cancellation of our Common Shares under our 2014 NCIB, partly offset by a reduction in short-term borrowings, see Section 7.4. In the first nine months of 2014, we returned $1.18 billion in cash to shareholders, consisting of $680 million in dividends paid and $500 million in share purchases pursuant to our 2014 NCIB. For additional details on our multi-year dividend growth program and multi-year share purchase programs, see Section 4.3 and Section 7.4. As announced on August 7, 2014, we exercised our right to early redeem, on September 8, 2014, all of our $500 million 5.95% Series CE Notes. The debt prepayment premium recorded in the three-month period ended September 30, 2014, was approximately $13 million before income taxes. -- Free cash flow was $219 million in the third quarter of 2014 and $720 million in first nine months of 2014, reflecting year-over-year decreases of $146 million for the quarter and $195 million for the nine- month period of 2014. The decreases for the first nine months of 2014 resulted mainly from higher capital expenditures (excluding spectrum licences) and higher income tax payments, partly offset by EBITDA growth. The decrease in the third quarter was due to the same factors as for first nine months of 2014, but was further impacted by higher employer contributions to employee defined benefit plans.

2. Core business and strategy

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

Our core business was described in our annual 2013 MD&A.

Strategic imperatives

Since 2000, we have maintained a consistent strategic intent to unleash the power of the Internet to deliver the best solutions to Canadians at home, in the workplace and on the move. Our focus is on our core telecommunications business in Canada, supported by our international contact centres and outsourcing capabilities.

We developed six strategic imperatives in 2000 that remain relevant for future growth, despite changing regulatory, technological and competitive environments. These six strategic imperatives continue to guide our actions and contribute to the achievement of our financial goals. To advance these long-term strategic initiatives and address near-term opportunities and challenges, we set new corporate priorities each year, as further described in Section 3. Our strategic imperatives are discussed below.

Focusing relentlessly on the growth markets of data, IP and wireless

External wireless revenues and wireline data revenues were $7.4 billion in the first nine months of 2014, up by $502 million or 7.3% from the same period in 2013, while wireline voice and other revenues and other operating income were $1.5 billion, down $84 million or 5.4% year over year. Wireless revenues and wireline data revenues combined represented 83% of TELUS' consolidated revenues for the first nine months of 2014, up one percentage point over the same period a year ago.

Providing integrated solutions that differentiate TELUS from its competitors

We continue to focus on the healthcare industry as one of our key targeted verticals.

In early September, we acquired ZRx Prescriber from Quebec-based ZoomMed Inc., a web-based technology that allows physicians to use a mobile device to write and deliver prescriptions while accessing the patient's insurance coverage information at the moment of prescription. With this technology, TELUS Health will become the first Canadian healthcare technology provider to offer insurance coverage validation nationally at the moment of prescription and accelerate the reimbursement of insurance claims.

Our commitment to corporate social responsibility and achievement of sustainable growth as we strive to be a globally leading corporate citizen has resulted in TELUS being named to the Dow Jones Sustainability North America Index (the Index) for the 14th consecutive year. The Index measures the performance of the world's sustainability leaders based on a comprehensive assessment of long-term economic, environmental and social criteria that include corporate governance, risk and crisis management, customer relationship management and corporate citizenship. We improved our overall score this year to 83 out of 100, up four points from last year. We are the only Canadian telecom and one of two telecoms in North America to be named to the Index.

Building national capabilities across data, IP, voice and wireless

In 2014, we continue investing in broadband infrastructure and 4G LTE expansion and upgrades, as well as in network and systems resiliency and reliability, to increase available Internet speed and capacity, connect more homes and businesses to high-speed Internet services and extend the reach of Optik TV.

Partnering, acquiring and divesting to accelerate the implementation of our strategy and focus our resources on the core business

In August 2014, we launched a cloud-based mobile-device-management (MDM) solution to help Canadian businesses keep their mobile devices secure and embrace the growing bring-your-own-device (BYOD) trend. MDM is powered by the AirWatch's VMware platform, with professional support provided by Vox Mobile. The platform allows businesses to manage their smartphones and tablets through a user-friendly, cloud-based portal, while preconfigured user profiles are designed to simplify enrolling, configuring and updating devices. It covers any carrier, as well as devices running BlackBerry, iOS, Android and Windows operating systems.

In September 2014, we partnered with Mojio to bring connected car technology to Canadians. The Mojio solution consists of a cellular device that plugs into a car's onboard diagnostic port and connects cars to the Internet through our wireless network, offering drivers vehicle diagnostics and monitoring, and automated trip tracking from their smartphone.

During the third quarter, we also partnered with Syniverse to offer a technology that allows customers to make payments securely while travelling. Powered by the Syniverse Mobile Intelligence Portal and MasterCard, the new technology offers an enhanced security service for our customers. The Syniverse Mobile Intelligence Portal optimizes mobile context, which is the information about customers' mobile characteristics, such as their current geographic location, the mobile channels they use and their purchases profile, to confirm that the cardholder's mobile device is in the location where the sale or purchase is taking place. Combining the speed and intelligence of our global network with mobile context data allows us to further improve the user experience for cardholders by ensuring legitimate transactions processed by our customers during their travels abroad are approved.

Going to the market as one team under a common brand, executing a single strategy

Our top corporate priority since 2010 has been to put our customers first as we strive to consistently deliver exceptional client experiences and win the hearts and minds of Canadians on our journey to become the most recommended company in the markets we serve. For the third consecutive year, Koodo Mobile placed highest in customer satisfaction for a stand-alone carrier, according to the 2014 Canadian Wireless Total Ownership Experience Study released by J.D. Power in May 2014.

Our four customer commitments that underpin our internal goals and corporate priorities and help us deliver an elevated experience to our customers are:

-- We take ownership of every customer experience -- We work as a team to deliver on our promises -- We learn from customer feedback and take action to get better, every day -- We are friendly, helpful and thoughtful.

The Commissioner for Complaints for Telecommunications Services (CCTS) issued its annual report on November 4, 2014, reaffirming our position as the telecom industry's customer service leader. For the third consecutive year, our approach to customer service resulted in a substantial decline in the number of complaints submitted to the CCTS - 26% fewer than a year before, even though we attracted a substantial number of new customers to both our wireless and wireline services.

According to the report, in 2013 - 2014, there were only 653 complaints from our customers and 172 complaints from Koodo customers, representing a very small proportion of our current 13.5 million customer connections.

Our continued improvement year after year is a testament to the dedication the entire TELUS team demonstrates in delivering exceptional customer service. We have drawn on past CCTS reports and direct customer feedback to implement numerous changes, and we will continue to learn from this year's report to make even more improvements.

The CCTS is responsible for assisting customers and telecommunications carriers resolve a wide range of complaints about products and services, including home phone, long distance services, wireless services, wired and wireless Internet access, white page directories, directory assistance, and operator services.

3. Corporate priorities for 2014

We confirm or set new corporate priorities each year to both advance TELUS' long-term strategic priorities and address near-term opportunities and challenges.

Corporate priorities for 2014

-- Deliver on TELUS' future friendly(R) brand promise by putting customers first and pursuing global leadership in the likelihood of our clients to recommend our products, services and people -- Elevating our winning culture for a sustained competitive advantage, including giving compassionately in our communities -- Strengthening our operational reliability, efficiency and effectiveness -- Increasing our competitive advantage through reliable and client-centric technology leadership -- Driving TELUS' leadership position in its chosen business and public sector markets -- Advancing TELUS' leadership position in healthcare information management.

4. Capabilities

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

4.1 Principal markets addressed and competition

For a full discussion of our principal markets and an overview of competition, please refer to Section 4.1 of our annual 2013 MD&A. The following discussion reflects changes that occurred in the third quarter of 2014.

In 2014, we continue to deliver leading customer churn on a global basis. The third quarter of 2014 represents our fifth consecutive quarter of postpaid churn rates below 1%, matching our lowest churn rates recorded in the second quarter of 2006. Blended churn in the third quarter of 2014 of 1.25% represents our lowest churn since we became a national carrier 14 years ago. This further exemplifies the success of our differentiated customers first culture and our ongoing focus on delivering outstanding customer service, coupled with attractive new products and services.

Wireless segment

In 2014, we acquired and commenced the deployment of 700 MHz wireless spectrum, which we have begun to operationalize for the benefit of our customers. At September 30, 2014, our 4G LTE network covered more than 85% of Canada's population, up from more than 79% of the population covered at September 30, 2013. Outside of LTE coverage areas, LTE devices we offer also operate on our HSPA+ network, which covered 99% of the population at September 30, 2014.

We continue to re-allocate our wireless spectrum to enhance our LTE services. As part of this re-allocation of spectrum, we have turned down our enhanced voice-data optimized (EVDO) data services which operate on the CDMA network. CDMA voice services will remain operational for several years but will now be re-allocated to a different area of the same 800 MHz spectrum. EVDO provided users with 2.4 to 3.1 megabits per second (Mbps) of download and upload speeds, while the redeployed spectrum will offer speeds from 14 to 84 Mbps for Internet access and other services.

In July 2014, the federal government proposed to set aside spectrum for wireless carriers with less than 10 per cent national and 20 per cent provincial wireless subscriber market share in the recently announced AWS-3 spectrum auction. It is unclear what the effect of the AWS-3 proposals will be in introducing any new competitors.

Wireline segment

We continue to invest in urban and rural communities with commitments to deliver broadband network capabilities to as many Canadians as possible. During the third quarter of 2014, we expanded our fibre footprint by connecting more homes and businesses directly to fibre, increased broadband Internet speeds, and expanded our IPTV video-on-demand library, high-definition content and enhanced marketing of data products and bundles. We will also continue to invest in our state-of-the art Internet data centres (IDCs), creating an advanced and regionally diverse computing infrastructure in Canada. At September 30, 2014, our high-speed broadband coverage reached approximately 2.8 million households in B.C., Alberta and Eastern Quebec, as compared to approximately 2.6 million households at September 30, 2013.

4.2 Operational resources

For a discussion of our Operational resources, please refer to Section 4.2 of our annual 2013 MD&A.

4.3 Liquidity and capital resources

Capital structure financial policies

Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at an acceptable risk.

In the management of capital and in its definition, we include Common Share equity (excluding accumulated other comprehensive income), long-term debt (including any associated hedging assets or liabilities, net of amounts recognized in accumulated other comprehensive income), cash and temporary investments and securitized trade receivables.

We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our telecommunications infrastructure. To maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of TELUS Common Shares, purchase shares for cancellation pursuant to NCIBs, issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of trade receivables sold to an arm's-length securitization trust.

We monitor capital utilizing a number of measures, including the net debt to EBITDA - excluding restructuring and other like costs ratio and the dividend payout ratio. See descriptions in Section 11.1.

Financing and capital structure management plans

Report on financing and capital structure management plans ---------------------------------------------------------------------------- Pay dividends to the holders of TELUS Common Shares under our multi-year dividend growth program -On August 6, 2014, our Board of Directors declared a third quarter dividend of $0.38 per share on the issued and outstanding Common Shares of the Company, payable on October 1, 2014, to shareholders of record at the close of business on September 10, 2014. This third quarter dividend reflects an increase of $0.04 or 12% from the $0.34 per share dividend one year earlier, consistent with our plan for an annual increase of circa 10% to 2016. -On November 5, 2014, our Board of Directors declared a fourth quarter dividend of $0.40 per share on the issued and outstanding Common Shares of the Company, payable on January 2, 2015, to shareholders of record at the close of business on December 11, 2014. This fourth quarter dividend reflects an increase of $0.04 or 11% from the $0.36 per share dividend one year earlier, consistent with our plan for an annual increase of circa 10% to 2016. ---------------------------------------------------------------------------- Purchase TELUS Common Shares for cancellation under our multi-year share purchase programs -On September 23, 2014, we successfully completed our 2014 normal course issuer bid (NCIB) program, purchasing approximately 13 million Common Shares and returning $500 million to shareholders. The average share purchase price was $38.45. The purchased shares represent 2.1% of the shares outstanding prior to commencement of the NCIB. We received approval from the Toronto Stock Exchange (TSX) for a new NCIB program (2015 NCIB) to purchase and cancel up to 16 million Common Shares valued at up to $500 million over a 12-month period, commencing October 1, 2014. Such purchases are made through the facilities of the TSX, the New York Stock Exchange (NYSE) and alternative trading platforms or otherwise as may be permitted by applicable securities laws and regulations. This represents up to an additional 2.6% of outstanding TELUS Common Shares at the date of the NCIB notice to the TSX. The shares will be purchased only when and if we consider it advisable. -We have also entered into an automatic share purchase plan (ASPP) with a broker to allow us to purchase our Common Shares under our NCIB during internal blackout periods when we would not be permitted to trade in our shares, including regularly scheduled quarterly blackout periods. Such purchases will be at the sole discretion of the broker based on parameters established by TELUS prior to any blackout period, in accordance with TSX rules, applicable securities laws and the terms of the agreement between the broker and TELUS. The ASPP has been approved by the TSX, was implemented on October 1, 2014, and may be implemented from time to time thereafter. All other purchases under the NCIB will be at the discretion of the Company. -There can be no assurance that we will complete our 2015 NCIB or renew the NCIB program for 2016. See Caution regarding forward-looking statements - Ability to sustain and complete multi-year share purchase programs through 2016. ---------------------------------------------------------------------------- Use proceeds from securitized trade receivables (presented as Short-term borrowings), bank facilities, commercial paper and dividend reinvestment, as needed, to supplement free cash flow and meet other cash requirements -We reduced outstanding commercial paper from $697 million at June 30, 2014, to $155 million at September 30, 2014. The balance at December 31, 2013 was $NIL. -Proceeds from securitized trade receivables were unchanged at $100 million in the third quarter of 2014, compared to the first and second quarters of 2014. ---------------------------------------------------------------------------- Maintain compliance with financial objectives, policies and guidelines From time to time, we may be outside of our long-term policy guidelines however, we will endeavour to return to the policy guideline range, as we believe it to be supportive of maintaining our investment grade credit ratings. -Maintain investment grade credit ratings in the range of BBB+ to A-, or the equivalent - On November 6, 2014, investment grade credit ratings from the four rating agencies that cover TELUS were in the desired range. -Net debt to EBITDA excluding restructuring and other like costs ratio of 1.50 to 2.00 times - See Section 7.5 Liquidity and capital resource measures. -Dividend payout ratio guideline of 65 to 75% of sustainable net earnings on a prospective basis - See Section 7.5 Liquidity and capital resource measures. -Generally maintain a minimum $1 billion in unutilized liquidity - See Section 7.6 Credit facilities. ----------------------------------------------------------------------------

4.4 Changes in internal control over financial reporting

There were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5. Discussion of operations

Our discussion in this section is qualified in its entirety by the Caution regarding forward-looking statements at the beginning of the MD&A.

5.1 General

Our operating and reportable segments are wireless and wireline. Segmented information in Note 5 of our interim consolidated financial statements is regularly reported to our Chief Executive Officer (the chief operating decision-maker).

5.2 Summary of consolidated quarterly results and trends

Summary of quarterly results ---------------------------------------------------------------------------- ($ millions, except per share amounts) 2014 Q3 2014 Q2 2014 Q1 2013 Q4 ---------------------------------------------------------------------------- Operating revenues 3,028 2,951 2,895 2,948 ---------------------------------------------------------------------------- Operating expenses Goods and services purchased 1,333 1,268 1,222 1,349 Employee benefits expense 630 610 596 648 Depreciation and amortization 459 444 463 461 ---------------------------------------------------------------------------- Total operating expenses 2,422 2,322 2,281 2,458 ---------------------------------------------------------------------------- Operating income 606 629 614 490 Financing costs 124 115 102 110 ---------------------------------------------------------------------------- Income before income taxes 482 514 512 380 Income taxes 127 133 135 90 ---------------------------------------------------------------------------- Net income and Net income attributable to equity shares 355 381 377 290 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net Income per equity share(1) - Basic 0.58 0.62 0.61 0.47 - Diluted 0.58 0.62 0.60 0.46 Dividends declared per equity share(1) 0.38 0.38 0.36 0.36 ---------------------------------------------------------------------------- Additional information EBITDA (2) 1,065 1,073 1,077 951 Restructuring and other like costs included in EBITDA (2) 30 11 8 33 EBITDA - excluding restructuring and other like costs (2) 1,095 1,084 1,085 984 Free cash flow (2) 219 210 291 136 ---------------------------------------------------------------------------- Summary of quarterly results ---------------------------------------------------------------------------- ($ millions, except per share amounts) 2013 Q3 2013 Q2 2013 Q1 2012 Q4 ---------------------------------------------------------------------------- Operating revenues 2,874 2,826 2,756 2,851 ---------------------------------------------------------------------------- Operating expenses Goods and services purchased 1,237 1,222 1,154 1,330 Employee benefits expense 602 606 568 603 Depreciation and amortization 445 446 451 478 ---------------------------------------------------------------------------- Total operating expenses 2,284 2,274 2,173 2,411 ---------------------------------------------------------------------------- Operating income 590 552 583 440 Financing costs 109 132 96 96 ---------------------------------------------------------------------------- Income before income taxes 481 420 487 344 Income taxes 125 134 125 81 ---------------------------------------------------------------------------- Net income and Net income attributable to equity shares 356 286 362 263 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net Income per equity share(1) - Basic 0.56 0.44 0.56 0.40 - Diluted 0.56 0.44 0.55 0.40 Dividends declared per equity share(1) 0.34 0.34 0.32 0.32 ---------------------------------------------------------------------------- Additional information EBITDA (2) 1,035 998 1,034 918 Restructuring and other like costs included in EBITDA (2) 15 39 11 19 EBITDA - excluding restructuring and other like costs (2) 1,050 1,037 1,045 937 Free cash flow (2) 365 192 358 263 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Adjusted for the two-for-one stock split effective April 16, 2013. (2) See Section 11.1 Non-GAAP financial measures. ----------------------------------------------------------------------------

Trends

The consolidated revenue trend continues to reflect: (i) year-over-year growth in wireless network revenues generated from a growing subscriber base and higher data usage; (ii) wireless equipment revenue that has generally increased year over year from increasing sales of higher value smartphones; (iii) year-over-year growth in wireline data revenues driven by Internet, enhanced data services and TELUS TV, increased TELUS Health revenues, and business process outsourcing services, which exceeded the decline in wireless and wireline voice and other revenues.

Increasing wireless network revenues reflect growth in data revenue from subscriber additions, growth in data usage, and higher wholesale data roaming revenues, partly offset by declines in voice revenue. Data revenue growth reflects increased data consumption driven by the proliferation of smartphones, tablets and other wireless devices, expansion of networks, greater use of applications and other wireless data, as well as increased customer adoption of higher rate two-year plans, including the offset by increased use of data sharing plans. Data revenue growth also reflects increased roaming volumes offset by lower roaming rates from more competitive roaming packages. Consequently, monthly blended ARPU has increased year over year for 16 consecutive quarters. The data revenue growth trend is impacted by competitive pressures driving bigger allotments of data provided in rate plans, including data sharing, and an increasing number of unlimited-messaging rate plans, as well as off-loading of data traffic to increasingly available Wi-Fi hotspots. In July 2013, we introduced new two-year wireless rate plans, which have impacted acquisition and retention trends, including subscribers optimizing unlimited talk and text and shared data plans, and which we expect to increase the frequency of subscribers updating their devices and services. ARPU is expected to continue to increase over time as our customer base renews under the two-year plans. However, the outcome is highly dependent on competitor and consumer behaviour, device selection and other factors. Additionally, the implementation of the new CRTC national Wireless Code may cause operational challenges, due to two and three-year customer contracts ending coterminously in 2015.

Historically, there has been significant third and fourth quarter seasonality with respect to higher wireless subscriber additions, an increase in related acquisition costs and equipment sales, and higher retention costs due to contract renewals. These impacts can also typically be more pronounced around iconic device launches. Wireless EBITDA typically decreases sequentially from the third quarter to the fourth quarter due to continued competitive intensity and seasonal loading. Subscriber additions have typically been lowest in the first quarter. Historically, monthly wireless ARPU has experienced seasonal sequential increases in the second and third quarters due to increased vacation season usage and roaming, and seasonal sequential declines in the fourth and first quarters.

The trend of increasing wireline data revenue reflects growth in Internet and enhanced data services, including usage increases and adoption of higher speed services, the continuing but moderating expansion of the TELUS TV subscriber base (up 14% in the 12-month period ended September 30, 2014), business process outsourcing, TELUS Health services and rate increases. Higher Internet revenues are due to increased high-speed Internet subscriber base (up 5.7% in the 12-month period ended September 30, 2014), as well as to bundling of offers with Optik TV and certain rate increases. A general trend of declining wireline voice revenues and NALs is due to substitution to wireless and IP-based services and applications, as well as competition from voice over IP (VoIP) service providers (including cable-TV competitors), resellers and facilities-based competitors. Notwithstanding a positive trend in the past two quarters due to specific enterprise customer installations, the general trend for business NALs is a decline due to increased competition in the small and medium business markets, as well as conversion of voice lines to IP services.

The trend in the goods and services purchased expense reflects increasing content costs due to growing TELUS TV subscriber base and higher content rates, increased wireless equipment expenses associated with a higher proportion of smartphones in the sales mix, and higher network operating costs for the growing wireless subscriber base.

The trend in employee benefits expense reflects increases in compensation and in wireless full-time equivalent (FTE) employees to support a growing subscriber base, partly offset by higher capitalized labour associated with increased capital expenditures, as described in Section 7.3. Employee benefits expense includes restructuring and other like costs which tend to fluctuate quarter to quarter.

The general trend in depreciation and amortization has been relatively flat sequentially, as underlying increases due to growth in capital assets from acquisitions, the expansion of our broadband footprint and enhanced LTE network coverage are partly offset by adjustments related to our continuing program of asset life studies.

Financing costs include expenses for long-term debt prepayment premium of approximately $13 million in the third quarter of 2014 and $23 million in the first nine months of 2013. In addition, financing costs for the eight periods shown include varying amounts of foreign exchange gains or losses and varying amounts of interest income.

The trend in net income reflects the items noted above, as well as adjustments arising from legislated income tax changes, settlements and income tax reassessments for prior years, including any related after-tax interest on reassessments. The trend in basic EPS also reflects the impact of share purchases under our NCIB programs.

Income tax-related adjustments ---------------------------------------------------------------------------- 2014 Q3 2014 Q2 2014 Q1 2013 Q4 ---------------------------------------------------------------------------- Net income impact ($ millions) - 2 - 12 Basic EPS impact ($) - - - 0.02 ---------------------------------------------------------------------------- Income tax-related adjustments ---------------------------------------------------------------------------- 2013 Q3 2013 Q2 2013 Q1 2012 Q4 ---------------------------------------------------------------------------- Net income impact ($ millions) 2 (22) 5 10 Basic EPS impact ($) - (0.03) 0.01 0.02 ----------------------------------------------------------------------------

The trend in cash provided by operating activities reflects growth in consolidated EBITDA, net of higher interest from our re-financing activities and increased income tax payments. The trend in free cash flow also reflects the factors in cash provided by operating activities, as well as increasing capital expenditures (excluding spectrum licences), but excludes the effects of certain working capital changes, such as trade accounts receivable and trade accounts payable. As we expect to participate in future spectrum auctions, our expenditures on spectrum licences are correspondingly expected to continue.

5.3 Consolidated operations

The following is a discussion of our consolidated financial performance. Segmented information in Note 5 of the interim consolidated financial statements is regularly reported to our Chief Executive Officer (the chief operating decision-maker). We discuss the performance of our segments in Section 5.4 Wireless segment,Section 5.5 Wireline segment and capital expenditures in Section 7.3 Cash used by investing activities.

Operating revenues ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 ------------------------------------------------------ ($ millions) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Service 2,801 2,687 4.2% 8,252 7,902 4.4% Equipment 199 168 18.5% 560 506 10.7% ---------------------------------------------------------------------------- Service and equipment revenues 3,000 2,855 5.1% 8,812 8,408 4.8% Other operating income 28 19 47.4% 62 48 29.2% ---------------------------------------------------------------------------- 3,028 2,874 5.4% 8,874 8,456 4.9% ----------------------------------------------------------------------------

<table>

-- Service revenue increased year over year by $114 million in the third quarter of 2014 and $350 million in the first nine months of 2014, reflecting: growth in the subscriber base; higher data usage from continued adoption of smartphones and other data-centric wireless devices; increased wholesale data roaming volumes; effects of higher rate two-year plans; higher Internet, enhanced data and TELUS TV services revenues from subscriber growth; higher TELUS Health services revenues; as well as increased business process outsourcing; all of which were partly offset by declines in wireless and wireline voice revenues. -- Equipment revenue increased year over year by $31 million in the third quarter of 2014 and $54 million in the first nine months of 2014. Wireless equipment revenues increased year over year by $30 million in the third quarter and $46 million in the nine-month period of 2014, as a result of a higher proportion of more expensive smartphones in the sales mix. -- Other operating income increased year over year by $9 million in the third quarter of 2014 and by $14 million in the first nine months of 2014 due to gains from the sale of certain real estate assets and other investments.

Operating expenses ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 ------------------------------------------------------ ($ millions) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Goods and services purchased 1,333 1,237 7.8% 3,823 3,613 5.8% Employee benefits expense 630 602 4.7% 1,836 1,776 3.4% Depreciation 363 342 6.1% 1,057 1,033 2.3% Amortization of intangible assets 96 103 (6.8)% 309 309 - ---------------------------------------------------------------------------- 2,422 2,284 6.0% 7,025 6,731 4.4% ----------------------------------------------------------------------------

</table>

Consolidated operating expenses increased year over year by $138 million in the third quarter of 2014 and $294 million in the first nine months of 2014.

-- Goods and services purchased increased year over year by $96 million in the third quarter of 2014 and $210 million in the first nine months of 2014. The increases reflect higher programming costs for TELUS TV services, wireless equipment expenses associated with a higher proportion of smartphones in the sales mix, higher retention volumes, an increase in network and support costs for the growing wireless subscriber base, a higher cost of sales associated with increased TELUS Health revenues, and a retroactive assessment of additional TV revenue contribution expense of approximately $15 million towards our Canadian programming funding requirements, net of lower total wireless subscriber gross additions and reduced wireline external labour requirements. -- Employee benefits expense increased year over year by $28 million in the third quarter of 2014 and $60 million in the first nine months of 2014, mainly due to higher compensation and benefit costs, an increase in the number of wireless full-time equivalent employees to provide customer service and technical support and employees from business acquisitions, and for the third quarter of 2014, higher restructuring and other like costs for operational efficiency initiatives, partly offset by higher capitalized labour for the three and nine-month periods. The decrease in restructuring and other like costs for the nine-month period of 2014 is due to higher expenses in 2013 associated with cost structure reduction initiatives. -- Depreciation increased year over year by $21 million in the third quarter of 2014 and by $24 million in the first nine months of 2014 due to growth in capital assets (such as broadband and TV-related assets, the wireless LTE network and IDCs), partly offset by the impact of our continuing program of asset life studies. -- Amortization of intangible assets decreased year over year by $7 million in the third quarter of 2014 and remained flat in the first nine months of 2014. The decrease in the quarter reflects $19 million of software asset life adjustments arising from our continuing program of asset life studies, partly offset by $12 million growth in intangible asset base. In the first nine months of 2014, an increase in amortization expense from greater administrative and network software assets was offset by a reduction to amortization expense resulting from our continuing program of asset life studies. Operating income ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 ------------------------------------------------------ ($ millions) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Operating income 606 590 2.7% 1,849 1,725 7.2% ----------------------------------------------------------------------------

Operating income increased year over year by $16 million in the third quarter of 2014 and $124 million in the first nine months of 2014. In the third quarter, this was composed of increases in wireless EBITDA of $20 million and wireline EBITDA of $10 million, partly offset by a $14 million increase in total depreciation and amortization expenses. Higher operating income in the first nine months of 2014 was composed of increases in wireless EBITDA of $86 million and wireline EBITDA of $62 million, partly offset by a $24 million increase in total depreciation and amortization expenses.

Financing costs ---------------------------------------------------------------------------- Third quarters Nine-month periods ended September 30 ended September 30 ------------------------------------------------------ ($ millions) 2014 2013 Change 2014 2013 Change ---------------------------------------------------------------------------- Interest expenses, excluding long-term debt prepayment premium 114 94 21.3% 329 283 16.3% Long-term debt prepayment premium, before income taxes 13 - 100.0% 13 23 (43.5)% Employee defined benefit plans net interest 1 13 (92.3)% 2 40 (95.0)% Interest (income) and foreign exchange (gains) or losses (4) 2 n/m (3) (9) 66.7% ---------------------------------------------------------------------------- 124 109 13.8% 341 337 1.2% ----------------------------------------------------------------------------

Financing costs increased year over year by $15 million in the third quarter of 2014 and $4 million in the first nine months of 2014, mainly due to the following factors:

-- Interest expenses increased year over year by $20 million in the third quarter of 2014 and $46 million in the first nine months of 2014, mainly due to the increase in average long-term debt balances outstanding, partly offset by a reduction in the effective interest rate. -- Long-term debt prepayment premium of approximately $13 million before income taxes related to the early redemption of $500 million of 5.95% Series CE Notes in September 2014. The 2013 long-term debt prepayment premium of $23 million before income taxes was due to our redemption in May 2013 of $700 million of 4.95% Series CF Notes, one year ahead of their original maturity. -- Employee defined benefit plans net interest is calculated for the periods in 2014 and 2013 based on the net defined benefit surplus at December 31, 2013 and the net defined benefit deficit at December 31, 2012. The decrease in 2014 reflects the net employee defined benefit pension plan deficit moving to a nominal surplus due to strong returns, and the application of a higher discount rate at December 31, 2013, net of an increase in life expectancy assumptions. See Note 14 of our annual 2013 consolidated financial statements for assumptions. -- Interest income and foreign exchange gains or losses fluctuate from period to period. Interest income was $NIL in the third q