TELSTRA GROUP LIMITED — Call Transcript 2007

Nov 4, 2007

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5 November 2007

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 media conference at the Telstra Investor Day

In accordance with the listing rules, I attach a copy of the transcript from the Media Conference at Telstra’s Investor Day 1 November 2007, for release to the market.

Regards

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Claire Elliott Acting Company Secretary

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

TELSTRA INVESTOR DAY ‐ 1 NOVEMBER 2007 Media conference

ANDREW MAIDEN: Good afternoon, and welcome to this afternoon's media conference and welcome also to those watching on our web cast. Today we are joined by Sol Trujillo, the CEO, John Stanhope, CFO, and Greg Winn, COO.

When asking your questions, please introduce yourself by name and organisation and make it clear to whom your question is addressed. Please don't queue in the line of sight of TV cameras and I will now invite the first question, starting with Tracey on the right.

QUESTION FROM THE FLOOR: I have three questions. I first would like to ask my question to Sol. Sol, you said earlier just then in the analysts' question session that it doesn't really matter which government gets into power after November 24, you are a customer‐centric business and you will continue to do what you think is right.

However, there has been a lot of evidence, I suppose, possibly to the contrary in terms of your comments which people would say have been quite political, and, secondly, that I suppose the decision to launch a case against Senator Coonan and her office to retrieve documents has since been shown to be ‐ that case has failed.

My question is that it seems your comments are slightly contradictory. Can you give me an explanation why you think it doesn't make a difference and yet the company seems to be so politically and verbally involved?

SOL TRUJILLO: Tracey, in order for me to answer, tell me what I have been contradictory about.

QUESTION FROM THE FLOOR: You said before that you really don't care which administration will win the election on November 24, yet if you look at the last three months, you have made comments overseas that this existing administration is hurting your business. I guess in many ways people have taken those comments to be that you are campaigning on behalf of Labor.

SOL TRUJILLO: The reason why I asked you that question is that your first statement was a true comment from me, which is that we

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are indifferent to which party wins because our strategy is still the same. The second part is those aren't quotes from me.

QUESTION FROM THE FLOOR: You don't believe you have made any comments that could be seen as being partisan?

SOL TRUJILLO: No. I would always ask you to give me a direct quote, as opposed to somebody's interpretation or somebody's partial quote, and then I will respond to it, but you know it's hard for me to respond to something that I may not have said.

QUESTION FROM THE FLOOR: Fair enough. Do you feel in the past this government then has actually stunted the growth options of your company?

SOL TRUJILLO: Sorry, can you repeat that?

QUESTION FROM THE FLOOR: Do you feel that in the past 12 months the way this Government has been reacting to yourself that the regulatory policies have actually stunted the growth options of Telstra?

SOL TRUJILLO: I guess I would turn around and ask you what do you think? Does it look like our growth is bad or poor or less than that of our competitors? I think our strategy is working just fine. There are some unfortunate decisions that have been made, like Opel, but as we just talked about before, if there is going to be decisions made like that, those are the kinds I want made, because technology choices and other things all play out in the marketplace. We will deal with them head‐on, competitor to competitor.

QUESTION FROM THE FLOOR: You are not worried at all about the Opel roll‐out?

SOL TRUJILLO: It is not to say we are not aware of it and we won't be mindful of it, but to be worried about it, I don't use words like that.

QUESTION FROM THE FLOOR: Research is showing that Australians are adopting HD technology but one compelling issue is the complexity of technology that is impacting the consumer. With that in light, do you think there is need for a gateway box brought out by Telstra that is storage, internet access, the router built in and Foxtel delivered within the same box, so you have from screen to box to an experience?

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SOL TRUJILLO: The simple answer is yes, and that was part of the conversation we had. I know you were here a little bit earlier when the question was asked with Justin and Kim sitting here. Actually, the way that we have talked about it with Kim ‐ and Kim is still here ‐ is that we are talking about a gateway into the home that is an all‐encompassing gateway where we can have the set‐top box in a box, if you will, so it is part of the componentry so that the full set of services can be managed in an integrated, simple way for the consumer in their home.

I don't know, Greg, if you want to comment on how you think that can play out.

GREG WINN: We have looked at it, obviously, in working with Foxtel. There are several options and my guess would be that, when we get to that stage, if we do, there will be a combination of box‐type technology, depending on what the customer wants and what they need at their premises or in their home environment with wireless, WiFi‐type capability within the home. We had a little discussion about femto capability with Paul Jacobs. He mentioned it earlier today. We have obviously been experimenting with that as well.

I don't think there will be one solution. There will be two or three that we utilise depending on what technology is being deployed where and what the customers' utilisation is both from content consumption from the Foxtel partnership, or the content that we deliver.

SOL TRUJILLO: Your question is spot‐on from a consumer's standpoint because they don't want to deal with multiple boxes. They want a simplified process where either it's all in one box, or at least it is green to green and yellow to yellow, and that kind of simplified set of interfaces where things can work together.

QUESTION FROM THE FLOOR: Do you see any regulatory issues emerging with someone like Telstra delivering a gateway box that gives you greater control of revenue or expenditure in the house on communication content, et cetera ‐ whoever delivers first.

SOL TRUJILLO: Yes, but again we are coming at it from a customer standpoint. We do research all the time about customers. That's what is one of the different aspects to Telstra today than before. Before, it was always about the

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opinion of a regulator that said, "Here's what you should do or not do." Today, it's about the consumer who is telling us, "We want simplification. We want you to take the complexity out of the process for us, and you are probably the most likely company to do it."

If I were a competitor of Telstra and I was going to have that customer account, I would be thinking the same way. So it's not just unique to Telstra. This is a core consumer need in the home, and, actually, to a large extent that you will see with businesses in their office locations, because it is getting more complex, given the array of capabilities that are there.

But the good news is that Telstra does have the competency, does have the capability and does have the multiple platforms where we can simplify that process

QUESTION FROM THE FLOOR: Sol, you mentioned before that you are not worrying too much about the election outcome, because you don't know what either party is going to do. But even without the regulatory implications, you do know that Labor wants to partly fund the FTTN network. So because of that, have you, I guess, tried to quantify the effects (a) if you are the successful bidder for the 50 per cent and (b) if you are not?

SOL TRUJILLO: I have said this now three times today, so I'll say it for the fourth time: I don't spend my time on speculation and what people might be thinking. Until an election is held and until we know who is doing what and who has a specific plan and specific requirements in mind, I am not going to spend a lot of my personal time on it.

What we know for sure is that we have a plan ‐ if somebody wants to do a five‐city build and get it done in a high‐quality, fast way and in a way that enables lots of services, we are ready to do it. But we are going to do it on the terms that are friendly to our shareholders and on the terms that make sense for our customers ultimately in terms of how we serve them. That is the unwavering part. Whether there's a Labor Party or a coalition, it doesn't matter; the requirements will be the same

QUESTION FROM THE FLOOR: From that perspective, if the Labor Party does win, you're not banking on this $4.7 billion of public money to be available; am I right to infer that?

SOL TRUJILLO: We're not banking on anything. As I have said

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many times, we, Telstra, will take shareholder capital and risk that capital, because remember we're a market‐centric company ‐ we'll take our capital and we'll risk it on the basis that we can generate more revenues, provide more services and earn returns based upon risked capital.

QUESTION FROM THE FLOOR: Finally, earlier you were talking about comparing an FTTN to doing a Docsis 3 upgrade of your HFC network. How much would the HFC option be inflated by the fact that you would not have to give regulated access to your competitors on it?

SOL TRUJILLO: I'm sorry, I don't understand the question about "inflated".

QUESTION FROM THE FLOOR: When you compare the two like for like, how much of a bonus would it be for the fact that you wouldn't have to give regulated access to the HFC network on terms set by the regulator?

SOL TRUJILLO: There is already another HFC network that doesn't get used, so why would we have to provide access on an HFC network that isn't the only one?

QUESTION FROM THE FLOOR: My point is, does that mean that if the two are line ball, then you would be more likely to go to HFC because you wouldn't have to do the regulated access?

SOL TRUJILLO: No, we're not drawing any conclusions until we know what the objectives and plans are of whoever wins the election. But as I said before, we have options. We are already exercising options in the market with our Cable Extreme offer. And, as I said earlier today, with the infrastructure that we have put in place in Sydney and Melbourne, we are also capable now of extending high‐definition services, because we believe in utilising the infrastructure that our shareholders invested in. We don't believe in just investing in infrastructure and letting it sit.

QUESTION FROM THE FLOOR: I have just a couple of clarifications, really. John, on the $100 million from Foxtel, did you not know about that in August? It seems odd that you wouldn't have known about that. And is that the sort of number you're looking at in the next couple of years, or do you expect that to grow?

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JOHN STANHOPE: As soon as PBL finished their demerger statement and lodged it, we also lodged the fact that we had received our distribution, so that happened in a timely way. The answer to your second question is, we have not assumed in any of our guidance any ongoing distribution.

QUESTION FROM THE FLOOR: On CDMA ‐ and I may have missed this during the day, so I apologise ‐ I know that there was a dispute about the number that Fone Zone put out into the market about how many CDMA customers were still left. I think they said 880,000 or something. Could you give us the number that exists today? How many people are still left on CDMA?

SOL TRUJILLO: I don't have the number here. I don't know whether Geoff is here. We are not disclosing the numbers other than the fact that it keeps on getting smaller as a percentage of our total revenue base. We have a few hundred thousand, several hundred thousand, in terms of the total number, but off the top of my head I don't have it, because we're managing it essentially in stages here.

We have a whole series of business customers that we have plans to migrate off CDMA. They need to be coordinated. We need to get some of the handsets and other capabilities in place.

Then we have a distinction between post‐paid customers and pre‐paid customers, because in pre‐paid in many, many instances we counted customers in the past who may have bought the handset, put it in their glovebox in their car and really didn't use it other than for emergency, so sometimes those numbers are a little bit misleading in terms of where we're at.

But we are starting to accelerate here now in the latter stages and pick up momentum. Over the next two or three months, we will handle a lot of volume as customers convert

QUESTION FROM THE FLOOR: Just one more on Sensis, again a bit of clarification. Bruce gave some pretty upbeat commentary and talked about growth in Yellow Pages and I think growth in Sensis overall. Is that top‐line growth or is it earnings growth as well, John, and would we expect to see those margins that contracted last year start to expand again?

JOHN STANHOPE: He was referring to top‐line growth, but he also said that Sensis is going through their transformation and that has some costs to it, and when he gets past his transformation,

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his earnings will also improve and his margins will improve. That's what he said

QUESTION FROM THE FLOOR: What are we looking at for this year?

JOHN STANHOPE: We are not giving a specific number for the growth of Sensis for this year.

QUESTION FROM THE FLOOR: There was a bit of talk today about opex costs going up in terms of the transformation program, but I am more interested in how you see the coming year in terms of IT labour costs. There seems to be a lot of pressure on that in the market at the moment. Has that been built into your current guidance or can we expect a change if the costs keep on going up?

Apart from that, with the transformation, there was a press release put out today saying that that was delivered two months early, but, John, you said that there hasn't been an acceleration in that. I just wonder how those two tally.

GREG WINN: I will take the first part on the costs. We are well aware of the pressure in the Australian marketplace on labour costs. The good thing for us is that we have our

strategic partners involved and they're multiple‐year contracts and they're locked in. They were locked in back in the 2005 and early 2006 calendar years, shortly after our announcement when we announced our strategic partners and we signed the contracts. So we are protected from that perspective on the lion's share of it, to John's part, particularly this coming year as we go through the last of the huge spend in IT; we're fairly well protected.

For those people working on the project that are employees, that's part of our normal operating plan. We have built into the operating plan what the requirements are, so we are in pretty good shape there. We are concerned about it when we would lose people in terms of searching for talent. But we would not be concerned about ‐ which is I think the implication in your question ‐ a blow‐out on costs or anything like that, because we are well contained in the contracts and they're multiple‐year contracts.

Then the last part of the question?

MR TRUJILLO: I think in the interchange that John had with one of the questioners about whether this means that there is an acceleration, John's answer was no, but not to confuse it with

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the fact that we have delivered release 1 a couple of months ahead of schedule. So, yes, we did beat the deadline of getting it done by the end of the year, which is the target we set two years ago.

But in terms of, does it change the end‐year guidance, the answer is no; and will it change the guidance over the five‐year set of management objectives, the answer to that is no, because two months will not materially alter the path.

When we get to release 2, which is due by the end of 08 in terms of calendar year, then we can always assess whether we are ahead of schedule in a material way or not.

But the key point that we were trying to help everybody understand is that there seemed to be a lot of underneath rumbling that this IT program was high risk, high problem, can't really identify what the savings are, so today what we wanted to do was to say, look, here is another box that we check; it's delivered on or ahead of schedule, and John has spent time itemising the time frames and the categories of opex and capex changes that will occur between now and 2010.

QUESTION FROM THE FLOOR: Greg, earlier today, when you were talking about investing in the capacity market and the international capacity market, you said that you would look at what other players are doing in the market and move in a different direction. Does that mean that after Telstra spoke to Google about Pacific cable options, Telstra made a decision not to move further with Google on options in that area?

GREG WINN: We're well equipped from a capacity standpoint in our international undersea assets. As to the Google deal that you are referring to, that consortium approached us and they basically wanted us to go in because they needed us initially on that, and we didn't have a need for it. We had already made the decision on our cable structure. We might have looked at it differently, had we not, but we were in good shape.

My comment I think you may have mixed up or I may not have stated it clearly. The issue about our having options was really about reinforcing ‐ Sol reinforced that we have a lot of multiple plans across all of the domains, whether it be what happens in wireless, this issue about the WiMAX, Opel thing, the G9, the FTTN, HFC, international capacity. You know, we don't sit on our hands. We have a lot of options, depending on which place the

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competition goes and how the market moves and what have you. We are rich in options and we have lots of capability.

QUESTION FROM THE FLOOR: Sol, did you enjoy your visit to Shenzhen last week?

MR TRUJILLO: I didn't go to Shenzhen last week.

QUESTION FROM THE FLOOR: The week before?

MR TRUJILLO: No, I'm not discussing who I meet with.

QUESTION FROM THE FLOOR: Sol, the Labor Party rolled out a document claiming that Australia had very slow broadband and very expensive broadband. Is it a case now that you could very well be in a position from a business perspective where you, as carriers, are now coming under enormous pressure from the amount of downloads and the amount of business plans that they have in place with consumers where they are not getting click revenue from the broadband they are selling; your model is based on getting more click dollars from the amount of broadband you are pushing into the marketplace.

The first part of my question is, what is your reaction to what Labor rolled out in terms of the document, and, secondly, do you believe that you have your model right versus other carriers around the world?

SOL TRUJILLO: I might ask Justin to comment on this, because we have a unique environment here in Australia from a pricing structure standpoint that was in place before I got here, and I think it was wise, whoever devised it, because all of the providers, whether it is Telstra, Optus, Foptus, Moptus, Loptus, whoever it might be ‐ we all have the same issue, which is that if you have a customer that is going to consume a lot of bandwidth, that means a lot of capex, and if you cannot price to the volume consumed, you have problems, which is what you see in the US where basically it's almost unlimited use for a fixed price, depending upon the plan that you buy.

So you have this contention between the Googles and the telcos and even, to some extent, the cable companies in the US. Here in Australia, there is a different pricing structure.

Justin, do you want to talk about that?

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JUSTIN MILNE: Yes. It's quite complicated but very interesting, because you have to look, to understand this, back at the beginning of the internet. When the internet first started, it was dial‐up modems. The dial‐up modems used existing infrastructure that telcos had and ISPs rented off them.

In those days, nobody could see it going particularly very far. The infrastructure was there, and every incremental user, of course, was an incremental user, but their usage was very small, because they were sending mail backwards and forwards, so it was kilobits of data per person.

What happened in the US and in Europe was that the pricing regime was an unlimited regime where people said, "Just pay us X dollars a week and you can use as much as you like", because it was hard to see that it was ever going to get used up.

Then, of course, along came broadband and then, of course, along came streaming video and then along came file sharing, which represents about 50 per cent of traffic on the internet these days. As all of these different applications have come along and as applications have got richer and richer and richer, telcos have had to build out their networks.

The problem, as you correctly said, David, for the US telcos and a lot of European telcos as well is that they have to keep on building their networks, which keeps on costing money, but they don't have the capacity to recover that money from their customers unless they just jack up the prices.

In Australia, providentially, because we have always transported a great amount of our data from overseas ‐ it used to be that about 70 per cent of our data came from overseas; these days about 50 to 60 per cent of our data comes from overseas ‐ all ISPs learnt that they had to pay the piper. They all had to buy their data on a volumetric basis right from the get‐go, as they say, in Australia, from the early days of dial, so all ISPs in Australia basically have one version or another of what we call volumetric pricing, meaning user pays.

This is a good thing, because it gives us a rational market, it allows us to come up with plans like we have at BigPond where we can say, "You can get going for $29.95 and you get 200Mb for that." The question is, "How much does 200Mb get me?" The answer is, "Well, it will get you plenty if you use your service carefully. But if you want more, you can buy more", which is

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pretty much like saying, "How much is a fare with Qantas from Sydney to Melbourne?" "Well, it's that much. If you want to go from Sydney to San Francisco, it costs a lot more."

So we are used to user pays. We do user pays for most of the things we do. In the internet, we just have what I think is probably a temporary situation in the long term of unlimited pricing. It is the unlimited pricing regime in the US which has given rise to the so‐called net neutrality debate.

The net neutrality debate is all about people who say, "You should transport all of my data for nothing", like the purveyors of large quantities of data on the one hand, whereas the telcos on the other hand say, "If you want me to transport all this data, I have to find a way to pay for the new networks that have to be built."

So it was a long‐winded answer, and I'm sorry about it, and it's a history lesson, but the truth is that in Australia and from a Telstra point of view, and really from the point of view of all ISPs, we are pretty protected from this, because we do have volumetric pricing, which is logical, sensible and passes most of all what I call the "fair enough" test for consumers. In the end, they understand it and they say, "Okay, fair enough, I pay for what I use."

QUESTION FROM THE FLOOR: What is your reaction, then, to my first question about Rudd's statement that Australia has slow broadband and expensive broadband? Do you think he was right?

JUSTIN MILNE: You will forgive me for not commenting on Mr Rudd or Mr Howard at this stage of an election.

ANDREW MAIDEN: Thank you, gentlemen. Thank you, too, for those who have been watching patiently on our webcast. That concludes today's events. We will have transcripts available later in the day. Thank you for your time.

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