TELSTRA GROUP LIMITED — Call Transcript 2008

Jun 30, 2008

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1 July 2008

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 teleconference on the Chinese acquisitions

I attach a copy of the transcript from Friday 27 June 2008 teleconference on the acquisition in leading Chinese online advertising businesses, for release to the market.

Yours sincerely

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Carmel Mulhern Company Secretary

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

TELSTRA TELECONFERENCE

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• 5 SOL TRUJILLO: As all of you now know, Telstra’s acquired a 55% share holding in two Chinese internet businesses that give us, Telstra, leading positions in the auto and digital device advertising market, in addition now to what we had already acquired with our SouFun business in the real estate space. The businesses include four websites, IT168.com, PCPop.com,

• 10 Che168.com and Autohome.com.cn. Now today we made a payment of $76 million for the acquisition of these two businesses, and will make a smaller payment at the end of the calendar year 2008 if certain performance hurdles are passed, or as we like to say, its an earn out kind of transaction. The businesses will be housed in Sensis along with our existing portfolio of

• 15 internet businesses that include a 51% stake in China’s biggest online real estate business, SouFun.

• As many people have asked me, you know, over the last two or three years, you know how do I think about acquisitions, how do we think about expanding

• 20 beyond the borders of Australia, obviously SouFun was our first step, but it is important to understand the why, and obviously we are committed to finding and investing in major players in high growth, but immature online market, which fits within the context of our media comms strategy. These acquisitions give us entry into a high growth Chinese market in another zone, but in

• 25 particular in the auto and digital device market. Both businesses already are growing at high double digits and are earnings and free cash flow positive, we are excited about the continued unique presence that we now have in the internet and online space in China with these two additional acquisitions, now together these sites will deliver the second largest user traffic in the digital

• 30 device segment and the largest user traffic in the specialist auto segment complimenting again our SouFun’s leading position in real estate.

• Let me say a little bit about the size and importantly the growth potential of these advertising segments in China. In the case of autos, the new car sales

• 35 in China are already almost half the volume of the US with 7.2 million cars sold this year. China is expected to overtake the US as the world’s largest auto market within probably the next decade. Online advertising revenues in the Chinese auto segment are predicted to almost triple by 2012, rising from $US230 million this year to more than $US680 million in 2012. Chinese car

• 40 ownership is still relatively small in per capita terms when compared to other developed countries but in the case of China, its about 1% compared to 65% in Australia and 75% in the US, so again a lot of run way ahead of us in terms of what the opportunity is.

• 45 On top of that, advertising spend on a per car basis is presently $US178, and that’s 13% of the US equivalent of about $1300. In digital devices, things like cameras, computers, servers, etcetera, last year 48% of the Chinese population had access to a digital device, by 2015 that percentage is predicted to increase to 84.5%, that is 1.18 billion people and sales are predicted to total

• 50 almost $US280 billion annually. The online digital device advertising market is expected to triple by 2012, up from about $US235 million this year to about

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• $US700 million. Across the online industry in China, advertising revenues are predicted to be more than $US3.2 billion in 2010, this is about a 38% overall aggregate cagr, or compound average growth rate, which is obviously a very strong growth rate, and we now have strong businesses in the business

• 5 segment of the online ad market place. Each of these Chinese sites target very different audiences, and really do specialize in providing information, user generated content, advertising and product reviews.

• The sites will continue to exist as separate sites but of course we will be

• 10 working to extract maximum synergies in operations, sales, marketing, content management, and even as we look at things like functionality. These extensive communities in auto and digital devices are linked by one thing, the desire to buy and sell product, does that sound familiar? You know when we think about our Sensis business here in Australia, absolutely. Real buyers,

• 15 real sellers, not just brand advertising, so this is about volumes, transactions, and associated dollars. The four sites have well known and trusted brands and reputations in the Chinese market, and we will look to further capitalize on this position, so that, the way that we intend to do that is by integrating the business operation while maintaining the four sites independently to capture

• 20 the various audience segments, so again its about focus. Expanding the online advertising offerings, where the major Chinese mainland cities, while also expanding the number of auto and digital device listings.

• Leverage the opportunities to grow the sites’ desirable user basis and we are

• 25 going to continue to leverage opportunities to grow these through innovation, marketing and sales, enhancing the quality and functionality of the sites to increase loyalty and build up the core group of site users, and to openly build our brand as we look at the business there in China. Our goal is a leading traffic position in site traffic. Revenue market share and user stickiness to

• 30 ensure the continued strong growth. They said earlier the merged business will deliver the second largest user traffic in the digital devices segment and the largest user traffic in auto again complimenting SouFun’s leading position in real estate, to deliver a compelling presence in the Chinese online advertising market space. In the past two years we have learned a lot in the

• 35 Chinese market through SouFun, we have also had a lot of experience through our Australian site for instance in autos through carshowroom.com.au, our business that almost every Australian knows about tradingpost.com.au, and autocult.com.au.

• 40 We have talented and entrepreneurial leaders in both the businesses we have acquired today, and they are staying with the business. The quality of the management teams have been a critical consideration in our buying position, so this is the group of people who have created four separate online success stories and we are delighted to confirm the management team is committed to

• 45 stay with the company and is going to work with our Sensis team to drive continued growth. Our local presence through SouFun also means that we are in a fantastic position to tap in to the local Chinese talent pool to ensure excellence in delivery. We are going to continue to work closely with the local management teams as we have with SouFun to deliver the highest quality

• 50 content for the different segments, enabling a strong sales force to monetize

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the traffic, further investing in the brands to build awareness and continuing to drive revenue while improving our margins.

• You know as I look back, since the acquisition of SouFun, and I think about the

• 5 growth that we have experienced now in our SouFun business which has been very strong double digit top line growth and triple digit bottom line growth, as I look at this business here, where I do expect growth rates on the top line that are stronger than 50% and bottom line growth rates that are triple digits again, that is the way that we are looking at the opportunities, again this is not about

• 10 indirect variables like eye balls and other things, this is about real revenues, real earnings and real cash flows and that is the strength of what I think we are doing now with this acquisition as well, so I will stop and open it up for questions for Bruce and myself.

• 15 ANDREW BUTCHER: When you ask a question, please state your name and company, and to ensure everyone has an opportunity to ask a question, you will be limited to one question at a time, but you are welcome to re-join the queue if you have further questions and time permits.

• 20 FEMALE SPEAKER: Our first question is from Jessie Hogan from The Age Melbourne, please go ahead Jessie.

JESSIE HOGAN: Hi Sol and Bruce, with the revenue to come from these new sites, will it purely be display advertising surrounding the user generated 25 reviews and that sort of thing, or will there also be advertorial sort of stuff on there?

• BRUCE AKHURST: There is a lot of advertorial material, there is a lot of reviews, there is a lot of user generated content Jessie, so it’s a rich editorial

• 30 place, but there are, the revenue model is listing revenue and display advertising, pretty much the same as we have with our other Sensis online properties and also with SouFun.

• FEMALE SPEAKER: At this stage there are no other questions. I will remind

• 35 everyone to press * then 1 to register, and * then 2 to cancel. We now have a question from Fleur Leyden, Herald Sun Melbourne, please go ahead Fleur.

FLEUR LEYDEN: Hello, I was just wondering about the potential for this acquisition and other similar acquisitions to help you reach your $3 billion 40 revenue generating target by 2011, and also is there anything else in the wind that we can expect in terms of acquisitions?

• SOL TRUJILLO: Fleur clearly every acquisition that we would make in addition to our organic growth will take us closer to that $3 billion number that

• 45 we talked about back in November of 05, that isn’t necessarily the driving issue for us, its about finding opportunities to grow that create shareholder value and I hope that you see with this and our prior ones that is where we are going, and that is really our focus, okay.

• 50 FLEUR LEYDEN: Okay, thanks, I know we only get one question, but just that

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• $76 million, that is US or Australian?

SOL TRUJILLO: Aussie dollars.

• 5 FEMALE SPEAKER: Our next question is from Tracey Lee from Australian Financial Review in Sydney, please go ahead Tracey.

• TRACEY LEE: thanks very much, hi Sol, hi Bruce. I just wanted to go back to what I think Sol you might have been saying earlier to get some clarity, I think

• 10 you were saying that the auto site generates the largest traffic and the digital device site was the second largest, are you basically saying that you have bought the website with the most used and most visited car sales website in China and then you bought the second largest one for digital devices, can you just clarify that a bit?

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BRUCE AKHURST: Tracey, its Bruce, we have got two sites in auto and two sites in IT, if you combine the unique visitors for both of those sites together, in other words you combine the two auto sites together, you get the largest in terms of specialized auto site, its probably –

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• TRACEY LEE: You just broke up there Bruce, you said combine those together you get the, and I missed what you were saying.

• BRUCE AKHURST: If you combine the two auto site unique viewers together,

• 25 you are probably up around nine or ten million unique viewers a month, if you combine the two IT sites together, you are up in the sort of the 40 million viewer range, unique viewer range, and now you can compare that to the SouFun which is the largest real estate in China and in the world, and you are looking at, when we bought that it was 35 million unique viewers and within two

• 30 years we are well over 60 million unique viewers now, so again these sites are showing very, very strong unique viewer growth, it puts us in leading position in those three categories now.

• FEMALE SPEAKER: Our next question is from Robert Fenner from

• 35 Bloomberg News Melbourne, please go ahead Robert.

• ROBERT FENNER: Good afternoon gentlemen, I just want to ask, are these sites all profitable at the moment?

• 40 SOL TRUJILLO: The answer is a simple yes.

• ROBERT FENNER: Thanks, that is all I needed.

• FEMALE SPEAKER: Our next question is from John Durie from The

• 45 Australian Newspaper Melbourne, please go ahead John.

JOHN DURIE: (indistinct) two sort of related questions,

SOL TRUJILLO: We can not hear you John.

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JOHN DURIE: Hi, sorry I think that might be better, sorry. Could you take us into the conditions, like what they need to do to get the second half of the payment, and also I am interested in sort of the long term strategy for China, are you just going to sort of pick off bits and pieces to try and amalgamate them all down the line or just how you see that traveling please.

• SOL TRUJILLO: The matrix for the payments going forward we won’t disclose the details of that because those are part of our contractual agreements, but suffice to say its got to be hitting numbers at the top line and at the bottom line

• 10 and I won’t say much more than that, and so you know at the half, you know as our full year close, we will talk a little bit more about this, where we are disclosing numbers etcetera, etcetera, so I will leave it at that. In the case of China, obviously last year I had the opportunity, or two years ago, to talk about the huge growth in the real estate market, you have seen us expand the focus

• 15 of the business from just being real estate listings to now it is home furnishings and other parts of the eco system there.

• The Chinese market has become very interesting because it is so onlinecentric and people do acquire information almost daily around things that are

• 20 important to them and the bigger presence we can have, in terms of aggregating some of the skill sets, some of the focus, some of the leverage that we have with our competencies, the better off we are going to be, so we do want to be a bigger player in a big, fast growing market, there is a lot of synergies that we openly will have with other businesses that we have, and so

• 25 I would just say that at this stage, and I can’t say much more, because we will continue to unfold how we think about further growth here in Australia, but also how we can create value outside of Australia as well.

• BRUCE AKHURST: John just a couple of other things by way of background,

• 30 we know that China’s GDP is growing at 10% or more, broadband internet is growing at 25% or more and online advertising is growing at over 40% or more over the last few years. In these two verticals, IT and auto, IT is growing at about 55% in terms of online advertising, and auto at about 87%, so these are really fast growing sectors of the market that are experiencing the sorts of

• 35 trends we saw with real estate over the last couple of years, but just a bit more on the auto market by way of example, the number of cars that are going onto the roads in Beijing by way of example, is about 1000 new cars every day so that is a huge number of autos that are coming into the market every single day just in that one single city, whereas last year about 10.7 million cars were

• 40 sold in China, in 2010 it will be about 17 million new cars sold in China with about 156 different passenger types of models, so that market is really exploding and to have the number one website together in our portfolio in a market like that it obviously presents us with enormous opportunities, just as we have done with SouFun and we have rolled our 75 major cities in China,

• 45 we have got a city expansion plan for these types of websites, we will probably head through 40 cities or more on our current plans.

• SOL TRUJILLO: Okay, thank you, next question.

• 50 FEMALE SPEAKER: Next question is from Victoria Thieberger from Reuters

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Melbourne, go ahead please Victoria.

VICTORIA THIEBERGER: Hi Sol, how are you going?

• 5 SOL TRUJILLO: Good.

• VICTORIA THIEYBERGER: Good, look I came in late so I am sorry if you have already covered this, but I just wanted to find out if you are sort of happy with the focus you have got now in online advertising in China or do you think

• 10 you have got more opportunities besides you mentioned the extra cities that you want roll out to?

• SOL TRUJILLO: Well number one I am very happy as of today with the position that we have where we have three of the top leading, three of the top

• 15 five verticals within China now. You know, I think there is more, but I can’t comment on that beyond that other than to say that we will continue explore opportunities that we might see, not just in China but perhaps in our region, but again China is a strategic location for us given our presence already in Hong Kong, both with our wireless business and also with our undersea cable

• 20 business so we can create again enough scale and mass as we grow value for our share holders.

VICTORIA THIEBERGER: Okay, thanks.

• 25 SOL TRUJILLO: Thank you. Next question operator.

FEMALE SPEAKER: Yes we have a question from Snake(?) Chang from Metarsi(?) China, go ahead please.

• 30 SNAKE CHANG: Hello, do you intend to package the three websites to IPO?

SOL TRUJILLO: Yeah, the question was do we have plans relative to an IPO, the answer is yes, much like what we talked about with SouFun at a future point, we would look at an IPO where we can further monetize and get

• 35 recognition of the value that we have created in the business but again, we are not an acquirer of businesses to do IPO’s, but we are an acquirer of businesses to build long term share holder value opportunities in various markets.

• 40 SNAKE CHANG: Do you have a timetable for the IPO?

• SOL TRUJILLO: Not really, again we have been spending our time in terms in developing the business, the integration plans of these four sites, but you know as a reasonable thought it might be two to three years as to how we can

• 45 continue to grow it, build more value, and then again recognize and or monetize value that we have created.

• SNAKE CHANG: And sir, which market do you prefer to IPO?

• 50 SOL TRUJILLO: That I can’t answer, we deal with those issues at those

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moments in time when it is appropriate, okay?

SNAKE CHANG: Thank you.

• 5 FEMALE SPEAKER: At this stage there are no other questions. We now have a question from John Durie from The Australian, Melbourne, please go ahead John.

• JOHN DURIE: Hi, could you take us into how you came about these

• 10 acquisitions? Did these guys come to you? Have you been actively looking for it? Just how it all came about please.

• SOL TRUJILLO: Well we have a, we have our own M and A team here at Telstra, and they’re charged with looking for opportunities as we go forward, it

• 15 is a very small team at this stage but obviously as you heard me talk about back in November of 05, I have a very strong belief in terms of this advertising business of connecting buyers and sellers, I have a strong belief about how we are going to exploit it in a unique, value capturing way, and obviously we have a very strong business called Sensis that partners with our M and A team to

• 20 essentially go and explore this. We now have a team as of our acquisition in SouFun, we have again a small team in Beijing that actually works hard at looking for these opportunities.

• JOHN DURIE: Okay, thank you.

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ANDREW BUTCHER: Take one more question if there is one operator, or else.

FEMALE SPEAKER: Yes sir, there are no other questions at this stage.

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• ANDREW BUTCHER: Alright, thank you everyone and if you have any further questions, feel free to call me or Karina Keisler at Sensis. Good bye.

SOL TRUJILLO: Thank you.

• 35 RECORDING ENDED

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