TELSTRA GROUP LIMITED — Call Transcript 2009

Mar 9, 2009

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10 March 2009

The Manager

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

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Dear Sir or Madam

Transcript from today’s conference call on the unveiling of Telstra’s super-fast cable broadband

Attached is a copy of the transcript from today’s conference call on Telstra’s superfast cable broadband.

Yours sincerely

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Carmel Mulhern Company Secretary

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

TELSTRA CONFERENCE CALL – SUPER FAST CABLE BROADBAND UNVEILED 10 MARCH 2009

BEN SPINCER, TELSTRA INVESTOR RELATIONS:

Good morning, everyone. This is Ben Spincer from Telstra's Investor Relations. I'd like to welcome you to this call to discuss this morning's announcement of the HFC upgrade in Melbourne. With me on the call I have Sol Trujillo, John Stanhope, David Moffatt, the GMD of Consumer, Mick Rocca, GMD of Network and Services, and Michael Lowry, the ED of Network and Technology. We'll have a few brief comments from Sol, then we will take some questions from the analysts, then I'll hand over to Andrew Butcher, who will manage some questions from the media, who are also on the line. I'll now hand over to Sol. Go ahead, Sol.

SOL TRUJILLO, CEO, TELSTRA:

Thanks, Ben, and good morning, everybody. I guess I'm going to start by saying I'm really pleased today that, as most of you have now seen, we announced we're going to upgrade our cable broadband network in Melbourne essentially to 100 Mbps per second, and we're going to do this by Christmas. You know, this is, as we look at it, stage 1 of a wider upgrade of Telstra's cable network, which today passes 2.5 million homes in Melbourne, Sydney, Brisbane, Adelaide, Perth, and the network in Melbourne itself passes nearly 1 million homes. Now, I think those of you that are close to the company and have interacted with the company and have had conversations with us over the last, in particular, couple of years, we foreshadowed this late last year, and now is the right time in our opinion to begin turbo charging Telstra's cable network.

Now, again, I'll just say that I'm pleased today to share this, because our technology folks have been working very hard on this really since we announced Cable Extreme a couple of years ago. When we announced our Cable Extreme and we deployed our Cable Extreme, we started providing download speeds of up to 30 Mbps to 1.8 million homes with the remaining 700,000 homes having speeds up to 17 Mbps per second. So, as we now think about this latest upgrade, we're going to more than triple the current peak download speeds to a super fast 100 Mbps per second.

The great news about this technology and the platform that we have is that we can take it, if we choose at some point, up to 200 Mbps per second. Now, I do want to be clear that this is not just about taking speeds up in a one-way context. Clearly, this will be about a two-way interactive capability that will exist along with the speeds, so we're going to be transforming Telstra's cable network to a super fast two-way interactive fixed and broadband network with download speeds I would venture to say amongst the highest in the world.

So I think all of you remember we changed the game with our Next G on the wireless side. We changed the game with our Next IP as we thought about serving our business customers, and I would say this is now what I would call what's next. We're going to use DOCSIS 3.0, which is well established internationally and has been successfully deployed in several cable networks overseas. So we've been monitoring the evolution of

the technology and its actual deployment. An estimated $300 million is going to be invested in the Melbourne this and the next financial year and, again, as a reminder, our financial year ends 30 June, so this will overlap the two years. We want to be clear that there is no change to the guidance that we provided at the half year.

Now, your cable network, along with our other fixed line infrastructure is going to be the key driver of Next Generation broadband in Australia. As is the case around the world, this upgrade is going to help position Telstra to deliver on its own vision of a world class fixed line infrastructure that complements the Next G mobile broadband network. So, as you've heard us talk about, 21 Mbps per second peak through put speeds on our wireless network moving to 42 Mbps and ultimately over the next two or three years to 100 Mbps, this is complementary and a very synergistic view as we think about serving the nation, not just parts of the country.

In this case, however, this piece of our announcement will bring the Next Generation internet to Melburnians enabling them to work from home, learning, security, entertainment, health care and energy-saving choices amongst many other things that we have on the drawing boards. Homes will be turned into digital hubs simultaneously using cable for high definition movies, interactive television, videoconferencing and video file sharing, again amongst many things that we will talk about as we start rolling out the services.

As well as super fast broadband, the cable network is going to be a two-way, full interactive platform that will enable Telstra to start opening up new revenue streams by providing cable customers with the full array of existing and Next Generation services. I obviously am not going to get into what those Next Generation services are, suffice it to say that we are working on them literally as we speak and before we have spoken today.

Just as we've done with Next G and Next IP, Telstra is going to fully leverage our cable network to lead the market in providing our customers with high quality, highly tailored value-adding services that meet their individual needs.

Ben, I guess at this point I'll just stop. I think everybody has the press release and the other information that we've provided, so we'll open it up for questions.

BEN SPINCER: Thanks a lot. We'd be ready for questions now from the analysts.

OPERATOR: our first question is from Christian Guerra from Goldman Sachs.

CHRISTIAN GUERRA, GOLDMAN SACHS:

Good morning. Thanks for your time. I just have three questions for you this morning. Firstly, just on the capex for the project you said $300 million for Melbourne only. Are you able to talk about the total cost of the project if you do, indeed, decide to upgrade the entire 2.5 million home reach of the network to up to 100 Mbps per second? I guess on the back of that if you could maybe just talk about the timetable for the other cities.

My second question is on the NBN obviously that's a key issue for the stock out to the market right now. Is this tacit approval that you're out of the NBN, that you've accepted it or can you basically reverse your decision on this project if you are admitted back into the NBN process over the next month or two.

My third question is just on the pricing for the product. I'm just wondering, so far you've basically given away more speeds at pretty much the same price point. I'm just wondering whether with this new product will you be charging a premium to current prices, or is it just going to be part of the existing packages? Thank you.

SOL TRUJILLO: As usual, some very good questions, and extensive questions. In terms of capex, we're not going to talk about further deployment in terms of numbers until we deploy this in terms of Melbourne. So in terms of going beyond that, I just will say a few things about the cost, because I've had a couple of questions shared with me a little bit earlier.

The cost that we're talking about relative to the $300 million are basically hardware and software costs that are associated with cable modem terminating systems, cap routers and things like that. They are associated with our integration and development, and ultimately they're about or inclusive of what we would call our Next Generation feature servers, or what some people have short-handed as soft switches. So those are the primary components of the spend that we're talking about. Some of these costs, in particular, the Next Generation feature server sets, the integration and development are leverageable into what we do obviously in further deployments to the other markets as we do that, or if we deploy them.

What I think is important at this stage is that we get to market with these services, begin testing the services, begin testing the two-way interactivity and making sure that we can operate this at the same quality and at the same service levels that our customers would expect from us in our Next Generation context. So, we are not at this stage announcing beyond what I would call stage 1. Therefore, we won't disclose any numbers. But the punch line is that this is a very attractive way for us to think about serving customers. It's leveraging existing infrastructure, and it's going to enable us to provide some really interesting services going forward.

The second question you asked relative to NBN, I think your wording was is this essentially tacit admission that we're out of NBN or don't care about NBN or whatever. The answer is no. We've been talking about this - I think you're aware of this - for the last couple of years in terms of at some point, once the technology got to full maturity, meaning DOCSIS 3.0 that's been deployed elsewhere, that we would want to do this to start serving our customers in what I would call a Next Generation fashion. If, per chance, the NBN turns out that the government wants to have conversations with Telstra up deployment, the answer is we obviously would be willing to have that conversation. We've never said that we weren't interested.

But the key point behind this and the key point behind any conversation is that to have a technology-specific or single-technology-specific solution for the nation is probably not a practical approach. There's going to be a mixture of technologies in order to meet what we have articulated as a vision for the country, and I think what the government, through the Prime Minister, has articulated as a vision for the country going forward, as some people have short-handed it, broadbandising Australia. So the answer is a fundamental no, we're not tacitly acknowledging anything. Obviously we're open to conversations. But we are getting started on this because we really want to learn as much as we can about the services and applications that we can deploy on this as it's exciting to get to 100 Mbps per second. It's very consistent with the research that we've done from customers in terms of the things that they would like us to do, both in the home and with businesses as we serve the customer set that we have.

The third question relative to pricing in terms of will we charge a premium, I'm not going to talk about pricing specifically today. I think you've seen since we began our transformation strategy that we clearly think about bringing value, adding value and pricing for the value. Again, it will all be very competitive, but it's got to be value compelling to the customer how we end up with our pricing structures or price levels as we go forward.

Again, I need to say this, probably many times, this is about our view of a Next Generation set of services that we think for our fixed and broadband set of services and customers we can take the game to another level. This is just part of what we need to do to get there, and that is get started, get started quickly and start delivering some of these services as we think our customers have indicated to us they'd like to be served.

OPERATOR: Your next question comes from Sameer Chopra from Deutsche Bank.

SAMEER CHOPRA, DEUTSCHE BANK: Good morning. I have three questions for Sol, then Mick Rocca, if I may. The first one, can you talk about whether you intend to expand the reach of your cable network beyond 2.5 million households to the approximately 10.5 million houses in Australia that have a fixed line connection? The second question is, Sol, if we can just have a conversation around what percentage of your customers are on Cable Extreme and ADSL2 Plus. I'm trying to gauge what percentage of customers are high speed. Lastly, you talked briefly at the results about the BigPond content space. Is it possible to get further comment in terms of how much customer attraction you are seeing in the content space. Thanks.

SOL TRUJILLO: In terms of expanding the reach beyond the 2.5 million to 10 million, obviously we would not do that solely with HFC. Again, as I just said on Christian's question, our view is that there's going to be a technology mix to deliver the kinds of services that customers are going to want. Customers care about the end service, not the technology platform. So we will look for the most effective and cost-efficient way to deliver that. But, as you have seen, we have our Next G network that already reaches 99 per cent of the population; it covers more than 2 million square kilometres and has a

migration path from 21 Mbps peak throughput to 42 peak throughput to hopefully 100 Mbps as we see it over the next two to three years.

We have an ADSL platform that, depending upon distance from the exchange or to DSLAM if you will, you can get anywhere between 12 to 20 Mbps. I know some of our competitors like saying 24, but I would say practically speaking 12 to 20 is realistic on the footprint that we have where we're capable of reaching more than 80 per cent of the homes, and that's part of how we think about extendability of what we do or enhancing our existing platform. Then, obviously, there is the HFC and perhaps some mixture in some cases of fibre to the node. There is not one solution that we think is practical for us to reach all of Australia and do it in a cost- effective way.

Now, in terms of the number of customers on Cable Extreme and ADSL2 Plus, we do not disclose the breakout of those numbers. But I would say that we are looking to develop further the number of customers. I would say that it's not reached a high level of penetration at this stage, and that's simply because some of the applications that people are looking for are basically two-way applications, and they needed some of this Next Generation feature set that we're going to be developing and deploying now for this Melbourne deployment.

The third part of your question in terms of the Bigpond content space, I think we did disclose some of the growth rates in terms of things that customers are already doing relative to music downloads and movie downloads and gaming and other entertainment centric kinds of applications. I don't have those off the top of my head. But I'm sure Ben can provide you what we disclosed, what we shared a couple of weeks ago when we announced our results. But it is growing. People are very interested.

Our research indicates that there is more the customers want, but it has to be a very quick, real-time, interactive, two-way kind of experience. That's really why we're deploying what we're doing here. We're very focused on what customers are telling us, and that's the centrepiece, as you've heard me say for the last four years, on everything that we have invested in as part of our transformation.

SAMEER CHORPRA: Can I just ask one other question: do you find churn is lower for customers on the higher speed plans?

JOHN STANHOPE: Yes, is the answer, Sameer.

OPERATOR: Your next question is from Mark Blackwell from Morgan Stanley.

MARK BLACKWELL, MORGAN STANLEY: I've got a couple of questions, one technical and one strategic. Firstly, you say in your targeting the 100 Mbps per second max speeds. I'm wondering what the effective speed is that you might be targeting, given it's across a shared medium. Secondly is the strategic question. I'm wondering if this plan was part of your NBN bid. You said you're targeting a mix of technologies. Was this part of your NBN bid? To follow on from that, how do you think the NBN business

case for yourself or someone else would respond to this announcement you've made today?

SOL TRUJILLO: In terms of the deliberate throughput, obviously, with everything, it's a combination of this part of your infrastructure and your backhaul to deliver an end to end in terms of customer experience. Everything that we have done as part of our transformation thinks about it that way. So, again, if you looked at what we did with Next G, we built up the backhaul to complement the wireless infrastructure so that people did get, in fact, a different experience from what you get from all of our competitors.

With this, we will do the same in ensuring that the throughput is essentially what we promise. Mick, I don't know if you have anything else relative to that part of the question, but this is not a best-effort kind of deployment. This really is the service that we will deliver.

MICK ROCCA: The second part of the question was in relation to the speeds. The way we've designed this network, on average, you know you can get 70 to 100 Mbps per second. That's the great thing about this technology. Let's all be aware that these are all shared technologies. The FTTN is a shared technology, cable is a shared technology, so it is going to be impacted by the number of users. But, on average, about 70 to 100 Mbps.

OPERATOR: The next question comes from John Woods from Macquarie.

JOHN WOODS, MACQUARIE: Just a question on any changes to the network roll out? Will there be any increase in lead-ins perhaps to businesses as part of this $300 million expense or if there's any change to the number of customers on the network will that be included as well in that $300 million?

JOHN STANHOPE: In terms of the financials here, we've assumed that there is a market share that we think we'll get, and the lead-ins will be paid for on a demand basis. So the business case is the sort of take up rate and the lead-ins are part of the costing.

JOHN WOODS: Any change to the target? I think cable has primarily been focused at consumers previously. Will there be any businesses involved in this project?

JOHN STANHOPE: Yes, it will certainly be aimed at business and increasing business productivity and providing them with those sort of speeds as well. Yes, there will be businesses included.

OPERATOR: The next question is from Laurent Horrutt from JP Morgan.

LAURENT HORRUTT, JP MORGAN: Thank you very much. I have two questions this morning. The first one is I was wondering if you could give us some call on the timing of the decision, given that we're probably a few weeks away from an ending outcome? I

would have thought that looking at the relative economics of this investment relative to an NBN resell model could have been important.

The second question is around Foxtel. I was interested by the wording of some of the announcements. Is Telstra now going to compete a lot more directly with Foxtel Box Office in terms of bringing sort of tapping into the online catalogue and offering on-demand services.

SOL TRUJILLO: Relative to the first question, in terms of the timing of this decision, this process has been underway - I think you probably know this - for a long time. We're at a point now given the work that our technology and engineering team has been doing in terms of knowing that what we deploy we can deliver, knowing that the technology has matured in terms of DOCSIS 3.0. It has been plenty tested both in the US in particular and Western Europe and other parts of Europe as well. So, this has been something that we wanted to do to get to market because we are excited about 100 Mbps of capability as opposed to single digits or even just 10 or 15 Mbps of band width, because I think, Laurent, you have heard me talk about the renaissance of the fixed line business; you've heard me talk about high definition, high resolution in terms of centricity of applications and services. The punch line here is you can't do those things well with 10 or 12 or 15 Mbps delivered to homes. You just can't do enough and you can't do it well enough. So, the higher speed set of services like this in a platform that enables it is very important. We need to get to market to find out the executional side of it and how we can enable our vision, our view and the set of applications and services that we've done our thinking around.

In terms of Foxtel, obviously you again have heard me say from the time that I arrived in Australia that Foxtel was an important asset. It still is an important asset. As you will probably see, we are leveraging Foxtel as much as we can in terms of its broadcast content, and we've taken it to your mobile platforms. We've got it basically on our HFC platform already. There's more things that we think we can do with Foxtel in addition to what we think we can do now with a true interactive set of capabilities on a very high speed platform like this. So the answer is Foxtel is still important. We see even more applications for Foxtel while we see a lot of new applications and services in terms of what we can do through Bigpond and Telstra Media.

LAURENT HORRUTT: Just on the first point, knowing that it's sort of three or four weeks away, I was just wondering if this announcement today also reflect your expectations of these economics and these terms on the NBN. Considering it's not that far away, I would have thought it would be a useful benchmark to compare an HFC upgrade to the terms you could get and the business case you could get on an NBN resell model.

SOL TRUJILLO: Laurent, you may know something more than I do.

LAURENT HORRUTT: I don't, I don't.

SOL TRUJILLO: I don't know anything about timing. I don't know anything about what it is. I don't know anything about any of that. But what I do know is what our customers are looking for. I do know what our transformation has talked about. I do know what the technology is that works best in terms of serving the customer needs. That's what we're staying focused on. Everything that we're doing is based upon our transformation plan, our research and where we think that we can compete to win going forward.

OPERATOR: The next question comes from Mark McDonnell from BBY.

MARK McDONNELL, BBY: Good morning. Just a couple of questions. Firstly, on the technology, could you just clarify the peak and expected average upstream data transfer rates? Secondly, Sol, given your comments about the mix of technologies for broadband, I'm just wondering your approach to managing some of the issues around cannibalisation across different platforms when you have multiple alternate solutions to provide broadband, the extent to which you'd be looking to use bundling as a technique and cross-selling and the roll that Foxtel and fixed telephony services might play in those bundles on the HFC upgrade.

SOL TRUJILLO: I'll let Mick answer your first question about peak and upstream.

MICK ROCCA: Upstream is 2 Mbps per second.

MARK McDONNELL: Is that peak or average?

MICK ROCCA: No, it's average 2 Mbps per second upstream.

SOL TRUJILLO: Regarding the cannibalisation and multiplatform, the key thought here is that we have a platform here that is so powerful when you think about 100 Mbps per second, and going to Next Generation capabilities. Our view is much like what we thought when we launched Next G. A lot of people thought, "Well, you just basically have SMS and a few other things, so why do you invest in a new platform to deliver Next Generation services?" I think you were around at the time and there was a lot of scepticism when we said, "No, we think there's a lot of additional services, a lot of new usage and a lot of ARPU growth," which turned out we were right.

I believe that on the fixed line side of the business, there is this renaissance that I've talked about over the years. I think it's coming. I think it's here. Now we have a platform to leverage it. But the idea is really about increasing ARPU per customer, because we can deliver more services, again, interactively, and, in some cases, we'll mediate ways that people spend their money today in addition to hopefully people using some of the services that we offer today even more.

In addition to that, we do have a core issue in Telstra, just like every incumbent telco around the world, where we have PSTN, in particular, calling and associated services in the climate. You saw some of that in our results. I believe and we believe that we can affect some of that with some of the Next Generation services. I won't get into specifics

around what they look like, because I'm not going to signal to anybody what we're going to do and what this company will turn up. We're working on them. We have our definite views, and, again, this company is making a bet that they can continue to, in some cases, stem the losses as well as create new growth for this company - let me say it again - in a Next Generation fixed context.

MARK McDONALD: So are you able to offer a PSTN-like service over HFC? Is that part of the plan, or would any prospective bundling package actually have different sets of wires terminating on the customer's premises?

SOL TRUJILLO: We can essentially replicate the services and features that we have today. We're going to take them to another level with where we think we can go on this platform. Again, given what we're calling the Next Generation feature server sets, the soft switches that we talked about before, and the flexibility that we have, the speed at which we can introduce products and services, everything gets enhanced in this context.

OPERATOR: The next question is from Richard Eary from UBS.

RICHARD EARY, UBS: Just a couple of follow-up questions from what was asked earlier: was it in terms of looking at the existing network in Melbourne, you mentioned basically that the footprint is about 1 million homes. Can you just give us a feel in terms of actually how many homes are actually physically connected out of the 1 million, or is that 1 million just the physical number of homes passed? In conjunction to that, you talked about $300 million capex. I'm just trying to get a feel: is that just the hardware and software element for the homes passed, or should we expect some additional cost which will probably be opex related for modems and CPEs to do the cost to connect the home. I just want to try and get a bit more clarity on that, if you could.

JOHN STANHOPE: I'll take the last question. I said before, the capex number of $300 million does include the lead-in on an assumed take-up basis. We have a take-up rate assumed in this business case and we have a market share assumed in this business case. But the one thing I will say is that not inside this number is CPE. How CPE is sold into the market or how it's provided is a decision yet to be taken.

RICHARD EARY: So you're saying it doesn't include CPE?

JOHN STANHOPE: No. The decision as to how that's to be done, like does the customer pay or do we provide, we still need to - that decision hasn't been taken.

RICHARD EARY: Can you give us some clarity on the moment in terms of out of the 1 million homes that are actually physically passed, how many of those are actually connected?

JOHN STANHOPE: We really haven't disclosed that information. Quite a large proportion. Remember, it's a broadband-only service now. Of course, what we're doing here is adding a return path and what we call Next Generation fixed capability. We do

expect a larger take-up than we have today. With Foxtel and broadband it's over half a million.

OPERATOR: The next question is from Ian Martin from ABN Amro.

IAN MARTIN, ABN Amro: Thank you. I have three questions. Firstly, in answer to the previous question, you seemed to be emphasising that these are new services. But also there seems to be an element of defensive investment protecting market share and revenue. I just wonder if you can give some indication of what the incremental revenue impact might be. Secondly, on NBN, you were looking I believe for a ball park return on investment of around 25 per cent. How does this compare to that? Is it higher, lower, about the same? Thirdly, now it's a shared infrastructure, is there any prospect or any risk that the ACCC could do an access inquiry here, or have you had discussions with the ACCC on this undertaking?

JOHN STANHOPE: I'm not going to say what our expected revenue is from this, but I will say that, remember, it is only $300 million. We do expect an ARPU increase, so, therefore, a revenue increase. Why I say it's only $300 million, we expect the return on investment to be around 25 per cent, as we have expected 2009-10 and beyond, especially with this investment. Obviously if there was a large NBN investment, then the ROI would go out a couple of years, but for this investment, $300 million is hardly noticeable in the ROI.

IAN MARTIN: You talk about replicating PSTN-type services on this network. Would that have an implication for continuing the PSTN operation in those areas where you were replicating those services?

JOHN STANHOPE: PSTN will remain in place. What we'll be endeavouring to do is to migrate our customers from PSTN to this service. This service provides PSTN-plus, if you like. It provides very high speed broadband, or ultrahigh speed broadband, but it also provides PSTN equivalent but more, when we talk about Next Generation fix. We have to migrate the customers, and there are customers on DSL2 Plus in this footprint, and there are customers on PSTN on this footprint. Obviously, our marketing will be aimed at moving people across to these better, new services to give them far more value for money.

SOL TRUJILLO. Again, just as John said, the service experience is going to be optional to the customer in terms of how they want services delivered, but this Next Generation integrated experience will be that you'd want to move over on to this new platform fully. But, if you chose not to, we will mix and match, much like we do today in terms of how we can bundle services which may not be integrated.

Relative to your question on the infrastructure play and have we talked to the regulator and all that sort of thing, the answer is essentially no. We've been in market with Cable Extreme. We've been in market with our services on the HFC for a number of years. The great news is that there's an alternative infrastructure out there, and it's owned by our

competitor. There are no restrictions on anybody doing the same thing that we're choosing to do. Obviously, Telstra primarily has been the only player investing in fixed infrastructure in Australia for many years. But this could be a nice wake up call to some others to say, "We're going to do the same", much like what happened with wireless.

We're not afraid of competing. We like competition. So that's the good news, because there is an alternative infrastructure that looks just like yours, except for you have to invest to take it to the next level.

IAN MARTIN: A quick follow-up question, if you're migrating customers and you're getting to large numbers of customers from PSTN to cable, then you'll have fewer and fewer customers to carry the cost of the PSTN, so that's going to have some implication for the remaining PSTN customers, is it not, in terms of the prices they pay?

SOL TRUJILLO: Again, part of the migration, the diffusion curves and other things look like, we have to get to market to really understand how quickly customers will migrate. The answer ultimately is yes, but I would say that the implications of that are pretty long term. So, we'll visit that and revisit it over time.

JOHN STANHOPE: I will just add to that. We have just talked about in a half how usage is going down. This will drive usage up because of the services, the Next Generation fixed services that are there. It's actually designed to drive usage up, PSTN-type usage. It will be a whole new experience.

OPERATOR: Our next question comes from Phil Campbell from Citi.

PHIL CAMPBELL, CITI: Good morning. Just a couple of quick questions for you. I'm assuming that there's no change to the 2010 free cash flow guidance, $6 billion to $7 billion. I'm just wondering, I know this is not a large capex spend, but I'm just wondering if there's any deferral or cutting back on some of the legacy PSTN capex. That's the first question. The second question, I think you might have indirectly answered, but I'm going to ask it anyway: one option you had was obviously to go down this path and upgrade the Melbourne network to DOCSIS 3.0. I'm just wondering that the other option might have been to have tried to increase the penetration on the Cable Extreme product and try and drive that asset a bit more. I'm just curious as to whether you considered that and why you decided to go down this route.

SOL TRUJILLO: The simple answer to the last question that you asked is no, and I'll tell you why. Obviously you've seen that we do a lot of research with our customers. We test a lot of concepts. The punch line is that customers really in terms of Next Generation services, they want that two-way interactivity. That's part of what we are really looking at when we talk about Next Generation fix: delivering not only the higher speeds, the super fast 100 Mbps kind of capability, but also the two-way interactive capabilities so that people have the ability to do more things than just downloading or passive viewing of services. So for us to try to sweat it further would not be a change-the-game kind of strategy. It would not be what I would call a big material

ARPU lift opportunity. So what we want to do is turbo charge, and that's what we're doing.

In terms of the 2010 guidance, I think John said it before, and if we didn't say it clearly enough, we're not changing our guidance. This is fitting within the envelope of how we think about both 2008-09 as well as 2009-10 numbers. Does this involve deferral of legacy PSTN? No, we're still running the machines, we're still running the business on a BAU high quality level of service. So this is incremental, but it's incremental in the sense that we've made other tradeoffs in terms of other investments as we think about use of capital and the best use of capital from a shareholder standpoint and a customer standpoint.

PHIL CAMPBELL: Just a very quick follow up: just when you've done your customer research looking at these Next Generation services, for an average customer, have they indicated a willingness to pay more per month for those additional services?

SOL TRUJILLO: Again, the concept of value-based competing is that, yes, you do look at the services, but people do not look at it as paying more for the same service; it's about paying differently for more services. That's what we have proven now with Next G, and that's what we've been doing with our Next IP, and that's what we've been doing basically with every strategy that we've deployed here at Telstra. I would say that the question, the way you phrased it, the answer is it's not the question that's relevant for changing the level of services, the amount of services and the excitement around the services and willingness to pay. That's what we will continue to always ask and stay focused on, because, again, that's how customers normally think.

BEN SPINCER: I'll now hand over to Andrew Butcher, who will handle some Q&A from the media.

OPERATOR: The first media question is from John Durie, from the Australian .

JOHN DURIE, AUSTRALIAN : You talked about maybe half a million customers on your cable. How many would be PSTN customers in Melbourne? How many PSTN customers do you have, I guess, in Melbourne?

JOHN STANHOPE: I just don't know that number off the top of my head. Thirty per cent of 9 million, John, about gets us there.

JOHN DURIE: So you're disenfranchising a whole lot of people here, aren't you? If there's 1 million people near the cable and 2 million people are not near the cable, how do they get services?

JOHN STANHOPE: They've still got PSTN service, and they've still got ADSL2 Plus, they've still got wireless broadband. So this is also stage 1. We've got to see that this works. This is stage 1 of us going down a path of high speed broadband.

SOL TRUJILLO: John, I guess that - I forget what your word was - "disenfranchisement" or whatever, I would think about it just the opposite: it's creating an exciting new set of services. If the services are delivered very well, there's great take up, obviously we would look to expand the footprint so that those who are not yet covered have that opportunity. Again, it's a demand-driven thing. It's a customer-led thing. That's, again, the way that we think about the market.

JOHN DURIE: So I guess I'm saying that if you don't have a Telstra cable outside your place, then you're not getting anything.

SOL TRUJILLO: On day one, but you still get the services that you have today. As I just said, we have the option of always extending where our footprint is and if the demand turns out to be as good as we think it is and the features are as good as we think it will be and the ARPU is there, deploying further the cable footprint is something that would make a lot of sense.

OPERATOR: The next question comes from Peter Carr from Longhouse .

PETER CARR, LONGHOUSE : So, just going back to the content, I know you said you can't delve into that, but is there an expected timeline for announcements on new content relationships? Secondly, content aside, what about new hardware relationships that this could open up in terms of revenue streams for the company, for example, with Dell or other computer manufactures, to bundle free netbooks with HFC subscriptions, that sort of business model. Lastly, will we see extended software as a service relationship, such as with Microsoft, IBM, other global software vendors, extended beyond the mobile platform?

SOL TRUJILLO: Let me take it in pieces. The software as a service will be extended both fixed and mobile independent of this announcement today. This announcement will be enhanced by that software as a service capability.

In terms of the content and hardware, it's a great question in the sense that obviously we won't announce any content partnerships and some of the services that we're talking about until we get close to rolling it out, real time for our services. Again, we think as competitors and we don't like to preannounce and pre-signal to our competitors what we're going to do.

In terms of your point about hardware and bundling or packaging in creative ways, that is an option that we're looking at. There are other companies around the world that are starting to do that. To your point, netbooks have turned out to be a much hotter commodity than most people forecasted essentially a year ago.

PETER CARR: So that's something that's likely to happen before Christmas. You've already got companies like Vodafone who are kind of going down this zero-cost infrastructure for computer technology as per the mobile phone models, so it would seem like a natural path for you guys.

SOL TRUJILLO: It's an option, and I won't say that we are or we aren't. I'll just say that at this stage it's an option that we're looking at, along with several other ways that we can creatively both stimulate demand, please customers and take them to a new experience level.

OPERATOR: The next question comes from Dan Warne from the Australian Personal Computer Magazine .

DAN WARNE, AUSTRALIAN PERSONAL COMPUTER MAGAZINE: I note that you said that the upstream is 2 Mbps per second. One of the key points of a fibre network would be much higher upstream speeds for two-way applications. You've said that two-way is one of the key things you want from this HFC upgrade. I couldn't help observing that Telstra has Next G, which doesn't have very high upstream speeds. HFC with this upgrade won't have very high upstream speeds, and ADSL2 Plus also doesn't have very high upstream speeds. Do you believe that having high upstream speeds is not actually necessary for your two-way platform?

SOL TRUJILLO: Well, it depends on what you call high upstream speeds. We're not intending to be, how should I say it, a secondary ISP. We're not intending to be a broadcaster of things or enabling broadcasts of content and other things which would require big amounts of speed here. What we're trying to do is, again, tailor this to what our customers are telling us they'd like to do as services. That's the vast majority of our customers. There are specialised needs. I would agree that higher upspeeds would be necessary. But, in terms of our platforms that we have today, we're not getting much demand from customers saying, "Gee, I need 20 Mbps or I need 100 Mbps upstream," at this stage. Perhaps you've got some thoughts. We're always open to some of those thoughts. But, right now, the customer feedback, the demand and some of the research doesn't indicate the super high speeds.

What most people are doing in today's environment is mostly in the other direction in terms of downloads where people want instant access. They want real-time delivery. They want an enhanced experience. That's really what we're focused on. One other comment that I just make in terms of our upspeeds relative to our wireless, I think that they are very high, and they're clearly the highest in the world on a mobile platform. I think whatever your reference point is that it may be a little bit biased by perhaps some other locations.

MICK ROCCA: In addition to that I just wanted to say that the upspeed on FTTN in any case is not as high as the upspeeds we're talking about here today on the 12-Mbps per second proposal FTTN.

DAN WARNE: What was the proposed upstream speed for the 12-megabit FTTN proposal?

MICK ROCCA: About one.

OPERATOR: The next question comes from Candice Lewy from ARN Magazine .

CANDICE LEWY, ARN MAGAZINE: what time frame is Telstra working on with the service, as in when will each state's high speed broadband link go live?

SOL TRUJILLO: The time frame that we have disclosed here is that we intend to turn Melbourne up, the footprint that we have, by Christmas. So we're going to be moving very fast in terms of the development, the buildout, the software deployment and the hardware deployment in order to feature enable this service.

OPERATOR: The next question is from Phil Dobie from ZD Net .

PHIL DOBIE, ZD NET : One of my questions has sort of half been answered, which was the one about the 2 Mbps per second upstream as opposed to 100 Mbps down speed. Are you saying it's because of customer demand? Are there any technical constraints on that, because it does seem strange that the opportunity for more interactive applications such as videoconferencing might not be possible here? Another question: what about competition from VOIP providers? Has Telstra factored in the danger of perhaps losing fixed line revenues because this provides an opportunity for a lot of households to get access to cheaper calls without the need for line rental?

SOL TRUJILLO: No. 1, let me make sure - if I misspoke, I apologise, but the 2 Mbps is more of a technical limitation; it's not the definition by customers. What I was saying is that we don't have a lot of demand from customers at this stage in terms of what they're looking for or requiring given some of the work that we've done.

Let me also take it one more step. In terms of we will be able to provide high-resolution videoconferencing on this platform. When I say it, I say high resolution, not what you're used to in terms of standard definition videoconferencing today.

Regarding your last point on VOIP, clearly, VOIP has been a threat in terms of commoditisation of revenues on voice calling in particular, to some extent, maybe on video calling. But that's been built into our models. It's built into our forecasts. There's a diffusion curve associated with customers' willingness to do that and accept the level of service that goes with it, et cetera, et cetera. The answer is fundamentally yes, we're aware. Yes, we build in what we think diffusion curves look like. We go forward because we believe that we can increase ARPUs and we can increase revenues and margins.

OPERATOR: The next question is from Dominic White from the Australian Financial Review .

DOMINIC WHITE, AUSTRALIAN FINANCIAL REVIEW : Could I just double check on the capex, please? The $300 million of capex is within your existing guidance. Firstly, could you remind me of your existing guidance for the year on capex? Also, have you

made any other trade offs? You're talking about making trade offs in terms of other investments. What were those investments, please?

JOHN STANHOPE: I'll pick up the capex. The 2008-09 capex guidance is $4.3 to $4.6bn. The 2009-10 capex guidance is in terms of capex sales, and it's around 14 per cent.

DOMINIC WHITE: What are you not doing that you were going to do in order to facilitate this $300 million?

SOL TRUJILLO: Everything that we have communicated in terms of our disclosures we are going to continue to do in terms of our business plan. Every year in terms of your overall capex, there are always smaller projects, maybe some development projects and some other things, that we have, let's call it, de prioritised versus this is a bigger opportunity. I'm not going to give details of things that we do in terms of planning out in terms of architecture and other services, because that's a competitive issue for us. But suffice it to say, we're very comfortable with everything that we said we would deliver, and we're very comfortable now with an enhanced strategy on a platform that's already in place and that we can enhance going forward.

DOMINIC WHITE: You talked about running this out further if there's good take up. Would you resist any attempt by the government or a rival NBN to stop you doing that?

SOL TRUJILLO: Obviously, we would not want to see anybody trying to stop this, because there's no reason to. The whole notion of everything everybody has been talking about has been about delivering an enhanced super high speed environment for the consumers of Australia, broadbandising Australia. If it's about shackling and harming Telstra, that's a different agenda. If somebody has that in mind, I think that's a different discussion. I think all I've heard is that people want to see a broadbandising of Australia. They want to see a super fast environment for Australia, and it's important economically; it's important for the future of the nation and, guess what, we're going to be able to help deliver on that. There may be others doing the same thing. So this is not about precluding anything. This is about enhancing the experience for consumers in Australia.

DOMINIC WHITE: In a sense, it's a pre-emptive strike against any NBN builder, isn't it, because you're just getting on and doing it while the government's waiting to decide.

SOL TRUJILLO: I actually don't think about it that way. I really do think about it as much as what we did with Next G. There are others that may want to build. There are others that aren't going to be precluded from building, if they choose to do it. There's a very similar network in place, and if somebody wants to risk their capital, like we are, they can. There's no restrictions, no limitations. If people talk about having a competitive environment, one of the things we've said quite often over the last four years and probably before the four years is if people want to compete and people want a truly competitive environment, people need to risk capital and have a pro-investment kind of policy. That's what this reflects. This is about Telstra serving its customers. It is driven

by what we know about our customers, who have got lots of experience now with the higher speed capabilities we have rolled out. We think that as business people this will be a very good opportunity for us to continue to grow ARPU, to continue to extend the relationship that we have with our customers, and we are deploying first in Melbourne because we want to make sure that everything we think we can do we can deliver, and more. So we're staging it. It's a pretty simple equation for us.

OPERATOR: The last question is from Patrick Wilton from Communications Day .

PATRICK WILTON, COMMUNICATIONS DAY : Just to clarify the reasons for starting stage 1 of this project in Melbourne rather than, say, Sydney, for example?

SOL TRUJILLO: Again, it's a pretty simple answer. We have a pretty big footprint, as John pointed out, today in Melbourne. We have basically our engineering team, we have our technology team, we have some of the technology actual equipment already located in some of our labours that we've been testing for the last year, year and a half. So it's a lot easier for us to get started to move quicker where we have the centricity of both the platform, the component pieces and the people that are going to actually make it happen. It's that simple.

PATRICK WILTON: Do you have any ideas at all about the time frame of rolling it out to other cities, or does that depend entirely on stage 1?

SOL TRUJILLO: Well, at this stage all we're talking about is stage 1, because we want to make this as robust and successful as we can. As we move forward, the Board, the management, will make the necessary decisions given what we find out both in terms of deployment and customer demand, not only the demand, but also the revenue and usage levels that we think we can stimulate.

BEN SPINCER: Thank you, everyone. If you need any more information on this, please call me or David Luff if you need any further briefings on it. That's all from us.

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