Quarterly Report 1 - Bell MTS...1 1 FIRST QUARTER RESULTS HIGHLIGHTED BY STRONG PROFITABILITY -Acquisition of Allstream Positions MTS for Long-term Growth- • Wireless and Internet

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FIRST QUARTER RESULTS HIGHLIGHTED BY STRONG PROFITABILITY -Acquisition of Allstream Positions MTS for Long-term Growth-

• Wireless and Internet operations deliver strong double-digit revenue growth • MTS TV rollout gains momentum with 5,578 net new installed customers • Allstream acquisition creates national platform • Exercise of Bell West Put Option locks in attractive return and proceeds of $645 million

innipeg, May 4, 2004 – Manitoba Telecom Services Inc. (“MTS”) today released first quarter results. The Board of Directors declared the

second quarter cash dividend at $0.25 per share. Commenting on the first quarter, Bill Fraser, President & CEO said, “We had a solid quarter operationally and financially. We locked in our gain on Bell West, and, we announced the acquisition of Allstream – Canada’s most profitable alternative communications provider. We are executing proven strategies that build on our core competencies and evolving MTS to continue to profitably grow and succeed in the changing telecommunications industry.” MTS’s financial performance in the quarter underscores the strength and stability of the Manitoba operations in a period of modest growth in the telecommunications sector. FINANCIAL HIGHLIGHTS (millions of dollars1)

Three months ended March 31

2004 2003 Total Operating Revenues 211.1 210.8Operating Income 58.5 55.9EBITDA2 114.1 110.8Net Income 218.5 24.4Basic Earnings Per Share 3.47 0.39Total Capital Assets3 1,053.1 1,065.0Average Number of Shares Outstanding4

62.9 63.3

Revenues of $211.1 million together with cost improvements contributed to growth in EBITDA and EPS from baseline continuing operations5 of 3.0% and 8.7% respectively. During the quarter, MTS also exercised its put option to sell the Company’s 40% interest in Bell West to Bell Canada for proceeds of approximately $645 million. MTS recognized a one-time pre-tax gain of $232.6 million on the transaction, which represents $3.00 per share on an after-tax basis. “Our Manitoba operations experienced strong growth in wireless, Internet, and TV services which offset the reductions from our local and long distance operations, as well as e-business. Combined with improved cost performance, this contributed to the delivery of another quarter of profitable growth, continuing our Company’s long track record of solid, consistent financial performance,” stated Wayne Demkey, Executive Vice-President Finance & CFO. 1 Excludes earnings per share and average number of shares outstanding. 2 Earnings before interest, taxes, amortization, gain on sale of investment in Bell West, equity losses, goodwill revaluation, and other income. Information concerning EBITDA and baseline financial results are provided because management believes they are used by investors as measures of the Company’s financial performance. These measures do not have a standardized meaning as prescribed by Canadian generally accepted accounting principles (“GAAP”) and are not necessarily comparable to similarly titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity. 3 At March 31st. 4 Weighted, in millions. 5 Baseline continuing operations exclude the impact from Bell West in 2004 and 2003, the restructuring charges involving workforce reductions incurred in the fourth quarters of 2003 and 2002, and a goodwill revaluation charge incurred in the fourth quarter of 2003 associated with the restructuring of Qunara, our e-business division.

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Quarterly Report

for the period ending March 31, 2004

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MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of our financial results for the period ended March 31, 2004 is as of May 4, 2004. In this MD&A, “we”, “our”, and “us” refer to Manitoba Telecom Services Inc. This MD&A should be read in conjunction with our interim consolidated financial statements and the discussion and analysis that accompanies our audited consolidated financial statements for the year ended December 31, 2003. This interim MD&A for the three months ending March 31, 2004, updates the information contained in our 2003 annual MD&A. Unless otherwise mentioned in this interim MD&A, the information contained in our 2003 annual MD&A remains unchanged. This interim MD&A includes forward-looking statements about MTS’s corporate direction and financial objectives that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from those projected or suggested. Examples of statements that constitute forward-looking information may be identified by words such as “believe”, “expect”, “project”, “anticipate”, “could”, “target”, “forecast”, “intend”, “plan”, “outlook”, and other similar terms. Factors that could cause actual results to differ materially from those expected are listed in the “Risks and Uncertainties” section of this MD&A. For a full discussion of these factors, please consult our 2003 annual MD&A contained in MTS’s 2003 annual report. Our 2003 annual report, annual MD&A, Annual Information Form as well as other information about our company, are available on our website at www.mts.ca, as well as SEDAR at www.sedar.com. NNOONN--GGAAAAPP MMEEAASSUURREESS OOFF PPEERRFFOORRMMAANNCCEE In this interim MD&A, we provide information concerning baseline operations, EBITDA, and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by Canadian GAAP and are not necessarily comparable to similarly titled measures used by other companies. • Baseline – We refer to our baseline business or

operations. These operations encompass everything MTS does, with the exception of our investment in Bell West Inc. (“Bell West”). MTS’s consolidated results include our baseline operations as well as the financial impact from our 40% minority interest in Bell West up until February 2, 2004. We structure our discussion and reporting in this manner because we believe investors find it useful in assessing the value of MTS as a whole. As such, our baseline financial results in 2004 and 2003 exclude the impact from Bell West.

Bell West/Bell Intrigna – In 1999 we entered into an agreement with Bell Canada which resulted in the creation of Bell Intrigna, a telecommunications company formed to expand into the business markets of Alberta and British Columbia. From June 1999 until April 10, 2002, we owned 66.67% of Bell Intrigna and Bell Canada owned 33.33%. As a controlling shareholder, we consolidated the operating results, cash flows and financial position of Bell Intrigna with our financial results. On April 11, 2002, we entered into a new agreement with Bell Canada that changed the structure and ownership of Bell Intrigna, resulting in our ownership of 40% of a new expanded company, which was re-named Bell West. Accordingly, we adopted the equity method of accounting for our 40% investment in Bell West and discontinued consolidation of Bell Intrigna’s results. The terms of the agreement also established a series of liquidity provisions (put and call options) for the shareholders of Bell West. On February 2, 2004, we exercised our put option requiring Bell Canada to purchase our 40% investment in Bell West in exchange for cash proceeds of approximately $645 million.

• Continuing Operations – We provide information

that refers to our performance from continuing operations. Continuing operations exclude the restructuring charges involving workforce reductions incurred in the fourth quarters of 2003 and 2002, and a goodwill revaluation charge incurred in the fourth quarter of 2003 associated with the restructuring of Qunara, our e-business division.

• EBITDA – We define EBITDA as earnings before

interest, taxes, amortization, gain on sale of investment in Bell West, equity losses, goodwill revaluation and other income. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

• Free Cash Flow – We define free cash flow as cash

flow from operating activities, less investing activities, dividends and excluding changes in working capital. Free cash flow is the amount of discretionary cash flow that we have for purchasing additional assets beyond our annual capital expenditure program, retiring debt, buying back shares, or increasing dividends.

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RREESSUULLTTSS OOFF OOPPEERRAATTIIOONNSS

Earnings Per Share ($) Three months ended March 31 2004 2003

3.47

(3.00) 0.03

0.39

-- 0.07

Consolidated EPS Gain on Sale of Investment in Bell West Impact from Bell West Baseline EPS 0.50 0.46

Consolidated earnings per share (“EPS”) were $3.47 in the first quarter, compared with $0.39 a year ago. Consolidated EPS were considerably higher this quarter due to our recognition of a one-time $232.6 million pre-tax gain on the sale of our investment in Bell West (or $3.00 per share after-tax). Excluding this gain, growth in consolidated EPS reflects lower losses from our western operations and reduced baseline operations expense. First quarter 2004 results include our portion of Bell West’s net losses from January 1, 2004 to February 2, 2004, whereas 2003 results include our share of Bell West’s net losses for the three month period ending March 31, 2003.

Baseline EPS rose to $0.50 per share in the first quarter, which is up by $0.04 or 8.7% from the same period a year ago. This improvement is attributable to growth in EBITDA.

EBITDA (in millions $) 2004 2003 % change Q1/YTD 114.1 110.8 3.0

EBITDA climbed 3.0% to $114.1 million in the quarter, versus $110.8 million in the previous year. This growth reflects lower baseline operations expense, as well as revenue increases in our wireless, Internet, MTS TV, and directory lines of business, which were offset by lower long distance, e-business, and local service revenues.

REVENUES

Operating Revenues (in millions $) 2004 2003 % change

Q1/YTD 211.1 210.8 0.1

Operating revenues came in at $211.1 million in the quarter, as compared with $210.8 million in the first quarter of 2003. This level of performance reflects strong growth in wireless, Internet and MTS TV services, together with higher directory revenues. These results were offset by lower long distance, e-business and local service revenues. Beginning in the third quarter of 2003, demand for our cross-border wholesale long distance services declined as a result of a loss of a key customer. Revenues from this customer in the first quarter of 2003 totalled approximately $3.1 million. Excluding the impact from this customer, our total operating revenues increased by 1.6% during the first quarter of 2004 over the prior year. Effective January 1, 2004, we changed our accounting policy for deferred alarm installation costs. Further information on this change is provided in the Changes in Accounting Policies, Including Initial Adoption section of this MD&A. Effective January 1, 2004, we also reclassified certain cost of goods sold previously netted

Operating Revenues

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EBITDA (Continuing Operations)

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Baseline EPS (Continuing Operations)

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against revenues reported in our Local Services, Wireless Services and Other revenue categories. These revenues and expenses are now reported on a gross basis. The quarterly information presented for 2003 and 2002 has been restated for comparative purposes. Local Services

(in millions $) 2004 2003 % change Q1/YTD 90.5 91.6 (1.2)

Local services revenues include basic voice connections for residential and business customers, the access component of data services for business customers, enhanced calling features (such as Call Answer, Call Display, Call waiting, and 3-Way Calling), payphones and wholesale revenues from services we provide to competitors. Revenues from local services also include contribution revenue. Local services generated revenues of $90.5 million, down by 1.2% from $91.6 million in the prior year. This slight decline reflects lower revenues from re-pricing of certain business services, a 0.2% reduction in network access services (“NAS”) and slightly lower wholesale revenues. Partly offsetting these factors were increased contribution revenues as well as growth in enhanced services resulting from increased penetration of our Calling Features Value Pack. Higher contribution revenues are attributable to the CRTC’s approval of a portion of our monthly subsidy request contained in our Band F application in CRTC Decision 2003-70. Long Distance Services

(in millions $) 2004 2003 % change Q1/YTD 44.3 49.7 (10.9)

Our long distance line of business includes both voice and data services. Long distance voice services allow residential and business customers to communicate with destinations outside the local exchange. We also offer teleconferencing and virtual networking to business customers. The data component of long distance includes numerous services related to data transmission.

In the first quarter, long distance revenues decreased by 10.9% to $44.3 million. Year-over-year, demand for our cross-border wholesale long distance services has declined as a result of the loss of a key customer in the third quarter of 2003. Revenues from this customer totalled approximately $3.1 million in the first quarter of 2003. Importantly, this long distance traffic was lower margin business, which means that the EBITDA impact was limited. Excluding the impact from this customer loss, our long distance revenues only declined by 4.9% year-over-year. Long distance revenues from business customers were lower mainly as a result of competitive pressures, which contributed to customer losses and lower pricing. Our long distance results were also negatively impacted by CRTC-mandated price decreases for services we provide to competitors. In the first three months of the year, long distance revenues from residential customers also declined. This is primarily due to the increased presence of dial-around competitors. Reduced long distance revenues from residential customers also reflects wireless substitution and customer migration to lower priced plans, partly offset by an increase in our network charge which took effect January 1, 2004. Wireless Services

(in millions $) 2004 2003 % change Q1/YTD 42.0 36.7 14.4

Our wireless portfolio consists of cellular, wireless data, paging and group communications services. During the first quarter, we achieved double-digit revenue growth and solid gains in the customer base. Wireless revenues climbed by $5.3 million or 14.4% to $42.0 million, primarily reflecting continuing customer growth and higher average monthly revenue per customer (“ARPU”).

Local Revenues

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Long Distance Revenues

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Cross-border Customer Revenues

Revenues

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During the first quarter, we added 4,212 net new subscribers to our cellular customer base, versus 2,105 net additions in the first quarter of 2003. Overall, our total customer base increased by 10.0% to 259,869 customers. For the three months ended March 31st, ARPU climbed 6.7% to $51.63, as compared with $48.38 in 2003. The ARPU improvement is primarily attributable to increases in average airtime usage per customer, changes to certain consumer rate plans, pricing increases on enhanced services, as well as the implementation of hardware activation fees. In the quarter, our postpaid wireless churn rate also improved, decreasing from 1.12% in the first quarter of 2003 to 1.08%. Churn refers to the percentage of our total base of customers who cancel their service each month, and directly impacts profitability. Internet Services


We offer dial-up and DSL high-speed Internet service to residential and business customers. Revenues from Internet services rose by 21.0% to $12.7 million in the quarter. This very positive level of performance reflects continuing strong customer demand, growth in market share, and higher average revenue per customer. Our overall Internet customer base increased by 11.9% to 139,904 customers. During the quarter, we added 5,821 net new high-speed Internet customers. As at March 31, 2004, we had an estimated 48% of the residential high-speed Internet market, representing a three-point market share gain since March 2003. We continue to make excellent progress in the high-speed business customer segment, with 5,334 connections at quarter end. This represents growth of 39.4% over 3,826 business connections in the prior year.

Directory Services


Directory revenues principally include our Yellow PagesTM and White Pages telephone directories. During the first quarter, revenues were up 4.1% to $7.7 million, primarily reflecting pricing increases and higher sales volumes. e-business Services (in millions $) 2004 2003 % change

Q1/YTD 5.4 6.7 (19.4)

Qunara Inc., MTS’s e-business subsidiary, is an e-business solutions provider delivering services to business markets. Qunara’s portfolio includes security services, e-business and application services, and hosting services through its Internet Data Centre. Qunara delivered revenues of $5.4 million in the first quarter, compared with $6.7 million in the previous year. The lower revenues reflects the fact that market demand for information technology related services remains

Directory Revenues

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weak. Year-over-year, Qunara experienced declines in its e-business and security services revenues, which was partly offset by growth in revenues generated from its Internet Data Centre services. On a sequential basis, Qunara’s revenue performance has improved for the past two consecutive quarters. In the second half of 2003, we undertook cost containment measures to minimize the impact of softer market conditions. We rationalized Qunara’s product portfolio to emphasize security and managed services – two areas where the Company has competitive advantages in Canada. As market demand has decreased significantly from prior years, we do not forecast strong growth in this segment in 2004. Digital Television

(in millions $) 2004 2003 % change Q1/YTD 1.4 -- n/m

MTS TV is the newest addition to our comprehensive portfolio of services. We began offering a commercial digital TV service in January 2003. MTS TV is offered across our broadband network platform, and is targeted at residential customers in Winnipeg. MTS TV has several competitive advantages over other digital TV services, including the ability to deliver three simultaneous fully digital video signals along with high-speed Internet on a single set-top box. In the quarter, we made excellent progress executing our MTS TV business plan. Driven by exceptional customer growth, MTS TV revenues climbed to $1.4 million. This compares favourably to $1.3 million generated for all of 2003. At March 31, 2004, we had 14,271 installed customers, as compared with 721 installed customers at March 31, 2003. These very positive sales results continue to be achieved with minimal marketing efforts.

Other (in millions $) 2004 2003 % changeQ1/YTD 7.1 8.2 (13.4)

First quarter 2004 other revenues (previously classified as miscellaneous revenues) primarily consist of security services and the sale and maintenance of terminal equipment. The decline in other revenues is primarily attributable to lower year-over-year terminal equipment sales and maintenance revenues. Partly offsetting this decline was growth in security services revenues from our wholly owned subsidiary, AAA Alarm Systems Ltd. OPERATING EXPENSES Operations Expense

(in millions $) 2004 2003 % change

Q1/YTD 97.0 100.0 (3.0)

Operations expense declined by 3.0% to $97.0 million in the first quarter. The improvement is mainly due to lower long distance and contribution costs and lower net operations expenses. Year-over-year, long distance costs have decreased primarily as a result of the termination of a contract we had with a customer for our cross-border wholesale long distance services, which occurred in the third quarter of 2003. Our contribution expense has also decreased due to a reduction in the rate charged on eligible contribution revenues, as defined by the Canadian Radio-Television and Telecommunications Commission (“CRTC”). Lower operations expense reflect a continued focus on reducing expenses in the low growth traditional segments of the business to preserve margins and to shift these expense dollars to drive strong growth from MTS TV, Internet and wireless. First quarter 2004 operations expense also includes an increase in our pension expense year-over-year.

e-business Revenues

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MTS TV Installed Customers

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Amortization Expense (in millions $) 2004 2003 % change

Q1/YTD 55.6 54.9 1.3 Amortization expense increased by 1.3% to $55.6 million in the quarter, primarily due to higher plant in service. Debt Charges


Q1/YTD 8.3 7.8 6.4

For the three months ended March 31st, debt charges were $8.3 million – up 6.4% from $7.8 million in the previous year. This reflects increased interest charges associated with higher average levels of outstanding debt and commercial paper in 2004 versus 2003. Equity Losses


Q1/YTD 2.5 5.6 (55.4)

Our portion of Bell West’s net losses in the first quarter totalled $2.5 million. This compares favourably to our share of Bell West’s net losses in the first quarter of 2003 which totalled $5.6 million. The improvement is due to 2004 results only representing our share of Bell West’s net losses from January 1, 2004 to February 2, 2004, whereas 2003 results include our share of Bell West net losses for the three month period ending March 31, 2003. On February 2, 2004, we exercised our put option, which divested MTS of our 40% ownership interest in Bell West to Bell Canada for approximately $645 million. Gain on Sale of Investment in Bell West


Q1/YTD 232.6 -- n/m

On April 11, 2002, we entered into a shareholder agreement with Bell Canada, which through certain liquidity provisions, confirmed the significant value that was created in Bell Intrigna. In accordance with the terms of that agreement, a put option was established that permitted us to sell our ownership interest in Bell West to Bell Canada at a guaranteed floor value of $458 million plus any additional funding, together with an 8% return on incremental capital. On February 2, 2004, we exercised this put option to sell our 40% ownership of Bell West to Bell Canada for approximately $645 million. Bell Canada must pay this amount by August 3, 2004. We continue to earn an 8% return on our incremental funding to Bell West until we

receive payment. This amount is included in the $645 million value. With the exercise of the put option, we recognized a one-time pre-tax gain of $232.6 million on the sale of our investment in Bell West. The gain represents the difference between the proceeds received from exercise of the put option and the net book value of Bell West on February 2, 2004. Income Tax Expense


Q1/YTD 62.8 18.8 234.0

Income tax expense was $62.8 million in the first quarter, as compared with $18.8 million a year earlier. Our first quarter effective tax rate has decreased from 43.5% in 2003 to 22.3% in 2004, primarily due to the impact of the gain from the sale of our investment in Bell West. The gain is taxed at the lower capital gains rate of approximately 15.5% or $43.8 million ($38.0 million current; $5.8 million future). Excluding the impact from the sale of our investment in Bell West, our effective tax rate would have been comparable to the statutory rate of 37.6%. Consolidated Quarterly Data Unaudited quarterly financial data for our eight most recently completed quarters is presented below:

(in millions $, except earnings per share)

Q1 2004

Q4 2003

Q3 2003

Q2 2003

Operating Revenues Operating Income Net Income EPS Diluted EPS

211.1 58.5

218.5 3.47 3.43

215.9 46.7 12.7 0.20 0.20

215.0 58.1 24.5 0.39 0.39

216.8 57.6 24.0 0.38 0.38

(in millions $, except earnings per share)

Q1 2003

Q4 2002

Q3 2002

Q2 2002

Operating Revenues Operating Income Net Income EPS Diluted EPS

210.8 55.9 24.4 0.39 0.38

215.6 44.7 12.1 0.19 0.19

213.7 58.1 22.1 0.35 0.34

220.6 53.8

110.9 1.72 1.71

Over the past eight quarters, our baseline performance from continuing operations has produced steady growth in revenues, EBITDA and earnings per share. These results reflect: • Continuing strong growth in the newer

communications service areas, including wireless, Internet and other broadband-enabled offerings. These improvements were partially offset by lower overall performance in the traditional telecommunications services of local and long distance.

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• Our continuing efforts to reduce expenses in the low growth traditional segments of the business to preserve margins and to shift these expense dollars to support expansion in the newer high growth areas like wireless, Internet and MTS TV.

In addition to the steady growth that characterizes our baseline continuing operations, our consolidated financial results for the eight most recently completed quarters also reflect: • The deconsolidation of Bell Intrigna from our

financial results effective April 11, 2002. On this date, we adopted the equity method of accounting for our investment in Bell West as a result of our ownership position moving from 66.67% of Bell Intrigna to 40% of Bell West. Our 2003 results account for our 40% share of Bell West’s net losses using the equity method of accounting for the entire year. 2002 results include the impact of consolidating Bell Intrigna results until April 11th, and equity accounting for our share of Bell West’s net losses for the balance of 2002. Our 2004 results equity account for our 40% share of Bell West’s net losses from January 1 to February 2. On February 2, 2004, we exercised our put option and sold our 40% ownership position in Bell West for $645 million.

• The recognition of a one-time pre-tax gain of $232.6

million associated with the sale of our investment in Bell West on February 2, 2004, which produced much higher earnings during the first quarter of 2004.

• The recognition of a one-time pre-tax gain of $94.2

million associated with the Bell Intrigna/Bell West transaction, which produced much higher earnings in the second quarter of 2002.

• Workforce reduction initiatives that we undertook in

the fourth quarters of 2003 and 2002, which resulted in restructuring charges of $5.1 million and $10.0 million respectively.

• The adoption of the fair value method of accounting

for stock options effective January 1, 2003. The quarterly information presented for 2002 has been restated to reflect the retroactive application of this policy.

• A change in our accounting policy for deferred

alarm installation costs effective January 1, 2004. The quarterly information presented for 2003 and 2002 has been restated for comparative purposes. Further information is provided in the Changes in Accounting Policies, Including Initial Adoption section of this MD&A.

• In addition, baseline and consolidated basic earnings per share have been impacted by share buybacks we have undertaken over the past two years (2003 – 881,336 Common Shares; 2002 – 811,615 Common Shares).

Excluding the impact of Bell West, Bell Intrigna and the charges associated with our restructuring initiatives, our overall performance has delivered relatively consistent and stable results, with limited variability on a quarterly basis. LLIIQQUUIIDDIITTYY AANNDD CCAAPPIITTAALL RREESSOOUURRCCEESS Cash Flows from Operating Activities (in millions $) 2004 2003 $ change

Q1/YTD 46.7 63.5 (16.8)

Cash flows from operating activities refers to cash we generate from our normal business activities. Cash flows from operating activities were $46.7 million in the first quarter, as compared with $63.5 million in the previous year. Cash flows from operating activities were lower in the first quarter of 2004 due to a reduction in cash from changes in working capital. The year-over-year decrease is also partly attributable to higher pension plan funding of $3.6 million in the first quarter of 2004. Cash Flows used in Investing Activities

(in millions $) 2004 2003 $ change Q1/YTD (46.2) (56.2) 10.0

Investing activities represent cash used for acquiring, and cash received from disposing of, long-term assets and other long-term investments. During the first quarter, we used $46.2 million for investing activities, which represents a $10 million reduction from the prior year. Our capital expenditures totalled $38.5 million, as compared with $32.4 million in the previous year. This $6.1 million increase is related to differences in the timing of our planned expenditures. Cash flow used in investing activities in 2004 includes funding provided to Bell West in the amount of $8.0 million, versus funding provided to Bell West in the first quarter of 2003 of $24.0 million. Lower year-over-year funding to Bell West is attributable to the fact that we sold our 40% ownership position in Bell West on February 2, 2004, through the exercise of our put option. Following this date, we no longer provide funding to Bell West.

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Free Cash Flow

(in millions $) 2004 2003 $ change 15.3

8.0 7.0

24.0 8.3

(16.0) Consolidated Funding to Bell West Baseline 23.3 31.0 (7.7)

Free cash flow is the discretionary funds we have available for purchasing assets, increasing dividends, undertaking share buybacks or retiring debt. On a consolidated basis, free cash flow for the three months ended March 31, 2004 was $15.3 million compared to $7.0 million in the first quarter of 2003. This $8.3 million increase reflects lower funding to Bell West, which was partly offset by lower baseline free cash flow. For the three months ended March 31, 2004, free cash flow from baseline operations was $23.3 million, compared with $31.0 million in the first quarter of 2003. The year-over-year decline in baseline free cash flow is mainly attributable to higher capital expenditures reflecting timing differences, as well as an increase in dividends. Cash Flows from Financing Activities

(in millions $) 2004 2003 $ change Q1/YTD 18.8 1.5 17.3

Financing activities refer to actions we undertake to fund our operations through equity capital and borrowings. Cash flows from financing activities were $18.8 million in the first quarter. During the three months ended March 31, 2004, we issued notes payable of $34.5 million to fund short-term working capital requirements, and cash outflows associated with dividend payments were $15.7 million. In the first quarter of 2003, we re-purchased over 880,000 Common Shares for cancellation for $30.8 million, paid dividends of $13.8 million, and issued notes payable of $46.0 million.

Credit Facilities (in millions $) Capacity Utilized at

March 31/04 Medium Term Note Program 350 --

Commercial Paper 150 102.5

50 -- Operating Line of Credit Total 550 102.5

We have arrangements in place that allow us to access the debt and commercial paper markets for funding when required. Borrowings under these facilities are typically used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations. We renewed our medium term note program in June 2003, which enables MTS to periodically issue medium term notes up to an amount of $350 million until July 2005. MTS has a commercial paper program for $150 million, under which $102.5 million was outstanding at March 31, 2004. This program enables us to add a short-term component to our debt structure where appropriate. We also have a $50 million operating line of credit. This facility was not utilized as of March 31, 2004. Capital Structure

(in millions $) March 31/ 04 December 31/03 Long-term Debt and Notes Payable 563.8 529.3

1,090.7 887.5 Shareholders Equity Total Capitalization 1,654.5 1,416.8 Debt to Capitalization 34.1% 37.4%

Our capital structure illustrates how much of our assets are financed by debt versus equity. At March 31, 2004, our debt ratio was an industry-low 34.1%, which means that we have excellent financial strength and flexibility. Since December 31, 2003, our debt ratio has decreased as a result of an increase in shareholders’ equity. Shareholders’ equity has increased as a result of the recognition of a one-time gain associated with the sale of our investment in Bell West. During the three months ended March 31, 2004, we issued notes payable under our commercial paper program, which is the reason for the increase in our long-term debt and notes payable levels as indicated in the table provided above.

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Credit Ratings

S&P – Senior debentures CreditWatch Implications

Negative A

S&P – Commercial paper CreditWatch Implications

Negative A-1 (Mid)

DBRS – Senior debentures Under Review with Negative Implications

A (low)

DBRS – Commercial paper Under Review with Negative Implications

R-1 (low)

Two leading rating agencies Standard & Poor’s (“S&P”) and Dominion Bond Rating Service (“DBRS”) analyze MTS and assign ratings based on their assessments. We have consistently been assigned very strong credit ratings. Our favorable credit ratings have been due to our company’s continuing balance sheet strength, high levels of profitability, low risk profile, and leading market position in Manitoba. On January 28, 2004, S&P put our credit ratings on CreditWatch, following an announcement that our Board of Directors had received a proposal from a shareholder requesting that MTS place a resolution before its shareholders at the 2004 annual meeting of shareholders as to whether or not MTS should be converted to an income trust. Ratings appear on CreditWatch when an identifiable event occurs that could impact current credit ratings. Following the announcement on March 18, 2004 of our plans to acquire Allstream, S&P revised its CreditWatch implications from developing to negative. DBRS also placed our ratings “Under Review with Negative Implications” following this corporate development. DBRS is currently reviewing the Allstream transaction. On April 30, 2004, S&P confirmed that MTS’s ‘A’ long-term corporate credit and senior unsecured debt ratings remain on CreditWatch with negative implications, and announced its intention to revise our corporate credit ratings following completion of the Allstream

acquisition. S&P plans to lower our corporate and senior unsecured ratings to ‘BBB+’ with a stable outlook. Our short-term credit rating and commercial paper rating will be lowered to ‘A-1 (low)’. S&P has indicated that the combined company will continue to maintain above average credit metrics. Outstanding Share Data as of April 27, 2004 Authorized: • Unlimited number of Preference Shares of two

classes issuable in one or more series • Unlimited number of Common Shares of a single

class

Issued: Shares

Class A Preference

Number

1,379,556

Book Value (in millions $)

33.0

Common 61,520,053 552.5 585.5

Stock options: Options Number Weighted Average

Exercise Price Per Share

Outstanding 1,983,120 $28.07 Exercisable 1,144,200 $23.72

Financial Instruments and Off-Balance Sheet Arrangements Foreign Currency Forward Contracts Beginning in 2004, we use foreign currency forward contracts to manage the price of our U.S. dollar purchases. At March 31, 2004, we have outstanding foreign currency forward contracts to purchase $8.0 million U.S. These contracts mature periodically over a nine-month period beginning in April 2004 and ending in December 2004. These instruments are accounted for as a hedge of anticipated transactions and are not recorded on our balance sheet. CCHHAANNGGEESS IINN AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS,, IINNCCLLUUDDIINNGG IINNIITTIIAALL AADDOOPPTTIIOONN Effective January 1, 2004, we adopted the following changes to our accounting policies: AAA Alarms Accounting Policy We changed our accounting policy for deferred alarm installation costs to proportionately match the costs of alarm installation with the installation and monitoring revenues earned from the customer. Previously, we amortized 100% of the alarm installation costs. We will continue to amortize deferred costs over the estimated period of benefit of ten years. We have applied this change in accounting policy retroactively and have restated prior period balances for comparative purposes.

Total Debt to Total Invested Capital

0102030405060708090

100

Q1/03 Q2/03 Q3/03 Q4/03 Q1/04

Perc

ent

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Foreign Currency Forward Contracts In January 2004, we began using foreign currency forward contracts to manage foreign exchange exposure, which arises in the normal course of business operations. We are adopting a hedge accounting policy, which applies to foreign currency forward contracts that are designated and effective as hedges for foreign currency denominated commitments. Our policy is to formally document the relationship between a hedging instrument and a hedged item, as well as the nature of the specific risk exposure being hedged and the intended term of the hedging relationship. The effectiveness of the hedge is assessed at its inception and throughout the term of the hedge. Gains and losses on forward currency contracts that qualify for hedge accounting are recognized in income in the same period that gains and losses on the underlying hedged transactions are recognized. We do not utilize derivative financial instruments for any speculative purposes. RRIISSKKSS AANNDD UUNNCCEERRTTAAIINNTTIIEESS Risks and uncertainties in the business are discussed in our 2003 annual MD&A contained in MTS’s 2003 annual report and in MTS’s 2003 Annual Information Form. Both of these documents are available on our website at www.mts.ca. These risks and uncertainties include regulatory and policy decisions, changes in competitive conditions, economic fluctuations, technological change and displacement, changes in labour agreements, changes in our alliance with Bell Canada, and a shareholder proposal. All of the information contained in the Risks and Uncertainties section of our annual MD&A remains unchanged, with the exception of the discussion pertaining to the Shareholder Proposal, which has been updated below to reflect recent developments. Shareholder Proposal On January 27, 2004, we announced that our Board of Directors had received a valid proposal pursuant to section 131 of The Corporations Act (Manitoba) from a shareholder requesting that MTS place a resolution before its shareholders at the 2004 annual meeting of shareholders requesting that if approved, the Directors put forward a conversion proposal to convert MTS to an income trust at a future shareholder meeting. On April 5, 2004, we received notification that the shareholder was formally withdrawing its proposal. Accordingly, the shareholder proposal will not be voted on at our 2004 annual meeting. See also the following section titled Outlook. OOUUTTLLOOOOKK The outlook for our baseline operations in 2004 that is provided in our 2003 annual MD&A remains unchanged.

Proposed Transaction -- Summary On March 18, 2004, MTS entered into an Arrangement Agreement with Allstream Inc. (“Allstream”), pursuant to which MTS will acquire all of the Class A and Class B shares of Allstream (the “Transaction”). This transaction combines the strengths of North America’s most profitable communications provider with Canada’s largest and most profitable alternative communications solutions provider. Our proposal to acquire Allstream creates the opportunity for immediate value enhancement for shareholders, as well as continuing upside potential going forward. Under the terms of the Arrangement Agreement, Allstream shareholders who are qualifying Canadian residents will receive 1.0909 MTS Common Shares and $23.00 in cash for each Allstream Class A Share and Class B Share. Allstream shareholders who are not qualifying Canadian residents will receive 1.0909 non-voting Class B Preference Shares of MTS and $23.00 for each Allstream Class A or Class B Share. These non-voting Class B Preference Shares will participate equally with the Common Shares in all dividends, and are convertible into Common Shares on a one for one basis, subject to foreign ownership restrictions. Holders of the Class B Preference Shares are entitled to receive notice of meetings of shareholders and to attend these meetings, but are not entitled to vote on any matter at these meetings. This acquisition extends MTS’s capabilities and expertise to the national stage, providing significant opportunity for profitable growth and long-term value creation for our shareholders. Allstream offers a broad portfolio of business solutions including data and voice connectivity, infrastructure management and information technology services. Allstream currently commands an 11% share of the Canadian business telecommunications market with an impressive blue chip customer base, and ranks second in terms of market share in every market in which it operates. By capitalizing on both companies’ inherent strengths, the expanded company is well positioned to better service customers. MTS shareholders will benefit from a substantial issuer bid of approximately $800 million, which we intend to undertake following the closing of the Transaction. The issuer bid will improve liquidity and reduce ownership dilution. It is also expected that the expanded company will produce strong and growing free cash flows. We intend to establish our annual dividend at $2.60 per share (payable quarterly) following completion of the Allstream transaction, which represents an increase of 160% over MTS’s current dividend rate. In addition, the Transaction is expected to be immediately accretive to our earnings per share and cash flow per share. While there is a complementary fit to the companies’ operations, the Transaction is expected to

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generate annualized cash savings of approximately $120 million by 2005 through a combination of approximately $40 million of operating synergies and $80 million of cash tax savings as a result of utilizing Allstream’s unused tax losses. The Transaction will be implemented by means of a court-approved plan of arrangement of Allstream (the “Plan”) pursuant to the provisions of the Canada Business Corporations Act. As part of the process, the Plan will be submitted to Allstream’s shareholders for approval. In addition, the Transaction is being reviewed by the Competition Bureau. The Transaction may require the amendment and/or termination of some agreements with Bell Canada. The Board of Directors of both companies have unanimously approved the Transaction (in the case of MTS, with directors who are nominees of Bell Canada abstaining). The Board of Directors of Allstream is recommending the Transaction for approval by its shareholders at a meeting to be held on May 12, 2004. A circular was mailed to Allstream shareholders in early April 2004. Closing is expected to occur in June 2004. 2004 Financial Outlook It is expected that on a pro forma basis, the expanded company will achieve 2004 revenues of approximately $2.0 to $2.1 billion, EBITDA of more than $700 million and free cash flow before dividends and buybacks of $280 to $310 million. Excluding the one-time pre-tax gain of $232.6 million (or $3.00 per share after-tax) from the sale of our investment in Bell West, 2004 earnings per share is forecast to exceed $3.00, and cash earnings per share (defined as earnings per share plus future taxes) is expected to range between $4.50 and $4.65. These forecasts exclude potential post closing 2004 operating synergies. Capital spending in 2004 is forecast at $330 million. NOTICE OF DIVIDEND RECORD DATE

Notice is hereby given that the close of business on May 28, 2004 has been fixed as the record date for the purpose of determining those shareholders entitled to receive payment of MTS’s second quarter dividend. The dividend, in the amount of $0.25 Canadian per Common Share and Preference Share of the Corporation, has been declared payable July 12, 2004 to shareholders of record at the close of business on May 28, 2004. This notice is provided in accordance with section 128(4) of The Corporations Act (Manitoba).

This interim MD&A contains forward-looking statements and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Forward-looking statements reflect our expectations as of May 4, 2004. Additional information on these risks can be found in our filings with the Canadian securities commissions. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This MD&A and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors.

MTS is Manitoba’s preeminent, full-service telecommunications company. Seamlessly blending innovative solutions and world-class technology, MTS connects its customers to the world. Qunara Inc., MTS’s e-commerce, e-business and Internet Data Centre subsidiary, provides business solutions across North America. The Company’s common shares are listed on The Toronto Stock Exchange (trading symbol: MBT)

Notes:

Supplementary financial information is available in the Investors section of the MTS website at www.mts.ca.

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2004 2003(Notes 2 and 9)

Operating revenues Local services $ 90.5 $ 91.6 Long distance services 44.3 49.7 Wireless services 42.0 36.7 Internet services 12.7 10.5 Directory services 7.7 7.4 e-business services 5.4 6.7 Digital television 1.4 - Other 7.1 8.2 211.1 210.8

Operating expenses Operations expense 97.0 100.0 Amortization 55.6 54.9 152.6 154.9

Operating income 58.5 55.9

Gain on sale of investment in Bell West (Note 3) 232.6 - Equity losses (2.5) (5.6) Other income 1.0 0.7Debt charges (8.3) (7.8)

Income before income taxes 281.3 43.2

Income taxes Current 55.8 20.1 Future 7.0 (1.3)

62.8 18.8

Net income $ 218.5 $ 24.4

Basic earnings per share (Note 5) $ 3.47 $ 0.39

Diluted earnings per share (Note 5) $ 3.43 $ 0.38

Three months endedMarch 31

MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF INCOME

(Unaudited)(in millions)

14

2004 2003(Note 2)

Retained earnings, beginning of period As previously reported $ 299.8 $ 296.0 Adjustment for change in accounting policy (Note 2) (1.2) (1.0) As restated 298.6 295.0

Net income for the period 218.5 24.4

Dividends (15.7) (13.8)

Purchase of outstanding Common Shares - (22.9)

Retained earnings, end of period $ 501.4 $ 282.7


MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF RETAINED EARNINGS


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2004 2003(Note 2)

Cash flows from operating activities Net income $ 218.5 $ 24.4 Amortization 55.6 54.9 Gain on sale of investment in Bell West (Note 3) (232.6) - Increase in taxes payable on Bell West gain 38.0 - Equity losses 2.5 5.6 Cash used in changes in working capital (30.5) (13.5) Future income taxes 7.0 (1.3) Deferred wireless costs (5.2) (3.4) Pension funding and net pension credit (4.1) (1.4) Other, net (2.5) (1.8) Cash flows from operating activities 46.7 63.5

Cash flows from investing activities Capital expenditures, net (38.5) (32.4) Increase in investments (8.0) (24.0) Other 0.3 0.2 Cash flows used in investing activities (46.2) (56.2)

Cash flows from financing activities Dividends (15.7) (13.8) Issuance of notes payable, net 34.5 46.0 Purchase of outstanding Common Shares - (30.8) Issuance of share capital - 0.1 Cash flows from financing activities 18.8 1.5

Change in bank indebtedness 19.3 8.8

Bank indebtedness, beginning of period (4.4) (9.6)

Cash and cash equivalents (bank indebtedness), end of period $ 14.9 $ (0.8)


MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF CASH FLOWS


16

March 31 December 312004 2003

(Note 2)

Current assets Cash and cash equivalents $ 14.9 $ - Accounts receivable 75.6 82.7 Receivable on sale of investment (Note 3) 645.0 - Prepaid expenses 19.3 16.5 Future income taxes 4.4 10.4 Investment (Note 3) - 404.6

759.2 514.2

Property, plant and equipment 2,757.0 2,760.2Accumulated amortization 1,703.9 1,695.2

1,053.1 1,065.0

Investments 14.8 15.1Other assets 60.1 54.7Future income taxes 3.7 3.3Goodwill and other intangible assets 30.5 30.7

$ 1,921.4 $ 1,683.0

Current liabilities Bank indebtedness $ - $ 4.4 Accounts payable and accrued liabilities 192.1 188.7 Advance billings and payments 26.9 26.1 Notes payable 102.5 68.0 Current portion of long-term debt 84.7 75.0

406.2 362.2

Long-term debt 376.6 386.3Deferred employee benefits 25.7 26.2Future income taxes 22.2 20.8

830.7 795.5 Shareholders' equity Share capital (Note 5) 1,379,556 Preference Shares 33.0 33.0 61,520,053 Common Shares 552.5 552.5

585.5 585.5 Contributed surplus 3.8 3.4 Retained earnings 501.4 298.6 1,090.7 887.5

$ 1,921.4 $ 1,683.0

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

MANITOBA TELECOM SERVICES INC.CONSOLIDATED BALANCE SHEET


MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (All financial amounts are in millions, except where noted)

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1. Significant accounting policies

The consolidated financial statements of Manitoba Telecom Services Inc. (the “Company”) have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The Company’s financial statements have been prepared using the same accounting policies and methods of their application as the Company’s audited financial statements for the year ended December 31, 2003, except for the initial adoption of an accounting policy to address foreign exchange hedging transactions which began in 2004, and the change in accounting policy described in Note 2. These interim financial statements should be read in conjunction with the Company’s financial statements for the year ended December 31, 2003.

Foreign exchange hedging Effective January 1, 2004, the Company began purchasing foreign currency forward contracts in U.S. dollars to manage foreign currency exchange exposure which arises in the normal course of business operations. The Company applies hedge accounting for foreign currency forward contracts and U.S. dollars that are designated and effective as hedges of foreign currency denominated commitments. The Company’s policy is to formally document the relationship between a hedging instrument and a hedged item, as well as the nature of the specific risk exposure being hedged and the intended term of the hedging relationship. The effectiveness of the hedge is assessed at its inception and throughout the term of the hedge. Gains and losses on foreign currency forward contracts and U.S. dollars that qualify for hedge accounting are recognized in income in the same period that gains and losses on the underlying hedged transactions are recognized. The Company does not utilize derivative financial instruments for speculative purposes.

2. Changes in accounting policy

Deferred alarm installation costs Effective January 1, 2004, the Company changed its accounting policy for deferred alarm installation costs, as permitted by Canadian GAAP and to proportionately match alarm installation costs with installation and monitoring revenues earned from customers. The Company has applied this change in accounting policy retroactively and has restated prior periods. As a result, retained earnings as at January 1, 2003 decreased by $1.0 million. As at December 31, 2003, other assets decreased by $1.9 million, the long-term future income tax liability decreased by $0.7 million and retained earnings decreased by $1.2 million. The result of this change on 2003 comparative figures is an increase in operations expense of $0.1 million and a decrease in amortization expense of $0.1 million.

3. Sale of investment in Bell West

Effective February 2, 2004, the Company exercised its option to sell its interest in Bell West Inc. (“Bell West”) to Bell Canada, and, as a result, has discontinued the use of equity accounting for this investment. The proceeds of sale, as specified in the Bell West Shareholders Agreement, will be the aggregate of the guaranteed floor value of $458 million, plus incremental funding advanced by the Company to Bell West since April 11, 2002, plus an 8% return on that incremental capital, and must be paid by Bell Canada no later than 180 days after February 2, 2004. The Company estimates the proceeds of sale to be $645.0 million, and has recognized a pre-tax gain on the sale of its investment in the amount of $232.6 million.



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4. Proposed acquisition of Allstream Inc.

On March 18, 2004, the Company entered into an agreement with Allstream Inc. (“Allstream”), pursuant to which MTS will acquire all of the Class A and Class B shares of Allstream. Under the terms of the agreement, Allstream shareholders who are qualifying Canadian residents will receive 1.0909 MTS Common Shares and $23.00 in cash for each Allstream Class A Share and Class B Share. Allstream shareholders who are not qualifying Canadian residents will receive 1.0909 non-voting Class B Preference Shares of MTS, and $23.00 for each Allstream Class A Share and Class B Share. The Class B Preference Shares of MTS will participate equally with Common Shares in all dividends, and are convertible into Common Shares on a one for one basis, subject to foreign ownership restrictions. Holders of the Class B Preference Shares are entitled to receive notice of meetings of shareholders and to attend these meetings, but are not entitled to vote on any matter at these meetings. The Company will account for this acquisition using the purchase method of accounting, and has estimated the purchase price at approximately $1.6 billion. The closing of this proposed transaction, which is subject to approval by Allstream’s shareholders, is expected to occur in June 2004.

5. Earnings per share

The following table provides a reconciliation of the information used to calculate basic and diluted earnings per share: 2004 2003 Net income Net income - basic and diluted $ 218.5 $ 24.4 Weighted average shares outstanding (in millions) Weighted average number of shares outstanding - basic 62.9 63.3 Dilutive effect of outstanding stock options 0.8 0.3 Weighted average number of shares outstanding - diluted 63.7 63.6 Basic earnings per share $ 3.47 $ 0.39 Diluted earnings per share $ 3.43 $ 0.38

The Preference Shares participate in the earnings of the Company on an equivalent basis with the Common Shares. Therefore, the Preference Shares are included in the weighted average number of shares outstanding for the purposes of calculating basic and diluted earnings per share.

6. Foreign currency forward contracts

The Company has a foreign exchange hedging program to manage foreign currency exposure, which arises in the normal course of business operations. As at March 31, 2004, the Company has outstanding foreign currency forward contracts to purchase $8.0 million U.S. These contracts mature periodically beginning in April 2004 and ending in December 2004. As at March 31, 2004, the fair value of the foreign currency forward contracts is $0.2 million in favour of the Company, and the deferred foreign exchange loss is $0.02 million.

7. Restructuring costs

In the fourth quarter of 2003, the Company recorded a pre-tax restructuring charge in the amount of $5.1 million. The restructuring charge represents severance costs and other employee related costs, resulting from a decision to streamline operations. As at March 31, 2004, the restructuring program has been substantially completed. Total restructuring costs paid to March 31, 2004 were $3.7 million, leaving an outstanding restructuring liability balance at March 31, 2004 of $1.4 million. Included in the outstanding liability are early retirement incentive amounts, some of which are payable beyond 2004.



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8. Segmented information

As at March 31, 2004, the Company has one reportable operating segment: MTS Communications, which provides a full range of local, long distance, data, wireless, Internet access, digital television, security system, and telecommunications-related services. Revenues from segments below the quantitative thresholds are attributable to two operating segments of the Company. These segments are MTS Media Inc., which provides directory publishing and media services, and Qunara Inc., which provides e-business services. The Company has restated the 2003 comparative figures for the effect of the change in accounting policy related to deferred alarm installation costs (Note 2). The Company also has restated the 2003 comparative figures to conform to 2004 presentation (Note 9).

The Company evaluates performance based on EBITDA (earnings before interest, taxes, amortization, gain on sale of investment in Bell West, equity losses and other income). The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at prices that approximate current market prices. The following table provides further segmented information: Three Months Ended March 31

MTS All Other Communications Segments Total 2004 2003 2004 2003 2004 2003 Operating revenue – external $197.6 $196.3 $13.5 $14.5 $211.1 $210.8 Operating revenue – internal 1.0 0.8 6.6 6.7 7.6 7.5 EBITDA 108.5 107.4 5.6 3.4 114.1 110.8

A reconciliation of EBITDA to net income is as follows: 2004 2003 Total EBITDA $114.1 $ 110.8 Amortization (55.6) (54.9) Gain on sale of investment in Bell West 232.6 - Equity losses (2.5) (5.6) Other income 1.0 0.7 Debt charges (8.3) (7.8)

Income taxes (62.8) (18.8) Consolidated net income $ 218.5 $ 24.4

9. Comparative figures The prior period figures have been reclassified where necessary to conform to 2004 presentation. Costs of

goods sold previously netted against Wireless services revenues and Other revenues, are now included as Operations expenses.

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MANITOBA TELECOM SERVICES INC. P.O. Box 6666 333 Main Street Winnipeg, Manitoba, Canada R3C 3V6 1-888-544-5554 www.mts.ca

Documents

Quarterly Report 1 - Bell MTS...1 1 FIRST QUARTER RESULTS HIGHLIGHTED BY STRONG PROFITABILITY -Acquisition of Allstream Positions MTS for Long-term Growth- • Wireless and Internet