TELSTRA GROUP LIMITED — Call Transcript 2007

Apr 25, 2007

26 April 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 from Telstra's media conference - \$1.5 billion Next IP™ network brings Australian business to the next dimension

I attach a copy of the transcript from today's media conference for release to the market.

Yours sincerely

North brake

Douglas Gration Company Secretary

ROD BRUEM: Thank you for coming along today for what is a very important day for Telstra, for communications in Australia, and, dare I sav it, we even have a couple of world firsts. A special welcome to those who are joining us on the webcast this morning.

My name is Rod Bruem, from the Telstra News Services Team, and today we're here to reveal Telstra's new IT network, Next IP. This will take Australia's business communications into the future. Very soon you'll hear from our business leaders, Deena Shiff and David Thodey, and first up, CEO, Sol Trujillo. But before we do that, we'll have a quick look at a video presentation.

(Video played)

SOL TRUJILLO: Good morning, everyone. Obviously today is another special day and it's another milestone day in Telstra's transformation. Last October Telstra launched our Next G network, and it changes again. What I'd like to do today is to explain how we're changing the game one more time because today we're unveiling our Next IP network for businesses. This is a very business-centric announcement here, which means that what you saw on the screen, our Next IP network, is the largest fully integrated nationwide IP network in the world, the Telstra Next IP network, combined and integrated with our Next G network, we now stand alone. Clearly we stand alone here in Australia versus those that we compete with, but not only that, we stand alone in the world. Together, as fully integrated networks, they're beyond comparison, they're larger, faster integrated, so, as I said, we are changing the game.

I would like to put it in a context as I think about Next IP and when you hear these words about IP, what does it mean? What does it mean to me as a business? Well, the way I like to put is in the context of how we have used things, how we've been able to do the things that we do every day when we think about communicating. In the context of an old network, pre IP, we had multiples of networks. There is a map that I've showed before that showed our network, which was a big amalgamation of lots of different networks accumulated over the years, ATM networks, frame relay networks, dedicated private line networks, all kinds of networks that sometimes talked each other but in many cases they were single purpose

kinds of networks. Some were efficient for certain purposes, some were not efficient for other purposes. But the punch line is, is that there were too many and they weren't enabling enough efficiency, given the way that our lives have now changed in terms of an internet world, in terms of a messaging world, and now in terms of the capabilities that we're bringing around video communications, where we're going to re-personalise the opportunity for people to communicate.

So that was kind of the old world. That's part of what we said, back in November 2005, that we were going to change, that we were going to fundamentally change the experience here in Australia. So now, today, we're announcing the launch and the capabilities of our Telstra Next IP network. IP stands for internet protocol, but it's not about the internet. It is next generation technology for network infrastructure and it does allow our services to be converged - operative word 'converged' - on the network, be it voice, video, data picks, or mobile services.

Now, when we talk about things at Telstra we always put it in a context of being carrier grade, meaning five times reliability, 99.999 per cent with robustness and with security as we think about the traversing of various kinds of messages, before one at a time and now simultaneous, across a network, which allows, in our case, for the optimisation and standardisation in terms of how we operate our networks and how we're going to enable customers to operate their networks. Some of you may be sitting there saying, "Well, that's a lot of techy talk or is this really about technology?" and the answer is no. But let me again talk about it in the context of a person running a business: We have costs that we incur associated with travel, we have costs that we incur relative to trying to get people to work together to collaborate more real-time because the dynamics of our world are now real-time. We can't schedule meetings a month out or two weeks out or whatever. It may be that we have to make decisions in a very real-time basis. It may be that we need to get products and services and offerings enhanced in our capabilities to customers today. Well, in the old configurations and in the old networks it was very difficult to do, but in an IP world it's all about software changes now going forward.

So here in Australia we now have the capability that no-one else has anywhere in the world and so we're now making it available to our customers and we are, in essence, changing the game. So every day, now, in Australia our business customers across the nation will be able to do things that they haven't been able to do in the past, assuming the working and the inner workings with Telstra.

But with that then comes our capabilities where we start breaking down some of the barriers that have existed if you're running a business, right, and even in your own personal lives, but in this case about running a business. It's about the barriers of time or the constraints of time, the constraints of distance and the constraints also of devices. We're now preparing all of our people inside the business, that's the people you're going to hear from in particular that worked for David Thodey and Deena Shiff, to truly become IP consultants because we are going to consult and enable services in a different way. When we talk about all of this, I want to be clear that this is about world leading services for our business customers, which is different than FTTN, which still means it's an issue that needs to be solved. But that is another issue for another day.

I want to talk now specifically about these constraints that we all have lived with in the business world. One of them is time. We are constrained by opening hours and closing hours, we're constrained by time zones, we're constrained by the time that it takes to process and share information, files, data, other things, in a real-time way. Well in the new world it's about securing on-line, or enabling secure on-line processing, SMS authentification with on-line banking, which we're doing and launching with National Australia Bank. It's about call centre optimisation, where you can actually have the capability where people can work from wherever they choose to work because you can network it and enable it. It's about having a call centre without having to build a call centre. It's about enabling customers to get even faster service. Or it may be about doing business with your supplier face-to-face without even going there. Or it may be about your inventory and delivering your inventory in a real-time basis or how you shop or how you enable your customers to be able to shop with you in new and varied forms in a real-time basis, where I can

actually sample, see and compare simultaneously across the world. How you can enable payments using RFID technologies in a real-time basis. I can go on and on with the numbers of examples because we're already talking to our customers about ways that they change their core structure, about ways that they grow their revenues and about ways that they enhance their customers' experience because those are the net results of what we do, helping and facilitating increased revenues, reducing labour costs, enabling a more accurate real-time way for people to manage inventory, investments and obviously their experience with their customers.

Let's talk about distance. Part of the old world, pre Next IP, is about distance and constraint. It's always about where people are, what they were doing, physical distance between and your office or you and your PC, or you and wherever you were going in terms of an off site kind of experience. In the new world it's really about your staff being able to work together without having to be together. Yesterday I have a telepresence call with four different people in four different locations and I was able to set it up personally as an IP consultant for myself, in terms of enabling that kind of capability in a real-time on demand call basis. The paradigms are now shifting. So we can do these things but we can even do them now in a high definition way. Today Telstra is enabling that, so that you can be where you need to be without having to go there. Also being able to remotely manage your workforce, your data centres and also your assets without having to be there. The net result can be business travel expenses savings, office accommodation costs savings. Another issue for all of us that's part of our lives is about reducing carbon emissions and how we can now be serious about things we've been saying in this industry and in this world for the last 10 years, we can now truly effect.

Let's talk about devices and the old world in terms of devices. Well, we had a lot of constraints. Sometimes devices are incompatible, they don't work together. Sometimes sending files across different devices and different platforms can't happen. Sometimes just a simple access to the internet is different depending upon what kind of device that you might have. Well, quess what? We're now enabling the ability to have voice, data, video flowing all over the same network, getting to

your desktop without getting to your desk, and editing your corporate home page from your PC, mobile, or even TV. So the net result, again, for you in your business is about savings. It's about business hardware savings, managing all these technology costs, where things get old, they need to be replaced; well, now you can simplify that. You think about security, which is a core issue in almost every business today, and I will talk about that in a minute. It's about storage, all the files now that we're starting to save. It's about the unnecessary travel costs, which is all part of the story here, with the Next IP data set of capabilities offered now to our business customers.

So this is all part of our plan. This is part of Telstra's plan for Australia, about nationwide coverage. We are the only company that thinks nationwide and, more importantly, not thinks, but acts nationwide. We're the only company that thinks about world-class speeds and delivers on world-class speeds, and now, in this IP world, the notion of security and raising the bar in terms of what happens and what's needed with security is obviously critical, along with robustness and along with reliability. So this is part of our plan and it is about the scale and the scope of Telstra's Next IP network, improving operational efficiencies for all businesses to take advantage of these capabilities.

Now there is a lot more to add relative to that when you think about businesses and all the requirements that we have in running our businesses associated with training, with people, with standardisation and enabling things now to happen in a much more efficient way. We will be bringing value add not only to the businesses, but I believe ultimately to the productivity of this country as we think about all businesses.

But let me talk for a minute about security because security is a big issue. It is an issue that has now affected all of us in our individual lives when we think about our PC or our laptop, as we go on the internet sometimes we get infections, sometimes we get viruses, sometimes we have people that want to track everything that you do, sometimes it's legal, sometimes it's illegal. We all need protection. I call the internet today somewhat equivalent to what some of you might remember in old western movies, the Wild, Wild West.

There is a lot of bandits out there, there is a lot of people out there that want to take advantage of people, people that are riding into town on their horses and trying to take advantage of the local folks that are trying to do things just in their normal community way. Well, there is a need for security in that Wild, Wild West, and in the case of Telstra and our Next IP we have and are delivering enhanced security compared to any of our competitors. We have more experience building and operating IP networks, we have security anywhere access with reliable, resilient and robust equipment. We've built this network using 99.999 carrier grade design principles and we have been independently certified against international standards, deploying world leading firewall technologies to be able to separate businesses' traffic from many of the malicious traffic, to be able to detect hackers and prevent intrusion and to filter spam and viruses that prevent your application corruption and better protection from network vulnerabilities. This is all critical as you think about running the business in today's webified world. I would say that all of us are into that webified world.

So I have a little demo here that I think we're going to play as part of the background here, but I'm going to talk about it. We have this thing called 'unified communications', which is really about enabling how you communicate across all devices, across all platforms in the various forms that you have across a business. It's about tailored inbound and outbound communications, checking the availability of peers, looking at your network-based address book. How many of you have your address book in your mobile, but when you go to work it's not there, or when you go home and to your fixed line it's not there? Wouldn't it be nice to have all of that information housed within the network? Well now you can. Now that we have businesses with people distributed across Australia, I can say that a lot of us have lost that ability to just walk down the hall and have a conversation with somebody because somebody happens to be in Perth, somebody happens to be in Adelaide, somebody happens to be somewhere else; well guess what? Now, in the Next IP world, I literally can get real-time, instantly, somebody on the line, in a web conference, a video conference, set up quickly. We can bring 'down-the-hall conversations' back without physically bringing the people together.

If we think about old world video conferencing, room to room with technicians, right? Those businesses that have capability, you have to have techs and they have to set it up and they have to keep on adjusting things and enabling stuff to happen. Well, guess what? In my office today I can do all of that myself, and if it can pass the Sol test of simplicity, then anybody can do it. That's how simple things are becoming in terms of enabling services to our customers. We're able to establish meetings without assistance. This isn't just for the big end of town, it has direct relevance and leverage for Deena's small and medium enterprises as well, and it enables this consistent user interface. So. think about multimedia web conferencing, marketing presentations real-time, collaborating real-time, interoperability with legacy audio conferencing, recording, playback, desktop sharing, next IP networks enable a virtual PBX also in a kind of branch office in a box. Think about setting up a remote ATM at a major event, think about opening up a new retail location as a trial, think about setting up a temporary insurance office at the scene of a natural disaster. Any of these are possible and require about two hours of set up time. Well, that's simply because in our case, with Next G, Next IP, we're not dependent on, in this case, a wire infrastructure. You don't have to wait and there is no additional facilities investments. All of that is important.

So let me talk about education. In the case of education there is a lot of paradigm shifts as well; being in multiple classes at the same time, notes on whiteboards and interacting real-time multiple locations, multiple students, even in multiple cities, states or even countries. A student can attend via TV and record two other lectures in the background. You can multitask in a Next IP world. In the case of healthcare think about a blood sample that been taken and sent to a lab. In the old world it was delivered, over multiple networks, to a physician, to a lab, to a hospital, and then accessed by potentially multiple people through multiple sign ons onto each device that it was delivered to. Well, it's virtually impossible to audit who had access to that data. In the new world now you can have a single sign on for all devices through a single network and a precise audit trail of every individual who has accessed that

information. This has applications and relevance in all other industries, and whether it be, as I said, on the education side, on-line learning and school administration, significantly improving access to the information and productivity of the school system, right, real-time information. An example is right here in Australia. The Western Australian Catholic Education Office is already working with us to deliver educational information in new ways to children regardless of the school size or its location. The retail sector is looking now at smart stores that improve customer service through in-store media E coupons, check in and checkout processes that flow the traffic much differently. In the case of finance and banking massive amounts of secure transactions at split second speeds, improving customer services and bank productivity. Look at the mining and resource sectors. When we think about that and advanced communications and asset management, it improves the productivity of people and the machines that they're operating, for many things now can be done remotely, monitored remotely in new and different ways.

Well, what does all of this mean and how do we, Telstra, enable it? To me it's about what I call the flex, the flex in our networks. We can expand, we can contract, we can move here, we can move there in now new and different ways, rather than in the old physical, dedicated, constrained kind of world. Not only that, because it is IP and because our Next G network is IP as well, we can do it almost anywhere across the nation. So it is about flexibility for people, it is about flexing hours, it is about flexing your presence and locations. But the punch line really is that it is about more flexibility for business, and that's why we're doing it, because back to the original principle our of transformation is putting our customers at the centre and enabling our customers more in terms of their ability to do what they want to $d\alpha$ .

In closing here, this is about innovation, it is about our strategy, it is about our plan and it is about changing the game. We have now innovated our IP platform, we've innovated on a technology basis, we've taken our innovation to our people, building the expertise through training and other experiences with our Telstra IP consultants. We have collaborated with our strategic suppliers. We've brought in the best of breed, well tested suppliers and their technologies and the Next IP is now part of the Telstra vision and the know-how, and it is part of the next dimension that I would say is only available with Telstra.

Now, it is important to note - and we bear this responsibility and we take it very seriously - that Telstra really is Australia's central nervous system because we connect all voice calls, video calls, data calls, other things that are happening within the economic infrastructure of this country. Telstra's Next IP network can in fact enable reductions of costs, increases in revenues, improving asset management, reducing risks and liabilities for Australian businesses. So it really is about, in the case of Telstra with next IP, being bigger, better and world-class.

I'd like to introduce to you and ask you to watch with me a video. After the video our GMD in charge of our Telstra Enterprise and Government Business, David Thodey, will come up and talk more specifically about the offers. Please enjoy the video. Thank you.

(Video played)

DAVID THODEY: Good morning. For those who don't know me, my name is David Thodey. I don't know about you, but I've seen these videos for I don't know how many years, maybe 10; but for the first time this is now a reality. In fact I went through the products that you need to be able to deliver that sort of capability and I think we've nearly got every one of them. What we need to do is actually integrate it together, but you can see this is a great example of convergence. It's about business and home life coming together, it's about using your mobile and that old fixed line phone together, it's about convergence at a very real level. The reason we showed you the video is that we wanted to show you how real it is in terms of impacting people's lives today, because this is what's going to really make a difference. We will talk a lot about technology, but until it makes a difference to a business, to someone's personal life, it means nothing. So what we've got for you here today, which we'll give you on the way out, is a brochure and it actually has the DVD in the back and you can take it and go and have a look at it. I think that it gives you real insight into what we're talking about here today, about

Next G and Next IP. So what I say, I don't say the future - in terms of I say the future is now.

Now I'm going to go through a couple of things. I think Sol has given you a very good perspective of what Next IP is and what Telstra is doing, but I'm going to take you, firstly, a little bit about the technology sitting behind Next IP, and then I'm going to go, just at the end, and show some real live examples of a couple of projects that we've been working on that make Next IP come alive in various industries. So I'll take you through both those.

Remember, what we're talking about today is about a new way of working and it is what we call next dimension working. IP is not new, in fact I think IP has been around since, what, the late 90s, but what is new in terms of this announcement is the whole new generation of technology that is faster, bigger, but, more importantly, more integrated. Remember, I work with large enterprise and governments every day so I'm working with governments about how to deliver better services for citizens, about banks and about how they deliver better service to customers, about how they can provide their information and product. One of the big challenges we always have is about how to deliver information in a more integrated way because these networks have built up, as Sol said, over time and are completely separate, and when you try to provide a seamless interaction to a customer, it is very, very difficult. So while we sit here and talk about technology I want you to understand the real challenge is actually the engineering behind here, and it is very, very complex and it's very important that you get a sense of that as we go forward. Now, remember, what customers want, what enterprises, the companies you work for, is all about productivity, better customer service, better efficiency, and unless you can articulate this technology to mean something, then it is all but words.

Next IP network is going to deliver, obviously, more capacity, and it is about this next generation of technology. Remember, it is about Next IP and Next G coming together, both the wireless and the wire line. Just think about your own experience, about how you use your mobile phone today and/or your PDA, and then what you do when you come to the office and you're using your laptop; they are quite different experiences and we need to pull this together into one seamless environment with

one command, one touch, one screen, as Sol often talks about. So this is very, very important.

So what we are announcing today is the world's largest integrated wire line and wireless network. It will change the way businesses in Australia operate, and I mean that. It is going to change them at a very fundamental level, it's going to allow them to do things they've never been allowed to do before. We've invested \$1.5 billion already in this network and there is more to come, but this is about building out the infrastructure to allow this to take place.

I want to go through a few statistics because it's important you get some sense of this. Firstly, it is scalable up to 92 terabytes per second. You look at me and say, "What's 92 terabytes?" Well I'll come on to that. What's important is that it's 77 times faster than what we have today. When you are thinking about a business, remember what they need is instantaneous response time, they need to be able to deliver these multimedia services far more quickly than they have before, be it Woolworths in terms of a retail point of sale environment, or a bank or a government. To do that you need this enormous infrastructure. How fast is 92 terabytes per second? Here is couple of things for you: If you wanted to move all the contents of the Australian National Library out of Canberra, it would take you 4.6 seconds, so that's pretty quick. It could handle 3 billion phone calls in one second. So this is important because scale and size is critically important when you start talking about enterprise, and in fact if you're a technologist in a large company, that's what you do every day, it's about providing reliable, scalable infrastructure that allows people to just get on to do what they need to do.

Now, I, like some of you would have experienced, but I know the moment that there is a problem in the network because suddenly businesses in Australia are not operated. You see, that's the way that we're so integrally a part of the fabric of this country. So when things aren't working, I know about it, because these networks are the lifeblood of the organisation.

So what's the other features of this network? Well, of course they're reliable, more reliable, more scalable,

and as Sol talked about security, in fact security is probably the subject I talk more about with executives in Australia than anything else. It gives us the ability to provide these enterprises and governments with the seamless scalability that they need as they plan out the delivery of services as they go forward.

I do want to just say a few words about the partners that we've involved in designing - in fact Dan Burns, who is sitting at the front here, has been (indistinct) involved in building this network and designing it. They have been critical partners for us, so I just want to quickly go through that because they are four very important partners. Firstly, Alcatel Lucent is providing the ethernet aggregation, for those who are technically inclined. Cisco is providing the core network, the IP MPLS core, and then Juniper is providing what we call the virtual private network, the edge devices, which is where all the traffic comes in, and of course Tel Labs is providing what we call the multiservice edges. So we could not have done this, but we have brought together world class, world beating suppliers to be able to provide this new next generation network.

So when you start thinking about it, if businesses can imagine the possibility that we're going to be able to deliver solutions that suit their needs and in a secure and reliable environment. So it's all about the integration of this network, it's about Next IP and Next G working together in a seamless way to provide a future that we call next dimension working. I do want to stress that. Sol talked about unified communications, which is a bit of an industry buzzword, but what it is, it's allowing you to have the seamless interface which will revolutionise the way we have dealt with technology over time.

So when I talk about Next IP there is really four or five things that I stress, and I think it's important we just spend a few moments on is this. Firstly, I talk about this network being the largest business network in Australia. It provides coverage that is unmatched and it will address 95 per cent of all businesses in Australia, and if you go across all the technologies, we are just untouchable in terms of breadth and scale. This is very important to a business, because unless you can have access to this technology across the country, you end up

having different technology that is very, very difficult to manage. So having one seamless technology at many access points across the country is very, very important. I mean, we touch already 4,500 customer buildings, we have 750 retail POPS, and then you combine that with Next G of 98.8 per cent of the population of Australia, really there is just no-one who can provide this integrated network the way we can.

I talked before about being the fastest network in Australia, a scale of up to 92 terabytes per second. $\mathbf I$ think that is very important to understand because it really gives assurity for our business customers to know that they can grow with this network. I talked about enhanced reliability, Sol mentioned 99.999 per cent; now, remember, what that means is that that network is designed only to be not available about 5 minutes per year. That is a reliability that is unheard of traditionally. If you talk about IT systems, they are usually designed about 99 per cent, but 99.999 per cent is a network of tremendous proportions. We talked about security, security in terms of (indistinct) service attack, in terms of the whole virus protection, very, very important, and then unauthorised attack. These are issues that we all face every day. Then of course we talk about management and control of the network. This will give customers the ability to look at their network and actually see what is happening in the network at any one time and then take corrective action. This, again, is critically important for large companies in Australia. Of course we talked about a rich set of applications, which I'll mention in a moment.

So Next IP enables customers to do things differently, in a new way, in an exciting way that is going to allow them to provide better customer service, improve productivity and improve efficiency.

So let me just now move a little bit away from the technology and talk about a couple of examples that we've been working on over the last six months. Remember, we've been building this network for 18 months and it's been an enormous effort by a lot of our engineering community. Let me talk about two, one is in the retail media industry and the other one is in the health industry. For those who have been into Retravision recently, you may have gone in and seen their digital

screens. What they have in there is, they show advertisements during the day, but they change. So if you go in there at 9 o'clock in the morning you'll see a series of advertisements that are run until to 11 o'clock, between 11 and 2 o'clock the advertisements change and they change again in the afternoon. This is being run off an application we call retail media solutions. Every one of those digital screens is connected to the IP network and so we're pumping down videos that are dynamically changed during the day and depending on what we believe, or Retravision believes at any one time, is the customer base going through the shop, they are able to change the advertisements. So let me just read what Keith Perkins, the CEO of Retravision said just the other day. He said: "The good thing about Telstra retail media solutions is that it takes the consumer right through to the point of purchase. It completes the transaction." You see, 75 per cent of all buying decisions are made at the point of sale, 75 per cent of all decisions. He said: "We don't believe that there is another way to do it in a cost effective manner. I don't believe anyone else could do it other than Telstra because of the size and shape of the network." You see, this is what it's all about, this is what customers look for. The early signs from this project are very, very encouraging. So that's one example.

Another one is a project that we've been working on for a number of months now at Lyell McEwin Hospital in Adelaide. It's what we call managed healthcare systems. We're going to show you a video about this in a moment because it's great to see it, and it showed a little bit of it in the video before, but this really gets out the detail about the change that is taking place in the delivering of patient care systems, but also What it entertainment in and around a hospital bed. brings to life here is, we used a large amount of content from Foxtel, BigPond, Sensis, plus IP telephony, plus a clinical patient care system all integratable in one device that both the doctor and the patient can use, so this is truly exciting. Again, this project has been incredibly successful. We'll show you that video in a minute, but let me just finish: Let me assure you this is a very exciting day. I've been in this industry a long time, but Next IP really does take us to a new level in providing the seamless infrastructure that allows businesses in Australia to do what they've never been

able to do before. What's more important, there is no-one else in Australia that is able to provide the service, so it's only at Telstra, and it is going to be able to improve productivity, improve customer service, and, most effectively and importantly, drive real operational efficiency in many of our customers.

So let's see the video, and then after the video my colleague, Deena Shiff, will come up and talk about small and medium business, or Telstra business, and take you through some other examples. So let's have a look at the video now. Thank you.

(Video played)

DEENA SHIFF: Hi, I'm Deena Shiff, and I am here to tell you that this new Next IP network isn't just for the big end of town. In fact smaller businesses, local plumbers, hairdressers, small services firms will be the most dramatic beneficiaries of this. In fact the technology habits of Australia's small and medium enterprise has changed dramatically in recent times. Today in Australia 90 per cent of small and medium enterprises are connected to the internet and 80 per cent have broadband. That's a number that's doubled in the last two years. The internet is now being used by these businesses for a much wider range of purposes, but they're ready to use it to trade and to sell and to use business applications using this technology. We're seeing a very significant increase in the use of smart phones and portable devices for business. But small businesses really want to be able to work anywhere, but hitherto these kinds of applications, which have just been for the top end of town, people who have had large private networks. But what the Telstra Next IP network does, coupled with Next G, is that it enables smaller firms to work anywhere. This next dimension of working enables a small business the same experience whether they're on a fixed or a wireless network on whatever their choice of device. So. as Sol said, it means that they can use one address book across all accesses and devices and they have can have a single message centre or mailbox for any kind of message; whether it's e-mail, voice or video, it can be retrieved. Plus the Next IP network, the Telstra Next IP network, is scalable and it's smart enough to know when to prioritise and to increase capacity to cope with additional business demands. So it's really important if you're a business

that has varying needs and is growing. Imagine what this means for small firms that want to be more productive and for small businesses that are growing and want to be part of a global market. Take a tradesman, for example, who can minimise the administration of their business and headache around tax time by billing customers on the spot by using a Telstra mobile payment solution that will run over the back of this network. This solution will not only process the payments, but it will update and store the transaction to accounting records. So Telstra's small and medium enterprise customers are now going to be able to access a range of these Telstra Next IP products, and these include the video collaboration and conferencing applications that Sol spoke about. It also means that business broadband, the broadband built for business only, where the traffic for the internet is segregated for business customers, is built onto this Next IP network, and that is a unique proposition for small business in this market.

Other applications will then be able to run over this network, like business on-line, which is available now, a do-it-vourself web builder and web hosting service that enables small business to establish an on-line presence. So it really is about a new way of working and being able to take your data centre, or your desktop, with you if you're a smaller business.

Let me introduce you to a customer of mine - and I hasten to add this is a genuine customer and not a character in a video. Her name is Gay Murray, she works alone from home in Sydney and she has quite a sophisticated business actually, she delivers E-learning and computer based training to large clients overseas, notably Cathay Pacific. E-mail is her core communication tool when she communicates with Cathy Pacific in Hong Kong, as well as the system integrators who work for her out of Mumbai. The content on her laptop represents her entire business. Mobility is also incredibly important for her because of the nature of her work and the fact that she's often dealing with clients in different time zones. She's stretched, she's stretched so while servicing her current clients she needs to look for the next one, but she's clearly got scope for growth in this business, so that is a classic Australian services export story if she can grow. But how could next dimension working help Gay? Business broadband, including PC back up and business

security, ensures her data is secure, externally stored, and that she has enough capacity. We're establishing a website and on-line presence for her so she can attract new clients, and when she works with her clients overseas and in Australia IP video conferencing and document collaboration is perfect for helping her to share and edit content on-line, without necessarily having to travel overseas. But if she does travel overseas, we've given her a Next G wireless turbo card so that she can work while travelling in the same way.

Let me take another one of our customers - I've got to admit I'm also his customer; restaurant owner, Mr Hanabi. Mr Hanabi is a small restaurateur, he has a staff of about 10 and his business is open from lunchtime to midnight. He's pretty ambitious and he wants to open another restaurant, which he's currently in the process of doing, and it's on the go. He sells great food but he has no on-line transactions, no web sites, and he does advertise but it's in the print through the local Chinese, Japanese and Korean newspapers. So how could next dimension working help Mr Hanabi and meet his desires to grow this business? Well, business broadband start up will include an on-line presence and business security for him, and he's decided to take on-line orders via e-mail and offer tourist information about his restaurant by linking the web presence to Sensis, Where Is and Australia tourist sites, so he's expanded his range of available customers. He's also going to retain me, even though I'm moved offices to the other side of down, and he's going to do deliveries of, hopefully, really good food after this publicity, but he will be able to, when he delivers to us, swipe the transaction on a mobile payment solution. So he's not lost a customer and he's expanding his range of customers.

I can give you thousands, thousands of examples like this about my customers. I'm looking forward to putting these solutions together for all of them. So in conclusion, Telstra is committed to helping even the smallest business work smarter and be more connected.

ROD BRUEM: Thank you, Deena, and if you could stay on stage and we'll invite Sol and David to come back as well. At this point I'd also like to welcome on the stage Dan Burns, who is the managing director of Network Operations, and Dr Hugh Bradlow, our Chief Technology

Officer. They'll be able to handle some of the more technical questions that you may have. So we'll open the floor to questions. There is two mics here in the centre of room, if you could make your way to one of those if you have a question, and we also have a large audience on-line today, interstate and overseas, and we'll be taking some questions over the conferlink facility, so we'll alternate. But we might take the first question from here on the floor.

OUESTION: Michael Fraser from The Australian. The 1.5 billion, could you break that down a bit for us? Does that include spending that happened on the network before you got here, or is that just since you announced this network at the end of 2005? I mean, how much of that money was spent with Cisco and the big vendors, and if you could maybe break it down a bit for us? Regarding all the fancy stuff we saw in the movie, those applications, are they being developed - are they actual Telstra applications or are they applications that are developed by other software companies that you've just stuck your brand on? How much of its own software and application development is Telstra doing and how does this compare with what was happening a couple of years ago? The last question is about travel: I was just wondering - I guess your travel is pretty legendary, Sol - how much of this going in the office and doing all of this on video are you doing yourself and making other senior executives do, and how much is Telstra actually saving on travel because of using its own applications like this?

SOL TRUJILLO: Okay, let me take it in pieces. As usual, I probably need to correct you on two or three things. Number one; in terms of the applications, the applications, as we talked today, are about an integrated set of capabilities that nobody in the world has. When you talk about an IP wireless network and an IP fixed network, no-one has that, so we're developing those applications. We have people like Dan Burns and Greg Wynn and John Garner and other people that are working in a collaborative way in Sydney, in Melbourne, in other places around Australia, to make those happen, yes, collaboratively, and, yes, sometimes we travel, but a lot of times taking advantage of the technology. In terms of the investment the \$1.5 billion, that's really been part of what we've called our IP core and the MPOS investments

that have been made since the time that we announced our strategy back in November '05. In terms of the details of it, who we spent, how much with, we don't disclose that because those are all subject to private negotiations between us and the suppliers that we have. Finally, in terms of the travel, we are now enabling ourselves to equip a lot of our locations across the country to be able to enable people to talk real-time. The example is, just over the last few days, as we were working on this, working on some other issues, I've had people, essentially, on a call within five minutes of trying to set up the call, which is unheard of in a business like ours where everybody gets out their calendars, they talk about scheduling something a week from now, two weeks from now, versus being on demand in terms of our business. But it's changing our business internally and it is changing what our customers are being offered, and finally in some cases, yes, there are some applications that some of our suppliers enable with us, and in other cases we're developing many of them ourselves.

OUESTION: One follow up on the 1.5 billion: What sort of cost savings does that mean to Telstra and how much of those are being passed on to customers?

SOL TRUJILLO: I'm sorry, ask the question again.

QUESTION: What sort of costs savings has that investment given for Telstra, can you quantify that? And how much of those costs savings are being passed on to customers?

SOL TRUJILLO: Well, the benefits of our investments are being passed on to customers literally every day. That's the way we talk about this business. In terms of costs savings, there is efficiencies that are afforded, and at the same time that enables us to invest in other things to bring Australia to world-class levels, as opposed to being left behind. Now we're at a point where, in Australia, the wireless capabilities from Telstra are unique and world leading, and now, again, in the case of the IP capabilities, integrated with our wireless, we now have world-leading capabilities in Australia. That's where the value and the benefit goes to our customers. Next question.

QUESTION: Stuart Connor from IT Wire and Exchange. Sol,

until you can migrate all your customers and all your services onto this new homogenous all IP network, you're going to be running that network and you're going to be running spaghetti bowl of legacy networks that you showed on the slide. I'm wondering if you can give us some indication of the timeframe that we should expect to be able to progressively close down all the legacy networks and some indication as to what the Opex reductions will be going forward as those networks are closed down? Because obviously, today, you're running all those and you're running your new network, so your Opex, I would imagine, would have increased significantly from when you were running the old legacy networks.

SOL TRUJILLO: That's a great question. We talked about this back in November '05. We talked about the fact that we were going to be making some investments, we'd have a Capex bubble, we'd have an Opex bubble for the first few years, and then on the back end, at the end of our transformation, we'd be removing legacy equipment, networks, systems, other things. So in the next couple of years, once we get past the '08 period we will begin removing a lot of that legacy equipment. I can't tell you network by network or system by system, but over time we will be doing that and that's part of what David and Deena and David Moffat and Geoff Booth and some of our leaders that deal with our customers - we're also working on plans with them in terms of migration.

QUESTION: So you don't have a set timeframe by which you expect to be able to do all this? See how it goes?

SOL TRUJILLO: We have a set timeframe, yes, to build, and we have a set timeframe to do all that, but we have not disclosed that yet in terms of details and I won't disclose it today.

OUESTION: So you've no indication of when you expect the Opex (indistinct?

SOL TRUJILLO: We've said publicly - and again I'm only going to disclose what we've already disclosed financially - we've already said that '08, as a financial year, we will start seeing material reductions in Capex and Opex as a result of some of the things that we're already doing? '09, the savings will become greater in terms of the actual absolute levels as well as the saving

levels. In '010, they will actually be one of the greatest years, because that's when we will have completed a lot of the builds, we will have completed the implementations of our systems and we will actually begin, or have continued in a big way the removal of legacy. So we've already said this to the financial markets; '08, '09, '010, and that's where you see us going from where we are at today in terms of the cash flow generation to the \$67 billion of free cash that we believe that we'll be generating in the '010 period.

QUESTION: One follow up question: Today could you support all the legacy access your customers have on this new network, so if a customer wants to maintain the service they have, can you actually carry that on the new network today, or are there any services which you have to maintain that (indistinct)?

SOL TRUJILLO: There are some that the answer is yes and there are some that the answer is no, because we don't want to - we're no different than a retailer; you can't carry all products in perpetuity, you have to manage a certain number of SKUs in terms of inventory. But we will work with our customers in terms of what's needed and what we can now offer, bigger, better other services with, and that's what David and Deena and Geoff and David Moffat are doing as we speak. Thank you.

QUESTION: Brendan (indistinct) from ABC Television, the Lateline Business program. You are attempting to unravel that spaghetti that we see out there in Australia, but moving to spaghetti westerns and qunfights and the internet, yet you've been involved in long-running qun battles with the Feds about internet speed in Australia. Where exactly are we in your attempts to speed things up?

SOL TRUJILLO: I think we've been fairly clear that we believe that in the case of fibre to the node we're behind the rest of the world and falling behind quickly. So we've been fairly public in advocating the fact that Australia is going to need to make a decision in changing the regulatory policies that disincent investments. It's pretty clear. When there are incentives that sav a shareholder who has invested a lot of capital and earned competitive returns in a company like Telstra, when they invest in things like that, just like they can when they invest in a BHP or an NAB or any other investment

alternative, then that's when you start seeing investments occur that enable that. But that means old, what I would call, 20th century regulatory policies start moving to be consistent with the 21st century, and that's where we are at. So today you see it with Next IP, it's based on contractual relationships with customers, and our shareholders risking capital because they get to set prices and do all of that in terms of what we do in running the business. It's the same with the wireless business. So where there has been no regulation world-class capabilities are being brought to bear. What we want to do is bring world-class capabilities to bear across everything that we do.

OUESTION: There appears to be a little disappointment if you take a look at the share price, clearly investors are concerned about the speed of negotiations with the Federal authority. What's your observation on that?

SOL TRUJILLO: My observation is that I've been very clear in terms of what our requirements are. I think the shareholders of Telstra, since the T3 sell down, they understood the policies under which we will run this company, they've understood the strategies under which we will run the company, they've understood how we will compete in the marketplace and how we will represent their interests as stewards, as fiduciaries of the business. The share price has reflected their either confidence or lack of confidence. If you call the percentage increase a sign of confidence, you can call it that, or you can call it whatever you choose to. I think the market is making their own decisions.

QUESTION: Just one last question, if I may: We're seeing a fundamental shift in the technology from the old fixed line days where that was Telstra's main business and something it did widely. But if you take a look out there in the community there are many complaints about maintaining that fixed line business. There was a letter in the Herald the other day about an elderly person who couldn't get a fixed line phone in hospital. They didn't happen to be one of the many Australians with a mobile phone. Are you abandoning those loyal customers of all those years?

SOL TRUJILLO: The answer to that is absolutely not, and the facts would say that your observation is incorrect.

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OUESTION: It's was my observation - a letter to the editor, and if you walk around here looking for a basic payphone, you'll be walking for a while.

SOL TRUJILLO: I don't think if you walk around most places you will have a hard time finding a payphone. You will have a hard time finding as many payphones that were never used. We have removed those payphones that aren't used. In the case of service to Australians across the nation we track those results. The government has a reporting scheme where these things are tracked, and the numbers that we report today are the best ever in terms of service delivered to Australians across the nation. Those are the facts. Now, I would say to you, at the same time, we are not perfect. We have humans working in the business; sometimes there are mistakes, sometimes natural disasters happen, sometimes cables get cut, sometimes things happen that we cannot control every single circumstance. That creates those unique situations where people don't have service after a flood, don't have service after a cyclone or a cable being cut that has to be restored, and it takes time to get people out there digging up trenches, isolating the trouble then trying to re-splice all the cable that sometimes you can't do in a minute, you can't do in a day. Those are all part of the business.

ROD BRUEM: We'll take another question from the back there.

QUESTION: Alex Hunter (indistinct) from IT Wire. I just wanted to ask about the pricing for wireless. I've just come back from a conference in Beijing in Intel and they seem to be still very gung ho on the global Y Max roll out. Obviously it's very easy for them to say they're going to deliver a cheaper broadband on a global basis wirelessly when the network doesn't exist, but ultimately, in fact, they seem to be spending lots of money in funding companies around the world to do that. In Australia I know that Next G has the fastest network and the fastest speeds and those sorts of things, but your competitors are offering cheaper prices on the next series with 3, Virgin offering a gigabyte for \$10, all those crazy prices after that - even Vodafone dropping prices. But to all of you, when we will see better

pricing on wireless? Your competitors are doing it, eventually market forces will force you to do the same.

SOL TRUJILLO: You're absolutely right, market forces will always work. Today the market forces are at work, we're doing very well in capturing the market because customers are making the choice around value. Price is one dimension, but there is no other player in the market that covers the nation. There is no other player in the market that has the speed. There is no other player in the market that has the features, the content, the services. That's all part of the value equation. It's like the car you drive, you can buy one that's here, you can buy one that's there, not all of us buy that same car. The shoes that you wear, the shirt that you buy; all of those things are about value trade-offs that we make, and we're doing very well in the market today with the value that we deliver. It's not just about the lowest, cheapest price, because if you want cheap, you can have inadequate service, less speed, less quality and you can get cheap, you're right.

OUESTION: That's all true, but even so, now that some of the customers are really starting to put price pressure, the price difference between Telstra and the competition is going to get a lot wider. I mean are you feeling the pressure to reduce prices or are you just going to hold out for as long as possible?

SOL TRUJILLO: The difference in quality, reach, coverage, speed, content, you're right, is huge between Telstra and our competitors. You're absolutely right.

ROD BRUEM: Look, we'll have to leave it there, ladies and gentlemen. Thank you for coming along today. The webcast from today will be available on-line on Telstra.com very soon. I'm sure you'll all agree that it's a very exciting new start for business in Australia from today. Thanks again, and good afternoon.