Manitoba Telecom Services Inc

MANITOBA TELECOM SERVICES INC. ANNUAL REPORT 2000

connected to our market... future... new opportunities... THOMAS E. STEFANSON Chairman, Manitoba Telecom and MTS Communications In Mr. Stefanson has been Chai since 1989. He is a member o Governance Committee. JOHN F Chairma Mr. Frase since 19 Governa MISSION of the A

Our Goal: We will continue to diversify and grow our business, delivering

innovative communications, e-business and media solutions with exceptional

value to our customers in Manitoba and beyond.

RAYMOND L. McFEETORS President & Chief Executive Officer, The Great-West Life Assurance Company and London Life Insurance Company Mr. McFeetors 2000 2000 has been a Director of MTS since 1997. He is a member of the Governance Committee. TABLE OF CONTENTS

2 at a glance annual report annual report 4 to our shareholders from the chairman and the president & CEO

6 to our market

10 to our future

14 to new opportunities

18 our commitment JONATHAN P. KLUG 20 md&a / financial statements Chief Financial Officer, Bell Canada 21 management’s discussion and analysis Mr. Klug has been a 32 management’s responsibility for Director of MTS since 2000. He is a member of consolidated financial statements the Audit Committee. audit committee report auditors’ report

33 consolidated statement of income

34 consolidated statement of retained earnings consolidated statement of cash flow

35 consolidated balance sheet

36 notes to consolidated financial statements MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA 43 five years in review

44 investor information MTS BOARD OF DIRECTORS THOMAS E. STEFANSON Chairman, Manitoba Telecom Services Inc. and MTS Communications Inc. Mr. Stefanson has been Chairman of MTS since 1989. He is a member of the Governance Committee. WILLIAM C. FRASER President & Chief Executive Officer, JOHN F. FRASER, O.C. Manitoba Telecom Services Inc. Chairman, Air Canada and MTS Communications Inc. Mr. Fraser has been a Director of MTS Mr. Fraser has been a Director CHERYL BARKER since 1997. He is the Chairman of the of MTS since 1997. Executive Vice-President Governance Committee and a member Finance & Chief Financial Officer, of the Audit Committee. Manitoba Telecom Services Inc. Vice-President Finance, MTS Communications Inc.

DAVID C. ROURKE Executive Vice-President Operations, MTS Communications Inc. ROGER H. BALLAN JOCELYNE M. CÔTÉ-O’HARA Executive Vice-Presid Sales & Marketing, Principal, C2O & Company MTS Communication Ms. Côté-O’Hara has been a Director of MTS since 1997. She is the Chairperson of the Board of MTS Advanced Inc., and a member of the Audit Committee and of the Human Resources and Compensation Committee.

C. ARNOLD L. MORBERG President & Chief Executive Officer, Calm Air International Ltd. RAYMOND L. McFEETORS Mr. Morberg has been a Director of MTS since 1997. He is a member of the Human Resources President & Chief and Compensation Committee. Executive Officer, The Great-West ARTHUR R. SAWCHUK Life Assurance Company and Chairman, Manulife Financial Corporation London Life Mr. Sawchuk has been a Director of MTS since 1997. Insurance He is a member of the Governance Committee and of Company the Human Resources and Compensation Committee. Mr. McFeetors 2000 has been a MTS MANA Director of MTS since 1997. He is a member of the Governance Committee. N. ASHLEIGH EVERETT Chairman, Royal Canadian Properties Limited and President, Royal Canadian Securities Limited

annual report D. SAMUEL SCHELLENBERG Ms. Everett has been a Director General Manager, Pembina of MTS since 1997. She is a Valley Water Cooperative Inc. member of the Audit Committee. Mr. Schellenberg has been a Director of MTS since 1989. He is the Chairman of the Human Resources and Compensation Committee and a member of the Audit Committee.

GEDAS A. SAKUS Corporate Director JONATHAN P. KLUG Mr. Sakus has been a Director of MTS since 1999. He is a member of the Human Resources and Chief Financial Officer, Compensation Committee. Bell Canada Mr. Klug has been a Director of MTS since DONALD H. PENNY, F.C.A., L.L.D. 2000. He is a member of Officers of Manitoba Teleco Chairman, Meyers Norris Penny the Audit Committee. Mr. Penny has been a Director of MTS since 1997. He is the Chairman of the Audit Committee and THOMAS E. STEFANSON CHERYL B a member of the Governance Committee. Chairman, Executive Manitoba Telecom Services Inc. Finance & and MTS Communications Inc. Chief Fina Winnipeg, Manitoba Manitoba Vice-Presid WILLIAM C. FRASER, C.A. MTS Comm Winnipeg, President & RANDALL J. REYNOLDS Chief Executive Officer, PETER J. F Manitoba Telecom Services Inc. President & Chief Executive JOHN W. SHERIDAN Officer, BCE Nexxia Inc. and MTS Communications Inc. Executive President, Bell Canada Chairman, Business D Mr. Reynolds has been a Bell Intrigna Inc. Counsel & Director of MTS since 2000. Mr. Sheridan has been a Winnipeg, Manitoba Manitoba He is a member of the Director of MTS since 2000. Winnipeg, Governance Committee. He is a member of the MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA Human Resources and ROGER H Compensation Committee. Executive Sales & M MTS Comm Winnipeg, FINANCIAL HIGHLIGHTS Total OperatingRevenues MTS Baseline Bell Intrigna 96 97 98 99 00 Years endedDecember31 Per share information Baseline netincome Net income Baseline EBITDA EBITDA Revenues (in $millions) Baseline EPS EPS

0100 200 300 400 500 600 700 800 900 in $millions Operating Income

96 97 98 99 00

020 40 60 80 100 120 140 160 180 in $millions 1.74 $ 1.55 $ 113.0 100.5 385.7 360.9 822.2 2000 2000 Baseline EBITDA

96 97 98 99

00 21.7% 15.7% 1.43 $ 1.34 $ 0. 12.7% 15.1% 100.3 11.1% 10.8% 335.1 324.8 741.9 99%change 1999 99%change 1999 397.0% 93.9 0100 200 300 400 in $millions Baseline EPS

97 98 99 00

0 0.25 0.50 0.75 1.00 1.25 1.50 1.75 in $

MANITOBA TELECOM SERVICES INC. 1 annual report 2000 MANITOBA TELECOM SERVICES INC. 2 annual report 2000 MTS at a glance under thetradingsymbolMBT. MTS’s Web siteislocatedatwww.mts.mb.ca Columbia. MTS’s commonsharesarelistedonTheToronto StockExchange broadband-based offerings, areprovidedtobusinessesinAlbertaandBritish telecommunications services,includingnextgenerationInternetProtocol(”IP”) majority-owned subsidiary, BellIntrignaInc.(“BellIntrigna”),leading-edge delivered overworld-class,fibreopticsbased,digitalnetworks.Throughits e-commerce andonlinemultimediatelecommunicationsservices.Servicesare full-service provideroflocal,longdistance,wireless,directory, Internet, provider ofcommunicationsservices.InManitoba,MTSistheprovince’s only Manitoba Telecom ServicesInc.(”MTS”)isWestern Canada’s leadingregional Bell IntrignaInc. AAA AlarmSystemsLtd. The EXOCOMGroup Inc. MTS AdvancedInc. MTS CommunicationsInc. Manitoba Telecom ServicesInc. offices inVancouver andEdmonton. Bell Intrignaisheadquartered inCalgary, with network andvoicecommunicationsservices. IP hostingservices.Italsoprovides avarietyofdata PrivateNetworkorExtranet,and Access, IPVirtual of businessservices,includingBellNexxia’s IPConnect IPnetworkwithavariety to-coast andinternational relationship withBellNexxia,Intrignaoffers acoast- in AlbertaandBritishColumbia.Through astrategic of BCENexxiaInc.(“BellNexxia”)withoperations Canada andaccessservicesfornationalcustomers products andservicestobusinessesinWestern Bell Intrignaoffers afullsuiteoftelecommunications in Winnipeg andoperatinginManitobaAlberta in Winnipeg Residential andbusinesssecuritysystems,based Halifax andCalgary. Based inOttawaandoperatingToronto, integration andenterpriseinfrastructure consulting. consulting, applicationdevelopment,technology (“IT”) strategyanddesignconsulting,ITsecurity Advanced e-businessservices:informationtechnology Media services Qunara Telecommunications-related services(provided ona services Internet services(cellular/PCS,paging,groupWireless Data andintegratedservices Local andlongdistanceservices myWinnipeg.com Content servicesmanagement(forallMTScompanies) Directory publishing(MTSWhitePagesand datacentreInternet services e-business solutions e-commerce solutions outside Manitoba) contract basistotelecommunicationscompanies communications, wireless data) Yellow Pages TM , Internet Yellow, Internet Pages TM – 66.67%ownership (local Internet portalsite) (local Internet TM )

MANITOBA TELECOM SERVICES INC. 3 annual report 2000 to our shareholders MANITOBA TELECOM SERVICES INC. 4 annual report 2000 to our shareholders from thechairmanandpresident &CEO THOMAS E.STEFANSON CHAIRMAN www.mts.mb.ca related link 1 Baseline resultsexcludetheimpactofBellIntrigna. EPS resultsof$1.55,representinganincrease15.7percent. from 1999.Onaconsolidatedbasis,wealsorealizedstrong per share(“EPS”)of$1.74,whichwasupby21.7cent Bell Intrigna.Ourbaseline $822.2 million,with$58.1millioninrevenuesflowingfrom statements. In2000,revenuesclimbedby10.8percentto Our ultimatemeasureofsuccessisreflectedinourfinancial Western Canada. regional providerofcommunicationsservicesin British Columbia,wetrulyhavebecometheleading stronger, andwithourmajorsuccessesinAlberta online world.OurbusinessinManitobahasneverbeen that positionMTStobenefitfrom,andsucceedin,the accomplished in2000.We undertookmajorinitiatives We areextremelyproudofwhattheMTSteam including dividends,of83.3percent. share priceperformance,withatotalreturntoshareholders, financial performance.We alsoachievedindustry-leading forward withourstrategiesanddeliveredverystrong respect, 2000wasanexcellentyear. We successfullymoved connection istolong-termprofitablegrowth.Andinthat MTS WILLIAM C.FRASER is connectedtomanythings,butouroverriding PRESIDENT &CEO (1) operations achievedearnings increased shareholder value. financial performanceand deliveringstrong connections, enhanced thesevital MTS In2000, growth. and energy essentialto and provide theexpertise commitment driveinnovation employees whoseskillsand andtothe you serve, customers andcommunities tothe opportunities, technologies andnew toemerging to markets, staying connected– Staying successfulmeans InManitoba,wewillfocusonleadingthemarket • BellIntrignawillaggressivelypursue growthinWestern • Ouronlinemultimediaactivitieswillaccelerate • concentrate onthefollowingkeypriorities: leverage ourstrengths.Withinthiscontext,wewill expanding intocomplementarylinesofbusinessthat Manitoba toleadthemarket,andinvesting fundamental strategiesoffocusingourbusinessin In 2001,wewillaggressivelymoveaheadwithour of ourefforts. EPS of12.7percent–arealtestamenttothesuccess compound annualgrowthrateonbaselineaftertax Over thissametimeframe,wehavedeliveredafour-year grown from3percentin1997to37.32000. reductions andrateincreases.Oureffective taxratehas cash investments,aggressiveproductivitygains,debt employed abalancedstrategyinvolvingsharebuybacks, status tobecomingafullytaxableentityin2001.MTShas achievements todate:ourtransitionfromtax-exempt While impressive,theseresultsmaskoneofourgreatest which isthefoundationofoursuccess. our unrelentingcommitmenttothecorebusiness, our digitalwirelessnetwork.Activitieslikethesereflect through suchinitiativesasNGNandtheexpansionof by offering highlycompetitive,leading-edgeservices expansion ofwirelessservicesintheWest. Together, MTS andBellMobilityInc.willbegin support ofits$220millionrevenuetargetfor2001. infrastructure andcontinuingtowinmarketsharein Canada, expandingitsextensivebroadbandnetwork our fast-growinge-businessoperation,Qunara. (“NGN”) extensivelythroughoutManitoba,andbuildon considerably aswedeployournextgenerationnetwork

MANITOBA TELECOM SERVICES INC. 5 annual report 2000 to our shareholders MANITOBA TELECOM SERVICES INC. 6 annual report 2000 to our shareholders customers’ success. that are essentialtoour wireless technologies wireline anddigital advanced broadband to winbyofferingthe MTSisplaying technology. lost onthestrength of markets canbewonand In communications, once to connected our market

Our customers are at the heart of everything we do. Exceeding their expectations is our top priority. MANITOBA TELECOM SERVICES INC. 8 annual report 2000 to our shareholders to ourmarket home, allinoneconvenientlocation.” customers withthelatestinnovationsintechnologyforwireless, wireline,and Internet Lori McGee Sales Consultant,MTSCommunications“MTSConnectstores provide our anyone –anywhere, instantly.” on thequalityandreliability ofMTS’s networktocommunicatewith Don Pohl Field ServiceTechnician, MTSCommunications“Ourcustomersdepend care andbillingsystems.OurnewMTSConnect channels andmadefurtherenhancementstoourcustomer Internet accessoperations,revampedourretaildistribution to interactwithMTS.We combinedourwireless,wirelineand We havealsoimprovedcustomerserviceandmadeiteasier representing a68percentmarketshare. bringing theyear-end totalcustomerbaseto169,140, than 25,000newcustomerswereaddedduringtheyear, MTS ledManitoba’s wirelessmarketagainin2000.More in 2001. we extendthisservicetoadditionalManitobacommunities 11,000 customersbyyear-end. Furthergrowthwilloccuras sharply in2000,increasingby347percentwithmorethan and demandforMTS’s high-speedInternetaccessrose The industrytrendistowardbroadband-enabledservices, e-business solutionsandsecurityservices. these includewirelineandwirelessservices,Internetaccess, and advancedcommunicationssolutionsavailable.Today, beyond, ourcustomersareassuredofthemostcomplete As webuildoutourbroadbandcapabilitiesin2001and while continuingtotightlycontrolcosts. pricing inselectareasordertoensureourcompetitiveness, all areaswherewehavetakenaction.We introducednew Quality andbreadthofservices,pricecustomerserviceare $385.7 million,andEPSclimbed21.7percentto$1.74. operations, whereEBITDAincreasedby15.1percentto and realizedhighlevelsofprofitabilityinourbaseline customers, westrengthenedourpositioninManitoba2000 Building onourtraditionofdeliveringthebestvalueto and wirelessservicesinSeptember. also introducedacombinedbillforcustomersofwireline our bestsalesprospectsastheybrowseWeb site.We with dedicatedstaff, toproactivelycontact–inrealtime shopping. Aswell,wecreatedaWeb-based saleschannel, business markets,providingcustomerswithone-stop offer allofMTS’s servicesfortheresidentialandsmall TM outlets high-quality solutions. competitiveness anda Success requires price comprehensive suite services isbroad – and it’s growing. of leading-edge, Our portfolioof

MANITOBA TELECOM SERVICES INC. 9 annual report 2000 10 MANITOBA TELECOM SERVICES INC. annual report 2000 to our shareholders customers inManitoba. services tothemajorityof Internet andnextgeneration expansion ofhigh-speed will permittheaggressive Thisinvestment digital network. capabilities ofourextensive enhance thebroadband investment tosignificantly a major$300millioncapital weannounced In September, connected to our future

We expanded our e-business portfolio and capitalized on the growth of the Internet with the launch of Qunara in October. Qunara e-solutions are flexible and innovative, facilitating complex e-business projects on budget and on time. Sean Zieroth Media Sales Manager – myWinnipeg.com, MTS Advanced “MTS is connecting to the future by developing new electronic means of building relationships with its customers on a more personalized level.”

Peter Andranistakis Network Architecture Specialist – Next Generation Services, MTS Communications “MTS’s $300 million Next Generation Services initiative is bringing the world to our customers’ fingertips by providing 85% of Manitobans with access to high-speed Internet.”

The communications market is moving quickly from traditional services to a broadband focus that includes the Internet, data and content services – areas where speed to our shareholders to our future counts. Internet access is just the beginning, with video, e-commerce, content and other advanced services of the future pointing to a huge upside. Our NGN initiative will capitalize on the growth opportunities of broadband by leveraging our leadership position in Manitoba. When the project is complete in 2003, we expect to have deployed 2000 some 260,000 fibre kilometres of cable, supporting the delivery of high-speed and next generation services across Manitoba.

MTS has been active in providing Internet-based solutions

annual report for businesses since 1997. Building on its expertise in the e-commerce space, MTS officially launched Qunara™ in October. A powerhouse of proven, end-to-end e-business solutions delivering e-commerce, e-business and Internet 12 data centre services, Qunara will continue to build its share related links www.qunara.com of the business market in Canada and the United States. www.exocom.com MTS is building Qunara through organic and acquisition growth, with a revenue target of $100 million in 2005. Consistent with these plans, MTS acquired all of the issued and outstanding common shares of The EXOCOM Group Inc. (“EXOCOM”) in a transaction that closed on January 30, 2001. As an advanced e-business services and solutions provider, with a well-established resource and customer base, EXOCOM will significantly add to Qunara’s capabilities and portfolio of services.

We also expanded our portfolio of services in the wireless marketplace, with the launch of Lightning Mobile CommerceTM service – a wireless handheld terminal that enables customers to use their credit or debit cards to pay for purchases – and with Mobile BrowserTM, which provides MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA Internet access through MTS digital PCS phones. Through our Next Generation initiative, we are setting in place a level of speed, connectivity and coverage unmatched by any of our competitors. This investment profoundly improves MTS’s growth potential and competitiveness by expanding and enhancing our service portfolio. 14 MANITOBA TELECOM SERVICES INC. annual report 2000 to our shareholders President &CEO,BellIntrignaInc. Murray Korth once to connected new opportunities

On November 2, the Government of Alberta announced the selection of MTS’s majority-owned subsidiary, Bell Intrigna, to spearhead the delivery of its SUPERNET, a $300 million broadband telecommunications project. 16 MANITOBA TELECOM SERVICES INC. annual report 2000 to our shareholders further expandourservicefootprint.” Alberta andB.C.Thiswillenableusto extending ournetworkintonewareas of infrastructure firmlyinplace,weare now Planner, BellIntrigna“Withourcore Gary Care industry’s bestandbrightest.” We are continuallyseekingout,andattracting, the “Bell Intrignaoffers exciting,challengingcareers. Gail White new opportunities Senior BusinessDevelopment Recruitment Specialist,BellIntrigna www.bellintrigna.com related link be partofthisteam.” excellence andcustomerfocusinaction.I'mproud to “Every day, IseeBellIntrigna’s commitmenttoproduct Kendra Kruger in thesetwoprovinces. the rolloutofwirelessservicesbyMTSandBellMobility Alberta andBritishColumbiamarkets,willfacilitate 30 MHzofadditionalspectrumwereacquiredforthe the wayforfuturenewwirelessservicesandapplications. meet thegrowingdemandforwirelessservicesandpave 10 MHzofspectrum.Thisspectrumwilladdcapacityto auction closed.InManitoba,MTSacquiredanadditional for newPCSwirelessspectrum.OnFebruary1,2001,the an applicationtoparticipateinIndustryCanada’s auction wireless sector. InNovember, MTSand BellMobilitysubmitted MTS isalsopursuingfurthergrowthopportunitiesinthe of credibilityinthemarketplace. a customerwilladdtoBellIntrigna’s alreadyhighlevel years. Beyondtheaddedrevenue,havingGOAas business, valuedataminimumof$169millionover10 a significantportionoftheGOA’s telecommunications As partofthisagreement,BellIntrignaalsowasawarded be abletoaccessthisbroadbandnetwork. completed inthreeyears,90percentofAlbertanswill of anextensivefibreopticsbasednetwork.Whenitis announced thatBellIntrignawouldleadthedeployment Canada, whentheGovernmentofAlberta(“GOA”) In November, BellIntrignasolidifieditspositioninWestern its revenuestomorethan$500millionin2003. revenues of$58.1millionandisprojectingtoincrease business customers.Thisyear, thecompanydelivered built anadvancedinfrastructureandwonmorethan900 Since itslaunchin1999, Sales Administrator, BellIntrigna Bell Intrigna has grownrapidly, From private business to the Government of Alberta’s SUPERNET project, westerners are embracing Bell Intrigna’s blend of next generation technology, business expertise and customer focus. 18 MANITOBA TELECOM SERVICES INC. annual report 2000 to our shareholders mobility whilestayingconnectedtotheworld.” technology andservices,allowingourcustomerslimitless MTS Communications“MTSoffers cuttingedgewireless Marlene Szarka our commitment both onlineandinprint,makingiteasierforcustomersto ”MTS Yellow Pagescontinuestointroduce newfeatures, Janet Deimuth connect totheproducts andservicestheyneed.” Clerk –MobilityActivations, Clerk –SalesSupport,MTSAdvanced January 31,2001 President &CEO William C.Fraser Chairman Thomas E.Stefanson in thecomingyearandbeyond. 2000, andlookforwardwithexcitementtoourprospects We lookbackwithprideattheCompany’s achievementsin underline MTS’s commitmenttothecommunitiesitserves. corporate citizenshipinitiatives.Theseinitiativeshelp proudly matches,dollarfordollar, aspartofitsmany quarter milliondollarstoselectedcharities–whichMTS community endeavours.Theyalsodonatemorethana volunteer thousandsofhoursinsupportworthwhile community programsacrossManitoba,andouremployees MTS providesmajorsponsorshipstosports,artsand that speaksvolumesabouttheirconfidenceinMTS’s future. dedicated. Themajorityofemployeesareshareholders,and and our employeesprovedthemselvesskilled,resourceful challenges inherentinourrapidlychangingindustry. In2000, could notbeprouderofhowtheycontinuetoadaptthe The keytothisfocusistheeffort ofouremployees.We us tobecompetitiveaswefocusoncontinuedgrowth. Our corporateprioritiesandourstrategiesforsuccessenable on ourmomentum. business plansetsaclearstrategicdirectionthatwillbuild our customersinManitobaandbeyond. e-business andmediasolutionswithexceptionalvalueto our business,deliveringinnovativecommunications, Our missionisclear: tions companies,basedrighthere inManitoba.” served byoneoftheworld’s mostadvancedtelecommunica- “Our customershavepeaceofmindknowingtheyare being Jeff Bossuyt technology andequipmentintoitsnetwork.” through theongoingintegrationofnew continually enhanceitsservicestocustomers MTS Communications”MTShastheabilityto Dennis Wood We willcontinuetodiversifyandgrow Line CableTechnician, MTSCommunications Network Planner, We believeour MTS employs a highly skilled, committed and experienced workforce. With a strong customer focus and a proven ability to adapt, our employees play a major role in our continued growth. Together, we look forward to further successes in the year ahead. 20 MANITOBA TELECOM SERVICES INC. annual report 2000 MD&A /FINANCIALSTATEMENTS and servicesare alwaysavailabletoourcustomers.” oftheworldtoensurecorners thatthehighestqualityproducts MTS Communications“MTSdealswithsuppliersfrom all Winsome Hyatt Clerk –SupplierAccounts/Finance, benefits, whichhelpusattractandretain excellentemployees.” Finance, ManitobaTelecom Services“MTSoffers verycompetitive Terry Drummond Manager –BenefitsandAdministration/ 44 43 35 34 33 36 32 21 investor information five yearsinreview statements notes toconsolidatedfinancial consolidated balancesheet consolidated statementofcashflow retained earnings consolidated statementof consolidated statementofincome auditors’ report audit committeereport consolidated financialstatements management’s responsibility for management’s discussionandanalysis TABLE OFCONTENTS MANAGEMENT’S DISCUSSIONANDANALYSIS OVERVIEW revamped itsdistributionchannelswiththeintroduction ofitsMTSConnect In supportofitssecondstrategy, whichistofocusandleadthemarketinManitoba,MTS private andpublicsectorcustomers. and Calgary;2000revenues ofapproximately $18millionfrom awellestablishedbaseof services andsolutionsprovider withmore than130employees;offices inOttawa,Toronto, Halifax its e-businesscapabilitieswiththeacquisitionofEXOCOM.EXOCOMisanadvanced Qunara servicesbusinessesinbothCanadaandtheUnitedStates.MTSsubsequentlyaddedto CalgaryandToronto, officesof e-commerce inWinnipeg, andonlinecontentdevelopment.With division QunarainOctober. Qunarahasbeenbuiltandevolvedfrom MTS’s expertiseintheareas advanced itse-businessoperationssignificantlyin2000withtheformallaunchof Company’s competitivepositionandalsowillprovide importantnewrevenue streams. MTSalso and scopeofservicesavailabletocustomersinManitoba.Thisinitiativewillenhancethe investment inbroadband technologyandapplicationsdeploymentthatwillexpandthebreadth ande-businessopportunities.TheCompanyannouncedathree-year $300millioncapital Internet MTS alsoadvanceditsstrategyofinvestinginbusinessadjacenciesthrough 2000intheareas of and 131,790networkaccesslineswere inservice. deployed, 63buildingswere connectedtothenetwork,withafurther100signedforconnection, and BritishColumbia.AtDecember31,2000,atotalof24,640kilometres offibre hadbeen Calgary, Edmonton,andVancouver, aswell13additionalsecond-tiercommunitiesinAlberta for theyeartotalling$116.9million.Itsnetworkhasbeenexpandedtoinclude23co-locationsin Bell Intrignaalsocompleteditsnetworkinfrastructure buildfor2000onplan,withcapitalspending being awarded thisbusinessbyAlberta’s largestcustomeroftelecommunicationsservices. Bell Intrigna’s credibility inthemarketplaceisexpectedtobeenhancedsignificantlyasaresult of Bell Intrigna.Theseservicecommitmentsare valuedataminimumof$169millionover10years. ofAlberta’sa significantportionoftheGovernment existingtelecommunicationsbusinessto optics basedbroadband networkthroughout Alberta.Thisagreement willalsoseethetransferof announced m A revenues. 900 customers,representing approximately 5%oftheaddressable marketand$58.1millionin Bell Intrignaachievedmajorgainsinitsmarketsthroughout 2000,endingtheyearwithmore than importantly, financialperformance. company meetingorexceedingtargetedcustomerwins,infrastructure deploymentand,most Since itslaunchin1999,BellIntrigna’s aggressive executionofitsbusinessplanhasresulted inthe Bell Intrigna,oneoftheCompany’s majorgrowth initiatives,movedforward significantlyin2000. advancing itsfundamentalstrategiesforlong-termprofitable growth. Company exceededeveryoneofitskeyfinancialtargets,whileatthesametime,extensively adjacencies forgrowth andexpansion.In2000,MTSdelivered excellentfinancialperformance.The Manitoba toleadthemarket,andleveragingCompany’s core competenciesintobusiness MTS ispursuingtwofundamentalstrategiesforgrowth: continuedfocusonthebusinessin consequence, actualresults inthefuture maydiffer materiallyfrom thoseprojected orsuggested. corporate direction andfinancialobjectivesthatare subject torisksanduncertainties.Asa consolidated financialstatements.Thisreport includesforward-looking statementsaboutMTS’s This discussionandanalysisshouldberead inconjunctionwiththeCompany’s audited that BellIntrignahadbeenselectedtomanagethedeploymentofa$300millionfibre ajor customerwinoccurred inNovember, ofAlberta whentheGovernment TM retail outletsand 21 MANITOBA TELECOM SERVICES INC. annual report 2000 22 MANITOBA TELECOM SERVICES INC. annual report 2000 MANAGEMENT’S DISCUSSIONANDANALYSIS Baseline EPS Baseline EBITDA Operating Revenues

96 97 96 97 98 97 98 99 98 99 00 99 00 00

0 0.25 0.50 0.75 1.00 1.25 1.50 1.75 in $ 050 100 150 200 250 300 350 400 0100 200 300 400 500 600 700 800 900 in $millions in $millions RESULTS OFOPERATIONS increases inincometaxexpensesassociatedwiththeCompany’s transitiontofulltaxation. consolidated EPS,whilefundingitsgrowth initiatives,includingBellIntrigna’s start-upcostsandthe in Manitobatodriveprofitability gains.Through thisapproach, MTSposteda15.7%gainin the appropriateness oftheCompany’s strategies,and,inparticular, itsfocusonthecore business operating incomeandanindustry-leading50.5%baselineEBITDAmargin.Theseresults reflect 2000. Inthebaselinebusiness,MTS’s focusonprofitability translatedintoa34.3%increase in the impactfrom theCompany’s normalcourseissuerbidthatwascompletedinthefirstquarterof 1999, whichreflected strong revenue growth andcontinuingexpenseimprovements, aswell business, whichexcludestheimpactfrompershare climbedby21.7%from BellIntrigna,earnings Company’s high-growth areas includingBellIntrigna,wirelessservices.Inthebaseline andInternet targets. Operatingrevenues increased by$80.3million,or10.8%,primarilyonthestrength ofthe each oftheseareas, MTSdelivered strong performancethatexceededeachoftherespective The Company’s keyfinancialtargetsfor2000focusedongrowth inrevenues, EPSandEBITDA.In Certain1999comparativeinformationhasbeenreclassifiedtoconform2000presentation.Operatingrevenuespreviously (3) BaselineresultsexcludetheimpactofBellIntrigna. (2) Earningsbeforeinterest,incometaxes,depreciationandamortization. (1) (in millions,exceptearningspershare) Key financialindicators and99%inthelocalservicessegment. 80% inlongdistance,more than50%inInternet, 2000, MTShelddominantpositionsineachofthemarketsegmentsManitoba:68%wireless, adjusted pricing,where necessary, tosupportitsmarketleadingvaluepropositions. Attheendof amalgamation ofitswireline, linesofbusinessintooneoperatingentity;and wireless andInternet enhancements, includingtheintroduction ofasinglecustomerbill;streamlined operationswiththe Web-based interactivemarketing.TheCompanyalsoinvestedincustomercare andbilling a yearearlier. operations delivered increased revenues of$71.9million,representing anincrease of 53.3%from operations, includingBellIntrigna,wirelessTaken andInternet. together, thesehigher-growth increased by$8.4millionor1.4%,togetherwithverystrong performancefrom itshigh-growth increase reflects solidperformancefrom theCompany’s traditionaloperations,where revenues Consolidated operatingrevenues increased byanimpressive $80.3millionor10.8%in2000.This Operating revenues Operating revenues Baseline Baseline EBITDA –Consolidated Operating income –Consolidated Earnings pershare no longerincludesOtherincome. included wirelessroamingexpenseandbaddebtexpense,whichnowareclassifiedasoperatingexpenses.Inaddition,EBITDA (1)(3) (2) (2) Return onequity(%) EBITDA Margin(%) (3) – Baseline – Consolidated – Baseline – Baseline (2) (2) (2) 360.9 $ 385.7 $ 194.8 $ 1.74 $ 822.2 $ 165.3 $ 1.55 $ 2000 14.7 50.5 2. 11.1 324.8 $ 3. 15.1 34.3 335.1 21.7 $ 145.1 10.8 $ 1.43 $ 741.9 $ 3. 22.7 15.7 134.7 $ 1.34 $ 99%change 1999 330.0 n/m 13.3 45.3 MANAGEMENT’S DISCUSSIONANDANALYSIS Cellular Customers Long DistanceMinutes NAL

96 96 96 97 97 97 98 98 98 99 99 99 00 00 00

020 40 60 80 100 120 140 160 180 0200 400 600 800 1000 1200 650655 660 665 670 675 680 685 690 695 700 in millions in millions in thousands (in millions) High-growth operations to deliverhighlyprofitable results from thelongdistancelineofbusiness. the costsMTSincurred fortransportingitslongdistancetraffic. Asaconsequence,MTScontinues terminating longdistancecalls.Thesepricereductions havebeenpartiallyoffset byreductions in 76% ayearearlier. Thedecreased revenues were causedbylowerpricesfortransitingand to holdthedominantshare ofthelongdistancemarketat80%,whichisupsignificantlyfrom minute volumes,whichmore thanoffset theimpactfrom repricing theseservices.MTScontinues retail pricingplans,introduced earlyintheyear, ledtoasignificantincrease inmarketshare and Long distancerevenue decreased by$13.8millionor6.2%compared with1999.Lowerflat-rate contributed themajorityofremaining increase inlocalrevenues. additional revenues of$12.5millionin2000.Double-digitgrowth inenhancedservicesrevenue costs ofimplementingLocalNumberPortability. Together, theserateincreases contributed expected inMarch 2001.Inaddition,theCompanywasgrantedarateincrease torecover certain as wellanadditionalresidential rateincrease of$3permonthrequested bytheCompany, is cover itsincreased incometaxexpenseincurred in2000.Afinaldecisionontheserateincreases, an interimresidential rateincrease of$3permonth,andvariousbusinessrateincreases topartially calling features were theprimaryreasons forthisincrease. During2000,theCompanywasgranted increases approved during2000andthecontinuinggrowth bytheCRTC inpopularityof enhanced Local servicerevenues increased by$19.5millionor5.7%over1999.Residentialandbusinessrate Miscellaneous (in millions) Traditional operations MTS’s wireless customers,haveledtoaloweraveragerevenue percustomer permonth.The popularity ofprepaid cellular, whichatDecember31,2000represented approximately 10%of 6.0% decrease inaveragerevenue percustomermonth.Newpricingplansandtheincreased primarily duetoa17.7%increase incustomersduringtheyear, whichwaspartiallyoffset bya against revenues andisnowrecorded aspartofoperationsexpense.Thisgrowth inrevenues is been adjustedtoreflect thereclassification ofroaming expense,whichpreviously wasnetted revenuesWireless increased revenues by$7.1millionor7.0%over1999.Wireless for1999have Miscellaneous Internet Wireless Local services Bell Intrignaservices Directory Long distanceservices Cellular revenuepercustomermonth Internet retailcustomers Cellular customers Long distanceminutes(000s) Network accesslines 108.1 $ 360.0 $ 206.7 $ 615.5 $ 55.18 $ 1,199,015 169,140 698,585 73,381 208.2 2000 2000 16.4 19.7 20.8 58.1 30.9 0. 7.0 101.0 $ 5.7 340.5 $ 3. 53.3 134.8 $ 1.4 607.1 $ 87 (6.0) 58.72 $ ,6,5 13.0 1,061,457 4,9 17.7 143,693 0.1 697,828 49113.1 64,901 2. (6.2) 222.0 99%change 1999 %change 1999 4413.9 14.4 7015.9 17.0 4642.5 14.6 022.3 30.2 . n/m 2.2 23 MANITOBA TELECOM SERVICES INC. annual report 2000 24 MANITOBA TELECOM SERVICES INC. annual report 2000 MANAGEMENT’S DISCUSSIONANDANALYSIS Baseline OperationsExpenses Customers Internet Dial-up High-speed 96 96 97 97 98 98 99 99 00 00

200225 250 275 300 325 350 08010 20 30 40 50 60 70 in thousands in $millions (in millions) Operating expenses strongest, withrevenues nearlytriplingto$1.5millionfortheyear. e-business, increased $2.7millionor15.9%over1999.Growth ine-businessrevenues was Miscellaneous revenues, whichincludetelecommunications-related services,homesecurityand broadband-enabled services. three-year NGNproject willpositiontheCompanytotakeadvantageofincreasing demandfor aswellextendedtheservicetoinclude11second-tiercommunitiesinManitoba.The Winnipeg balance of2000andbyearly2001,theCompanyhadexpandedhigh-speedcoveragewithin customers bytheendof2003.MTSaggressively movedforward withthisundertakingthrough the accessto85%ofallManitobabusinessandresidential that willextendhigh-speedInternet December 31,2000.InSeptember, MTSlauncheditsnextgenerationnetwork("NGN")initiative customersincreasing fourfoldtonumbermorenumber ofhigh-speedInternet than11,000by in customers.Thetrend toward higherbandwidthrequirements continuedin2000,withthe revenues increasedInternet by$6.2millionor42.5%over1999,primarilyduetoa13.1%increase in itshomemarkets. of BellIntrigna’s revenues were attributabletoitssuccessinwinninglocalandregional customers strategic relationship withBellNexxiahasprovided asignificantearlyrevenue stream. Thebalance than 900customers,representing 5%oftheaddressable market.Asexpected,BellIntrigna’s gains inthekeyurbanmarketsofCalgary, EdmontonandVancouver. Itfinishedtheyearwithmore fourth quarterof1999.In2000,BellIntrignabuiltontheseearlysuccessesbymakingsignificant considering thatthecompanyonlyrecorded itsfirstsaleinAlbertaandBritishColumbiathe Bell Intrigna’s revenues increased to$58.1millionin2000.Thisisaphenomenalaccomplishment MTS launchedinNovember2000. opportunities associatedwithnewvalue-addedproducts suchastheWeb browser servicethat position inthewireless segmentplacestheCompanyinanexcellentpositiontoleverage continues toholdthedominantshare ofthemarketatanestimated68%.MTS’s leadingmarket Company acteddecisivelyduringtheyeartoprovide thebestcustomervalueinmarket,and of Chartered Accountantsrelating topensionexpensewhichbecameeffective January1,2000. operations,andtheimplementationofnewaccountingrulesCanadianInstitute Internet renegotiations, leveragingthealliancewithBellCanada,integratingwireline, wireless and cost reductions were achievedthrough re-engineering initiatives,workforce reductions, contract in itstraditionaloperationsandtoredirect thesavingstofundhigher-growth opportunities.These decreased by$21.9millionor6.4%.Theseresults reflect MTS’s continuingefforts toreduce costs Bell Intrigna.Exceptionalresults were achievedinthebaselinebusiness,where operationsexpenses Operating expensesincreased by$49.7millionor8.2%tofundgrowth, mostnotablyat Baseline operationscost/NAL Operating expenses Depreciation andamortization Contribution andlongdistancecosts Baseline operationsexpense Bell Intrignaoperations 542 $ 656.9 $ 319.0 $ 195.6 2000 63.2 79.1 8 (6.9) 8.2 582 $ 607.2 $ 4. (6.4) 340.9 $ 9. 2.9 190.1 99%change 1999 241.3 62.4 13.8 473.2 MANAGEMENT’S DISCUSSIONANDANALYSIS Income Tax Expense

97 98 99 00

06010 20 30 40 50 in $millions statutory ratein2001andfuture years. had fullyutilizedthetaxshieldcreated in1997,and,asaresult, willincurincometaxesatthefull 2000 asthevalueoftaxshieldassetwasdrawndown.AsatDecember31,2000,Company of thevaluetaxshieldasanassetatJanuary1,2000,andrecognition ofanexpensein of Chartered Accountants’Handbook.Thischangeinaccountingpolicyresulted intherecognition income taxesinaccordance withtherecommendations ofsection3465theCanadianInstitute to 37.3%.Effective January1,2000,theCompanyadoptedliabilitymethodofaccountingfor increasing taxescontinuedinto2000,astheCompany’s effective taxrate increased from 23.1% within MTShavebecometaxable,incometaxexpensehasramped-up.Thistrend towards contributions toitspensionplan.Asthistaxshieldhasdrawndownandvariouscorporateentities full taxationin1997whenitbecameataxableentityandcreated ataxshieldresulting from certain Income taxexpenseincreased by$29.1millionor107.8%over1999.MTSbeganitstransitionto (in millions) Income taxexpense elimination ofthelong-termdebtowedtoProvince ofManitoba(the“Province”) inApril2000. outstanding fortheyear, andthereduction oftheprovincial servicechargefollowingthe Debt chargesdecreased by$4.3millionor14.4%duetoreductions intheaveragelevelofdebt Debt charges Alberta andBritishColumbia. expenses increased by$5.5millionor2.9%,primarilyduetothecapitalbuildBellIntrignain incurred byMTSfortransitingandterminatinglongdistancetraffic. Depreciation andamortization by BellIntrignain2000.Partiallyoffsetting BellIntrigna’s increased costs havebeenlowercosts 1999. Thisincrease isduetocontributionandlongdistancecostsof$3.7millionthatwere incurred Contribution andlongdistancecostsincreased marginallyby$0.8millionor1.3%compared with revenues. BellIntrignaisexpectedtobeEBITDApositivebyJanuary2002. onto itsownnetworkthrough 2001andbeyond,costsare expectedtodeclineasapercentage of were beingprovided onalower-margined re-sale basis.AsBellIntrignamovesmore ofitsservices significant increases initsbusinessactivity. In2000,asignificantportionofBellIntrigna’s services Bell Intrigna’s operationsexpenseshaveincreased consistentlywithexpectationsgiventhe Income taxexpense Debt charges Average weightedcostofdebtatyear-end Debt/total capitalratio (in millions) 56.1 $ 25.6 $ 2000 2000 29.7% 7.5% 70107.8 27.0 $ 99(14.4) 29.9 $ 99%change 1999 %change 1999 31.3% 7.5% 25 MANITOBA TELECOM SERVICES INC. annual report 2000 26 MANITOBA TELECOM SERVICES INC. annual report 2000 MANAGEMENT’S DISCUSSIONANDANALYSIS Capital Expenditures Dividends Cash Flowfrom Operating Activities

96 97 96 97 98 97 98 99 98 99 00 99 00 00

4042 44 46 48 50 in $millions 050 100 150 200 250 300 050 100 150 200 250 300 350 in $millions in $millions LIQUIDITY ANDCAPITAL RESOURCES (in millions) Financing activities in thebaselinebusinessandatBellIntrignawascompletedaccording toplanfor2000. begin executingonitsNGNinitiativethatwaslaunchedattheendofSeptember. Capitalspending servicesandto capital spending.MTSalsodeployedin2000toexpandhigh-speedInternet million in2000,partlyduetolabourdisruptions1999whichrestricted someoftheplanned In addition,capitalexpenditures inthebaselinebusinessincreased by$24.4millionto$153.4 $40.4 millionin1999to$116.92000aggressively expandandbuildoutitsnetwork. increased capitalexpenditures. MTSincreased itscapitalexpenditures atBellIntrignafrom Cash flowsusedforinvestingactivitiesincreased by$100.4millionor57.1%over1999,dueto (in millions) Investing activities was partiallyoffset byadecrease inthenumberofshares outstanding. in thefourthquarterof1999.Thisresulted inanincrease incashusedfordividends2000,which operations in2000.ThedividendrateonMTSshares wasincreased from $0.17to$0.19pershare and amortizationexpense,whichtogetherprovided anadditional$12.1millioncashfrom business. Thisdecrease incashwaspartiallyoffset byanincrease innetincomeanddepreciation additional workingcapitalrequirements atBellIntrignaarisingfrom itsincreased volumeof Cash flowfrom operationsdecreased by$28.5millionor9.0%from 1999.Cashwasusedtomeet (in millions) Cash flowfrom operations of Continuanceunder Reorganization Actprovided thatupontheredemption oftheSpecialShare, MTSmustfileArticles ConsequentialAmendmentsAct System Reorganizationand redeemed for$1.Thisresulted intherepeal ofcertainprovisions of elimination ofalldebtobligationstotheProvince, theSpecialShare heldbytheProvince was Province’s debtpositioninAdvancesUFA 12andUFA 27wasacquired byathird party. Uponthe capital. During2000,MTSeliminateditsoutstandingdebtobligationtotheProvince whenthe for cancellation.Thiswaspartiallyoffset byadecrease incashreceived from theissuanceofshare decrease intherepayment oflong-termdebtandinthepurchase ofoutstandingcommonshares Cash flowsusedforfinancingactivitiesdecreased by$59.5millionor98.8%from 1999duetoa Cash flowsusedinfinancingactivities Cash flowsusedininvestingactivities Cash flowsfromoperatingactivities Dividends from 10%to20%. Continuance toincrease thelimitonownershipofvotingshares, bywayofsecurityonly, held onJune23,2000,shareholders passedaspecialresolution amendingMTS’s Articlesof (Manitoba) wasissuedonApril5,2000.AttheAnnualandSpecialMeetingofshareholders ofMTS Act. ACertificateofContinuancecontinuingMTSasacorporationunder beneficial ownershipofMTS’s votingshares asspecifiedincertainprovisions oftheReorganization The CorporationsAct (Manitoba) containingthesamerestrictions onthe 0.7 $ 276.1 $ 287.3 $ 49.1 $ 2000 2000 2000 (the “ReorganizationAct”).The 02(98.8) 60.2 $ 57.1 175.7 $ 315.8(9.0) $ 802.3 48.0 $ The ManitobaTelephone 99%change 1999 %change 1999 %change 1999 The CorporationsAct MANAGEMENT’S DISCUSSIONANDANALYSIS Invested Capital Long-Term DebttoTotal

96 97 98 99 00

08010 20 30 40 50 60 70 in % OUTLOOK Standard &Poor’s –Seniordebentures Standard &Poor’s –Commercialpaper DBRS-Commercial paper DBRS-Senior debentures Credit facilities Poor’s ratingsframework. harmonize allratingsforthetelecommunicationsindustryassignedbyCBRSwithStandard & 2000, andannouncedthattheyhadcombinedoperationsinCanada.Aprocess isunderwayto andBellIntrigna,astrongInternet balancesheet.Standard &Poor’s acquired CBRSinOctober market positionacross allproduct lines,alowcoststructure, goodgrowth potentialinwireless, credit ratingsforcommercial paperandseniordebentures withastableoutlook,citingstrong flow. InFebruary2000,theCanadianBondRatingService(“CBRS”)reaffirmed theCompany’s trend, citingastrong balancesheet,anexcellentfranchisearea, goodprofitability andstrong cash confirmed theCompany’s credit ratingsforcommercial paperandseniordebentures withastable MTS maintainedstrong credit ratingsin2000.InJune2000,theDominionBondRatingService 2000 and1999. In October2000,Standard&Poor’s whichhadalreadyprovidedcreditratingsforMTS acquiredtheCanadianBondRatingService, Credit ratings common shares ofBellIntrigna(1999–6,167)were issuedto of $0.3million(1999–$0.5million)pursuanttotheexercise ofstockoptions.Inaddition,59,831 During 2000,theCompanyissued22,400commonshares (1999–32,000)forcashconsideration trend tocontinueandaccelerate. Canada’sbecome Western premier regional telecommunicationscompany. Theoutlookisforthis market. MTShasmadegreat stridesandachievedmuchsuccessadvancingitsgrowth strategiesto investing inbusinessadjacencies,whilefocusingonitscore businesstocontinueleadthe MTS anticipatescontinuedstrong financialperformancein2001asitexecutesonitsstrategiesof Company’s workingcapitalandfinancingneeds. cash reserves andstrong operatingcashflows,provide accesstosufficient capitaltomeetthe against itscredit facilityorcommercial paperprogram. Thesecredit arrangements,combinedwith Company had$114millionincashreserves attheendof2000,andnoamountsoutstanding has implementedacommercial paperprogram authorizedtoamaximum$100million.The addition, MTShasarrangedacredit facilityof$25millionwithaCanadianchartered bank,and notes hadbeenarrangedunderthisprogram, leavingaremaining facilityof$264.8million.In prospectus thatexpires May31,2001.AsatDecember2000,$85.2millionofmediumterm In 1999,MTSestablisheda$350millionmediumtermnoteprogram underatwo-yearshelf shares for$308.8millionunderasubstantialissuerbid). common shares for$55.8millionunderanormalcourseissuerbid,and14,003,200common consideration of$59.5millionunderthetermsitsnormalcourseissuerbids(1999–3,054,500 In 2000,theCompanypurchased 2,447,800commonshares forcancellationcash to BellCanadafornetcashconsiderationof$334.5million. In 1999,theCompanyissued7,779,556ClassApreference shares and6,223,644commonshares shareholder, BellCanada,inexchange forcashconsiderationof$59.8million(1999–$6.2million). Bell Intrigna’s non-controlling R-1 (low) A (low) 2000 A-1 A R-1 (low) A (low) 1999 A-1 A in 27 MANITOBA TELECOM SERVICES INC. annual report 2000 28 MANITOBA TELECOM SERVICES INC. annual report 2000 MANAGEMENT’S DISCUSSIONANDANALYSIS local servicerateincreases, whichare currently tocoveraportion underconsiderationbytheCRTC expects totalrevenues from itstraditionaloperationstoincrease in2001.Additionalrevenues from local market,andareputation asthelowestcosttelecommunicationsprovider inthecountry. MTS success inmanagingthesegoals,withanestimated80%ofthelongdistancemarket,99% the Companyisfocusedonleadingmarketandimproving margins.MTShashadconsiderable In itstraditionaloperationsinManitoba,whichincludelocal,longdistanceanddirectory services, for 2001. its scaleandscope.Combinedrevenue expectationsforQunaraandEXOCOMare $24million reputation, customerbase,andcomplementaryresource capabilities,Qunarahasquicklyexpanded theadditionofEXOCOM’stransaction closedonJanuary30,2001.With well-established with afurther$6.25millioncontingentonmeetingcertainperformancetargetsin2001.This signed abindingletterofintenttoacquire a100%ownershipinterest inEXOCOMfor$20million million by2005through acombinationoforganicandacquisitiongrowth. Latein2000,MTS Canada andtheUnitedStates.Revenuesfrom Qunara’s operationsare expectedtoreach $100 DataCentredelivering e-commerce, servicestothebusinessmarketin e-businessandInternet growing opportunitiesavailableinthismarket.Qunaraisanend-to-ende-businesssolutionsprovider e-business divisiontaskedwithcapitalizingonitsskillsetandnichemarketswithinthevast in since1997.MTShascontinuedtoevolvethisbusiness,andOctober2000launchedQunara,its A third majorgrowth opportunityinthebaselinebusinessise-business,anarea MTShasbeenactive at year-end, andbytheendof2001,thiscustomerbaseisexpectedtogrow to36,000. customersincreased fourfoldin2000tonumbermoreConsumer high-speedInternet than11,000 to gainmomentum,MTSaggressively advanceditsNGNrollout through thefourthquarter. than 73,000customersbyyear-end. Asthetrend forhigherbandwidthrequirements continues 2000, withrevenues retail increasing customerbase growing by42.5%andtheInternet tomore major opportunityforthebaselinebusiness.MTSwasverysuccessfulinthismarketsegment revenues areInternet expectedtoexhibitstrong growth inthefuture andwillprovide another going forward. the Company’s wireline andwireless businesses,whichwillcontributetoprofitable growth to increase itscustomerservicecapabilitiesandenhancemarginsthrough theamalgamationof future thatwillexpanditssuiteofproducts forthebusinessmarket.MTSalsotookactionin2000 in November2000.TheCompanyanticipateslaunchingadditionalwireless dataproducts inthe To thisend, MTSwasthefirstwireless serviceprovider inManitobatolaunchitsMobileBrowser™ for newhigh-valueproducts andservices. MTS tocapitalizeonitscontinuinggrowth inthewireless market,aswelltheemergingdemand additional 10MHzofspectruminManitobafor$1.2million.Thiswillallow service coverage.AlsoinJanuary, MTSacquired, through IndustryCanada’s spectrumauction,an to invest$50millionoverthenexttwoyearsexpandCompany’s digitalwireless new high-valuewireless products andservices.InJanuary2001,theCompanyannouncedplans business tocapitalizeonthecontinuinggrowth inthismarketaswelltheemergingdemandfor These positivetrends are expectedtocontinuein2001andbeyond.MTSisinvestingthewireless MTS’s wireless customerbaseincreased by17.7%,andrevenue growth wassolidat7%over1999. servicescontinuetobeamajoropportunityforgrowthWireless inthebaselinebusiness.In2000, growth opportunitiesinthebaselinebusiness. profitability initstraditionaloperations,while,atthesametime,takingadvantageofhigher- in eachofitschosenmarkets.Asthemarketleader, MTSiswell-positionedtoachievecontinuing telecommunications provider inManitoba,where theCompany continuestoholdleadershipstatus A keyfactorinthispositiveoutlookistheCompany’s positionasthepre-eminent full-service MANAGEMENT’S DISCUSSIONANDANALYSIS 30%, withdouble-digitimprovements inconsolidatedEBITDAofapproximately 13%to15%. with thoseachievedin2000.Consolidatedrevenues are expectedtogrow intherangeof25%to the associatedincrease indepreciation expense,baselineEPSwillbemaintainedatlevelsconsistent in the8%to10%range.MTSanticipatesthatevenwithaggressive deploymentofNGNand expected toincrease by12%to14%.BaselineEPSgrowth, excludingNGN,isforecast toincrease In thebaselinebusiness,revenues are targetedtogrow by8%to10%in2001,andEBITDAis British Columbiawere acquired intheIndustryCanadaauctionheldJanuary2001. services inthesetwoprovinces. Insupportofthisinitiative,30MHzspectruminAlbertaand opportunity tobea20%participantinjointventure withBellMobilitythatwouldoffer wireless with BellMobilitytointroduce wireless servicesinAlbertaandBritishColumbia.MTShasthe relationship withBellCanada.BuildingonthesuccessinWest, MTSisworkingtogether MTS’s successful expansionintoAlbertaandBritishColumbiaisunderpinnedbyitsstrong by January2002andnetincomepositiveJuly2002. of itsservicesare migratedontoitsownnetwork.BellIntrignaisexpectedtobeEBITDApositive anticipating revenues of$220millionin2001,withimproved profitability asanincreasing portion price competitivenessandagrowing portfolioofnextgenerationservices.Thecompanyis ofAlberta,expandsthrough avaluepropositionGovernment basedonstrong customer service, in 2001,asBellIntrigna’s marketpresence, strengthened bysignificantcustomerwinslikethe its keyoperationalandfinancialgoals.TheCompanyexpectsthismomentumtocontinuebuild company delivered tremendous performancein2000byexceedingexpectationsforvirtuallyallof The mostsignificantdevelopmentinMTS’s growth strategycontinuestobeBellIntrigna.The in itstransition.AdecisionisexpectedMarch 2001. fora$3permonth localservicerateincrease45%. MTShasappliedtotheCRTC asthefinalstep rate inbaselineEPSduringthesameperiodthatCompany’s taxrateincreased from 3%to remarkable successofthisstrategyisdemonstratedbythedouble-digitcompoundannualgrowth investments forgrowth, aggressive productivity gains,debtreductions andrateincreases. The successfully employedabalancedstrategytoaddress thistransition,includingshare buybacks, approximately 37%in2000tothefullstatutoryrateofapproximately 45%in2001.MTShas 2001 willcompletetheCompany’s transitiontofulltaxationastheeffective taxrateincreases from funding fortheexpansionofhigher-growth businessopportunities. with theCompany’s strategyofprudentcostmanagementinthetraditionalbusinesses,toprovide continuing strong costmanagementefforts intheCompany’s traditionaloperations,consistent rollout andothergrowth areas increase. Theseincreases are expectedtobepartiallyoffset by Overall operatingcostsinthebaselinebusinesswillriseslightly2001,astofundNGN long distanceservices. services, are expectedtooffset adecrease inmarketshare forlocalservicesanddecliningprices of theCompany’s incometaxes,togetherwithgrowing revenue from dataandenhancedlocal amounts required tofundthedeliveryofwireless servicesinAlbertaandBritishColumbia. Bell Intrigna’s non-controlling shareholder. Plannedcapitalexpenditures donotincludeany Bell Intrignanetwork,withtwothirds ofthisamountbeingfundedbyMTSandonethird by An additional$95millionisexpectedtobeexpendedforthecontinuedbuild-outof planned $50milliondigitalwirelessinvestments. expansionaswelladditionaldataandInternet and $138millionistargetedforotherbaselineoperations,includingasignificantportionofthe at revenue growth opportunities.Ofthisamount,$152millionisplannedfortheNGNbuild-out The Company’s plannedcapitalexpenditures for2001are $385million, andare primarilytargeted Liquidity andcapitalresources 29 MANITOBA TELECOM SERVICES INC. annual report 2000 30 MANITOBA TELECOM SERVICES INC. annual report 2000 MANAGEMENT’S DISCUSSIONANDANALYSIS REGULATORY ENVIRONMENT common carriersundertheauthorityof television andTelecommunications whichregulates Commission(“CRTC”), telecommunications bytheCanadianRadio- MTS CommunicationsInc.(“MTSCommunications”),operatesisgoverned The telecommunicationsindustryinwhichtheCompany’s majoroperatingsubsidiary, generated fundsandcashreserves. services inAlbertaandBritishColumbia,require fundingbeyondthatavailablefrom internally to borrow fundsintheeventinvestmentopportunities,suchasthoserequired todeliverwireless adebttototalcapitalratioof30%,theCompanyhasmore thanadequatecapacity amount. With expires inMay2001.MTSintendstoestablishanewmediumtermnoteprogram ofasimilar The Companyhasaccessto$264.8millionundertheexistingmediumtermnoteprogram, which growth inEPS. is lessthanexpected,share buybackswillbeconsidered as a meanstomaintaintheexpected decision onrateincreases torecover aportionoftheCompany’s incometaxexpenseincrease in 2001,theCompanydoesnotanticipateanypurchases atthistime.IntheeventCRTC normal courseissuerbidallowstheCompanytorepurchase up to5millionshares forcancellation sufficient tofundoperatingandcapitalexpenditures aswell asdividends.Althoughtheexisting generatedcash,togetherwithcashreserves,The Companyanticipatesthatinternally willbe such ascertainresidential services,are permittedtorise.Pricecapregulation appliesonlytolocal Pricesforservicesthatare currentlytheir costs,suchasbusinessratesinWinnipeg. belowcost, regulation mandatespricereductions onlyforservicesthatare provided atpricesthatare above are adjustedbyaninflationfactorandapre-determined productivity offset of4.5%.Pricecap service baskets.Initialpricesforeachbasketare capped,afterwhichannualpricechanges since January1998.Underthepricecapregime, utilityservicesare grouped intoanumberof MTS Communications’utilitysegmenthasbeenregulated underapricecapregulatory mechanism to prevent unjustdiscriminationandtheconferringofunduepreference inrelation totheseservices. to imposegeneralconditionsontheprovision oflongdistance,wirelessaccessservices andInternet maintainstheauthority competitivesegmentservices.TheCRTC its competitorsintheseforborne do notrequire approval. CRTC MTSCommunications,therefore, operatesonanequalfootingwith services provided byMTSCommunicationsaremeaningthattheratesfortheseservices forborne, access,terminalservicesandmostdata and underlyingcharges.Longdistance,wireless, Internet required tofiletariffs foritslocalservicesandtodemonstratethatcovertheircosts dataandterminalserviceofferings.long distance,wireless, MTSCommunicationsis Internet, The utilitysegmentincludesmostlocaltelephoneservices.Competitiveservicesinclude For regulatory purposes,MTSCommunicationsissplitintotwosegments:utilityandcompetitive. other carriersare regulated MTSAdvancedisnotregulated bytheCRTC. bytheCRTC. competitive localexchangecarrierinAlbertaandBritishColumbia,onlyitsarrangementswith authority toregulate thetermsandconditionsoftheseservices.AsBellIntrignaoperatesasa doesnotrequireCRTC MTSCommunicationstofiletariffs foritswireless services,butretains the effective January1,2000aspartoftheintegrationwireline andwireless businesses.The regulatory authorityoverMTSMobilityInc.untilitsamalgamationwithCommunications regulatesThe CRTC MTSCommunicationsasatelecommunicationscarrier, andpreviously exercised market tobesufficiently competitivetoprotect theinterests ofconsumers. has thediscretion toforbearfrom regulating certainproducts andserviceswhere itconsidersthe however,rates, servicepackages,qualityofservice,costingandaccountingpractices.TheCRTC, authority overcertainaspectsoftheoperationstelecommunicationscommoncarriers,including Telecommunications Act (Canada). The CRTC has (Canada). TheCRTC MANAGEMENT’S DISCUSSIONANDANALYSIS during 2001. providing serviceintheseareas. Themechanicsofthisnewnationalsubsidyfundwillbedeveloped cost servingareas wouldbedeterminedbasedontheincremental, forward-looking costsof their telecommunicationsservicesrevenues. alsodeterminedthatthesubsidiestohigh- TheCRTC subsidy fundtowhichalltelecommunicationsserviceproviders mustcontributeapercentage of beginning inthesecondquarterof2001,localservicewouldbesubsidizedthrough anational price capregime determinedthat, in2001.InadecisionissuedonNovember30,2000,theCRTC needed tosupportbelow-costservicewillbedeterminedaspartoftheproceeding toreview the local servicecannotbeexpectedtocoverthecostofproviding service.Thesizeofthesubsidy determine theextentofsubsidiesrequired tosupportserviceinareas where therevenues from service throughout itsoperatingterritory. Regulatoryproceedings are currently underwayto MTS Communications,asanincumbenttelephonecompany, retains anobligationtoprovide local telephoneservices. sinceDecember31,1998tofacilitatecompetitionin portability hasbeenavailableinWinnipeg local marketbyreselling thelocalservicesprovided byMTSCommunications.Localnumber the networksofexistingtelephonecompanies.Competitorsalsoare permittedtoenterthe rates. Thispermitsnewentrantstoprovide competitivelocalservicewithoutcompletelyreplicating essential elementsoftheirlocalnetworksthatmustbemadeavailabletocompetitorsattariffed requireddecision issuedinMay1997,theCRTC thetelephonecompaniestounbundlecertain Since January1998,themarketinlocaltelephoneserviceshasbeenopentocompetition.Ina $15.8 millionofthe$16.7incurred bytheCompanytoimplementlocalnumberportability. alsoissuedadecisionthatwouldallowMTS to recover,the CRTC overthenexttwoyears,upto isexpectedtomakeitsfinalrulingontheserate increasesThe CRTC inMarch 2001.During2000, has appliedforafurtherincrease of$3permonthin2001topartiallyoffset itsincometaxexpense. granted aninterimrateincrease of$3permonthonresidential serviceseffective August2000,and MTS Communications’utilitysegmentwasfullydepletedinJuly2000.Communications lowering ofbusinessserviceratesunderthepricecapregime. Thetaxshieldapplicableto account wasfundedusingrevenues thatwouldotherwisehavebeenreduced through the revenue in1999and2000aregulatory deferralaccountforincometaxpurposes.This MTSCommunicationswaspermittedtoaccumulate Under anarrangementwiththeCRTC, 2001 todeterminetheappropriate meanstoregulate theindustryinfuture. services becomesmore willconductareview competitive.TheCRTC ofthepricecapregime during utility services,andisintendedasaninterimformofregulation asthemarketinlocaltelephone 31 MANITOBA TELECOM SERVICES INC. annual report 2000 32 MANITOBA TELECOM SERVICES INC. annual report 2000 AUDITORS’ REPORT AUDIT COMMITTEEREPORT FOR CONSOLIDATED FINANCIALSTATEMENTS MANAGEMENT’S RESPONSIBILITY January 31,2001 Manitoba Winnipeg, Chartered Accountants generally acceptedaccountingprinciples. December 31,2000and1999theresults ofitsoperationsandcashflowsfortheyearsthenendedinaccordance withCan In ouropinion,theseconsolidatedfinancialstatementspresent fairly, inallmaterialrespects, thefinancialpositionof presentation. the accountingprinciplesusedandsignificantestimatesmadebymanagement,aswellevaluatingoverallfinancialstatem examining, onatestbasis,evidencesupportingtheamountsanddisclosures inthefinancialstatements.Anauditalsoincludes perform anaudittoobtainreasonable assurancewhetherthefinancialstatementsare free ofmaterialmisstatement.Anauditin We conductedourauditsinaccordance withCanadiangenerallyacceptedauditingstandards. Thosestandards require thatweplan responsibility oftheCompany’s management.Ourresponsibility istoexpress anopiniononthesefinancialstatementsbased consolidated statementsofincome,retainedandcashflowfortheyearsthenended.Thesefinancialare earnings the We haveexaminedtheconsolidatedbalancesheetsofManitobaTelecom ServicesInc.asatDecember31,2000and1999the Manitoba Telecom ServicesInc. To theShareholders Chairman oftheAuditCommittee Donald H.Penny, F.C.A., L.L.D. CherylBarker auditors withouttheirpresence. TheAuditCommitteehasrecommended theconsolidatedfinancialstatementstoBoard forapp statements. TheAuditCommitteehasalsodiscussedamongthemselvestheinformationdisclosedbymanagementandexternal ExecutiveVice-President Finance&ChiefFinancialOfficer controls,statements, includingthequalityofinternal accountingprinciplesandsignificantjudgementsaffecting theseaudite Directors. auditorstodiscusstheauditedfinancial TheAuditCommitteehasmetindependentlywithmanagementandtheexternal The AuditCommittee,whichiscomposedentirely ofoutsidedirectors, overseesthefinancialreporting process onbehalfofthe Manitoba Telecom ServicesInc. To theShareholders President &ChiefExecutiveOfficer William C.Fraser Audit Committee,withandwithoutthepresence ofmanagement.Theirreport follows. The consolidatedfinancialstatementshavebeenauditedbyDeloitte&Touche LLP, Chartered Accountants,whohavefullaccesst Board forapproval. review anddiscusstheconsolidatedfinancialstatements.TheAuditCommitteerecommends theconsolidatedfinancialstatements auditorstodiscusstheresults andexternal ofauditexaminationswithrespectcontrothe internal toadequacyof Audit Committee,whichiscomposedentirely ofoutsidedirectors. TheAuditCommitteemeetsperiodicallywithmanagementandwi The Board ofDirectors carriesoutitsresponsibility fortheconsolidatedfinancialstatementsinannualreport principall employees tofollowhighethicalbusinessstandards. are reliable forpreparing theconsolidatedfinancialstatements.TheCompanyhasalsoinstitutedpoliciesandguidelines,whic that assetsare adequatelyaccountedforandsafeguarded, transactionsare properly authorizedandrecorded, andthefinancial procedures, segregation ofdutiesandresponsibilitiesauditprogram. andaninternal Thissystemisdesignedtoprovide reason In fulfillingitsresponsibilities,controls managementhasdevelopedandmaintainsasystemofinternal includingwrittenpoli presented elsewhere intheannualreport isconsistentwiththatintheconsolidatedfinancialstatements. principles, andnecessarilyincludesomeamountsthatare basedonmanagement’s bestestimatesandjudgements.Financialinform The consolidatedfinancialstatementshavebeenprepared bymanagementinaccordance withCanadiangenerallyacceptedaccountin responsibility ofmanagementandhavebeenapproved bytheBoard ofDirectors. The accompanyingconsolidatedfinancialstatementsofManitobaTelecom ServicesInc.andtheinformationinannualreport a Companyasat able assurance y through its our audits. d financial assessing Board of h require ls andto cies and records cludes to the re the adian roval. o the ation and ent th g

CONSOLIDATED STATEMENT OF INCOME

Years ended December 31 2000 1999 (in thousands)

Operating revenues Local services $ 360,043 $ 340,514 Long distance services 208,199 221,976 Wireless services 108,110 101,031 Bell Intrigna communications services 58,140 2,242 Internet services 20,763 14,630 Directory services 30,887 30,200 Miscellaneous 36,123 31,326 822,265 741,919

Operating expenses Operations 398,162 354,742 Contribution and long distance costs 63,162 62,356 Depreciation and amortization 195,599 190,107 656,923 607,205

Operating income 165,342 134,714

Other income 10,711 12,326 Debt charges (Note 2) 25,589 29,947

Income before income taxes and non-controlling interest 150,464 117,093

Income taxes (Note 3) 2000 Current 23,025 15,138 Future 33,118 11,867 56,143 27,005

Income before non-controlling interest 94,321 90,088

Non-controlling interest 6,225 3,843 annual report

Net income $ 100,546 $ 93,931

Basic earnings per share $ 1.55 $ 1.34 33 MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA 34 MANITOBA TELECOM SERVICES INC. annual report 2000 CASH FLOW CONSOLIDATED STATEMENT OF RETAINED EARNINGS CONSOLIDATED STATEMENT OF Cash andshort-terminvestments,endofyear Cash andshort-terminvestments,beginningofyear Free cashflow Cash flowsfrominvestingactivities Dividends Cash flowsfromoperatingactivities (in thousands) Years endedDecember31 Retained earnings,endofyear Purchase ofoutstandingcommonshares(Note8) Dividends Net income Retained earnings,beginningofyear (in thousands) Years endedDecember31 (Decrease) increaseincashandshort-terminvestments Cash flowsfromfinancingactivities Retained earningsrestated,beginningofyear Cash flowsusedininvestingactivities Other Purchase ofinvestments Capital expenditures,net Cash flowsfromoperatingactivities Other, net Cash (usedfor)providedbychangesinworkingcapital Depreciation andamortization Net income Adjustment toreflectchangeinaccounting As previouslystated Cash flowsusedinfinancingactivities Decrease inpremiumonlong-termdebt Repayment oflong-termdebt Purchase ofoutstandingcommonshares Issuance ofsharecapitalbysubsidiary Non-controlling interest Issuance ofsharecapital for incometaxes(Note3) to non-controllinginterest 113,607 $ 100,546 $ 185,368 $ 113,340 $ (275,991) (270,253) 175,870 152,212 287,285 195,599 100,546 (37,876) (49,170) (41,878) (49,170) (38,605) (59,501) 62,530 59,831 (5,274) (9,342) (1,318) (6,225) 6,707 2000 2000 (464) (729) 343 (84) 152,212 $ 93,931 $ 113,340 $ 310,585 $ (175,652) (169,359) (243,213) (364,611) 310,585 120,289 315,800 190,107 334,948 (30,727) (47,963) (47,963) (60,262) 93,931 27,210 92,185 31,923 (6,437) (6,039) (3,843) 8,395 6,167 1999 1999 144 – CONSOLIDATED BALANCESHEET Director Chairman Approved onbehalfoftheBoard Shareholders’ equity Non-controlling interest Future incometaxes(Note3) Deferred employeebenefits Long-term debt(Note7) Current liabilities LIABILITIES ANDSHAREHOLDERS’EQUITY Goodwill Future incometaxes(Note3) Deferred charges(Note6) Investments (Note5) Property, plantandequipment(Note4) Current assets ASSETS (in thousands) December 31 Prepaid expenses Retained earnings Share capital(Note8) Current portionoflong-termdebt(Note7) Advance billingsandpayments Accounts payableandaccruedliabilities Current portionoffutureincometaxes(Note3) Accounts receivable Cash andshort-terminvestments 1,468,168 $ 231,798 $ 1,468,168 $ 113,607 $ 1,110,645 781,872 628,635 283,298 185,368 596,504 329,668 255,101 150,039 15,501 57,661 35,148 23,303 11,356 20,738 20,989 21,142 8,718 4,151 2000 – 1,321,394 $ 176,662 $ 1,321,394 $ 152,212 $ 1,022,615 727,124 591,946 253,991 113,340 613,784 305,749 226,028 13,056 45,224 24,045 12,984 14,213 17,591 14,945 25,321 88,723 2,324 1999 – – 35 MANITOBA TELECOM SERVICES INC. annual report 2000 36 MANITOBA TELECOM SERVICES INC. annual report 2000 NOTES TOCONSOLIDATED FINANCIALSTATEMENTS .SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES 1. on bestestimateassumptions.Thediscountrateusedtocalculatetheaccruedbenefitobligationisdeterminedbyreference to Pension andotheremployeefuture benefitcostsare determinedusingtheprojected benefitmethodprorated onyearsofservice Accountants’ Handbookare amortizedonastraight-linebasisovertheexpectedaverageremaining servicelifeofactive employe The transitionalassetandobligationsresulting from theimplementationofsection3461CanadianInstitute of Chartered Commencing January1,2000,theCompanyprospectively appliedthenewaccountingrecommendations foremployeefuture benefits. Employee future benefits substantively enactedtaxrates,that,atthebalancesheetdate,are expectedtobeineffect whenthedifferences are expecte determined basedonthedifferences betweenthetaxbasisofanassetorliabilityanditscarryingamount,are measured us The Companyusestheliabilitymethodofaccountingforincometaxes.Underthismethod,future incometaxassetsandliabiliti Income taxes its fairvalue. When thecarryingvalueofafinancialassetexceedsitsfaironbasisthatisotherthantemporary, the carrying value The Company’s financialassetsandliabilities are initiallyrecorded attherelated transactionamount,whichisnormallythe Financial instruments Foreign currencies havebeentranslatedintoCanadiandollarsatratesofexchangeonthefollowingbasis: Translation offoreign currencies the impairmentisrecognized. Total goodwillamortizationchargedtooperationsamounted$1.7millionin2000(1999–$1.1m pre-tax cashflowsandmarket-related earnings, values.Anyimpairmentinthevalueofgoodwilliswrittenoff againstearnings impairment exists,theCompany’s management considersthefinancialconditionofeachacquired businessunit,aswellitsex value ofgoodwillisevaluatedforpotentialpermanentimpairmentonanongoingbasis.Inorder todeterminewhetherpermanent of acquisitionandisamortizedonastraight-linebasisovertheestimatedperiodsbenefitrangingfrom fourto20years.T Goodwill represents theexcessofaggregate purchase priceoverthefairvalueofidentifiablenetassetssubsidiari Goodwill also includecostsassociatedwiththeissuanceoflong-termdebt,whichare amortizedoverthetermofissue. period ofexpectedbenefits,whichisnormallytwoyearsforcellularandPCS,10homesecuritycustomers.Deferr Deferred chargesincludescellularandPCSactivationcostshomesecuritycustomerinstallationthatare amortizedov Deferred charges (1999 –7.7%). based onacontinuingprogram ofengineeringstudies.Thecompositedepreciation ratefortheyearendedDecember31,2000was Depreciation iscalculatedonastraight-linebasisovertheestimatedusefullifeofproperty, plant andequipmentbyapplying construction activityandanallowanceforthecostoffundsduringconstruction. Property, plantandequipmentisrecorded atoriginalcost,includingmaterials,direct labourandcertainoverheadcostsassoc Property, plantandequipment Bell IntrignaInc. MTS AdvancedInc.,ManitobaTelecom Inc.,andAAAAlarmSystemsLtd.,aswellitsmajority-ownedsubs ServicesInternational The consolidatedfinancialstatementsincludetheaccountsofCompanyanditswhollyownedsubsidiaries,MTSCommunications Consolidation The consolidatedfinancialstatementshavebeenprepared inaccordance withCanadiangenerallyacceptedaccountingprinciples. regulatory frameworkfortheutilitysegmentofMTSCommunicationsInc. Telecommunications Act MTS CommunicationsInc.,isregulated bytheCanadianRadio-televisionandTelecommunications underthe Commission(“CRTC”) Manitoba Telecom ServicesInc.(the“Company”)operatesinthetelecommunicationsindustry. TheCompany’s principalsubsidiary, General For theyearsendedDecember31,2000and1999 ii. Revenuesandexpensesatratesprevailing attherespective transactiondates. i. Monetaryassetsandliabilitiesateffective ratesprevailing attheendofyear;and (Canada). Effective January1,1998,apricecapregulatory frameworkreplaced theratebase/rateofreturn es atthedates historical cost. ratesthatare isreduced to d toreverse. intheyear he carrying ed charges and based iated with market pected er the es are illion). idiary, 7.7% Inc., ing es.

NOTES TOCONSOLIDATED FINANCIALSTATEMENTS .DEBTCHARGES 2. .INVESTMENTS 5. PROPERTY, PLANTANDEQUIPMENT 4. INCOMETAXES 3. Plant underconstruction Buildings General equipmentandother of $5.9millionisbeingamortizedonastraight-linebasisovertheestimatedperiodsbenefit10years. differences betweenthepurchase priceandtheunderlyingnetbookvalueofthisinvestment,atdates inthe The Companyusestheequitymethodtoaccountforitsinvestmentinacompanysubjectsignificantinfluence.aggregate The marketvalueofthelong-termdisabilityfundatDecember31,2000totalled$5.9million(1999–$5.3million). Investment, atequity(1999–cost) (in thousands) Net bookvalue Land (in thousands) Other items A reconciliation ofthestatutoryincometaxratetoeffective incometaxrateisasfollows: and thenetbookvaluetaxvaluesofgoodwill. differences are mainlyduetodifferences betweenthenetbookvalueandundepreciated capitalcostofproperty, plantandequi differences betweenthetaxandaccountingbasesofassetsliabilitiestoextentthattheyare likelytoberealized. T The balancesoffuture incometaxesasatDecember31,2000,represent thefuture benefitofunusedtaxlosses,andtemporary $1.8 million. increased by$62.5million,thenetfuture incometaxassetincreased by$64.3millionandnon-controlling interest increased b applied retroactively withoutrestatement ofthe1999financialstatements.Asaresult, onJanuary1,2000,retained earnings recommendations includedinsection3465oftheCanadianInstituteChartered Accountants’Handbook.Thischangehasbeen Effective January1,2000,theCompanyadoptedliabilitymethodofaccountingforincometaxesinaccordance withthe Other interest expenseanddebtcharges (in thousands) obligation andthemarket-related valueofplanassetsisamortizedovertheexpectedaverageremaining servicelifeofactive four-year movingaverageofyear-end marketvalues.Theexcessofthenetactuarialgainorlossover10%greater ofthe interest ratesofhigh-qualitycorporatebondsatmeasurement date.Market-related valuesofpensionfundassetsare calculated Materials andsupplies Network equipmentandoutsideplant Long-term disabilityfund,atcost Long-term investments,atcost Combined basicfederalandprovincial statutoryincometaxrate Amortization oflong-termdebtcosts Interest onlong-termdebt Realization ofbenefitlossesandadditionaltaxdeductions Impact offuture federaltaxratereductions Large corporationstax ,4,1 1,532,273 $ 2,642,918 $ ,5,0 1,232,839 $ 2,057,007 $ 3,1 79,431 220,003 132,811 355,943 344– 83,464 ,3 – 5,938 ,5 – 7,755 1,110,645 $ otDpeito otDepreciation Cost Depreciation Cost 2000 cuuae Accumulated Accumulated ,3,7 1,409,960 $ 2,432,575 $ ,0,1 1,128,170 $ 1,904,011 $ 21,142 $ 25,589 $ 10,000 $ 24,845 $ 4,4 85,474 196,316 142,941 321,677 133– 51,313 (14.0) 6,188 4,954 ,2 – 6,525 ,0 – 6,108 2000 2000 2000 37.3% 46.1% 1,022,615 $ 646 0.4 3.2 1.6 98 1999 17,591 $ 29,947 $ 10,000 $ 27,124 $ he temporary employees. 3,101 4,490 2,725 (36.7) amount usinga 1999 1999 1999 11.2 23.1% 46.1% benefit pment, 2.5 – 98 y 37 MANITOBA TELECOM SERVICES INC. annual report 2000 38 MANITOBA TELECOM SERVICES INC. annual report 2000 NOTES TOCONSOLIDATED FINANCIALSTATEMENTS .DEFERREDCHARGES 6. .SHARECAPITAL 8. LONG-TERMDEBT 7. Medium Term Note,8.625%,dueSeptember 8,2010 Medium Term Note,5.90%,dueJune 2, 2008 Medium Term Note,9.125%,dueApril 3,2008 Medium Term Note,8.50%,dueSeptember 29,2007 Medium Term Note,6.50%,dueJuly2, 2007 Medium Term Note,9.00%,dueMay2, 2007 Medium Term Note,8.00%,dueApril 17, 2006 Medium Term Note,7.75%,dueSeptember 30,2005 Medium Term Note,8.75%,dueMay15, 2005 Amortization expenseamountedto$11.7millionfortheyearendedDecember31,2000(1999–$11.1million). Unlimited numberofCommonShares Unlimited numberofPreference Shares Less: Current portionoflong-termdebt Advance UFA27, 8.625%,dueSeptember8,2010 Advance UFA12, 9.00%,dueJanuary27,2002 Province ofManitobaAdvances Medium Term Note,7.75%,dueMarch 1,2005 Medium Term Note,9.00%,dueJanuary 27,2002 Notes payable (in thousands) Other (in thousands) Authorized Deferred alarminstallationcosts Deferred cellularandPCSactivationcosts Premium onlong-termdebt therefore, includedintheweightedaveragenumberofsharespersha outstandingforthepurposesofcalculatingbasicearnings The ClassAPreference SharesoftheCompanyonanequivalentbasiswithCommon participateintheearnings andare, DividendsontheClassAPreference Shares willbepayableonthesamedatesasdividendsare paidontheCommonShares ofthe • TheClassAPreference Shares are convertible,atanytime,intoCommonShares, onaone-for-one basis. • TheClassAPreference Shares are notentitledtoreceive noticeof,orattendvoteat,meetingsofshareholders onresolut • The attributesoftheClassAPreference Shares are identicalinallrespects tothoseoftheCommonShares except: been designatedasClassAPreference Shares. of shares anddeterminethedesignation,rights,privileges,restrictions andconditions.AclassofPreference Shares ofasin The Preference Shares are oftwoclasses,issuableinoneormore series,forwhichthedirectors oftheCompanymayfixnu Preference Shares Common Share dividends,inanamountperClassAPreference Share equaltothecorresponding amountofdividendsperCommonSha Company, usingthesamerecord datefordeterminingholdersofClassAPreference Shares entitledtodividendsastherecord da electing directors. 329,668 $ 20,989 $ 13,357 $ 15,078 $ 329,668 11,880 62,000 27,699 11,880 80,000 14,663 48,106 15,501 34,891 9,691 2,267 3,644 2000 2000 – – – – 305,749 $ 14,213 $ $– 9,654 $ gle serieshas 329,752 62,000 27,699 11,880 80,000 14,663 48,106 15,501 34,891 25,321 11,880 13,441 9,691 2,529 2,030 1,318 1999 1999 te for re. mber ions – re.

NOTES TOCONSOLIDATED FINANCIALSTATEMENTS Amendments Act redeemed for$1.00.Thisresulted intherepeal ofcertainprovisions of On April5,2000,whentheCompanyrepaid allindebtednesstotheProvince ofManitoba,theSpecialShare heldbytheProvince to retained earnings. terms ofitssubstantialissuerbid.Theexcessthepurchase priceoverthestatedcapitalinamountof$208.0millionw During 1999,theCompanypurchased 14,003,200CommonShares forcancellationcashconsiderationof$308.8millionunderthe stated capitalintheamountof$41.9millionwaschargedtoretained(1999–$35.2million). earnings terms ofitsnormalcourseissuerbids(1999–3,054,500CommonShares for$55.8million).Theexcessofthepurchase priceove During theyear, theCompanypurchased 2,447,800CommonShares forcancellationcash considerationof$59.5millionundert Exercised Granted Outstanding, beginningofyear Exercisable Outstanding, endofyear Terminated has reserved amaximumof3.5millionCommonShares tomeetrightsoutstandingunderthestockoptionplan. service asadirector atarateof20%peryeareffective ontheanniversaryofdatewhichoptionswere granted.The a periodnottoexceed10years.Therightexercise theoptionsaccruesoveraperiodoffiveyearscontinuousemployment Common Shares are listedonthefivedaysimmediatelypreceding thedateofgrantoption.Theoptionsare exercisabl directors atapricenotlessthantheweightedaverageofpriceswhichCommonShares tradedonallexchangeswhi The CompanyhasastockoptionplanunderwhichtheBoard maygrantoptionstopurchase CommonShares tokeyemployeesand Stock options of employeesunderthisplanduringtheyearwere purchased atfairmarketvalue. expenses. During2000,theCompanycontributed$0.8million(1999-$0.6million)tothisplan.AllCommonShares purchased on contributed byanemployee,theCompanycontributes$1.Therecords itscontributionsasacomponentofoperating Common Shares oftheCompany, through regular payroll deductions,by contributingbetween1%and6%ofsalary. Forevery$4 Effective January1,1998,theCompanyimplementedanemployeeshare ownershipplanunderwhicheligibleemployeescanpurchase Employee share ownershipplan Total Share Capital Special Share Common Shares Class APreference Shares (in thousands,exceptnumberofshares) Issued Shares andare entitledtoreceive suchdividendsasmaybedeclared bytheBoard ofDirectors oftheCompany. The holdersoftheCommonShares are entitledtoonevoteperCommonShare onallmatterstobevotedbytheholdersofComm Common Shares Issued pursuanttostockoptions Purchased forcancellation Issued, netofcosts Opening balance Issued, netofcosts Opening balance which establishedtheSpecialShare. Asaresult, theSpecialShare nolongerformspartoftheCompany’s share capital. 92394$427,916 $ 59,213,944 67854$410,636 $ 56,788,544 24780 (17,623) (2,447,800) ,7,5 185,868 $ 7,779,556 ,7,5 185,868 $ 7,779,556 ,9,5 18.23 $ 1,094,150 2,0 25.18 16.40 $ 226,000 890,550 1,1 15.60 $ 410,910 fSae xriePieo hrsExercise Price ofShares Exercise Price of Shares 2,0)15.32 (22,400) ubrVleNme Value Number Value Number ubrAeaeNme Average Number Average Number 240343 22,400 –– –– –– –– The ManitobaTelephone SystemReorganizationandConsequential 2000 2000 596,504 $ 1,5,0)(121,398) (17,057,700) 00600$400,234 $ 70,016,000 92394$427,916 $ 59,213,944 ,7,5 185,868 $ 7,779,556 ,2,4 148,612 6,223,644 185,868 7,779,556 1650 14.84 (136,500) 5,5 19.18 15.20 $ 251,550 807,500 3,0 15.02 $ 231,600 9,5 16.40 $ 890,550 3,0)14.63 (32,000) 200468 32,000 1– $– –$ 1999 1999 613,784 $ as charged Company e during ch the behalf r the was or on he 39 MANITOBA TELECOM SERVICES INC. annual report 2000 40 MANITOBA TELECOM SERVICES INC. annual report 2000 NOTES TOCONSOLIDATED FINANCIALSTATEMENTS .EMPLOYEEFUTUREBENEFITS 9. of thePensionPlanwere $847,499. December 31,1999,theestimatedactuarialvalueofnetassetsavailableforbenefitswas$901,695andaccruedpension in accordance withtherecommendations includedinsection3460oftheCanadianInstituteChartered Accountants’ Handbook.A Prior toimplementingthenewaccountingrecommendation foremployeefuture benefits,theCompanyaccountedfor PensionPla Company’s otherdefinedbenefitplansare $700and$1,048,respectively. value oftheotherbenefitplans’assetsis$4,954.Theunamortizednetactuariallossandtransitionalasseto At December31,2000,theaccruedotherdefinedbenefitplans’liabilityrecognized inthefinancialstatementsis$12,039,and is $6,737. of $461,andbenefitspaidduringtheyear$1,254.TheexcessaccruedbenefitobligationoverplanassetsatDecember of thefairvalueplanassetsatbeginningyear$5,337,employercontributions$1,325,actualreturnon The fairvalueoftheotherdefinedbenefitplans’assetsrecorded inthefinancialstatementsatDecember31,2000of$5,869i of $836,theactuariallossonobligation$209,andbenefitpayments$1,254. of theaccruedbenefitobligationatJanuary1,2000$11,573,current servicecostof$1,242,interest ontheaccruedbenefi The aggregate accruedbenefitobligationoftheCompany’s otherdefinedbenefitplansof$12,606atDecember31,2000iscompri amortization ofthetransitionalasset$77. service costof$1,242,interest ontheaccruedbenefitobligationof$836,anexpectedreturnplanassets$386,and In 2000,theCompanyrecognized anexpenserelating totheCompany’s otherbenefitplansof$1,615,whichiscomprisedacur respectively. actuarial lossandunamortizednettransitionalassetoftheCompany’s definedbenefitpensionplansare $24,901and$146,725, 2007 At December31,2000,theaccruedpensionbenefitliabilityrecognized inthefinancialstatementsis$8,107.Theunamortizedn 2008 2010 2009 $65,379. TheexcessofthePensionPlanassetsoveraccruedbenefitobligationatDecember31,2000is$113,747. 2000 of$961,293,employeecontributions$8,819,theactualreturnonplanassets$60,106,andbenefitspaidduringy The fairvalueofthePensionPlanassetsatDecember31,2000$964,839iscomprisedplanJan 14.64 18.06 25.18 in theaccruedbenefitobligationatyear-end isanaccruedbenefitobligationtotalling$2,712inrespect ofplansthatare no 19.18 benefit obligationof$58,549,theactuariallosson$29,499,andpaymentstransfers$65,379. comprised oftheaccruedbenefitobligationatJanuary1,2000$816,499,current servicecostof$11,924,interest ontheac $ Date The aggregate accruedbenefitobligationoftheCompany’s definedbenefitpensionplansof$851,092atDecember31,2000,is 312,600 48,000 – 50,310 and theamortizationoftransitionalasset$10,874. employee contributions)of$11,924,interest ontheaccruedbenefitobligationof$58,549,anexpectedreturnplanassets In 2000,theCompanyrecognized adefinedbenefitpensionplancredit of$4,656whichiscomprisedacurrent servicecost(n 496,600 Price 120,000 of 7.00%,expectedlong-termratereturnonplanassets7.25%,andacompensationincrease of2.25%. 251,550 The actuarialassumptionsusedindeterminingtheCompany’s accruedbenefitobligationsforDecember31,2000includeadiscoun 226,000 recorded ontheCompany’s financialstatements. Exercisable the exceptionoflong-termdisabilityplanforwhichCompanyhasdedicatedassetssetasidetofundbenefits.Theseass The Companyalsoprovides supplementalpensionarrangementsandothernon-pensionemployeefuture benefitsthatare unfundedwi periodic actuarialvaluations.Contributionsreflect actuarialassumptionsregarding salaryprojections andfuture servicebene atDec.31,2000 TheCompany’spensions basedonlengthofserviceandbestaverageearnings. policyistofundthePensionPlanasdeterminedt Company, MTSCommunicationsInc.,AdvancedandManitobaTelecom Inc.ThePensionPlanprovides ServicesInternational The Companyhasacontributorydefinedbenefitbestaveragepensionplan(the“PensionPlan”),whichcoverstheemployeesofth (in thousands) 1997 1998 1999 2000 Year granted usadn xrieExpiry Exercise Outstanding pin Average Options fits. t funded. s comprised planassets t obligation thebook $64,255, 31,2000 Included benefits hrough uary 1, ets are ear of crued t rate f the et of rent s at sed th et n e

NOTES TOCONSOLIDATED FINANCIALSTATEMENTS 0 FINANCIALINSTRUMENTS 10. 2 SEGMENTEDINFORMATION 12. ACQUISITIONS 11. Income taxexpense Debt charges Other income Consolidated totalassets Elimination ofintersegmentreceivables Assets Consolidated netincome Non-controlling interest EBITDA Reconciliations oftotalEBITDAandassetsare asfollows: exchange provider inAlbertaandBritishColumbia. are MTSAdvancedInc.,whichistheCompany’s e-businessanddirectory publishingsubsidiary, andBellIntrignaInc.,acompeti Revenues from segmentsbelowthequantitativethresholds are attributabletotwooperatingsegmentsoftheCompany. Thosesegme Capital expenditures, net (in $millions) The followingtableispresented toprovide informationaboutsegmentEBITDAandassets: sales andtransfersasiftheorwere tothird parties,thatis,atpricesapproximate current marketpric beforeperformance basedonEBITDA(earnings interest, taxes,depreciation andamortization).TheCompanyaccountsforinterseg segments are thesameasthosedescribedinsummaryofsignificantaccountingpolicies(Note1).TheCompanyevaluates The Company’s segmentsare strategic businessunitsorganizedaround different products andservices.Theaccountingpolicieso wireless accessservices. andInternet The Companyhasonereportable operatingsegment:MTSCommunicationsInc.,whichprovides afullrangeoflocal,longdistance, Consolidated StatementofIncomefrom theeffective datesofacquisition. acquired wasrecorded asgoodwillintheamountof$3.1million.Theoperatingresults ofthesebusinesseswere includedinthe acquisitions were accountedforusingthepurchase method,andtheexcessoftotalconsiderationpaidovernetidentifi Security andFire Inc.(January29,1999),andMBnetNetworking(October31,1999)fortotalcashconsiderationof$3.4mi During 1999,theCompanyacquired alloftheoperatingassetsImaginetCommunicationsGroup Inc.(February1,1999),Interna During theyearsendedDecember31,2000and1999,Companyhasnotutilizedanyderivativefinancialinstruments. (1999 – are subjecttonormaltradeterms,approximates thefairvalue.TheCompany’s long-termdebtwithacostof$329.7million theexceptionoflong-termdebt,historicalcostcarryingamountCompany’sWith financialassetsandliabilities,wh Operating revenue –internal Operating revenue –external Total assetsforoperatingsegments Depreciation andamortization Total EBITDA Assets Depreciation andamortization EBITDA $329.8 million)hadafairmarketvalueof$344.2million(1999–$342.2asatDecember31,2000. (in millions) (in millions) 1,345 omnctosSget Totals Segments Communications 2000 147 721 187 372 11 T AllOther MTS 1,348 1999 123 695 186 322 10 2000 123 101 407 (11) 23 9 1,468 $ 101 $ 1,752 $ 361 $ 1999 225 47 47 24 4 3 2000 2000 (284) (196) (56) (25) 11 6 1,752 2000 1,321 $ $94 1,573 $ 325 $ 270 822 196 361 34 es. llion. These able assets tive local 1,573 1999 1999 1999 (252) (190) 170 742 190 325 (27) (30) data, tional 12 34 ment f the 4 nts ich 41 MANITOBA TELECOM SERVICES INC. annual report 2000 42 MANITOBA TELECOM SERVICES INC. annual report 2000 NOTES TOCONSOLIDATED FINANCIALSTATEMENTS 3 COMMITMENTSANDCONTINGENCIES 13. 6 SUBSEQUENTEVENT 16. COMPARATIVE FIGURES 15. 14. RELATED PARTY TRANSACTIONS approximately $20million,withadditionalcashconsiderationofapproximately $6milliondueuponachievementofcertainfinan Effective January1,2001,theCompanyacquired a100%ownershipinterest inTheEXOCOMGroup Inc.forcashconsiderationof included asoperationsexpenses. other carriersforcellularroaming, previously nettedagainstmiscellaneousrevenues andwireless revenues, respectively, are The priorperiodfigures havebeenreclassified where necessarytoconform2000presentation. Baddebtexpenseandamountsp operations andare atprevailing marketprices. and receives amountsfrom, Bellfortransitingandterminatinglongdistanceminutetraffic. Theseamountsare inthenormalco amounts duefrom related partiestotalled$39.0million(1999–duetorelated parties$38.5million).TheCompanyalsopaysam During theyear, theCompanymadepurchases from related partiestotalling$46.9million(1999–$85.7million).AsatDecember representation ontheBoard ofDirectors. is subjecttosignificantinfluencebyBelldueCanada’s ownershipofClassAPreference Shares andCommonShares andB terms. RelatedpartiesincludeBellCanada,itsparent, subsidiariesandsignificantlyinfluencedaffiliates (collectively, “Be The Companyhastransactionswithrelated partiesinthenormalcourseofoperationsatprevailing marketpricesandundernorm 2005 2004 2003 2002 2001 Year Future contractualcommitmentsfortheseservicesare approximately asfollows: purchased undertheseagreements variesfrom monthtodependingonthelevelofactivityassociatedwitheachcentraloff service providers forthepurposeofreselling theseservices.Theseagreements rangebetweenoneandfiveyears,theamoun The Company’s majority-ownedsubsidiary, BellIntrignaInc.,hasentered intopurchase agreements withvarioustelecommunicatio 2005 2004 2003 2002 2001 Year The aggregate annualcontractualcommitmentsfortheseservicesineachofthefivefollowingfiscalyearsare asfollows: The Companyhasentered intovariouslong-termcontractualcommitmentsforservicesrequired inthenormalcourseofoperations Contractual obligations 2005 2004 2003 2002 2001 Year as follows: The Companyrents buildingsandconstructionotherequipmentunderoperatingleases.Future minimumleasecommitmentsare Lease commitments $ $ $ ll”). TheCompany (in thousands) (in thousands) (in thousands) cial targets. 31,2000, 10,800 10,800 10,800 10,800 10,080 14,030 14,780 11,044 11,052 11,501 11,323 43,200 21,634 12,731 ounts to, 7,100 al trade urse of aid to now ell’s ice. ns t . IEYASI REVIEW FIVE YEARSIN FINANCIAL INFORMATION (Not subjecttoauditors’report) OPERATIONAL STATISTICS (in $thousands,exceptearningspershareandratios) Shareholders’ equity Long-term debttototalinvestedcapital(%) Long-term debt Investments andsinkingfunds Accumulated depreciation Network accesslines (in $thousands) Long distanceminutes Property, plantandequipment Balance Sheet pershareBaseline earnings ($) Baseline ROE(%) Baseline EBITDAmargin(%) Baseline EBITDA Baseline netincome Baseline operatingrevenues Baseline Operations Total operatingrevenues Operations Cellular customers Earnings pershareEarnings ($) ROE (%) EBITDA Cash flowfrom operatingactivities Dividends Extraordinary item Income before extraordinary item Debt charges Other income Operating income Total operatingexpenses Construction program expenditures Internet customers Internet 3 IncludingBellIntrigna,totalnumberofemployeesis3,465asatDecember31,2000(1999–3,411). (3) Baselineresults excludetheimpactofBellIntrignain2000and1999, ofthegainonsaleshares inAloue (2) Figures fortheyears1996,1997,1998and1999havebeenrestated toconform2000presentation, asdescribedinNote15 (1) Number ofemployees Salaries andwages Telecommunications Inc.in1998,andtheextraordinary itemin1997. expense isnotavailable. as expenses.Theinformationrequired torestate 1996figures forthischangeinthepresentation ofcontributionandlongdist minutes traffic andcontributionpaymentstotheCRTC’s CentralFund,previously netted againstoperatingrevenues, are nowinc contribution andlongdistanceexpensesfirstadoptedin1999.Amountspaidtocarriersfortransitingterminatingdis to theConsolidatedFinancialStatements.Figures for1998and1997havebeenrestated toconformthepresentation for (in $thousands) (3) (in thousands) (2) (1) (1) 1,532,273 2,642,918 1,199,015 781,872 329,668 698,585 385,753 112,995 764,125 169,140 270,253 172,848 360,941 287,285 100,546 165,342 656,923 822,265 21,142 49,170 25,589 10,711 73,381 3,125 2000 29.7 1.74 14.7 50.5 1.55 13.2 – ,6,5 2,7 5,4 739,135 755,046 821,576 1,061,457 ,0,6 ,6,4 ,4,5 1,121,896 1,141,254 1,264,743 1,409,960 ,3,7 ,9,1 ,7,3 2,186,169 2,177,530 2,295,617 2,432,575 9,2 9,4 7,0 666,910 679,303 692,244 697,828 4,9 2,1 0,2 86,256 104,826 123,013 143,693 6,5 6,1 3,3 135,199 174,468 134,630 176,837 166,416 173,794 169,359 173,070 2,2 1,1 6,1 265,140 662,814 710,819 727,124 0,4 8,3 0,0 673,685 305,306 287,836 305,749 0,7 1248,6 32,400 283,466 602,655 296,514 84,664 703,824 313,963 91,234 716,765 335,080 100,277 739,677 2,2 1,6 9,1 283,466 186,928 296,514 251,806 313,963 104,743 292,017 497,912 602,655 324,821 114,982 315,800 588,842 703,824 129,010 587,755 716,765 134,714 607,205 741,919 4914,3 05010,100 20,500 46,131 64,901 7511,3 171395,808 11,711 14,634 17,591 7934,0 760N/A 32,400 84,921 12,578 47,600 84,664 36,706 9,056 47,603 95,374 34,055 47,963 15,319 93,931 29,947 12,326 ,7 ,7 ,1 3,688 3,614 3,378 3,273 9919 971996 1997 1998 1999 133. 6875.7 36.8 34.1 31.3 .313 .1N/A 13.0 47.0 1.21 18.2 42.1 1.30 13.3 43.8 1.43 13.3 45.3 .413 .1N/A 13.0 0.81 12.7 1.36 13.9 1.34 12.5 820– 28,250 – – luded tance ance tte 43 MANITOBA TELECOM SERVICES INC. annual report 2000 INVESTOR INFORMATION

MANITOBA TELECOM SERVICES INC. ANNUAL AND SPECIAL MEETING Subsidiary Companies An Annual and Special Meeting of the shareholders of MTS Communications Inc. MTS will be held at The Winnipeg Art Gallery, Muriel MTS Advanced Inc. Richardson Auditorium, Winnipeg, Manitoba, on The EXOCOM Group Inc. April 24, 2001, at 11:00 a.m. AAA Alarm Systems Ltd. Bell Intrigna Inc. DUPLICATE ANNUAL REPORTS If you have received duplicate copies of this annual Corporate Headquarters report, please call MTS Corporate Communications P.O. Box 6666 at (800) 565-1936 or (204) 941-8246. 333 Main Street Winnipeg, Manitoba R3C 3V6 INVESTMENT INFORMATION ONLINE http://www.mts.mb.ca MTS publishes investor information, including quarterly Investor Relations reports, dividend and special notices, on its Web site at (for investor information) http://www.mts.mb.ca. P.O. Box 6666 333 Main Street, Room MP20B PERFORMANCE GRAPH Winnipeg, Manitoba R3C 3V6 The following graph compares the change over the Telephone: (888) 544-5554 last four years in the shareholder cumulative total return on the Common Shares of the Corporation with the Corporate Communications cumulative total return of the TSE 300 Composite Index, (for media and general inquiries) assuming a $100 investment at the initial offering price P.O. Box 6666 of $13.00 and reinvestment of dividends. 333 Main Street, Room MP18C Winnipeg, Manitoba R3C 3V6 Telephone: (800) 565-1936 or (204) 941-8244

2000 Share Performance Graph SHARE TRANSFER AGENT AND REGISTRAR $380 Computershare Trust Company of Canada Suite 600 $340 530 8th Avenue SW Calgary, Alberta T2P 3S8 $300

(888) 267-6555 $260 annual report

MARKET TRADING INFORMATION $220

The Company’s Common Shares are listed on The $180 Toronto Stock Exchange. The trading symbol is MBT. 44 $140 DIVIDENDS* $100 Record Date Payment Date March 15, 2001 April 12, 2001 June 15, 2001 July 13, 2001

September 15, 2001 October 15, 2001 Jan 06/97 Dec 31/97 Dec 31/98 Dec 31/99 Dec 31/00

December 15, 2001 January 15, 2002 MBT 100 129.04 166.31 185.53 340.12 TSE 300 100 114.95 112.96 148.79 159.76 * Subject to approval by Board of Directors Communications Printed in Canada SUTTON JAVELIN SUTTON JAVELIN MANITOBA TELECOM SERVICES INC. TELECOM SERVICES MANITOBA Designed and Produced by WILLIAM C. FRASER President & Chief Executive Officer, Manitoba Telecom Services Inc. CHERYL BARKER and MTS Communications Inc. Executive Vice-President BONNIE J. STAPLES-LYON Finance & Chief Financial Officer, Vice-President Manitoba Telecom Services Inc. JEFFREY C. ROHNE Corporate Communications, Vice-President Finance, President & Manitoba Telecom Services Inc. MTS Communications Inc. Chief Operating Officer, MTS Advanced Inc. PETER J. FALK, Q.C. DAVID C. ROURKE Executive Vice-President Business Development; Executive Vice-President BRYAN J. LUCE Corporate Secretary & Operations, Vice-President ROGER H. BALLANCE General Counsel, MTS Communications Inc. Human Resources, Executive Vice-President Manitoba Telecom Manitoba Telecom Sales & Marketing, Services Inc. Services Inc. MTS Communications Inc.

MTS MANAGEMENT COMMITTEE

Officers of Manitoba Telecom Services Inc. and CEOs of its Principal Subsidiaries

THOMAS E. STEFANSON CHERYL BARKER, C.A. JEFFREY C. ROHNE PATRICIA A. SOLMAN, C.A. Chairman, Executive Vice-President President & Treasurer, Manitoba Telecom Services Inc. Finance & Chief Operating Officer, Manitoba Telecom Services Inc. and MTS Communications Inc. Chief Financial Officer, MTS Advanced Inc. Winnipeg, Manitoba Winnipeg, Manitoba Manitoba Telecom Services Inc. Winnipeg, Manitoba Vice-President Finance, MURRAY L. KORTH WILLIAM C. FRASER, C.A. MTS Communications Inc. DAVID C. ROURKE Winnipeg, Manitoba President & President & Executive Vice-President Chief Executive Officer, Chief Executive Officer, PETER J. FALK, Q.C. Operations, Bell Intrigna Inc. Manitoba Telecom Services Inc. MTS Communications Inc. Calgary, Alberta and MTS Communications Inc. Executive Vice-President Winnipeg, Manitoba Chairman, Business Development; General RONALD J. MAC DONELL Bell Intrigna Inc. Counsel & Corporate Secretary, BRYAN J. LUCE Winnipeg, Manitoba Manitoba Telecom Services Inc. President & Winnipeg, Manitoba Vice-President Chief Executive Officer, Human Resources, The EXOCOM Group Inc. ROGER H. BALLANCE Manitoba Telecom Services Inc. Ottawa, Ontario Winnipeg, Manitoba Executive Vice-President Sales & Marketing, WAYNE S. DEMKEY, C.A. MTS Communications Inc. Winnipeg, Manitoba Corporate Controller, Manitoba Telecom Services Inc. Winnipeg, Manitoba MANITOBA TELECOM SERVICES INC. P.O. Box 6666 333 Main St., 4th Floor Winnipeg, Manitoba, Canada R3C 3V6 connected