6-K 1 y27552e6vk.htm FORM 6-K FORM 6-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date: For the period ending 19 October 2006
TELSTRA CORPORATION LIMITED
ACN 051 775 556
242 Exhibition Street
Melbourne Victoria 3000
Australia
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F þ       Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes o      No þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
 
 

 


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INDEX
2006 Updated U.S. $4,000,000,000 Commercial Paper Program Private Placement Memorandum
Telstra’s turbo-charged, nationwide mobile broadband network goes live
Telstra transformation ahead of schedule
Investor Day — slide presentation by CEO Sol Trujillo
Investor Day — slide presentation by Chief Operations Officer, Telstra Operations
Investor Day — slide presentation by Bill Stewart GMD Strategic Marketing
Investor Day — slide presentation by Group Managing Director, Telstra Product Management
Investor Day — slide presentation by David Moffatt GMD Consumer Marketing & Channels
Investor Day — slide presentation by Group Managing Director, Telstra Business
Investor Day — slide presentation by David Thodey GMD Telstra Enterprise and Government
Investor Day — slide presentation by Group Managing Director, BigPond
Investor Day — slide presentation by Bruce Akhurst CEO Sensis
Investor Day — slide presentation by Chief Financial Officer & Group Managing Director, Finance & Administration
CEO Letter to Shareholders
AMENDED — Investor Day — slide presentation by Chief Operations Officer, Telstra Operations
Transcript of presentation by CEO Telstra at the Telstra Investor Day
Transcript of Analyst & Media Q & A at the Telstra Investor Day
Telstra 3 Share Offer Prospectus
Telstra 3 Institutional Offering Memorandum
Telstra 3 Share Offer Appendix
Telstra 3 — 2006 Supplemental Information
Telstra 3 — New Zealand Investment Statement

 


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Telstra 3 Share Offer — T3 Institutional Investor Presentation, New York
Transcript of Analyst Briefing at the Telstra Investor Day
Telstra 3 — Canadian Offering Memorandum
Telstra 3 Share Offer — T3 Retail Broker Roadshow Presentation
2006 updated Debt Issuance Program Information Memorandum
2006 Updated New Zealand Commercial Paper Program Information Memorandum

 


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(TELSTRA LOGO)
     
3 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
2006 Updated U.S. $4,000,000,000 Commercial Paper Program Private Placement Memorandum
Attached is a copy of the 2006 updated U.S. $4,000,000,000 Commercial Paper Program Private Placement Memorandum to be issued by Telstra on 3 October 2006.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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Telstra Corporation Limited
(ACN 051 775 556)
U.S. $4,000,000,000
Privately Placed Commercial Paper Program
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAW. BY ITS ACCEPTANCE OF NOTES THE PURCHASER (A) ACKNOWLEDGES THAT, IF IT IS A “QUALIFIED INSTITUTIONAL BUYER” AS THAT TERM IS DEFINED IN RULE 144A UNDER THE SECURITIES ACT, (1) IT IS PURCHASING NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER AND (2) IT IS AWARE THAT THE SELLER MAY RELY ON AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, (B) REPRESENTS THAT IT IS EITHER (1) AN INSTITUTIONAL ACCREDITED INVESTOR, AS THAT TERM IS DEFINED IN RULE 501(a) (1), (2), (3) OR (7) UNDER THE SECURITIES ACT, THAT HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT IT IS CAPABLE OF EVALUATING AND BEARING THE ECONOMIC RISK OF AN INVESTMENT IN THE NOTES, INCLUDING, WITHOUT LIMITATION, A BANK, AS DEFINED IN SECTION 3(a)(2) OF THE SECURITIES ACT, WHETHER ACTING IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY, PROVIDED THAT, IF ACTING IN A FIDUCIARY CAPACITY, IT HAS SOLE INVESTMENT DISCRETION WITH RESPECT TO ANY ACCOUNT FOR WHICH IT IS PURCHASING A NOTE, (2) A FIDUCIARY OR AGENT (OTHER THAN A U.S. BANK OR SAVINGS AND LOAN ASSOCIATION OF THE TYPE DESCRIBED IN CLAUSE (B) (1)) PURCHASING NOTES FOR AN ACCOUNT WHICH IS AN INSTITUTIONAL ACCREDITED INVESTOR THAT ITSELF POSSESSES SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT IT IS CAPABLE OF EVALUATING AND BEARING THE ECONOMIC RISK OF AN INVESTMENT IN THE NOTES OR WITH RESPECT TO WHICH SUCH PURCHASER HAS SOLE INVESTMENT DISCRETION, OR (3) A QUALIFIED INSTITUTIONAL BUYER AND (C) AGREES THAT, THE NOTES ARE NOT BEING ACQUIRED WITH A VIEW TO DISTRIBUTION AND (1) ANY RESALE OF SUCH NOTES WILL BE MADE ONLY (I) TO THE ISSUER, (II) TO ANY OF THE DEALERS DESIGNATED BY THE ISSUER AS SUCH ON THE ISSUER’S U.S. COMMERCIAL PAPER PROGRAM, NONE OF WHICH THE PURCHASER OF NOTES ACKNOWLEDGES SHALL HAVE AN OBLIGATION TO ACQUIRE NOTES, (III) THROUGH ANY SUCH DEALER TO AN INVESTOR REASONABLY BELIEVED BY SUCH DEALER TO BE AN INSTITUTIONAL ACCREDITED INVESTOR OR REASONABLY BELIEVED TO BE A QUALIFIED INSTITUTIONAL BUYER, IN EITHER CASE, ONLY IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT, OR (IV) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, AND IN EACH OF CASES (I) TO (IV), ONLY IN A MINIMUM AMOUNT OF U.S.$250,000 FOR EACH HOLDER OF NOTES REPRESENTED HEREBY OR ACCOUNT TO WHICH NOTES MAY BE SOLD OR TRANSFERRED, AND (2) THAT SUCH NOTE WILL BEAR A LEGEND SUBSTANTIALLY AS SET FORTH IN THIS PARAGRAPH.
NO PROSPECTUS OR OTHER DISCLOSURE DOCUMENT IN RELATION TO THE NOTES HAS BEEN LODGED WITH OR REGISTERED BY THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION OR THE AUSTRALIAN STOCK EXCHANGE LIMITED. ACCORDINGLY:
(I)   NO NOTE, OR ANY INTEREST OR RIGHT IN RESPECT OF A NOTE, MAY BE OFFERED FOR SUBSCRIPTION OR PURCHASE;
 
(II)   NO INVITATION TO SUBSCRIBE FOR OR TO BUY A NOTE OR ANY INTEREST OR RIGHT IN RESPECT OF A NOTE, MAY BE MADE; AND
 
(III)   THE PRIVATE PLACEMENT MEMORANDUM OR OTHER OFFERING MATERIAL RELATING THERETO MUST NOT BE DISTRIBUTED IN THE COMMONWEALTH OF AUSTRALIA, ITS TERRITORIES OR POSSESSIONS, UNLESS:

 


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  (A)   THE MINIMUM AGGREGATE CONSIDERATION PAYABLE BY EACH OFFEREE IS AT LEAST AUD$500,000 (DISREGARDING MONEYS LENT BY THE OFFEROR OR ITS ASSOCIATES) OR THE OFFER OR INVITATION OTHERWISE DOES NOT REQUIRE DISCLOSURE TO INVESTORS IN ACCORDANCE WITH PART 6D.2 OF THE CORPORATIONS LAW OF AUSTRALIA; AND
 
  (B)   SUCH ACTION COMPLIES WITH ALL APPLICABLE LAWS AND REGULATIONS.
AN ASSOCIATE (AS DEFINED IN SECTION 128F OF THE INCOME TAX ASSESSMENT ACT OF 1936 OF AUSTRALIA (“TAX ACT”)) OF TELSTRA CORPORATION LIMITED (“TELSTRA”) (“ASSOCIATE”) MAY NOT (DIRECTLY OR INDIRECTLY) ACQUIRE THE NOTES ISSUES BY TELSTRA (“TELSTRA NOTES”) OR ANY INTEREST IN OR RIGHT IN RESPECT OF THE TELSTRA NOTES (OTHER THAN SUCH A PERSON WHO ACQUIRES SUCH NOTES OR SUCH INTEREST OR RIGHT THEREIN, IN THE CAPACITY OF A DEALER, MANAGER OR UNDERWRITER IN RELATION TO THE PLACEMENT OF THE TELSTRA NOTES).
EACH PERSON WHO ACQUIRES A TELSTRA NOTE OR SUCH INTEREST OR RIGHT BY SUCH ACQUISITION WARRANTS TO TELSTRA THAT SUCH PERSON IS NOT AN “ASSOCIATE” OF TELSTRA.
ANY “ASSOCIATE” OF TELSTRA WHO HOLDS A TELSTRA NOTE OR ANY INTEREST IN OR RIGHT IN RESPECT OF THE TELSTRA NOTES WILL NOT BE ENTITLED TO RECEIVE ANY PAYMENT OF ADDITIONAL AMOUNTS FROM TELSTRA IN RESPECT OF ANY AMOUNT DEDUCTED BY TELSTRA ON ACCOUNT OF AUSTRALIAN INTEREST WITHHOLDING TAX FROM THE INTEREST (OR AMOUNTS IN THE NATURE OF INTEREST) PAYABLE UNDER THE TELSTRA NOTES.
PLACEMENT AGENT:
Merrill Lynch Money Markets Inc.
(Up to 270 days from date of issue)
Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Beyond 270 days and up to 365 days from date of issue)
The date of this Private Placement Memorandum is October 2006

 


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TERMS OF U.S. COMMERCIAL PAPER NOTES (THE “NOTES”)
     
Securities:
  Unsecured Notes, ranking pari passu as to priority of payment with all other unsecured and unsubordinated indebtedness of Telstra Corporation Limited (the “Company”, “Issuer” or “Telstra”), except indebtedness mandatorily preferred by law.
 
   
Amount:
  Not exceeding at any one time outstanding an aggregate face or principal amount of U.S. $4,000,000,000.
 
   
Exemption:
  The Notes are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereunder, and cannot be resold or otherwise transferred unless registered or an exemption from registration is available.
 
   
Offering Price:
  Par less a discount representing an interest factor or, if the Notes are interest bearing, at par.
 
   
Interest Rates or Discount Factors:
  As agreed upon by the purchaser and the Company.
 
   
Interest Discount Payments:
  Payable at maturity.
 
   
Face or Principal Amounts:
  U.S. $250,000 minimum face or principal amount.
 
   
Maturities:
  Up to 365 days from date of issue.
 
   
Redemption:
  The Notes will not be redeemable by the Company or subject to voluntary prepayment prior to maturity.
 
   
Form:
  Each note will be evidenced by a master note (interest bearing or discount) registered in the name of the nominee of The Depository Trust Company’s nominee. Each master note (the “Book-Entry Notes”) will be deposited with the Issuing and Paying Agent as sub-custodian for The Depository Trust Company (“DTC”) or its successor. DTC will record by appropriate entries on its book-entry registration and transfer system, the respective amounts payable in respect of Book-Entry Notes. Payments by DTC participants to purchasers for whom a DTC participant is acting as agent in respect of Book-Entry Notes will be governed by the standing instructions and customary practices under which securities are held at DTC through DTC participants.
 
   
Settlement:
  Unless otherwise agreed to, same-day basis, in immediately available funds.
 
   
Issuing & Paying Agent:
  Citibank, N.A.
 
  111 Wall Street, 5th Floor
 
  New York, NY 10043
 
 

 


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PURPOSE
This Information Memorandum has been prepared solely for private circulation to selected institutions or other sophisticated investors who are able to properly assess the risks and benefits of investing in securities, either as principal or agent. This Memorandum is not intended to provide the sole basis of any credit or other evaluation and it is not a recommendation, offer or invitation to purchase any Notes.
CREDIT RATINGS
Ratings are based on current information furnished to the rating agencies by the Company and information obtained by the rating agencies from other sources. Because ratings may be changed, superseded or withdrawn as a result of changes in, or unavailability of, such information, a prospective purchaser should verify the current long-term and commercial paper ratings of the Company before purchasing Notes.
Ratings are not a recommendation to purchase, hold or sell the Notes, inasmuch as the ratings do not comment as to market value or suitability for a particular investor. Such ratings are only accurate as of the date hereof, as they have been obtained with the understanding that Standard & Poor’s Rating Group and Moody’s Investors Service, Inc. would continue to monitor the credit of the Company and make future adjustments to such ratings to the extent warranted. The ratings may be changed, superseded or withdrawn, and therefore, a prospective purchaser should check the current ratings before purchasing the Notes.
The credit ratings of the Issuer can be found at:
www.moodys.com and www.standardandpoors.com.
COMPANY INFORMATION
We are Australia’s leading telecommunications and information services company, with one of the best known brands in the country. We offer a full range of services and compete in all telecommunications markets throughout Australia and certain overseas countries.
Our main activities include the provision of:
  basic access services to most homes and businesses in Australia;
 
  local and long distance telephone calls in Australia and international calls to and from Australia;
 
  mobile telecommunications services;
 
  broadband access and content;
 
  a comprehensive range of data and Internet services (including through Telstra BigPond®, Australia’s leading Internet service provider (ISP));
 
  management of business customers’ IT and/or telecommunications services;
 
  wholesale services to other carriers, carriage service providers (CSPs) and ISPs;
 
  advertising, search and information services (through Sensis, Australia’s leading directory and search company); and
 
  cable distribution services for FOXTEL’s cable subscription television services.

 


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Our international business includes CSL New World Mobility Group (“CSL”), one of Hong Kong’s leading mobile operators, TelstraClear Limited (“TelstraClear”), the second largest full service carrier in New Zealand and Reach Ltd (“REACH”), a provider of global connectivity and international voice and satellite services, as well as SouFun, China’s leading real estate and home furnishings website.
One of our major strengths in providing integrated telecommunications services is our extensive geographical coverage through both our fixed and mobile network infrastructure. This network and systems infrastructure underpins the carriage and termination of the majority of Australia’s domestic and international voice and data telephony traffic.
INCORPORATION BY REFERENCE
The Issuer’s Annual Accounts are incorporated by reference in, and form part of, this Information Memorandum.
Copies of the Accounts may be downloaded from the following internet location:
www.telstra.com.au/abouttelstra/investor/annual_reports.cfm
All announcements provided by the Issuer to the Australian Stock Exchange Limited pursuant to the Issuer’s continuous disclosure obligations under the Corporations Act 2001 are incorporated by reference in, and form part of, this Information Memorandum.
Copies of these announcements may be downloaded from the following internet location:
www.telstra.com.au/abouttelstra/investors/asx_announcements.cfm.
To the extent that a statement contained in a subsequent document which is or is deemed to be incorporated in this Information Memorandum by reference modifies or supersedes any earlier statement, that earlier statement is modified or superseded for the purpose of this Information Memorandum
Any other questions can be directed to:
Investor Marketing Department
Merrill Lynch Money Markets Inc.
4 World Financial Center — 11th Floor
New York, New York 10080
(212) 449-4843

 


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AUSTRALIAN INTEREST WITHHOLDING TAX
In the event the Company is required by law to withhold or make any deduction for any taxes, levies, duties, charges, assessments or other governmental charge imposed by the Commonwealth of Australia or any political subdivision or taxing authority thereof or therein (“taxes”) from amounts payable on any Note, the Company will pay such additional amounts as will result in the receipt by the holder of such Note of an amount which, after deduction of all taxes, equals the amount that would have been payable had no such deduction or withholding been required, except that no such additional amounts will be payable with respect to any taxes that would not have been imposed but for the holder of such Note:
(a)   being a resident, domiciliary or national of, or engaging in business or maintaining a permanent establishment or being physically in, the Commonwealth of Australia or any of its territories or any political subdivision thereof or having some connection with the Commonwealth of Australia other than the mere holding of such Note;
 
(b)   presenting such Note for payment in the Commonwealth of Australia or any of its territories or any political subdivision thereof, unless such Note could not be presented for payment elsewhere;
 
(c)   presenting such Note more than thirty (30) days after the date on which the payment in respect of such Note first became due and payable except to the extent that the holder would have been entitled to such additional amounts on presenting such Note for payment on the last day of such period of thirty (30) days;
 
(d)   failing to comply with any application certifications, information, documentation or other reporting requirements of the Commonwealth of Australia or any political subdivision or taxing authority thereof as a precondition to relief or exemption from such taxes; or
 
(e)   being an associate of the Issuer for the purposes of section 128F(6) of the Income Tax Assessment Act 1936 of Australia.
CONSENT TO SERVICE OF PROCESS
The Company has agreed to accept the jurisdiction of the United States District Court for the Southern District of New York and the courts of the State of New York in respect of any action instituted by the holder thereof and has irrevocably appointed CT Corporation System of 1633 Broadway, New York, New York 10019, as its authorized agent therein upon whom process may be served in any such action.

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra’s turbo-charged, nationwide mobile broadband network goes live
In accordance with the listing rules, I attach an announcement for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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   Media Release   (ERICSSON LOGO)   (TELSTRA LOGO)
6 October 2006     183/2006
Telstra’s turbo-charged, nationwide mobile broadband network goes live
Australia’s fastest and largest mobile broadband network, Telstra’s turbo-charged NEXT G™ is now live across Australia, built in a record ten months.
Telstra Chief Executive Officer, Mr Sol Trujillo, and the President and Chief Executive Officer of Ericsson, Mr Carl-Henric Svanberg, switched on the new NEXT G™ (3GSM 850 MHz) network today with video calls to locations across regional Australia, including Thursday Island — far north QLD, Southport — TAS, Cape Byron — NSW and Broome — WA.
Mr Trujillo said Telstra shareholders’ $1 billion investment in the world’s geographically largest national 3GSM network delivers unequalled customer reach and speed across the country and is globally acknowledged as a superior spectrum for breadth and depth of coverage.
NEXT GTM is more than 100 times bigger geographically than any other 3GSM network in Australia, delivering voice and broadband services to 98 per cent of the population.
“This is an exciting day for all Australians, no matter where they live and work,” Mr Trujillo said. “No one else, here or abroad, has built and launched such a far-reaching, high speed, wireless broadband network in less than a year. It is a versatile, high capacity network with head room for higher speeds in the months and years ahead.”
“The opportunities are vast, including service improvements in health and education, productivity improvements in business everywhere, and a competitive advantage for Telstra,” Mr Trujillo said.
Turbo-charged with High Speed Downlink Packet Access (HSDPA), NEXT GTM is up to 50 times faster than dial-up and up to five times faster than other 3GSM networks. Telstra customers will experience network download speeds averaging 550Kbps to 1.5Mbps, and peak network speeds of up to 3.6Mbps, increasing up to 14.4Mbps early next year.
Mr Svanberg said Telstra’s advanced mobile broadband network was designed and built with an evolution path to support the future technology roadmap. Ericsson expects it to reach peak network speeds of up to 40Mbps by 2009, in line with the development of global standardisation.
“The NEXT GTM network’s unprecedented scale and scope demonstrates how committed Telstra is to creating new customer experiences that match or surpass the best in the world,” he said.
Mr Trujillo said NEXT GTM is an integral part of Telstra’s plan to bring broadband to all Australians, no matter where they live, and to transform Telstra into a media communications powerhouse.
“It is a fast, simple, interactive and content rich wireless broadband service that integrates the worlds of communication, information and entertainment,” he said.
“We have created a unique ‘My Place’ menu to give our customers easy, 1-click access to nine services and applications that are most relevant to them. With a simple ‘1-touch, 1-click’ our customers can access FOXTEL, Sensis search, BigPond content, music, email, photos, downloads, maps and My Account information.”
Telstra’s national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media

 


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In an Australian first, customers can:
  watch 12 channels of FOXTEL exclusively on their NEXT G™ handset, including news, sport, wildlife documentaries, and children’s programs, with more to come;
  access Telstra’s award winning BigPond Mobile service offering entertainment, news, and exclusive content including AFL, NRL, and V8 Supercars;
 
  watch Warner Bros. classic movies and the BBC’s best television programs on their PCs through the BigPond Movie Download service;
  download a music track to both their mobile and computer in 1-click; and
  benefit from Telstra’s ‘locate me’ technology which matches their location with their information request through Sensis services such as CitySearch, WhereIs, Trading Post and Yellow Mobile.
As part of the global community of 3GSM operators, serving over two billion users, NEXT G™ has one of the world’s best international roaming footprints. Not only can Telstra customers make voice calls on their Australian NEXT G™ mobile phone in more than 140 countries, but they can access 3G services such as video calling and high speed data in 30 countries.
Telstra customers can make voice calls on their Australian mobile phone in more places while travelling overseas than on any other Australian network.
NEXT GTM customers will be able to install a NEXT GTM turbo card into their computer, providing high-speed access to the Internet for business, entertainment, or personal applications, such as browsing the web or email.
The NEXT GTM turbo card will be especially useful for business customers, allowing high speed data access across Australia and 30 countries around the world, advancing the way enterprises operate, making them more cost effective, productive and internationally competitive.
“Teleworkers at remote locations using wireless broadband and video conferencing will be able to access information traditionally stored in the office almost instantaneously while they are on the road, at the client’s office or in the back of a taxi heading to the airport,” Mr Trujillo said.
Telstra has been working with leading handset manufacturers, including Samsung, Motorola, LG and Sony Ericsson to produce an impressive NEXT GTM roadmap of approximately 30 devices that will be available over the next 18 months. At launch we have four mobiles (Samsung A701 and A501, Telstra ZTE 850/51 and LGTU500), one PDA (i-mate JASJAM) and one data card (GT Max), with Motorola next month and Palm releasing soon after.
Telstra and Ericsson will continue to extend network coverage and upgrade software for faster speeds next year in readiness for the closure of the CDMA network in 2008, when NEXT G™ coverage will be as good, or better than currently available with the older CDMA technology.
Telstra media contact:
Warwick Ponder: 02 9298 4619, 0409 369 711
Ericsson media contact:
Elizabeth Middleton: 0409 426 480
Telstra’s national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra transformation ahead of schedule
In accordance with the listing rules, I attach an announcement for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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   Media Release     (TELSTRA LOGO)
 
6 October 2006     186/2006
Telstra transformation ahead of schedule
Telstra’s five-year plan to transform the company with integrated customer services and new high-speed networks is ahead of schedule.
Telstra CEO, Mr Sol Trujillo, said the company’s ‘plan for Australia’ had delivered a nationwide high-speed mobile broadband network in a record-breaking 10 months, and had initiated deployment of a new IP core network capable of speeds 77 times faster than today, and new switching technology with 2,000 per cent more capacity than currently available.
The company also conducted over 90,000 customer interviews, reduced unsatisfied ADSL orders by three-quarters, improved ‘on-time’ customer appointments, slowed a decline in core revenues and increased its share of the key broadband market.
“Telstra’s transformation engine is humming on all cylinders, and the most critical ones are performing best of all,” Mr Trujillo said.
“We are on or ahead of budget and delivery schedule, and we’ve been busy winning in the market with new high-speed networks, new products that are simple and integrated, and improved customer service that is more reliable and convenient,” he said.
First-year achievements
Speaking to investors in Sydney six weeks ahead of the first anniversary of his transformation plan to rebuild Telstra and bring broadband to all Australians, Mr Trujillo said Telstra had -
  Built the world’s geographically largest national 3GSM 850 network ahead of schedule; substantially increased the coverage footprint of existing networks; and modernised over 2,000 2GSM locations with EDGE high-speed data capability.
  Increased broadband market share from 41 to 44 per cent with sports, music and entertainment content, market-leading customer service, better integration of products and faster network speeds.
  Improved customers’ experience with more customer appointments completed on-time and without the need for repeat visits, Customer Service Guarantee (CSG) performance rates the highest ever recorded and unsatisfied ADSL orders down by three-quarters.
  Reduced costs by streamlining procurement, including better sourcing contracts (including $220 million expected to be saved in 2005/06 and 2006/07 using Brightstar and $500 million to be saved over a seven year supply-chain contract with IBM); exiting surplus office space of 100,000 square metres in nearly 60 office sites by the end of 2006/07; and reducing staff numbers by nearly 4,000.
  Consolidated operations into ‘one factory’, capping or exiting 58 surplus network platforms and 115 surplus IT applications; and improving the capability of field staff with $67 million invested in training and around 10,000 new tools.
     
 
  Telstra Corporation Limited
ABN 33 051 775 556

 


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   Media Release     (TELSTRA LOGO)
  Initiated new technology deployments including an IP core capable of 77 times faster speeds; testing powerful soft-switches with 2,000 per cent more capacity than existing switches; installed 1.6 million DSL ports; built the $50 million Telstra Integration Lab to test network operations; and laid 460,000 kms of new backbone network fibre and 1.2 million kms of new copper lines.
  Under market-based management, conducted over 90,000 customer interviews; upgraded 121 Telstra shops to reflect specific local market segments; and improved conversation rates in some campaigns (by up to 70 per cent) to world’s best-practice levels.
  Expanded its role in Asia including merging its Hong Kong-based mobile operator, CSL, with New World to create the number one mobile provider in Hong Kong, and purchasing a majority stake in Chinese online real estate site SouFun.com: one of the world’s 100 most-visited websites.
  Refocused resources on the needs of business customers with 16 new virtual business centres, new business-focused Telstra shops and the creation of a new business division.
Mr Trujillo was joined by the global heads of Ericsson, Alcatel and Accenture, who remarked on the speed, scale and success of the turnaround at Telstra.
“We have built telecommunications infrastructure across the world for 130 years, but this project is a major achievement of unprecedented scale and scope,” Mr Carl-Henric Svanberg, Ericsson President & CEO, said.
“We have worked with many of the world’s largest organisations and Telstra’s leadership team is clearly focussed and committed to delivering on the transformation and the resulting benefits for customers and shareholders,” Mr William Green, Accenture Chairman & CEO, said.
“The investments Telstra is making to transform its networks will ensure its customers have services as dynamic as those provided by the world’s leading providers,” Mr Serge Tchuruk, Alcatel Chairman & CEO, said.
Long term Management objectives updated
Telstra provided the market with updated long term management objectives up to 2009/10 —
  Revenue growth of 2.0 to 2.5 per cent p.a. as increased revenues from 3G, IP Telephony and greater HFC penetration to some extent offset losses from adverse regulatory outcomes on FTTN enablers and ULL. New product revenue will be in excess of 30 per cent of sales revenue.
  Cost growth of 2.0 to 3.0 per cent p.a. as the absence of FTTN removes some savings that were expected to flow from the replacement of copper lines.
  EBITDA of 2.0 to 2.5 per cent p.a. and EBITDA margin of 46 to 48 per cent by 2009/10 because of higher cost growth.
  Workforce numbers down by 12,000, consistent with the objective of 10,000 to 12,000 that was previously outlined and reported in November 2005.
     
 
  Telstra Corporation Limited
ABN 33 051 775 556

 


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   Media Release     (TELSTRA LOGO)
   
  Capex to sales ratio of 10 to 12 per cent of revenue by 2009/10 because of substantially reduced capex as the transformation progresses.
  Free cashflow of $6 to $7 billion by 2009/10 (on an A-IFRS basis).
Strong performance in July & August 2006
The company also released data on its performance in the first two months of 2006/07, which will be the largest ‘spend year’ of the transformation —
  Sales revenue is up 3.3 per cent. This includes retail broadband up 41 per cent, mobiles up 9.0 per cent and Sensis up 10.6 per cent
  Cost growth continues up 10 per cent -. This reflects labour costs down 3.6 per cent owing to the smaller workforce; growth in cost of goods sold as volumes increase; and transformation-driven expenses, depreciation & amortisation.
  EBIT for the two months declined 8.6 per cent compared to the company’s first-half outlook of minus 17 to minus 20 per cent, due to cost-acceleration in the first half-year due to the transformation and other one-off impacts.
  No change to the 2006/07 outlook issued on 21 August 2006, with full-year EBIT expected to increase by 2 to plus 4 per cent, and second half EBIT to grow in the range of 37 to 40 per cent.
“Telstra is already turning the corner and we will record more impressive earnings growth as the one-off costs associated with new investment, redundancy and restructuring, and accelerated depreciation begin to subside later in fiscal year 2007,” Mr John Stanhope, Chief Financial Officer, said today.
“Telstra’s economic model is undergoing dramatic change because of our IP-based networks, integrated and simplified processes, new revenue opportunities and the roll-out of new applications and services and low incremental costs,” Mr Stanhope said.
“Telstra is a now a company on the move with the nation’s best networks, unmatched integrated content and applications, and better customer service than ever before,” Mr Trujillo concluded.
     
Media inquiries—
  To book an interview —
Liz Jurman — 0438 399 435
  Warwick Ponder — 0409 369 711
Rod Bruem — 0438 288 010
  Peter Taylor — 0439 031 996
To download images from the day —
https://secure.adstream.com.au/Public/Login/Default.aspx using username: mediaroom@telstra.com & password:
mediagroup, then select ‘projects’ button on the left hand list, then select ‘Telstra Media Room project.’
Not for Release in the United States — This announcement has been prepared for publication in Australia and may not be released in the United States. This announcement does not \constitute an offer of securities for sale in any jurisdiction, including the United States, and any securities described in this announcement may not be offered or sold in the United States absent registration or an exemption from registration.
     
 
  Telstra Corporation Limited
ABN 33 051 775 556

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by CEO Sol Trujillo
In accordance with the listing rules, please find a copy of slides to be delivered by Sol Trujillo, Chief Executive Officer at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
     
 
  Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

()
Disclaimer
These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Telstra, which may cause actual results to differ materially from those expressed in the statements contained in these presentations. For example, the factors that are likely to affect the results of Telstra include general economic conditions in Australia; exchange rates; competition in the markets in which Telstra will operate; the inherent regulatory risks in the businesses of Telstra; the substantial technological changes taking place in the telecommunications industry; and the continuing growth in the data, internet, mobile and other telecommunications markets where Telstra will operate. A number of these factors are described in Telstra’s Annual Report and Form 20-F.
All forward-looking figures in this presentation are unaudited and based on A-IFRS. Certain figures may be subject to rounding differences. All market share information in this presentation is based on management estimates based on internally available information unless otherwise indicated.
These presentations do not relate to an offering of any shares in Telstra. You may be aware that the Commonwealth has announced its decision to undertake a public share offer of a part of its stake in Telstra. The Commonwealth has also stated that a final decision to launch an offer remains subject to market conditions being conducive for a sale which achieves the Commonwealth’s sale objectives. If a sale of any part of the Commonwealth’s stake in Telstra proceeds, a prospectus for the offer of those securities will be made available to Australian investors at the time of the offer and anyone wishing to acquire shares under the offer will need to complete the application form that will be in, or that will accompany, the prospectus.
()
Telstra Corporation Limited Investor Day 6 October 2006
Sol Trujillo Chief Executive Officer

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Agenda
Restate strategy Update Educate Demonstrate Restate targets
()
The transformation has begun
Strategically Operationally Culturally Financially

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()
Big day for the Australian telco industry
Telstra changes the game
For our customers, for our shareholders, for our competitors, for our employees
Competitive advantage is what we strive for
Winning matters
()
2006 — we’ve been busy

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Customer experience
Service experience improved Brand attribution from 50% to 72% 42% of Telstra consumers using 3+ products Meeting broadband demand, on time Customers voting with their pocketbook
()
Revenue acceleration
Increasing
broadband, mobile
share, record volumes
PSTN decline reduced
from 7.6% in 1H06 to
5.8% in 2H06
Significant growth in
online revenue
3G post-paid ARPU
34% higher than 2G
Reducing churn

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Innovation
Integrated BigPond/ Mobile launch at Comm. Games Fully integrated offering at NextG launch 25 unique product categories for NextG Telstra Integration Lab created
()
Less complexity
Simplified pricing 58 platforms capped or exited 115 IT applications exited (75 on the way) Hundreds of legacy projects cancelled Strategic vendors accelerating pace of transformation

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Cost reduction Workforce reduced by over 3,800 FTEs*, now approaching 5,000 Capex savings of ~$ 500M in FY06 36 office sites exited (56,000 m2) Field productivity growing rapidly * Excludes CSL New World merger and SouFun acquisition
()
Business portfolio
Acquired China growth vehicle for Sensis (SouFun) New World Merger to make CSL #1 in HK mobile Focused Telstra Clear, Kaz, Reach (divested AAS) Created Telstra Business unit

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our Nov ‘05 transformation program
()
Our Nov ‘05 transformation program

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Our vision
To do for customers what no one else has done: Create a world of 1-click, 1-touch, 1-button, 1-screen, 1-step solutions that are simple, easy and valued by individuals, businesses, enterprises and government.
()
Superior 3G network Foxtel, Sensis, Richest needs-based Robust IP/MPLS core BigPond, Trading customer segmentation Post, SouFun Broadest fixed line Largest customer base reach and QoS Unique ability to
Broadest channels access, build, Differentiated multi- acquire and Highest brand awareness platform capability monetise Emerging competitive culture
Integrated company that will deliver a ‘1-click, 1-touch’ user experience

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()
Full speed ahead
Following same 15 Nov 05 strategy “One Factory” consolidation
Improving operations and enhancing the organisation Growing revenues and margins Reach destination ahead of plan
()
Turned on the best wireless network in Australia / the world
Maximum peak 3GSM 3G coverage 3G services/ network speed (Mbps) (km2) products (#)
> 1.6M sq km 14.4Mbps
100
50 3.6Mbps < 10,000 384 kbps* sq km
Next best Telstra Telstra end Next best Telstra Next best Telstra competitor today Q1 2007 competitor competitor today
* Vodafone have announced plans to increase speed to 1.8 Mbps
36

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Creating the best infrastructure
Old Telstra
()
Creating the best infrastructure
New Telstra

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()
Creating the best infrastructure
IT system simplification 115 apps (# of OSS & BSS systems)
already 1,252 exited
80%
250
2005 2010
()
Creating the best infrastructure
One Factory
Network IT Simplification
Single IP/MPLS Billing and Network core Customer Care platform exits Multi-service edge Operational Systems Support Systems decommissioning Best access (Wireless, Fibre, Data centres Product set DSL, HFC) streamlining

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()
Superior portfolio of content and services
Content            Services EXISTING: Voice            Other SMSEmailIP apps calls
ENHANCED: Enhanced MMS            Transactions voice services
Video
NEW: Interactivity            Mobility Telephony File sharing            Blogs            Adserving
Unique user experience through an integrated suite of content and services, customised to meet segment needs
41
()
Deepest customer understanding —Market Based Management What is MBM? Focus on the customer, and on unique segment needs Go-to-market approach delivers 70% value by meeting segment needs            Higher Organising around segments            conversion rates* Contribution by segment *Weighted average of 8 campaigns 42

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()
We are evolving to a new digital telco economic model
Old PSTN telco New Digital Telco
Software defined
Products delivered Services delivered manually electronically
Low marginal cost
()
Only at Telstra
National 3GSM 850Mhz HSDPA network (NextG)
Simple “MyPlace” product menu on consumer 3G 850 phones Interactive mobile video tutorial to drive usage and ARPU Full suite of integrated content and services across multiple delivery platforms (Sensis and Foxtel available on mobile) Australian-first ‘click to call’ on sensis.com.au Australia’s first location-aware mobile search engine Australia’s first legal
movie download service
44

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()
Where are we operationally
Headcount was increasing, Change in FTEs* now decreasing
+1.44K
-3.86K
FY05 FY06
* Excludes CSL New World merger and SouFun acquisition
45
()
Where are we operationally
Headcount was increasing, Telstra Tech            now decreasing            Services productivity overtime
Productivity was falling, now growing
60% 15%

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()
Where are we operationally
Headcount was increasing, Unsatisfied Appointments            now decreasing            ADSL orders met on time
Productivity was falling, now growing            Up to
Service was declining, 74% over            now improving 90%
()
Where are we operationally
Headcount was increasing, Jobs completed now decreasing right first time
Productivity was falling, now growing            Up to Service was declining, now improving 96.5
Quality was declining, now improving

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()
Strengthen and diversify talent base
Skills Gender Cross-sector World-Class Talent
Accenture IBM
Bruce Akhurst Fiona Balfour Geoff Booth Phil Burgess            Bell South Nextel
Cingular Orange
Andrea Grant Will Irving Holly Kramer Kate McKenzie            eBay Qantas
Ford Telecom Italia GE US West
Justin Milne David Moffat Michael Rocca Deena Shiff
GMH Vodafone
()
John Stanhope William Stewart David Thodey Greg Winn
Structure that drives rapid decision making ‘One Factory’ Shared support functions Strategic Networks            IT            Product            Services            Finance            HR            Corporate* Mktg Fast, clear            Consistent resource            reduced allocation            cost services Customer facing units            Int`l Wholesale (Telstra Clear, Sensis            CSL New World, TC&C            TCW            BigPond            Business            TE&G SouFun Meet segment needs Customers * Corporate Includes Legal, PP&C, Head Office

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()
Revenue trajectory is strong
PSTN decline was            PSTN decline            increasing, now
slowing
-5.8% -7.6%
1H FY06 2H FY06
51
()
Revenue trajectory is strong
PSTN decline was 3G ARPU vs 2G* increasing, now slowing
Mobile ARPU in key segments increasing
+34%
*Post-paid
52

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()
Revenue trajectory is strong
PSTN decline was            Increase in            increasing, now slowing            broadband share Mobile ARPU in key segments increasing
44%
Broadband share
from
increasing
41%
53
()
Revenue trajectory is strong
PSTN decline was            Sensis revenue growth (06) increasing, now slowing $56M $55M
Mobile ARPU in key segments increasing Broadband share increasing
+50% +4%
Digital online services
Online Print
increasing significantly
54

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()
Financial trajectory is on track
Revenue            Cost            Capex            Earnings            Cash flow Revenue            Costs now at            Maximum            Trajectory            Will rise after already            top of curve            spend in FY06 now set to            one-off cost/ increasing            during the            and 07 (less            improve            capex “lumps” (3.9% in 2H06 transfor- to date than vs 1.5% 1H) mation (will            original plan) come down) 55
()
Driving shareholder value / management objectives
As at November 05 As at October 06 Revenue growth: 2.0% to 2.5% pa FY10 2.0% to 2.5% pa to FY10
New product revenue: 20-30% of new revenue growth In excess of 30% Sales Revenue FY10 Cost: Flat to 2010 by FY10 2.0% to 3.0% pa to FY10 EBITDA ($): 3-5% pa growth through FY10 2.0% to 2.5% pa growth to FY10 EBITDA margin: 50% to 52% by FY10 46%to 48% by FY10 Workforce: Down 10-12,000 by FY10 Down 12,000 by FY10 Capex: 12% of revenue by FY10 10% to 12% of revenue by FY10 Free cash flow: $6B to $7B by FY10 $6B to $7B by FY10
* November 2005 based on reasonable regulatory outcomes which did not occur. October 2006 based on NO FTTN and ULL Band 2 price of $17.70 p/m with 100% flow on to retail prices and no further adverse regulatory outcomes.
56

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What’s coming in FY 2007 Continue wireless upgrade path IP/MPLS core and multi-service edge turned up Transformatio n milestones: Deliver Broadband across all access platforms First release of transformed IT capability Top line growth ahead of plan Financial            Changing the economics of the business performance: Headcount reduction staying ahead of plan FY07 largest spend year, reduce by FY08 Improvement in underlying financials 57
()
Creating a world class company
Not just best in country, but one of the best in the world Stimulating revenue while taking out costs Growing those revenues with attractive margins Real differentiation in our networks, our content and services, and our ability to meet customers’ needs Creating superior economics as a digital media telco For our shareholders, our customers and Australia
58

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()
Transformation Tracking Record
Wireless
80%
Wireline
20%
IT
15%
MBM
60%
Products, content, services
30%
Organisation
50%
20% time elapsed, but on average 35% complete
59
()
It’s a five year journey, but the transformation is already delivering

30


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by Chief Operations Officer, Telstra Operations
In accordance with the listing rules, please find a copy of slides to be delivered by Greg Winn, Chief Operations Officer, Telstra Operations at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
     
 
  Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

( )
Telstra Corporation Limited Investor Day 6 October 2006
Greg Winn Chief Operations Officer Telstra Operations
( )
One Factory principles
Do it once
Do it ‘right’ for the customer Do it in an integrated way Do it at low unit cost

1


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( )
Major Partners in our IT transformation
Billing and Operational Support Customer Care systems systems
Systems integration
Software packages
( )
Meeting requirements out-of-the-box
100%
> 80% Telstra
75%
65% World Class benchmark
50%
25%
0%
Achieved out-of-the-box (Customer care & Billing)

9


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( )
Agenda
Infrastructure Simplification Tools, Training & Productivity Real Estate & Supply Chain
( )
Our legacy networks

10


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( )
Simplification — 5-year goals set last November 100% Down 80% Down 65%
75%
50%
25%
35% 20%
0%
IT Systems            Network Platforms
( )
Agenda
Infrastructure Simplification Tools, Training & Productivity Real Estate & Supply Chain

11


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( )
Over 10,000 new tools deployed — some examples
45 new fibre 88 new long range 7,900 new gas splicing machines optical fault finders detection units
( )
Deploying GPS units in our field fleet

12


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( )
Best ever service
Getting there Getting it right on time... first time...
( )
Other “good volumes“are up too...
Residential faults cleared Fault calls answered Technician without a truck roll within 20 seconds productivity

13


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( )
Procurement and Supply Chain
( )
We are delivering on our commitments            On track
Launch nationwide 3G 850 network
Build single IP/MPLS core with Ethernet aggregation Cap or exit 65% of network platforms Decommission 80% of IT systems Transform billing, care and operational support systems Achieve staff reductions of 10-12,000 over five years
...While improving customer experience

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The bottom line
Transforming the business while simultaneously improving customer experience
One Factory principles
Measurable outcomes
On track, on budget, ahead of schedule

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( )
We’ve been busy
Laid
Laid Installed 460,000km 1.2 million km 1.6 million of fibre optic of copper new cable in our cable DSL ports backbone
Built
Added 400,000 Built 3G Installed over 11,000 hours of network with almost high capacity battery 100X bigger 10,000 E1 core backup geographic transmission transmission capacity area solutions links
Changing the Deployed over
Construction Equipped over way we over 10,00010,000 teams have 3,000 vehicles schedule new tools driven over with GPS
25,000 jobs to our field 70 million km every day staff
( )
Agenda
Infrastructure Simplification Tools, Training & Productivity Real Estate & Supply Chain

2


Table of Contents

( )
Agenda
Infrastructure Simplification Tools, Training & Productivity Real Estate & Supply Chain
( )
Wireless transformation

3


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Building Next G in Far North Queensland
( )
Wireline transformation
Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost
Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs

4


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( )
Wireline transformation
Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost
Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs
( )
Filled with large Large exchange buildings switching installations

5


Table of Contents

( )
Migrating to compact softswitches with massive capacity
( )
Telstra Integration Laboratory

6


Table of Contents

( )
Wireline transformation
Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost
Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs
( )
Wireline transformation
Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost
Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs

7


Table of Contents

( )
Wireline transformation
Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost
Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs
( )
IT transformation
Billing and Operational Support Customer Care systems systems
Transformation timeline over 3-5 years Tangible benefits starting in 2006
Systems will be integrated and customer-centric A few proven world class partners Commercial off-the-shelf packages

8


Table of Contents

( )
Major Partners in our IT transformation
Billing and Operational Support Customer Care systems systems
Systems integration
Software packages
( )
Meeting requirements out-of-the-box
100%
> 80% Telstra
75%
65% World Class benchmark
50%
25%
0%
Achieved out-of-the-box (Customer care & Billing)

9


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( )
Agenda
Infrastructure Simplification Tools, Training & Productivity Real Estate & Supply Chain
( )
Our legacy networks

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by Bill Stewart GMD Strategic Marketing
In accordance with the listing rules, please find a copy of slides to be delivered by Bill Stewart GMD Strategic Marketing at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
     
 
  Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

( )
Telstra Corporation Limited Investor Day 6 October 2006
William J. Stewart Group Managing Director Strategic Marketing
Market Based Management
( )
Channel Impacts
Today 74% Success Up-lift
MBM
Execution            Today
14 Million 5 Million

 


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Last Investor Day
Transform Telstra Drive results
— Market share — ARPU — Loyalty and customer retention
( )
Last Investor Day
Right customer systems and tools Manage success by customers rather than product
Data Insight Planning, Execution, Measurement
Modelling Campaign Intelligent Scripting Call Centre Data Warehouse Reporting and Scoring Management Dealer/Shops Web/IVR
Shop/Dealer Order Capture            Load            Reporting CCDW Data Mart            Web Trouble Ticketing IVR
Enterprise
Data Warehouse Transform            Customer Account            Campaign Management Channels Call Centre            Modelling/ Scoring            List            and Intelligent Scripting Advertising Agency Fault Capture/ Extract Individualisation/ Householding            Customer Analytic Record            Mgt Sales Force Automation

 


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Market-Based Management
Customer intimacy 146 Programs 400,000 interviews 90,000 Segmentation Organisation Design & People
( )
Market-Based Management Training & Culture — Phase I: 180 managers — Phase II: 1,100 managers — Phase III: 26,000 employees

 


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Market-Based Management Product Innovation
· Customer at the centre
· Customer insight at each step
( )
Market-Based Management
Segmented Brand, Advertising & Promotions
— 25% to 50% improvement in efficiency

 


Table of Contents

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Market-Based Management
Channel enhancements
( )
Market-Based Management
Customer Systems & Databases Single customer view Segment tagging Automated campaign management PARS performance system

 


Table of Contents

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Channel Impact
Sales Programs to-date
— More than 5m customer contacts
50% 45% —Rate 74% / Baseline 8% 44% —Incremental 400,000 40% successes 31% 30% —Cost per acquisition reduced 30% 35% 22% 20% 20% 20% The future 20% 15%
15% 12%
— Uplift 10% -12% 10%
10%
— By EOY’06 10m annual contacts 0%
50,000 320,000 180,000 2,400,000 440,000 330,000

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
Australian Stock Exchange
4th Floor, 20 Bridge Street
SYDNEY NSW 2000
  MELBOURNE VIC 3000
AUSTRALIA

Telephone 03 9634 6400
Facsimile 03 9632 3215
 
   
ELECTRONIC LODGEMENT
   
 
   
Dear Sir or Madam
   
Investor Day — slide presentation by Group Managing Director, Telstra Product Management
In accordance with the listing rules, please find a copy of slides to be delivered by Holly Kramer, Group Managing Director, Telstra Product Management at Telstra’s Investor Day.
Yours sincerely
-s- Douglas gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
Australian Stock Exchange
4th Floor, 20 Bridge Street
SYDNEY NSW 2000
  MELBOURNE VIC 3000
AUSTRALIA

Telephone 03 9634 6400
Facsimile 03 9632 3215
 
   
ELECTRONIC LODGEMENT
   
 
   
Dear Sir or Madam
   
Investor Day — slide presentation by David Moffatt GMD Consumer Marketing & Channels
In accordance with the listing rules, please find a copy of slides to be delivered by David Moffatt GMD Consumer Marketing & Channels at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by Group Managing Director, Telstra Business
In accordance with the listing rules, please find a copy of slides to be delivered by Deena Shiff, Group Managing Director, Telstra Business at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

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Deena Shiff Group Managing Director Telstra Business
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Telstra Business was established to address the unique needs of SMEs

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2005/06 Performance Strong growth in Mobile and Broadband            Telstra Business revenue base unable to offset decline in PSTN            weighted toward PSTN Telstra Business: 2005/06 Performance            Telstra Business: 2005/06 Revenue Split -1.5% $3,099 Mobiles 28% 4% $3,053 5% Internet 9% & IP 7% Other 15% -9% PSTN 50% 04/05 PSTN            Mobiles Internet            Other 05/06 Actual & IP            Actual
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Turning around the business

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Turning around the business
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Sales Channel 1800 Business Online Retail Shops Indirect Channels Direct Sales

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Turning around the business
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Customer Experience
Dedicated Service Centres Case Management 24/7 Service Support Reliable Services

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Tracking our progress: We aim to...
Slow PSTN rate of decline by 40% compared to 2005/06 Reverse Revenue Grow Mobile and Broadband above SME market rate Decline Grow Multi-Product customers from 40% to 70% by June 2009
Build Grow 3G proportion of Mobile subscribers to > 60% in 08/09 Platform for Growth Grow Broadband & IP customer penetration to > 50% in 08/09
Rebalance
Revenue Grow proportion of non-Fixed Voice revenue from 40% in From Old to 05/06 to > 60% by 2008/09 New 9
()
Executing Against Our Strategy 2006/07 2007/08 2008/09 H1 H2
Flexible Pricing Plans
Segment-Specific Offers and            Business Broadband
Solutions and Only Telstra            Solutions Next-G Wireless Applications Applications
Up Skilling Business Shops Channel            Sales Extended Sales Coverage Accreditation
Only Telstra
Channel
1800 Business Expand Data/IT Channel
Dedicated Business Improve Channel Customer            Services Centres
Selection            Only Telstra            Experience Case Management Online Self-service 10

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Thank you

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by David Thodey GMD Telstra Enterprise and Government
In accordance with the listing rules, please find a copy of slides to be delivered by David Thodey GMD Telstra Enterprise and Government at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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Telstra Corporation Limited Investor Day 6 October 2006
David Thodey Group Managing Director Telstra Enterprise and Government ‘Winning in the marketplace through differentiation...’
()
We are on-track to meet our nine (9) commitments Major Milestones            Progress made in FY 05/06 Grow revenue faster than            ON TRACK            Overall revenue growth on track to outperform market >3% (More to do) market growth New wave revenue now accounts for 37% of the total New wave revenue mix >45% revenue base — up from 32% New wave revenue growth New wave revenue growth of 16% 15% Slower decline in core Slowed our decline to (6%) carriage Winning business and signing customers to longer Longer term contracts term contracts Strong EBITDA from            Good progress, but still early in the establishment applications            phase Lower cost support due to            NGN is driving lower access costs and delivers NGN            multiple services over our IP VPN network 10% productivity We continue to make good progress improvement Lower Capex intensity & Strong cashflow results strong cash flow 2

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We are driving revenue growth +1% as we manage the transition to ‘New Wave’revenues, with the objective of holding EBITDA
Forecast TE&G revenue (2006-2010)
>15% CAGR $4.3B New Wave
37% (IP & mobile data, managed services, 45% solutions, services)
Traditional
63% 55% (voice, data, mobile) <6% CAGR FY06A FY07F FY08F FY09F FY10F
As our revenue mix changes, we will hold margins due to cost savings from our investment in NGN and BSS/OSS transformations 3
()
Our Next Generation IP Network, enhanced access and new BSS/OSS applications will provide customers significant benefits, while reducing our costs
Next Generation Network            Benefits Customer: Value            VoIPApplicationsApplicationson Demand            Truly integrated and seamless experience Added            Streaming Video Services            Future            Available where needed -largest Multimedia Applications            Applications            network in Australia
Superior resilience and enhanced Next            Operating Support Systems (OSS) reliability
Generation
IT Systems            Business Support Systems (BSS) Faster provisioning and quicker restoration times Online monitoring tools
Wideband
Access Wireless Broadband Internal: Ethernet
Reduce overall cost in the access network Scalable & replicable infrastructure IP Core IP/MPLS Core Single & simpler operational model
A world class national IP infrastructure, unmatched in Australia 4

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Our differentiation is built around a ‘Telstra-Only’ suite of “New Wave“Solutions & Services
Nine (9) Solution Domains Six (6) Service Areas
Call Centre &
IP Network Solutions IP Telephony Consulting Speech Recognition
Wireless Data Conferencing and Network Payments Solutions ICT Outsourcing Solutions Collaboration Outsourcing
Applications Business Process Extended Enterprise Development &
Industry Solutions Security Solutions Managed IT Services Solutions Integration Outsourcing 5
()
We have established a new dedicated Enterprise Solutions Division led by Lynda O’Grady, with revenues of $483m (+5.7% YoY) and 800 people
Highlights in last 12 months            Enterprise Solutions Division* 20,000 new IP Telephony lines
87% growth in Wireless Solutions to $56m Launched two new Contact Centre Conferencing Contact Converged            Solutions
& Centres and Voice
Collaboration Speech Solutions            Launch of Office Live Meeting and IP Video collaboration and growth of 7% to >$50m With over 200,000 retail EFTPOS PoP’s, we            Managed Extended            carried 1.3B EFTPOS payment transactions Industry            on our network — more than 50% of the            Radio Enterprise Solutions Solutions Solutions            market Enterprise Network Solutions growth with new Insurance, Public Safety and RFID            Managed            networks            Payment Sunrise Solutions IndustrialNetwork Exchange            Industry Solutions developed — Retail            Solutions            Media Solution, Virtual Critical Care, Community Information Warning Systems
* Organisational Structure 6

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The dedicated Enterprise Services Division (KAZ) achieved revenue growth of 11% to $624m* and is focused on driving profitable services revenue around the core network Highlights in last 12 months Integrated Services Division (KAZ) ** 15% growth in Managed WAN 12% growth in Managed Radio 200,000 desktops under management Solution            ICT State Sales 209 co-location customers Consulting Outsourcing 4 new consulting offers 9 new services offerings Application $25m of communications pull-through Managed IT            Network BPO            Dev./ Services            Outsourcing            revenue Integration Major new contracts at ING, Defence, Orica * Including AAS 7 ** Organisational Structure
()
The Next G wireless network will create            unique value for our Enterprise customers
Customer Benefits Five (5) Domains
Coverage
Wherever you need We are building access — 98% capabilities and population solutions in 5 mobility domains: In building coverage Communications & Speed Collaboration What ever you Office Mobility need to access Reliability Workforce Mgt When you need to Contact Solutions access it Remote & Mobile Simplicity Asset Mgt Easy
We already have commitments from 23 customers for more than 9,500 services 8

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We are announcing today a new set of ‘Telstra-Only’networked-based wireless, data applications to transform business processes — using a new financial model Three New Pre-packaged Applications            Financial Model Enterprise            ARPU per device @ROAD            ZORA            Mobility Solution Voice Contract Fleet            Workforce            Customised management            management            mobility solution tool            to deliver            Data Service Out of the box            business process Enhances            mobility Better fleet            workforce productivity and            dispatch            Integrated into enhanced            Handset processes            corporate customer            processes and IT services            Out of the box            systems Monthly Application Rental Delivers            Enhanced sales significant            and mobile savings to the            employee customer and            productivity allows enhanced            Revenue Impact customer service 9
()
We will continue to deliver a series of key initiatives this financial year to drive growth differentiation to improve competitiveness
We are on track to:
Grow revenue faster than market (2006-2010) Grow ‘New Wave’revenues at 15% Deliver 20 new ‘Telstra-Only’Services and Solutions Deliver ‘Next G’solutions to our customers
Take full advantage of the new IP Core network and value added services
We will continue to win in the market though a rich set of differentiated offerings and customer service
10

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day — slide presentation by Group Managing Director, BigPond
In accordance with the listing rules, please find a copy of slides to be delivered by Justin Milne, Group Managing Director, BigPond at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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()
Telstra Corporation Limited Investor Day 6 October 2006
Justin Milne Group Managing Director BigPond Continuing Innovation
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A great year for BigPond 2

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Significant broadband growth
Retail Broadband SIOs Retail Broadband Revenue1 (000s) ($M)
$730 1,476
72% $463 856 58% FY 05 FY 06 FY05 FY06
1) Telstra Mobile Broadband and Internet Direct (Retail ADSL) revenue is counted in other categories 3
()
Increasing market share Market Leading Share Growth            Outselling Competitors 44 Australian Retail Broadband            Net SIO Growth
41 Market Share (FY06, 000s) (June 2005 -June 2006, %) 620
23 22 19 17
197 7
5 4 87 4 4 4 3 51 49 47
1 2 1
Optus iinet Primus TPG AAPT Unwired Other Telstra Optus AAPT TPG Primus iiNet providers
Jun-05 Jun-06 4

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Focus on core systems is paying off ADSL Network Reliability            Benefits of Rebuilding Core (% of customers with less than 7 hours of outage a month) Systems 100% New email system 100% New billing system 80% Reduced cycle times 60% Reduced complaints 40% Reduced tech support & activation calls 20% Improved grade of 0% service Jul-05 Jun-06 5
()
Market leading customer service Phone Benchmarking            Email Benchmarking
75% 66% 56% 55% 64% 54% 64% 51% 49% 60% 57% 55% 49% 47% 47% 47% 51% 41% 46%
45% 43% 36%
BigPond iiNet Westnet Dodo AAPT Optus iPrimus Unwired Chariot Internode TPG BigPond Internode Chariot TPG Westnet iiNet Dodo OptusNet Unwired iPrimus AAPT
ISP Sales Call Centre ISPEmail Contact Centre of the Year -2005/2006 of the Year -2005/2006 6

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BigPond’s brand is stellar ISP Brand Comparison (2000 — 2006) is a ‘Magician’Brand
Sage Magician Jester Bang & Olufsen, eBay, Google, IKEA, iPod, LG, Nokia, Tsubi            Guardian Warrior
Brand Strength            Patriarch Explorer
Unwired
(Differentiation & Relevance) TPG OptusNet Cable iBurst
People Telecom iiNet            Oz-Email Companion            Lover Brand Stature (Esteem & Knowledge) 2000 2003 2006
Earth Mother            Maiden            Enchantress
Sources: George Patterson Y&R Brand Asset Valuator, July 2006 7
()
Wireless growth is significant
Wireless Broadband Net Adds per Quarter (000s) 35
30 25 20
15 Net Adds per quarter (000s) 10 5
0 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06
Unwired
Source: Unwired 8

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Next G Network™ — more speed in more places!
Next G™Network
Improved speeds -average 550Kbps to 1.5Mbps
Reaches 98% of Australians
International roaming in 31 countries, 48 carriers 9
()
We launched a range of new products in FY06 BigPond Movie Downloads            BigPondGameShop            BigBlog BigPond TV            BigPond News & Weather            BigPond Webcasts
10

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Entertainment attracts customers Growth in Broadband Content            Winning New Customers
Total BigPond Streams BigPond Content Site Unique Visitors (Jun 05 — Jun 06) (Average per month, FY06)
Non-BigPond Members 114% 80%
20%
Jun-05 Jun-06 BigPond Members
11
()
Entertainment differentiates our access products Optus            iinet
Sport Music Games News Movies
Unmetered 3 2 2 Dual Platform 3 2 2
12

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()
Entertainment drives usage and speed upgrades Upsell to Higher Speed Access Plans            Upward Migration
Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Higher Value Plans ADSL 256kps 200MB Plan 13
()
Entertainment delivers new revenue Total Possible ARPU Stack Telco Revenue            New Media Revenue Broadband PSTN            Post-Paid Pay TV            VAS            Movies            Music            Games Monthly ARPU
(Access + Mobile (for a customer            voice) taking all services) 14

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Australia’s            leading digital media company
Estimated Digital Revenue (2005, $M)
Google ninemsn FairfaxDigital Yahoo!7
Source: Forrester research, company filings, literature search and management interviews
15
()
BigPond entertainment is market leading
16

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Historic new entertainment deals
Worldwide
17
()
3 Objectives in the Coming Year
Extend broadband market share leadership
Grow our brand
Develop new media capability 18

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()
Projecting strong future growth
Non-Access Revenue (% of Total BigPond Revenue)
12%
10%
6%
3% 2%
FY06 FY07 FY08 FY09 FY10
19
()
New media capabilities
20

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day – slide presentation by Chief Financial Officer & Group Managing Director, Finance & Administration
In accordance with the listing rules, please find a copy of slides to be delivered by John Stanhope, Chief Financial Officer & Group Managing Director, Finance & Administration at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

Disclaimer These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Tel stra, which may cause actual results to differ materially from those expressed in the statements contained in these presentations. For example, the factors that are likely to affect the results of Telstra include general economic conditions in Australia; exchange rates; competition in the markets in which Telstra will operate; the inherent regulatory risks in the businesses of Telstra; the substantial technological changes taking place in the telecommunications industry; and the continuing growth in the dat a, internet, mobile and other telecommunications markets where Telstra will operate. A number of these factors are described in Telstra’s Annual Report and Form 20-F. All forward-looking figures in this presentation are unaudited and based on A-IFRS. Certain figures may be subject to rounding differences. All market share information in this presentation is based on management estimates based on internally available information unless otherwise indicated. These presentations do not relate to an offering of any shares in Telstra. You may be aware that the Commonwealth has announced its decision to undertake a public share offer of a part of its stake in Telstra. The Commonwealth has also stated that a final decision to launch an offer remains subject to market conditions being conducive for a sale which achieves the Commonwealth’s sale objectives. If a sale of any part of the Commonwealth’s stake in Telstra proceeds, a prospectus for the offer of th ose securities will be made available to Australian investors at the time of the offer and anyone wishing to acquire shares under the offer will need to complete the application form that will be in, or that will accompany, the prospectus.
Telstra Corporation Limited Investor Day 6 October 2006 John Stanhope Chief Financial Officer & Group Managing Director Finance & Administration

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Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage

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Summary of the new economic model Model assumptions Financial impacts Intelligent network – IP based Accelerated revenue growth Software defined environment Higher variable costs Integrated/simplified processes Lower process costs improving speed to market Margin maintenance New revenue opportunities Reduced Capex Roll out new applications and Higher Free Cash Flow services at low incremental cost
New economic model – revenue framework TraditionalNext Generation NB Applications and ServicesIPTV / HDTV (mobile or fixed) —Fixed and mobile call Video calling (GSM 2100 #¨3GSM 850) completion Other Content and Applications —Mobile SMS and MMS New— BigPond Apps & ServicesNew —Call connect —Sensis Online including interactive Narrow Band Transaction servicesSoftware solutions IT servicesManaged Network Services 10% of Sales Revenue at Jun 06Hosting 3% of Sales Revenue at Jun 06 PSTN (Basic, Local, LD)VoIP Dialup Internet AccessMobile 3G voice Fixed to mobile calling Integrated Fixed-Mobile TraditionalMobile voiceBroadband AccessTraditional Print directories— ADSL, HFC, Satellite Foxtel— FTTP Unbundled Local Loop— EVDO #¨HSDPA 78% of Sales Revenue at Jun 06IP Data 9% of Sales Revenue at Jun 06 TraditionalNext Generation 6

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New economic model – cost drivers Sales & Marketing MBMCustomer segmentation Mobile Cost of salesSimplify supply chain transformation Mobile Implement single core network Network transformation maintenance NGNEliminate duplicated OPEX NGNPre-provisioning Activation BSSCustomer self service NGNReduced labour expense Assurance Proactive customer problem OSSmanagement and resolution General & AdminBenefits NOW Headcount reduction These drivers are expected to lead to a reduction in end-to-end process costs 7
New economic model Free cash flow (based on A-IFRS) 8FY10 Management $b Objective $6b — $7b 7 6 5 4 3 2 1 0 FY05 FY06 FY10 Reinvention and reengineering expected to drive free cash flow growth 8

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Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 9
FY 2007 outlook Outlook on underlying Outlook on reported numbers business performance RevenueGrowth of 1.5% to 2%Growth of 1.5% to 2% Depreciation &D & A similar to FY06 incl accelerated D & A similar to FY06 before Amortisation D & A of $300m to $350m accelerated depreciation EBITGrowth in range of +2% to +4%Growth in range of — 2% to — 4% Cash operating Range $5.4bn to $5.7bn due to capex transformation Current intention is 28 cents per share Dividend based on assumptions FY07 outlook assumptions: Band 2 ULL price $17.70, no FTTN, no R&R provision and largest transformation spend year 10

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FY07 Half on Half EBIT growth profile $3,489m1H -17% to -20%FY 1H Reported Yellow Transformation D&A Underlying 1H Reported EBIT 05/06 Pagesperformance EBIT 06/07 = 2% to 4% 2H$5,497m 37% to 40% FY Reported Yellow Transformation D&A Underlying FY Reported EBIT 05/06 Pagesperformance EBIT 06/07 Low base in 2H 06 due to transformation $2,008mspend distorting 1H/2H growth rates Yellow Pages revenue recognition change 2H Reported Yellow Transformation D&A Underlying 2H Reported EBIT 05/06 Pagesperformance EBIT 06/07 Underlying performance improving as transformation gains traction 11
Unaudited FY07 August YTD reported performance Sales revenue up 3.3%Costs up 10% Retail Broadband41%Labour-3.6% International17.8%Goods & 18.7% Services Sensis (Adv & Directories) 10.6% Mobiles9.0%Other14.5% Other-1.4%D&A10.6% PSTN-5.9% EBIT down -8.6% PSTN decline stabilisedLabour – headcount reduction Mobiles – data/3G handsetsG&S – mostly mobile growth Sensis/Broadband continued strengthOther – transformation driven International – New World D&A — acceleration Operational improvements continue, tracking to guidance 12

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Unaudited FY07 August YTD reported performance -expense growth Goods and services purchased up 18.7%Other 14.5% Handset subsidies114% Service contracts 23% and agreements COGS44% Other Accommodation 10% 11% Network -4.5% Other 7% payments Increased mobiles COGSTransformation initiatives Increased handset subsidy volumes and New World accommodation higher average subsidy Training academy, legal Mobile commissions Lower mobile terminating rates 3G growth and peak transformation spend year driving expenses 13
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 14

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Driving shareholder value / management objectives* As at November 05As at October 06 Revenue growth:2.0% to 2.5% pa FY102.0% to 2.5% pa to FY10 New product revenue: 20-30% of new revenue growth In excess of 30% Sales Revenue FY10 Cost:Flat to 2010 by FY102.0% to 3.0% pa to FY10 EBITDA ($):3-5% pa growth through FY102.0% to 2.5% pa growth to FY10 EBITDA margin:50% to 52% by FY1046% to 48% by FY10 Workforce:Down 10-12,000 by FY10Down 12,000 by FY10 Capex:12% of revenue by FY1010% to 12% of revenue by FY10 Free cash flow:$6B to $7B by FY10$6B to $7B by FY10 * November 2005 based on reasonable regulatory outcomes which did not occur. October 2006 based on NO FTTN and ULL Band 2 price of $17.70 p/m with 100% flow on to retail prices and no further adverse regulatory outcomes.15
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 16

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Telstra’s scale and scope advantage Sales revEBITFixed asset ROAPremium characteristics: $bmargin % turnover% Australia’s large Telstra 22.824.2(1)0.9623.2land mass (June 2006) Optus7.213.51.25Only real national (Mar 06)16.9 infrastructure player Voda Aust1.91.91.532.9 (Mar 06)Fully integrated carrier with TCNZ Aust 1.2-6.4N/AN/A complete set Ops (Jun 06)of assets Hutch Aust0.9-46.50.87-40.5 (Dec 05) (1) Figure includes transformation costs. Excl transformation costs: EBIT Margin 28.4%, ROA 27.3% Telstra will continue to derive the highest returns in Australia by leveraging its unique broad set of integrated assets and ubiquitous presence 17
Summary Top line growth ahead of consensus Changing the economics of the business Headcount reduction ahead of plan FY07 largest spend year, spend expected to reduce from FY08 Improving underlying financials 18

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Investor Day – slide presentation by Chief Financial Officer & Group Managing Director, Finance & Administration
In accordance with the listing rules, please find a copy of slides to be delivered by John Stanhope, Chief Financial Officer & Group Managing Director, Finance & Administration at Telstra’s Investor Day.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


Table of Contents

Disclaimer These presentations include certain forward-looking statements that are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Telstra, which may cause actual results to differ materially from those expressed in the statements contained in these presentations. For example, the factors that are likely to affect the results of Telstra include general economic conditions in Australia; exchange rates; competition in the markets in which Telstra will operate; the inherent regulatory risks in the businesses of Telstra; the substantial technological changes taking place in the telecommunications industry; and the continuing growth in the data, internet, mobile and other telecommunications markets w here Telstra will operate. A number of these factors are described in Telstra’s Annual Report and Form 20-F. All forward-looking figures in this presentation are unaudited and based on A-IFRS. Certain figures may be subject to rounding differences. All market share information in this presentation is based on management estimates based on internally available information unless otherwise indicated. These presentations do not relate to an offering of any shares in Telstra. You may be aware that the Commonwealth has announced its decision to undertake a public share offer of a part of its stake in Telstra. The Commonwealth has also stated that a final decision to launch an offer remains subject to market conditions being conducive for a sale which achieves the Commonwealth’s sale objectives. If a sale of any part of the Commonwealth’s stake in Telstra proceeds, a prospectus for the offer of th ose securities will be made available to Australian investors at the time of the offer and anyone wishing to acquire shares under the offer will need to complete the application form that will be in, or that will accompany, the prospectus. 1
Telstra Corporation Limited Investor Day 6 October 2006 John Stanhope Chief Financial Officer & Group Managing Director Finance & Administration

1


Table of Contents

Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 3
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 4

2


Table of Contents

Summary of the new economic model Model assumptions Financial impacts Intelligent network – IP based Accelerated revenue growth Software defined environment Higher variable costs Integrated/simplified processes Lower process costs improving speed to market Margin maintenance New revenue opportunities Reduced Capex Roll out new applications and Higher Free Cash Flow services at low incremental cost 5
New economic model – revenue framework TraditionalNext Generation NB Applications and ServicesIPTV / HDTV (mobile or fixed) —Fixed and mobile call Video calling (GSM 2100 #¨3GSM 850) completion Other Content and Applications —Mobile SMS and MMS New— BigPond Apps & ServicesNew —Call connect —Sensis Online including interactive Narrow Band Transaction servicesSoftware solutions IT servicesManaged Network Services 10% of Sales Revenue at Jun 06Hosting 3% of Sales Revenue at Jun 06 PSTN (Basic, Local, LD)VoIP Dialup Internet AccessMobile 3G voice Fixed to mobile callingIntegrated Fixed-Mobile TraditionalMobile voiceBroadband AccessTraditional Print directories— ADSL, HFC, Satellite Foxtel— FTTP Unbundled Local Loop— EVDO #¨HSDPA 78% of Sales Revenue at Jun 06IP Data 9% of Sales Revenue at Jun 06 TraditionalNext Generation 6

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Table of Contents

New economic model – cost drivers Sales & Marketing MBMCustomer segmentation Mobile Cost of salesSimplify supply chain transformation Mobile Implement single core network Network transformation maintenance NGNEliminate duplicated OPEX NGNPre-provisioning Activation BSSCustomer self service NGNReduced labour expense Assurance Proactive customer problem OSSmanagement and resolution General & AdminBenefits NOW Headcount reduction These drivers are expected to lead to a reduction in end-to-end process costs 7
New economic model Free cash flow (based on A-IFRS) 8FY10 Management $b Objective $6b — $7b 7 6 5 4 3 2 1 0 FY05 FY06 FY10 Reinvention and reengineering expected to drive free cash flow growth 8

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Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 9
FY 2007 outlook Outlook on underlying Outlook on reported numbers business performance RevenueGrowth of 1.5% to 2%Growth of 1.5% to 2% Depreciation &D & A similar to FY06 incl accelerated D & A similar to FY06 before AmortisationD & A of $300m to $350m accelerated depreciation EBITGrowth in range of +2% to +4%Growth in range of — 2% to — 4% Cash operating Range $5.4bn to $5.7bn due to capex transformation Current intention is 28 cents per share Dividend based on assumptions FY07 outlook assumptions: Band 2 ULL price $17.70, no FTTN, no R&R provision and largest transformation spend year 10

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FY07 Half on Half EBIT growth profile $3,489m1H -17% to -20%FY 1H Reported Yellow Transformation D&A Underlying 1H Reported EBIT 05/06 Pages performance EBIT 06/07 = 2% to 4% 2H$5,497m 37% to 40% FY Reported Yellow Transformation D&A Underlying FY Reported EBIT 05/06 Pages performance EBIT 06/07 Low base in 2H 06 due to transformation $2,008mspend distorting 1H/2H growth rates Yellow Pages revenue recognition change 2H Reported Yellow Transformation D&A Underlying 2H Reported EBIT 05/06 Pages performance EBIT 06/07 Underlying performance improving as transformation gains traction 11
Unaudited FY07 August YTD reported performance Sales revenue up 3.3% Costs up 10% Retail Broadband 41% Labour-3.6% International 17.8% Goods & 18.7% Services Sensis (Adv & Directories) 10.6% Mobiles 9.0% Other 14.5% Other-1.4%D&A10.6% PSTN-5.9% EBIT down -8.6% PSTN decline stabilised Labour – headcount reduction Mobiles – data/3G handsetsG&S – mostly mobile growth Sensis/Broadband continued strengthOther – transformation driven International – New World D&A — acceleration Operational improvements continue, tracking to guidance 12

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Unaudited FY07 August YTD reported performance -expense growth Goods and services purchased up 18.7%Other 14.5% Handset subsidies114% Service contracts 23% and agreements COGS44% Other Accommodation 10% 11% Network -4.5% Other 7% payments Increased mobiles COGSTransformation initiatives Increased handset subsidy volumes and New World accommodation higher average subsidy Training academy, legal Mobile commissions Lower mobile terminating rates 3G growth and peak transformation spend year driving expenses 13
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 14

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Driving shareholder value / management objectives* As at November 05As at October 06 Revenue growth:2.0% to 2.5% pa FY102.0% to 2.5% pa to FY10 New product revenue: 20-30% of new revenue growth In excess of 30% Sales Revenue FY10 Cost:Flat to 2010 by FY102.0% to 3.0% pa to FY10 EBITDA ($):3-5% pa growth through FY102.0% to 2.5% pa growth to FY10 EBITDA margin:50% to 52% by FY1046% to 48% by FY10 Workforce:Down 10-12,000 by FY10Down 12,000 by FY10 Capex:12% of revenue by FY1010% to 12% of revenue by FY10 Free cash flow:$6B to $7B by FY10$6B to $7B by FY10 * November 2005 based on reasonable regulatory outcomes which did not occur. October 2006 based on NO FTTN and ULL Band 2 price of $17.70 p/m with 100% flow on to retail prices and no further adverse regulatory outcomes.15
Agenda New economic model FY07 outlook and August YTD performance Long term management objectives to FY10 Scale and scope advantage 16

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Telstra’s scale and scope advantage Sales revEBITFixed asset ROAPremium characteristics: $bmargin % turnover% Australia’s large Telstra 22.824.2(1)0.9623.2land mass (June 2006) Optus7.213.51.25Only real national (Mar 06)16.9 infrastructure player Voda Aust1.91.91.532.9 (Mar 06)Fully integrated carrier with TCNZ Aust 1.2-6.4N/AN/A complete set Ops (Jun 06)of assets Hutch Aust0.9-46.50.87-40.5 (Dec 05) (1) Figure includes transformation costs. Excl transformation costs: EBIT Margin 28.4%, ROA 27.3% Telstra will continue to derive the highest returns in Australia by leveraging its unique broad set of integrated assets and ubiquitous presence 17
Summary Top line growth ahead of consensus Changing the economics of the business Headcount reduction ahead of plan FY07 largest spend year, spend expected to reduce from FY08 Improving underlying financials 18

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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
4th Floor, 20 Bridge Street
  AUSTRALIA
SYDNEY NSW 2000
  Telephone 03 9634 6400
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
CEO Letter to Shareholders
In accordance with the listing rules, I attach an announcement for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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Telstra Corporation Limited
ABN 33 051 775 556

Office of the CEO
242 Exhibition Street
MELBOURNE VIC 3000
Mail to:
Locked Bag 5639
MELBOURNE VIC 3001
  (TELSTRA LOGO)
6 October 2006
Dear Shareholder
Today was an historic day for Telstra – we switched on our powerful new nation-wide mobile broadband network and updated the market on how our team’s hard work since our strategy announcement last year has delivered significant progress on our transformation. I am now writing to share this good news with you:
  Our transformation to the New Telstra is working as we invest to cut costs, improve service delivery metrics, and increase revenues from new products and services – many of which come from the integration of content and functions from BigPond, Sensis and Telstra’s other business units.
  Our performance metrics have turned the corner. More specifically, headcount that was increasing is now decreasing. Productivity that was falling is now growing. Service quality that was declining is now improving. In short, most of the performance trajectories are pointing in the right direction.
  Our Plan for Australia has moved from the drawing board to reality. With today’s launching of our new, nation-wide NEXT G™ wireless network, high-speed broadband from Telstra can now be accessed by 98 percent of the people of Australia.
  The New Telstra is achieving one “first” after another – meeting our promises from 15 November 2005 – as we build new platforms and new services to create a new foundation for serving customers, advancing the national interest, and growing the value of your investment in Telstra.
In short, the die is cast; the results are coming in; and you should be encouraged by the results detailed in the attached Progress Report. Let me summarise briefly below:
  Earlier today, we turned on Telstra’s new turbo-charged NEXT G™ wireless network. We achieved this milestone ahead of schedule in world record time – creating Australia’s first nationwide broadband service. NEXT G™ is a major milestone because it will change Australia’s communications landscape forever by providing peak network speeds of 3.6 Mbps today, 14.4 Mbps early in 2007 and 40 Mbps by early 2009 – available over a handset or computer. These speeds will enable new bandwidth-hungry applications, improve business productivity, and expand choices in people’s lives. NEXT G™ will also create many new opportunities for Telstra to earn new, high-margin revenues because we offer new services that are fast, simple, and easy to use.
  Earlier today, we advised the market that investments we are making in the transformation are already having a positive impact on our financial performance. Revenues in the second half of calendar 2006 are already increasing primarily because of increases in new product revenues. Costs, now at the top of the curve owing to transformation costs, should soon come down. In fact, costs are already coming out as we streamline procurement, consolidate real estate, and improve business support systems. Over-all revenue growth remains strong as we slow the decline in PSTN revenues. As you will see in the attached details, our financial trajectory is on track.
  As we have already reported, our intention remains to pay a 28 cent full franked dividend for fiscal 2007 subject to normal board considerations.

 


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As you can see in the attached Progress Report, we are focused on initiatives that will drive share price over time, such as cost takeout and revenue acceleration. We have avoided convenient, short term fixes and we are doing what will be right for shareholders, customers and the nation – in the long term. Still, our people have made significant progress in achieving the objectives of our transformation – including the early completion of our NEXT G™ network. It was designed as a five-year journey, but the transformation is already delivering.
These results reflect a determined, hard-at-work, and united management team working with employees to deliver on our plan to compete harder, using market based management to give our customers a better experience. World class service and capabilities for our customers is our objective. We aim to become not just the best in Australia but one of the best in the world.
The Board and I remain committed to updating you about the progress in Telstra’s transformation. For additional information on the update provided to the market today, please visit our website www.telstra.com.au/abouttelstra/ investor. Please contact us with any questions or comments at investor.relations@team.telstra.com and enjoy our new public website designed in part to promote shareholder feedback at www.nowwearetalking.com.au
Yours sincerely
-s- Solomon D Trujillo
Solomon D Trujillo
Chief Executive Officer

 


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PROGRESS REPORT ON TELSTRA’S TRANSFORMATION
AND ITS PLAN FOR AUSTRALIA – 6 OCTOBER 2006
  (TELSTRA LOGO)
Telstra’s Transformation - we are making significant and measurable progress in our five-year strategy to create a new and more satisfying customer experience, streamline our operations, strengthen IT systems and ultimately deliver long-term shareholder value. Both operationally and financially we are on or ahead of plan.
A financial upturn is nearly here and performance will improve further each year
Building the New Telstra has required significant investment upfront but the results we are showing are not just operational; they are positively impacting our financial performance. Improved performance will kick in during the second half of 2006-07 and further in subsequent years. We told the market today:
  Fiscal 2007 guidance is unchanged with reported EBIT expected to increase in the range of plus 2 to 4 per cent (pc). Due to the start of the transformation in the second half of fiscal 2006 and the later distribution of the Melbourne Yellow pages directory in the second half of fiscal 2007, EBIT for the first half of fiscal 2007 is expected to fall in the range of minus 17 to 20pc. EBIT in the second half is expected to grow in the range of 37 to 40pc, more than compensating for the decline in the first half.
  Operating performance is improving with our EBIT before transformation costs expected to decline by minus 2pc to minus 4pc, an improvement on the minus 7pc for fiscal 2006.
  Paying a 28 cent fully franked dividend remains our intention for fiscal 2007 subject to normal board considerations.
We revised our longer term management objectives to fiscal 2010 which are used to measure implementation of the transformation plan. The revisions were necessary for two reasons. Our fibre to the node network plan remains on hold and we have assumed that the ACCC’s recent interim decision to reduce ULL band 2 pricing to $17.70 a month for competitor access will remain in place and flow on to lower retail pricing for Telstra’s customers. We advised the market that our 2010 management objectives are:
  Revenue growth in the range of 2 to 2.5pc and EBITDA growth expected of between 2 and 2.5pc;
  EBITDA margins maintained between 46 and 48pc. EBITDA margins during the five year transformation plan are expected to fall in the early years of the plan and improve in later years;
  A reduction in the size of our workforce by 12,000 over the 5 years to fiscal 2010;
  Capex to be substantially reduced post transformation to a range of to 10 to 12pc of sales;
  Free cash flow of between $6 billion and $7 billion by fiscal 2010; and
  Compound growth rates use fiscal 2005 as the base year, consistent with those issued on 15 November 2005.
Transforming a phone company into a media communications company ranking among the world’s best
Key operational milestones have been achieved on budget and on or ahead of plan:
  New network and systems infrastructure is being built - our wireline transformation, creating a new single IP core platform that is cheaper, simpler and 77 times faster, is ahead of schedule;
  Complexity in our infrastructure and processes is being reduced. We’re right on schedule. We’ve exited 115 IT applications with another 75 underway. We’re six months ahead of schedule towards capping or exiting 65pc of our 330 network platforms. This cuts costs and enables faster implementation of new services to our customers;
  New training and tools are having an impact, enabling staff to deliver better service at lower cost. The Telstra Technical Learning Academy was established in August, ahead of schedule, to train our field, technical and marketing staff to do their jobs more effectively;
  Thirty-six commercial sites have been exited. By June 2007 we’ll be out of 60. Annual savings: $38 million.
Procurement – savings tell the story
  Our procurement initiatives –misrepresented in some quarters – are bearing fruit for shareholders. We’ve selected world class partners to work with us. Our mobile device sourcing relationship with Brightstar alone banked us $70 million of savings in fiscal 2006. By June 2007, this contract will have saved us $220 million.
  Our data centre contract with IBM, a major part of our IT transformation, will deliver savings of almost $300 million over six years; and last month we signed a seven-year supply chain agreement with IBM that will create savings of $500 million over the life of the contract.

 


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Customer service improvements: better for customers, better for shareholders
In the past year, we have improved our network reliability and service to record levels in some areas:
  A key service metric is the percentage of time we meet appointments for installations or fix faults without having to reschedule. A year ago, we were rescheduling installations over 15pc of the time – this has fallen by more than 40pc to about 9pc. With faults, we were rescheduling visits more than 16pc of the time. This has dropped by more than 50pc to about 8pc. This represents Telstra’s best performance since the Customer Service Guarantee standard was introduced eight years ago;
  Our field workforce is getting the job done properly, the first time, better than ever; the rate of second visits to customers within seven days is at an all time low;
  The backlog of unsatisfied ADSL orders plummeted from 19,000 in August 2005 to less than 4,500 now despite large increases in orders for this broadband service in that time;
  Overtime is down 60pc year on year - through better management of our resources; and
  These service and operational achievements mark a turning point in the New Telstra. Higher productivity is being achieved with a smaller workforce – down by 3,859 full time equivalents in fiscal 2006 (excluding the impact of our CSL-New World merger) and by a further 1000-plus during July and August 2006.
Market based management – improving customer sales
Our new customer segmentation approach is showing outstanding results. New market based management techniques have been used in eight customer sales programs where our sales success rate has improved by an average of 74pc – rising from Telstra’s historical average of 11pc up to 19pc of customer contacts – meaning new sales and customer retention.
Telstra’s turbo-charged, NEXT G™ mobile network – switched on ahead of schedule in world record time
We’ve launched Australia’s first nationwide mobile broadband service months ahead of schedule – in less than a year. This next generation, 3G 850MHz network – called NEXT G™ – removes the mobile divide between city and country, bringing video calling, content and features, as well as super-fast mobile internet services to more Australians than ever before, with many regional, rural and remote areas getting broadband for the first time.
  Our $1 billion investment in a single network will deliver better returns via economies of scale, reduced replication costs and lower capital costs. The investment of your capital in this new technology also provides Telstra with clear differentiation from our competitors, new revenue streams and a lower cost base.
  NEXT G™ will make businesses more cost effective, productive and internationally competitive. We will offer new by wireless business applications that improve management of vehicle fleets and assets. NEXT G™ will be life-changing in its speed and mobility for distance education and for health care professionals accessing patient files, test results and online medical systems via a laptop or handheld device.
  NEXT G™ is designed to take advantage of next generation technologies as they evolve and deliver new bandwidth-hungry business applications. It will bring peak network speeds of 14.4Mbps early in 2007 and 40Mbps by early 2009.
For Telstra customers, we’ve integrated our business assets so that NEXT G™ delivers numerous, demonstrable advantages over our competitors:
  It is Australia’s largest mobile broadband network, larger than all other Australian 3G networks combined;
  NEXT G™’s combination of coverage and speed is unmatched being 100 times bigger and up to five times faster than competitors’ 3G services;
  NEXT G™’s exclusive services include Australia’s first Foxtel by Mobile service, offering 12 channels; BigPond’s 1-click dual download of music to both a mobile and a computer; and Sensis’ “locate me” technology, which matches locations with information requests through its wide range of content services;
  NEXT G™’s exclusive content includes BigPond’s premium line-up such as AFL, NRL, V8 motor-racing and, for the first time, some of the best BBC TV;
  Telstra’s My Place mobile phone menu means that all this is only one click away.
NEXT G™ is part of Telstra’s Plan for Australia to bring high-speed broadband to all Australians at the earliest possible date. While two plans to ‘hotwire’ Australia were dropped when governmental and regulatory authorities insisted that your investments should be used to subsidise our foreign-owned competitors, your management team has focused the investment of shareholder capital where value destroying regulation has not been implemented – in mobile broadband. This will enable you to get the returns from the success of this wireless transformation strategy and will minimise the risk that earnings from your capital investment will be sent to overseas based competitors.

 


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(TELSTRA LOGO)
     
6 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
4th Floor, 20 Bridge Street
  AUSTRALIA
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
AMENDED – Investor Day – slide presentation by Chief Operations Officer, Telstra Operations
In accordance with the listing rules, please find a copy of the amended slides which were delivered by Greg Winn, Chief Operations Officer, Telstra Operations at Telstra’s Investor Day.
Please note that this version replaces the pack lodged earlier.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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Greg Winn Chief Operations Officer Telstra Operations


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One Factory principles Do it once Do it ‘right’ for the customer Do it in an integrated way Do it at low unit cost


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We’ve been busy Laid Laid Installed 460,000km 1.2 million km 1.6 million of fibre optic of copper new cable in our cable DSL ports backbone Built Added 400,000 Built 3G Installed over 11,000 hours of network with almost high capacity battery 100X bigger 10,000 E1 core backup geographic transmission transmission capacity area solutions links Changing the Deployed over Construction Equipped over way we over 10,00010,000 teams have 3,000 vehicles schedule new tools driven over with GPS 25,000 jobs to our field 70 million km every day staff


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Agenda Infrastructure Simplification Tools, Training " Productivity Real Estate " Supply Chain


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Agenda Infrastructure Simplification Tools, Training " Productivity Real Estate " Supply Chain


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Wireless transformation


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Building Next G in Far North Queensland


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Wireline transformation Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs


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Wireline transformation Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs


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Filled with large Large exchange buildings switching installations


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Migrating to compact softswitches with massive capacity


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Telstra Integration Laboratory


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Wireline transformation Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs


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Wireline transformation Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs


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Wireline transformation Creating a fast, scalable, highly reliable platform which can deliver new services at low unit cost Building the next generation network Enabling faster delivery of new services Strengthening our existing infrastructure Driving down unit costs


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IT transformation Billing and Operational Support Customer Care systems systems Transformation timeline over 3-5 years Tangible benefits starting in 2006 Systems will be integrated and customer-centric A few proven world class partners Commercial off-the-shelf packages


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Major Partners in our IT transformation Billing and Operational Support Customer Care systems systems


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Meeting requirements out-of-the-box


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Agenda Infrastructure Simplification Tools, Training " Productivity Real Estate " Supply Chain


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Our legacy networks


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Simplification - 5 - year goals set last November


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Agenda Infrastructure Simplification Tools, Training " Productivity Real Estate " Supply Chain


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Over 10,000 new tools deployed - some examples


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Deploying GPS units in our field fleet


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Getting there Getting it right on time... first time...


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Residential faults cleared Fault calls answered Technician without a truck roll within 20 seconds productivity


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...and “Bad volumes” are down


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Company-wide FTE reductions


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Agenda Real Estate " Supply Chain Infrastructure Tools, Training " Productivity Simplification Real Estate " Supply Chain


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Real estate initiatives


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Procurement and Supply Chain


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We are delivering on our commitments On track Launch nationwide 3G 850 network Build single IP/MPLS core with Ethernet aggregation Cap or exit 65% of network platforms Decommission 80% of IT systems Transform billing, care and operational support systems Achieve staff reductions of 10-12,000 over five years ...While improving customer experience


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The bottom line One Factory principles Measurable outcomes On track, on budget, ahead of schedule Transforming the business while simultaneously improving customer experience


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(TELSTRA LOGO)
     
9 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Transcript of presentation by CEO Telstra at the Telstra Investor Day
In accordance with the listing rules, I attach a copy of the transcript of the presentation by Sol Trujillo, Chief Executive Officer Telstra at Telstra’s Investor Day 6 October 2006, for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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TELSTRA INVESTORS DAY
6th OCTOBER 2006
8.45 am – 9.45 am
– – – – –
SOL TRUJILLO: Good morning, everyone. I would like to thank you all for joining us here today because I believe today is a very important day in Australia’s history. It is not a national holiday, but it marks a significant milestone that is likely to be noted I believe in Australia’s history. You see, this is the day, 6 October in 2006, that life in Australia will be changed forever. It is going to be changed by a new nationwide high-speed broadband wireless network.
Telstra’s new Next G Network will reach around 98 per cent of all Australians. It is going to create new experiences for just about everything that we think about doing in our everyday lives. It is essentially about how you live, how you work, how you play, how you learn, how you can be mobile and again have access to whatever you want to do.
In the past it was only about being able to make and receive voice calls, but now it is about whatever you choose to do. So today Telstra’s Next G Network will challenge the tyranny of distance and the limitations of speed.
We are also challenging the conventional wisdom that advanced technology equates to more complexity. As you came in today hopefully you had an opportunity to experience elements of the new world Telstra is creating for Australia.
So I want to take a couple of minutes to preview what is about to happen here in Australia: the only place in the world that this will have happened at this moment in time. We are about to turn on the largest — let me say that again; the largest — most advanced ISP 3G broadband network on the planet. We call it Telstra’s nationwide Next G Network.
Think about that. Australia is a country that has typically been a follower in the world of telecom. Australia as of today will become the leader in this whole space of wireless broadband. So let me give you some facts surrounding the Next G network available today. Next G uses an 850 megahertz network, one of the world’s most advanced mobile services. Next G moves Australia assertively into the 21st
         
06.10.06   - 1-   Sol Trujillo
Transcript produced by WordWave International

 


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century. Next G will change the total communication and media landscape, I believe forever. Next G is Australia’s largest and fastest mobile broadband network. It is again a nationwide network, larger than all the other Australian 3G networks combined, with peak network speeds of up to 3.6 megabits per second today, quickly rising to 14.4 megabits per second by the end of March 2007, and advancing by 2009 to 40 megabits per second.
Now, if you think about the dimensions of that, there is a dramatic shift now in terms of what is possible. The Next G combination of coverage and speed is unmatched and, as I said before, Next G will reach 98 per cent of all Australians. It is 100 times larger and up to five times faster than any of our competitor’s services — including our existing 3G services — as of yesterday.
With Next G a three-minute song download takes about 15 seconds to occur, less than one tenth of the time it takes with a 2G phone. We will show you in a little bit how significant and how different the experience really is.
Next G provides content galore. Australia’s first mobile TV service with Foxtel will be delivered here, offering 12 channels with BigPond’s one click dual download of a music track to both a mobile handset and a computer. Sensis’ locate me technology, which matches technology with information requests through the Yellow, Trading Post, City Search and Where-Is mobile services, will all be available as we look at these phones. So, again we are going to make the experience easy, one click simple as we have talked about in the past.
But that’s still not enough. In the case of Next G we are going to be providing exclusive content, including BigPond’s premium line-up such as AFL, NRL, V8 and now some of the best BBC TV. Next G carries Telstra’s “my place” mobile phone menu, which means that watching sports, news or Foxtel is essentially again only one click away along with video calling, mobile e-mail, music downloads and more. Next G handsets are going to be fully featured, including Blue Tooth enabled applications, 1.3 megapixels with cameras with digital zoom, MP3 music players, ring tones, personal organisers and calendars and USB connectivity.
Next G users will be able to access high-speed data in approximately 30 countries, send mobile e-mails and when travelling experience voice and SMS roaming in more than 140 countries worldwide on the GSM’s extensive global roaming set of networks. GSM is where the world essentially is. Put another way, Australians are about to experience
         
06.10.06   - 2-   Sol Trujillo
Transcript produced by WordWave International

 


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speed, coverage and simplicity that is unmatched by anybody else here in Australia.
Now, let me make a second set of observations. Next G isn’t just about what I would call incremental improvement in mobility. It is really about new to the world set of capabilities. Next G is in fact about bringing a whole new way of life to Australia.
So consider, for example, what Next G means for health care. Again, here in Australia, consider breast screening. The Telstra mobile breast screening van is already the only connection for women in rural areas to urban screening capabilities. But now it gets even better because the agonising waiting time between the test and knowing the results can be dramatically reduced. Rather than having to wait to travel to a wired site to deliver the screening test, the test can be instantly uploaded from just about anywhere in Australia to the urban medical facility via our wireless broadband.
Only the Next G Network has the coverage — let me say that again; the coverage — and the data capacity to make this possible. Care provided in homes by a physician or other healthcare professionals is now even more efficient than ever with instant access to patient records, diagnostics, uploading of tests and video references for second opinions, for example. The scope of care possibilities is now dramatically increased and the quality of care significantly enhanced. So Telstra is working hard at helping to make national health care services a reality. This is part of that reality shift: not being incremental but fundamentally changing.
So, now as you think about it as a business, what about that? What about this notion of when you have people out in the field, people that work all over? Next G has location based capability built into its network. Therefore, when a service call comes in, the dispatchers can instantly see which service technician is closest to that address. That simple capability can increase productivity and profitability and greatly increase customer satisfaction. We are doing that today within our business.
Next G can also advance enterprise problem solving. For example, a challenger technician may be having trouble diagnosing some sort of problem. They can now quickly share the problem with the entire force in the context of a group video message, and you will see us do a live group video call here.
Well, these capabilities now have not really existed before, not having the infrastructure, the bandwidth et cetera, et cetera. All of these problem-
         
06.10.06   - 3-   Sol Trujillo
Transcript produced by WordWave International

 


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solving strategies can now be done from places across Australia that until now we could only do by voice. So this really is a seachange in how we deliver business and professional services throughout all of Australia. Any data intensive business can benefit from our next generation 3G network.
So let me give you another example: the Australian Institute of Marine Sciences in Queensland, the people who monitor the Great Barrier Reef as well as marine life in the waters all around Australia. Their important research and analytics depends on continuous data input from remote locations. Next G opens again a new frontier of possibilities for the institute by increasing its ability to upload large files that previously were basically impractical in terms of time and from the remote locations that did not have network access before Next G.
So think about two divers, one carrying the camera — or the camera — and the other one with the microphone interacting with sea life and broadcasting live to classrooms across the country. Think about the kids in the desert discovering the ocean for the first time, interacting in real-time with divers via live video to the classroom. This is the new world of education made possible by Telstra’s Next G.
Imagine entire business ecosystems working together in ways never before possible; for example, an architect, a construction company and a materials supplier. It is easy to understand the value of being able to conduct a videoconference from a job site with everyone involved to determine how to respond to a challenge or problems or to just simply clarify specs or to compare blueprints. The time savings, the cost savings and quality controls and enhancements are huge for a business like that.
Next G will change the paradigm for businesses in Australia, no doubt about it. Those changes will increase the productivity and competitiveness of Australian businesses. They will lead to new jobs growth and economic development because we have seen all the studies in the past about when you enhance those capabilities, where you are no longer limited or constrained by space or location, you can do more. So the economic impact of this new network will be measured in the billions of dollars per year well before this decade is over.
But let me give you some examples of what our new network is going to mean for even the simple everyday life that most of us lead. How many of you have been frustrated by losing an important call when you get inside an elevator and the doors close or when you go down into a carpark? We have all experienced that. Well, today only Telstra will be
         
06.10.06   - 4-   Sol Trujillo
Transcript produced by WordWave International

 


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able to help reduce that frustration with the most extensive in-building coverage available. So, when we talk about coverage, we are not only talking about the geography across Australia but also the geography when we think about all the locations, in-building kinds of locations, that we are into.
Beyond that, only Telstra keeps you connected with the largest roaming network outside of Australia. No more carrying of two phones for those that had been CDMA customers. You only need one. Now, let me be clear: you only need one if that one is with Telstra.
Now consider what we are about to do for TV viewing. With our next generation handsets you are only one touch away from Foxtel TV or your mobile only available from Telstra. But how you experience TV with Next G is the dramatic difference. Compare how quickly you get the TV program you want versus other 3G networks. It is visible, it is noticeable and you can experience it all, and you will here — in a little bit.
Think about how you can watch FoxSports live as you click on your “my space” channels. The nice thing is that you can see it just about anywhere in Australia where people drive or live. Next G makes TV portable, fast and easy to access with fantastic quality, again available across Australia.
Now I’m going to show you something no-one has ever seen before anywhere in the world. This is Foxtel shown live on our new network near Darwin in a helicopter flying at 100 knots per hour. There is no sound to this, but we are testing and have been testing this network about as rigorously and completely as we could. So you saw there, 100 knots per hour up in the air, this network was working at these high bit rates of delivered content.
So, I would like to say to all of you: welcome to the new world of Next G. If you visited the Telstra Shop on your way in you may have downloaded a piece of music to a mobile phone and to a laptop at the same time. The nice thing about that is that you pay once. The nice thing about that is you can only do that with Telstra. But when you pay that one time you essentially get two licences as the music is sent to both devices. Again, only Telstra makes that possible.
Remember with our nationwide coverage, 98 per cent of all Australians can now experience music downloads that are fast and easy. Again, you will have a chance to see how fast and how easy it is.
         
06.10.06   - 5-   Sol Trujillo
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Next G is not just about handsets. I want to be clear. In the past we have always looked at the front of these devices and they have a name. The name of that device kind of defined what the experience was going to be for you and 400 million other people around the world. That now changes, because when you open any device from Telstra now you are going to be able to get a Telstra experience that you can customise for you and personalise for you; not for you and 400 million others, but for you. That, to me, is a big deal and it is a big deal as we have researched these kinds of concepts with our customers. So it isn’t just about handsets. Next G broadband also does work on your laptop.
So when you think about inserting one of these cards, we now call this our “turbo card,” because it does change the game for our customers of taking their laptop wherever they want to go, inserting the card and having this high-speed broadband capability wherever they might be.
So the world of business opens up further across Australia. It is accessible. This broadband capability is accessible everywhere that you may need it. It means you can be at a meeting with a customer, and if you need to download some important data you simply plug in your Next G turbo card into the laptop.
Telstra has taken video calling to a whole new dimension. Mobile videoconferences are now possible from wherever your employees, suppliers or customers are. For businesses with regional operations or a highly mobile work force, that means face-to-face meetings. So it is no longer you can’t see the person, you can’t look in their eyes. It is all there for you to be able to do.
So I would like for you to take a look now. We are on a live videoconference with colleagues across Australia. So what I would like to do is have you all say hello to Shontell on Thursday Island. Shontell, do you want to wave at us?
SHONTELL: Hello.
SOL TRUJILLO: Hello, Shontell. How about Daryl in Cape Byron? Daryl, do you want to say hello?
DARYL: Good morning, Sol, and welcome to beautiful Byron Bay. It is a glorious 22 degrees here. Congratulations on the new network. It is absolutely fantastic.
SOL TRUJILLO: All right. Thank you. How about Andrew in Southport?
         
06.10.06   - 6-   Sol Trujillo
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ANDREW: Hi, it is Andrew in Southport. We’re actually at the Ida Bay Railway, Blue River. We are about an hour and a half south of Hobart on the very pointy end of Tasmania, which is obviously at the very southern point of Australia. Thanks, Sol.
SOL TRUJILLO: All right. Good morning. And Ron in Uluru?
RON: Yes, thank you, Sol. Absolutely beautiful here today. I will just turn around and show you the iconic view that we have from here. I hope you can see the landscape. It is absolutely magnificent out here.
SOL TRUJILLO: Ron, we can see the landscape.
RON: I would like to tell you how fantastic this network is. On the drive out here I stopped at a place called Eridunda, which is about 200 kms south of Alice Springs, and I could watch FoxSports. I just love it. Thank you.
SOL TRUJILLO: All right, Ron. Thank you all. We are here in a big meeting with a lot of folks that are interested in hearing about what you and others around our Telstra family have been doing. So thank you very much for taking time out of your busy schedules and we will talk to you down the road. Thank you. Bye-bye.
As you can see, these are only the beginning of the ways that Telstra’s new network is about to change life and work in Australia forever. Now thanks to Telstra, Australians across the country are about to have more ways to do more thing in more places again than we have ever had the opportunity to do.
Remember at the beginning I mentioned challenging the paradigm of more technology has traditionally meant just more complexity for the customer. Take a look at this. Only Telstra again puts the things you want most just one touch away on the “my place” menu. You can see it up there on the screen. I can show it to you right here. When you flip open your phone and you click once, you are there. No other phones in the world feature this one touch menu, and only Telstra makes Foxtel TV, BigPond, Where Is, your account information, e-mail and more so easy to get to. Click and you are there.
What’s the next generation of these next generation phones only from Telstra? Well, it is going to include menus that you can customise even further. This is simplicity in that it is built so that you can drive what it is that you like to do, but most importantly anywhere that you might be.
         
06.10.06   - 7-   Sol Trujillo
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I want to take a moment and give credit to our partner who helped us build this network, a partner who is providing the most advanced technology across the globe. I have asked Carl-Henric Svanberg, chief executive officer of Ericsson, to join me for this historic occasion. So, Carl, would you please come up.
Carl, if you wouldn’t mind just sharing with everybody some of your perspective about the industry, about the technology, and about what we’re doing here.
CARL-HENRIC SVANBERG: Absolutely, Sol. And let me say to you and, ladies and gentlemen, it is wonderful to be here. I’ve travelled ten thousand miles to be here at this special occasion — historic moment for Telstra, for Ericsson, and for Australia.
And let me say that we have the world’s eyes on us today. This is the way the industry and the technology is moving, and I want to congratulate you, Sol, and your team for being early with your decision in leading the world in that respect. What you are delivering today in Telstra is raising the bar, raising the bar for operators around the world as they respond to consumer expectations.
We need to understand that designing, planning, and roll out a network and lower services, that is something that does take time and that is why it’s so important for an operator to be early out with his strategic choices to make sure that one can stay ahead of consumer demand.
Telstra will be able to offer services demanded by users today and tomorrow, and I must say that I’m proud and I’m excited to be a partner and to be part of launching this new generation network. In addition, to be able to launch a network of this kind on 850 megahertz. That is an advantage especially when it comes to reaching out and creating coverage. That is so important in a country like Australia. But it also joins in with other large roll-out that is presently going on with Cingular in United States, with Rogers in Canada, which means that it will help also to drive technology and availability of handsets.
Telstra and Ericsson, we go way back together. Ever since 1890, we have been building Australia’s communication infrastructure. But I must say that never has a project been as demanding as this one with the requirements and the targets set out by Sol and his team.
Together we have built this national network in a record time. In just ten months we have been able to cover 98 per cent of Australia’s population. It represents the largest — the geographically largest network — 3GSM network in the world, and we will also very soon be able to actually reach 200 kilometres from a single radio base station which is a feature that is especially important for a country like Australia with its specific rural coverage needs.
And I would say that that is just one of many small examples of our
         
06.10.06   - 8-   Sol Trujillo
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partnership but also of the commitment from Ericsson to continue to lead is leading world standards in mobile technology. We are every year investing some five billion Australia dollars in research and development with 18,000 search and development engineers.
Our industry is changing rapidly and will do so even faster in the future. We have seen now traditional wire line telephony for 130 years. We’ve had mobile telephony for some 50 years and with a leading standard GSM for now some 25 years. But today the phone as we all know it offers so much more than simply voice. In fact, this phone — we can look at just this simple standard mobile phone — it actually has more computer brains than Apollo 11 had when it landed on the moon. And it is pretty fantastic and breathtaking to think that I hold more computer power in my hand than Neil Armstrong when he commanded his moon landing.
What was then enormously expensive has now become affordable to all of us — to many of us — and it is, of course, the large volumes that makes this very exclusive and advanced technology available to so many.
Last year there was 800 million phones sold in the world and that makes it the most sold consumer product in the world, and it is one of those devices or products in the world that have meant most to change and develop peoples’ lives. And, of course, today we do so much more than just talk. It is, for example, possible to download music, listen to music whenever we like to do so. Let me just show you with this phone. Let’s listen to some music here. (Music) Pretty fascinating with a little phone like this that it actually is possible to drive this whole here. It’s amazing.
With today’s technology, data speeds are being dramatically increased. This will, of course, it will pave the way for many more new services such as mobile office applications, such as music downloads, mobile TV, and any other multimedia applications. And as a result, the traffic in mobile networks is expected to quadruple in the next five years, and we expect also that by 2010 that data traffic will exceed voice traffic.
The GSM wideband CDMA technology that Telstra have chosen and which is also quickly growing in importance and it covers today 2 billion of the 2.5 billion mobile users in the world. That, of course, means that it offers scale, it offers efficiency, and also an evolution path to the future. It is the 3G technology and standard in the world that is growing the fastest, and we can today offer data speeds that we get or exceed the data speeds that we get in fixed broadband connections and networks.
We’re no longer measuring speeds in kilobits per second but actually in megabits per second. And through HSDPA we can provide true mobile broadband and provide an opportunity for billions of people to reach the Internet.
Mobile broadband is changing the industry just like once mobile telephony did. And I’m sure that several of you remember and we asked ourselves some 15-20 years ago, “Who needs a mobile phone?” Today we are seeing the same shift again when it comes to mobile broadband. We
         
06.10.06   - 9-   Sol Trujillo
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as end-users we have broadband connections. We want to have a broadband connection for wherever we are and for any device and for any type of services.
But broadband access over networks is expanding also the overall market. Today about a billion people have access to the Internet but only 300 million through broadband. Just imagine when two billion people can get the access to mobile — true mobile broadband, and these people are today simply an upgrade-step away from mobile broadband.
We can use it for many other things. I would like to show you — and I have Malcolm up there. Malcolm has one of these chip sets that Sol showed you. This is — I’m very sad to look at these pictures, in fact, because I asked Malcolm to download over the Internet — I think you can cut it off. It is a bad thing because this is my home team — the leading hockey team in Sweden playing the worst team in the league and the home game two nights ago — and they lost the game. That is what makes it so sad. But you must agree with me that this is pretty fascinating. This is the picture blown up here. Just imagine how sharp it is on your laptop which means that you’re not any longer — you don’t have to sort of wait for a moment when you can watch a TV program at 8 on Friday night. I think we will see a lot of TV whenever we want on demand in the networks.
Half of the world’s population will soon have a mobile phone, and this is a fantastic development, and I’m sure that very few could anticipate when GSM started to really grow some 15 years ago. We at Ericsson, we have a vision of an all-communicating world. Communication is not only a fundamental human need. It also brings us closer together. It helps to build a democratic society, and it is driving economic growth.
I am proud over what we have achieved together with Telstra. I am proud that we at Ericsson can be part of this new era in Australia of communications. It is truly an exciting project to be involved in, and I can only give my compliments to Sol, Telstra, and the team for being the first in the world to drive this technology and development further and take this important infrastructure step.
And I can tell you that there are many, many customers around the world that are watching us now and they are eager to see how the development proceeds. Once again, Sol, thanks for letting me be here.
SOL TRUJILLO: All right, Carl. Thank you very much. It’s great to have you here.
CARL-HENRIC SVANBERG: Thanks.
SOL TRUJILLO: Now, just so everybody knows, Carl and I basically for the last ten months have had weekly conversations, right, Carl.
CARL-HENRIC SVANBERG: Yes.
SOL TRUJILLO: You know, getting this done in record time has been,
         
06.10.06   - 10-   Sol Trujillo
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you know, a challenge for both of us. So do you want to comment in terms of your experience with this versus maybe some of the other opportunities you’ve had around the world.
CARL-HENRIC SVANBERG: Well, I can certainly tell you that there hasn’t been a project that we have been involved in ever in Ericsson that has been this demanding and this fast. We have, in fact, in the most critical weeks and months here we rolled out and launched a new radio base station every 25 minutes, 24 by 7. That’s incredible and it takes an enormous effort. But, of course, it does take a partnership as well. You cannot do it as a vendor alone or as a telecom provider alone. It has to be together and I must say that our weekly calls Monday mornings at 8:30, they’ve been at times very joyful; at times very frustrating. It’s been a nervous race all the way but we’re here now.
SOL TRUJILLO: Yeah. Well, I think one of the things that we learned and is very important is this notion of trust because when you make commitments — in our case, we’re committing to you as a customer but also then as the strategic supplier — that we have to trust each other in terms of our capabilities but also the candour.
CARL-HENRIC SVANBERG: Yes.
SOL TRUJILLO: I mean, we’ve had some very candid conversations with each other during that process. But the point is to get things done.
CARL-HENRIC SVANBERG: Yes.
SOL TRUJILLO: And I think we’ve accomplished something nobody has done ever in the world before in terms of this kind of deployment. Just one other thing that I think would be helpful if maybe we can do is we have one of our technology folks over here that’s going to help us show everybody here what this really is about. Mick Alford is sitting over here and, Mick, why don’t you show us —
MICK ALFORD: Sure.
SOL TRUJILLO: — the differences here and explain to us what you’re going to demonstrate up here.
MICK ALFORD: All right, Sol. Good morning, ladies and gentlemen. Okay, what we have here is four identical laptops all set up, all plugged in with various wireless cards in production as you would if you stepped outside now and just logged onto the Internet.
We’ve got here on the far right is one of the competitors — is our competitor’s 3G offering. Next to that is Telstra’s initial 3G offering on a laptop. Next to that we’ve got Telstra’s EVDO and at the very end we’ve got Telstra’s NEXT G turbo card. What I’m going to do is I’m just going to kick off a quick download, and what you can see if you have a look at the screen here, the screen has got Telstra’s NEXT G turbo card on it. The feature to look at is the red bars there. That tells you how fast the download is coming, peaking about 3 meg, averaging about 2.6 however
         
06.10.06   - 11-   Sol Trujillo
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it’s showing there. We might as well just have a quick look at the competitor’s card, see how that’s going. It sort of hasn’t even woken up yet, just having a bit of a think about things, not even having breakfast.
Telstra’s initial 3G one is still going here. Sorry, mate, it’s all done. Our turbo card 8.9 megafile in 30 seconds. There you go, Sol, all done.
SOL TRUJILLO: All right, Mick. Again, you know, part of the reason why I wanted all of you to see this is what we’re about to deliver to all of Australia is the equivalent on the wireless base as to what we all experienced in the fixed line when we moved from narrowband to broadband. The narrowband you remember the wait. We had this www world wide wait kind of phrase that we all used. Now, it’s almost disappeared from our discussions.
Now, with this NEXT G capability it’s almost instant in terms of the wireless experience, and the speeds at which things can be delivered are so significant. So we’re anxious to turn this network on but as we do that, I think it’s important for me, Carl, to make sure that we’re ready in our stores.
So what I’d like to do is just check with Debbie Easter who is at our Telstra shop in Albury, get her online, and make sure that we’re ready. Debbie, are we ready? Hello, Debbie? Can you hear me?
DEBBIE EASTER: Hello. Yes, I can hear you.
SOL TRUJILLO: Okay. Go ahead, Debbie.
DEBBIE EASTER: The team’s really excited about the NEXT G products that we have and are looking forward to showing all of our customers the benefits they’re going to have by using the new network that we’ve now got enabled for our customers.
SOL TRUJILLO: Great. Great. Well, I was at a dealer conference earlier this week and the feedback was tremendous in terms of what all of the people were telling me about the next set of capabilities that they can now offer to their customers as they have their stores, but obviously we’re going to be launching first here in our Telstra shops and it’s good to hear that you’re ready.
So, Carl-Henric, what I want to do is now get us ready to turn the network on.
CARL-HENRIC SVANBERG: Right.
SOL TRUJILLO: But I think before we do, we need to say thank you to the people. You and I are standing here on the stage but there are some people that really made this happen every day.
CARL-HENRIC SVANBERG: Let me first say, Sol, I would like to express a thanks to our staff. It is, of course, wonderful to be here. I’ve been a supporter all through but true heroes are out there in the field.
         
06.10.06   - 12-   Sol Trujillo
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Fourteen hundred people we have had rolling out this network with us and partners, and there are some who have really done tremendous efforts.
I would like just to ask Bill to stand up and also Hals Vesberg from Sweden. They are the ones that are responsible throughout this. Throughout the world Hals and Bill are ahead here in Australia for doing this. This is just fantastic but — you may sit down.
But as I said the true heroes are out there battling still but I would also like to say that without you, Sol, and the team this wouldn’t have been possible, so we’re extremely grateful for this opportunity.
SOL TRUJILLO: Thank you. Well, Carl-Henric, I think you’ve gotten to know our leadership team here as well and I’d like to first acknowledge our Chief Operations Officer, Greg Winn. Now, Greg, if you would stand up if you can. You know, I think most of you know that since I came here I’ve been working on building a world-class team and Greg is world class.
I think if you talked to almost anybody inside our company that’s worked with him or if you talk to the folks that work with him outside the company, he truly is world-class. He’s driven this whole set of operations and the whole set of activities in ways that Carl-Henric and I were talking about that we’ve not seen before. And Greg has done a special job as leader in the business that’s running the operations and making it happen. So please help me thank Greg Winn.
With Greg are also two other individuals. One in particular that I’m going to start with and his name is John Gonner. John, if you would stand up. John also joined us. He’s had experience operating around the world as well in terms of building networks in Eastern Europe, Vietnam, the U.S., Europe, all kinds of places, and John is the person that we gave the task specifically around wireless to help us with our strategy development, to help us in terms of thinking about what was the best set of choices, and obviously, John, he’s always done a terrific job for us. But, John, I want to thank you very much for everything that you’ve done to make this work.
And then finally Mike Wright. He’s one of what I would call one of our “home boys”. He’s an Australian. He has a long history here with Telstra. And Mike has been the chief engineer, the wireless engineer driving the design, the architecting, all the things that are associated with again making this the best network possible for Australia. So, Mike, I want to say thank you to you as well, and congratulations to all of you.
So, Carl-Henric, I think it’s time —
CARL-HENRIC SVANBERG: It is time.
SOL TRUJILLO: — to light up the network.
         
06.10.06   - 13-   Sol Trujillo
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CARL-HENRIC SVANBERG: Yes.
SOL TRUJILLO: So let’s go.
Okay. Well, congratulations.
CARL-HENRIC SVANBERG: Thank you.
SOL TRUJILLO: Thank you very much.
ANDREW MAIDEN: Ladies and gentlemen, my name is Andrew Maiden. Welcome to those watching on our webcast. We now have a short opportunity to take some questions from the media and after that we’ll have a 15-minute break and resume with the analyst component of this event today.
For media, can I ask that when you ask questions please introduce yourself by name and organization and make clear to whom it is that you’re question is addressed. So are there any media questions? Please come to a microphone.
KATHY SWAN: Hi, Kathy Swan from ABC TV Inside Business. You’ve said a lot about how we’ll be leading the world with the pace of the mobile broadband, but it’s still not going to match fibre to the node. When are we going to catch up there.
SOL TRUJILLO: Well, we’ll talk about fibre to the node later today in our investor briefing, so I’ll deal with that then. Okay? Thank you.
ANDREW MAIDEN: Microphone three.
MICHAEL SAINSBURY: Hi. Michael Sainsbury from The Australian. How are you?
CARL-HENRIC SVANBERG: Hello there.
MICHAEL SAINSBURY: With this HSDPA technology that you’ve got on the new network, is that any different to the technology that Vodafone launched this week or that Hutchison will be putting into their network or Optus?
CARL-HENRIC SVANBERG: What the HSDPA network actually is doing it is using normal 3G technology which has a radiowave that basically swings up and down. But data — when you’re up on the top, you’re up at 40 megabits per second and down here you’re very slow, but the voice has to come through that whole way. But data you can basically use and jump on the tops and stay on highspeeds.
We are here the first in the world now to launch 3.6 megabits per second and then we will step it up to 7.2 and then 14.4 and that we’ll go step by step. So in that sense we’re the first here. But it’s basically the same infrastructure and the same technology. That is very important because you want a future-proof technology you can migrate step by step into higher, better technologies.
         
06.10.06   - 14-   Sol Trujillo
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ANDREW MAIDEN: Any other questions? If not, there will be another opportunity for media questions at the end of day. But I see another at microphone 3.
TONY BOYD: Tony Boyd, Financial Review. I wonder if you could just talk about the handsets that will be available; for example, Nokia, which I think is 60 per cent of all phones sold in Australia. When will you have those, Sol?
SOL TRUJILLO: Well, first of all, Nokia is not 60 per cent of all phones sold in Australia. As a matter of fact, I think David Moffatt will talk a little bit later about the mix of handsets. We will have Samsung. We will have LG. We will have a ZTE which is a new entrant in the market. We’re going to have a Jazz Jar PDA handset, and we have a whole series of handsets that will be evolving over the next few months including Motorola in a couple of weeks as part of our lineup.
We have a great offer but as I said before, the issue here is not about the name on the front; the issue here and the opportunity here for customers is about the name on the inside, and it’s about Telstra and it’s about the experience that we’re going to deliver. As certain manufacturers are ahead of others in terms of moving into the 3.6 HSDPA kind of world including 850, they will all come and they will all be part of the game.
But again the most important name with what we’re doing with NEXT G is Telstra. That is the brand; that is the service, and that is the experience.
ANDREW MAIDEN: Raphael.
RAPHAEL MINDER: Yeah, hi. I am Raphael Minder, correspondent for the Financial Times. I wanted to know — if I understand right you’re actually launching today the marketing side as well — what kind of offer, what kind of promotion are you giving customers to get them to migrate to this network? Are you going for something very different to what you had done in the past with previous new products?
SOL TRUJILLO: Well, actually, Raphael, the number one offer that we’ve got for our customers is the experience. It’s about the speed. It’s about the reach. It’s about the capabilities. It’s about all the things now that they’re going to be able to do that they could not do yesterday or that they cannot do with another competitor.
Because this in-building coverage issue is a big issue for most customers. We’ve taken that wall down. In terms of the nationwide footprint not only for voice but also all the data services and capabilities is the new opportunity and also then some of the applications and services that we talk about in terms of our devices. When you go on and you want content, you want music, you want to download, you want to do things simply, easily, that’s all part of the offer that’s different and bigger and better than ever before.
         
06.10.06   - 15-   Sol Trujillo
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ANDREW MAIDEN: Microphone one.
KAREN TSO: Karen Tso, Channel 9. Question for Sol: Obviously the timing of this network launch comes before the T3 shares go on sale. How is it likely to impact that sale process?
SOL TRUJILLO: I really have no idea how it will affect the sale process. We designed this date over a year ago. Over a year ago. It had nothing do with T3. It has everything to do with serving our customers and being better than those that we compete with.
So in terms of commenting on T3, it really has no relevance in a sense of timing, capabilities, and the differentiation that we have. What I talked about last November 15th was that by no later than the 1st of ‘07, we would build this high-speed data network broadband wireless capability that would advantage us in the marketplace and that’s what we’ve done.
ANDREW MAIDEN:.Two more questions. The second last from microphone 3.
JENNIFER HEWITT: Jennifer Hewitt from the Financial Review. I was just wondering if you could give us any indication, Sol, of the type of pricing you’re looking at on this also how many people you expect to have on the network by the end of this year, and if you see any issues at all of congestion if, in fact, this proves to be extremely popular.
SOL TRUJILLO: Jennifer, let me take the last part of your question first and then I’m going to beg off on the first part because David Moffatt will talk about some of this in his presentation a little bit later in some good detail around our whole strategy of roll-out. In terms of the congestion, this network is being built for a lot of customers in terms of the network capacity, probably initially up to a million and a half customers just as of today. And I’m looking at Greg and John and Mike for verification as our engineers.
So we have plenty of capacity and plenty of reach again around the country. We don’t put our little toe in the water and just announce one little exchange or one little city or one little whatever. We’re doing this nationwide. Now, the key here relative to the services and the offering and the pricing, again this is a high-value network. This is going to be enabling lots of capabilities that people have never had before. And so David will talk some more and again I think you’ll get the precision of what you’re looking for in a little bit. Okay? Thank you.
ANDREW MAIDEN: And the last question from microphone one.
JOHN FARDOULIS: John Fardoulis from Mobility Magazine. I’m just trying to get a handle on the significance across the whole industry. So if I ask you a question and a quote at the end — if I asked you: This is the biggest thing in mobile since... What would you say?
SOL TRUJILLO: Well, to me this is the equivalent of the transition we made in fixed line from narrowband to broadband when you think about
         
06.10.06   - 16-   Sol Trujillo
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the world wide wait versus the always-on experience. Because now when you click and you access a service here, it really does come right away. And in this case if I want to get on to my BigPond site, it’s instant. It’s three, four seconds in terms of the time that it takes to get there.
If I want to watch FOXTEL, it’s three or four seconds to get to that site. It’s not like anything else because most of us — pick up any mobile phone that you have today including Telstra’s, so I’m not just talking about inferior competitor A, B, or C. I’m including Telstra in that statement — you click on any kind of site that you want to access, you see the little globe turn, and you wait and then you wait and then you wait and then you finally get something show up. And then when you’re on there you click again waiting for it to get to another site and you wait. Now you click and you receive. That is the big difference.
JOHN FARDOULIS: How about an Ericsson comment as well. The biggest thing in mobile since what?
CARL-HENRIC SVANBERG: No, but I think you’re absolutely right there, Sol. And we’ve always been enthusiastic about taking steps when it comes to speeds. This time it’s a big step but it also is a break — we pass a breakpoint. You can now download with your card that we showed on the — like, for example, the hockey game there. You can download now as quickly your mailbox as you ever do at home. You can download music as quickly as at home. You can watch TV direct from the Internet surfing and stream TV as we did here with perfect quality. This means that in Sweden where we have 1.8 megabits per second, those guys now that have started in our offices, we’re are all running around with our 1.8 cards and people don’t hook up to the broadband anymore because it’s good enough. It’s as good as the fixed broadband is. You can download music and actually keep it there as well as you do it in your iPod. So you’re actually passing a breakpoint. It’s pretty fascinating.
ANDREW MAIDEN: Ladies and gentlemen, thank you for your questions. We’re going to resume the analyst briefing component of today at 9:55. So please be in your seats at 9:55. And for television cameras and print photographers, we’ll have another opportunity for photos on stage now. So we’ll speak again at 9:55.
oo00oo
         
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(TELSTRA LOGO)
     
9 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Transcript of Analyst & Media Q & A at the Telstra Investor Day
In accordance with the listing rules, I attach a copy of the transcript of the Analyst & Media Q & A, at Telstra’s Investor Day 6 October 2006, for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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TELSTRA INVESTOR BRIEFING
6th OCTOBER 2006
Analyst and Media Q & A
– – – – –
SOL TRUJILLO: All right. Bill, thank you very much. Hopefully you have seen we have thought about this Next G capability end to end and it is going to make a big difference in terms of our business. But enough of that. We are going to open it up for questions. I know it is late. I apologise for the events of the day. But for those of who you still have the energy and still have the desire to ask whatever questions, we will do it now.
IAN MARTIN (ABN AMRO): That is all very impressive and it seems to be going on track, but it seems to me the biggest, riskiest part of the transformation, the IT component, is the least developed. I guess there is a lot of preparation work you have to do before that really gathers pace. I got the impression from Greg Winn that the bulk of that work is going to be done over the next 12 months. I just wonder if you can elaborate on what the different tasks are over that period in the IT transformation and a little bit more detail on what the risks might be and the consequences, if that does take a bit longer or costs a bit more.
SOL TRUJILLO: Let me start and then if, David, we can get the mike to Greg over here. In terms of the transformation and the IT when you looked at at least the chart I had up, we have been essentially tilling the ground, getting everything ready in terms of the work, in each platform area, whether it be those that have been retired and need to be converted in terms of its utility into a new platform and a new system capability, all of that work is under way and we are actually ahead or on schedule on most of those elements.
But I’m also realistic enough to say that there is a lot there. If you think about transitioning from 1,250 systems, if you will, and we have uncovered a few more in the last six months that somehow people didn’t know about within Telstra, but when you think about converting those down to 250, there is a lot of work there and it does take time and we are going through the detailed work just like what you saw on the detail of this network transformation that we undertook with the wireless.
But it does take time because, one, we have to stop doing some work. We have to then initiate the code building and the programming and all the work that is part of the new systems, clearly with all of the partners that we have in our ecosystem, and once that gets done then it takes time to turn up. It doesn’t just happen that you turn on the switch one day. But it is about removing work, changing process and doing other things. But in terms of the specifics and maybe some added colour, I will turn it over to Greg who can tell you more about what is the work program and how he thinks about managing as you say the risk here.
         
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GREG WINN: Sol pretty well nailed it, but the first thing we had to do was we had to map everything that we have today. That is no small task with a business as complex and the systems as complex as they are at Telstra. So there has been kind of like parallel paths. We have mapped all of the functionality that we have today. We have placed values on it by organisation, by unit, by customer group. Then we created the mapping of the new world of what we wanted it to be and how did we want our systems to perform, how were we going to operate in the future and then how did those two transact each other. So that has been all the work that has been going on, and then looking at what are the most have things that we have today that we have to take into the new world, a lot of it around requirements for collections, how things mapped to the general ledger in the billing et cetera like that. Those are absolute mandatory things to make sure we have them all locked down.
Two, what were all of the asks or all of the new capabilities from our market based management? Go to market capability, everything from campaign management, understanding customers, single identity or presence across the systems, and we laid all of those out and then again mapped what we are going to be able to deliver out of box and not out of box. So all of the work that has gone on for the last 10 months has been very detailed, agonising, pick and shovel work.
The next stage actually starts in just a few weeks. We are locking down all of our current capabilities and our systems and we are going into what we call a black-out starting 1 November, which means that we are going to do very little systems work in our legacy environment other than just price change, some stuff we have to do from a competitive standpoint and what we call break fix. But we are not going to do new capabilities there.
All of our effort, all of our resources are pointed towards the new capabilities, and with that becomes getting all of the data ready to do the migration across to the new systems. So our first drop is the consumer drop which is in the late third quarter of this coming calendar year, and then we are going to be moving millions of accounts at a time. So there is a lot of work to this. It is not easy work. We are very well progressed on it. It is just that you see it come in chunks, and it is in big chunks because there is so much planning and detailed work and testing and user acceptance testing and soaking and regression testing, all that has to go on because we can’t afford to have a hiccup.
SOL TRUJILLO: I guess, Ian, I would just add one last thought. The reason why I had Bill Green here from Accenture is that, because it is of such magnitude for the business, they literally have imported a lot of world-class experts that are sitting here in Australia working side by side with our Telstra employees so that again we mitigate a lot of that risk, because what we are doing is not new science, it is not the billing systems or other platforms that we have in the business haven’t been changed out before; it is just the number that we are doing simultaneously. So when you bring in
         
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people that have done it, people that know the transformation, have done it in other telcos, it mitigates a lot of that risk because you are using processes and capabilities that exist and science that has worked in other companies.
PATRICK RUSSEL (Merrill Lynch): I just wanted to explore a little bit on the cost side. It just seems in light of the target to take 12,000 employees out by 2010 that you would probably expect maybe slightly lower cost growth and maybe total cost to actually come down in absolute terms over that period. Rule of thumb: if you take that amount of staff out of the business you would probably be looking at the best part of a billion dollars of absolute costs out, maybe possibly more. So I just wanted to get a feel for why the costs are probably not trending down. You still have a reasonable cost CAGR over the next five years in light of that headcount reduction.
The other quick question is just your thoughts on fibre to the node. I mean, if you don’t proceed with it, do we now expect the next gen wireless network to be the replacement to that? I guess the concern is you are not rolling out ADSL2 plus and you do have relatively aggressive market share targets in broadband on the fixed line side presumably, or are those market share targets including next gen cards as part of the market share count. So I just wanted to clarify that.
SOL TRUJILLO: Patrick, do you have about an hour? We will take those in pieces. I will give my initial comments on the cost structure item and then ask John to comment, and then after that we will deal with the fibre to the node, kind of the broadband play.
In terms of the cost structure, the big issue that we talked about last year, both John and I, was the fact that we are going through a mix of revenue shift, meaning we used to have PSTN as kind of the primary source of our revenue growth and our revenue base. Now, as you have seen, you know, from a few years ago our PSTN revenues accounted for about 50 per cent of our revenue base. As of end of last fiscal year it was at about 30 per cent of our revenue base. You know, we expect it to continue to decline.
Therefore it has been substituted with things like broadband, things like our mobile, 3G services and others that have a different — they have a cost of goods characteristic to them that PSTN, its legacy PSTN, historical PSTN didn’t have. So you would expect to see some different cost characteristics in terms of how you generate revenues. Notice what I said: how you generate the revenues.
What will change and is declining is the core infrastructure side of the business in terms of how we operate the business. Those costs, the underlying costs, are definitely declining. It is hard to quite tell today because of the overlay of our transformation spend, but when we move into next year you are going to start seeing the full impact of a lot of what we have been doing on the operating costs.
         
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JOHN STANHOPE: Let me just add, Patrick, that I did say it several times during what I said that the DVCs or the variable costs will increase to support the revenue target. The revenue target stayed at 2 to 2.5 per cent, and it does because we have got a higher variable cost to support that revenue target than when we had the opportunity to bring products and services to market with fibre. There is no doubt about that. But inherent in the assumptions as well of course is you still have wage increases, you still have CPI. So they are inherent in it as well.
But the other thing of course when you look at the program of the transformation and where we are up to, in fiscal year 2010 you are just starting to realise the platform costs out per se. So it is a timing thing. We expect to be able to do better as the years go on as the platforms are introduced, soft switches are introduced and so on. So it is out to fiscal year 2010.
SOL TRUJILLO: In terms of the broadband question and the ADSL question, I commented this morning that we are going to be aggressive, as you have seen with Justin’s presentation in terms of keeping share and growing share economically, and I said this back in August that I want to make sure that ARPU sustains itself or even grows over the next three/five years as we evolve our business and we redefine the formula of how we grow. In the case of broadband, we will be aggressive on the DSL platforms. We didn’t say anything today because we are still working on what makes sense for us in terms of our plans leveraging DSL.
However, we are also aggressively, as Greg pointed out in his presentation, working on another broadband platform, which is our hybrid fibre coax cable. The third platform that we don’t know enough yet about but we are going to be doing trials on is this wireless capabilities where we can start looking at wireless local loop and how leveragable that is for us as we evolve and as you heard Carl-Henric talk about the migration from 3.6 to 14.4 to perhaps 40 megabits in the next few years. 2009 is not very far away. So we are going to be looking to economically leverage whatever platforms that we have.
Fibre to the node was taken off the table because under the pricing regimes that the regulator has in place with currently the copper business as well as how they think about spectrum sharing, the economics wouldn’t work for our shareholders. As you have heard us say over and over again, we will only do those things that are shareholder friendly at least knowingly in terms of running the business.
But we have no concerns about how aggressive we will be and how well positioned we will be in the market, and we will talk specifically about broadband at another point in time. Today we wanted to focus on probably the most significant point of differentiation we have ever had at Telstra, and that is our broadband high-speed wireless network.
MARK McDONNELL (BBY): Just on 3G, a couple of questions, if I may. Is the mobile
         
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content sourced from the channels or from an aggregator? Are the advised data transfer rates — the 3.6, 7.2, 14.4 — are they download only? What is the upload capability? Is it the same or is it less? Can the exclusivity of the offers be protected particularly in the context of prospective regulatory intervention that would seek to make equivalent wholesale access for your competitors?
SOL TRUJILLO: Okay, let me take the first part and then if Justin or Holly can get a mike to talk about the content and some of the questions there. In terms of the last part of your question of how protectable or sustainable is our competitive advantage, I think that the thing that I have heard the regulator speak to is this idea about encouraging facility based competition, and what they like about the whole DSL play that has been going on is in fact that there are now other players investing to compete, which personally I agree with, I think is a good thing in the marketplace to be able to do.
Now that we have taken shareholder money and built a new network, to say to Telstra shareholders, “Now you need to send your investment and the associated returns to Singapore or to Hong Kong or to London,” I don’t think makes good policy and I don’t think it makes sense and I’m not sure that that’s what the regulator would want to see happen given their policy statement around facility based competition.
So we made a decision to go forward, drive differentiation and if the companies from Singapore or from Hong Kong or London want to compete, let them risk their capital. So we are doing that. In terms of the content, Justin, do you want to deal with that, and the upload and download speeds issues?
JUSTIN MILNE: On the content story, the content is of course a mixture. Some content is entirely aggregated. If you take the Foxtel content, of course that is provided to us by Foxtel who package it, but they aggregate it from various suppliers like CNN and other people around. Then there is content that we aggregate on the BigPond side of things as well. So, for example, BigPond movies. We don’t make movies. We go to our partners like Sony and Warner Bros and we aggregate movies for those and put them into a sort of convenient storefront for people, same with games.
Then there is content that we do kind of manufacture in that we go and buy rights for things like AFL, NRL, V8 Super Cars, but we have crews who shoot, we have crews who edit and put together, and we put stories alongside them and we put those up. Then, finally, there is a user generated content. That comprises things like blogs, video blogs, mobile blogs, that kind of stuff with some interesting stuff coming down the track on the user generated side as well.
On the upload side — Greg can test me on this — I think we have 128k upload on a 512 to 1.5 meg download. So these are asymmetric networks like most broadband networks are.
         
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HOLLY KRAMER: They are asymmetric, but the HSDPA gets married with HSUPA, which is the uplink upgrade, and the path sort of follows in a relative sense going forward. So it is about 300, actually, in the next iteration, which is really next year. Most of the services, the uplink is less critical for those services. So, yes, it does improve quickly and it improves in relation to the increase of the download speed.
TIM SMEALLIE (Citigroup): Sol, congratulations, nine months, a great outcome with the Next G Network in that time frame. Looking at the Australian market, I guess the regulator is still a far greater threat to your business than anything your competitors can throw at you. In that context, how does Telstra respond to the threat of declaration of 850, because obviously that is something that has been bandied around in Canberra? Secondly, in terms of the long-range guidance, how many of your I guess product segments do you assume that you will have market share greater than 50 per cent? I guess the final question is I think John has given some indications previously that he couldn’t give any guidance on FY08 dividends given the uncertainty around ULL. In that context, how much comfort do we take in the long-range guidance that we have been given out to FY10?
SOL TRUJILLO: Let me start with the first part of the question. I cannot predict what the regulator will or will not do. All I know is what they have stated as their policy. I think in terms of what I would call good policy is obviously we have three other facility based players of size and of substance: SingaporeTel, their market cap is $35 billion, $40 billion; Vodafone is the fifth largest market cap company in the world, or thereabouts; and the other player, 3, they have an owner that is worth more than most companies or at least ownership structure that is that way. So they are very capable of investing and doing the things that we did. Do they have the competency? Do they have the desire to invest in Australia? I can’t answer that. But all I know is we will take control of our future in doing what we need to do to advantage ourselves in the marketplace. We have shown that today.
You heard the statistic. Every 25, 28 minutes we were turning up a site every day for the last nine or ten months. A lot of work was going on, a lot of hard work by a lot of people. That’s a competency that is not just spending money. So we intend to compete hard and we intend to compete for advantage.
In the case of the regulator, we will deal with the regulator as appropriate and as required. As you have seen, we are allocating resources to those things that are not regulated or not controlled in terms of pricing and other issues that may constrain our growth or may affect our profitability, because we are going to be very shareholder friendly in virtually everything that we do.
JOHN STANHOPE: Tim, as you would know, we are in a very critical point in preparing for the T3 sale, so I’m not going to make any statements about market share assumptions in our long-term objectives. With respect to dividends, of course in a model of long-term objectives you have an assumption on dividends, but I’m not going
         
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to tell you that either, and make the point that dividends will always be and remain subject to board consideration every half year in our normal cycle.
TIM SMEALLIE (Citigroup): Just on that, John, in terms of the FY07 I think you were at pains to highlight that this assumes there is no adverse regulatory outcomes for the rest of this year. We only have an interim decision at 17.70 on band 2 at the moment. It would seem that that might have been a bit of a rushed decision ahead of potential issuance. If we see the ACCC come out and they come up with a final at $13, what implications does that have I guess for the ‘07 dividend outlook and also for the long-range guidance?
JOHN STANHOPE: That is something we would have to consider if it happened. I don’t want to speculate on it.
SOL TRUJILLO: I think the key point there, Tim, is that operationally hopefully everybody is getting the picture: this team is a competitive leadership team. Just because people have price opportunities doesn’t mean they win the customer, because at the end of the day it still takes a service, it takes a deliberate service capability, it takes a service that customers want to buy for them ultimately to get a customer. So we are going to go hard at the market in a very pro-competitive way and building advantage on things that have nothing to do with core infrastructure, but all about adding value for the customer.
GARY PINGE (Macquarie Securities): Just a very quick question, actually, John. A couple of my questions have already been answered. But, with regards to PSTN decline, you are saying that that has stabilised. Can you tell us what the underlying decline for the PSTN would have been in the first two months if you strip out the benefits from the wholesale line rental increase?
JOHN STANHOPE: No, I don’t have the number off the top of my head. When we stripped out the increase — I think I said this at the full year — the decline first half to second half was still a decline of about the same order. So it is still where it was in the first half. This is a better way to put it: the rate of decline is still the same.
SOL TRUJILLO: Justin, you had your hand up, and then I am being instructed I have to cut it off because there is other use for the room.
JUSTIN CAMERON (Credit Suisse): Just one more question, Sol. There has been a lot of discussion today obviously along the capex of Telstra going forward, obviously a peak year this year and then going forward, trending down to the 10 to 12 per cent capex to sales target. If you look obviously internationally now and look at your competitors on the PTT side, the average capex to sales ratio is anywhere between kind of 14 to 16 per cent. Looking at ‘08/’09, and obviously this will have a pretty meaningful impact on your cashflows, how can we look at the Telstra business post-transformation given ‘07 is the big year? Could we see a step down from the 22 to 24
         
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per cent capex to sales rates down to kind of 17 to 18, which obviously we can see there is kind of potential changes in your free cashflow forecast?
SOL TRUJILLO: We are not giving year-by-year guidance, but if you think about it just logically — I just want to help you think about it — the wireless network build essentially is getting completed in this fiscal year. So that comes out of our spend base. Now, we are also accelerating some of our fixed line spend associated with soft switches and other things that are going to be deployed.
At the same time in this year we are launching all of the big IT spend because, as Greg said, all the boats have been launched. So, as we look at the fiscal year next year, there will be a ratchet down and each year thereafter there is going to be a further ratcheting down because when we get to 2010 we are going to start hitting what I would call the steady state of the business. We will have changed out all of our processes, our systems, we will have built out the networks, we will have retired or have in that year begun most of the retirements of old legacy systems, if we haven’t already. So all of that will have allowed us to get to that 10 to 12 per cent.
As we said this morning, this is going to be a different kind of business from a physical element business to a really software driven business. So, as you stair step down, you can probably make whatever reasonable assumptions that you want to make.
Okay. Sorry I have to end it, but before we adjourn today I do have to thank all the people here who what I would call make things work. Now, you saw with the wireless network build that we will work through anything, and as you saw today hopefully we had a surprise, we had a rouge sprinkler that affected us at the passenger terminal. But it didn’t stop us. It didn’t stop us because we had a team of people that do amazing things here with us today.
I regret that all of that happened, but again there is no stopping us because this is a new Telstra. We have launched this new network that shows what is possible. Again, in two hours, as we think about when the event happened this morning, we were here up and running again. I want to thank all the people that have been involved in making things work. Phenomenal job. I would like to thank the Hilton Hotel, who again responded literally on the minute when we called them and said, “Can we move our meeting here,” and all the people that have been involved in reloading the materials, moving the equipment and again getting everything done.
So, you know, most of us always get sage advice from our parents as we are growing up. My father always said to me, “Sol, it is not the bad or the unexpected things that happen that define you, but how you recover is really what counts.” In this case I am just extremely proud of the people that have been associated with here today to make today get back on plan so that we can communicate our important message to all of you about the new Telstra.
         
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I want to thank all of you who have had the perseverance, the patience and the desire to hear this story. So thank you for coming. Don’t forget, the drinks are on me out here. Enjoy. Thank you very much.
Media Q & A
TONY BOYD (Financial Review): Sol, I noticed in your forecast you have obviously increased the amount of revenue from new products. I think it is now in excess of 30 per cent. I wonder if you could give us some more detail about where you think that revenue is going to come from.
SOL TRUJILLO: First and foremost you saw today we launched the most significant, most high-speed broadband wireless network in the world here in Australia, and that is a big part of our future because, as we have done consumer research, here in Australia people have a lot of needs not just to be in one city or one location but to be able to move throughout the country, and not only throughout the country but offshore on occasion, and they like that simplicity of what we can do, but not just by voice but they want to do other things. They want to be entertained, they want to do business, they want to do a lot of things.
The second layer that we talked about that happens within our wireless 3G network, David Thodey talked about, Deena talked about in terms of other services in terms of delivering health care, if you are a State government, if you are a federal government, if you are anybody that is thinking about delivering services remotely, there is a new set of capabilities now that you really couldn’t contemplate in the past but now you are going to be able to — educational services and I can go on and on.
At the same time on our broadband platform, on the fixed line side, when you look at BigPond and you look at the growth now that we are starting to generate with additional services beyond just the pure connection for access for speed for whatever customers might choose to do, that is growing. Again, within all of the business, whether it be in the consumer segment, the SME segment or the enterprise segment, it is all about applications and services. So the theme there is about additional benefits, additional services.
Finally, you look at Sensis and you look at the growth that we are generating in that business. Bruce talked about double digit growth at the bottom line, and you saw the second half of the last year getting us to near double digits at the top line. Now, the way that the year unfolds is a little bit lumpy because of the way the books get produced. But at the end of the day we are looking at near double digit growth in our Sensis business as well. So we have a lot of that and we are investing to grow. The nice thing about most of what we are growing is that it is higher margin growth than what we saw a year ago or two years ago in this business.
         
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MATT PEACOCK (7.30 Report, ABC): From your point of view what is worse, do you think: what Telstra management refers to as screwball regulation or government ownership?
SOL TRUJILLO: What Telstra management spends most of our time doing is thinking about customers. We really spend — I hope you saw it today — a lot of our time focused on understanding customers’ needs and then spending the rest of our time figuring out how we deliver to customers’ needs. So that’s our focus.
What happens with the government, what happens with regulators we need to deal with and we need to recognise and we also need to influence to the extent that we can and I think you have seen that we are aggressive in that space. But the vast majority of what we focus on in our time, in our resources, our people and asset allocation is around what we can control and you have seen it today with the launch of our Next G Network.
JANE SCHULZE (The Australian): Firstly, there have been reports that the change of control at Telstra may trigger management gaining a share bonus or share windfall. Can you tell us whether or not that is correct? Secondly, the government is also going to auction spectrum for what they are calling channel A and channel B as part of media reforms. Given what Telstra have announced today with their wireless 3G service, would you be at all interested in the DVBH service or the other services that could possibly be provided on the other channel?
SOL TRUJILLO: Regarding your first question, regarding some sort of change of control with the government, with the ownership changing – – –
JANE SCHULZE (The Australian): (Inaudible).
SOL TRUJILLO: The answer is: if it does, I’m not aware of it. That’s not the focus that we have. The Prime Minister has stated for a number of years that the share sale down is part of their objective. So I would say, number 1, I don’t think so. Number 2, in terms of the rest of your question on media reform, DVBH – – –
JANE SCHULZE (The Australian): (Inaudible). Would you bid for the spectrum?
SOL TRUJILLO: We are interested in exploring the idea of DVBH. We have done some trials. We have done it in partnership with some other companies here. Obviously that spectrum could be usable in an efficient way to deliver true broadcasting over the air. At the same time, we don’t have an interest in getting into very expensive propositions about the cost of that spectrum, just simply because we already have a network now that is capable of delivering broadcast signals the way we think customers want it.
We are now finding in our research that customers like bite size entertainment. They like bite size information. They like doing their work in increments of time. That’s why
         
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we do e-mail and other things every day on these devices that we carry around. So we are interested, yes, but we are interested in an effective and efficient process that can bring the benefit to Australians in a cost-effective way.
JESSE HOGAN (The Age): How important to achieve this transformation plan is it to have a united board?
SOL TRUJILLO: Having a board that is unified around a strategy is absolutely imperative. When I came here, when the board was recruiting me, obviously I had a long conversation with every board member about the direction, about some of the beliefs that I had and also got a clear understanding of their beliefs because management will always want to make sure that you have a unified board in order to be able to execute what the core strategy is.
JESSE HOGAN (The Age): A lot of today I think has been aimed at high-level investors. In a couple of days probably some lower level investors will be trying to think whether Telstra is worth investing in. Are you thinking about trying to explain at a lower level what is going on with your transformation?
SOL TRUJILLO: Well, we just spent all day long talking about our transformation, providing the information, because all the information that we provide here in this room is lodged so that anybody has access to it, because we are a very open and disclosing company. Since I have been here, telling the truth, saying it like it is, has really been our policy and will always continue to be. We will try to provide as much information as necessary for our customers, for our shareholders and for all those that might be interested in our company.
HELEN McCOMBIE (Lateline Business): A couple of questions. First of all, how wet did you get? Two, on the eve of the prospectus, how would you describe your relationship with the federal government? Three, with the prospectus there has been some talk that you and the federal government have been having conflict about what you are putting in the prospectus about regulation. Has something been resolved there?
SOL TRUJILLO: Well, I can only really address the first part of your question, and that’s simply because there are restrictions at this stage in terms of talking about anything to do with T3. Today’s series of events, including a bit of a washout, the sprinkler system, the rogue sprinkler head that started pouring water, I personally didn’t get wet, but I have to tell you it didn’t dampen my enthusiasm for all that we are doing here today.
In terms of what we are here today is not about T3, it is not about prospectuses. This has been planned for a long time. A lot of people have done a lot of hard work across all of Telstra to make today happen. So we are anxious, all employees, if you go into any of our stores, you can go out to our garages, you can go out to almost any part of
         
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our company today, I can tell you that the Telstra employee is proud to be wearing that name on their shirt or on their back or with the signage in their store.
GERALDINE CHO (Reuters): Given that the T3 share sale will be launched very soon, would you expect that investors will be put off by the downgrade in earnings to fiscal 2010?
SOL TRUJILLO: I can’t speculate on what investors are going to do or not. There has been a lot of coverage of our targets, a lot of discounting of our targets since we announced them last November, because they are aggressive targets. But I think what is important is if you are an investor and you look at cashflows of a business that is a key ingredient.
Our fifth year target in terms of free cashflow generation hasn’t changed. If you look at the EBITDA margins that John shared on his chart and that I had earlier in the day, those EBITDA margins will be representative of perhaps some of the best in the world. When you think about a company like Telstra, any telco, any PTT around the world, the biggest challenge for them is replacing old revenues, old PSTN revenues and old revenues that are in decline with new revenues. That means you have to become an innovative company. That means you have to generate new products and new services. That means you have to be aggressive about it. Today you saw a first in the world with Telstra. So we are focused. My view is that should be encouraging and not discouraging.
         
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(TELSTRA LOGO)
     
9 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Transcript of Analyst & Media Q & A at the Telstra Investor Day
In accordance with the listing rules, I attach a copy of the transcript of the Analyst & Media Q & A, at Telstra’s Investor Day 6 October 2006, for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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TELSTRA INVESTOR BRIEFING
6th OCTOBER 2006
Analyst and Media Q & A
– – – – –
SOL TRUJILLO: All right. Bill, thank you very much. Hopefully you have seen we have thought about this Next G capability end to end and it is going to make a big difference in terms of our business. But enough of that. We are going to open it up for questions. I know it is late. I apologise for the events of the day. But for those of who you still have the energy and still have the desire to ask whatever questions, we will do it now.
IAN MARTIN (ABN AMRO): That is all very impressive and it seems to be going on track, but it seems to me the biggest, riskiest part of the transformation, the IT component, is the least developed. I guess there is a lot of preparation work you have to do before that really gathers pace. I got the impression from Greg Winn that the bulk of that work is going to be done over the next 12 months. I just wonder if you can elaborate on what the different tasks are over that period in the IT transformation and a little bit more detail on what the risks might be and the consequences, if that does take a bit longer or costs a bit more.
SOL TRUJILLO: Let me start and then if, David, we can get the mike to Greg over here. In terms of the transformation and the IT when you looked at at least the chart I had up, we have been essentially tilling the ground, getting everything ready in terms of the work, in each platform area, whether it be those that have been retired and need to be converted in terms of its utility into a new platform and a new system capability, all of that work is under way and we are actually ahead or on schedule on most of those elements.
But I’m also realistic enough to say that there is a lot there. If you think about transitioning from 1,250 systems, if you will, and we have uncovered a few more in the last six months that somehow people didn’t know about within Telstra, but when you think about converting those down to 250, there is a lot of work there and it does take time and we are going through the detailed work just like what you saw on the detail of this network transformation that we undertook with the wireless.
But it does take time because, one, we have to stop doing some work. We have to then initiate the code building and the programming and all the work that is part of the new systems, clearly with all of the partners that we have in our ecosystem, and once that gets done then it takes time to turn up. It doesn’t just happen that you turn on the switch one day. But it is about removing work, changing process and doing other things. But in terms of the specifics and maybe some added colour, I will turn it over to Greg who can tell you more about what is the work program and how he thinks about managing as you say the risk here.
         
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GREG WINN: Sol pretty well nailed it, but the first thing we had to do was we had to map everything that we have today. That is no small task with a business as complex and the systems as complex as they are at Telstra. So there has been kind of like parallel paths. We have mapped all of the functionality that we have today. We have placed values on it by organisation, by unit, by customer group. Then we created the mapping of the new world of what we wanted it to be and how did we want our systems to perform, how were we going to operate in the future and then how did those two transact each other. So that has been all the work that has been going on, and then looking at what are the most have things that we have today that we have to take into the new world, a lot of it around requirements for collections, how things mapped to the general ledger in the billing et cetera like that. Those are absolute mandatory things to make sure we have them all locked down.
Two, what were all of the asks or all of the new capabilities from our market based management? Go to market capability, everything from campaign management, understanding customers, single identity or presence across the systems, and we laid all of those out and then again mapped what we are going to be able to deliver out of box and not out of box. So all of the work that has gone on for the last 10 months has been very detailed, agonising, pick and shovel work.
The next stage actually starts in just a few weeks. We are locking down all of our current capabilities and our systems and we are going into what we call a black-out starting 1 November, which means that we are going to do very little systems work in our legacy environment other than just price change, some stuff we have to do from a competitive standpoint and what we call break fix. But we are not going to do new capabilities there.
All of our effort, all of our resources are pointed towards the new capabilities, and with that becomes getting all of the data ready to do the migration across to the new systems. So our first drop is the consumer drop which is in the late third quarter of this coming calendar year, and then we are going to be moving millions of accounts at a time. So there is a lot of work to this. It is not easy work. We are very well progressed on it. It is just that you see it come in chunks, and it is in big chunks because there is so much planning and detailed work and testing and user acceptance testing and soaking and regression testing, all that has to go on because we can’t afford to have a hiccup.
SOL TRUJILLO: I guess, Ian, I would just add one last thought. The reason why I had Bill Green here from Accenture is that, because it is of such magnitude for the business, they literally have imported a lot of world-class experts that are sitting here in Australia working side by side with our Telstra employees so that again we mitigate a lot of that risk, because what we are doing is not new science, it is not the billing systems or other platforms that we have in the business haven’t been changed out before; it is just the number that we are doing simultaneously. So when you bring in
         
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people that have done it, people that know the transformation, have done it in other telcos, it mitigates a lot of that risk because you are using processes and capabilities that exist and science that has worked in other companies.
PATRICK RUSSEL (Merrill Lynch): I just wanted to explore a little bit on the cost side. It just seems in light of the target to take 12,000 employees out by 2010 that you would probably expect maybe slightly lower cost growth and maybe total cost to actually come down in absolute terms over that period. Rule of thumb: if you take that amount of staff out of the business you would probably be looking at the best part of a billion dollars of absolute costs out, maybe possibly more. So I just wanted to get a feel for why the costs are probably not trending down. You still have a reasonable cost CAGR over the next five years in light of that headcount reduction.
The other quick question is just your thoughts on fibre to the node. I mean, if you don’t proceed with it, do we now expect the next gen wireless network to be the replacement to that? I guess the concern is you are not rolling out ADSL2 plus and you do have relatively aggressive market share targets in broadband on the fixed line side presumably, or are those market share targets including next gen cards as part of the market share count. So I just wanted to clarify that.
SOL TRUJILLO: Patrick, do you have about an hour? We will take those in pieces. I will give my initial comments on the cost structure item and then ask John to comment, and then after that we will deal with the fibre to the node, kind of the broadband play.
In terms of the cost structure, the big issue that we talked about last year, both John and I, was the fact that we are going through a mix of revenue shift, meaning we used to have PSTN as kind of the primary source of our revenue growth and our revenue base. Now, as you have seen, you know, from a few years ago our PSTN revenues accounted for about 50 per cent of our revenue base. As of end of last fiscal year it was at about 30 per cent of our revenue base. You know, we expect it to continue to decline.
Therefore it has been substituted with things like broadband, things like our mobile, 3G services and others that have a different — they have a cost of goods characteristic to them that PSTN, its legacy PSTN, historical PSTN didn’t have. So you would expect to see some different cost characteristics in terms of how you generate revenues. Notice what I said: how you generate the revenues.
What will change and is declining is the core infrastructure side of the business in terms of how we operate the business. Those costs, the underlying costs, are definitely declining. It is hard to quite tell today because of the overlay of our transformation spend, but when we move into next year you are going to start seeing the full impact of a lot of what we have been doing on the operating costs.
         
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JOHN STANHOPE: Let me just add, Patrick, that I did say it several times during what I said that the DVCs or the variable costs will increase to support the revenue target. The revenue target stayed at 2 to 2.5 per cent, and it does because we have got a higher variable cost to support that revenue target than when we had the opportunity to bring products and services to market with fibre. There is no doubt about that. But inherent in the assumptions as well of course is you still have wage increases, you still have CPI. So they are inherent in it as well.
But the other thing of course when you look at the program of the transformation and where we are up to, in fiscal year 2010 you are just starting to realise the platform costs out per se. So it is a timing thing. We expect to be able to do better as the years go on as the platforms are introduced, soft switches are introduced and so on. So it is out to fiscal year 2010.
SOL TRUJILLO: In terms of the broadband question and the ADSL question, I commented this morning that we are going to be aggressive, as you have seen with Justin’s presentation in terms of keeping share and growing share economically, and I said this back in August that I want to make sure that ARPU sustains itself or even grows over the next three/five years as we evolve our business and we redefine the formula of how we grow. In the case of broadband, we will be aggressive on the DSL platforms. We didn’t say anything today because we are still working on what makes sense for us in terms of our plans leveraging DSL.
However, we are also aggressively, as Greg pointed out in his presentation, working on another broadband platform, which is our hybrid fibre coax cable. The third platform that we don’t know enough yet about but we are going to be doing trials on is this wireless capabilities where we can start looking at wireless local loop and how leveragable that is for us as we evolve and as you heard Carl-Henric talk about the migration from 3.6 to 14.4 to perhaps 40 megabits in the next few years. 2009 is not very far away. So we are going to be looking to economically leverage whatever platforms that we have.
Fibre to the node was taken off the table because under the pricing regimes that the regulator has in place with currently the copper business as well as how they think about spectrum sharing, the economics wouldn’t work for our shareholders. As you have heard us say over and over again, we will only do those things that are shareholder friendly at least knowingly in terms of running the business.
But we have no concerns about how aggressive we will be and how well positioned we will be in the market, and we will talk specifically about broadband at another point in time. Today we wanted to focus on probably the most significant point of differentiation we have ever had at Telstra, and that is our broadband high-speed wireless network.
MARK McDONNELL (BBY): Just on 3G, a couple of questions, if I may. Is the mobile
         
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content sourced from the channels or from an aggregator? Are the advised data transfer rates — the 3.6, 7.2, 14.4 — are they download only? What is the upload capability? Is it the same or is it less? Can the exclusivity of the offers be protected particularly in the context of prospective regulatory intervention that would seek to make equivalent wholesale access for your competitors?
SOL TRUJILLO: Okay, let me take the first part and then if Justin or Holly can get a mike to talk about the content and some of the questions there. In terms of the last part of your question of how protectable or sustainable is our competitive advantage, I think that the thing that I have heard the regulator speak to is this idea about encouraging facility based competition, and what they like about the whole DSL play that has been going on is in fact that there are now other players investing to compete, which personally I agree with, I think is a good thing in the marketplace to be able to do.
Now that we have taken shareholder money and built a new network, to say to Telstra shareholders, “Now you need to send your investment and the associated returns to Singapore or to Hong Kong or to London,” I don’t think makes good policy and I don’t think it makes sense and I’m not sure that that’s what the regulator would want to see happen given their policy statement around facility based competition.
So we made a decision to go forward, drive differentiation and if the companies from Singapore or from Hong Kong or London want to compete, let them risk their capital. So we are doing that. In terms of the content, Justin, do you want to deal with that, and the upload and download speeds issues?
JUSTIN MILNE: On the content story, the content is of course a mixture. Some content is entirely aggregated. If you take the Foxtel content, of course that is provided to us by Foxtel who package it, but they aggregate it from various suppliers like CNN and other people around. Then there is content that we aggregate on the BigPond side of things as well. So, for example, BigPond movies. We don’t make movies. We go to our partners like Sony and Warner Bros and we aggregate movies for those and put them into a sort of convenient storefront for people, same with games.
Then there is content that we do kind of manufacture in that we go and buy rights for things like AFL, NRL, V8 Super Cars, but we have crews who shoot, we have crews who edit and put together, and we put stories alongside them and we put those up. Then, finally, there is a user generated content. That comprises things like blogs, video blogs, mobile blogs, that kind of stuff with some interesting stuff coming down the track on the user generated side as well.
On the upload side — Greg can test me on this — I think we have 128k upload on a 512 to 1.5 meg download. So these are asymmetric networks like most broadband networks are.
         
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HOLLY KRAMER: They are asymmetric, but the HSDPA gets married with HSUPA, which is the uplink upgrade, and the path sort of follows in a relative sense going forward. So it is about 300, actually, in the next iteration, which is really next year. Most of the services, the uplink is less critical for those services. So, yes, it does improve quickly and it improves in relation to the increase of the download speed.
TIM SMEALLIE (Citigroup): Sol, congratulations, nine months, a great outcome with the Next G Network in that time frame. Looking at the Australian market, I guess the regulator is still a far greater threat to your business than anything your competitors can throw at you. In that context, how does Telstra respond to the threat of declaration of 850, because obviously that is something that has been bandied around in Canberra? Secondly, in terms of the long-range guidance, how many of your I guess product segments do you assume that you will have market share greater than 50 per cent? I guess the final question is I think John has given some indications previously that he couldn’t give any guidance on FY08 dividends given the uncertainty around ULL. In that context, how much comfort do we take in the long-range guidance that we have been given out to FY10?
SOL TRUJILLO: Let me start with the first part of the question. I cannot predict what the regulator will or will not do. All I know is what they have stated as their policy. I think in terms of what I would call good policy is obviously we have three other facility based players of size and of substance: SingaporeTel, their market cap is $35 billion, $40 billion; Vodafone is the fifth largest market cap company in the world, or thereabouts; and the other player, 3, they have an owner that is worth more than most companies or at least ownership structure that is that way. So they are very capable of investing and doing the things that we did. Do they have the competency? Do they have the desire to invest in Australia? I can’t answer that. But all I know is we will take control of our future in doing what we need to do to advantage ourselves in the marketplace. We have shown that today.
You heard the statistic. Every 25, 28 minutes we were turning up a site every day for the last nine or ten months. A lot of work was going on, a lot of hard work by a lot of people. That’s a competency that is not just spending money. So we intend to compete hard and we intend to compete for advantage.
In the case of the regulator, we will deal with the regulator as appropriate and as required. As you have seen, we are allocating resources to those things that are not regulated or not controlled in terms of pricing and other issues that may constrain our growth or may affect our profitability, because we are going to be very shareholder friendly in virtually everything that we do.
JOHN STANHOPE: Tim, as you would know, we are in a very critical point in preparing for the T3 sale, so I’m not going to make any statements about market share assumptions in our long-term objectives. With respect to dividends, of course in a model of long-term objectives you have an assumption on dividends, but I’m not going
         
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to tell you that either, and make the point that dividends will always be and remain subject to board consideration every half year in our normal cycle.
TIM SMEALLIE (Citigroup): Just on that, John, in terms of the FY07 I think you were at pains to highlight that this assumes there is no adverse regulatory outcomes for the rest of this year. We only have an interim decision at 17.70 on band 2 at the moment. It would seem that that might have been a bit of a rushed decision ahead of potential issuance. If we see the ACCC come out and they come up with a final at $13, what implications does that have I guess for the ‘07 dividend outlook and also for the long-range guidance?
JOHN STANHOPE: That is something we would have to consider if it happened. I don’t want to speculate on it.
SOL TRUJILLO: I think the key point there, Tim, is that operationally hopefully everybody is getting the picture: this team is a competitive leadership team. Just because people have price opportunities doesn’t mean they win the customer, because at the end of the day it still takes a service, it takes a deliberate service capability, it takes a service that customers want to buy for them ultimately to get a customer. So we are going to go hard at the market in a very pro-competitive way and building advantage on things that have nothing to do with core infrastructure, but all about adding value for the customer.
GARY PINGE (Macquarie Securities): Just a very quick question, actually, John. A couple of my questions have already been answered. But, with regards to PSTN decline, you are saying that that has stabilised. Can you tell us what the underlying decline for the PSTN would have been in the first two months if you strip out the benefits from the wholesale line rental increase?
JOHN STANHOPE: No, I don’t have the number off the top of my head. When we stripped out the increase — I think I said this at the full year — the decline first half to second half was still a decline of about the same order. So it is still where it was in the first half. This is a better way to put it: the rate of decline is still the same.
SOL TRUJILLO: Justin, you had your hand up, and then I am being instructed I have to cut it off because there is other use for the room.
JUSTIN CAMERON (Credit Suisse): Just one more question, Sol. There has been a lot of discussion today obviously along the capex of Telstra going forward, obviously a peak year this year and then going forward, trending down to the 10 to 12 per cent capex to sales target. If you look obviously internationally now and look at your competitors on the PTT side, the average capex to sales ratio is anywhere between kind of 14 to 16 per cent. Looking at ‘08/’09, and obviously this will have a pretty meaningful impact on your cashflows, how can we look at the Telstra business post-transformation given ‘07 is the big year? Could we see a step down from the 22 to 24
         
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per cent capex to sales rates down to kind of 17 to 18, which obviously we can see there is kind of potential changes in your free cashflow forecast?
SOL TRUJILLO: We are not giving year-by-year guidance, but if you think about it just logically — I just want to help you think about it — the wireless network build essentially is getting completed in this fiscal year. So that comes out of our spend base. Now, we are also accelerating some of our fixed line spend associated with soft switches and other things that are going to be deployed.
At the same time in this year we are launching all of the big IT spend because, as Greg said, all the boats have been launched. So, as we look at the fiscal year next year, there will be a ratchet down and each year thereafter there is going to be a further ratcheting down because when we get to 2010 we are going to start hitting what I would call the steady state of the business. We will have changed out all of our processes, our systems, we will have built out the networks, we will have retired or have in that year begun most of the retirements of old legacy systems, if we haven’t already. So all of that will have allowed us to get to that 10 to 12 per cent.
As we said this morning, this is going to be a different kind of business from a physical element business to a really software driven business. So, as you stair step down, you can probably make whatever reasonable assumptions that you want to make.
Okay. Sorry I have to end it, but before we adjourn today I do have to thank all the people here who what I would call make things work. Now, you saw with the wireless network build that we will work through anything, and as you saw today hopefully we had a surprise, we had a rouge sprinkler that affected us at the passenger terminal. But it didn’t stop us. It didn’t stop us because we had a team of people that do amazing things here with us today.
I regret that all of that happened, but again there is no stopping us because this is a new Telstra. We have launched this new network that shows what is possible. Again, in two hours, as we think about when the event happened this morning, we were here up and running again. I want to thank all the people that have been involved in making things work. Phenomenal job. I would like to thank the Hilton Hotel, who again responded literally on the minute when we called them and said, “Can we move our meeting here,” and all the people that have been involved in reloading the materials, moving the equipment and again getting everything done.
So, you know, most of us always get sage advice from our parents as we are growing up. My father always said to me, “Sol, it is not the bad or the unexpected things that happen that define you, but how you recover is really what counts.” In this case I am just extremely proud of the people that have been associated with here today to make today get back on plan so that we can communicate our important message to all of you about the new Telstra.
         
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I want to thank all of you who have had the perseverance, the patience and the desire to hear this story. So thank you for coming. Don’t forget, the drinks are on me out here. Enjoy. Thank you very much.
Media Q & A
TONY BOYD (Financial Review): Sol, I noticed in your forecast you have obviously increased the amount of revenue from new products. I think it is now in excess of 30 per cent. I wonder if you could give us some more detail about where you think that revenue is going to come from.
SOL TRUJILLO: First and foremost you saw today we launched the most significant, most high-speed broadband wireless network in the world here in Australia, and that is a big part of our future because, as we have done consumer research, here in Australia people have a lot of needs not just to be in one city or one location but to be able to move throughout the country, and not only throughout the country but offshore on occasion, and they like that simplicity of what we can do, but not just by voice but they want to do other things. They want to be entertained, they want to do business, they want to do a lot of things.
The second layer that we talked about that happens within our wireless 3G network, David Thodey talked about, Deena talked about in terms of other services in terms of delivering health care, if you are a State government, if you are a federal government, if you are anybody that is thinking about delivering services remotely, there is a new set of capabilities now that you really couldn’t contemplate in the past but now you are going to be able to — educational services and I can go on and on.
At the same time on our broadband platform, on the fixed line side, when you look at BigPond and you look at the growth now that we are starting to generate with additional services beyond just the pure connection for access for speed for whatever customers might choose to do, that is growing. Again, within all of the business, whether it be in the consumer segment, the SME segment or the enterprise segment, it is all about applications and services. So the theme there is about additional benefits, additional services.
Finally, you look at Sensis and you look at the growth that we are generating in that business. Bruce talked about double digit growth at the bottom line, and you saw the second half of the last year getting us to near double digits at the top line. Now, the way that the year unfolds is a little bit lumpy because of the way the books get produced. But at the end of the day we are looking at near double digit growth in our Sensis business as well. So we have a lot of that and we are investing to grow. The nice thing about most of what we are growing is that it is higher margin growth than what we saw a year ago or two years ago in this business.
         
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MATT PEACOCK (7.30 Report, ABC): From your point of view what is worse, do you think: what Telstra management refers to as screwball regulation or government ownership?
SOL TRUJILLO: What Telstra management spends most of our time doing is thinking about customers. We really spend — I hope you saw it today — a lot of our time focused on understanding customers’ needs and then spending the rest of our time figuring out how we deliver to customers’ needs. So that’s our focus.
What happens with the government, what happens with regulators we need to deal with and we need to recognise and we also need to influence to the extent that we can and I think you have seen that we are aggressive in that space. But the vast majority of what we focus on in our time, in our resources, our people and asset allocation is around what we can control and you have seen it today with the launch of our Next G Network.
JANE SCHULZE (The Australian): Firstly, there have been reports that the change of control at Telstra may trigger management gaining a share bonus or share windfall. Can you tell us whether or not that is correct? Secondly, the government is also going to auction spectrum for what they are calling channel A and channel B as part of media reforms. Given what Telstra have announced today with their wireless 3G service, would you be at all interested in the DVBH service or the other services that could possibly be provided on the other channel?
SOL TRUJILLO: Regarding your first question, regarding some sort of change of control with the government, with the ownership changing – – –
JANE SCHULZE (The Australian): (Inaudible).
SOL TRUJILLO: The answer is: if it does, I’m not aware of it. That’s not the focus that we have. The Prime Minister has stated for a number of years that the share sale down is part of their objective. So I would say, number 1, I don’t think so. Number 2, in terms of the rest of your question on media reform, DVBH – – –
JANE SCHULZE (The Australian): (Inaudible). Would you bid for the spectrum?
SOL TRUJILLO: We are interested in exploring the idea of DVBH. We have done some trials. We have done it in partnership with some other companies here. Obviously that spectrum could be usable in an efficient way to deliver true broadcasting over the air. At the same time, we don’t have an interest in getting into very expensive propositions about the cost of that spectrum, just simply because we already have a network now that is capable of delivering broadcast signals the way we think customers want it.
We are now finding in our research that customers like bite size entertainment. They like bite size information. They like doing their work in increments of time. That’s why
         
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we do e-mail and other things every day on these devices that we carry around. So we are interested, yes, but we are interested in an effective and efficient process that can bring the benefit to Australians in a cost-effective way.
JESSE HOGAN (The Age): How important to achieve this transformation plan is it to have a united board?
SOL TRUJILLO: Having a board that is unified around a strategy is absolutely imperative. When I came here, when the board was recruiting me, obviously I had a long conversation with every board member about the direction, about some of the beliefs that I had and also got a clear understanding of their beliefs because management will always want to make sure that you have a unified board in order to be able to execute what the core strategy is.
JESSE HOGAN (The Age): A lot of today I think has been aimed at high-level investors. In a couple of days probably some lower level investors will be trying to think whether Telstra is worth investing in. Are you thinking about trying to explain at a lower level what is going on with your transformation?
SOL TRUJILLO: Well, we just spent all day long talking about our transformation, providing the information, because all the information that we provide here in this room is lodged so that anybody has access to it, because we are a very open and disclosing company. Since I have been here, telling the truth, saying it like it is, has really been our policy and will always continue to be. We will try to provide as much information as necessary for our customers, for our shareholders and for all those that might be interested in our company.
HELEN McCOMBIE (Lateline Business): A couple of questions. First of all, how wet did you get? Two, on the eve of the prospectus, how would you describe your relationship with the federal government? Three, with the prospectus there has been some talk that you and the federal government have been having conflict about what you are putting in the prospectus about regulation. Has something been resolved there?
SOL TRUJILLO: Well, I can only really address the first part of your question, and that’s simply because there are restrictions at this stage in terms of talking about anything to do with T3. Today’s series of events, including a bit of a washout, the sprinkler system, the rogue sprinkler head that started pouring water, I personally didn’t get wet, but I have to tell you it didn’t dampen my enthusiasm for all that we are doing here today.
In terms of what we are here today is not about T3, it is not about prospectuses. This has been planned for a long time. A lot of people have done a lot of hard work across all of Telstra to make today happen. So we are anxious, all employees, if you go into any of our stores, you can go out to our garages, you can go out to almost any part of
         
06.10.06   - 11-    
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our company today, I can tell you that the Telstra employee is proud to be wearing that name on their shirt or on their back or with the signage in their store.
GERALDINE CHO (Reuters): Given that the T3 share sale will be launched very soon, would you expect that investors will be put off by the downgrade in earnings to fiscal 2010?
SOL TRUJILLO: I can’t speculate on what investors are going to do or not. There has been a lot of coverage of our targets, a lot of discounting of our targets since we announced them last November, because they are aggressive targets. But I think what is important is if you are an investor and you look at cashflows of a business that is a key ingredient.
Our fifth year target in terms of free cashflow generation hasn’t changed. If you look at the EBITDA margins that John shared on his chart and that I had earlier in the day, those EBITDA margins will be representative of perhaps some of the best in the world. When you think about a company like Telstra, any telco, any PTT around the world, the biggest challenge for them is replacing old revenues, old PSTN revenues and old revenues that are in decline with new revenues. That means you have to become an innovative company. That means you have to generate new products and new services. That means you have to be aggressive about it. Today you saw a first in the world with Telstra. So we are focused. My view is that should be encouraging and not discouraging.
         
06.10.06   - 12-    
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(TELSTRA LOGO)
     
9 October 2006
  Office of the Company Secretary
 
   
The Manager
  Level 41
 
  242 Exhibition Street
Company Announcements Office
  MELBOURNE VIC 3000
Australian Stock Exchange
  AUSTRALIA
4th Floor, 20 Bridge Street
   
SYDNEY NSW 2000
  Telephone 03 9634 6400
 
  Facsimile 03 9632 3215
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra 3 Share Offer Prospectus
In accordance with the listing rules, I attach a document for release to the market.
Yours sincerely
-s- Douglas Gration
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556

 


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(IMAGE)
PROSPECTUS
Share in the future

 


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(IMAGE)
Telstra Corporation Limited ABN 33 051 775 556
This Prospectus contains information about the sale by the Commonwealth of shares in Telstra (the Telstra 3 Share Offer or the Offer).
Payment for Telstra shares purchased under the Offer will be in two instalments and, until you pay the fi nal instalment, your interest in Telstra shares will be in the form of instalment receipts.
You should read this Prospectus carefully before you decide whether to participate in the Offer. If you wish to apply for shares, you must either apply through the Telstra 3 Share Offer website (www.t3shareoffer.com.au) or complete, sign and lodge an application form which is attached to or accompanies this Prospectus. Detailed instructions on how to complete the application form are set out in ‘Application Instructions’ in this Prospectus.
You can fi nd more information about Telstra and the Offer as set out below:
Subject            Document            Where found About Telstra ? 2006 Annual Report1 Telstra website at
? 2006 Annual Review1 www.telstra.com.au/abouttelstra/investor or
? 2006 Supplemental Telstra 3 Telephone Information Centre Information1,2 on 1800 18 18 18*
? Telstra’s ASX continuous disclosure releases since 25 September 20061
About the Offer Appendix3 Telstra 3 Share Offer website at www.t3shareoffer.com.au or
Telstra 3 Telephone Information Centre on 1800 18 18 18*
1 This material was prepared by Telstra. It does not form part of, and is not incorporated by reference into, this Prospectus. The 2006 Annual Report and Annual Review have been sent to Telstra shareholders who elected to receive one or both of these documents.
2 This material has been provided by Telstra to ASX under its continuous disclosure obligations. It contains additional information relating to Telstra, including detailed descriptions of Telstra’s business, operating and financial matters and discussion of Telstra’s prospects, the applicable regulatory regime, risks faced by Telstra, its competitive environment and signifi cant legal proceedings.
3 Some of the information in this Prospectus is dealt with in more detail in a separate appendix (the Appendix). The material in the Appendix is identified in section 5.1 ‘Materials in the Appendix’ and is of a type that the Commonwealth and Telstra believe to be primarily of interest to professional advisers, Institutional Investors and to investors with similar specialist information needs.
However, if you consider that the information in the Appendix might assist you in making your investment decision, you should obtain a copy of the Appendix and/or consult a broker or financial adviser.
* A free call from most fi xed phones and Telstra operated payphones. Calls made from a mobile phone are subject to additional charges from your mobile phone service provider.
The above documents are available free of charge.
The Prospectus is available in Braille, large print and on audio CD. For a copy in any of these formats please call the Telstra 3 Telephone Information Centre on 1800 18 18 18. Alternatively, an electronic version of the Prospectus can be accessed on the Telstra 3 Share Offer website at www.t3shareoffer.com.au. This website also offers the Prospectus in large print, Rich Text File, HTML and MP3 audio formats.

 


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Table of contents
         
Important dates and summary financial information
    3  
 
       
Letter from the Minister for Finance and Administration
    4  
 
       
Letter from the Telstra Chairman
    5  
 
       
Key investment highlights and risks
    6  
Telstra’s business, strategy and transformation plan, highlights of the Offer and the key risks of investing in Telstra
       
 
       
1. Key questions & answers
    12  
Summary answers to questions you might have about the Offer and where you can find further information
       
 
       
2. The Telstra 3 Share Offer
    17  
The structure of the Offer and how to apply, the price payable for shares, a description of the instalment receipts, Bonus Loyalty Shares, the Prepayment Discount and the Future Fund
       
 
       
3. Overview of Telstra
    27  
Overview of Telstra’s business, strategy and transformation plan, outlook, dividends, selected historical financial information and organisational structure
       
 
       
4. Risk factors
    42  
Risk factors which apply to an investment in Telstra
       
 
       
5. Additional information
    49  
 
       
6. Glossary
    59  
 
       
7. Directory
    64  
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Important notices
The Offer in Australia is made through this Prospectus, which incorporates by reference the Appendix. The Offer in New Zealand is made through the New Zealand Investment Statement which is accompanied by this Prospectus. The Offer to certain Institutional Investors in other jurisdictions is made through the Institutional Offering Memorandum. No document other than these documents may be used in the various jurisdictions to conduct the Offer.
This Prospectus and the Appendix were lodged with ASIC on 9 October 2006 and are dated 9 October 2006.
Telstra is a ‘disclosing entity’ for the purposes of the Corporations Act and is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. Copies of documents lodged with ASIC in relation to Telstra may be obtained from, or inspected at, an ASIC office.
None of ASIC, ASX and NZX and their officers take any responsibility for the contents of this Prospectus or the Appendix or the merits of the investment to which this Prospectus relates. The fact that ASX and NZSX have quoted the shares of Telstra, and may quote the instalment receipts, is not to be taken in any way as an indication of the merits of the instalment receipts, the shares or Telstra.
No securities will be issued on the basis of this Prospectus later than 13 months after the date of issue of this Prospectus.
This Prospectus does not constitute an offer or invitation in any place where, or to any person to whom, it would not be lawful to make such an offer or invitation. No action has been taken to register or qualify the instalment receipts, the shares or the Offer, or to otherwise permit a public offering of these securities, in any jurisdiction outside Australia, New Zealand and Japan. The distribution of this Prospectus outside Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus outside Australia and New Zealand should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.
Neither the instalment receipts nor the underlying shares have been or will be registered under the US Securities Act and those securities may not be offered or sold in the United States or for the account or benefit of US Persons except to QIBs in transactions exempt from the registration requirements of the US Securities Act in accordance with Rule 144A and applicable US state securities laws.
The Commonwealth reserves the right not to proceed with the Offer at any time before the acceptance of applications to purchase the shares, in which case all application monies will be returned to applicants without interest.
This Prospectus is available to Australian and, accompanied by the New Zealand Investment Statement, New Zealand investors in electronic form by accessing the Telstra 3 Share Offer website at www.t3shareoffer.com.au. The Offer constituted by this Prospectus and, in the case of New Zealand investors, the New Zealand Investment Statement, in electronic form is available only to persons in Australia and New Zealand. Persons having received a copy of this Prospectus and the New Zealand Investment Statement in its electronic form may, during the period of the Offer, obtain a paper copy of the Prospectus and New Zealand Investment Statement (free of charge) by calling the Telstra 3 Telephone Information Centre on 1800 18 18 18 in Australia or 0800 699 019 in New Zealand. Applications for shares made by Australian investors may only be made on the application form attached to or accompanying this Prospectus or in its online copy form as downloaded in its entirety from www.t3shareoffer.com.au. The Corporations Act prohibits any person from passing on to another person the application form unless it is attached to or accompanies a hard copy of this Prospectus or the complete and unaltered electronic version of this Prospectus.
During the course of the Offer, the Commonwealth and Telstra may provide information about any significant new development relevant to the Offer through newspaper advertisements or by disclosure to ASX.
ASIC has granted relief to permit the publication of any supplementary prospectus which may be necessary by means of an advertisement placed in at least two daily newspapers circulating generally throughout Australia and a daily newspaper circulating generally in each state and territory of Australia. A copy of any supplementary prospectus will also be made available during the Offer on the Telstra 3 Share Offer website at www.t3shareoffer.com.au.
Certain terms in this Prospectus have defined meanings that are set out in the Glossary.
The Prospectus and the Appendix contain general information only.
The Prospectus and the Appendix do not take into account your objectives, financial situation or needs. You should consider whether an investment in Telstra shares is appropriate having regard to those matters. You should consider the Prospectus and Appendix in full before making any decision to acquire Telstra shares.
If you have any queries about whether to participate in the Offer, you should consult a broker or financial adviser.
If you have any questions about how to participate in the Offer, you should access www.t3shareoffer.com.au or call the Telstra 3 Telephone Information Centre on 1800 18 18 18.
Forward looking information: Cautionary statement
Some of the information contained in this Prospectus may constitute forward-looking statements that are subject to various risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as ‘may’, ‘will’, ‘expect’, ‘anticipate’, ‘estimate’, ‘continue’, ‘plan’, ‘intend’, ‘believe’, ‘objectives’, ‘outlook’, ‘guidance’ or other similar words, including Telstra’s strategic management objectives in section 3.4 ‘Transformation strategy’ and outlook for financial year 2007 in section 3.5 ‘Outlook’. These statements discuss future objectives or expectations concerning results of operations or of financial condition or provide other forward-looking information. Telstra’s actual results, performance or achievements could be significantly different from the results or objectives expressed in, or implied by, those forward-looking statements. This Prospectus details some important factors that could cause Telstra’s actual results to differ materially from the forward-looking statements made in this Prospectus. Given the risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statement, which speaks only as of the date of this Prospectus.
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Important dates and summary financial information
Important dates
     
Prospectus date
  Monday 9 October 2006
Record Date for Shareholder Entitlement Offer
  Friday 13 October 2006
Retail Offer opens
  Monday 23 October 2006
Retail Offer closes
  4.00pm (local time),
 
  Thursday 9 November 2006
Institutional Offer opens
  Wednesday 15 November 2006
Institutional Offer closes
  Friday 17 November 2006
 
   
Final instalment amount and basis of allocation announced by
  Monday 20 November 2006
Conditional and deferred settlement trading of instalment receipts expected to commence on ASX
  Monday 20 November 2006
Institutional Offer settlement
  Friday 24 November 2006
Instalment receipt transaction confirmation statements expected to be dispatched by
  Thursday 30 November 2006
Normal settlement trading of instalment receipts expected to commence on ASX
  Friday 1 December 2006
Last date for payment of final instalment (Final Instalment Due Date)
  Thursday 29 May 2008
If you wish to apply for shares, you are encouraged to do so as soon as possible. The Commonwealth has the right to change these dates, other than the Final Instalment Due Date, including closing early or extending the Offer, or any component of the Offer, without prior notice, or otherwise vary the terms of the Offer, either generally or in particular cases.
Summary financial information1
                 
    Telstra Group
    Year ended 30 June
    2006   2005
    A$m   A$m
Revenue (excluding finance income)
    22,772       22,181  
EBITDA
    9,584       10,464  
EBIT
    5,497       6,935  
Free cash flow2
    4,550       5,194  
                 
    cents   cents
Basic earnings per share
    25.7       34.7  
Total dividends declared per share3
    34.0       40.0  
 
1   Summary financial information has been derived from Telstra’s 2006 audited Financial Report and has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (A-IFRS). Further financial information is included in section 3.9 ‘Historical financial information’.
 
2   Cash from operating activities less cash used in investing activities.
 
3   The dividends declared include special dividends of 6.0 cents for 2006 and 12.0 cents for 2005 as disclosed in note 4 of Telstra’s 2006 audited Financial Report (page 143 of Telstra’s 2006 Annual Report) and note 4 of the audited Concise Financial Report (page 69 of Telstra’s 2006 Annual Review).
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Letter from the Minister for Finance and Administration
(LOGO)
SENATOR THE HON NICK MINCHIN
Minister for Finance and Administration
Leader of the Government in the Senate
Dear Investor
On behalf of the Australian Government I am delighted to offer you the opportunity to participate in the Telstra 3 Share Offer, which involves a public offer of Telstra shares to retail and institutional investors.
This offer gives all Australians, including existing Telstra shareholders, an opportunity to participate in the transformation of Telstra.
The offer will be made by way of instalment receipts, meaning successful applicants will pay for their shares in two instalments over eighteen months but will receive the full amount of any dividends paid by Telstra during this time. In addition, the price paid by Australian retail investors will be at a discount to that paid by institutional investors.
Potential investors should be aware that the value of instalment receipts and shares fluctuate and may result in a market price that is lower than the price paid for their instalment receipts. The value of an investment in Telstra is not guaranteed by the Commonwealth. You should read this Prospectus carefully before you make your investment decision. You may wish to seek the advice of a broker or financial adviser if you are unsure about whether to invest in the Telstra 3 Share Offer.
The Australian Government is committed to promoting a competitive telecommunications industry for the benefit of all consumers and has in place an appropriate telecommunications regime to facilitate this outcome.
Telstra shares not transferred under the Telstra 3 Share Offer will be transferred by the Commonwealth to the Future Fund — an investment fund established to strengthen the Commonwealth’s finances over the long term by providing for unfunded superannuation liabilities. It is the Australian Government’s intention that the Future Fund will manage its Telstra shareholding at arm’s length from Government and, after an escrow period of two years, will be required to sell down the shares over time and reinvest the proceeds. In accordance with this policy, the Government does not intend to direct the voting of Telstra shares held by the Future Fund. In this way, the Australian Government will resolve its conflict of interest as both regulator and majority shareholder of Telstra.
The Telstra 3 Share Offer provides a unique opportunity for all Australians to share in the future of Australia’s largest telecommunications company and I am pleased to invite you to participate.
Yours sincerely
-s- Nick Minchin
Nick Minchin
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Letter from the Telstra Chairman
     
Office of the Chairman
  (TELSTRA LOGO)
Dear Investor
The Board and management of Telstra welcome the Telstra 3 Share Offer. It is an opportunity for Australians to invest in Australia’s leading and only truly integrated telecommunications company at a time when Telstra has embarked on a transformation strategy to create the ‘new Telstra’ with the aim of improving long-term shareholder value.
The Telstra 3 Share Offer comes at a time of major and much needed change for Telstra. We are almost one year into our five year strategy to transform Telstra, to make it deliver value for our shareholders and customers. The transformation includes significant cultural change, building next generation networks to support a growing demand for IP-based services and simplifying IT systems.
Through these major changes, we have created a “one factory” approach to Telstra’s operations, with the aim of doing for our customers what no-one else has done: create a world of “1-click, 1-touch, 1-button, 1-screen, 1-step” solutions that are simple, easy and valued by all our customers - individuals, businesses, enterprises and government.
If we achieve our aim, and we are committed to that end, we believe we will deliver shareholder value in the longer term. But investors need to understand that there are significant costs and risks involved in undertaking such an immense exercise and that, in the early years, transformation significantly reduces our earnings and cash flow. For our plan to succeed, we must incur those costs, reinvest in the business and take those risks now.
We also face significant risks that are outside our control. It’s well known that we are critical of the current telecommunications regulatory regime. That regime significantly diminishes shareholder value by increasing Telstra’s costs and reducing our opportunity to earn revenue and grow. We face regulatory risks in our business which have had, and we expect will continue to have, substantial adverse effects on our operations and financial performance. In addressing these risks, we will continue to pursue appropriate legal means to reach the best outcome for shareholders.
Our absolute priority is the focused execution of our transformation strategy. We are on track with the transformation, on budget and on time. And we are delighted to be able to report that Telstra’s NEXT G™ nationwide wireless broadband network was launched on 6 October 2006.
Telstra’s Board and management firmly believe our strategy for Telstra is correct and are committed to managing the risks and costs associated with its implementation and ongoing regulatory risks. But we want all our investors to take the time to understand our blueprint for change, what is involved in delivering it, and the regulatory environment in which we do business. So, you should read this Prospectus, and other publicly available information on Telstra, carefully before you decide to invest in the future of Telstra.
If you do, then we will be delighted to welcome you as a Telstra shareholder.
Yours sincerely
-s- Donald G McGauchie AO
Donald G McGauchie AO
Chairman
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(IMAGE)
Key investment highlights and risks
Australia’s leading communications company
Telstra market share1
75% 72%
71% Fixed Line ‘04 ‘05 ‘06
#1 in Basic Access Lines Mobile 46% 45% 43% ‘04 ‘05 ‘06
#1 in Mobile (Subscribers)2 Broadband 44% 41% 41% ‘04 ‘05 ‘06
#1 in Broadband (Subscribers) Advertising, Search & 13% 13% Not Available Directories ‘04 ‘05 ‘06
A strong position in Media Advertising (Expenditure) Pay TV 58% 60% 60%
(through 50% ownership of Foxtel) ‘04 ‘05 ‘06
#1 in Subscription TV (Subscribers) 1 Telstra estimates as at 30 June for retail market share other than Sensis market share which is at 31 December. 2 Market share based on mobile operator data at 30 June.
Note: FOXTEL trademarks are used under licence by FOXTEL Management Pty Ltd
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(IMAGE)
The ‘new Telstra’
The landscape in which Telstra operates has changed dramatically over recent years
? Evolving industry trends, competition and regulatory outcomes have put pressure on Telstra’s revenues and earnings
? Although the telecommunications market has grown, Telstra has lost market share in a number of its traditional key markets. A fundamental change to Telstra is needed
In response, Telstra is implementing a company-wide transformation plan to manage these trends and improve its performance
? A new chief executive offi cer, Sol Trujillo, commenced on 1 July 2005
? Sol and his senior management team have extensive experience in highly competitive telecommunications markets across the world, including in the USA and Europe
? After a comprehensive internal review, Telstra’s transformation plan was announced on 15 November 2005
The plan to bring about the ‘new Telstra’ is: ? Bold and focused across all of Telstra’s operations
? Aimed at growing revenues from new products and services and taking out costs
? Focused on delivering long-term shareholder value
Telstra’s transformation plan is on track, on budget and on time ? The transformation is a fi ve year plan which commenced in November 2005
? While some improvement has already been evident in the second half of financial year 2006, the majority of the benefi ts from the plan are targeted in financial year 2008 and onwards
? Costs and capital expenditure for the plan are expected to peak in financial year 2007
Telstra’s transformation plan and improvement of shareholder value are subject to:
? Regulatory risks ? Implementation, technology, vendor and people risks ? Market and operating risks in a competitive and dynamic market
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(GRAPHICS)
Key investment highlights and risks
Telstra is committed to delivering a bold transformation plan...
creating a world of 1-click, 1-screen, 1-step
Focusing on customers Building Australia’s next generation communications network Deploying NEXT G™, a national wireless broadband network Simplifying systems Transforming culture
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(GRAPHICS)
1-touch, 1-button, solutions
Telstra is using market based management to create product and service offerings tailored to the needs and lifestyles of its customers Telstra is constructing a state-of-the art IP core network to deliver new, innovative and faster services Telstra has launched NEXT G™ — Australia’s only national 3G network, delivering wireless broadband, new products and unmatched coverage Telstra is working to deliver improved customer experiences and long term cost savings by reducing complexities in its systems Telstra is investing in its employees to be able to better serve customers and create value for shareholders
...focused on delivering long-term shareholder value
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(GRAPHICS)
Key investment highlights and risks
An attractive offer for retail investors
Instalment receipts
? Pay in two instalments over 18 months while receiving in full any dividends declared during that period
??? 2.00 first instalment for Australian Retail Investors payable on application
? The final instalment will be announced by 20 November 2006 following an institutional bookbuild and is payable by 29 May 2008
14% fully-franked instalment yield for the first 12 months
? The Telstra Board currently intends to declare 28 cents per share in fully franked dividends for financial year 2007 subject to continued success in implementing the transformation plan and no further material adverse regulatory outcomes during the course of financial year 2007
Australian Retail Investors eligible for an upfront discount and Bonus Loyalty Shares
? Upfront discount — the $2.00 first instalment amount is a 10 cent discount per share to the amount institutions pay
? Bonus Loyalty Shares — if you hold your instalment receipts until 15 May 2008 and pay the final instalment on time, you will receive an additional share for every 25 instalment receipts held
Guaranteed entitlement offer for existing Telstra shareholders1
? Telstra shareholders1 receive a guaranteed entitlement of at least 3,000 shares or, if greater, 1 share for every 2 shares they hold2 — you can apply for more or less than your guaranteed entitlement
Guaranteed allocations for all other Retail Investors
? Guaranteed allocation of 2,000 shares for all other Retail Investors — you can apply for more or less than your guaranteed allocation
Retail Offer expected to close 4pm local time on Thursday 9 November 2006
1 Available to Australian and New Zealand resident Retail Investors who are registered Telstra shareholders at the close of business on 13 October 2006. There is a separate 1 for 2 Initial Allocation Benefi t for Telstra shareholders who are Institutional Investors.
2 Subject to a maximum guaranteed entitlement of 200,000 shares.
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(GRAPHICS)
What are the key risks?
Telstra faces signifi cant risks, some of which are detailed below. Refer to section 4 for a more detailed description of these and other risks that could affect Telstra and your investment under the Offer.
Regulatory risks
Telstra is subject to extensive regulation that signifi cantly affects its business. Telstra believes regulation limits its ability to pursue business opportunities and generate returns for shareholders, for example: ?? the ACCC can require Telstra to provide certain services to competitors using its networks at prices Telstra believes to be below the effi cient costs of providing those services ?? competitor access, if required by the ACCC, would in Telstra’s view deprive it of many of the benefi ts of the signifi cant expenditure it has made in building new networks such as the recently launched NEXT G™ wireless broadband network
? Telstra and the ACCC differ in critical instances on what constitutes anti-competitive conduct, affecting Telstra’s ability to act in what it believes to be a normal commercial manner ?? the Commonwealth has a broad discretion to impose additional regulatory obligations on Telstra, such as stricter controls on Telstra’s retail prices or increasing the obligation to make certain uneconomic rural and remote services available without receiving what Telstra believes to be a fair contribution from its competitors
Transformation risks
Telstra’s transformation strategy involves a complex and fundamental change to its businesses, operations, networks and systems and is in Telstra’s view the most comprehensive of any telecommunications company worldwide. Telstra may not be successful in executing this signifi cant undertaking and may not achieve the expected benefi ts. Transformation risks include: ?? planned technologies and network and IT support systems not functioning as anticipated ?? cost over-runs or delays in implementation ?? customer take-up of and migration to new products and services may be signifi cantly lower than planned ?? dependence on key personnel and vendors
Market and operating risks
Telstra operates in a number of highly competitive markets involving constant change. Market and operating risks include: ?? traditional high margin revenues continuing to decline with customer migration to new lower-margin products and services such as mobiles, broadband and VoIP
?? rapid technological changes and intensifying competition leading to lower prices and market share losses
Investment and other risks
Other risks that could affect your investment under the Offer include:
?? if Telstra is unsuccessful in implementing its transformation strategy or there are material adverse regulatory or other outcomes, the amount of dividends declared for financial year 2007 may be less than 28¢ per share and reduce the 14% instalment dividend yield. There is no dividend guidance for financial year 2008 ?? the Future Fund will have a signifi cant shareholding in Telstra which, after two years, it will be required to sell down over the medium term, which could reduce Telstra’s share price and the Future Fund could take actions that are not aligned with the interests of Telstra’s other shareholders ?? the Commonwealth has sought the nomination of a new director to the Board which Telstra believes could disrupt the effective functioning of the Board ?? the price at which your instalment receipts or shares trade may be lower than the price you pay for them
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1. Key questions and answers
             
            Where to find
Question   Answer   more information
About this Prospectus        
 
           
What information is in this Prospectus?   This Prospectus contains information about the Offer and how to apply,an overview of Telstra’s business, strategy and transformation plan,key financial information and the benefits and potential risks of investing in Telstra   Sections 2, 3 and 4
 
           
What information is in the Appendix?   The Appendix contains more detailed information which the Commonwealth and Telstra believe to be primarily of interest to professional advisers, Institutional Investors and investors with similar specialist information needs. Information on the contents of the Appendix is set out in section 5.1 of this Prospectus

You can obtain a copy of the Appendix by calling the Telstra 3 Telephone Information Centre on 1800 18 18 18 or by accessing www.t3shareoffer.com.au
  Section 5.1
 
           
About the Offer
           
 
           
What is the Offer?   The Offer is a sale by the Commonwealth of shares in Telstra to Retail Investors and Institutional Investors. The base offer size is 2.15 billion shares, unless increased as set out below. The final number of shares sold by the Commonwealth will not exceed this base offer size unless the Over-allocation Option is exercised and/or the number of shares required to satisfy allocations for the Retail Offer, the POWL Minimum Guarantee and Institutional Investors’ Initial Allocation Benefits exceeds 2.15 billion shares   Sections 2.2 and 5.12
 
           
About the Retail Offer
           
 
           
What is the Retail Offer?   The Retail Offer comprises the:   Section 2
 
           
 
  <   Shareholder Entitlement Offer — a 1 for 2 entitlement offer open to Australian and New Zealand resident Retail Investors who are registered Telstra shareholders at the close of business on 13 October 2006 (Record Date);    
 
           
 
  <   Firm Offer — open to Australian and New Zealand resident Retail Investors who are offered a firm allocation of shares by their participating broker or financial planner; and    
 
           
 
  <   General Public Offer — open to Australian and New Zealand resident Retail Investors.    
 
           
    The Retail Offer will be made under this Prospectus or the New Zealand Investment Statement, as applicable    
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            Where to find
Question   Answer   more information
About the Retail Offer (continued)            
 
           
What is the entitlement ratio under the Shareholder Entitlement Offer?   Your shareholder entitlement is calculated on the basis of 1 Telstra share for every 2 Telstra shares which are registered in your name on the Record Date and includes a minimum guaranteed entitlement of 3,000 shares and is subject to a maximum guaranteed entitlement of 200,000 shares   Section 2.4.2
 
           
When do I pay?   The first instalment of $2.00 per share must be paid on application (which must be received by 4.00 pm local time on 9 November 2006) and the final instalment must be paid by 29 May 2008 but may be prepaid   Section 2.4.3
 
           
How much do   The purchase price is payable in two instalments:   Section 2.4.3
 
I pay for shares?
  <   the first instalment payable by Australian Retail Investors is $2.00 per share. This is a discount of 10 cents per share to the first instalment payable by Institutional Investors; and    
 
           
 
  <   the final instalment payable by Retail Investors is dependent upon the outcome of a bookbuild and when you pay the final instalment amount    
 
           
What is the amount
I pay for the final instalment?
  If you are eligible to receive the Bonus Loyalty Shares (see below) you will pay the lower of:   Sections 2.4.3 and 2.5
 
           
 
  <   the final instalment amount payable by Institutional Investors; and   Sections 11 and 12
of the Appendix
 
           
 
  <   the volume weighted average price (VWAP) during the 3 trading days ending 17 November 2006, less the $2.00 first instalment amount payable by most investors under the Retail Offer.    
 
           
    If you are not eligible to receive the Bonus Loyalty Shares, you will pay the same final instalment amount as Institutional Investors    
 
           
What is the amount of the final instalment if I prepay before 31 March 2008?   If you prepay, you will pay the final instalment amount payable by Institutional Investors less the applicable Prepayment Discount. Investors with New Zealand registered addresses will not receive the Prepayment Discount   Section 2.4.3
 
           
What are Bonus Loyalty Shares and who is entitled to them?   Bonus Loyalty Shares are additional shares

you will receive if you purchase instalment receipts under the Australian Retail Offer at the Retail Investor price, hold them in the same registered name (subject to limited exceptions) until 15 May 2008 and pay the final instalment on or by 29 May 2008. Your entitlement to Bonus Loyalty Shares will be based on 1 Bonus Loyalty Share for every 25 applicable instalment receipts held. The Bonus Loyalty Shares are existing shares owned by the Commonwealth and are provided to you for no additional cost
  Section 2.4.3

Section 12
of the Appendix
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1. Key questions and answers (continued)
         
        Where to find
Question   Answer   more information
About the Retail Offer (continued)    
 
       
How do I apply?
  You should apply by completing the appropriate paper or
online application form
  Sections 2.4.2 and 2.4.4
 
      See ‘Application
 
      Instructions’
 
       
What are the key dates of the Retail Offer?
  The Retail Offer opens on 23 October 2006 and is expected to close at 4.00pm local time on 9 November 2006, although the Commonwealth has the right to change these dates   Section 2.4.1
 
       
About the risks
Are there risks in participating in the Offer?
  Telstra faces significant regulatory, transformation, market and operating risks in its business. There are also investment and other risks associated with participating in the Offer. These risks could affect Telstra and your investment under the Offer   See ‘Important dates and summary financial information’
Section 4
 
       
About the instalment receipts    
 
       
What is an instalment receipt?
  An instalment receipt is evidence of your beneficial interest in a Telstra share. Until you pay the final instalment, the Trustee will hold your shares and the Commonwealth will have a security interest in your shares   Section 2.3

Section 11 of
the Appendix
 
       
What rights will I have while I hold the instalment receipts?
  Holders of instalment receipts will generally have equivalent rights to Telstra shareholders. These rights include the right to receive any dividends declared by Telstra and the right to attend and vote at meetings of Telstra shareholders (by directing the Trustee how to vote)   Section 5.9

Section 11 of
the Appendix
 
       
What dividends can I expect while holding the instalment receipts?
  You will be entitled to receive any dividends declared by Telstra during the period you hold the instalment receipts. In its normal cycle, Telstra pays ordinary dividends semi-annually in March or April and September or October. The Board currently intends to declare a 28 cents per share fully franked dividend for financial year 2007 subject to continuing to be successful in implementing the transformation strategy and no further material adverse regulatory outcomes during the course of financial year 2007   Sections 3.6 and 5.9
Section 11 of the Appendix
 
       
 
  The Board is unable to give guidance on ordinary dividends for financial year 2008 owing to the continuing uncertainty attached to regulatory outcomes and the impact on Telstra’s business as well as transformation and market place risks    
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        Where to find
Question   Answer   more information
About the instalment receipts (continued)    
 
       
Can I prepay the final instalment ahead of its scheduled date?
  You may prepay the final instalment for some or all of your registered holding prior to the due date for the final instalment

Prepayments may be made by instalment receipt holders between 28 February 2007 and 31 March 2008
  Section 2.4.3

Section 11
of the Appendix
 
       
Do I receive a discount if I prepay the final instalment ahead of its scheduled date?
  If you prepay the final instalment on or before 31 March 2008 you will be entitled to the applicable Prepayment Discount. Investors with New Zealand registered addresses will not receive the Prepayment Discount   Section 2.4.3

Section 11
of the Appendix
 
       
Do I receive Bonus Loyalty Shares if I prepay the final instalment ahead of its scheduled date?
  No. If you prepay the final instalment on or before 31 March 2008 you will not receive Bonus Loyalty Shares on the instalment receipts for which you have prepaid the final instalment, but (unless you have a New Zealand registered address) you will be entitled to the Prepayment Discount on those instalment receipts   Section 2.4.3

Section 12
of the Appendix
 
       
Can I borrow and use my instalment receipts as security?
  You may borrow and use your instalment receipts as security. However, you may not create any security which is capable of extending to the underlying shares until you have paid the final instalment   Section 11
of the Appendix
 
       
Can I sell my instalment receipts?
  The instalment receipts are expected to be quoted on ASX and NZSX, after which you should be able to sell your instalments receipts   Section 5.11

Section 11
of the Appendix
 
       
About the Commonwealth as shareholder and regulator    
 
       
Will the Commonwealth still own shares in Telstra after the Offer?
  Currently, the Commonwealth owns 51.8% of Telstra, or 6,446,207,123 shares. Any shares held by the Commonwealth which are not transferred under the Offer will be transferred to the Future Fund   Sections 2.8 and 5.7
 
       
What is the effect of the Offer on Telstra?
  The Commonwealth is currently Telstra’s controlling shareholder and has special rights and privileges under the Telstra Act. The Offer will have a number of impacts on Telstra including the applicability of Commonwealth and state legislation to Telstra, employee benefit arrangements, the appointment of Telstra’s auditor, the direction powers of the Finance Minister and the Communications Minister and the loss of CGT exempt status on assets that it acquired before 20 September 1985   Section 5.5
 
       
What is the purpose of Australia’s telecommunication regulatory regime?
  The telecommunications regulatory regime is intended to promote the interests of consumers, including through promoting competition and investment   Section 5.3
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1. Key questions and answers (continued)
             
            Where to find
Question   Answer   more information
About the Future Fund        
 
           
What is the Future Fund?   The Future Fund is a Commonwealth investment fund set up to strengthen the Commonwealth’s long term finances by providing for its unfunded superannuation liabilities   Sections 2.8 and 5.7
 
           
How many shares will the Future Fund hold?   On the basis of a base offer size of 2.15 billion shares and assuming no exercise of the over-allocation option, approximately 35% of all Telstra shares will be transferred to the Future Fund (or approximately 32% assuming full exercise of the Over-allocation Option)   Sections 2.2, 2.8 and 5.12
 
           
What can the Future Fund do with Telstra shares transferred to it?   The Future Fund cannot dispose of Telstra shares for a period of two years from the date the instalment receipts are first listed on ASX except in limited circumstances. After that period, the Future Fund will be required to sell down the Telstra shares over the medium term   Sections 2.8 and 5.7
 
           
About developments and further information    
 
           
How will the Commonwealth update me on significant developments during the period of the Offer?   If any significant developments occur during the period of the Offer, the Commonwealth will update investors by publishing newspaper advertisements, making disclosure to the ASX and making information available on www.t3shareoffer.com.au   See Important Notices
section
 
           
How do I obtain further information or assistance?
  <   by reading this Prospectus in its entirety;   Inside front cover
           
  <   by speaking to a broker or financial adviser;    
 
           
 
  <   by calling the Telstra 3 Telephone Information Centre on 1800 18 18 18;    
 
           
 
  <   by accessing www.t3shareoffer.com.au; and/or    
 
           
 
  <   by obtaining a copy of the Appendix, Telstra’s 2006 Annual Report, Telstra’s 2006 Annual Review, Telstra’s 2006 Supplemental Information and/or Telstra’s ASX continuous disclosure releases since 25 September 2006 by calling the Telstra 3 Telephone Information Centre on 1800 18 18 18 or by accessing www.t3shareoffer.com.au    
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2. The Telstra 3 Share Offer
2.1 Introduction
This section of the Prospectus contains:
         
Information   Section  
Details of the various components of the Offer and the Offer size
    2.2  
 
       
A description of instalment receipts, the voting rights of instalment receipt holders and the entitlement of instalment receipt holders to receive any dividends declared by Telstra     2.3  
 
       
A description of the Retail Offer, including who can apply, how to apply, the price to be paid for shares, the instalment payment structure and details of the Bonus Loyalty Shares and the Prepayment Discount     2.4  
 
       
A description of the Institutional Offer     2.5  
 
       
An explanation of the policy for allocating Telstra shares under the Offer     2.6  
 
       
Information on the listing and quotation of the instalment receipts and underlying shares     2.7  
 
       
A brief description of the Future Fund and transfer of Telstra shares to it
    2.8  
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2. The Telstra 3 Share Offer (continued)
2.2 Description of the Offer
2.2.1 COMPONENTS OF THE OFFER
The Offer is an offer by the Commonwealth of Telstra shares to be paid for in two instalments and comprises:
<   A Retail Offer which consists of the:
  o   Shareholder Entitlement Offer — a 1 for 2 entitlement offer open to Australian and New Zealand resident Retail Investors who are registered Telstra shareholders at the close of business on 13 October 2006 (Record Date);
 
  o   Firm Offer — open to Australian and New Zealand resident Retail Investors who are offered a firm allocation of shares by their participating broker or financial planner; and
 
  o   General Public Offer — open to Australian and New Zealand resident Retail Investors.
<   An Institutional Offer which consists of an invitation to:
  o   Institutional Investors in Australia, New Zealand, the United States and certain other overseas jurisdictions who are Telstra shareholders to bid for shares in the Institutional Offer and receive an Initial Allocation Benefit of 1 share for every 2 shares held at the close of the Institutional Offer (adjusted for dealings up to that time) if they bid at or above the final price;
 
  o   other Institutional Investors in Australia, New Zealand, the United States and certain other overseas jurisdictions to bid for shares in the Institutional Offer. A minimum of 15% of the base offer size will be reserved for, amongst others, these Institutional Investors (Certain Institutional Investors) if they bid at or above the final price; and
 
  o   Japanese investors to subscribe for shares via a ‘Public Offer Without Listing’ (POWL). A minimum total number of shares may be reserved for these Japanese investors (the POWL Minimum Guarantee).
Details of each component of the Retail Offer are described in section 2.4.2 ‘Applying for shares in the Retail Offer’. Further details of the Institutional Offer and the allocation policy under the Institutional Offer are described in section 2.5 ‘Institutional Offer’ and section 2.6.2 ‘Allocation under the Institutional Offer’.
2.2.2 OFFER SIZE AND ABILITY TO INCREASE THE OFFER SIZE
The base offer size is 2.15 billion shares, unless increased as outlined below. The final number of shares sold by the Commonwealth will not exceed this base offer size unless:
<   the Over-allocation Option is exercised; and/or
<   the number of shares required to satisfy allocations for the Retail Offer, the POWL Minimum Guarantee and Institutional Investors’ Initial Allocation Benefits exceeds 2.15 billion shares.
The Joint Global Coordinators may agree with the Commonwealth to over-allocate up to 15% of the base offer size (that is, 322.50 million shares1) to Institutional Investors under the Institutional Offer. These over-allocations, if any, may be satisfied either by acquiring additional instalment receipts from the Commonwealth pursuant to an option which has been granted by the Commonwealth (the Over-allocation Option) and/or by purchasing instalment receipts on the stock market which may have the effect of stabilising the secondary market price of instalment receipts. The full exercise of the Over-allocation Option would increase the number of shares sold by the Commonwealth to 2.47 billion shares1. Refer to section 5.12 ‘Over-allocation and market stabilisation’ for more information.
In addition, the base offer size may be increased where the number of shares required to satisfy allocations for the Retail Offer, the POWL Minimum Guarantee and Institutional Investors’ Initial Allocation Benefits exceeds 2.15 billion shares. In this event, the size of the Over-allocation Option would also increase proportionately, to remain at 15% of the increased base offer size.
Should the base offer size be increased in these circumstances, shares allocated to Certain Institutional Investors (refer section 2.6.2 ‘Allocation under the Institutional Offer’) would be limited to any shares the Joint Global Coordinators agree to over-allocate under the Institutional Offer, that is, no more than 15% of the increased base offer size.
 
1 Assuming a base offer size of 2.15 billion shares.
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2.3 Instalment receipts
Telstra shares purchased in the Offer will be paid for in two instalments. An instalment receipt is evidence of your beneficial interest in a Telstra share. Until you pay the final instalment, your shares will be held by the Trustee and the Commonwealth will have a security interest in your shares.
While you hold instalment receipts, you will be entitled to vote (by directing the Trustee how to vote) at a meeting of Telstra shareholders (or class of shareholders) and will receive any dividends declared by Telstra during this period. In its normal cycle,Telstra pays an interim dividend in March and a final dividend in September of each year. See section 3.6 ‘Dividends’, for further information.
After you pay the final instalment, you will be registered as the holder of the underlying shares, your instalment receipts will be cancelled and you will be able to freely trade the shares.
You may create a security interest over your instalment receipts. However, you cannot create any security interest which is capable of extending to the underlying shares until you have paid the final instalment.
You should note that the partial payment characteristics of instalment receipts may make percentage price movements in them greater than percentage price movements if they were fully paid shares in similar circumstances.
Further details on the instalment receipts, including conditional and deferred settlement trading and selling the securities, are set out in sections 5.8 through to 5.11 and section 11 of the Appendix ‘Description of Instalment receipts and Trust Deed’.
2.4 Retail Offer
This section relates to Australian resident Retail Investors applying for shares at the Retail Investor price only. New Zealand resident Retail Investors should refer to the New Zealand Investment Statement. Retail Investors purchasing shares in the Firm Offer at the Institutional Investor price (see section 2.4.5 ‘Acceptance of Applications’) should refer to the participating broker or financial planner from whom they received their firm allocation.
2.4.1 RETAIL OFFER KEY DATES
     
Record Date for Shareholder
Entitlement Offer
  Friday 13 October 2006
 
   
Retail Offer opens
  Monday 23 October 2006
 
   
Retail Offer closes
  4.00 pm (local time)
Thursday 9 November 2006
 
   
Final instalment amount and basis of allocation announced by
  Monday 20 November 2006
 
   
ASX quotation
  Monday 20 November 2006
 
   
Final Instalment Due Date
  Thursday 29 May 2008
If you wish to apply for shares, you are encouraged to do so as soon as possible. The Commonwealth has the right to change these dates, other than the Final Instalment Due Date, including closing early or extending the Offer, or any component of the Offer, without prior notice,or otherwise vary the terms of the Offer, either generally or in particular cases.
2.4.2 APPLYING FOR SHARES IN THE RETAIL OFFER
Details of each component of the Retail Offer are set out in Table 2.1 on the following page. This information is for Australian resident Retail Investors only.
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2. The Telstra 3 Share Offer (continued)
TABLE 2.1 APPLYING FOR SHARES IN THE RETAIL OFFER
                 
Who can apply in   How many shares   Will I be allocated all the shares that
the Retail Offer?   can I apply for?   I apply for if the offer is over-subscribed?
Shareholder
Entitlement Offer

Australian resident Retail Investors who are registered Telstra shareholders on the Record Date1
  <   Your shareholder entitlement is calculated on the basis of 1 share for every 2 Telstra shares which are registered in your name on the Record Date1. Shareholder entitlements include a minimum guaranteed entitlement of 3,000 shares and are subject to a maximum guaranteed entitlement of 200,000 shares   <   If you apply for the shareholder entitlement shown on your orange personalised application form your application will be accepted in full and will not be scaled back
          <   If you apply for more than your
shareholder entitlement you will be allocated at least the amount of your entitlement if applications need to be scaled back

 
  <   Your shareholder entitlement is shown on your orange personalised application form1      
 
  <   Your entitlement will be rounded up to the nearest 50 shares   <   If you apply for less than your shareholder entitlement you will be allocated the number of shares for which you apply and will not be scaled back
nbsp;
 
  <   You may apply for more or less shares than
your entitlement
 
     
 
  <   The minimum number of shares you may apply for is 500, and above this in multiples of 50

       
Firm Offer

Australian resident Retail Investors who are offered a firm allocation by their participating broker or financial planner
  <   Your participating broker or financial planner will inform you of your firm allocation

  <   Firm Offer applications will be accepted in full and will not be scaled back
  <   The minimum number of shares you may apply for is 500, and above this in multiples of 50        
 
General Public Offer

Australian resident Retail Investors who are not Telstra shareholders at the Record Date
  <   You are guaranteed a minimum allocation of 2,000 shares   <   If you apply for your guaranteed allocation of 2,000 shares, your application will be accepted in full and will not be scaled back
 
  <   You may apply for more or less shares than your guaranteed allocation   <   If you apply for more than your guaranteed allocation you will be allocated at least 2,000 shares if applications need to be scaled back
 
  <   The minimum number of shares you may apply for is 500, and above this in multiples of 50   <   If you apply for less than your guaranteed allocation, you will be allocated the number of shares for which you apply and will not be scaled back
 
 
  <   Applications can be for up to a maximum of 200,000 shares        
 
1   The Record Date is 13 October 2006. If your Telstra shareholding changed between Friday 15 September 2006 and Friday 13 October 2006, then you may have a different shareholder entitlement than shown on your orange application form. If your shareholding has increased during this period a new orange application form will be sent to you. You should apply using this new form. If your shareholding has decreased during this period then you should use the original orange application form sent to you, although the Commonwealth reserves the right to scale back your application if you apply for more shares than your actual shareholder entitlement.
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How do I apply

 
()
using a form?
<   You should have received an orange personalised application form with
this Prospectus
 
<   Applications for the Shareholder Entitlement Offer should be made on this
orange application form and returned using the enclosed reply paid envelope
 
<   If you were a registered Telstra shareholder at the Record Date but did not receive an orange application form, you should contact the Telstra 3 Telephone Information Centre on 1800 18 18 18
 
<   If you apply using the orange application form, you must pay by cheque
online?
<   You can apply online at www.t3shareoffer.com.au. You will be asked to provide your reference number, which can be found in the top right corner of your orange application form
<   If you apply online, you will be required to pay for your shares using Bpay®


You should apply in accordance with instructions received from the participating broker or financial planner from whom you received your firm allocation

()
<   If you are a client of a broker not applying through the Firm Offer and you received a Prospectus and a green personalised application form, you should use this form and return it to your broker using the enclosed reply paid envelope
<   If you apply using the green application form, you must pay by cheque
<   You can apply online through your broker’s website. You will be asked to provide your reference number, which can be found in the top right corner of your green application form
 
<   If you apply online, you will be required to pay for your shares using Bpay®


()
<   If you have received a Prospectus and a red personalised application form, you should use this form and return it using the enclosed reply paid envelope
<   If you apply using the red application form, you must pay by cheque
<   You can apply online at www.t3shareoffer.com.au. You will be asked to provide your reference number, which can be found in the top right corner of your red application form
 
<   If you apply online, you will be required to pay for your shares using Bpay®


()
<   If you have not received a personalised application form, or you do not wish to apply for shares using the registration details contained on your personalised application form, you should use one of the two blue application forms attached to this Prospectus
<   If you apply using a blue application form, you must pay by cheque
<   You can apply online at www.t3shareoffer.com.au
 
<   If you apply online, you will be required to pay for your shares using Bpay®


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2. The Telstra 3 Share Offer (continued)
2.4.3 RETAIL OFFER PRICE AND PAYMENT
The shares will be paid for in two instalments.
How much is the first instalment?
The first instalment amount is $2.00 per share. This is a discount of 10 cents per share to the $2.10 first instalment payable by Institutional Investors.
When do I pay the first instalment?
The first instalment is payable at the time you submit your application for shares. Your application and payment for the first instalment must be received by 4.00 pm local time on the Closing Date (expected to be 9 November 2006).
How much is the final instalment?
If you are an Australian resident, purchase your instalment receipts under the Retail Offer at the Retail Investor price, hold them in the same registered name until 15 May 2008 (there are limited exceptions to the same registered name requirement – see section 12 of the Appendix ‘Bonus Loyalty Shares and the same registered name requirement’) and pay the final instalment on or by 29 May 2008, the final instalment payable will be the lower of:
§   the final instalment amount payable by Institutional Investors which will be announced by 20 November 2006; and
 
§   the volume weighted average price (VWAP) of Telstra shares traded on ASX during the 3 trading days ending 17 November 2006, less the $2.00 first instalment payable by Retail Investors under the Retail Offer.
Investors who purchase instalment receipts after the Offer will pay the final instalment amount payable by Institutional Investors, unless they prepay.
Investors may be entitled to the Prepayment Discount as discussed below.
The final instalment amount for Institutional Investors will be determined by the Commonwealth at the close of the Institutional Offer and after consultation with the Joint Global Coordinators and the Commonwealth’s Business Adviser. See section 2.5 ‘Institutional Offer’ regarding the setting of the final instalment amount for Institutional Investors.
The amount of the final instalment payable by Institutional Investors is expected to be announced by 20 November 2006.
When do I pay the final instalment?
A registered holder of instalment receipts on 15 May 2008 must pay the final instalment on or by 29 May 2008 (the Final Instalment Due Date). Reminder notices will be sent to instalment receipt holders prior to this date.
Can I prepay the final instalment?
Instalment receipt holders may prepay the final instalment for some (in minimum parcels of 2,000) or all of their registered holding on or before 31 March 2008, and will receive a Prepayment Discount if they do so. Prepayment may be made on or by 28 February 2007 and on or by the last day of every month thereafter (each a prepayment day) up until 31 March 2008. To prepay you will need to contact the Instalment Receipt and Share Registrar on 1800 18 18 18 to obtain the prepayment notification which will set out the applicable Prepayment Discount. You will need to request a prepayment notification by the eighth business day of a month if you want to prepay in that month. You will then need to lodge your payment as directed in the prepayment notification by 5.00 pm Sydney time on the last business day of the relevant month.
Holders who prepay the final instalment will pay the final instalment less the applicable Prepayment Discount. Holders with New Zealand registered addresses will not receive the Prepayment Discount. The Prepayment Discount is calculated by discounting the final instalment payable by Institutional Investors, for the period between the relevant prepayment day (the last day of the month in which payment is received) and the Final Instalment Due Date, using the Reference Bond Yield applicable as at the end of the previous month.
If applicants under the Retail Offer elect to prepay the final instalment, they will not receive the Bonus Loyalty Shares on the instalment receipts for which they have prepaid the final instalment. They will also not be eligible for the VWAP-based cap on the final instalment amount described under ‘How much is the final instalment?’ on those instalment receipts.
What if I fail to pay the final instalment?
If the final instalment is not paid by the Final Instalment Due Date, the Trustee can sell some or all of your shares. If the net proceeds of such sale are insufficient to satisfy the final instalment (and any other related amounts you may owe to the Commonwealth, including interest, costs, expenses, administration charges, duties and taxes), the Trustee can take action to recover the deficiency.
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If the net proceeds of such sale are sufficient to satisfy the final instalment (and any other related amounts you may owe to the Commonwealth) the Trustee will refund any excess proceeds to you.
You should be aware that at the time of payment of the final instalment, the market price of Telstra shares may be less than the total of the first and final instalment amounts.
When am I entitled to Bonus Loyalty Shares?
You will be entitled to receive Bonus Loyalty Shares if you:
§   purchase instalment receipts under the Australian Retail Offer at the Retail Investor price;
 
§   hold them in the same registered name until 15 May 2008; and
 
§   pay the final instalment on or by 29 May 2008.
Your right to receive a Bonus Loyalty Share will expire immediately after you cease to satisfy one of these conditions.
You will not be entitled to Bonus Loyalty Shares in respect of instalment receipts purchased outside the Offer.
You will be allocated 1 Bonus Loyalty Share for every 25 instalment receipts purchased under the Retail Offer at the Retail Investor price and held until 15 May 2008. The number of Bonus Loyalty Shares you will be eligible to receive will be calculated based on the lowest number of instalment receipts held in the same registered name at any time between the date of issue and 15 May 2008. There are limited exceptions to this requirement, mainly to ensure that the right to the Bonus Loyalty Shares does not expire due to certain limited circumstances beyond the control of the holder of the instalment receipts. If the total number of Bonus Loyalty Shares an instalment receipt holder is entitled to includes a fraction, that fraction will be rounded to the nearest whole number. See section 12 of the Appendix ‘Bonus Loyalty Shares and the same registered name requirement’ for further information, including information about the same registered name requirement and exceptions to it and about arrangements that may apply for selling Bonus Loyalty Shares and paying the proceeds to those entitled if at the relevant time they are resident outside Australia or other legal impediments to delivery of Bonus Loyalty Shares exist.
In submitting your application form, you are also applying for any Bonus Loyalty Shares to which you may become entitled under the terms of the Offer, as set out above.
2.4.4 HOW TO LODGE YOUR APPLICATION
Completing your application form
Application forms must be completed and submitted in accordance with the instructions set out on the reverse of the form and in the ‘Application Instructions’ in this Prospectus. If you are applying online, follow the instructions set out in the online forms.
Applications must be for a minimum of 500 shares and in multiples of 50 shares thereafter. If the Offer is over-subscribed, you may be allocated less than the number of shares for which you apply, subject to your minimum guaranteed allocation, shareholder entitlement or firm allocation.
Application monies and lodgement of your application
If you are applying by completing and lodging a paper application form, you must pay by cheque. Cheques must be in Australian dollars drawn on an Australian branch of an Australian bank, marked ‘Not Negotiable’ and made payable to ‘Telstra 3 Share Offer’. If you are applying by completing and lodging an application form online, you must pay through Bpay®. You may need to contact your financial institution to confirm any Bpay® limits on your account. Further instructions on how to pay through Bpay® are provided on the Telstra 3 Share Offer website, www.t3shareoffer.com.au.
Paper applications and cheques (other than Firm Offer applications) should be:
§   mailed using the reply paid envelope provided. If you do not have a reply paid envelope, you should send your completed application form and cheque to the following address:
 
    Telstra 3 Share Offer
    Reply Paid 27
    Eastern Suburbs Mail Centre NSW 2004
or
§   placed in the collection box at any Commonwealth Bank branch in Australia
Submit online applications at www.t3shareoffer.com.au with payment via Bpay®.
Firm Offer applications should be lodged with your participating broker or financial planner in accordance with their instructions.
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2. The Telstra 3 Share Offer (continued)
If you elect to participate in the Firm Offer, your broker or financial planner will act as your agent in submitting your application and it will be your broker or financial planner’s responsibility to ensure that your application form is received by 4.00pm local time on the Closing Date (expected to be 9 November 2006). The Commonwealth and the Joint Global Coordinators take no responsibility for any acts or omissions by your broker or financial planner in connection with your application.
Applications and payments must be received by 4.00pm local time on the Closing Date, expected to be 9 November 2006. However, the Commonwealth, in consultation with the Joint Global Coordinators, may, without further notice, close the Offer (or any part of the Offer) early, extend the Offer (or any part of the Offer) or accept late applications, either generally or in particular cases.
2.4.5 ACCEPTANCE OF APPLICATIONS
The Commonwealth intends to accept all valid applications under the Retail Offer for at least the relevant guaranteed allocation. The Commonwealth reserves the right, however, to reject any application or to allocate to any person fewer shares than applied for by that person.
You will receive a refund if you have applied and paid for more shares than you are allocated. Telstra shareholders who have already provided their bank or other financial institution account details will receive any refund electronically into that account. All other applicants will receive any refund by cheque. No interest will be paid to you on any monies refunded.
Your application represents an offer to buy shares from the Commonwealth on the terms and conditions set out in this Prospectus, the application form and the page to which it is attached. A contract will be formed when the Commonwealth accepts your offer on the allocation of instalment receipts. The Commonwealth may accept your offer without further notice to you. If your offer is accepted, you will, subject to a condition regarding settlement under any International Purchase Agreement, receive an instalment receipt transaction confirmation statement.
The Commonwealth reserves the right, at its discretion, to treat any application for greater than 200,000 shares as an application under the Institutional Offer. In addition, where the Commonwealth is advised by the Joint Global Coordinators that investors who would typically be regarded as Institutional Investors have applied as Retail Investors, the Commonwealth also reserves the right to treat such applications as applications under the Institutional Offer.
The Commonwealth reserves the right to reject or aggregate applications which appear to be multiple applications from the same person or from closely related persons. However, clients of brokers and financial planners receiving firm allocations under the Firm Offer may also lodge an application under the Shareholder Entitlement Offer or the General Public Offer. Unless you are a client of a broker or financial planner applying for a firm allocation under the Firm Offer, you may only apply for shares using one application form. An application by you acting in another legal capacity (such as a trustee of a trust) will not be treated as a multiple application.
Under the Firm Offer, any part of an application that exceeds a certain level will be treated as an application at the Institutional Investor price and will not qualify for Retail Investor benefits such as Bonus Loyalty Shares. You should consult your participating broker or financial planner for details.
In completing your application for shares, you must not use fictitious names or aliases.
2.4.6 WHAT TO DO IF YOU HAVE QUERIES OR WANT EXTRA COPIES OF THE PROSPECTUS
If you have a query on how to complete the application form or require additional copies of the Prospectus, you should contact the Telstra 3 Telephone Information Centre on 1800 18 18 18 or go to the Telstra 3 Share Offer website at www.t3shareoffer.com.au.
A paper copy of the Prospectus will be sent free of charge to any person in Australia who requests a copy in the period up to the Closing Date.
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2.5 Institutional Offer
Selected Institutional Investors will be invited to bid for shares in the Institutional Offer. The Institutional Offer is structured as follows:
§   an invitation to eligible Institutional Investors that are existing Telstra shareholders to participate in the Institutional Offer and to receive the Initial Allocation Benefit, made under this Prospectus, the New Zealand Investment Statement or the Institutional Offering Memorandum, as applicable;
 
§   an invitation to Institutional Investors resident in Australia and New Zealand, made under this Prospectus or the New Zealand Investment Statement, as applicable;
 
§   an invitation to Australian and New Zealand brokers who elect to bid for shares under the Institutional Offer on behalf of Australian and New Zealand resident Retail Investors, made under this Prospectus and the New Zealand Investment Statement, as applicable;
 
§   an invitation to QIBs in the United States to bid for shares in transactions exempt from the registration requirements of the US Securities Act under Rule 144A, made under the Institutional Offering Memorandum; and
 
§   an invitation to Institutional Investors resident in certain jurisdictions outside Australia, New Zealand and the United States to bid for shares in transactions exempt from the registration requirements of the US Securities Act in reliance on Regulation S and in compliance with all applicable laws in the jurisdictions in which such shares are offered or sold, made under the Institutional Offering Memorandum.
An invitation is also being made to Japanese investors to bid for shares via a POWL under a Japanese prospectus which will be lodged with the relevant Japanese regulatory authorities under the applicable laws in Japan.
Participants in the Institutional Offer will be invited to submit bids between 15 and 17 November 2006 in a global bookbuild process. After the close of the Institutional Offer, the total amount payable per share by Institutional Investors will be determined by the Commonwealth in consultation with the Joint Global Coordinators and the Commonwealth’s Business Adviser. In determining the total amount payable per share by Institutional Investors, the Commonwealth will have regard to considerations including the level of demand for shares in the bookbuild, prevailing market conditions, the desire for an orderly after-market, the market price of Telstra shares prior to the close of the Institutional Offer and an ownership base of long-term shareholders. The final instalment payable by Institutional Investors will be the total amount payable per share less the $2.10 first instalment payable by Institutional Investors.
2.6 Allocation policy
2.6.1 ALLOCATION UNDER THE RETAIL OFFER
A proportion of the shares to be sold in the Retail Offer will be reserved for the entitlements, firm allocations and guaranteed minimum allocations under the Shareholder Entitlement Offer, the Firm Offer and the General Public Offer respectively.
Any reserved shares not allocated to these components of the Offer will be allocated to satisfy applications from Retail Investors above their guaranteed minimum allocations and entitlements as well as to satisfy bids in the Institutional Offer.
Shares allocated in the Firm Offer will be issued to the applicants nominated by the participating brokers and financial planners through whom they applied. These brokers and financial planners will be responsible for ensuring that their retail clients receive the relevant shares. Neither the Commonwealth nor the Joint Global Coordinators will be responsible for the allocation of shares to Retail Investors in the Firm Offer.
2.6.2 ALLOCATION UNDER THE INSTITUTIONAL OFFER
The Commonwealth will determine the allocation of shares between bidders in the Institutional Offer after consultation with the Joint Global Coordinators and the Commonwealth’s Business Adviser. There is no assurance that any bidder in the Institutional Offer will be allocated any shares or the number of shares for which it has lodged a bid. The determination of the total amount per share payable by Institutional Investors and the allocation policy will be in accordance with the terms of the Institutional Offer set out in section 5 of the Appendix ‘Further information about the Institutional Offer’.
The Commonwealth intends that the majority of shares to be sold under the Institutional Offer be made available to existing Telstra shareholders in the form of the Initial Allocation Benefit. Institutions holding Telstra shares as at 6.00pm Sydney time on 17 November 2006 (adjusted for dealings up to that time — see section 5 of the Appendix ‘Further information about the Institutional Offer’), that lodge a valid bid no later than that time will receive an Initial Allocation Benefit. The Initial Allocation Benefit is subject to the bidder having made and not withdrawn a valid bid at or above the final price, and the Commonwealth reserves the right to withhold the Initial Allocation Benefit from
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2. The Telstra 3 Share Offer (continued)
persons it considers have engaged in adverse market behaviour. The level of Initial Allocation Benefit will be 1 share for every 2 shares held in Telstra as at the close of the Institutional Offer (adjusted for dealings up to that time — see section 5 of the Appendix ‘Further information about the Institutional Offer’) or such lesser number of shares for which the institution has lodged a valid bid at or above the final price. Australian and New Zealand resident Retail Investors bidding via broker-sponsored bids will also be entitled to claim Initial Allocation Benefits based on their holdings as at the close of the Institutional Offer (adjusted for dealings up to that time — see section 5 of the Appendix ‘Further information about the Institutional Offer’), but must deduct from the Initial Allocation Benefit so claimed any shares they have applied for in the Shareholder Entitlement Offer.
A minimum total number of shares may also be reserved for Japanese investors subscribing under the POWL (the POWL Minimum Guarantee).
In addition, a minimum of 15% of the offer size before any over-allocations will be reserved for certain investors in the Institutional Offer (Certain Institutional Investors), including:
§   Telstra shareholders who place bids for amounts in excess of their Initial Allocation Benefit;
 
§   other Institutional Investors who are not Telstra shareholders at the close of the Institutional Offer;
 
§   investors subscribing under the Japanese POWL in excess of any POWL Minimum Guarantee; and
 
§   Australian and New Zealand resident Retail Investors who participate in the Institutional Offer via broker-sponsored bids for amounts in excess of their Initial Allocation Benefits (if any).
Any allocation of these reserved shares is subject to the investor having made and not withdrawn a valid bid at or above the final price. These reserved shares will be allocated having regard to the allocation criteria described in section 5 of the Appendix ‘Further information about the Institutional Offer’. Any reserved shares not allocated to these investors will be allocated to other parts of the Offer.
2.6.3 NOTIFICATIONS OF ALLOCATIONS
The Commonwealth will announce the basis of allocation by placing advertisements in the major national and metropolitan newspapers in Australia. This is expected to take place by 20 November 2006. From that date, applicants in the Retail Offer may call the Telstra 3 Telephone Information Centre on 1800 18 18 18 or access the Telstra 3 Share Offer website at www.t3shareoffer.com.au to seek information on their allocation. If you sell instalment receipts before you receive confirmation of your allocation, you do so at your own risk.
2.7 Listing and quotation
Telstra securities are currently traded on ASX, NZSX and NYSE (the New York Stock Exchange). Telstra and the Trustee will apply within 7 days after the date of this Prospectus to have the instalment receipts and underlying shares quoted on ASX. An application has been made to NZSX for quotation of the instalment receipts and underlying shares. The instalment receipts and underlying shares will not be quoted on NYSE.
If permission for quotation of the instalment receipts and underlying shares is not granted by ASX within 3 months after the date of this Prospectus, or such longer period as ASX allows, application monies will be refunded in full without interest as soon as practicable in accordance with the requirements of the Corporations Act. For further information see section 9 of the Appendix ‘Quotation application and agreement between the Trustee and ASX’.
2.8 Future Fund overview
The Future Fund is a Commonwealth investment fund set up to strengthen the Commonwealth’s long-term finances by providing for its unfunded superannuation liabilities. The Future Fund Board is a separate legal entity from the Commonwealth, responsible for investment decisions and holds the Future Fund’s investments.
After the Offer, the Commonwealth intends to transfer to the Future Fund all of its Telstra shares which are not transferred in the Offer (including the Over-allocation Option and associated administrative mechanisms), although it will initially retain sufficient shares to meet Bonus Loyalty Share obligations to applicants in the Retail Offer. These retained shares will be held for the Commonwealth by the Trustee until they are transferred to those entitled, and will not be voted while they are so held. Any of these shares which are not ultimately required, because holders have transferred instalment receipts or otherwise lost the right to receive Bonus Loyalty Shares, will be transferred to the Future Fund after the Final Instalment Due Date.
Telstra shares transferred to the Future Fund cannot be sold during an escrow period of two years from the date instalment receipts are first listed on ASX, subject to limited exceptions. For further information see section 5.7 ‘Future Fund’.
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3. Overview of Telstra
3.1 General
Telstra is Australia’s leading telecommunications and information services company, offering a full range of products and services in these markets. Telstra also operates in certain overseas countries.
Telstra’s main activities include the provision of:
§   basic access services to most homes and businesses in Australia;
 
§   local and long distance telephone calls in Australia and international calls to and from Australia;
 
§   mobile telecommunications services;
 
§   broadband access and content;
 
§   a comprehensive range of data and Internet services including through Telstra BigPond®, Australia’s leading Internet service provider (ISP);
 
§   management of business customers’ information technology and/or telecommunications services;
 
§   wholesale services to other carriers, carriage service providers (CSPs) and ISPs;
 
§   advertising, search and information services through Sensis; and
 
§   cable distribution services for FOXTEL’s cable subscription television services.
One of Telstra’s strengths in providing integrated telecommunications services is its extensive geographical coverage through both its fixed and mobile network infrastructure. This coverage underpins the carriage and termination of the majority of Australia’s domestic and international voice and data traffic.
Telstra owns 50% of FOXTEL and its international business includes interests in CSL New World Mobility Group (CSL New World), Hong Kong’s leading mobile operator, TelstraClear Limited (TelstraClear), the second largest full service carrier in New Zealand and Reach Limited (REACH), a provider of global connectivity and international voice and satellite services, as well as SouFun Holdings Limited (SouFun), a leading real estate and home furnishings website in China.
More detail on Telstra’s main activities and international investments is set out in section 3.8 ‘Telstra’s main activities and international investments’.
3.2 Corporate objective
Telstra’s corporate objective is to create long-term shareholder value through providing integrated communication, information and entertainment services and customer-focused solutions.
3.3 Telstra’s vision and mission
Telstra’s vision is to do for its customers what no one else has done. That is, create a world of 1-click, 1-touch, 1-button, 1-screen, 1-step solutions that are simple, easy and valued by individuals, businesses, enterprises and governments.
Telstra’s mission is to know its customers and meet their needs better than anyone else. Telstra aims to give customers a personalised, seamless experience that makes it easy for them to do what they want, when they want it.
3.4 Transformation strategy
Following a comprehensive review of its operations, from customer-facing to back-office operations, Telstra announced a whole-of-company, five year transformation strategy in November 2005. The key elements of this transformation strategy are:
§   building a next generation fixed network to support the growing demand for IP-based services and simplifying IT systems;
 
§   rolling-out next generation wireless services over Telstra’s recently launched NEXT G™ national wireless broadband network;
 
§   implementing market based management using extensive customer research and knowledge to differentiate Telstra through product and service offerings tailored for particular customer segments;
 
§   providing customers with an integrated user experience across all devices and platforms – fixed, wireless and Internet;
 
§   removing costs from operations, by reducing complexity, making business systems more efficient and simplifying operations;
 
§   expanding and enhancing the Sensis business through organic growth and targeted acquisitions of advertising, search and information businesses; and
 
§   undergoing cultural transformation, including large investments in training staff and reforming the way Telstra does business.
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3. Overview of Telstra (continued)
Telstra’s transformation strategy involves a complex and fundamental change to its business, operations, networks and systems and it is undertaking the transformation on an accelerated schedule. A transformation of this size, speed and complexity has not been attempted by any other telecommunications company worldwide.
The initiatives associated with Telstra’s transformation strategy involve significant capital expenditure and extensive management attention and resources and entail substantial risks. Telstra’s ongoing investment in this transformation has significantly reduced its income and free cash flows.
Telstra believes that it has to undertake these major changes at this time and under its proposed schedule in order to maintain its competitiveness and improve its financial results in an increasingly competitive, technologically challenging and highly regulated environment. The main initiatives of Telstra’s transformation strategy are described below.
STRENGTHENING TELSTRA’S FIXED LINE TELECOMMUNICATION NETWORK AND SERVICES
Telstra intends that its next generation network will deliver new, better and faster services to its customers. This next generation fixed network will include an IP core network that will offer increased platform capacity compared to Telstra’s current network. Telstra intends to provide users with more reliable and stable media and telephony services and expand the number and range of services available to customers.
The development of Telstra’s IP core network is well advanced. Telstra is beginning to deploy advanced services to upgrade business customers, including IP telephony and conferencing, IP-based call centres, reliable higher-speed broadband, web-hosting and security services. Telstra will offer new multimedia applications to residential customers when higher speed services become available.
The new next generation fixed network is expected to provide Telstra with the ability to address increasing customer demand and the growing market for Virtual Private Networks (VPNs) to connect organisations and enterprises to the Internet. The new next generation fixed network is expected to reduce overall unit costs, allow proactive management of actual and predicted network demand and permit network upgrades to be implemented simultaneously across the nation rather than sequentially over many months.
Telstra is also investing in technology that improves the speed of ADSL.
DEPLOYING NEXT G™ — A NATIONAL WIRELESS BROADBAND NETWORK FOR AUSTRALIANS
On 6 October 2006, Telstra launched the NEXT G™ network, its new 3GSM 850 wireless broadband network. NEXT G™ customers will enjoy access to a greater range of content and services, as well as many enhanced features including improved video calling services and faster broadband access speeds, in addition to better geographic and in-building coverage.
Telstra will continue to operate services over both the existing GSM and CDMA networks until the national 3GSM 850 network provides the same or better coverage than the CDMA network, and in any event at least until January 2008. From that time, once the software upgrades are complete and the new service matches or betters the current range and performance of CDMA and any necessary Government agreements have been gained, Telstra will close its CDMA network. Telstra expects that this initiative will reduce duplication of both capital and operational expenditure.
IMPLEMENTING MARKET BASED MANAGEMENT
Telstra is implementing a market based management approach focused on its customer needs. Telstra believes that extensive customer research will allow it to differentiate itself from competitors by creating offers that are more relevant to the lifestyles and needs of particular customer segments.
Telstra’s ongoing customer research has guided the restructure of its consumer and small business sales and marketing teams around seven consumer and five small and mid-sized enterprise segments.
CREATING INTEGRATED SOLUTIONS FOR CUSTOMERS
Telstra is seeking to provide individual and business customers with an integrated user experience across devices and platforms — fixed, wireless and Internet. Telstra’s transformation strategy involves the integration of services across mobiles, BigPond® and Sensis and is designed to facilitate product differentiation tailored to customer needs, increasing the value of its products and services for its customers.
RATIONALISING PRODUCT AND NETWORK PLATFORMS USING A ‘ONE FACTORY’ APPROACH
Telstra is endeavouring to remove costs from its operations in part by reducing complexity, making business systems more efficient and simplifying operations. Telstra is removing or capping obsolete, duplicated and ageing products and network platforms. Working with the customer is a crucial part of this program as the customers move off legacy systems. Cutting
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complexity from Telstra’s operations is a critical first step to deliver services to customers in a user friendly way.
EXPANDING AND ENHANCING SENSIS’ ONLINE OFFERINGS
Sensis, Telstra’s advertising, search and information services business, is building on its search and transaction business and over time integrating its applications and services business with other products such as BigPond® and Telstra Mobile. Sensis is seeking to achieve rapid user and advertiser growth by increasing online and wireless usage with a wide range of new content, services and improvements across Sensis’ online network and through targeted acquisitions.
TRANSFORMING TELSTRA’S CULTURE
Telstra is also undergoing a cultural transformation, with large investments in training employees and improving the way it does business.
Telstra has recast leadership, talent management and performance incentives to deliver essential cultural change. Telstra’s technical field workforce is becoming more mobile and responsive to customer needs with new tools and equipment to support its operational performance.
Telstra has announced that it is investing an additional $210 million over three years in a new training program for technical, engineering and marketing staff in order to equip them with the right skills to build, operate and maintain next generation networks and better serve customers.
ACHIEVING REGULATORY REFORM
Telstra remains committed to working towards a new regulatory environment that is pro-investment, pro-consumer, pro-innovation and pro-competition. That is the kind of environment that Telstra believes is good for its business, its shareholders and the Australian telecommunications industry overall. Telstra will continue to invest considerable time and resources in a dialogue with policy-making and regulatory authorities seeking to achieve a regulatory environment that safeguards shareholder investments in next generation networks and services.
STRATEGIC MANAGEMENT OBJECTIVES
Together with the announcement of Telstra’s transformation strategy in November 2005, the Board set strategic management objectives to measure the successful implementation of Telstra’s five year transformation strategy. Telstra has linked its remuneration structure to the transformation strategy, with the aim of increasing the focus and understanding by senior executives of the key strategic objectives as well as motivating employees to execute on the strategy. In October 2006, the Board revised these strategic objectives in order to reflect the current regulatory environment and market conditions and the experience gained from the first year of Telstra’s transformation plan, and approved the following:
§   revenue compound annual growth in the range of 2.0% to 2.5% (to financial year 2010 from the financial year 2005 base level), to be achieved by offsetting the expected substantial deterioration in traditional PSTN revenues with revenues from new products and services delivered through Telstra’s next generation networks;
 
§   new product revenue exceeding 30% of sales revenue by financial year 2010;
 
§   limiting compound annual growth of operating expenses (excluding depreciation and amortisation) to 2.0% to 3.0% (to financial year 2010 from financial year 2005 base level);
 
§   EBITDA compound annual growth in the range of 2.0% to 2.5% (to financial year 2010 from the financial year 2005 base level) and EBITDA margins of between 46% to 48% by financial year 2010. Telstra is expecting EBITDA during the five year transformation strategy to decrease in the early years of the transformation, and is then targeting improvement in the later years of the transformation;
 
§   cash capital expenditure falling to a range of 10% to 12% of sales revenue by financial year 2010; ·
 
§   free cash flow increasing to between $6,000 million and $7,000 million by financial year 2010; and
 
§   work force reductions of approximately 12,000 over five years of the transformation strategy.
It is important to understand that these are internal objectives set by the Board in order to measure Telstra management’s performance in implementing the transformation strategy, and are not financial forecasts or projections and should not be regarded as such. The strategic management objectives are based on:
§   Telstra’s decision not to roll-out an FTTN network, and instead offer high-speed broadband products and services through its existing networks;
 
§   successfully rolling out Telstra’s NEXT G™ wireless services and migrating CDMA customers to the new network;
 
§   successfully deploying Telstra’s next generation fixed line network;
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3. Overview of Telstra (continued)
§   existing regulatory settings, including the ACCC interim determination establishing ULLS pricing of $17.70 per month in band 2, and no mandated competitor access to Telstra’s NEXT G™ wireless network;
 
§   successfully implementing short, medium and long-term revenue initiatives in key PSTN, mobile and broadband markets and customer segments;
 
§   Telstra’s ability to differentiate itself and obtain new revenues from its new networks and new products and services to replace declining revenues from its traditional high-margin PSTN products and services;
 
§   rationalising Telstra’s operational support systems (OSS) and business support systems (BSS), and achieving an 80% reduction in the number of such systems by the end of financial year 2010;
 
§   key vendors in connection with Telstra’s transformation performing on-time and as contracted;
 
§   growing Telstra’s Sensis business organically and by targeted acquisitions;
 
§   competitors not engaging in sustained and extreme price competition or investing in substantial new infrastructure or disruptive technologies; and
 
§   Telstra’s workforce embracing its cultural transformation.
The strategic management objectives are based on the current regulatory environment and market and competitive conditions, which are expected to change over time. Telstra’s ability to achieve its strategic management objectives is subject to significant risks. See section 4 ‘Risk Factors’ for a description of these key risks. Investors should note that many of these risks are outside of Telstra’s control, and that no assurance can be given that Telstra will successfully complete its transformation or achieve its strategic management objectives.
3.5 Outlook
KEY FACTORS THAT MAY AFFECT TELSTRA’S OUTLOOK
Whether Telstra’s future financial performance will improve is largely dependent on its ability to implement and execute its transformation strategy successfully and generate the increased volumes and usage rates for its products and services it seeks to achieve. In addition, Telstra’s transformation is a five year plan, with the early years involving the deployment of large amounts of capital, the roll-out of new networks and systems and the incurrence of additional operating costs and provisions associated with the fundamental changes Telstra is implementing throughout its systems and operations. Telstra’s ability to successfully implement its transformation strategy is subject to significant risks. See section 4 ‘Risk Factors’.
Telstra is involved in continuing discussions over the current and future regulatory environment impacting the Australian telecommunications industry in general and Telstra in particular.
There are several key regulatory issues which include:
§   regulated wholesale access pricing;
 
§   retail price controls;
 
§   any potential competitor access to Telstra’s NEXT G™ wireless network; and
 
§   the use by the ACCC of the conduct rules in the Trade Practices Act to affect the way Telstra prices its products and services.
Telstra believes that several key factors may impact its future financial results, including:
§   Telstra’s ability to implement and execute its transformation plan, including the deployment of NEXT G™ wireless services and the rationalisation of its various IT and network platforms;
 
§   Telstra’s ability to introduce new value-added products and services to compensate for lower prices, volumes and earnings Telstra expects to realise from its traditional higher margin product and service lines;
 
§   the difficulties for Telstra in predicting regulatory outcomes and, in Telstra’s view, the unpredictable actions of the key regulators; and
 
§   changes to Telstra’s competitive environment as markets and technologies evolve and competition intensifies, and the actions and initiatives of Telstra’s major competitors.
GENERAL TRENDS THAT MAY AFFECT TELSTRA’S OUTLOOK
Telstra’s traditional high margin PSTN revenues have been, and will continue to be, negatively affected by both intense competitive pressure and customers migrating to alternative platforms, such as wireless, high bandwidth Internet, IP telephony, and web and managed services. Telstra expects these trends to continue. The overall volume of telecommunications services purchased in Australia has continued to increase and the range of products and services offered has continued to expand. One of the central objectives of Telstra’s transformation is to position the company to have the networks, systems and capabilities to meet the evolving needs of Telstra’s customer base. With Telstra’s planned next generation networks, Telstra is building the infrastructure to reduce its reliance on its traditional
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Application Instructions
To complete your application form correctly, follow the steps below and the detailed instructions on ‘How to complete your application form’ overleaf
Step 1   Have you used the correct application form?
Step 2   Have you completed the application form in accordance with the instructions? In particular:
  -   Have you applied for at least 500 shares and multiples of 50 thereafter?
  -   Have you completed your contact details?
  -   Have you signed the form?
Step 3   Have you made your cheque(s) payable for the total amount of the first instalment?
Step 4   Have you recorded your reference number1 on the back of your cheque(s)?
Step 5   Have you lodged your application form correctly and sent it to the correct address?
Alternatively, Australian applicants can lodge applications electronically at www.t3shareoffer.com.au and pay via Bpay®. Refer to ‘Online application instructions’ overleaf for detailed instructions.
Remember to lodge your application so that it is received by 4.00 pm local time on the Closing Date. The Closing Date is Thursday 9 November 2006.
STEP 1 — WHICH FORM SHOULD I USE?
The following table summarises which application forms Australian applicants should use. New Zealand applicants should refer to the New Zealand Investment Statement.
             
    Should use this        
These applicants...   application form...   Or...   To get your...
 
Telstra shareholders at
the Record Date
  Orange personalised
application form
  Apply online at www.t3shareoffer.com.au using your reference number1   1 for 2 shareholder entitlement, including a minimum guaranteed entitlement of 3,000 shares and subject to a maximum shareholder entitlement of 200,000 shares
 
 
           
Broker client applicants (not applying through the Firm Offer) who received a Prospectus and personalised application form from their broker
  Green personalised
application form
  Apply online by clicking on the ‘T3 Share Offer’ button on your broker’s website   Guaranteed allocation of 2,000 shares
 
 
           
General Public Offer applicants who requested a Prospectus and personalised application form
  Red personalised
application form
  Apply online at www.t3shareoffer.com.au using your reference number1   Guaranteed allocation of 2,000 shares
 
 
           
All other General Public
Offer applicants
  Blue application form attached to this Prospectus   Apply online at www.t3shareoffer.com.au   Guaranteed allocation of 2,000 shares
 
 
           
Firm Offer Applicants   You should apply in accordance with instructions received from the broker or financial planner from whom you received your firm allocation   Firm allocation
 
STEP 2 — COMPLETE THE FORM IN ACCORDANCE WITH INSTRUCTIONS
To complete your application form correctly, follow the detailed instructions on ‘How to complete your application form’ overleaf.
Photocopies of the form will not be accepted. Please write clearly in BLOCK LETTERS using black ink.
Do not write outside the white boxes.
Changes to the personalised details on the forms will not be permitted.
Please ensure you record your contact details in case you need to be contacted regarding your application.
STEP 3 — PAY THE FIRST INSTALMENT AMOUNT
Multiply the number of shares you are applying for by the first instalment amount ($2.00) which gives the total amount payable for the first instalment. The Ready Reckoner overleaf may assist you in calculating the correct payment amount.
Make your cheque payable to ‘Telstra 3 Share Offer’ for the total amount of the first instalment. This should be the amount you entered on the application form.
The cheque must be in Australian dollars drawn on an Australian branch of an Australian bank, crossed ‘Not Negotiable’. Please ensure sufficient cleared funds are held in your account as your cheque will be banked as soon as it is received.
Insert your cheque details in the space provided on the reverse side of the tear-off form.
 
1   11 digit number found on the top right corner of your personalised application form
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STEP 4 — RECORD YOUR REFERENCE NUMBER
On the back of your cheque, record your 11 digit reference number which is found in the top right hand corner of the application form. You should also keep a separate record of your reference number in case you wish to check on the status of your application during the offer period, or your final allocation of shares via the Telstra 3 Telephone Information Centre or the Telstra 3 Share Offer website.
STEP 5 — LODGING YOUR APPLICATION
Firm Offer applicants
Applicants who have received a firm allocation of shares from their broker or financial planner should follow the lodgement and payment procedures provided by that broker or financial planner. In particular, note that these applications are required to be made payable to and delivered to your broker or financial planner. Please contact your broker or financial planner if you have any questions in relation to your firm allocation.
Personalised application form(s) (orange, green or red)
IMPORTANT: YOU MUST DETACH THE TEAR OFF APPLICATION FORM Place the tear-off application form and cheque(s) in the reply paid envelope provided. Retain the top portion of the page for your records.
Non-personalised blue application forms
IMPORTANT: DO NOT DETACH THE LOWER PORTION OF THE APPLICATION FORM Place the whole application form in the reply paid envelope provided.
You must lodge your application so that it is received by 4pm local time on 9 November, 2006, by either:
§   Mailing it in the reply paid envelope provided. If you do not have a reply paid envelope, you should send your completed application form and cheque to the following address:
Telstra 3 Share Offer
Reply Paid 27
Eastern Suburbs Mail Centre NSW 2004
    Please allow sufficient time for postal delivery; or
 
§   Placing it in the collection box at any Commonwealth Bank branch in Australia.
FURTHER ASSISTANCE
If you need help to complete the application form:
§   Contact a broker or financial adviser
 
§   Phone the Telstra 3 Telephone Information Centre on 1800 18 18 18
 
§   Visit the Telstra 3 Share Offer website: www.t3shareoffer.com.au
Online application instructions
(with payment by Bpay®)
Retail Investors in the Shareholder Entitlement Offer and General Public Offer can also apply for shares online by accessing the Telstra 3 Share Offer website at www.t3shareoffer.com.au. You can only pay for your shares using Bpay® if you have completed an online application form. Paper forms will NOT be accepted with a Bpay® payment.
Bpay® is an electronic payment service that enables you to pay for shares directly from your cheque or savings account via Internet or telephone banking through participating banks, building societies and credit unions. You must apply online in order to pay via Bpay®.
TO USE Bpay®
Log onto www.t3shareoffer.com.au and complete the online application form. If you have received an orange, green or red personalised application form you will be asked to provide your reference number which is found at the top right corner of the form.
Once you have completed your online application form you will be given a Bpay® Biller Code. You will then need to:
1.   Access your participating Bpay® financial institution’s Internet or telephone banking service.
2. Select Bpay® and follow the prompts:
    Enter the Biller Code supplied and your reference number (located in the top right corner of the application form).
 
    Enter the amount to be paid
 
    Select the account you wish your payment to come from (payments from credit card accounts can not be accepted).
 
    Schedule your payment for same day value processing as applications without payment can not be accepted.
3. Record your Bpay® receipt number and date paid. Retain these for your records.
If you pay by Bpay® , you must complete and lodge your application form online. Your Bpay® payment must be made prior to 4.00pm on the Closing Date for the application to be valid.
You may wish to contact your financial institution to confirm any limits on your Bpay® account.
The Prospectus is also available in Braille, large print and on audio CD. For a copy in any of these formats, please call the Telstra 3 Telephone Information Centre on 1800 18 18 18. Alternatively, an electronic version of the Prospectus can be accessed on the Telstra 3 Share Offer website at www.t3shareoffer.com.au. This website also offers the Prospectus in large print, Rich Text File, HTML and MP3 audio formats.
If you require language services to understand the details of the Prospectus, please call the Translating and Interpreting Service on 131 450.
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How to complete your application form
These instructions are cross-referenced to each section of the application form. Please complete all relevant sections of the application form in BLOCK LETTERS using black ink. Photocopies of the form will not be accepted. Do not write outside the white boxes.
Please ensure you complete the correct form.
DETAILED INSTRUCTIONS FOR APPLICANTS COMPLETING THE BLUE NON-PERSONALISED GENERAL PUBLIC APPLICATION FORM
A Enter the total amount payable for the first instalment. This is calculated by multiplying the number of shares for which you are applying by the first instalment amount per share of $2.00. The minimum number of shares you may apply for is 500, and in multiples of 50 shares thereafter. Applications can be for a maximum of 200,000 shares. Be sure that your cheque(s) total this amount. You may wish to use the Ready Reckoner below to help calculate the amount payable for the first instalment. The purchase price for shares is payable in two instalments. This payment is for the first instalment only. Be sure that your cheque(s) total this amount.
B Enter personal details. You can complete this form as an individual in your own capacity, or as a joint applicant with one or two other individuals (this would represent one application).
You can also complete this form on behalf of a company or a person under the age of 18, as trustee of a trust or superannuation fund, as executor of an estate or partnership (or, if the trustee, executor or partner is a company, on behalf of that company). An authorised office bearer may apply on behalf of a club or incorporated body.
You should refer to the table overleaf for instructions on how to fill out the applicant’s name(s) on the application form.
C Enter address details. You must use an Australian address. If you are making a joint application, the address should be that of the first person named on the form. All further correspondence will be mailed to this address.
D CHESS HIN. If you are already a CHESS participant, or sponsored by a CHESS participant, write your Holder Identification Number (HIN) here.
Lower Portion of Application Form
Contact Details. Clearly write your name in BLOCK LETTERS and provide a daytime contact telephone number including your STD code.
Record your total payment. This should be the same as the amount shown in Box A.
Signatures. Please sign on the reverse of the application form where indicated.
Recording your cheque details. Please record your cheque(s) details in the table provided on the reverse side of the application form. Make your cheque(s) payable to ‘Telstra 3 Share Offer’ in Australian dollars (A$) drawn on an Australian branch of an Australian Bank, crossed ‘Not Negotiable’.
Recording your reference number. Write your reference number on the back of your cheque(s) and at the bottom of this page in the space provided.
DETAILED INSTRUCTIONS FOR APPLICANTS COMPLETING THE ORANGE, GREEN OR RED PERSONALISED APPLICATION FORMS
If you are a current Telstra shareholder, a client of a broker or financial planner or have requested for a Prospectus and personalised application form via the Telstra 3 Telephone Information Centre or Telstra 3 Share Offer website you should have received an orange, green or red personalised application form. All your personalised details have already been recorded on the application form. To complete the application form please follow the instructions below.
1 Enter the total number of shares you wish to apply for All applicants: The minimum number of shares you may apply for is 500, and above this in multiples of 50 thereafter. Applications can be for up to a maximum of 200,000 shares.
Shareholders only: Listed on the form will be your entitlement to shares. You may apply for more shares or less shares than your shareholder entitlement. If you apply for more shares than your shareholder entitlement you will be allocated at least the amount of your shareholder entitlement if applications need to be scaled back. Shareholder entitlements for Retail Investors are subject to a maximum guaranteed entitlement of 200,000 shares. See section 2.4.2 of the Prospectus for details of how your entitlement was calculated. If your Telstra shareholding changed between Friday 15 September 2006 and Friday 13 October 2006, your entitlement may vary from what is shown.
2 Enter the total amount payable for the first instalment. This is calculated as the number of shares applied for multiplied by the first instalment amount per share of $2.00. Be sure that your cheque(s) total this amount. Use the Ready Reckoner below to help calculate the correct amount payable for the first instalment. The purchase price of shares is payable in two instalments. This payment is for the first instalment only.
Tear Off Application Form
Contact Details. Clearly write your name in BLOCK LETTERS and provide a daytime contact telephone number including your STD code.
Record your total payment. This must equal the amount shown in Box 2.
Signatures. Please sign on the reverse of the tear-off application form where indicated.
Recording your cheque details. Please record your cheque(s) details in the table provided on the reverse side of the tear-off application form. Make your cheque payable to ‘Telstra 3 Share Offer’ in Australian dollars (A$) drawn on an Australian branch of an Australian Bank, crossed ‘Not Negotiable’.
Recording your reference number. Write your reference number on the back of your cheque(s) and at the bottom of this page in the space provided.
READY RECKONER FOR FIRST INSTALMENT — FOR EXAMPLE 1,000 SHARES @ $2.00 PER SHARE = $2,000
This Ready Reckoner will help you calculate the money you need to pay for the first instalment at $2.00 per share.
                                             
Shares   Amount     Shares   Amount     Shares   Amount
500
  $ 1,000         2,000     $ 4,000         10,000     $ 20,000  
750
  $ 1,500         3,000     $ 6,000         50,000     $ 100,000  
1,000
  $ 2,000         5,000     $ 10,000         100,000     $ 200,000  
Record your reference number(s) here:
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HOW TO FILL OUT YOUR NAME(S) ON THE APPLICATION FORM
Use < > brackets and the letters A/C where indicated. If applicable, and you wish to apply for the shares using your CHESS HIN, you must write your name in EXACTLY THE SAME FORMAT as it appears on your CHESS transaction confirmation statement(s).
         
        INCORRECT FORM OF
TYPE OF INVESTOR   CORRECT FORM OF REGISTRATION   REGISTRATION
 
Individual
  Mrs Katherine Clare Edwards   K C Edwards
Use given names in full, not initials
       
 
       
Company
  Liz Biz Pty Ltd   Liz Biz P/L or Liz Biz Co
Use the companys full title, not abbreviations
       
 
       
Joint application
  Mr Peter Paul Tranche   Peter Paul & Mary Tranche
Use full and complete names
  Ms Mary Orlando Tranche    
 
       
Trusts
  Mrs Alessandra Herbert Smith   Alessandra Smith Family Trust
Use the trustee(s) personal name(s)
  <Alessandra Smith A/C>    
 
       
Deceased estates
  Ms Sophia Garnet Post   Estate of late Harold Post or
Use the executor(s) personal name(s)
  Mr Alexander Traverse Post   Harold Post Deceased
 
  <Est Harold Post A/C>    
 
       
Minor (a person under the age of 18 years)
  Mrs Sally Hamilton   Master Henry Hamilton
Use the name of a responsible adult with
  <Henry Hamilton>    
an appropriate designation
       
 
       
Partnerships
  Mr Frederick Samuel Smith   Fred Smith & Son
Use the partners’, personal names
  Mr Samuel Lawrence Smith    
 
  <Fred Smith & Son A/C>    
 
       
Long Names
  Mr Hugh Adrian John Smith-Jones   Mr Hugh A J Smith Jones
 
       
Clubs/Unincorporated bodies/Business names
  Mr Alistair Edward Lilley   Vintage Wine Club
Use office bearer(s) personal name(s)
  <Vintage Wine Club A/C>    
 
       
Superannuation Funds
  XYZ Pty Ltd   XYZ Pty Ltd
Use the name of the trustee of the fund
  <Super Fund A/C>   Superannuation Fund
Put the name(s) of any joint applicant(s) and/or account description using < > as indicated above in designated spaces at section B on the Application Form.
EXAMPLES OF HOW TO COMPLETE YOUR PERSONAL DETAILS
INDIVIDUAL
(PERSONAL DETAILS)
JOINT (WITH ONE OR TWO OTHERS)
(PERSONAL DETAILS)
COMPANY
(PERSONAL DETAILS)
EXAMPLES OF USE OF <DESIGNATED ACCOUNT> TRUST
(PERSONAL DETAILS)
MINOR
(PERSONAL DETAILS)
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high-margin PSTN revenue stream and to grow its mobile, Internet and other next generation revenues.
Telstra intends to streamline its businesses, systems and operations to reduce the high operating costs associated with maintaining and supporting complex legacy IT systems, products and services. However, Telstra expects depreciation and amortisation to increase as it invests heavily in transforming its IT base, together with the acceleration of depreciation for certain assets that are being phased out.
A number of key regulatory decisions and determinations are still unresolved. In August 2006, for example, the ACCC made several interim determinations reducing ULLS access pricing for some of Telstra’s largest wholesale customers to $17.70 per month in band 2 (representing the metropolitan area, where the greatest number of ULLS services will be provided). These decisions are only interim determinations by the ACCC and the ACCC’s final determinations can be higher or lower than this price. Telstra is uncertain as to the ACCC’s timeframe for making these final determinations.
Telstra no longer proposes to build a fibre to the node (FTTN) network because it disagreed with the ACCC as to the costs which could be taken into account in setting a price at which Telstra’s competitors could use that network.
FINANCIAL YEAR 2007 OUTLOOK
Telstra is in the early years of its transformation which has required increased capital and operating expenditures to roll-out new networks and implement Telstra’s planned system and operational changes, resulting in significant reductions to its earnings and cash flows.
Accordingly, Telstra expects that its financial year 2007 financial results will show:
§   reported revenue (total income) growth of between 1.5% and 2.0% compared with Telstra’s financial year 2006 total income of $23,100 million;
§   reported earnings before interest and income tax expense (EBIT) growth in the range of 2.0% and 4.0% compared with Telstra’s financial year 2006 EBIT of $5,497 million and a decline in the range of 18% and 20% compared with Telstra’s financial year 2005 EBIT of $6.935 million. Note 7(b) of Telstra’s audited Financial Report (page 156 of Telstra’s 2006 Annual Report) and Note 5 of the audited Concise Financial Report (page 70 of Telstra’s 2006 Annual Review) disclose that in explaining the 2006 financial performance it is relevant to note that expenses associated with the implementation of the strategic review initiatives of $1.1 billion were incurred. Telstra expects similar net costs of approximately $0.8 billion to be incurred in 2007; and
§   reported cash capital expenditure (excluding investments) in the range of $5,400 million to $5,700 million.
Importantly, Telstra’s ability to achieve the financial year 2007 outlook described above, as well as Telstra’s outlook for the first and second halves of financial year 2007 described below, is subject to a number of key assumptions, including:
§   not building an FTTN network;
 
§   a band 2 ULLS price of $17.70 per month applying to all wholesale customers for the remainder of financial year 2007;
 
§   no additional redundancy and restructuring provision;
 
§   slowing the decline in PSTN revenues;
 
§   retail volume growth in mobiles voice and data traffic, dependent in part on the successful roll out of NEXT G™ network services;
 
§   growth in the retail broadband market and in Telstra’s market share;
 
§   growth in Sensis print and online revenues;
 
§   not exceeding budgeted net transformation related operating expenditure costs of approximately $0.5 billion; and
 
§   general productivity gains from Telstra’s reduced workforce.
 
Telstra’s ability to achieve its financial year 2007 outlook is also subject to significant risks. See section 4 ‘Risk Factors’ for a description of these key risks.
Telstra expects financial year 2007 to be the largest transformation spend year in terms of operating and capital expenditure. Provided there are no further material adverse regulatory outcomes and Telstra continues to be successful in implementing its transformation strategy, Telstra expects its free cash flow to improve in financial year 2008 compared with financial year 2007.
TWO MONTHS ENDED 31 AUGUST 2006 REVIEW
Telstra’s unaudited operating results for the two month period ended 31 August 2006 compared with the prior corresponding period show the following:
§   sales revenue growth of 3.3% reflecting continued growth in retail broadband of 41%, mobiles of 9.0% and advertising and directories revenue of 10.6%. This growth was partially offset by the decline in PSTN revenues of 5.9% as the market continues its trend from high-margin PSTN products and services to lower-margin emerging telecommunication products and
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3. Overview of Telstra (continued)
  services. In addition, the rise in sales revenue reflected the inclusion of revenues for the New World Mobility Group; and
§   EBIT decline of 8.6% as Telstra’s income growth during the two months was offset by higher expenses mainly due to an increase in cost of goods sold led by additional take up of Telstra’s 3G mobile handsets, and a rise in the number of subscribers to Telstra’s services and higher depreciation and amortisation expenses attributable to its transformation initiatives. The increase in expenses was partially offset by lower labour expenses reflecting a reduction in the number of staff.
Telstra believes that its results for the first two operating months of financial year 2007 are consistent with the trends identified during financial year 2006 and Telstra is on track to achieve its financial year 2007 outlook. Investors should note, however, that these results are only for two months and are not necessarily indicative of what Telstra’s results will be for the whole year.
FIRST HALF FINANCIAL YEAR 2007 OUTLOOK
Telstra expects that its reported results for the first half of financial year 2007 will be impacted by the following factors:
§   revenue will be impacted by the distribution of Melbourne Yellow™ being completed in the second half of financial year 2007, therefore the revenue will be recognised in the second half of financial year 2007. In financial year 2006, distribution of Melbourne Yellow™ was completed in the first half of financial year 2006 and as a result, the revenue was recognised in the first half of financial year 2006;
§   expenses will include significant transformation related costs in the first half of financial year 2007 compared with no transformation expenses in the first half of financial year 2006;
 
§   revenue and expenses for CSL New World will be included for the full year in financial year 2007; and
 
§   accelerated depreciation and amortisation expenses in the range of $150 million to $175 million will be reported in the first half of financial year 2007, reflecting Telstra’s transformation, compared with no accelerated depreciation and amortisation in the first half of financial year 2006.
 
  As a result of these factors, Telstra expects its reported EBIT to be 17% to 20% lower in the first half of financial year 2007 compared with the first half of financial year 2006.
SECOND HALF FINANCIAL YEAR 2007 OUTLOOK
Telstra expects that its reported results for the second half of financial year 2007 will be impacted by the following factors:
§   revenue will be impacted by the distribution of Melbourne Yellow™ being completed in the second half of financial year 2007, therefore the revenue will be recognised in the second half of financial year 2007. In financial year 2006, distribution of Melbourne Yellow™ was completed in the first half of financial year 2006 and as a result, the revenue was recognised in the first half of financial year 2006;
§   expenses will reduce in the second half of financial year 2007 compared with the second half of financial year 2006. During financial year 2006, transformation costs were only incurred in the second half of financial year 2006 including the redundancy and restructuring provision. Telstra does not expect to raise a redundancy and restructuring provision during financial year 2007; and
§   revenue and expenses for CSL New World will be included for the full year in financial year 2007.
As a result of these factors, Telstra expects its EBIT to be 37% to 40% higher in the second half of financial year 2007 compared with the second half of financial year 2006. Due to the combination of Telstra’s expected first half and second half reported results for financial year 2007, Telstra expects reported EBIT for financial year 2007 to increase between 2.0% and 4.0% compared with financial year 2006 as previously outlined.
3.6 Dividends
The Board has considered the level of future dividends. In the interests of shareholders, it is the current intention of the Board to declare fully franked ordinary dividends of 28 cents per share for financial year 2007. This assumes that Telstra continues to be successful in implementing its transformation strategy and there are no further material adverse regulatory outcomes during the course of financial year 2007.
The Board is unable to give guidance on ordinary dividends for financial year 2008 owing to the continuing uncertainty attached to regulatory outcomes and the impact on its business, as well as transformation and market place risks. The final amount of dividends declared for any year is a decision for the Board to make twice a year in its normal cycle having regard to the company’s earnings and cash flow, as well as regulatory impacts.
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3.7 Organisational structure
Telstra operates through a number of strategic and corporate centre business units. Telstra’s strategic business units are as follows:
§   Telstra Consumer Marketing and Channels is responsible for serving Telstra’s consumer customers, offering Telstra’s full range of products and services including fixed lines, mobiles, Internet access, and pay TV services. It also has responsibility for mass marketing channels including Telstra’s call centres, Telstra shops and the dealer network.
 
    Telstra Consumer Marketing and Channels is focused on designing, delivering and developing products and services based on the needs of its customers. Using the principles of market based management, it aims to deliver a broader range of integrated and innovative products and services that are flexible, reliable, simple and capable of meeting customer needs.
 
§   Telstra Business is responsible for serving the needs of Australia’s small to medium enterprises with fixed line, mobile, broadband, as well as data and Internet solutions tailored for business.
 
    Telstra Business is focused on providing SME customers with business solutions that allow them to do business their way.
 
§   Telstra Enterprise and Government is responsible for providing innovative Information and Communications Technology (ICT) solutions to large corporate and government customers in Australia and New Zealand. It is also responsible for KAZ Group Pty Limited (KAZ) and TelstraClear. KAZ and Telstra service Telstra’s Enterprise and Government customers’ IT needs. TelstraClear is New Zealand’s second largest full service telecommunications company, providing innovative market leading products and services to the business, government, wholesale and residential sectors. Telstra Enterprise and Government is also responsible for Telstra’s Global Business operations, recently renamed Telstra International.
 
    Telstra Enterprise and Government is focused on partnering with Telstra’s customers to provide innovative products and solutions that add value to their business.
 
§   Telstra Country Wide® provides telecommunications and information technology services to customers in outer metropolitan, regional, rural and remote parts of Australia.
 
    Telstra’s transformation aims to change the technology landscape in country Australia with a profound impact on the delivery of services to regional and rural customers. The recent launch of the NEXT G™ network brings high speed wireless broadband and new features such as video calling and content rich entertainment to many areas for the first time. It will also provide a broadband solution to those customers who have good mobile coverage but live outside the distance limitations of ADSL.
 
§   Telstra BigPond® is responsible for the management and control of Telstra’s retail Internet products, BigPond® brand and marketing, services and content, contact centres, customer relations and associated functions, for broadband and dial-up delivery.
 
    BigPond is focused on growing broadband subscribers, the provision of content and value added services and improving the customer experience.
 
§   Sensis is Telstra’s advertising, search and information services business. Sensis manages three of Australia’s leading brands: Yellow™, White Pages® and Trading Post®, along with the CitySearch® online city guide, the Whereis® online, mobile and satellite navigation services, the GoStay™ print guide and online complementary website, the sensis.com.au search engine, the Sensis® 1234 voice service and the 51% owned SouFun investment, a leading real estate and home furnishing website in China.
 
    Sensis is an integral part of Telstra’s overall strategy and vision and aims to continue to innovate to drive user and advertiser value and growth. Sensis is focused on building on its recent success by defending and growing print revenues and margins, driving continued rapid growth online and managing new growth opportunities in its emerging satellite navigation, digital marketing services and transactional businesses.
 
§   Strategic Marketing is responsible for Telstra’s corporate strategy, mergers and acquisitions and the overall marketing, pricing, brand, sponsorship, promotions and advertising direction of Telstra. Strategic Marketing is also responsible for Telstra Asia, which manages Telstra’s international interests in the region and directs Telstra’s offshore strategy with a current focus on enhancing the value of its existing investments, profitably rationalising non-core-assets and positioning Telstra to capture high growth opportunities, particularly in China and South East Asia.
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3. Overview of Telstra (continued)
§   Telstra Media is responsible for Telstra’s FOXTEL investment.
 
§   Telstra Operations has responsibility for the core or shared elements of Telstra’s infrastructure and related support units. Using a ‘one factory’ approach to improve Telstra’s customer service delivery and customer satisfaction, the group includes Telstra Services, Network and Technology, Wireless, IT Services, Product Management, Procurement, Strategic Supplier Relations, Credit Management, Billing and the corporate Program Office. The Program Office identifies and prioritises opportunities for streamlining, implementing and coordinating all aspects of Telstra’s transformation strategy implementation.
 
§   Telstra Wholesale provides a wide range of wholesale products and services to the Australian domestic market, including fixed, wireless, data and Internet, transmission and IP, interconnection, access to network facilities, and retail/rebill products. It also serves global wholesale markets to satisfy growing Internet and high bandwidth needs.
 
    Telstra Wholesale is committed to building strong commercial relationships that encourage and enable existing customers and new participants to succeed by providing the support and solutions needed to grow their business.
3.8 Telstra’s main activities and international investments
Telstra offers a broad range of telecommunications and information products and services to a diverse customer base.
BASIC ACCESS SERVICES
Basic access services are the telecommunications backbone into most homes and businesses in Australia. Telstra’s basic access service includes installing and maintaining connections between customers’ premises and its Public Switched Telephone Network (PSTN) and providing basic voice, facsimile and Internet services.
LOCAL, NATIONAL LONG DISTANCE, FIXED TO MOBILE AND INTERNATIONAL CALLS
Telstra provides local call services to more residential and business customers than any other service provider in Australia. It is the leading provider of national long distance and international telephone services in Australia and provides fixed to mobile calls from its PSTN/ISDN to a mobile network.
In addition, Telstra provides value added services such as voicemail, call waiting, call forwarding, call conferencing and call return and offers a number of inbound call services.
Telstra also provides customer premises equipment for rental or sale to its residential, consumer, business and Government customers and is the leading provider of payphones in Australia.
MOBILE TELECOMMUNICATION SERVICES
Telstra offers a wide range of mobile services to its customers, including voice calling and messaging, text and multimedia messaging and a range of information, entertainment and connectivity services. These services are currently provided over a number of networks:
NEXT G™ 3GSM 850
Telstra’s 3GSM 850 NEXT G™ wireless network was launched on 6 October 2006 and provides 3G coverage to 98% of the Australian population. It is the largest 3G network in Australia.
3GSM 2100
Telstra has a 3GSM 2100 network sharing arrangement with Hutchison under which it has access to an existing 3GSM 2100 network which covers over 50% of the Australian population in a number of mainland capital cities.
GSM digital service
Telstra’s digital GSM network covers around 96% of the Australian population.
CDMA digital service
Telstra’s existing CDMA network currently provides Australia’s largest cellular mobile phone coverage, spanning more than 1.6 million square kilometres and covering around 98% of the Australian population. Telstra intends to close its CDMA network once its national NEXT G™ network provides the same or better coverage than the CDMA network and the software upgrades are complete and any necessary Government approvals have been gained.
Other Mobile Services
Telstra also operates Telstra Mobile Satellite and offers a number of BigPond® services which enables customers to use their mobile phones to browse and purchase a broad range of up-to-date information and entertainment and to access content.
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DATA AND INTERNET SERVICES
Telstra provides new generation data and Internet services including broadband and dial-up services for consumers and small and medium business customers across Australia through BigPond®, business grade Internet solutions, IP Solutions, Business DSL and IP based WAN.
Telstra BigPond® provides online and mobile content services which include music, movies, games, sports entertainment, video on demand and DVD rental offerings.
Telstra also offers other data services, in some cases with business partners, including collaboration services, e-commerce solutions, online customer management facilities, digital video networks and managed wide area networks (WANs).
ADVERTISING, SEARCH AND INFORMATION SERVICES
Telstra is a leading provider of advertising, search and information services through its wholly owned subsidiary, Sensis. Sensis’ popular information services include Australia’s leading business directory — Yellow™, White Pages®, Trading Post®, CitySearch® and Whereis®.
Sensis also operates the Yellow™ OnLine site and the White Pages® OnLine sites and participates in the travel and accommodation market with its GoStay™ print guide and its complementary website — gostay.com.au. The GoStay™ print guide has the largest distribution of any printed Australian travel guide.
Telstra has recently purchased a 51% shareholding in SouFun, a leading real estate and home furnishing website in China. SouFun provides an attractive entry point into China, one of the world’s fastest growing economies.
WHOLESALE SERVICES TO OTHER CARRIERS, CARRIAGE SERVICE PROVIDERS AND ISPS
Telstra is Australia’s leading full service wholesaler of telecommunications solutions and network capacity and provides a range of products specifically tailored for wholesale customers, including:
§   resale products;
 
§   interconnection services, preselection services and access to network facilities such as ducts, towers and exchange space;
 
§   domestic and international transmission services;
 
§   broadband, IP backbone and traditional data services; and
 
§   both GSM and CDMA mobile products and services.
Telstra also manages and delivers a wide range of customer processes for wholesale customers.
INFORMATION AND COMMUNICATIONS TECHNOLOGY (ICT) SOLUTIONS, SERVICES AND OUTSOURCING
Telstra partners with its wholly owned subsidiary, KAZ, to service Telstra’s medium and large Enterprise and Government customers in Australian and Asia Pacific markets. The combination of KAZ’s IT capabilities and Telstra’s telecommunications strengths gives Telstra market leading capabilities in the provision of end-to-end ICT services and solutions.
SUBSCRIPTION TELEVISION
Telstra owns 50% of FOXTEL, with Publishing and Broadcasting Limited and News Corporation Limited each owning 25%.
FOXTEL is Australia’s leading provider of subscription television services, with over 1.25 million subscribers (including resale subscribers and those receiving FOXTEL programming through Optus Television and others). FOXTEL markets its services to more than 5 million homes, split reasonably equally between those homes passed by Telstra’s hybrid fibre co-axial (HFC) cable and those covered by a satellite distribution.
Telstra is the exclusive long-term supplier of cable distribution services for FOXTEL’s cable subscription television services in Telstra’s cabled areas, and Telstra receives a share of FOXTEL’s cable subscription television revenues. Telstra also resells Austar subscription television services.
INTERNATIONAL INVESTMENTS
Telstra’s major international investments include:
§   CSL New World. Telstra owns 76.4% of CSL New World Mobility Group, Hong Kong’s leading mobile operator;
 
§   TelstraClear. Telstra owns 100% of TelstraClear, the second largest full service carrier in New Zealand;
 
§   REACH. Telstra is a 50/50 joint venture participant with PCCW in REACH. REACH is a provider of global connectivity and international voice and satellite services; and
 
§   SouFun. Telstra owns 51% of SouFun, a leading real estate and home furnishing website in China.
Telstra also has a 46.9% equity interest in Australia-Japan Cable Holdings Limited, a network cable provider which owns and operates a fibre optic cable between Australia and Japan.
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3. Overview of Telstra (continued)
3.9 Historical financial information
The tables on the following page show historical income, balance sheet and cash flow information derived from Telstra’s 2006 audited Financial Report.
The historical financial information has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (A-IFRS). Comparative figures for financial year 2005 have been restated to reflect the adoption of A-IFRS, with the exception of the accounting standards on financial instruments that were subject to an exemption and adopted from 1 July 2005. Refer to note 36 of Telstra’s 2006 audited Financial Report, which is included in Telstra’s 2006 Annual Report, for reconciliations and descriptions of the impact of transition to A-IFRS on Telstra’s income statement, balance sheet and statement of cash flows.
INCOME STATEMENT1 — SUMMARISED DATA FOR FINANCIAL YEAR 2006 AND 2005
                 
    Telstra Group  
    Year ended 30 June  
    20062     2005  
    A$m     A$m  
 
Revenue (excluding finance income)3
    22,772       22,181  
Other income
    328       261  
Total income (excluding finance income)
    23,100       22,442  
Expenses4
    13,516       11,978  
Earnings before interest, income tax expense, depreciation and amortisation (EBITDA)4
    9,584       10,464  
Depreciation and amortisation
    4,087       3,529  
Earnings before interest and income tax expense (EBIT)
    5,497       6,935  
Net finance costs
    936       880  
Income tax expense
    1,380       1,746  
 
Profit for the year
    3,181       4,309  
 
 
               
 
cents   cents  
 
Basic Earnings per share
    25.7       34.7  
Diluted Earnings per share
    25.7       34.6  
 
Total dividends declared per share5
    34.0       40.0  
 
 
1   Refer to the income statement in Telstra’s 2006 audited Financial Report (page 118 of Telstra’s 2006 Annual Report) and audited Concise Financial Report (page 60 of Telstra’s 2006 Annual Review) for further details.
 
2   A discussion of material items, including the financial impact of Telstra’s transformation strategy, relevant in explaining Telstra’s financial year 2006 financial performance is contained in note 7 of Telstra’s 2006 audited Financial Report and note 5 of Telstra’s 2006 audited Concise Financial Report.
 
3   Includes sales revenue and other revenue. Refer to the notes to the income statement in Telstra’s 2006 audited Financial Report and Concise Financial Report for further details.
 
4   Includes share of net (gain)/loss from jointly controlled and associated entities. Refer to the income statement in Telstra’s 2006 audited Financial Report and Concise Financial Report for further details.
 
5   The dividends declared include special dividends of 6.0 cents for 2006 and 12.0 cents for 2005 as disclosed in note 4 of Telstra’s 2006 audited Financial Report (page 143 of Telstra’s 2006 Annual Report) and note 4 of the audited Concise Financial Report (page 69 of Telstra’s 2006 Annual Review).
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BALANCE SHEET1 — SUMMARISED DATA FOR FINANCIAL YEAR 2006 AND 2005
                 
    Telstra Group  
    Year ended 30 June  
    2006     2005  
    A$m     A$m  
 
Current assets
    4,879       5,582  
Non current assets
    31,296       29,629  
 
Total assets
    36,175       35,211  
 
Current liabilities
    7,886       6,412  
Non current liabilities
    15,457       15,141  
 
Total liabilities
    23,343       21,553  
 
Total equity
    12,832       13,658  
 
 
1   Refer to the balance sheet in Telstra’s 2006 audited Financial Report (page 119 of Telstra’s 2006 Annual Report) and audited Concise Financial Report (page 61 of Telstra’s 2006 Annual Review) for further details.
CASH FLOWS1 — SUMMARISED DATA FOR FINANCIAL YEAR 2006 AND 2005
                 
    Telstra Group  
    Year ended 30 June  
    2006     2005  
    $m     $m  
 
Net cash provided by operating activities
    8,562       8,960  
Net cash used in investing activities
    (4,012 )     (3,766 )
Free cash flow2
    4,550       5,194  
Net cash used in financing activities
    (5,399 )     (4,347 )
 
Net increase/(decrease) in cash
    (849 )     847  
 
 
1   Refer to the statement of cash flows in Telstra’s 2006 audited Financial Report (page 121 of Telstra’s 2006 Annual Report) and audited Concise Financial Report (page 63 of Telstra’s 2006 Annual Review) for further details.
 
2   Cash from operating activities less cash used in investing activities.
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4. Risk Factors
Telstra faces several risks, whether they be regulatory, transformation related or from the general market or operating conditions. The following describes some of the significant risks that could affect Telstra. These risks are also described in the 2006 Supplemental Information. Some risks may be unknown to Telstra or the Commonwealth and other risks, currently believed to be immaterial, could turn out to be material. Some or all of these could materially adversely affect Telstra’s business, profits, assets, liquidity and capital resources. These risks should be considered in conjunction with any forward-looking statements in this Prospectus and the cautionary statement regarding forward looking information in the ‘Important notices’ section of this Prospectus.
4.1 Regulatory risks
Telstra operates in a highly regulated environment that significantly affects its business. In particular, Telstra believes regulation can limit Telstra’s ability to pursue certain business opportunities and the returns it can generate for its shareholders. Regulation impacts the way Telstra does business and Telstra believes it is the most significant ongoing risk to Telstra. There can be no assurance as to future policies and regulatory outcomes. Regulatory outcomes may be significantly adverse to Telstra shareholders. Telstra believes the current regulatory regime is value destroying. However, Telstra is committed to seeking regulatory reform on behalf of its shareholders.
Telstra faces substantial regulatory risks that it believes have, and will continue to have, substantial adverse effects on its business.
A description of the aims of the regulatory regime is set out in section 5.3 ‘Commonwealth as shareholder and regulator’.
         
Risk   Description   Risk Impact
 
Access Pricing
  The ACCC can require Telstra to provide certain services to its competitors using its networks, at a price based on the ACCC’s calculation of the efficient costs of providing these services if the parties fail to agree. In many cases Telstra has disagreed with the ACCC’s calculation of these costs. The ACCC is yet to issue final determinations in arbitrations about prices Telstra charges its competitors for various services, including for unconditioned local loop service (ULLS) and spectrum sharing service (SSS). Telstra is effectively required by law to charge the same prices for a basic line rental service for all retail customers across Australia. The ACCC has not, however, adopted an averaging approach in assessing ULLS prices Telstra can charge its competitors to access its network. Instead, the ACCC has in its interim decisions set prices which differentiate between metropolitan and non-metropolitan areas. As a result of this and differences in the approaches to estimating costs, the prices set to date are well below Telstra’s calculation of the efficient costs of supply. In addition, the ACCC proposes to significantly reduce SSS prices which Telstra believes would lead to accelerated growth in SSS, enabling Telstra’s competitors to provide broadband and VoIP services while Telstra is restricted to supplying basic access services. Further, Telstra believes such reduced access prices would be likely to lead to a reduction in Telstra’s retail prices.   Telstra’s competitors can target customers in metropolitan areas where access prices are low, leaving Telstra to provide services to some customers in high cost regional and rural areas at the same retail price as in metropolitan areas.

The ACCC may reduce access prices further which would adversely affect Telstra’s revenues, earnings and shareholder returns, including dividends. Telstra will consider all avenues open to it to challenge any such outcome.
 
       
Restrictions on future investments in Telstra’s business
  Telstra seeks a competitive rate of return when it invests its capital. If Telstra cannot be confident that ACCC regulation of prices for competitor access to a new network will allow a competitive rate of return, Telstra will not invest in the network.   Telstra believes FTTN is an example of how Telstra is and could be exposed to significant limitations and costs in relation to its current and future activities, which may make it prudent for Telstra not to engage in some business activities or to delay or defer capital projects.
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Risk   Description   Risk Impact
 
Restrictions on future investments in Telstra’s business (continued)
  This year, Telstra planned to start building a $3 billion FTTN network. However, Telstra disagreed with the ACCC on the price its competitors should pay for access to the network and, as a result, Telstra decided not to build the network.   Telstra believes these regulatory risks could therefore have an adverse effect on the returns Telstra can generate for its shareholders and could benefit its competitors.
 
       
Mandated access to Telstra networks
  A key part of Telstra’s transformation strategy involves deploying next generation networks, including its new NEXT G™ wireless network. The ACCC may hold a public inquiry at any time into whether compulsory competitor access to this network should be required. Telstra believes such compulsory competitor access would not be appropriate because of the wide availability of competing wireless networks.   If the ACCC allows competitors to access Telstra’s new NEXT G™ wireless network, this would deprive Telstra of the benefits of the wider coverage of its network and Telstra believes this would materially adversely affect its business and shareholder returns, including dividends. This may undermine Telstra’s commercial incentives to continue to invest in the NEXT G™ wireless network, for example, to increase data speeds.
 
       
Conduct regulation
  Telstra and the ACCC differ in critical instances in their views of what amounts to anti-competitive conduct in breach of the Trade Practices Act. For example, the ACCC has stated it has reason to believe that Telstra, by raising its basic access prices to competitors without a similar increase in retail prices, has engaged in anti-competitive conduct. In Telstra’s view, an increase in access prices to allow a greater recovery of its costs is not anti-competitive conduct.

The ACCC may take Telstra to the Federal Court for this alleged breach. The maximum potential penalties which the Court could impose exceed $470 million as at 30 September 2006 and are increasing at $3 million per day. Optus has issued proceedings in the Federal Court in the same matter seeking damages and an injunction. Telstra will vigorously defend the proceedings on the basis that it has not acted anti-competitively and should be allowed to move its prices closer to its costs.
  The ACCC may in future reach the view that other Telstra conduct is a breach of the Trade Practices Act. For example, a refusal by Telstra to supply services to its competitors for what Telstra believes to be normal commercial reasons may in the ACCC’s view be a breach of the Act.

Telstra believes that, should the ACCC allege anti-competitive conduct, it will rely upon the potential for very large fines in an endeavour to have Telstra modify what Telstra believes to be normal commercial behaviour.
 
       
Wide regulatory discretion
  The Minister for Communications has a broad power to impose and vary licence conditions on Telstra. For example, the requirement to operate separate retail, wholesale and network business units (operational separation) places an additional burden on Telstra with many restrictions imposed on the way it runs its business. In addition, Telstra is subject to retail price controls and is obliged to make certain uneconomic services available in rural and remote areas, without receiving what in Telstra’s opinion is a fair contribution to its costs from its competitors.   The real risk with operational separation, in Telstra’s opinion, lies in the power of the Minister to determine the way Telstra conducts its business by directing it to vary its operational separation plan, subject to the aims and objects of the legislation which are very broad.

These regulatory discretions could in Telstra’s opinion be used with a significant adverse effect on Telstra.
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4. Risk Factors (continued)
4.2 Transformation strategy risks
Telstra may not succeed in implementing its transformation strategy or the strategy may not achieve the expected benefits.
Telstra has invested substantial capital and resources in the development, streamlining and modernisation of its networks and systems and has embarked on a substantial transformation of Telstra. However, Telstra may be required to incur significant capital expenditures in addition to those already planned in order to remain competitive. Further, transformation may not be an adequate solution to the ever present operational, competitive and technological risks.
         
Issue   Description   Risk Impact
 
Scale of transformation
  The transformation strategy impacts all of Telstra’s businesses, key systems and processes. It represents a complex and fundamental change in the way Telstra does business and requires large-scale customer migration as old networks and systems are replaced. Telstra’s transformation strategy is, in Telstra management’s view, the most comprehensive of any telecommunications company worldwide. Much of the new technology to be used in the transformation has not been deployed on a similar scale before and the timetable for implementation is aggressive. The next generation technologies which Telstra is deploying span its fixed line and NEXT G™ wireless networks and IT systems and processes. Other than NEXT G™, Telstra is still in the early stages of rolling out these technologies. The transformation program is very costly and has resulted in significant declines in Telstra’s earnings and cash flow available for reinvestment or the payment of dividends.

The IT component of the transformation is the most complex and highest risk element of the plan and is in the early stages of implementation.

There is a significant risk that Telstra may not be successful in the implementation of its transformation strategy and in restoring earnings and cash flows to the level that existed when the transformation commenced.
  The expected benefits of Telstra’s transformation strategy may not be achieved or may be delayed, with a risk that Telstra will lose market share and profitability. If the transformation is not successful, there may be a significant reduction in shareholder returns including dividends. Telstra faces other risks in executing its transformation including:

n   Telstra’s new technologies and network and IT support systems do not function as anticipated;

n   customer take-up and migration to new products and services, for example Telstra’s recently launched NEXT G™ network, may be significantly less than planned and customers may not be willing to pay for some of the value-added services;

n   the migration of Telstra’s CDMA subscribers may take longer than expected, leading to significant additional costs for Telstra;

n   key vendors, on which Telstra is dependent, may not perform as expected;

n   extended delays and other execution problems may occur in implementation of its transformation strategy;

n   competitors may in time offer similar services and capabilities; and

n   Telstra’s actual capital and operating costs may turn out to be substantially greater than those budgeted.
 
       
Key personnel
  The success of Telstra’s transformation strategy is highly dependent on key personnel at Telstra. Telstra’s CEO and a number of key members of his senior management team have joined the company within the last eighteen months and bring with them extensive telecommunications expertise.   A loss of one or more of these key executives, in particular the CEO or COO, could have a material adverse impact on Telstra’s ability to achieve the transformation strategy and consequently on Telstra’s shareholder returns, including dividends. Also, there is a risk that if the CEO were to leave Telstra one or more of the overseas executives he has recruited may also leave.
 
       
Retaining and attracting skilled and experienced people
  As technology evolves Telstra will need to attract, retain and train its workforce.   Relevant skills are in short supply worldwide. This could impact Telstra’s ability to remain competitive.
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4.3 Market and operating risks
Aside from the regulatory and transformation risks, Telstra faces general market and operating risks. These risks may arise from changes in economic conditions both in Australia and the world, actions by Telstra’s competitors and changing consumer trends.
         
Issue   Description   Risk Impact
 
Continued decline in high margin fixed line products and services
  Telstra’s traditional fixed line (or PSTN) revenues declined by 6.7% in financial year 2006. This decline will continue and may accelerate because of increasing competition, substantial regulatory impacts and the continued development of technologies that are able to offer increasingly viable alternatives to Telstra’s PSTN services – such as mobiles and broadband services.PSTN revenues comprise a significant portion of Telstra’s revenues and provide high margins and strong cash flows that enable it to invest in and develop its business.   If Telstra is unable to arrest the rate of decline, manage costs and grow alternative revenue sources in newer lower-margin products and services such as mobiles and broadband, Telstra’s earnings and shareholder returns, including dividends, could be materially adversely affected.
 
       
Rapid technology change and convergence of traditional telecommunications markets
  Rapid changes in telecommunications and IT are continuing to redefine the markets in which Telstra operates. These changes are likely to broaden the range and capabilities and reduce the costs of infrastructure capable of delivering these products and services, leading to greater competition. Telstra is responding through the modernisation of its networks and systems, including the deployment of the NEXT G™ network.   Future technology and market changes may create the need for other network and system changes at considerable cost to Telstra.
 
       
Competition
  Although the overall Australian telecommunications market has experienced growth, Telstra has lost substantial market share in some key markets as a result of aggressive price competition, the development of new technologies and facilities by competitors, the market entry of non-traditional competitors with access to significant content and resources and increased regulatory action. As a result, Telstra has lowered the prices of its products and services. Telstra has also implemented strategies to better understand its customers and concentrated on delivering new and better products and services to remain competitive.

The Government has announced Connect Australia, a $1.1 billion scheme to subsidise the building of infrastructure and the supply of broadband, mobile and fixed line services for people living in regional, rural and remote areas.

Separately, nine of Telstra’s competitors have outlined a possible model for the building of a jointly owned FTTN network to deliver broadband services to a large number of customers.
  Telstra expects vigorous competition, including price- and facilities-based competition, to continue or accelerate with competitors marketing aggressively to its high-value customers. The continued loss of market share or downward pressure on prices would have an adverse effect on Telstra’s financial results.
 
       
Joint investments
  Telstra is in joint control of some of its businesses like FOXTEL, REACH, its 3GSM 2100 network sharing partnership with Hutchison (3GIS), CSL New World and SouFun.   Certain key matters in these businesses require the agreement of Telstra’s partners. Any disputes or disagreements from time to time with its partners may negatively affect Telstra’s ability to pursue its business strategies.
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4. Risk Factors (continued)
         
Issue   Description   Risk Impact
 
Network and system failures
  Telstra’s networks are vulnerable to extreme weather, cable cuts and intentional wrongdoing. Hardware or software failures and computer viruses could also affect the quality of its services. Major customer requirements could be in excess of Telstra’s capacity to supply.   Any of these occurrences could result in customer dissatisfaction and compensation claims as well as reduced revenue and earnings.
 
       
Electromagnetic Energy (EME)
  Reports have suggested that EME emissions from wireless equipment may have adverse health consequences. However, the overwhelming weight of scientific evidence is that there are no adverse health effects when wireless equipment is used in accordance with applicable standards.   Any widespread perception of EME risks may adversely affect Telstra’s wireless business.
4.4 Investment and other risks
         
Issue   Description   Risk Impact
 
New director sought by the Commonwealth
  There are significant differences between the Commonwealth and the Telstra Board with respect to the nomination for election as a director of Mr Geoffrey Cousins.

Telstra’s annual general meeting on 14 November 2006 will be held shortly before the completion of the Offer at which time the Commonwealth will still own 51.8% of Telstra shares. The Commonwealth has sought the nomination of Mr Geoffrey Cousins for election as a director of Telstra at the AGM and has indicated that it will vote in favour of the election of Mr Cousins. Mr Cousins has more than 26 years experience as a company director and is currently a director of Insurance Australia Group Limited. Mr Cousins was previously the Chairman of George Patterson Australia and is a former Director of Publishing and Broadcasting Limited, the Seven Network, Hoyts Cinemas group and NM Rothschild & Sons Limited. He was the first Chief Executive of Optus Vision and before that held a number of executive positions at George Patterson, including Chief Executive of George Patterson Australia. Mr Cousins is a director of the Cure Cancer Australia Foundation.

Mr Cousins was a part-time consultant to the Prime Minister for 9 years resigning upon his nomination for the Board.
  The Government believes that Mr Cousins will act independently as a director and not as a representative of the Government on the Telstra Board.

However, Telstra operates in a highly regulated environment and the Commonwealth and its agencies are the key regulators. While Telstra acknowledges that Mr Cousins has served as a public company director, Telstra believes that there is a risk if Mr Cousins cannot be considered an independent director that this could prove disruptive to the smooth and effective functioning of the Board. Were this to occur, this could also affect Telstra’s ability to attract and retain qualified directors.
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Issue   Description   Risk Impact
 
New director sought by the Commonwealth (continued)
  The Government believes that Mr Cousins has the necessary qualifications to serve as a director given his broad experience across the telecommunications, broadcasting and advertising sectors and if elected would be an effective director. It does not intend or believe that Mr Cousins will act as a representative of the Government on the Telstra Board. It is not the Government’s intention to issue additional directions specific to Telstra shares to the Future Fund (see section 5.7 ‘Future Fund’). The Government raised Mr Cousins’ nomination with Telstra at the beginning of the week commencing 11 September 2006 and believes that it has given Telstra ample time to consider his nomination, having regard to his extensive experience.

The Telstra Board did not seek Mr Cousins’ nomination and did not have the opportunity to adequately assess Mr Cousins’ candidacy in accordance with its governance processes, which include assessing a proposed director having regard to the independence requirements of the Board’s Charter and the ASX Principles of Good Corporate Governance. The Board’s Charter states that it is the Board’s current intention that non-executive directors should be independent directors. While the Board has not reached a concluded view, the Board is concerned that there is a risk that Mr Cousins’ previous consulting role with the Government could interfere with his capacity to be considered an independent director. In the Notice of Meeting for the AGM, the Board did not recommend that shareholders vote in favour of Mr Cousins.

To be satisfied that a director is independent the Board would need to conclude, among other things, that the director is not “associated directly with a substantial shareholder of Telstra” and “is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the exercise of his or her unfettered and independent judgement and ability to act in the best interests of the company”. The Board has been very careful to ensure that it does not, and is not seen to, prejudge in any way whether Mr Cousins would meet these requirements. However it is clear from the circumstances of Mr Cousins’ nomination and his previous association with Government that these issues will require careful examination in accordance with best practice and that this is likely to take some time to conduct appropriately. The Board has commenced a process to assist it reaching a conclusion on these issues.
   
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4. Risk Factors (continued)
         
Issue   Description   Risk Impact
 
Lower level of dividends
  The Board’s current intention is to declare dividends totalling 28c per share fully franked for the 2007 financial year, subject to Telstra continuing to be successful in implementing its transformation strategy and there being no further material adverse regulatory outcomes during the course of the year.   There is a risk that if Telstra is unsuccessful in implementing its transformation strategy or there are material adverse regulatory or other outcomes, the amount of dividends in any year may be reduced or not fully franked which would negatively affect yield.
 
       
Future Fund as a substantial shareholder
  The Commonwealth will transfer its unsold Telstra shares to the Future Fund. The Future Fund will have a substantial shareholding in Telstra which, after a 2 year escrow period, it will be required to sell down over the medium term to a level consistent with its investment strategy (at least below 20% of Telstra’s issued share capital).

The Finance Minister may also issue ministerial directions to the Future Fund Board in relation to Telstra shares held by the Future Fund, including specifying how voting rights relating to the shares are exercised.
  A sale or anticipated sale by the Future Fund of Telstra shares could reduce the price of Telstra shares, and could negatively impact the timing and effectiveness of capital raising activities, with an adverse impact on Telstra’s cost of capital.

Whilst the Government does not intend to issue directions specific to Telstra shares (except to impose the escrow and require the subsequent sell-down), a future Government might take a different approach, using the directions power to vote the shares held by the Future Fund to pursue Government objectives.

There is also a risk that the interests of the Future Fund and /or the Commonwealth may not be aligned with the interests of other shareholders, and the Future Fund could take actions that are not in the best interests of Telstra’s other shareholders.
 
       
Instalment receipts and market risk
  Several factors, many of which are beyond the control of Telstra, may affect the price of the instalment receipts and the underlying shares, including overall economic conditions, changes in government policies, movement in interest rates and stock markets and general operational and business risks relating to Telstra and investor perception of the success of the transformation strategy.   The price at which instalment receipts trade may be higher or lower than the amount of the first instalment. In addition, the price of Telstra shares following payment of the final instalment may be less than the total price you paid for them.

Instalment receipts may trade at a price reflecting a premium or discount to the price of fully-paid Telstra shares

The partial payment characteristics of instalment receipts may make percentage price movements in them greater than percentage price movements if they were fully paid shares in similar circumstances.
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5. Additional information
5.1 Materials in the Appendix
The following is an indication of the materials contained in the Appendix:
n   Interests of and benefits to Directors required to be disclosed by the Corporations Act, including their interests in the Offer
n   Interests of named advisers and experts required to be disclosed by the Corporations Act, including benefits given or agreed to be given for their services in connection with the Offer
n   Consents given by certain persons named in the Prospectus to be so named and disclaimer
 
n   Telstra’s expenses relating to the Offer which the Commonwealth has agreed to reimburse
n   Further information about the Institutional Offer, including bidding in the global bookbuild, the Institutional Offer allocation policy and setting of the final price in the Institutional Offer
n   Entitlement of nominee and Telstra ESOP holders under the Shareholder Entitlement Offer
 
n   Principal ASIC relief including confirmations of, modifications to and exemptions from the Corporations Act in connection to the Offer
 
n   Principal ASX waivers and confirmations in respect of the ASX Listing Rules
n   Quotation application and agreement between the Trustee and ASX under which the Trustee will apply for quotation of the instalment receipts on ASX and comply with certain ASX requirements
n   Description of the Telstra shares and constitution, including the rights attached to shares and a summary of Telstra’s constitution proposed to be adopted at its annual general meeting on 14 November 2006
n   Description of the instalment receipts and Trust Deed, including further detail on the instalment structure, the Prepayment Discount, transferring instalment receipts and rights and obligations attached to instalment receipts
n   Qualifying for the Bonus Loyalty Shares (and for the VWAP-based cap on the final instalment amount described in section 2.4.3 ‘Retail Offer price and payment’ under ‘How much is the final instalment?’), including details of the same registered name requirement and exceptions to it and of arrangements that may apply for selling Bonus Loyalty Shares and paying the proceeds to those entitled if at the relevant time they are resident outside Australia or other legal impediments to delivery of Bonus Loyalty Shares exist
n   Restrictions on foreign ownership in the Telstra Act and related provisions i Telstra’s constitution and the Trust Deed, including notification, deeming and enforcement provisions, special provisions for transfer among foreign holders and changes to the foreign ownership limits as a consequence of the Offer and transfer of shares to the Future Fund
n   Certain income taxation implications of investment in instalment receipts and shares, including taxation of distributions and dividends and capital gains tax
n   Indemnities and insurance of Telstra directors, officers and employees under Telstra’s constitution, deeds of indemnity Telstra has entered into and policies maintained by Telstra
n   Indemnities provided by the Commonwealth of Australia to Telstra, its directors and certain of its executives in connection with the Offer
You can obtain a copy of the Appendix free of charge from the Telstra 3 Telephone Information Centre or by accessing www.t3shareoffer.com.au
5.2 Telstra’s regular reporting and disclosure obligations
Telstra is a ‘disclosing entity’ for the purposes of the Corporations Act and is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. These obligations require Telstra to notify ASX of information about specific events and matters as they arise so that ASX can make that information available to the stock market conducted by ASX.
In particular, Telstra has an obligation under the ASX Listing Rules (subject to certain limited exceptions) to notify ASX immediately as it becomes aware of any information concerning Telstra that a reasonable person would expect to have a material effect on the price or value of Telstra’s securities. Information concerning Telstra which has been notified by Telstra to ASX since 25 September 2006, including the 2006 Supplemental Information, is available free of charge from the Telstra 3 Telephone Information Centre or by accessing www.telstra.com.au/abouttelstra/investor.
Telstra also has other reporting obligations under the ASX Listing Rules under which, for example, it has lodged its 2006 Annual Report and 2006 Annual Review. Copies of Telstra’s 2006 Annual Report and 2006 Annual Review are also available free of charge from the Telstra 3 Telephone Information Centre or by accessing www.t3shareoffer.com.au.
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5. Additional information (continued)
In addition, all documents lodged with ASIC in relation to Telstra may be obtained from ASIC.
To the extent permitted by law, the Commonwealth accepts no liability for information notified to ASX and ASIC by Telstra.
Because Telstra is a disclosing entity, this Prospectus contains less information than would usually be included in a prospectus for an initial public offering of securities which are not currently quoted on a stock exchange.
Investors should conduct and rely on their own investigations and enquiries and make their own assessment of the investment described in this Prospectus. Investors may wish to obtain professional advice before applying for instalment receipts under this Prospectus.
5.3 Commonwealth as shareholder and regulator
The Commonwealth is currently Telstra’s controlling shareholder and has special rights and privileges under the Telstra Act. As a result of the Commonwealth’s current majority shareholding, Telstra has obligations to the Commonwealth under the Telstra Act and other Commonwealth legislation. A summary of the effect of the Offer on those obligations is set out in section 5.5 ‘Effect of the Offer on Telstra’.
The Commonwealth also has responsibility for regulation. The telecommunications regulatory regime is intended to promote the long-term interests of telecommunications consumers, including through promoting competitive telecommunications markets and encouraging economically efficient investment in infrastructure. The telecommunications regime supports industry self-regulation and is intended to minimise the financial and administrative burdens on the telecommunications industry.
Since the market was fully opened to competition in 1997, consumers have benefited through a wider range of services and significant reductions in prices.
The Commonwealth considers that the telecommunications industry is currently in transition to full competition and that appropriately targeted regulation is in place to facilitate this outcome. Overall, the regulatory legislation is settled. However, the Commonwealth has announced that it will review the telecommunications competition regulatory regime in 2009.
5.4 Annual general meeting
Telstra’s annual general meeting will be held on 14 November 2006. The following items of business will be considered at that meeting:
n   Chairman and CEO presentations
 
n   Remuneration report
 
n   Discussion of financial statements and reports
 
n   Election and re-election of directors
 
n   New constitution
In its notice of annual general meeting, the Board recommends the re-election of the four serving Directors, and does not recommend the election of the five external candidates, including Mr Geoffrey Cousins.
Due to the timing of the Offer, applicants under the Offer will not have the right to attend and vote at Telstra’s annual meeting on 14 November 2006 unless they are existing Telstra shareholders. For further information see section 5.9, ‘Rights of holders and instalment receipts and shareholders’.
At the time of the annual general meeting, the Commonwealth will hold 51.8% of Telstra’s shares. The Commonwealth intends to exercise its voting rights at the forthcoming Annual General Meeting on 14 November 2006 in the following manner:
n   to support the resolution that the remuneration report be adopted;
 
n   in relation to the election and re-election of directors, to vote for Mr Macek, Dr Stocker, Mr Willcox, Mr Zeglis and Mr Cousins and to vote against Mr Vogt, Mr Mayne, Mr Cooper and Mr Kenos; and
 
n   to support the special resolution to adopt a new constitution.
5.5 Effect of the Offer on Telstra
The sale of the Commonwealth’s shares in Telstra will have a significant impact on Telstra’s obligations under the Telstra Act. Certain provisions in the Telstra Act and other Commonwealth legislation will cease to have effect or apply to Telstra once the Commonwealth’s ownership of Telstra falls below one of two particular levels. Those two ownership thresholds are below 50% and 15% or less. For this purpose, Telstra shares transferred to the Future Fund following the completion of the Offer will not be considered to be owned by the Commonwealth. This means that these thresholds will be triggered following the Offer.
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The Commonwealth’s ownership of Telstra will fall below 50% on completion of the Offer which is anticipated to be on or about 24 November 2006. As a result of this, Telstra will lose its Australian capital gains tax (CGT) exempt status on assets that it acquired before 20 September 1985. Accordingly, any future gains in the value of these assets after completion of the Offer may be taxable upon disposal of the asset by Telstra. As Telstra does not currently intend to dispose of any material assets acquired before 20 September 1985, the loss of CGT exempt status for these assets is not expected to have a material impact on Telstra.
The legislative consequences of the Commonwealth’s ownership of Telstra falling below 50% are not considered to have a material impact on Telstra but include:
n   Telstra’s employees who are members of the Commonwealth Superannuation Scheme (CSS) will cease to be “eligible employees” for the purposes of the Superannuation Act 1976, and will no longer be entitled to contribute to the CSS; and
 
n   Telstra’s auditor, currently the Commonwealth Auditor-General, is expected to resign. The Auditor-General will cease to be Telstra’s auditor on the earlier of his resignation and the end of the first annual general meeting held after the Commonwealth’s ownership of Telstra falls below 50%. This means that Telstra shareholders can decide who to appoint as Telstra’s auditor.
The Commonwealth has advised Telstra that it will introduce legislation into parliament, which maintains coverage for Telstra employees under existing Commonwealth employee long service leave legislation for 3 years after the Commonwealth’s ownership in Telstra falls below 50%.
The Commonwealth’s ownership of Telstra is expected to fall to 15% or less no later than when the Commonwealth transfers to the Future Fund Telstra shares not sold as part of the Offer. This is intended to occur as soon as practicable following the exercise or expiry of the Over-allocation Option, and in any event, no later than 24 February 2007. The main consequences of the Commonwealth’s ownership of Telstra falling to 15% or less are:
n   Telstra will no longer be subject to certain obligations to provide financial and other information to the Commonwealth;
 
n   Telstra will no longer be subject to the Communications Minister’s power to direct Telstra (as appears to the Communications Minister to be necessary, in the public interest); and
 
n   Telstra will no longer be subject to the Finance Minister’s power to direct Telstra not to dilute the Commonwealth’s equity in Telstra or to issue securities or financial products.
Upon completion of the Offer, Telstra expects to no longer have a standing obligation to appear before and provide information to Parliamentary committees.
Telstra will agree that it will not issue, sell, offer to issue or sell, or otherwise dispose of, directly or indirectly, any shares (or securities convertible into shares) for a period of 180 days after the date instalment receipts are first listed on ASX without the prior written consent of the Joint Global Coordinators other than pursuant to or in connection with any employee, executive or agent share option or purchase plans.
Other effects of the Offer on Telstra are described throughout this Prospectus, including in sections 2.8 ‘Future Fund overview’ and 5.7 ‘Future Fund’.
5.6 Capacity to fulfil obligations
The Commonwealth’s principal obligation in relation to the Offer will be to transfer the shares sold under the Offer to the Trustee on settlement of the Offer, expected to occur on 24 November 2006, and to transfer or procure the transfer of Bonus Loyalty Shares to those entitled to them after the Final Instalment Due Date. Prior to settlement of the Offer, first instalment monies will be held in trust for applicants. The Commonwealth will retain sufficient shares to meet Bonus Loyalty Share obligations to applicants in the Retail Offer, and these retained shares will be held for the Commonwealth by the Trustee until they are transferred to those entitled. The Commonwealth has a number of other obligations under the Trust Deed, including making payments in connection with the administration of the instalment receipt trusts. The Commonwealth has sufficient funds to comply with its obligations in relation to the instalment receipts.
The Trustee will have a number of obligations under the Trust Deed (and the Commonwealth has agreed to meet the costs of fulfilling those obligations), but its most important obligation will be to transfer shares to instalment receipt holders on payment of the final instalment. The Trustee will hold the Telstra shares necessary to fulfil this obligation, transferred to it by the Commonwealth upon settlement, on the terms of the Trust Deed. It will also separately hold for the Commonwealth the shares required to meet Bonus Loyalty Share obligations to applicants in the Retail Offer, as outlined above.
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5. Additional information (continued)
5.7 Future Fund
THE FUTURE FUND
The Future Fund is a Commonwealth investment fund set up to strengthen the Commonwealth’s long-term finances by providing for its unfunded superannuation liabilities. The Future Fund Board is responsible for investment decisions and holds the Future Fund’s investments (for and on behalf of the Commonwealth).
The Future Fund Board is a separate legal entity from the Commonwealth. The members of the Future Fund Board are appointed by the Commonwealth for terms of up to 5 years. Their appointment may only be terminated in certain limited circumstances. The Future Fund Board members are subject to duties similar to those of company directors.
Currently, the Chair of the Future Fund Board is Mr David Murray. Other members of the Future Fund Board are Mr Jeffrey Browne, Ms Susan Doyle, Dr John Mulcahy, Mr Trevor Rowe AM and Mr Brian Watson. There is currently one vacancy on the Future Fund Board.
NO SPECIFIC DIRECTION
The Future Fund Act 2006 (Cth) provides that, subject to its obligations under that Act and any directions from the Commonwealth, the Future Fund Board must seek to maximise the return earned over the long term, consistent with international best practice for institutional investment.
The Government does not intend to issue directions specific to Telstra shares held by the Future Fund Board, other than the escrow direction and changes to the general investment mandate discussed below. However, a future Government may take a different approach.
In the absence of such specific directions, the Future Fund Board may vote the Future Fund’s Telstra shares as it sees fit, subject to complying with the Future Fund’s obligations under the Future Fund Act 2006 (Cth) and the general investment mandate issued by the Government.
ESCROW DIRECTION
On the day that shares are first transferred to the Future Fund, the Finance Minister will direct the Future Fund Board not to dispose of or agree to dispose of the Future Fund’s Telstra shares for a period of two years from the date instalment receipts under the Offer are first listed on ASX except:
n   in order to satisfy demand from eligible Telstra shareholders under a Telstra initiated dividend reinvestment plan (if any); or
 
n   as part of a Telstra capital management initiative (if any), such as a buy-back or capital reduction; or
 
n   to a single investor, provided that:
  o   the disposal involves more than 3% of Telstra’s issued ordinary shares at the time of the disposal;
 
  o   the disposal does not take place until at least six months after the date instalment receipts are first listed on ASX;
 
  o   the investor provides an acceptable undertaking for at least the balance of the escrow period;
 
  o   the price per share is no less than the Institutional Offer price; and
 
  o   Telstra is advised prior to such disposal.
After the two year escrow period, the Future Fund Board will be required to sell down its Telstra shareholding over the medium term as directed under the investment mandate. The Government intends that the escrow direction will not be varied or revoked. However, a future Government may take a different approach.
GENERAL INVESTMENT MANDATE
The current investment mandate requires, among other things, that the Future Fund Board adopt a benchmark for returns on the Future Fund of at least an average return of the Consumer Price Index + 4.5% to + 5.5% per annum over the long term.
Prior to the shares being transferred to the Future Fund, the Commonwealth intends to amend the investment mandate.
The revised directions will be consistent with the following principles:
n   after the two year escrow, the Future Fund Board will be required to sell down its Telstra shareholding over the medium term to a level consistent with its investment strategy (at least below 20% of Telstra’s issued capital);
n   the sell down is to be on a best endeavours basis with a view to optimising the long term value of the Future Fund;
n   the performance of the Future Fund Board’s Telstra shareholding will be assessed and reported separately to the rest of the Fund until the sell-down is complete; and
n   the investment mandate will no longer prohibit the Future Fund Board from purchasing Telstra shares.
The Finance Minister and Treasurer will formally invite the Future Fund Board to make a submission on the revised
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directions to be issued and must consider any submission that the Future Fund Board chooses to make, as consistent with the Future Fund Act 2006 (Cth).
5.8 Obligations of holders of instalment receipts
Your instalment receipts will evidence your beneficial interest in underlying shares. However, the shares themselves will be held by the Trustee in accordance with the Trust Deed. The Trustee will hold the shares on trust for you as the owner of the beneficial interest and for the Commonwealth as the holder of a security interest securing payment, among other things, of the final instalment. After you pay the final instalment by the Final Instalment Due Date in cleared funds, the instalment receipts will be cancelled, the Trustee will transfer the underlying shares to you and you will become the registered holder of the shares. The Commonwealth will no longer have a security interest in them.
If you are allocated instalment receipts and you continue to hold them until 15 May 2008, you become legally bound to pay the final instalment on or by 29 May 2008. Reminder notices will be sent before the final instalment is due. If you sell the instalment receipts, and the transfer is registered by 15 May 2008, the purchaser assumes the liability to pay the final instalment. The last day for ASX transactions in instalment receipts is expected to be around 9 May 2008.
If you do not pay the final instalment on time, you may have to pay interest on the amount due. The Trustee can then sell some or all of the underlying shares relating to your instalment receipts to pay the final instalment (and any related interest, costs, expenses, administration charges, duties and taxes you may owe). If there is any balance from the sale, the Trustee will refund it to you. If there is a deficit, you will be liable to pay the outstanding amount.
5.9 Rights of holders of instalment receipts and shareholders
Holders of instalment receipts will generally have equivalent rights to Telstra shareholders. Both are entitled to receive dividends declared by Telstra, to receive notices, financial reports and other documents required to be sent to shareholders and to attend meetings of shareholders. Shareholders are entitled to vote at such meetings. Holders of instalment receipts may vote at meetings of shareholders by directing the Trustee how to vote the shares underlying their instalment receipts. Due to the timing of the Offer, applicants under the Offer will not receive a notice of meeting and will not have the right to attend and vote at Telstra’s annual general meeting to be held on 14 November 2006, unless they are existing Telstra shareholders. Shareholders are entitled to requisition and convene shareholder meetings if they satisfy certain pre-requisites. Instalment receipt holders may only requisition or convene such meetings if they satisfy similar prerequisites and if they request the Trustee to do so.
While management of Telstra is vested in the Directors, the approval of shareholders is required for certain matters. Shareholders and instalment receipt holders may transfer their shares or instalment receipts subject to the requirements of Telstra’s constitution (in the case of shares), the Trust Deed (in the case of instalment receipts), the Telstra Act, the Corporations Act and the requirements of ASX. If Telstra is wound up, subject to any special rights attached to shares, shareholders are entitled to any surplus assets of Telstra after paid-up capital has been repaid, in proportion to capital paid up or which ought to have been paid up at the commencement of the winding up, on the shares held by them respectively. Any winding up payment made while instalment receipts were on issue would be paid to instalment receipt holders, subject to deduction of the final instalment which would be paid to the Commonwealth.
For further information see section 10 of the Appendix ‘Description of shares and constitution’ and section 11 of the Appendix ‘Description of instalment receipts and Trust Deed’.
5.10 Conditional and deferred settlement trading in instalment receipts
The contract formed on acceptance of your application by the Commonwealth is conditional on settlement under any International Purchase Agreement. While the International Purchase Agreement has not yet been executed, it is expected to include rights of termination. These would include the right of the purchasers to terminate the agreement upon, among other things, certain material adverse developments relating to Telstra, stock markets or banking systems. The International Purchase Agreement is expected to be signed on or about 18 November 2006. Until settlement under any International Purchase Agreement occurs and instalment receipts are issued,
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5. Additional information (continued)
trading in instalment receipts on ASX will be on a conditional basis. Conditional trading in instalment receipts is expected to commence on 20 November 2006. If settlement under any International Purchase Agreement and issue of instalment receipts does not occur within ten business days after the commencement of conditional trading:
n   instalment receipts will not be issued;
 
n   the contract formed on acceptance of your application will be cancelled;
 
n   your application monies will be refunded without interest; and
 
n   all conditional trades that have occurred will be cancelled.
After the issue of instalment receipts there will be a further period of deferred settlement trading until the dispatch of transaction confirmation statements which is expected to occur by 30 November 2006.
It is your responsibility to determine your allocation before trading your instalment receipts to avoid the risk of selling instalment receipts you do not own. To assist you in determining your allocation prior to receipt of your transaction confirmation statement, the Commonwealth will announce the basis of allocation by placing advertisements in the major national and metropolitan newspapers in Australia. This is expected to take place by 20 November 2006. From that date, you may call the Telstra 3 Telephone Information Centre on 1800 18 18 18 or access the Telstra 3 Share Offer website at www.t3shareoffer.com.au to seek information on your allocation, quoting the reference number on your application form. If you sell instalment receipts before you receive confirmation of your allocation, you do so at your own risk.
5.11 Selling instalment receipts
Your instalment receipts and later, your shares, will be registered either on ASX’s Clearing House Electronic Subregister System (CHESS) or an issuer-sponsored subregister. Following the issue of instalment receipts to successful applicants, you will receive a transaction confirmation statement showing how many instalment receipts or shares you hold. This transaction confirmation statement is expected to be dispatched by 30 November 2006 and will also provide details of a HIN (for shareholders on the CHESS sub-register) or the SRN (for shareholders on the issuer-sponsored sub-register) for each of the sponsored holders.
Telstra and the Trustee will apply for the instalment receipts and the underlying shares to be quoted on ASX and have applied for quotation on NZSX. Quotation means that you should be able to sell your instalment receipts, or later when you receive them, your shares. The amount you receive for your instalment receipts or shares will depend on whether there are any buyers, how much they are prepared to pay and any transaction costs involved.
For further information see section 11 of the Appendix ‘Description of instalment receipts and Trust Deed’.
5.12 Over-allocation and market stabilisation
The Joint Global Coordinators may agree with the Commonwealth to over-allocate up to 15% of the base offer size or any increased base offer size to Institutional Investors under the Institutional Offer. These over-allocations, if any, may be satisfied by acquiring additional instalment receipts from the Commonwealth pursuant to the Over-allocation Option which has been granted by the Commonwealth and/or by purchasing instalment receipts on the stock market which may have the effect of stabilising the secondary market price of instalment receipts. If the Over-allocation Option is exercised in full and additional instalment receipts are acquired from the Commonwealth, the final number of shares sold by the Commonwealth will increase by 15% of the base offer size or any increased base offer size.
If instalment receipts are over-allocated under the Over-allocation Option, the Joint Global Coordinators will initially borrow instalment receipts from the Commonwealth on settlement of the Offer to facilitate settlement of the instalment receipts so over-allocated. Instalment receipts delivered on settlement of the Offer, under the borrowing and related arrangements, will be delivered under this Prospectus, and it is not intended that there be any later delivery of instalment receipts.
During the 30 day period following the commencement of conditional and deferred settlement trading on ASX, the Joint Global Coordinators may engage in market stabilisation activities by purchasing instalment receipts in accordance with procedures agreed with ASX and ASIC. Such purchases may have the effect of stabilising the secondary market price for instalment receipts in circumstances where the secondary market price is at or below the amount of the first instalment paid by Institutional Investors.
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During this period the Joint Global Coordinators may resell some or all of the instalment receipts so purchased. The resale of instalment receipts may also affect the market price of instalment receipts, although no price constraints apply to these.
There is no guarantee at any time that the market price of instalment receipts will not drop below the first instalment price.
If the Over-allocation Option is exercised, the obligations of the Commonwealth to deliver instalment receipts on exercise will be offset against the Joint Global Coordinators’ obligations to redeliver instalment receipts borrowed from the Commonwealth, and the purchase monies received by the Joint Global Coordinators for the corresponding over-allocated instalment receipts will be released to the Commonwealth. If the Over-allocation Option is not exercised in full, the Joint Global Coordinators will transfer to the Commonwealth instalment receipts purchased in market stabilisation activities which have not been resold, by way of redelivery of instalment receipts borrowed from the Commonwealth.
The Commonwealth will be entitled to receive any profits arising from market stabilisation activities, and also any interest earned on purchase monies held by the Joint Global Coordinators in respect of over-allocated instalment receipts up until the time those purchase monies are released to the Commonwealth.
5.13 Restrictions on foreign ownership
By law:
n   foreign person(s) cannot have, in total, a stake in Telstra of more than 35% of shares held by persons other than the Commonwealth (Aggregate Limit); and
 
n   no single foreign person can have a stake in more than 5% of shares not held by persons other than the Commonwealth (Individual Limit).
Telstra shares transferred to the Future Fund following the completion of the Offer will not be considered to be held by the Commonwealth for the purposes of these restrictions on foreign ownership.
While the Commonwealth owns 51.8% of Telstra, the Aggregate Limit is effectively 16.87% and the Individual Limit is effectively 2.41% of Telstra’s issued capital. If all of the shares currently held by the Commonwealth are sold or transferred to the Future Fund, the effective Aggregate Limit will be 35% rather than 16.87% and the effective Individual Limit will be 5% rather than 2.41%.
If you are an Australian citizen or are usually resident in Australia, you will generally not be a foreign person for the purposes of these restrictions (but see below if you are investing as a company or a trustee). However, if you are investing on behalf of a foreign person or are under the control of, or accustomed or obliged to act in accordance with the wishes or instructions of, a foreign person, or are acting in concert with a foreign person, that foreign person will be treated as having an interest in your investment and the foreign ownership restrictions will apply to that foreign person and to your investment.
A company or trustee will be a foreign person if:
n   in the case of a company, a foreign person or company and its associates hold an interest in 15% or more of the company or foreign person(s) and/or companies and their associates together hold interests in 40% or more of the company; and
 
n   in the case of a trustee (other than the Trustee), a foreign person or company and its associates is entitled to 15% or more of the distributions of capital or income from the trust or foreign person(s) and/or companies and their associates together are entitled to distributions of 40% or more of capital or income from the trust.
PROVISION OF INFORMATION ON FOREIGN OWNERSHIP
You are required to provide the Trustee with information as to foreign ownership and it has the power to sell your investment if the foreign ownership limit is breached. The Trustee will publish the rules which will be applied in exercising its powers in relation to foreign ownership. The above description simplifies the foreign ownership provisions of the Telstra Act. If you believe that you, your company or trust may be a foreign person or a foreign person may have an interest in your investment, you should refer to section 13 in the Appendix ‘Restrictions on Foreign Ownership’ and the legislation for the detailed provisions.
5.14 Taxation
A class ruling has been sought from the Australian Taxation Office (ATO) for participants in the Offer. A draft class ruling has been provided which accords with a number of statements contained in this summary. A final class ruling is expected to be issued by the ATO after the release of this Prospectus. Whilst it is not anticipated to be the case, the ATO may express views in the final class ruling which may be different to the draft ruling.
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5. Additional information (continued)
The taxation position for a particular investor can be complex. The discussion below may not be applicable to you, for example, if you are a share trader. Further details are also contained in section 14 of the Appendix ‘Taxation’. You should consult a professional adviser about your own taxation circumstances. The discussion below is based on the law in force at the date of this Prospectus and relates only to Australian resident retail investors. It does not deal with the treatment of investors who are not residents of Australia or who are temporarily residents of Australia under Australia’s tax laws.
TAXATION OF DIVIDENDS
Any dividends you receive while you hold instalment receipts will be treated for tax purposes as trust distributions rather than dividend distributions. You may still be eligible for the benefit of any franking credits attached to the dividends, whether they are paid as trust distributions or dividend distributions. Once you become the registered holder of the share after you pay the final instalment, all dividends paid to you by Telstra will be treated for tax purposes in the same way as other dividends. You must generally declare both trust and dividend distributions as part of your assessable income. The ATO requests that this income be shown at the dividend income box of your tax return.
Where the dividend is a franked dividend, the franking credit associated with that dividend may also be included in your assessable income. An offset of tax equivalent to the franking credit (known as a ‘tax offset’) may also be available to you. However, there are circumstances where you may not be entitled to the benefit of franking credits. The application of these rules depends on your own circumstances including the period for which the instalment receipts and shares are held and the extent to which you are ‘at risk’ in relation to your investment.
TAXATION OF CAPITAL GAINS
An investor in the Australian Retail Offer paying the Retail Investor price will acquire:
n   an instalment receipt which is, for capital gains tax purposes, an interest in an Australian trust estate; and
 
n   a right to be provided in certain circumstances a Bonus Loyalty Share for every 25 instalment receipts held continuously until 15 May 2008 (Loyalty Right).
For capital gains tax purposes the acquisition cost (including the amount of the final instalment) will be apportioned on a reasonable basis between the instalment receipt and the Loyalty Right. Clarification is being sought from the ATO in relation to the allocation of the acquisition costs between the instalment receipt and the Loyalty Right. It is anticipated that this clarification will be made available on the ATO website at: www.ato.gov.au.
DISPOSAL OF INSTALMENT RECEIPTS
If you dispose of an instalment receipt for more than its cost base the gain may be subject to tax. If the instalment receipt has been held for at least 12 months after the date of acquisition, you may be entitled to discount the capital gain arising on disposal of the instalment receipt. Resident individuals and trustees may discount the gain by 50%. Trustees of complying superannuation funds may discount the gain by 331/3%. For capital gains tax purposes, the date of acquisition of an instalment receipt acquired under this Prospectus is the date the Commonwealth accepted the application.
If you dispose of an instalment receipt for less than its cost base you may incur a capital loss. A capital loss can only be offset against capital gains.
There may be tax consequences for you if the Trustee has to sell your shares because you do not pay the final instalment.
If you dispose of an instalment receipt prior to 15 May 2008, or if you prepay the final instalment, your Loyalty Right may expire. In that event you will incur a capital loss equal to the cost base of the Loyalty Right. This capital loss can be offset against a capital gain, including a capital gain realised on the disposal of the instalment receipt.
DISPOSAL OF SHARES
If you dispose of a share for more than its cost base the gain may be subject to tax. If the share has been held for at least 12 months after the date of acquisition prior to sale, you may be entitled to discount a capital gain you make on disposal of the share.
If you are provided Bonus Loyalty Shares the cost base of the Loyalty Rights exercised to obtain those shares will form the cost base of the shares. The exercise of the Loyalty Right by the investor will not constitute a disposal of an asset for the purposes of the capital gains tax rules. The acquisition cost (including the amount of the final instalment) will be allocated on a reasonable basis between the Telstra shares held as a result of acquiring the instalment receipts and the Bonus Loyalty Share received as a result of exercising the Loyalty Rights.
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For these purposes, the date of acquisition of a share is:
n   for a share held as a result of an instalment receipt acquired pursuant to this Prospectus – the date the Commonwealth accepts your application to acquire the instalment receipt; and
 
n   for a Bonus Loyalty Share – on the day you are allocated the Bonus Loyalty Share.
If you sell a share for less than its cost base you may incur a capital loss. A capital loss can only be offset against capital gains.
STAMP DUTY
No stamp duty will be payable by you on the issue of instalment receipts, payment of the first or final instalment, or the transfer of shares to you on payment of the final instalment.
For a more detailed description of the taxation position, please refer to section 14 in the Appendix ‘Taxation’.
5.15 Fees and commissions
Brokers and financial planners (including the Retail Lead Managers) will be entitled to a brokerage fee of 0.75% of the net present value of the total amount payable by Retail Investors for shares sold pursuant to applications lodged through brokers, including shareholder entitlements but excluding applications under the Firm Offer, and a brokerage fee of 1.25% of the net present value of the total amount payable by Retail Investors for shares sold pursuant to applications under the Firm Offer.
Commissions will be payable to the Institutional Selling Syndicate in respect of shares allocated to Institutional Investors under the Institutional Offer. In respect of shares allocated to Australian and New Zealand institutions, the relevant syndicate members will be paid collectively a commission of 0.4% of the net present value of the total amount payable by Institutional Investors. This commission rate will also be paid to participating brokers in respect of allocations made to Retail Investors in relation to successful broker sponsored bids lodged by those brokers on behalf of these Retail Investors. These fees will not constitute part of the commissions payable to the Institutional Selling Syndicate. In respect of shares sold outside Australia and New Zealand, the international syndicate members will receive collectively a commission of 0.4% of the net present value of the total amount payable by Institutional Investors and a further 0.04% of the amount of the first instalment representing an underwriting fee. The underwriting fee component will not apply to shares that are the subject of the Over-allocation Option and associated stock borrowing arrangements.
For the purposes of calculating the net present value of the total amount payable, the amount of the first instalment plus the discounted amount of the final instalment will be used.
In addition to a capped reimbursement for direct expenses, the Joint Global Coordinators will collectively receive a project management fee of $9 million for acting as consultants to the Commonwealth in connection with the Offer.
5.16 Foreign selling restrictions
No action has been taken to register or qualify the instalment receipts, the underlying shares or the Offer, or otherwise to permit a public offering of these securities, in any jurisdiction outside Australia, New Zealand and Japan. Neither the instalment receipts nor the underlying shares have been, or will be, registered under the US Securities Act and these securities may not be offered or sold in the United States or to, or for the account or benefit of, US Persons except in accordance with an applicable exemption from the registration requirements of the US Securities Act under Rule 144A and applicable US state securities laws.
The Offer is not an offer or invitation in any jurisdiction where, or to any person to whom, such an offer or invitation would be unlawful. The distribution of this Prospectus outside Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus outside Australia and New Zealand should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.
Each applicant in the Retail Offer will be taken to have represented, warranted and agreed as follows (and will be taken to have done so if it makes an application in the Institutional Offer):
n   it is an Australian or New Zealand citizen or resident in Australia or New Zealand, is located in Australia or New Zealand at the time of the application and is not acting for the account or benefit of any person in the United States, a US Person or any other foreign person; and
 
n   it will not offer or sell the instalment receipts or the underlying shares in the United States or in any other jurisdiction outside Australia or New Zealand or to a US Person, except in transactions exempt from registration under the US Securities Act and in compliance with all applicable laws in the jurisdiction in which such securities are offered and sold.
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5. Additional information (continued)
Each person in Australia and New Zealand to whom the Institutional Offer is made under this Prospectus or the New Zealand Investment Statement (as applicable) will be required to represent, warrant and agree as follows (and will be taken to have done so if it bids in the Institutional Offer):
n   it understands that the instalment receipts and the shares have not been and will not be registered under the US Securities Act and may not be offered, sold or resold in the United States or to a US Person, except in transactions exempt from registration under the US Securities Act;
 
n   it is not in the United States or a US Person and is not acting for the account or benefit of a US Person; and
 
n   it is not engaged in the business of distributing securities or, if it is, it agrees that it will not offer or resell in the United States or to a US Person (a) any instalments receipt or shares it acquires in the Offer at any time or (b) any instalment receipts or shares it acquires other than in the Offer until 40 days after the completion of the Offer, in either case other than in a transaction meeting the requirements of Rule 144A under the US Securities Act; provided, however, that the foregoing will not prohibit any sale of instalment receipts or shares in regular way transactions on ASX or NZSX if neither the seller nor any person acting on its behalf knows, or has reason to know, that the sale has been pre-arranged with, or that the purchaser is, a person in the United States.
No person is authorised to give any information or make any representations other than those contained in this Prospectus and, if given or made, such information or representations will not be relied upon as having been authorised by the Commonwealth, Telstra, the Joint Global Coordinators or any other person, nor will any such persons have any liability or responsibility for them.
5.17 Minister’s consent
The Finance Minister has given, and has not withdrawn, his consent to the issue of this Prospectus and to its lodgement with ASIC.
5.18 Directors’ consent
Each Director has given, and has not withdrawn, their consent to the issue of this Prospectus and to its lodgement with ASIC.
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6. Glossary
     
3GSM or 3G
  Third Generation Global System for Mobile communications
 
   
3GSM 2100
  3G GSM technology operating on 2100MHz spectrum
 
   
3GSM 850
  3G GSM technology operating on 850MHz spectrum
 
   
ABN AMRO Rothschild
  a joint venture between ABN AMRO Equity Capital Markets Australia Limited (ABN 17 000 757 111) and Rothschild Australia Limited (ABN 61 008 591 768)
 
   
ACCC
  Australian Competition and Consumer Commission
 
   
ADSL
  Asymmetric Digital Subscriber Line – a broadband technology that provides access to the Internet at fast speeds. ADSL uses data transmission technology that allows high speed data to be carried over everyday copper network phone lines. These data rates can enable the delivery of voice, data and video services
 
   
A-IFRS
  Australian equivalents to International Financial Reporting Standards
 
   
Appendix
  the appendix to this Prospectus lodged with ASIC on 9 October 2006
 
   
ASIC
  Australian Securities and Investments Commission
 
   
ASX
  Australian Stock Exchange Limited ACN 008 624 691
 
   
Board
  the board of directors of Telstra
 
   
Bonus Loyalty Shares
  additional shares to be received by Retail Investors who purchase instalment receipts under the Australian Retail Offer at the Retail Investor price, hold instalment receipts in the same registered name until 15 May 2008 and pay the final instalment on or by 29 May 2008. For every 25 instalment receipts held 1 Bonus Loyalty Share will be received
 
   
broker
  any ASX participating organisation or a Market Participant as defined in Section 1 of the NZX Participant Rules
 
   
Caliburn Partnership
  Caliburn Partnership Pty Ltd
 
   
CDMA
  Code Division Multiple Access – a mobile standard which provides voice, data, fax and short messaging services
 
   
CEO
  Telstra’s chief executive officer
 
   
Certain Institutional Investors
  investors in the Institutional Offer for whom a minimum of 15% of the offer size before any over-allocations has been reserved, being:
 
   
 
 
n   Telstra shareholders who place bids for amounts in excess of their Initial Allocation Benefit;
 
   
 
 
n   other Institutional Investors who are not Telstra shareholders at the close of the Institutional Offer;
 
   
 
 
n   investors subscribing under the Japanese POWL in excess of any POWL Minimum Guarantee; and
 
   
 
 
n   Australian and New Zealand resident Retail Investors who participate in the Institutional Offer via broker-sponsored bids for amounts in excess of their Initial Allocation Benefit (if any)
 
   
CGT
  capital gains tax
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Table of Contents

6. Glossary (continued)
     
cheque
  cheque, in Australian dollars drawn on an Australian branch of an Australian bank, or money order
 
   
CHESS
  the Clearing House Electronic Subregister System operated by ASTC, the clearing house for ASX, for the purpose of settling transactions and registering transfers of approved financial products
 
   
Closing Date
  closing date of the Retail Offer (expected to be 9 November 2006)
 
   
Commonwealth
  the Commonwealth of Australia and where the context so permits, the Australian Government
 
   
Commonwealth’s Business Adviser
  Caliburn Partnership Pty Ltd
 
   
Communications Minister
  the Minister for Communications, Information Technology and the Arts
 
   
Concise Financial Report
  the concise financial report contained in the Annual Review of Telstra for the year ended 30 June 2006
 
   
COO
  Telstra’s chief operating officer
 
   
Corporations Act
  Corporations Act 2001 (Cth)
 
   
CSP
  Carriage Service Provider – a company that provides carriage services to individuals or organisations
 
   
Directors
  the directors of Telstra
 
   
EBIT
  earnings before interest and tax
 
   
EBITDA
  earnings before interest, tax, depreciation and amortisation
 
   
ESOP
  Telstra’s Employee Share Ownership Plans, known as TESOP 97 and TESOP 99
 
   
Final Instalment Due Date
  the date the final instalment amount is due (29 May 2008)
 
   
Finance Minister
  the Minister for Finance and Administration
 
   
financial planner
  organisations and individuals which hold an Australian Financial Services Licence issued by ASIC
 
   
Financial Report
  the consolidated financial report contained in the Annual Report of Telstra for the year ended 30 June 2006
 
   
FTTN
  fibre to the node – infrastructure that delivers fibre close to the customer premises, including broadband data and potentially television services.
 
   
Firm Offer
  the invitation under this Prospectus and the New Zealand Investment Statement to Australian and New Zealand resident Retail Investors who are offered a firm allocation of shares by participating brokers and financial planners
 
   
Future Fund
  the Future Fund Special Account and the investments of the Future Fund established under section 11 of the Future Fund Act 2006 (Cth) and described in section 2.8 ‘Future Fund overview’ and section 5.7 ‘Future Fund’
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Future Fund Board
  the Future Fund Board of Guardians established under section 34 of the Future Fund Act 2006 (Cth) and described in section 2.8 ‘Future Fund overview’ and section 5.7 ‘Future Fund’
 
   
General Public Offer
  the invitation under this Prospectus and the New Zealand Investment Statement to Australian and New Zealand resident Retail Investors
 
   
Goldman Sachs JBWere
  Goldman Sachs JBWere Pty Ltd
 
   
GSM
  Global System for Mobile communications
 
   
ICT
  Information and Communications Technology
 
   
Initial Allocation Benefit
  the allocation for Institutional Investors who are Telstra shareholders at the close of the Institutional Offer, based on the number of shares held as of the close of the Institutional Offer (adjusted for dealings up to that time – see section 5 of the Appendix ‘Further information about the Institutional Offer’). Australian or New Zealand resident Retail Investors bidding via broker sponsored bids in the Institutional Offer also receive an Initial Allocation Benefit, but reduced by any shares they have applied for in the Shareholder Entitlement Offer
 
   
Instalment Receipt and Share Registrar
  Link Market Services Limited ACN 083 214 537
 
   
Institutional Investor
  an investor to whom offers or invitations in respect of securities can be made without the need for a lodged prospectus (or other formality, other than a formality which the Commonwealth and Telstra is willing to comply with), including persons to whom offers or invitations in respect of securities can be made without the need for a lodged prospectus under section 708 of the Corporations Act provided that, if such Institutional Investor is in the United States, it must be a QIB
 
   
Institutional Offer
  the invitation to Institutional Investors described in section 2.5 ‘Institutional Offer’
 
   
Institutional Offering Memorandum
  the offer document under which the Institutional Offer to certain Institutional Investors in jurisdictions other than Australia, New Zealand and Japan will be conducted
 
   
Institutional Selling Syndicate
  ABN AMRO Rothschild; Goldman Sachs JBWere Pty Ltd; UBS AG, Australia Branch; Citigroup Global Markets Pty Limited; Credit Suisse (Australia) Limited; Daiwa Securities SMBC Europe Limited; J.P.Morgan Australia Limited; Lehman Brothers Inc.; Morgan Stanley Dean Witter; Commonwealth Securities Limited and RBC Capital Markets
 
   
International Purchase Agreement
  an international purchase agreement between the Commonwealth, Telstra and the Joint Global Coordinators, as representatives of the purchasers, expected to be dated on or around 18 November 2006
 
   
IP