TELSTRA GROUP LIMITED — Call Transcript 2013

Oct 24, 2013

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25 October 2013

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

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ELECTRONIC LODGEMENT

Dear Sir or Madam

Investor Day – analyst briefing transcript

In accordance with the Listing Rules, I attach a copy of the transcript of the analyst briefing and question and answer sessions, together with speaking notes for the breakout sessions, held at Telstra’s Investor Day held on Wednesday 23 October 2013, for release to the market.

Yours faithfully

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Damien Coleman Company Secretary

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

TELSTRA INVESTOR DAY 2013 23 October 2013

MR A. KEYS: Good morning everyone. I’m Andrew Keys, Telstra’s head of Investor Relations and on behalf of Telstra, welcome to our 2013 Investor Day. As an important symbol of respect, it is our custom at significant Telstra events to acknowledge Australia’s First People. Today, therefore, I want to acknowledge that we meet on the traditional lands of the Gadigal People of the Eora nation and pay my respects to elders, past and present. A very quick overview of how this morning will run. The first session will go to 10 o’clock and we will conclude just before 10 with a Q and A session. We will break for morning tea for 15 minutes. The second session will run to 12.15 pm – that includes three Q and A sessions. And then after lunch, we will have some break-out sessions to look at Telstra’s strategic growth opportunities and I will come back and talk a little more of the logistics around that a little bit later. Before I hand over to David though, we would like to share a short video with you. Thank you.

VIDEO SHOWN

MR D. THODEY: Well, good morning everybody. Great to have you here, thanks for joining us. I think we’ve got a pretty good session for you for today. It’s probably about five hours as Andrew went through. And look the key thing is to give you a bit of an update on our strategy and get you – give you bit of an insight on what our thinking is at the moment. I think it’s a great opportunity for you to hear from some of the senior management team as well. A number of the different senior executives are going to speak about their portfolios, so you can get a bit of a deeper dive and get a feel for what’s on their minds. And as Andrew said, we’re going to break it up with Q and A during the day. Now, Andy and I are going to come up at 12 and we will spend about half an hour, but we thought we would get through, sort of, the bulk of the material, so you can sort of see, you know, both the advocacy and the value from the core. And then we will – Andy and I will come up and we can take any sort of general questions. So that’s the way we’re going to run the day.

Now look, one of the things I’m sure you’ve got on your mind is the National Broadband Network and you know, what’s going on there, where are we going? Look, as you know, the government is in a 60 day strategic review period. So there isn’t a lot more that we can add until they get through that. You can still ask me questions, but it’s just not a whole lot more we can say until they’ve really got clarity in what they’re doing. Kate McKenzie, who is, you know, in charge of all the product area/innovation area and also Warwick – sorry, Tony Warren who’s – he runs Corporate Affairs, but is now setting or putting aside, to really work with the NBN team and the government. They’re going to come up and talk about, you know, just what is on their minds and then you can ask them questions as well. So Tony was involved in the first round and so he has got a lot of experience.

So I hope you will find the day is going to be useful. And what I thought I would do just to kick off is just to, sort of, give you a positioning on what I – at a, you know, at a sort of corporate level is on our mind and just talk a little bit about a refinement in our strategy. So I’m just taking you through the big, sort of, picture stuff. And I thought I would start off by just trying to talk to you about some of the trends we’re seeing in the industry. And they’re trends that are really relevant in our thinking. Now, as you know, there’s a lot of, you know,

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terminology comes out of our industry, you know, smart technology and smart cities, smart states, smart governments. But when you get underneath it, there is some incredible change that’s taking place that we think is really creating new opportunities for us to really participate in. The question is the how you participate? But it is very exciting.

So look, I thought I would talk about just seven that you would – you will know about. But I just want to give you some real flavour around it. So firstly, connectivity itself and the incredible growth in connectivity: as you know there’s more and more devices coming on to all our networks. It doesn’t matter if it’s fixed or mobile. And it’s changing from people and you know, homes and buildings to an incredible array of new things that are being connected, especially with the – what they call the internet of things. So this is creating a quite a different type of network topology that we’re going to have to keep working with. So you hear it said, but actually it means quite a lot of different things for us as we go forward.

Now, I would say today in Australia, what – there’s in the mobile network a little bit over 30 million connected devices. There is no question in my mind that will go to 100 million within the next five, six, seven years. That’s a completely different sort of architecture for the network, very important to notice. Secondly, the demand for bandwidth. I can’t overstress this one because people are using their connectivity in, you know, many, many different ways. I mean you just need to look at your own experience and what you do. So this demand across fixed and mobile network, so it doesn’t matter which one. People want a seamless experience, but they want to consume more content.

And it seems to be just about endless in terms of what they will do, be it entertainment and that’s why, you know, media often gives us so with our industry, but also its environmental controls, other, you know, information reached. Even if you think about the bushfires and you think about video content that’s coming through from many of the base stations out there, it’s quite amazing the amount of information that’s going over networks. So we really think this is going to drive a whole new sort of stage of innovation. It’s not innovation – it’s innovation in use, but it’s also innovation around network design as well. And so we think that it’s just wonderful to be in such an industry with such incredible demand.

Thirdly, an area I’ve talked a lot about, consumer behaviour is changing. And it doesn’t matter if you’re in telco land or you’re in retail, consumers are more demanding, they’re more discerning, they are more informed than at any other time that I can remember. And of course, so when people come in through our shops, they ring us up or they talk about a service experience, they come with information. And they come in a way that they say, “Hey, I’ve got – this is what I want.” And therefore, our ability to respond becomes more and more important. So they know our products. They have higher expectations. So when we talk about customer advocacy being at the heart of our strategy, this is not just a whimsical thought.

Now, whether we do it well or not is completely irrelevant to the statement. The real issue is if you’re in the service industry, you have got to be service oriented. You just have to be. And that is a critical part of our strategy. So when people sort of say, “Well, you know, customer service is important,” and then sort of whisk over that point and say, “Well, tell me about this and this.” They’re missing the point because if you don’t serve your customer, if you don’t change – if you don’t innovate then you really miss the big game that you got. And

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customers do – do like loyalty. They want to be loyal, but if you mess them up then they go for a long time.

The fourth one is about the changing topology of networks and the amount of intelligence in networks. And the area I’ve put up there is, sort of, this whole user interface. And I don’t know if you’re seeing it, but it is a really big trend. The way people are interacting, human to machines is changing in a way I’ve never seen it happen before. You see it in some new products like Siri on the iPhone, but if you go to Google now, these are things that are getting us our artificial intelligence and predictive behaviour. So you say, “Well, why is it then important to telcos?” Well, why it’s important is it suddenly opens up a whole raft of new innovative ways to interact in different industries.

So you can think about health or transportation. And therefore, the impact of our technology on the individual and on industries is far greater than we had actually imagined, even just three years ago. So we find this very exciting. We, you know, lots of different names it goes under – machine intelligence or artificial intelligence, but it’s a very, very exciting development and this is a guy who 25 years ago went into IBM and Armonk and saw all the – this huge great computer room of just doing, you know, voice recognition. And that was – and now it’s done on literally a thing in your hand.

Think about the implications of that because that is radical. So, the question is for our operation, is how do you participate in that and create value? You know about the application growth, very innovative, now billions of mobile and fixed applications. And they’re in weird and wonderful areas. And they’re just driving enormous usage on our networks and we’re seeing enormous innovation. So, as you would have seen, we announced muru-D, a little innovative, you know, start-up thing in Paddington.

We’ve done our ventures – this is all about us keeping abreast of where the technology is going, where applications are going, and that’s why software is going to become more and more important to operators like us. Now, I could talk about software in terms of networkdefined, software-defined networks, but software is at the heart of so much of what we’re doing now, and it is less and less hardware. Now, that’s sort of a bigger statement than just what I’ve said then in terms of us. Software really is critically for us going forward. You hear a lot about data analytics. I mean, you know, operators for years have dealt with masses and masses of data, but the real issue in data analytics, or big data, is how do you take that information and create a differentiated customer experience, either in how the network operates or relating how the network is operating for you as an individual.

So, data analytics is not an aspiration, it is a reality and something that we need to do more and more of as we go forward. And then just lastly, I have put up there the importance of Asia and the Asia century because the reality for a company like Telstra is that we must become more and more involved in Asia. We just don’t have an option. Now, the question is how. You know, do we go out there and invest enormous amounts of capital, which I’m sure you would all say, “Hey, be careful”. Or do you take your capability and take it into other countries? Now, as you know, Asia is not a homogenous market, it’s a heterogeneous market, but it is very, very important. We cannot ignore it as we go forward.

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So, we will talk a little bit about that as we go forward. So, I really believe that these trends – you know, really place telcos or operators like Telstra right at the heart of so much change, change that we’ve got to really take advantage of as we go forward, so, societal and economic change, and it’s happening around the world. And even though I probably say it every time I present to you, I get very excited about this. This is a wonderful place to be, that how you drive value for shareholders from that is the critical issue, and of course you’ve got other winds that blow in terms of, you know, customer need. So, I just want to also mention three key technological changes that are helping us at the moment that we’re very focused on, just really to reinforce them.

Firstly, mobile internet; as you know, that’s just enabling a whole new generation of applications to be used by consumers and businesses, and that’s, I think, the biggest one that we’re seeing, is that this is driving real change in businesses and how governments interact, and I think that’s what we’ve got to do, we’ve got to keep really driving into how we enable this technology, both for a consumer but also for a business, and how you change supply chains, how you really become a part of that value chain. Easy to say and actually difficult to do. Cloud remains really, really important to us and we’ve seen tremendous growth in Cloud and Philip Jones will talk a little about that later on.

You know Cloud is talked about in many, many different ways, but the truth is that many of our customers, especially in the small business market and in the enterprise market, are saying, “we want these services”, so the question is how do we really offer that service in a network-centric way and really take advantage of it. The rate of innovation in that market is happening very, very quickly, so we’re very excited about what’s going on in that market. Thirdly, the internet of things, which I referred to just a moment ago, this has actually been a focus of ours now probably for six years, and we’ve just started to see tremendous growth in this area, and as it moves from phones to devices, you know, in the e-health, smart meters, etcetera.

And I mean, you may not be aware but we now have just passed one million devices on our network in terms of actual devices connected that are not phones, so that’s actually quite a big milestone for us. And we think that in both those three areas we’re very well placed and we’re really trying to push the limits in each of those areas as we go forward. Now, you’re going to hear more about those, as I said, as we sort of unfold our strategy during the day. Right. So, now let me just, at that sort of position, let me now just talk about our strategy and how we plan to move forward.

As you know, since 2010 we’ve really been focused on just four keys things.

Firstly, around customer service, has been such a critical part of what we’re doing. We also used to talk, and still do talk, about retaining and growing customers because we do believe that holding your customers – if you don’t hold your customers you really sacrifice an awful amount. You know all the traditional metrics of acquiring a new customer costs nine, ten times more than actually retaining a customer, but it’s more than that for us. Actually serving our customer base and holding share is really, really important. Simplification of the business is critically important because our revenue mix is changing and therefore we’ve got to do new things in terms of how we run the business, getting rid of failure in the system because failure creates cost and delivers a poor customer experience, and also finding new growth areas.

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Now, as you know, over the last few years we’ve performed, I think, well. We’ve had top line growth, we’ve really held our operating cost pretty well, and Robert and the team, and he’s going to talk about that, has found about $2.7 billion of productivity initiatives, which has been hard work. And remember our revenue mix is changing all the time, so therefore we’ve got different types of revenue coming in that really forces you to look at your underlying cost structure. EPS has been up 12 per cent and of course we’ve had some good shareholder returns. But at your heart you’ve got to know what you are as a company, and a lot of people say to me, “Well, what is Telstra? You’re an ICT company, you’re sort of moving into software. What are you?”

And I’ve got to say, we’re very proud to be a telecommunications company. I don’t want to be anything else but a telco. However, a telco is changing because of this ubiquitous nature of what we do. You know, every day we are so much a part of people’s lives, and as I said, people’s expectations are so high of us in terms of when the mobile network doesn’t work, even in the bushfires, and there’s text messaging systems. When it’s not working it creates a real impact on people’s lives. You know, it’s incredibly important for productivity. It’s also about how governments change the way they operate and how they communicate with their constituents.

And so that video talked a little bit about that. But at the end of the day we’re about connectivity, connecting people and things, that’s what we do, and we create value from that for our shareholders but most importantly for our customers. And we’ve got to expand in how we do that.

Now, that is – when you think about connectivity, connectivity is more than just making a phone call, it’s about connecting you to the world of information, and that’s what we’re focused on, and more and more we’ve got to be able to take that capability and apply it to new markets. That’s why Asia is important to us. Not just going by Asia, but taking capability and moving forward. So, as you would expect, Telstra does a lot of planning and we spend a lot of time on planning. We run a one year plan, a three year plan, and we’ve recently done a 2020 strategy, and we continually look at how we can look at where the market is going to be, what we need to be doing now, because with big companies it takes time to get your foundations in place to really address new opportunities. And as a result of that we’re announcing just some subtle but very important changes to our priorities as we think it reflects better what we are about to do in the future. Now, our refreshed strategy is going to be set on just three priorities, very similar, but three priorities.

One is around customer advocacy, improving customer advocacy, because you heard me talk about that. Driving value from the core of our business; I’ve got to stress, the core of our business is wonderful, it’s a great business. And then, of course, building these new growth businesses. So, what we’re going to do today is we’re going to explore a little bit of what we mean by each of these three and give you the opportunity just to get a bit of an insight into what we’re thinking. Now, while it is a slight shift of emphasis, the foundations of our strategy framework remain constant but the changes are very important. So, let me talk to each one of these just a little bit and give you a bit of colour and then we will get into the detail later on.

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We’re moving, firstly, from a focus on satisfying our customers to really driving for customers to be advocates for Telstra. That is difficult, that is difficult. But why would you do that? What’s sort of driving the thinking behind that? Well, when you get under all the data, and including our data, when we look at how an advocate behaves compared to someone who is satisfied with the service we provide, we find some very interesting things. Firstly, there is no question – and a lot of these are logical, but sometimes you’ve just got to go and look at the data – advocates buy more and therefore they take more products that you sell.

So, multi-product holdings is very important. Obviously, if you’re an advocate for a brand you don’t churn, and therefore churn-reduction is a critical element of why you drive for advocacies. But as you know, we spend a lot of money each year on advertising and saying Telstra is great, but when a customer says, “Hey, you should try Telstra”, and they become an advocate, it completely changes the way people think about the brand and the service you offer. And of course, advocates tend to ring you less, come into your shops less and make less complaints, so it has got a cost benefit as well. But to do this we need to change this company, and it is a journey we’re on but we still have a long way to go.

So, we will talk about – Gordon is going to come up and talk about the Net Promoter System. Now, I want to be very clear here. This is not another metric, it is a whole way of which we approach every – our customers in every part of the business. It is not just a measure of survey, it actually gets to the very heart of how you run the business, and Gordon is going to try and bring that to life for you because I’m not sure that everyone really understands how really radical it is. Also, we’ve got to continue to build our differentiated products, and if advocates truly buy more products, bundling becomes even more important as you go forward. So, we will talk a little bit about that.

Obviously, process improvement in terms of getting failure out of the business, every time we have a failure in Telstra, I can promise you it costs us millions of dollars – millions of dollars - and also we create real service issues with our customers. So, every time you have a failure there is this flow-through impact that is way beyond what you ever expect, and of course we need to keep sort of surprising our customers, and we will talk a little bit about ‘Thanks’ in a moment. Look, we’re very pleased and very gratified that the industry has followed us around this journey of customer service, and that’s very pleasing but it doesn’t mean a whole lot because it’s actually how you improve and what you do with it that is so important.

And look, I’m pleased to say from what we can tell – and all these surveys are different – we see, at least on our own metrics, because we really measure ourselves against ourselves – we are improving quickly, so – which is good. So, our focus on improving our core service delivery really remains critically important, and broadening this relationship with our customers. And so if we can drive loyalty, better bundling of products and services and drive this productivity of really continuing to find different ways to do things, that cost comes out of the business, it is very, very important and it’s hard, diligent, unrelenting, unglamorous but really very good work. So, we’re going to keep at that and that’s what Gordon is going to come and talk to you about in a moment. Okay. So, that’s customer advocacy.

The second area is driving value or greater value from the core. The core of a business like Telstra is large, it’s – we would probably say it’s about $20 billion of the $26 billion that we

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do. And this focus on retaining and growing our customers really does remain a priority, even with the NBN change. We must maintain our relationship with our customers. So, organic growth, driving growth in mobiles, continuing to drive growth in fixed broadband, remains front and centre in everything we do. Some people always want to go where the new stuff is. We are very, very focused on the core of our business, and we have proven, which we think without a shadow of a doubt, that networks make a difference.

Network investment, the $1.2 billion we’re putting into the mobile network again this year, and we did last year, investment in all our fixed IP core networks remains a very high priority for us and we will continue to invest because all networks are not created equal and it takes you years and years to get to the sort of level of reliability and functionality in our networks that we have. And as I said before, simplifying the core business must remain a priority. We have celebrated complexity too much in our industry and we must continue to find ways to make it simple for our customers. I never want to know or hear from a customer that they know about Legacy and Siebel ever again. It’s totally irrelevant to them.

All they want is a good experience. They don’t need to know anything about other systems. We need to create a wonderful, surprising experience for our customers. So, I’m pleased to say that progress is good. At the end of September we have now got 15.3 million mobile customers, so in the first quarter we’ve added 243,000 mobile customers, and I’m sure this is what you’re interested in. In terms of our fixed broadband customers, there are now 2.8 million; we’ve added 41,000 customers in the first quarter. And in terms of fixed broadband bundles, we’re at now 1.7 million and we’ve added 51,000 bundles in the quarter. So, the business is continuing to tick over well.

Now, Kate McKenzie is going to come and talk a little bit more about this in a moment. Also, Warwick Bray, who now runs both mobile and wireline is going to come up and talk about specifically the mobile portfolio and give you an update on how the mobile business is going in a bit, and then Philip Jones, who runs our IP core network, which is probably a bit of a mystery to many of you, and our NAS portfolio, but let me say it’s very easy, and Philip is going to give you a good insight into just why that portfolio is so important to us going forward. And then I’m pleased to say, Robert, who has been such a great leader in terms of driving out our productivity agenda, is going to come and give us some colour and what we’ve got to do and whether all the low-hanging fruit is gone. He keeps on telling me it’s all still there and we’ve got a lot of productivity initiatives to drive out in the future.

But let me just summarise this area better. We must continue to invest. The management of our capital, that $3.7 billion we invest every year, is a lot of money and we’re going to continue to invest in network differentiation. We must continue to have leadership in our network topology, in how we run our networks, while still investing in these growth areas. We see more value differentiation in the core of the network rather than less. The days of people saying “dumb pipes” is gone, because it is not “dumb pipes”. They are very intelligent, and more intelligence is going into the network than at any other time in the history of this industry.

So, we remain very, very positive of that. Now, I should also say that as we did at the Annual General Meeting last week, we reaffirmed our financial guidance for this year to be low single digit income and EBITDA growth, so I just wanted to reaffirm that. Let me turn to

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the third one, so building new growth businesses. Now, we’ve slightly adjusted this area so that we can more accurately reflect, really, what we’re doing in these growth areas because, as you know, when you’re building your growth businesses they can be two, three, four year gestation periods in terms of how you get them going. So, we’ve talked about immediate opportunities and also what we call emerging opportunities.

So, in the immediate opportunities, obviously there’s this Network Application Services area, which includes a number of different areas, managed network services, big contracts, the defence contract, all those big service areas which include in Asia Pacific where we’ve got to do more there, and then of course our footprint in Asia with the Reach portfolio also in terms of managing the other assets we have within Asia. The second area is what we call these emerging opportunities that we’re investing in. Digital media falls into that space and I just want to note that we’re not talking media because we’re obviously still working through the Sensis transition from print to digital. We’re really focusing it on digital media.

And also there’s Global Applications and Platforms, this new group that you will talk about this afternoon, led by Charlotte Yarkoni, and of course e-Health, where it’s about, really, the enablement in the health industry of driving productivity. Now, as I just mentioned, we’re going to have breakout sessions in these areas this afternoon, but I think that you will each have, sort of, an opportunity. There’s five of them and you can pick three of them to go to. But I do want to stress, we’ve got to find more time to think about growth opportunities for the company. We’ve got to keep thinking about that. Now, that doesn’t mean that we’re about to suddenly switch everything because I wanted you to really get the sense the core is, the core is what I spend, we spend, a lot of time on. But with a changing industry structure, we’ve got to find more time to think about new opportunities in applying this technology.

And we think that if we can continue to focus on creating value for customers, values that are different, that they say it is something that we really need and want that we can meet that need, that we have some tremendous opportunities. Now, as you know, organisation always flows from strategy. And we’ve been looking at how we best align the capability of the executive team in terms of focusing on the core and also in terms of the growth areas. So today, we’re making an announcement. We’re going to change the organisation structure, which is – I’ve got to say, we have an extraordinarily strong leadership team, tremendous capability. And their capability over – what four years now, I think you’ve seen in terms of their performance. And so now to be able to just realign the responsibilities is very important, either with expanded responsibilities or a new responsibility.

So let me just take you through the changes. So effective next Monday, we’re establishing a new business unit called Global Enterprise and Services. That will initially be a five billion dollar revenue business and Brendon Riley is going to lead this. It will bring together the Network Applications and Services group and that’s on a world-wide basis, will all come together. The Global Apps and Platforms group will be in that group; a new Cloud division; our Telstra ventures; the Enterprise and Government portfolio here domestically, and our very big contracts like Defence. And so that will be a global enterprise and services business servicing both Australian customers going into Asia and the world, but – and being able to take from just core connectivity into Cloud, managed WAN, managed Network Services and we will run that as one integrated division. And also we will moving more to

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an industry based service and solutions business, but it will operate at scale. So that’s the first one.

Now, to Telstra Operations. Kate McKenzie will become our new Chief Operating Officer. And that will include the chief technology officer and the innovation portfolio will be in that new group. And that’s all about driving our technology innovation within the core operations of the business. We must continue with technical excellence and that’s across all our networks. And as you know, Kate was running innovation products and marketing before and she will now move to this new portfolio. That gives us the opportunity to pull together the very important retail core business. So Gordon Ballantyne will lead this new group and it will consolidate all our key retail facing segments, that’s Telstra Consumer and Telstra Business. It will pull together all the retail product management and that’s the fixed, the mobiles and the NBN product, management and retail rollout. It will include all our geographical coverage and Telstra Countrywide and it will include the Chief Marketing Officer as well. Gordon – I’ve also asked Gordon to continue to keep responsibility for e- Health because he has been really involved in that right from day one and he will continue to be managing that portfolio.

Now, as well as that, obviously Asia is a region of real importance to us. And as I said before, it’s not a heterogeneous market, it’s a very – oh, it’s not a homogenous market, it’s a heterogeneous market. And it’s very important for us that we really, you know, build our capability in that area. So I’ve asked Andy Penn, who as you know ran AXA Asia Pacific, to come and work with me and Tim Chen to really see how we can refine and enhance our strategy across Asia and what really makes sense going forward. So Andy, Tim and I are going to, you know, focus on that, see what makes best sense going forward and see if we can really build our capability in that area. But as you know, it is not just, you know, one strategy it’s across many different aspects that are to go forward. So that I think by now you would know, we are considered investors and we are not about to just jump off a cliff, we’re about to be very considered in what we do.

Okay. So that’s that new group and as I said, Tony Warren is going to run the Federal Government National Broadband Network negotiation and all of the other roles remain unchanged. These changes will take effect from next Monday 28 October. So before I hand you over to Gordon, let me just sort of take you through the strategic priorities again because they are very important for us as how we sort of really focus the business. I think that that just gives a better degree of clarity around our strategy and what – how we can focus on it. While they’re subtle changes, they are a very important refinement to our strategy and I think, you know, very importantly getting the organisation aligned to what we need to do as we go forward through to 2020 is very important. So improving customer advocacy, driving value from the core and building new growth businesses will be our core focus. Right. So that’s me until 12 o’clock. So Gordon, would you like to come up and take us through the, you know, whole area of what really driving customer advocacy is all about and give you some detail. It’s over to you. Thank you.

MR BALLANTYNE: Investor Day is my favourite day because I get to talk about the things I really care about. Although David has mentioned this morning, some very important but subtle changes in our strategy and how we’re organising to support it, our single most important imperative is to improve customer advocacy. Fundamentally, our cost – how we

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drive efficiency, how we eliminate waste is fundamentally premised on whether we’re successful in bringing to life how every single Australian talks about this brand. That is our primary objective. So I want to add a little bit of colour because whenever I read many of the analysts’ reports that I read by many of the wonderful analysts in this room, we – and often read I about NBN, I often read about mobile. And I want you to be the advocates of what it really means to create an organisation that is solely aligned around bringing customer advocacy to life because that’s hard. And that’s the journey that we’ve been on for the last three years. And the journey we’re committed to as an organisation because it’s in terms of competitive advantage, it’s in terms of, you know, in terms of differentiation it helps us grow, it helps us create value.

So that is the challenge that David has set me today in 20 minutes, when he reads your analyst reports that might emanate in some part from this meeting today that the first thing you talk about is how – our advocacy and bringing advocacy to life for our customers is fundamentally differentiating us. Now, there will be a little bit of time for questions at the end and I will test the audience to see if in part, we’ve managed to achieve some of that outcome we’ve set yourself. We’ve been on this advocacy journey for about three years and we’ve learnt some very fundamental things. We’ve learnt basically three fundamental things. First, insights matter. Thinking about what customers – what really matters to customers is incredibly important. Simplicity matters, making for simple for our customers to do business when in many instances we don’t today, it fundamentally matters.

And more importantly, innovation matters bring to life products and services that adjust and change against our customer needs. Now, last year, twelve months ago we introduced an NPS system. And that NPS system moves across all our customer episodes, multiple customer contact points, it looks across all of our interactions and stores. And it’s all across our interactions within our contact centres, as well as what our field techs do in the field. Over the last 12 months, we’ve actually got insight of 11 million customer activities and episodes across our business: 11 million. 770 thousand episodes relating to end to end episodes – whether it be activating an order, which may have involved multiple contacts with us. Nine and a half million contact centre calls, 213 thousand experiences in our retail stores, 93 thousand tech visits. I’m trying to understand when our tech left the premises, was your service working, and that requires a whole lot of insight as to how we need to change as an organisation.

The real question is, insight is one thing; acting and caring enough to bring it to life is another, and that’s absolutely what we’re about. Of those 11 million insights, 40 per cent of – 30 per cent of customers said – left verbatims, so we’ve got 3 to 4 million verbatims that we’re feeding back to teams for them to respond to, their interaction with a customer on a specific episode, store experience, contact centre experience, field tech. And that changes the operational cadence and dynamics of what we choose to care about as an organisation, and that’s important. Now, acting on insights is one thing, but if you want service excellence, you also have to have process excellence, and that’s why we launched our NPS system 12 months ago.

We also created a process framework looking at 16 processes across the organisation, because if you really want to change an organisation from improving customer service to changing the way customers truly talk and advocate for your brand, you need discipline, you

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need rigour, you need focus, you need bloody-mindedness in bringing stuff that our customers care about to life, and that’s an incredibly important shift for our business as we think about how we organise around that.

It’s an incredibly important part of whether we’re going to do what we say we’re going to do, and it’s not just about the insights for our customers or what matters for our customers; it’s also a little bit about what matters to our people. Insights matter to our people, and providing them with the tools so they can show up each and every day doing the best for our customers is incredibly important. Over the last year we’ve had Our Customer Connection 2, where we’ve got seven-and-a-half thousand people managers together sponsored by the whole executive team here, who were present during those two days to really talk about what it’s really going to take, what it’s really going to take in terms of mindsets, tools, skills, capabilities and how we can support each other in that interaction.

Today we now have a different cadence about when – daily we get our NPS scores, we have a different cadence in the operational model within our business. Last month alone we had 40,000 – sorry, 4000 T-time meetings, they were meetings which were solely focused on, well, what are we going to do about it? What are we going to do about it? And that may be what a team can do, an individual can do, but also it means, well, what process changes can we effect? Where do we need to choose to invest? And through that process, ensuring all our process centres are engaged in what really matters most to our people and to our customers.

So let’s bring that a little bit to light, because fundamentally that’s anchored around making it simple for our customers to do business. Today 85,000 people will walk into one of our Telstra-branded stores. We have 85,000 opportunities today to change the way our customers talk about us. And what are our customers telling us? They’re telling us our queues are too long, it takes too long to get things done. In September 40 per cent of the transactions in our retail store were done in less than three minutes. We have an aspiration by the end of this year to have 80 per cent of our transactions completed in less than three minutes for our customers in store.

That’s the best thing, and that requires us to think differently about how we’re choosing to invest, finding our courage to make the difficult trade-off between where we’re choosing to invest within, also things we could possibly invest in. A simple example of that is it used to take two-and-a-half minutes, if you needed a replacement sim, two-and-a-half minutes to process that transaction in store; today it takes 20 seconds with our new Siebel Express system. It used to take a long time if you had a very difficult billing inquiry in retail; today we set up a billing concierge service that’s actually one of the highest-performing NPS scores we have in retail today, because we chose to pay attention to the things that really mattered in store.

And today we’re even more investing in our AGMs (Area General Managers) in local and rural Australia, because being local and being connected in these communities, whether it be serving small business or serving consumers, it’s critically important, and empowering many of those individuals to do things differently is part of that solution. Today we will receive 297,000 calls into our contact centres. Many of those instances, we don’t solve the issue the first time. We don’t solve the issue the first time, and that’s our relentless focus

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over the last three years as well as going forward, fundamentally providing the tools and capabilities for our people to do what they really want to do, which is resolve that issue on the first call.

You know, we’ve seen significant improvement; with regard to our first-call resolution there is a long way to go. We’ve seen eight per cent reduction in complaints, we’ve seen a 16 per cent reduction in our total call volume over the last three years on a first-dial basis, so we’re making progress, but not fast enough. And one of the complaints which, you know, we need to really just face into and step into is when we commit to give you a call back, we absolutely do that, so the next – we’ve already built the capability to see when we have in our survey, or when we see a multiple-call event happening real time, we will commit to call the customer back within 24 hours. That’s a fundamental shift in how we think about how we’re choosing to do business, and caring enough to drive the changes for our people to bring that to life for our customers.

The third arm of it is online. I mean online has just been absolutely voracious in its growth over the last years, it’s an incredible journey. Six-and-a-half million visitors to our website every year; 1000 Tweets a week, 359,000 Facebook followers every week, you know, just an extraordinary capability for us to really change the paradigm and how we choose to serve our customers. I know we think the volumes we’ve achieved in terms of – what it means is that some of the apps that we’ve launched, the My Account apps, over 1 million regular users, whether it be My Account. And we’re already beginning to be even more innovative in terms of payments, we recently launched PayPal and a number of other innovations.

My favourite of all is the fact that we had 2 million queries on crowd support. For those who don’t – who aren’t familiar with crowd support, that’s when our customers help customers who have a query, so our 2 million customers were helped by other customers where we had no intervention, apart from providing a digital platform to support them in the pursuit of that. And clearly we’re monitoring that to understand possibilities for further improvement. And we’ve seen a sixfold increase of live chat, which is one of the digital media assets which has the highest NPS score by far of any of the interaction episodes across all of our business.

Today we’ve got 40 per cent of our service transactions online; we’re expecting that to be at least 50 per cent by the end of this financial year, and I think that’s really – it’s a real tipping point in terms of how customers are choosing to do business with us, and what they’re thinking about with regard to what matters most to them in terms of the interaction, and we would like to think we’re at the forefront of a lot of that innovation, it really brings that to life. But there is always a purpose in doing all of that. It’s not just because we think it’s a good thing to do. It’s fundamentally focused on delivering a financial outcome for this business, to continue to differentiate from main competitors, ascribe the value that we’ve seen delivered over the last two or three years.

And if we look at our Australian retail NPS – our retail NPS index, we’re saying that last year we improved our NPS score by nine points, which is a significant statistical shift relative to other global benchmarks, which we’re incredibly proud of, but not complacent about because there is still so much more to do. And customers, as you’ve seen and David mentioned a little bit earlier on, they’re voting with their feet. 1.3 million mobile users, 173,000 fixed

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broadband users, 238,000 bundle customers, and that was just last year, but remembering this is a three-year journey, and if we do it over the three-year period, that’s equated to, just within our consumer division, $1.1 billion of incremental revenue delivered to the top line.

That has delivered world-class mobile churn from 16.2 to 10.8 per cent, reduction over that four-year period, and a quadrupling of bundles which we know in terms of multi-product holding is the absolute key to ensuring we continue to support and sustain our fixed broadband base. So hopefully that has given you a little bit of colour in terms of our intent, why advocacy sits at the core of the things we choose to do, and why we have this unrelenting focus to say that we will continue on this journey, and it will remain the most important strategic priority for this business going forward. Thank you for your time. I’ve got two minutes left on the clock which means I can take some questions, if there are any.

MR S. CHOPRA: Good morning, Sameer Chopra here. I had two questions: one is just on the NPS, I was wondering if you could talk to whether on the fixed-line side of the business right now you have a positive NPS or not, and the second one, your churn numbers are 10.8 per cent; I presume that’s the average for last year. Are you still seeing a downward trend in churns? 10.8 is very impressive. I’m just wondering whether it’s still trending down and we could see further improvements next year.

MR BALLANTYNE: We don’t breakout – we do have numbers by product and by episode and by channel. We don’t report on those respective numbers. There is work to do across all product categories in terms of our overall NPS scores, but I’m not going to provide any specific numbers relating to fixed broadband. On churn, Warwick is going to be giving an update on mobile after – when we have our presentation from value from the core, I probably want to have some specific advocacy-related questions beyond just the churn – churn data point, so if you could wait for Warwick, I’m sure he would be happy to oblige in his perspectives.

MR KEYS: Hamish, can we get a microphone over there.

MR R. TONG: Morning, Raymond Tong from Goldman Sachs. Just had a question on, I suppose, your goals with the NPS, and where do you, I suppose – how can we sort of, looking at maybe three, four years, say that, you know, whether the NPS score will be a success, and how do you think your NPS stacks up versus the competitor at the moment, because they’re all moving towards this as well, right?

MR BALLANTYNE: Yes. Well, we have very ambitious targets set for the improvement in advocacy, and I think the performance we’ve seen last year is something we would want to replicate for a number of years, given the opportunity we see in terms of the failure we see and the possibility of creating some value by addressing many of the issues our customers face, so I think we have a very ambitious plan for the improvements and the board, and the executive team establishing a very ambitious target, because it’s the core imperative for – this is our mission for the business.

The difficulty with NPS is there isn’t any standard across the industry, so – and there are different ways of measuring different things and different inconsistencies, so I think we need to begin with ourselves in the context of establishing a rigour and a discipline. If we look at

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how we’ve implemented NPS, and obviously there has been many different organisations to compare to, when we’ve worked with many independent parties, their commentary is usually, “We have never seen an implementation of NPS at this scale, at this volume, this profound with this rigour.” So that’s their commentary to us, but it is quite a profound, pervasive culture that we’re developing because of the need to shift and change outcomes for our customers, so that’s probably the only commentary I could provide on that particular question.

MR KEYS: We can take one more question, thanks.

MR BALLANTYNE: One more?

MR KEYS: Yes.

MS C. ALLFREY: Hi. Catherine Allfrey from WaveStone Capital. I’m just interested, you don’t talk about customer differentiation at all in terms of service levels, and when we go to other industries at the moment, whether it be supermarkets, department stores, banks, everyone is talking about, you know, about top 20 per cent customers, how do I differentiate my service levels, how do I get more of that pie of that high-value customer, and I’m just interested because Telstra used to talk about it years ago, but you seem to be treating all customers the same.

MR BALLANTYNE: Yes. Probably one area which I didn’t concentrate on was the level of innovation required within the business to really bring that to life, so if I think of not necessarily just whether we have a highly-segmented view of high-value versus low-value customers, but really at a mass scale looking at real innovation. So if we look at the insights we’ve received from customers, eight out of ten customers said that they didn’t want a contract when they signed up for a mobile plan, so in April this year we launched no lock-in plans in the market. When we talk to customers who want to control their spend across – you know, when they’re roaming, in May we launched 20 megabit alerts when data roaming, and just recently we’ve announced, you know, adjustments to the propositions relating to providing greater value when roaming, so you have probably seen the announcement, but for an average customer it’s usually about 100 megabits when travelling.

We now have a data bundle which means they only pay less than a dollar a day per day to roam internationally, whereas before that was – it felt – the experience felt quite expensive, so there’s many examples of that product innovation that are – we detailed in the slides which talk about how we’re trending to innovate based on those customer insights, that feedback. A very good example in our retail stores is whenever someone walks into our retail store, whenever you had a broken handset it used to take five weeks to repair that particular handset. We’ve launched, and we’re the first in the industry, on-the-spot replacements in the first 30 days of a handset, and then next-day replacements which we just launched, so there’s lots of rich innovation, talking about what really matters to customers, and that’s both in terms of a segmented level, but also in terms of product innovation.

But of course when we talk about the Thanks Program which I didn’t mention, which is why we have these wonderful, large letters on the right-hand side, in – the feedback from

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customers, well, we’re not being recognised for being loyal to Telstra, so it’s only in six months, we’ve had 45 per cent of our customer base are aware of our Thanks Program, and 800,000 have already taken advantage of one of the Thanks Program, whether it be movies or concerts, so there’s a whole bunch of richness in the context of the innovation, and whether it be loyalty, whether it be from a propositional perspective, anchored in the insight around what really matters to customers, and part of that will relate to the value of those customers as well, and I’m sure Warwick will speak a little bit later on in terms of just the innovation around the network.

Given what David was talking about a little bit earlier on around the growth in these services, and the exponential growth in our services, you know, customers are saying, “We want it to work,” so the fact we’re investing $1.2 billion this year in the network in terms of supporting that growth and having 85 per cent of our 4G LTE by the end of the year is – again the insights that must really matter to customers, and we would rather deal with those first as opposed to developing – there are some really basic things we need to face up to first before we even become more sophisticated. There are other things we need to do.

MR KEYS: Thank you, Gordon.

MR BALLANTYNE: Thank you.

MR KEYS: We may take a break for 10 minutes and resume at a quarter past 10 for the next session which Kate McKenzie will introduce, Driving Value From the Core. Thank you.

MS McKENZIE: Okay. If everybody is ready we might resume up here. Great to see everybody addicted to their devices, unable to put them down during the 10 minute break. And that’s why we are so excited about value from the core of the business. As David said at the beginning of our session this morning our strategic emphasis has altered subtly but with a continued focus on growing revenues and returns in our core domestic business. You heard David talk about customer revenue and growth, our network leadership and productivity and the importance of productivity in the core of the business and the need to continue to simplify the business.

Our core domestic business has tremendous scale in terms of customers, revenues and networks. As a result, organic growth in our major domestic businesses can deliver significant shareholder value. Chris Silk has famously written on the importance of focusing on the core and we agree wholeheartedly with him. And we think there are a lot of opportunities in the core of the business. Today we’re going to share with you four areas where we see opportunity in terms of growth in the domestic core: being the market maker in mobiles, winning the broadband battle including NBN, growing our data and IP services through strong differentiation and driving an expanded productivity agenda.

I will give you a brief overview of these key priorities and each of them will be spoken about in more detail as we run through the subsequent presentations. With regard to being the market maker in mobiles; we plan to continue to invest in our network superiority as David outlined earlier on this morning. Our LTE coverage will be 85 per cent by the end of this calendar year. We will also drive the take-up of connected tablets in the business and enterprise market by supplying mobile applications that help businesses work outside of the

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office. We are also pushing ahead with our Machine-to-Machine strategy. Again, as David mentioned earlier on we see tremendous growth in the internet side of things and more on that later.

In winning the broadband battle, including NBN, that’s key for Telstra as we go forward. As the NBN rolls out we’re focusing on making the migration experience as simple as possible for our customers. And the launch of our self-install kit a few months ago is a good example of this focus. With our NBN-ready consumer business services we’re confident that along with a clearly targeted local area marketing plan we can win in the NBN world. Growing data and IP services for our enterprise and business customers with our product on product strategy is also a continued focus. By layering our cloud industry solutions and our integrated management services on top of managed network services, we now offer a very broad range of services for enterprise and business customers all managed by Telstra.

We will continue to expand this range of services as our customers migrate to the all IP, always connected world. In driving productivity: we’ve continued to drive service improvements and structural changes in the mix of our labour force. We see further opportunities to grow value by improving the profitability of some of our new and growth business such as NAS, media and international. Also, improving capital efficiency and the effectiveness of our asset base are now key priorities for us. So, to summarise, we’re very excited by the significant opportunities we see to drive the value of our core domestic business.

Over the next couple of hours we’re keen to explain the opportunities in more detail as well as to put some time aside to take your questions. So just to remind you of the format for this session: you will hear next from Warwick Bray, who is our Group Managing Director of mobility; he will talk about being the mobile market maker. In the absence of our NBN lead, Brian Harcourt, who is off at broadband world forum in Amsterdam, catching up on the latest trends in the broadband market, I will then outline our plan to win in the broadband market including NBN. Then you will hear from Tony Warren, as David mentioned, who will talk to us about the NBN deal. And then we will have a Q&A panel, so you have the opportunity to ask questions of Warwick, Tony and myself.

We will then come back and you will hear from Philip Jones, who is our product lead on IP and Network Applications and Services, as David said sometimes the most mysterious part of our portfolio. So Philip will aim to demystify our strategy there and explain to you the differentiation that we’re driving through our product on product strategy. And then Robert, my close colleague will come up and talk about our expanded productivity agenda. There will be a second opportunity for Q&A with Philip, Robert and myself at the end of that session just before lunch. So with those words of introduction I will hand over to the fabulous Warwick Bray.

MR BRAY: Thanks, Kate. And welcome to the mobile section of Investor Day. In FY13 the mobile business grew at $520 million, adding a sound contribution to Telstra’s overall revenue growth. Breaking that down a bit more it was six per cent revenue growth to $9.2 billion. We added 1.257 million new SIOs and grew the EBITDA to $3.5 billion or 38 per cent or 2 percentage points improvement. Looking at revenue in a bit more detail this slide breaks out services revenue, growth – our most important revenue – growth, the pink

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columns – light pink columns are year on year growth for the annual numbers. The red columns are year on year growth for the halves.

Just taking the bottom line which is the services revenue overall: we grew at 6.5 per cent last year and 6.1 per cent this year or FY13. A bit slower but credible in the light of the market. The thing to really bring out is in the red columns: the second half revenue growth was much stronger at 8.6 per cent. Indeed, if you look up each of the products, that’s true for each of the products as well, the second half revenue growth was stronger than the first half. So what’s going on; the mathematical reason is ARPU growth stabilised a lot more in the second half than the first and therefore subscriber growth translated much more directly into revenue growth. And the ARPU slide – the next slide I will go into those ARPU affects in a bit more detail.

But looking at some of those businesses one by one: Machine-to-Machine we added our one millionth connection, we also deepened our partnerships particularly with some important service systems integrated that I will talk about later. With mobile broadband we were slightly disappointed with the growth in 2012 of 10.8 per cent and set ourselves the achievement of reigniting growth in that important category. In order to do that it was about making the market grow faster and so the two big programs we had there is firstly, on the consumer side of things to convince consumers to connect their tablets when they’re out and about; and that’s why connect when you’re out and about campaign.

On the business side of things it was about pushing the business productivity benefits of connected tables, dongles and cellular Wi-Fi. So, pleased with the outcome there of 17.5 per cent growth and 18 per cent – 18.1 in the second half. On prepaid handheld it was growing at 2.7 per cent in 2012, 11 per cent in 2013. We achieved number 1 market share position in prepaid in the year. One of the, sort of, biggest contributors to that acceleration of growth was the breadth and depth of our distribution. So we had the Coles/flybuy partnership which we were very pleased with and the launch of our boost brand. Also within the route channel we’re really concentrating on the merchandising there, so I’m sure you saw us a lot more present in that channel.

In terms of postpaid handheld it was 2.8 per cent growth for the year, you will notice again in the second half it was 5.4 per cent. And some of the postpaid handheld highlights was Australia’s launch of the first shared data plans for the mass-market, so that’s with the one data allowance you can share that over a handset and multiple data devices. On the business side of things we launched our mobile device management TMDM that won the global telecom’s business innovation award for that – it’s locally hosted and locally managed and so customers can add and subtract mobiles phones to their fleets, update operating systems, etcetera.

That’s the revenue side of things. We will dig into ARPU in a bit more detail now. Similar to this last page the light blue columns are year on year change in ARPU. The dark blue columns are year on year changes but for the halves. There are three big factors that affect ARPU: the first is the length of time since our last price changes. And that’s very important here, especially when we have two year contracts. When we change our prices which we did two and half – three years ago, it takes more than two years to flow through the ARPU.

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And for many of our products, particularly postpaid, handheld and mobile broadband, we’re a long way through that effect.

The second big influence on ARPU which we’re really seeing in FY13 – it’s the first year we’ve really seen it – is customers choosing to use more data and choosing to upgrade their plans and buy data packages for the consumption of that data. And that was an important effect of the second half of the year. The third big affect on ARPU is what we call joiners, leavers and stayers. And this is the ARPU – the end ARPU is a function of the ARPU of those who join us, the ARPU of those who leave us and the ARPU change in those who recontract. We have product marketing channel efforts to make sure each of those individual effects is positive.

The combination of those three main factors I talked about are the big influences on ARPU. In the second half of the year they were generally positive and you can see that coming through in particular for postpaid handheld. That comment is true whether we look at it pre or post the MRO adjustment, the second half being much better than the first, in particular affected by customers upgrading from $60 to $80 plans and buying the data packs. I should note the effect that I’ve been talking about is most strong in consumer. In enterprise and government we’re still working our way through some later price changes. In prepaid handheld there was an increase of $1.07. What goes on in prepaid is about the migration to our Prepaid Cap Encore product, which encourages higher ARPU and also our programs to encourage recharge amounts at higher recharges. Our mobile broadband, in FY11 you might recall that fell by $15. Last year ARPU in mobile broadband fell $8.96, this year, $1.46 and in the second half it actually rose. Mobile broadband was particularly affected by the price cuts of two and a half, three years ago.

Mobile broadband was also most deeply affected by mixed effects. We have the three customers channels, we also have prepaid and post-paid in there and we have tablets, we have dongles and cellular Wi-Fi. Many of those mixed effects were less negative in the second half and, in particular, tablet ARPU is going up and that is a result of customers using a certain amount of data, enjoying the use of that data and choosing to buy more. Machine-to-Machine ARPU was $8.46 or a 63 per cent decline, Machine-to-Machine ARPU is the ARPU we least care about. There are big deals out there, say, for instance, with – potentially with utilities which will be low single digit. So, Machine-to-Machine is the product which we use ARPU the least for.

So, overall a pleasing outcome for ARPU, particularly in the second half, that’s fed through into the revenue numbers on the previous page. I should note that this is an annuity business, cellular, however, even in an annuity business there are – it is a bit of randomness as well, so I’ve been talking about the main underlying structural changes to ARPU. There is a bit of randomness in these numbers as well. So, that has been a quick trot through the financial outcomes. I will go now to talk about some of the initiatives that underpins those outcomes.

This slide is one from last year and this is what we said we would do in FY13. It was initiatives to increase advocacy, being clear about “Why Telstra?” message in the market, which is about increasing and promoting our network and also promoting our customer service improvements, continued work on the margin and building growth through the

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business applications that use Machine-to-Machine and mobile broadband. I will go through some of the outcomes from those initiatives now. Just starting with the network, it’s important to note all the financial results we’ve just been through, there’s not a single result there that’s not influenced by our network. The 1.257 million customers who came to us last year came to us because of our network.

In terms of the revenue and the ARPU, the customer value that they see in our business and using the Telstra mobile products is about the network and that influences the price we can charge, and even our handset policies, which influences our margin, is deeply influenced by the network. What we’re trying to do in terms of the customer with our network is four benefits: the first is to use our network over more square kilometres; the second is to have fewer dead spots, so you’re more likely to be able to use the network in the third bedroom at the back of your home, fewer dropped calls and a more reliable speed experience. And what we mean by that is when you’re trying to update your social media or get onto your corporate intranet, that you get the data that you want and not the whirling circle.

And so it’s for customer-oriented benefits that we really try and design our network for. So, in terms of FY13, we rolled LTE out to 66 per cent of the population. What’s very important about that is that our customers get the benefits of LTE, but it’s also unloading the 3G network as well, which is performing even better now. We expanded the LTE bandwidth, we trialled 900 MHz, which is reusing some of the 2G spectrum, and we trialled carrier aggregation. Carrier aggregation is simultaneously using two pieces of spectrum that enhance bandwidth and hence bitrate, and we will be doing more carrier aggregation in ’14. We bought two times 20 MHz of 700 MHz spectrum and two times 40 MHz of the 2.5 gig spectrum.

When you look across our spectrum holdings now at 700, 800, 900, 1800 and higher levels, it is a very, very sound basis spectrum upon which to build the customer experience that we aspire to do. It’s a very, very good set of spectrum holdings. We use a lot of data analytics in our network planning, so we use customer data, customer preference data, we use network data and we use financial data. Big databases that we use to plan our network, where the next tower goes, where the next radio site goes. The data analytics was very much enhanced in FY13 and overall we spent 1.2 billion of Capex. In FY14 we will build LTE out to 85 per cent of the population by Christmas, we will launch LTE 900 and 1800 carrier aggregation.

We will do some tests of other combinations for carrier aggregations, re-farm the 900 MHz from 2G, will really get pushing on 700 MHz. That’s pushing in Australia, but also we’re working with the worldwide vendors, the chip providers and handset manufacturers, the dongle providers, to make sure we’ve got a rich array of 700 MHz devices when the time comes. We will trial LTE broadcast and small cells and we will invest about the same in the network. So, continued investment in the network. It’s important, also, for us to promote our network, and here are some examples of the promotions from FY13. The top left is an example of our network, specific above-the-line campaigns. The top right is – below the line, this is what we’re using area by area as we roll out 4G, for an example.

And the bottom is – the bottom two advertisements show examples of how we’re weaving the network message into our handset campaigns. The next initiative that we undertook in

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FY13 was the continued improvement in customer advocacy. Just looking at the outcomes on the right-hand side, mobile customer advocacy went up in the year, service calls and service calls per customer went down. One of the big advances that we made in FY13 is really getting a deep understanding of service calls integrated in the way we do business. So, we have teams listening to why customers are calling the call centre, we’re understanding the root causes of that, and then we go back to the channel, product or process issue that has caused that call and eliminate.

And it’s a continuous process of getting those service calls per customer down, which of course leads straight into getting the TIO complaints down, which they were in the year. There were many advocacy initiatives in the year. Some of the bigger ones were, well, the introduction of Stay Connected, so a customer who needs a replacement device can get one within 24 hours in most of Australia with their data on it, and 48 hours if they’re outside a certain area. That has turned what is a big advocacy negative into what looks to us like a potential positive. Big improvements to our digital property; some examples, the ease of which a customer can activate a prepaid handset, buying a data pack online, and for our Feature Phone customers we made a lot of enhancements to the My Plan manager on the Feature Phones.

Bill shock is an area where we need to continuously improve. Improvements in FY13 included more alerts and more frequent alerts for domestic data users. The introduction of data alerts for international roaming data users, reducing our international roaming data fees by 80 per cent and increasing the amount of data in data packs fivefold, and also improving the ability for our customers to see how much data they used on our online properties. On all three of those initiatives there’s plenty more that we’re doing in FY14.

The third big initiative from last year was to continue work on the mobile margin. Our biggest expenditure in mobile is on our subscriber acquisition and retention costs, and there are four underlying drivers of that on the left-hand side and there are four large drivers of mobile cost on the right-hand side. Largely, there were a lot of questions about our success in FY11 feeding through into FY13 and the amount of handset recontracting events. As you rightly pointed out, that was a negative in the year in the sense that we spent more cost on that, as you would naturally assume. However, the other effects were more positive than was the negative, and that led to that two point improvement in margin. As well as that, there was the operational leverage of growing a gross contribution in dollar terms over a fixed cost base. We see plenty of room for further improvement in each of the eight boxes on this chart.

The fourth area of initiatives was around helping our business customers improve their productivity through Machine-to-Machine and mobile broadband solutions. Just starting with Machine-to-Machine, our largest verticals are set out here from left to right. Transport and logistics, that includes fleet management, container management, asset tracking and cold chain management. After that, we’ve got home and business security, energy and utilities, including smart meters, retail and financial services, particularly M2M underpinning EFTPOS, then agricultural, environment and then a long tail. In Machine-to-Machine it’s very important that we have solutions partnered, so in order for our customers to achieve the productivity benefit, they need our Machine-to-Machine network, our control centre; they also need the solutions as well. I’m very proud to announce a big – a couple of big deals

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with solution partners Tech Mahindra and Wipro who are global systems integrationists with special expertise in Machine-to-Machine, and special expertise in the verticals which we’re going after.

One of the reasons I like Machine-to-Machine so much as a business is we get so much unsolicited feedback from our customers about the productivity benefits that they have achieved through putting in a Machine-to-Machine solution. One of those solutions is Navman; when customers put in a Navman solution they pretty much immediately report back labour productivity, tyre costs, fuel costs and occupational health and safety benefits from that solution which is in 12,000 vehicles. There’s a case study in the appendix of a Machine-to-Machine solution; it is a company called Move Yourself, they are a trailer-hire company, they have 1000 locations around Australia. They have implemented our Machineto-Machine solution, Machine-to-Machine control centre; the types of productivity benefits that they quote are the speed at which they can set up a new kiosk, and the ability to monitor trailer and agent productivity in real time.

I will move on now to the other side of our productivity efforts, which is connected tablets. We also believe – in fact we believe there’s an even bigger opportunity for Australian businesses to gain productivity benefits through connected tablets. Examples are sales courses that can get access to their CRM and lead generation when they’re on the road, tradespeople for job dispatch, digital forms and invoicing, and field forces for occupational health and safety and also access to experts and manuals online. Just like with Machine-toMachine, it’s very important to have applications partners, so that the four that we’re working with at the moment are ARIS, which is about mobile collaboration, Canvas which is prepopulated forms and build-yourself forms, GeoOP job dispatch and management, and Kony, which is a wide range of productivity applications and build-your-own productivity applications. There’s a case study on mobile broadband as well in the appendix.

Eastern Tree Services, they’re a vegetation-management company, including chopping trees away from utility lines. Their reason for the connected tablet was occupational health and safety, a big issue in their business, so that’s the predominant reason why they put in the connected tablet solution. They now know that their manuals are always up to date, they can get their staff to do the training online, and they can also make sure that staff doing a particular job are qualified for that job. The feedback that we got was they put the connected tablets in purely for the occupational health and safety reasons, but the benefits that they’re getting out of that is actually leading to more work for them because it impresses their clients. The two case studies I’ve just talked about are from medium-sized businesses, but Machine-to-Machine and connected tablet are just as applicable, of course, to the larger enterprises.

So that’s a run through the four initiatives that we set out to do in FY13; in FY14 our theme is to be the mobile market maker. A lot of the underlying initiatives are the same; we’re going to continue to push on service initiatives. A lot of those calls into the call centre we believe that we can improve, and there’s a lot more that we can do on giving our customers billing certainty and clarity. With big investment in the network and its promotion, more work on those eight factors that underpin the margin, and then also on Machine-to-Machine, it’s about getting more depth into those existing verticals, and on mobile broadband it’s about

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getting more solutions partners. What do we mean by being the market maker? It’s about growing the size of the mobile business in Australia.

Two big themes there: firstly encouraging our customers to continue to use mobile data on our network, and as they do that, to upgrade to higher plans and to buy data packs, and also increasing the market is about increasing the number of business devices on the network through our mobile broadband and Machine-to-Machine plans. So that’s the plan for FY14, it’s really a re-emphasis of a lot of the themes from FY13. So in conclusion, FY13, we invested in the network, we invested in customer service, we invested in our marketing and new businesses, pleased with the growth in advocacy outcomes, but a lot more to come in FY14. I will now hand back to Kate to talk about our plans and progress on NBN.

MS McKENZIE: Thank you very much, Warwick. So moving on now to winning in fixed broadband, including on the NBN, we’ve delivered another year of solid growth in fixed broadband. Revenue grew by five per cent year-on-year, that was underpinned by strong retail performance, including retail revenue growth of 9.9 per cent to 1.8 billion, an increase in our customer base of 173,000 to 2.8 million, and growth in ARPU of 2.2 per cent, despite strong market competition. The number of consumer bundle customers grew by 238,000 to 1.6 million and now represents 59 per cent of our customer base. As David mentioned earlier, in Q1 we added another 41,000 fixed broadband customers, and net bundled customers grew by just over 51,000.

We’re very focused in this part of the portfolio as well on understanding what customers want and responding to those needs, and the clear messages that have come back from that work is that they want more entertainment and more mobility included in their bundles. So in Q4 we introduced a new range of entertainer bundles offering high-speed broadband, unlimited local and STD calls as well as a range of mobile benefits. A selection of the new bundles also now include popular Foxtel on T-Box channels and 500 megabits of mobile broadband data. We’re also focused on a very segmented strategy in this part of the market, and some of you would have read in the paper this morning that we’re also trialling with partners an online-only no lock-in plan under the brand name Belong.

To improve our fixed-broadband NPS, we’re focusing on improving the usage experience and providing more help to our customers to fix problems when they occur. In July we launched an online desktop application that helps customers identify connectivity issues, resolve the most common problems, and get our customers back online faster, often without the need to contact a call centre. We’ve also introduced enhanced malware protection built into our network, the beginning of trying to build on our safest and most secure broadband ambitions. In terms of the NBN, it has been a very busy last 12 months. We’re pleased with our share as the market continues to grow, and Telstra is the number 1 provider of services on the NBN, although I should emphasise the number of services is still very small relative to our whole base of customers.

A number of key milestones have been achieved over the course of the year: NBN Co has announced the first lot of disconnection dates in November, and that means the first copper disconnections will occur in May next year. We’ve launched a number of business plans on the NBN. In December we launched T-Biz Broadband, and an NBN compliant TIPIT product. We also launched casual plans in the fibre market in April which give customers

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options in a pay-as-you-go type of environment. We launched our fixed wireless offers in July, they’re mainly targeted at customers outside the fibre areas such as on the edge of cities like Ballarat and Dubbo. We launched battery-backed-up voice services also in July, very important for our medical Priority Assist customers.

We launched our self-install products for greenfields NBN customers in September, and we’re aiming to launch the same self-install kit for brownfields by the end of November, and there’s certainly more to come as we move more and more into the NBN environment. That market does continue to grow, and the rollout continues. David mentioned earlier on, some of the slow down is as reviews occur, and as I said, they’re still quite small numbers, and the other interesting thing about this market at the moment, it’s very, very widely dispersed, so quite small numbers of customers spread over quite large geographies. We think that’s a big advantage for us in Telstra, and we’re well-placed to grow share in that dispersed environment.

NBN at the moment is very much a local conversation, and we are an active part of every local community, and we’re well-placed to have face-to-face conversations about the NBN. Our area general managers and our field services staff are key to this approach. Also core to our NBN effort is the role of our retail stores in those local areas. Staff are active in each community explaining the potential of the NBN to customers, and they form part of our local marketing campaigns. Within new estates we’re driving local engagement with developers, site managers, real estate agents and builders. Our retail experience, dropping into our stores, being able to book a personal shopping appointment or have one of our staff come and see you when you’re home are proving to be quite popular.

The connection experience, which is still very much a work in progress as we work through some of the complexity there with NBN Co is also incredibly important to customers. Our Telstra technicians will install the NBN for you, set up all your devices and leave a personal business card for you to call if you need any help. This is also greatly valued by our customers. We still have a lot more work to do in terms of getting the process more simple, taking some time out of some of those migration experiences, but we’re very confident that we’re on the right path to get that right for our customers. In terms of our offers, we’ve been actually offering services on the NBN now for two years, and as I said we have been listening to feedback from our customers, and we have been adapting our offerings as we ensure that we’re meeting their needs.

NBN-ready plans - so that customers can sign up well in advance of the rollout in their area and we can just migrate them is a very important part of our strategy, reaching into the rental market with casual plans which are key in apartment markets and in markets like Townsville where there are large populations, the army barracks, where people don’t necessarily want to sign up to a two-year plan. We’re taking the hassle out of moving day in major apartment blocks with Telstra sales and service teams on site for moving day to connect and install customers across the range of products that they’re moving to the NBN, and we’re making the best of today available on the NBN. So making sure that our consumer bundles, our digital office technology which we’ve launched for the business market, and our Foxtel on T- Box plans are all available to NBN customers.

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We’re also aiming to, with some of the investment that we’re making in this space, get it to drive improvement of traditional business areas as well as in the NBN environment, and you know, that’s particularly critical in areas like moves where we’ve historically struggled to provide a seamless service to our customers. The NBN is also important in our connected home strategy and our connected home environment. As I mentioned earlier on, entertainment is becoming more critical and is definitely a big feature of something that people can enjoy more easily on an NBN service. Affordable access to the best Foxtel entertainment on any screen, and access to thousands of movies on demand is part of our strategy in this space, being able to view free-to-air content at a time that suits individual customers, and having the flexibility to add or remove Foxtel on T-Box packages in a more flexible way than we’ve historically been able to do.

People really do care about being in control, having some flexibility to choose from a wide range of free-to-air and affordable pay light and on-demand content, and you will see us with more offerings in that space as the year rolls on. Creating efficiencies in content delivery is also a big focus so that we can reduce the network investment cost of all that video travelling across our network, and improve content reach and customer experience for all of our fixed customers. Breaking the shackles of traditional TV programming through linear, on-demand and catch-up viewing, combined with increasing personalised recommendations as people more and more are using multiple devices, watching something on the TV screen while they’re playing with their tablet, while they’re sitting in their lounge room and being able to have experience that supports that for customers.

Simple to use and simple to support is also very important to us, so you heard Gordon talk about self service and the 24 by 7 app, being able to support people in watching their content rather than waiting for things to work, and we’re also launching a specialised service support package as part of helping customers get all of the devices that they’re now having in their homes, a great proliferation of devices that people now have connected to the internet, being able to have a service proposition that supports those devices being set up seamlessly and working straight away when people want them to work. So in summary, we’re progressing well in fixed broadband and bundles; we’re very focused on our service improvement initiatives and on entertainment as our key differentiators. We’re pleased with our progress on the NBN, but numbers are still very small, and as I said quite dispersed, and we plan to continue to win the NBN battle, local area by local area. And with that, I might hand over to my colleague, Tony Warren, to talk a little bit more about NBN.

MR T. WARREN: Thank you, Kate, and first of all I would also like to thank my friends in the analyst community and media community who came up to me during the break and complimented me on all the detail I have in the slides. It took a long time to produce those, and it’s great to see that it’s recognised, so thank you for that. There might be something in that for what I’m about to say, might be a hint. So I hope you see from what Kate said that there is a significant amount of work going on on selling the NBN, and importantly there’s also a significant amount of work going on in supplying the NBN, so we have the contracts in place, the so-called definitive agreements, and they are operational, and there’s an awful lot that’s still continuing to happen in that space.

Most importantly, we’re building this transit network, the backhaul network that links all of NBNs points of interconnect, or many of their points of interconnect, and if needed,

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regardless of the underlying access technology, and this is expected to be completed by July next year, a significant project that’s on time and in line with what was originally agreed. Also – and you would have seen NBN had recently a set of revised expectations, the statement of expectations given to it, and you will see that there is still some in-flight activity that they have to complete, and greenfields fibre to the premise. So we will, of course, continue to supply infrastructure for the underlying aspects of that part of their work, and so there is work going on. I think that’s an important message just to remember.

But of course the new – rather famously or rather well known, I suspect, the new government has signalled that it’s going to change the way NBN delivers its services, and in particular it’s looking at the underlying technology, and to this end it has kicked off a number of reviews, including the 60-day strategic review that Ziggy and the team are working through over at NBN. Now, these reviews will take some time; they are complex, and it’s not an easy set of issues that the teams are grappling with over there, and of course they’re undergoing some significant board and management changes. Now, we anticipate that the result of these reviews will be a move to a multi-technology solution or access solution for NBN, so as you know, under the previous approach and previous policy, it was focused strongly on fibre to the premise, whereas I think where we expect NBN to land will be a blend of technologies, including a much greater use of fibre to the node, which of course means that they will be needing access to the copper lines from the node to the home.

Now, these changes in technology will therefore undoubtedly necessitate changes or variation to the definitive agreements. Most importantly we will need to vary the DAs to give NBN Co some kind of usage, right over the underlying copper. We will also need to specify how we cut services over to the NBN. So, you know, under the existing DAs it’s also about disconnection, well, we will need to get some kind of cutover mechanism involved in the new DAs. But remember we’re not starting from a blank screen. We have the contracts and these are variations so I think that that is a completely different starting point from where we were several years ago.

Now, Telstra’s priorities in negotiating such variations is first and foremost to protect shareholders interests. And, I think, you all took some comfort – and we certainly did, around the statements in the coalition’s policy that it took to the election around keeping Telstra shareholders whole; those were, of course, backed up by the Prime Minister and the Minister in their statements at the policy launch. And we do really welcome that and see that as a fantastic grounding for any discussion on the variations. Now, in value terms keeping shareholders whole – I did try and ask my accounting friends whether keeping shareholders whole had any real meaning in an accounting sense, apparently you can’t find it in any standard but from our sense it’s not that complex.

Our shareholders voted several years back on some value and if that value is protected then they have been kept whole. So we see it in not much more – in not many more complex terms than that. We also believe that protecting shareholders interests includes getting clarity as soon as we can on the arrangements and obviously minimising any additional regulatory risks. So from our perspective keeping our shareholders whole means protecting the value the shareholders voted on. Now, we will engage in formal discussions with NBN Co as soon as they are in a position to negotiate these variations. And given those strong statements we feel that there’s line of sight to getting those changes done and dusted.

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Now, in parallel to this there’s been a bit of talk about an additional role Telstra could play in the NBN build. The government has said publically that it makes sense for Telstra to do more of the design and construction work for NBN. And, of course, we’re happy to consider these opportunities and play a much greater role should they become available and should they be commercially attractive. But to be clear we see these possibilities as additional to and separate from the current DAs. So to conclude and to reiterate and perhaps underline the very detailed slides, we’ve engaged constructively with the coalition government on how we can deliver the revised NBN policy commitments.

We think we need to make the DAs fit for purpose. As to those purpose changes we will need to make those variations but we will do this in a way that seeks to protect the shareholders interest all the way through. We did this last time under much more trying circumstances. I think we can do it again. This time I’m quite confident we can hopefully, but, you know, we really need to see how that process unfolds. As it unfolds we will undoubtedly bring you up to date on how that’s all going. So I believe that we’re now doing Q&A, so I look forward to your questions.

MR KEYS: All right. I think we have roving mics. We have a question here, we will go to Sameer first. Thanks, Nicola. And then over to Fraser McLeish on the other side.

MR S. CHOPRA: Good morning, Sameer Chopra from Merrill Lynch. I have two questions. One for you, Warwick: you know, you mentioned that existing customers, some of them are starting to upgrade from plans that are at, say, the $60 level to the, sort of, $80 level. I was wondering if you could give us a sense for what percentage of the customers upgraded last time? Where are we at on the upgrade trajectory and the step up is quite material, right, we’re not talking about small cents and dollars you go from $60 to $80, kind of thing. Do you guys see a material shift in ARPUs, kind of, coming up? Is this going to be a big step change around the corner where ARPUs lift? And the second question is for you, sir, on the NBN: and that is on – you mentioned cutover rather than disconnections. I was just wondering if you could give some clarity on what is the difference between the cutover and a disconnection? Do you retain last mile, sort of, ownership of the copper?

MR BRAY: So on the first question: there was a lot of forward looking about ARPU in that and I won’t comment on that. But in terms of what is going on, it is – up until the end of FY13 it has been an important shift in that more customers are choosing to go from, for instance, the $60 to $80 plan and more customers are choosing to buy data packs. In terms of it being a big lift, that’s true, they get a lot more data when they go to the $80 plan as an example, and that’s why they are doing that. So that was an important factor in the results that I’ve just talked about.

MR WARREN: On the difference between disconnection and cutover: so – as you know, Sameer, under the arrangements at the moment we essentially agree not to compete with NBN. So we disconnect the capability of the underlying copper or broadband component of the HFC. So that’s the disconnection arrangement at the moment. That’s how it works now. Of course, if you moved to a fibre to the node construct you’re not – the copper is not being completely overbuilt it’s only being overbuilt to the node, and then from the node to the home

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the copper is utilised. So we will need to have some kind of transfer of the copper out of the existing complete path into the NBN network.

Whether that ends up being a transfer of ownership or some other mechanism is really part and parcel of the discussions and, you know, I don’t want to go into that. But I think importantly from a contractual purpose you do need to build that in. And just to be clear, we’re not replacing the disconnection component because fibre to the premise will be a significant part, we anticipate, of the – at least in greenfields, but also in some areas going forward. So we need to keep that part there but we will also need to have some kind of cutover mechanism built into the arrangement. So – in theory it’s not that hard, I think, in practice it’s just a matter of working through how that will work.

MR F. McLEISH: Fraser McLeish from Credit Swisse. Warwick, just a couple for you, just on the competitive environment in mobiles – your competitors have obviously been putting quite a lot of money into the networks over the last year or two. Are you starting to, sort of, see any impact of that on yourselves? And also just the mobile customer number in the quarter, obviously still a strong quarter, you know, maybe a little bit of a slowdown on the run-rate you’ve been seeing. Is there any impact in that number in terms of seasonality or, you know, iPhone launches, that sort of thing, that’s impacted on the quarter?

MR BRAY: Yes. First of all it is seasonal and so, of course, our second financial quarter is our best quarter. So dividing the subscriber additions by four you’re not going to get the right answer because the second quarter is the best one. So on the first question; yes, it is a competitive environment. It has been a competitive environment and we are choosing to compete on the strength of our network and we’re very confident in our network advantage as you heard me talk about and also on our customer service.

MR KEYS: Okay. We will go to Paul and then to Justin up the back.

MR P. BUNKER: Thank you. Paul Brunker from JP Morgan. Sorry to be a hog, I have three questions actually. So two for Warwick: BYOD was one of your drivers of margin behaviour. Can you just talk a bit more about the impact that that has on dollar value of profitability rather than percentage? And on the M2M side what are the competitive drivers? Is it just price or can you actually sell the quality of the network in that environment? And I have a question for Tony as well, just in terms of the cutover: from a logistical – technology point of view is there any need for an 18 month lag between an area being declared and, you know, copper being switched over in the fibre to the node architecture?

MR BRAY: So, on a BYOD customer it depends on the segment. But answering for the consumer a person who brings their own device typically can be a little bit more profitable, but it’s not enormously different because they get a discount on how much they pay – they get a discount on their monthly amount. In terms of machine-to-machine, yes, there is an enormous competitive advantage and again with our network it’s not just the network – but certainly transport logistics, well, we’ve got double the square kilometres. So if it’s moving then having double the square kilometres is a big advantage. The depth of our network is also important if you’ve got a mission critical application. So if you’re trying to monitor something that is very important the depth of our network is also a big differentiator. And then after that we’re very proud of the solutions partners that we can bring to a deal.

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MR WARREN: On the question of whether there’s a technical issue for the 18 months, I can see Stuart Lee quiver at me answering a technical question, but I will give it a go. The reality is we’re talking about live networks here. We put live customers on it and you know, and the lifeline being supplied on it, so you want to get any cut-over right. So there will need to be a period of time. You probably don’t want to do the big bang cut over in the middle of the night. You probably want to work out a mechanism that protects and makes sure that the customers aren’t in any way affected. So from a customer perspective, I think we will need to do this very carefully. And you know, don’t forget there will also be managing wholesale handover as well. So wholesale customers will be buying from us and then they will have to move to be buying from NBN. We will be self supplying and buying and then moving to buy from NBN. So you just want to get all that lined up. So if you think about that, you know, I think not going to try and do it in a big bang. Stuart, was that okay? Yes, the missed point. Yes, sorry, the one other point is some customers have Telstra for Voice and someone else with Broadband. So you’ve got to manage that movement as well.

MS McKENZIE: The only other thing is there’s lots of different products that are migrating across too, so some are relatively straightforward and others are a lot more complicated in terms of just making sure you’ve tested – does the service work when you take it off the copper onto the fibre. So still a lot of work going on sorting out at a very detailed level, how that – how we can make that happen smoothly.

MR KEYS: All right. We’ve got Justin at the back and then Ian down here, thanks.

Mr J DIDDAMS: Question for Warwick and one for Tony. Warwick, in terms of customers taking second mobile products or wireless dated products on top of their post-paid or prepaid, you know, what sort of penetration is the retail customer base that now? Is there – is it a very big opportunity to up sell customers into additional products or are we already quite a long way down that path? Or if there is maybe a penetration of customers that take two or more mobile products from Telstra as a starting point. And then for Tony just on HFC – is there a practical solution to NBN Co? Assuming all the costs of operating HFC in return for re-selling that service to other operators, do you think that can be built into the definitive agreements?

MR BRAY: From the first question, I will answer it by saying that penetration of mobile broadband devices in Australia is just over 20 per cent, so it’s about one in five. I think that’s about 10 points higher in some overseas markets. So that would just give some indication that there is some further room there. I would be more optimistic than that. And the challenge for us on the consumer side of things is to convince customers to convince their – to connect their tablets when they’re out and about and not just when they’re in range of WiFi. On the business side of things, that’s the point of productivity applications. Most of their productivity application I’m talking about, they require a connected tablet and that’s how we’re aiming to push penetration of the business segment.

MR WARREN: Okay. On HFC it’s – there’s a degree to which this has a play – a way to play because it’s unclear whether or not NBN wants to have the HFC in its technology mix or not. And that will take them some time to work out. The nice thing about this though, is the way the coalition have stated that their build will happen is that they’re going to focus on

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under-served areas first. And so HFC will be really in the later part of their build schedule, at least that’s what the policy says. So that suggests we’ve got some time to work out what’s going to happen with the HFC. But you know, we’re of course, open to discussing any options. But under the current contracts, that broadband component will be switched off once there’s FTTN or FTTP - it’s the NBN. So that remains as status quo. We will see what happens as we move forward. But the nice thing is there’s no rush.

MR I MARTIN: Ian Martin, CIMB. Three questions for Kate. You said you were very happy to have one RSP on the NBN. Does that mean you’re getting better market share or at least the same market share on the NBN? Is there any evidence yet about the impact on Voice? Is there any Voice Only customers at this early stage and – I’ve heard there’s a separate charge for Voice on NBN compared to the Data Ports. But I don’t know whether that’s true or not if you could enlighten us on that. And secondly – sorry, thirdly, we haven’t heard anything today on the PSTN, but I presume the same rates have declined or have they accelerated in the last quarter?

MS McKENZIE: Okay. Trying to take those in order, we are happy with our market share in the NBN. As I said, it’s pretty early days. So I wouldn’t want to be declaring victory by any means because it is quite low numbers and quite dispersed activity. But certainly, we have an ambition to gain market share, no question about it. Your second question was Voice Only.

MR MARTIN: Yes.

MS McKENZIE: We do have some Voice Only customers and we’ve got a Voice Only product out there. There’s still quite a lot of customers out there who just want a Voice service and want nothing more and we’ve got a product that accommodates that. I’m not sure what the extra charge would be that you were talking about.

MR MARTIN: - not an extra charge – a fee. A charge below the entry level. I think it’s $24 AVC is the entry level, 12 megabitcharge. Is there a – is that the charge for Voice Only or is there a stand alone - - -

MS McKENZIE: When you buy a Voice Only plan, the constructs are more similar to the PSTN constructs, so - - -

MR MARTIN: - - - in order to, purchasing from NBN Co.

MS McKENZIE: oh for us you mean?

MR MARTIN: Yes.

MS McKENZIE: Okay. Sorry. I don’t know if I can – I don’t know if I can answer that question accurately. So maybe I will take that one on notice and come back to you about exactly how they’re charging us for that.

MR MARTIN: While we’re on the Voice issue, I thought part of the Telstra plan was to try and convert Voice Only customers to bundles, is there any experience of that so far?

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MS McKENZIE: Yes. I think we’ve got good conversion rates of people taking up bundles. But you know, I think the reality is there’s still a good, you know, about two million customers who just have a PSTN service. You know, my mum and dad, they’re not interested in broadband, they don’t want it, so we have to have a product for those people as well. And then there’s a market of people who, you know, maybe didn’t think about it before, but when the opportunity arises, they’re more than happy to buy a bundle and you know, get some advantage out of having voice and broadband together. And you know, as I said at the end of my presentation earlier on, we’re trying to make sure we got the right variety of offers for various different market segments because not everyone wants the premium bundle. They – there’s different market segments that have got sort of different desires. Some want, you know, linear channels, some want just 11 Foxtel channels and nothing more. Some want entertainment. Some want sport. And we’re trying to make sure that we can accommodate all those different segments with the offerings that we’ve got.

MR MARTIN: It’s all right. That’s all we’ve used, I guess. But I meant in particular with the migration to NBN, is that an opportunity to sell bundles and you’ve seen that in evidence?

MS McKENZIE: Absolutely. Absolutely. Yes.

MR KEYS: Thank you. And Laurent over here, and then Raymond there and Mark here.

MR L HORRUT: Thank you. Laurent, CLSA. Just on the – Warwick, on the tablet connection, you mentioned it’s a big opportunity. What’s the percentage of – in the consumer space of tablets that are connected today? I think a few years ago, it would have been, sort of, high single digit, I would be interested to get an update on that – the number of tablets connected on the network. And the second question on the NBN, if the scenario is that the copper is retained and rented by Telstra, what part of the infrastructure deal do you expect it would affect and how much of a complete re-negotiation it actually involves as opposed to just an addendum to the current agreement? Particularly, I’m thinking what’s – well, with the status of the lead-in conduits part of the infrastructure deal?

MR BRAY: So Laurent, I think tablets connected to the network in consumer – if the question is of all tablets out there divided by the proportion that regularly connect to the network, the single digits to low double digits is about right, I believe. So one - - -

MR HORRUT: The percentage I am talking about is what percentage of all tablets in – on – from Telstra’s customers actually connected on the Next G network.

MR BRAY: So the – all the tablets we sell are with sim enabled.

MR HORRUT: Yes, but what percentage are actually connecting to the network?

MR BRAY: Sorry, I will have to get back to you on - - -

MR L HORRUT: No, no. ok within the Telstra’s customer base, say there’s 10 million tablets - - -

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MR BRAY: Right.

MR HORRUT: How many of these tablets are connected on the Next G network? So the penetration of network connectivity - - -

MR BRAY: But of the ones that we have sold - - -

MR HORRUT: No, no.

MR BRAY: Of all of the – of all of the customers, yes. So that would be not just similar to the number that you first quoted.

MR HORRUT: Right.

MR BRAY: And the challenge for us is to get more of them connected, which is about convincing them of the benefits of connecting when they’re out and about. By the way, our shared data plans are a very important part of this. And so with the one data allowance, if you’ve got an unconnected tablet you can now share the data allowance that you have on your handheld with those extra tablets. And look for a lot more action in our shared data plans over the next few months.

MS K MCKENZIE: And before we answer another question, Ian, sorry, I didn’t answer your last question, which was about rates of decline of PSTN, and the answer to that is it’s going pretty much at the rate that it has been going. We’re not seeing any big shift in that. So, sorry, I’d forgotten the last question there.

MR WARREN: And Laurent, I will point you to my slide for the answer to your question. The – those are the right questions you’re asking, and they are part and parcel of the discussion. I don’t see them as overly complex and there’s a way through them, but those are the right questions you’re asking.

MR BRAY: The question - is the churn question from before. So, the churn question, which is the low double digit churn that we’ve got at the moment, I think your question was, “Can that go lower?” Is that right? Yes. And the answer is probably not. And there’s a lot of action going on that’s not really churn, so for instance, if a customer moves from a business account to a personal account, so they’ve changed jobs or changed within a business – changed from business to business, or if a customer moves overseas. So, there’s a whole bunch of events that’s sort of caught up in that 10 per cent. So, it would be unusual if it went much below that – significantly below.

MR KEYS: Okay. We will take two more questions, so Raymond and then Mark. Thank you.

MR TONG: Raymond Tong from Goldman Sachs. Just a couple of questions on NBN. Just firstly, Tony you mentioned that the transit network build is pretty much on track by July next year. So, is it fair to assume that the payments that Telstra receive as part of that will be fully ramped up by then? That’s the first question. The second question is, just on TPG’s fibre-to-the-basement build, what do you see as the impact on, I suppose, the DAs and how

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it could impact. Under the current agreements, is Telstra precluded from actually rolling out fibre-to-the-basement?

MR KEYS: Okay. So, on the first question – which was?

MR TONG: Transit.

MR WARREN: Transit. Yes. The payments land as soon as they’re handed over, so yes, that’s true, we’re starting to ramp those up as the network infrastructure is there. And it was always somewhat back-loaded because you had to do, you know, you could get some stuff done en route immediately but then had to build some up, so yes, those payments will start to flow. So that’s a good thing. On TPG, look, it’s an interesting play by TPG. We will see how much of it is real. I’m looking forward to TPG putting a wholesale service out there that is on the same terms and conditions as our wholesale services, so it will be interesting to see if they put that in the market.

I’m also looking forward to them sort of signing up to the various Comms Alliance codes that sort of control this stuff, so that will be interesting. In terms of what we can do, we’re looking at that. Clearly, we will compete as we need to, but there’s nothing that overly prevents us, you know, remember, our agreements are, essentially, we will hand over the network as NBN rolls out. If NBN is not there we have a lot of rights. We also have – we will discuss this with NBN. We won’t do anything, you know, sort of crazy, but we look at that and we, of course, compete in the retail market, as we have to. We will be doing that very seriously. Okay. Mark?

MR M McDONNELL: Thank you. Yes, I’m also on the NBN theme. Tony and Kate, if I could ask you each some questions? Just pursuing, firstly, Tony, that point about TPG, I think the broader issue is the extent to which there will be reinvestment in fixed broadband outside NBN Co itself and the extent to which the change of government actually signals a rollback on the recreation of a government-run monopoly for broadband. And I’m interested, in particular, in the scope that you think exists for Telstra in that context.

MR WARREN: Do you want to ask Kate a question?

MS MCKENZIE: Or maybe ask one of the - - -

MR WARREN: All right. No, that’s fine. So, it’s a very – I mean, that is a really interesting question. I think it is still unclear where the policy will land in that space. Our view is that we’re happy with either a monopoly world, which is the existing framework, or our competitive world, if that’s where it goes. We will, of course, make sure that the same playing field applies to us as to everyone else, and if they decide to move to a more vertically integrated, competitive world, again, well, we will move there. But really, we’re policy takers in this respect and we will just see how that unfolds.

MR THODEY: That’s what we feel very strongly about, about an absolutely even playing field and we will fight diligently for that going forward. Mark?

MR McDONNELL: Kate, just - - -

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MR KEYS: Sorry. Can we make it one more question, purely for time?

MR McDONNELL: Yes. Just to Kate, if I could have a question for Kate?

MR KEYS: Thank you.

MR McDONNELL: Is that okay? So, Kate, I was just wondering if I could draw you out a little more on, you know, given the costs of using the NBN and the payments you have to make to the NBN Co, what’s the minimum increase in the ARPU that you need to protect your existing operating profit margins?

MS McKENZIE: Well, I guess we’re sort of probably not quite thinking about it that way because, inevitably, in the NBN world we get margins that are more like reseller margins than they are the margins that we currently enjoy on our own network. But I guess more it’s what do we need to do to be competitive and that very closely links in to what Robert is going to talk about later on as one of the reasons why we need to continue to drive productivity out of the business so that we will have a cost base that enables us to support competitive offerings to our customers going forward.

MR THODEY: Look, I think we can say we’ve always targeted 20 per cent gross margin, but we’re nowhere near that and you would not expect to be at this early stage when we’ve had to do so much investment in terms of the whole fulfilment process, go to the market. So until we ramp the scale you’re not going to see margins there, so – but when you look at what we can do in terms of how we go to market, how we start to really get the machine working, I think that it’s possible. But it’s going to take time.

MR KEYS: Okay. Thank you, Kate. Thank you, Tony. Thank you, Warwick. I will now hand over to Philip Jones, Executive Director of Data and IP.

MR JONES: Thank you. I manage the data and IP network applications portfolios and also some of our wonderful legacy products such as ISTN, old technology-based calling and also our inbound products, a portfolio in total that’s $4 billion and services our very special segment of Enterprise and Government, run by Paul Geason and our Telstra Business segment, run by Will Irving. Based on what David and Kate promised I was going to cover and demystify, the next 10 minutes could be quite amazing, but I will do my best. It’s really important in this session that I actually get across the concept of how strategically important the data and IP portfolio is to Telstra. Second, that I explain the investments that we’re making to make that a market-leading data and IP portfolio.

And most importantly, I explain how we’re leveraging that portfolio to drive our network applications and services growth, and also in turn how the network applications and services growth is also driving the performance of our IP network. So, first I will start and explain how the market dynamics really are creating a unique opportunity, a growth opportunity, for Telstra. I mean, the dynamics in this market continue to evolve at a pace, as you heard David say, that – and Telstra is – it’s just amazing, and Telstra is uniquely positioned to embrace this disruption and really assist our customers to respond, compete and enter new

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markets. I mean, as it says on the chart, our customers are wrestling with an amazing number of dynamics: social, mobile, global, flexible, working, security, privacy.

They want to consume everything as a service, and interesting, though, there is an opportunity for us, the decision-makers are actually rapidly shifting from the traditional IT providers to non-IT decision-makers. So, it’s a very exciting dynamic for us. The other thing which uniquely positions Telstra is that all the sorts of technology shifts that I will explain, and David related to earlier, customers are really trying to rapidly evolve their business to create business transformational moves in the way they work, the way they deliver productivity and how they address their customer base and all of this is driving demand for our services and products. In fact, interestingly today we are seeing the smallest of small, small to medium businesses, use technologies and products that only a year ago the largest enterprises in the country used to use. From a technology point of view, and you heard David say, the shift to software is very significant. It’s not only significant in how our networks are architected; it’s also significant for us in how we create product differentiation, not only user experience, but in the way we uniquely orchestrate applications on many different devices across networks and deliver those things as a managed service.

You’re seeing consumerisation of IT, an amazing generational shift where quite often the use of complex IT and applications by teenagers is more advanced than what is in some of the largest corporations in the country, and customers need a provider to be able to address those needs. Mobility extension to everything, every application that is delivered out of an enterprise or a government institution today is expected to be able to be delivered across any device, anywhere, and with equality of service. And cloud, you heard David mention cloud, and we could have a whole hundred minutes on cloud, but the fundamental for us for cloud, it’s the shift to a cloud delivery model of everything; not only as a unique service that we provide our customers at a software layer or an infrastructure layer, but it’s becoming the fundamental enablement platform for how we deliver our solutions to our customers.

Now, the implications of all these shifts, these technology and customer shifts are very positive for Telstra. Customers need more than ever a single provider who can take the complexity out of all of it and allow them to keep up, and more importantly, technology revolutions such as cloud really further enhance the value proposition of our IP network. The market: the good news for this portfolio is that we’re outperforming the market in all categories, and in some categories at a multiple. We are the market leader in both enterprise and government and Telstra business, in Telstra business – sorry, in Telstra Enterprise and Government, we are driving our NAS growth from a very strong, highlypenetrated IP base where we have very high share, very high penetration of IP. And in fact today 47 per cent of our IP customers now have NAS products.

In TB, where we basically have a relationship with the whole customer base, there is limited penetration, much, much, much lower, so that provides us a very significant growth opportunity. Also interestingly, in Telstra Business, the overall dynamic is the inverse. We see in the Telstra Business segment that we’re actually getting IP growth off customers’ voracious demand for our network applications and services to transform the way they operate their business, so we’re actually seeing the inverse. In TEG we’re driving our performance into the applications and services layer from a relentless focus on winning the

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IP networks, and in Telstra business we’re fuelling very strong growth in IP from penetration of our applications and services.

At a competitive sense, at a macro level the dynamics haven’t really shifted very much, albeit we are fighting some pricing pressure as a result of our success and the way we’ve been gaining share in both those segments. In the NAS portfolio there are a whole lot of new competitors, pure players, over the top players, global telcos, systems integrators and niche players. Now, what are we doing about this? Now, versus our traditional competitors we’re continuing to invest in the IP network with new capabilities to differentiate, and I will elaborate on that later. Relative to new competitors, as well as significantly broadening our product set and enriching and building new professional services and managed services in David Burns’ Applications and Services business, we’re approaching the market with sophisticated, IP-based offers.

Now, let me give you a couple of examples: we’re using digital media-based retail solutions to combine an IP network with digital signings, customer segmentation analytics, managed Wi-Fi to deliver a very compelling set of capabilities that is transforming the way many retail operations can monetise the presence of people in their retail precinct, and we already have some amazing case studies. We already have this sophisticated, integrated offer already out to seven major retailers, and many, many thousands of vendors, and it’s a really exciting journey where we’ve brought together, as I said, the value in the IP network with a whole lot of applications with endpoints all managed as an integrated solution. In the mining industry, we brought together capabilities from our IP network, delivering an IPTV solution with a Next G access with content from our content assets, internet, and enterprise-grade telephony, all to individuals sitting inside a hut in a remote mining camp, and that has completely changed the dynamics on how those sorts of organisations can utilise our IP network to bring value to people in remote places.

They can use this capability to train them, entertain them, etcetera, etcetera, again, a tightlycoupled solution around our IP network and/or our value-added assets.

Moving on to the next chart, and this chart you will see a few times through this process, and on this chart it demonstrates how – the interlink between our networks and the value-added services we’ve created. As included in our results announcement, our IP access revenues grew at 5.9 per cent, near on 15 per cent in the Telstra Business segment and five per cent in our Enterprise and Government segment. And as shown on the chart, the associated network applications and services growth is even stronger, and in all – as I said earlier, in all those categories, a multiple of the market.

As depicted on the chart, to capitalise on this IP network/network applications dynamic, we’ve invested in a very broad and rich range of NAS capabilities; as you can see in the chart, Telstra today in each of those categories has a very rich and broad range of capabilities. The most important point, though, is we’ve built those on the foundational elements of our IP network. In many cases, as I’ve said before, these solutions have been tightly coupled to the IP network to create differentiated capabilities. And last – the last point is as you see on the chart, as we shift towards the right, more and more we will be building out our solutions capability focusing on industries and integrated service management, and

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as our CEO often encourages us, we see a lot of growth potential in driving our direction and our focus towards industry solutions.

Just to bring this to life with an example from the customer base, you see on the chart that we’re moving from a world where customers use – and there’s still a large amount of the base using traditional technologies, traditional approaches, and not integrated into their directories, into their CRN systems, their messaging platforms, and we’re moving to a world where Telstra is bringing a complete, converged IP network platform that provides very rich capabilities, from social enterprise being completely integrated into the fabric, video, videoconferencing, very sophisticated IP telephony, and IP telephony delivered over any device whether it be a tablet, a mobile, or a fixed phone or a PC, and we’re delivering a very rich set of applications. Now, the result of all this is the customers are shifting their value perception of the IP network; that is very definite, very distinct and very clear, and customers are needing value-added services to actually get the value out of the IP network, so therefore consumption of our value-added services.

And in all honesty, as shown in the chart, as we deliver more and more of these rich solutions into our customer base, they need more capacity from our IP network to get the value out of it. And lastly to summarise, by driving strategically this nexus between the IP network, the value-added solutions and the rich professional and manager services that we wrap around it, we are actually creating an advantage to deliver value, and we’re delivering value to our customers by, as I said, giving them a converged platform; we’re enabling their productivity gains, we’re fostering innovation like they’ve never been able to do in the past, and for Telstra, very distinctly, it’s moving us to a place where we create very long-term customer relationships, we’re increasing our addressable market, you know, for example, cloud. Cloud is all new money to Telstra, every cent of that is new money to Telstra, and we’re delivering share gains, not only in the IP network spaces; we’re also delivering share gains in each of the categories of network applications and services. So the last point I guess I want to make is this company doesn’t move one inch away from its relentless focus to continue to win IP market share, and I will hand over to Robert, who is going to give us the story on productivity. Thank you.

MR R. NASON: I’m Robert Nason. I’m the executive responsible for the components of the change program at Telstra, predominantly the simplification agenda, the productivity agenda and the implementation of the new advocacy system, but I coordinate that, because I always feel we work as a team to deliver this, but there is a coordination role that I play across achieving that. And those of you that have been with us for some years will remember three years ago the launch of what we called Project New at the time, and I think reflective of where we’ve come to as a company. We’ve sort of dropped that Project New connotation, but in the period when we launched that in 2010, you know, we were a company in a little bit of trouble with our service performance, our overall profit performance, our share performance, and we initiated an exercise which we called Project New to significantly improve our overall productivity and our customer service performance, and it was an integrated program, and I think we’ve been through that over the last few years, multiple projects run simultaneously.

Importantly, coming out of that, which I think is a big challenge for companies, particularly of the size and scale of Telstra, is to get the management mechanism in place to actually drive

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sustainable productivity through a business, and that takes a whole lot of operating rhythms and processes, working with the team, getting the right culture and decision-making environment within the team, and as we progressed through Project New I think – and aligned with the work that we’ve done on the strategy, we saw the benefit of morphing that Project New activity into a steady-state agenda for change in the company, the simplification agenda for the – and use the mechanisms that we had established at that time to drive that change, so we’re now seeing this being a continuous exercise in the company, a long-term sustainable agenda of change in both productivity and service that is directly linked to our strategic agenda and aimed at achieving our overall objective, so basically creating a new telco.

So while we initially were looking at just what do we need to get service and costs – service improved and costs down, we’re now looking at what do we create? What’s this future company we’re creating? What products and services does it have? What are the declining businesses and where do we take the costs out of those declining businesses? Where do we provide the investment into the new? And it’s now much more of a managed program to achieve that, and that’s quite a fundamental change from where we started, so our own thinking on this agenda, I think, has changed over the last couple of years.

We report each year our results on our productivity, and those that are familiar with the charts, they’re sort of consistently presented, and there’s two sort of elements to that: one is the expense productivity that we’ve achieved in the year, offset by the expense growth attributed to a range of other factors, but predominantly the growth in the business, and I think the thing to reflect on there, because I think a lot of investors/analysts talk about, you know, how much do we see going to the bottom line of the productivity agenda? The fact is, you know, we’ve grown over 4 million mobile subscribers at a 25 per cent revenue growth rate over the last three years. We’ve grown over 500,000 broadband customers over the last three years at a 20 per cent growth rate. We’ve got a NAS business growing at more than 40 per cent over that same period.

That growth has to be funded; there’s customer acquisition costs in the mobiles/broadband areas, there’s new businesses, we take on managed services, we’re bringing costs into the company, there were 300 new people added to the company as a result of a Defence deal we announced recently. So the offset to that productivity gain we try and reflect in the costs associated with that growth, and roughly it’s a balancing act, so as we’ve reported, it’s a little over two-and-a-half billion dollars of expense productivity that we’ve achieved in the last three year, and about that sort of amount going back into the growth areas of the business. So that’s why we don’t forecast future productivity and expect a banking of that. It’s a case of how much growth do we see in the market and how are the new businesses going to go, we flex that and manage that quite precisely as a management team.

In terms of the overall definition of productivity, we report to the market expense productivity, but internally the program is actually broader than that, and I’ve covered this off at previous investor days. The exercise we run internally includes expenses, which is what you see in the official reports, it also includes avoided costs, so where we perhaps get better deals on handsets going forward, there is a future avoided cost of those handsets in future years. We measure and manage that, so we make sure that that cost is reflected in our budgets and plans going into the future. There’s capital savings, so savings to our capital program,

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there’s asset savings where we dispose of assets that we no longer need and realise a value for that, and there’s some components of revenue.

I think you would have seen in Warwick’s slide we looked at credits and rebates, that’s sort of a revenue item in terms of how it’s accounted for, but there is a program currently underway to look at minimising the cost of credits and rebates into the businesses and offsetting revenue items. So the program itself is broader, and generally there are three areas that – where you can sort of categorise the sort of savings in productivity that we’ve achieved over the last three years. Service improvement, so this is the bad volumes of work; the reduction in call volumes, the reduction in complaints, the reduction in error provisioning, aligned with the focus on service that you’ve heard from Gordon. We religiously follow through on service improvements as to what does that mean? If we’re fixing faults faster does that mean we get less calls to the contact centre? How many less calls? How many – what’s the reduction, what do we do with our overall contact centre configuration and cost as a result of doing that?

There is a religious flow through from the service improvements that we’re doing to achieve productivity savings, and I think you’ve all heard we’re far from satisfied that we’re at the end of our service improvement journey. As we make further ground, it’s about a quarter of our overall productivity coming from that right now, and we see that continuing at about that rate. Structural change, there’s a number of elements to that as well, so we’ve got a capability issue in the company as some of the new businesses require new forms of capability, and some of the declining businesses have capability that is becoming less and less necessary for us going forward.

That again is something we care very much about our employees and how they’re managed, so we work as a team to ideally try and redeploy people, retrain people for the future. Where that’s not possible, we do have quite an extensive redundancy program, and we think that will continue. We will also bring in new capability to the business, so looking at Telstra in an overall headcount sense doesn’t give you the full reflection of the scale of activity going on on adjusting the business to cope with the future, but that’s an ongoing area of coping with the structural changes. So we know the Sensis business, the Yellow Pages business is in decline; we’ve got to adjust costs for that. We’ve got new skills, new capabilities needed in digital advertising, we’ve got to bring those in. We know PSTN is in decline, we know NBN is coming and is going to take over.

Parts of the functions of the company that have performed now we need to structurally adjust for that, so again a continuing focus on that area and taking the changes out with the timing being a critical factor. And lastly on process systems network, I think there’s a range of things here like the LTE network is far cheaper and far – realises a whole lot of cost efficiencies for us; our ability to partner with suppliers in the systems area, particularly I think we saw with Warwick’s presentation the number of partnerships in Machine-to-Machine, bringing efficiencies, bringing services and optimising that, being something we’ve got to be really good at, and that there is a real focus on process systems, working with others internal to the company, external to the company and getting that right, representing a very large component of our future savings.

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So as I said, we don’t give a projection of the future, but when you’re looking at reframing the cost base of the company, I would think there is probably about up to half the costs base, when we look – go back three years, is probably up for really serious review; is that the cost base we would have going forward, and it’s a case of what level of new business growth do we get, how much of that gets replaced with new growth businesses providing new sources of revenue. So the pool of opportunity is still expensive and we sort of assess each year the trade off with what do we need to invest in growth, what do we need to invest in service and what are the service improvements that give us the outcome and how much can the company actually absorb. I think we have learnt that, you know, when you get north of a billion dollars of productivity the stress on the company when we have got such an aggressive change agenda anyway is something we need to be very careful of. So we have got to – in terms of the exercise of delivering the changes necessary to produce productivity, you don’t want to go much above a billion dollars before you start putting an undue stress and strain on the company on achieving its other growth objectives and the objectives of delivering to our customers.

So in terms of new – the new business areas are an area we have probably left alone a little, and there’s a real focus now on that NAS business is now a very substantial business. We’re working with Brendan on really getting the costs aligned there, looking at how we can improve margins. We have done a great job on sales with what you have just heard from Phillip, really good opportunities out there, but as businesses start growing and rolling things out there are always inefficiencies and we have got to now look at getting that business into a mode where we are getting realistic margins and sustainable performance and looking at how we can achieve that. The assets of the company are something that Andy and I are having a real look at. So are there savings in further capital, savings in terms of where we spend our investment dollars so we are getting the right investment in all areas of that? We are looking at our property holdings; there’s a whole range of assets of the company.

Again, thinking of the Telstra of the future, not the Telstra of the past, what is the asset base we need going forward. So that’s under a fairly rigorous review. I think I have mentioned the service improvement and reducing the failure cost. And then the overall structural changes which are quite good. We have got to face the fact that as we execute the NBN transaction there will be a component of that that is cost savings for Telstra going forward because what NBN is now doing versus what we are doing, there will be an extraction of that going forward. I should mention, just going back one, something that all telcos are currently looking at that I see as a major sort of opportunity, and a bigger opportunity for Telstra because we are the incumbent and we are the big player is moving to IP service provisioning for all services.

There will be a level of systems investment in that, but there is a real opportunity to really substantially lower SG&A costs associated with aligning our systems and our service processes to a much more online world where customers do their own configuration, where it’s much more software driven, requires less truck rolls. There is a new world emerging for all telcos there; Telstra because of where we are and the program we have got in place has an opportunity to move quite – in a leadership fashion into that world and really deliver quite a large further productivity saving. So I know we are not giving you exact numbers but I think what I wanted to leave you with the message that the size of the opportunity is large and continues to be regarded that way by the team.

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At the level of investment going in to getting it, it’s the same; we haven’t diluted that from three years ago. So it’s about the same level of investment and we are expecting that same level of investment to continue for the next two or three years. So we are aiming for similar type outcomes without being definitive on numbers. So with that I might ask Kate and Phillip back to the stage and we can take some questions with Andrew facilitating.

MR KEYS: Thank you, Robert. Okay. If you would like to ask a question please raise your hand?

MS McKENZIE: And maybe before we start. Ian, one last thing - your question that I am giving you in dribs and drabs at the risk of mixing up topics. You asked about NBN cocharges. I think the accurate answer to the question is they charge us $24 for voice only, but also for voice and data. There is no discount. And on the AVC side they give us a certain amount of voice and data and there is no discount if it’s just the voice-only service. Hopefully that answers your question. If you would like more detail then Lincoln is around here somewhere and he can go into the detail for you.

MR KEYS: Raymond.

MR TONG: I have got a couple of questions just on the IP and data business. Now, I suppose the next shift change is with – it’s a different revenue stream. I suppose, how should we be thinking about the margin profile going forward just given at the moment where it’s 65 per cent? Like, how should we thinking about that as, I suppose, things like ISDN declines?

MR NASON: Yes. Look, I think the answer is that we would not tell you a number looking forward, but there are many dynamics that continue to give you a confidence that we should be able to maintain margin. Scale is everything and, as you heard David say, as things move more to a software-defined world, as you heard Robert say that we will continue to invest in our ability to IP provisioning much more efficiently, there is a whole lot of good reasons why we have a strong margin picture going forward.

MR TONG: And – thanks. And just a second question for Rob, just in terms of the nonstrategic assets that you sort of mentioned before, can you maybe sort of talk about that a bit more. Are we just sort of talking about maybe towers or exchanges that could be sold or sort of reduced down the track in any way?

MR NASON: Yes. Well, we have a range of network and non-network assets and I think we are just having a rigorous review of the return we get on the investment we have, we put into those assets every year and the assets themselves. So I think it’s – again, with a focus on looking at the Telstra of the future. What assets does the Telstra of the future need to hold and recognise in terms of where we are going. So everything, as it has been from this program from the start, everything is in and we will have a look at that. So without sort of predicting the outcome, but I say that’s an area of ongoing focus for us.

MR KEYS: All right. I will take a question from Sameer.

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MR CHOPRA: All right. I have two questions. One is just on the IP and data product set. Could you talk about what, if any, impact the National Broadband Network has on this product? Is there any sort of overlap between the NBN and your IP products that you are currently on? And the second one, Robert, just one for you, you know Optus announced that they are, in effect, pulling back about 40 per cent of their distribution, storefront, and that’s partly because the market is maturing in mobiles. Are you sensing as well that there are opportunities there to change the channel mix, maybe pull back a bit more from the physical distribution and go electronic? Thanks.

MR JONES: So to your question on NBN, I guess the first thing that is really exciting for NBN for us is that one of our competitive advantages with our capability is that we aggregate all sorts of access technologies today into an IP network. So a traditional IP network for a large organisation comprises DSL access, Ethernet access, high bandwidth fibre-based access, even down to PSTN access. So satellite access all converged into an integrated IP – wide area IP network solution. So from a technical point of view, we have a great strength and we have the broader sort of accesses in the market that we offer and integrate, so from a competitive point of view we have a real strength at bringing multiple accesses together as a solution as an IP network.

From a financial point of view, obviously at the very low speed you will see similar dynamics to what you will see in broadband, and at the higher speeds, I think, again, we are well suited because we have a very long and established installed base of fibre-based accesses into big wide area networks. So I think you will see a different dynamic at the bottom end to the top end. But it’s not something – I mean, and by the way, as you probably know, for a large corporation – and you saw, I think it was Kate’s chart, that showed NBN in – so the migration for a large organisation has to be very clear and distinct across to a new technology nationally and so, again, this is where we bring competitive advantage.

MR THODEY: NBN is only .....

MR JONES: To a network, that’s right. Yes.

MR THODEY: Maybe I can just say – I mean, NBN is only related to network so, I mean, the value creation in an IP network is of the layer three and above, and – but, yes, if I can buy cheaper fibre access, that’s fine.

MR JONES: Yes, that’s right.

MR THODEY: It saves us putting it in, but from a competitive position the value creation is layer three and above more and more, so I think actually it’s probably beneficial - - -

MR JONES: Yes.

MR THODEY: - - - in the bigger scheme itself.

MR JONES: Yes.

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MR NASON: Yes, and just on our retail network, look, I think Gordon and Karsten particularly would see the very distinct competitive advantage that our retail network brings to us so – and with NBN coming and that being a region-by-region play out, that’s a real strength in that environment. So I think in terms of efficiency I see more of a trade off between contact centres and online as the real efficiency dividend. But, like anything, we follow our customers. Our customers want to visit our stores, want to touch and feel our products. We will provide it. If our customers get more and more comfortable with doing things online, we will go with them and provide the services the way they wish to receive them. That’s probably the best way of describing that.

MR THODEY: Yes. Let me just add a few comments. I mean, our stores are too busy. At the moment we are – we have got a lot of people coming through the front door. Now, what we are going to do is more efficient. You know, retail is good if you are in the right location and you have got the right product. So at the moment I don’t plan to pull back. Are we going to change the retail footprint and be innovative with it, you bet. There’s a lot of really creative, new retail pop-up ideas, etcetera. Now, that may change the configuration on some of them but we are really focused on creating a better customer experience. This is not an easy product to sell and that’s what I think people forget and people need to be taken through what they need, especially in NBN. And we have seen an incredible success with the trucks we have taken around in these different locations. People stream in to see it.

So I think retail in the right place is alive and well, but I would also really reinforce we are about a hybrid channel. That’s why digital is so important in creating an integrated experience across all the different touch points. So I wasn’t actually aware that Optus was pulling back 40 per cent of the retail points at present. I mean, I suppose if you are not busy you don’t need them.

MR KEYS: One more question and then David and Andy will come up on the stage for some questions. Thank you.

MR McDONNELL: Yes. Thanks, Andrew. Mark McDonnell. So, Phillip, I am interested in you to talk a little bit about the partnering opportunities that Telstra is developing and, Robert, I am wondering if you can then pick up on the productivity aspects to that. So specifically, Phillip, I am going to things like outsourcing, particularly around software in product development, partners as a channel to market, particularly in the enterprise segment, and in terms of the productivity issues the degree to which this drives lower capital intensity as you shift assets off your balance sheet and start utilising third-party facilities and infrastructure to a greater extent. I am wondering if you could both address that in terms of market opportunity, Phillip, and productivity gain, Robert. Thank you.

MR JONES: Yes. So in various ways. So as a direction, in a go-to-market model partners becoming extraordinarily more important, as you have seen, our product solution evolve into network applications and services. We are already in Cloud, for example. We now have near on 1800, you know, partners that have grown from – because their business models having to shift from SI work into selling, you know, integrated solutions using more components from another provider. We have already very advanced partner channels in place in our Unified Comms area where particularly with end-point solutions are very, very important. So we are very advanced in our go-to-market, but my point will be it will play a

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bigger role going forward in coverage and also connecting the other components that typically those partners deliver to an end solution to the customer being integrated into our – and we have already seen some really exciting early financial benefit from fundamentally rate-carding some of the standard professional services in security and around Cloud and attaching it to very basic solutions.

For example, one of the most basic migrations that a small to medium business has to go through when they move to the Cloud often is an email migration. And so having partners who have expertise in that and we just rate-card as standard, build it as Telstra, they do the work, we have driven the sale of the software as a service solution and immediately there has been an attachment in prof services. And it’s only been early days; we have only been in the market about six months with a number of those rate-carded professional services at the bottom end and we are seeing quite exciting growth from that.

MR NASON: And it gets to, from a productivity sense, the build versus buy. What capability do you have in-house, what IP do you own, what’s the best way of getting the right margin for the service. So we are looking at fewer, deeper relationships and separating out our supplier base with the designation of a true partner to Telstra where there are companies that are in go-to-market positions with us that are involved in our strategic agenda, are helping to deliver our productivity agenda and a service agenda as well, as separate from a supplier where we are just looking at the best contract price we can get out of them. So there is a real split in designation in some of these growth areas, particularly, and then we are looking at the total Telstra relationship with that company. They may be doing things in Sensis, they may be doing things with Phillip, they may be doing things in the operational areas of the business; we combine all of that and deal with them as a single relationship. That’s quite a big change that we have introduced just in the last sort of 12 or 18 months.

MR JONES: And, of course, we have got our very strategic partners at the top end that we could talk about, like the Ciscos and the Accentures and the Ericssons and, you know, the Microsofts, etcetera, which are a very fundamental part of, particularly in the enterprise and government market. And, as you know, we won Global Cloud Provider of the Year this year with Cisco, based on the innovation we are doing in Cloud. So it’s a very strategic relationship and we are playing a very influential role in their architecting of their go-forward Cloud solutions as a network provider. Thank you.

Q&A SESSION WITH DAVID THODEY AND ANDY PENN

MR KEYS: Thanks, Kate. Thank you, Robert. Thanks, Phillip. David and Andy, thank you. Just Andy and yourself. All right. We will do some Q&A and then I am going to quickly walk through the logistics for the growth sessions and hand over to you for some closing comments, okay. All right, questions, please. Might be doing logistics.

MR McDONNELL: I thought I should wait a bit, but in the absence – David, you mentioned you have recently completed a strategic review to 2020.

MR THODEY: Yes.

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MR McDONNELL: I was telling someone here earlier this morning – they asked me when I first got involved with your company and the answer was 1975 when I looked at the Telecom 2000 report.

MR THODEY: Right.

MR McDONNELL: A visionary report 25 years into the future where it mapped where the company was going to go over a quarter of a century. And you could tick off everything that was actually achieved by the year 2000 was actually identified in 1975; the rise of personal computing, pay TV, mobile telephony. They are all in that report and given great prominence.

MR THODEY: Yes.

MR McDONNELL: So how much public disclosure can we look forward to about the recently completed strategic review to 2020 and what are your thoughts about a longer term vision statement for Telstra in terms of not where we are, day-to-day issues, guidance, but the longer term strategic direction that has got a few decades of value in it?

MR THODEY: I remember that report, Ian. Actually I had a copy of it back a few – well, it would have been last year. All the trends were identified except it does say PSTN would go to zero by 2000. Thankfully it didn’t. But I think you are right. It’s interesting in all of these longer term strategic reviews you do, you do tend to get the trending right. The rate of change is the one that has always been the harder one to predict. Yes, look, I think over time we will give more to you. I think the only reason we have not given you a more detailed insight into that is that there are just a few areas where we are just feeling our way on, because in any review out, you know, six, seven years, there’s a lot of assumptions that go into it, but I think maybe over the next six to nine months we will be able to give you a bit more of a reveal on that. Obviously a lot of what we’re talking about now has come out of that. There’s some things we’ve not talked about because some of the technological innovations we see are still embryonic. But, yes, I think we will is the short answer. It’s just not – at the moment I think we’ve got enough things on our plate to – just to keep ourselves focused on.

MR KEYS: Fraser?

MR McLEISH: Thanks. Just a couple quickly – one quickly for Andy. There’s a couple of areas within mobile revenue where we’re seeing some changes. Specifically I’m talking about roaming where, you know, prices are coming down and on, sort of, breakage fees where people go for their caps and, you know, pay you some quite high charges on that. I’m just trying to get a feel – are they meaningful revenue streams for you and is the impact of those going to be meaningful on your mobile revenues or not particularly so?

MR PENN: Well, they’re meaningful in the sense that obviously they’re significant in themselves. But in the context of a portfolio of a $9.2 billion business, I don’t think they will be meaningful enough to effectively reverse the trends that Warwick referred to in his presentation on underlying ARPU. So it will have an impact but within the context of the

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overall portfolio we’ve got some other positive trends that are happening as well such as monetisation of data.

MR THODEY: And look, I would just say that I think that this roaming – I mean, it has been sitting there for awhile, it’s something we’ve got to phase into it and I think we’ve done it and we’ve got a growth in the market. And hopefully when you’re roaming in the future it will be a wonderful experience and also less expensive when you get home.

MR PENN: I should add as well, sorry – just one other thought. I mean, we’ve had those alerts going out for some time now. So they in themselves would have an impact on the extent on international roaming. So we’ve already seen some of that factor through anyway.

MR KEYS: Okay. Sameer and then Justin up the back.

MR CHOPRA: I just had two questions. One is can you talk about the pipeline in the NAS business. You know, you won significant deals recently in defence in Australia Post. I was just wondering if you could talk about how helpful otherwise the pipeline is there. The second one is, you know, CapEx intensity in the business. 13 and 14 are elevated CapEx levels. I was just wondering, you know, as you get through the completion of the transit build and the 85 per cent 4G mobile coverage do you see a period where CapEx intensity goes back to the old levels? Or do you see lots of new opportunities in the networks?

MR THODEY: So a pipeline for the big NAS deals continues to be pretty strong. I mean, remember we signed – which we sort of put into the NAS portfolio, the new emergency services network in Queensland which was what – $650 million – is that a poor guess – yes. Six – six – about $600 million so that’s a big contract. And we’re seeing a growing number of the what I would call tier 1 tier 2 customers signing that now – because using these big outsourcing contracts it starts at the high end and you’re seeing the banks go – we had DHS as well, which was a very big contract out of Canberra and now we’re starting to see, sort of, the tier 2 or lower tier 1 companies come to us saying “hey, look we need to look at different ways to do it.” A lot are based around what Philip was saying – is we need one core network infrastructure and then layered voice, video enhanced services all around and then we just need someone to come and manage it for us.

So that’s where we’re starting to see it go, so maybe not quite the size of the contracts; remember CBA was close to a billion dollar, seven or eight year contract, we’ve got – the other banks have already moved. So I think there’s a reasonably good profile. But I want more as well – let me quickly say as I look down here. In terms of capital efficiency: capital management remains a really big focus and Andy and I have spent a lot of time on this because we’ve really got to make sure we’re really in the right returns from the capital spend we’re putting in. Like, a billion – over a billion every year – 1.2 last year and this year just from the mobile network.

Are we getting the right return? Yes, we’ve been travelling, you know, over 14 because we accelerated there. But I think as you look at finishing off the NBN network some of the other work we’ve got underway – we’ve probably got a few more years at that level. I’m going to continue to, you know, challenge the company to get down but I think we’ve got to be realistic that we’ve got – you know, there’s a lot of work still to be done to get there. But, so

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13 – 14, yes; could we go lower? I would like to think so but I’m not – we’re not making any predictions on that at that moment. Is that where we’re at?

MR PENN: Yes, I think that’s right.

MR THODEY: Because Andy sort of keeps me honest about this.

MR PENN: We were 15 per cent for, you know, the last two including this financial year; very much to support the accelerated rollout of LTE and we’ve set in our capital management framework but medium term 14 and I think that’s what you should pretty much assume.

MR THODEY: But can we spend that money better? Get a better return? I think there’s more we can do. We’ve got a lot of opportunities to spend it, I tell you.

MR KEYS: A last quick question. Thanks, Justin.

MR J DIDDAMS: Just a high level question. Over here, David. Your two fastest growing businesses, you know, mobile and NAS both operate at margins below the group reported margin and well below some of your much more profitable fixed line businesses. You know, as these businesses continue to grow in coming years and some of the fixed line businesses margins come down under NBN or, you know, as revenues decline; over time should we be expecting margins to be trending towards margins delivered in those businesses? Or if you talk about how you see margins trending in coming years, I mean, is there a chance that this is the best year of margins we’ve seen?

MR THODEY: I think that’s a really good question and something that we spend a lot of time on. Yes. You know, in the NAS portfolio the margins are lower but when you take a composite NAS and IP it’s actually pretty much in line with where the corporation is at. You’ve seen a significant improvement in margins in the mobiles business and that’s something we’ve got to keep working at. But this is the challenge, I think, you’ll find in any big company. As you bring in newer revenue streams they usually come in at lower margins and over time, as you get the scale, as you better at driving efficiency, you start to see a tick up in them and so I think an answer to the case in point, which we spent a lot of time on, is how do you really drive those margins higher. And so therefore as we bring those in higher, that will be an offsetting factor against the other ones. So, look, at the moment we’re going to, you know, our intention is try to hold margins as we go forward at the corporate level, but there will be lots of moving parts within that.

Now, obviously over the longer term with NBN, that is a different scenario again because you’ve got, you know, a 20 per cent growth margin there and therefore that will come under more pressure. But there’s a long way before that really starts to play out in the business. Do you want to add anything else to that?

MR PENN: Well, the only thing I would say is that, I mean, over the long term our aspiration is to grow earnings, so that’s the bottom line. As David said, there’s a number of trends that will change the composition of the portfolio. The other dynamic there, though, is that they will come with lower Capex intensity, which is, really, to Sameer’s point. So, in terms of what

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falls to the bottom line net profit after tax, which is ultimately what drives the ability for us to pay dividends and increase dividends, that also has to be factored in as well. But the aspiration of the organisation is to grow earnings over the longer term. If that ends up being at a lower gross margin, well, what’s more important is we’re growing earnings.

MR THODEY: Take one more? I’m enjoying myself, so.

MR PENN: Okay.

MR TONG: Just in terms of the new growth businesses, NAS, Asia and media, I think the total revenue pool is around about, roughly four billion or so last year. Do you – can you sort of give us hints of what kind of aspirations of how big can these businesses grow? And in terms of the amount of capital you need to put in to grow these businesses as well. I mean, you’re going to be generating a fair bit of free cash flow in the next few years and I assume that you’re going to have to invest into growing these businesses.

MR PENN: Well, look, the new growth areas are not anywhere near as capital intensive as what traditionally in the core of the business. We’ve not declared our aspirations, but yes, it’s sort of, you know, four on 25, four on 26. It’s under, or around about 10 per cent. But you would want to be thinking to get this to be significant it has got to get over 20-plus. But in terms of capital intensity they’re nowhere near as capital intensive, so when I do these reviews with David Burns, and now it will be Brendan and the new Enterprise Services Group – Global Enterprises Services – the capital required to run that is far more around disciplines, processes, people. That’s not to say we will invest capital to get the systems right in there as well. But they’re not anywhere near as capital intensive.

Now, in terms of digital media, e-health and some of those other portfolios, there’s obviously capital required among the IP core network across Asia, and that still is running probably in 10, 11 per cent Capex to sales or thereabouts, but that is - you make those investments that, sort of, you know, that they last you a long time. But the actual managed services on top of that are nowhere near as capital intensive as what you find in a mobile network. So, look, I think that it gives a, you know, positions pretty well. But of course, with all this, as you look at the free cash generating capability of the company, we’re very conscious of shareholders and maximising return to shareholders, and if we’re going to do anything of any significance that would be weighed up, so I think we’ve got a pretty good capital management story that Andy has taken me through a number of times.

We don’t have much plan of deviating from that, so that’s the discipline we will bring to this, but we’ve got to keep pushing to growth as well, just to offset the declines but also brings new things to it. Okay. So with that answer are we done?

MR KEYS: We’re done. I will just quickly in 30 seconds - the logistics. At 12.45 after lunch we start our breakout sessions on the strategic growth options. You will have the opportunity to attend three over the hour and 15 that follows. The Phillip room where the NAS and global applications and platform sessions are taking place are down the other end of this floor, and the Asia session is directly beneath this room on the floor below.

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And if you’re wondering where you are going to go for the first session, because they’re all very exciting and they’re going to be a lot of fun, on the back of your name tag is an allocated destination for you to go to. Mine says Asia, so I’m going downstairs, and you can choose where you go to for sessions two and three. Thank you. Over to you, David.

MR THODEY: Thanks, Andrew.

MR PENN: To close.

MR THODEY: Okay. Great. So, look, this comes – brings an end to the plenary session, and so thanks for your time. But the key message coming out of here is, really, we have a lot of work underway, there’s refinements to the strategy but our core of focusing on customers, our domestic business, which is the core business, and then driving into these new growth areas. I hope you’ve seen a bit of an insight into all the things we’re doing. There’s a lot going on, which is great, but at the end of the day it’s about winning in the market, so – and delivering value to our shareholders, which is critically important to us. So, thanks very much. You won’t see me again. I’m going to do some media now, but the teams will take you through into the breakout sessions. Okay. So, thanks very much.

ADJOURNED

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There is no transcript for the New Growth Businesses breakout sessions, but speaking notes for each session have been provided below, and give an indication of the content of the presentations on the day.

NETWORK APPLICATIONS & SERVICES

Speaker: Brendon Riley, David Burns

PREAMBLE

• We continue to see high growth in the market both domestically (11%) and internationally (+15%), and that strong growth is expected to continue in the coming years.

• In particular, highlight strong growth in the following services:

• Cloud Computing domestic market growing at 18.5% (FY13-16 CAGR)

• Increased usage of unified communications to drive productivity and enhance service quality

• More integration and end-to-end management of services

NA&S PORTFOLIO:

• Describe the pillars of the NAS portfolio and the breadth of services we offer that enables us to support our customers across their business.

GROWING NAS:

Continued focus on our strategy

• Grow the core:

• Continuing focus on core strategic portfolios e.g. Cloud

• Targeting new customers

• Increasing Customer Delivery Unit coverage to achieve Customer service excellence

• Expand offer roadmap:

• Expand the current portfolio to extend our range of NA&S services

  • UC - TIPT & SIP Connect on NBN - Allows sale of IP Telephony on NBN access

  • UC - Integrated CRM - Bundled Contact Centre Hosted CRM package

  • MDN - Managed Secure Network Gateway - opens up Government contracts by meeting non-negotiable security requirements.

• Continue to drive our $800M investment in cloud through to 2016 (announced June 2011)

• Grow Internationally:

• Leverage our domestic strengths and our international footprint to grow internationally

• For the Asian market, the plan is multi-faceted:

  • In product marketing, our initial focus has been on building our Cloud and Global Managed Network Services (GMNS) offerings:

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• GMNS offers multi-national corporations a truly integrated end-toend managed network service over Telstra Global’s worldwide network and enables seamless business expansion to, in and from Asia, as well as EMEA and the Americas. Initial launch is expected to be completed by November 2013

• Offering cloud infrastructure services from data centres in Hong Kong, Singapore and the United Kingdom, with potential expansion into other parts of South East Asia.

  • This extends and complements services already available in Telstra’s Australian data centres. This provides a globally connected Infrastructure-as-a-Service (IaaS) solution for multinational customers, enabling them to consistently deploy applications, deliver business processes and deploy offshore disaster recovery solutions across multiple geographic locations, all controlled via a unified service management console.

  • Telstra Global now operates data centres in six countries with approximately 14,000 square metres of data centre space globally

  • 2013 Frost & Sullivan Asia Pacific ICT Award for Telecom Cloud Service Provider of the Year (July 2013)

• Telstra Global have over 1000 staff globally Strengthening the foundation: 4 cable investments have been announced and Telstra continue to expand it’s on-net presence, launching 10 new Points-ofPresence (PoP) between July 1[st] 2013 and now (out of a total of 1,400 PoPs[wo] rldwide). We continue to evaluate acquisition and partnership opportunities within Asia to expand our capabilities and footprint

NAS JOURNEY:

• Highlight the positive journey of the NA&S business from 2011 to 2013.

• Key call-outs:

• Capabilities:

  • Customer Delivery Unit - emphasis on customer service excellence and our journey to an NPS-led organisation

  • Practices - world class talent to focus on business needs first and bring thought leadership to the respective portfolios

• Acquisitions:

  • I-Vision Acquisition - capability in video conferencing and part of our journey in establishing ourselves as the market leader in Unified Communications

  • NSC acquisition - Acquiring NSC gives us the opportunity to make Telstra the leading provider of solutions across all leading contact centre technologies.

• Customer wins and deals:

  • Department of Defence - Largest customer undertaking in Telstra’s history

  • IBM - QGWN (MNS)

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STRONG REVENUE GROWTH, ENHANCED CAPABILITIES:

• Key Successes:

• Strong domestic revenue growth of +18% in last year

• Successful acquisition of NSC, a leading provider of Unified Communications, Contact Centre, Managed Network Services and associated integration and consulting services (delivery capability complements our Genesys and Cisco capability with Avaya to create a leader in contact centre solutions)

• Commenced expansion of selected NA&S portfolios (MNS and Cloud) into international markets , particularly the Asia-Pacific Region as this has been identified as one of Telstra’s key growth pillars

• Strengthened our Australian and Global delivery and operational capabilities:

• Proposing a new NAS Global Delivery Model that would partner with worldclass providers to enable us to scale quickly to meet demand, provide greater proximity to our international customers and significantly improve our international competitiveness.

• ISM - standardisation and alignment of service management processes in Incident, Problem, Change and Service Request Management under a new ISM market offering, ISM Essentials.

• Rolling-out SAP ERP (Services Plus)

• Delivering an improved customer service experience and NPS:

• Established the Customer Delivery Unit with a focus on delivering profitable, sustainable and repeatable services, based on clearly understood customer outcomes for our key Enterprise and Government customers

• CDU resulted in a deeper understanding of customer businesses and pain points, and dealing with complex issues that lead to solutions that bring improved customer advocacy

• Plan to expand the scope of the CDU from top 35 to 100 customers

• CSIA Award:

  • Customer Service Centre and ITIL Direct Services team (ISM) won the CSIA National Award for Service Excellence in a Contact Centre

  • Customer Service Operations (CSM) won the CSIA NSW Award for Service Excellence in a Service Desk

  • Customer Delivery Unit won the CSIA NSW Award for Service Excellence in a Business Unit

• Partner Awards:

  • VMWare Partner of the Year

  • Cisco Service Provider of the Year

  • BMC Innovation & Excellence

  • Parallels Excellence in Innovation

• Increasing focus on key growth areas, such as cloud computing and expanding our portfolio of Services

• Continue to drive our $800M investment in cloud through to 2016 (announced June 2011)

• Appointed Executive Director of Cloud Services - Erez Yarkoni

• Established Cloud Practice to drive thought leadership in Cloud

• Recent new product launches, include:

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  - Telstra Cloud Collaboration - Cisco: Moving UC into the cloud and offering innovative (per user – as a service (aaS) ) charging models

  - BYOD Consulting High customer demand and opens opportunity for DaaS (Desktop as a Service)

  - Integrated Service Management – management of 3[rd] party Apps & Devices

• Launched Practices to provide thought leadership to customers in a fast changing and complex market:

• Appointed Executive Director of Practices - Michelle Bendschneider

• Strengthened our solution expertise with the establishment of NAS practice areas including: Cloud, Video Conferencing, UC, MDN and Security

CONCLUSION:

• We will continue to implement our strategy, to develop our capability in this important portfolio that complements our historically core business and assets in Australia and internationally.

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GROWTH OPPORTUNITIES IN ASIA

Speaker: Martijn Blanken

Introduction

Three lines of businesses comprising of Telstra China, CSL and Telstra Global

Steady double-digit revenue growth of 16% to A1.7B in FY12/13

Focused on building foundation for solid international growth by:

• Optimising our existing operations

• Building capabilities in line with Telstra’s growth strategy

Strong focus on Asian growth markets with aim to build long term presence

Telstra China

First representative office set up in 1995. Offices is in Beijing, Shanghai and Guangzhou FY12/13 highlights:

• China media assets delivered revenue growth of 22%

• Autohome, the # 1 destination for China auto buyers, grew revenue by 73%

• Two assets sold in 11/12 reducing the overall revenue profile

• Telstra Global in China has been signing strategic network deals

CSL

Founded in 1983, CSL operates a distinctive multi-brand strategy through brands 1O1O, One2free, New World Mobility

FY12/13 Highlights:

• 1 Hong Kong mobile operator in service revenue and EBITDA with 17% revenue growth

• World’s first LTE roaming pact

• 1 in Hong Kong with 3.5M customers, gained 425,000 customers last FY

Telstra Global

FY12/13 highlights:

• Revenue grew 9%

• Large volume of new contracts and customers, including milestone international NAS contract with Jetstar

• Strengthened Cloud offerings with data centre in Singapore, cloud-enabled nodes in Singapore and Hong Kong

• Secured new licenses in Taiwan and India, 17 licenses worldwide

• Network expansion, with over 1,400 Points-of-Presence in 230 countries and territories

Our Growth strategy

Customer Focus

Driving Value from the Core:

• Wireless and broadband

• International connectivity

• • Online media

Build New Growth Businesses:

• International expansion

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• Target key verticals

• • NAS

Conclusion

• We are building the foundation for solid international growth by leveraging our existing operations.

• We are building capabilities in line with Telstra’s growth strategy.

• We have a strong focus on Asian growth markets with the aim of building a long term presence in these markets.

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TELSTRA HEALTH

Speaker: Shane Solomon

WHY TELSTRA IS MOVING INTO HEALTH

• I come to Telstra after 30 years in health care, 15 of those running big health systems, most recently as the Chief Executive of the Hong Kong Hospital Authority.

• I saw first-hand the potential of eHealth In Hong Kong. We had a fully integrated patient record system for our 7 million patients. It made us highly productive (average 6 minute outpatient consultations), enabled us to reduce preventable hospital admissions (30% reduction), and improved patient safety (reduction in medication errors). The outcome was a universal high quality health system that consumes 5% of GDP compared with Australia’s nearly 10% of GDP.[ 1]

• Telstra’s move into health care has three drivers:

• Health is a big part of the Australian economy and growing, from $120 billion in 2010 to an estimated $200 billion by 2020 – if current growth rates continue.[2] The growth arises from the ageing population, increase in chronic health conditions (like diabetes and heart disease), and increasing consumer expectations.

• The health system has major problems which are amenable to eHealth solutions. These include: poor efficiency; the consumer’s experience of a complex system that is difficult to navigate and slow or inconvenient to access; managing the growth in demand within constrained budgets; adjusting to the ageing ‘baby boomers generation’ expectations of fast and convenient service.

• The eHealth market consists of many valuable but disconnected technologies which individually cannot address major system challenges

• Health now needs the same game-changing technology solutions that have transformed the banking industry.

WHAT IS TELSTRA’S eHEALTH STRATEGY

• In choosing our strategy, Telstra identified 32 market segments in Australian health care. We have chosen to focus on 7 of these.

• The markets most amenable to eHealth are in the home health and aged care sectors, where health care is most disconnected and complex to navigate using traditional approaches. Dysfunctions in the home health and aged care market leads to preventable hospitalization and premature entry to residential aged care.

• Telstra’s strategy is to become a major contributor to changing this market by building an eHealth ecosystem that can address some of the biggest challenges facing the Australian healthcare system:

1 Hong Kong Hospital Authority. Statistical Reports . Available from:

http://www.ha.org.hk/gallery/ha_publications.asp?Library_ID=15&lang=en

2 Australian Institute of Health and Welfare. 2010. Health Expenditure in Australia 2009-10 . Available from:

http://www.aihw.gov.au/publication-detail/?id=10737420435

Frost and Sullivan. 2012. APAC Healthcare Outlook 2012-15: What Comes Next? . Available from:

http://www.slideshare.net/FrostandSullivan/apac-healthcare-outlook-2012-2015-what-comes-next

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• Creating a safer, efficient and more convenient pharmacy system.

• Reducing preventable hospital and residential aged care admissions.

• Improving integration of health information.

• Consumer choice and convenience – giving consumers greater control over their own health

• Improving efficiency and productivity across the health system

• Making it easier to access to specialist healthcare regardless of where a person lives in Australia.

• Building on Telstra’s strengths in connectivity and secure data storage, Telstra’s e Health strategy is to assemble specialised eHealth capabilities. We have identified 6 core eHealth capabilities that need to be integrated to bring to these big health challenges:

• provider applications,

• telehealth,

• care co-ordination,

• consumer health portals,

• enabling technologies, and

• data analytics.

• Our strategy is to build these capabilities through a combination of investments and partnerships with successful eHealth companies. The strategy is to then leverage Telstra’s strengths and take these to a new level, by connecting different eHealth capabilities in an innovative and new way to provide into the mainstream health system.

• The strategy is to connect these islands of eHealth technologies and create an eHealth service offering that can systematically address the major challenges confronting the health system. Here are some examples of how Telstra’s eHealth strategy will create value in tackling the health system’s big challenges.

Creating a safer, efficient and more convenient pharmacy system

• When my Lipitor prescription runs out, I have to make two visits to the doctor to get a repeat: one to get a referral for a pathology test, and the next to go back and get the result and receive my normal 20mg of Lipitor script. It never changes. Inevitably I have to take half a day off work each time as I travel to the doctor’s rooms and wait in his, appropriately named, waiting room. Or worse, I don’t find the time, and put myself at risk of having a stroke.

• This is repeated for the roughly 20 million prescriptions for this statin drug group in Australia each year.[3]

• It doesn’t have to be this way, and eHealth can help. In the US, the large insurer Kaiser Permanente does approximately 10 million of its 60 million scripts on-line. There the pathology referral is given on line, and the results are incorporated into their patient record system, and a repeat prescription is emailed.

• In Australia, there are an estimated 100 million routine, mostly repeat prescriptions, issued by doctors every year for stable chronic conditions.[4] Experience in the US

3 Department of Health and Ageing. 2012. PBS Expenditure and Prescriptions – twelve months to 30 June 2012 . Available from: < http://www.pbs.gov.au/info/statistics/expenditure-and-prescriptions-30-06-2012 > 4 Ibid.

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suggests that an estimated 25% of these could be done electronically, with clear convenience to the consumer, savings to the health system, and gains to the national economy from less time away from work.

• The absence of a single medication record for each of us creates major drug safety problems. 1 in 5 medical errors – such as different doctors prescribing different drugs that can react unsafely with each other – are due to inadequate patient information about the different drugs that are prescribed by the GP and medical specialists involved in a patient’s care.[5]

• We recently announced an investment in FRED IT – Australia’s leading pharmacy software innovator. It runs the national pharmacy exchange, eRx and the National Prescription and Dispense Repository (NPDR), which is key to the pharmacy reform that we believe is inevitable in Australia. It also recently developed a mobile application for more efficient transfer of prescriptions between the consumer and the pharmacy.

Improving integration of health information

• People who are ageing or have chronic health conditions typically use many health service providers: GP, specialists, hospitals, pharmacies, allied health professionals, home care nurses.

• Yet, none of these health carers have a consolidated record of what is being done to their patient. A person’s health information is not connected, making it almost impossible for the older person, and their family and service providers, to navigate the complex health system.

• This leads to both gaps in care and duplication. For one in six admissions a hospital runs unnecessary duplicates of pathology and diagnostic tests because they don’t know tests have already been taken elsewhere and don’t have access to the results.

• Even within a hospital, there is rarely a single patient record, so the patient must repeat their story and give information over and over.

• Telstra’s strategy is to work with Commonwealth and State Governments to connect these islands of patient information.

• The foundation of this capability is DCA Health. They have an established application that allows patient information to be sent securely between health service providers and consumers, to protect patient privacy.

• IP Health – whose hospital platform, ‘Verdi’, integrates patient information across multiple hospital applications, and allows the patient record to be viewed via their smart phones and tablets is also part of the solution.

Using care coordination to reduce hospital and aged care admissions

• Anybody with an ageing relative knows what it’s like to try and piece the puzzle of care together.

• I recently watched my wife co-ordinate care for her father who had a terminal degenerative disease. She had to organize six different care providers, which became almost a full-time job, even though she is a health professional. When he went into hospital, which he did regularly, the home care services kept coming unless she stopped them. When he was discharged, she had to organize them all over

5 National eHealth Transition Authority. 2012. Annual Report. Available from: < www.nehta.gov.au >

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again. I don’t know what happens to people who don’t have the time and inclination of my wife.

• One result of this lack of care coordination is that an estimated 20% of elderly patients are readmitted to hospital within a month of being discharged.[ 6]

• Over a year, ‘Frequent Flyers’ admissions – the highest cost patients – consume around 40% of hospital benefits.7

• There are now well established home health monitoring devices that can provide real time diagnostic information. Alerts software points to the need for a health service response, such as increase in a person’s blood pressure or not taking necessary medication.

• By connecting this information into the applications used by GPs and nurse care coordinators, the home health care a person needs can be organized quickly and efficiently, so avoiding visits to Emergency Departments or premature entry to residential aged care.

• Results from a program run by the Ontario Telemedicine Network show that home health monitoring, combined with remote care coordination, can lead to a 70% reduction in ED visits and 60% reduction in hospitalisations.[8]

• The ability to analyse ‘big data’ on hospital admissions will help identify who is at high risk of re-hospitalisation, and so target health services to the people who need it most.

• We have gained this capability through Dr Foster – the UK’s leading provider of comparative health information and analytics.

Consumer self-service - Providing Consumers with greater control over their own health.

• Maximising consumer choice and convenience has been a key feature of almost every other industry over the last decade

• Banking is a perfect example – where once every single interaction required your physical presence in front of a teller, now you can manage almost every aspect of your banking needs securely online.

• Health needs to catch up.

• At almost every point of contact with the health system there is opportunity for technology to transform an individual’s experience, from receiving tailored personalised health information to ordering repeat prescriptions and pathology retesting on-line.

• Take appointments - most are scheduled by phone, at a time that’s convenient to the system – not you.

6 NB: Literature review identifies range of re-admissions rates in Australia of between 5-33%. Dilworth, S. 2009. A Literature Review: Readmission of Older Patients to the Acute Care Setting . Available from: < htp://journals.sfu.ca/hneh/index.php/hneh/artcle/download/45/37 CachedSimilar >

7 NB: Western Australian study found ‘high-cost’ patients (top 5%) accounted for 38% of hospital costs and inpatient days

Calver, J., et al. 2006. High -cost users of hospital beds in Western Australia: a population-based record linkage study . Med J Aust 2006; 184 (8): 393-397.

8 Figures provided by Ontario Telemedicine Network

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• To start with we can enable consumers to book appointments with doctors, dentists and specialists online.

• We’ve set the wheels in motion with Health Engine – the Australian market leader in online health appointment bookings.

• In the future, telehealth consultations (phone and video) will supplement face-to-face consultations. A key to this is a Consumer Health Portal which contains key patient information and allows for the consumer to transact differently with their health service provider. This is not unlike the revolution in internet banking.

• In the US for example, leading insurer Kaiser Permanente now conducts over 12 million e-visits between clinicians and patients online (approx. 25% of all consultations), instead of face to face, every year.[9]

• We are working with a US-based company Get Real Health to integrate its personal health record platform called Instant PHR into our environment.

Increasing access to specialist healthcare regardless of location.

• Australians living in rural and remote communities have higher levels of sickness and disease than people living in major cities – and they wait longer for care.

• Many are required to travel a long way from their homes and families to receive the specialist care they need.

• In an effort to address this disadvantage Governments across the country are spending millions every year on patient transport schemes and fly-in-fly-out medical specialists.

• Video conferencing time has come – no longer is expensive, fixed equipment always the solution.

• The mobility, stability, speed and security of next generation technology opens the possibility for a person to have a consultation anytime and anywhere - A burns patient in Broken Hill can now connect with one of Australia’s best specialist in Sydney without leaving home.

• Still only a handful of GP services involve telehealth – 21,000 appointments out of the 135m appointments done in Australia every year – and these must be for the purposes of a patient seeing a specialist.[10]

• The Ontario Telemedicine Network showed savings of over $60 million p.a. in patient transportation costs alone.11

• Telehealth requires a range of specialized eHealth solutions that make a doctor consultation as easy for the doctor as seeing a person in their rooms, and as simple for the consumer as making a phone call.

• Telstra intends combining its traditional strength in telecommunications with assembling these specialized eHealth technologies.

9 Kaiser Permanente. 2012. Annual Report . Available from;

http://share.kaiserpermanente.org/static/kp_annualreport_2012/index.html

10 NB: MBS Item Number Report generated for item numbers 2100, 2126, 2143, 2195 - Telehealth attendance at consulting rooms by a GP providing clinical support to a patient during their consult with a specialist. Department of Health and Ageing. 2013. MBS Item Number Report 2012-13 . Generated by Telstra 22 October 2013. Available from < http://www.medicareaustralia.gov.au/statistics/mbs_item.shtml>

11 Figures provided by Ontario Telemedicine Network

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Improving efficiency and productivity across the health system

• The rising cost of health care is a global issue.

• The Health spend is growing at more than twice the rate of general economic growth in the economy. Health now makes up nearly 10% of GDP, up from 8% a decade ago. At its current rate, health is forecast to make up an estimated 15% of GDP a decade from now.[12]

• The pressure for improved productivity is felt intensely across health service providers. They are looking for new ways to improve productivity without affecting consumers and that doesn’t rely on making doctors and nurses working harder.

• The rising demand from the ageing population demands increased productivity to meet these demands in a way that the economy can sustain.

• For example, the typical hospital outpatient department has approximately 20% rate of no shows.[13] This does not make sense when there are up to 2 year waits for an outpatient appointment in some areas.

• Part of this is the lack of efficient scheduling systems that connect with patient information systems.

• Telstra has made steps to change this bringing Telus Health’s leading Ischeduler product to the Australian market.

WHY TELSTRA?

• Telstra is uniquely placed to bring health into the digital age, by investing and partnering across the eHealth market to leverage and connect technologies to address the major challenges confronting the health system consistent with our strategic focus.

• Telstra is a trusted and iconic Australian brand.

• Telstra has a unique presence across the diversity of individuals, enterprises and governments that make up the health system..

• Telstra’s ehealth strategy builds on our skills in providing better connectivity, implementing new emerging technologies and delivering cloud based services.

12 Dougan, M. 2013. Frost & Sullivan. Quoted in: Ross, N. 2013. Telehealth: The healthcare and aged care revolution that can pay for the whole NBN . ABC. Available from: http://www.abc.net.au/technology/articles/2013/09/19/3852140.htm

13 NB: Generally agreed estimate across industry – monthly non-attendance rates at Royal Children’s Hospital Melbourne, for example, were 22-28% over a twelve month study period. See for example:

Department of Health and Ageing. 2007. The use of SMS text messaging to improve outpatient attendance . Available from: http://www.horizonscanning.gov.au/internet/horizon/publishing.nsf/Content/6B81AEB3E7EE0001CA2575AD 0080F344/$File/May%20Vol%2016%20No%201%20-%20SMS.pdf

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GLOBAL APPLICATIONS & PLATFORMS

Speaker: Charlotte Yarkoni

Hi. By way of introduction I joined Telstra in March 2013 to lead the effort to build a global applications and platforms growth portfolio. My background is in the IT industry - both at EMC and VMWare, which are both leading developers and providers of information infrastructure technology and solutions. And I also worked at AT&T, or Bell South which is one of the baby Bells for those that know. So I have worked on both sides of the fence…. both in small start-ups where I am literally watching my payroll each month and also in large corporates. My experience is in establishing, transforming, and building global business units focused on delivering innovative and emerging technology solutions to market. And I have recently relocated from the U.S. to Sydney with my family.

Many of you have probably read Marc Andreessen’s essay on how Software is eating the world. In industry after industry, software is the force driving innovation and disruption. In telecom, we see networks, radios and handset all becoming software driven. We’ve already seen Skype transform the international calling market. But it goes well beyond our industry. Netflix destroyed Blockbuster and is now pressuring more traditional broadcaster with streaming. Nokia went from the world leader to sold for a few billion in just a couple years as smartphones became software-driven. Newer plays like Uber and AirBNB are shaking up industries as diverse as taxis and hotels.

This has major implications for Telstra – we are going to have to become more of a software company than ever before. Software is increasingly how we will interact with our customers, run our networks and deliver new value.

A software business has some different characteristics than our traditional network business. Financially, it has higher margins, lower capital intensity, and is characterized by high initial investment and then very low marginal costs. These businesses are often winner take all on global basis. Culturally, software businesses are very different. It isn’t just the ability to bring your dog to work and ping pong tables, but software is fundamentally a talent-based business. A really good programmer is ten times as productive as an average programmer – this has implications for how we recruit and retain talent. It requires a sustained commitment over time as software is organic and must evolve. And being a provider of commercial software-quality software is very different than IT-developed software. On the business side, it is often an ecosystem game where you need to partner and take dependencies with other parts of the value chain. Note the example of Apple iOS and Android that had to develop dependencies with network operators, application developers for third-party applications.

So we need to graft more software capabilities onto the company.

As we think abut this cultural transformation, we’re taking a portfolio approach. We’re thinking about a portfolio of software-oriented investments, skills and ecosystems. You’ll see a range of software-oriented activities and investments from us which range in size from small to big. We expect lots of smaller investments up to a smaller number of big investments, with some focused on business, and some are more about the skills and ecosystem

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I will talk about each of GAP, Ventures and our new Accelerator in more detail, but before then, I want to point out that these are a related set of activities. Strategic interests flow down to ventures and accelerators and can also have interesting opportunities bubble up.

Telstra announced its plans for a Global Applications and Platforms organization at the end of January. Some of the key attributes of the business are as follows:

• It will be enterprise focused as opposed to pure consumer

• It will start in Australia with a view to expand – having a bias for opportunities that extend to APAC or globally. With software development, you start out to be global.

• We expect this to be a three year effort to build out the unit

• And we will operate it like a startup – part of the exercise to bring software orientation to Telstra

The story so far is that I started in March and since then we’ve staffed the organization. We have done a very systematic assessment of opportunities available to Telstra. We have refined our focus to cloud-enabled software solutions, and look for some more announcements on this front.

In terms of the Ventures Group, you would be more aware of that. It is a window into technology leaders in Silicon Valley.... we review approximately 500-1,000 prospective companies each year and invest in approx 1/100 opportunities. Our geographic focus is global with a bias towards Silicon Valley, Asia and large deals in Australia. Our investment strategy will result in a steady-state evergreen portfolio. We will proactively hunt for investments that are strategic to Telstra’s BUs (GAP, Health, NAS, TIG, TEG, TB, Media etc). As part of our due diligence process, we will work closely with the BUs to compare the product offerings from the large vendors as well as Silicon Valley leaders. And we will typically be represented on the Boards of portfolio companies which will provide detailed insights into customer and market dynamics.

One way of tapping into that market and developing talent is through start-up accelerators. Accelerators have become an increasingly popular vehicle to increase the number of seed state start-ups, accelerate their velocity and trajectory, and provide investment deal flow and/or customers for their sponsors. You will have seen that we launched muru-D this week, which means “road or path to” in indigenous dialect along with the capital D that stands for digital, the name implies the road to digital. The objectives are to cultivate talent and solutions for the Australian digital economy. We will provide $40k seed capital for a 6% equity stake in ideas and innovations. There is a competitive admissions process, followed by a 6 month programme after which an idea is ready for demonstration to investors and press. This is a very exciting opportunity for us to contribute to a Clever Australia.

I would like to finish up there, to give us a few minutes to take your questions.

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DIGITAL MEDIA

Speaker: Rick Ellis

Good afternoon, I’m Rick Ellis, Group Executive of the Telstra Media Group.

Today we live in a multi-screen anytime media environment being driven by unprecedented consumer power and choice.

Let me give you a snapshot of this world:

• Australians are world leaders for smartphone use - even ahead of the US and the UK

• • In the past two years the percentage of Australians using smartphones has doubled – from 36% of total mobile phone users to 72%

• Almost three quarters of them access the internet on their smartphones on a daily basis and those aged 16 to 24 will spend the equivalent of a month on their smartphones each year

• Women over 16 will spend an average of 21 days a year, while men will spend around 15 days a year. That’s not even taking into account the time spent on a tablet or a computer

• Tablet ownership or usage has risen sharply with almost half of smartphone owners also owning a tablet (up from 39% in 2012)

But I am not here to pitch devices - I am here to talk about media and content as a growth strategy – and in our world we are device agnostic.

We are delivering anytime, to any screen, at the same time.

That’s because 21st century consumers want to choose when and where and how they watch their TV shows, engage with their sport, listen to their music, get their news or catch a movie.

And while the big screen in the lounge room remains king, digital is increasingly becoming key to consumption habits.

The recently-released Australian Multi-Screen report for Q2 2013, by OzTAM and Nielsen, indicates that 12 million Australians are watching video over the internet every month.

This growth in digital media consumption is delivering some staggering numbers:

• On fixed networks, video will be 80-90% of global consumer traffic by 2017

• At the same time video will be two-thirds of the global mobile data traffic

• Mobile video will grow at a Compound Annual Growth Rate of 75 per cent between now and 2017.

Today our customers want music, news, sport, TV or even games while they are catching the bus, a train or a ferry on the daily commute.

This world is Telstra Media Group’s oyster and as you saw in our opening video, we have brought together a compelling offering of premium content brands for our customers.

Consumer demand for live, premium sport – and music – is at unprecedented levels.

To meet this demand we have partnered with the AFL, NRL and racing network TVN to bring live and premium content experiences to any screen.

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We are the exclusive domestic rights holders to the MOG music streaming service – with 20 million songs at your fingertips.

The AFL Live app, which just completed its second season, has had more than 1.5 million downloads.

Video viewing on AFL.com is up by almost a third in 12 months.

Across the AFL Network we delivered more than 5.5 million video streams each month in season 2013.

The NRL Live app – which debuted this year and just last week was awarded Best Sports App at the Australian Mobile Awards – is on the smartphones and tablets of half a million league fans and delivering more than a million video views per month.

At NRL.com, video viewing doubled over season 2012 and fans are spending (on average) 27% more time with us each month than last season.

As I said at the outset, our strategy starts with delivering to Australians an “any screen, anytime, at the same time" experience.

Now, that is easy to say, but very hard to deliver.

There is extraordinary complexity in doing this, given the vast number of devices that can deliver a video experience, each with a proprietary handshake or interface.

Our primary response is to first build a new platform capability to deliver video: ad-supported video, Transactional Video on Demand (such as BigPond Movies), Subscription Video on Demand and Linear bundles to multiple screens.

This platform and the content services it supports will come on stream progressively over the next few months.

Underpinning our video delivery plans is Telstra’s investment in Ooyala, a Californian video technology company.

Ooyala delivers personalized video experiences across all screens and its analytics provide deep insights that drive increased viewer engagement and revenue from video.

Companies using Ooyala technology include ESPN, Miramax, Comedy Central and Bloomberg.

For us they represent how we will extend our current video content delivery capability progressively over the next months and, indeed, years.

Moving to our approach to video content services in Australia, we start with deep insights into what consumers want – and are prepared to pay for.

Our first response to that research was to bundle selected Foxtel linear channels – with a T- Box IP PVR, broadband and phone services.

These bundles called Entertainer bundles, advertised extensively on TV, have had a phenomenal response from the marketplace.

Over the next few months we will bring to market further options through linear channel bundling and Subscription Video on Demand via the T-Box, but also extending access beyond TV to the multi-screen environment in the same way that Foxtel has done with “Go!”

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Customer response to the T-Box continues to be strong - we recently reported to the market that we have 512,000 T-Boxes sold and we have a clear line of sight to 1 million in Australian homes.

Our unashamed ambition is to be the leader in this multi-screen world.

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