TELSTRA GROUP LIMITED — Call Transcript 2005

Nov 14, 2005

15 November 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

Transcript of presentation by Chief of BigPond at the Telstra Investor Day

In accordance with the listing rules, I attach a copy of the transcript of the presentation by Justin Milne, Chief of BigPond at today's Telstra Investor Day, for release to the market.

Yours sincerely

North brake

Douglas Gration Company Secretary

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

JUSTIN MILNE: I'm sure that we would all agree here today that the advent of the internet has really changed us forever. The changes, in my view, have only just begun. Vint Cerf, who is generally accredited as being one of the founders of the net, said that 90 per cent of what we'll do on the internet hasn't been invented yet. For the next generation, the so-called 'millenials', the kids of today, connectivity and multitasking are normal. These quys are happy to listen to music, to text their mates, to surf the net, to play games and do their homework all at the same time. For them, the absence of technology is a deprivation, and the presence of it, in large lumps, is normal and pleasurable.

Now, Australia embraced the internet, along with the rest of the world, about 10 years ago. But our move to broadband was a bit slower than most for a variety of largely regulatory reasons. Our charge to ubiquitous broadband connectivity really started on 28 February 2004, a date I remember very well, which was when we launched our \$29.95 broadband dial up prices. Affordable entry level broadband ignited the market and today the heat continues to build as more and more customers are coming to broadband. Despite this current rush, Australia is still today lagging behind Europe and North America, where penetration rates are significantly higher and in advance of us. We've got a lot of growing to do, but we think we can, by differentiating ourselves through better, and a greater range of value added services, which I'll talk about shortly.

Getting Australia connected to broadband is something that Telstra takes extremely seriously. Only Telstra provides DSL, cable, satellite, ISDN, Wi-Fi and wireless broadband, to ensure that every Australian who wants to connect, can connect to the net. Only Australia maintains a telecommunications network that reaches every corner of our country and offers broadband in some shape or form to every Australian who wants it.

A connected Australia will be productive and communicative and able to take its place in the A poorly connected Australia will lag its world. global competitors and won't provide our young people with the skills and opportunities that they must have. It's really a birthright of our children and it's Telstra, not our competitors, which is doing the really hard work to provide connectivity to everyone.

Telstra BigPond is pretty well placed in the broadband market and I believe our position will just strengthen from here on. Today we're more than twice as big as our nearest competitor and we're generally increasing our market share in this extraordinarily competitive market. Todav we've got about 2.2 million services in operation, as we call them. That's about 1.1 million broadband and 1.1 million dial up customers. With approximately 2.2 users per service, if you do the simple arithmetic, it gives you nearly 5 million Australians today who rely on BigPond for mail and connectivity. They like our brand, they like our content and services today, but, moving forward, we'll use seqmentation and a tight integration with other Telstra products to further strengthen our position in the market. We believe that a market share of 55 to 60 per cent is achievable if we get our marketing, services and unique differentiators all right.

Market share of this order is extremely important for Telstra. In future years, access revenues from broadband may well decline slightly, but we'll be selling our customers a large variety of services delivered via our consumer broadband networks. These services will add significantly to our average revenue per user in the future years. Our relationship with customers starts with access, to which we add voice, broadband, mobiles, pay TV and then a variety of other value added services delivered via our IP networks. Today our value added services businesses are

really start up businesses, they've got low penetration of our in-store base. But they're interesting because BigPond movies, for example, today generates around \$27 of ARPU, BigPond music is at \$17 of ARPU per month and climbing rapidly. Increasing market share and increasing use of these services is very, very important to us.

Of course to produce a really good business, you need market share, you need great revenues, but you also need tight control over costs. In the last 18 months at BigPond we've rebuilt BigPond, rebuilt our core. New systems, new billing, new network elements, and they're taking big licks of costs out of the business. The good news for us is that time is on our side when it comes to costs, because there is a world-wide rush to broadband and this provides scale to the manufacturers, who, in turn, can provide those cost savings back to us. Greg Winn will have quite a bit more detail on costs savings when he talks about the things that we're doing in the factory.

In the world we're heading to, networks, devices and services will all converge and no-one will be in a better position to make sense of this for customers than Telstra BigPond. From now on, Telstra will increasingly provide a set of services which are available from a variety of different platforms - 3G phones, 3G handhelds, wirelessly connected laptops, and of course PCs. This kind of cross platform integration, at least, is especially relevant to SMEs who often have mobile workforces. For example, think about blogging. Blogging, or web logging, meaning creating a personal website, is a phenomenon which seems to be sweeping the globe at the moment. From early next year, BigPond will offer free blogging for all of our customers, with a whole blogging community built around this. But there is one big difference between our blogs and others - our users will be able to use their Telstra mobile phone to take a movie or a still. and then MMS it straight to their blog. So you

see something interesting, walking along the street, you shoot it with one button on your mobile that you click, and you've published it to the internet. Then, if you feel like it, you can broadcast an SMS or an email to your particular tribe and say, "Go and check out my blog and you'll see what I just saw."

Increasingly, the applications and services we sell will live in the network. For example, all those digital stills we've been shooting for the last few years are at terrible risk of a hard disk crash whilesoever they reside on our PCs, or they were, at least, until BigPond launched its on-line storage product just a couple of months This allows you to store your photos, aqo. movies, any files you like on our big, safe computers, which are backed up and housed in earthquake-proof buildings. SMEs can use this service to automatically back up important files, and the data can be available, of course, to those with the right permissions, from any computer anywhere in the world. The files are in the network and getting them there is just a simple drag and drop.

Selling packages of segment-targeted services, such as these, is where the future lies for us. Not only do we generate more revenue, but these kinds of applications keep our customers sticky, especially when multiple services work across multiple networks to combine and provide a Telstra only experience for our customer. David Thodey and I are working very closely together to ensure that we provide truly compelling packages to high value SME customers.

A friend of mine described their Saturday morning to me recently. He was house hunting with his wife, which, as you'll all know, is a pretty normal occupation for many Sydneysiders. But he had his laptop with him and his mobile phone. His laptop was connected, via BigPond wireless broadband, and his wife had it on her lap as they drove around from suburb to suburb. She was

using it to search for houses from "Just Listed" from Sensis, to find out how to get there by using "Where Is?", to check the websites and do the virtual tours before even getting out of the car, and even to check on recent sale prices in the same street. She was using a Telstra mobile to call real estate agents, Sensis search and publications for information and BigPond wireless broadband for connectivity. It needs to be said that we are deeply committed to wireless broadband. We think it will be just as important to the internet as mobile phones have been to fixed line telephones. Can you imagine, for example, an Australia with a 100MG wireless network, a broadband network, a wireless network covering 80 per cent of Australia? Well, we can, and Greg Winn will talk to you more about that soon. In that world we'll use computers and handhelds and phones in ways that we just can't even think of today. Telstra will lead Australia to an extremely exciting wireless broadband future.

In that high speed wireless world we might, for example, travel to work on a bus or a ferry whilst watching or downloading movies onto a handheld or a laptop. Now, of course, you'd need a movie download service to do that, and I'm very pleased today to announce that in March next year we'll launch our new BigPond Movies download service. We'll launch movie downloads in partnership with Sony Pictures, who will supply us with current video shop released movies for download to PCs and laptops, plus a very significant library of catalogue films from Columbia, Tristar, Screen Gems, Sony, Sony Classics, MGM and UA films, all distributed in Australia by Sony Pictures Australia. Users will simply go to BigPond movies, select their title and then they'll decide whether to have it delivered via DVD in the post, as they do today at BigPond Movies, or just to download it right on the spot. It's a virtual video store in every sense, except that you don't have to leave home. There are no late fees and the gratification is

almost instant. On our current cable network the movie will start to play in seconds and be completely downloaded in less than 10 minutes.

Of course, as our networks get faster, the movie download service will become pretty well on demand, pretty well instant. But our entertainment services, as you many of you would know, don't just stop with movie downloads. We've got a large variety of content that we're offering today and going forward, and so I'd just like to show you now a brief video of some of the things that we're doing.

(Video played)

So, finally, let's think about the digital home. Over the next few years we expect to see the majority of Australian homes connected to broadband and the majority of those will be connected to BigPond. Homes are already developing some discrete technology zones. For example, there is the home office, where the computers are used for office functions. Here, a fixed IP address might be important, along with website building tools, security applications, and perhaps some transaction capability. Then there is the family entertainment zone. That's a computer optimised for multimedia, games, movies downloads, web surfing, etcetera. It will need a security package, possibly some content filtering, probably multiple blogs for the kids, and movie subscriptions, games and BigPond music. There might even be a voice over IP phone plugged into that area so that the kids can call their mates cheaply.

Then there is the kitchen. That's where everyone hangs out and eats and conducts their family politics, does homework, etcetera. We think the kitchen phone will become a new and very different device, combining many of Telstra's capabilities to improve family life. This new broadband phone will do phone calls, of course, but it will also do SMS and MMS. It will have an address book which will be kept in the network. That will be available to all the computers in the house. It will make video calls to other similar phones and to 3G mobiles, plus it will provide one touch access to email, to web, Sensis, Sensis directories, and a variety of information such as Where Is, City Search, etcetera. It may also allow you to, for example, make a shopping list, so that when it's time to do the on-line shopping, you just hit one button and send to the supermarket. Now, that's a different Telstra from the one we know today.

So let me conclude and say that there is no doubt that more and more of our lives will be lived in the network. That's great news for Telstra as we build our BigPond broadband business to become a new Australian icon. Through market-based management we will vigorously pursue a market share of 55 to 60 per cent. We'll produce a continuous flow of unique and exciting value added services which will delight customers with their high integration across Telstra platforms. Our scale will provide us with cost reductions and efficiencies far in excess of those achievable by our competitors. Market share, great products, lower costs will make BigPond a cornerstone of the new Telstra. Thank you.

Justin, thank you very much. SOL TRUJILLO: Just a quick question for you. It looks like a great story. Obviously we, as a company, are going to make a big bet in terms of broadband. In one sentence or two, tell me how you think about to describe the differentiation between BigPond and all the other competitors. I'll call them "all the rest".

JUSTIN MILNE: Well, Sol, I think that in the world that we're heading towards, access to the internet will become table stakes. Lots of The people will have access to the internet. difference between us and our competitors is that we'll simply have a wider range of services, but, most importantly, those services will be

integrated. You know, I envisage a world, fairly soon, where we'll provide you with a bucket of services and you'll access those services via mobile phones, via handhelds, via wirelessly connected PCs, via a cable connected PC at home, but you'll buy a bucket of services from Telstra and then we will take care of the work that integrates those across multiple devices so that you can use them in multiple ways as you live your life.

SOL TRUJILLO: All right, Justin, thank you.

As you can see, the integration is happening today between BigPond, our mobiles business, other parts of the business because the silos are going away, because everything that you heard Justin talk about is about the customer. You're now going to now hear from David Moffat, who has the opportunity to deal with all of our consumer and small business customers. He's going to take that story just a step further. David.