TELSTRA GROUP LIMITED — Call Transcript 2006

Jun 29, 2006

29 June 2006

The Manager

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

Office of the Company Secretary

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ELECTRONIC LODGEMENT

Dear Sir or Madam

Transcript of Telstra's Chief Executive Officers address to the National Press Club in Canberra

Attached for release to the market is the transcript of a speech by Telstra CEO Sol Trujillo to the National Press Club in Canberra today.

Investors should note that references made in the transcript by the CEO to payment, funding and borrowings for future dividends related specifically to special dividends which Telstra announced on 15 November 2005 that it would cease to pau in 2006/07 and would instead direct those funds to our transformation program.

No decision with respect to the payment or funding of future ordinary dividends has been made. The Board will make these decisions in the normal cycle having regard to, among other factors, the company's earnings and cash flow, as well as regulatory decisions.

Yours sincerely

North brake

Douglas Gration Company Secretary

		Principal Sponsor National Australia Bank	Date: 29.06.06 Page: 1
	Transcript
Event:	NATIONAL PRESS CLUB	Date:	29.06.2006
		Time:	12:30 PM
Item:	"ADDRESS TO THE NATIONAL PRESS CLUB OF AUSTRALIA"
	SPEAKER: SOL TRUJILLO, CHIEF EXECUTIVE OFFICER - TELSTRA CORPORATION

Female Speaker: Today at the National Press Club, the Chief Executive of Telstra, Sol Trujillo. With the telecommunications giant brawling with the government over regulation and at the same time being readied for sale, the company faces an uncertain end to the year. Live from the National Press Club in Canberra, Telstra CEO, Sol Trujillo.

Male Speaker: Ladies and gentlemen, good afternoon. Welcome to the National Press Club and today's National Australia Bank address from Sol Trujillo, Chief Executive Officer of Telstra. Sol Trujillo has just completed his first year in this job - in my view, one of the most demanding and the most scrutinised and most discussed jobs in the whole of the Australian corporate sector. It's been an eventful year for him and for many of us too, and there's much more to come with the constant rapid changes in technology and the development of new regulatory regimes that cover the whole of the telecommunications and media sector.

Telstra, of course, is a central player in this area of converging technology and it now affects our lives in ways that many of us couldn't have even imagined relatively few years ago. So that's a main reason to welcome Sol here today, but there are others in the case of the National Press Club. Telstra was our first principal sponsor and filled that role for 12 years and remain one of our major supporters, especially through a program of special interest to rural and regional Australia

NATIONAL PRESS CLUB 16 National Circuit Barton ACT 2600 Tel: 02 6121 21994 Fax: 02 6121 2188

which we'll be able to tell you more about in the very near future. We've also enjoyed regular briefings in previous years from Sol Trujillo's predecessors, first Frank Blount, a fellow American, and then Dr Ziggy Switkowski. So for a whole variety of reasons we're very pleased to see him here today and I hope you'll all join me in welcoming Sol Trujillo.

Solomon D Trujillo: Thank you, Ken. It truly is a pleasure to be here and I want to thank Morris for introducing some of my mates - sorry, my amigos - Bruce and John and Phil and some of the others that are here, Senator Minchin, Senator Conroy, distinguished guests and members of the media. I'm here and we have a chance to talk today, and to talk about one of the most important companies in Australia and that is this company called Telstra. So I really do appreciate the invite, to be able to come, share a little bit about this company. Unfortunately, we don't have three days this afternoon here, so I will get on with this notion of this company called Telstra and the transformation that we're undertaking today.

As Ken mentioned, I came here in July of 2005 because I believed Telstra offered a unique opportunity to become the world's best media comms company. I also came here to help the board transform Telstra into what I call a world-class company. Early on I said that our leadership team would be driven essentially by two guiding principles. The first one is about customers: putting them clearly at the centre of everything that we do within the company. The second principal is associated with our shareholders, and that is about creating shareholder value. Stopping the things that don't create value or destroy value and only focusing on those things that really do.

A year on I still hold to that vision for Telstra, and everything that we are doing is driven by those principles. Customers and shareholders, and that's what we're about.

But to get there we at Telstra have to change – as it has many times in the past – from the old PMG, to Telecom Australia, to what we now know as Telstra.

Telstra is changing again. Why? Clearly technology is changing. Consumer preferences are changing and the competitive environment is always changing.

We are one year into a fundamental transformation so I like to talk about the fact that if you put a sign up in front of Telstra today you'd see a sign that says 'under construction', because a new Telstra is emerging. Telstra is no longer a government agency. Telstra is not community property. Telstra is no longer just a telephone company.

Telstra is a communications company that is preparing to combine high-speed transport with digital content to meet the changing needs of our business and consumer customers – no matter where they live here in Australia.

Telstra is becoming a new kind of company – what I like to refer to as a media communications company. This notion of convergence is real and it is happening. I'm here today to tell you about the progress we have made over the past year.

In the first few months as Telstra CEO, I undertook probably the most comprehensive review of that company that has happened. Here is what I found:

• First, an organisation hamstrung by silos, driven by products and technologies and not customer needs.
• Second, our leaders in the business who are managing to try to appease and please the regulatory processes that exist here in this country, rather than the customer.
• Third, an urgent need for investment in new networks to make sure Australians receive the full benefits of the digital revolution.
• Fourth, duplication everywhere in infrastructure, IT, billing systems. Too many products; too many vendors; no integration. The result look like a poorly planned home extension where the doorways don't quite meet.
• Finally and most disturbingly I found 1.6 million mums and dads who had invested in Telstra and had seen their share value fall from \$7.40 in 1999 to \$5.00 when I arrived last year and had a stock that was being propped up also by some special dividends in which we had to borrow to pay.

The old Telstra we found a year ago was a company with also:

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• Sharply declining revenues from our fixed line business. Our phone business was bleeding from the core.
• Flat retail revenues with costs increasing around 10 per cent a year.
• A company known by the market, again, to be borrowing money to pay dividends and again a share price underpinned by the dividend policies.

To address these findings I announced a strategy to transform and revitalize Telstra from what I call a $20^th$ century telephone company in decline, to a $21^st$ century digital communications powerhouse providing truly integrated services.

The New Telstra would have all the hallmarks of a modern, new economy enterprise. A company that we could describe as employers and our customers would feel is:

• Fast
• Flexible
• Focussed
• Customised
• Networked, and
• Global.

We are now on a mission to build that New Telstra.

The New Telstra is again about the customer - giving customers the products and services THEY say THEY need, not the products WE want THEM to buy.

The new Telstra is modernising its networks, bringing Australia into the 21st century with highspeed platforms and digital content.

The New Telstra is taking out costs and reducing complexity in our business.

The New Telstra will be tough on competitors. We will take market share, and I have no apologies for saying that.

The New Telstra is innovating in every function at every level of the company.

Let me give an example. Because of the scale and the speed that we're building the New Telstra, we gave early attention to obviously the composition of the management team.

We have quadrupled the number of women on the CEO's senior leadership team. We've expanded our talent base to include tried and tested global talent, including experienced managers I have recruited from Europe, North America and Australasia. A couple of those leaders that I have recruited are sitting here today. Bruce Aykurst and Jon Stanhope, who come from this country and are part of the team here leading this business. Now, the people are working together with the best that we can find here in this country and working with suppliers and other providers around the world so that we can deliver those services, those capabilities, the customer experience, on time and under budget. We are doing that,

There's been progress everywhere in the transformation of Telstra. For example, if you heard me talk when I first came I talked about this notion of Market Based Management. The new Telstra now does, in fact, put the customer first using modern market research to determine customer segments and differentiate Telstra from its competitors. For example, Telstra's new subscriptionbased pricing plans released last week which include untimed STD calls and local call charges in one single price. We're simplifying, reducing complexity, because that's what our customers have told us.

Well over half of the national high-speed next generation wireless broadband network is already being built. Let me tell you, when we get to that point of this 3G 850 network, which I said we would do and have built by the 1st of 2007, when it is in place it will reach 98% of all Australians. Not just five cities, not just limited bills, because we at Telstra are extending and expanding to serve virtually all Australia. But when it's complete the 3G network will deliver peak speeds of 3.6 Mbps, migrating to 14 Mbps by mid-year 2007, giving Australians again everywhere - both urban and rural - high-speed wireless access to the network. Nothing to do with regulation; nothing to

do with anything other than Telstra shareholders deciding to invest in a competitive context to earn returns in a competitive market. This new 3G network will be second to none in the world. Those of us here in Australia will be able to go anywhere in the world and say and experience the fact that we will have the best. This will be the most advanced network, not only because of the speed, not only because of the reach, not only because of the quality, but because of some of the services and capabilities we will deliver associated with it.

So for those that have been concerned about; is there disparate treatment in investment in Australia between the cities and the rural parts of the country? There's one company - only one that's stepping up to invest in all of Australia.

The deployment of our new IP core equipment is also advancing on schedule. This is critical because the IP core - when we talk about IP, the Internet Protocol - is at the heart of the integrated network and will greatly reduce for us the cost of installing new applications. But it won't only reduce cost, it's going to enable us to do more and to do more quicker, faster and across all the parts of the country that we operate in.

So we're focused on that. But that's not all. Beyond that we're taking a 'One Factory' approach in terms of how we're running this business called Telstra. This 'One Factory' model is allowing us to eliminate 80 per cent of Telstra's 1,252 business and operating information technology systems over five years, and basically upgrading those that remain. Now, think about that - 1,250 operating systems that have evolved over the last 20, 30, 50 years in this business, and the complexity that's associated with that. That shows up in terms of how we deal with our customers. Well, we're upgrading them, we're eliminating them and reducing the complexity.

We are building partnerships with vendors. We have decided on a strategy where we're going to focus on strategic partners. Not 1,000 partners but a few, because we're about speed, we're about efficiency and we're about cost. Fewer vendors, Vendors with strong track records, such as Alcatel and Ericsson that supply the world's leading telcos. In the case of Ericsson obviously they're our primary supplier in helping us build out this network that we're building that we're building in the fastest time you will find anywhere on the planet - anywhere - and I've been around the planet. The case of Alcatel - they have now been selected by the five largest telcos in the world to

do the same thing that we are doing, because they are world-class in terms of what they do. Vendors with commercial off-the-shelf packages is a focus for us because we're going to reduce costs. We're choosing vendors with speed and decisiveness while acting in full compliance with corporate procurement policies. In just six months we have saved \$70 million in our procurement of mobile handsets through a strategic agreement with this company called Brightstar - in just six months. Speed does pay.

We have exited more than 25 buildings, cutting the size of our property portfolio, saying more than \$14 million annually and totals nearly 45,000 sq metres - more than seven international-sized football pitches. And there's more to come because we are just starting.

We have achieved big reductions in customer service waiting time. For example, by 62 per cent in fixed broadband - as we call it here, ADSL - and by 20 per cent in fixed line phone services. We have reduced fault detection times by up to 25 percent - while we're taking costs out of this business. We're achieving service delivery innovations that cater to the needs of our customers by also providing online billing. In fact, we now have more than 750,000 online billing customers scheduling payments, managing the status of their accounts in ways not possible 12 months ago. And now we're considering more flexible and customer-friendly service calls by visiting customers - guess what? - when they want to be served. Sometimes it's in the evenings, sometimes it's on weekends, because we are organising ourselves around the customer.

We are making progress. We do have momentum. I've got to tell you, I could spend probably another day here listing all that's happening, but Ken won't let me. So we'll move on.

I do want to say one other thing: that I'm not going to give you any numbers beyond those that I have today because I can't. We have disclosure requirements. But all I can say to all of you here: stay tuned for our full-year results that we'll announce on August 10.

Let me focus now on the integrated services that are a key part of our strategy, because it's not just enough to do things better than we've done before. We've got to create a new value proposition as we think about it in the marketplace. That is around this notion of integration. Our plan to integrate services for the consumer was in full view at the Commonwealth Games in

Melbourne this year. Using BigPond, the Games were only 'one click' away on our 3G mobile phones, with eight real-time channels of the games supplied by Channel 9. So on here you had two words. All I had to show you was two words. They say 'Big' and 'Pond' and you press that button right underneath those two words and you could get on and watch the Commonwealth Games. That's how simple, but that's a sign of how we're integrating our business, because the silos no longer exist inside this company.

But Bruce is sitting here and I do have to say this: that you will find our Sensis brands and capabilities. Whether it be Ghost Day, Whereis, whatever it might be, you will find Telstra as an integrated company because that's what our customers are telling us. Make it simple, make it better and make it quick for me in terms of what I want to do. But there's a lot more that we're doing in terms of our business because we are going to integrate every piece that we can, including how we think about Foxtel and our relationship with our business coinvesting with News Corp and PBL. But, again, we don't have enough time today for me to talk about that any more, because I think it's also important to talk about what Telstra's transformation really means for Australia.

Because of Australia's vast distances, small population and difficult terrain, Australia has a lot to gain from the deployment of high-speed broadband services. There is also a flipside - Australia has a lot to lose if high-speed broadband infrastructure doesn't get built. The Australian Government's own broadband advisory group found evidence that nation-wide adoption of nextgeneration networks could deliver economic benefits in the range of \$12 to \$30 billion per year. Where I come from that's not small change - it clearly is not. It's not unique to Australia. It's happening everywhere in the world because this is part of the economic fabric of virtually every country.

Broadband infrastructure directly affects Australia's future in many ways - in education, in health care services, telework, fleet management, many other ways that are still on the drawing boards but we're working on. A recent example of what broadband can do was found in the experience of composer Nigel Westlake, who was able to see and hear the Sydney premiere performance of his Percussion Concerto from London courtesy of BigPond. He wrote to us:

Yes we saw the webcast in full stereo. There were no drop outs or interference of any sort. The sound was also excellent. It was the next best thing to being there. An engaging and exciting experience! I wouldn't have missed it for anything!

Now, if you are in the media comms business, it doesn't get much better than that, to hear that kind of feedback from people who are learning the new way of how we're all going to be conducting our lives.

Finally, broadband gives even small enterprises the ability to do business around the world. For example, a few months back I met with the CEO of an online flower business in Armidale, New South Wales, It's called Petals Network. Petals was founded in 1992. Petals has 21 international websites. Petals also allows buyers to send fresh flowers overnight to more than 70 countries around the world.

Petals Network demonstrates how broadband

• creates new opportunities for people and enterprises in rural and regional Australia,
• expands geographic markets for business,
• helps stem the brain drain, and,
• improves productivity.

It also helps keep families together by eliminating the need to relocate for employment.

Australia is currently riding the crest of a resources boom. A decade of strong economic management has led to growth rates that are the envy of many other developed economies - also with a \$10 billion Commonwealth budget surplus.

Now is the time to set the foundations for future growth, by putting in place the infrastructure required by a dynamic, international, competitive economy. We must fix the roof while the sun's shining, or we will squander the opportunity our geography and resources have given us.

So where does this leave us? Our vision of the New Telstra is about building new infrastructure, about creating new integrated services that make things simple for our customers - including what I like to refer to as that '1 click', '1 button', '1 touch', '1 screen', '1 call' capability.

To achieve Telstra's vision we need to invest in infrastructure. The Telstra network I found when I came to Australia was falling behind the rest of the world. Service problems had been dealt with through patches and work-arounds. Fault rates were high and rising and the network's capabilities were constrained by the widespread use of pair gain systems and other quick fixes often referred to in the industry called 'broadband blockers."

If Australia is to have world-class telecom investment, it truly is needed to rebuild the infrastructure so that we do have a 21^st century standard here.

As part of the solution we are proposing to build out a next generation Fibre -To-The-Node (FTTN) wireline network. This investment is worth more than \$3 billion.

Under our proposal we'd build what we are calling the High-speed Access Network, initially in five big cities here in Australia - Sydney, Melbourne, Brisbane, Adelaide and Perth - with expansion thereafter to other cities and towns. The new High-speed Access Network would initially cover about four million households - more than half of all Australian households. This network would be available at commercial rates to competitors.

Our FTTN proposal in five cities does not mean that we have forgotten the rest of Australia. It's actually just the opposite. And if investors are assured they can earn the competitive returns that they need to justify their investment in building out the FTTN, then over time, we expect to expand the FTTN footprint to additional communities around Australia. But let me be clear. It is all about economics, it is about returns and it is about our shareholders getting competitive returns.

You know, since I've been here I really have found that Australia is what I would call an inventive nation, with a strong economy, truly educated workforce. My belief is that Australia can be a

world leader in any space enabled by this media comms sector - where the payoffs can be huge for a nation whose few people are spread over wide open spaces. To achieve this potential Australia needs to invest, I believe, into this kind of broadband infrastructure - now, not later.

Telstra remains, without question, the only media comms company in Australia with the scale and scope to deliver advanced, modern 21^st century telecom services to all of Australian. However, Telstra shareholders expect a competitive return on their investments. That's why we will not invest in FTTN unless we achieve regulatory settings that will permit Telstra's 1.6 million shareholders to earn a competitive return that they expect and they deserve.

To use an Australianism I have learnt, we're 'fair dinkum' about protecting shareholder interests and investments. Standing up for the shareholder is not rhetoric. It is a principle of leadership and management in the New Telstra that not only management but also the board of Telstra believes in - as it should be, I think, for every publicly-listed company in a free market economy. A pledge not to build out the FTTN unless shareholders can earn a competitive return on their investment.

I want to be clear about something I keep on reading about - that we're bluffing. If there's any belief in the room let me dismiss that belief. This is serious. We're talking about our shareholders' money. It is a board-approved policy that is already guiding all of our capital spending decisions. These positions are not about fighting the government or failing to cooperate with governing authorities. These positions are what I call globally accepted free market principles that are essential to preserve and to advance a healthy, growing enterprise economy that is central to a healthy and prosperous political democracy.

While there is a lot that management can do and is doing on its own to give life to the New Telstra, others have a critical role in shaping the investment climate in which we and others work. We - management - can improve the services we offer, but whether we can provide a new infrastructure that enables our product and service development potential to be fully realised, requires regulatory settings that will encourage shareholder investments in a new high-speed broadband network.

Governments in the US, Germany, Canada, South Korea, Japan, understand the critical link between jobs, growth and broadband deployment - and they're doing something about it.

Now, you've seen in our case, we are building a high-speed broadband wireless network, and it's a decision that management and the board have made because it's not tied to regulation. We know that we go compete in the marketplace and we can go earn competitive returns in the marketplace, but we risk capital. Well, we believe - I believe - Australia does need a proconsumer, pro-jobs, pro-investment climate that encourages and rewards those who are willing to risk shareholders' capital to build the critical broadband infrastructure that will advance Australia's future economic performance.

Unlike our competitors, Telstra stands ready to make these investments if the regulatory settings do not require us to give away our assets owned by our shareholders, and enable a reasonable commercial return.

This is an investment that this country needs. It's an investment that is well and truly in Australia's national interest. We cannot afford to let this opportunity pass because of a mindless continuation of a regulatory regime that has passed its 'use-by' date. Future generations of Australians, I believe, will not thank us if we allow that to happen.

Thank you very much for having me here today.

Male Speaker: Thank you very much, Sol Trujillo. As usual, we have a period of questions for our media members starting with David Humphries.

David Humphries: David Humphries from the Sydney Morning Herald, sir. You've been criticised in the past by some analysts as being overly aggressive with your main shareholder and regulator. With 20/20 hindsight, would you have changed your approach at all?

Solomon D Trujillo: Well, the answer is no, because we are driven, as I said in my speech, by principles and the principles are clear. We will not do things that are value destroying to our shareholders and the regulatory settings and regulatory process to date have been just that. So we

have to stand up, we have to discuss, we have to debate, but we're creating the discussion. It's not just about fighting because, actually, we're engaging in a lot of dialogue because we want to make improvements and we want to make improvements not just for Telstra but for all of the competitive marketplace and also for all Australians.

Mark Riley: Mark Riley from the Seven Network, Mr Trujillo. I was jolted a little bit by your observation that you need to mend the roof while the sun's shining, and my mind went to the 1.6 million mum and dad shareholders you referred who've watched their share price plummet to \$3.65 thereabouts who'd be thinking, 'If this is what happens while the sun's shining, God save us if it ever rains'. But, sir, I think you know that Australia is moving towards a performance-based labour market and your performance in the last year is a share price that's dropped by about 27 per cent while the rest of the market has gone up by 25 per cent. Why should you and your executive team here not accept a 25 per cent performance pay cut on the basis of that abysmal share market performance?

Solomon D Trujillo: Well, I think first of all, it's important to get facts right and understand causes of share price performance. So you start back at 1999 and share price was at \$7.40. Before I got here the price had dropped from 7.40 to \$5.00. So it's important to say: why would that happen? The answer is because there is in part a regulatory climate here that is about destroying value in terms of the company and its assets. Also, since I came, we have done two things which would cause the share price to fall further - but for a purpose. Number one is that we also had a special dividend in place that we had to borrow to pay. I don't know of many private/publicly owned companies that spend their time borrowing to pay dividends. So when you take away that dividend, that special dividend, share price will fall and it did fall. But the most important thing right now is that management and the board made certain decisions to change our prospects for the future. That was about not trying to temporise fixes, not trying to just worry about the next quarter, but to really invest - notice I say 'invest' - in this company for the long term. The board was committed and management is committed to fix Telstra so that shareholders can grow value, not just next quarter or next year but on into the future. So when you do rebuild, you don't do it overnight and you do it with cost. There has been some cost in the short term but I am confident, as long as we're allowed to execute our plan without a lot of intervention and a lot of noise and a lot of offsets, we will create value for our shareholders.

Principal Sponsor

David Crowe: David Crowe from The Financial Review. You've been in talks with the ACCC for months now on the fibre network. What's the obstacle that you've got to clear before you can put out some kind of public document about your plans? What do you think the timeframe is going to be on that and doesn't the delay in issuing this leave you open to suggestions that you're holding the government to random over T3?

Solomon D Trujillo: Well, first of all, in terms of timing, the first part of your questions, obviously we've had a lot of dialogue with the ACCC. Mr Burgess, who's sitting here in the audience, along with some of our staff people have spent a lot of time, had lots of discussions, shared lots of information in terms of the process. We have not reached any kind of resolution at this stage. Some of that is associated with the processes that the ACCC has to go through and has to follow because they have some fiduciary duties of their own. Now, we have articulated our view, our policy, and our policy at Telstra has not changed one iota since last July and August. That is anything we do in terms of building new needs to be shareholder friendly - cannot be shareholder value destroying. So when we talk about new ideas - and I think we're talking about an exciting new idea - that is both shareholder friendly to Telstra but also pro competition, if we can reach resolution, that will be a good thing. If we don't, it'll be sad, it'll be a shame, because we've both invested a lot of time. I would say, you know, if it wasn't both of those I don't think the ACCC would've spent three months. I can't speak for them and I won't speak for them but we both invested a lot because we're talking about very important issues here.

Catherine Murphy: Mr Trujillo, Catherine Murphy from The Age. You've used your speech again today to attack the current regulatory regime in which you operate. Could you tell us what your ideal regulatory regime would be, and do you accept that part of the reason for the current regulatory process is that Telstra has the dominant position in the market and it's beneficial for consumers to have more than one media telcos company? Or don't you accept that that is a reasonable proposition on which to base a regularly regime around?

Solomon D Trujillo: Okay. First of all, I'm a very pro competitive person. I love competing. It's just I like when we get into the ring to compete or on the field to compete, we're competing on equal terms. So that's point number one. Point number two, I think this morning there was some sort of

announcement by I guess the so-called 'gang of nine' that was proudly talking about the fact that they had almost 60 per cent share of broadband. Now, to me, if they have 60 then that must mean we have 40, which means that we're not dominant. Right? Isn't that the way the math works? So I think, you know, the point is that there is a lot of competition that exists today. Actually, there's almost 700 ISPs, there's many different facility-based players here in Australia. The punch line is that we need to get to a regulatory environment where the rules are fair for everybody. And one that Telstra is not the sole risk taker in terms of investing in infrastructure. Because we at Telstra have a very clear policy today and that is we allow access to our copper loop infrastructure, which is where the monopoly used to be, and everybody has equal access to that. Everybody has the same access as Telstra to those copper loops.

Now, if we happen to be better at innovation, if we're willing to risk capital to grow even further and create differentiation, Telstra should not be penalised. They should not be told, the mums and dads that have invested in this company should not be told, You invest your money but we'll share it with those investors in Singapore or those investors in Hong Kong or those investors in London'. I don't think that's right, I don't think that's fair, and that's consistent with the positions that we're taken.

Tony Boyd: Tony Body, Financial Review. Sol, at the strategy day in November last year you said that if you didn't get \$30 access prices for your copper loop from the ACCC then your revenue would suffer by \$1 billion or more and you wouldn't be able to pay your dividends - that's the 28 cents a share dividend. You've said today you're already borrowing to pay the current dividend and I think you're going to keep borrowing for a couple of years. So when you said that were you bluffing, or will you cut the dividend?

Solomon D Trujillo: Well, let's make sure that the facts of what we said in November are correct. What we talked about was in November that we were advocating for a \$30 unbundled local loop because that's what our costs are. You or anybody else or any of us in this room could pretend that they're different, but we write cheques every day, every week, every month, covering the costs of what we do. So we're not into academic conversations here; we're talking about real cash and real people's moneys - meaning our shareholders. What we said in November was 'We want to make sure that unbundled local loops cover our costs so that we're not subsidising Singapore

Telecom, we're not subsidising anybody else'. What we also said was that if the regulator imposed the proposed prices of the staff in terms of de-averaged unbundled local loop prices, that it would affect our cash and our revenue generation to the tune of 800 to \$1 billion per year as they built out and took more share. That is what we said. But not if we didn't get \$30 - it was about what they would impose at that point in time. Just to be technically correct.

Tony Boyd: They have imposed that.

Solomon D Trujillo: They have not yet imposed a de-averaged unbundled local loop price regime that was discussed last December/November/October timeframe - not yet. That's why we're having conversations today because obviously that will dramatically change many things. If they impose that kind of decision it can affect dividend policy, it can affect revenues, it can affect earnings, it can affect a lot of things. So it's an important issue.

James Grubal: Mr Trujillo, it's James Grubal from Reuters. You've previously said that the fixed line revenues are going to be an area where revenue was going to be falling as more people moved to mobile. I'm just wondering if your forecasts for that are on target, or is the takeup of mobile phones in favour of fixed line revenue? Is that going a little bit slower than expected?

Solomon D Trujillo: Well, I mean, there are some phenomenons that have been affecting Telstra, but they're also affected other telcos around the world. One of them is this what we call PSTN revenue stream, which is kind of your old core telco revenue stream that we announced with our mid-year results that had declined 7.6 per dent. That is the most profitable part of our company and it is affected, to a large extent, by lots of competitors that have offerings of calling plans and substitution for services that we provide. The second thing that's affecting our revenue stream is this shift that you referred to of a lot of us are using mobile phones and making calls there instead of on the fixed line network. That is also happening. What we talked about back in November is as management we needed to be more aggressive in terms of fighting, trying to stem some of those losses that we were experiencing in terms of what this PSTN revenue stream. We needed to be more innovative on our pricing. I think you've seen here in the last two or three months we're in market, we're fighting, and we'll announce results on August 10th.

Matt Price: Good day, Mr Trujillo, I'm Matt Price from The Australian. You painted a really rosy picture of Telstra. I thought I was in Xanadu for a while, not the Press Club. I'm a bit confused because about three minutes up the road there's a building often full of politicians and the Liberals don't like you much, the Labor people up there like you even less, the Dems and Family First and the Nationals definitely don't like you and the Independents like you even less than all them. Why do you think that is so? What's your impression after a year here of the political debate? Do you regret not sending one of the very senior management to Senate Estimates recently where everybody cross party regarded it as an act of contempt that you didn't?

Solomon D Trujillo: Well, first of all, the board didn't hire me to run for office, so let me be clear about that. Number two, in terms of how do our customers think about us, all of our brand survey research is only going up. So to me the voters for us are those that buy our services, those that use our services, because they're the poll that counts for me because they drive our earnings, they drive our results. Now, do I regret not showing up at Senate Estimates? My understanding is there's never been a CEO from Telstra that's ever gone go Senate Estimates?

Matt Price: Burgess (inaudible).

Solomon D Trujillo: You were asking about me.

Matt Price: And senior management.

Solomon D Trujillo: In terms of senior management, Mr Stanhope, many other people, Douglas Gracents, senior management, secretary of the board, have appeared there at Senate Estimates. We have experts that go there. There's a myriad of questions that get asked. Now, I'd assume people want answers and they want the people there that can give them the answers. I don't know every detail about the company. I can't know every detail about the company. But you ask me about strategy, you ask me about the major strategic thrust, where we're allocating capital, that sort of thing, that's why I'm here today. I can answer those questions.

Michael Sainsbury: Good day, Sol, you like to talk a lot about your successes and obviously you're had a few. I think even these days you're time at Graviton was left off you CV. You spent two

years there and the company collapsed. Can you tell us what happened there and is there any danger that's going to happen at Telstra?

Solomon D Trujillo: Absolutely. Number one, again getting facts straight, it is on my CV. Because Graviton was a two year period of time in my career where one of the large venture capital firms asked me to go oversee a start up company. It was actually in the year 2000 and in the year 2000 those of you ...

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Solomon D Trujillo: (continuing) ... industry. You know that it was the equivalent of the Great Depression. Trillions of dollars in invested capital for most start ups and existing companies that had started up within the last five or ten years lost significant shareholder value. You can look at Sun, you can look at Cisco, you can look at Microsoft - you can look at virtually every company in that period of time, they lost value. In the case of Graviton, we built a great product, ready to go to market. The problem is in that period of time post Y2K nobody was buying it. So what happened was the board, which included myself, we decided to fold it into another company so that it could continue living on. I moved on because it wasn't worth my time in terms of the opportunities I had, as well as the compensation that I required to be associated with a company of that size. So that's what happened. Not hiding it in any fact - it's on the CV. I think it was an important experience for somebody like me because running big companies sometimes small decisions get massed in terms of their importance. In our case, here at Telstra, we're paying attention to every single decision so that we can leverage the opportunities as best we can.

Chris Hamer: Chris Hamer from SBS Stateline. You say you're looking after every detail. One of the details that some people have been concerned about are some of the strategic alliances that you alluded to in your speech - Alcatel, Ericsson, Brightstar. Particularly there's been some criticism about the alliances with Alcatel, with whom you've had a past association, and Brightstar, that these didn't go through a normal kind of tender process, a transparent process. What's your reply to those sorts of criticisms? Is it a difference between corporate culture here in Australia and the ones you're used to overseas?

Solomon D Trujillo: Well, first of all, the answer is those allegations are completely incorrect. If there was the chairman of the board or any one of our board members standing here today I can assure you they would say that there's full transparency in every major procurement that we've done in this company. So the facts are transparency is alive and well and not only inside the company but outside the company, because we've been more disclosing at Telstra in the last year than in the history of this company, because I want the markets to know, I want our board to know, I want our employees to know.

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Now, in terms of the relationships, I think it's important to get this out because somebody that chose not to pursue facts didn't really understand the relationship that I had with Alcatel. I was on the advisory board. Now, I don't know if any of you are on advisory boards, but in the case of Alcatel we met once a year. We had a nice dinner. It's a bunch of global political leaders, business leaders. We had a nice dinner, we saw a presentation from Alcatel in terms of things that they're doing. They asked for feedback in terms of how's the economy going in the US, in Asia, you know, wherever. What do you think about the technology? What do you think about the direction? We give feedback. You say au revoir and you go. That's what being an advisor is. No fiduciary responsibility, no decision making authority, so you don't affect anything really in terms of that process. To say there was a relationship - okay, there was a relationship. However, the most important thing is people should ask me: is Alcatel the best potential supplier for us, given the strategy that we have? That should be the question that's asked. And the answer is yes.

Now, since we've made that decision, if you go to Deutsche Telekom you'll find that they're using them. If you got to British Telecom, they're using them. If you go to ATNT, they're using them. Go to China Telecom, they're using them. Now, what would that say? Is it a bad decision; good decision? Now, I will say one other thing. Part of what we've been doing is trying to move with speed, because taking two years to tender and end at a decision that you could get to in six months versus two years means a year and a half of benefit that you can derive in the market. This management team, this board of Telstra, is focused on results and that's what we're going to do.

Glen Milne: Glen Milne, sir, from New Limited Sunday publications in The Australian. Pm sure everybody in this room is gratified by the fact that you're fair dinkum. I just wanted to really test

your understanding of that phrase. You say in your speech 'We are not bluffing'. I wonder if you can't get the regulatory regime fixed on your terms whether you would walk away from this job?

Solomon D Trujillo: Well, the board asked me to come here. They recruited me. They asked me to help them pick the right strategy and transform the company. I've committed to the board that I'm here to do that, Now, there's many elements to how we think about transformation of this company. Now, last week I had an interview with Michael Sainsbury. He said, you know, 'How's this political stuff going and how much of your time is taken with doing that?'. I said, I spend very little time on the politics of the regulatory process'. Some of it is process, some of it requires expertise from people like Tony Warren and Phil Burgess and others. But where I spend my time is the big machine. How our go to market strategies are working, the infrastructure choices. How we're changing our processes. How we're going to pick the right technologies. How we're going to change our IT infrastructure. I spend my time doing that. That's 90 per cent of the transformation. Does the transformation get capped and limited to some extent by this fibre to the node issue? Absolutely. But is it the defining element of our transformation strategy? Absolutely not. What does fibre to the node mean? Let me say it again. It limits our ability to provide broadband but, more importantly - and this is the sad part for me - it limits the access to services for all of Australia. I think that would be a tragedy for all of Australia. For a set of policies that are from the past, that do not recognise the changed future, not to enable that future to happen, I think that would be sad. So we're advocating hard, we're being outspoken about it and we're being fair dinkum.

Jason Kutsufis: Mr Trujillo, you talked about nice dinners just before and it takes me back to a very nice dinner I had with your colleague, Mr Burgess, here at the National Press Club, just above where we're standing now. He made the somewhat memorable remark that he wouldn't recommend Telstra shares to his own mother. Now, with the government set to put about six billion Telstra shares on the open market later this year, can you confidently say to the mums and dads of Australia that they buy those shares, that it's a good value for money investment?

Solomon D Trujillo: Well, let me say first of all that I have spent in the last probably month or so ... I've been on three different continents. I've had a conversation with the minister. The minister has said we, the government, are committed to T3. He said, 'Sol, are you committed?' and we

said yes. How do I demonstrate that? I go out and I talk to potential investors, and including some existing shareholders. I've probably had meetings with, I don't know, 25 or 30 in the last month or so, talking about Telstra, talking about the market, talking about the transformation, talking about some of our results that are public and talking about also those issues that they want me to address in person as the CEO of the business. Do I recommend the shares? That is not my duty, that is not my job and I legally can't do that. But do I talk about the prospects? Yes. Do I talk about the prospects in a full disclosure way? Yes. Which means I talk about the upside of the business and I also talk about the downside of the business, because that's my duty and I will always do that. I have been doing that because I'm proud of this company that I work for and I'm proud that it is Australia's biggest, best and most innovative company as we transform this business.

Steve Lewis: Mr Trujillo, Steve Lewis from The Australian. I also want to reflect on that memorable dinner. I was there as well. I want to argue that Mr Burgess's comments and the comments that have been made by yourself and your management team over the past 12 months has helped, in a sense, talk down the share price of Telstra, which has dropped from \$5.00 to \$3.65. Sir, after one year how much responsibility should you take as chief executive for the drop in shares, for the fact that 1.6 million mums and dads shareholders have lost vast sums of capital that they have invested in Telstra? Shouldn't you apologise for that drop in the share price and take responsibility?

Solomon D Trujillo: Well, right now, you know, I think again the fact, as I said before, is the share price and what's happened to the share price, some of that I do own. But it's with a promise on the other end of a transformation. Now, what I don't take responsibility for is the share price drop from \$7.40 to \$5.00 because that's all part of a regime and a process that exists here in Australia that needs to be fixed, and will have continued negative impacts to drive share price negatively in terms of value creation further. What we also did as a board was we decided that it was not appropriate any more to borrow to pay the dividend. That caused a share price drop. Was I here before when that dividend policy was created? The answer is no, I wasn't. But is it the right thing not to borrow to pay the dividend absolutely? Until you generate the cash or until you have line of sight that you're going to generate enough operating cash flow to pay for dividends. What we have articulated on November 15 is a plan, a real plan that is publicly viewable in terms of five

years, how we're going to spend some money in the first two years which depresses share price but is going to improve earnings, is going to create value over the following three, four, fifth year in terms of the process. I stand behind that. So I do take responsibility for the part of the share price that's dropped because we are spending more and near term earnings do go down. I own that and I'm proud of it because I know I'm going to drive returns from that. The other stuff in terms of the settings, the regulatory process, all of that, that existed before I got here. I don't own it but what I do own is trying to change it and trying to improve is so that the mums and dads don't see their \$7.40 continue to sink because it's got to go the other direction. That's my pledge, That's what we're doing and we're going to be fair dinkum about it. Thank you,