TELSTRA GROUP LIMITED — AGM Information 2006

Nov 13, 2006

14 November 2006

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

Chairman, Chief Executive Officer and Remuneration Chair presentations

In accordance with Listing Rule 3.13.3, I enclose the presentations of the Chairman, CEO and Remuneration Chair, which will be delivered today at the Telstra Corporation Limited 2006 Annual General Meeting.

Yours sincerely

Pont Grati

Douglas Gration Company Secretary

TELSTRA ANNUAL GENERAL MEETING 2006 MR DONALD McGAUCHIE, CHAIRMAN, ADDRESS TO SHAREHOLDERS

Introduction

Good morning ladies and gentlemen, I'm Donald McGauchie, the Chairman of your company.

I welcome you to the 2006 Annual General Meeting. Talso welcome shareholders viewing today's proceedings on our Investor Relations website.

A quorum is present and I declare this Meeting open.

Let me start by introducing the Board members, senior executives and the company's auditor. As with previous years our aim is to achieve a less formal approach, so we have only four people on stage with the rest of the directors in the front row.

Directors have been available to meet with you before the meeting and, those who can, will do so afterwards.

Joining me on the stage are:

John Stanhope, our Chief Financial Officer Sol Trujillo, our CEO Douglas Gration, our Company Secretary.

In the front row, we have my fellow directors:

Belinda Hutchinson, Catherine Livingstone, Charles Macek John Stocker ...and I would like to welcome to their first annual general meeting Peter Willcox and John Zeglis who joined us during the year.

I would also like to thank John Fletcher who retired as a director on 30 June this year for his very significant contribution to the Board and the company.

I would also like to mention and welcome Telstra's Senior Leadership Team who are seated in the front row. Welcome also to Michael Watson and Mark Maloney from the Australian National Audit Office our external auditors.

I also thank our Telstra Friends staff volunteers who areeted manu of you when you arrived todau.

I'll now outline the procedure for today's meeting. There are five items of business on today's agenda:

• $\bullet$ Item 1 - Chairman and CEO presentations. Following my address, Sol will report on his first full year as CEO of your Company, including comments on the implementation of the transformation strategy.
• Item 2 Adoption of the remuneration report for the year ended 30 June 2006. Charles Macek, Chairman of the Board Remuneration Committee, will present the remuneration report for your consideration.
• Item 3 Discussion of Telstra's financial statements and reports for the year ended 30 June 2006, which I now lay before the meeting.
• Item 4 Election and re-election of directors; and

Item 5 - Adoption of the new constitution, a copy of which I now table. Following Charles' address I will move to answer questions submitted by shareholders in advance of the meeting before taking questions from the floor on the operations and performance of the company, the remuneration report and each of the other items of business before the meeting.

So that we can represent the views of all shareholders including those who have lodged proxies. I will call a poll in relation to Items 2, 4 and 5. No resolution is required in relation to Item 3.

I will open the poll now so that shareholders who need to leave the meeting early have the opportunity to vote on these items by completing the voting section on the reverse of your uellow shareholder card and placing it in one of the ballot boxes near the exits to this room.

This annual meeting is our forum - the shareholders' forum - to discuss the performance and future of your company.

In the interests of the comfort of shareholders, we will take a short 20 minute break around 12 noon. You're very welcome to enjoy the light refreshments served in the foyer at that time

We invite your comments on improvements for future Annual General Meetings. Shareholders received a questionnaire at registration. I invite you to complete it and place it in the questionnaire boxes when you leave. To mark the launch of our exciting Next G^** network, later in the day we'll be drawing out the names of 5 shareholders who have completed their questionnaires. We'll be giving each of them a Next G™ handset to experience first-hand the full potential of our new network.

Board Overview

This time last year I stood before you and foreshadowed the reshaping and transformation of uour company, and I quote "in the 04/05 financial year your board made decisions to begin reshaping Telstra for the years ahead. We knew that just keeping on doing what we were doing and cutting costs were not going to get us where we need and want to go".

Further I said "Telstra is now embarked on a strategy to connect with its customers like never before. We will move towards full privatisation of the company with renewed vigour and enthusiasm - and a clear strategic path forward."

We knew that we had to have a long-term vision for the corporation - and that we had to act decisively and with discipline.

In simple terms we had to deal with:

• Rising costs $\bullet$
• Revenue pressures
• Inefficient operating processes
• External pressures regulatory uncertainty and rapidly changing technology
• Aging infrastructure requiring re-invigoration and renewal
• People inside and outside the company thinking about it as being part of the public sector

Performance decline in our competitors here and globally in the last year has very much shown that we were right to tackle these issues head on. Others have been slower to respond - and have paid a very high price.

Last year we drew a line in the sand - and gave you a commitment to turn around this company and drive its performance.

We began the fight-back fully understanding the way to tackle what could only be described as an enormous task, was with new thinking and very significant investment. To enable us to deliver a growth strategy – growth in revenues and in margins - the hard work and tough medicine had to include...

• cutting costs but the right costs
• fundamentally changing the way we do business pricing, services and service deliveru
• investing in new technology platforms, infrastructure and processes
• in short a new business model...
• and very critically major cultural change

I am pleased to be able to stand before you today - one year later - and say we are well and truly delivering on those commitments. We are on track, we are on budget and we are ahead of our delivery schedule. We still have a massive amount work ahead of us. But we have a coherent and aggressive plan and we are driving its implementation.

We are doing what has had to be done...

Are we pleased with the share price todau? No.

Did we have a choice about tackling the systemic issues confronting the telco industry globally? No.

Have regulatory decisions, particularly on ULL pricing had an impact? Undoubtedly and indisputably. Uncertainty about future regulatory decisions weigh on ours and the markets' minds.

Are we investing in the future? Yes.

And are we beginning to see the results of that investment of resources, efforts and human capital? Yes

We have fully informed the market of the actions we have been taking to ensure the long term strength and value creation in your company. In the last twelve months we have made two major presentations:

• November 15 last year announcing the Transformation Strategy; and
• last month, on October 6 we reported on the achievements we are making in the $\bullet$ implementation of that strategy, including the launch of Next G.

In short, we are keeping you our shareholders - and the wider market - fully informed every step along the way.

It has been an extraordinary year of action and progress. We are turning the corner and the New Telstra is becoming visible. And this year we will continue our forward momentum.

We are forging ahead with the transformation and of course in a matter of days the Government's sell down and transfer of its remaining stake in Telstra will be complete. By any measure this will be another extraordinary year in the history of your company.

I will not dwell on the details of the implementation of the transformation strategy, the operational change and achievements to date - that is for Sol.

But I would like to spend some time talking about the achievements of your management team.

Never before in the history of Telstra or any other telco anywhere in the world have we seen a network comparable to Next G™, covering some 98% of Australians, built in 10 months. It is a world-class achievement.

Many of us in the room are using the network - and it is a great step forward for our customers and your company.

Never before in the history of this company have we seen such orchestrated and positive change across every part of the business - happening successfully - happening simultaneously - happening on or ahead of time and on budget. Once again, world class.

People have commented on the number of international executives that have joined the Company. It is worthwhile considering this for a moment. I for one consider it to be a great positive now and for our collective future.

Sol and his management team - many, many Australians and others from Europe, the US and Asia-Pacific - are delivering tried and tested world-class leadership and know-how.

We have recruited leaders from telcos and other industries both globally and in Australia. We have made internal promotions based on merit, ability and performance. For example:

• We have quadrupled the number of women on the CEO's senior leadership team on $\bullet$ merit
• We have recruited senior executives from the airline, automobile and other industries $\bullet$ to bring fresh perspectives and know-how.
• We are working hard to develop the future leaders of your Company from within $\bullet$ the Company.

The mix of existing and new people is driving new thinking and adding strength to our team. The sharing of know-how comes in manu forms - from intensive training to day-to-day collaboration across the business. It enriches the entire Telstra team.

Performance and meeting commitments, exceeding expectations, delivering ahead of schedule and on or ahead of budget - these are the hallmarks of the New Telstra. Telstra staff and employees are proud to be part of this rapidly transforming business.

As is, Telstra is the best performing telco in Australia. We are best in our local market. But we want to be better, we want to be world class - so we must bring in the best and brightest people we can find.

And make no mistake - Telstra must stand in the alobal market competing for the services of senior executives. We must offer competitive salaries to get and retain the best. As news of Telstra's transformation is becoming known offshore, our executives are becoming attractive to competitors here and internationally.

But as Charles Macek will outline in his Remuneration Report, all executive salaries must be well earned - the performance delivered must be world class and must meet clearly understood business objectives.

The Board has set management very specific objectives with respect to the transformation of your company. Payment of executives' short term incentives is directly linked to meeting these objectives. But executives will only receive their full long term incentives if they meet both the transformation objectives and deliver superior returns to you, our shareholders. As uou would expect, over the next few uears as management complete the transformation, the long term incentives will be weighted more and more heavily to measures of shareholder return.

Between the short-term and long term incentives, the majority of the remuneration of our top people is at risk. Some 70 per cent of the CEO's package is at risk, while for our Group Managing Directors the percentage at risk ranges from 62 to 67 per cent.

As I have said before - your Company is turning the corner. This time last year I said your Board had made decisions that would lead to the reshaping of Telstra. Well not only have we beaun - we are well on the wau.

Sol - you and the management team have delivered an exceptional first year in difficult and challenging circumstances.

Since your arrival we are more customer-focussed, we are behaving and performing to the one factory model and our culture has been energised.

Just last week I was talking with a long term and senior Telstra staff member and he said to me and I quote "I have never seen the company more aligned and energised in all my years here. We know what needs to be done and we know how we are going to do it."

I would like to make some comments on the T3 sale process that is currently underway.

I very much look forward to welcoming new T3 investors to the company.

As I believe you know, we wholeheartedly welcomed the T3 share offer. We are committed to the success of the offer and the sale and transfer of the Government's remaining shareholding in Telstra.

As the Federal Government has repeatedly said T3 should once and for all bring to an end the "massive conflict of interest being the owner, seller and industry regulator".

I would like to make a few comments about Corporate Governance...

Telstra has received wide recognition for the quality of its corporate governance. We welcome these accolades, but governance at Telstra is about much more than this,

Governance at Telstra is an unwavering commitment to protecting the interests of all shareholders and the creation of long-term shareholder value. Governance at Telstra means doing the right thing, in the right way.

• It means only investing our capital in projects that are capable of delivering the $\bullet$ returns you are entitled to expect. This is why we decided not to proceed with our proposed fibre-to-the-node network when it became clear the regulators would not accept an access reaime that would ensure full compensation to our shareholders rather than permitting our competitors to have a free-ride on your investment.
• It means, continuing to contest all aspects of the regulatory regime that stand in the way of our delivering outstanding service to our customers while earning fair returns to our shareholders. We will continue to use every appropriate means available to us to ensure that decisions made are in the interests of shareholders.
• It means, insisting on procedural integrity in all that we do including proper and $\bullet$ transparent processes at board level.

Let there be no doubt, your board and management are 100% committed to delivering an optimal performance and outcome for all our shareholders.

We are committed to ensuring all our shareholders' interests are protected and advanced. We are committed to ensuring that Telstra performs to its full potential and that you, our shareholders and the nation, benefit from that performance.

In closing...

We have a strategy - we believe it is the right strategy - and we are committed to it.

• We are sparing no effort to deliver the performance improvement we all require.
• We are committed to delivering long-term value to our shareholders.
• We are committed to building the value of your company and having that value reflected in the share price
• We are driving revenue growth and margins and taking out the right costs.
• In Sol and our management team we have world class experience and the proven performance necessary to drive world-class operational and financial performance from your company
• We want to be more than just the best communications company in Australia - $\bullet$ we want to be world class.
• The assurance that I give you is that every director and every executive will be 100% focussed on running this company in the interests of our customers and 100% of our shareholders.
• We are full speed ahead, building a new world-class media communications $\bullet$ company - the New Telstra.

Thank you.

And now the CEO's presentation.

TELSTRA ANNUAL GENERAL MEETING 2006 MR SOLOMON D TRUJILLO CEO, ADDRESS TO SHAREHOLDERS

14 November 2006

Getting Results Delivering on Strategy

A big part of life is about relationships...and relationships are about sharing...sharing time and experiences with people. Sharing family ups and downs, sharing knowledge at work and sharing life with close friends.

Here at Telstra we have a pro-investment, pro-relationship Plan for Australia - that works for you, our shareholders.

A Plan that makes sharing a much richer and more immediate experience for people across the country:

• Along the coast. $\bullet$
• In the bush. $\bullet$
• In cities and suburbs, and
• For those travelling along our major highways.

Six weeks ago Australia got a taste of how hard we've been working and what an exciting future Telstra is shaping for everyone, no matter where they live.

On 6 October the way we live, work and play began to change forever. We turned on our Next G™ wireless broadband network. Next G™ gives 98 per cent of Australia's population the ability to share experiences over their mobile phones and through their computers using Next GTM turbo cards

Last Friday we took a step further by unveiling our upgraded Telstra BigPond high-speed broadband service. BigPond Broadband gives more than 9-out-of-10 Australians-actually 91 per cent – the ability to connect to high-speed broadband on our fixed-line network.

These were the first two planks in our Plan for Australia, milestones in our strategy to lead the market and serve our customers with services that are faster, better and more customized to meet their needs I will talk in more detail about them later

We are transforming Telstra for our customers, we are doing it for our shareholders and we are doing it for Australia. Because creating customer value creates shareholder value.

We are also transforming Telstra to restore its role as the nation's technology leader, the company that serves everyone, both urban and country-wide.

Take Bob Andrews. He runs Jetset travel service in Mildura. Bob is also a very proud grandfather. He hasn't managed to get over to Perth yet to see his 12 month old granddaughter. So Bob recently used a Next G™ phone to speak to his daughter AND see his grand-daughter for the first time - LIVE. Bob said his grand-daughter's got a big happy smile and takes after her mother. Now he can't keep the smile off his face

Now, today, I will outline:

• What we said we'd do a year ago:
• What we've done in that year:
• Where we're heading: and

And how Australia is changing, with the New Telstra.

WHAT WE SAID WE'D DO - STRATEGY TO TRANSFORM TELSTRA

But before I go further I need to step back a little and restate why Telstra's transformation was so necessary and why it was so urgent.

This is the situation we were facing last year:

• Ongoing loss of market share;
• Declining revenues, with an accelerating decline in fixed line revenue:
• Eroding margins:
• Increasing costs;
• $\bullet$ Falling productivity;
• No market leadership: and
• $\bullet$ A share price which had declined from the year 2000.

That is why on November 15 2005 we outlined a five year transformation strategy:

• To rebuild Telstra;
• To make investments for the long term future of Telstra, not temporary fixes for the next quarter or two: and
• To drive a turnaround which will affect our financials, our valuation and ultimately our share price.

Because you can't declare or wish for improved share value. You rebuild a company brick by brick. And that's what we are doing.

In the end:

• We must be better than our competitors:
• We must be more innovative:
• We must streamline the business: and
• We must meet the needs of our customers today and tomorrow.

We will only do that if:

• $\bullet$ We take costs out:
• $\bullet$ We accelerate revenue growth;
• Improve productivity;
• Improve earnings; and ultimately
• Improve cash flow;

Because these are the drivers of share price.

Twelve months ago tomorrow, I outlined a vision and a strategy to reach it $-$ a Plan to Transform Telstra.

Our vision is to create a world of 1-click. 1-touch. 1-button, 1-screen, 1-step solutions that are simple, easy and valued by individuals, businesses, enterprises and government.

The transformation to a New Operating Model for Telstra is underpinned by three key strategies:

First, understanding customers' needs better than any of our competitors. By using Market Based Management and the most comprehensive research undertaken in Australia's corporate history, we are gaining a deeper understanding of customers' needs.

By doing this, we are able to convince more customers to use more Telstra products, increasing customer lovalty, decreasing churn and increasing Telstra's revenues.

Second, transforming Telstra using the "One Factory" approach. This approach in our Operations area is guided by four principles:

• do it once: $\bullet$
• do it 'right' for the customer; $\bullet$
• do it in an integrated way; and,
• do it at a low unit cost.

The net result is to remove duplication, reduce complexity, and cut costs. The One Factory approach in our operations includes:

• Operations support systems (such as inventory databases and truck fleet $\bullet$ management)
• Business support systems such as billing systems.
• Smarter procurement.
• Network modernisation such as more fibre, more high speed broadband. $\bullet$
• Faster product development such as our new Next G™ handsets.
• Improved customer service as shown by recent customer satisfaction surveys.

Third, we have a Plan for Australia that involves integrating our platforms to deliver integrated content and services in order to win in the marketplace by differentiating our services from those of our competitors.

This is where Telstra really comes into its own - leveraging our scale and scope for competitive advantage to be the number one choice for customers throughout the nation.

Through the integration of FOXTEL, Sensis and BigPond services, Telstra will be THE mediacomms company Australians turn to for simple "1-click " access to everything they need to live, work and play.

WHAT WE HAVE DONE

We've been working hard in the past year in our transformation, meeting our commitments.

• We are on track,
• We are on budget and
• We are ahead of our delivery schedule.

And let me be clear, in the second half of this fiscal year, we are turning the corner to profitable growth.

Our Next G™ network is proof that our transformation strategy is firing on all cylinders. This \$1 billion investment in nation-wide broadband made with shareholders funds is all about driving increased sales, new revenues and higher margins.

Our Next G™ 850 network is Australia's fastest, largest and most advanced mobile broadband network, built in a record ten months.

• No one in the world has built a nationwide network of this size in less than three years. We did it because we wanted to be first to deliver advanced high-speed wireless broadband not just to those in the capital cities, but to everyone.
• In about 10 months, we designed, constructed, upgraded and turned on around 5,000 mobile towers.
• That's the equivalent of one tower every 75 minutes. In the busiest weeks of the rollout a new base station was completed every 25 minutes.

That's an example of the new competitive intensity at Telstra, delivering unequalled customer reach and speed using a spectrum that is globally acknowledged as superior for breadth and depth of coverage.

Because our Next G™ network runs on the 850MHz spectrum it offers better depth of coverage through obstacles, which will mean superior reception and fewer drop-outs in car-parks, in elevators and most importantly, inside buildings.

But increased penetration means more than convenience. It also means that small and midsized enterprises can now use the Next G™ wireless platform to do business with their large business suppliers or customers who are already using the broadband platforms.

The Next G™ turbo-charged network is up to 50 times faster than dial-up internet access and up to five times faster than some competitors' 3G networks. The World Wide Wait is officially over if you're a Telstra customer. Telstra is now the only company in the world that can deliver a network speed of up to 3.6 megabits per second to a nationwide footprint.

And network speeds will increase to 14.4 megabits per second early in 2007 and to 40 megabits per second no later than March 2009.

Telstra worked with handset manufacturers to build an innovative "Telstra button" into the Next G™ handsets. It's a unique and simple "My Place" menu. This 1-click button gives our customers easy 1-touch access to nine services and applications including FOXTEL, Sensis and Telstra BigPond content, music, email, photos, downloads, maps and personal account information.

As people increasingly move to follow job opportunities, family members are more often apart. At this time of year, with school finishing and Christmas approaching, our Next G™ network offers a way to connect by making a live video call – on the spot, anywhere, anytime, from your own Next G™ phone.

The stories that are coming in from Next G™ users are heart-warming and diverse.

When Kim MacGowan was named Tasmania's Telstra Business Woman of the Year in Hobart, her son was having medical treatment in Sydney. With Kim was David Moffatt, our Group Managing Director of Consumer Marketing and Channels. David gave his Next G™ mobile phone to Kim and quickly organised another phone for her son in Sydney. So he could share the moment with his mother over a video call.

In another story, one of our Sydney staff, Ray Miller, was Best Man at a friend's wedding. Guess what - he'd forgotten his speech. Using his Next G™ phone, he avoided embarrassment because he could retrieve his speech from his BigPond email account.

In Australia's top end, the mining company Rio Tinto is using our Next G™ mobile broadband network to get clear voice calls at locations throughout its operations including at the bottom of a pit 95 metres underground.

In South Australia, the Limestone Coast Tourism Authority used our Next G™ network to stage a successful webcast from a cave 50 metres below ground.

But the Next G™ story doesn't end there. It's not just about phones - it's also about laptop computers. Customers are also able install a Next G™ "turbo card" into their laptop. providing high-speed access to the Internet for business, entertainment, or personal applications, such as browsing the web or email.

High speed broadband turbo cards are especially useful for business customers - such as:

• Architects and engineers:
• software developers: $\blacksquare$
• product sales:
• construction project managers; $\bullet$
• farmers:
• $\bullet$ trucking companies; and,
• real estate agents ... wherever they are.

As I said earlier, last Friday Telstra delivered the second plank of our Plan for Australia when we unveiled our upgraded Telstra BigPond high-speed broadband service.

The new BigPond Broadband delivers fixed-line broadband access to more than 90 percent of Australians - up to 20 Mbps from about 360 ADSL 2+ enabled exchanges and up to 8Mbps from the rest of the 2,400 ADSL-enabled exchanges.

These two important broadband initiatives – Next G™ and BigPond Broadband – complement the broadband services we continue to deliver on our existing HFC network. Why is this all important? It's important because Next G™ services and high-speed broadband are about raising the productivity and competitiveness of individual businesses and advancing the diversification of the nation's economy.

It's about driving innovation and helping Australia to compete more effectively everywhere in the world. That's good for business; that's good for Australia - and that's good for our business and our shareholders.

Telstra's high-speed broadband networks are revolutionising patient care. Health professionals such as dentists, speech therapists, obstetricians, rheumatologists, cardiologists, pathologists, paediatricians and physicians can receive patient records electronically and conduct a consultation over video conference. This saves travel time, reduces the delay for diagnosis and most importantly gives patients timely advice about improving their health and well-being.

Now, in education, our high speed broadband networks are opening opportunities for Australians, young and old, regardless of their location.

For example. Queensland's Momentum Technologies Group quickly adopted Telstra's Next G™ turbo-charged pc card in a laptop to stream live video of environmental projects to schools around the country. And the Next G™ network can provide huge new opportunities for Isolated Schools to make better use of School of Air and other online learning resources.

In terms of improving customer service, the New Telstra understands that no matter how many features a new phone or digital service may have, it is the customer experience that will make or break future success.

Since our last meeting, we have seen substantial improvements in our business productivity while, at the same time, achieving dramatically improved service levels.

In fact, our service levels are some of the best they have ever been.

The New Telstra is getting there on time – our reschedules are down 40 to 50 per cent.

We are getting it right the first time -

• Our re-visits are down 15%.
• The New Telstra is reducing the need for a technician to physically attend a customer premise to fix a fault - 7% more residential faults are now cleared without a truck leaving Telstra.
• We are reducing the response time to those reporting a problem $-9$ per cent more $\bullet$ fault calls are now answered within 20 seconds.
• The New Telstra is improving technician productivity which is up 15 per cent.
• We are reducing labour costs overtime hours are down 62%.
• The New Telstra is reducing its Government penalty liability the costs of the Customer Service Guarantee payments are down 25%.
• We are reducing the time it takes to get a service for example unsatisfied ADSL $\bullet$ orders are down 74%.

In addition to the 1-touch vision, we now aspire to 1-call, 1-order, 1-appointment to increase customer satisfaction - and we are making progress.

For example, customers now can have both fixed phone lines and ADSL Telstra services from their old premises connected simultaneously at their new premises - with only one call to Telstra. This cuts our combined new PSTN/ADSL BigPond service delivery timeframe by three working days!

For Telstra, the benefits are improved customer satisfaction, lowered churn, increased revenue and decreased costs.

In addition, we have:

• Reduced our workforce by around 5,000 full-time equivalents since July of last year $\bullet$ - at the same time as we have improved our service and workforce training.
• Achieved capital expenditure savings of ~\$500m in FY06 and
• Achieved additional savings by exiting 36 office sites in Melbourne and other $\bullet$ locations around the country.

As I said earlier, we are turning the corner and this will be reflected in our financials in the coming year.

In the second half of fiscal year 2007 we will move to earnings growth and we expect to continue this improvement, and increase market leadership as we compete harder and win.

This is a significant transformation that your company is undertaking and we are just over one year into it. The transformation has required increased capital and operating expenditures to roll out new networks and implement our planned system and operational changes, resulting in significant reductions to our earnings and cash flow.

We are expecting fiscal year 2007 to be the year of the largest transformation spending for operating and capital expenditure. As a result, we expect our first half EBIT to fall by 17 to 20 per cent.

However, we expect EBIT to grow in the second half in the range of 37 to 40 per cent.

Provided there are no further material adverse regulatory outcomes and we continue to be successful in implementing our transformation strategy, we expect our free cash flow to improve in fiscal 2008 compared with fiscal 2007.

On the T3 roadshow that we have just completed, institutional investors have shown enormous interest in the transformation we are undertaking in this company. I believe that this is having a positive impact on the T3 sale process.

WHERE WE ARE GOING:

So, where are we going? We are one year into the five year transformation plan. As you have heard we have achieved a lot in that year.

We are sticking to our 15 November 2005 Strategy. We are creating a company based on fast, scalable, industrial-strength platforms with world-class partners.

We are providing high value services with extraordinary reliability and low unit costs to increase the value of this company. The management team is proud of the performance of our people who are more productive and who have embraced the change to serve our customers better and to compete harder.

Only Telstra has a Plan for Australia. Only Telstra is delivering high-speed services across Australia, at a reasonable price so that this nation's families, communities and businesses can connect with each other and the outside world on networks that are simple, fast and everywhere, allowing everyone to benefit from and take advantage of the global information economy.

In short, we have a transformation plan for our company that we are confident is going to be as good for you, our shareholders, as it is for our customers and the nation.

In closing, let me reiterate, in order to deliver share price performance, we must:

• take market share:
• take costs out where they don't add value; and
• accelerate revenue growth to replace the declining portions of our business which requires innovation.

We must improve margins, earnings and cash flow which as I said before drive valuations of the business which ultimately drive share price performance.

We are rebuilding your company brick by brick, step by step, so you can get the total returns over time that you deserve.

This team has you at the centre of our priorities and is literally working 7 days a week, 24 hours a day to make it happen - it is happening as shown by our significant acceleration of earnings growth second half of this year. But it is only the beginning.

Australia's Telstra will be the leader delivering services to all Australians like no other anywhere in the country or even in the world.

Thank you for time, your patience and your interest......and support.

TELSTRA ANNUAL GENERAL MEETING 2006

MR CHARLES MACEK, CHAIRMAN - REMUNERATION COMMITTEE REMUNERATION REPORT

Introduction

Ladies and gentlemen, mu name is Charles Macek and I am Chairman of the Board's Remuneration Committee. I am presenting the Remuneration Report prepared in accordance with the Corporations Act for the Telstra Group for the financial year ended 30 June 2006.

Each year, as required by the Act, we prepare a remuneration report describing the remuneration of the directors and our most senior executives and ask you, as our shareholders, to consider and adopt the report.

Under the legislation, the vote on this item is advisory only and does not bind Telstra or the directors. However, we take the outcome of the vote very seriously and it will be given serious consideration when reviewing our remuneration practices and policies each year.

The Remuneration Committee is responsible for reviewing and recommending to the Board the remuneration policy, strategy and structure for Telstra's Board, the CEO and senior executives.

We understand that when shareholders see the significant salary packages of senior executives they expect them to be justified, both by sound underlying policy and by matching executive performance. After all, it is your money we are spending and you have the right to expect transparency and accountability - particularly when the company's profit and share price have declined.

That is why, in carrying out its functions, the Committee seeks external expert advice independent of management.

It is also why we prepare the very detailed Remuneration Report you can find in your Annual Review and Annual Report.

I recognise that such detailed disclosure creates complex reading, so I will take you through the main features of the Remuneration Report as they relate to:

• senior executive remuneration generally; $\Delta \sim 10^4$
• the CEO, Sol Trujillo, specifically; and
• Telstra's non-executive directors.

In doing so, I will give you the facts and at the same time I hope dispel a few myths and misunderstandings.

Senior Executive Remuneration

For some years our senior executives' and CEO's remuneration has been made up of three complementary elements aligning reward to the achievement of short and long term business objectives:

• fixed remuneration that is, cash based salary;
• a Short Term Incentive (STI) cash payment which is "at risk" and delivers reward on achievement of pre-determined annual business objectives and individual targets; and

a Long Term Incentive (LTI) which is also "at risk". It is delivered as performance rights which can be converted into shares, but only if the company meets certain long-term objectives.

Between the short-term and long term incentives, the majority of the remuneration of our top people is at risk. Some 70 per cent of the CEO's package is at risk, while for our Group Managing Directors the percentage at risk ranges from 62 to 67 per cent.

Last year, new Short Term and Long Term Incentive performance measures were introduced that link CEO and senior executive incentives to the delivery of important elements of the new business strategy, and link the successful delivery of the transformation to shareholder wealth creation in the longer term.

Over the next four years, the remuneration strategy will be based on rigorous performance measures set bu the board that are stapled to delivering specific transformation goals as well as on other traditional business measures, because we need not only to drive change, but to drive it quickly.

The specific objectives and weighting of the short term and the long term performance measures will be updated from one year to the next. They will also be tailored to recognize the differing time horizons of the various members of the executive team, some of whom have joined the company to deliver specific short-term outcomes, while others are contemplating longer term careers with the company.

If you look at Figure 2 of the Remuneration Report, on the screen behind me, you can see an indication of how the emphasis on transformation measures will diminish progressively as milestones are achieved.

Over time the incentive measures will shift from an initial emphasis on transformation measures towards operational measures for the STI, and growth and return measures for the LTI.

This year the Short Term Incentive was determined by corporate performance against targets relating to Earnings Before Interest Tax Depreciation and Amortisation, cost reduction, the rollout of our new Next G^TM mobile network and increased broadband market share, as well as individual accountabilities.

Take two examples of STI measures this year. A key short term transformation measure was the rollout of the Next G^TM network. The incentive for this element was almost paid in full. Another short term measure was to increase retail broadband market share from 41 per cent to 47 per cent. The actual market share achieved was 44 per cent so a much lower proportion of the incentive was paid.

A number of shareholders have expressed concern that a healthy short term incentive has been paid for a year when our profit and share price declined. That reaction is understandable. The key is having a clarity of understanding that the basis of the payment of this incentive was delivering on the key platform of the transformation strategy and that the transformation strategy is based on delivering long-term sustainable value.

When Sol launched the transformation strategy last November, he announced plans to transform the company that would take three to five years. And our plan was widely recognised as very ambitious. There was a marked scepticism about our ability to deliver.

Contrary to many people's expectations, our transformation is - as the Chairman has told you on track, on budget and ahead of our delivery schedule. The Next G™ network has been built in record time.

The board and management are committed to fixing Telstra so that shareholders can grow value, not just next quarter or next year but on into the future. We believe it is important to reward executives for creating long-term sustainable value for shareholders.

The Short Term incentive is delivered in cash which is a common approach in corporate Australia and, contrary to some media reports, has been our practice every year except fiscal 2005. We reverted to our pre-2005 practice because with Long Term Incentives already totally equitybased, it was unbalanced to also deliver a substantial proportion of Short Term Incentives in equity form.

Key personnel were also allocated performance rights under the Long Term Incentive plan for fiscal 2006, the allocation being calculated as a percentage of their fixed remuneration and based on the five day Volume Weighted Average Share price after our annual results. For last year that was \$4.78 and for this year it will be \$3.67.

These performance rights can only be converted into shares - and therefore will only deliver any value to the executive - if the company over a three to five year period achieves performance targets relating to revenue, operating expense, our IT and network transformations, as well as return on investment and total shareholder return.

This approach ensures that any rewards delivered from the LTI plan are consistent with the successful execution of transformation initiatives over a number of years which, in turn, should drive sustainable increases in shareholder wealth. So if they do get the shares, it will only be because they have enhanced Telstra's capacity to deliver shareholder returns.

There are no easy targets and if you refer to figure 16 in this year's Remuneration Report it provides an update on the status of the Long Term Incentive plans since 2001. You can see, for example, that performance rights allocated to executives in fiscal 2001 did not meet the performance hurdle and lapsed this year.

I should also add that the values shown for the executives' LTIs in Figure 19 of the Remuneration Report are accounting values only. Accounting standards require us to show the current year amortised value for performance rights issued, even though those performance rights have not vested and may never do so. To reiterate the point, if the performance hurdles are not met then the performance rights don't vest and the executives receive no benefit from the LTI.

A number of proxy adviser organizations, such as the Australian Shareholders Association and CGI Glass Lewis, have recommended voting in support of the Remuneration Report. In doing so they have identified areas for improvement so we thank them for their support and for their constructive feedback.

However, another major proxy organization, ISS, has chosen to recommend voting against the Remuneration Report. As a result of this, you will see when the Chairman shows you the proxies later in the meeting that a substantial number of votes have been cast against it.

As many of you will have seen in the press, one key concern of ISS is that many companies including Telstra - purchase on-market the underluing shares to support executive compensation plans and therefore have not been required to seek shareholder approval for these plans.

Telstra has been purchasing shares on market since introducing an equity-based Long Term Incentive plan in 1999. Indeed Telstra was commended for the practice of purchasing these shares on-market at a time when other companies were criticised for failing to properly recognise the cost of equity based compensation plans supported by the issue of new shares.

The requirements of the ASX have been very clear - share-based incentive plans that involve an issue of new shares are potentially dilutionary for other shareholders and therefore require shareholder approval. Share-based incentive plans that involve on-market purchases of the underlying shares are from a shareholder stand point economically equivalent to cash remuneration and do not require shareholder approval. Telstra's practices have been completely in accordance with these reauirements.

While on the subject of Long Term Incentives, you may have seen in the press an argument that the sale by the Government of its shareholding in Telstra might constitute a change of control that triggers vesting of the CEO and senior executives' long-term incentives. Let me say clearly, that claim is wrong.

Similarly, some papers recently reported that long term incentives of the CEO and senior executives would automatically be triggered if a cornerstone investor buys a stake of more than 15 per cent of Telstra from the Future Fund after May 2007.

This too is wrong. The incentives could not vest without specific prior approval from the board, and this has been the position ever since the long term incentives were introduced in 1999. It's not a new provision introduced in the past year. The board would only consider exercising this discretion in unusual circumstances.

The papers also named a range of foreign companies that might establish a cornerstone holding of 15 or more percent. These reports overlooked the fact that the current Telstra Act prevents a foreign owned company holding more than 5 per cent of Telstra.

I note that the 15 per cent threshold was set in 1999 at a time when the company was majority owned by the Commonwealth and it appeared a very remote possibility that an investor could acquire such a holding. In light of the imminent full privatisation of the company, the Board Remuneration Committee will reconsider this threshold when it reviews the LongTerm Incentive plan for fiscal 2007.

CEO.

Sol's salary package has been the subject of significant interest and reportage, including some to the effect that his remuneration had not been adequately disclosed or explained.

The facts are these.

When we announced Sol's appointment back on 9 June 2005, his remuneration package was noted in our media release. His full contract was also lodged with the Australian Stock Exchange that day, and has been publicly available on Telstra's corporate website ever since.

His potential remuneration was described extensively in the Directors' Report lodged with our annual results in August 2005, and in our 2005 Annual Review and Annual Report issued in September. At our AGM last year I devoted part of my speech to explaining Sol's remuneration just as I am this year.

This year his remuneration was again described extensively in our August annual results lodgements, and in the 2006 Annual Review and Annual Report.

From the moment of his appointment, his remuneration has been the subject of media interest.

We expect scrutiny, But criticism that we have not provided enough information about his remuneration is simply not true... I'm not aware of any chief executive officer in this country whose remuneration has been more widely and repeatedly published and analysed than Sol's.

For the record, Sol was engaged on a remuneration package of up to \$10 million annually comprisina:

• fixed remuneration of \$3 million, together with;
• up to \$3 million under the Short Term Incentive plan. As disclosed last uear, half of this was quaranteed for delivery of the transformation strategy, with the balance paid at 72 per cent of his potential maximum for achievement against operational and transformation measures during fiscal 2006; and
• up to \$4 million for achieving maximum performance milestones under the Long Term $\sim$ Incentive plan, as determined by the Board. Payment of this part of Sol's package will require significant multi-year performance by the company.

Given the recent publicity, it is worth noting that the \$8.7 million remuneration beside Sol's name in this uear's remuneration report includes several one-offs totalling \$2.3 million - primarily a \$1 million sign-on fee and approximately \$1.3 million tax equalization payments which is no longer required due to legislative change. Both these payments have been fully disclosed.

None of which is to suggest that Sol is not well remunerated... although you will be well aware there are other Australian CEOs who earn as much or more - in some cases much more.

We will continue to pay what is required to attract and retain an executive of this calibre. And I think the benefits of that decision are apparent not only in our transformation strategy but more importantly - in our achievements delivering against it.

Non-executive Directors

All non-executive directors - that is all directors other than the CEO - receive a "total package" of fees. They are required to take a minimum of 20 per cent of fees in the form of Telstra shares. This alians their interests with the interests of our shareholders. The shares are purchased onmarket, allocated at market price and held in trust for five years - unable to be dealt with unless the director ceases to be a director.

The total fee pool divided among all non-executive directors, including the value of any shares allocated, is \$2 million.

The level of fees paid out of that pool is set in light of independent expert advice. In the past year, less than \$1.4 million of the fee pool was provided as remuneration to our non-executive directors, reflecting the reduced size of the board for much of the year.

Conclusion

I hope I have managed to shed some light on what is, unavoidably, a complex topic, and shown how the interests of both our senior executives and directors are aligned with those of you - our shareholders.

I close by assuring you that we will be taking into consideration the outcome of this vote and other feedback from shareholders when reviewing our remuneration policy. As a Board, we take our shareholders' views on these matters very seriously.

Thank you.