TELSTRA GROUP LIMITED — AGM Information 2005

Mar 10, 2005

11 March 2005

The Manager

Company Announcements Office Australian Stock Exchange 4^th Floor, 20 Bridge Street SYDNEY NSW 2000

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

Telephone 03 9634 6400 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Trans-Tasman Business Awards speech

Please see attached a speech to be delivered today by Dr Ziggy Switkowski.

Yours sincerely

Pont brak-

Douglas Gration Company Secretary

Telstra Corporation Limited
ACN 051 775 556 ABN 33 051 775 556

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TRANS TASMAN BUSINESS AWARDS

TELSTRA CEO - Dr Z E SWITKOWSKI

Friday, March 11. Sofitel Wentworth

Ladies and Gentlemen

Thank you for the opportunity to address you today.

This forum appropriately highlights transTasman themes, but given the high profile of Telstra issues this week, I thought you might permit me some additional comments about Telstra and T3.

It is great to be here today to celebrate the Australia-New Zealand economic relationship with many of the people that make that relationship a reality.

When most people on either side of the Tasman think about the Australia-New Zealand relationship, the economic dimensions perhaps don't jump to the fore.

I suspect we all automatically conjure up the passionate sporting rivalries between our two countries, particularly the rugby, the cricket and the netball.

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The extent of this passion was brought home to me by a T-shirt I saw at Auckland airport that had on the back $-$ "I support two teams, New Zealand and anyone playing Australia!".

But in the economic field, Australia and New Zealand do have much to celebrate in the way they have gone about integrating their economies.

Under the auspices of the Closer Economic Relations Agreement, Australia and New Zealand have one of the most open economic and trading relationships of any two countries in the world.

CER underpins substantial flows of trade, services, investment, labour and visitors between the two countries.

This has produced significant benefits to both countries.

• Over the past 10 years, trans Tasman trade has increased annually by 9% on average, about double the economic growth in both countries over the period.
• Australia is the largest investor in New Zealand and New Zealand is the fourth largest destination for Australian foreign investment.
• New Zealand is the eighth largest investor in Australia, and Australia is the largest destination for New Zealand investment.

Trans-Tasman travel has been made easier, as has the ability to $\bullet$ work in either country.

The exciting thing for those of us in business is, I believe, the desire of Governments on both sides of the Tasman to drive this agenda further by seeking to harmonise business law.

Telstra has strongly backed the continued development of CER.

I welcome the recent initiatives of Treasurer Costello and Finance Minister Cullen to establish a joint New Zealand-Australian committee for banking regulation.

We in the telecommunications industry hope this initiative in banking will be a trailblazer for our industry where significant regulatory disharmony continues.

In New Zealand we have a telecommunications regulatory regime that is extremely light-handed by international standards and in Australia we have a regulatory regime which is comparatively heavy-handed by international standards.

Both extremes are not good for consumers. To my way of thinking if any two regimes could learn from each other, it is the Australian and New Zealand telecommunications regulatory frameworks.

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In New Zealand, Telecom faces highly constrained competition. As a result, New Zealand consumers are enduring higher prices and enjoying less innovation than their counterparts in the rest of the developed world.

In Australia, the current regulatory framework is dampening the incentives to invest in new infrastructure. Just as in areas such as ports, power and transport so in telecommunications; heavy-handed regulation designed to drive down prices, while popular in the short-term, is coming home to roost.

This is a complex public policy and regulatory issue that requires substantial debate about infrastructure strategy and investment – a debate that is now forming.

Turning to T3, as you all know, the Australian Government is currently considering the full privatisation of Telstra.

Telstra's Board and management support the completion of the privatisation process but recognise that the decision is one for Parliament to make.

Unsurprisingly, with the Telstra Sale Bill expected later this year, many groups see this period as an opportunity to demand wide-ranging changes to Telstra, to its ability to serve and compete, and a redefining of its many obligations and processes.

Telstra's competitors and their supporters amongst the regulatory community claim the sky will fall in unless Telstra is reduced to a fraction of its current size or bound in regulatory red tape. Their demands include structural separation as a pre-requisite for sale, and a series of regulatory imposts designed to shift value from Telstra to its competitors.

I thought it timely to bring some personal perspective to this debate.

I strongly believe Telstra should be fully privatised - but not at any cost.

So let me circle back and explain why the Company supports the completion of the privatization process.

A fully privatized Telstra should be able to accelerate its evolution into a normal productive commercial entity, free of the complexities of government ownership and political linkages;

as the Government acknowledges, there would be an end to the conflicts that ownership and regulation bring when both are the responsibility of government;

and investors, customers etc would welcome the reduced complexity in making decisions about a company with a more conventional corporate look and feel.

Our support for completing the privatization of Telstra does not anticipate triggering new layers of restrictive regulation on Telstra. nor invites exotic restructuring of the company,

nor welcomes the torturing of the organizational design and governance structures and atrategic priorities to satisfy sectoral interests,

nor is consistent with the addition of significant new obligations and bureaucratic processes.

Of course I understand that the period leading up to T3 will be one of wideranging debate about many aspects of telecommunications and Telstra.

This is as it should be.

But can I remind you of the forest we're trying to nurture while others argue about the trees that might be harvested.

T3 is not an endpoint in itself, but a link in an unbroken chain of commitment - to serving our customers, to providing for the national interest and for delivering value to our shareholders.

This commitment will continue into the next generation and beyond.

Yes, for some T3 is a significant event in its own right.

For the government, it does signal an end to its partial ownership of Telstra.

But the debates about industry issues should happen anyway – independent of government's degree of ownership of us – and I expect will continue into the years after T3.

(As an aside, in my view the next 5 years in our industry will see even greater change than we've lived through the last 5 years. No one can confidently set rules in place, within a Sale Bill deadline, that will successfully cover most of the possible scenarios.)

If you think media policy is difficult, you've yet to wrestle with telecomms. !.

Let me caution about a few of the assertions and demands I hear commentators and critics making about the pre-T3 Telstra:

Telstra is too big to regulate - In this case, size doesn't matter. Big or small, companies must comply with the law of the land. Telstra is no exception.

It is true that Telstra is a big company. In that respect, it is not alone in the local telecommunications industry $-$ our competitor Optus is owned by Singapore's largest telco, Singtel, AAPT by Telecom NewZealand and Vodafone by its giant UK parent - the largest telecommunications company in the world.

In practice, based on market capitalisation, Telstra is one third the size of Vodafone and smaller than a number of US and European telecoms companies. Despite their size, the ACCC's regulatory colleagues in the UK, Europe and the US seem to manage to regulate those companies effectively, as indeed has the ACCC over the years.

The regulator should be given more power in relation to Telstra – as I have already noted, the ACCC is already one of the world's most powerful competition regulators. Indeed, there are two whole chapters in the Trade Practices Act specially designed to regulate telecommunications. One of those chapters contains "sector specific" competition law which provides the ACCC with a full armoury of powers to regulate telecommunications markets. This applies over and above the general law that applies to all companies under the Act and means that Telstra is already the most regulated company in Australia from an ACCC perspective.

• The company should be structurally separated

We are pleased that the Minister has ruled out structural separation.

From what we can see, structural separation would result in no diminution of regulation, would impose significant costs on Telstra and hence raise prices for consumers and would hamper the process of innovation.

If structural separation is the answer, then what is the question? It certainly isn't " how might Australian customers be better served with telecommunications ?", nor " what's best for the national economy into the future?".

Structural separation has occurred nowhere else in the world in large part because of uncertain economic outcomes and concerns about the massive unproductive industry upheavals that might occur in such a process.

This whole process of making these claims at this time is based upon a myth – that it is government ownership that currently controls Telstra's market conduct and hence if privatisation occurs this ownership based control needs to be replaced by new regulation. The truth is, of course, that since Telstra's predecessor was corporatised 15 years ago, it has been regulation and not government ownership that matters.

Whether current regulation requires reform is a legitimate question, but it should have little to do with T3.

I note that earlier this week, in an excellent presentation to ATUG, the Telecommunications Minister anticipated regulatory reform. Telstra welcomes a regulatory review on its merits $-$ not as a pre-privatisation last minute opportunity to handicap Telstra, but as a legitimate opportunity for Australia to consider what is a fair and sustainable regulatory regime going forward.

We welcome and endorse the Minister's comments recognising the importance of regulatory certainty for investment.

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Recent references to a next step beyond accounting separation towards operational separation may contain elements that Telstra could support once we understand the proposals better.

The company is implementing a coherent strategy that serves its customers well and enables the enterprise to deliver strong dividends securely to its shareholders while offering the potential for capital growth.

This should not to be compromised by a privatisation event.

The Telstra Board and new management may well tune or revise the business and balance sheet settings, but these decisions must look through T3 in the confident expectations that T3 and its aftermath will benefit from any changes.

Let me reassure you about the state of our industry.

As best as I can tell, most Australian telecomm companies – big and small – are reporting revenue growth faster than Telstra,

profit growth faster than Telstra,

margin growth where Telstra has none,

and improving overall economic returns welcomed by the investment markets.

If our competitors' public announcements are any guide, the industry is at the threshold of another infrastructure investment boom.

The industry is healthy, vibrant and progressive. Not a lot seems broken.

Let me also remind you of what the Company has already done of its own initiative:

• In my 6 years as CEO, we've invested nearly \$24 billion in $\bullet$ Australian network and IT infrastructure and next generation platforms;
• We've created a regional organization, TCW, which stands as the case study for genuine commitment to servicing the bush. This was before 'futureproofing' became a trendy phrase. In partnership with the government, we've been proactive in addressing the special needs of indigenous communities;

• We've stepped up to ever tighter customer service guarantees deploying 15,000 technicians in the field to meet customer needs promptly and efficiently;

• We embarked upon a wholesale strategy aimed at working positively with our competitors, and recently formed a Telstra Wholesale Group as the next step in better focusing upon the needs of our customers/competitors as well as addressing concerns about retail-wholesale separation;

• We've formed a 3G JV with a major competitor Hutchison, thoughtfully utilising existing wireless capacity rather than overbuilding another mobile network. We now also buy service and capacity from our other competitors helping to drive a more rational industry outcome and more efficient use of capital;
• We've ignited the broadband market vaulting Australia up the ladder of developed countries in terms of household access to broadband, and yesterday announced the path for moving to truly high speed internet connectivity for many Australian users foreshadowing a \$220m investment in ADSL2+ technology.
• The interests of today's and our next generations of users have been anticipated as we escalate speeds and extend coverage of our wireless platforms – GPRS; W-CDMA; 1xRTT; EVDO; WiFi etc;
• But our initiatives go beyond these business related activities. For example in the past year, our corporate philanthropy, including

grants from our Telstra Foundation, approached \$10m. These are charitable donations, not sponsorships.

This is evidence of a company with an eye to the future and committed to its communities. It points to an enterprise completely dedicated to serving Australia today and tomorrow.

But I do accept the validity of some of the concerns and criticisms directed at Telstra, and emphasise our willingness to engage constructively with the government, regulators and others to identify improvements for our industry and all its communities.

Returning to matters transTasman, we are some way $-$ at least in my industry – from achieving the goal of single market. It is still not a seamless process doing business on both sides of the Tasman.

Today we are here to recognise those companies that have bridged the remaining gaps and have successfully grown a trans-Tasman business.

These awards demonstrate that despite the commercial challenges, we can grow our trans Tasman businesses, and grow them efficiently.

Telstra and Telstra Clear are proud to be initiators and principal sponsors of these awards.

Together with the gold sponsors Qantas, Fairfax and Ericsson we believe that these awards will become a regular fixture on the trans-Tasman business calendar.

Thank you