TELUS Corporation (T) Earnings Call Transcript & Summary

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, President -- 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 greater need -- 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 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 2. 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 3 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 of 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 redeploy -- we'll 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, 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 on 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'll also -- 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 your lower leverage by year-end 2028. In the meantime, my priority -- 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, 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 1 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 time line 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 through our -- towards 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 $18.75 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 are now expected -- 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 onetime 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, 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 3 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 a Q&A. Ian, over to you.

Thank you, Victor. Karl, let's proceed with questions from the queue, please.

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 highest level, just unpack the revision by segment? 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 1 to 2 years ago, so just wondering from your perspective, kind of 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 kind of think through for the back half of 2026 and 2027. Can you just help us from a modeling standpoint as to whether Q2, I guess, is indicative of kind of what we should expect over the foreseeable future?

So Gopi, you want -- actually, you know what, you've got 2 pieces. So Drew, can I just talk about the asset portfolio? Let me just start with that.

Absolutely.

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 1 of them, the 3 components of TELUS Health, TELUS Digital in spite of all the ups and downs that we've had, TELUS Ag, it's all -- 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 memorandum 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 2 of those related to TELUS Digital, 1 related to Health, 1 related to pausing real estate joint ventures, which I'll speak about in a moment and then 1 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 2 compared to half 1, our telecom business is stable. We're seeing half 2 steady to half 1. 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 2 for Digital is weaker than half 1. If you think about our service revenue guide and our revised guidance, about 2/3 of that top line reduction is related to TELUS Digital. We are seeing for TELUS Digital though 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 2. And then for Health, our results were less good than we originally expected. But again, looking at half 2, we do see momentum on organic growth. We do see initiatives put into place that are getting traction for margin improvement, including leveraging the WPO acquisition and the platform associated with that and generating efficiencies. Onetime 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 2, 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 for -- towards 10% free cash flow growth for the period between '26 and '28, 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 2 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 '28 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 returned 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 restructure. 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 on 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 kind of head toward the third quarter. That is the intensity with which the leadership team is going to focus on over the next little while.

Okay. And maybe just a follow-up, Victor. In the MD&A, you discussed how you want to deploy resources going forward, and you focused in your discussion there on the telecom part but also mentioned digital and AI. So I wanted to dig into that, trying to figure out how much capital you're willing to invest in AI and if the existing TELUS Digital business is -- continues and remains essential for you to undertake that AI infrastructure investment or could be a portion of the business that could be also divested off or reviewed strategically.

Yes. So there's a bunch of good questions in there, Maher. Thank you for that. One is I want us to be thinking about AI, and I know that term is used way too often nowadays, not only within our TELUS Digital business, where you've quite rightly pointed out that we've got great capabilities. And in spite of the hiccup of the past quarter, we are seeing good growth in our CXAI segment in TELUS Digital, and that's where we're helping notable companies globally with their customer service support using AI to produce a better financial outcome for our customers and for our shareholders but trying to do that within our businesses. So let me give you an example in our core telecom business. Yes, we will need to invest, but I actually think that the resources that we can free up from our existing business and the simplification of our business will allow us to reduce churn to deepen profitable relationships with customers to increase cross-sell as well as to reduce our operating costs over time. In our Global Platform businesses, we have tended to go to the market as 3 different brands of TELUS every time we call in a large enterprise. And the reason we put these businesses under new leadership is not only to figure out, okay, which businesses do we want to monetize but which ones allow us to go as one TELUS to serve our existing telecom clients in Canada with another suite of services, which would include TELUS Digital and an aspect of TELUS Health and those outside Canada, where we don't have a telecom business but working together with those businesses to call on those clients as one TELUS. That and the simplification of our business, I have no doubt that we will be able to deliver better financial results over time and improve that free cash flow and give you more visibility, particularly into 2028 where you're quite rightfully seeking it.

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 -- it's a good question. 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 the 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 -- question and what 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, 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.