TELSTRA GROUP LIMITED - Call Transcript 2007

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2 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 presentations at the Telstra Investor Day – Afternoon Session

In accordance with the listing rules, I attach a copy of the transcript of the afternoon presentations 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 AFTERNOON SESSION

SOL TRUJILLO: We're going to start on our afternoon session. Hopefully, you were able to listen to the video and see the kinds of applications and uses that are evolving on our Next G platform. This morning, you had a chance to hear from Greg and the team, who are really reflective of operating excellence, and you see the execution basically ahead of plan.

This afternoon now, you will get a chance to see the rest of our team, which is about marketing excellence. Marketing excellence, for me, has always been about this market-based management focus in terms of how we needs-based segment and do all of things that we do, which enable us to grow, because at the end of the day we can build networks and we can build great IT, but if we cannot market it to our customers, deliver applications and services to our customers and help them do what they want to do in terms of their daily lives, it doesn't matter. So it's a nice build, but it doesn't mean anything other than wasted capital.

So this is now about the utilisation of the capital, the utilisation of the investment and how we will go about doing that. As I said back in November 2005, market-based management is what I am a zealot about. The leader that I asked to come in with me at that point in time was a guy by the name of Bill Stewart, who has worked with me and two other companies getting it executed, and he is the guy who has been leading it here. He will kick off this session, which we're calling the retail session, this afternoon.

So with that, I'll turn it over to you, Bill.

BILL STEWART: Thank you, Sol. I'm Bill Stewart, as Sol indicated, and it is my great pleasure to be here today to kick off the marketing session of today's agenda.

I talked to you two years ago about how we were going to transform Telstra into a world-class marketing organisation, and I am here today to tell you that we haven't missed a single beat in achieving this goal.

Following my brief introduction, you will meet my colleagues who manage our business units and are using these new marketing competencies to create growth in shareholder value at Telstra.

They will discuss their achievements and how they are impacting our

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customer experience through market-based management. But first let me underscore one key point: Telstra is clearly winning in the Australian market, and we are winning through superior marketing.

What does that mean? First, since Sol demands that we are a results-based company, this means increased market share, improved margins, reduced churn, higher sales strike rates - the list goes on and on. But it also means using our unprecedented depth of customer knowledge to provide high-value competitively differentiated products to our customers through our Next Generation networks and services, as you saw this morning.

Before our marketing transformation, pricing used to be the primary driver of customer purchase decisions in this market. Through our relentless focus on improving our customer experience, we're increasing our customer perception of value and reducing the importance of pricing in our customers' decision processes. This is coming from our research.

Additionally, we are building and improving our marketing systems, we're developing and training our organisations that David will talk to you about and we are creating a true learning environment centred on our customers and their needs. And it's working. Over the past two years, we've improved our customer satisfaction across all of our business units and all of our services, and there is a direct correlation between these satisfaction scores and market share.

We are improving key brand metrics, such as innovation, the right products that work together and straightforward pricing. These improvements are driving increases in our market share in all of our service categories. While we are gaining market share, we continue to maintain or even increase our price premium in the market, especially in the area of pre-paid mobile. Customers are willing to pay more for value when you're the best.

You heard this morning from Tom and John on our IT transformation. This is incredibly important to us. The future of marketing at Telstra will take full advantage of this IT transformation. Our new CRM systems will make every customer contact a personalised conversation, will dramatically improve our customer knowledge, including their current product holdings and prior interactions with Telstra and make that knowledge easily accessible to our CRSs, our customer service reps, through intelligent scripting.

New CRM tools provided in TR1 will extend that personalisation from outbound telemarketing today to inbound calls, Telstra shops and bill

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messages. TR2 will then provide email and online billing messages. These new capabilities will allow us to virtually surround customers with consistent messages through TV and press, outbound and inbound marketing, SMS, MMS, bill messaging and direct mail - all integrated based on customer needs to improve acquisition and customer churn.

Our new systems will allow us to automate campaigns, including customer acquisition, cross-sell, upsell and usage stimulation programs - very important - and all of these prioritised based on customer and product profitability.

Also our dealers and partners will be able to access these same systems as our internal channels. From today's multiple systems, our customer service reps will have a single access and a seamless customer view that they will be able to capture customer interactions to provide real-time customer profiles and identify and provide special offers to customers likely to churn.

From our customers' perspective, communications with Telstra will be more relevant and personalised. They will experience fewer call transfers, more self-service options and narrower appointment windows. Overall, they will have a much better experience than they had in the past.

After me, you will hear from our market units and how they are growing customers and revenue through market-based management. From the consumer side, you will hear about world-class performance, performance that benchmarks well above the market, and market share, ARPU and churn.

You will hear about David's commitment to acquire and retain customers, reduce churn through multiple product holdings and aggressively stimulate data usage. He is also driving a true learning environment with a rigorous approach to test and learn and new online tools to maximise the success of our offers and stimulate the use of data and content.

From Deena and David Thodey, you will hear about our drive to deepen our customer relationship, extend our channels and offer better customer service. You will hear about their commitment to value-based management, consultative approaches to sales and alignment with sales incentive.

With that, it is my great pleasure to introduce my distinguished colleague David Moffatt, Group General Manager, Telstra Consumers & Channels.

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DAVID MOFFATT: Thanks very much, Bill. MBM really has changed the game for us, and here are just a couple of highlights that I thought I would lead off with to just show you how much, since the introduction of MBM, things have improved.

In the fourth quarter, in the consumer business, we grew PSTN revenue. We obviously, as we have disclosed, increased our total number of customers using fixed lines year on year. That was important, but we grew revenue in the fourth quarter.

In terms of mobiles, we increased our revenue growth by 11 per cent year on year, which was important, because that was more than double that of the next largest competitor. We also improved our internet revenues by 70 per cent, when you include wireless broadband, so that was an incredible growth rate. We also really accelerated pay TV growth.

The reason is very simple, and that is because we provide value to our customers. What's more, we are convinced that we can sustain and even accelerate our performance in the years ahead.

The consumer business model has delivered strong both top-line and bottom-line growth. We certainly have the strategy, the organisational structure, the processes, the leadership team and the people to continue to grow our revenues and margins in a sustainable way.

We will focus on this triple play idea, and that is customer, ARPU and revenue market share growth in all product categories and all geographies; it doesn't matter whether it's mature products like PSTN or the more advanced products and services such as Next G, wireless broadband or wireless data services.

Telstra Consumer is absolutely ahead of the competition, and we aim to stay there. You have heard from Greg, Tom, John, Mike, Stuart and everybody else who was up about Telstra's network infrastructure and IT transformation - clearly, leading access networks built and operating at world-class levels.

But the massive coordinated business and operating systems transformation - there is a whole lot more going on, and what I will focus on is how, at Telstra Consumer, we are linking those enablers depicted in the big capex-intensive wheel on the left-hand side of this chart to our marketing transformation, which is an equally powerful investment in our future success, as depicted in the customer-led growth model on the right-hand side of the chart.

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We have been operating our MBM organisational and needs-based marketing model for 18 months now and we understand better than any other operator our customers' needs, preferences and drivers. MBM drives everything that we do from the way we're organised to the words we use in every customer interaction.

To harness this capability, we have embarked on an equally massive channels and cultural transformation, from our retail channels, which I hope most of you had the chance to experience last night or this morning, to our contact centres. And our online and indirect channels are all coming together in the same way.

We have redesigned and implemented new selection and hiring models that are underpinned with direct relationships between us, as the employer, and our employees. We have introduced new frontline leadership development programs to make sure that we attract and retain the best-quality people in the highly sensitive retail and call centre employment markets. In addition, we have a radically different retail design in terms of our operating model, all underpinned by a set of global top-quartile operating metrics.

When you think about marketing competitive advantage, you think about the number and quality of customer relationships - the standing and the relevance of a company's brands, the strength and alignment of its distribution channels, the breadth and depth of its service and product offerings and the quality and experience of its leadership talent and their ability, through a deep understanding of the customer relationships, to extract value for shareholders.

We do this through integrated pricing strategies and the way we interact with the customer. At Telstra, we have marketing competitive advantage: 7.4 million customer relationships, 15 million services, leadership in all product categories, and we do understand, to make the point again, customer needs better than anyone else in our industry.

Forty-eight sales, service and support centres, 300 branded shops, 5,000 dealer points of presence, unrivalled online reach and frequency of contact, 36 million call centre contacts and 24 million shop visits through our own shops and our licensees, all serviced by seven dedicated segment teams responsible for developing, pricing, marketing and interacting with those customers through over 200 targeted campaigns across 40 geographies and local area markets. In addition to that, we have 130 advocacy programs that help us to sustain our brand standing in the face of unrivalled scrutiny.

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Our new T[Life] store at 400 George Street, just around the corner here, is an example of what's possible and it represents a transformation of the consumer business in terms of the customer experience, new ways to attract and engage the customer, outstanding staff, extensive local area marketing programs segment by segment right across the Sydney geography, but even broader than that, content walls, interactive experience centres, and new ways to explore and understand, like the [my place] bar.

And we have an auditorium for workshop and events. There are download bars and new ways to demonstrate what's possible as well as to educate and inspire, with every device live in a dynamic new retail design, which is green, clean and low cost, and new ways to provide solutions, to close a sale as well as to cross-sell and upsell. Every terminal is a point of sale. Every specialist associate is trained in the complete range of integrated products and service offerings, and, probably more importantly, complete fulfilment capability on site, in store, from repairs to priority service to technical support for home networking to mobile device functions, features and content.

Our retail vision is for all of our branded stores to have this kind of experience and these capabilities for our customers.

In addition to this, we have driven a contact centre transformation aligned with MBM, and that is all about new hiring and leadership development models, new world-class performance benchmarks, simple things like speed of answer, call resolution, call readiness, staff-to-management ratio, employee engagement, product breadth and depth and new remuneration models with greater variable compensation and more targeted incentives.

So all of this is designed to lower our operating costs, lower our supply chain costs, lower direct variable costs and lower support costs, and we're already seeing the result, as Bill said, in increasing customer satisfaction when you use the customer value analysis measurements, and this is across all segments and products.

And the good news, the really good news, is that we're only just getting started.

It is a combination of all of the streams that you see on this chart of activity that make up this concept of a marketing transformation. Our business - when you think about what Tom referred to earlier, we have this incredible business partnership and it has been forged through the heat of battle, of living together through the IT and the systems transformation component link to business, and this is how we are going

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to extract shareholder value from this partnership.

But the most important point to re-emphasise is that this is a business transformation. It is not a transformation of IT in isolation of the business. The benefits from the investment come from three very definable areas, and they're very measurable: improved customer service, improved speed to market and improved productivity.

The benefits will show up on the top line, something that I think has been missed, as well as on the bottom line, because we are in a position to implement and use all of this IT capability. Then, obviously, we link that to our marketing transformation and what you have is the combination of the intelligence and the capability. So it's more about thinking about the possibilities and with fewer constraints, which equals I think unrivalled growth opportunity.

So let me show you how this is occurring and how exactly we will accelerate it into the future. At Telstra, we operate an integrated campaign management system. Bill referred to this a little bit. This system has enabled us to move from a traditional marketing approach practised by all of our competitors, that of price, product, offer, displayed in mass market, targeted to the broadest groups of people, almost ensuring low strike rates and low response rates.

You contrast that with Telstra's approach. It begins with: I have a customer; let me find the most relevant offer or service bundle that will meet the customer's needs. As we communicated at the full year, the performance has been outstanding - doubling of strike rates. Eight to 16 per cent is world class, and on 6 million outbound contacts, that's important.

But it's also about improved retention, acquisition and productivity driving our strategic market shares, and it is certainly about competitor outperformance, all underpinned by lower churn rates, making their cost of acquisition higher.

As an example of how we understand how customer needs better and how we bring that to life - Australian Idol, which is running on Australian TV at the moment. Everyone in this audience would know that if you are watching Australian Idol, you want that to be live and you need to know what's happening straightaway. So subscribers get an SMS, an MMS alert, "Go live now", a new song, who got voted off, an interview, and it's available in every time zone across Australia on the world-leading Next G network.

As we said at the full-year results, our three-plus product customers

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have grown by 25 per cent. The combination of needs-based offers and integrated contact strategies means that customers are not only spending more on their existing services but they also spend more when bundled per product customer than any single product category.

Let me explain. This completely overturns the myth that when customers become bundled, all that occurs is that you get a discount. It is not so. For example, on average, if we take two customers, one a fixed customer and one a pay TV customer, and we compare the spend of a customer who has those two things, fixed and pay TV, in a bundle, the bundled customer uses more services and consistently spends, on average, more than $10 a month more than the sum of the individual product customers.

Increasing usage is a combination of channel interaction and timed communication. It's a call, an SMS, an MMS, a video tutorial. Traditional broadcast media and direct mail - they just have a low return on investment compared to highly targeted campaigns that are relevant to the customer. And these are giving us really improved strike rates even above what I talked about before. In some cases, we are achieving 40 per cent on these campaigns.

So if you think about the opportunity afforded by the mix of customers that we have - the broadest of anyone in the country - and the sense of the magnitude of the opportunity, you really get a sense about why we're excited. And here is another example: in one of our low-use segments, if we get each customer to send one more SMS a day, that is $85 million in revenue.

Initiatives like this have helped Telstra Consumer to achieve leading non-voice revenues in terms of what we have been doing, and that's really important, too, as we think about the migration effects of what is happening with customers. But even more encouraging is the fact that we have attained now non-voice, non-SMS revenues of 17 per cent. That is truly world class and, as Sol said, the first time, in our view, that that has happened anywhere around the globe. We don't know of anyone who has achieved a higher data percentage of revenue than SMS percentage of revenue.

Another form of usage stimulation is new category revenues leveraging our media-comms supply chain. By truly integrating the one-click code scanner into Telstra mobile phones, we offer a Sensis advertising customer absolute certainty of when, where and who responded to their promotion or advertisement. Let me demonstrate this with a short clip.

(Video played)

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What is great about this application is that with Telstra - and it is only with Telstra - it is enhanced to provide complete integration with the Telstra Next G device, and this is downloadable over the air. I expect that within the year, there will be more than a million devices that will have these integrated readers available, and just think about what that does for our end-to-end supply chain media-comms business model.

So by now you should sense the confidence that we have in our operating model to drive revenue growth. But that's, of course, only half the story. The first phase of our consumer transformation is bringing direct cost benefits. Our strategic relationship with Bright Star, as Stuart said, has delivered over $70 million in savings in 06-07, and that is continuing to increase in 08.

We are seeing both reduced handset prices and more customers buying their handsets, and that means reduced subscriber acquisition and retention costs. That is very important, because in quarter 4, we saw those fall by 15 per cent.

Over 4,200 contact centre or shop staff now have this integrated desktop functionality and they have experienced a 60 per cent reduction in their log-in times and a 22 per cent reduction to fulfil a multi-product transaction. This week, we are rolling out another 1,000 desktops with that capability.

The revenue growth prospects from transformation are also a big productivity opportunity and will effectively create opportunities for inbound contact centres to better service the needs of our customers across all products, as Bill alluded to. In numerical terms, we equate this to effectively a fivefold increase in outbound capacity for exactly the same investment.

We will reduce our total sales and systems for a front-line associate training time by 17 per cent. But at the same time, we will increase our sales component training time of that by nearly 300 per cent, because it was all weighted to systems training in the past. Each one of the customer sales reps will be more aligned to a segment with a greater understanding of what the customers' needs are and a better sense of the full Telstra product and service experience.

Because we have developed our business and marketing transformation in parallel with our IT transformation, we are better placed than ever before to capitalise on the latest market growth opportunity which sits at the convergence of technology and customer need. Only Telstra can

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deliver on that promise.

In thinking about today, I said to Sol that if I had one important message to convey to investors, it would be that we are just getting started. We have the strategy, we have the organisation, we have the operating model to accelerate our growth and to outperform the industry. We have the customers, who we understand better than anyone else. We have the people, the leaders, with access to the world's best executives, and we have built a team of globally experienced leaders with deep operating knowledge, each proven performers with a real passion to win.

We have got unparalleled distribution. Three quarters of the Australian population lives within five kilometres of a branded Telstra retail outlet. We have got operating scale. We can accomplish everything that I have outlined today within our capex and opex frameworks. Arguably more importantly, we have an attitude reflective of global standards of excellence and with this set of marketing capabilities, we will deliver sustainable profitable growth. Thank you very much for listening and I'd now like to introduce my colleague, Deena Shiff who will talk a little bit about Telstra Business.

DEENA SHIFF: Thanks, David. Telstra Business was set up last year to focus on a wide range of SME customers in Australia. Telstra had a relationship with most of these customers which it is fair to say was wide relative to the total SME population rather than deep, but we have come a long way since that day in November 2005 when Bill Stewart introduced us to market-based management.

We have come a long way by not only recognising that these are business customers, but in using segmentation to play to very different needs and requirements. Therein lies our differentiation. In our first financial year of operation, we turned around our business, moving from a financial year '06 negative growth of minus 1.5 per cent to financial year '07 positive growth for the first time of 2.7 percent. We did this by stabilising PSTN loss, winning mobiles share and increasing Next G wireless Broadband and fixed Broadband within our base.

We estimate that Telstra Business mobile services revenue growth in financial year '07 was double that of our competitors in the SME market. Even taking out the significant growth in mobile Broadband, which for us grew 104 per cent last year, and our data growth, our mobile voice growth exceeded the market growth for SME.

We also estimate we grew three times the rate of the rest of the market for SME in our fixed Broadband. In this our second year of operation,

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we aim to continue our growth of fixed and wireless Broadband SIOs while increasing data usage as a result of our deepening relationship with our base. Our strategy is to do this by first making our range of services and applications relevant to particular business users; second, by ensuring that all our channels, direct sales, retail stores and our indirect channels can correctly identify business needs and capture the specific opportunities presented by our business customers; and third, by offering the services and experience that customers need when they're taking up business solutions.

Let me show you some ARPU scenarios based on real customers - I do say "based" - who are representative of a segment that shows the divergent needs within our base. Bill is a butcher. He has a retail outlet but also a wholesale restaurant trade based on the quality of his organic meat. Last year his communication tools were a CDMA phone for voice only and two PSTN lines, one of which was for his fax. His communications to his rural suppliers weren't always successful.

As I proceed here - we'll just pause for a second on this one - you'll notice that the value we're creating for our customers is reflected in corresponding value to our shareholders, so keep an eye on the ARPU meter, our own little Worm. Today, Bill kept his phone and added message bank. His STD calls to the farm would make a subscription plan, with a flat rate for how ever many STD calls he made, useful for cost control. Bill uses Next G to keep him in close touch with his supply chain and has taken on a data pack for this purpose, as well as BigPond ADSL services.

That is him communicating his organic certification. His cash flow has improved, with the ability to be paid on the spot when he delivers to the restaurant trade as a result of today's release of mobile card payments and as you can see, he does enjoy the odd entertainment and sporting tips on the phone as well. In the future for Bill we'll have applications that integrate Bill's mobile payments via his Next G mobile with his back office accounting systems.

Let's take another case. Dig Mining Services reflects the dilemma of a larger, multi-site, 50-plus person firm. Staff are located at remote sites providing mining equipment to the resources sector. We see quite a lot of these customers, actually. Communications to remote sites and the management of inventory are central to this firm's success. In the recent past Dig managed their own server, hosting their critical applications at their main office. If the server went down or the main site went off the air, so too did inventory management and no-one had access to the critical information.

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Today Dig operates a Connect IP network to connect all sites. This is part of the next IP range which was designed for this segment. Staff working remotely use Next G which integrates directly into the private IP network. This provides reliable security and connectivity, as if they were in the office. To provide greater redundancy, Telstra hosts the back-office servers.

In the immediate future - the very immediate future in fact - enhancements to the next IP product range will provide all the required voice calling to be performed over their secure IP network. IP video conferencing combined with Telstra IP telephony capability allows them to tag the availability of the field staff and set up multi-location calls over their secure network. Scope also exists to introduce a host of software and applications which can be accessed on demand.

As you can see, we're actually at the early stages of a data adoption curve by small to medium enterprise in Australia, although we're already seeing very healthy data growth. What these customer types illustrate is that within the SME market, customers do require very different Broadband CPE-managed infrastructure applications and IP services and support. What we've done to build to the scale of this market is to implement a road map that enables us to craft different types of solutions packages by segment and different applications and IT services both by segment and by vertical. This is done without importing the costs of customisation.

Also notable to date, customer ARPU in our business has increased even as PSTN declines. These dynamics are very significantly by segment, but customer ARPU has increased consistently by playing to the different needs of each segment. Let me now turn to the steps we're taking to ensure that our channels can capture business opportunities. In direct marketing, we've incorporated a segmented approach and have seen a significant increase in response rates, as David has. We've also used our segment understanding to determine the optimal contact strategy for customers within each segment, including time of day and whether to contact by phone, email or SMS. A small tip: not competitively sensitive. Don't try calling a GP during nine to five. We didn't need research for that though.

Our dedicated business contact centres have seen an increase in business calls of 40 per cent and have increased Broadband sales by 44 per cent in the first and second half of last year. In our direct sales force we've increased the depth of account coverage into our base, while managing to productivity targets. We've added more IP sales specialists, contributing to the 88 per cent increase in year-on-year sales growth. We've matched and progressively realigned

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account teams to customer by both segment and by geography.

Our local area presence took a further step forward in June with the opening of the Parramatta Business Centre which pilots a dedicated retail presence for business customers, with a sales hub for account managers to make appointments with customers also located in that commercial area. In our indirect sales force, our business accreditation program has inducted several thousand individual applicants seeking Telstra Business certification and the class of 2007 graduates this month.

We have also engaged a number of two-tiered channel partners specialised in ICT who have in turn recruited in excess of 700 SME sales and service IT specialists who operate at the scale and location of our own customer base. Many service requirements are common to small business, but the means of resolving it may vary. To start a business, well, not every customer may have an account executive, but we have introduced project managers to support business moves. For smaller segments, we've introduced a self-install capability, such as starter kits for business Broadband. To learn about business services, such as the panoply that are now emerging, Bill doesn't have a lot of time to talk to IT folk, but he does read the magazine we've tailored to his segment. Our online site has been designed with simpler access to product information.

For a growing but as yet small business, we've introduced presale support for our new products such as Business Broadband to assist with ordering. For our larger more complex customers, such as Dig Mining Services, we've initiated customer advocates who offer specialised post-sales support. Sole traders can sometimes fall between the cracks when they have a problem or experience a fault. We've overhauled our scheduling of assurance appointments to be more business friendly. We're providing access to premium service support, especially from the modem into the customer office. We are undertaking a range of activities, including a systematic overhaul of complaints handling, to continually improve based on our business customers' experience.

What's our current performance against the score card I presented last year? To slow the PSTN rate of decline by 40 per cent compared to '05/06, TB more than halved the rate of PSTN revenue decline from minus 9.8 per cent in '05/06 to minus 4.3 per cent in '06/07, overachieving on our promise to slow PSTN decline by 40 per cent. This has been achieved by significantly slowing the rate of PSTN SOI loss and holding PSTN yield relatively table. In Q4, TB achieved positive PSTN churn and positive SIO growth.

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Grow Mobile and Broadband are above the SME market rate. We estimate that the total SME market, including Telstra, grew mobile revenue in '06/07 by 8.5 per cent. We grew 11.6 per cent. On Broadband, the total SME market grew 7.7 per cent. We grew 13.1 per cent. In addition, we grew IP by 46 per cent. Grow multi-product customers from 40 per cent to 70 per cent. Multi-products holdings increased by 17.5 per cent to nearly 50 per cent of all customers. This actually excludes the penetration made in data products, for example, wireless Broadband data cards and the like and Telstra Business Broadband, which actually takes us much closer to our June 2009 goals. Grow 3G as a proportion of mobile subscribers to more than 60 per cent in '08/09. 3G as a percentage of Telstra Business mobile customers grew from 4 per cent of our base in July 2006 to 32 per cent in July 2007 and as at the end of September it is 41 per cent.

Grow Broadband and IP customer penetration to more than 50 per cent in '08/09. Customer penetration increased from 31 per cent to 39 per cent during last financial year. Finally, our non-voice revenues now stand at 47 per cent.

We have exceeded our first two metrics and we're well on target for the remainder.

In conclusion, we have an ability in Telstra and for our business customers to straddle fixed and wireless Broadband, to offer business solutions over the top of them and we are closer to understanding business needs for communications solutions over these networks than our competitors can do, competitors whom I am confident we will continue to outpace in the market. Thank you. It is my pleasure to introduce David Thodey.

DAVID THODEY: Thanks, Deena and good afternoon everybody. It is always a pleasure to talk about enterprise and government market. For those who have looked at this market over many years, it is a competitive market and it has some characteristics that really play out to be very competitive because they're large transactions, they're long, complex sales cycles and they look very attractive to many competitors.

I thought I'd try and give you a bit of a sense of how we're travelling because I'm glad to say we're going well. What I'm going to focus on this afternoon is just three things. Firstly, I'm going to give you an update from that strategy day we had about how we are going against the key metrics and the enterprise market. Secondly, I'm going to talk about value-based management. Bill referred to it earlier on and of course value-based management is an interesting one. You go to a big customer and say, "I'm here to create value for you." Usually the CFO

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looks at you and says, "Yeah, keep talking." For us it is a very real issue about how you differentiate your product and you then prove that it's going to change that business - some outcome.

Lastly, I'm going to give you an update on how Next Dimension is working. Do you remember we announced last year Next IP and Next G and Next IP together is all about Next Dimension working and we thought we'd show you a few customer testimonials to give you a little sense of what's actually happening and how the results are coming in.

Let me just remind you about enterprise and government. We look after only 1,500 large government and enterprise customers here in Australia. We do have a responsibility for New Zealand, we look there too, but it's 1,500 key customers. We have very deep relationships with these customers. We try to build them over time and we have traditionally looked at it across four different segments. One is obviously the government sector, obviously very large purchasers in industry and emerging even more just recently has been the multinational segment which is really starting to, I think, require us to look at a global perspective because customers, especially procurement departments, are looking at how they can leverage spend across the world and then, of course, lastly the very large integrated accounts. That is how we've traditionally looked at the enterprise and government market.

Before I go on, let me just talk about how we've travelled since I spoke to you nearly two years ago. These were the nine key objectives we put up. The first one was around growing revenue faster than market. I am delighted to say last year on a normalised basis we grew 2 per cent. In anyone's language across the world as I talk to other telcos, 2 per cent is very strong growth.

The other key thing is that we're seeing a change in the revenue mix and this is moving from the traditional data products, traditional peer stand into the new IP based products, so we're having to move our revenue and our focus as we go forward. We think we're going to have to get around 45 per cent - we're already at 41 per cent - and of course the key thing is to grow these revenues quickly. We've said that we need to grow 15 per cent. Last year we grew at 14 per cent.

Every day what we worry about is our core carriage business because that core carriage business is our lifeblood and of course if we get any decline there, it's very hard to pick up other profitable revenue streams. I am pleased to say that over the last six months we've seen a very strong result. We had a good result in 2007, but even stronger in the last six months. PSTN, IP and mobiles have been very strong.

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The other key thing for us is signing longer-term contracts because as we sign longer-term accounts, we're able to build a better cash flow and revenue stream and our contracts over the period have extended out eight months, which is I think reflecting the confidence our customers have in doing business with Telstra and I think that's great testimony to the team that's working there.

Of course, we talked about the Next Generation network and I think Greg and the team really showed you how the cost base is changing as we move to this new IP world and as well we're driving up productivity. Over the last 18 months, we've taken nearly 2,200 people out of enterprise and government: 2,200 people. Our contribution to FTE has gone up 20 per cent in that period. These are significant changes we're having to go through. Of course, the last one is about capital intensive. When you look at the report card, I think it is good progress. We have a lot more to do. There is a lot more underlying change we need to go through, but we're on track and we think we can do better as we go forward.

Let me move on to the next one which is called value-based management and I work with Bill around value-based management. We talk about market-based management. That really has been more consumer focused, but we're trying to take some of these concepts - and I think one of the few telcos in the world - and apply it into the enterprise market. We've taken three key areas to try to make these things a reality rather than just nice marketing theory.

What you see there is really 10 initiatives that are based around customers, marketing and sales. Let me try to give you a little bit of an insight of some of the things we're doing. I won't take a long time here, but it will start to give you a feel for what we're doing. Firstly, a deeper understanding of our customers and improving customer satisfaction. For the first time since I've been at Telstra, we were ahead of our nearest competitor in CVA results. That's a significant achievement. Traditionally we were seen as slow, unresponsive and as Bill said, across all the segments, CVA, we are doing very well.

How do you drive thought leadership when you go and see a marketing department or a manufacturing group about how you adopt telecommunications technology to really change your business? We've spent a lot of time around thought leadership and office productivity. Thirdly, it is just the day-to-day delivery of good services. Mick Rocca and I - Mick was up here before - spent a lot of time just looking at how do we deliver services. How do you activate services when the network goes down. How do you contact customers. Remember, these networks are at the very core of many of the businesses you work

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to. When you don't have that network up, I tell you, you know about it and so us being responsive is absolutely critical every day, 24/7, and the demand is even getting higher as people are more mobile, as we're getting more dependency on data travelling through the company.

Marketing. This has been I think one of the biggest changes we've had. We have moved from that very traditional industry segmentation. By the way, industry is very important, but we're trying now to look at clusters of different types of users within an organisation. Within a large organisation we'll look at the field force. We'll look at groups that are the white collar workers. We'll look at the number of people in call centres and we're changing our whole pricing construct in bundling.

Traditionally, we just looked at the whole-of-business bundling, putting voice data and mobiles together. We're now trying to look at the different types of users in a large company and build that out. We're early days in this, but we're very excited about the possibilities.

Also, we are driving, as Sol referred to in the first presentation and I think Paul did, industry specialisation. We've got more work to do here because there are some incredibly exciting opportunities here. We've already got into the retail media solution area where we have these flat-panel screens using IP pipes to put different advertisements down depending on the time of day and the type of audience in a shop. Very exciting. We've also looked at the health application, the health industry and Paul showed a great example of that. We've already got a pilot with NAB and Visa on near-field communications. We are already doing it today these are exciting applications that can change the way businesses do work. We are very, very focused in this area. Of course, I talked about solutions bundles.

The sales force has to transform because the days of just taking an order have gone. It's all about consultative selling, how we can get our sales force truly understanding what our business needs really are. Of course, with that comes this whole focus on value-based selling. I would like to say we're there, we're not, but we're focusing on how to articulate value, but to bring value first of all you need to really understand the needs of the customer and then you can create value by bringing the solution.

We have talked about strategic partnerships today. Our partnerships with Alcatel Lucent, with Ericsson and with Cisco are very, very important as we go forward and of course, the Telstra difference underlies everything we do. That is a little bit of what we're doing

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around value-based management, similar to what David and Deena are doing, but we have our own special feel about it because we are very much about business-to-business, large, complex selling. That is value-based management.

Now let me talk to you about how we're travelling in the whole area of Next Dimension working. You would have seen this chart. This is about our vision around Next Dimension working, about the core IP network which is that wonderful network and then the management layer around that and then the various application areas that we're building out. I am delighted to say it's going very, very well. It is really delivering tremendous value.

Let me just give you a little bit of an insight of how we interpret that Next G and Next IP network that we talked about this morning. This morning you would have heard from Mike Wright and Greg about this wonderful network. I just want to give you an idea of how I talk to a customer about this wonderful network. Firstly, I say that it is 100 times bigger than my nearest competitor: 100 times bigger. I feel good about saying it. I talk about the 7.2Mbps. I don't just talk about the speed. I talk about what it means in productivity to the user who is on that laptop. That is what makes a difference. The speed is really irrelevant.

I talk about the value that it creates. I talk about true mobile desktop and the changing nature of the workforce. Let me give you a little insight into some of our results in the last 12 months. We've got 150,000 services. 80 per cent of our customers, those 1500, are using Next G services and we're having double digit growth in revenues on our mobile business.

In term of the Broadband connections, we've had 134 per cent growth in SIOs. Our data revenues are up 59 per cent. These are just outstanding results and are very encouraging. We think there is a moment of opportunity here in terms of wireless data because it is driving real change into our customers.

If I go on to Next IP, you can see on the chart that will come up in a moment just how wonderful this great IP network is. When I'm in front of a customer I say it's 600 per cent bigger than my nearest competitor. What we talk about is in terms of points of presence and the number of points of presence of our nearest competitor currently, as of about last week, we think was about 2,221, it may have gone to 2,230, but we have 15,000, close to 16,000 points of presence. When you put on top of that the band width, it really a very compelling story because many of our large customers have outlets all across the

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country and that's what they want. They want a scaleable, large, robust network. We are doing very well on Next IP. A few statistics: 22 per cent growth in SIOs; 26 per cent growth in revenue; and 80 per cent of our customers are now using IP.

Remember, IP is a journey and I would not want to say that everyone is using IP telephony as yet. I would say it is probably only about 8 per cent. IP telephone is another step again, but the adoption is just tremendous. If you want any more proof, the next chart shows you what Gartner says and of course we rely enormously on Gartner for independent verification of how our products are performing and without a doubt, the Telstra Next IP network scores very highly on all points.

There were five different categories. We scored number one in four of them and had a very strong result. Even on some of our competitors, I would say that I think they were a very optimistic interpretation of some of their capability.

So Next IP is going very, very strongly in terms of both the underlying architecture but, more importantly, our customers saying, hey, there's real value here as we go forward.

Now I will give you a little bit of insight into three customers. I didn't take our largest customer. I think last time I spoke to you, I spoke about Qantas, NAB and some of the very large ones. We thought that we would take three mid-sized enterprises and give you some insight into what they are saying about the benefits of Next IP and Next G.

The first one here is Accor. They have, I think, about 120 hotels across Australia and they have adopted Next G for some new applications in terms of their customer service staff, and it has been a great hit for them. Why don't we have a quick look at what Kyle Stubbs, who is the head of their telco, has to say.

(Video played)

What I think is so important there is that she talked about value, costs, innovation and availability. They are the things that are really important for many of our customers.

Let's look at another one. This is a very specific example - Channel 10. Matt Feeney, who is the content director in the newsroom, has found a tremendous application in terms of using Next G. They traditionally used satellite. If you remember seeing the Channel 10 vans out there, they used a satellite dish to get the stories back.

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They have moved from using satellite to using Next G. So why don't we have a quick look at this one, because it is another great example of a very specific application that is changing the way people run their businesses.

(Video played)

I think you can see within that example again something unique, where people have been able to take Next G and apply it, and then they have changed the way they do things. So they're getting stories back quicker. It's a lot easier; they can do it on a moving van, whereas they used to have to stop and connect. So it has really changed the way that they do business.

The last one is a great Australian company, Coates Hire. In fact, they are the largest equipment hire company in Australia. They have just migrated a complete Next IP and Next G network. They used to have a number of disparate suppliers. The reason that they did that is that they were finding that they had to get more integration in terms of the management of different equipment in the field, knowing where the field force were and also getting the branches connected.

They have, I think, around 200 sites around Australia. They're out in some of the remote areas, especially up in Western Australia where they're doing a lot in the mining area. This was a big transformation for them. Let's just hear what Tony Yortis says.

(Video played)

I thought I would just show you three little examples. I know that sometimes they can be a little bit repetitive, but it gives you a sense that this technology drives change, drives value, and that's what the message is.

So just trying to sum up here - what we have focused on, besides the normal sales process, is how we can drive sustainable profit growth through really creating value. These areas of customer value, value-based management, driving out services and solutions and this transformation are the four things that we focus on all the time, because without doing that, we will never get to the place where we need to be, which is about growth and about bottom-line results.

Whilst we have made progress, we still have a way to go, and I want to leave you with what our commitments are as we go forward. Firstly, it is about core carriage growth. Let me be very clear: it's about that last word, "growth", because for many years in enterprise we have seen

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a decline, and we have to get back to growth.

It is about really capturing this opportunity that we have of Next G wireless data growth. We think that it is an enormous opportunity at the moment. We have to keep driving out the solutions focus. I would say that we have probably had a slower start than we had anticipated, but we just have to stay the course to really drive out the growth that we need in that area.

Services will remain absolutely critical for us. That is the wrap around the core carriage, because remember with these very complex implementations, the calibre of your people and their skill base and the ability to charge for that is very, very important as you go forward, while retaining customer service and satisfaction and driving productivity improvement. With all that, it's about execution every day, and then we can really deliver some tremendous results going forward.

So thanks very much. It is now my pleasure to introduce my colleague Geoff Booth from Telstra Country Wide. He will talk to you about CDMA migration.

GEOFF BOOTH: Thanks, David. Good afternoon, everyone. CDMA migration started on strategy day back in November 2005 when Sol and his senior leadership team set about transforming the business. The business that I work in, Telstra Country Wide, of course is involved in every element of the transformation, but at this time especially the CDMA migration.

We launched the network more than a year ago, back in October 2006. We advised our customers of the CDMA network closure in January 2006. We launched pre-paid services in May 2007, and we have come a long way since then, with many of our customers moving across to the Next G network.

Our recent announcement, as Mike has said and also Greg, of network equivalence on 15 October is the latest milestone that we have announced in this journey and a requirement for the planned CDMA closure. We are now ready to migrate the remainder of our customers, a number of whom remain in regional and rural Australia.

There are certainly a lot of myths about the CDMA network closure - myths such as the network not being equivalent in coverage to the CDMA network. But as was explained this morning, today the Next G network has much greater coverage than CDMA - some 25 per cent greater coverage than CDMA. We also have today a range of handsets specifically

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designed for our customers in regional and rural Australia, in those coverage areas, and we have coined the phrase the "blue tick" for handsets which are specifically recommended for customers in rural and fringe coverage areas, if you like, of the network.

Since the launch of the Next G network just on 12 months ago, we have expanded the range of devices considerably, and with today's releases we now have a fairly extensive range of handsets, with some 23 handsets, including the new handset which we are launching today, which is the country phone, the Telstra 165.

The 165 is a great phone. With its pull-out aerial and rugged casing, it certainly is everything that regional customers are looking for. It is dust, liquid and shock resistant. The best examples of what we can do with this phone or what the phone is actually producing probably come directly from my people, the area general managers in regional Australia.

As Sol pointed out earlier today, one of my guys who works in south-west Queensland has just driven 1,200 kilometres around that part of the world with this phone, and I want to read out two quick grabs from quite a long email. This one experience was out at Condamine:

A customer complained to a federal member that the Next G was no good at Condamine. The customer was 36 kilometres from the town. I made phone calls and watched Foxtel on a verandah with the 165, which is this new handset. I also educated him about Next G broadband, about how, with an antenna on the roof, they could enjoy broadband.

Another example, McAllister, out that way, a farmer:

CDMA is no good. Therefore, Next G will also be no good. I drove around the farm with the farm manager, watching Foxtel and making calls on the handheld 165, in areas where they had difficulty with the CDMA outside a vehicle.

Certainly, this 165 is proving to be everything that it was designed to be, and we are thrilled with the progress. We do test these extensively in the field, of course.

In addition to the range of handsets, we have now a range of four PDAs in the field, together with a complete range of telemetry devices, i.e. machine-to-machine devices, to ensure that we do meet our CDMA

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customers' needs.

Of course, all of the Next G handsets perform very well on the network, and, as with any mobile network, as Mike pointed out this morning, some Next G handsets work better than others on the edge of coverage.

The number of issues and complaints that we are getting about the changeover is really diminishing, but when we do get one, either David Moffatt's team or my team will deal with the customer one on one until we revolve the issue. That is proving to be a very successful strategy.

The industry, and even a politician as recently as today, has taken a stab in the dark on CDMA numbers remaining. Let me state that these estimates have it wrong. Here are some facts: CDMA revenue has now gone from more than 15 per cent of total mobile revenue to less than 6 per cent of our total mobile revenue in the past 12 months. Our CDMA revenue base has declined by nearly 60 per cent over the same period in the last 12 months.

Greg Winn showed you this morning the Next G packet data growth in regional Australia. It comes as no surprise to me when I see these numbers, because when I'm out and about, I see the way that the video and the data card usage is actually getting take-up in regional Australia and, of course, the subsequent ARPU increases.

It is the first time that many of these customers have actually had access to these kinds of products. Whether we've launched base stations in Marble Bar or Cradle Mountain, and some of the practical examples of people using video to talk to people from some of the most remote parts of Australia to other remote parts of Australia, you can see the value for customers in regional Australia in terms of the data usage.

Many hundreds of thousands of post-paid consumer CDMA customers have now seen the value of the Next G network and have moved, and Next G services now significantly outnumber the number of CDMA services that we are looking after.

We are now sending SMSs to all remaining CDMA customers. We SMS them almost every month reminding them of our planned network closure. Consumer and business customers have all received a number of direct-mail pieces, and the majority have been telemarketed to either by our organisation direct or, indeed, by our dealer network.

We have an extensive retail and dealer program in place through David's

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and Deena's businesses in stores right across Australia. Every enterprise and managed business customer that we look after through David Thodey's crowd and Deena's crowd has a customer migration plan in place.

As we enter the final phase of the migration program, you will see a massive marketing campaign. The best way that I could describe that is that it will be equivalent to what you saw when we launched the Next G network. We are very, very keen to smooth the conversion from CDMA to Next G over the remaining 88 days prior to our planned closure.

On top of this, each of our area general managers is undertaking many local events. As a matter of fact, we have some 784 events right across Australia, from the most remote parts to the major cities, as we lead up to the network closure. We have the systems and processes ready to handle the demand.

Both Deena's and David Moffatt's stores and channels are ready with additional staff being employed to handle the peak demand period. We do want customers to have the best experience that we can deliver during this peak effort. We have stock ready to go and we are very confident that the Next G network and the services that we provide on that network meet all of the requirements of the carrier licence condition.

So the conditions are absolutely ripe for customers to make the move and to change over to our new Next G network. With that, I would like to introduce and hand over to Holly Kramer, our Group Managing Director of Products. Thank you.

HOLLY KRAMER: Thank you very much, Geoff. Hopefully, everyone is getting the afternoon second wind.

I will be talking about how our products and services are delivering more value to our customers and, as a result, they're increasing their usage and their spend. Furthermore, that will be sustainable for a number of reasons. First, we're differentiating all of our products and services. Second, we are listening to customers and to the segments and we are building what they tell us that they want. Third, we're making all of them easier to use. So we are delivering more value and I hope you will see through the presentation today that the evidence shows that.

I want to take you back to our strategy. I showed this exact slide at last year's investor day, and Sol basically presented this strategy the year before, so nothing has changed at all and we are executing on it.

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Just looking at it for a minute, we'll talk about what is differentiating Telstra. First, it's our networks. You've heard a lot about that today. But the point I want to reiterate is that every product that sits on those networks benefits from the differentiation of the network. Every product sitting on those networks is better, faster and more reliable.

The second source of differentiation is our brand assets. You will hear a lot about our brands today, but you will see hopefully in this presentation how we are genuinely leveraging those brands in our products and services to differentiate Telstra.

Integrated services. We are obviously an integrated carrier, and that gives us the opportunity to create a seamless customer experience across our services. In doing so, we are differentiating. Finally, the customer experience: by making it easier, we're making it better for customers.

I want quickly to tell you three different stories today. You've heard David Thodey and Deena say that they are leveraging Next IP. The first is the new applications we are able to deliver to help customers and their businesses increase their productivity. It's driving business ARPU.

Secondly, I want to talk about how Justin and David Moffatt are leveraging the high-speed broadband networks, and they're delivering higher home ARPU.

Finally, pretty much everyone is leveraging the Next G network, with the compelling services that are easy to use. You heard David talk a bit about the icon store, so not only are services there, but we're now working in channels to help educate customers and teach them how to use these products. And guess what? It's driving up wireless ARPU.

Let's start quickly with the IP story. As I said, you have heard David and Deena talk a fair bit about this. But I want to make the point that IP growth is more than offsetting traditional data decline. Last year, 06-07, was the cross-over year when IP overtook old data revenues. We are seeing that trend accelerate, and the good news is that IP is growing faster than the decline of traditional data. That means that we are continuing to generate more revenue.

But I think it's a bit more interesting to look at this from a customer perspective, so what we have here are two actual customers - one in Deena's segment and one in David's segment - and it is showing the

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story of what happens when a customer moves from traditional data into IP. I guess the original fear was that when they move into IP, revenue and ARPU go down, and it's proving again and again not to be the case. Why is that?

What happens when a customer moves to IP? First, they realise that they need more bandwidth, because their mission-critical applications are on IP. Then they're able to integrate more of their locations, and more of their employees are working remotely. Third, we have increased the appeal, if you will, of managed network services, so many of them are now much more inclined to move into a managed network service environment. Finally, it opens up a whole new set of opportunities for productivity applications, including - well, let's start with voice, and Deena talked about the services coming down the track. If we help customers to grow their businesses, as you can see, they'll help us grow ours.

Why are businesses choosing Telstra as their partner? David earlier referred to the Gartner report. If you haven't had a chance to look at that, please do, because it shows that Telstra unequivocally has the best network out there. Then, as I mentioned, we deliver managed network services on top of that, and because of the benefits that brings to customers, it is reducing churn significantly - 10 per cent.

I guess another piece of the puzzle is to actually make it easy for customers to bundle all these products together. In the old days, they had to walk in and buy six different products with us and go through six different processes. We're bundling them into solutions like ConnectIP, and I guess again the evidence speaks for itself. Year-on-year growth of 35 per cent in this product means that it is really working.

Where will we go as we move forward? Well, it's the applications. It's the applications that help customers drive costs out of their businesses. Just by way of example, we talked about IP video collaboration. It provides rich and visual collaboration tools that enhance your day-to-day office communication. That means that a business gets to reduce its travel costs. And as we move into high definition, it gets even more powerful. I think we have it demonstrated outside, so hopefully you will have a chance to take a look.

IP contact centres are another fantastic example of how we give more flexibility to our customers and it helps them to better serve their customers, so it's not just cost reduction; it's actually revenue growth for our customers as well.

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There is a great example here where a couple of weeks ago in Tasmania, one of our web contact centre customers had a fire in their premises and went down. Within a matter of minutes, they had actually moved all of their contact centre traffic over to other sites outside of that particular one and had no interruption in their operations whatsoever. So there is a customer who really believes the story of IP and the opportunities. As David said, it is more and more of those stories building up and more and more believers out there. And the list of opportunities goes on.

Let's move into the home environment now, where BigPond is achieving, I guess one would have to say, the ultimate in business success. They're growing market share and growing ARPU at the same time and leading the world in the way that we are achieving that. Justin will happily tell you a little bit more about that in a moment.

Let me talk a little bit about some of the things we are doing in the background. The starting point for this growth is the need for speed. We have seen 83 per cent growth in the proportion of customers who are on high-speed plans as we have rolled out DSL2+, and we have increased the speeds on Cable Extreme to 30Mbps. So don't doubt for a minute that there really is a need for speed.

Another thing that we want to talk about is what is driving that need for speed. You will hear Justin talk a fair bit about content and applications driving the need for speed, and that's true. But another important driver has come from the introduction of home networking with the BigPond Home Gateway. This caters for a home environment where multiple devices all require broadband access, often simultaneously.

More devices leads to more bandwidth leads to more usage. Since we launched in June, we have seen our take-up rates absolutely soar. I will leave the numbers to Justin, because it's really incredible, but we are both really enthusiastic to see the much-touted digital home become a reality.

A very, very important part of this story, as in all things telco, is the ecosystem around the home network, because if any of you have home networks, you know that it creates a more complex customer environment. So we have introduced two things: we have introduced a premium support referral service with our partner, Gizmo, which gives customers the opportunity for specialised support right in their very own homes and creates a new revenue stream for us as well.

On the costs side, we have introduced remote management to support the

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gateway as well as our other modems, and this is another initiative that allows us to diagnose and troubleshoot customer problems without a visit to the home. That saves a costly truck roll and helps Mick Rocca keep his costs down as well.

Where to from here? Well, in addition to the media-comms story that you will hear shortly from Justin and Kim, we will be introducing over the coming year a trio of powerful new integrated communications services: video telephony, unified messaging and an integrated address book. That's all I will say for now, so I will just ask you to stay tuned.

So now let's talk about Next G. You heard a bit from Sol this morning about the Next G story, but I think a few hours have gone by and it is well worth reiterating what is a fantastic story about truly world-leading performance. Greg and the team built this network in record time, and now we are growing 3G SIOs at record rates. Telstra's 3G customers now make up 30 per cent of all mobile SIOs, and with our single-minded focus on Next G you can be sure that these numbers will continue to grow.

It might be worth noting that we have been talking to a lot of carriers who have 3G networks, but they don't have pervasive 3G networks that we do and it causes that inability to have single-minded focus in their business, because they have to focus their marketing on 2G and 3G; they have to focus their channels on training 2G and 3G; they have to focus their product development on 2G and 3G, and it really dissipates their efforts. So I believe and I see, and I work here and I can feel the single-minded focus behind this and I believe that that chart is going to continue to grow dramatically.

We also are leading Australia up the world charts in terms of data per cent of ARPU. This date from Merrill Lynch shows that Australia as a whole moved up six places from June 06 to June 07 in terms of our data per cent of ARPU. That's reasonably interesting, but I think it is a bit more interesting to look at what Telstra has done.

Since the launch of Next G in October 06, we moved last December 19 per cent data share of ARPU to 27 per cent at that June quarter reported previously in the previous slide, and as of September we were sitting at 31.3 per cent data share of ARPU, among the best in the world, and that's after just one short year in action.

But that story gets a lot more powerful when you see that data is also growing at the same time that we're growing the core. I had all the growth rates on here, and Ben said that you probably weren't interested

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in that sort of data, so we'll hold it off till the half. These guys know I have a bit of a sense of humour. Anyway, what you can see directionally is that we are growing significantly in every single category, because if your data per cent of ARPU is growing at the expense of voice, it is not such a great story. But you can see that the core messaging, wireless broadband and interactive data are growing very strongly.

The next thing that a lot of you like to challenge us on is, you say, well, hang on a minute, aren't you just bringing new higher-usage customers in and isn't that what's driving up your ARPU? The answer is, yes, by all means we are bringing in new higher-usage customers, and that is fantastic; but we are also, like you, interested in ensuring that we get sustained ARPU uplift.

So we have looked at a couple of cohort analyses here. This top one in post-paid is a group of customers that didn't join Telstra but migrated from 2G to 3G in May, so they weren't even the very first adopters; they came on in May. This is the May to September view, and we have seen sustained ARPU lift over that period of 14 per cent, growing voice by 8, messaging by 15 and interactive data by 260 per cent. And what's more, the interactive data penetration - that's the number of users who are using this service - has doubled to 54 per cent. You would have to agree that that's well over the tipping point.

Pre-paid launched more recently, but we are seeing the exact same trends. It gives us a lot of confidence, plus the fact that pre-paid customers didn't actually have access to these sorts of services before, so it's really showing that they're fundamentally the same and their usage and their spend is growing.

I would be remiss if we didn't also look at the business customer. Very quickly, you can see that the average of our business customer with voice only is the orange bar all by itself. If you take the average of all of our customers who also take email or also take one of our business productivity applications, those customers' ARPUs doubled as a result of adding on additional applications. So the opportunity for growth is real.

Why is all this happening? Let's look at some of the drivers. The first thing is our expanding range of Next G devices. Since launch, we have added pre-paid, we've added a range of PDAs, we have added data devices, like our new 7.2 data devices from CR wireless, and by Christmas we will have every major vendor represented in our range.

I know last year this was perceived as our Achilles heel, but I'm

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pleased say that we now have access to an abundance of 850 devices, thanks to Dr Jacobs and the Qualcomm chipset, and vendors are working with us on leading-edge speeds, leading-edge designs and leading-edge capabilities.

Our commitment to making the experience easier for customers is paying off as well. We introduced the [my place] menu last year on all of our 850 devices, giving Next G customers one click to all of our major services. And guess what? Our 850 devices have much, much higher usage of all of those services.

And we continue to work with our vendors to specify hard keys and soft keys on the device to further drive uptake and usage. Guess what? When you put Foxtel on the left soft key, it drives two and a half times the usage of Foxtel than the devices that don't have it on the soft key.

Tonight, we will be launching, across the street at 400 George Street, a world-class usability lab that is part of our customer experience centre. This allows us to design applications and services that are easy and intuitive from the very start. I hope that it will be a fully functioning lab with customers on an ongoing basis, so I hope you will take the opportunity, whether it is tonight or at some time in the future, to come in and have a look around.

At the end of the day, we wouldn't have this growth in usage if we didn't have compelling services. It's all about the services. We have continually grown and enhanced this range of services available on the mobile, leveraging the content from BigPond, Sensis and Foxtel.

The other thing Dr Jacobs mentioned was location. We have leveraged location bank capabilities, both cell and AGPS, to location enable some of these services. For example, when you pull up the weather, it knows where you are and gives you the weather in that location; movies; Whereis; and it has allowed us to introduce a new product, Sensis Navigator, which Bruce will talk about.

The story is the same for business. In the past year, we introduced a wireless applications partner program that gives partners a very simple and direct way to deal with Telstra to make their applications available to our customers and meet the wide range of needs of mobile workers.

You have seen the growth earlier in the chart that this is having on the business market. Where to from here? I am pleased to announce the upcoming launch of two new services that take our one click promise to

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the very next level. In the user interface, we move from My Place, the current generation, the static user interface tool, to the dynamic one click customisable content, all accessible straight from the screen. It was a very big honour to have Paul Jacobs here today. He mentioned to you this service that we're launching, Easy Touch, and this will be available to Telstra customers before Christmas. I will just run a short video so you get a feel for what this service is like.

(Video played)

In the spirit of continued innovation as well, just last week we launched our newly enhanced mobile Foxtel service, thanks to our partnership with Kim and the team at Foxtel. It has new features like a dynamic EPG, 33 branded channels and the ability to program your iQ set-top box. Today, we're launching the new Samsung widescreen device that Sol showed you earlier that's fully optimised for TV viewing, with its wide screen and it's amongst the world's first 7.2Mbit speed devices.

In closing, I'm going to run one more short video that does a better job than I can of presenting this product which is new and a series of innovative and differentiated products from Telstra that you will see more of coming out over the next year. Thank you.

(Video shown)

I would like to introduce my friend, Mr Justin Milne.

JUSTIN MILNE: Thanks, Holly. It is great to be here today to update you on the story of how BigPond is helping to turn the vision of Telstra as a media company into a reality. It is a story of high double-digit growth in both SIOs and in revenue, but most importantly, it is a story of growing market share and ARPU together.

We reported in August that we'd continued to grow our market share and achieved 47 per cent. Today I am very happy to inform you that we've continued this upward climb. Today our market share is around 48 per cent, with no sign of the trend changing. 50 per cent is an extremely important goal to us and we expect to be having that party pretty soon.

Underpinning our growth is the combination of great access products, plans that suit our customers and the innovative contact and applications our customers clearly value highly. The market is rewarding our mix, customers have voting with their feet and their wallets and we've gained a lot of third-party recognition through a

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range of industry awards during the past 12 months.

Of course, growth in market share alone is not enough. There are some who try to grow market share just by slashing their prices and they, of course, take an ARPU hit in the process. Our strategy is to grow market share and ARPU together through value-based pricing. We are not prepared to follow competitors into the gutter with a pricing war. To borrow one of Sol's sayings, "We've seen that movie before and it's got a sad ending." It usually ends in tears and often from the poor old customers.

Our pricing has hardly changed since we introduced the $29.95 price point three years ago in February 2004. As you can see with the graph, on the left-hand side here, between Q1 last year and Q1 this year we've enjoyed an ARPU increase of almost 10 per cent. We call that growth the ARPU escalator. It is upward journey that our customers take through our plans as they immerse themselves in the functionality and the convenience of a Broadband world.

One third of our customers who join us on our entry level $29.95 plan soon find that they want to consume more and often at faster speeds, so they upgrade to what we call a liberty plan which starts from $59.95. Today, if you look at our whole base, close to 60 per cent of our customers are on liberty plans. The journey from $29.95 to $59.95 a month, that's the ARPU escalator. We make it easy for our customers because they can change up or down any time they like at no charge.

Holly and I both share an enthusiasm for BigPond home networking because it does fundamentally change the game, both for customers and for Telstra. Let's have a look at our new ad about BigPond homes.

(Video shown)

People seem to really like the ad. We're getting good feedback. Importantly, what we call our attach rates have more than doubled as a result. Today more than 20 per cent of customers who will buy and access product will also buy home networking. In some of our centres that attach rate is over 50 per cent. The campaign is based on the fact that the Broadband cycle is, in our view, moving on to the next stage.

Traditionally, we've had one PC, one modem and one user at a home and usually that's been in the study where the spare phone line was for dial up. Today, particularly if you've got school kids, the whole family needs to be online, often at the same time. Dad might be reading work or personal emails, mum might be doing a second degree,

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the kids will be doing homework online or downloading movies and music and probably someone is there playing network games on an XBox or a PS3.

One hard-wired connection doesn't cut the mustard any more and neither do old Broadband speeds, by the way. The BigPond gateway is a simple and quick way to provide multiple connections. Of course, getting a whole family online at the same time drives increased usage, so there's another ARPU escalator benefit there as well and much less propensity to churn. When you've got four or five people online together all accessing rich content, you need speed and that means big pipes, but it doesn't just mean a faster plan. It is about the full end-to-end experience that Telstra delivers these days through its transformed IP networks. When it all comes together, here is the kind of experience you get.

(Video shown)

So as the video demonstrates, we have access and content all working hand in hand, each driving the other. We have been very pleased by the latest statistics for on-line publishing. Consolidating the numbers for Telstra's new media businesses places us neck and neck with News Limited and Australia's third or maybe fourth biggest on-line publisher.

For us content isn't just an add-on, it's a fundamental part of the BigPond mix. Here is how we demonstrate the value of content to our business. The graph starting from the left shows, firstly, what we call direct revenue, which is advertising, direct content sales from music, movie, games and video downloads. Then there is the indirect revenue from what we call pull-through or acquiring customers because we have contend and the other guys don't. Then there is the retention effect. People stay with us if they use the content. Finally, there is the incremental access ARPU which contents delivered through increased usage.

The relationship that we have with our broadband customers has also proven to be extremely important to our PSTN business. Telstra's share of PSTN customers is much higher amongst BigPond customers and those customers with both broadband and PSTN have a far lower propensity to churn.

One of the very exciting growth stories we are seeing is the uptake of mobile content, thanks to the power and reach of Next G network. When you can be on the move and download a song or an email in seconds, or watch BigPond TV or mobile Foxtel, or surf the web quickly, your

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propensity to use content just keeps on increasing. In games and music in particular we are seeing extremely strong growth. For example, just last month, BigPond music mobile revenue grew more than 20 per cent month on month.

Our mobile TV offering is arguably the best, with 33 channels of mobile Foxtel and 33 shows on demand with BigPond TV. With these two products we have a viewing experience to suit all of our customers as they maximise the little bits of downtime in their day.

BigPond TV provides a TV on demand experience and with The Chaser, Summer Heights High and Damages all for download today, we have three of the most talked about shows in the country at the present.

The innovations are continuing at BigPond and I am very pleased to announce today two more from the world of Web 2.0 where user-generated content has changed the way we use and interact with the Internet and each other. The first the BigPond office. It's a web-based productivity suite that will allow families and busy professionals to access applications for word processing, spreadsheets and presentations, and because it is web-based, BigPond Office lets users collaborate on a project anywhere from Berlin to Bourke. Families can share budgets and presentations are accessible worldwide at any time. We are not just innovating in the real world. We are the Australian leaders in the virtual world. Have a look at this video on Second Life.

(Video played)

SYDSim will present much more than just a new attraction to bring visitors to a Second Life islands. It is a unique way to monetise our investment in the virtual world. Businesses and building owners in the real Sydney CBD will be offered the opportunity to buy or lease their own location in virtual Sydney and they can develop their own presence there in the amazing world of Second Life.

I would like to close with some good news about how we are building a world class digital advertising capability together with our mates at Sensis. From mid-November we will be the only media business in Australia to be able to serve a total campaign across different media. We will be able to serve ads on line and ads on the mobile. In addition, we will be able to serve and attract video ads into all of our different video streams. It sounds simple but it is actually a real leap forward. It means that our sales team can offer a fully integrated campaign across all of our assets and, importantly, track it and record it very accurately.

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This provide advertisers with a one-stop shop and a whole range of creative options. They have made it very clear to us that they just can't wait. Of course, we work hand in glove with Sensis on all our advertising, so now here is Bruce Akhurst to tell us more about Sensis.

BRUCE AKHURST: That's great. Thanks very much, Justin. It is great to be here with you this afternoon and have an opportunity to provide you with an update on what's happening at Sensis. So let me begin with the headlines. First, I am really delighted to tell you that we will successfully turn the Yellow Print result around from a decline last year into positive growth this year. While today isn't the occasion to report trading results, I can tell you that the Yellow Print results for metro, which is now in and final, has seen very substantial improvements right across the board.

In addition, the non-metro print campaigns are well under way and they are also showing very substantial improvements on last year.

I will tell you more in a moment about how we have achieved this turnaround and it hasn't been through price. In short, I am very, very confident that we have a sustainable growth plan for Yellow Print to go with continued strong growth with Yellow on-line. Let me remind you that in terms of materiality the result in Yellow is very, very important because Yellow, as a whole, represents over $1.2 billion of revenue.

I am also very pleased to tell you that our other core product, White Pages, will probably again beat world records as it is likely to come in at double digit growth rates with improvements in print and on-line.

Our other headlines: we are seeing some improvement in the Trading Post following last year's disappointing result. The decline in print has slowed and we are on track to deliver earnings improvement by continuing top line growth in On-line and with tight cost control.

Our systems and process transformation program is progressing very well for full delivery next year on time and on budget. We will see margin improvement in subsequent years as the real benefits of this program are translated into further top-line growth and efficiencies.

So let me start with our strategy. Our strategy remains the same as Sol and I outlined to you in 2005. We are driving growth from our core local search business in four ways: Organically; through our multi-platform network; by extending interrelated offerings; and as we have said all the way along, through potential M&A opportunities which

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will be required to drive our revenues to the $3 billion goal.

We have sharpened our focus on local search by exiting non-core businesses such as Envisage. I am very confident that this strategy will continue our record of sustainable growth by constantly improving our ability to bring Australian buyers and sellers together.

By almost any measure, Sensis is at the forefront of the directories industry. So why is it exactly that the investment community all over the world has fallen love with directory businesses? A recent report has highlighted five factors and, importantly, Sensis is a global leader in all of them.

The first is favourable industry and market dynamics. Sensis is top three in the world for directory revenue share of the advertising market. We have a 13 per cent share of the Australian main media market and we are a leader in the on-line advertising market which is growing at roughly twice the pace of the US.

The second factor is an attractive competitive position. Sensis is the sixth largest directories company in the world. Our 07 directories revenue grew by 4 per cent compared to 3 per cent for the global benchmark, and of the top 10 directory businesses, we are number 1, not just for revenue share of GDP but for revenue per capita, revenue per directories title, revenue per distributed copy, and revenue per sales representative. That's a remarkable achievement.

The third factor is a very well penetrated and diversified customer base. We have about 600,000 paying corporate and SME customers. We also serve millions of paying consumers as well. Our top 10 directory customers represent less than 1 per cent of directory revenue, so we are very well diversified.

The fourth factor is an attractive operating model with very modest capital expenditure and strong cash flow generation. I think everybody knows this is a business generating huge cash flows and with better than 50 per cent margins and a relatively low capital intensity.

The fifth factor is opportunities for future growth. We have a more diversified portfolio than just about any other directories business with a network that is spanning print, on-line, voice, mobile and satellite navigation. While we are a world leader in print directories growth, print is now less than 70 per cent of our total revenue. At the same time, 37 per cent of our revenue came from products that grew last year by more than 9 per cent.

Twenty per cent came from products that grew by more than 25 per cent.

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So clearly this is a world-class business with very attractive opportunities for long-term growth.

I would now like to describe the business model we are using to unlock that growth. Usage creates advertiser return on investment, which creates shareholder value. As this model suggests, usage, which is our ability to bring buyers to the table for our advertisers, is absolutely key to long-term growth. So to achieve growth we are investing in usage and subsequent advertiser return on investment.

I am pleased to say from the results we are seeing, these investments are paying off. As I have said, both Yellow and White Pages print will improve on their 07 growth results with White Pages again breaking world records and likely to hit double-digit growth. We are also delivering strong on-line growth and have maintained our position as Australia's largest on-line business. We are managing a world-class voice portfolio with 1234 delivering strong revenue growth against the global trend of decline.

Finally, our mobile products are delivering outstanding performances. Satellite navigation revenues continue to grow strongly while usage and advertiser interest in our Next G mobile products is rapidly gaining traction.

To increase usage we are investing in six areas. The first is heavier promotion of Yellow, and we are targeting two key segments: people experiencing life events. Did you know that usage of Yellow Print increases by 400 per cent in the three months either side of moving home. We are also targeting the family and self-development and principal professional segments. These segments capture 75 per cent of all Australian small business owners who are both obviously users and advertisers.

Our second focal point on usage is print circulation. We are working really hard to expand directory circulation because, after all, you can't use the directory if you don't have it.

We have employed local circulation managers who are working at street level in locations such as apartments, offices and hotels to ensure that the directories end up in the hands of users. Our circulation initiatives this year will lead to an extra 250,000 directories being distributed. That's more information in the hands of more buyers leading to more potential customers for our advertisers.

The biggest step we are taking is to build usage by substantially improving the directory ad quality. The quality of information is

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vital because more complete up-to-date and comprehensive information will do a much better job of helping buyers make decisions. More information makes the book more useful to buyers and improves the number of customers we can then offer to our advertisers.

To do that, we are helping advertisers create what we call information-rich ads. Extensive research has shown that information-rich ads are the number one driver of usage. We have undertaken the largest training program in our history. We have skilled every member of our 1,000-strong sales team in information-rich principles.

We have established an expert in-house graphic design team to help customers create the best ads possible. In this way our people can sit face to face with all of our customers and explain the benefits of information-rich advertising and how to actually realise those benefits. As a result, our customers can get the best out of their Yellow advertising. Our users have more information to support their decisions and Sensis maintains a very important competitive advantage.

Our content quality remains better than anyone else can offer. The ads on screen demonstrate the impact of information-rich advertising. Last year's Capital Glass ad contained very limited information. It used a 1-3 number which doesn't imply local service. This year's ad is starkly different. The heading is much more compelling. There is more information to help the buyer. Payment options and a web address are both highlighted and a local area number is now included.

Our information-rich add program is transforming both the quality of the information provided to users and the ability of our advertisers to attract more customers - and it is working.

The fourth way we are driving usage is by dramatically improving the search experience. We have launched a substantial upgrade to yellow.com.au these days. We now offer one-click results to 80 per cent of our 2 million listings and we are working to bring this up to 100 per cent. As a result, yellow.com.au users can now find the information they are seeking faster than ever. There is a lot more to come in this multi-phase development program for yellow.com.au so watch this space.

We have also improved the search experience for Whereis users to make our mapping and directories content even easier to access and use. Whereis is an absolutely phenomenal story. We are tripled usage whereis on-line maps in just three years. We now have 2.8 million unique browsers downloading 60 million maps every month.

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Unit sales of Whereis powered satellite navigation devices grew by 119 per cent last year to almost a million. Enhancements to Whereis will drive even more usage growth. We have developed a new site supported by high resolution photo maps, easier navigation and, most importantly, we are integrating Yellow content into the mapping to provide a more exciting new local search offering.

As Holly said, we have extended satellite navigation into GPS mobiles by launching Whereis navigator on Telstra's Blackberry 8800 phone.

Finally, we improving usage through integration and content syndication. By making our content more widely available across different products and media, we make our services easier to find and use, leading to a greater audience for our advertisers. Today's Yellow adds are automatically syndicated across voice, on-line, satellite navigation and mobile. I am very proud to say that we recently concluded our first third party syndication deal with Australia's most popular portal, Nine MSN. Phase 1 of this deal has already been delivered with Yellow content now powering the MyLocal search engine.

With regard to advertisers, I would like to highlight three areas of focus: firstly, delivering great return on investment; secondly, the strong sales force and customer engagement; and, finally, the ability to measure and monitor the value of your Yellow advertising.

So as we have seen, our extensive usage program is growing advertiser return on investment because these users are now finding their businesses. The potential reach in a month of Yellow Print ad is over 40 per cent of Australians. That's an audience that turns to Yellow Print over a million times a day. Over 90 per cent of that million then go on to contact a supplier.

By syndicating this Yellow ad content, we have vastly increased that reach to almost 2 million references a day. So, clearly, if you are looking for real leads from real customers, then Yellow is the place to be.

We are now increasing our efforts to engage our salespeople with customers to build on the understanding of Yellow's value. We have employed proven international experts who have trained our salespeople to explain the Yellow value story to their customers. We are also setting up field marketing operations all over Australia. We are taking our resources out to our customers. Every region of Australia is different. We are recognising this and we are localising services such as sales, products and pricing development, so they are optimised

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to reach each areas's unique needs.

Were also making Yellow return on investment more transparent by providing tools that help advertisers readily assess the value and the performance of their advertising. We have set up thousands of metered ads across Australia with more to come. These metered ads allow us to provide customers with hard data about calls generated in their industry.

We have also established an on-line monitor, the Yellow Value Calculator, to help demonstrate the value of Yellow advertising. So consider the example on screen from the furniture and removals storage category. We metered 11 ads in different yellow directories and found that each ad generated an average of 928 calls per year. As this program evolves over the current year, we will be able to demonstrate to our customers not just the sales inquiries generated but the conversion, the average sale price and the resulting return on investment.

That will make Yellow Print just about the most accountable print advertising medium in Australia.

In the last few minutes, I would like to update you on our directory systems and process transformation. Working with Amdocs, Sensis is transforming the way we do business by introducing a world-class integrated IT system and a single seamless end-to-end process.

As part of this, we are decommissioning 106 systems, we are eliminating 120 processes and we are combining 80 databases. We will have a single system feeding into a single process and utilising a single data source. We are also employing the methodology that Telstra is employing, meaning that we can work very much in harmony with the Telstra systems where necessary.

This system will consolidate our shift from product to customer focus. So, for example, our sales people today have to interface with several systems when processing an order. The new project will mean that they will interface with just one system, no matter what sales channel they work in, and the process will be simple and streamlined. This means an elimination of multiple processes, greater efficiency, less time training and less room for error. That means more time with our customers and a better outcome for everyone.

I am pleased to say that the project is well under way with phase one, the product designer, completed on time and under budget, and we are well on track with phase two and well placed to meet the deadlines

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outlined on the screen. Once this program is complete, as I said earlier, we expect to see further margin improvement over time from the top-line growth and also real expense savings.

We are also investing in a substantial program of Trading Post development. As you know, Trading Post revenues have been declining in line with the rest of the print classifieds industry. At the same time, we have seen exceptional growth in Trading Post Online. Usage has doubled in just three years.

We have taken decisive steps in classifieds to return to growth in the medium term. We have reduced the rate of print circulation decline. We have delivered substantial print cost savings, and we are undertaking a major systems upgrade to realise the growth potential of online. This upgrade will provide a more reliable and stable platform than we have today. It will enable a more refined user experience and the development of new products for both buyers and sellers, and it will build on our existing transactional capability with new services that we launch in 2008.

Finally, let me touch on our growing SouFun business. SouFun is an amazing business. It operates in the Chinese online real estate market, which is growing at 30 per cent per year. SouFun offers 3.5 million sale and rental properties to an audience of 46 million users, who are clocking up 1.4 billion page views every month - 46 million users, 1.4 billion page views a month. SouFun has increased the number of cities it services from 45 to 75 and is well on track for its 100 city target by 2008.

As a result, the company is delivering attractive revenue growth with expanding margins for our shareholders. I'm sure you will agree that this is an exciting time for Sensis. As I stated earlier, Yellow Print will improve on last year's performance, moving into positive growth. White Pages will come in at double-digit growth rates. Trading Post is on track to deliver an improved performance this year, and our systems and processes transformation is on track and will underpin Sensis's competitive position and ongoing growth.

I will now hand over to the CEO of Foxtel, Mr Kim Williams. Thank you.

KIM WILLIAMS: Thanks, Bruce. I would like to thank Sol for including Foxtel as part of Telstra's sweeping presentation of its business, products and services today. It provides me with an opportunity to set out the sustainable growth account of Foxtel.

Personally, I think this is the most exciting media company in

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Australia today, and it is a pleasure to be here and to share what I believe is a fundamentally positive and compelling aspect to Telstra's story.

Since 2002, we have transformed Foxtel's products. From a simple analogue offering of 46 channels, we have more than trebled the range of choice available to Australian consumers and we have added interactivity, a world-leading electronic program guide, a great personal video recorder, the Foxtel iQ, and as you heard from Holly and Justin, one of the best mobile television services anywhere today.

This has resulted in the fastest conversion of customers from analogue to digital in world broadcast history - 100 per cent in just 34 months, a task we completed in February of this year. And, of course, it has driven consistent, strong, reliable growth.

Over the past five years, Foxtel has strengthened its financial position through the sustained growth which has followed from a $550 million investment in the roll-out of the world's most sophisticated digital television platform whilst maintaining exceptionally strong cost disciplines.

This has resulted in subscriber households moving from just under 800,000 at 30 June 2002 to around 1.42 million at 30 June this year. In the same period, our revenues have grown from $630 million to over $1.4 billion and our EBITDA from a negative of $47 million to a positive of $237 million in the last financial year. ARPU in that period has grown by 40 per cent. As you can see, there have been corresponding dramatic improvements in both EBIT and operating profit after allowing for digesting the digital investment.

Throughout that period, we have been constantly focusing on performance improvements across all of the key operating metrics in the company. To name just some of those achievements, let me cite the following: Foxtel has world-leading ARPU benchmarked against the percentage of available recreational spend in the major markets.

Our entry-level price is at a comfortable midway point, our top-tier product is in the top quartile and our ARPU is the highest. Our churn is also world leading and has halved over the past six years, comfortably being below comparable performers in the USA, the UK and New Zealand.

Our iQ uptake has been the fastest in world history, now approaching 19 per cent of the customer base after just two and a half years since its launch. And Australian subscription television's share of viewing,

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at 60 per cent average of total viewing in subscription television households across the first 43 weeks of 2007, is the highest anywhere and is up by 380 basis points on the first 43 weeks of 2006.

The viewing story is one of consistent, sustainable growth across the lifetime of subscription television since it started in 1995 and is the surest indicator of satisfaction with the product. We are now the number two provider of television across all Australian homes, that is, including subscription television homes and non-subscription television homes. We have been the number one provider of television in Sydney for all of 2007 as measured by OzTAM against all television homes and all viewing.

That growth derives from two key factors: an unrelenting commitment to product innovation in the service of consumers and a continuing investment in relevant, unique, diverse content.

Let me start by referring to product innovation. We launched the first multi-game live application anywhere this year when, in August, we launched a choice of four live simultaneous games of the English Premier League. You choose which team and game takes your fancy. It is hugely popular.

By the end of this year, we will have installed the entire Virgin Blue jet fleet with Foxtel live to air, 24 channels of live broadcast Foxtel in planes across the country - exactly the same as you would see in your own home at the same time.

Holly set out for you the phenomenal Telstra mobile Foxtel product, which, from launch on 5 October last year with just 12 channels, has now grown to offer over 33 channels of full EPG and remote addressability to the Foxtel iQ. It is a remarkable piece of innovation in the service of the consumer and is setting the pace internationally.

Late last year, we launched the Foxtel EPG on the web. Not only does it provide all listings for every channel for the next seven days, but it also provides the ability to instruct your iQ at home from anywhere in the world at one touch.

Interactivity has changed our broadcasting landscape forever. In 2007 alone, we have broadcast over 64,000 hours of interactive services to subscribers with 62 separate live interactive services. It has changed and shaped consumer expectation in the most exciting way.

Foxtel is about partnering technology with new, fresh and exclusive

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content always in the service of the consumer. It is about the best choice available in news, documentary, children's, music, movies, sport and general entertainment and about being a national leader in each category notwithstanding the very considerable regulatory impositions that continue to favour and protect our opponents in the networks working against us.

On Tuesday this week, I announced the launch of our newest drama service, showcase, adding better value to the showtime tier on our platform with a superb best-of-breed TV drama and independent movie offer of breadth and depth like never before.

Today, in Alice Springs, we launched the first national indigenous television service on our platform, nationwide to all Foxtel subscribers as part of our basic service. In January, we launched the first 24-hour-a-day Australian business news channel, Sky News Business, extending our already unparalleled choice and quality in news delivery to Australians.

Also this week, we announced that American Idol will screen from January twice weekly within hours of its US broadcast, connecting Australian consumers with the buzz of the world's most successful television program ever when it actually happens.

In sport, to complement our already remarkable diversity and depth in NRL, AFL, rugby, cricket, basketball, tennis, golf and almost all soccer - we are football, after all - is the groundbreaking agreement to provide the most substantial coverage ever of the 2010 Winter and 2012 Summer Olympic Games, where we have not only the subscription broadcast rights but all the rights to mobile and broadband.

Rounding out our programming is our continuing investment in the best-commissioned original drama and documentary from our own creative community, which is now regularly winning awards, critical acclaim and audience support as never before.

Our sustainable growth story will rise further in 2008 with a careful managed investment which will further transform the appeal and outreach of our consumer offer. Our growth has only just started to hit its stride, and there is plenty of runway before us as we take off into the real wonders of what we can deliver to consumers in an advanced digital age and with the resources and appetite for investment risk and reward that we and Telstra are well positioned to manage so well.

Our aim is simple: iQs for all. In 2008, we will launch two new iQs: the first is a cheaper, better version of the existing iQ and the

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second is a state-of-the-art HD version. Both will reinforce the Foxtel proposition, our dedication to consumer choice and control, so that we enable consumers to optimise their television viewing at all times.

2008 will see us expand our on-demand service with an increased offer and the addition of simple navigation and search with an online recommendation engine also. We will add to the portability of the superb Telstra Next Gen Foxtel mobile service with transferability from the iQ to the iQ to go, giving reality to watching what you want, when you want and where you want.

Underpinning all this is true high definition, initially with four exceptional channels of beautiful pictures, crisp, clear 5.1 surround sound and superb content, and then in 2009 we explode the whole proposition further with extra bandwidth and a vast array of HD channels.

But there's more. The Telstra cable in Sydney and Melbourne is already HD ready, waiting for our offer to match the remarkable 30Mb speeds Justin was describing earlier. With a matching commitment to carefully targeted, commissioned and acquired content, we are confident that penetration rates, which are already above 30 per cent in Sydney, will not slow before we reach 50 per cent nationally over the coming years.

But I am from television, and we all know that a picture is worth a thousand words. Let me share a view of that vision with you.

(Video played)

ANDREA GRANT: Good afternoon, everyone. My name is Andrea Grant and I am Head of Human Resources at Telstra. I haven't spoken to you before, but we thought it was about time that you heard about what has been happening in the people and culture space, given that we are two years into the transformation journey.

You would have seen from the presentations today that Sol and his team are all working to an integrated strategy that began back in November 2005. The work that we are doing in the people and culture space is woven into everything that we do. In fact, we see it as the glue that holds the transformation together.

The reason for this is that you can have great strategy, you can have great products, you can have great processes, but to really drive the changes, you have to have a highly skilled and talented workforce who are passionate and motivated to achieve the results that we are after.

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So I am pleased to say that over the past two years, we have invested heavily in our people and in building our talent base and creating a high-performance and customer-intense culture. As with all other aspects of the transformation, we have been working to a comprehensive people and culture strategy that has a detailed plan and key milestones and metrics.

Building capability and changing culture takes time, especially for a company of our size. We are now into two years of a five-year journey, and I am pleased to say that the indicators are positive.

We are investing heavily and finding and developing the best possible leadership at Telstra. Operating in a global economy means that we need to have the global experience and a truly world-class team.

Our mandate is to hire the best people from the best organisations in Australia and globally. Since November of 2005, we've hired 60 new executives and we have internally promoted 90. The majority of these executives are Australian, but we've also recruited from the UK, from Europe, the US, from Asia and importantly, from New Zealand. However, it's not just about bringing new talent into the organisation. We're also systematically reviewing our leadership capability at every level within our business.

By having highly capable talent in every leadership role, we really ensure we're driving and leveraging productivity and performance. To complement this at frontline leader level, we have introduced a world-class program that is designed to develop our team leaders and our frontline managers. This is already making a very positive difference to performance across the business.

At the executive level, we have been fast-tracking the development of a number of our most talented executives through a 10-month mini MBA-like program designed to get them ready for more senior roles. In addition, this focus has enabled us to develop a robust succession plan for all of our critical roles, ensuring that we have highly skilled people ready to go and waiting in the wings for when we need them.

We know that there's been speculation about the tenure of some of our international employees. We also know that it is critical we have people ready to go, what we call being "ready now" successors. I am pleased to say that for two years we've had a plan of comprehensive coaching and development and can now be assured that we have excellent succession plans in place for those roles.

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Another way we build our world-class talent is by creating an inclusive environment that engages the talents of our diverse workforce. Diversity is a high priority for us as it breeds innovation and great business results. Earlier this year, we established a diversity council to guide Telstra's diversity strategy and promote Telstra's divert initiatives. I chair the council which also includes David Thodey, Mick Rocca, Justin Milne and Holly Kramer.

One of the areas we've done a lot of work in is gender and since Sol started in 2005, the number of women on his leadership team has increased from one to four. As a comparison, the ASX 200 list of companies has an average representation of 12 per cent, so we feel that we're doing quite well in this space.

A key priority of Telstra's transformation has also been to create a high performance culture and engage our people in the journey. This is an easy ambition to have but a difficult one to achieve, especially in a business our size and with our public service heritage. The starting point happened back in late 2005 when Sol and his team worked together to identify the type of culture that we were going to need to have to be able to deliver on the transformation and the new Telstra.

We developed six cultural priorities and you can see them up here: "customer first", "people power", "done now", "we get it together", "compete win" and "anything possible". For two years now we've been running an intensive engagement program and a communication program with employees to help change the behaviours in this organisation.

The first roll-out of these involved 13 of Sol's direct reports who presented to employees at 21 metro and regional locations during March, April, May and June of 2006. This was the biggest staff roadshow that has ever happened in Telstra's history. It was a great chance for employees to hear directly from Sol, importantly because Sol really believes in this kind of engagement and is committed to face-to-face engagement. He has continued the program of site visits throughout 2007.

We engaged our people from the outset. We told them why we needed to change, where the company was headed and how we were going to get there. The transformation message is continually reinforced, with over 80 per cent of our stories on our corporate intranet site at any given time being transformation related. Our GMDs reinforce these messages and behaviours on a daily basis out in their business units. Our people have embraced the new way of working and in 2006 and over 2007 they have delivered some huge transformation milestones. In fact, some of the stories that we hear are really quite heartwarming. The Next G

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team, for example, who built and launched the new Next G network, when they set out they didn't believe that they could do it, but now they believe that anything is possible.

The good news is that this ongoing investment and communicating our business strategy and cultural priorities is yielding a stunning improvement in employee engagement. We conducted an employee survey in August 2006 and then again eight months later in March 2007. The survey explored eight reporting categories which you can't see up there but which we reported against and overall, in eight months we delivered a 4 per cent improvement across all survey categories. Most companies of this size would aim for a 1 to 2 per cent point change, so this was outstanding. Our engagement results now compare well with other Australian companies and we're well on the way to achieving our goal, which is matching the engagement results of global high achievers.

Our employees are telling us that they understand our future business direction, they embrace the transformation goals and they have confidence in senior management. Importantly, I have to say that employee optimism has doubled since 2004. As well as engaging the hearts and minds of our people around our transformation strategies, we've also upgraded our performance management programs to ensure alignment with the strategy and to focus on high performance. 96 per cent of our employees now have performance plans. Previously, it was less than 50 per cent.

This is significant because this means that our people are now clear about what's expected of them and are having regular conversations and coaching from their line managers. We have also, along with this, introduced a new performance rating system. We've spent much time in the business on re-calibrating the organisation around performance. Our aim is for every employee to perform at world-class levels for their function, so we're setting the performance bar high. As our employees' and our company's performance increases and improves, we're raising the performance bar even higher. This is a practice that many world-class companies use as a means of continually improving results and delivering increased value to shareholders.

Telstra is evolving into a world-class media communications company and we're building a high performance culture. High performance is what world-class companies do. We want to give our employees the opportunity to be the best that they can, to be passionate about our company and passionate about what they do. We're investing in our people and our culture to make Telstra a more exciting and rewarding place to work. Our positive employee engagement data, which represents the views of thousands of our employees, tells us that our people are

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enjoying their jobs, they believe in the company's direction and they have confidence in the senior team.

We're not there yet. However, there is a very real and growing sense of pride in the business and our employees at every level are responding to the high performance challenge. They're passionate and they're motivated, which is evidenced by the achievement of many of the transformation milestones that you have heard about here today. With that, I am going to hand back over to Sol Trujillo for questions. Thank you.

SOL TRUJILLO: Thank you, Andrea. Could everybody from the last speakers' group come on up. Hopefully, this afternoon you had a chance to see the rest of the transformation story which is about the marketing, it is about our customer relationships, it is about the experience, it is about all the things that we do and it is about the integration of the business, but as Andrea points out, all of that is nice on paper, but if we don't have our people engaged, it doesn't really happen. It is an end-to-end transformation and now you have a chance to ask questions of the whole group and again, I would just say because this is a meeting for our financial community, we will prioritise that and we'll have a media session a little bit later. We're open.

RICHARD EARY (UBS): I have a couple of questions. In some of the presentations, there was quite a lot of talk about machine-to-machine devices. I don't know whether you can give us an update on where you think mobile penetration will be in FY10 and what you feel machine-to-machine device penetration will be?

SOL TRUJILLO: As I said in my presentation, I believe in the case of 3G penetration as a percentage of our total base. I think we can get to the 50 to 70 per cent range and it is pretty wide at this stage because we've got great momentum. We probably made the biggest leap of any company like us in the world where if you look back 18 months ago, we were in a very low single-digit position, so we were probably at the bottom end of the world to today where we and DoCoMo are kind of neck and neck at the very top end of the world. I think we can go to that 50 to 70 per cent by segment, how we're evolving today.

In terms of other growth, if you think about machine to machine, if you think about telematics, if you think about some of the applications that Paul Jacobs talked about, again, that is going to be another wave of growth. We're going to be spending this year, now that we have some of the IT capabilities being brought to market with release 1 which we've just said is now in production and release 2 which will be

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delivered by the end of '08, there will be no stopping us at that point in terms of all the capabilities and the speed at which we can introduce a lot of the services or applications, those that we have either developed or those that we work with partners on bringing to market and telematics will be a big part of that.

Probably about three or four years ago I was involved in doing some analysis around that. The market size for assets, asset tracking, asset monitoring and all of that is huge. If you start looking at the value of assets around the world and the costs that people are incurring, today out in the bush we're starting to see some of our country customers actually monitoring water because it is a scarce resource and how people are managing the utilisation of their water for their farms, for their ranches, is very important. People are using that kind of capability already today and I think Geoff and others, maybe in a side conversation, can take you through some of those examples.

RICHARD EARY (UBS): To follow up, the recent numbers out there in terms of your mobile revenue growth which obviously looks quite positive, is there a split in terms of what you think is driven by SIM penetration versus ARPU penetration versus market share, or is a lot driven by ARPU and market share and not by SIM?

SOL TRUJILLO: Today, in the case of Australia, it's mostly the former: not so much by SIM. Obviously, Europe has some different trends that emerged first in Italy and some other countries, but I would say that it is primarily the former. David, do you want to comment on that at all?

DAVID MOFFATT: What we're seeing in the consumer space is just this usage going up. When we got to SIM penetration in the consumer market of let's say it's 100 per cent now, which I think it would be, you've got effectively probably at 85 or 86 per cent actual penetration because you've got multiple SIMs out there people, swapping and doing that, particularly in the prepaid space. What we've just recently seen is this lift that's come off the Next G network in usage and people starting to see that, so therefore, ARPU growth and minutes of use, as we saw in the examples we showed, in both voice and data increasing. There is a lot of scope left in that because there's very low penetration in a lot of segments of those kind of applications and I think you're also going to see that in the other segments as well.

RICHARD EARY (UBS): The second question was just on the Foxtel presentation by Kim, can you just give us a feel in terms of what you expect to do from a Telstra branded set-top box in the house to engage

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your digital home, or do you think that will be via Foxtel?

SOL TRUJILLO: Actually, we've been having a lot of conversation in terms of how best we could do that because clearly, we will manage a gateway in the home and obviously the set-top box can be part of that kind of delivered service capability. I won't say much more beyond that because we're working on some of the technical issues in terms of how we make that happen, but it is an exciting enablement, especially when you think about Justin's ad that he was running in terms of "My Home", if you will, when you think about all the multiples of uses. Controlling that experience, enabling multiple access points through a single gateway so that we can manage a great customer experience, is part of the agenda that we have.

It also goes to this issue, which is always amazing to me, I've heard some people say, "Gee, you know, here in Australia we only need 1Mbit, 6Mbits. I can't see why there's a need." If you just watch how people are starting to use, in simultaneous use life changes. We're working on it. It's going to be controlled by us in a single gateway into the home. The set-top box will be part of that solution because it is part of the enablement of a multiplicity of services.

CHRISTIAN GUERRA (GSJBW): Justin, just a question for you. Clearly, you've had a fantastic 18 to 24 months in the business and to be honest, it is difficult to see what's going to stop the momentum in BigPond going forward. I am just wondering if there's any sort of issue that keeps you awake at night because, as I said, market share is doing well, you're getting more revenue from customers, the value-added services are pretty much unparalleled in the Australian market. Could I have a comment from you as to what could potentially slow the BigPond business down?

My second question is for both Kim and Justin as well and that is the BigPond TV business is almost a competitor to Foxtel, albeit on a different platform. How did the two of you look at the two businesses? Are you competitors or are there opportunities for you to work together in the future?

JUSTIN MILNE: On the first one, it's true that things are going pretty well at the moment, but that doesn't mean we're resting on our laurels because that's a dangerous thing to do. As you said, we do have a good momentum and we've gained that momentum by keeping a solid team in place, by continuing to advertise and market heavily and to work on a thousand different things. It is clear that the content proposition is playing into our numbers and that that's a big differentiator between us and the other guys and there's a value

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proposition behind that.

Of course, we keep a really close eye on the regulatory environment. The truth is you can buy LSS from Telstra today for less than the Bridge toll, which is amazing when you think about it. You can operate a Broadband service for less than $3 a month by using our copper network.

We watch all of the numbers on ULL and LSS very carefully. At the moment, it is not affecting us too badly and what we think is going on is that most of our competitors are having a price war with each other, so they're fighting it out in the gutter, but the consumers today seem to value a good value proposition or a reliability proposition that comes with us. It doesn't mean we are asleep at the wheel. We're watching very closely and the regulatory environment is really important to us.

On the Foxtel thing - and I'll hand over to Kim - I think we try really hard to complement each other and if you look in the mobile space, the BigPond TV proposition there is an on-demand proposition, so it is like you surf through menus, you find the thing you like and you watch it right then. It is asynchronous kind of TV, whereas the Foxtel proposition is like synchronous TV, so they're complementary. I think Kim and I are pretty relaxed about competing in the marketplace and we quite enjoy it in a very kind of gentlemanly, I hope, way.

KIM WILLIAMS: I am a great believer in competition and I have said to Justin before, let's not pretend, of course at times we are in competition with each other, but that's a good thing. The consumer is usually the winner from that. More often than not, of course, we are in partnership and working in a harmonious way. Competition is good. I think we run a great television...I think we run the best television service in the country. I think we run one of the best television services anywhere. I am pretty comfortable about our competitive settings.

SOL TRUJILLO: I know what you say, Christian, but to add to what Justin and Kim said, we really do have a map in our minds and you are starting to see it play out, how it is very synergistic between Foxtel and what we do within all the rest of Telstra. I really don't see a lot of conflict there because by segment customers have different needs. This is what you are going to continue to hear and continue to see from us in terms of what we deliver in the market and consumers are buying in this way, because we all do that when we buy cars, we all do that when we buy clothes and we all do that when we buy food. Telecommunications, entertainment and information services are no

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different. So we are going to driving that.

In terms of this point about BigPond having great momentum, as you know in the last couple of years we have moved away from just advertising price. Right? That is not our game anymore. It is about adding value and customers get to make choices. As Justin said, a lot of our competitors - I said this many times before, I love getting up in the morning because I know what they are going to do. The question is how many of them are free, how much discount. It's all the same and customers are now looking at it, and they get to fight with each other about how much free and how much cheap and how much give away, but the rest of the story is about the experience.

We have architected our network end to end. It is not just about putting in a DSLAM and saying, "Look, we can do it." It's about the back haul, it's about the channels, it's about the billing. It's about a lot of things that customers evaluate once they start experiencing choice.

QUESTION FROM THE FLOOR: One of the businesses that contain surprises is the PSTN segment and given the services and product launches you are expecting or you have done, what is the expectation for the rest of the year and, more importantly, of the medium term, do you expect the business to stabilise or do you expect to see some of the trends we have seen overseas?

SOL TRUJILLO: As you know, I made reference to when I first got here I was surprised at how severe all of a sudden the jump up was in terms of PSTN loss. There were a lot of countermeasures that, in the US, I referenced the fact I have seen this movie before, that we weren't doing, that we are now doing and it does make a difference when you fight back, when you differentiate, and when you manage a strategy around value delivery as opposed to just keeping on fighting on price. We are working on that today and you see that momentum happen.

In terms of guidance for the rest of the year, we have said that we are comfortable with matching the PSTN revenue loss rate that we had last year, and if we could exceed that, we will. I think you have heard the story from David and Deena, and David in particular on how we are looking to counter and how our run rates are going so far, and we are a little bit ahead of that plan, which is a good thing, but you know, there is a lot more that our competitors are going to be doing in terms of give-aways, freebies and free kicks and other things that are part of the story.

We will let it play out. We are not going to be overly optimistic at

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this stage, but we are going to be pragmatic and, most importantly, we are going to be very competitive.

DAVID LANGFORD (Lehmans): I have a couple of questions, first of all for Kim. The IQ box and its take-up has been very successful and just about everybody to a person who I have ever spoken to says it's a great product. What do you think of the position that Seven is taking with the introduction of the TiVO box, and what do you think that means from a competitive perspective.

KIM WILLIAMS: The simplest answer would be not much. Speaking a little more substantially, they will have a recording device, when they can make it work, which will record a handful of channels. We have a device which has full integration with over 150 channels which, from the middle of next year, will have full high definition with at least four high-definition channels and loaded high-definition content in the box with at least 10 to 12 movies that are replenished every week in the box, with recordability for up to 90 hours of other programming, which represents over four weeks of television viewing time on the average viewing rates of Australians of 23 hours and 15 minutes per week.

I am not particularly worried about it. In fact, they claim to have a strategy, but I don't understand it, and I don't think I'm stupid.

SOL TRUJILLO: I put a exclamation mark behind what Kim said. So we will move on. We will take two more questions and then get to John. Those of you who are waiting for some numbers from John, we can go through that.

TIM SMEALLIE (Citigroup): There's lots of information this afternoon, unfortunately, a few questions given how many areas of the business we have covered. Firstly, a question for Justin: when do you envisage there will be an Apple compliant version on BigPond for viewing of video content? Secondly, looking at the new home gateway service, how do you get around the potential issues in terms of connectivity to the TV which may breach Foxtel shareholder agreements. And then, moving on to Kim, the HD opportunity, will you be offering free-to-air HD services, or do you see that as another differentiating factor between free-to-air digital and Foxtel.

SOL TRUJILLO: We are going to stop you there because we have to keep moving. We will answer the first three of your questions.

JUSTIN MILNE: BigPond is one of the most Apple-friendly, if not the most Apple-friendly, ISP in Australia. The problem, as it were, with

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the Mac world is that it represents about 10 per cent of the customer base and so every ISP is faced with the question, do you do lots of things twice when you can do it once for 90 per cent of the population and then you have to do it all over again for the other 10 per cent. In the world of standards, this is exacerbated by the Apple guys themselves because, of course, they insist on a fairly closed, not open world.

Luckily with the advent of things like H264, or flash video, that video question is starting to go away but it is vexed in the music world. Our capacity to deal with that is pretty limited, really. That's a global standards issue and you will find that same problem everywhere you go.

On the question of the home gateway and TV, the home gateway doesn't have any particular relevance to TV at all, but there are a plethora of devices out there today and lots more coming down the track which effectively allow people to plug the internet into their TV, which doesn't breach our non-compete arrangements with Foxtel. So we don't have a set-top box. We don't have any plans to have a set-top box. Our non-compete with Foxtel specifically relates to that. Kim has, as he said, a brilliant set-top box and a brilliant television service and something which I won't compete with.

What we have is the gateway and that is about plonking a device in a cupboard in your house that lets as many people as you like really effectively in the house connect to the internet and with a whole bunch of different devices.

KIM WILLIAMS: The answer in terms of HD services on cable, all of the networks with which we have retransmission agreements over their EPG and HD services will be retransmitted. On satellite we will retransmit in instances where there is commercial agreement and where they pay for the satellite bandwidth. Naturally, we wish to provide to consumers. Consumers make decisions in our homes about the television services they want and, of course, we like to integrate terrestrial television inside that. It is an important part of the television landscape.

TIM SMEALLIE (Citigroup): So that's in addition to the four HD channels that Foxtel will have.

KIM WILLIAMS: Correct.

SOL TRUJILLO: One over here. Ian, I will let you squeeze one in afterwards.

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SAMEER CHOPRA (Deutsche Bank): Sol, you have owned the SouFun business now for just over 12 months. What is the broader strategy with SouFun and integrating platforms across with Sensis classified business.

BRUCE AKHURST: I mentioned very briefly we have had the SouFun business for 12 months. We are really, really pleased with how it is tracking. We have got to 75 cities and on track to the 100. We have a small Sensis team on location in Beijing working with the SouFun team. We host a lot of SouFun people out here. There is a lot of work going on between the two organisations.

We are obviously looking at where to next, but the first priority is of course to get to these 100 cities and keep ourselves on this growth curve. You need to remember that two years ago the number of users of this site was 20 million and today it is 45 million a month. So just keep capturing that growth and making sure we don't go off in too many directions is one of the first priorities, but we are true to say that we are scouring the area and working with the SouFun team to think about where do we expand out and utilise the skills, the IP expertise we have in Sensis to bring extra value in China.

SOL TRUJILLO: You can just think about the fact that we have lots of verticals that are part of, when you move into an apartment and when you buy a place, buy a property, whether it be insurance, whether it be titles, whether it be furnishings, whatever, it is part of the ecosystem as we think about it. As Bruce said, we are going to be very disciplined about how we unfold because the key is to get in as many locations as possible.

It is no different than the Yellow Page business as we know it today. That's why we say it's a perfect match. You have to get the presence, you have to get the brand position, you have to get all the advertisers. You get them listed and you have their digital content and then, from that, you network within that community all the other services. That's the way we are going to do.

IAN MARTIN (ABN Amro): Also on SouFun, 56 cities reported in February and the same number at the end of the full year so no growth in cities over those four months. You are at 75 now, compared to 56 at the end of June, so you have added 19 in the last four months.

BRUCE AKHURST: Every month we are continuing to roll out into more cities. It is constant program we are reviewing each time we have a board meeting. It is a constant trajectory and it is on track with what we said when we bought the business 12 months ago.

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IAN MARTIN (ABN Amro): In the second half of the last financial year the number of cities at the end of June was the same as reported in February. There didn't seem to be any cities added and the revenue per city seems to have fallen as well, so something seems to have gone on in the last four months that hadn't gone on in the last four months.

BRUCE AKHURST: The trajectory is the same.

SOL TRUJILLO: When you look at the revenue per city, each city that we go into now is a smaller city than the first one. When you have Beijing and Shanghai and Guandong and other cities like that versus the 19th, or the 89th, or the 79th, the revenue per city is obviously going to be small.

IAN MARTIN (ABN Amro): I have just spent a couple of weeks in China, Sol, and the property market there just seems to be booming. It is huge growth area.

SOL TRUJILLO: No, no, no, I mean I am very bullish on the business. I am just saying when we look at metrics we have to put things in context. Thank you, everybody.

We are going to bring up John and John is going to update us relative to some of the other financial matters besides the guidance he gave this morning.

JOHN STANHOPE: Thank you, Sol. As I was looking at that Second Life virtual world, it's amazing, isn't it? I was thinking I might tell Sol, "I will virtually come into the office tomorrow" and then when I thought about that I knew he'd say, "I will virtually give you your salary" so I thought I might not do that.

After the day that has taken place, I wonder whether it is worthwhile doing this. There should be absolutely no doubt that the long-term objectives can be achieved. But I will go through this. I will.

So far today we have discussed the latest proof points on the transformation program. We have updated you on the world-class performance of our retail businesses. It now falls to me to put this in a financial context, especially how current trends will enable us to achieve our revised long-term management objectives and some of the key financial points that will take place over the next 32 months.

So this number looms large. So just a reminder of what our business is about. As a result of the transformation program we will more than

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double our free cash flow between fiscal 2007 and 2010, an almost unparalleled achievement in the incumbent telco space. The free cash flow will afford Telstra's board the opportunity to increase shareholder returns whilst retaining the balance sheet flexibility for value creating investment, both organic and via acquisition, if opportunity should arise.

In terms of the drivers of our free cash flow, here is the make-up of the increase from our fiscal year 07 base of $2.9 billion to a range of $6-7 billion in fiscal year 2010. The transformation is reinvigorating our top line as we evolve into a more simple business with software defined applications and services resulting in significantly lower absolute opex and capex. I will step you through each of the main categories with a particular focus on opex and capex.

At the end of the transformation we will be generating an unprecedented level of free cash flow. It is important for our investors to have an understanding of how we think about the use of these record cash levels. We will take a disciplined approach. While the level of dividends or other capital returns are ultimately a decision for the board, we recognise the importance of this to our shareholder base and it remains our number one priority.

Any M&A activity will follow tight financial criteria to protect and grow shareholder value.

Finally, we aim to remain within our target financial parameters, and just let me remind you quickly what they are: net debt gearing 55 to 75 per cent; EBITDA interest cover greater than seven times; net debt to EBITDA of 1.7 to 2.1 times. As many in this room know, while we are comfortably placed at the current time, we need to maintain flexibility.

I have talked about this slide briefly already. We have updated the revenue projection earlier and it is just shown here again to complete the picture. You have just heard from many people in our business about how that will be achieved.

Of particular note on this next slide is the increasing percentage of what we call new wave revenues. You may recall back in November 05 we set a target of 30 per cent of our revenues would be derived from new wave revenue streams in fiscal year 2010. We now expect to exceed this level through the continued success of both Next G and Next IP platforms.

So, okay, let's move in to the opex reduction by fiscal year 2010.

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Through a wide range of initiatives across all areas of the business we believe that we can reduce absolute opex between $500 million and $700 million in the three years to June 2010, so from our 07 result to fiscal 2010. The savings have been identified and they have been planned for.

Should more revenue growth opportunities emerge as we become an increasingly integrated operator, the variable cost requirements will increase. That's good news. Variable cost will go up with any additional revenue growth. But let me make it clear that this will not change our ability to achieve the 46 to 48 per cent EBITDA margin and the $6 billion to $7 billion of free cash flow in fiscal 2010.

So let's have a look at the opex drivers. This slide summarises the key drivers of opex reduction that I will discuss in even more detail. We have ranged these buckets intentionally, since some individual cost lines can be inter-related. For example, a slightly lower labour cost might translate into a marginally higher service contracts and agreement cost, or vice versa.

However, what is clear is that with the obvious exception of directly variable costs, we believe that there is the potential for net savings across most of our major cost lines and we assume no impairment expense leading up to fiscal year 2010.

So let's look at the opex profile here on this slide. Having shown you how we expect to reach our 2010 targets, I wanted to provide a little more detail of the roadmap to reach that point. As expected, there will be a slight further increase in opex in fiscal 2008, as the operating costs associated with the IT component of the transformation reach their peak. Remember last year peak total spend. There is some IT opex peak in this fiscal.

With the first release of our new IT system announced today, we will incur costs through the end of the year as we migrate our large base of consumer customers on to the new platform. From that point, that is fiscal 2009, we will start to see costs drop as we remove IT systems and network platforms and start to benefit from productivity improvements.

These cost reductions will offset spend associated with our second IT release before the end of calendar 2008, so remember the TR2 or second major release is before calendar year 2008.

With both major releases and subsequent migrations completed by the end of fiscal year 2009, we will then see an even more significant

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reduction in our cost base through fiscal 2010. It is important to note that we do not foresee a significant step-up in our cost base beyond 2010, as some are forecasting. We are creating a more simple software-driven and future-proof business.

So let's get into yet a little more detail and talk about labour, turning to that specific opex line. Overall between 2007 and 2010 we expect net savings in excess of $100 million to come out of our labour line. You might say, "Well, gee, that doesn't seem a lot given the number of staff reductions", but you do have to understand that there will be salary increases each year. This is a net number therefore, with a significant reduction in the labour costs as a result of our headcount largely offset by expected salary increases and growth of staff in SouFun. We will be increasing staff in SouFun. As we obviously move city by city, we need to put people in each of those cities.

In terms of our 2010 target of 12,000 fewer FTEs than in 2005, we remain firmly on target. You know at our June 2007 announcement we announced 5,700 was the reduction already, and we are on track to deliver the 6,000 to 8,000 reduction by June 2008 and a 12,000 reduction by 2010.

I want to talk a little bit about directly variable costs, because you have all noticed the trend in recent years. In recent years, growth in directly variable costs has run at around 1.7 times sales revenue growth, placing pressure on margins. While DVCs will continue to grow, we aim to limit the growth rate to just below that of sales over the next three years, so we do intend to reduce the size of directly variable costs relative to revenue growth.

Mobile subscriber acquisitions and retention costs have been the main driver of the category and whilst I have said many times to you that we don't expect them to get down to 05-06 levels, we do see and we are seeing a reduction.

The implementation of market-based management, coupled with our new IT architecture, will enable us to be more targeted in our activity from a range of initiatives, including channel optimisation, such as T Shop refresh that David talked about, changes to our incentive structure and market-based management programs delivering lower churn and rationalisation of the product portfolio as we go forward.

Somebody mentioned network payments, and I will talk about network transmission capex, but somebody asked a question about network payments. The other major driver of DVCs is network payments. These

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fall into two broad categories: domestic and off-shore. We expect absolute payments domestically to decline slightly over the next three years with a downward trend in mobile terminating rates offsetting volume growth in mobile-to-mobile terminating and SMS traffic.

We expect termination rates will eventually fall to a level of 6 cents per minute - remember they're at 9 cents now - in accordance with the ACCC WIK report.

In addition, we believe that the emerging trends of social networks should enable us to generate a greater proportion of on-net traffic than has been the case in the past.

Internationally, we expect growth in off-shore payments in line with revenue growth expectations in CSL, so they're payments; Telstra Clear, they're payments, and our global business or our international presence.

Ever growing internet traffic will also drive costs up. We currently estimate that around 65 per cent of our internet traffic goes to the US. Therefore, it should be noted that we do envisage a significant cost saving as a result of the Sydney to Hawaii cable that we are currently building.

We expect the cable build will be complete by quarter 1 fiscal year 09 and ready for service in quarter 2 fiscal year 09. However, for the most part, these savings will come in the form of lower capitalised costs as it reduces our dependency on third party purchases from suppliers such as Southern Cross, which are booked, when we purchase them from them, as capex.

Let me talk about service contracts and agreements - another cost line that grabs your attention and mine. As the transformation has progressed, we have reported a significant increase in service contracts and agreements expense, and it has been caused from a range of drivers, including third party contractors working on transformation activities, a lot of them in IT; front-of-house volumes in our retail business, so we've had to supplement our front-of-house staff as we've had high volumes, particularly in Next G sales; and higher network and IT maintenance and support costs as we start to duplicate systems until we migrate.

We expect to deliver savings of $300 million to $400 million from this category by fiscal year 2010, and upon completion of the key parts of the transformation, especially in IT, we expect those costs to reduce

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significantly, so that gives you some suggestion of the timing.

Fewer platforms and systems, supply chain efficiencies you've heard about today and a significant reduction in our vendor base, which you have also heard about today, will lead to substantial savings under the umbrella of contract rationalisation.

Upon closure of platforms and systems and the completion of customer migrations, productivity benefits will lead to substantial savings under the umbrella of contract rationalisation. After those customer migrations are completed and we have simpler processes, we will be able to unlock across our front-of-house call centres and contracted service staff a lot of productivity benefits.

This cost category reflects the trend in the overall cost base a further increase in fiscal year 08 followed by a reduction in fiscal year 09 as the transformation activity declines and savings are achieved, but the big benefits will not be seen until fiscal year 2010. So that's service contracts and agreements.

We have an opex category called "Other". It is an important opex line. It is made up of a range of costs, such as promotion and advertising, IT leasing - our writedown appeared in that category - and general and administration costs.

Over the next three years, we expect a reduction in this other expense line of $300 million to $500 million with savings in a number of areas. Promotion and advertising will be higher in fiscal year 2010 than in fiscal year 07 as we continue to drive hard on top-line growth, so it's one of the categories in there that we will not compromise as we drive the top line.

IT leasing costs will fall following a restructuring of leasing arrangements resulting in the purchase of servers over leasing and headcount reduction. We will see a reduction in writedown charges on the assumption that our businesses continue to perform. We had the Trading Post writedown, as you all know, in fiscal year 07. But there will also be a reduction in project write-offs, because we have been writing off projects as we stop them and make sure we are on strategy with our transformation. And stock obsolescence from improved processes - the value chain and the supply chain that you heard about before.

Other general and administration expenses will decrease as a result of a number of smaller items, such as lower accommodation costs, in terms of reduced network needs, and lower office space needs, with cost

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savings increasing beyond the fiscal year 2010 time line, although significant real estate disposals remain some way off, as you have heard about in our soft switch program, and a reduction across discretionary programs. So that's how the $500 million to $700 million comes about.

The capex to sales trend - how we get, if you like, to 10 to 12 per cent capex to sales. We are managing the capex program tightly through the investment management committee, which comprises Greg Winn and myself, while ensuring that we do fund revenue growth - so fund and support revenue growth.

In transforming our networks and IT, the capex demands have been significant but necessary. Such a comprehensive transformation is unprecedented among our global peers, not just in size but in the relatively short period of time we have given ourselves to complete it. It is essentially a three-year build.

It is this combination which produced the very defined peak in our capex to sales ratio of 24 per cent in fiscal year 07. You can see Mount Everest there in the middle of the slide. Along the way, we have taken on three major builds - the Next G mobile network launched fiscal year 07, the Next IP core network launched fiscal year 07 and revamping our entire IT architecture with full capability in production by fiscal year 09.

These capital programs have been a once-in-a-generation spend, building scale and differentiation while reducing complexity. The peak in our capex spend profile marks a structural shift away from the historic telco capex model.

Let me say that again, because I think the doubters do not understand this well: the peak in our capex spend profile marks a structural shift away from the historic telco capex model. Where the traditional telco model required building and maintaining extensive physical infrastructure, we are moving to an environment where fewer physical networks are required and the intelligence resides in the network software.

The move to a standardised IP world brings many benefits, including the closure of approximately 200 network platforms, remote testing and fixes and more software-defined applications and services, leading to fewer truck rolls and significantly reduced maintenance.

We have built flexibility and scale in each of the wireless IP and IT programs and have a clear evolution path to newer technology when

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required. You have seen that demonstrated today. This detailed planning of our capex requirements will eliminate the need for expensive upgrades in the short to medium term.

In fact, we don't see any reason at this point why our capex to sales can't be maintained in the low double digit range beyond fiscal year 2010. Of course, let me remind you, this profile excludes any FTTN build, and, Tim, if that means an asterisk, you've got one.

Capex drivers - so let me go beyond that and talk about the fixed access network, so some capex categories. The launch of Next IP in April 2007 marks the peak of the spend profile for fixed access and network core. This included not just the IP core but substantial spends on ethernet aggregation and the multi-service edge both ahead of our scheduled time frame, which you saw.

From fiscal year 07, this new network capability will result in a downward trend in fixed and core capex spend, but there will be a small bump in fiscal year 09, as you have described, with the deployment of the software switches. This will enable us to close more than 100 class 5 switches, resulting in significant savings.

Any subsequent exchange or switch rationalisation is unlikely to commence before fiscal year 2011. Again, these programs are designed to build scale and flexibility while reducing the complexity and lowering maintenance capex requirements.

IT - the capex driver of IT. The IT rebuild is a massive project, no doubt about that. Our major releases, TR1 and TR2, as we call them, are scheduled to be in production by fiscal year 09. By this time we will have incurred a transformation spend in excess of $2.5 billion over three years which includes the Sensis online upgrade and the purchase of servers rather than leasing that we noted with you at the full year results announcement.

The IT transformation will enable us to reduce the total number of systems by 80 per cent to around 250 to 300 unlocking significant productivity savings across front of house and lowering maintenance costs in back of house with annual savings of around $100 million.

A high out-of-the-box capability will reduce the cost of future upgrades, with the post-transformation run rate we believe settling back around the $500 million range despite increasing volumes.

This reflects a higher mix of software versus hardware as the traditional telco model changes, as I described. While many IT systems

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have service lives of between five and seven years, you heard earlier today our new billing system will have a service life of somewhere between 10 and 15 years.

So wireless, another capex driver or component in our total program. We have expanded the Next G network since launch with more than 6,000 base stations now upgraded. The network is 25 per cent larger in terms of the published coverage area of CDMA, reaching more than 98.9 per cent of the population.

Capacity requirements will be demand driven, as 3G penetration increases, but we have a clear evolution path with only a panel change on antennae and a software upgrade required to move to 4G, ensuring that we have a cost-efficient solution to maintain our network at world-class capability at a low cost. Previously, a similar upgrade would have required much more physical build.

Closure of the CDMA network expected in January 2008 and reduced spend on 2G and the 3G joint venture will also contribute to the spend profile trending lower, as you can see on that slide.

So let's talk about transmission capex or back haul or whatever you prefer - transmission or back haul. The demands for bandwidth are rising through the growth in data applications, video calls, movies, video content - you've seen it all displayed here today.

Growth in the internet traffic, as I said, has driven some capacity requirements over recent years with around that 65 per cent going to the US. Our international transmission is recorded as a mix of capex when sourced from third parties, like Southern Cross as I mentioned, and opex when we contract it through Reach.

Our third party capacity is purchased in the marketplace, so we are a price-taker. By building our own link to the US, which will be a fully owned Sydney-Hawaii cable, plus pairs to the US west coast via our AAG cable when we are a consortium member, that will reduce substantially the cost for our international transmission, and that is why you see the shape of the graph you see before you with respect to international.

Furthermore, the bandwidth available on this US route will allow us to be a seller of capacity in the market, if we decide to - and there are no assumptions in plan to that effect.

This cable build completely changes the economics for us though in regard to the offshore data requirements and the unit cost. In terms

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of domestic transmission, the demand is steadily rising. We incurred a large spend in fiscal year '07 relating to the deployment of the metropolitan Next Generation network ethernet as part of the Next IP umbrella. That enhancement provides us with a more efficient and scaleable solution to meet these increased demands. What does that mean? It means we've built a lot of capacity already. Fundamentally, that is what that means. These are the key drivers of our capex spend and you can see they are all heading in the right direction.

I just wanted to pick up some global capex benchmarks here. An analysis of calendar year domestic capex sales shows most of our European peers in the 10 to 12 per cent range. This is calendar year '09 expected, I should make clear. There is a mean of just over 12 per cent. However, this mean is very conservative as forecasts for five of the companies on this chart include an FTTN build. There is a clear trend of lower capex to sales ratios among this group. However, these companies are not undertaking major transformations.

The extent of our transformation across core, wireless, IT is not being undertaken anywhere else in the world. While we have traditionally run at higher capex to sales ratio on a global basis because of our geography, post-transformation we will be well placed versus our European peers.

We believe the chart shows our 10 to 12 per cent target is achievable, contrary to what some may suggest. We are exiting high cost, complex legacy platforms and systems and replacing them with fewer physical structures that are more intelligent, scaleable and cost efficient. As a result, we are confident in our ability to hit the 10 to 12 per cent capex to sales range in fiscal year 2010. Let me close on our updated, long-term management objectives again. I did cover it earlier in the day. We believe what you have heard today about our revenues, about our opex reduction now and our capex management, clearly indicates the pathway to these objectives is clear. Thank you.

SOL TRUJILLO: We are are going to open it up again for questions. Let's get started. We will start over here on the right.

MARK MCDONNEL (BBY): Mark McDonald from BBY. Firstly, congratulations on presenting with clarity the areas of opex reduction consistent with your guidance. It's the first time we've seen it, it has been a long time coming and it's almost worth the wait. Thank you.

SOL TRUJILLO: Thank you.

MARK MCDONNEL (BBY): Could I just ask you, John about two things you

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didn't explicitly cover. With respect to capex, you've talked about wireless and you indicated that there was a modular upgrade in terms of the equipment. Could I ask you when you talk about demand driving capacity upgrades, how you're placed with respect to spectrum and spectrum availability and to what extent you envisage the need to approach ACMA and acquire additional spectrum and what your expectations are with respect to the cost of that?

The second question, very briefly, is with regard to your international operations, apart from SouFun, we haven't heard anything today about New Zealand or Hong Kong. Would you mind touching on their contribution to the turnaround that you have been outlining?

SOL TRUJILLO: Let's start first with the spectrum and demand. Greg, do you want to talk about that?

GREG WINN: In regards to spectrum, as we look at the demand, until we get to 4G, we're in good shape, so we won't be doing anything and the 4G requirements are still being ascertained as 4G develops. As you look for the next few years, as we move through it, number one is that we shut down the CDMA network, we're re-farming our spectrum that we're running CDMA on and then the efficiency, again, we didn't say this today, but at previous meeting we said that this a mobile data network. It was designed as a mobile data network. It is extremely efficient and the spectrum utilisation is very efficient. We think we're in relatively good shape until 4G.

MARK MCDONNEL (BBY): What is the likely timing on 4G?

GREG WINN: It depends. Some time out - 2011, 2012, 2013. It just depends on where we're at there.

SOL TRUJILLO: Not very near term. In terms of today, the discussion that we had, what I was trying to do in terms of the agenda that we put together was to make sure that we were focused on the domestic operations centred around the transformation, centred around the competition, centred around all the things we were doing. In the case of New Zealand, we'll cover that in our results at midyear. The punchline is we're improving our operations. We have flagged it. We were not happy last year, but we're improving it and obviously we're still in the checking and monitoring phase of what the regulator, what the government is doing with the regulatory change.

Suffice to say, we think that there's going to be more opportunity there, but it is not going to be overwhelming in the relative sense of materiality here at the bigger Telstra. In the case of Hong Kong,

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again, we have a new leader there by the name of Tarek Robbiati who was our deputy CFO. He's putting together a plan and already changing operations there so that again we can get ready for that next wave of growth over the next two or three years as we think about Hong Kong and as I've said before, I view Hong Kong, the CSL business, as a strategic asset at this stage because of the explosion of growth in that whole Asia back quarter. We have a core asset. Right now we're going to run it as well as we can and then see what happens down the road.

JUSTIN CAMERON (Credit Suisse): Given the commentary we've had from the business units today, in particular, Yellow Pages, turnaround, Broadband, ARPU growth, revenue growth, mobile growth, accelerating it and the fixed-line improvements, it would appear the '08 revenue outlook would be relatively conservative and in particular, have the growth rates in the first quarter been greater than the 2 to 3 per cent trend that you've highlighted? If they have, what are the expectations that you have for the remainder of the year that drives you to put out the 2 to 3 per cent guidance?

SOL TRUJILLO: At the last full-year reporting period, we consciously used the word "prudent" and we will always be prudent in terms of any guidance that we give. In terms of run rates at this stage, in the first half of this year we're going to be cycling on to a slower growth period in '07, pre-Next G launch. Our delta year-on-year will obviously be higher because in the second half of the year we started ramping up significant mobiles growth and we saw a big improvement in terms of our PSTN decline.

You will see a moderation in terms of growth rate just by nature of that, plus SouFun, which was in our first half of the year growth rate. In addition to the AAS sale, there were some things that made the first half of last year look stronger as we look at year on year. I would say number one, we're just being prudent at this stage. The second thing we didn't spend time talking about today was wholesale. Part of that is tied to all the regulatory conversations and all of that. There is an acceleration in terms of a continuation of the trends that we've seen in wholesale. Obviously, we had $22 ULL prices a little over a year ago. Now they are at $14.40. They've been backdated to I think the Renaissance or some other point in time. We have LSS that's now at $2.50. We're now seeing a decline in terms of our wholesale revenues.

For those who have been watching the retail side grow strong, yes, and that's where we compete and that's where it has nothing to do with copper loops and old regulatory conversations. The wholesale side is still what it is. As I said before, we have the lowest rates in the

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world with the least amount of density in the world, so it's not quite fitting, but that's what it is. That's built into our net numbers. We will continue to try to beat whatever it is that we do because you heard the plans from our team today. Our guidance from today is what it is.

JUSTIN CAMERON (Credit Suisse): Just following on from John's comment, obviously the full-year result which was there is fat built into the numbers surrounding any adverse regulatory rulings that you may have in the next six to 12 months and I suppose we're getting towards the end of the year now and if you really look at the opportunity for another change by the ACCC to ULL and the like, it is pretty limited on how it would impact the '08 revenue growth outlook. I am trying to clarify how much fat is there still for a regulatory change despite the fact that there may be no regulatory change?

SOL TRUJILLO: Again, at this point, all we can do is offer opinion, but I've said this many times in meetings with some of the investor community, which is that we do have the lowest rates in the world already, so when investors look at Telstra versus - you pick the company - Telefonica or BT or Verizon, or whoever it might be in a relative sense, we're this far away from the ground and everybody else is up here. We win the ugly contest as far as it comes to the regulatory environment. That's the bad news.

The good news is we don't have very far to fall and if it goes much lower than that, then they become slam-dunk being court cases and all that sort of thing in terms of having justification for give-away prices on our physical infrastructure. We don't spend a lot of our time from a management standpoint worry about that. Phil and Tony Warren and some of those folks do, but in terms of our operations, we're all about looking forward, going after customers, creating the experience and growing the business and in terms of downside on regulatory, I'm sure there might be some, but it's not near anything that any of our peers around the world are looking at, given the Vivian Reddings and others of the world that are trying to encourage perhaps moving to where Australia is.

TIM SMEALLIE (Citigroup): This is a question for John. The FY10 guidance, the cash flow hasn't changed for FY10. The compound growth has changed, which would suggest the FY09 outlook is improving or has improved substantially, given we know where '08 is, so '09 is the gap. Does that suggest that IT transformation is happening faster than you actually anticipated?

JOHN STANHOPE: No. The IT transformation is according to the program

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that we've set and I've used references to fiscal years as we went through, but TR1, calendar '08, done, right, so two months in advance, TR2, calendar '08, so you shouldn't assume that there is an acceleration.

Still there will be some cost comes out in fiscal year '09, I mentioned that as you move into the second, but most of the IT related cost out - and I said this as well - will be fiscal year 2010. It can be large because a lot of it is variable. The service contract, as you well know, is a variable cost.

TIM SMEALLIE (Citigroup): John, also just a bit of clarity in terms of the opex savings - you touched on network payments. You suggested domestic costs are falling, international data traffic costs will fall as well when you put the Sydney-Hawaii link in place and then you've touched on the big uplift coming through from offshore subsidiaries. Clearly, it doesn't look like Clear is going to be spending a whole lot much more on additional capacity from TelNZ, which suggests it's Hong Kong and the UK that are going to drive that uplift.

JOHN STANHOPE: There is traffic increase in the global business, like all businesses. That global business is there to carry global traffic of multinationals around the world, by and large. They're increasing their band width. They're sending different types of traffic. We call it all data, but it is different types of traffic. That will go up and global sales will go up as well.

SAMEER CHOPRA (Deutsche Bank): I have two questions. One is on opex. Looking beyond 2010, I suppose the only initiative that links cost takeout beyond FY10 is soft switches. I was wondering if you can provide some guidance in terms how material is a soft switch deployment to cost takeout beyond 2010. My second question was on fibre to the node. I presume as you've launched Next IP, you've upgraded large parts of the network. Can you give us a sense of how many fibre enabled rings you have in place?

JOHN STANHOPE: I will let Greg handle the technology one. We're not going to give any guidance beyond 2010. All I did say was that rationalisation of switches after the initial 100 Class 5 that we talked about won't happen until beyond 2011: size of and cost out, not for today.

GREG WINN: Was the question about how many fibre rings we have?

SAMEER CHOPRA (Deutsche Bank): Yes. I am trying to ascertain how much of the FTTN deployment is still to go.

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SOL TRUJILLO: He is going around the back door trying to figure out how much of the FTTN build is yet to go. He asked how many fibre rings we have.

GREG WINN: We have a lot of them.

SAMEER CHOPRA (Deutsche Bank): Thank you.

LAURENT HORRUT (JP Morgan): Looking at the detail behind service contracts, could you provide a bit more colour on productivity benefits that's down $200 million by 2010? I am just thinking which area in particular within this big cost and the second one is contract rationalisation of up to $150 million, which specific contracts have you got in mind? Have you started to talk to your vendors about it? What sort of comment can you give us behind these numbers?

JOHN STANHOPE: I'll give you a little more colour. I thought I did cover it to some extent. In service contracts, if you were to walk into our building in Melbourne you would see a lot of contractor badges and we have brought in a lot of highly skilled people to do the IT transformation: for example, Accenture and IBM. You've heard about them all today. When the transformation is finished, they won't need to be there working on the transformation. That is a very specific area and quite a bit of cost out.

You heard from Mick today about contractor rationalisation, 175 to whatever it was, to 3, and that's another area and as we get more productivity at the front of the house, we've got a lot of overflow from our front of house, so we've got our people front of house, but we've got partners or contractors that also help us. Because we've got so many complex systems, we've got a lot of people handling the front-of-house activity.

There is less cost in those contractors as well. It is really those three areas, IT transformation, the field-force contracting, rationalisation, plus the contractors we tend to use at front of house.

SOL TRUJILLO: At this point, we're not going to provide more detail. We've given you a lot. We had this feedback after the full-year results that said, "We hear you saying that you're going to get to $6 billion to $7 billion of free cash. You're saying that you're going to get to 46 to 47 per cent, but we're not quite piecing it together and we don't quite understand the timing." I think John has given you about as much as we're going to give you at this stage and if you don't understand it from that, I'm sorry.

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LAURENT HORRUT (JP Morgan): Just a quick follow-up question. You mentioned, John, that the cost base in '08 is actually going to be up by a few hundred million just as a result of the cost growth. It all needs to happen between July 2008 and June 2010. I suppose the question is do you see any risk on the timing? Do you see any pressure in delivering within this 24 months time? It seems like there's about $800 million to come out within this particular time frame.

JOHN STANHOPE: What I actually said was related to the IT transformation, there is some increase in IT opex and that's not surprising. You will see some cost reductions in other areas. Labour, for example, there are people leaving the company, so salaries will reduce. The redundancy cost to reduce those heads will have some offsetting impact.

What I was suggesting to you was that '08 is still an opex reasonably high year, it's not going to be huge and then we start to see the overall decline along the lines of the numbers that I said.

SACHIN GUPTA (Morgan Stanley): I have two questions for John and one for Sol. One of the other costs that have been going up quite significantly is subsidies. Can you provide any commentary on the outlook of the subsidies going forward.

JOHN STANHOPE: What I said is that we aim to manage the total DVC bucket, if you like. You can work out the numbers for yourself. We have been running DVC at 1.7 times revenue. We are going to bring that down to make sure DVC is run at less than the revenue growth, so DVC growth less than revenue growth.

The reason I describe it like that is that we need to have the flexibility within our directly variable cost base to, if we want to, move aggressively in the mobile market in supply, acquisition and recontracting costs we will utilise, so we need to manage and we will manage within that larger bucket of directly variable costs. I also said I don't have an expectation that we will get down to 05-06 levels for sales, because we are being more aggressive in the market.

SOL TRUJILLO: Not only that, the point is that we are generating more ARPU per customer. We have more services that we are going to grow over the next five or 10 years, I don't know how long it will be, in terms of this next wave of growth and we are going to invest to get that growth. That's part of the business model, that's part of the business plan and what I would call 1990s modelling doesn't fit into.

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SACHIN GUPTA (Morgan Stanley): Sol, if I can ask you a question, then. There was hardly any mention of regulations. We had a couple of mentions of FTTN. That's potentially the biggest uncertainty at the moment. Do you have any comments on how the outlook could potentially change or what are the expectations if there is a change in government later this month?

SOL TRUJILLO: I have said this two or three times today, that I spend 2 per cent of my time thinking about that. It's all about the business and the reason why is that we have changed the business model, as you have seen. We have the worst rates in the world at wholesale and you can see that we are outperforming on wireless, PSTN and broadband. So the regulatory impacts are not the same as they used to be in the 1980s and 1990s. So again we have a customer-centric model in this business. What happens if somebody gets elected versus somebody else? I don't know. But it's not going to change what we do in terms of our retail strategy; it's not going to change what we do in terms of our technology choices; it's not going to change what we do in terms of our customer experience. It is not going to change anything.

We had a decision this past six months where there was a free kick given to SingTel by the Government. Okay, that decision has been made. The good news for us is they made a great technology choice as a competitor and we will play that out. We will play that in the market. We are not whingeing, we are not crying, we are going to go kick butt as we do every day. That's kind of the story and I don't think it's as big as everybody portrays it to be and in, particular, as you look at our guidance for this year, timing.

I think somebody from SingTel said last week it's a hypothetical company, Opel, and they have a hypothetical plan and they have a hypothetical - well, if it's hypothetical said by an employee, it is going to be a while before they traction doing anything with it is if they can doing something with it. In the case of FTTN, if a convening is not until March and an awarding is after that, we are talking years away.

The punch line of getting a fibre-to-the-node build in a material way across many cities is a lot of work, a lot of talent, a lot of capabilities and if you don't have techs, you don't have trucks, you don't have tools, you don't have test equipment, you don't have a lot of things, it takes time, even if you were to do it to ramp up. So Telstra marches on either way under any scenario because, as we talked about earlier today, we have lots of options.

I have been told for the last five minutes one question, so we will

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take one more here.

ANDREW LEVY (Macquarie): I want to ask the long-term guidance that you have upgraded slightly, FY08 underlying basis is almost what it was previously. I want to know in the last three months, since you spoke of the market, what really has crystallised in your minds that is going to drive that growth that is more FY09/FY10.

SOL TRUJILLO: I'm sorry I missed the last part of the question.

ANDREW LEVY (Macquarie): In August you addressed the market and the long-term guidance was what it was previously. Given that it doesn't look like it's the 08 year that is really driving the increase in the long-term guidance, what has kicked over in that period?

SOL TRUJILLO: What we now know that we didn't know two months ago, in the short term was this Opel play-out. We've seen what has happened with the Opel play-out, this hypothetical company. We have seen clarity in terms of at least a decision time frame in terms of the fibre to the node, and we have also seen what the capabilities are in terms of the competitors in the market with ULL and some of the other players.

Back in August many of you in the room were talking about fusion, confusion, diffusion, and illusion in terms of whatever the plans might be in the market. We have had a chance to play it out and you have seen our net numbers in terms of PSTN and other things. We know what our competitors are going to do. The good news is, as I said before, it's like the sun coming up every day, what will they discount tomorrow, and as long as they discount, they stay on that path and we keep on adding value to customers, I think we will do okay.

Unfortunately, we have to call this part to an end because we are going to have another session with the media so that the media can ask their questions as well. Obviously, for those of you that are on the investor, the buy side, we are always available to you in the sense of if you have questions with our IR team and others to get clarity on what we have disclosed - let me make it clear only on what we have disclosed - and those of you on the sell side and need more clarity again, we have what's been disclosed as well.

Thank you all for coming and we are going to allow those of you who want to leave to clear out and those of you on the media side, we will start here in a couple of minutes.

.1/11/07

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AI assistant

TELSTRA GROUP LIMITED Call Transcript 2007

65927_rns_2007-11-01_e4423665-149e-44c0-9b6c-895fb9a30f12.pdf

Office of the Company Secretary

ELECTRONIC LODGEMENT

Transcript of presentations at the Telstra Investor Day – Afternoon Session

TELSTRA INVESTOR DAY - 1 NOVEMBER 2007 AFTERNOON SESSION

to extract shareholder value from this partnership.

deliver on that promise.

account teams to customer by both segment and by geography.

(Video played)

(Video played)

a decline, and we have to get back to growth.

customers' needs.

(Video played)

(Video shown)

range of industry awards during the past 12 months.

(Video shown)

(Video shown)

(Video played)

to reach each areas's unique needs.

(Video played)

your digital home, or do you think that will be via Foxtel?

proposition behind that.

different. So we are going to driving that.

AI assistant

TELSTRA GROUP LIMITED — Call Transcript 2007

65927_rns_2007-11-01_e4423665-149e-44c0-9b6c-895fb9a30f12.pdf

Office of the Company Secretary

ELECTRONIC LODGEMENT

Transcript of presentations at the Telstra Investor Day – Afternoon Session

TELSTRA INVESTOR DAY - 1 NOVEMBER 2007 AFTERNOON SESSION

to extract shareholder value from this partnership.

deliver on that promise.

account teams to customer by both segment and by geography.

(Video played)

(Video played)

a decline, and we have to get back to growth.

customers' needs.

(Video played)

(Video shown)

range of industry awards during the past 12 months.

(Video shown)

(Video shown)

(Video played)

to reach each areas's unique needs.

(Video played)

your digital home, or do you think that will be via Foxtel?

proposition behind that.

different. So we are going to driving that.

More from TELSTRA GROUP LIMITED

TELSTRA GROUP LIMITED Call Transcript 2007