TELSTRA GROUP LIMITED — Capital/Financing Update 2009

Dec 17, 2009

==> picture [173 x 55] intentionally omitted <==

18 December 2009

The Manager

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

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

General Enquiries 08 8308 1721 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra Corporation Limited Shareholder Letter

Attached is a copy of a letter that we will be sending out shortly to shareholders, for release to the market.

Yours sincerely

==> picture [181 x 73] intentionally omitted <==

Carmel Mulhern Company Secretary

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

Dear Shareholder

==> picture [172 x 55] intentionally omitted <==

We last updated you on discussions between Telstra, the Government and NBN Co at our Annual General Meeting in November. As 2009 ends, we wanted to update you on progress in these important talks and, separately, on our revenue growth guidance for this fiscal year.

NATIONAL BROADBAND NETWORK (NBN)

On the negotiations, we have now taken the next step of agreeing Terms of Engagement with NBN Co. These Terms of Engagement provide a framework for negotiating Telstra’s potential participation in the roll out of the NBN.

What is significant about the Terms of Engagement is that they include a preferred model for any agreement between the parties that would see a progressive transition from Telstra’s copper access network to a fibre to the premises NBN. We have agreed to explore this option with NBN Co.

The Terms of Engagement also cover discussions on commercial wholesale arrangements for NBN Co’s use of Telstra’s passive infrastructure, including ducts and space in exchanges, as well as backhaul.

The benefits to shareholders of a potential agreement based on this model will be compared with the alternatives available to Telstra, including those alternatives available in the Government’s proposed Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009.

You may also be aware that the Senate’s discussion of this proposed Bill has been postponed until the New Year. This is welcome as we have consistently said that the legislation’s passage in its current form would make it harder to reach a mutually acceptable outcome on the NBN.

Given the importance and complexity of the issues being discussed, it is too early to say whether any final agreement will be reached, or approved by relevant stakeholders and regulators. The negotiations continue to be constructive and we are actively working with the Government and NBN Co to see whether a mutually acceptable outcome is achievable. However, we still have much work ahead of us.

We assure you that Telstra’s management and Board will continue to act in the interests of shareholders at all times. As we have said before, subject to the necessary regulatory approvals, we intend to seek shareholder approval of any significant change to the nature or scale of your company.

We are committed to concluding these negotiations as quickly as possible and will update you again no later than our half-year results on 11 February.

GUIDANCE

Finally, we have lowered our revenue growth guidance for this year to “flattish” from “low single digit”. The major drivers of lower than expected growth are the strength of the Australian Dollar, tough operating conditions in Hong Kong, strong domestic competition and an accelerated move to wireless-only homes. Importantly, other guidance measures – including the target of $6 billion of free cash flow this year – remain unchanged.

As ever, we welcome your comments, so please feel free to contact us at investor.relations@team.telstra.com.

We wish you an enjoyable festive season.

Regards

==> picture [144 x 66] intentionally omitted <==

==> picture [92 x 63] intentionally omitted <==

David Thodey Chief Executive Officer

Catherine Livingstone AO Chairman

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