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30 September 2010

The Manager

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

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

General Enquiries 08 8308 1721 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Investor Day – transcript

In accordance with the listing rules, I attach a copy of the transcript from Telstra’s Investor Day held on Wednesday 29 September 2010 for release to the market.

Regards

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Carmel Mulhern

Company Secretary

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

`TELSTRA INVESTOR UPDATE HILTON HOTEL SYDNEY WEDNESDAY, 29 SEPTEMBER 2010`

MR THODEY:  Welcome.  It is great to have you here for
the 2010 Investor Day, especially to everyone here in
Sydney, great to have you here, thanks for coming, and
of course a special welcome to everyone who is joining
us from overseas, our investors, great to have you to
join us here today.

Today we have a lot to get through.  There have been a
lot of questions we have read about and also various
people have put to us, and we really want to take the
time today to say we have heard, and we are going to try
and lay out as much as we possibly can in terms of
giving you more detail about our strategy, our vision
for the company, also what our response to the market
conditions has been, and of course what our business
performance has been in the first two months of the
year.

I do want to say right upfront we are feeling very
confident about our strategy and the business
performance. Now, I understand there has been a lot
written but we are actually feeling very good about
where we are at with the company and what we need to do
going forward.  So we are going to take you through a
large number of things but before we even get to the
agenda, there are six key messages I want to leave with
you today and I will come back to them a number of times
during the morning, but the six messages that are not on
a chart, you may choose to write them down, but let me
take you through them.

Firstly, irrespective of any outcome on NBN negotiations
or not, we are very clear about what we need to do with
this company and it is now more about execution rather
than any vision and strategy.

Number 2, there is growing momentum in this business as
we are winning customers, introducing new innovative
products that are going very well and we are starting to
improve customer service.  We hope to be able to show
you some of those proof points today.

Number 3, we have under way already a restructuring of
the business to respond to the significant market
transition that we are seeing here in Australia and
every telco around the world.  We have called it
internally Project New, which is about simplifying the
business, and we are going to restructure every part of
this business as we go forward and we are going to take
you through that today as well.

Number 4, negotiations with the government are
proceeding well, and we, like the government, are very
keen to get this done as quickly as possible.

Number 5, there are three key growth areas that we are
exploring and actually executing against.  That is the
exciting area of network applications and services where
we see tremendous growth opportunity.  We have wonderful
media assets that we are going to continue to invest in
and we think are very important as we go forward, and
number 3 is how we drive shareholder value from our
Asian assets.

Number 6, we are confident about our cash flow forecast
to cover our current dividend levels at a fully franked
level.  I will say that again.  We are confident about
our cash flow forecast to cover our current dividend
levels fully franked, but of course it is a board
decision.

Let me now discuss the agenda for the day, because we
have got a lot to get through, and I am delighted to
have a number of people joining me today.

Firstly, I have asked John, who will come up after me -
I am going to give you a brief overview of our strategy
and then John is going to come up and talk about the
financials and John is going to specifically look at our
investments in 2011, the $1 billion of incremental opex
that we have spoken about, and what the alternative
world could have looked like if we had not done that.

Then I am going to come back and talk about the NBN and
exactly where we are at with the NBN.  I am going to try
and lay out a little bit more information on that, so
you can get a sense for that and then we will come back
after that and take Q and A for the next half hour.
Then we will have a short break.  Then we will come back
and I have asked a number of the senior executives to
come and talk about their business.

Firstly, Robert Nason, who is leading the restructuring
of the business, and I am glad to have Robert join us.
Rob is going to take us through exactly what is going
on, the incredible amount of work that the team is
leading, but Rob has taken on the co-ordination role of.

Then Kate McKenzie is going to talk to us about the
product road map and some of the very interesting
developments that we have around the product area.

Then Gordon Ballantyne, who has now been in the business
for I think nearly 100 days, maybe ninety days, will
come and talk about his perspectives on the consumer
business and how that is tracking.

So it is a pretty full morning and we hope to be able to
keep to time as we go through.

Now let me now talk a little bit about the idea of the
Telstra view of where we need to go and where we are
going to take this business, which is I think very
exciting.

This industry, a wonderful industry telecommunications,
but right across the world it is going through a major
transition, a transition that Telstra must respond to
with, I think, direct and very bold actions, and that is
what we are doing. We need to capitalise on the
incredible opportunities that that transition is
actually presenting to us.

I have talked about these things before but let me just
quickly run through them, because you have to be
realistic about what is going on in the industry.  There
is continuing fixed to mobile migration, both in voice
and in data.  There is no question that customers have
high expectations and the product portfolio we are
dealing with is more complex.  I think that will
continue.  So you have got complexity and greater
expectation from customers going on at the same time.

Also I have never seen such incredible demand for our
products and services.  The demand for data is just
quite incredible.  Our key and our strategies issue is
how do you monetise that going forward and not get
sucked in to over investing in that period as that
demand is there.

Also we are seeing a product mix shift to low margin
products and of course higher COGS, which we have talked
to you about.  And, of course, we are seeing increased

competition.  Competition is good, but it is increased
competition.  We have seen wholesale prices reducing and
also price led competition in the market, and, of
course, here in Australia we have had some other
challenges around NBN and of course the CSS bill.

However, even though there are these changes, we are
seeing new opportunities for new revenue streams.  I do
want to say again that we are not solely focussed on
EBITDA margin, but EBITDA growth.  Of course, as this
transition takes place, we are seeing tremendous
opportunity, opportunity that we really must take hold
of and move this company forward.

As I said before, the incredible demand for our products
and services is tremendous.  It is at historic highs.  I
would say there is no industry like us at the moment in
terms of that demand for our core services, maybe the
mining industry, but we have this incredible growth
opportunity.

Again, we are seeing the network has become the centre
of life in the technology world again.  Network centric
computing is back and I think it is here to stay,
because the power of the network is so essential in
everyone's lives, both in your personal life and also in
corporate and business.  So the network and the
intelligence within the network we think is incredibly
important.

It is interesting when you look back over the last two
years where innovation has come from within our
industry.  There is no question companies like Apple and
the iPhone and iPad have taken advantage of this
incredible ubiquity of access and then you have got
Google taking advantage of this great infrastructure
that we have.

The question is:  How does the operator really monetise
that and drive value from it?  Content and media are
becoming even more important, and of course will be a
critical part of our future and the industry's future
going forward.

New apps and content have changed the way we live and
work, and of course, as I said, the changing nature of
core networks and we are in such an incredibly strong
position with the NextG and NextIP networks, are really
front and centre again in terms of any discussions you
have about opportunity.

So our challenge is how we address this opportunity.  Of
course, Telstra is a wonderful company.  It has
incredible assets and we believe that it has a very
bright future as we go forward.  So how do we respond?
How does Telstra respond to the changing dynamics that
we see within our core business and also address these
new opportunities?

Firstly, you need to have a clear vision of where you
are going.  We are going to take you through a little
bit of that today, and that is, as I said, with or
without NBN, because that is a variable that we do not
want to let be a dependent within our strategy.

Secondly, we need to start to change this company, and
we have started to change this company, to transition
this company to be more competitive and leaner as we go
forward.

I do just want to stress here, because sometimes there
are still questions made about transformation, where did
all that money go, what happened.  I want to say again
that we are in an incredibly strong position because of
that investment.  The NextG network, as you know, the
wireless network, is one of the best in the world, and
the core IP network, NextIP, is a wonderful network that
delivers great value every day.  Two key foundational
elements would not allow us to enter into the
significant transition we are about to go through unless
we had those assets.  So they are incredibly valuable.

In terms of the IT transformation, that was a bold step.
It has been difficult, it has been complex, but it has
set us a foundation to be able to go forward over the
next decade to really be competitive, to be more agile,
more focussed on our customers, because we have got the
single view of the customer.  It was a transition, an
investment we had to go through with the IT work.

Has it been difficult?  Has it resulted in some real
challenges?  Yes, it has, but it has still been worth
it.  Even now, as I have to deal with these issues
everyday, I am remain even more resolved that it was the
right decision.

I wanted to get that transformation story out and John
will pick that up a little bit and give you some
financial perspectives on that in a few moments.

So, as I said, this company must change.  It must
undergo a significant restructuring.  Telstra has

incredible strengths.  There is no company like Telstra
in Australia, incredible reach, it has incredible scale
and the deep capability of our people is second to none,
and our vision must continue to be the leading
communications and media company in this country, and
what is so critically important is to overlay this great
engineering company, technology company with a great
sales and marketing focus.  That is the transition that
this company must go through, and we are going to
leverage these assets.  We are going to really use them
as we are investing in new capability and new revenue
streams and we will transition over the next three years
to really be that sales and marketing centric company,
driven by our customers, driven by serving our
customers' need.

As I said, unmatched assets.  In fact, I do not know
another Telco around the world with the assets that
Telstra has.  Now, as we go into the new world of true
convergence around the ability of networks that are real
value to customers, we are very well positioned with our
content and our media to really make a difference to our
customers, and therefore to drive value for our
shareholders.

So that is what we are going to do.  We are going to
leverage our assets, build out these capabilities and
create value for our shareholders, and that is what is
so important.

The other key part of this is how do we free ourselves
from the regulatory environment in which we find
ourselves.  That is why NBN is important.  We must get
through that, get free of the regulation that has held
us back, and also invest in new businesses.

I do want to stress at this point our focus and our
preference will always be on organic growth.  However,
as we go through this period we must consider targeted
acquisitions to build capabilities for this company,
because there are some capabilities that we need to put
into the capability mix.

So as we change this culture, as we invest in a new type
of company from engineering to sales and marketing, from
a silo driven company to greater team work, from a deep
sense of bureaucracy and decisions taking too long to
being a sense of collaboration and faster
decision-making, this is going to be a significant
change for this company.  So we really do need to go
through this change and it is exciting to see the

take-up within the company as people relate to this new
direction, as they say yes, this is about what we need
to do.

So I want to talk about the two pillars of this strategy
and they are as simple at two.  Firstly, we must
transition this core business to a new model, so that we
can really drive value from our core telecommunication
assets. Secondly, at the same time we must build new
businesses that we can grow, and so we have got both
going on at the same time.  So that is what we are going
to be doing, that is where we are going and that is what
we are executing against now.

Let me talk now about the four priorities which you have
heard before but I just want to take you through again.
These are very important.  This is what I focus on every
day, the management team focus on every day and this is
what is going to be the key indicators of how we travel
in the future.

What are these four priorities?  Under transition there
are three.  Firstly, as I’ve repeatedly said, it’s about
customer service, getting the basics right, getting
first time resolution; making sure our customers stay
with us.

I’ll speak about each of these in a little bit more
detail in a moment but that is number one and it’s front
and centre.

Secondly, we must retain and grow our customer base,
because if you don’t have a customer base you can’t sell
them things.  It’s pretty simple.  So we need to
continue with our network leadership. We need to
continue with product innovation and we need to hold
onto our customers because every time you lose a
customer, it costs you too much to get them back.

Thirdly, we must simplify and completely restructure
this business.  Every part of this company is going to
be reviewed.

They are the three around transition and then, of
course, as I mentioned before, we must also grow.  We
must find new revenue streams that will allow us to
completely change this business in the future.

Let’s talk about each of these in just a little bit more
detail and give you a bit of flavour of it and then I’ll
get John to come up here and talk about the financials.

Firstly, customer service.  Firstly you’ve got to
understand that customer satisfaction, there are four
drivers of customer satisfaction; there is your brand,
secondly there is product, thirdly there is service and
then lastly there is value.

Satisfaction is not just about service, it’s about all
four of those elements and we measure this every week,
every day, every month, because this is what we’ve got
to be focused on.  You can’t just have great service if
you don’t give good value.  If your brand’s no good,
then you can’t make it up on the other side.  We look at
the various weights of each one of these.

Why is customer service important?  As I said, if you
get it right, it does drive shareholder value, because
it reduces churn, it allows you to sell more products to
your customers because they say:  Yes, I like dealing
with you, I’ll buy another product from you and of
course it reduces costs, because every time you get a
bad customer experience it creates costs in the business
and we see it every day.

This is not just a nice thing to do; it is fundamental
to our strategy.

You would have read about a number of things we’ve done.
We’ve improved our incentive base, 40 per cent of the at
risk of nearly all the senior team and all managers is
now based around customer satisfaction.  This is based
on an external survey and I’ll be showing you some lead
indicators but we are going to be driving to at least a
six per cent increase in that score every year going
forward.

As I said, let’s just quickly go through the four other
elements.  Firstly brand. We have a very strong brand.
It is still one of the strongest brands in this country
and we are very proud of that.

But we need to do more.  We need to make it more
aspirational.  I’m delighted that Kate McKenzie is
leading the marketing and product group and we’ll show
you a little bit of the insight around what we’re doing
to rebrand the company.

I want to be clear.  We’re not about to completely
change everything but we’re about to really get the
essence of this company, the great people that serve
people every day out there in the market and so we’re

going to be talking a bit about that and making a more
approachable Telstra.  A Telstra that cares but also is
well managed.

Secondly, products.  The product innovation in Telstra
is second to none.  We invest more in product
development that the whole industry put together and
we’re very proud of the world class offerings we have.
We’re going to continue to do that.  We’re going to
continue to innovate.

We’ve had IPTV with the T-Box.  We had the T-Hub.  These
are great innovations that people around the world are
saying:  Gee, is there an opportunity here?  Telstra is
leading again.

Telstra has a reputation around the world second to none
in terms of what we’re about to take to market.  Kate’s
going to take you through that a little bit later on and
I’m very proud of the work that they are doing.

Thirdly, and this is the one that obviously we talk a
lot about, which is service.  How do we really improve
the customer experience?  How do we make sure when a
customer rings that they get good service?  When they
get a bill; that it’s clear to understand?  That they
don’t have too many inquiries, because every time you
put a bill out there that people don’t understand, guess
what, they ring you.

So we’re going to do a lot more work on that.  You’ve
already seen us really focusing on how we manage
complaints; with a 30 per cent reduction of the
complaints going to the Ombudsman.

We’ve introduced 24/7 call centres and interestingly, we
had nearly 100,000 customers contact us out of hours as
soon as we did that.  Again, it defrays the number of
calls coming in during the week, so you don’t get as
long waiting times and it’s been a good decision.

Of course, we think that there are tremendous other
opportunities in this area and you’ll see more of those
over the future, which we will talk a little bit about
today but we have a few surprises ahead of us still, to
you.

Of course value.  We must have competitive offerings in
the market but it is based on value, not just on price.
Many people have said are we purely going to a price led
strategy - that is not right.  We are here about putting

value into our products and also commanding an
acceptable premium in our products based on the value
that they bring to our customers.  We will talk a little
bit about that later on.

Of course, Robert is going to go through everything that
we’re doing within restructuring the business.  That is
an enormous project and I’m pleased to say that it’s
going well.

They are the things that we’re going to be doing around
customer satisfaction.

Let me now talk about retaining customers and growing
customers.  At the annual results I announced that we
are going to invest a billion dollars in terms of really
focusing on customer service; nearly $600 million in
DVCs.

John’s going to take you through the breakdown of this
because we really think we should give you some more
details on that.  But let me remind you about what the
rationale for that was.

As we looked at the business and the changing dynamics
and through this transition, there were two options.
One, do we just accept a market share decline and manage
the business for short term cash or do we make some
investments around retaining and growing our customer
base in an acceptable manner that would deliver greater
value for our shareholders going forward?

We were very driven by some key statistics.  One is we
know every time you lose a customer it costs you
somewhere between six and 10 times more to acquire that
customer back.

I’ll say it again:  six to 10 times.  By the way, I’m
not sure it’s not even more than that but at least six
to 10 times.

So if you lose your customer base you have no ability to
resell them new products and services, which is where we
have to go in terms of content, new services.  Look at
T-Box, if you don’t have the fixed broadband service you
can’t sell them a compelling IPTV solution.

So that’s what we have done and I’m very pleased to say
that the early results are very encouraging.  We are
obviously going to carefully manage the investment in
COGS because you’ve got to be very careful that you

truly are acquiring the right customers and not
overspending.

But after the first two months we’ve seen a 50 per cent
increase in customers on bundles and remember, bundles
are a two year bundle.  It’s a two year contract that we
sign up.

In terms of the T-Hub and T-Box, we’ve seen a trebling
of customers.  Admittedly, it’s still early days and
we’ll take you through some of the numbers, but it is
very encouraging the results we see.

Of course, we are already nearly 20,000 wireless
broadband SIOs every week. We’re seeing some real
momentum in this business but it is being carefully
managed against our cost base.

Of course COGS do fluctuate and John will give you some
indication of that as well.

In terms of retaining and growing customers, we are
making good progress.

As I mentioned, in terms of simplifying this business
and really Robert is going to take you through it, but
this is a company wide program.  We have not really
shared with you a lot of the information around the
enormity of this program.

We have nearly 500 people and nearly 27 projects that we
have on the go right now looking at every part of this
business to simplify it, to take cost out, to deliver a
better experience to our customers.  Robert is going to
do that.

We’ve said simplify save to serve is the theme of this
project and it is really starting to take effect.
You’ve seen some of the early results of that in terms
of the executives that we’ve reduced, nearly 350 of them
and we are going to continue to look at how we can make
this company leaner and more efficient as we go forward
and transition to be a sales and marketing led company.

We need flatter structures.  We need to be faster in our
go to market and we need to obviously improve customer
service.

Many of you will say:  Well, what’s different?  Why is
this different to transformation?  Robert is going to
take you through that.  We think it is very different to

where we were before, because we are digging right down
very deep in this company to fix many of the issues that
many of you have been aware of but have not been talked
about before.

We are very serious in this endeavour and they will be
end to end review of all processes.  Let me say again,
IT systems do not fix businesses, process re-engineering
supported by IT systems fix businesses.  Unless you re-
engineer processes; unless you get down into the guts of
a business, you cannot change the very fabric and the
behaviours.

We have found things that had not been talked about in
terms of how effective our activation processes are; how
effectively we handle complaints and this is where you
have all this hidden cost.  We are excited about the
potential of this program.  We think it will deliver
great value for shareholders and more - or equally
importantly, a great outcome for out customers and this
will be absolutely rigorous.  We’re going to manage it
to the last degree.  We are excited.

There are a number of parts to it; a completely new
operating model we’re looking at.  Complete end to end
re-engineering.

We’re looking at a whole distribution strategy. The
media said:  What are you doing about low end brands?
Unless you’ve got a clear strategy and you clearly
understand what you’re doing, you’ve got to have a
complete end to end look at that.

We are going to continue to look at how we can make
pricing simpler to our customers and less complex for us
to manage.

That has been talked about before but we are continuing
to do that as an ongoing effort and of course, we need
to be customer focused and we need to change the culture
of this company.

We have already started on that.  As you know, there
have been significant changes within the senior team,
we’ve restructured and we’ll continue to look at how we
can structure the business in the most effective way
going forward.

We will also look at how we can partner more effectively
with our suppliers to get greater value to be delivered
into the business.

It’s taking up a lot of our time.  I spend nearly 30 per
cent of my time on these projects.  We’ve taken 10 per
cent of our capital this year to invest in quick wins,
which is very important and it’s a team effort.  The
whole of the team is engaged in this.  So this is a very
big program.

They are the three big things around transition. This
company is going through probably the biggest transition
it has ever been through, but also we must continue to
invest and look at growth opportunities.

I’m going to come back at the end of this morning and
talk in more detail about these three, but I want to be
clear about what they are.

There is a lot of commentary about why aren’t we doing
this and doing that?  Firstly, in network apps and
services, which is really the key area within the ICT
bucket of products, where we can truly add value and
differentiate ourselves.

We have already taken action to put a structure in place
and we’ve been at it now for two or three years.  It is
starting to pay real dividends.

Secondly, we have tremendous media assets and we need to
look and work out how we’re going to leverage those
going forward.

I’ll give you a little bit of insight into some of our
early thinking and then thirdly, how do we drive
shareholder value through our Asia assets.

These are the key focus areas for us as we go forward.
I’ll come back to that later on and give you some more
detail, but I think there are very exciting
opportunities and I want to spend a bit of time with
that at the end.

Let me just wrap up, because I do want to give you
something that we think is important. The question that
we’ve been asked is: How do we know you’re going to be
successful in this endeavour?  How can we get some sense
of what those leading indicators are that you will truly
drive value for shareholders from this major transition
and these investment efforts?

These are not an exhaustive list of targets but are the
ones that are really important to us as we go forward.

As you can see, we are very serious about customer
service.  We have got to really manage customer
satisfaction and deliver real tangible outcomes that are
real to our customers.

That is the first three you see there.  Also, in terms
of gaining and retaining customers, we must hold share
in FX broadband and grow in mobiles, it’s pretty
obvious, because these are so critical to our future
going forward.

We’ll show you the numbers on PSTN in a moment and John
will take you through that, but they are the key lead
indicators you will be able to see of how we’re
tracking.

Then of course, within the restructuring of the
business, productivity is absolutely key as we drive the
business going forward in terms of simplification and
lower transaction costs.  You’ll be able to see that in
looking as we manage these volumes at a lower cost and
these are things that we are managing.

Then of course in terms of growing the business, you’ll
be able to see in terms of the growth, in terms of the
new businesses that we will be talking about later on.

Let me just summarise, because I just want to position
you in terms of what we are doing.

There are two parts to our strategy.  One is the
industry is in transition and therefore Telstra must
change.  This is a significant transition and this is
about driving value from our core business as consumer
behaviour changes and as technology changes.  The only
way you can respond to that is by focussing on customers
and taking cost out, simplifying your business, and that
is what we will be doing.  In fact, I should say we are
doing because we have been at this now for nearly nine
months.

Secondly, we will be looking at new growth opportunities
across network apps and services, media, and of course
how we drive value from our wonderful assets in Asia.

That is the overview.  Now we are going to start to peal
this out a bit and give you some sense of it.  John is
going to come up and take you through a lot of the
transformation numbers and a few of the outlook numbers
and give you a little bit more colour there, and then I

will come back and talk about NBN.  So, John, let me
throw it across to you.

MR STANHOPE:  Thanks, David, and good morning to all of
you and thank you for joining us today.  It is our
opportunity to give a little more detail, a little more
information than we are able to at a full year results
announcement where we try and cram a fair bit into a
small space of time.  So thanks for being here.

Today I will explain to you why it is imperative we
undertake this strategic opex this fiscal year.  These
are necessary investments which do set us up for the
future years.  I will provide you with some detail on
where we are making the current year investments.  These
investments drive the absolute step change in EBITDA
between last year and this year, and we all know this
year it drops down for improvement in the future years.

It is a stepped change, as you have heard, of around $1
billion.  Some of the cost increase supports the
roll-out of Project New, our company-wide program to
simplify the business so we can better serve our
customers and save money.  It is essential we continue
to focus on fixed costs given the headwinds from PSTN
EBITDA declines of say $250 to $350 million per annum.
We all know that that is going to happen and we have to
address that and that is part of what we are doing.

I will also provide you with an update on how we have
been tracking against sales against the first two months
of the year, touch on why I believe the dividend is
sustainable at current levels and provide you with some
colour on the financial profile of Telstra across the
first and second halves of this fiscal year which is
important to understand.

Firstly, I want to remind you why the investments we are
making in fiscal year 2011 are different in nature to
the significant capital investments we made during our
network and systems transformation. In doing that, I
want to also briefly remind you why those network and
systems investments were also very good for Telstra
customers and shareholders.

I said 12 months ago that the transformation was behind
us and that Telstra had returned to business as usual as
we continued to realise these benefits, but we continue,
not surprisingly I guess, to get many questions about
the transformation, usually in the light of the opex

investments in customer growth that we are now making.
So I want to give you a high level view of how the board
looked at the transformation, the benefits it provided
to our customers and our owners.

Many of you like to go back to what was said in 2005,
but I want to remind you of the negative momentum in the
business back then - we tend to forget these things -
because we had complex and outdated networks and IT and
no differentiation, and all these things back then were
actually suffocating the company.

Back in 2005 the transformation was implemented at a
time when the trajectory of the core business and
financial parameters for the company were in decline.
In a “do nothing” scenario, we envisaged a 2010 return
on investment of 13 per cent from the 27 per cent that
had been achieved in 04/05.

One of the core aims of the transformation was to return
the company to return on investment of 29 per cent, and
I am talking about the accounting return on investment.
That target was by 2010.  In 2010 what was delivered was
23.6 per cent, so we didn't achieve that aspiration that
we had.

It was for a number of reasons, such as the change in
the scope of the IT roll-out, some delays in the
delivery that I certainly have discussed with you
previously and then there were some more external
factors, such as the greater than expected competition
in mobile and broadband, with the latter of course
driven by the lower wholesale prices that we didn't
expect back in November 2005, and of course a worse than
expected decline in PSTN, and just throw into the mix
something called a global financial crisis.

When you look at that slide, and even if you think the
"do nothing" forecast was a little conservative and
although the 29 per cent return on investment was not
achieved, I think there is little doubt that the
transformation as a whole, and the wireless and wireline
transformations in particular, have been a significant
benefit to the company.

For example, the net present value of the NextG business
case was exceeded by close to $300 million.  It was a
$1.6 billion NPV over a five year period, with new
products, such as wireless broadband now having more
than 1.8 million customers and generating close to a
billion dollars a year after a three year revenue CAGR

of 109 per cent.

The NextIP network has driven revenue growth in IP data
at a CAGR of 26 per cent for the last three years and
allowed us to proactively manage the transition from
legacy data products.

And from a productivity perspective, the networks are
world class with a cost of carrying a megabyte of data
on the NextG network a fraction of what it cost on the
2G network.

Finally, in respect of benefits, although there was
delay in IT delivery, the IT related investment
continues to be a significant enabler of cost out, as I
said it would be last February when I took you through
how hard it had been, how difficult it had been, like a
lot of large IT investments and change outs.

I guess the good news about that is there is still more
to come and through the Project New process the
availability of more cost out with the IT already done
as the base.

So having briefly touched again on our successful
infrastructure renewal, it is important that I spend
some time today clarifying the need and the urgency for
Telstra's 2011 investments.

The need to stop losing revenue market share, the need
to improve customer service and simplify our business,
the need to become a sales and marketing led company
could not be more urgent than it is today.

The sustainability of shareholder returns at current
levels is only possible if we make the transition
investment in this fiscal 2011.

The consequences of inaction would be intolerable for
shareholders looking for long-term sustainable growth
and of course for our customers.  Whilst the three
graphs on the slide highlight Telstra's fiscal year 11
financial performance could be better if we did not
change strategy, the benefit of doing so would be short
lived, as you can see from that hard blue line.

The board and management of Telstra look after the
long-term interests of shareholders and our customers.
As such, we are competing aggressively to meet industry
conditions.  We will simplify our business, serve our

customers better and grow new revenue streams to offset
that PSTN EBITDA impact that I mentioned right upfront.

Improvement in revenues, EBITDA and free cash flow over
the business as usual performance and relative to the
fiscal year 11 result will vindicate our strategic
investments this year.

Let's talk about where we are making these strategic
opex investments this year.

As I said at our results presentation, about 60 to 65
per cent of our transition investment or increase in
costs for the year is driven by variable costs.  The
majority of this variable cost increase is to support
the share retention and share growth in mobiles.

We are expecting to see an increase of about $240
million in handset subsidies and $160 million in handset
costs of goods sold.  Those increases are driven by both
a rate increase, as we see more customers choosing
smartphones, and a volume increase as we improve our own
performance with respect to the number of customers we
retain and we win back.

In planning for more mobile customers there will be an
increase in network payments to other carriers as they
use more data and more data goes offshore.

The remaining variable cost increases to support the
grown in new products - around $100 million is driven by
sales of T-Box and T-Hub products.  We also anticipate
growth in our pay TV customer base and investment in our
digital business and network application and service
strategies will also pull through some variable costs in
the year.

All of these costs I have just mentioned will enable
Telstra to grow market share and drive new revenue
streams.  These costs underpin growth in revenue and
EBITDA going forward.

Labour, ex redundancy and the associated volume
reduction will increase this year by around $230 million
with wage increases of four per cent for most areas, and
assuming we meet our internal performance objectives, we
do expect to be paying a full short-term incentive
allocation fiscal year 11 versus a partial payment in
fiscal year 10.

Robert Nason will shortly provide you with a detailed

presentation on Project New, but you can see on this
slide an approximate net cost of Project New, and it is
important to understand that that is a net cost.  We are
spending around about $290 million to simplify the
business and do the things that we need to within
Project New, but there are savings in here as well, and
I am showing you a net position there.  So we are
spending and we are saving in the year, but the net
position in fiscal year 11 is that $40 million spent. It
is important to understand that that is a net position.
Of course, in fiscal year 12 and 13 it is very positive.

The roll-out of Project New will result in an increasing
in redundancy expenditure as we start to simplify the
business.  It will be offset by savings from lower
volumes in the year.  Robert will talk more about the
focus on improving customer satisfaction and simplifying
the business.  In total, as I say, it is a net $40
million cost in the year.

Finally, you will see an increase across our other
expense category as we prepare the company for our
transition to the NBN world and a small increase for
accommodation in line with a rise in cost of
accommodation, lease rates and so on.

Let's move on and take a look at how we have been
trading over the first two months.  I am pleased to say
that our sales channels have been managing sales volumes
akin to Christmas levels of trading.  Our new fixed line
products, the T-Hub and T-Box, continue to be very
popular with our customers.  At the end of August we
sold 64,000 T-Hubs and T-Boxes this fiscal year and
88,000 since the products were launched back in April
this year.  As at the end of August we had sold 165,000
bundles in this fiscal year and therefore almost 500,000
since we launched them back in November last year with
bundled ARPUs remaining flat, which is important.

Success in these products and bundles is important as
they will help slow the decline in PSTN access lines,
help stimulate PSTN usage and differentiate our fixed
broadband offering.

Whilst interest in these new products is very
encouraging, it’s the overall interest across the
broader retail product range that is most pleasing.

The combination of product bundles offering enhanced
value to customers, our superior Next G network which
provides customers with faster coverage in more places

and the launch of new products like the T-Box and T-Hub
is contributing to the improved sales volumes.

Consider some of these facts and this is what is
emphasised on this slide:

Postpaid mobile net adds for the first two months of
this year were more than double the same period last
year.

Fixed broadband net adds have been positive for the last
4 months and the combined total in net adds for July and
August was higher than any consecutive two month total
over the last 24 months.  So the strategy that we’ve put
in place is starting to work.

PSTN SIO losses across July and August totalled 30,000.
This is a very positive outcome and compares favourably
with the level of monthly losses we’ve been seeing since
July 2007. PSTN usage levels however do remain
challenging.

As I am only too aware, these numbers do not
automatically translate into improved financial
performance. Sustained momentum is necessary to produce
improved revenue and EBITDA.

But as I say, the signs are all good.  Having looked at
our current trading patterns then, I would like to talk
about dividend sustainability in light of our free cash
flow profile.

I acknowledge the step change in our EBITDA, step change
down; in our EBITDA for fiscal year 11 caught the market
by surprise last month.

But I also want to make it clear that because of our
strong free cash flow, Telstra can self-fund our fiscal
year 2011 investments and maintain a 28 cent dividend
without having to alter our balance sheet settings,
should the board resolve to pay 28 cents.

The cash flow guidance this year is for between $4.5
billion and $5 billion. On a per share basis this
equates to between 36 and 40 cents.  Allowing for
interest payments of around $1 billion or 8 cents per
share then even at the bottom end of our free cash flow
guidance for 2011 the dividend at current levels is
fully covered.

As you are all aware David and I said many times last
month the purpose of the fiscal year 2011 investment is
to improve our EBITDA and free cash flow beyond 2011.
Such improvement will improve the headroom for earnings
and cash flow above the most recent but consistently
paid 28 cent distribution.

It is also important to remember that Telstra’s board
has always been acutely aware of the importance of
dividends to our shareholders.

Please also bear in mind the numbers on the slide and
those to which I have mentioned just now exclude the
proceeds from the SouFun IPO.

Before I finish and hand you back to David I would like
to give you some detail on what our half year financials
will look like and some colour on the SouFun sale.

You can see the slide here repeats our full year
guidance and there are some factors around half one and
half two I want to talk about, and of course, the impact
of SouFun’s sale there on the right hand side.

Now that we have completed the sale of SouFun, it is
appropriate to update you on the proceeds to avoid any
confusion. The sale will result in around a $75 million
profit before tax and it will boost free cash.  After FX
translation, dividends and transaction costs we expect
the A$ proceeds to be close to $500 million, a
significant cash gain for us.

The impact on the cash flow statement will be around
A$350 million after we deconsolidate the cash in SouFun
that’s already in our balance sheet. While our
operational free cash flow guidance remains $4.5 to $5
billion -so remember that we always don’t include in our
free cash guidance, sale of businesses; so it really is
an operational free cash flow.

I’m reminding you that that guidance does exclude any of
the SouFun proceeds.   The point here really is that
this sale gives me even more comfort in our capacity to
cover a dividend at the current levels from our cash
flows.

I also want to talk just briefly about the half year
profile in 2011 to avoid any surprises, and I did
mention it at the full year, but I want to repeat it
again.  There are a number of factors as usual which

will influence the profile of revenue and expenses in
the two halves.

Revenue growth in the first half will be negatively
impacted by a change in the timing of revenue
recognition at Sensis for our Sydney Yellow Pages book.
We recognise the revenue from these books when 60 per
cent of the books have been delivered and this will not
occur until early in the second half of this year for
that Sydney Yellow Pages book.

Conversely, revenue growth in the second half should be
comparatively stronger due the recognition of that book
in half two.  I also expect to see some small revenue
improvement in the second half courtesy of the improved
retention and win-back rates across our key products and
they have occurred earlier.

To answer the question why has the timing in recognising
the Sydney Yellow Pages book changed – the
implementation of a new billing system at Sensis
required us to extend the selling period, just by a few
weeks as we cut over from the old billing system and
that’s just put us another couple of weeks out.

So you understand, the revenue attached to that book is
around $100 million.

For expenses in half one, subscriber acquisition and re-
contracting costs, promotion and advertising, and
redundancy will be higher compared to last year as we
try to win customers early and we reduce our labour
early - all good things.  The earlier you can do these
things, the better in the cycle, but that brings forward
the costs from one half to another half, and also, as we
commence our process of simplification and customer
service improvement initiatives.

For example, in July and August we exited 300 senior
managers and this incurred a redundancy expenditure in
the first half.  In the second half we will incur some
expenditure in readiness for the NBN, although expense
growth should peak in half one.

As a consequence of the revenue profile across the
halves, Telstra’s reported EBITDA percentage decline in
half one is expected to be in the low double digits.
Obviously this rate will be much improved in the second
half for the reasons that I just outlined to deliver the
full year guidance that appears again on our slide.

Thanks for your attention.  I hope that gives you a
little more insight into what’s happening in the year,
why we’re doing it, where the money’s being spent so
that you get a better understanding of what we’re
actually doing in this fiscal year to get to a position
in 2012 and 2013 that’s much improved.

MR THODEY:   Thanks John. I hope that’s given you some
further clarity around the business, how we’re tracking
and we’re going to take some Q&A in a moment.  But
before I do that, I thought I’d just spend a bit of time
on NBN because obviously that’s a big question for all
of you.

We are very keen to keep you informed as much as we can
but of course, we are very conscious of the risk that we
could unintentionally misinform by providing something
that didn’t happen because obviously in such a
transaction that’s so complex, we really need to be very
careful.

I am going to try and take us through today, just to
give you an update on where we’re at, try and give you a
bit more colour on what we’re doing, how we’re
approaching it and hopefully then we can take some
questions.

After all the recent speculation, I do want to just
quickly and very importantly say, that we are committed
to $11 billion NPV after tax irrespective of any
external changes.  That’s what the board has agreed and
that will not change.  I can’t stress that enough.

Let’s just go through a few of the details.  The
commercial negotiations are continuing and there is a
lot of detail to work through.

We have really done a lot of work.  It’s complex.
You’re dealing with legislation; you’re dealing with
regulatory issues, as well as the commercial side, but
we’re really investing the time to make sure we think
through everything.

Remember, as I’ve said to some of you before, 10 years
is a long time; things can change and you need to think
through options of what may or may not happen.  We are
really investing the time to do this thing right.

There are four what we call limbs or pillars to this
work.  Firstly, there are the conditions precedent,
which is obviously a range of things that need to occur

before the agreement can be finalised.   Of course, they
are about mainly legislation - I’ll come back and talk
about a few of them - a number of different things that
need to happen before we get through to even considering
doing the deal.

Then, of course, the non-binding financial heads of
agreement; that is you and our shareholders receiving
fair consideration for the de-commission of the copper
network, moving the traffic off the HFC and the copper
across to the new fibre world.

Then, of course, there is access to our infrastructure
and how will that actually take place; under what terms
and conditions, et cetera.

Then lastly, there are a large number of things that
need to happen once all of this is lined up and we need
to get the regulators approval as to what life will be
like in the interim and the end, because as I said,
fundamental to our strategy is to get to an environment
where we have more certainty in this business and that
is why we are working diligently to get this thing done.

Let’s have a look at conditions precedent and conditions
subsequent.  Here is a list of things that need to
happen outside of the commercial negotiation - that is
as I said, before and after.

At the top of the list obviously is the passage of the
enabling legislation, the CSS bill and of course there
is the NBN Co bills. These need to get passed through
Canberra.

The CCS bill contains a number of things that obviously
we don’t like and we’re working through to try to get
agreement on those before it goes back for approval.  We
are pleased with the progress in that way and of course
Telstra needs to lodge structural separation
undertakings and other key processes need to take place.

The NBN Co bills are critical, so we know how their
business will be operated and will be regulated.  If I
don’t know that, how can we make a decision?  When we
worked this thing through, we made certain assumptions
and of course, assumptions change and other things will
change.

We do need ministerial waivers and exemptions under the
new legislation.  The Minister will need to make various
determinations about the deal, including making it

possible for Telstra to access 4G spectrum. Remember,
that was one of the so-called double hoops.

We need regulatory certainty and this is a fundamental
tenant for this deal to be completed.  We need
regulatory certainty.

Of course, as John as mentioned before, tax rulings will
be critical as we seek confirmation of the parties’ tax
treatment for ATO/government to ensure the value of the
agreement is not diminished after the event.  So we have
a lot of work in dealing with the Tax Department in
terms of what will be the environment going forward.

USO Co agreement, we’ve mentioned that before, but
that’s a large part of the government’s contribution.  I
will go back in a moment and talk about that.

We need to make sure that government’s policy intent is
locked down and the contract with Telstra to meet USO
Co’s requirements is covered off.

There is the retraining agreement, nearly $100 million
in retraining.  We need to make sure we’re clear about
how that funding will pass to Telstra and our
shareholders and we need to work that through.

We need the ACCC accepting the SSU and we’ve got to
obviously submit our structural separation undertaking.

Lastly, and critically important, as we have said right
from the beginning, this is subject to shareholder
approval.  After we’ve done all that work, we then will
take it to our shareholders.

Let me just go back and quickly touch on the non-binding
financial heads of agreement.  We’ve been very clear on
what are the various components of this transaction.

There is $9 billion from NBN Co and 50 to 60 per cent of
that relates to payment for the decommissioning of the
copper network and the cable broadband service.  But
remember, the cable stays, we just move the traffic for
the voice and data bit off, and of course, we need to
co-operate with NBN Co.

It includes payments to transfer out of our conduits and
then the remaining 40 to 50 per cent relates to the long
term value and price commitments NBN Co will make to use
our infrastructure.  Of course, that’s a lot of work to
get through that.

Then, as I said, the $2 billion of government
contribution - now I do want to stress, that’s not part
of the non-binding financial heads of agreement; that is
a separate but equally important element.  This is the
value Telstra puts on the committed policy changes which
will reduce certain costs, primarily around USO
establishment, but also other measures such as NBN Co
taking on the responsibility for new developments and
the commitment to fund the retraining of our workforce.

Many of these government contributions are reliant on
the passage of legislation, so that has to go through.

But let me be clear, there is still a lot of work to be
done, but we are actively, and I say actively working to
complete final definitive agreements and I am pleased
with the progress that we are making.

It is a day by day venture and we are across it all the
time.

Let me talk a little about the project streams because
this is an important element.  John is leading the work,
because John has such a great knowledge across the whole
business, and Tony Warren is the leader of the project
team, and we have a lot of work going on across these
six projects, but I do want to stress you need to know
all the details behind it, you need to know the history,
you need to know all the interlocking parts so that you
can get to something that we feel confident enough to
take to you, our shareholders.

There are six key work streams so let me just quickly
take you through them.

Firstly, there is the operation of technical commercial
components to the heads of financial agreement.  The
team is conducting the hard work of the negotiation
which is to focus on all the detail and all these
complexities that we have mentioned to you before.

Then there is due diligence, the second part, which is
for example validating detailed infrastructure
specifications availability, looking at specific
services, service address areas, underpinning obviously
the copper decommissioning.  So you have got to know
what infrastructure you are dealing with.

I mentioned tax before and that is a critical part of
the value for shareholders, and then regulatory.  We

need to make sure that the legislation changes and the
regulatory settings are enacted to enable us to get
certainty going forward.  We need certainty.  So you can
be assured that this is what we are focussed on.

Then, of course, we need an independent view.  The board
would not take something to shareholders that hadn't
been independently verified and we will be getting an
assessment done of everything, and we already have had
independent assessments.  We will even get more as we go
forward.  So that is a critical part of the whole
process we need to go through.

Lastly, there will be commercial opportunities for
Telstra in terms of NBN.  So we need to clearly
understand how we can participate.  You are already
aware that we are doing the Brunswick first release site
and we are in the mix for the design and construct
tender for the wider NBN.  We have not included that in
any of our $11 billion valuation and we will continue to
look at where it makes sense for Telstra to partake and
participate in the roll-out, dependent obviously on NBN
Co making that decision.

I want to stress there is absolutely no certainty in
what role we will play.  It is a commercial environment,
but we do believe we bring enormous value because of the
incredible knowledge and history we have in running
large network infrastructure, and so this is what the
team is doing every day, dealing with NBN Co, dealing
with the government.  It is time consuming, but
important, because it is about our future as a company.
There is nothing really more important.  Outside of the
transition and growth, this is the other thing that I
spend a lot of my time on and it is very important.

Lastly, let me give you a little bit of colour on the
time line because many of you have speculated on what
the time line could be.  Obviously, I can't be 100 per
cent sure, but I can tell you at that the commitment of
NBN Co, of Telstra and the government is to get this job
done and to get it done as quickly as possible.

Will there be challenges along the way?  I am sure there
will be, but this is the time line that we have laid
out, and things will move around, things will happen but
there are many ways that you can make things happen.

As you can see, our progress is obviously dependent on
the legislation and that will be a process that we need
to go through but also we need the ACCC approval and we

can't get them unless we have got the legislation right.
So we have got to get one done and then the other, but
we can work at things in parallel so that we are ready
should things move quickly.

In terms of definitive agreements, we are working
towards a conclusion of negotiations just as soon as we
possibly can because that is not dependent on the
legislation change.  We can get those agreements
started.  We can just hold onto them but they are all
locked away and once we get the legislation and the
regulatory settings right, then we are all done.

I would like to be able to get them done by the AGM.
That is our target.  We have got some shared plans to
get that done but we still have lots of work to do that.
If we could get the agreements away by Christmas, that
would be tremendous.  We just to have to see how we go
but you have got to know we are very focussed on this
and very committed to get this done.

If the legislation was introduced later this year or
even early next year, there is a good possibility we
could get to you, our shareholders, by the middle of
next year, and this would include providing you with the
information for you to make a decision, and of course
how we present that decision to you is going to be very
important, because we have got to be able to net it out,
make it simple for you to understand and then also
provide the detail supporting the overview about why we
would recommend it, and of course we need to have the
independent assessment done as well.

So lots to be done and we will give you at least four
weeks notice or the information before we actually bring
it to an EGM.

Before I finish and we go to Q and As, I do want to note
that we share obviously many of your concerns at the
time that this process has taken, but it is complex.
You would not expect us to do anything else but to be
diligent around the detail to make sure that we are
covering every possibility that we can, and we will
continue to do that because that is the type of company
that we are.

The complexity of the negotiation, the outcome,
government policy, but we owe it to you, our
shareholders, to make sure that we have not left any
stone unturned and we can then be sure when we take it
to you that we are confident about putting something in

front of you, otherwise we won't.

So we are keen to get this thing to work.  We remain
optimistic about it.  That is our objective.  That is
going to get done as we go forward.

That is the update on the NBN.  What we would like to do
now, we are going to get Ben to come up here to compere.
John, can you join me.  We are happy to take questions.
The other Q and A will be later this morning, so there
will be other opportunities.  I think Ben is going to
tell you you are allowed two questions and then we go
from there.

MR SPINCER:  Thanks, David.  We will have some more time
for questions later today and then there is a media Q
and A session set aside early this afternoon I think.
So over to the financial analysts for now and, as David
said, please two questions only because there is
probably going to be quite a few of you to get through.
We will start over here with Ian.

QUESTION (Ian Martin):  I notice the asterisk is back,
that the guidance is qualified by wholesale product
price stability and not just the guidance, but I presume
where you have got these extrapolations in margin trends
and revenue trends, that also implies no major wholesale
price changes.  I wonder if you could share with us how
that might change?  Presumably you have done some
numbers on how that might change if these proposed
prices go through.

The second and related question is:  Doesn't this
represent the kind of regulatory pattern that we are
moving into where we have got this NBN with the $43
billion a year investment, they need to earn seven per
cent on that, around $3 billion a year from fixed line.
The fixed line industry struggles to generate that kind
of earnings at the moment and now we have got a
regulatory pattern where the regulator is brought into
the NBN and they seem to feel they have got the
arbitrary power to change arrangements.  Doesn't this
mean that if you do come up with a set of innovations
that improve earnings, that improve cash flow, that the
risk is that it gets clawed back to help fund this NBN
that the ACCC supported?

MR DAVID THODEY:  That is a big question, the second
one, Ian.

QUESTION (Ian Martin):  It goes to that regulatory

certainty question that you--

MR DAVID THODEY:  That is why we made that comment very
strongly about regulatory certainty.

The first question in terms of the draft pricing
dissemination that the ACCC has issued, yes, we have
looked at it and we are involved with discussions with
the ACCC as they go through the consultation period, but
our initial look at it is that our guidance will not
change but we have still got quite a bit of work to do
to look at really what that means in the industry,
because ULL is not being touched, it is wholesale line
rental, so we think there is some more discussion we
need to have with the regulator about what structure has
got to be created within the industry going forward.

In terms of that, I think we have got that covered.
John, do you want to add anything?

MR STANHOPE:  Yes, there are two issues I guess.  One is
the guidance, and by the way the price stability was on
the guidance at the full year results as well, so we
haven't just added the last asterisk.  If this was to go
through and became final, there is impact on our results
but we have concluded not sufficient to change the
guidance.  That is the in year impact.

Your broader question of a regulator and impact on the
longer term and NBN world and so on is an interesting
one and it is why in the discussions with the government
we have looked for price stability, because we have a
starting position in the negotiation and discussion.  We
have got to continue to have that discussion as we go
forward in this NBN process, because it is concerning.

The best thing we believe for the industry is the price
stability remains as we all go into this NBN world.
That has been our position all along.  You say the
regulator arbitrarily makes these decisions.  I think
Graham Samuel would say he has the power under the Act
to make these decisions.  I am sure he believes that.

QUESTION (Ian Martin):  Sorry, I was referring to the
revaluation of the access network.

MR STANHOPE:  Yes, but that is part of how does he
determine a price.  He looks at the cost base.  We have
had many many discussions about the cost base and what
we believe, they believe, what methodology, and this
again is a change of methodology based on a return on

assets methodology.

We are in a consultation period.  We will go back and
say what we think about the methodology and so on.  So
these are indicative prices.  They are not yet final and
there is still a lot of discussion and consultation to
go on.

MR THODEY:  Let me just add a comment onto that.  I
think John has described it very well.

Obviously the risk through that transition period, it is
very important to try and manage that risk.  That is why
we have got to get some certainty through that period
because if things are changed on us in terms of the
wholesale environment, it could change the valuation of
whatever that asset is.

That is why it is so critical we understand the
regulatory framework through that transition.  I agree
with you.  It think that is a critical part of what we
think in terms of negotiation.  So front and centre,
okay.

QUESTION (Sameer Chopra):  I have two questions.  One on
margins and the second one on the growth options that
you outlined.  David, you spoke about potential margin
compression from here onwards.

MR DAVID THODEY:  Sorry, I talked about?

QUESTION:  That margins are not a focus in the business
any more.

MR DAVID THODEY:  That is not what you I said, but I
will come back to it, yes.

QUESTION:  Could we expect higher cost of good sold or
that we will keep investing in COGS.  I just want to
understand the dynamic here, because for every one per
cent growth of EBITDA, if margins are under pressure,
would you expect three to four per cent sales growth
that is required to keep that momentum going, and I am
wondering how that is possible in an environment where
there is relative price compression.

The second question on growth:  You articulated a target
of 20 per cent of revenues to come from some of these
new services.  You are currently doing somewhere around
three and a half’ish billion, 3.5 to 4 billion from
international and media.  We have seen Bell Canada just

buy CTV.  Do you see yourselves moving into that sort of
space?  Are you looking to acquire television networks
for example?

MR THODEY:   Let me take both those questions.  Firstly,
in terms of margins, yes, you are right.  Obviously, as
the revenue mix changes, margins change, you have got to
drive your top line faster than you get the EBITDA
return.

I just want to clarify what I said.  We are willing to
relax our focus on it.  Margins are always important to
us.  But it is about EBITDA growth, which is to your
point.  We have got to drive EBITDA growth.  I am
willing to sacrifice a bit of margin with the product
mix change to get to the EBITDA growth, because that is
what we believe drives value for shareholders.

It is a careful balancing act, and of course if you go
too far one way, you get the wrong outcome.  So we are
very carefully working that through, but we have to be
realistic.  The industry is changing and we have got to
build these new revenue streams at a lower margin to
drive the value.  So careful careful balance and of
course with share as well, because getting share and
paying an exorbitant amount of money for it would not be
a good strategy.  These are all balancing acts but we
are very aware of how the top line has to grow faster in
a lower margin business.

Can I come back later and talk about media strategy.
Just a little bit of colour - we have different types of
media in the company and they play different roles in
terms of our strategy going forward.  So I am going to
come back and address that in a little more detail and
if I don't fully answer your question - which by the way
I'm not going to say we are going to buy a free to air
station, but I can give you some colour about what is
going to happen, okay.

QUESTION (Digby): Two questions, firstly the fixed line
telephony loss, the best since 2007 is a great result
but can you please talk about the usage metrics, so the
call rates, the MOUs, local and national long distance.
I’m just curious if the second half trends are
continuing or are they getting worse?

Then the second question, John the transition
investments slide, I think the third slide that you read
too, you’re not expecting FY12 EBITDA by the look of it
to get above FY10, though revenue is higher in FY11 and

FY12, so I’m just curious, the cost by key category
there, what you’re expecting to flow through into FY12?

MR THODEY:   Let me just give a little bit of colour on
the calling patterns and administrative views.  The PSTN
decline has abated a bit and so that’s great, we’re sort
of holding that off.

The minutes of use and the calling, local calling has
just sort of come off a bit, the decline and so it’s
been interesting.  Remember, we’re selling bundles and
we’ve got more included calls.  Remember we talked about
the fixed to mobile substitution calling, so as people
now are saying:  Hey, well it’s included in my bundle,
I’ll use the fixed line.  So we’re starting to see some
easing off on that.

MR STANHOPE:   The usage patterns are not changing a lot
in international and long distance.  That’s why I said
that translation into financial performance of the
physical achievement is very important.  So therefore
your average revenue per user is important.

That’s why when you bundle products, that’s your average
revenue per customer as distinct from per product is
important.  That that is staying relatively flat is good
news, but it’s primarily driven by not such more use,
but they’re adding a service to their bundle.

That’s why the average revenue per customer is staying
flat more so than more use and to be competitive in the
price stakes, if you like, even though we still command
a premium for our better network and so on, the
inclusions of data and so on means physical elements of
a usage go up, but you’ve got to convert it into money.
So we’re watching that very closely and that’s why I
made that comment.

To your other question, you make a reasonable assumption
that fiscal year 12 doesn’t look like it’s back to
fiscal year 10, but that’s really just the pattern of
cost out that occurs.

We talk about Project New and we’ve talked a lot about
it - and I talked a lot about it in this fiscal year and
what the net outcome is.  But actually, Project New is a
three year program and Robert will tell you more about
that.  This year is a lot of the hard grunt work.  What
is it we have to implement and then implementation
begins.

Yes, we do get some costs out this year but it only just
or it doesn’t quite match the costs out this year, but
then it starts to ramp up and that’s why your assumption
is reasonable and then you see fiscal year 13 - we
haven’t been specific on the numbers but you can see
it’s close to or thereabout the fiscal year 10 EBITDA
level.

MR THODEY:   Of course, it’s the revenue mix change too
which has changed there.

QUESTION (Mark McDonnell):  John, firstly in relation to
your first slide regarding the transformation benefit.
I think really the unshaded area between the two lines
should also be included in that calculation as a
reduction to the hashed area that you’ve shown.

In terms of the exclusions though that are of more
importance, there are two questions, with regard to the
timing for the NBN legislation, you’ve not made any
particular reference to the probability that a cost
benefit analysis will need to be conducted.  We are
seeing increasing comments, not just from the opposition
but now throughout the industry in favour of a cost
benefit analysis being done for the NBN and indeed, it’s
quite conceivable that the Senate in particular would
require the results of such an analysis before voting on
any NBN enabling legislation.

Have you factored that possibility into your timeline
and if not, what impact would it have?  That’s my first
question.

MR THODEY:   I’ll answer the cost benefit one.

MR STANHOPE:   The first was more comment than question.
It was more a comment about the shaded areas.

MR THODEY:   Let me talk about the cost benefit
analysis.  That may well be the case.  Our strategy
doesn’t change in terms of the NBN at all.  The industry
transition is what it is and we’re getting on with the
job.  So nothing you’ve seen up here has any impact
whether the NBN deal is done or not.

We’re getting on with life because we can’t wait.
That’s number one.  What goes on in the Senate and in
terms of the politics of the situation is really a
matter for the government. We’re not buying into that.
That is their decision and I am trying to get us away
from being dependent on any outcome.  If NBN doesn’t

happen, I’ve got another world to get on with and I
don’t have to worry about it.  We get on protecting PSTN
revenues, growing our differentiated products, et
cetera.

That is our view and that was where we’re going.  Am I
sure there’s going to be lots of speculation and
commentary that everyone would love us to give an
opinion - I’m not going to enter that.  All I’m
interested in is $11 billion; that’s the deal if it goes
ahead.  If not, then I’ve got other things to do.

I’ve got to be very resolute at the moment because it’s
shareholders that I’m responsible for, and John is, so I
don’t want to buy into that stuff.  That’s their
business.  If they want to spend $43 billion, I get 11,
I can take it to shareholders, it’s right, great, let’s
get on with life.  If not, then we’ll go and do
something else.  I say that to Stephen Conroy, I say it
to everybody.  It will be what it is and we’ll get on
with life.

QUESTION:  The other aspect and again I think this
wasn’t explicitly identified but in terms of the various
terms of the financial heads of agreement, it seems to
me that one of the critical elements not identified is
the price that the NBN Co will charge and that is
particularly true given the structure of the deal.

By that I mean that what you seem to be giving up here
is your ability to compete in infrastructure assets.
You’ve spent $300 million on the docsis 3 upgrade and
you’re now saying you’ll agree not to put any broadband
traffic over that or indeed, exercise your option to
upgrade HFC and other locations.

Similarly, by decommissioning your copper network,
you’re excluding the competitive option of substituting
into services like VDSL.

I notice that Optus has launched an upgrade of its HFC
network and it is subject to no proposed regulatory
constraint on it mixing and matching NBN and HFC to
deliver broadband.  You’re giving that up.

The only way that the financial community can assess
whether this is a good deal is if the price terms for
you to use the NBN are set in concrete for the 30 year
plus period that is the scope of this agreement.  Is
that achievable?

MR THODEY:   I’ll let John add a little bit colour but
let me say to you that all the points you raise are
absolutely valid but remember, I’m interested in what
NBN pays us; what they charge the market we’ll be
competing in a level playing field and we’ll have to
deal with that.

We’ve made some assumptions in that but in terms of the
HFC, there are conditions; we’re assuming a certain
environment and if that should change then we will
reserve our right.

John, do you want to add some colour, because this has
been a critical part of our negotiations.

MR STANHOPE:   There is no doubt in the modelling that
price is important and the good news is that the price
assumed in our valuation model equals the price assumed
in Mike Quigley’s business plan, but at the end of the
day the ACCC is going to have to approve that wholesale
price.

Sub-price is important in the whole valuation of not
only his business plan but also the valuation of this
deal for this company and its shareholders.

You say we’re giving up things, yes, that’s true, but we
are being compensated and you will have to decide as
shareholders whether that’s fair value or not.  An
independent expert will comment on that and shareholders
will get to vote on whether you think that is fair value
or not.

One other point I want to emphasise is that there are
two options here really. Given the government has
decided on an NBN policy that is fibre to the home, we
have a choice of co-operating or competing.  Our
assessment of what is best for shareholders is between
those two things, because that’s your option, you can
co-operate with this and you can negotiate for fair
value for giving up what you’ve just described or you go
out and compete against an NBN Co and retail service
providers and so on.  You continue to compete in an
infrastructural way.

You know that some things, nasty things could come with
that and you will compete scenario.  So we’ve made those
assessments and we will show the shareholders the
difference between competing and co-operating and
whether we think we get fair value for choosing the co-
operate saga.

That’s our obligation, to tell our shareholders that and
we’re not quite there yet, but that’s what we will do;
along with an independent expert report to say whether
it’s a good thing or not in their view.

MR THODEY:   If there was an unequal playing field
created, we either need compensation or we need it dealt
with.  Be assured, we are very conscious of these
things.

QUESTION (BRADLEY CLIBBORN):  Two questions, firstly
your broadband net adds for the months of July and
August look quite strong, both in the context of your
FY10 results but also overall expectations for market
growth.  Can you give us a sense as to whether it’s
really a market share game that Telstra is winning there
or whether there is increased appetite for those
products in the first couple of months of trading?

Secondly, around the target for growth in mobile market
share for the next couple of years, how does that upside
compare to the $450 million you are investing in DVCs
this year and then those DVC costs in FY12 and 13?

MR THODEY:   Let me try and give a little bit and then
John may have some other comments.  From what we can
tell, and it’s still early days, in terms of the fixed
broadband growth, we’ve put better bundles into the
market, we’ve put some better pricing, T-Box and T-Hub
are nice differentiators, so we think from what we can
tell, it is probably a bit of share gain from what we
can tell.  We’re not seeing enormous growth in the
market, so we’re picking up share.

In terms of the mobile growth, there are lots of things
going on with mobiles.  The move to smart phones, higher
ARPU customers, existing customers migrating, acquiring
new customers with higher ARPU, so the $450 million also
includes T-Box, T-Hub, as well as mobiles, so it’s a
composite of all COGS.

We’re looking at return.  You know the data on acquiring
customers, the paybacks are after about 11 to 12 months
and that just applies in the smart phone market.  It’s
still a good business to be in, as long as you’re
acquiring the right sorts of customers and you’re
getting the ARPU. Eleven to 12 months we think is a
pretty good investment.

QUESTION:  Does that take into account the ARPU
compression that you’ll see as a result, so the
combination of ARPU compression plus the increased
subsidies, how does that compare to a two or three per
cent gain in share?

MR THODEY:   John, can you help me on that one?

MR STANHOPE:   The cost of a smart phone does take out
the ROI a little longer, there’s no question about that
but over a contract period, it’s still a good deal.

MR THODEY:   And remember, you’ve got to divorce -
you’ve got so many products in the mobile portfolio,
you’ve got wireless broadband, prepaid, postpaid, you’ve
got postpaid voice, prepaid voice, but in terms of
postpaid, if you can acquire it and you don’t over spend
and you get the right customers, it’s a good return.
Obviously execution is critical.

MR STANHOPE:   You’ve got to find ways to make sure
you’re not spending a lot of money on recontracting.

MR THODEY:   Gordon will give a bit of colour on that
when he talks about the consumer business, because we’re
seeing some changing dynamics in the retail side since
Gordon’s been here, bringing this UK experience to us,
which is good.

QUESTION (LAURENT HORRUT):  Thanks for sharing some
thoughts on the NBN timeline.  The one thing I’m still
not clear about is when do you think you’re going to be
in a position to communicate publicly what the key terms
of the agreement are?  It’s really what we’re trying to
get to.  In the timeline are you suggesting around the
AGM you’ll be in the position to share these key terms
or this is coming later?

MR THODEY:  That is a good question.  If I can declare
it, I will.  I think that would be our intent but I
don't want to be - the reason we can't put everything
out now, as much as we would probably like to to get rid
of some of the uncertainty, is that just when you go
through negotiations things can change and also there is
some competitor information in there which is pretty
important, but I really appreciate from a shareholder
perspective.  I think we could, John.

MR STANHOPE:  Our objective is to get as far as we can
these definitive agreements by the AGM.  How far we get
will really determine what we can say.  That is our

objective.  We would like to get to the AGM and be able
to say that it will be - do I think the legislation will
be through by then, probably not a chance really, but
NBN Co and Telstra, we are beavering away at these
agreements to get these done by the AGM if we can.

QUESTION (Laurent Horrut):   In relation to your earlier
timing, I've notice you are thinking more about June 11
AGM, as opposed to I thought you were talking about
March/April initially.  What is the reason for this?

MR STANHOPE:  Fundamentally, the government was in
caretaker longer than expected, it is just going to take
to Mark's earlier question about legislative timeframe
and so on.  We would all love it to happen a lot
earlier, including the government I am sure, but we are
just being practical and pragmatic, I guess, about how
long it might take to get through this parliament.

MR THODEY:  I am just trying to think, John.  We did
think maybe the first quarter, but the middle of the
year seems reasonable at the moment.  Some things are
out of our control but I can tell you from talking to
everyone involved, we are very committed to it, but
there are some imponderables here.

QUESTION:   Just to be clear, you will communicate some
details before the independent expert review is
completed?

MR THODEY:   Yes.

QUESTION:   That is the intent?

MR THODEY:  Yes, we will.

QUESTION:  Second question, just on the operational
issue.  Just looking at this one billion of costs
reinvested in 11, in the scheme of things the redundancy
cost doesn't seem like a big number.  A specific
question on that: How many redundancies are you actually
planning in fiscal year 11, driving this $40 million in
addition to the 300 jobs out that you have--

MR STANHOPE:  The redundancy expense in fiscal 2011 is
$220 million.

MR THODEY:  It is only incremental. John is talking
about incremental.

MR STANHOPE: $220 million is the total.

QUESTION:   And just a subset on that.  Just looking at
the competitive environment, mobile and broadband are
different than they were four, five years ago.  The
question: How confident are you this is a one-off FY11
for investors is supposed to be a permanent sort of
level of expenditures you are going to need to spend
just to remain competitive?  If you think that for FY11,
FY 12, then it looks like you are pulling back on some
of these costs compared to FY 11.  Is that really what
the market is telling you?  The question is:  Is it a
one-off realy or really is it a permanent reschedule of
your margins?

MR THODEY:   You are right.  We see the changing revenue
mix and the changing mix of COGS.  The critical thing is
you have got to get your fixed costs and your non-DVC
costs out to allow you to invest in your directly
variable.  The directly variable is totally dependent on
what is going on in the market.  That is why Project New
or the simplified is so important and we will give you
some colour on that just after the break.  We have got
it, you are absolutely right, this is restructuring this
business because the dynamics have changed.  Every telco
in the world is going through it, so that is what it is.

QUESTION:   On the conditions precedent, one on the NBN
timing outlook.  The conditions precedent, does that
represent some dilution from the expectations that were
put out in June?  You talk about regulatory stability
rather than regulatory certainty.  Is there a difference
there?

MR THODEY:   No.

QUESTION:   The ministerial waiver exemption
determinations, you are referring to the legislation
that has passed the lower house and is now before the
Senate.  My understanding was that they will be
substantially gone, that the legislation would be
redrafted and they will be taken out, but you seem to be
suggesting, particularly when you need that reassurance
about LTE spectrum, that that gun would remain in the
Minister's pocket but not necessarily at Telstra's
shareholders' heads.

MR THODEY:   Great, that is what we would like too.

QUESTION:   And the structural separation undertaking,
again that's in the legislation that has already passed
the lower house, now before the Senate.  Again, why do

you need that if we have got this deal?

That is my first set of questions.  Do you want to
answer that one first?

MR THODEY:   Yes, there is nothing different to what we
said in June, but we never indicated our endorsement of
any of the legislation.  We have always wanted changes.
That is still the same, we still want the changes and
that is what we are working on now.  I just wanted to
make sure you understood that, because for us we need to
make sure that--

QUESTION:   Sure, but then we go to the time line and we
have get the definitive agreements being complete almost
certainly before that legislation has passed.  I just
wonder how can you have a definitive agreement when you
don't know what the regulatory setting will be that you
have made a condition precedent.  And, secondly, to pick
up on Loron's point, I wonder if it is possible if we
could have another analysts' briefing before the EGM to
go into these details, so we know what the details of
the agreement are?

MR THODEY:   On the last question, I think that would be
fine.  We can arrange that, yes, I think it would be
good.

Your first question about the time line, what we want to
do is get the definitive agreements done.  I didn't say
we are going to have them signed.  There will be a lot
of conditions around them.  We are not going to commit
our life until the legislation is done, but at least we
can get something done and dusted and it is there and we
can share it with you that is dependent on the
legislation going through.  So we are not getting ahead
of ourselves, let me assure you.

QUESTION:   Your expectation is that those things would
be removed from the legislation that is now--

MR THODEY:   We are going to try and get as much removed
as we can.  We can only ask and we can lobby and do
everything we are doing.

MR SPINCER:  I will go across to Danny.  We are going to
run out of time.  I want to make sure that everyone gets
a chance to ask a question.

QUESTION:   Good morning.  It is really a bit of a
follow-up to Ian's question there.  When you look at the

composition of the Senate, and that is not going to
change until 1 July, and you have put the end of the
time line at basically that point, isn't there a pretty
reasonable chance, given the Coalition's standing today,
that that might push out further?  That is the first
question.

MR THODEY:   As I have said, it is our best estimate,
and you are right, the Senate's composition doesn't
change until 1 July and that's the legislative process,
isn't it?

QUESTION:   I commend you on the price of your
co-operation and I guess we are looking for clarify here
and it could just be a little bit longer.

MR THODEY:   It could be and that is why we have very
intentionally laid out the next three years without any
NBN impact at all.  If it goes on, it goes on and we can
get on and do what we like doing and serving customers,
winning in the market and delivering greater value to
shareholders.

I think we have got through the enormous distraction
about trying to work out where things are.  We have got
a very targetted team.  John is managing incredibly
well.  We will let that process work through.  If it
delays, it delays.

I know a lot of you are saying there is uncertainty,
what is going to happen.  I am not sure it would not
change our three year view at all in terms of the
business.  Going out five, six years, yes, there is a
change of dynamics, but not in a three year period.
That is where we are at and that's the only thing I
think we can do and so we have got to get on with life
and that is what we are doing.

QUESTION:   On the copper decommissioning, can you just
clarify that you will be compensated at the point at
which you decommission that copper within that
geographical area I guess, it is not dependent on those
customers actually migrating across to the NBN?  I guess
that is a question that goes to the economics of the
NBN.

MR THODEY:  John, do you want to the handle that one.

MR STANHOPE:  Yes is the answer.  We get paid a payment
for decommissioning the customer from the copper.  So it
is about decommissioning.  If that customer chooses to

go to an alternative wireless operator instead of the
NBN, we still get paid.

QUESTION:  Are there any restrictions in the agreements
you reached today against your behaviour in that?  You
can obviously understand that at a high level you could
gain that scenario.

MR STANHOPE:  Yes, there are.  You would expect that NBN
Co wouldn't want us going out and saying wireless is
best, don't go fixed, for example.  There are those
sorts of restrictions, which you can understand.

MR THODEY:  However, we want every customer to have a
wireless broadband connection and a fixed broadband and
a voice connection as well.  That is our objective.

MR STANHOPE:  It's not really in our interests. We want
to do both.

MR THODEY:  So that is what we are focussed on.

QUESTION (ALICE BENNETT):  First question for John:
Just a bit more clarity, if you could, on the $1 billion
of costs.  I think at the result you said 30 to 35 per
cent would be non-recurring in FY12.  You haven't
mentioned that today.  I just wanted to find out if that
is still the case.  And also if you can give us an idea
of within this table where those non-recurring costs
sit.

MR STANHOPE:  The DVCs will stay somewhere at the same
level.  We are not going to increase redundancy $100
million every year, accommodation costs won't go up that
much every year, some of the NBN costs that we have got
this year won't repeat.  So the 30-35 per cent is still
about right.  They are the sort of items that won't
repeat.  STI won't go up again every year, those sorts
of things.

QUESTION:  And just in terms of fixed broadband
competition, you telegraphed at the result that you were
going to become a lot more competitive and during
September you have seen a lot of the smaller ISPs become
more aggressive themselves with terrabyte plans and
unlimited plans.  I'm just wondering if you've seen any
change in the September trading and net ads relative to
July and August?

MR THODEY:  We watch the market very carefully.  We have
seen no change for the last few weeks.

QUESTION:  What do you see is the acceptable return on
the one billion in terms of EBITDA uplift over the next
three years?

MR THODEY:  We have given you an indication of where we
think the EBITDA will be by that period.  We think it is
the right strategy, but we are not disclosing specific
numbers at the moment.

MR STANHOPE:  More than the WACC

MR THODEY:  Right, more than the WACC, and that's a good
way of answering.

QUESTION:  In terms of the government priority now for a
regional roll-out, how does that affect the $9 billion,
$11 billion components?

MR THODEY:  As I said, and my words were very carefully
chosen, the $11 billion is the $11 billion, and if there
are other external things it changes, but at the moment
from what we know no impact, the $11 billion is $11
billion.

MR SPINCER:  We will pause now for a cup of coffee and
be back in here promptly in about 10-15 minutes.  We
have got a lot more to get through.

MORNING TEA ADJOURNMENT

MR THODEY:   We are going to move into a slightly
different part of the morning. I hope that this morning
gave you a little bit more detail about the strategy,
about the financials and about NBN.  There will be a lot
more about NBN happening.  We’ll try and keep you as
informed as we can as we go through.

I wanted to now actually introduce three of the people
who are a critical part of the executive team.  We’ve
got the whole team here, which is great, but we thought
we’d focus on three key areas.

Firstly, the simplify, save, serve, which is being co-
ordinated by Robert Nason.  I want to, as we introduce
it, this is a company wide project.  Every one of the
executive team has been engaged.  Robert has the
responsibility of co-ordinating it.

Robert’s been with us since February; it’s been great to
have him on the team and we’ve been at this now for 8

months.  It’s been eight months of hard work to get
through this; so this is not new.  It’s actually under
way.

After Robert I’ve asked Kate to come up and talk a
little bit about product marketing, how is that going; a
critical part of this transition to a sales and
marketing led company and Kate’s been leading that;
which has been great.

Then Gordon Ballantyne with the consumer side.  What I
think I will do, I’ll get Robert to come up now and then
straight after Robert I won’t come back up; Kate you
come up and then Gordon.

We’ll get through that and then I’ll come up, talk about
the growth vectors going forward; then we’ll go to Q&A.
We should get through this in about an hour and 45.
Over to you Robert, great to have you.

MR NASON:   Thank you David and thank you everyone for
having me this morning.  This is an important project
for the company and I think you’ve heard from David and
John on the changing dynamics of the industry, our
strategy and the imperatives which have caused us to
consider a fundamental change to the operating model of
Telstra.

Project New is the mechanism by which this new model
will be delivered.  I will address the key pillars of
our strategy in simplifying our operations, improving
customer service and affording us the right to grow by
delivering significant productivity savings.

We have heard the issues that you have with our
strategy:

How can you improve service and take cost out at the
same time?

How can you fundamentally change the business and grow
market share at the same time?

Hasn’t all this been said before?

I plan to address each of those issues during the course
of this presentation.

I would firstly like to start the presentation by going
through our thinking behind embarking on Project New as
an exercise; then describe what the program actually is

and then finally what’s different about this program
from other exercises that you might have heard at
Telstra in earlier years.

Before I begin though; just a little bit about me.  I
have had a long history in the telecommunications
industry as a management consultant.  I go right back to
the Mel Ward days at Telstra, pre-privatisation.  I’ve
worked extensively with Frank Blount in his era and
Ziggy Switkowski during his time at Telstra.

I was a business advisor on the initial float of Telstra
in the 90s and I have lived and worked in both Europe
and the US providing services to over 50 telephone
companies around the world.

I’ve done a lot of major transformation studies and
projects within the telecommunications industry,
particularly at companies like Bell South, Bell Canada,
Telefonica in Brazil and did some work with Frank and
Ziggy in those early years as we migrated Telstra out of
the monopoly government ownership days into a private
sector organisation.

I joined Telstra in February with the responsibility for
corporate strategy, mergers and acquisitions and
customer experience.

Prior to that I came from Tabcorp and ran the wagering
business there where there were very similar parallels
to their stage of evolution in terms of competitive
development and service delivery as a company.

Turning to our thinking behind Project New; during the
period March to May, we conducted an extensive strategic
and operational review of our business.  This review
concluded we should conduct a fully integrated and co-
ordinated cross-company program to fundamentally change
the business.

A number of important factors led us to that conclusion.
In examining our cost profile, we saw that it had
changed significantly in recent years, with a much
greater dependence on external suppliers and the
emergence of many new cost areas of the business
associated with new products and new business functions
as we migrated to the digital age.

We are also coming off a period of significant
investment as described earlier by John Stanhope.

The assets created by the investment have delivered
strong value.  The business needed to re-adjust to a
steady state environment – operational change was
considered necessary to achieve this and a significant
productivity dividend was found to exist beyond the
simple reduction in network and IT costs that were
already within our plans and targets.

Finally, while Telstra had achieved a strong cost
reduction performance over recent years, and the cost
performance of the business has been quite impressive at
face value, this was achieved predominantly through a
number of very focused initiatives in core areas of the
business.  And it has to be said, we had a number of
free kicks in recent years associated with the improving
exchange rates, which brought down the relative costs of
our international operations and investments, some
divestments which took natural costs out of the business
as we divested some key operations and assets as well.

In recognising that, we believed that there was quite a
large productivity dividend available and it has to be
said, a comprehensive, across the company exercise has
not been conducted at Telstra for more than 10 years.
In fact, I think I did the last one when it was with
Ziggy in my consulting days.

We saw the opportunity of doing this in a co-ordinated
cross-company fashion delivering us quite a considerable
productivity prize.

In terms of where that productivity was going to be
found, very importantly we found that the areas of
greatest productivity improvement were directly related
to the customer service performance of the company.

We became convinced that simplifying the business and
removing what we call bad volumes - and you’ve heard
John talk about bad volumes at some of the Results’
presentations, could realise quite a significant prize
for us.  But we weren’t going to get at that prize
through incremental, silo based improvement approaches.
They were going to give us incremental change, they were
not going to give us the step change that was necessary
and extract the productivity dividend that an across the
company approach would realise.

In an overall sense, the low hanging fruit was gone but
by improving service and changing the operating model, a
significant productivity dividend was considered to be
available.

Just looking at some of those areas in more detail; in
terms of bad volumes, in summary, in the costs sense,
what we mean by that is an excessive volume of calls to
our call centres; excessive truck rolls in fixing faults
or multiple truck rolls because we don’t fix customer
issues the first time.

Complaints processing costs associated with dissatisfied
customers who have to make repeated calls to us to get
the errors that we make fixed.  Delays in revenue and
billing and getting returns as early as possible after
we make a sale; and bad debts, where you have seen some
escalation that was reported in our Annual Results last
year associated with issues like bill shock and delays
in being able to effectively bill customers and the
volumes of bills mounting and customers having
difficulty paying.

In all areas of that end to end process, by fixing
service we found that there was a large productivity
dividend available.

In looking at our operating model, we also saw a
significant opportunity and this comes from a number of
factors.  As you’ve heard from David, we resolved that
we needed to become a sales and marketing led company to
position ourselves for a future much more competitive
world.

The post transformation - I’m talking about that
transformation word that was characterised for the five
years under Sol, we needed to adjust to a post
transformation environment, where the focus was on
building networks, building assets, investing in IT
systems.  We needed to now change our direction and
focus on the customer and become sales and service led.

There was quite a lot of adjustment to processes,
decisions, structures, to deliver that.  We felt we had
too much central decision making and the customer
focused organisation makes decisions much closer to the
customer than we currently do and we wanted to re-jig
all of our decision making processes and put as much
back into the business units as was possible.

We needed to become more customer focused generally in
terms of everything, from the metrics we measure
ourselves on, the performance we manage, the
conversations we have internally, the decisions we make
on go to market and innovation, having much greater

customer voice into those processes and they all needed
to be examined to achieve that.

I think part of the process here was just acknowledging
that we didn’t have it right and we needed to get it
better.  There was a big opportunity that surfaced out
of that that could free up the organisation to excel and
take quite a bit of cost out.

In terms of the channel environment, it’s just a fact
that more than 73 per cent of our customers prefer to
deal with us online.

Simply developing this channel to match international
experience will deliver to our customers significantly
improved service and realise well in excess of $100
million in productivity improvement through reduced call
centre volumes, reduced complaints and reduced
administration costs in areas such as billing.

There was a size of prize there for getting that right
and moving into that environment.

In terms of our supplier relationships, as I said
earlier, we’ve migrated to a much greater dependence on
external suppliers, contractors.  We have significantly
outsourced activity as a company over the period since
privatisation and we saw, with $13 billion now of
external spend, that we needed to target competitive
advantage from our supplier relationships. We needed to
target the variabilisation of our costs to reflect the
flexibility in the market that we needed to achieve and
to put customer service accountability into our
suppliers and contractor arrangements in the same way
that we were proposing to do that internally.

That was the cost opportunity and we found that that was
quite significant but needed to be addressed in a
particular way to get it there.

On service, a bit of a different story but the same
conclusion; we looked at service from the dimension of
what did we need to change to get to a competitive level
of customer service and secondly, what’s the value to us
in making that change?

A company that invests in customer service improvement
needs to consider that size of prize, because this is an
area where it’s possible to over invest or to invest in
the wrong areas to get the optimum market return.

Four key issues emerged out of this analysis:

While IT transformation has delivered significant
benefits, and I have to say, the conclusion of all of
the work we did was that IT transformation was the right
thing to do for this company, providing a single view of
the customer to our front of house is the right way to
operate and deliver the marketing and sales outcomes we
wanted.

But we’ve got a lot of work to do to achieve the full
benefits out of the investment that we’ve made and the
process re-engineering component of that needed
significant attention.  We are yet to fully extract the
customer benefit out of that investment and that is
still yet to be realised.

We needed to ensure that our processes and systems have
the flexibility to deliver bundled solutions.  So the
market is moving into a bundled world and bundled
offerings.  We’ve started that process in terms of our
market offerings, our systems and back of house
processes have to be geared up to providing multiple
services simultaneously.  We have work to do in that
area.

We needed to equip our front of house with the right
tools.  In terms of the reviews we have done, we have
got a good attitude in our front of house staff, and
Telstra does take a pride in service and David drives
that personally very strongly.  We need to make sure
that the organisation focuses on giving our front of
house what they need to provide the standard of service
necessary for our customers, and we need to value
customer experience in the same way we take pride in
engineering our superiority in basically everything we
do.  So there is an important cultural change dimension
to this sales program.

There was no stone left unturned in looking at this and
we examined critically every aspect of our service
performance and came to the same conclusion, that a
cross company exercise was the way of getting at that.

In terms of what we have done initially, there has been
some progress and every month changes are being made to
improve experience.  The situation we found ourselves in
during the last 12 to 18 months required immediate
action to turn around a deteriorating service
performance and our focus in those 12 months have been
focused on arresting that decline.  So short-term

measures, such as reducing average hold time constraints
in the call centre, increasing resources and complaints
processing, case managing difficult cases, have
delivered a level of immediate results.  So there was a
32 per cent decline in the last 12 months in our TIO
complaint volumes, our customer satisfaction survey
results improved 4.6 per cent, but they are the result
of short-term, immediate actions to rectify the
situation.  We have yet to address the long-term
requirements to get to competitive service levels and
they remain to be delivered for the company.

Some of the more recent announcements indicate where our
strategy is going.  Our strategy is to make more
fundamental structural change to customer service and
positioning service as a future differentiator and
exploiting our fully integrated service offering to
maximum advantage for the service of customers.

In our first week of offering 24 hour seven day sales
and service, over 115,000 customers contacted us after
hours to utilise that facility.  Following our
announcement on weekend technicians, over 7500 customers
have utilised this service and had technicians visiting
them on the weekend to save them having time off work
and waiting for the Telstra tech to arrive.

These are examples of where we are going with service
and you should expect to hear much more about that from
us in the future.  Our policy though is not to go out
singing about what we are going to do.  We will report
as we release things.  There is a level of competitive
advantage in some of the things we are moving to in this
environment and we believe it is much better to promote
service after you have changed it than before.  So there
will be a lot more of these announcements and the
program is much more strategic and in depth in terms of
each of the products and services that we currently have
in the market place.

A very important conclusion from our operation of
strategic review was that the dividend that exists in
improving service was both revenue and costs, and in the
consumer business alone, just in terms of looking at
what the potential for change that could - the dividend
that we could extract, one per cent of churn reduction
consumer is worth about $40-50 million, extending
customer loyalty to Telstra by three months is worth
$50-60 million.  If one in ten customers increased their
product holdings with us by one, this could be worth
$400-500 million.  If our customers became promoters of

Telstra and through their voice they attracted an
additional one per cent of customers, this could be
worth $160 million.

Now, they are not targets.  That is the sizing of the
opportunity that we believed, in terms of our relative
market position, our relative competitive service
performance, what the size of the prize in getting
service right was, both from revenue and costs.

So in conclusion, it became very clear what we needed to
do and I think the order here is very important in terms
of how we are addressing this.  By simplifying our
operations and our customer offers and significantly
improving service, we will deliver very strong
productivity benefits through the business, we will
afford the right to grow new business areas and grow
market share by doing this and will build a platform for
long-term sustainable earnings growth.

Appreciating the company has done many exercises in the
past and this is another one, you do these if there is a
return out of doing them and you invest to get them if
the size of the prize is sufficient, and we ticked both
of those boxes.

David has described this chart to you and it represents
the core Project New program, which is the largest
single change program Telstra has undertaken since
privatisation.  It will deliver the single largest
productivity improvement since that time in a stepped
change to deliver competitive levels of customer
service.

No area of the company is exempt and all areas are being
addressed simultaneously.  There are 27 separate
projects with over 500 staff involved across the
business and $400 million of capital has been allocated
within the current capital envelope to implement the
outcomes from the activity.

This project is being intensively managed by the board,
by David and John personally and every member of the
leadership team is involved in it.  Kate and Gordon will
make reference to the opportunities in their own
business areas later this morning and we are all working
together to realise the benefits of implementing the
necessary changes to our business.

I will go through some of the specific elements of the
program now.

In terms of the new lean operating model, in this area
we are examining our organisational structure, our key
go to market processes, our innovation processes, the
planning performance management processes for the
company and our back of house operations.

We have already announced the exit of 345 management
positions to simplify our organisation and reduce layers
of management.  A new capital process has been
introduced, which is sort of a good example of what I
mean by the level of change that we needed to make.  In
a period of a much increased overall capital investment
for the company, the company made the right decision of
focusing and managing capital quite carefully, but it
became very centralised and there was an army of people
associated with developing information to support a very
centralised decision-making process on capital.

The time is right now to decentralise that and hold
businesses accountable for capital allocations in their
business area.  As a result of that, we reduced staff
involved in that from 152 to 74; we reduced the
administrative transactions associated with capital from
50,000 to 10,000.  That is a small process in a big
company, but we see in everywhere we look the
opportunity of making similar changes to drive
accountability into the business for results, remove
centralised decision-making, which was a feature of the
previous administration, if you like, and drive the
right return of getting decisions closer to the
customer.

We expect to finalise most aspects of the operating
model in the first half of this year and organisation
announcements should be expected progressively over the
next few months as we make change to implement that
following the work of the individual teams.

From end to end customer process improvement - again,
everyone does this and there are methodologies existing
in the market place for dealing with it.  There are a
couple of critical elements of the way we are looking at
it from our perspective.

Every team that is looking at end to end processing - we
have got teams for every major product line within every
major business unit - is required to look at voice of
the customer information or needs and requirement.  So
each step of the customer process, what does the
customer expect when they are looking for a new mobile

plan, what does a customer expect to have in their self
install kit when they buy ADSL.  We are getting customer
research information and bringing that in at every
element of the program.

Every complaint that is lodged with Telstra over the
last two years means something now because every
complaint is analysed and we look at root cause.  These
are complaints that might go through the executive
complaints program, through the standard complaints
program, through the TIO complaints program.  We learn
from the complaints about what is giving rise to
customer dissatisfaction.

And we have probably conducted the most detailed
competitor analysis that we have ever undertaken.  We
have visited competitors' stores; we have gone onto
competitor sites; we have bought competitor services; we
have lodged complaints with our competitors and seen
what they do; we have tested our competitors' IVR
systems and compared them with our own; and we are
matching our process with the rest of the market and we
are doing that very intensively domestically, but we are
not leaving it there because we have good relationships
with a number of telephone companies around the world
who have been through the situation we are in now and we
are learning internationally as well what has worked in
different markets about customer service experience.

So we have developed end states and investment
requirements for each of these processes which will
deliver market competitive service outcomes, the
elimination of those work around groups, as I said
earlier, and elimination of those bad volumes that I
said earlier.

This is not incremental change.  This is fixing customer
service permanently at Telstra and delivering to us a
competitive level of service in the market.

The design work in this area will largely be completed
by the end of October and many changes are being
implemented progressively in areas such as moving house,
where over 180,000 customers have now experienced our
recently developed case management service for when you
move home to make sure all of your services can be
properly provisioned.

Process outcomes will guide our future IT architecture
and road map and will be fully integrated with - we are
going to have at the end of the day here, and this is

the importance of doing it simultaneously, we will have
a pricing architecture, a process architecture and a
systems architecture that is fully aligned with a road
map of evolution for the next three years, which is
properly funded, rolled out and delivers the customer
service outcomes that we need.

That requires a lot of thinking, a lot of coordination
and prioritisation within that program, but by
addressing all of this at the same time, we do get to
that result.

We expect full benefits from this program to be
implemented over two to three years with demonstrable
improvement occurring during 2010-11.

On the sales and service channel area, each of our sales
channels is being reviewed in the same way.  So we are
visiting our competitors' stores, we are ringing them on
the phone, we are looking at the on line experience.  We
have given our on line channel primacy and are targeting
35-40 per cent of our transactions on line within the
next three years.

Operational improvements include customer experience
metrics and performance accountability at a customer
service level to be rolled throughout entire front of
house operations.  For example, we are rolling out
customer transaction surveys at the end of every contact
centre interaction.  Over 1.1 million surveys were
conducted in the last 12 months and this will extend to
60 million surveys by the end of 2010-11, and that is
folded back into direct feedback to the consultant on
the phone about the customer's impression of the call.

We expect our channel migration and optimisation to take
about three years, with first stage implementation and
the full design to be completed this year.

In pricing simplification, there are a number of
dimensions to this program.  Firstly, we’re looking at
reducing, eliminating or simplifying what we call
nuisance charges.  We’re looking at all of the charges
you see on your telephone bill that are outside the
direct usage for the service and we’re validating them
in, if you like.

If that’s a charge that the customer struggles to
understand, if it’s a charge that the customer complains
about or is surprised by, we’re reviewing what do we do
about that.  Is it something we can migrate into a

broader charge that the customer understands better; is
it a nuisance charge that isn’t validated by the level
of complaint we get about it and should we remove it?

All of those things will be looked at in all of those
charge areas.  An example is our recent change, we were
the only telephone company in the market charging you a
dollar per month for every additional email you had
above a standard email on a BigPond address.  Our
competitors were giving five to 10 free email addresses
as you bought a service; we now match that.

That’s the sort of analysis we’re doing for each of
those additional charges.  We’ve also reduced and made
free charges to our frequently called service numbers
and again, that’s a first in the market.  If you’re a
Telstra customer and you’ve got a service issue, you can
ring our service centre and not be charged for the call.

We’re looking at migration and consolidation of plans.
In this sophisticated world, the bundled world we’re
moving into, we have to manage offers and reduce the
complexity in our systems so we can get to market
faster.

There is going to be a comprehensive exercise looking at
how we structure that and then developing the
architecture for the future.  So that we can be very
responsive, very fast to market and respond
competitively when we need to.

We have a structure of our pricing that the customers
get to understand and we have a standard uniform way our
systems are built to support that.

Kate will be talking a bit more about that in her
presentation and of course she leads that area of our
business. This work is just helping Kate make these very
significant changes to how we go to market.

Finally, in the productivity area, while customer
service and simplification is driving a lot of areas for
improvement, we do want to grab every productivity
initiative as part of this.

As I mentioned earlier in the procurement space, we’re
looking with strategic partners at achieving joint
process improvement and competitive differentiation.
We’re challenging our major suppliers to help us win in
the market place and what can they do to help us achieve
that.

With contract and suppliers, rate and volume reviews at
a directly variable cost level, looking at the further
variabilisation of our costs, and again, differentiation
from some of our providers and where they can provide
that to us.  With network suppliers we’re reviewing the
level of specification we can enhance in terms of what
we’re asking for; can we get that modified to be
optimised for a future cost, reduction in environment
and how do we manage innovation with those network
suppliers and incorporate them into our processes?

On bad debts, and some of this was covered at the full
year results, but bill shock is an issue for us; keeping
customers connected who are having difficulty making
payments helps us with ongoing relationships and helps
us with billing and looking at solutions that enable us
to do that.

Streamlining our credit processes, including the front
of house process, to make it easier for customers to
procure new services from us.

In field service and Mick Rocca and his team have done a
very strong job for many years here but we’re constantly
looking at opportunities to use remote diagnostic access
to your desktop at home to do fault fixes for broadband
services; how can we reduce the number of truck rolls
and optimise the efficiency of our field workforce and
include greater customer satisfaction metrics into that
field workforce and the contracting workforce that we
employ in that area.

In IT it’s about post-transformation sizing.  The
integration of our network and IT functions, our future
architecture and roadmap and development of agile
processes that get us to market faster and in a more
efficient fashion in the IT space.

Finally, culture where this is a key to embedding the
changes.  You will have heard and seen the changes we’ve
made to our incentive and reward structures, so every
member of the management team at Telstra now is rewarded
as part of their short term bonus remuneration on
customer service metrics and the achievement of customer
service is now integrated into performance in the
company.

We’re looking at training. We believe a deep service
immersion for all of our staff is going to be required
and that will be rolled out in coming years.

Evaluating the values and behaviours and what does it
mean to be a sales and marketing led company?  Removing
it from a set of words into actual actions that take
place every day for our 40,000 employees.

It’s probably that the job descriptions of probably the
top 1000 roles in the company will change as part of
this exercise and we will be incorporating customer
focused tasks, activities and accountabilities into
everyone’s job and then assessing the capability of our
team to deliver against those metrics and getting the
right customer orientation into our employees.  That is
another three year program to complete.

Project New is not a new approach, it’s not a new
methodology; it is not revolutionary, and the objectives
have all been stated before.  You’ve all heard this
before.  I’ve heard it before. David’s heard it before.

But there are a number of fundamental differences that
need to be understood to give you the confidence that
this is going to happen this time at Telstra.  For the
first time the objectives and targets of this program
are fully integrated into the plans, budgets,
accountabilities of every business unit and every
executive of Telstra bears accountability for delivery
of this outcome.

It is owned by the executive team collectively.  This is
not my program, it’s not David’s program, it’s our
program and we’re all delivering it.  We’re all working
together to drive that outcome.

It has a service and simplification focus – it is not
simply cost reduction.  This is not a cost reduction
targeted exercise.  It’s a service oriented and
simplification of the business exercise that the costs
fall out as a result of doing that.

It builds on the platforms developed in the past, that
transformation investment that’s made that we’re all
saying was the right thing to do, and the results are
quite impressive, we now build on that and put the
customer front end to that investment that will enable
us to knock off anyone in the market place if we can get
this right.  It doesn’t re-create any of that
investment.

It is fully integrated and co-ordinated – it is not
being done in stages.  Some of the execution issues

we’ve had in the past is we haven’t done a fully
integrated program and IT doesn’t keep pace with process
change and so forth.  This one is fully integrated.

It is very intensive, focused; it has very defined
objectives and project accountabilities.  There is no
one in Telstra that doesn’t know what their task is
here.  We’re not giving as much guidance to the market
deliberately because in this area a lot of the work is
competitive.  We are developing competitively
differentiating service and we’re not going to tell our
competitors what they should expect from us or when they
should expect it.

But we are very committed and there are very specific
targets for each of the teams involved.

It has got the direct oversight of the CEO and CFO.
David was not kidding when he said 30 per cent of his
time was being spent on this.  We’re spending hours and
hours of every week going through every one of these
programs; David, John and I and with the executive team,
it’s on the agenda of every executive meeting.  It’s on
the agenda of every board meeting and it has a real
focus in the company that we’re going to deliver this.

Finally, which even I was surprised at, because you
often go in with the task of co-ordinating this and then
you find you don’t get what you want, but I can say
we’ve been given exactly what we need.  So the budget
for this, the resources that have been allocated, the
capital that has been allocated, is enough to get this
job done and the teams are all saying they’ve got what
they need.

So there are no excuses here of under investment or
under resourcing; we’ve got what we need to get the job
done and I’d have to say progress to date has confirmed
a very strong organisational support and commitment to
getting change.  This is not something we’re having to
drive through.  There is not heavy levels of resistance
internally to this change, because I think people sense
that this gives us the right to grow, the right to
compete and win and does provide that platform for the
future.

We’re not asking for or expecting recognition for the
promise that we’re making here.  We fully realise that
the results here will get recognition in the results as
we execute this program, but I can tell you that as a
management team we are very confident of where we are

right now. The program has been running for three months
very intensively.  It is entirely on track and we’re
very confident of achieving the end outcome.

With that I’ll hand over to my friend Kate, who will
take us through marketing product and the various
initiatives we’ve got in that space.

MS McKENZIE:   Thanks very much Robert and good morning
everybody.  You’ve heard a lot this morning about the
new sales and marketing focus that we’ve got inside
Telstra.  It was actually six months today since David
announced the formation of the chief marketing office
and that’s been a very intense period of activity for
us.

It is a quite important part of Telstra reshaping itself
into a sales and marketing led company.  The CMO is now
the focal point for product and marketing innovation in
Telstra with responsibility for product development,
promotion and pricing across the company.  We want the
customer to be at the centre of everything we do and you
would have heard that consistently this morning.

It’s our job to make the customer facing business units
more successful – by giving them the tools they need to
win in the market, get the job done and deliver on our
strategy.

We’re moving faster, we’re becoming more responsive to
competition and to we’re connecting more closely with
our customers.  The early signs of the work we’re doing
in this are quite encouraging.  You heard from John and
David earlier on this morning about the challenges we
face in the fixed line, but I think it’s still fair to
say the fixed line has a lot of life left in it and we
have slowed those rates of decline.

We’re adding new features and new devices with things
like the T-Hub being a world away from the Bakerlite
phone of the 1950s with the sorts of features that were
only dreamt about a decade ago.

We are also seeing an increasing integration of the home
phone with broadband and a large part of our strategy to
address PSTN decline is about these devices sold in
conjunction with bundles.

We now have more than 490,000 customers or more than 25
per cent of our broadband base on bundles and around

18,000 existing customers are moving to bundles each
week.

You’ve also heard this morning about the improvements
that we’re seeing in our fixed broadband performance,
with an additional 32,000 SIOs over the last two months.

This has been driven by a 10 per cent increase in
activations but also importantly a 27 per cent reduction
in churn – combined with a slowing in the rate of
decline in the PSTN by 19 per cent across the same
period.

Put simply, the fixed line telephone still has a lot of
life left in it and bundles and our new devices are
helping us to extract further value.

We can’t neglect the importance of innovation in this
area, so devices, interfaces and experiences that are
seen as valuable to our customers are also an important
part of this strategy.

We’ve connected more than 40,000 T-Box’s since June and
of these customers, six per cent were new to Telstra; 25
per cent took a new broadband connection; 14 per cent
took a new PSTN connection and two per cent a new Pay TV
connection.  So as John said earlier on, there is great
value for us in customers taking up this multiplicity of
services.

In the past month more than 90,000 movies were
downloaded on the T-Box, and BigPond News and BigPond
Music are the most popular BigPond TV channels.  The
Bounty Hunter - amazingly to me - is the most popular
movie.

T-Hub results have also been quite encouraging.  We have
connected 60,000 customers to the T-Hub since April.  Of
these customers, 10 per cent were new to Telstra, 27 per
cent took a new fixed broadband connection, 20 per cent
connected a new PSTN service and five per cent connected
a new Pay TV service.

I should emphasise that both the T-Hub and the T-Box are
first generation devices with product roadmaps in place
that will enable us to extend and enhance the
functionality on those devices going forward.

Our focus now is on more content, more applications, and
more personalisation.

Over 50 per cent of T-Hub & T-Box customers have signed
up for a bundle.  So you can start to see how these
figures are helping us increase the value from our
customer base.

We are also recognising that managing service is getting
increasingly complicated with more and more devices in
the home connected to the internet.  You would have seen
us announce the establishment of Telstra Premium
Support.  As Robert has outlined, that is expected to be
a profitable business in its own right but it will also
focus heavily on building our on line capability as the
focus of its service proposition.

We are also regaining momentum in mobiles.  Australians
continue to embrace mobile devices and it is no surprise
when today's phones are much faster and much much
smarter.  In fact, the computing power in your average
smart phone dwarfs the moon landing of Apollo 11 of
1969, which is an astonishing thing to think about, and
growth has definitely been explosive.  There are now 110
mobile devices for every 100 people in Australia.
That's right, most of us have more than one.  Net
subscriber growth in postpaid mobiles is at 18 months
high, activations are growing by 18 per cent and
cancellations are reducing by 19 per cent.

We also plan to reclaim ground on our competitors in
prepaid mobiles.  You would have seen the introduction
of our new prepaid cap plans in late July, and once
again the early signs from the introduction of those
plans are very encouraging. We have seen a two per cent
increase in prepaid SIOs from June to August.  I think
Gordon will talk a little more about that later on.

In wireless broadband, it seems astonishing to remember
we only launched our first wireless broadband service in
2005, but today data sent over the Next G network
doubles every 12 months.  In wireless broadband we have
seen a 55 per cent increase in SIOs year on year.

We do expect growth to slow slightly over financial year
11 with a changing mix in the consumer market towards
prepaid wireless broadband, where we have seen a 97 per
cent year on year growth, but 3G enable devices, such as
meds, tablets and embedded devices, which are coming to
the market, will continue to stimulate activity in the
medium term.  And, of course, we have the great
advantage of the strength of our Next G network with its
unparalleled coverage and speed.

We were the first telco in the world to offer the
ultimate USB modem, the world's fastest 3G mobile
device.  We've initially made this available to 2000 of
our business and enterprise customers and are counting
down to the consumer launch, which is coming very soon.
Customers like Sky News are using the USB Ultimate to
broadcast for major news events, and in coming weeks
every Telstra customer that connects a new 24 month
postpaid mobile broadband plan will be offered a USB
ultimate model.

We are also investing in smarter wireless broadband in a
business market.  Telstra enterprise mobile broadband
plus service provides mobile and remote workers with a
secure one click connection back to their office.  So we
see people like the Geelong Football and Netball
Association connecting their blackberry smartphones and
laptops to the Next G network, enabling them to update
match results and access corporate systems from the
field, completely changing the way they run their
business.

Smartphones are also seeing significant growth.  They
are now making up two thirds of the devices in our
range.  By the end of June 2011, we expect almost half
our prepaid customer base will be using smartphones.

We are also investing in innovative applications such as
machine to machine.  We have recently launched this
service with automated provisioning and activation of
SIM cards in devices like vending machines, digital
signs and smart metering.  This market is predicted to
grow to 1.3 billion by 2015.

Importantly, our network is well prepared for this
growth.  We have already invested in the latest
technology to give us the optimal unit cost for wireless
data, which means we are able to confidently meet our
customers' growing appetite for data profitably.

Our content strategy is also making a difference.  It is
another area that differentiates Telstra from its
competitors and it is having a positive impact for the
business.  The rubber has really hit the road in recent
months with media growth of 29 per cent year on year.
We have also seen a strong increase of unique user
impressions with a 33 per cent year on year growth on
line and 18 per cent on mobiles.

You might not realise that AFL.com is now the number one
sports site in Australia, with unique users growing 35

per cent year on year.  In fact, more than 6 million
streams of AFL content were played this season and we
expect to get a bit of upside this week as the grand
final is played once again.

We continue to add new features such as dream team and
tipping to keep the content compelling.  We are also
increasingly seeing our customers turn to their mobiles
for entertainment.  Mobile Foxtel now has 33 channels,
including the ABC and SBS, and we are adding around a
thousand new subscribers each month.  Bigpond Sports
Mobile with unique visitors up 83 per cent year on year
to 435,000.

I mentioned the good news on T-Box sales and customer
response earlier, and Telstra's Bigpond content is also
available on other IPTV devices.  Right now our content
is available on TVs and devices from companies like LG
and Samsung and there be will be more to come in that
area.

We are also adding to our library of content.  Six
months ago we had 1000 movies.  Today we have around
1700 movies and we expect 2000 by year end, including
more high definition titles.

All this goes to show that Telstra is in the fortunate
position of being one of the only operators in the world
who can provide content like this on multiple screens.
IPTV is becoming a mainstream reality and once again we
are leading the way in Australia.  It is about much more
than just video on demand.  The trends we are seeing in
Europe around catch up TV and all sorts of interactivity
are a very important part of this landscape moving
forward. We are watching these trends closely and
introducing new features on our own IPTV offering.

I will just give you a little example.  There is
something called the Games Analyser which you will find,
if you are a sports fan, you will love.  Games Analyser
lets you skip instantly between match highlights, like
goals, penalties, fouls and bloopers.  We have just
launched it on the NRL and it will be coming to the AFL
next year, and you can expect to see more interactive
features of this kind on our IPTV service in the year
ahead.

We are also working to continue to enhance the quality
of IPTV delivery.  We have signed an agreement with a
company called Widevine.  They are going to assist us to
deliver a technology called adaptive with broadcast

technology, which put simply means we can provide our
customers with higher quality IPTV on demand using our
existing networks.

We are also seeing encouraging growth in IP and data.
Business and enterprises are increasingly realising the
importance of the network, as David mentioned this
morning, in the provision of ICT services and once again
we continue to lead the market.

IP and broadband networking is a critical growth area
for us and overall we have seen SIO grow from
approximately 20 per cent year on year in enterprise IP
networks and 110 per cent in business broadband.  This
growth is driven by customers centralising their IP
infrastructure and using richer multimedia applications.
According to Cisco global business IP traffic is
forecast to triple from 2009 to 2014 and video
conferencing is forecast to grow tenfold over that same
period.

Whilst we are still completing the transition from
legacy to IP data products, we are still seeing
increased IP network customer penetration with 82 per
cent of our customers in the enterprise market now
having a new wave IP network.

Importantly, IP networking helps us to go up the value
stack.  We anticipate that many of our IP networking
customers will begin to add additional services like
security.  At the moment only 20 to 25 per cent of IP
networking customers have two or more value added
services or networked applications and services.  This
represents great potential growth for us out of our
existing base.

When we look at our small to medium business customers,
they are telling us they want to increase the benefits
that they are getting from technology too, but they are
often time poor, cash strapped and lack the technical
stills and know-how.  That is why we are investing in
new products like Digital Business, which will deliver
one-stop shop, ICT solutions for small to medium
businesses.

These will be simple package solutions, designed
specifically for this part of the market.  And in our
investment in T-Suite we are already starting to see
benefit from our first mover advantage.  We have seen
SIO growth over the last six months of 226 per cent and
revenue growth of 186 per cent, albeit off a quite low

base.

The early indication is that T-Suite is also improving
customer churn.  In fact, T-Suite customers are 65 per
cent less likely to churn broadband services than
broadband only customers.  22 per cent of T-Suite
customers without a Telstra broadband service take up a
Telstra broadband service within 12 months.

We are also expanding our T-Suite offerings because we
know the appetite is there from our customers.  We are
seeing more and more customers take on two or more
applications.  In fact, more than 50 per cent of the
base now have multiple applications.  Right now there
are more than 20 applications and Microsoft is high on
the favourites list, with T-Suite featuring in Microsoft
top ten channel sales world wide.

In the enterprise market our customers are telling us
they want to increase business and revenue growth, they
want to improve productivity and at the same time they
want to reduce commercial risk and capital expenditure.
IP and data are at the core for our enterprise
customers, who are now realising what is possible with
cloud based services.

For example, Komatsu Australia have consolidated their
telecommunication services with us, including a managed
infrastructure of a service capability to support its
construction and mining equipment business.  They are
seeing great productivity and they are being freed up to
run their business, rather than focus on the management
of their network.

We are also doing well in unified communications, with
underlying growth of 34 per cent in IP solutions year on
year.  In our network computing portfolio we are
starting to benefit from the first mover advantage in
network computing, with 70 customers connected last year
to our new infrastructure as a service product and
additional 28 customers connecting this quarter.

So we have been in the cloud based market for some time
now and it is about building and consolidating from
where we are.

I turn now to value based pricing, something Robert
talked about a bit.  I think it is important today that
we do cover off on what our strategy is around pricing.
We are taking a much more sophisticated approach than
ever before, making sure we understand what our

customers value and that we have a clear competitive
position.

This definitely starts by having the right customer
insights and intelligence.  We are hearing from our
customers about what they determine to be good value.
This insight means we can make real improvements in
predictive pricing and bundling.  An improved use of
data helps us to understand and predict market
movements.

Value based pricing remains critical to our overall
pricing strategies and our price premium has to match
our value premium.  Our customer insights are helping us
better understand where our differentiation truly comes
from.  We are balancing market share and profit in an
environment where high value PSTN is in decline and we
want to maintain and grow our market share to provide
opportunities for upsell into new products and new
functionalities in the future.

Judicious use of our data also enables us to focus our
COGS and DVC spend in areas that give us the greatest
return.  So there is a lot of analysis and investment
going into ensuring that we get that right.

As you heard from Robert, we also have a big program
under way looking at simplifying our pricing.  Our
strategy is to have pricing that is transparent and as
simple as possible for our customers to understand and
we have certainly got some work still to do in this area
but you can expect to see simpler pricing and clearer
bundling options from Telstra.

I think Robert had this example in his slide pack as
well but by December last year when we launched bundles
we had 32 separate bundles.  We have reduced that now
back to ten and we are in the process of building a new
bundling architecture.  This architecture will reduce
the cost and complexity for our customers around bundles
and improve our speed to market and we have a lot of
work under way to make sure that we get that right.

Before I hand over to my colleague, Gordon, I want to
finish on something that is deep and important in my
part of the portfolio, and that is redefining our brand.
As David mentioned earlier on today, it is certainly not
a matter of simple brand recall.  We are the most talked
about brand in Australia.  It is just that we would like
a little bit of it to be a bit more positive.

Telstra's brand positioning has to reflect the actual
everyday experience of our customers for it to be seen
it to be real and believable.  A flashy brand campaign
isn't going to turn that around and that is not what we
are planning to do.  We do, however, touch the lives of
most Australians almost every day, connecting them to
the people and activities that are important to them.
The theme of connectivity is in our blood.  We have
connected customers to each other and to the world for
more than 100 years and we are using a whole range of
technologies to connect in new ways that are relevant to
our customers.

You can expect to see more of this, whether it’s
feedback on new products via Twitter, or launches on
Facebook, social media will enable us to engage in true
two way dialogue with our customers. We don’t want to
shout at our customers, we want to have a dialogue with
them and we want to be sure that we’re really
understanding what they’re looking for from Telstra as a
company.  We want to have a heart and soul as a company.

Let me leave you with a short video that shows some of
our early thinking in this space and after that I’ll
hand over to my colleague, Gordon.  I’ll just conclude
by saying thanks very much for your time this morning.

MR BALLANTYNE:  My name is Gordon Ballantyne, I’m group
managing director of consumer and Telstra countrywide.
I really wanted to just have a conversation this
morning.  I’m not going to present slides; you’ve
already read the slides.

I just want to have a conversation about our consumer
business and the ambition we want to set and create for
our consumer business here at Telstra.

I think it’s really important, I’ve been here 90 days
and getting some insight into the organisation.
Everywhere I look I see an incredible amount of
opportunity within this business.  To bring that
opportunity to life we really need to create and distil
an ambition that’s worthy of this brand and this market
place.

I want to talk a little bit about ambition, but before I
do that, I want to talk about me; because I’m the new
guy, I’ve been here 90 days.  I’ll give you a little bit
of background in terms of what I’ve done in the past.

I’ve got an engineering finance background.  I’ve been
in the technology industry for about 15 years.  My first
role in the technology industry was working for Dell.
In 1996 I was the founder and director of dell.com.  We
built from scratch across 16 European countries an
online business which was about a $5 billion business.
In 1999 50 per cent of Dell’s consumer business was
being transacted online.

When Robert talks about Project New, the change we want
to bring about, I’m getting pretty excited, given we
know we can go and execute on that opportunity; given
that it’s been proven in the past in many other
industries and I’ve lived through the change that is
required to actually do that - both in terms of sales
and service.  So I’m pretty excited when we think about
some of those opportunities.

My second role in the technology space was as an
investor just like you.  I was a partner in an
investment firm, Dell Ventures; a $1.2 billion fund, 120
investments, 37 IPOs.  We were relatively successful in
the heyday of the technology boom.

Latterly I’ve been a board member and director of sales
and service for T-Mobile in the UK.  I know many of you
are familiar with the UK in terms of the telco space but
it is truly one of the most competitive market places on
the globe.

For one reason or two reasons, one, because it’s the
biggest market in Europe; an $18 billion market and
secondly, you’ve got four major players - Vodafone,
Telefonica, France Telecom and Deutsche Telecom when I
was in the seat - slugging it out to take share.

If you’re operating for T-Mobile, who’s the number four
player in that market place, you wake up every day -
it’s a little bit like waking up in the jungle.  If
you’re the number four player, you know that the number
one player has got bigger guns, deeper pockets to field
growth.

When you wake up in the jungle every day, you wake up
knowing you’re not the lion and you better wake up
running each and every day to ensure that you can drive
growth and drive profitable growth in an innovative way.

Very much in my time in the last 15 years working in the
technology space it’s all about thinking like a
challenger; thinking about how we innovate; thinking

about how we strip costs out of this business to afford
the right to growth.

Very much as we look at when David approached me to come
and join Telstra and looking at the consumer business,
it’s a pretty exciting thought.  It’s a pretty exciting
thought when you think of this business.

Telstra as a telco operator globally has one of the
strongest portfolios of product and services in world
and I sometimes think we forget that.

It has the world’s fastest mobile network and it
continues to innovate in terms of T-Hub, T-Box, T-Suite
as you saw earlier on, Kate presented those particular
products.  Sometimes I think we forget about the
possibilities of this business and what we could cause
if we focused on those things that were really truly
incredibly important for us to grow in a profitable and
sustainable way.

Sometimes we forget about the possibilities and what we
could cause.

Before I talk about what that ambition might be for our
consumer business, I’ve got to tell you what I’ve been
doing for the last 90 days.  I’ve been learning about
the business, learning about the market place, but I’ve
also been spending time with our frontline.  I’ve been
working in the stores, been trained on our store
systems.  I’ve been selling to customers and
understanding some of the complexities we have within
this business.

I’ve been working in our contact centres.  I’ve been
trained on all of the telephone systems; all of our
current operating systems.  I’ve been receiving calls;
I’ve been selling to customers.

So I know what it’s like to feel like as a frontline
agent and I understand some of the complexity and
frustrations that we have as we try to deliver on the
service promise that I think everyone in this room
expects of Telstra.

In those 90 days I’ve also come to some other
conclusions.  Within this organisation at our frontline
and back of house, there is this incredible energy,
incredible passion to bring some change about.

Because if you’re an employee of Telstra, just as if
you’re a customer of Telstra, you want to take pride in
the service you provide each and every day.

Sometimes the complexity we have doesn’t afford our
front of house agents the right to do that.  So we talk
about ambition for our business, we talk about ambition
that meets shareholder needs and demands; we talk about
ambition about how we redefine the service model for
this business, but we’re also talking about ambition
that galvanises 40,000 people to think differently about
what they could cause in this market place; that excites
them, that energises them, that actually liberates them
to go and deliver the service promise that we want to
deliver as a company going forward and transforming into
our sales and marketing led organisation.

Let’s talk a little bit about that ambition.  If we look
at our challenges it’s fundamentally driven by looking
at growth, growth in this business.

Last year, in FY10, we had many different operational
challenges but the brutal facts of the matter were we
lost share in five of the six categories that we
currently operate in; in particular, in mobility, as
well as in fixed broadband. It was as if our
competitors, it was number two and three players,
weren’t waking up every day running like I’ve been
running in the UK over the last seven years.

My role in leading the consumer business is to ensure
that that doesn’t happen again; that we deliver the
right expectations around growth in a balanced way to
deliver a profitable outcome for our business and be
innovative in how we drive that.

Let’s talk about growth.  When I talk about growth and
some of the focuses we have for this year, I just want
to talk about a few things.  I want to talk about the
must win battles for growth.

There are three must win battles that a number of my
colleagues have shared here this morning which are
incredibly important.  The first is let’s not give up
the fight in PSTN and fixed broadband.

On arriving in the organisation it felt like had we
given up the fight or are we going to fight back and
take our fair share in this market place?  Last year we
declined 7.4 per cent year on year in terms of revenue
decline within our consumer business.

Interestingly enough, 62 per cent of that decline was
based on call volume, yield, access fee decline and
there are a number of things we can do in this market
this year to encourage - and we’ve heard some of those
thoughts earlier today.

Thirty eight per cent was SIO loss, but only 50 per cent
of that was actually lost to mobile.  The other 50 per
cent was going to our competitors and that’s something
we can’t let happen going forward.

That’s why we’re fighting back in fixed, both the PSTN
and the fixed broadband. That’s why we’ve refreshed all
of our fixed broadband tariffs. That’s why we’re putting
more inclusions in our overall call plans. That’s why we
have launched T-Hub, T-Box and we continue to drive
bundles.  It provides great value to our customers and
it provides an innovative experience, but it also
enables us to begin to have a conversation again with
our customers about the great value Telstra can deliver
to our customers.

That’s the first must win battle - fight back in our
fixed business.

The second must win battle is in postpay.  If we look at
postpay, that’s a … engine of growth and revenue in
terms of our need to grow revenue in the top line.  I
think about last year, we had flat ARPU in the market
place and we had 8 per cent SIO growth overall in the
market and we only took about one per cent share.  We
lost shares significantly last year within postpay,
driven by our inability to really grab the smart phone
market place.

This year we’re setting ourselves some heady
expectations to double the smart phone penetration in
our base in postpay and to ensure that we’re on track
with all of the innovative product launches, whether it
be iPhone 4 or HCT Desire devices to ensure we’re taking
our fair share and growing that penetration to base.

The reason why we’re growing that penetration to base is
because the associated ARPU smart phone users are
significantly higher than the average user within the
market place.  Clearly it is a battle we’re absolutely
wanting to win this year as we reclaim lost share from
last year, as well as incrementally grow above and
beyond that.

Again, we’ll see other innovative products coming in Mid
devices and of course Kate just mentioned the launch of
our 42 megabyte dongle which clearly will drive
additional volume within the mobility space.

That is mobility.  We talk about mobility and growth.
There are lots of questions about the affordability of
growing a mobile. One of the things we forget is in
terms of volume, when we look at how we manage our base
and values there, our recontracting activity within the
base, we did twice as many recontracts as we acquire.

There is a huge opportunity to grow our net SIO growth
but not at the cost that’s normally required to have a
pure acquisition player in the market place and that’s
one of the things that we need to steer much more
differently going forward.  We did an absolute
commercial focus on … financial outcomes as we grow our
postpay base.  Battle number two, grow in postpay.

The third must win battle is in prepay.  In prepay
Telstra is number three in this market place.  We have
24 percentage points share.  We’re 12 points of revenue
market share behind the next competitor.  We have good
ARPU growth in the prepay space because many prepaid
customers are looking for a smart phone, not a basic
handheld.  There is a huge opportunity for us to act as
the challenger in prepay.

Now if you look across the board at all of the markets,
data and metrics that we have within the business, our
overall metrics are significantly below market.  We have
been a laggard in our prepaid business.  It has been the
poor cousin for too long within our Telstra portfolio.
However, that is now changing.

We have ambition to take share in this market place and
be the challenger to grow, and I think being the
challenger will drive some significant profitable growth
in underlying DVCs associated with prepaid versus the
post paid acquisition play.  So prepaid is incredibly
exciting.

So that is the growth story.  Three must win battles,
fight back in fixed, grow in mobile, be the challenger
in our prepaid business.  But it is not all about
growth.

As David said today, we are changing this business.  We
absolutely need to deliver service at the core.  We need
to truly and sustainably differentiate us to the service

that we can deliver each and every day across all of our
customer touch points.  I think as you have heard every
speaker today talk about how we have galvanised the
organisation around that.  There is a sense of belief
within the organisation that that is exactly the journey
we are departing on.  It is incredibly important for
this business.

We talked about how we are changing bonuses.  We are
adding 40 per cent of our bonuses to the majority of our
staff to focus on the significant step up in the service
satisfaction that we deliver to our customers.

Robert has talked about a number of initiatives and Kate
has talked about a number of initiatives in terms of
some of the changes we are already making in terms of
24/7 support and a wave of initiatives that we are
bringing to life within the business, but it doesn't
take a space scientist to work out the scale of the
opportunity we have.  You only have to walk into a store
today to try to add a new service to a Telstra client to
understand the real opportunity within our business,
just in terms of productivity, costs, but also a stepped
change in the service we can provide.

I have spent a lot of time at front of house, because
that is where I just love being, being with our
customers and being with our staff at the front of
house, understanding them, getting to know them,
understanding what is going to make a difference.

Over the last 90 days I have been reflecting on if I was
a front of house staff person, and given some of the
complexity I had experienced working in front of house,
I would be saying to myself, "Do these guys upstairs
really understand the challenges we have in this
business?  Do they truly understand the complexity that
we have in our business?"  That is why when Robert talks
about Project New we have a break through, because we
are taking the time to listen.  We are taking the time
to understand those issues.  We are taking the time to
invest to ensure that we address those issues over time,
because the reality is if we don't fix those issues, we
will never be able to demonstrate to our staff that we
care enough to do something about it.  How do we expect
our staff to care about our customers, if they don't
feel cared for in the acts that we make to ensure that
we deliver on that simplified model that we want to
bring to life at front of house?

So my ambition for service is just demonstrating to our

front line that we care enough to make some courageous
decisions in how we change things, care enough to afford
the right, looking forward to a leaner and meaner model
to bring that to life.

In closing, it is all about our customers.  I am really
excited about just being part of an organisation where I
can see so much opportunity.  I can see so much
opportunity to drive cost out, to deliver a stepped
change in our service model, and that is really quite
exciting, and our people are truly excited I think about
the change we are going to bring about within this
organisation.

With that, that is our ambition for the consumer and I
would like to bring David back to just wrap up.

MR THODEY:  We have got 40 minutes until one o'clock.  I
hope that you have had an opportunity.  This Project New
simplifies us.  It is an enormous project but it is
something we have just got to do, with product
innovation, marketing, pricing discipline and of course
Gordon is concerned with the consumer.  What Gordon
didn't tell you is that he looks great in the Telstra
uniform and he was in the Telstra uniform in the shops
and that is the sort of company we are becoming.  It is
not symbolic.  It is absolutely critical that we become
real about the challenges we face in the business and it
is great to have Gordon on the team.

Over the last two and a half hours we have talked about
the transition in the core.  That is what we have been
talking about.  I want to spend just ten minutes to talk
about the some of the growth opportunities that we see
and I am just going to give you a little bit of colour
on them because obviously I can't lay out all the
detail, but I think you have already heard some of them
mentioned this morning.

I do want to be very clear.  Some of the questions this
morning, we are focussed on getting back to EBITDA
growth.  I understand the full year 11 challenge for the
opex spend of a billion, but we must get back to EBITDA
growth.  That is what will drive value.  That means
doing all the tough things about driving value in the
core business, driving improvement in mobiles, fixed
broadband, as Gordon has spoken about, winning in the
enterprise and winning in small and medium business, and
we haven't talked a lot about small and medium business,
The critical part of our future and Dina the team are
doing a great job, and of course we now need to also at

the same time build new opportunities for business as
you look out over the next decade, where is that
opportunity.

As I say, capital management is critically important and
we have always been very prudent in that area.  We will
continue to look at what makes best sense in terms of
our management of capital.  You know how strong the
balance sheet is.  We also know where the share price is
and we also know how important dividends are.  So I
would just stress to you that that is a very very
important part of our management process.

Let's just go through the three areas.  I talked about
the importance of network application service.  I am
going to give you a little bit more colour about that
because it is a bit of a generic term and I want to be
very clear about what it is not.

We are not an IT services company and not an IT retail
business.  We are a network related services and
applications business and that is very important.

I want to talk about the media portfolio.  A lot of
people say to me, Well, David, what are you going to do
in media?  Of course, our assets are not homogenous.
They are very different types of assets.  Is there
opportunity to leverage them?  Absolutely.  I will talk
a little bit about that and then, lastly, how do we
really drive shareholder value from our Asian assets?

They are wonderful assets.  We are incredibly well
positioned and people forget that this company has done
business in Asia for 65 years.  So this is not new to
us.  It has been a part of who we have been for many
many years, but I do want to be very clear.  This is
about value creation, not just top line growth.  It has
to be sustainable growth.  We have seen too many
instances of telecommunication companies around the
world, including Telstra, investing in areas where there
were not the returns and we will always have a
preference around organic growth, because any investment
in companies can be high risk.  So you need to be very
very careful, prudent, but we need to be bold because it
is a future that we need to create for ourselves.

So let me just talk very briefly about each of these
areas, so network applications and services firstly.  I
want to stress this is not a new initiative but it is a
significant growth opportunity.  We have been playing
around the edges of this for many years.  Nerida and

Michael Rocca have banded together to drive this to
another level and it also applies now to the small
medium business and to the consumer business.  So what
am I talking about?

It is different by different market.  If you talk about
the high end, then it is about complex network
outsourcing, unified communications, systems
integration, it is about cloud computing and
applications in the cloud.  These are very specifically
enterprise market.  If I look at what Deena is doing,
which is truly world class, with the T-Suite product,
that is about applications in the cloud and hosting.
Deena is driving out a set of replicable applications
and service offerings appropriate to small to medium
business.

This afternoon you have been invited to see a product
demonstration around digital business.  I would
encourage you to go and see that.  This is driving real
innovation and technology but something that is simple
for our small and mediums businesses to get their arms
around and it is truly driving productivity for small to
medium business in Australia.  It is a great example of
the power of what technology can do if packaged
correctly and put together, and there is some great
innovation in that as we look at that going forward.

You then look at what that means in the consumer market.
There is a public cloud.  If you think about Bigpond and
about email services, about what the potential in that
business is is enormous, as you look at applications
that will be enabled in the cloud and we can provide
that through our cloud offering.

So this is a broad set.  I am delighted to say Michael
Rocca now is responsible for this area.  It is run on a
P and L.  One of the greatest concerns we have had
around this area is the management of profitability
because you can give away too much.  I am delighted to
say that a guy called Paul McManus, reporting to
Michael, is responsible now for the P and L around our
network application services business.

This is a significant change.  We made that nearly two
months ago.  Also Nerida has been driving out a lot of
change for a project around simplifying the process
because if you're at the high end you have got to be
very careful about what you engage in.

So this is an exciting area.  We have now probably

nearly $700-750 million of revenue out of this area and
the market opportunity is growing, and we think this is
a tremendous opportunity and easily there is a
potential, because we are not forecasting, to double
that revenue over the period.

Let me now talk to media.  Our media assets are second
to none.  However, they are not homogenous.  They are
very different and the question is how do you pull them
together to drive value for shareholders.  Let me just
work through each of what we would call the four areas.

Firstly, in Foxtel, and I will put IPTV there, though
IPTV does relate to our Bigpond strategy as well in
terms of fixed broadband.  Obviously Foxtel is an
excellent business.  People ask me are we about to sell
Foxtel.  The answer is no, I have no intention of
selling Foxtel.  It is a critical part of our future.

How do we work with Foxtel is an evolving process as we
try to be disciplined and meet the regulatory
requirements but it is a critical part of our business.
Kate gave you a glimpse of what we see as the future of
entertainment.  It is around interactivity; it is around
video on demand; and it is around catch up TV.
Therefore, content and media is a critical part of our
offerings going forward, critical part.

I think you will see further activity in this area.
Content is very important, and of course, who is the
competition in this area?  Well, there are international
players in terms much television and IPTV that you are
aware of, but local content is the differentiator and so
we will be focussed on that as we go forward.

Sensis, wonderful business that it is, but it is
challenged in a changing dynamic as we move from print
to an on line world.  We have talked about this for many
many years, that was why we invested in the ITN platform

last year, which gives us a completely different
platform.  That is why when you meet a Sensis sales rep
they talk about print and on line promotion and pulling
together buyers and sellers.  That is why Bruce is
driving that program out.  But will that business go
through transition?  Yes.

People say to me what is the differentiation of Sensis.
I would put to you that the biggest differentiation of
Sensis is our relationship with small to medium
businesses and being a trusted adviser, and if we can

work through that, then we can see a good future.

Do we look at every other Yellow Pages business around
the world?  Yes, we do.  Do we go and visit them?  Yes,
we do.  Do we understand the challenge of moving from
print to on line?  Absolutely.  But there are a number
of things that we are doing in that business that will
position us as we go forward.

Then of course how you bring these assets together.  In
terms of 30 BigPond and content, as Kate mentioned, the
AFL site, highest visited site in Australia; that’s
amazing - highest visited site.

How do we monetise that?  How do we really drive our
content to not just how it affects broadband
differentiation but to pay for itself as well?  That is
a lot of what we’re doing and of course, T-Box and T-Hub
have been a part of that as we provide rich local
content.

There is a lot of work going on in that area and I’m
very pleased with the progress.

We need to continue to source content; our source
content will make a difference as we go forward and then
of course, digital advertising we think is a tremendous
opportunity.  You think about interactive TV and that’s
what’s so different about the IPTV experience, it’s
interactive.  You can suddenly have an interaction with
a customer; you can buy and sell; you can do
advertising. You can do it on BigPond, you can do it on
mobiles and we are seeing a lot of growth in that area.

Now, it is small in the relative scheme of things but in
terms of positioning us as we go forward, very, very
important.

Not homogenous, three, probably four different parts of
the strategy can be brought together and we have a lot
of plans in this area as we go forward.  This is not
optional; this is very important for us.

Let me talk about Asia. Firstly I did not say
international, I said Asia.  As I said, we’ve been in
Asia for a long time.  I’m delighted, Tarek Robbiati,
based in Hong Kong, is now responsible for this business
and since Tarek has been in there, we’ve seen greater
diligence, focus and tremendous opportunity coming from
just tighter management of those assets.

Tarek is responsible for three and they are three quite
distinct assets.  There is the reach asset, which is the
best by far of the international carriage capability in
Asia, by far and a wonderful set of assets that this
company has invested in.

It is a joint venture with PCCW and we think that is a
critically important part of our future.

The demand for those services you see locally is growing
and of course, value added services over the top of that
asset is critically important as people move to unified
communications, high definition video and trying to work
in a seamless way across the world.

We are very encouraged about the opportunity in that
area.  We need to be very careful about profitability,
it’s a tough market.  We’ve got more POPs than we - well
a lot of POPs, I shouldn’t say more than we need; we
need them all, but it’s a very strong business.

Secondly, we have the mobiles business.  Yes, we wrote
down the asset last year but that was after a very
strong result last year, but we looked at the future and
said:  Hey, our carrying value wasn’t quite there.

But CSL is a very important strategic part of our China
strategy. Yes, lots of things could go this way and that
way but it is a very important part and we are managing
that for value; very encouraging results early in the
year.  We did not go through the international results
but Tarouk and the team there had very good success with
the iPhone; very strong growth and encouraged by the
early signs.

That will play a role going forward and then of course
the China online digital assets.  You know these assets
and yes, we’ve sold out from SouFun but as I said,
SouFun was an investment that had certain conditions in
it that we had to go through this process.  We’re
pleased with the results.  John took you through that.
It would not have happened without a couple of PE
companies underwriting it but it was a good outcome and
appropriate.

We think there is still good opportunity there but we
need to be very considered about that.  We’ve also
mentioned that Octave - Octave has had some change in
regulation in the industry; we’re looking at what we

need to do with that and we signalled that at the full
year results.

I just wanted to remind you of that because there is
still more work to be done there.  But now it’s about
how do you drive value from these assets?

Are we about to go and spend hundreds of millions of
dollars in acquiring assets in Asia - the answer is no,
we’re not.  Are we going to drive value from our Asian
assets with growth opportunities - absolutely as we go
forward and Tarouk is doing that.

I think this gives us a great set of foundations in
terms of the growth opportunities going forward.  They
will be considered but they are part of our future and
as I said, our future must be where there is less
regulation, where we can truly execute in an unfettered
way as we go forward.

NAS, natural place for us to be; media, very important
for the future of Telstra and of course Asia, it’s about
leveraging those assets for value.

That’s sort of about the trajectories.  Obviously I’m
not laying out all the detail around those three for
obvious reasons but there is a lot of work going on
there.

Let me just try to conclude, and try to bring the
morning together.  I trust that you’ve seen a bit more
around our strategy, around this transition that we must
go through as a company but also the growth
opportunities.

We must continue to really re-engineer, change this
business to be able to competitive going forward.  We
have taken you through the status of the NBN
negotiations.  I cannot rely on NBN.  I’ve got to go and
drive this business but we are right across what’s going
on with NBN.

Robert took you through this enormous restructuring -
Project New, which I think will address many of the
issues around complexity, simplifying this business,
taking cost out, but also delivering better service to
our customers - so important.

And, of course, Kate in terms of product and now great
to have Gordon here - the lion; he gets up every morning
fired up ready to attack; which is good.

Let me just finish with two things.  Let me just talk
again about what I see this company being over the next
five to 10 years and then I’ll come back to the six key
messages.

As I said, our core has become leaner and faster.  Our
business fundamentally needs to change.  It needs to be
lower cost and higher productivity.

We really need to change what Telstra is, what it stands
for.  It needs to become a customer centric driven
culture, not just an engineering culture, and that’s a
big change to go through.

That’s at every point in the value chain and it’s every
part of Telstra.  It is not just about sales.  It is
about every part of Telstra.

We must also, as we said, become a strongly sales and
marketing led company, bringing innovative products to
market quickly, leveraging that enormous market access
we have; our scale, our brands and of course our
engineering capability.

But we need to be nimble and we need to be faster than
we have been.  Remember, the first six months of last
year we could not bring one product to market and you
said to us: What’s going on?  Remember that first six
months of last year; it was only by the time we got to
January and February we started to get momentum back
into the business and I hope you’ve seen that it is
continuing.

We also need to be free from these regulatory
constraints and that’s a big part of what we need to do.
Then lastly we need to build new businesses and that’s
what we will be doing.

I see an exciting future for the business; a future that
is driven from fundamental change and addressing new
opportunities.

In absolute conclusion let me go through the six things
I wanted you to remember from today, because we didn’t
put a chart up on it.

Number one, irrespective of NBN, we know where we’re
going to take this business and we’re on the way
already.

Number two, we’re pleased about the growing momentum and
we’re going to manage that very tightly as we go
forward.

Number three, we are going to transition this company in
responding to the changes that are going on in our
industry and Project New is there to reduce our
operating costs, simplify the business and get better
customer service.

Number four, NBN negotiations are proceeding well but as
you know, there are lots of things to be worked through
but we are encouraged by the progress.

Number five, we are going to continue to look for new
opportunities which some of them we’ve just laid out and
we think they are exciting.  We are going to continue to
show you some of that in the future months.

Then lastly, we are confident with your cash flow
capacity to fund the dividends at the current levels.

I could say it again, but I think we’ve said it enough
times, irrespective of all the commentary that’s been in
the market, we know how important that is to our
investors.

With that, we now have 20 minutes of Q&A and I’m going
to ask Gordon, John, Robert and Kate to join me up here.
I’m very happy to take Q&A and then we’ll try and wrap
it up by one o’clock.

Just as they come up, I do want to just mention, there
are product demonstrations at two o’clock at 400 George
Street. If you are interested there are some great
innovations there and there will be a light lunch at one
o’clock.

The other thing I do just want to mention, we are very
happy to schedule some time with the analysts, with all
of you, before the end of October because I think it’s
important with all of the things that are going on, we
just keep in touch.

With that, I’ll go over to the left this time.

QUESTION:  I have two questions, one is on costs, the
other one on dividends.  On costs, it looks like the
level of head count out has slowed down from say about
2500 per annum under the previous transformation plan to

about 1000 right now.  You’re looking to do things like
decentralisation whereas normally cost out is achieved
through centralisation and offshoring.

I just wanted to understand what’s the philosophy around
this cost and why are you comfortable that you can take
costs out when the pace of head counting is reducing and
you’re doing things that are not normally associated
with cost out?

MR THODEY:   Let me answer that first one.  Firstly, I
don’t know where you got 1000 from, so I think already
year to date we’ve taken quite a few quota of action in
Michael’s area, 350 in senior managers and if you do the
calculations I think you’ll find it’s probably more.

Let me just say, we’re going to be looking at every part
of Telstra and to be leaner and more productive, there’s
only one way you can go - get revenues up and manage
your cost base.

I don’t think that analysis is necessarily right.  What
was the second part of that question?  Centralisation
versus decentralisation - no, we’re not saying we’re
decentralising everything, we’re just saying we’re
trying to take out the exorbitant overhead that has been
built into some of the processes.  Let me assure you
that we are simplifying not making this more complicated
and it will be managed down to an inch of its life.
Robert, do you want to comment on that?

MR NASON:   I think a couple of things, you’ve got to
remember that labour is only 26 per cent of our cost
base now, so a cost reduction exercise that focuses on
labour is only getting at a quarter of the base and
outsourcing is a lot of ways of getting cost saving,
where you only get a net saving.  We have effective
employees in all of our contact centres, for example, so
we are looking across the entire cost base at getting
cost saving, head count will be involved in reduction
but we’ve got that channelled and targeted as part of
the overall program.

I think it is simplifying the business means getting
accountability at the right level and the right
decision.  A lot of the noise in the business is because
it is centralised, so there is a lot of administrative
support for centralised decision making that you can
remove by just having managers run their businesses and
Gordon runs a very, very large business, he needs the

levers to pull to run that business effectively.  That’s
what we’re trying to put in place.

QUESTION:  The second question was about dividends.  If
you go back from 2005 and you look at 11 as well, seven
periods, dividends exceeded EPS in a couple of those
periods, about four periods and it has exceeded free
cash flows in five of those periods.

I was trying to understand what is the company’s
philosophy around dividend, is it pay out ratio, is it
free cash or is it EPS?  Because the thing keeps moving
around and we have these debates about what is a
sustainable dividend.  How does the company
fundamentally think about its dividend?

MR THODEY:   Let me just make one comment and then I’m
going to let John just make a couple of comments as
well.  Firstly, we understand the importance of
dividends and obviously we want to always be able to
fully cover our dividend pay out with free cash.

I think that now we’re in a time where we’ve got to look
at our capital management program and we’re looking at
that, but that’s a board decision and we’ll be looking
at that.

I think it’s a different time to what it was four or
five years ago and things have changed.  The share
price, we’re a very good yield stock - not necessarily
for the right reasons and so we’ve got to look at things
again.

We’ve got a lot of work underway.  John, do you want to
comment any further than that?

MR STANHOPE:   We moved away from sort of pay out ratios
a long time ago. The philosophy is more around ability
to pay, so cash generation and cash needs.  The net of
the two, so I guess we really are focused more on that
and we’ve moved away from borrowing to pay dividends as
well, as you know.  There has been a slight change in
philosophy.

But at the end of the day it’s really about a cash
capability to pay and that’s why today I was emphasising
all the time the cash capability to pay current levels.

QUESTION:  Two questions, in terms of Project New.  I
don’t know whether you can remind us or refresh us in
terms of actually any STIs around Project New for the

executive committee in terms of, from our point of view
as analysts, and I would imagine also for shareholders
to try and see how you are actually performing, what are
the STIs, because I can see them in terms of what was
published before and also from the presentation that
Robert gave is that there doesn’t seem to be any sort of
metrics that we can hang our hats on in terms of how as
an external body looks at the business to see how you’re
executing on an ongoing basis.

I think it’s going to be helpful to see whether that is
successful or not and whether the market is actually
going to give you the benefit of the doubt, is one,
whether you can be a bit more open about the STIs and
what productivity measures that we should look at.
That’s the first question.

The second question is if you look at the consumer
business, clearly that has been a bit of a thorn in the
side in the last 12 months.  Gordon has now come in to
try and resurrect that, and clearly there are some
channels that have been announced today but I would be
interested to try and get a deeper understanding of
where those opportunities stand.  One is prepaid.  I
understand the Sydney prepaid market is a very weak
market.  We used to talk about rural, we used to talk
about SME, we used to talk about business as well.  Can
you elaborate what other market opportunities are out
there for you that have not done so well for the last 18
to 24 months that we should try and turn our attention
to?

MR THODEY:  Let me try to address the first one in terms
of Project New.  Obviously we have very detailed plans
in terms of what Project New is meant to drive within
the business.  Of course, as I said, it is about
improving productivity, getting cost out of the
business.  It isn't that hard to look at what the prize
is we’re after if you put everything together we have
said this morning.  The question is how can we give you
some leading indicators.

I tried to in that one chart at the end of my
presentation which was in terms of productivity drivers
and also trying to get lower cost transactions were two
of the key drivers in terms of where we see the costs in
the business.  We will continue to try and give you some
colour on that as we go forward, but the actual bigger
prize is pretty clear as you try to drive your fixed
costs down over that three year period.  You look at
some of the trends that John talked about.  It is pretty

easy to get to the right number.  We will try and keep
seeing what we can do as we go forward.

You have got to remember it is one of balance.  We are
getting good customer service, so we keep churn down as
well as managing the productivity and cost base down.

That is it for today.  I understand what you are asking
for and as things go forward we will give you some more
colour.

The second question in terms of other opportunities,
Gordon laid out, I think very nicely, what his three big
battles are and where he is going.  But I am going to
let Deena actually say a few words on the SME market and
I will let Nerida talk, because Deena and Nerida are
driving these businesses and you haven't heard them talk
today. By the way, it was just one of timing today to
get through and we thought we just had to focus it but
normally I would have Deena and Nerida.

DEENA SHIFF:  The SME market obviously has its own
specific characteristics.  It is returning to growth
post GST and has very high take-up of smartphone and
wireless broadband and business based broadband as Kate
showed.  We have maintained our customer base and have
not lost share, so we have an extraordinary franchise in
this market of one million of the addressable customers
in the market.  So in an environment where data is
growing disproportionately relative to the broader
Telstra population, we have great opportunities to
leverage the effects of that predisposition towards
broadband.

So in terms of next wave, hopefully you will see the
bicycle shop experience, which is a small business
demonstration of digital business that is everything
over broadband that a business wants.  It is not
packaged in a bundled sense. It is integrated into the
network.  It is unified communication.  So it really
links broadband as fixed with mobile for a small
business as one offering and within that one offering
and fixed price points that, by the way, are by user,
not by old style products, you will get what you need to
be on line and in the digital world you will get your
domain name, basic T-Suite package, et cetera.  So very
interesting cloud opportunities there.

MR THODEY:   Fixed broadband, key battleground for Deena
very important as we go forward because this is the IT
platform for the future.  The business centres have been

incredibly successful.  If you are aware of the
franchise business centres we have rolled out around the
country, these are local guys. They have been really
great.  We are very pleased with that.  60 of them
around the country.

Fixed broadband I think we are doing very well in
wireless but the fixed broadband and now driving with
content and applications is where we see tremendous
opportunity in hosting and packaging all that up. We
think we are probably better positioned than anyone
else.  Most people knock on our door and go and see
Deena say gee, you’ve got the best market in the
country, can we do something with you.  It is more about
making sure we stay true to who we are.

Nerida has a wonderful enterprise and government
business.

NERIDA CAESER: Thanks, David. Our business we really
look at it in the context of our voice data mobile, our
core carriage business where we have a very strong
penetration today.  We are seeing tremendous growth
still in the core IP services that are going out to our
customers and obviously in the mobility services, but
really it is that layer on top around our network
applications and services that is the high value add and
really the game changer for our customers.

So out of the portfolio we are seeing tremendous growth
in unified com.  So that integration of the workspace
and all of the desktop area, down into unified coms
platform, video conferencing, but really cloud is what
is capturing the attention, and to address that market
place we have been bringing customers in for very deep
immersive sessions. We have had around 150 clients in
the last few months in small sessions of five to eight
at a time.

The reason for that is it is a relatively complex area
in terms of how do you transition an entire IP
environment into the Telstra cloud.  So we are finding
clients are wanting to have these deeper sessions around
how do we go about transition, what about my people, how
do we go through the process of managing the ongoing
environment commercially as well.  So those sessions
have generated some tremendous business for us.

You have heard us talk about the very well publicised --
--- We also took just literally in the last couple of
weeks the entire IP environment into the cloud.  AGL,

test M environment, a perfect application, the test M
environment has actually doubled the original base that
we had from their voice data mobility services.  And it
is about 200 terrabytes of storage that we are managing
we have got a security wrapper on. Forth and Hogan, so
there is a line up of customers that have moved in now
and we have a very strong pipeline.

So it is really around this part of the business that we
are seeing tremendous interest, we are able to execute
very well on it.  We have got Michael Rocca and his team
building at the back end as fast as we can bring it in
the front door, but tremendous interest and a different
approach to how we are going about enabling those
customers and really immersing them in what this
technology means and how it is value adding for their
business.

MR THODEY:   So the enterprises are an interesting
market.  The PSTN has been quite small for a number of
years, so you move through and talk about IP data growth
and these value added services.  So tremendous
opportunity there too.  I hope that gives you a bit of a
colour.

QUESTION:   A question on fixed broadband.  You have
talked a lot about the importance of it and you referred
to the market share games in July and August and yet
your long-term targets are not to grow share, just to
maintain share.  I am just wondering why that is.

MR THODEY:   Remember we lost share last year and it is
all about how much you have to pay to get the share and
we are being considered.  As long as we think
maintaining share is about right, if that changes we
will come back and look at it but we want to be able to
sell the value added services on the top, the content,
T-Box, and get the uses that way.  That is the current
strategy, which is also in small to medium business.  So
we will watch that but that is our guidance.  That is
what we are trying to do.

Some of you are right.  If you try and go for too much
market share it will cost you too much.  So it is just a
balance.  We think if we can hold that, that seems to be
pretty reasonable in terms of driving shareholder value,
which is what our job is.

QUESTION:   One other question on pricing.  You talked
about value based pricing again.  Obviously
traditionally as an incumbent you probably have a 25 per

cent premium which blew out last year, but then
obviously that is now going to come down.  Can you give
any further detail about where you see that level of
value added premium?

MR THODEY:   Actually now it is different by every
product and that is what is getting more complicated.  I
think Kate was saying that we have had to really re-
orientate our pricing strategies to get more focused on
product and to a certain extent by segment but that is
more difficult because segment definition is very
blurred.  So you have got to be careful in terms of
that.

There is not 25 per cent but I don't want to declare
publicly, because what does every competitor do against
Telstra, they just price underneath us.  So I don't
think it is in our collective interest to declare that
but it is not 25 per cent.  By the way, at times I will
be more competitive if I think there is greater value to
be obtained over the lifetime value of the customer.  So
life time value becomes important and a lot of the
economic modelling - John, I don’t think we have ever
shared any of our economic modelling work, which you may
want to mention.  We look far more at the profitability
and return on investments by different plan types and
different product portfolios.  Without being too cute,
because that is the last thing I want to do today, I
want to be very clear that is what we do.  John, do you
want to talk about the economic model?

MR STANHOPE:  We have just built a very sophisticated,
what we call Telstra economic model. It actually
allocates all the costs and we have a full P and L view
of every product.  We run prices through, we have a look
at the growth contribution level, the DA level, the EBIT
level and the total after fully allocated costs level.
It is just another level of sophistication as to what
returns we are getting on our products and the impacts
of price changes.

MR THODEY:  And then you balance that with what truly is
the value premium you think your product can sustain.
That is really what Kate mentioned and that is what we
are getting better at doing.  So each month I get a
value premium report for every part of the product.
Kate, do you want to just mention a couple of words on
that?

MS McKENZIE:  We match up the data out of the Telstra
economic model with some market based data about

customer perceptions of value.  As you say, it varies
over time.  It is a dynamic thing.  We keep a close eye
on it and it is a pretty important import into our
visions, but like David said, we are not going to tell
you what those numbers are because it is too obvious a
signal to competitors.

MR THODEY:   I have lived too long.  Every time I put a
price in the market somebody comes underneath.  I just
want to leave a little bit of element of surprise.

QUESTION:   Two questions just around content strategy.
It is clear in Bigpond you have continued to grow that
content base.  You said local content is the key
differentiator.  Can you expand on which type of local
content you would be targeting?

MR THODEY:   It is no secret around the world that local
sports content is a big driver, news content is a big
driver and things that are specific to a country and
even you can start to move to education and health.
Those are the types of things that attract people to
your sites and we can make differentiations and the
other things that we will continue to work on.  I do
think that local produced content still has enormous
value.

Also, when I say local, Kate, you may want to talk a
little about this, but within the IPTV world we can get
access to very specific content from around the world
that allows you to target different communities in a far
more definitive way.  That is the other thing that I
think is incredibly important in terms of content.  Do
you want to mention anything on that, Kate, or do you
want to just say yes?

MS McKENZIE:  Yes.

MR THODEY:   Yes, okay.  So that is a lot of what we are
doing.  When I say local, you know, Australia and news
but what is specific to a country.  Obviously we need
for video on demand a very different set of dynamics and
you saw from Kate the number of downloads have exceeded
our expectation.  What was the most popular download
video?

MS McKENZIE:  The Bounty Hunter.

MR THODEY:   I have no idea why, but literally thousands
of videos downloaded.  So that is what we are talking
about, and then if you get the interactivity, that

really starts to change the dynamics again.

QUESTION:   The second question: In terms of the Foxtel
stake, are we seeing Foxtel start to look at new
distribution platforms for its product?

MR THODEY:  Yes.

QUESTION:  Would you consider doing the same thing
looking at Foxtel over the T-Box?

MR THODEY:   Yes, we would.

QUESTION:   Are you looking at it now?

MR THODEY:   Yes, we are.

QUESTION:   Two from me as well, actually going to some
of the detail of this morning.  Firstly, the redundancy
expense, the $100 million is that incremental, that is
booked in the first half?

MR THODEY:   Yes, we think it will be probably be more
first half.  John?

MR STANHOPE:  More in the first half, yes.  Remember the
total amount is 220.

MR THODEY:   The sooner it happens obviously the better.
MR STANHOPE:  It is 220 total.  100 is the increment
over the year before.

QUESTION:   The point about that though is that is
purely for the current year, yet by the sound of the
presentations this morning the cost out program is going
to continue for some time.  I am just wondering how we
should be thinking about the degree to which you have
got a provisioning element within the 220 and the extent
to which we should be looking at further expensing in
the--

MR STANHOPE:   There is no provision for forward years
in our 220 and we’re not giving any guidance on the
amount of redundancy in the following two years, but
there is no question there will be some more redundancy
spent in fiscal year 12 and 13.

MR THODEY:   Let me just add, John’s absolutely right,
but you’ve got to know that there is a lot of work going
on here; that is going to be continuing on.  We have for

the last four or five years, we’ve always got a program
going on.

MR STANHOPE:   As you all know, there were 12,000 people
left the company over the last four or five years.

MR THODEY:   The critical thing is that you’ve got to
change the way we work, because it just comes back
somewhere else, either in labour or in contracts and
that’s been the problem. It’s sort of just flipped out
rather than really coming out of the business.  That’s
why Project New is so important to us, because you can’t
stop doing stuff when customers ring.  You’ve got to
find it to do it simpler and that’s what we’re saying.
That’s hard work, but we’re onto it.

QUESTION:  Lastly from me, David, in relation to your
first presentation this morning, you put up key lead
indicators for our strategy slide.  One of the elements
of that was that there was a target, first contact
resolution 75 per cent by 2013.  Can you indicate what
it is now?

MR THODEY:   It’s not that, just ring us and you’ll find
out.  Gordon, do you want to - it’s a lot lower. By the
way, Gordon, since he’s been here, he is passionate
about the subject of fiscal resolution but it’s low. Do
you want to proffer a comment.

MR BALLANTYNE:   It’s not that low, it’s 67 per cent
today.

MR THODEY:   Depending which side of the business you
talk about.  It’s very different in different parts.  I
think we should take that one off line; very different,
different parts of the business.

QUESTION:  Actually, a couple of questions for Gordon
who’s a new observer in the market, I’ll be interested
to get your views on a couple of things.  The first one
is, when you look at one of the charges showing your
market share across different in consumer, because
different product.  It strikes me that every time you’re
competing against infrastructure based competitors your
market share is around 40, 45 per cent and obviously
your fixed line market share still stands at 75 per cent
so that would seem to be as a bit of an aberration in a
global context in particular.

What would be, putting all these things together and
given where you’re starting from, what do you see as an

acceptable good outcome in terms of the PSTN and the
percentage rate of decline compared to the current sort
of seven, eight per cent?  What would be a good outcome
for you?

MR THODEY:   Subscriber growth or revenue?

QUESTION:   Revenue.

MR THODEY:   I think that John said that we see the PSTN
continuing to decline but remember that’s what, six, six
and a half bill on 25, so that will continue to decline.
I think the rate will come off because of just the maths
on that.

I would like to think that we can continue to be about
where we are but it’s going to be slightly different
revenue mixes as we do that.   But we’ve got to be very
considered, because if it costs too much, I’m not going
to do it, because that won’t be good for shareholders.

But as I said in my charts, holding fixed broadband -
mobile, wireless is the competition in the future and we
need to hold our share in PSTN and fixed because as NBN
or whatever happens in the future, as infrastructure
based players, we’ve got to be there, because I want to
sell them more product and different offerings.  I think
that’s where we want to be but we do obviously have
numbers but we’re not going to give much more.

QUESTION:  I’ve noticed compared to previous year’s
presentation they have all sort of issued around Next G
superior network, coverage, et cetera.  That has kind of
started to drop off a little bit; the emphasis is not as
strong as it used to be.  Is that a reflection of what
you are seeing coverage as not being as much of a driver
as it has been in the past in the consumer market, price
being maybe more of a driver?

MR THODEY:   Let me apologise to you that I did not go
through the statistics again.  Next G is 2.2 million
square kilometres.  Our nearest 3G competitor is 800,000
square kilometres.  We’re at 42 megabytes per second;
they are at 14.  This is a compelling proposition.

The great thing about HSPA plus at 42, it’s far more
efficient how it drives our data. The coverage
proposition, if you look at all our advertising, is
about speed and coverage and differentiation.  I
apologise we didn’t go through that.

In terms of NextIP, do you want me to go through - 92
terabytes per second.  It is wonderful and that’s what
Deena and all of us sell on and that’s being sales and
marketing.  I did not think we had to go through it
today.
But it is critically important and that’s why we
continue to invest in technology innovation to go
forward.  A very positive message to finish the morning
on.
Thank you for your time.  I really hope that it’s given
you a bit more insight into how the business is
tracking, what we’re doing.  We can hear follow up
questions.  I think there is a session here in five
minutes for media and for those who want to go and see
the product demonstration, two o’clock at 400 George
Street on the fourth floor.

Thanks very much; appreciate your time.

END OF TRANSCRIPT

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TELSTRA GROUP LIMITED Call Transcript 2010

65927_rns_2010-09-29_76707caf-8119-49d2-9e73-21c058f4f9e4.pdf

Office of the Company Secretary

ELECTRONIC LODGEMENT

Investor Day – transcript

`TELSTRA INVESTOR UPDATE HILTON HOTEL SYDNEY WEDNESDAY, 29 SEPTEMBER 2010`

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TELSTRA GROUP LIMITED — Call Transcript 2010

65927_rns_2010-09-29_76707caf-8119-49d2-9e73-21c058f4f9e4.pdf

Office of the Company Secretary

ELECTRONIC LODGEMENT

Investor Day – transcript

TELSTRA INVESTOR UPDATE HILTON HOTEL SYDNEY WEDNESDAY, 29 SEPTEMBER 2010

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TELSTRA GROUP LIMITED Call Transcript 2010

`TELSTRA INVESTOR UPDATE HILTON HOTEL SYDNEY WEDNESDAY, 29 SEPTEMBER 2010`