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MTS Reports Solid Second Quarter Results

- Third Quarter 2006 Cash Dividend Declared - • First half of 2006 financial performance on track with full-year guidance • Free cash flow from continuing operations grows 24% to $191.8 million in first six months • IP-VPN (Internet Protocol-Virtual Private Network) base continues to climb, reaching 144 customers • Double-digit growth in wireless, digital television, next generation data connectivity and high-speed

Internet revenues • Cost reduction program achieves $70 million in annualized expense savings • Changes to federal pension funding requirements expected to reduce funding obligations in 2006 and

beyond • Business Review on track and progressing well Winnipeg, Manitoba, July 27, 2006 – Manitoba Telecom Services Inc. (“MTS”) today released its second quarter results. The Board of Directors also declared the third quarter cash dividend at $0.65 per share. The third quarter dividend is payable on October 16, 2006 to shareholders of record at the close of business on September 15, 2006. “MTS has now delivered two solid quarters of performance in 2006,” said Pierre Blouin, Chief Executive Officer. “The second quarter results reflect strong growth in wireless, digital television, next generation data connectivity and high-speed Internet, solid improvements at our Enterprise Solutions division, marked by a sequential improvement in quarterly profitability, and continued strong progress with our cost reduction program.” The Company’s results from continuing operations1 include: EPS2 of $0.75 in the second quarter and $1.43 year to date – unchanged from 2005; EBITDA3 of $175.4 million compared with $175.9 million in the second quarter of 2005 and up modestly by 0.3% in the first six months of 2006; a marginal year-over-year decline in revenues by approximately 2% to $490.1 million in the second quarter and by 2.0% to $978.9 million in the six months ended June 30, 2006; and free cash flow4 up strongly in the quarter by 37.0% to $99.3 million and by 24.1% to $191.8 million in the first half of the year. Underlying the stability of these consolidated financial results was excellent progress on the Company’s $100 million cost reduction program. At June 30, 2006, work had been completed to achieve $70 million in annualized savings. Realized savings were $26 million in the second quarter and $48 million in the first six months of the year. The Company’s growth services, also posted very strong performance, collectively increasing by 15%, representing $44 million in new revenues in 2006.

Quarterly Report for the period ending June 30, 2006 2

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The Company’s Enterprise Solutions division delivered strong performance in its growth areas with next generation data connectivity revenues climbing by 58.9% and IP-VPN customers increasing to 144. The division also made good progress winning new business with customers in the quarter including NAV CANADA, AGF Management, TD Waterhouse, WestJet and CanWest Mediaworks. In the Consumer Markets division, wireless revenues and cellular customers grew by 12.9% and 11.6%, respectively, and experienced strong increases from digital television, with customers climbing by 36.8%, and high-speed Internet customers increasing by 18.2%, from a year earlier. “We’re pleased with the performance of our business to date in 2006,” added Mr. Blouin. “The results are reflective of the progress we are making in strengthening our fundamental business and the success we are having addressing and managing the significant competitive dynamic and IP migration our industry continues to experience. At the halfway point of the year, we are tracking well in relation to our guidance with results from continuing operations consistent with 2005.” In addition Mr. Blouin remarked, “We were also encouraged by a number of CRTC rulings during the quarter which recognized once again that fair and sustainable competition requires cost-based access to the public network infrastructure controlled by the incumbents. When left to their own devices, the incumbents have often charged rates that impede competition and innovation. By providing for retroactive recoveries and reducing these unfair costs going forward, these rulings bode well for our Enterprise Solutions business and should underline for the Government of Canada, that in fact, we have been paying noncompetitive rates to incumbents for the network access that is so crucial for true market-driven innovation and competition.” FINANCIAL HIGHLIGHTS

three months ended June 30 six months ended June 30 (in millions of dollars) 5 2006 2005 2006 2005

CONTINUING OPERATIONS

Revenues 490.1 502.2 978.9 998.9 EBITDA 175.4 175.9 344.2 343.3 EPS 0.75 0.75 1.43 1.43 Free Cash Flow 99.3 72.5 191.8 154.5

REPORTED

Operating Revenues 500.0 502.2 988.8 997.3 Operating Income 102.9 94.6 187.8 174.7 EBITDA 184.9 172.0 350.6 331.1 Net Income (1.2) 111.5 42.8 154.0 Basic EPS (0.02) 1.65 0.63 2.27 Free Cash Flow 86.4 48.0 155.7 112.8 Total Capital Assets 6 1,479.9 1,507.6 1,479.9 1,507.6

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Basic EPS was ($0.02) in the quarter, as compared to $1.65 in the same quarter in 2005, and was $0.63 year to date versus $2.27 in the first half of 2005. Basic EPS is lower in 2006 primarily due to non-cash adjustments to income tax expense, as described in the section titled “Income Tax Expense”. Revenue in the second quarter of 2006 decreased slightly to $500.0 million from $502.2 million in 2005 and for the first six months, decreased to $988.8 million from $997.3 million in 2005. EBITDA increased by 7.5% to $184.9 million in the second quarter and by 5.9% to $350.6 million year to date, when compared to the same periods during the previous year. In addition to the performance from continuing operations, these results include retroactive regulatory adjustments, restructuring costs and, most notably in the case of basic EPS, non-cash adjustments to income tax expense. Income Tax Expense MTS has the benefit of significant loss carryforwards as a result of its 2004 acquisition of Allstream Inc. These losses allow the Company to reduce taxable income to zero and at the same time, defer its substantial and growing capital cost allowance (“CCA”) pools. Through the utilization of the loss carrryforwards followed by utilization of the deferred CCA deductions, the Company projects that it will not pay cash taxes any earlier than 2014. In the second quarter of 2006, an ($0.86) adjustment to EPS was recorded to reflect a non-cash reduction in future income tax rates which reduces the book value of the Company’s future income tax asset. A similar adjustment of ($0.14) per share was recorded in the second quarter of 2005 for a reduction in Manitoba’s future income tax rates. Additionally, in the second quarter of 2005, a non-cash gain of $1.07 was recorded in relation to the settlement of prior years’ tax audits. All of these adjustments to income tax expense are non-cash impacting. 2006 OUTLOOK The broad market segment trends within the industry that have occurred over the past few years are expected to continue in 2006. Service areas such as wireless, Internet, digital television and IP-based next generation services for business customers will continue to exhibit strong growth. At the same time, traditional legacy services, including data connectivity and long distance, will see continued pressure from customer migration to next generation services and an ongoing, highly competitive marketplace. In national markets, the Company is facing continued strong competition which it is addressing by refining its market focus, being an innovator with IP solutions, and reducing the cost structure to position its operations to move forward successfully. In the residential market in Manitoba, strong competition is expected from the incumbent cable operator. Through its broadband initiative, the Company has been preparing for this competitor for several years, and is well placed to compete with a comprehensive suite of service offerings for residential customers, including local and long distance, wireless, Internet and digital television services.

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The Company’s financial outlook from continuing operations, as detailed in the table below, remains unchanged from what was issued in its first quarter 2006 interim Management’s Discussion and Analysis (“MD&A”).

2006 Financial Outlook – Continuing Operations May 2, 2006

Revenues $1.925 B to $1.975 B EBITDA $655 M to $680 M

EPS $2.35 to $2.65

Free Cash Flow $285 M to $310 M

Capital Expenditures $270 M No Incremental Borrowings Expected in 2006 “Our operations are generating excellent cash flows, pension funding relief is on the horizon, and we’ve received regulatory decisions with retroactive components that will also positively impact 2006 cash flows,” said Wayne Demkey, Chief Financial Officer. “With these changes, we expect to fund all of our cash requirements this year, including pension solvency funding and amounts associated with our cost reduction program, without the need for any incremental borrowings.” The Company had been anticipating limited incremental borrowings in 2006 to supplement funding of its 2006 cash requirements, which include two special obligations that are not from continuing operations. The first is approximately $70 million to $80 million to support the advancement of our cost reduction program, and the second is solvency funding of approximately $105 million for its pension plans. However, with reduced pension funding requirements as detailed below, together with positive retroactive regulatory decisions, the Company now expects that no additional borrowings will be required this year. MTS has excellent financial strength and flexibility, with a debt ratio of 38.4% at June 30, 2006. Pension Solvency Funding The Company has defined benefit pension plans which provide retirement benefits to its employees. These plans are funded as determined through periodic actuarial valuations. On June 2, 2006, the federal government released draft amendments to the solvency funding regulations for federally regulated pension plans. Once the amended regulations come into effect, MTS anticipates filing revised actuarial funding valuation reports, which are expected to reduce the Company’s 2006 solvency payments from $105 million to approximately $65 million to $70 million. This will leave a remaining solvency deficiency amount of approximately $300 million to be funded over the subsequent nine years. Future solvency funding requirements will depend on the results of annual actuarial funding valuations which are affected by various factors, such as return on plan assets, changes in solvency liability discount rates, and any further action taken by the government on the requirements associated with solvency valuations.

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BUSINESS REVIEW On January 31, 2006, the Company announced that it would conduct a comprehensive business review to strengthen the fundamental business and evaluate its competitive position and strategic opportunities for creating and delivering long-term shareholder value. Since launching the review, the Company has established its 2006 business plan and delivered two quarters of financial performance that are solidly on track in relation to expectations for the year. The performance of the Enterprise Solutions division has been improved by focusing on profitable operations and the overall corporate cost structure has been strengthened with annualized cost reductions of $70 million achieved so far in 2006. In addition, the Company has securitized its receivables and undertaken efforts to realize working capital improvements. An important initial element of the business review was an assessment of the Company’s asset base to identify core and non-core assets. Through this phase of the review, non-core real estate holdings have been identified and listed for sale, with the remaining work on non-core assets expected to be completed by the end of the summer. The review is continuing to work on the strategic side of our business review with comprehensive analyses of multiple scenarios including important potential growth strategies for the business. “Our review is all encompassing,” said Mr. Blouin, “and all aspects of our operations are being proactively addressed - operational, financial and strategic. Be it market focus, cost reductions, receivables securitization or monetizing non-core assets like real estate, we are making very good progress. Much has been accomplished already, and our shareholders should see our actions to date as clear evidence of our commitment to long-term value creation.” OTHER DEVELOPMENTS MTS Allstream expands multiprotocol label switching (“MPLS”) solutions for NAV CANADA On May 24, 2006, MTS Allstream announced an expansion to an existing multi-year, multi-million dollar contract with NAV CANADA, the country’s civil air navigation services provider, to augment its existing MPLS solution and other IP-converged services. In addition to the MPLS sites that MTS Allstream previously deployed for NAV CANADA, an additional twenty sites will be migrated to the existing MPLS network, enabling faster connections with NAV CANADA mainstream operations. Area control centres and airport control towers also have been upgraded to an Ethernet-based access solution, which allows the company to rapidly deploy new applications and easily increase bandwidth requirements as business needs change. MTS Allstream also will provide a managed wide area network service to manage router equipment for NAV CANADA. Fair wholesale access vital for competition in Canada’s business telecom market, says MTS Allstream CEO On June 13, 2006, MTS Allstream CEO Pierre Blouin gave the keynote address at the 2006 Canadian Telecom Summit. Speaking to an audience of senior government officials, regulators and industry leaders, Mr. Blouin said: “For competition and innovation to thrive in the national business market, Canada needs a regulatory environment that creates a level playing field. Last year, MTS Allstream paid approximately $250 million to the former monopolies for access to the local network connections that link MTS Allstream’s advanced national network to its customers across the country.”

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These local access roads – the public network infrastructure – were built by the former monopolies over the course of decades with essentially no risk in a heavily regulated, guaranteed rate-of-return environment. Nonetheless, where regulation is absent, they charge competitors access rates that range from 50 per cent to as high as 300 per cent over and above costs plus a reasonable rate of return. “The potential for competition to drive the rapid innovation offered by IP and other emerging technologies will only be realized if the requirements necessary for sustainable competition are present,” said Mr. Blouin. “The first is cost-based access for competitors to the public network infrastructure. The second is meaningful consequences for incumbents that fail to meet mandated quality of service levels for competitors accessing the public network infrastructure. If these requirements are satisfied, competition and innovation in the business market will thrive. If not, competition and innovation will be in jeopardy.” MTS Allstream launches IP trunking service On June 13, 2006, MTS Allstream announced the launch of its IP trunking service. MTS Allstream is the first Canadian service provider to offer this service on a national basis. With IP trunking, businesses can extend their IP network capabilities to the public switched telephone network with a single, secure, reliable connection. MTS Allstream’s IP trunking service benefits customers by providing an accelerated return on investment for their IP telephony solutions and networks, cost reduction, productivity improvement, and greater flexibility to adapt for the changing needs of their businesses. Prepaid wireless service now available in major cities across the country On June 15, 2006, MTS Allstream announced the enhancement of its prepaid wireless service to provide customers with the ability to use their phones in most cities across Canada. Other features available to MTS Allstream prepaid customers include text messaging, mobile browser service, picture and video messaging, and the ability to download ringers, games, and screensavers. Check email with your remote control On June 22, 2006, MTS Allstream announced the launch of Email on Demand, a service that enables MTS TV customers to check their email with their own television set. Email on Demand puts a customer’s MTS Internet inbox right on their television screen, and allows viewing and the deletion of messages with their remote control. This service is available to anyone with MTS TV and any type of MTS Internet account. Similar to TV Call Display, Email on Demand is an exclusive offering by MTS Allstream; neither feature is available from competing television and Internet providers. Press2Talk™ service launched On July 11, 2006, MTS Allstream announced the launch of its Press2Talk™ service. Press2Talk™ features a wireless handset that combines the ease-of-use of a “walkie talkie”, with the functionality of a cellular phone, allowing customers with group communications needs to access a whole new level of convenience and efficiency – all at the “press” of a single button. MTS Allstream’s fast and reliable network coverage instantly connects group members; which eliminates phone tag and helps them get their jobs done faster. Employees dispersed across a work yard, the city, or even across the province, are just one press away from each other. Instant connection, Know who’s there, and Ten people at once are just some of the many features that Press2Talk™ customers enjoy.

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Surf over lunch, coffee or drinks with MTS Wi-Fi and FatPort On July 18, 2006, MTS Allstream announced that MTS High Speed Internet customers can take their Internet access to any of more than 300 Wi-Fi “hotspots” across Canada, including thirty-two in Winnipeg. These Wi-Fi hotspots are located at the MTS Centre and a variety of different restaurants, hotels and cafés across Canada. MTS Allstream not only differentiates itself from the competition by providing its customers with access to FatPort’s – Canada’s largest public Wi-Fi provider – great chain of hotspots, but it will also be adding more of its own hotspots by the end of this year to provide even more access. This service will work for anyone who has a Wi-Fi enabled device, such as a lap-top computer or PDA, and will be free to all MTS High Speed Internet customers until September 30, 2006, after which a range of plans will be available to meet individual customers’ needs, including a $20 per month unlimited Wi-Fi access plan. MTS Allstream wins City of Winnipeg wireless contract On July 25, 2006, MTS Allstream announced that it has once again been selected by The City of Winnipeg to meet their communications needs. Through this 28-month wireless services contract, MTS Allstream will provide the City and its employees with access to cell phones, wireless PC cards, BlackBerry™ handheld devices, cellular and wireless data airtime, and related features. Roughly 2,000 cellular phones are currently used by the City’s approximately 8,300 employees, ranging from police officers and firefighters, to community service workers and planners. These individuals, who are engaged everyday in an important, incredible array of front-line services, will have continued access to all of MTS Allstream’s latest wireless innovations, including its 1x EV-DO network, which is the fastest mobile data network in Manitoba. MTS Allstream wins WestJet contract to implement MPLS On July 26, 2006, MTS Allstream announced it will be implementing a North American MPLS network solution as part of its extended service agreement with WestJet, Canada's leading low-fare airline. The extended agreement allows MTS Allstream to convert WestJet’s 35 locations across North America to an MPLS network that will provide WestJet with a more robust, scalable, IP Converged network. This network will also give WestJet flexibility to deploy future IP-based applications. In addition to the extended agreement, MTS Allstream secured an enterprise security contract to implement a solution that leverages Intellitactics™ Security Manager, a comprehensive software solution that combines security event management with security information management. MTS Allstream announces settlement with Rogers On July 27, 2006, MTS Allstream announced a settlement with Rogers Communications Inc. (“Rogers”) regarding the provision of certain long distance traffic under the terms of a Long Distance Services Agreement (the “LD Agreement”) entered into in November 2004. Under the terms of the settlement, the two companies have entered into a new agreement for MTS Allstream to continue to provide web hosting services to Rogers and work is continuing to finalize an agreement respecting the ongoing provision of data services. The revised LD Agreement will continue until its expiry on December 31, 2006.

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1 Refer to MTS second quarter 2006 interim MD&A for the definition of continuing operations. 2 EPS is earnings per share. 3 EBITDA is earnings before interest, taxes, amortization and other income (expense). EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian generally accepted accounting principles) as a measure of liquidity. 4 Refer to MTS second quarter 2006 interim MD&A for the definition of free cash flow. 5 Excludes EPS and basic EPS. 6 2006 as at June 30; 2005 as at December 31

On October 21, 2005, MTS Allstream announced a court application against Rogers for a declaration that it was not entitled to transfer certain long distance traffic from MTS Allstream to Call-Net Enterprises Inc. With the announcement of the new agreement, MTS Allstream has filed a discontinuance of this court application.

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Unless otherwise indicated, this Management’s Discussion and Analysis (“MD&A”) of our financial results for the period ended June 30, 2006 is as at July 27, 2006. In this MD&A, “we”, “our”, and “us” refer to Manitoba Telecom Services Inc. (“MTS”). This interim MD&A should be read in conjunction with our interim consolidated financial statements and the discussion and analysis that accompanies our audited consolidated financial statements for the year ended December 31, 2005. This interim MD&A for the three and six months ended June 30, 2006 updates the information contained in our first quarter 2006 interim MD&A and our 2005 annual MD&A. This interim MD&A includes forward-looking statements about our corporate direction and financial objectives that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking information. Examples of statements that constitute forward-looking information may be identified by words such as “believe”, “expect”, “project”, “anticipate”, “could”, “target”, “forecast”, “intend”, “plan”, “outlook”, and other similar terms. Factors that could cause actual results to differ materially from those expected, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in such forward-looking information, include, but are not limited to, the items identified in the “Risks and Uncertainties” section and the “Material Assumptions” identified in the “Outlook” section of this interim MD&A, our first quarter 2006 interim MD&A and our 2005 annual MD&A. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information relating to our company, including our Annual Information Form, is available on SEDAR at www.sedar.com. NNOONN--GGAAAAPP MMEEAASSUURREESS OOFF PPEERRFFOORRMMAANNCCEE In this MD&A, we provide information concerning continuing operations, EBITDA and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by Canadian generally accepted accounting principles (“GAAP”), and are not necessarily comparable to similarly titled measures used by other companies.

• Continuing Operations – We provide information that refers to our performance from continuing operations to assist investors in understanding the performance of our company. Continuing operations in the first half of 2006 include synergies and exclude the retroactive adjustment related to Telecom Decision CRTC 2006-20 in which the Canadian Radio-television and Telecommunications Commission (“CRTC”) approved MTS Allstream’s application to review and vary the CRTC’s decision in MTS Allstream’s application to review and vary certain decisions relating to its Band F subsidy, Telecom Decision CRTC 2005-52 (the “Band F Decision”); the adjustment related to Aliant Telecom, Bell Canada, MTS Allstream, SaskTel and TCI – Approval of rates on a final basis for Access Tandem service, Telecom Decision CRTC 2006-22 and Aliant Telecom, Bell Canada, MTS Allstream, SaskTel and TCI – Approval of rates on a final basis for Direct Connection service, Telecom Decision CRTC 2006-23 (“the Direct Connect/Access Tandem Decisions”); restructuring costs; solvency funding to our pension plans; and the impact of changes in income tax rates on our tax asset. Continuing operations in the first half of 2005 include synergies and exclude restructuring costs, the estimated net positive retroactive portion of the impact from the decision of the CRTC in Competitor Digital Network Service, Telecom Decision CRTC 2005-6, (the “CDNA Decision”); the gain arising from the sale of our investment in a wireless venture; a non-cash gain associated with the settlement of prior years’ tax audits; the impact of changes in income tax rates on our tax asset; and solvency funding to our pension plans.

• EBITDA – We define EBITDA as earnings before

interest, taxes, amortization and other income (expense). EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

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

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

OOVVEERRVVIIEEWW MTS is a leading national communications provider in Canada, which earned $2.017 billion in revenue and net income of $213.7 million in 2005. Our objective is to build upon our many strengths as an agile national competitor and services innovator, and to ensure that we are profitably focused on our growth opportunities, particularly those

MANAGEMENT’S DISCUSSION AND ANALYSIS

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EPS (Continuing Operations)

0.66 0.65 0.680.750.75

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

$

being driven by customers migrating to Internet Protocol (“IP”) solutions. In the first quarter of 2006, we announced changes to our organizational structure. Under this new structure, we have created a Consumer Markets division and an Enterprise Solutions division. Our Consumer Markets division is focused on the consumer and small business segments. Our Enterprise Solutions division is focused on the mid to large enterprise business markets across the country. Through this new structure, which is centred around the customer, we believe that we are better positioned to compete in the marketplace and facilitate cost-effective operations. The financial and operating information, and any associated discussion in this MD&A, respecting our Consumer Markets division (formerly our MTS (Manitoba) division) and Enterprise Solutions division (formerly our Allstream (National) division), are presented on the same basis as each division’s respective predecessor organization. We expect to begin reporting on the basis of this new structure as soon as possible in 2006. Consumer Markets division: the primary telecommunications provider in Manitoba which operates under the MTS brand. We serve residential and small business customers with a full suite of wireline voice, high-speed Internet and data, next generation wireless, directory, digital television, and security and alarm monitoring services. Enterprise Solutions division: a customer-focused, agile innovator which offers a world-class portfolio of business solutions, including voice and data connectivity, infrastructure management and information technology (“IT”) services to business and wholesale customers. Our Enterprise Solutions division, which operates under our Allstream brand, has built a strong market share position that spans the country, and includes many of Canada’s largest companies, as well as federal, provincial and municipal governments. On November 29, 2005 we launched our Transition Phase II cost reduction program (“TP2 cost reduction program”) to position the company to grow profitably and improve our cash flows in the rapidly changing telecommunications industry. Our TP2 cost reduction program builds on the success of our initial integration project by refining our market focus and aligning our cost structure for long-term competitive success. The TP2 cost reduction program represents a further integration of our two operating divisions, which is expected to achieve a minimum of $100 million in expense savings over the next two years.

RREESSUULLTTSS OOFF OOPPEERRAATTIIOONNSS Earnings Per Share (“EPS”) ($)

three months ended June 30 2006 2005 EPS (Continuing Operations) 0.75 0.75 Tax Audit Settlement -- 1.07 Future Tax Rate Adjustment (0.86) (0.14) Restructuring Costs (0.06) (0.03) Retroactive Band F Decision 0.09 -- Retroactive Direct Connect/Access Tandem Decisions 0.06 --

Basic EPS (0.02) 1.65 Note: EPS for the three months ended June 30 is based on weighted average shares outstanding of 68.1 million for 2006, and 67.7 million for 2005. EPS from continuing operations was $0.75 in the second quarter of 2006, reflecting consistent performance, as compared to the same period in 2005. This level of performance reflects solid delivery, by both our Enterprise Solutions division and our Consumer Markets division, of strong results from their respective growth services, and excellent gains in reducing costs which helped to offset the impacts of competition and technology migration by customers in our industry. Higher year-over-year amortization expense, as well as lower income tax expense due to lower statutory income tax rates, contributed to EPS in the second quarter of 2006, as compared to the same period in 2005. Basic EPS was ($0.02) in the second quarter of 2006, as compared to $1.65 in the same quarter during 2005 primarily due to non-cash adjustments to reflect changes to future statutory income tax rates. The results also reflect a number of additional items that did not arise from continuing operations, including restructuring costs during the second quarter of both 2005 and 2006; a tax audit settlement in 2005; the positive retroactive impact from the Band F Decision in 2006; and the positive retroactive impact from the Direct Connect/Access Tandem Decisions in 2006.

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EPS ($) six months ended June 30 2006 2005

EPS (Continuing Operations) 1.43 1.43 Tax Audit Settlement -- 1.07 Restructuring Costs (0.09) (0.16) Future Tax Rate Adjustment (0.86) (0.14) Retroactive Band F Decision 0.09 -- Retroactive Direct Connect/Access Tandem Decisions 0.06 --

Retroactive CDNA Decision -- 0.04 Gain on Sale of Wireless Venture -- 0.03 Basic EPS 0.63 2.27

Note: EPS for the six months ended June 30 is based on weighted average shares outstanding of 67.9 million for 2006, and 67.7 million for 2005. EPS from continuing operations was $1.43 in the first six months of 2006, reflecting consistent performance, as compared to the same period in 2005. This level of performance reflects solid delivery, by both our Enterprise Solutions division and our Consumer Markets division, of strong results from their respective growth services, and excellent gains in reducing costs which helped to offset the impacts of competition and technology migration by our customers in our industries. Higher year-over-year amortization expense, as well as lower income tax expense due to lower statutory rates, contributed to EPS in the second quarter of 2006, as compared to the same period in 2005. Basic EPS was $0.63 in the first six months of 2006, as compared to $2.27 in 2005. These results reflect a number of items that did not arise from continuing operations. In 2006, these include a future tax rate non-cash adjustment due to a decrease in statutory income tax rates, positive adjustments related to the retroactive Band F Decision and the retroactive Direct Connect/Access Tandem Decisions, and restructuring costs. In 2005, these include a non-cash gain associated with the settlement of prior years’ tax audits, restructuring costs, a future tax rate adjustment due to a decrease in statutory income tax rates, positive adjustments related to the CDNA Decision, as well as the gain on the sale of our ownership interest in a wireless venture.

EBITDA (in millions $) Q2/06 Q2/05 YTD/06 YTD/05

EBITDA (Continuing Operations) 175.4 175.9 344.2 343.3

Restructuring Costs (7.1) (3.9) (10.2) (16.5)

Retroactive Band F Decision 9.9 -- 9.9 --

Retroactive Direct Connect/Access Tandem Decisions

6.7 -- 6.7 --

Retroactive CDNA Decision -- -- -- 4.3

EBITDA 184.9 172.0 350.6 331.1

EBITDA from continuing operations was essentially unchanged at $175.4 million in the second quarter of 2006 and $344.2 million year to date. The results reflect growth in wireless, digital television and Internet services in our Consumer Markets division, as well as strong improvements in revenues from our Enterprise Solutions division’s next generation services, and from winning new business. Consolidated EBITDA was $184.9 million in the second quarter of 2006 versus $172.0 million a year earlier, and $350.6 million in the first six months of 2006 versus $331.1 million in 2005. These results included impacts from restructuring costs and regulatory decisions as detailed in the above table. Our Enterprise Solutions division is delivering continued solid performance despite pressure due to aggressive pricing in the long distance and legacy data services markets, driven in part, by the ongoing adoption of IP solutions by customers. In the first half of 2006, EBITDA from continuing operations of our Enterprise Solutions division was $101.6 million versus $106.2 million in 2005. This marginal decline, which is consistent with our expectations, reflects the progress we are making in repositioning our business to compete successfully and deliver profitable growth. Our focus is on profitable customer segments that have solid profitability margins and significant growth potential, such as IP data services. We also are moving forward with our cost reduction initiatives, which have achieved annualized savings across our organization of $70 million at June 30, 2006. Our Enterprise Solutions division’s EBITDA margin from continuing operations was 20% in the second quarter of 2006, significantly higher than the first quarter of the year, and reflective of the progress we are making.

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Operating Revenues

502.2516.2

503.7488.8

500.0

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

in m

illio

ns $

Data Services Revenues

165.2170.7

164.0 166.2172.4

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

in m

illio

ns $

REVENUES Operating Revenues

(in millions $) Q2/06 Q2/05 YTD/06 YTD/05 Data 166.2 165.2 330.2 332.7 Local 147.2 139.5 285.4 275.7 Long Distance 100.2 121.5 205.0 242.8 Wireless 57.7 51.1 111.5 98.6 Other 28.7 24.9 56.7 47.5 Total 500.0 502.2 988.8 997.3

Our operating revenues include those earned from the provision of data, local voice, long distance voice, wireless and other services, which includes digital television service. Consolidated revenues were $500.0 million in the second quarter of 2006 and $988.8 million year to date. Contributing to these solid results were strong increases in revenues from growth services at our Enterprise Solutions division including next generation data connectivity and IT services associated with our acquisition of Delphi Solutions Corp. (“Delphi”) on July 5, 2005, as well as strong increases from wireless, Internet and digital television at our Consumer Markets division. We also received a one-time retroactive payment of $9.9 million associated with the Band F Decision. Revenues from legacy and long distance were lower year-over-year. In total, these results, which are down slightly from the same periods in 2005, are consistent with our expectations and guidance for the year.

Data Services (in millions $) 2006 2005 % change

Q2 166.2 165.2 0.6 YTD 330.2 332.7 (0.8)

Our data line of business includes revenues earned from providing data, Internet and IT services. Data services connect data, video and voice networks to establish private connections across office locations and to integrate traffic over highly secure networks. We provide a wide range of Internet connectivity services to meet the needs of residential customers in Manitoba and business customers across the country. We also offer numerous hosting and security services to business customers across Canada. Revenues from data services were $166.2 million in the second quarter of 2006, as compared to $165.2 million in the corresponding period in 2005. Revenues were $330.2 million in the first six months of 2006 versus $332.7 million for the same period in 2005. Included in our year to date results comparison is a $1.6 million retroactive charge associated with the CDNA Decision which occurred in the first quarter of 2005. The solid performance in the first half of 2006 reflects increases in revenues from next generation data connectivity services, IT services and Internet services. Consistent with our plans, these increases helped to offset lower legacy data connectivity revenues, which in part, were attributable to our changing relationship with AT&T Corp., over the same time period. Data revenues in our Enterprise Solutions division were comparable to our 2005 level owing to strong growth in next generation data connectivity revenues (up 56% year to date) and higher revenues from IT services due to our acquisition of Delphi in 2005. The strong performance in our next generation data connectivity revenues reflects customer migration to IP-based solutions and our Enterprise Solutions division’s ability to deliver leading edge solutions to our customers. Our IP virtual private network customer base has grown strongly; increasing to 144 as at June 30, 2006. Strong growth in our high-speed Internet customer base in Manitoba also continues in 2006. As at June 30, 2006, our high-speed Internet customer base totalled 135,070, translating into strong year-over-year growth of 18.2%.

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Local Voice Services Revenues

147.2148.4

139.5 140.2138.2

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

in m

illio

ns $

Long Distance Services Revenues

121.5117.7

107.2100.2

104.8

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

in m

illio

ns $

Local Services (in millions $) 2006 2005 % change

Q2 147.2 139.5 5.5 YTD 285.4 275.7 3.5

Local services revenues from our Consumer Markets division include basic voice connections for residential and business customers, including enhanced calling features (such as Call Answer, Call Display, Call Waiting and 3-Way Calling), payphone revenue, wholesale revenues from services provided to third parties, as well as contribution revenue. Through our Enterprise Solutions division, we provide a full range of local services to business customers on a national basis. These services allow customers to complete calls in their local calling areas and to access long distance, cellular networks and the Internet. The local products provided by our Enterprise Solutions division offer a uniform service across all major markets in Canada. Local services revenues in the second quarter of 2006 were $147.2 million, which is up 5.5% from $139.5 million in the same period of the previous year. Revenues increased 3.5% from $275.7 million to $285.4 million on a year to date basis. These increases include a one-time retroactive payment we received of $9.9 million associated with the Band F Decision, and higher wholesale revenues from the Enterprise Solutions division, which were partly offset by the impact from the increasingly competitive environment in which our Consumer Markets division operates. Competition from cable telephony offerings began in the local Manitoba market in mid-2005, which has contributed to an 8.1% decrease in residential network access lines year-over-year. Our Consumer Markets division has one of the most advanced suites of communications offerings of any operator in North America, and we are confident in our ability to continue to compete successfully in the Manitoba market.

Long Distance Services (in millions $) 2006 2005 % change

Q2 100.2 121.5 (17.5) YTD 205.0 242.8 (15.6)

Long distance services enable residential customers in Manitoba and business customers across Canada to communicate with destinations outside the local exchange. Our long distance voice service portfolio includes basic, domestic, cross-border and international outbound long distance, basic and enhanced toll-free services, calling cards and audio conferencing, as well as a variety of enhanced long distance services and features. Long distance revenues were $100.2 million in the second quarter of 2006, as compared to $121.5 million in the previous year. In the first six months of 2006, long distance revenues decreased to $205.0 million from $242.8 million in 2005. These results reflect competitive pressures that are associated with pricing across all market segments. Our Consumer Markets division experienced decreased revenue due to local line losses and customer migration to lower priced plans along with wireless and e-mail substitutions. Our Enterprise Solutions division experienced rate contraction in the domestic and cross-border markets, which was partly offset by higher domestic volume. Wireless Services

(in millions $) 2006 2005 % change Q2 57.7 51.1 12.9 YTD 111.5 98.6 13.1

Our wireless portfolio consists of cellular, wireless data, paging and group communications services that we offer in the Manitoba market. Revenues from wireless services increased to $57.7 million in the second quarter of 2006, representing year-over-year growth of 12.9%. Wireless revenues for the first six months

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Wireless Services Revenues

51.1

54.5 54.6 53.8

57.7

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q 2/06

in m

illio

ns $

Other Revenues

28.7

24.924.9

29.3 28.0

Q 2/05 Q 3/05 Q 4/05 Q 1/06 Q2/06

in m

illio

ns $

of 2006 increased by 13.1% on a year-over-year basis to reach $111.5 million. Strong customer growth and increased average monthly revenue per user (“ARPU”) were the primary contributors to these solid levels of performance. Our cellular customer base grew to 332,424 as at June 30, 2006, representing an increase of 11.6%. The expanding popularity of our wireless services, including related data and other enhanced features, also continued to drive increased utilization rates, and resulted in an ARPU of $55.28 for the first six months of the year, representing a 1.5% improvement over the same period in the previous year. Other Revenues

(in millions $) 2006 2005 % change Q2 28.7 24.9 15.3 YTD 56.7 47.5 19.4

Other revenues consist of revenues earned from our directory business, digital television services and miscellaneous items. Directory revenues mainly include our Yellow PagesTM and White Pages telephone directories. Our digital television service is offered across our broadband network platform and is targeted at residential customers in Winnipeg. Miscellaneous revenues primarily consist of security and alarm monitoring services, and the sale and maintenance of terminal equipment. Other revenues climbed by 15.3% to $28.7 million in the second quarter of 2006 from $24.9 million in 2005, and on a year to date basis, from $47.5 million to $56.7 million. These increases were primarily due to strong revenue growth from digital television services and equipment sales. For the six months ended June 30, 2006, digital television revenues increased by 47.5% to $14.9 million. This increase reflects strong year-over-year growth in customers, as well as price increases and revenues from video on demand services. Our subscriber base increased to 56,571 as at June 30, 2006, representing an increase of 36.8%.

OPERATING EXPENSES Operations Expense

(in millions $) 2006 2005 % change Q2 308.0 326.3 (5.6) YTD 628.0 649.7 (3.3)

In the second quarter of 2006, operations expense experienced a decrease of 5.6%, as compared to 2005. For the six months ended June 30, 2006, operations expense was $628.0 million, as compared to $649.7 million in the same period of 2005. Contributing to these significant year-over-year decreases are lower expenses flowing from our TP2 cost reduction program, which contributed approximately $48 million in realized savings in the first half of 2006. Also contributing to the year-over-year decreases was the positive impact of the retroactive Direct Connect/Access Tandem Decisions ($6.7 million). Partly offsetting these savings were higher expenses for our growth operations, including our acquisition of Delphi. Reflected in the year to date decrease in 2006 from 2005 operations expense is a positive $5.9 million retroactive adjustment associated with the CDNA Decision which occurred in the first quarter of 2005. This adjustment reflects the net amount associated with the rates approved in the CDNA Decision for periods prior to 2005. This decision established final rates for the facilities that our Enterprise Solutions division leases from incumbent local exchange carriers, and for the facilities that our Consumer Markets division leases to competitors. Transition Phase II Cost Reduction Program In late 2005, we undertook an extensive, two-year cost reduction program, known as our TP2 cost reduction program, to achieve annualized savings of a minimum of $100 million. At June 30, 2006, we have completed activities that represent annualized expense savings of

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$70 million. We describe these as achieved annualized expense savings. In the first six months of 2006, we have realized savings of $48 million. This means we have taken $48 million of expense out of our cost base in the first six months of 2006. To achieve the $100 million in savings, we expect to incur approximately $100 million in one-time costs. The table below summarizes our estimates of how these costs will be recorded and cash flowed in 2005, 2006 and 2007: Q4 2005 Restructuring and Integration Expense $35.4 M

2006 (F) Costs * $35 M to $45 M

2006 (F) Cash Costs $70 M to $80 M

2007 (F) Costs $30 M to $20 M

Total Estimated Cost of Program $100 M * These costs are expected to be comprised of both expense and capital expenditure items. Of the $100 million total expected costs, $70 million to $80 million will flow through cash in 2006, which is comprised of $35.4 million in severance costs accrued in 2005, and $35 million to $45 million that will be charged in 2006, as either an expense or a capital expenditure depending on the nature of the item. To June 30, 2006, $20.5 million has been paid against the severance accrual, $10.2 million has been expensed, and $0.3 million has been recorded as a capital expenditure. The balance of the $100 million total expected costs ($20 million to $30 million) will flow through cash in 2007, and will be recorded on the financial statements, as either an expense or a capital expenditure depending on the nature of the item. Restructuring Costs

(in millions $) 2006 2005 % change Q2 7.1 3.9 82.1 YTD 10.2 16.5 (38.2)

Restructuring costs associated with our cost reduction program were $7.1 million in the second quarter and $10.2 million in the first half of 2006. In the first six months of 2005, we incurred $16.5 million in restructuring expense associated with a previous cost reduction program.

Amortization Expense (in millions $) 2006 2005 % change

Q2 82.0 77.4 5.9 YTD 162.8 156.4 4.1

Amortization expense was $82.0 million in the second quarter of 2006, as compared to $77.4 million in the same period of the previous year. Year to date amortization expense increased by 4.1% to $162.8 million in 2006, as compared to $156.4 million in 2005. These increases were the result of an increase in deferred wireless amortization costs, and an increase in plant in service. Other Income (Expense)

(in millions $) 2006 2005 % change Q2 (0.7) 1.3 n/m YTD 0.4 5.4 n/m

Other income was ($0.7) million in the second quarter of 2006, versus $1.3 million in the previous year. On April 11, 2006, we established an accounts receivable securitization program which provides the ability to sell, on a revolving basis, an undivided ownership interest in our accounts receivable. As at June 30, 2006, we have received $136.0 million in proceeds from the sale of our accounts receivable to this trust. When we sell receivables, we record a gain or a loss based on the fair value received and the liabilities incurred. See “Changes in Accounting Policies, Including Initial Adoption” for further details. For the three and six months ended, June 30, 2006, we recognized a pre-tax loss of $1.2 million on the sale of accounts receivable, which is recorded in other income. In the first six months of 2006, other income decreased from $5.4 million in 2005 to $0.4 million. This decrease is primarily attributable to a $2.7 million gain realized in the first quarter of 2005 on the disposition of our investment in a wireless venture. Debt Charges

(in millions $) 2006 2005 % change Q2 15.4 15.1 2.0 YTD 30.7 30.3 1.3

Debt charges were marginally higher year-over-year at $15.4 million in the second quarter and $30.7 million year to date. These increases primarily reflect higher levels of short-term borrowings in 2006 versus 2005 and were partly offset by lower costs for long-term debt. As at June 30, 2006, we had $870.4 million of outstanding debt, as compared to $1,004.2 million at December 31, 2005. Our debt to total capitalization ratio at June 30, 2006 was

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38.4%, and continues to provide us with financial strength and flexibility going forward. Income Tax Expense (Recovery)

(in millions $) 2006 2005 % change Q2 88.0 (30.7) n/m YTD 114.7 (4.2) n/m

We have the benefit of substantial loss carryforwards, as a result of our acquisition in 2004 of Allstream Inc. (“Allstream”), which allows us to reduce our taxable income to zero without utilizing our substantial and growing capital cost allowance (“CCA”) pools. Through the utilization of the loss carryforwards, followed by utilization of our deferred CCA deduction, we project that we will not pay cash taxes any earlier than 2014. In the second quarter of 2006, we recorded a $58.6 million non-cash charge, to reflect a decrease in the book value of our income tax asset, as a result of a reduction in future income tax rates. A similar adjustment of $9.6 million was recorded in the second quarter of 2005 for a reduction in Manitoba’s future income tax rates. Additionally, in the second quarter of 2005, a non-cash gain of $72.5 million associated with the settlement of prior years’ tax audits was recorded. All of these adjustments to income tax expense are non-cash impacting. Primarily due to these items income tax expense was $88.0 million in the second quarter of 2006, as compared to an income tax recovery of $30.7 million in the second quarter of 2005. Year to date income tax expense was $114.7 million in 2006, as compared to an income tax recovery of $4.2 million in 2005. Although the change in income tax rates changes the carrying amount of our tax asset, it does not change the fact that we do not expect to pay any cash taxes prior to 2014.

CONSOLIDATED QUARTERLY DATA Unaudited quarterly financial data for our eight most recently completed quarters is presented below: (in millions $, except earnings per share)

Q2 2006

Q1 2006

Q4 2005

Q3 2005

Operating Revenues 500.0 488.8 503.7 516.2

Operating Income 102.9 84.9 39.9 87.8

Net (Loss) Income (1.2) 44.0 14.6 45.1

(Loss) Earnings Per Share (0.02) 0.65 0.22 0.67

Diluted (Loss) Earnings Per Share (0.02) 0.65 0.22 0.66

(in millions $, except earnings per share)

Q2 2005

Q1 2005

Q4 2004

Q3 2004

Operating Revenues 502.2 495.1 503.9 495.9

Operating Income 94.6 80.1 92.6 95.0

Net Income 111.5 42.5 42.3 51.0

Earnings Per Share 1.65 0.63 0.63 0.61

Diluted Earnings Per Share 1.64 0.63 0.63 0.61

Our Consumer Markets division historically has delivered consistently steady growth in financial performance. In the second quarter of 2004, we also began consolidating Allstream’s results. In addition to the relatively steady performance of our Consumer Markets division, and the inclusion of Allstream’s results beginning on June 4, 2004, our consolidated financial results for the eight most recently completed quarters reflect: • The recording of a $58.6 million charge in the

second quarter of 2006, to reflect a decrease in the value of our income tax asset, as a result of a reduction in future income tax rates.

• The recording of amounts respecting a number of

regulatory decisions: a $9.9 million retroactive positive impact from the Band F Decision and a $6.7 million retroactive positive impact from the Direct Connect/Access Tandem Decisions, both occurring in the second quarter of 2006; a $5.9 million positive retroactive impact in the third quarter of 2005 from the Band F Decision; and a $4.3 million net positive retroactive impact in the first quarter of 2005 from the CDNA Decision.

• The recognition of restructuring costs for our TP2 cost

reduction program in the first and second quarters of 2006 in the amounts of $3.1 million and $7.1 million,

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respectively, and $35.4 million in the fourth quarter of 2005.

• The recognition of restructuring costs in each of the

four quarters in 2005 in the amounts of $3.6 million, $3.9 million, $5.0 million and $5.0 million, listed chronologically; and in the third and fourth quarters of 2004 in the amounts of $2.2 million and $3.3 million, respectively. These costs are associated with the initial integration of Allstream’s operations following the completion of our acquisition.

• The recording of a provision against the carrying value

of a long-term investment in the pre-tax amount of $4.5 million and $7.0 million in the fourth quarters of 2005 and 2004, respectively.

• A workforce reduction initiative that we undertook in

the first quarter of 2005, which resulted in restructuring charges of $9.0 million.

• The acquisition on July 5, 2005 of Delphi for a purchase

price of approximately $15 million. • The recording of a $72.5 million (non-cash) gain in

respect of prior years’ tax audits in the second quarter of 2005, which was partly offset by a $9.6 million charge to reflect a decrease in the value of our income tax asset as a result of a reduction in future income tax rates in the province of Manitoba.

• The recognition of a one-time gain in the amount of

$2.7 million in the first quarter of 2005 resulting from the sale of our investment in a wireless venture.

• The impact of our substantial issuer bid, which we

completed on September 27, 2004, and which resulted in the purchase for cancellation of 1,966,775 Class B Preference Shares for cash consideration of $84.6 million and 16,637,870 Common Shares for cash consideration of $716.2 million in the third quarter of 2004.

LLIIQQUUIIDDIITTYY AANNDD CCAAPPIITTAALL RREESSOOUURRCCEESS Cash Flows from Operating Activities

(in millions $) 2006 2005 $ change Q2 240.5 85.5 155.0 YTD 318.2 195.5 122.7

Cash flows from operating activities refers to cash we generate from our business activities. Cash flows from operating activities were $240.5 million in the second quarter, as compared to $85.5 million in the same period of 2005. Year to date cash flows from operating

activities increased by $122.7 million to $318.2 million in 2006, from the same period in 2005. These increases are mainly attributable to changes in working capital resulting from an accounts receivable securitization program which was undertaken in April 2006, and the retroactive impact of the Band F Decision, which was partly offset by higher pension solvency funding. Cash Flows used in Investing Activities

(in millions $) 2006 2005 $ change Q2 60.1 83.9 (23.8) YTD 113.2 147.2 (34.0)

Investing activities represent cash used for acquiring, and cash received from disposing of, long-term assets and other long-term investments. Cash flows used in investing activities were $60.1 million in the second quarter, as compared to $83.9 million a year ago. This decrease is primarily due to decreased capital expenditures. Year to date, cash flows used in investing activities decreased to $113.2 million in 2006 from $147.2 million in 2005. Contributing to this year-over-year change was decreased capital spending during the first six months of the year. In addition, during the first quarter of 2005, we received proceeds of $8.1 million from the sale of our investment in a wireless venture and invested $4.2 million to purchase Reliable Alarms Limited. Free Cash Flow

(in millions $) Q2 2006

Q2 2005

YTD 2006

YTD 2005

Free Cash Flow (Continuing Operations) 99.3 72.5 191.8 154.5

Pension Solvency Funding (22.2) (15.2) (42.2) (22.8)

Restructuring Expense (7.1) (3.9) (10.2) (16.5) Retroactive Direct Connect/Access Tandem Decisions

6.7 -- 6.7 --

Restructuring Capital Expenditures (0.2) (5.4) (0.3) (6.7)

Retroactive Band F Decision 9.9 -- 9.9 --

Retroactive CDNA Decision -- -- -- 4.3

Consolidated Free Cash Flow 86.4 48.0 155.7 112.8

Free cash flow refers to cash flow from operating activities, less capital expenditures, and excluding changes in working capital and a $12.5 million non-cash adjustment to current tax expense that was part of the tax audit settlement recorded in Q2 2005. Free cash flow from continuing operations was $99.3 million in the second quarter and $191.8 million in the first six months of this year, which is up $26.8 million and $37.3 million from the same periods in the previous year,

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respectively. These increases are primarily attributable to lower capital expenditures year-over-year. Consolidated free cash flow, which includes items not from continuing operations, was $86.4 million in the second quarter of 2006, as compared to $48.0 million in the same period of the previous year. In addition to the item noted above, consolidated free cash flow during the second quarter of 2006 also reflects higher restructuring expenses and pension solvency funding, and positive one-time retroactive adjustments by the CRTC. These include the Band F Decision and Direct Connect/Access Tandem Decisions. Year to date consolidated free cash flow was higher due primarily to lower capital expenditures and a positive retroactive adjustment associated with the CDNA Decision in 2005. Cash Flows used in Financing Activities

(in millions $) 2006 2005 $ change Q2 190.5 45.4 145.1 YTD 207.5 94.4 113.1

Financing activities refer to actions we undertake to fund our operations through equity capital and borrowings. Cash flows used in financing activities were $190.5 million in the second quarter, as compared to $45.4 million in 2005. In the second quarter of 2006, we paid cash dividends of $44.0 million, and repaid net notes payable and long-term debt in the amount of $109.1 million and $48.1 million, respectively. In the second quarter of 2005, we paid cash dividends of $44.0 million and repaid long-term debt in the amount of $34.9 million, and issued net notes payable of $32.0 million. Year to date, cash flows used in financing activities were $207.5 million, as compared to $94.4 million in 2005. In the first six months of 2006, we paid cash dividends of $88.0 million, and repayment of net notes payable and long-term debt of $85.7 million and $48.1 million, respectively. In the first six months of 2005, we paid cash dividends of $87.9 million and repaid long-term debt in the amount of $44.6 million and issued net notes payable of $32.0 million. Credit Facilities

(in millions $) Capacity Utilized at June 30/06

Medium Term Note Program 350.0 220.0 Commercial Paper 150.0 22.3 Accounts Receivable Securitization 150.0 136.0 Operating Line of Credit 100.0 17.4

Total 750.0 395.7

We have arrangements in place that allow us to access the debt and commercial paper markets for funding when required. Borrowings under these facilities are typically

used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations. In addition to our medium term note program, we have additional credit facilities available in the amount of $400.0 million, which consist of a fully back-stopped commercial paper program of $150.0 million, an accounts receivable securitization program of $150.0 million and a $100.0 million operating line of credit. As at June 30, 2006, we utilized $22.3 million of our commercial paper program, $136.0 million of our accounts receivable securitization program, and $17.4 million of our operating line of credit, which represent undrawn letters of credit. Capital Structure

(in millions $) June 30/06 December 31/05 Long-term Debt and Notes Payable 870.4 1,004.2

Shareholders Equity 1,395.6 1,429.8

Total Capitalization 2,266.0 2,434.0 Debt to Capitalization 38.4% 41.3%

Our capital structure illustrates the amount of our assets that are financed by debt versus equity. During the second quarter, we repaid $109.1 million in net short-term debt. Our debt to total capitalization ratio of 38.4% as at June 30, 2006, continues to represent excellent financial strength and flexibility. Credit Ratings

S&P – Senior debentures BBB+

S&P – Commercial paper A-2

DBRS – Senior debentures BBB (high)

DBRS – Commercial paper R-1 (low)

Two leading rating agencies, Standard & Poor’s (“S&P”) and Dominion Bond Rating Service (“DBRS”), analyze us and assign ratings based on their assessments. We have consistently been assigned solid investment grade credit ratings. DBRS’s rating on our senior debentures is “BBB (high)” and “R-1 (low)” on our commercial paper. DBRS confirmed our credit ratings on February 21, 2006, and changed its outlook from stable to negative. On March 8, 2006, S&P confirmed our credit rating on our long-term corporate credit and senior unsecured debt of “BBB+”, and revised its rating on our commercial paper to “A-2”. The outlook remained unchanged at negative.

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Outstanding Share Data as at July 17, 2006 Authorized: • Unlimited number of Preference Shares of two classes

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

Issued:

Shares Number Book Value (in millions $)

Common 68,098,707 1,327.9

Stock options:

Options Number Weighted Average Exercise Price Per Share

Outstanding 1,831,310 $39.68 Exercisable 566,890 $36.60

Subsequent Event – Rogers Settlement On July 27, 2006, we announced a settlement with Rogers Communications Inc. (“Rogers”) regarding the provision of certain long distance traffic under the terms of a Long Distance Services Agreement (the “LD Agreement”) entered into in November 2004. Under the terms of the settlement, we have entered into a new agreement to provide web hosting services to Rogers and work is continuing to finalize an agreement respecting the ongoing provision of data services. The revised LD Agreement will continue until its expiry on December 31, 2006. With this agreement, we have filed a discontinuance of our court application against Rogers for a declaration that it was not entitled to transfer certain long distance traffic from MTS Allstream to Call-Net Enterprises Inc. Contractual Obligations, Financial Instruments, Off-Balance Sheet Arrangements, and Other Financial Arrangements Our contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements remain substantially unchanged from those that were disclosed in our first quarter 2006 interim MD&A and our 2005 annual MD&A, except as noted below. For additional details, please consult our first quarter 2006 interim MD&A and our 2005 annual MD&A, which are available on our Web site at www.mtsallstream.com. Commitment On May 30, 2002, the CRTC issued Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34 (“Decision 2002-34”), which governs local rates charged to residential and business customers, and the rates that incumbent telephone companies may charge their competitors. In Decision 2002-34, the CRTC established a regulatory deferral account mechanism, which is to be used to fund qualifying initiatives, such as rate reductions, rebates and service improvement plans.

On February 16, 2006, the CRTC issued Disposition of funds in the deferral accounts, Telecom Decision CRTC 2006-9 (“Decision 2006-9”). In this decision, the CRTC determined that the funds accumulated in our deferral account should be used for the expansion of broadband services, for initiatives to improve accessibility to telecommunications services for persons with disabilities, and for certain rate reductions. The preliminary estimate of the balance to be cleared from our deferral account for these initiatives is about $20 million. We have used approximately $5 million of the accumulated balance to fund reductions in our rates for basic local residential services and for certain optional features. These rate proposals were approved by the CRTC and came into effect on June 1, 2006. Securitization of Accounts Receivable On April 11, 2006, we established an accounts receivable securitization program with an arm’s length securitization trust pursuant to an agreement, which expires on April 11, 2011. Under the terms of this agreement we have the ability to sell, on a revolving basis, an undivided ownership interest in our accounts receivable, up to a maximum of $150.0 million. As at June 30, 2006, we have received $136.0 million on the sale of our accounts receivable to the trust. The proceeds were used to pay down short-term debt. We are required to maintain reserve accounts, classified as retained interests, in the form of additional accounts receivable over and above the cash proceeds received, to absorb credit losses on the receivables sold. The trust has no recourse to the undivided ownership interest in the retained receivables, other than through the reserve accounts. The fair value of the reserve accounts approximates carrying value as a result of the short collection cycle and negligible credit losses. As at June 30, 2006, the outstanding undivided ownership interest held by the trust and the amount of reserve accounts were $171.9 million and $35.9 million, respectively. The undivided ownership interest is sold on a fully-serviced basis and we receive no fee for ongoing servicing responsibilities. As at June 30, 2006, we have recorded a servicing liability in the amount of $0.2 million. During the term of the agreement, we are subject to certain risks of default which, should they occur, could cause the agreement to be terminated early. For the three and six months ended June 30, 2006, we recognized a pre-tax loss of $1.2 million on the sale of accounts receivable, which is recorded in other income. See Note 3 to the Financial Statements for further information.

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CCRRIITTIICCAALL AACCCCOOUUNNTTIINNGG EESSTTIIMMAATTEESS AANNDD AASSSSUUMMPPTTIIOONNSS Our critical accounting estimates and assumptions remain substantially unchanged from those that were disclosed in our first quarter 2006 interim MD&A and our 2005 annual MD&A. For additional details, please consult our first quarter 2006 interim MD&A and our 2005 annual MD&A, which are available on our Web site at www.mtsallstream.com. CCHHAANNGGEESS IINN AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS,, IINNCCLLUUDDIINNGG IINNIITTIIAALL AADDOOPPTTIIOONN Our accounting policies, including initial adoption, remain substantially unchanged from those that were disclosed in our first quarter 2006 interim MD&A and our 2005 annual MD&A, except as noted below. For additional details, please consult our first quarter 2006 interim MD&A and our 2005 annual MD&A, which are available on our Web site at www.mtsallstream.com. We account for the transfer of receivables as a sale, when we are deemed to have surrendered control over the transferred receivables in exchange for proceeds. When we sell our receivables, we retain reserve accounts, which are retained interests in the securitized receivables. When a transfer is considered a sale, we derecognize all receivables sold, recognize at fair value the assets received and the liabilities incurred, and record a gain or loss on sale. The amount of gain or loss recognized on the sale of receivables depends in part on the carrying amount of the receivables involved in the transfer, allocated between the receivables sold and the retained interest according to their relative fair market value at the date of sale. We measure the fair value of our retained interests based on the present value of expected future cash flows, using our management’s best estimates of the key assumptions. RRIISSKKSS AANNDD UUNNCCEERRTTAAIINNTTIIEESS Our risks and uncertainties remain substantially unchanged from those that were disclosed in our first quarter 2006 interim MD&A and our 2005 annual MD&A, except as noted below. For additional details, please consult our first quarter 2006 interim MD&A and our 2005 annual MD&A, which are available on our Web site at www.mtsallstream.com. Developments in Federal Regulation The telecommunications and broadcast industries in which we operate are regulated federally. We operate as both an incumbent local exchange carrier in Manitoba and as a competitor local exchange carrier nationally. In addition,

pursuant to Broadcasting Decision CRTC 2002-235, the CRTC granted us a Class 1 regional broadcasting distribution licence to operate as a broadcasting distribution undertaking serving Winnipeg and its surrounding areas. Policy developments and regulatory decisions or proceedings that were issued or commenced during the second quarter that are significant to our business are described below. Telecommunications Policy Review On March 22, 2006, the final report (the “Report”) of the Telecommunications Policy Review Panel was submitted to the federal Minister of Industry and released to the public. The Report is substantial, including over 120 recommendations for modernization of the telecommunications policy framework in Canada. The Government of Canada has indicated that it will respond substantively after reviewing the Report over the next number of months, and on June 13, 2006, as an interim measure, the Minister of Industry tabled in Parliament a proposed policy direction to the CRTC which responds in part to the Report. Included in the draft policy direction is a direction to the CRTC to review the regulatory framework regarding mandated access to wholesale network services. Comments from stakeholders have been requested in conjunction with the tabling of this proposed policy. We are commenting and emphasizing to the government, the importance of wholesale competitor access to the public network infrastructures controlled by the incumbent telephone companies in achieving the government’s overall goal of a stronger competitive environment. Deferral Account On February 16, 2006, the CRTC issued Decision 2006-9. In this decision, the CRTC determined that the funds accumulated in our deferral account should be used for the expansion of broadband services, initiatives to improve accessibility to telecommunications services for persons with disabilities, and certain rate reductions. The preliminary estimate of the balance to be cleared from our deferral account for these initiatives is about $20 million. We have used approximately $5 million of the accumulated balance to fund reductions in our rates for basic local residential services and for certain optional features. These rate proposals were approved by the CRTC and came into effect June 1, 2006. The CRTC has extended the deadline for the various incumbent telephone companies to make proposals for accessibility and broadband expansion from June 2006 until September 2006. Groups representing consumers and Bell Canada (“Bell”) each have sought leave from the Federal Court of Appeal to appeal Decision 2006-9. As well, another company, Barrett Xplore Inc., has appealed this decision to the Federal Government, and also has made an application to the CRTC to review and vary its own decision. These proceedings may delay the final drawdown of the balance of the deferral account.

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We are analyzing Decision 2006-9 in light of our business, with a view towards developing proposals for the CRTC’s consideration that meet the goals and objectives of Decision 2006-9, while remaining consistent with our own business goals. Local Forbearance On April 6, 2006, the CRTC issued Forbearance from the regulation of retail local exchange services, Telecom Decision CRTC 2006-15 (the “Forbearance Decision”). The Forbearance Decision sets out the details of the framework for forbearance from the regulation of local exchange services, including local forbearance criteria, and outlines the scope of forbearance to be granted and the adoption of transitional measures to aid in the development of sustainable local competition. We believe that the Forbearance Decision is positive, in that it recognizes the need to deregulate retail pricing of local services and recognizes that fair competition requires a clear commitment to wholesale access in tandem with retail price deregulation. The Forbearance Decision also reduces winback restrictions in the residential market from twelve months to three months, making these restrictions consistent with those applicable in the business market. The Forbearance Decision has beneficial implications for both our Consumer Markets and Enterprise Solutions divisions, and will further strengthen our ability to compete successfully in the national business marketplace. Aliant Telecom Inc. (“Aliant”), Bell, TELUS Communications Inc. (“TELUS”) and Saskatchewan Telecommunications (“SaskTel”) each have sought leave to appeal the Forbearance Decision to the Federal Court of Appeal, and also have appealed the Decision to the federal Cabinet. VoIP Reconsideration On May 12, 2006, in response to an appeal by Bell, TELUS, and SaskTel, the Minister of Industry asked the CRTC to reconsider Regulatory framework for voice communications services using Internet Protocol, Telecom Decision CRTC 2005-28 (“Decision 2005-28”) regarding the regulatory treatment of the provision of local voice over the Internet Protocol (“VoIP”) service by incumbent telephone companies. In Decision 2005-28, the CRTC found that VoIP services were offered in the same market as other basic local voice services and, therefore, accorded VoIP services with the same regulatory treatment as basic local voice services, such as the obligation to file tariffs for this service. In the proceeding that the CRTC initiated to canvass views on the reconsideration, we expressed agreement with the CRTC’s original findings, and indicated that there is no sound basis for having different regulatory treatment for VoIP and local voice services when offered using traditional technology.

Should different regulatory treatment for VoIP versus local services be implemented, and VoIP services for business be deregulated, there is risk that pricing for wholesale access services could also be prematurely deregulated, which could result in the incumbent providers charging rates to our Enterprise Solutions division that are significantly above cost plus a reasonable return. We are commenting and emphasizing to the government, the importance of wholesale competitor access to the public network infrastructures controlled by the incumbent telephone companies in achieving the government’s overall goal of a stronger competitive environment. The CRTC’s decision and response to the Minister of Industry is expected in September 2006. Band F On April 24, 2006, the CRTC issued Decision 2006-20. In this decision the CRTC allowed our application to review and vary an earlier decision concerning payment of a subsidy to us for our provision of service to residential subscribers in high-cost Band F. In Decision 2006-20, the CRTC ordered a one-time payment of $9.9 million be made to us for the period from January 1, 2002 to October 16, 2003, being the period in which the CRTC denied payment to us pursuant to the Band F Decision. Co-location Power Rates On June 30, 2006, the CRTC issued Bell Canada and TCC – Co-location power services rates, Telecom Decision 2006-42. In this decision, the CRTC set final cost-based rates payable to Bell and TELUS by competitors for power utilized in co-location facilities. The final rates apply retroactively to November 29, 2000. As a result of this decision, the direct costs to our Enterprise Solutions division have been reduced, and our ability to compete successfully in the national business marketplace has been strengthened. Price Caps On May 9, 2006, the CRTC issued Review of price cap framework, Public Telecom Notice CRTC 2006-5, which invited proposals for the regulation of the incumbent retail services that remain subject to rate regulation. The incumbent telephone companies, including our Consumer Markets division, have been subject to price caps, a form of incentive regulation, since 1998. This will be the third price cap review undertaken by the CRTC. The regime that will be put in place as a result of this proceeding will commence in June 2007, and likely be in place for a number of years. We are participating in this proceeding, which is expected to conclude this fall, and expect a decision to be forthcoming in the second half of 2007. Approval of Final Rates for Access Tandem and Direct Connection Service On April 27, 2006, the CRTC issued the Direct Connect/Access Tandem Decisions. The CRTC set the final rates for these services at levels lower than those proposed by the major incumbent providers. These decisions will

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contribute positively to our Enterprise Solutions division’s ability to compete in the marketplace. Pension Solvency Funding We have defined benefit pension plans which provide retirement benefits to our employees. These plans are funded as determined through periodic actuarial valuations. On June 2, 2006, the federal government released draft amendments to the solvency funding regulations for federally regulated pension plans. Once the new regulations come into effect, revised actuarial funding valuation reports are expected to be filed to obtain the desired solvency relief. We anticipate filing revised valuations to enable the extension of our solvency funding payments from five years to ten years. With this solvency funding relief, we expect to make solvency funding payments of approximately $65 million to $70 million in 2006. The actual amount of the 2006 funding under the ten-year amortization will be determined in the revised 2006 valuations to be completed once the draft regulations are finalized. Should the new regulations not come into effect, or be substantially altered, our actual solvency funding for 2006 would be higher than the $65 million to $70 million that is currently contemplated. Future solvency funding requirements will depend on the results of annual actuarial funding valuations which are affected by various factors, such as return on plan assets, changes in solvency liability discount rates, and any further action taken by the government on the requirements associated with solvency valuations. 22000066 OOUUTTLLOOOOKK This outlook includes forward-looking information about our corporate direction and financial objectives that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking information. Examples of statements that constitute forward-looking information may be identified by words such as “believe”, “expect”, “project”, “anticipate”, “could”, “target”, “forecast”, “intend”, “plan”, “outlook”, and other similar terms. Factors that could cause actual results to differ materially from those expected, and material factors or assumptions applied in drawing a conclusion or making a forecast or projection set out in such forward-looking information, include, but are not limited to, the items identified in the “Risks and Uncertainties” section and the “Material Assumptions” identified in the “Outlook” section of this interim MD&A, our first quarter 2006 interim MD&A and our 2005 annual MD&A.

The broad market segment trends within the industry that have occurred over the past few years are expected to continue in 2006. Service areas such as wireless, Internet, digital television and IP-based next generation services for business customers will continue to exhibit strong growth. At the same time, traditional legacy services, including data connectivity and long distance, will see continued pressure from customer migration to next generation services, and an ongoing, highly competitive marketplace. In national markets, we are facing continued strong competition which we are addressing by refining our market focus, being an IP solutions innovator, and reducing our cost structure to position our operations to move forward successfully. In the residential market in Manitoba, we expect strong competition from the incumbent cable operator. Through our broadband initiative, we have been preparing for this competitor for several years, and are well placed to compete with our comprehensive suite of service offerings for residential customers, including local and long distance, wireless, Internet and digital television services. Our financial outlook from continuing operations, as detailed in the table below, remains unchanged from what was issued in our first quarter 2006 interim MD&A. 2006 Financial Outlook Continuing Operations May 2, 2006

Revenues $1.925 B to $1.975 B

EBITDA $655 M to $680 M

EPS $2.35 to $2.65

Free Cash Flow $285 M to $310 M

Capital Expenditures $270 M

No Incremental Borrowings Expected in 2006 We had been anticipating limited incremental borrowings in 2006 to supplement funding of our 2006 cash requirements, which include two special obligations that are not from continuing operations. The first is approximately $70 million to $80 million to support the advancement of our TP2 cost reduction program, and the second is solvency funding of approximately $105 million for our pension plans. However, with the reduced pension solvency funding requirements as detailed below, together with positive retroactive regulatory decisions, we now expect that no additional borrowings will be required this year. We have excellent financial strength and flexibility, with a debt ratio of 38.4% at June 30, 2006. Pension Solvency Funding We have defined benefit pension plans which provide retirement benefits to our employees. These plans are funded as determined through periodic actuarial valuations.

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On June 2, 2006, the federal government released draft amendments to the solvency funding regulations for federally regulated pension plans. Once the new regulations come into effect, we anticipate filing revised actuarial funding valuation reports which are expected to reduce our 2006 solvency payments from $105 million, to approximately $65 million to $70 million. This will leave a remaining solvency deficiency amount of approximately $300 million to be funded over the subsequent nine years. Future solvency funding requirements will depend on the results of annual actuarial funding valuations which are affected by various factors, such as return on plan assets, changes in solvency liability discount rates, and any further action taken by the government on the requirements associated with solvency valuations. Business Review On January 31, 2006, we announced a comprehensive business review to strengthen our fundamental business and evaluate our competitive position and strategic opportunities for creating and delivering long-term shareholder value. Since launching our review, we have established our 2006 business plan and delivered two quarters of financial performance that are solidly on track in relation to our expectations for the year. The performance of our Enterprise Solutions division has been improved by our focus on profitable operations, and our overall corporate cost structure has been strengthened by annualized cost reductions of $70 million achieved so far in 2006. Additionally, we have securitized our receivables and undertaken efforts to realize working capital improvements. An important initial element of our business review was an assessment of our asset base to identify core and non-core assets. Through this phase of our review, non-core real estate holdings have been identified and we have listed them for sale. We expect to complete the remaining work on non-core assets by the end of the summer. We are continuing to work on the strategic side of our business review with comprehensive analyses of multiple scenarios including important potential growth strategies for our business and we look forward to continuing to report to shareholders as we advance our business review. NOTICE OF DIVIDEND RECORD DATE Notice is hereby given that the close of business on September 15, 2006 has been fixed as the record date for the purpose of determining those shareholders entitled to receive payment of MTS’s third quarter dividend. The dividend, in the amount of $0.65 per Canadian per Common Share, has been declared payable October 16, 2006 to shareholders of record at the close of business on September 15, 2006. This notice is provided in accordance with section 128(4) of The Corporations Act (Manitoba).

This report and interim MD&A contain forward-looking statements and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Forward-looking statements reflect our expectations as at July 27, 2006. Additional information on these risks can be found in our filings with the Canadian securities regulatory authorities. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This report, interim MD&A, and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors. MTS Allstream is one of Canada’s leading national communication solutions providers, delivering innovative products and services through its Consumer Markets and Enterprise Solutions divisions. Our Consumer Markets division serves residential and business customers in Manitoba with a full suite of wireline voice, high-speed Internet and data, next generation wireless, directory, digital television, security and alarm monitoring services. Our Enterprise Solutions division provides national business customers with a world-class portfolio of IP-based connectivity, managed network services, and professional services. MTS Allstream’s extensive national broadband fibre optic network spans more than 24,300 kilometres, and provides international connections through strategic partnerships and interconnection agreements with other international service providers. Our Common Shares are listed on The Toronto Stock Exchange (trading symbol: MBT). For more information, please visit: www.mtsallstream.com. Note: Supplementary financial information is available in the Investors section of the MTS Web site at www.mtsallstream.com. MANITOBA TELECOM SERVICES INC. P.O. Box 6666 333 Main Street Winnipeg, Manitoba, Canada R3C 3V6 1-888-544-5554

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For the periods ended June 30(in millions, except earnings per share) 2006 2005 2006 2005

Operating revenues Data services $ 166.2 $ 165.2 $ 330.2 $ 332.7 Local services 147.2 139.5 285.4 275.7 Long distance services 100.2 121.5 205.0 242.8 Wireless services 57.7 51.1 111.5 98.6 Other 28.7 24.9 56.7 47.5 500.0 502.2 988.8 997.3

Operating expenses Operations 308.0 326.3 628.0 649.7 Restructuring and integration costs (Note 2) 7.1 3.9 10.2 16.5 Amortization 82.0 77.4 162.8 156.4 397.1 407.6 801.0 822.6

Operating income 102.9 94.6 187.8 174.7

Other income (expense) (0.7) 1.3 0.4 5.4 Debt charges (15.4) (15.1) (30.7) (30.3)

Income before income taxes 86.8 80.8 157.5 149.8

Income taxes (Note 4) Current (7.3) (12.7) (12.5) (13.7) Future 95.3 (18.0) 127.2 9.5

88.0 (30.7) 114.7 (4.2) Net income (loss) for the period $ (1.2) $ 111.5 $ 42.8 $ 154.0

Basic earnings (loss) per share (Note 6) $ (0.02) $ 1.65 $ 0.63 $ 2.27

Diluted earnings (loss) per share (Note 6) $ (0.02) $ 1.64 $ 0.63 $ 2.27

Three months ended Six months ended

MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF INCOME(unaudited)

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For the periods ended June 30(in millions) 2006 2005 2006 2005

Retained earnings, beginning of period $ 96.6 $ 57.5 $ 96.6 $ 59.0

Net income (loss) for the period (1.2) 111.5 42.8 154.0

Dividends (44.3) (44.0) (88.3) (88.0)

Retained earnings, end of period $ 51.1 $ 125.0 $ 51.1 $ 125.0

Three months ended Six months ended

MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF RETAINED EARNINGS(unaudited)

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(in millions) June 30, 2006

AssetsCurrent assets Accounts receivable (Note 3) $ 73.6 $ 216.3 Prepaid expenses 42.2 29.5 Future income taxes (Note 4) 110.7 130.9

226.5 376.7

Property, plant and equipment 3,530.2 3,523.8Accumulated amortization 2,050.3 2,016.2

1,479.9 1,507.6

Investments 2.8 3.1Other assets 227.1 188.8Future income taxes (Note 4) 703.8 810.8Goodwill and other intangible assets 91.1 97.2

$ 2,731.2 $ 2,984.2

Liabilities and shareholders' equity

Current liabilities Bank indebtedness $ 12.4 $ 9.9 Accounts payable and accrued liabilities 299.5 365.6 Advance billings and payments 40.7 54.2 Notes payable 22.3 108.0 Current portion of long-term debt 14.6 48.1 Current portion of capital lease obligations 4.4 4.3

393.9 590.1

Long-term debt 833.5 848.1Long-term portion of capital lease obligations 17.9 17.5Deferred employee benefits 43.1 51.5Other long-term liabilities 45.3 45.3 Future income taxes (Note 4) 1.9 1.9

1,335.6 1,554.4 Shareholders' equity Share capital (Note 7) 68,098,707 Common Shares (2005 - 67,739,257) 1,327.9 1,315.0 Contributed surplus 16.6 18.2 Retained earnings 51.1 96.6 1,395.6 1,429.8

$ 2,731.2 $ 2,984.2

MANITOBA TELECOM SERVICES INC.

CONSOLIDATED BALANCE SHEET

December 31, 2005

(unaudited)

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For the periods ended June 30(in millions) 2006 2005 2006 2005

Cash flows from operating activities Net income (loss) $ (1.2) $ 111.5 $ 42.8 $ 154.0 Add (deduct) items not affecting cash Amortization 82.0 77.4 162.8 156.4 Future income taxes 95.3 (18.0) 127.2 9.5 Gain on sale of investment - - - (2.7) Deferred wireless costs (6.5) (5.9) (12.6) (12.7) Pension funding and net pension credit (24.6) (18.9) (46.7) (26.0) Other, net 1.4 (1.3) (4.4) (0.1) Changes in non-cash working capital 94.1 (59.3) 49.1 (82.9) Cash flows from operating activities 240.5 85.5 318.2 195.5

Cash flows from investing activities Capital expenditures, net (60.0) (84.3) (113.4) (153.1) Acquisition - - - (4.2) Proceeds on sale of investment - - - 8.1 Other, net (0.1) 0.4 0.2 2.0 Cash flows used in investing activities (60.1) (83.9) (113.2) (147.2)

Cash flows from financing activities Dividends (44.0) (44.0) (88.0) (87.9) Repayment of long term debt (48.1) (34.9) (48.1) (44.6) (Repayment) issuance of notes payable, net (109.1) 32.0 (85.7) 32.0 Issuance of share capital (Note 7) 9.4 0.4 11.8 4.0 Other, net 1.3 1.1 2.5 2.1 Cash flows used in financing activities (190.5) (45.4) (207.5) (94.4)

Increase in bank indebtedness (10.1) (43.8) (2.5) (46.1)

(Bank indebtedness) cash and cash equivalents, beginning of period (2.3) 29.3 (9.9) 31.6

Bank indebtedness, end of period $ (12.4) $ (14.5) $ (12.4) $ (14.5)

Three months ended Six months ended

MANITOBA TELECOM SERVICES INC.CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited)

MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (All financial amounts are in millions, except where noted.)

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1. Significant accounting policies The interim consolidated financial statements of Manitoba Telecom Services Inc. (the “Company”) have been

prepared in accordance with Canadian generally accepted accounting principles. These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the Company’s audited consolidated financial statements for the year ended December 31, 2005, except for the adoption of an accounting policy to address accounts receivable securitization, effective April 11, 2006.

These interim consolidated financial statements should be read in conjunction with the Company’s audited

consolidated financial statements for the year ended December 31, 2005.

Accounts receivable securitization The Company accounts for the transfer of receivables as a sale when the Company is deemed to have

surrendered control over the transferred receivables in exchange for proceeds. When the receivables are sold, the Company removes the receivables sold from the balance sheet, recognizes the assets received and the liabilities incurred at fair value, and records a gain or loss on sale in other income. The Company also retains reserve accounts, which are retained interests in the securitized receivables. The Company measures the fair value of the receivables transferred based on the present value of expected future cash flows, using management’s best estimates of the key assumptions. The amount of gain or loss recognized on the sale of receivables depends in part on the carrying amount of the receivables involved in the transfer, allocated between the fair values of the receivables sold and the reserve accounts at the date of sale. The Company continues to service the receivables and recognizes a servicing liability on the date of sale, amortizing this liability to earnings over the expected life of the transferred accounts receivable.

2. Restructuring and integration In the fourth quarter of 2005, the Company launched a cost reduction program for the further integration of its

operating divisions and corporate functions. This program includes both workforce reduction initiatives and activities to improve network access costs and further integrate compatible functions and processes, and is expected to continue into 2007. The Company has recognized integration expenses for the three and six months ended June 30, 2006 in the amount of $7.1 million and $10.2 million, respectively. The outstanding restructuring liability as at December 31, 2005, relating to the workforce reduction element of the program was $35.1 million. During 2006, $20.2 million of payments were applied against this liability, leaving an outstanding liability of $14.9 million at June 30, 2006. The Company expects the workforce reduction program will be substantially completed by the end of 2006.

Prior year comparative figures include amounts for earlier restructuring and integration initiatives, and workforce

reduction programs. The restructuring and integration initiatives commenced in 2004 after the acquisition of Allstream Inc. and were substantially completed at December 31, 2005. As well, the workforce reduction initiative undertaken in the first quarter of 2005 has been substantially completed.

3. Accounts receivable securitization On April 11, 2006, MTS Allstream Inc. established an accounts receivable securitization program with an arm’s

length securitization trust pursuant to an agreement, which expires April 11, 2011. Under the terms of the agreement, MTS Allstream Inc. has the ability to sell, on a revolving basis, an undivided ownership interest in its accounts receivable, up to a maximum of $150.0 million. During the term of the agreement, MTS Allstream Inc. is subject to certain risks of default which, should they occur, could cause the agreement to be terminated early. The undivided ownership interest is sold on a fully-serviced basis and MTS Allstream Inc. receives no fee for ongoing servicing responsibilities. As at June 30, 2006, MTS Allstream Inc. has recorded a servicing liability in the amount of $0.2 million.

MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (All financial amounts are in millions, except where noted.)

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3. Accounts receivable securitization (continued) MTS Allstream Inc. is required to maintain reserve accounts, classified as retained interests, in the form of

additional accounts receivable over and above the cash proceeds received, to absorb credit losses on the receivables sold. For financial statement purposes, the reserve accounts have been included in accounts receivable. The trust has no recourse to the undivided ownership interest in the retained receivables, other than through the reserve accounts. The fair value of the reserve accounts approximates carrying value as a result of the short collection cycle and negligible credit losses. As at June 30, 2006, MTS Allstream Inc. had received $136.0 million on the sale of its accounts receivable to the trust, which is comprised of the outstanding undivided ownership interest held by the trust of $171.9 million and the reserve accounts of $35.9 million.

During the three and six months ended June 30, 2006, MTS Allstream Inc. recognized a pre-tax loss of

$1.2 million on the sale of accounts receivable, which is recorded in other income.

The following table is a summary of certain cash flows received and paid to the trust for the three and six months ended June 30, 2006:

2006 Proceeds from new securitizations $150.0 Proceeds from collections reinvested in revolving period securitizations $387.0

The key assumptions used to determine the loss on sale of receivables and the fair values attributed to the retained interest for the three and six months ended June 30, 2006, are as follows:

2006 Annual discount rate 4.47% Weighted average life of receivables sold (days) 40 Credit loss ratio 0.65% Servicing fee liability 1.0 %

4. Income taxes A reconciliation of the statutory income tax rate to the effective income tax rate is as follows:

2006 2005 Combined basic federal and provincial statutory income tax rate 35.9% 36.1% Large corporations tax - 1.6% Other items (0.3%) 1.5% Settlement of prior years’ tax audits - (48.4%) Change in substantively enacted tax rates 37.2% 6.4% Effective tax rate 72.8% (2.8%)

MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (All financial amounts are in millions, except where noted.)

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4. Income taxes (continued) The balances of future income taxes as at June 30, 2006 and December 31, 2005 represent the future benefit of

unused tax losses, and temporary differences between the tax and accounting bases of assets and liabilities. The major items giving rise to future income tax assets and liabilities are presented below:

2006 2005 Non-capital loss carryforwards 679.0 810.7 Property, plant and equipment 263.8 255.2 Other 18.5 32.3 Total future income tax asset 961.3 1,098.2 Valuation allowance (148.7) (158.4) Net future income tax asset 812.6 939.8

Future income taxes are comprised of:

2006 2005 Current future income tax asset 110.7 130.9 Long-term future income tax asset 703.8 810.8 Long-term future income tax liability (1.9) (1.9) Net future income tax asset 812.6 939.8

During the six months ended June 30, 2006, the Company recovered $0.7 million in cash income taxes (2005 -

paid $2.2 million). As at June 30, 2006, the Company had non-capital loss carryforwards available to reduce future years’ taxable

income, which expire as follows:

2007 75.1 2008 234.3 2009 1,639.2 2010 and beyond 8.4 1,957.0

5. Foreign currency forward contracts The Company has a foreign exchange hedging program to manage foreign currency exposure, which arises in the

normal course of business operations. As at June 30, 2006, the Company has outstanding foreign currency forward contracts to purchase $4.2 million U.S. These contracts mature periodically beginning in July 2006 and ending in December 2006. As at June 30, 2006, the fair value of the foreign currency forward contracts approximate the amounts hedged by the Company.

MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (All financial amounts are in millions, except where noted.)

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6. Earnings per share

The following table provides a reconciliation of the information used to calculate basic and diluted earnings per share:

2006 2005

Net income Net income - basic and diluted 42.8 154.0

Weighted average shares outstanding (in millions) Weighted average number of shares outstanding – basic 67.9 67.7 Dilutive effect of outstanding stock options 0.1 0.2 Weighted average number of shares outstanding - diluted 68.0 67.9

Earnings per share ($) Basic earnings per share 0.63 2.27Diluted earnings per share 0.63 2.27

7. Stock-based compensation

The following tables provide further information on outstanding stock options as at June 30, 2006 and 2005:

2006 2005

Number of shares

Weighted average exercise price per share

Number of

shares

Weighted average exercise price per share

Outstanding, beginning of period 2,301,960 39.32 1,699,200 35.94 Granted 332,000 38.87 408,000 48.88 Exercised (359,450) 32.85 (148,380) 27.91 Terminated (443,200) 42.76 (51,100) 40.30 Outstanding, end of period 1,831,310 39.68 1,907,720 39.21

Exercisable, end of period 566,890 36.60 653,640 33.15

Year granted

Options

outstanding

Options

exercisable

Weighted average exercise price per share

Expiry date 2006 332,000 - 38.87 2016 2005 708,400 67,600 43.49 2015 2004 244,300 117,580 45.61 2014 2003 158,340 83,740 34.84 2013 2002 215,700 133,400 34.47 2012 2001 68,220 60,220 37.33 2011 2000 45,600 45,600 31.14 2010 1999 13,750 13,750 16.99 2009 1997 45,000 45,000 14.63 2007

8. Employee future benefits

The Company’s total benefit cost for all of its defined benefit and defined contribution pension plans, supplemental pension arrangements and other non-pension employee future benefits for the three and six months ended June 30, 2006 is $4.1 million and $8.5 million, respectively.

MANITOBA TELECOM SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (All financial amounts are in millions, except where noted.)

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9. Segmented information On February 28, 2006, the Company announced changes to its organizational structure. Under this new

structure, the Company renamed its reportable operating segments as the Consumer Markets division and the Enterprise Solutions division. The Consumer Markets division provides a full range of local, data, long distance, wireless, directory publishing and media, digital television, security system and telecommunications equipment sales to residential and small business customers in Manitoba. The Enterprise Solutions division provides local, data, long distance, information technology services and telecommunications equipment sales to business customers in Canada. In the future as the Company further segments its customer base, there will be changes in the reporting responsibilities of each division for both revenues and expenses.

The Company evaluates performance based on EBITDA (earnings before interest, taxes, amortization, and other

income). EBITDA, as reported below, includes intersegment revenues and expenses. The Company accounts for intersegment revenues and expenses at either prices that approximate current market prices or cost, depending on the type of service. The following tables provide further segmented information:

Three months ended June 30

Consumer Markets

Enterprise Solutions

Other

Total 2006 2005 2006 2005 2006 2005 2006 2005 Operating revenue External Internal

237.2

4.4

223.4

2.9

262.8

3.2

278.8

1.6

- 6.8

- 5.5

500.0

14.4

502.2 10.0

EBITDA 134.8 121.0 50.5 52.9 (0.4) (1.9) 184.9 172.0

Six months ended June 30

Consumer Markets

Enterprise Solutions

Other

Total 2006 2005 2006 2005 2006 2005 2006 2005 Operating revenue External Internal

459.9

8.9

438.0

5.7

528.9

6.2

559.3

2.8

-

13.6

-

11.1

988.8

28.7

997.3

19.6 EBITDA 255.2 230.0 95.0 103.4 0.4 (2.3) 350.6 331.1

Reconciliation of consolidated net income (loss) is as follows:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Consolidated net income (loss) Total EBITDA 184.9 172.0 350.6 331.1 Amortization (82.0) (77.4) (162.8) (156.4) Other income (expense) (0.7) 1.3 0.4 5.4 Debt charges (15.4) (15.1) (30.7) (30.3) Income tax (expense) recovery (88.0) 30.7 (114.7) 4.2 (1.2) 111.5 42.8 154.0