Prepared remarks
Good day, everyone. Welcome to the TELUS 2026 Q2 Earnings Conference Call. I would like to introduce your speaker, Ian McMillan. Please go ahead.
Thank you, Karl, and hello, everyone. Thank you for joining us. Our second quarter 2026 news release, MD&A, financial statements and detailed supplemental investor information were posted on our website earlier this morning. Today's agenda will include opening remarks from Victor Dodig, TELUS President and Chief Executive Officer; and Gopi Chande, our Executive Vice President and Chief Financial Officer. After the presentation, there will be a question-and-answer period, followed by brief closing remarks by Victor. Turning to Slide 2. Prepared remarks, slides and answers to questions contain forward-looking statements. Actual results could vary from these statements. Additionally, please note that all dollar amounts referenced today are in Canadian dollars, unless otherwise stated. The assumptions on which they are based and the material risks that could cause them to differ are outlined in our public filings with securities commissions in Canada and the United States, including our Q2 2026 and 2025 annual MD&A. With that, let me turn the meeting over to Victor beginning on Slide 3.
Thank you, Ian. Hello, everyone, and thank you for joining us on today's earnings call, which is my first as President and CEO of TELUS. I'm excited to be here, and I look forward to working with all of you. I want to start by recognizing Darren Entwistle. Over the past 26 years, together with our team, Darren built the network, the culture and the foundation of our company, and we are grateful for his service and the impact that he's had. For those of you who are new to TELUS or new to me, let me provide a brief background for context. Prior to joining TELUS as CEO, I was President and CEO of CIBC for 11 years. Before my planned retirement in October 2025, I spent over 20 years with the bank leading businesses and gaining financial and operational experience. Working for and leading CIBC has given me a deep understanding and appreciation for customer service excellence; managing in highly regulated industries; building a collaborative culture; and nurturing the strategic plan, talent and execution discipline required to transform an organization. In addition, I've served as a Director of the TELUS Board for 3 years, which has provided the on-ramp to shepherd the work we need to do here going forward. So please turn to Slide 4. Today, I will discuss how we're accelerating the TELUS transformation and driving progress with intentionality and with speed to deliver improved performance. The plan, which I'll outline, will see us build on our strong foundation. We will drive financial discipline. We will simplify our business. We will restore balance sheet strength. We will drive greater operational discipline, and we will focus investments in our core telecom business and digital infrastructure, which are our crown jewel assets, all of this to ensure that TELUS is in the best position to deliver sustained value to our customers, opportunity for our team members and returns to our shareholders over the long term. These guiding principles of focus, of simplicity and of discipline are central to our plan. Importantly, our second quarter 2026 results and our 2026 guidance update underscore a company that's in active transition, leveraging our strengths and addressing challenges to position TELUS for long-term success. Gopi will cover our performance and outlook in greater detail later on in the call. Turning to Slide 5. To support our plan, we made strategic changes to our executive leadership team and organizational structure. First, I'm excited to be joined by our new CFO, Gopi Chande, who's right here in the room with me, as we execute together on our transformation and deliver value for all our stakeholders. Further, as you saw last week, I'm also very pleased to welcome Dave Fuller back to TELUS, now as Executive Vice President and Group President of Communications. Dave brings 25 years of telecom industry experience including 15 years at TELUS and a number of senior executive roles across both our business and consumer organizations. Dave will lead our newly established telecom business, which will be known as TELUS Communications, that brings together our consumer and business solutions teams under a single accountable leader. This structure is designed to simplify decision-making to sharpen our operational focus and to accelerate execution against our priorities. I look forward to working closely with Dave in the years ahead. Navin Arora, now as Executive Vice President and Group President, will lead our Global Platform businesses. The portfolio that includes TELUS Digital, TELUS Health and TELUS Agriculture & Consumer Goods. In addition, Navin will assume oversight of enterprise corporate strategy, corporate development, our AI data center strategy and execution as well as TELUS Global Ventures, bringing together the strategic and financial discipline governing this portfolio together under one leader. These changes give us clear lines of accountability, a focused operator leading our core telecom business and a disciplined steward managing our global platform portfolio. This is an important step as we set up to execute the priorities ahead with focus and with speed. As part of these changes, Zainul Mawji will depart TELUS September 1. Her numerous contributions to our company over the past 25 years are immeasurable, and we wish Zainul every success going forward. Please turn to Slide 6. Now let me spend a few minutes and offer some initial observations about our business and current industry dynamics. This is really important context for the discussion on strategy that's going to follow. On the 1st of May, I joined the management team at TELUS as CEO designate. During the 2 months before becoming President and CEO on July 1, I worked alongside Darren and the rest of the leadership team to gain a deep understanding of our business from all angles, which surfaced important insights into our company and our operating environment. The inherent strength of our organization is undeniable. We have a true leadership position in our TELUS PureFibre network, sustained customer growth and loyalty, and we're advancing the next generation of AI enabling capabilities. We're investing in true nation-building infrastructure projects, including sustainable sovereign AI data centers that will support Canada's technological independence and drive economic prosperity. This foundation is strong, and it offers TELUS real opportunities for growth. Yet at the same time, we have challenges. While I'm mindful that our industry is inherently competitive, we're navigating macroeconomic headwinds, namely lower immigration, which is translating into lower demand for certain core products across all carriers. In addition, there's a need for greater simplicity at TELUS and a return to our roots. To that end, I see a real opportunity to focus on our core business, harness our technology and encourage a culture of innovation and a culture of efficiency. I see the opportunity to further deepen our customer relationships, something our TELUS team is exceptional at, and double down on our competitive advantage here. And I see the opportunity to invest in the technology and infrastructure that will play a vital role in Canada's economic growth and prosperity at a critical moment for our country. Now to be certain, our strategic plan is built on what we can control and execute on. So with that backdrop, let me turn to our priorities going forward. Moving to Slide 7. Today, we're introducing our transformation strategy, which comprises 3 financial and operational priorities. The first is to strengthen our financial foundation, which means getting our balance sheet to where it needs to be, so TELUS has the financial flexibility to invest, to return capital and to operate from a position of strength. This includes a capital allocation framework that is sustainable and sets us up for long-term success. The second is to hone our operational discipline, to control our costs and to reinvest in our core business. This is about running our business with greater rigor and discipline and a sharp focus on efficiency and returns on deployed capital. This will continue to enable competitive advantage across our telecom business and digital infrastructure. And the third priority flows from the first two. As we strengthen our financial foundation and hone our operational efficiency, we'll be in a better position to generate robust free cash flow and deploy resources to drive profitable, sustainable growth and returns to our shareholders over the long run. These three priorities will frame how I look at and how I talk about our performance going forward. We expect this plan to deliver minimum compounded annual free cash flow growth of 10% over 2027 and 2028. This is the number I'm holding myself and our team accountable to. Now let me walk through each of these priorities more specifically. If you would please turn to Slide 8, I'll start with the first priority, which is to strengthen our financial foundation. First, fortifying our balance sheet is the prerequisite for everything else. We're carrying approximately 3.5x net debt to adjusted EBITDA. Our updated target is 3x or lower by the end of 2028, a commitment that we are confident in achieving. The dividend reset we announced today is a direct action to accelerate that path to lower debt. We expect approximately $2.7 billion of cumulative cash savings from the dividend reset that we will use toward debt reduction. Specifically, effective October 1, our quarterly dividend will be $0.1875 per share, which represents $0.75 per share annually, a reduction of 55%. In addition, we're now targeting a payout ratio range of 45% to 60% of trailing 12-month free cash flow. The discount on the dividend reinvestment plan is also being terminated effective October 1. It served a clear purpose during the peak of our network build. Preserving cash and capital intensity was at its highest. With our network build maturing and free cash flow growing, that mechanism is no longer necessary. To that end, we'll be driving greater capital discipline across our entire enterprise. And while in-year CapEx is going up slightly due to supply chain dynamics and inflation as well as an incremental strategic investment in our infrastructure, this is not a retreat from our commitment to a multiyear 10% capital intensity target, which remains on track. It's about strengthening the foundation from which we can and which we will build. To demonstrate our discipline, we have put a moratorium on acquisitions. Once we reach our targeted leverage level and fortify our balance sheet, we will revisit our capital allocation priorities. Finally, we remain committed to monetizing noncore assets to optimize our portfolio and pay down debt, which will ultimately support a stronger financial foundation for TELUS. I'm going to provide an update on this work stream in a minute. So please turn to Slide 9 and our second priority, which is to hone operational discipline, control our costs and reinvest in our core. Operational discipline comes down to 3 things: value for every customer relationship, efficiency in how we deploy our resources and return on invested capital. TELUS has an incredible heritage of customer service. It's in our DNA. And we're fortunate to have a team that is the best in the industry at putting our customers first. If we were looking at everything through the lens of return on capital, there's no better place to start than how we serve our customers. This includes driving product intensity and value for every customer relationship. This is going to be a big part of the focus that I'll bring to our team in the first few months. As part of our effort to reposition TELUS, we're taking a hard look at our cost structure. We will deploy a surgical process that will embrace technology, eliminate redundancies and ensure every dollar is deployed with discipline. We're currently conducting extensive work to make sure our cost structure decisions are made thoughtfully and are in the best interest of the overall enterprise. Given the long-term importance of these decisions, we're focused on making the right ones rather than making fast ones. I expect to provide a detailed overview of the scope of this work on or before our third quarter earnings call in November. As we sharpen our focus and free up capital, we will recycle resources to the parts of our core business where we have the strongest competitive position and the clearest path to drive value-adding returns for our shareholders. Our governing principle is straightforward. We will invest where returns on invested capital exceed our cost of capital, and we will seek to redeploy capital to areas of highest return potential. Every dollar will be evaluated on this basis. Turning to Slide 10 and our third priority, which is to deploy resources to drive profitable, sustainable growth and returns. As part of our plan, we will expand Canada's digital infrastructure by strengthening the connectivity and networks people rely on every day. We will invest directly in next-generation technology, including high-speed network upgrades and sustainable sovereign AI data centers built to meet growing national demand. In telecom, we will continue to build on our wireless and TELUS PureFibre network leadership while extending our network into rural and Indigenous communities. And in our Global Platform businesses, we'll continue to invest to better serve our customers and deliver a better return profile. The level and timing of these investments will depend in part on the state of our business and the progress we're making in executing the priorities I've just outlined. With that, let me provide an update on our strategic portfolio review and asset monetization efforts, which are already underway ahead of my appointment as CEO. I'm on Slide 11. Before I speak to our active processes, I want to point to Terrion as an example of how we think about unlocking value from within our portfolio. In September 2025, we sold a 49.9% stake in Terrion, our wireless tower subsidiary to La Caisse. Through our partnership, Terrion now thrives as a stand-alone entity, providing superior network quality and service that TELUS customers continue to rely upon. This transaction resulted in proceeds of $1.26 billion, allowing us to reduce our net debt to adjusted EBITDA by 0.17 turns. It's a proof point for the approach and discipline we're bringing to our broader portfolio. Now regarding TELUS Health, I want to stress that this is a great business of great people. We remain active in the market around certain noncore assets, and we're encouraged by the discussions we're having with interested parties. We're also advancing the monetization process of our core non-real-estate assets. Additional details on all of these efforts will be provided as notable developments arise. So in summary, these processes are active and progressing. Together, they represent a significant source of proceeds that will go directly to paying down debt and accelerating our path to 3x or lower leverage by year-end 2028. In the meantime, our priority is supporting our team and supporting our clients and keeping them focused on the right things. So let me recap. Our second quarter results and reset of targets reflect a business in transition. And the decisions we announced today will advance the work already in flight. Our focus is on executing with discipline and positioning TELUS to deliver sustainable, profitable growth and returns over the long term. We are moving with clarity, and we're moving with urgency, and I'm confident, very confident in the ability of our team to deliver. And with that, I'll turn the call over to Gopi to provide an overview of our financial and operational performance and our updated outlook for the balance of 2026. Gopi, over to you.
Thank you, Victor, and hello, everyone. I'm also excited to serve TELUS in my new role. I do want to say thank you to Doug French for his leadership over the years. Today, I will cover our Q2 financial performance, provide more details on our dividend reset and broader capital allocation strategy going forward, and walk through our updated financial guidance for 2026. Turning to Slide 13 and our second quarter consolidated results. Service revenue of $4.4 billion was down 1% year-over-year, and adjusted EBITDA of $1.8 billion decreased 2%. While results reflect good underlying performance in mobility with network revenue continuing to improve, they were offset primarily by weaker results in TELUS Digital and, as it relates to adjusted EBITDA, lower real estate gains. I'll speak to each segment in a moment. Normalizing for the impact of other income, consolidated adjusted EBITDA was stable, demonstrating the resiliency of our underlying telecom business. Basic EPS was negative due to the TELUS Digital impairment, which I will address shortly, while adjusted EPS was $0.16, down from $0.22 a year ago due to after-tax impacts of lower operating income and the elimination of the noncontrolling interest for TELUS Digital. Cash from operations increased by 15%, while free cash flow of $545 million was higher by 2%, reflecting lower net income taxes paid and lower lease payments partially offset by increased interest and lower EBITDA. Moving to Slide 14 and starting with TELUS Technology Solutions or TTech. TTech service revenue of $3.3 billion and adjusted EBITDA of $1.6 billion were both relatively flat year-over-year. Drilling into the subcomponents, mobile network revenue of $1.7 billion was up 1%. This performance reflects our disciplined operational execution despite an active competitive environment, evidenced by our ability to preserve premium economics. Notably, this is our third consecutive quarter of mobile network revenue growth. Encouragingly, during the quarter, we saw signs of a moderating promotional environment, a positive second half setup. This supported our fifth consecutive quarter of year-over-year improvement in ARPU, declining at a stabilizing pace of less than 0.5%. On the subscriber front, mobile net phone additions of 17,000 reflected lower gross additions as we remain disciplined on quality premium brand loading, while blended mobile phone churn was up slightly to 1.08% while postpaid churn was stable. While demographic headwinds, including population growth and lower immigration levels, have meaningfully reduced the addressable market for new customer growth, we're encouraged by what we're seeing in the wireless competitive environment. Fundamentally, we're focused on controlling what we control, which will be supported by honing our operational discipline. Turning to Fixed Data Services. Revenue was stable at $1.2 billion supported by growth in residential of 2%. In our business solutions portfolio, performance remained challenged by revenue variability and customer contract changes in the public sector, partially offset by growth in fixed data revenue with small and medium business clients. Internet net additions totaled 20,000 as our focus remains on accretive growth and a deliberate shift away from more aggressive promotional pricing. Let me turn to TELUS Digital on Slide 15. As outlined in our disclosure materials today, this quarter, we recorded a pretax noncash carrying value impairment of $2.1 billion. The factors for this write-down are as follows: first, we experienced more pronounced churn in the second quarter as legacy services provided to certain hyperscale clients are being automated faster than we anticipated, specifically content moderation as well as ad relevancy and search-related services. This is a reflection of customers no longer needing these services from external providers amid accelerated AI adoption. These services are expected to continue declining, and we're rightsizing our cost structure accordingly. While we have begun to pivot to higher value, complex AI data sets, that work is not yet fully enough to offset the accelerated pace of the legacy decline. To support this shift, we are actively executing a comprehensive commercial rebuild pairing dedicated technical leads with industry experts, resetting account leadership and placing specialized senior commercial leads in key markets to strengthen our go-to-market and pipeline conversion success. Finally, we've undertaken the reassessment of our AI enabling services growth trajectory. While the market continues to move towards AI at scale and we still see exciting opportunities within these services, customer adoption is slower than we previously modeled as sales cycles have extended and deal sizes have compressed. We remain confident in the long-term trajectory of our AI capabilities, including the exciting growth we see in AI data centers. Notably, at TELUS Digital, our customer experience management service line, which represents more than half of TELUS Digital's total revenue, continues to show incremental growth, leaning to CXAI engagement, which are proving to be our innovative edge that sets TELUS Digital apart from its peers. Please turn to Slide 16. The TELUS Health service revenue of $533 million grew by 4% year-over-year, and adjusted EBITDA of $99 million expanded modestly by 1%. These results were supported by one final month of inorganic growth from Workplace Options, offsetting softer organic growth. Looking forward, the quality and scale of our global health assets gives us confidence that this business can drive better organic performance with improved profitability as we execute on additional efficiency initiatives implemented in Q2. The team continues to work through Workplace Options integration, including product enhancement, expanding sales channel and effective cost management, all of which are expected to contribute to stronger financial performance. Regarding Agriculture & Consumer Goods, service revenues of $90 million increased by 6% driven by higher animal agriculture revenue. Let me now address the balance sheet on Slide 17. Our financial position remains strong. We remain well capitalized with total available liquidity of $2.7 billion and a net debt to adjusted EBITDA leverage ratio as of June 30 of 3.5x down from 3.7x a year ago. As Victor noted earlier, we are committed to a target of 3x or lower by the end of 2028. The revised timeline moving from '27 to '28 is a direct consequence of the business headwinds described earlier. We remain fully committed to maintaining our investment-grade credit rating profile. Looking forward, our operational execution, declining capital intensity and free cash flow growth and active asset monetization processes will continue to strengthen our balance sheet. To achieve our goals, we are recalibrating the near-term capital allocation strategy to support a stronger TELUS in the future, as you can see on Slide 18. As noted, first, we are focused on reducing leverage toward our stated target, which will be supported in part by cash savings from the dividend reset and the proceeds from asset monetization efforts. Second, we are deploying a disciplined approach to investments, focusing on strengthening core telecom and digital infrastructure with 2026 CapEx expected to be approximately $2.6 billion, up from approximately $2.3 billion previously communicated. This increase is driven by a few main points. The first is overall pricing inflation and supply chain dynamics impacting customer premise equipment. The second is a modest strategic investment directed towards our AI data centers, including network infrastructure upgrades and site enablement to support our state-of-the-art sovereign AI centers in Rimouski and Kenwood. And third, we're allocating additional capital in a deliberate shift towards customer base management, such as addressing customer pain points, eliminating friction for interaction and expanding wallet share within existing relationships, each of which improves churn economics and lifetime customer value. Finally, as we announced today and as Victor addressed earlier, we reset our quarterly dividend to $0.1875 per share and are removing the dividend reinvestment plan discount effective October 1, 2026. As a result, we have also updated our free cash flow dividend payout ratio to a range of 45% to 60% of trailing 12-month free cash flow from a range of 60% to 75% on a prospective basis previously. This will be our dividend policy moving forward, beginning in 2027. Based on actions taken today, TELUS will see cash savings of approximately $2.7 billion through the end of 2028 that we intend to use to support our deleveraging efforts. Let me now close my remarks with our updated outlook for 2026 as outlined on Slide 19. For the full year 2026, we now expect consolidated service revenue to be in the range of flat to negative 2%, with TTech service revenue forecasted to be closer to flat. Consolidated adjusted EBITDA for the year is now expected to be in the range of negative 2% to negative 4%, with TTech adjusted EBITDA also expected to decline within a similar range. This compares to our prior forecast for both consolidated service revenue and adjusted EBITDA to be 2% to 4% growth year-over-year. Breaking it down, our revised outlook is due to our updated view of the current business environment, which includes both encouraging trends and challenges. Furthermore, our original target anticipated the pace of the underlying business growth would offset one-time benefits we realized in 2025, largely reflecting real estate gains. We no longer anticipate that level of growth, which results in about 200 basis points of headwind. To help with modeling this, we have provided additional details for you in the appendix. Despite the in-year CapEx increase, which I outlined earlier, we remain committed to our multiyear approach of reducing capital intensity as a percentage of total revenue, as we continue to drive towards our target of 10%. We believe we can operate at a substantially lower capital profile beginning as early as next year. Finally, free cash flow for 2026 is now anticipated to be approximately $1.8 billion versus our previous outlook of approximately $2.45 billion as a result of lower EBITDA, higher CapEx and an incremental $100 million in transformation-related restructuring costs relative to our Q1 update. In closing, we have work ahead of us. We are fully committed to our transformation program and communicating with transparency. We are confident that our actions today and the plan we have laid out will position us for stronger performance as we head into 2027. With that, I'll turn it back to Victor before we start our Q&A.
Thank you, Gopi. So let me quickly wrap up our prepared remarks with a few key takeaways before we go into Q&A. TELUS is building from a foundation of strength and is competitively advantaged with industry-leading customer service, PureFibre and 5G networks, digital infrastructure and a collaborative and energized culture. These assets are difficult to replicate, and we have them. With experienced leadership and perspective, we are executing a clear strategy to transform TELUS. This work is already underway. Decisive actions to reset our dividend, recalibrate our broader capital allocation approach, advance our asset monetization program to support deleveraging, and invest in our core business are proof of that. And when we report our third quarter results in November, we'll go further with additional actions to support our efforts, including outlining our cost savings program and providing updates on our progress against our three strategic priorities to date. We remain steadfast in executing our plan and driving accountability. I'm personally energized by the opportunity to get back to our roots and committed to delivering long-term value to our TELUS shareholders, our TELUS customers and our TELUS team members. And with that, let me turn the call back to Ian for Q&A. Ian, over to you.
Thank you, Victor. Karl, let's proceed with questions from the queue, please.
Questions and answers
The first question is from Drew McReynolds from RBC Capital Markets.
Yes. Three for me. First, Gopi, maybe on the adjusted EBITDA guidance revision for 2026, which I think probably caught most off-guard here. Can you just, at a high level, unpack the revision by segment? That would be helpful. Second, Victor, maybe for you on the comprehensive review of the asset portfolio. I think most would have thought that comprehensive review would have been done kind of one to two years ago, so just wondering from your perspective what's new or different here. Maybe it's scope. Maybe it's timing. And then lastly, on the TELUS Digital outlook, back to you, Gopi. This one's going to be hard to think through for the back half of 2026 and 2027. Can you just help us from a modeling standpoint as to whether Q2 is indicative of what we should expect over the foreseeable future?
So Gopi, you want—actually, you know what, you've got two pieces. So Drew, can I just talk about the asset portfolio? Let me just start with that. Okay. So let me just give you some perspective about how I think about this. One is we've got a core crown jewel in our telecom business. We've organized in a way to unlock value there. We've organized all of the other businesses under Navin in our Global Platforms business. Every one of these businesses are good businesses. They're run by good people, serving clients with value propositions that they value. Every one of them—the three components of TELUS Health, TELUS Digital in spite of all the ups and downs that we've had, TELUS Ag—they're all good businesses. Our goal is to continue to nurture the value in those businesses and focus on those that we believe should be monetized because they're better off in the hands of another owner and do that in a thoughtful manner, thoughtful meaning taking our time—we are engaged. There are confidential memorandums out. People know that on part of the TELUS Health business—so that we can maximize value for our shareholders. Personally, I'm encouraged by the discussions that I'm seeing. I don't have any specific news for you, although to give you a sense that I'm encouraged and to let you know that when I do have news, we'll let you know. All right? On the real estate front, we're seeing the same kind of progress, and we're going to be reviewing our TELUS Ventures portfolio. So everything is really on the table in terms of understanding our portfolio, understanding those things we'd like to keep and also ensuring that there's a monetization program in place to meet those leverage targets. It's all tied together. It's all part of the plan. I know it feels like it's at 10,000 feet. We'll get to 5,000 feet and 1,000 feet as the months tick ahead. Gopi?
Perfect. Thanks, Victor. And Drew, thanks for the question. So there is a lot going on in our guidance and I think you're absolutely right. The way to look at it is by segment. I'll lay out a framework and then speak to each of the pieces. If you take the lower end of our original guidance and the midpoint of our current guidance, there's about a 5 percentage point differential. And the way to think about that on an EBITDA basis is two of those points relate to TELUS Digital, one related to Health, one related to pausing real estate joint ventures, which I'll speak about in a moment, and then one related to telecom. So I'll start with telecom, and this is a key point to take away. And that is year-over-year or half two compared to half one, our telecom business is stable. We're seeing half two steady to half one. We're seeing some momentum in mobility, and that's offset a little bit with some challenges in fixed and some indirect cost work we want to do. On TELUS Digital specifically, the churn that I spoke to in my script around goodwill, that's known, and it's reflected in our forecast. So Drew, more towards your third question, half two for Digital is weaker than half one. If you think about our service revenue guide and our revised guidance, about two-thirds of that top-line reduction is related to TELUS Digital. We are seeing promising results come out of CXAI, and in our AI and data solutions business, we see promising opportunities in robotics and physical AI. So there is potential there, but it is a challenging half two. And then for Health, our results were less good than we originally expected. But again, looking at half two, we do see momentum on organic growth. We do see initiatives put into place that are getting traction for margin improvement, including leveraging the Workplace Options acquisition and the platform associated with that and generating efficiencies. One-time items are a headwind year-over-year, and that's in the TTech segment. So I'll remind you that telecom also includes other income and TTech, and the telecom stabilization is not sufficient to overcome these nonrecurring items from 2025. The 2025 items are relevant context because there's almost $100 million to overcome in half two, and 75% of that is in Q3. Much of that other income is related to real estate joint venture gains, and we've strategically paused from starting new joint ventures. So in summary, picking up on Victor's comments, we're in active transition. This is a forecast that reflects our current state. We do expect to return to growth, and we do have confidence in the underlying trends of each of the segments.
The next question is from Maher Yaghi from Scotiabank.
Great. Victor, welcome, and thank you for the helpful commentaries in your prepared remarks. I just want to go back to something you mentioned on free cash flow growth and the commitment that you're making on that. When you said that you're committing towards 10% free cash flow growth for the period between 2026 and 2028, is that off of the base of $1.8 billion that you guys updated the guidance on this morning?
It is. So Gopi, why don't you take that and I'll build on it?
Yes. So Maher, it is off of that base. We appreciate that 2026 is a lower base, and so we do expect free cash flow to be higher next year. This is more about our commitment on a regular basis to have 10% free cash flow growth. This is about focusing on profitable loading in our core telecom business and getting EBITDA growth to positive and then our commitment to reduce CapEx. So those are the two key features. It is expected to be higher next year, and then it's more about the commitment to 10% growth in 2028 and go forward.
Okay. So if I look at that commitment and compare it to the previous framework that we were working with, it's about $800 million of lower steady free cash flow production in 2028 if I'm just using 10% because there was a 10% commitment before off of the previous free cash flow line. So that's $800 million annual free cash flow production lower that I'm trying to figure out where the gap is coming from.
So again, Maher, we're happy to work with you more specifically on the modeling. But in general, what I can say is we've got our EBITDA growth modeled. Again, hard to be very specific about the exact growth percentage as we're talking about 2028. We certainly return to growth in 2027 and grow from there. Our CapEx is coming down. And I say that not just because our CapEx is going up this year. As Victor mentioned in his script, we are committed to being much more disciplined and adding simplification to CapEx, whether that be products or projects and materially reducing the CapEx. And then another feature will be restructuring. We do have some investments we're going to need to make and want to make to achieve that CapEx reduction and to get and garner some of those EBITDA efficiencies. So there is a restructure component. And then embedded in there are going to be the savings from the reduction in leverage, some of the asset monetization that we will undertake along that way. So those are all of the features and then, of course, the dividend reset as we—to round out the story as we speak about leverage. So hopefully, that gives you a little bit more sense: there is growth in EBITDA, there is a reduction in CapEx, and there is an investment in restructure.
I think just to build on that, Maher. As we fill in the gaps on what a transformation looks like, there's a tremendous amount of EBITDA growth and value that can be unlocked by simplifying our business, not only from a cost standpoint but also from our ability to generate a better revenue outcome. And that's where our confidence, as we look further out, comes from. That information will be shared with you as we head toward the third quarter. That is the intensity with which the leadership team is going to focus on over the next little while.
The next question is from Stephanie Price from CIBC.
Victor, congratulations on the role.
Thanks, Stephanie.
Maybe following up on that TELUS Digital question. It's been acting as a drag and yes, CXAI is obviously a growth area, but there's other pieces that aren't growing as much. Just curious how you think about TELUS Digital as part of the longer-term business here and some of the opportunities you see around that TELUS Digital business outside the CXAI.
Well, some of the very real capabilities we have in there actually serve our core telecom business and help our customers get a better experience. So that, I think, is a tick mark. The CXAI business is growing, and it's profitable. And we're encouraged by the developments we see there. Our AI services overall, Gopi mentioned the fact that clients are trying to be mindful about everything nowadays. They're looking at their tokenization costs. They're looking at what is AI benefit, how is it benefiting us, how is it acting as a drag. There are benefits there. But one of the things I didn't address in Maher's comments and the question you're asking about is how can we use those capabilities within growth avenues that are natural adjacencies to our footprint in Canada. One would be in our sovereign AI data centers as we think through that. We've got some open. There's a real avenue there to not only secure the energy, build the box, provide the right level of equipment but to put our AI intelligence inside and offer that to Canadian clients that are looking for this. The margins in that business are quite healthy. One of the things that we're mindful of is how do we grow that business without increasing our CapEx, and our view in that value chain is there's an amount of margin that we can actually partner with capital partners to drive that growth, to deliver what's inside that data center to our clients and grow that business as well, which I think we'll be more prepared to talk about in the third quarter.
And maybe just a follow-up on the core telecom business. Good to hear kind of focus on profitable growth in that business. Maybe you could talk a little bit about ARPU. The rate of decline improved sequentially, and it was better than expected. How do you think about ARPU trajectory here as TELUS works towards ARPU growth and focuses on profitability?
Well, you're quite right in pointing out that ARPU's rate of decline is decelerating, which is a positive trend. We'd like to see it grow over time. There's a couple of things that I'd say. One is there's definitely going to have to be more of a focus on our premium brand to continue to shore up our ARPU and develop relationships with our clients and not only ARPU but the overall share of wallet that we would have with a household or a business. That is going to be a core focus of Dave Fuller and the team. At the same time, we see competitive pressures at the low end of the market, and this is where we're going to have to harness the value of our public offer, which is a low-cost digital-only offer, which can compete at the low end. So it's important to preserve the premium brand and use our flanker brand in a smart way to preserve ARPU overall for TELUS. That's really our goal, and that's something that we will continue to focus on going forward. We're going to take it up a notch. It's all going to be about profitable growth for every dollar of capital invested, profitable relationships at every client level. I know it's not possible to target every client individually when you have 10 million-plus customers, but we're going to start honing in on returns and profitable growth. I believe the market will reward us over time with that kind of strategy.
The next question is from Tim Casey from BMO.
A couple for me. One, Victor, there seems to be a conflict in the message in that you're talking about simplifying the business and returning to roots. But there are parts of Ag and Health that you seem to be characterizing as core. I'm just wondering if you could flesh that out a bit because I would have thought those two entities would not be kept around if you were simplifying the core business. Second, I want to push back on your prior comment about focusing on profitable growth, which we heard previously. How are you going to get the troops to focus differently on that when it seemed to be a core focus of the previous leadership?
Thanks, Tim. So there's no real conflict in my message, although I can understand why you would see it that way at this point in time. If I can give you more granularity around our portfolio and how we're thinking about monetizing it and show you a picture of what I think it will look like 12 months from now, I think you'd say, you know what, you guys are right. You're focusing on your crown jewels. Whatever is a natural adjacency to how you serve large enterprises—some capabilities may be alongside that. But I think you'll see a much more simplified TELUS over time, Tim. Let me just assure you of that. Okay? And you will get updates as each asset is reviewed and monetized. When there's a notable update, we're going to share that with you. We're not going to wait for quarterly results in that regard. When you talk about profitable growth, there is a mindset that you have to have within an organization. And when you say that the premium brand can't be compromised, it cannot be compromised. Building multi-product relationships with clients reduces churn, improves profitability and incenting a team to do business that way will be a leading driver of what we do. Second, seeding too much territory to competitors that price at the low end of the market is risky. If you do things smartly, you can compete at the low end while protecting your premium brand. That is our goal. We'll provide insights as to how we're doing that as we go forward into the quarters ahead. Our objective is profitable growth and a simplified TELUS. The overwhelming majority of our returns today come from telecom. It will grow over time even as a proportion of overall earnings.
The next question is from Vince Valentini from TD Securities.
Can I start trying to clarify three things? First for Gopi: thank you for the breakdown on the EBITDA segments for the second half of the year, but I want to make sure I heard you correctly. The TTech segment accounts for about one point of the five-point reduction, but all of that seems to be just because of one-time items that don't recur. If I look at core TTech, it was basically flat year-over-year in Q2, but you're saying down 2% to 4% for the full year on EBITDA. That's just because of the one-time items, and if not for those, you'd be around flat. Second, on Slide 11, and apologies Victor, but I want to learn your lexicon. When you say 'robust interest' in certain health assets and 'strong market interest' in real estate, is 'robust' stronger than 'strong,' or are these interchangeable? Third, on the AI data center question: when you say AI intelligence inside the data center box, does that mean you intend TELUS to buy GPUs and chips instead of only building the infrastructure?
The way I look at it, it's a good question. When I look at a business that we may wish to monetize and I feel like the value that's surfacing allows us to reduce our leverage and I have an interested owner that will do good things with the business, that qualifies as robust—small 'r' robust, not a large one. I'm encouraged by the discussions that are underway in a few areas. On real estate, there's also strong interest. That industry is in transformation. But I'm confident we'll be able to get a few things done that allow us to simplify the business and lower our leverage over time. I'd like to see those happen sooner than later. Part of this process is to make sure we're not rushed; we want to maximize value for shareholders. We'll share notable updates as they occur. Regarding AI data centers and whether we should buy chips: there is a debate around whether to own the shell versus the hardware. My sense is there is demand in Canada for more than just a box. It falls under sovereignty and security concerns—from government, academia and hospitals. We would like to fulfill that demand. There is other demand because of available energy and the ability to build. We want to be sustainable and build smart data centers that deliver returns and don't weigh on leverage. We can likely do this with capital partners in parts of the value chain so we don't overextend our capital. We'll provide more detail as we finalize our approach.
Perfect. And Vince, I'll top up on that first question. There are two components. One was the one-time items, and then there is 100 basis points related to telecom. So transparently, the growth that we expected in fixed and mobility has not come to pass as expected in guidance. We are happy with what we saw in Q2 on mobility and have some work to continue to do on fixed, primarily in business. And we have some work to do on indirect costs and how quickly we continue to take them out of the business as our industry changes. So it's a combination of both the one-time items as well as pressure in telecom in the walk that I went through.
I appreciate that. Last one for you, Victor: have you changed or are you considering changing any of the compensation metrics? Are you going to add an ROIC metric? Are you going to remove volume growth targets? And does the clock get reset for management incentives as of today based on the new guidance and the first half results?
My general philosophy is to align management incentives with shareholder outcomes, rewarding profitable growth over time. That will be a focus. I'm already a shareholder. I believe in this company. Management incentives will emphasize profitable growth and returns. We will re-evaluate incentive metrics to ensure they reflect the priorities of the transformation. It's not going to change overnight, but you should see a stronger focus on profitable results and returns. We plan to be transparent as the changes are finalized and rolled out.
The next question is from Jerome Dubreuil from Desjardins.
Gopi and Victor, congrats on the appointments. First, another clarification similar to Vince's question. I'm trying to understand what exactly is the base level of EBITDA we should be using for 2025. You mentioned there was $100 million of nonrecurring items in the second half. Can you comment on what the full year number is? I don't think we should be using negative 3% EBITDA going forward, so I want to clarify exactly what's nonrecurring about the negative 3% for the year.
Perfect, Jerome. In our appendix, we've included detail on that. At a high level, we've pulled out other income—it's already on the face of our financial statements—so you can see that for last year and coming into this year. As I mentioned, we've paused any new joint ventures in real estate, so we don't expect material gains associated with that. There will continue to be monetization of real estate as it comes available, and we'll continue to have minor amounts of copper sales. We also called out a particular nonrecurring item grouping in Q3 of last year, and those were particular to Q3. We don't see anything like that coming through the rest of the year. You have details on Page 24 of the supplemental, and we'd be happy to clarify any follow-ups.
Thanks. Second, the CapEx increase was a bit of a surprise to some investors. Can you provide points around the ROI you're expecting on the additional CapEx to reassure investors that your focus on profitable growth is grounded in expected returns?
Absolutely. We're committed to the 10% capital intensity target over time. The incremental CapEx this year relates to inflation impacts, site enablement and modest strategic investment in AI data centers, plus customer base management initiatives—addressing pain points, reducing friction and expanding wallet share. Some projects are wrapping up this year and can't be terminated quickly; they will generate returns. Overall, our approach is on simplification and focus in future investments. We expect improved returns from these targeted investments and from the CapEx reductions we plan in subsequent years.
The final question is from Adam Shine from National Bank Financial.
I'll make it two quick ones. Victor, you've said you are in no rush on monetization, but is there a particular total number you're looking to raise from asset sales? And second, regarding Agriculture: I didn't hear much on that—are you considering divesting Agriculture? Finally, on the AI data centers, will you provide a roadmap with disclosure around AI data center-related revenues, EBITDA, free cash flow and CapEx similar to what peers have done, or is that premature?
Good questions, Adam. On a specific dollar target for monetizations, I'm not giving a single number today. The leverage reduction strategy will be a combination of CapEx maturity in our core business, transformation-driven EBITDA and specific monetizations of noncore assets. In a couple of months, you'll see a clearer picture of the transformation envelope—revenue enhancement, cost savings and monetization—and how they fit together to reach our 3x target by the end of 2028. On Agriculture, it's part of the Global Platforms portfolio. These businesses are good businesses; we're reviewing the portfolio to understand which are best kept and which are best monetized. We will be transparent about notable developments. On AI data centers, yes—I want to provide as much transparency as possible once the road map is finalized. In my early review, I see attractive economics for sovereign, sustainable solutions, but we will not rush into building indiscriminately. We'll provide detail once we're comfortable with the plan.
Thanks, Adam. This concludes the Q&A. I'll pass the call back to Victor for closing remarks.
Okay. Thank you, everyone, for your great questions. Thank you, Ian. Thanks, Karl, for helping us moderate through this as well. Let me close where I started. We have a clear set of priorities for TELUS, and we're committed to doing the three things that we've outlined: strengthen our financial foundation; be really disciplined around our operations, controlling our costs, freeing up resources to invest into the future; and redeploying those resources to profitable, sustainable returns and businesses that we want to be in. What we have set out here today is a thoughtful plan. I know you don't have all the granularity you want, but I can tell you, you will get more of that as time moves on to realize the full potential of TELUS on a go-forward basis, and it's our plan to deliver on this as a leadership team. I've clearly seen in my first few weeks that we've got an extraordinary team at TELUS that embraces challenge. It's innovative. It's customer focused. And I believe, knowing this company and knowing what it stands for, that we're going to be able to deliver on what we're promising to you. So our objectives are clear: number one, reduce our leverage to 3x or lower by the end of 2028; two, deliver minimum 10% compounded annual free cash flow growth in 2027 and 2028; and three, support a dividend that's sustainable and competitive, and once we get our growth profile back and are well within our payout range, to grow that dividend again as well as use other ways to return capital to shareholders. I'm proud to be working with over 100,000 team members at TELUS as we embark on this next chapter. It will be intense. It will be bumpy, but it's all meant to transform our company and produce the kind of financial performance that we believe we can deliver for you going forward. With that, thanks for your time today. I know there's a lot to digest, and I wish all of you a wonderful summer, and we'll be back to you on a one-on-one basis as you request and as we request. I'd love to see more of each other in the coming weeks. All right? Thanks, Ian, very much, and I guess we're done.
This concludes our call today. Please reach out to the IR team for any follow-up. Karl, back to you.
Ladies and gentlemen, this concludes the TELUS 2026 Q2 Earnings Conference Call. Thank you for your participation, and have a nice day.