TELSTRA GROUP LIMITED — Capital/Financing Update 2006

Aug 31, 2006

01 September 2006

The Manager

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

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

Telephone 03 9634 6400 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Letter to shareholders from Telstra's CEO

For your information, attached is a copy of an e-letter from Telstra's Chief Executive Officer to be sent to our online shareholders and made available on our website www.telstra.com.au/abouttelstra/investor

Yours sincerely

North brake

Douglas Gration Company Secretary

1 September 2006

Office of the CEO

Dear Shareholder

I am writing to inform you directly of two transactions that Telstra announced yesterday. Both transactions are aligned to our growth strategy announced on 15 November last year.

We are selling an asset that is not a core part of our business. At the same time, we are using the proceeds for an acquisition for Sensis, our advertising, transaction and directories business. Sensis is one of Telstra's core arowth platforms for the future.

The net cash outflow from the two transactions is A\$91.5 million, a small cash investment for Telstra. Further details of these two transactions are as follows:

(1) Sale of Australian Administration Services (AAS)

We have sold AAS, the superannuation administration business of our KAZ Group subsidiary to Link Market Services Limited for A\$215 million. In addition, Telstra took out A\$35.5m in cash from AAS prior to settlement. The transaction was completed after a competitive public sale process had been undertaken.

Telstra will recognise a profit on the sale of AAS of approximately A\$56 million.

A decision was made to sell this business after it was determined that it was no longer strategic. This was due to the risk profile of superannuation administration services being outside the standard risk exposure of Telstra's business. This transaction will now allow KAZ to focus on its core services, which include consulting, managed and outsourced services, and applications management and systems integration.

KAZ is not for sale and continues to be a crucial part of Telstra's Information and Communication Technology strategy and service delivery. Telstra paid \$333 million for KAZ in July 2004

(2) Acquisition of 51 per cent of SouFun Holdings Limited (SouFun)

At the same time as selling AAS, we have purchased a 51 per cent shareholding in SouFun, China's leading real estate and home furnishing web site.

Telstra has made this acquisition at a very good price - a total cash outlay of A\$342 million. SouFun is a high performance business. It has been growing net revenue at near triple digits and has captured an online audience of over 40 million users per month and an advertiser base of over 4,000 sellers and developers.

SouFun will be cash flow positive from day one and is already profitable. In the 2007 financial year, it is expected to contribute net revenue and EBITDA of A\$52 million and A\$18 million, respectively.

SouFun provides an attractive entry point into China, one of the world's fastest growing economies. China's real estate market is forecast to grow by 21 per cent compound average growth rate to be worth US\$438 billion by 2010.

With home ownership and incomes rising in China, we have opened a gateway to the racing Chinese online advertising market through an internationally experienced, high performing and well respected local management team committed to working with Telstra to continue to deliver growth. In addition to staying on, Vincent Mo, the founder and CEO, and other senior management will also keep a significant shareholding in SouFun. Sensis will add senior representatives with key expertise to Vincent's team.

The acquisition is consistent with our commitment to our growth strategy for Sensis. Integral to that strategy is Sensis' expansion into new geographic markets by pursuing partnerships or acquisitions that can deliver clear value to shareholders. The Sourun and Sensis business models share similar characteristics. Sensis can leverage its core capabilities into a larger, faster growing and less mature market than Australia. Going forward, Sensis and SouFun will work closely to leverage mutually exclusive business benefits.

The Board and I remain committed to informing you of progress in transforming our company. For more information on Telstra visit our investor relations web site http://www.telstra.com.au/abouttelstra/investor or our consumer advocacy website http://www.nowwearetalking.com.au.

Please contact us with any questions or comments at investor.relations@team.telstra.com

Dale D. Dintel

Solomon D Trujillo Chief Executive Officer