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 3031 ~~June~~January ~~2006~~2007

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):

INDEX

~~Transcript~~2006 ofUpdated ~~presentation~~Euro-Commercial byPaperProgram ~~Tarek~~Information Robbiati, Deputy Chief Financial Officer Telstra, at the ASX Investor Hour Conference Appendix 3X –Initial Director’s Interest Notices Cash Capital Expenditure Guidance Telstra presentation to the UBS Media & Telecommunications Conference Telstra presentation to the Citigroup Next Generation Wireless Communications in Australia Conference Transcript of Telstra’s Chief Executive Officers address to the National Press Club in CanberraMemorandum

Announcement pursuant to Listing Rule 3.16.3 — Change of Auditor

Telstra responds to ACCC Interim Determinations on Spectrum Sharing Service Access Disputes

Telstra Corporation Limited – 2006 20-F

High Court asked to enforce shareholders’ constitutional rights

Transcript from Telstra’s teleconference – High Court challenge

17 May 2006		Office of the Company Secretary
13 December 2006		Office of the Company Secretary
The Manager		~~Level 41~~
		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~~2006 ofUpdated ~~presentation~~Euro-Commercial byPaperProgram ~~Tarek~~Information ~~Robbiati, Deputy Chief Financial Officer Telstra,~~Memorandum ~~at the ASX Investor Hour Conference~~

InAttached ~~accordance~~for ~~with~~your ~~the~~information ~~listing~~is ~~rules, I attach~~ a ~~transcript~~copy of athe ~~presentation~~2006 byupdated ~~Tarek Robbiati,~~Euro-Commercial ~~Deputy~~Paper ~~Chief~~Program Information ~~Financial~~Memorandum ~~Officer~~issued by Telstra, aton ~~the~~13 ~~ASX Investor Hour Conference, for release to the market~~December 2006.

Yours sincerely

~~Fiona Mead Acting Company Secretary On behalf of~~ Douglas Gration Company Secretary

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

Copyright in this document is reserved to the Crown in right of the Commonwealth of Australia. Reproduction of this document (or part thereof, in any format) except with prior written consent is prohibited

NATIONAL TRANSCRIPTION SERVICES PTY LTD abn: 36 110 082 507 Level 6, 221 Queen Street, Melbourne 3000. Telephone: 1800 144 188 Fax: 03 9670 8582 Offices in: Brisbane, Darwin, Canberra, Sydney, Parramatta, Townsville and Newcastle Email: [email protected]

TRANSCRIPT

TELSTRA CORPORATION LIMITED

~~ASX~~(ABN ~~INVESTOR~~32 ~~HOUR~~051 775 556)

~~SYDNEY~~Euro-Commercial –Paper ~~16 MAY 2006~~Program

~~TAREK~~Information ~~ROBBIATI~~Memorandum

~~DEPUTY~~Effective ~~CHIEF~~Date: ~~FINANCIAL~~12 ~~OFFICER~~December 2006

~~ASX 16/05/06~~Arranger Citigroup

Dealers
Banc of America Securities Asia Limited
Barclays Capital
Citigroup
Deutsche Bank AG, London Branch

Contents


CONTENTS			2

IMPORTANT NOTICE			3

SUMMARY OF THE PROGRAM			7

INFORMATION RELATING TO THE ISSUER			9

SELLING RESTRICTIONS			9

FORMS OF NOTES			13

DIRECTORY			28

8 December 2006			2

~~FACILITATOR:~~Important ~~Well, it’s still just good morning. Nice to see everybody down here again for~~Notice investor hour. As you’re all aware, investor hour is brought to you by the Australian Stock Exchange, the Australian Shareholders Association and the SDIA. We get together and pull our collaborative knowledge to bring together I guess speakers that we think you’ll find interesting. You’ve probably noticed we usually take a macroeconomic and then a microeconomic view, sometimes the stocks to watch, sometimes a broad economic focus. But today’s speaker is a little bit different. Before I get into the introductions of today’s speaker I’d like to just go through the housekeeping very quickly, obligatory requirements.

~~Exits of course you know you came in through one just there. There’s others right at~~Introduction the very back. You’ll also see them off to the side. But when you’re leaving the premises we choose not to use these ones on the side. In the event of some sort of evacuation there’s a couple of different tones that they use. There’s a beep-beep one, and that’s just to let us know that something is amiss and if we do need to leave there will be a whoop-whoop; easy, it’s fairly straightforward.

~~Next~~This ~~month’s~~Information ~~topic~~Memorandum isrelates ~~Ross Greenwood. We’ve got fliers out there on the front~~ to ~~keep~~a ~~you up~~euro-commercial topaper ~~date.~~program ~~I always suggest visiting the ASX or the ASA web site to see what’s going to be~~(“Program”) ~~on.~~established Ifby ~~I could just ask – it’s probably an opportune moment to ask you to turn off your mobiles if you’re with~~ Telstra. ~~Just~~Corporation ~~even~~Limited if(“Issuer”) ~~you’re~~under ~~not,~~which inshort ~~case~~term itpromissory ~~disturbs the speaker as~~notes we(euro-commercial gopaper) ~~along.~~may ~~Can~~be ~~I just~~issued ~~have~~from atime ~~quick show of hands, I’m interested~~ to ~~know who is at investor hour for the first~~ time. ~~So there’s some regulars here~~(“Notes”). ~~For those of you who found out about investor hour, can I~~ ~~just see a show of hands those of you who found the information via the ASX web site. Lovely, thank you very much.~~

~~Now,~~Copies ~~today’s speaker, Tarek Robbiati, was appointed to the position~~ of ~~Deputy~~this ~~Chief~~Information ~~Financial Officer~~Memorandum atmay ~~Telstra~~be indownloaded ~~2005.~~from ~~His responsibilities include~~ the role of group financial controller to the operations and program office and the finance structure supporting these areas. He also provides corporate finance advice to the CFO and CEO and supports investor relation matters including T3. I think todayIssuer’s website ~~talk will be quite insightful. Having had a quick look~~ at ~~the slides,~~ — ~~there were certainly some things of interest there to me~~http://www. ~~I won’t say any more about the speaker~~telstra. ~~I might let him give the background because he’s probably more abreast of it than I am~~com.au/abouttelstra/investor/treasury/foreign ~~So if you put your hands together and welcome Tarek to the state~~documentation.cfm

MRUnder ~~ROBBIATI:~~the ~~Thank~~Program ~~you~~the ~~and~~Issuer ~~welcome,~~may ~~everybody.~~issue ~~I’m~~Notes ~~Tarek~~outside ~~Robbiati and I’m here standing on behalf of John Stanhope, my boss, chief financial officer of Telstra. He sends his apologies, but he had to attend a pressing family matter today, and that’s~~ the ~~reason~~United ~~why~~States ~~you~~pursuant ~~don’t see him here and I’m substituting him. What we’re going~~ to ~~do today is to share some key elements of Telstra’s new strategy that~~Regulation S ~~was outlined first on 15 November~~(“Regulation ~~2005.~~S”) ~~But~~of ~~before~~the IUnited doStates ~~that,~~Securities ~~I’d~~Act ~~just like to give you a couple~~ of ~~points about myself. I am European~~1933, ~~I’m~~as ~~Italian.~~amended ~~I’ve worked in~~ (the ~~telecom~~“Securities ~~industry for 15 years, either~~Act”).

~~ASX~~The ~~16/05/06~~Issuer 1has ~~TAREK~~appointed ~~ROBBIATI~~Citibank International plc as Arranger and each of the Dealers (as defined in the “Summary of the Program”) as dealers for the Notes and authorised and requested the Dealers to circulate the Information Memorandum on its behalf to purchasers or potential purchasers of Notes.

Issuer’s responsibility

This Information Memorandum has been prepared by and issued with the authority of the Issuer. The Issuer accepts responsibility for the information contained in this Information Memorandum. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case) the information contained in this Information Memorandum is in accordance with the facts and is not misleading and does not omit anything likely to affect the import of such information.

Documents incorporated by reference

This Information Memorandum is to be read in conjunction with all documents which are deemed to be incorporated by reference (see “Documents incorporated by reference” below). This Information Memorandum shall, unless otherwise expressly stated, be read and construed on the basis that such documents are so incorporated and form part of this Information Memorandum. References to “Information Memorandum” are to this Information Memorandum and to any other document incorporated by reference collectively and to any of them individually.

No independent verification

The only role of the Arranger, the Dealers and the Issuing and Paying Agent (each as defined in the “Summary of the Program”) in the preparation of this Information Memorandum has been to confirm to the Issuer that their respective descriptions under the heading “Directory” are accurate as at the Preparation Date (as defined below).

Apart from the foregoing, none of the Arranger, the Dealers nor the Issuing and Paying Agent has independently verified the information contained in this Information Memorandum. Accordingly, no representation, warranty or undertaking, express or implied, is made, and no responsibility or liability is accepted, by them as to the accuracy or completeness of this Information Memorandum or any further information supplied by the Issuer in connection with the Program.

Independent advice

This Information Memorandum contains only summary information concerning the Notes. It is not intended to provide the basis of any credit or other evaluation in respect of the Issuer or the Notes and should not be considered as a recommendation by the Issuer, the Arranger, the Dealers or the Issuing and Paying Agent that any recipient of this Information Memorandum or any other financial statements should purchase any Notes or any rights in respect of any Notes. Each investor contemplating purchasing any Notes or any rights in respect of any Notes under the Program should make (and shall be taken to have made) its own independent investigation of the financial condition and affairs of, and its own appraisal of the creditworthiness of, the Issuer.

No advice is given in respect of the taxation treatment of investors in connection with investment in any Notes and each investor is advised to consult its own professional adviser.

~~as a consultant consulting for the vast majority of telcos in Europe, or as an equity~~Tax analyst, the one who publish research reports. I worked for Lehman Bros as an equity analyst for four years and then my last two years in my career I spent at Orange in the UK working for Orange and the France Telecom Group. Now I’m here in Australia and I’m very much enjoying it.

SoNo ~~now~~comment ~~back~~is ~~onto~~made ~~the~~or ~~real~~advice ~~stuff.~~given ~~Let’s~~by ~~talk about~~ the ~~strategy~~Issuer, ~~but I’m afraid before we talk about~~ the ~~strategy~~Arranger ~~elements~~or Iany ~~have~~Dealer toin ~~refer~~respect ~~you to the disclaimer. So please~~of ~~take~~taxation amatters ~~few~~relating ~~seconds~~ to ~~read this because there are certain things that we mention here that have to be put in~~ the ~~proper~~Notes ~~legal~~and ~~framework. Thank~~each ~~you.~~investor ~~Now, let’s talk about our strategy. Telstra~~ is aadvised ~~business that has strong advantages. It is the largest telecom operator in Australia that offers the full suite of services~~ to ~~capitalise~~consult ontheir ~~the trend of truly converged services which I will~~own ~~describe~~professional ~~in a moment~~adviser.

~~First,~~The ~~we have~~EU anhas ~~existing~~adopted ~~customer~~a ~~relationship~~Directive ~~with~~regarding ~~10 million~~the ~~fixed-line~~taxation ~~customers~~of ~~and~~savings ~~nearly nine million mobile customers throughout the country~~income. We ~~intend~~Subject to ~~leverage~~a ~~these~~number ~~relationships to drive penetration~~ of ~~newer products such as~~ ~~broadband~~important ~~and~~conditions ~~the~~being ~~application~~met, ~~and~~Member ~~content~~States weare ~~can~~required ~~bring~~ to ~~customers~~ toprovide ~~make~~tax ~~businesses~~authorities ~~more~~of ~~productive and enrich consumers’ lives.~~other InMember ~~addition,~~States wedetails ~~have~~of anpayments ~~excellent~~of ~~advertising~~interest and ~~search~~other ~~capability~~similar ~~via~~income ~~Sensis.~~paid ~~Remember~~by ~~every month more than 12 million Australians use~~ a ~~Sensis~~person ~~service.~~to Inan individual ~~the~~resident ~~vitally~~in ~~important~~another ~~emerging broadband~~Member ~~market~~State, ~~Telstra~~except isthat ~~the~~Austria, ~~leading~~Belgium ~~player~~ and weLuxembourg ~~are extending our lead. Over the last two~~instead ~~years~~impose ~~our retail~~a ~~broadband~~withholding ~~market~~tax ~~share~~system ~~has~~for ~~increased~~a ~~from~~transitional 37period ~~per~~unless ~~cent~~during tosuch 43period ~~per~~they ~~cent and it’s growing~~elect ~~again~~otherwise.

WeDate have the strongest brand name in the telecoms market in Australia, a name that just every member of the community is familiar with. Along with our leading domestic presence, we also have international presence through the recently merged CSL and ~~New~~currency ~~World Mobility Group in Hong Kong, TelstraClear in New Zealand, and Reach. Telstra has the scale and the scope in telecoms in Australia with a full suite~~ of ~~products~~ ~~allowing us to drive economies of scale. This is a very important point because~~information ~~this full suite of products and ability to integrate them allows us to achieve cost reductions as we rationalise platforms and streamline the business.~~

~~With~~The ~~this,~~information ~~we’re~~contained ~~well-positioned~~in tothis ~~defend~~Information ~~against~~Memorandum ~~emerging~~is ~~threats.~~prepared Ifas weof ~~look~~its atPreparation ~~overseas~~Date. ~~experience,~~Neither ~~particularly~~ the ~~US,~~delivery weof ~~are~~this ~~currently~~Information ~~seeing telcos~~Memorandum ~~reconsolidating~~nor toany ~~gain~~sale ~~the~~made ~~advantages~~in ofconnection anwith ~~integrated~~this Information ~~model,~~Memorandum ~~that~~at ~~same~~any ~~integrated~~time ~~model~~ implies that wethe ~~already~~information ~~have~~contained ~~here~~in atit ~~Telstra.~~concerning Inthe Issuer ~~Europe~~is ~~it’s~~correct ~~not~~at ~~different.~~any Wetime ~~are~~subsequent ~~seeing~~to ~~pure~~the ~~wireless players~~Preparation ~~who~~Date ~~are~~or atthat aany ~~disadvantage~~other information supplied in ~~certain~~connection ~~markets~~with ~~push~~the ~~for~~Program ~~integrated~~is ~~solutions~~correct onas ~~their~~of ~~own. Finally,~~any ~~our~~time ~~financial~~subsequent ~~position~~to asthe aPreparation Date. ~~company~~In isparticular, ~~sound.~~the WeIssuer ~~have~~is anunder ~~investment~~no ~~great~~obligation ~~credit rating~~to ~~and~~update this ~~gives~~Information usMemorandum ~~the~~at any ~~flexibility~~time toafter ~~fund~~an ~~the~~issue ~~sweeping transformation~~ of ~~our~~Notes ~~business that~~in isrespect ~~necessary~~of asthat weissue ~~enter~~of ~~the broadband world~~Notes.

~~Now,~~In ~~these were the good news. You may ask, if~~ this isInformation ~~all so nice~~Memorandum, ~~why~~“Preparation doDate” ~~we have to~~means: ~~change? Well, before I get into the details of our new strategic~~

~~ASX~~• ~~16/05/06~~in 2relation ~~TAREK~~to ~~ROBBIATI~~this Information Memorandum, the date indicated on its face or, if the Information Memorandum has been amended or supplemented, the date indicated on the face of that amendment or supplement; • in relation to the Annual Report and any financial statements incorporated in this Information Memorandum, the date up to, or as at, the date on which the Annual Reports and statements relate; and • in relation to any other item of information which is to be read in conjunction with this Information Memorandum, the date indicated on its face as being its date of release.

The Arranger, the Dealers and the Issuing and Paying Agent expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Program or to advise any holders of Notes of any information coming to their attention with respect to the Issuer. Investors should review, amongst other things, the documents deemed to be incorporated in this Information Memorandum by reference when deciding whether or not to purchase any Notes. Also, the Issuer makes filings with regulatory authorities from time to time, which may include information material to investors. Copies of such filings are available from the Issuer’s website www.telstra.com.au/abouttelstra/investor/index.cfm.

Supplemental Information Memorandum

The Issuer has given an undertaking to the Arranger and the Dealers that, unless the Issuer does not intend to issue Notes under the Program for the time being, if at any time during the life of the Program any fact, condition, matter or thing of which the Issuer becomes aware renders anything contained in this Information Memorandum inaccurate, incomplete or misleading in any material respect, it will prepare an amendment or supplement to this Information Memorandum or publish a replacement Information Memorandum.

No authorisation

No person is or has been authorised by the Issuer or the Dealers to give any information or make any representations not contained in or not consistent with this Information Memorandum or any other information supplied in connection with the Issuer, the Program or the issue or sale of the Notes and, if given or made, such information or representation must not be relied on as having been authorised by the Issuer, any of the Arranger, the Dealers or the Issuing and Paying Agent.

Ratings

This Information Memorandum contains references to ratings. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the

~~direction~~relevant ~~let~~rating ~~me just take you back a step and explain why it is imperative that we develop this new strategy and implement it and why we need to make some fundamental changes~~agency. ~~The reality is that the financial trends at Telstra have not been good and~~ they have continued from the last fiscal year. Telstra’s top line growth rate has been decelerating. What is concerning is that PSTN revenues – the revenues from the traditional fixed telephony business – are declining at such a rate that the revenue base associated with our growth from broadband, mobile and Sensis is not yet big enough to compensate for the decline of the PSTN.

~~Our~~Distribution ~~telecom-related revenue makes a shifting towards lower margin products with PSTN~~arrangements revenues now at 33 per cent of total sales compared to 40 per cent two years ago. Broadband growth is strong and its margin will improve as we build scale and reduce operating costs. It is essential that Telstra maximises its market share in newer revenue streams to capture as much of the migration as possible. On the cost side of the equation – you can see that on the right-hand side of the graph – trends have also been concerning. With multiplicity of network elements and rapidly rising traffic volumes, the cost of running the business is growing rapidly. Multiple evolutions of mobile technology mean that we are currently running three different wireless networks. We have multiple evolutions of data services, most of which are still in the network. This is clearly inefficient.

~~Now,~~The ~~how~~distribution ~~are~~of wethis ~~going~~Information toMemorandum ~~address~~and ~~this?~~the Ofoffer ~~course~~or ~~our~~sale ~~objective~~of isNotes tomay ~~create~~be restricted by ~~long-term~~law ~~shareholder~~in ~~value~~certain jurisdictions. ~~But~~For ~~what~~a ~~does~~description ~~that~~of ~~mean?~~certain ~~Our~~restrictions ~~vision~~on isoffers toand dosales ~~for~~of Notes ~~customers~~and ~~what no-one~~on ~~else~~distribution ~~has~~of ~~done~~this inInformation Memorandum, see “Selling Restrictions”. None of the Issuer, ~~past~~the Arranger, the Dealers nor the Issuing and Paying Agent represents that isthis document may be lawfully distributed, ~~creating~~or athat ~~world~~any ofNotes ~~one~~may ~~click,~~be ~~one~~lawfully ~~touch~~offered, ~~one~~in compliance with any ~~button,~~applicable ~~one~~registration ~~screen,~~or ~~one-step~~other ~~solutions~~requirements ~~that~~or ~~are~~a ~~simple~~statement of opinion (or a report of either of those things) in any such jurisdiction, ~~easy~~or ~~and~~under ~~valued~~an byexemption ~~individuals~~available in that jurisdiction, or ~~businesses~~assume ~~and~~any ~~governments~~responsibility ~~alike~~for facilitating any such distribution or offering. In particular, no Weaction ~~will~~has ~~get~~been totaken ~~know~~by ~~our~~the ~~customers~~Issuer, inthe aArranger, ~~way~~the ~~that~~Dealers ~~was~~or ~~never~~the ~~done~~Issuing ~~before~~and Paying Agent ~~through~~which ~~market-based~~would ~~management.~~permit ~~Market-based~~a ~~management~~public isoffering ~~simply~~of ~~the~~any ~~discipline~~Notes ofor ~~making~~distribution ~~sure that~~of wethis ~~optimise~~Information ~~our~~Memorandum ~~ability~~in any tojurisdiction gowhere toaction ~~market~~for ~~and~~that ~~acquire~~purpose ~~customers~~is required.

WeTHE ~~will~~NOTES ~~also~~HAVE ~~provided~~NOT ~~integrated~~BEEN ~~communication~~AND ~~services.~~WILL WeNOT ~~will~~BE ~~invest~~REGISTERED ~~to take~~UNDER ~~complexity~~THE ~~out~~SECURITIES ofACT ~~our~~OR ~~business~~THE ~~and~~SECURITIES ~~simplify our infrastructure. We must absolutely win~~LAWS inOF ~~broadband~~ANY ~~and~~STATE ~~wireless~~IN byTHE ~~doing~~UNITED itSTATES ~~smarter~~AND, ~~around~~SUBJECT ~~value-added~~TO ~~and~~CERTAIN ~~integrated~~EXCEPTIONS, ~~services~~MAY ~~and~~NOT ~~not just~~BE ~~price.~~OFFERED, ~~We will invest in new services and applications to differentiate ourselves in the~~SOLD, ~~market.~~DELIVERED ~~I’ve~~WITHIN ~~said~~THE ~~before~~UNITED ~~Telstra~~STATES ~~had~~OR ~~the~~TO, ~~breadth~~OR ofFOR ~~products~~THE ~~which~~ACCOUNT ~~is unique in the industry. We will accelerate growth opportunities at Sensis. Sensis we refer to as our information services~~OF, ~~search~~US ~~and~~PERSONS ~~transaction~~(AS ~~business.~~DEFINED ~~And we will target~~IN ~~investment~~REGULATION ~~where we can create value for our shareholders~~S). ~~I will address all of these~~ ~~points in the rest of the presentation.~~

~~We’re~~No ~~going~~application will be made to ~~deliver~~list athe ~~value~~Notes ~~proposition~~on toany ~~customers~~stock ~~based~~exchange. onA ~~our~~communication ~~competitive~~of ~~advantage~~an asinvitation ~~Australia’s~~or ~~leading~~inducement ~~telecom~~to ~~company.~~engage ~~Market-based~~in ~~management~~investment isactivity (within the ~~starting~~meaning ~~point~~of ~~in our~~Section 21 ~~value~~of ~~proposition,~~the Financial Services and ~~I’ll~~Markets ~~speak~~Act ~~about~~2000 ~~that~~(“FSMA”)) ~~shortly.~~received ~~The~~in ~~next~~connection ~~plank~~with ofthe ~~our~~issue ~~value~~or sale of ~~proposition~~any isNotes ~~our~~will ~~differentiated~~only ~~content.~~be Wemade ~~are~~in ~~leveraging~~circumstances ~~Telstra’s~~in ~~applications~~which ~~and~~Section 21(1) of the FSMA does not apply to ~~services~~the Issuer.

~~ASX~~No ~~16/05/06 3 TAREK ROBBIATI~~offer

This Information Memorandum does not, and is not intended to, constitute an offer or invitation by or on behalf of the Issuer, the Arranger, the Dealers or the Issuing and Paying Agent to any person to subscribe for, purchase or otherwise deal in any Notes nor is it intended to be used for the purpose of or in connection with offers or invitations to subscribe for, purchase or otherwise deal in any Notes.

Fees

The Arranger, each Dealer, and their respective subsidiaries, directors and employees may have pecuniary or other interests in the Notes and may also have interests pursuant to other arrangements and may receive fees, brokerage and commissions and may act as a principal in dealing in any Notes.

References to currencies

In this Information Memorandum, unless otherwise specified or the context otherwise requires, references to “Australian Dollars” and “A$” are to the lawful currency of the Commonwealth of Australia, references to “US Dollars” and “US$” are to the lawful currency of the United States of America and reference to “euro” and “EUR” are references to the currency introduced at the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

Documents incorporated by reference

The following documents are incorporated in, and taken to form part of, this Information Memorandum:

•		all amendments and supplements to this Information Memorandum prepared by the Issuer from time to time;

•		the most recent published financial statements of the Issuer from time to time which are publicly available and any subsequent interim financial statements of the Issuer and its subsidiaries (“Group”) from time to time which are publicly available;

•		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; and

•		all documents issued by the Issuer and stated to be incorporated in this Information Memorandum by reference.

~~and~~Any ~~the~~statement ~~exclusive~~contained ~~content~~in ofthis ~~BigPond,~~Information ~~Australia’s~~Memorandum ~~leading~~or ~~ISP,~~in ~~and~~any ~~Sensis,~~of ~~our~~the ~~information~~documents incorporated by ~~services~~reference in, ~~search~~ and ~~transaction~~forming ~~business,~~part toof ~~provide~~this aInformation ~~richer~~Memorandum, ~~customer~~shall ~~experience.~~be ~~Not~~modified ~~only~~or ~~we have~~superseded for the ~~differentiation~~purpose of ~~content,~~this ~~but~~Information ~~also~~Memorandum weto ~~can~~the ~~provide~~extent ~~this~~that ~~over~~a ~~multiple~~statement ~~devices~~contained toin ~~deliver~~any document asubsequently ~~truly~~incorporated ~~seamless integrated~~by ~~customer~~reference ~~experience~~modifies or supersedes such statement.

~~This~~Copies ~~isn’t something that is out there in the future. It is here and now. It’s available now to our BigPond customers nationally and within our metro 3G coverage area. Upon completion~~ of ~~our~~documents ~~national~~incorporated ~~high-speed~~by 3Greference ~~mobile network~~may ~~these services will~~ be ~~available~~obtained ~~nationally for all mobile customers. We have already successfully moved Sensis~~ from ~~being~~the aIssuer ~~pure print business 10 years ago to being a market leader in online search. We’re taking that integration step further~~ and ~~it’s~~are ~~not~~available ~~only about enabling you to find what business you’d like to buy from, or in the case of Trading Post, enabling you to find a product you might be looking~~ for, ~~but~~inspection weat ~~are taking it one step further, which is enabling you to actually do~~ the ~~transaction.~~Issuer’s Wewebsite ~~have already started this in our Trading Post business~~www.telstra.com.au/abouttelstra/investor/index.cfm.

~~This value proposition, in our view, is attractive to customers because it delivers to them~~6 what they want, when they want it, and above all, does it in a simple way. This simplicity is critical because you shouldn’t have to be a technology expert to be able to do these things. Customers simply won’t use it if it’s going to take them 20 minutes to figure out how to do it. So our vision, our one click, one button, one touch, one screen, one step simplicity is what we are driving towards. The simplicity matched with our ability to integrate, differentiate and know our customers better than anyone else will allow us to provide real value to customers, value that they’ll be willing to pay for. The result will be a change in the current pricing dynamics from commoditisation of access to a model of value-based pricing. Remember, customer value drives shareholder value.

Now, let me talk about 3G. As you may know, we’re building a single national 3G network on the 850 MZ spectrum. Currently, only Telstra Cingular in the United States and Rogers Communications in Canada are using the 850 spectrum. Cingular is launching their network in June of this year. There has been a fair amount of press lately about closing down our CDMA network. The CDMA network will not be turned off until the coverage of our 3G network is at least as good. Around the world main carriers are moving away from CDMA. For instance, if you look at carriers in Korea, which represent 14 per cent of the worldwide CDMA market, they are all moving to 3G.

In addition, there is a significant number of operators considering building 3G networks on the 850 spectrum. Some of these also involve swapping from CDMA. Why is that? Well, it’s pretty simple. There’s a law of physics that says the lower the spectrum the greater the area that can be covered. So for a landscape like Australia we need a network that is going to cover a large distance without increasing the costs associated with rollout and maintenance. With the coverage of 850 we have been able to minimise the number of base

ASX 16/05/06 4 TAREK ROBBIATI

~~stations~~Summary weof ~~need, hence~~ the ~~capital we will employ, to service at least the same~~Program ~~population.~~

ByThe ~~building~~following ~~the~~is ~~850~~a ~~network~~brief wesummary ~~will have Australia’s~~ only ~~truly~~and ~~national~~should ~~3G mobile~~be ~~network.~~read ~~This will mean all Australians living~~ in ~~coverage~~conjunction ~~areas~~with ~~will~~the ~~have~~rest ~~access~~of tothis ~~our~~Information ~~superior~~Memorandum ~~coverage~~ and ~~content. For the bush~~, itto ~~is high speed wireless network. It’s much better than what currently CDMA provides. We talked about coverage, but this is not~~ the ~~only advantage~~extent ~~of 850. 850 also provides superior in-building coverage~~applicable, ~~which is of course critical to customers when they are at home or in~~ the ~~office.~~Terms ~~With~~and aConditions ~~truly national network we can rationalise our platforms to bring greater economies~~ of ~~scale and reduce costs over time. And we are currently in~~ the ~~process of acquiring a range of handsets and PC cards from vendors~~Notes.

~~We are seeing a good range of handsets being developed. The handsets we will be able to~~General offer will cover a range of brands and bands, both for use in Australia and for roaming overseas. But 3G is not just about handsets; it’s also about mobile broadband by either the PC with PC cards or PCs having 3G antennas, the like of which Dell and Lenovo are producing overseas. We will have a number of cards available at launch.

Now, after 3G let’s move onto the next major component of our transformation. This is referring to the IT simplification. Our IT infrastructure is currently extraordinarily complex. As you can see from the slide, we have more than 1252 IT systems which we intend to reduce by at least 80 per cent over the next five years. We’re focusing on the implementation of fundamentally new capabilities in both the BSS – that is, the billing support systems – and the OSS areas – that is, the operating support systems – areas, which are needed to help us to manage the next generation networks.


Issuer:		Telstra Corporation Limited (32 051 775 556)

Arranger:		Citibank International plc

Dealers:		The names and contact details of the current Dealers are listed in the Dealer Directory.

Issuing and Paying		Deutsche Bank AG
Agent:

Purpose:		Proceeds from the issue of Notes will be used for general corporate funding requirements.

Size:		There is no limit on the aggregate face value of Notes which may be issued under the Program.

Currencies:		Notes may be denominated in Australian Dollars, euro, US Dollars and any other currency which is freely transferable and freely convertible into Australian Dollars, euro or US Dollars provided that it is lawful and in compliance with all requirements of any relevant central bank and any other relevant fiscal, monetary, regulatory or other authority, for deposits to be made in such currency and for such Note to be issued, offered for sale, sold and delivered.

Denominations:		A minimum denomination of A$500,000, EUR500.000, US$500,000 (or a denomination not less than the equivalent in any other currency) or such other amount as the Issuer and the relevant Dealer(s) may agree, subject to applicable legal and regulatory requirements.

Form of the Notes:		The Notes will be in bearer form. Each issue of Notes will be represented by a Global Note which will be exchangeable only in whole for Definitive Notes upon default or in certain other limited circumstances set out in the permanent Global Note.

Yield Basis:		The Notes may be issued at a discount or bear interest at a fixed or floating rate or calculated by reference to an index or formula.

Tenor of the Notes:		Not less than 1 nor more than 364 days (from and including the date of issue), subject to legal and regulatory requirements.

Redemption:		The Notes may be redeemed at par or at an amount calculated by reference to an index or formula.

Clearing systems:		Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) or any other recognised clearing system as may be agreed from time to time.

Delivery:		Global Notes will be delivered to a common depositary for Euroclear and Clearstream, Luxembourg. Accountholders will, in respect of Global Notes, have the benefit of a Deed of Covenant given by the Issuer dated 12 December 2006 (“Deed of Covenant”), copies of which may be inspected during normal business hours at the specified office of the Issuing and Paying Agent.

This dramatic simplification of platforms and products and plans will pave the way for implementation of these new capabilities. There will be multiple benefits from that. We will have less complexity, less outages, lower costs and simplified processes for our front of house and back of house employees. We do have an aggressive timeline. Therefore, this begs the question, how are we going to do it? First, we’re going to have world-class partners, and second, we’re aiming to avoid custom builds. We’re aiming to avoid any custom software developments which is costly and expensive and in the long run difficult to maintain. It’s a huge task that confronts us, but radical change is needed here.

Now, let’s talk about marked-based management. You’ve heard the acronym a couple of times by now. The goal of market-based management is for us to know our customers like never before and deliver integrated services tailored to their needs. Our strategic marketing initiatives are the key plank in changing Telstra into a very customer-driven organisation. We are putting the customer at the centre of everything we do, and this will be reflected through what we believe will be improved market shares resulting in higher ARPU.

ASX 16/05/06 5 TAREK ROBBIATI

ARPU stands for the average revenue per customer. And we will have a reduced churn. There will be emphasis on profit and loss measurement at the customer segment level.

The market structure determined under market-based management drives the organisational design of our business. We have created dedicated teams to deliver value to each segment. Ultimately the real key to reinvigorating our top-line revenue growth is knowing our customer intimately and delivering value that they will be willing to pay for. We continue to focus on integrated voice, video and data services to truly differentiate what we can do for customers.

Now, let me clarify a few points about regulation. Particularly I’d like to clarify the regulatory principles that we are seeking for existing and planned investments. We all understand that there is substitution from fixed line to wireless, from legacy services to IP-based services, from legacy services and networks to next generation high speed networks, both fixed and wireless. We recognise that in the instances where there is a clear bottleneck hotspot that regulation is required to provide competitors access to the bottleneck services.

However, when it comes to undertaking investments in new networks that will provide high speed and improved services to customers at a significant cost to the company, the company needs to be able to earn a return for undertaking this investment. Our shareholders expect and are entitled to earn a return on significant investments where their capital is at risk. That’s our argument for Fibre to the Node. We do not want an access holiday. We will provide competitors access only on commercial terms.

On mobiles the recent comments that the 3G network should be regulated we believe are without foundation. Mobile has flourished due to the competitive nature of the industry, not through it being regulated. We welcome, therefore, the comments of the Minister of Finance that the government wants to ensure regulatory certainty and that he is quite confident that access to new mobile services will not be regulated.

Now, let’s talk about our guidance for the end of this fiscal year ’05-’06. As we announced back at our half-year results in February, we expect earnings before interest and tax to decline 7 to 10 per cent before the impacts of the strategic review overlays. Including the strategic review overlays we impact EBIT to decline by 15 to 20 per cent, that, is the second bar chart that you see on the chart. This is due to the additional investment we need to make in order to achieve future growth and simplify our business. This will increase to 21 to 26 per cent should we take a redundancy provision in June 2006 which satisfies the appropriate rules. The regulatory caveat remains pending key decisions by the regulator and/or the government. Notwithstanding this, we remain committed to improving long-term shareholder value.

ASX 16/05/06 6 TAREK ROBBIATI

To conclude, let’s summarise what Telstra’s transformation will deliver. The transformation of Telstra will deliver a needs-based solution to customers using the concept of one click, one touch, one screen, one button, one step, which represents truly integrated services in an easy to understand way. On the network side we’re building a state-of-the-art national 3G wireless network delivering speeds up to 14 mbps within six months of turning on the network with an average speed of 550 kbps to 1.1 mbps.

We are also building an IP core network which will deliver greater efficiency through common standards and platforms, a simpler environment in which to operate and lower unit costs. The flexibility the IP networks gives us will greatly improve our speed to market in a rapidly changing world. BigPond, it’s a huge asset in the portfolio and represents the future of this company. And I’m talking about broadband on both wireline and wireless platforms. We will integrate BigPond content across Telstra’s full suite of products which will grow access and content revenue. Our target is to further extend our lead in broadband by targeting retail market share growth.

Another growth engine for Telstra is Sensis. Sensis offers Australians choice. You can find what you need when, where and how you choose. Over 80 per cent of all Australian online advertisers are Sensis customers, offering unparalleled opportunity in the world of commercial search. Further integrating Sensis content search and transaction capability with Telstra’s communication platforms will set us apart from highly vociferous competition in this space.

Now, let me share with you a little bit more of a longer-term perspective than the previous guidance that we talked about for FY06. Here are our stakes in the ground. In closing, let me just reiterate these. We are committing to 2 to 2.5 revenue growth per year over the next five years with 20 to 30 per cent of revenue growth from new services over the next three years. Our 2010 cost structure will be no higher than the annualised number of the first half of the fiscal year 2006, that is, 1 January 2006 that we reported in February. By fiscal year 10 we expect EBITDA margins will have recovered between 50 and 52 per cent.

We will also have 6000 to 8000 fewer employees and contractors on our payroll in three years’ time. We’re going to spend $2.5 billion to $3.5 billion in capital over and above our original plan in the next three years to transform the business. After transforming the business we expect capex relative to sales to fall to 12 per cent of revenues and from then on to grow in proportion to future revenue growth. We expect to generate free cash in the order of 6 to 7 billion by 2010. I hope that what I’ve said today helps you understand more of what we’re doing with our transformation. I now thank you very much for listening and turning on to the audience for questions.

Q: What EPS could be inferred in 2010 given the cash flow of 6 to 7 billion.

ASX 16/05/06 TAREK ROBBIATI

MRStatus ~~ROBBIATI~~of the Notes: The ~~question~~Notes ~~is,~~will ~~what~~constitute ~~EPS~~direct, ~~would~~unconditional, beunsubordinated ~~inferred~~and inunsecured ~~2010~~obligations ~~given~~of the ~~cash~~Issuer ~~flow~~and ofwill ~~6 to~~rank ~~7 billion.~~pari Inpassu ~~the~~with ~~EPS~~all ~~calculations~~other ~~there~~unsecured ~~are~~and ~~many~~unsubordinated ~~things~~obligations ~~that~~of ~~come~~the ~~in.~~Issuer, Atexcept ~~this~~liabilities ~~stage~~mandatorily wepreferred ~~have not~~by ~~issued such a precise guidance~~law. WeTaxation: ~~prefer~~All topayments ~~guide investors~~ on the 6Notes towill ~~7 billion~~be ~~number that~~made Ifree ~~gave~~and ~~you~~clear ~~before, because~~of weany ~~think~~withholding ~~it’s~~taxes aof ~~more~~the ~~appropriate~~Commonwealth ~~view~~of toAustralia, ~~look~~subject atto ~~the~~certain ~~business~~customary ~~today. It’s~~exceptions ~~always~~as ~~better~~set toout ~~talk~~ in ~~terms~~the ofNotes. ~~free~~Listing: ~~cash~~The ~~flow~~Notes ~~because,~~will asnot ~~you~~be ~~know,~~listed ~~whenever you~~on ~~talk~~any ~~about~~stock ~~EPS~~exchange. ~~you~~Selling ~~have~~restrictions: ~~other~~The ~~elements~~offering ~~that~~and ~~come~~sale inof ~~like~~the ~~depreciation,~~Notes etis ~~cetera. At~~subject ~~this~~to ~~stage~~all weapplicable ~~are~~selling ~~not~~restrictions. ~~willing~~See to“Selling ~~provide~~Restrictions” ~~any~~below. ~~guidance~~Governing onlaw: anEnglish ~~EPS~~Rating: ~~level.~~The Wecredit ~~stick~~ratings to of the 6Issuer tocan ~~7 billion~~be wefound ~~provided~~at on- ~~the cash flow basis~~http://www. telstra.com.au/abouttelstra/investor/treasury/index.cfm

Q:Please ~~(Indistinct)~~refer to the Issuer’s website for information regarding the Issuer and a business description -http://www.telstra.com.au/abouttelstra/investor/treasury/index.cfm

MR ROBBIATI: The question is, how can we defend our market against voice over IP, the voice over internet protocol? Well, voiceover IP is a promising technology. It is no doubt something that we have absolutely to be fully aware of. Having said so, you have to look at the whole suite of services. Let’s not forget that voice over IP provides do not, for instance, offer emergency 000 services and they have to run over an infrastructure provided by a telco that does cover these. So it is not the only solution that will be the panacea for the industry. It is just one set of services that we have to be very aware of and we are aware of, but it’s not going to be the only game in town.

Let’s not forget also that to operate a voiceover IP network you need an IP core network. I talked about that before. We are preparing Telstra for an IP core network. We are investing substantial amounts of money, we talked about $2.5 billion to $3.5 billion, part of which goes into building an IP core network. So we are taking steps in that sense because we see there is a cost advantage. And some operators around the world have already done that.

Q: Can you outline what you are doing for training for technicians and other qualified staff in the next five years, please, at grass level and at graduate level, please.

MR ROBBIATI: I’m glad you’re asking the question because it’s always hard to put on a chart that you’re letting 6000 to 8000 employees go without changing the way people do their jobs on a day-to-day basis. We are investing very heavily in training. All our technicians – we have created a training academy and we are investing more than $200 million in training our field force to make sure that they are (a) equipped with the latest technology, but also that they are aware about the latest practices that they have to employ in operations to actually do their job properly. So this is a pretty substantial investment on any benchmark you may want to pick worldwide. It’s 200 million on training just for the field force is a respectable sum.

Q: (Indistinct)

ASX 16/05/06 TAREK ROBBIATI

MRSelling ~~ROBBIATI: We said 6000 to 8000 people over three and then 12,000 over five. We have~~Restrictions ~~identified groups of individuals in the company that will be asked to leave, but this is all I can say at this stage. We haven’t identified more specifically who these people are.~~

Q:Pursuant to the dealer agreement dated on or about 12 December 2006 between the Issuer and the Dealers as amended and supplemented from time to time (~~Indistinct~~“Dealer Agreement”), the Notes will be offered by the Issuer through the Dealers or to third parties who are not Dealers. The Issuer will have the sole right to accept any such offers to purchase Notes and may reject any such offer in whole or (subject to the terms of such offer) in part. Each Dealer has the right to reject any offer to purchase Notes made to it in whole or (subject to the terms of such offer) in part. The Issuer is entitled under the Dealer Agreement to appoint one or more Dealers as a dealer for a particular issue of Notes.

MR ROBBIATI: Yes, but don’t forget it’s unfortunate, it’s very, very unfortunate, madam, that we have to take that step. You would want never to take such a step, but the reality is that unfortunately when your cost structure is not commensurate to your revenues – and this is what I kind of showed at the beginning of the presentation – then you have to take tough medicine. If we don’t take these steps it’s going to be a lot worse moving forward. I can tell you from my own experience I worked in a large telco in Europe, which I won’t give the name. You have vast elements of the cost structure which remain unaddressed. From my perspective it remains a time bomb waiting to explode. So as soon as you know something in this business or in any other business, as soon as you realise that your costs are outgrowing your revenues you have to take those steps. As painful as these steps are, they’re less painful to be taken today than if they were to be taken in the future and having missed on the fixes that you can implement today.

1		General

		No action has been taken by the Issuer in any jurisdiction that would permit a public offering of the Notes or possession or distribution of this Information Memorandum or any relevant Supplement, advertisement or other offering material in any jurisdiction where action for that purpose is required.

		Accordingly, by its purchase and acceptance of Notes issued under the Dealer Agreement, each Dealer has represented and agreed that it will observe all applicable laws and regulations in any jurisdiction in which it may offer, sell, or deliver Notes and that it will not directly or indirectly offer, sell, resell, reoffer or deliver Notes or distribute the Information Memorandum or any other document, circular, advertisement or other offering material in any country or jurisdiction except under circumstances that will result, to the best of its knowledge and belief, in compliance with all applicable laws and regulations.

2		Australia

		No prospectus or other disclosure document (as defined in the Corporations Act ) in relation to the Program or the Notes has been lodged or will be with the Australian Securities and Investments Commission (“ASIC”). Each Dealer has represented and agreed that it:

Q:(a) has not offered or invited application, and will not offer or invite applications, for the issue, sale or purchase of the Notes in Australia (~~Indistinct~~including an offer or invitation which is received by a person in Australia) ; and (b) has not distributed or published, and will not distribute or publish, the Information Memorandum or any other offering material or advertisement relating to the Notes in Australia,

MRunless ~~ROBBIATI:~~(i) the ~~The~~minimum ~~question~~aggregate consideration payable by each offeree is at least A$500,000 ~~now~~or ~~many~~its ~~employees~~equivalent in ~~percentage~~any ofother ~~the~~currency ~~workforce?~~(disregarding Wemoneys ~~have~~lent by the offeror ~~approximately~~or ~~52,000~~its ~~employees~~associates) ~~and~~or ~~contractors~~the ~~today~~offer or invitation otherwise does not require disclosure to investors in ~~Telstra~~accordance with Part 6D.2 Soof 12the Corporations Act 2001 of Australia and (ii) such action complies with all applicable laws,~~000~~ ~~over~~regulations 52and directives,~~000~~ ~~over~~and (iii) does ~~five~~not ~~years~~require ~~that’s~~any ~~what~~document ~~you’re~~to ~~talking~~be ~~about~~lodged with ASIC.

Q: (Indistinct)

3		The United States of America

		The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (“Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons.

		Each Dealer has represented and agreed that it has offered and sold the Notes, and it will offer and sell the Notes only outside the United States to non-US persons in accordance with Rule 903 of Regulation S under the Securities Act (“Regulation S”). Accordingly, each Dealer represents and agrees that neither it, nor any of its affiliates nor any person acting on its behalf has engaged or will engage in any direct selling efforts with respect to the Notes and that it and they have complied with and will comply with the offering restrictions requirement of Regulation S. Each Dealer also agrees that, at or prior to confirmation of sale of Notes, it will have sent to each distributor, dealer or person receiving a selling commission, fee or other remuneration that purchases Notes from it a confirmation or notice to substantially the following effect:

MR ROBBIATI: The question is, could you provide any comments about Telstra’s ongoing role with Foxtel. We have an ongoing relationship with Foxtel and PBL. We continue to value this relationship. We are operating the pay-TV network together with them. So far so good; it’s business as usual, nothing more to add on that I’m afraid.

Q: Can I ask something relating to the morale of the employees with the knowledge that the overall employment future seems to somewhat denigrated. Does this emphasise any great morale problem, you’ve got a human resources nightmare or something? I’m just wondering do you have any emphasis on getting rid of older people, which seems to be somewhat highlighted in the news today? The other thing is if the future seems to be somewhat dim and if you can say 6 to 8 thousand – percentage-wise for 52,000 I suppose is within reasonable expectation. But do you detect any sort of downgrade in attitudes of employees who say, “What the hell am I working for?” Is that a reasonable question?

ASX 16/05/06 TAREK ROBBIATI

MR“The ~~ROBBIATI:~~Securities Itcovered ishereby ahave ~~reasonable question of course, you know. We are making sure that morale is something we monitor. Let’s~~ not ~~underestimate~~been ~~how~~registered ~~radical~~under the ~~transformation~~United ~~is.~~States ~~The transformation~~Securities ~~that~~Act ~~we’re talking about is enormous, simplifying networks, reducing 1252 IT systems~~of ~~by 80 per cent~~1933, ~~changing~~ ~~the work practices,~~ as ~~your~~amended ~~colleague~~(the ~~has~~“Securities ~~asked~~Act”) ~~before, investment in training~~ and inmay ~~tools.~~not ~~The~~be ~~transformation~~offered isor ~~radical~~sold ~~and~~with ~~therefore~~in ~~it is very important that we mobilise our colleagues as much as possible to achieve~~ the ~~outcomes~~United ~~that~~States ~~we are~~or ~~asking. We cannot do this by being four~~to, ~~five~~or ~~people~~for in the ~~headquarters.~~account ~~Everybody~~or ~~is playing~~benefit ~~his role. What we are detecting is that people are very engaged in this~~of, ~~they~~US ~~are really thinking that what we are doing is the right thing for the business~~persons. ~~There~~Terms isused aabove ~~very~~have ~~strong esprit de corps in~~ the ~~company~~meanings ~~today~~given ~~and~~to ~~we’re~~them ~~all~~by ~~driving~~Regulation S inunder ~~one~~the ~~direction~~Securities Act.”

~~It’s~~Terms ~~only~~used ~~like~~in ~~that~~this ~~that~~paragraph ~~we will be able to deliver our transformation. In any big transformation plan and change plan you do~~ have ~~to create~~ the ~~sense~~meanings ~~of formulisation,~~given ~~and we have invested time and time again and every day when I speak with my team I spend an awful lot of time explaining~~ to them, ~~“This~~by isRegulation S ~~what~~under ~~we’re doing, this si why we’re doing it.” Every manager in~~ the ~~company, John Stanhope, everybody spends time~~Securities ~~reiterating the purpose of what we’re trying to do~~Act.

Q:4 ~~Have~~European ~~you~~Economic orArea Unless otherwise stated in these Selling Restrictions, in relation to each European Economic Area State which has implemented the ~~CEO~~Prospectus ~~any~~Directive ~~further~~(each ~~information~~a ~~about~~“Relevant EEA State”), each Dealer has represented and agreed, that with effect from and including the ~~eventual~~date ~~takeover~~on ofwhich the ~~major part~~Prospectus Directive is implemented in that Relevant EEA State (the “Relevant Implementation Date”) it has not made and will not make an offer of Notes to the ~~government~~public ~~shares?~~in ~~The~~that ~~government~~Relevant atEEA ~~present~~State, ~~moment~~except isthat ~~owning~~it 51may, ~~per~~with ~~cent. Right?~~ effect from and including the Relevant Implementation Date, make an offer of Notes to the public in that Relevant EEA State:

MR(a) ~~ROBBIATI:~~in ~~Yes.~~ (or in Germany, where the offer starts within) the period beginning on the date of publication of a prospectus in relation to those Notes which has been approved by the competent authority in that Relevant EEA State or, where appropriate, approved in another Relevant EEA State and notified to the competent authority in that Relevant EEA State, all in accordance with the Prospectus Directive and ending on the date which is 12 months after the date of such publication; (b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (c) at any time to any legal entity which has two or more of:

Q:(i) Soan ~~obviously~~average ~~they’ve~~of ~~got~~at least 250 employees during the ~~major~~last ~~vote~~financial year; (ii) a total balance sheet of more than €43,000,000; and (iii) an annual net turnover of more than €50,000,000, as shown in ~~everything~~its welast ~~do.~~ annual or consolidated accounts; or

MR(d) ~~ROBBIATI:~~at ~~The~~any ~~government~~time ~~has~~in –any ~~yes,~~other ~~it’s~~circumstances ~~true~~which ~~the~~do ~~government~~not ~~owns~~require ~~more~~the ~~than~~publication 51by ~~per~~any ~~cent of~~Issuer ~~the shares~~ of ~~Telstra, but Telstra is~~ a ~~company~~prospectus ~~with~~pursuant ~~its~~to ~~own~~Article ~~board~~3 ~~and its own governance and we are operating in the frame~~ of the ~~law~~Prospectus ~~as far as the Telstra Corporate Act is concerned, and we are as management working for all shareholders and not just the government~~Directive.

Q:For ~~(Indistinct)~~ the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes in any Relevant EEA State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that EEA State by any measure implementing the Prospectus Directive in that EEA State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant EEA State.

MR5 ~~ROBBIATI:~~ The ~~government~~United isKingdom ~~selling~~In ~~its~~relation ~~own shares. The company doesn’t have anything~~ to doeach ~~with~~issue ~~the~~of ~~government~~Notes, ~~selling~~each ~~its~~Dealer ~~own~~subscribing ~~shares. We are not issuing shares~~ for ~~funding~~or ~~the~~purchasing ~~transformation.~~such WeNotes ~~can~~represented ~~fund~~and ~~the~~agreed ~~transformation with the cash~~ that ~~we generate each year. So these are two separate matters.~~ :

Q: (Indistinct)

	(a)		it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (“FSMA”) with respect to anything done by it in relation to such Notes in, from or otherwise involving the United Kingdom;

	(b)		in relation to any Notes, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or

MR ROBBIATI: If T3 doesn’t take place, is Telstra going to procure some of the shares, are we going to buy some of these shares from the government. That’s the question you’re asking. This is not something that is envisaged at this point in time.

ASX 16/05/06 TAREK ROBBIATI

Q:disposing of investments (~~Indistinct~~as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of section 19 of the FSMA by the Issuer; and

MR(c) ~~ROBBIATI:~~it Ihas ~~can~~only ~~refer~~communicated ~~you~~or —caused ~~because~~to ~~you~~be ~~read~~communicated ~~the~~and ~~slides~~will ~~very~~only ~~well~~communicate Ior ~~can also~~cause ~~refer you~~ to ~~this~~be ~~slide.~~communicated ~~But~~any Iinvitation ~~will~~or ~~answer~~inducement ~~your~~to ~~question~~engage ~~and~~in ~~not~~investment ~~really~~activity ~~leave~~ (within the ~~question~~meaning ~~unanswered.~~of Wesection ~~have~~21 ~~given guidance for a fully franked dividends~~ of 28the ~~cents per~~FSMA) ~~share.~~received ~~Now,~~by asit ~~you~~in ~~know,~~connection wewith ~~have~~the toissue ~~give~~or ~~due~~sale ~~consideration~~of toany ~~some~~Notes ~~financial estimates~~in ascircumstances wein ~~decide~~which onsection ~~those~~21(1) ~~dividend payments out. The board always evaluates the appropriateness~~ of ~~any dividend moving forward. For~~ the ~~moment~~FSMA itdoes isnot ~~our~~apply ~~intent~~ to ~~pay 28 cents per share until 2008, as you see on~~ the ~~slide~~Issuer. ~~There are two asterisks there that say subject to appropriate board considerations.~~

Q:6 ~~(Indistinct)~~ Hong Kong In relation to each issue of Notes, each Dealer has represented and agreed that:

MR ROBBIATI: It’s the same answer you’re going to get. If the financial parameters permit and the board gives a due consideration, you know, this is what we have to go through, dividends will follow based on that.

	(a)		it has not offered or sold, and will not offer or sell, in Hong Kong, by means of any document, any Notes other than (i) to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent) or (ii) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32 of the laws of Hong Kong) (the “CO”), or (iii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and any rules made under the SFO, or (iv) in other circumstances which do not result in the document being a “prospectus” within the meaning of the CO; and

	(b)		it has not issued, or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue (in each case whether in Hong Kong or elsewhere), any advertisement, invitation or document relating to the Notes which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made under the SFO.

Q:7 Japan The Notes have not been and will not be registered under the Securities and Exchange Law of Japan, as amended (~~Indistinct~~“Securities and Exchange Law”) and, accordingly, each Dealer has agreed that it has not, directly or indirectly, offered or sold and that it will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein mean any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

MR ROBBIATI: What’s plan B? I think that the one thing not to forget Telstra is a company in its own right and has a full suite of assets. We think that it’s very, very important that we seek the regulatory outcome, which is that we must be able to invest to provide a return to our shareholders. This is irrespective of what network you’re talking about. The reason why this is is that if not, you are stifling the growth prospects of the company. No matter whether you’re investing on mobile or fixed or any network you may choose, you need to have certainty about returns. Those returns have to be dependent on our ability to recover our costs. So it’s a point of principle that we’re taking on regulation.

8		Singapore

		The Information Memorandum has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act 2001 of Singapore (the “Securities and Futures Act”).

		Each Dealer has represented and agreed that it will not offer or sell the Notes nor make the Notes the subject of an invitation for subscription or purchase, nor will it circulate or distribute the Information Memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to the public or any member of the public in Singapore other than:

~~Let’s~~(a) ~~not forget if you follow the telecom industry how capital-intense it is. People tend~~ to ~~forget~~ ~~this,~~an ~~but~~institutional ~~when~~investor ~~you~~or ~~look~~other atperson ~~the~~specified ~~capex to sales ratios~~ in ~~telecoms~~ ~~and~~Section ~~compare~~274 it, if you want, to a utility company, a gas provider or an electricity provider, that ratio is much higher. Capex to sales ratio on normalised telecoms is where we’re going to get to is this 12 per cent that you see here on this slide. In utilities companies the life span of the ~~investment~~Securities isand ~~much~~Futures longer because you don’t have the same technological obsolescence that you have in telecoms. Therefore, knowing that it is becoming absolutely crucial to have some sort of understanding that returns is what drives your investment decision. Act;

Q: (Indistinct)

MR ROBBIATI: As I said to you, you can hypothesise as much as you want but it’s a point of principle. Why would we invest without having the ability to generate some returns for our shareholders? This doesn’t make sense, irrespective of what plan you choose, B, G, F, whatever you want.

ASX 16/05/06 TAREK ROBBIATI

Q: When you sort out your troubles with the ACCC, how do you plan to roll out Fibre to the Node? Do you just plan to do it in selected areas or will this be a nationwide event?

	(b)		to a sophisticated investor (as defined in Section 275 of the Securities and Futures Act), and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; or

	(c)		otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.

MR9 ~~ROBBIATI:~~Further ~~Right~~restrictions ~~now~~If ~~the~~as ~~discussions~~a ~~with~~result ~~the~~of ~~ACCC~~a ~~are~~change ~~proceeding~~in ~~fairly~~or ~~well~~the ~~and~~making ~~I think~~of ~~decisions~~any ~~about~~law, ~~rollout~~treaty ~~are~~or ~~all~~official ~~subject~~directive toor ~~that~~request ~~outcome.~~(whether Soor wenot ~~don’t~~having ~~have~~the ~~any particular~~force ~~commitment~~of aslaw, ~~far~~but asif ~~rolling~~not ~~FTTN~~having inthe ~~one~~force ~~area~~of ~~relative~~law tocompliance ~~another.~~with Itwhich ~~all depends~~is onin accordance with the ~~outcome~~practice of ~~the~~responsible ~~discussions~~financial ~~with~~ institutions in the ~~ACCC,~~country ~~because,~~concerned) ~~you~~the ~~see,~~Issuer areasonably ~~lot~~determines ofthat ~~things~~the ~~can~~selling ~~happen~~restrictions inset ~~those~~out ~~discussions. A~~above ~~lot~~require ofamendment ~~things~~or ~~can~~variation beto ~~altering~~ensure ~~the~~compliance ~~outcome~~with ~~and~~such welaw, ~~cannot~~treaty ~~today~~or ~~make~~official ~~such~~directive ~~decisions without~~or ~~taking~~request, the ~~outcome~~Issuer asmay aby ~~package.~~30 ~~Once~~days’ ~~that~~notice isto ~~known~~each ~~and~~Dealer ~~it’s~~notify ~~set~~new inselling ~~print,~~restrictions ~~then we~~which ~~will~~shall ~~make~~take ~~those~~effect ~~decisions~~from the date specified in such notice.

Q: (Indistinct)

MR ROBBIATI: I’m glad you’re asking the question. If you go back to this chart here you could see that the last item on the right is labelled “restructuring and redundancy provision” and this is where it will be taken. In essence, if you look at the guidance of 15 to 20 per cent

Q: (Indistinct)

MR ROBBIATI: The question was, what is the ratio corresponding to the redundancies and the potential reduction of staff of 6 to 8 thousand people. The chart gives you a hint about what the answer is and you can see that you have one element in the calculation here that shows that the restructuring and redundancy provision would dilute EBIT by 6 per cent. So that’s the answer.

Q: I noticed all those redundancies you had up there on the screen, I had an experience to get serviced by Telstra. So I rang up Telstra. They referred me to a call centre and I rang that call centre. They said, “We’ll get somebody to ring you back.” A company called Transfield rings me back to make a service date and then the service man that arrived was from, say, ABC company communications, those guys were ex-Telstra employees. So looking at that redundancy it seemed to be the poor old servicemen went around in a large circle. I’m just wondering are we paying more now for the service for an ex-Telstra employee and is Telstra now only becoming a utility and not a service company?

MR ROBBIATI: No, no and no. Telstra is not a utility company, it’s a service business. Maybe you’re right, our service is not perfect and we have to improve it, but we’re not a utility company. As to whether redundancies go full circle to contractors, there is – whenever you lay off someone who has a certain set of skills it is not unlikely that you see the same person who has the same set of skills emerging in another organisation that services the industry as a whole. Telstra has been servicing and representing the telecom industry in this country for a very, very long time. That’s why you run up into this. But there was another element in your question that was interesting, which is

ASX 16/05/06 TAREK ROBBIATI

~~are~~Forms ~~costs coming down knowing that some~~ of ~~the work goes outside the company and are we~~Notes ~~not paying too much for contractors.~~

ItPart is1 a— ~~very~~Form important question you’re asking and there is absolutely in our view the need to make sure that we bring the cost trend back in line with where the revenues are. All the measures we’re taking are to bring down the cost base to a point where you have a certain variable element of ~~costs~~Global ~~kicking in for a variable element of~~Note ~~revenues kicking in. That’s where we’re driving towards. So we will push this quite hard, i.e. we will push the cost base down quite hard.~~

Q:TELSTRA ~~We’re~~CORPORATION ~~seeing a lot in the media at the moment concerning an alliance which Austar is~~LIMITED ~~fashioning.~~ABN ~~Because~~33 ~~there~~051 ~~are~~775 ~~technological issues involved, could you just explain what the nature~~556 of(Incorporated ~~the~~with ~~challenge~~limited isliability ~~and~~in ~~then how you~~Australia) ~~propose to meet it?~~

MRTHIS ~~ROBBIATI:~~GLOBAL ~~I’m~~NOTE ~~not~~HAS aNOT ~~believer~~BEEN inAND ~~alliances~~WILL inNOT ~~telecoms,~~BE ~~I’m~~REGISTERED ~~really~~UNDER ~~not.~~THE ~~Let~~US meSECURITIES beACT ~~very~~OF ~~clear~~1933, AS ~~about~~AMENDED ~~this.~~(THE If“SECURITIES ~~you~~ACT”) ~~really~~OR ~~look~~WITH ~~back~~ANY atSECURITIES ~~the~~REGULATORY ~~history~~AUTHORITY ofOF ~~the~~ANY ~~industry~~STATE ~~there~~OR ~~is always a very nice news~~OTHER ~~flow~~JURISDICTION ~~emerging~~OF ~~from~~THE ~~an announcement,~~UNITED ~~an alliance, et cetera~~STATES. ~~But~~NEITHER atTHIS ~~the~~GLOBAL ~~end~~NOTE ofNOR ~~the~~ANY ~~day,~~PORTION ~~the~~HEREOF ~~proof~~MAY isBE ~~in the~~OFFERED ~~pudding~~OR ~~and~~SOLD ~~it’s~~WITHIN ~~really~~THE ~~about~~UNITED ~~what~~STATES ~~investment~~OR ~~goes in~~TO, ~~what~~OR ~~services~~FOR ~~will~~THE beACCOUNT ~~provided,~~OR ~~how can~~BENEFIT ~~the~~OF, ~~various~~US ~~members of the alliance differentiate among themselves~~PERSONS. ~~When~~TERMS ~~you hit the~~USED ~~differentiation~~IN ~~point~~THIS ~~what~~PARAGRAPH ~~happens~~HAVE isTHE ~~that~~MEANINGS ~~you~~GIVEN ~~realise~~TO ~~that~~THEM ~~this~~IN ~~isn’t~~REGULATION much differentiation, that players feel constrained by the alliance more than anything else and that therefore they want to be free to invest on their own to achieve their own returns and be able to differentiate and compete properlyS.

So that’s why every time I hear anything about an alliance I take this with a pinch of salt. There are names that were very familiar to us, Unisource in Europe, large alliances at the time of BT in the 90s. All of these have disappeared. Again compete with your own means, invest in your own infrastructure and differentiate; that is the name of the game.


No:								Series No:


Issued in London on:								Maturity Date:


Specified Currency:								Denomination:


Nominal Amount:¹


Fixed Interest Rate³/Margin:⁴ % per annum								Interest Basis:* Floating Rate/Indexed/Discount/Fixed Rate

Reference Banks:⁴								Calculation Agent:²

								(Floating rate or Index-linked)

Interest Payment Dates:⁵								Reference Rate: LIBOR/EURIBOR⁶


Interest Commencement Date:⁵

~~FACILITATOR:~~1. ~~Tarek~~For ~~has~~value ~~been~~received, ~~very~~Telstra ~~generous~~Corporation ~~with~~Limited ~~his~~(“Issuer”) ~~time~~promises ~~and~~to ~~his~~pay ~~question~~to ~~and answers. We’re probably approaching~~ the ~~close~~bearer of ~~proceedings.~~this WeGlobal ~~might~~Note ~~have~~on ~~time~~the ~~for~~Maturity ~~about three more questions and then we’ll probably wrap it up.~~ Date:

Q:(a) the Nominal Amount; or (~~Indistinct~~b) if this Global Note is index-linked, an amount (representing either nominal or coupon) to be calculated by the Calculation Agent, in accordance with the redemption calculation, a copy of which is attached to this Global Note and is available for inspection at the office of the Issuing and Paying Agent referred to below,

MRtogether ~~ROBBIATI:~~(in ~~I hope you heard the question, it’s an important one. It says~~ any ~~company~~case) ~~who loses~~with ~~statistically~~interest 22thereon ~~per~~at ~~cent~~the ofrate ~~its employee base stands to lose a lot of knowledge~~ and ~~what are~~at ~~you doing to counter that. You obviously have to develop new knowledge is~~ the ~~short~~times ~~answer to your question. This is what the transformation is about. If you are taking out network elements, you’re reducing mobile networks from three to one,~~ (if ~~you are also simplifying the IT systems to the extent we~~any) ~~mentioned,~~specified ~~then all the processes, all the work practices will have to be redesigned~~herein. ~~We are~~ ~~investing~~

~~ASX~~All ~~16/05/06~~such ~~TAREK~~payments ~~ROBBIATI~~shall be made in accordance with an Issuing and Paying Agency Agreement dated 12 December 2006 between, inter alia, the Issuer and Deutsche Bank AG as paying agent and as issuing agent (“Issuing and Paying Agent”), a copy of which is available for inspection at the office of the Issuing and Paying Agent at Winchester House, 1 Great Winchester Street, London EC2N 2DB and subject to and in accordance with the terms and conditions set forth below. All such payments shall be made upon presentation and either surrender or endorsement, as the case may be, of this Global Note at the office of the Issuing and Paying Agent referred to above by transfer to an account denominated in the Specified Currency maintained by the bearer (i) if the Specified Currency is other than euros or US dollars, in the principal financial centre in


*		Delete as appropriate.

¹		Complete for all Notes (words and figures if a Sterling Note).

²		Complete for index-linked Notes only.

³		Complete for fixed rate interest bearing Notes only.

⁴		Complete for floating rate interest bearing Notes only.

⁵		Complete for interest bearing Notes if interest is payable before Maturity Date.

⁶		Delete as appropriate. The Reference Rate should always be LIBOR unless the Note is denominated in euros and the Issuer and the relevant Dealer agree EURIBOR should be used instead.

inthe country of the Specified Currency or (ii) if this ~~big~~Global ~~time.~~Note ~~It’s~~is ~~part~~denominated ofor payable ~~the~~in ~~cost~~euros, ofin ~~transformation.~~Paris, OnBrussels, ~~top~~Frankfurt ofor ~~that~~Luxembourg weor ~~are~~any ~~also~~principal financial ~~making~~centre ~~sure~~of ~~that~~a wecountry ~~are~~which ~~investing~~operates ina ~~our~~clearing ~~field~~system ~~force~~in toeuros ~~make~~or ~~sure~~(iii) if ~~that~~this ~~they~~Global ~~are~~Note ~~equipped~~is denominated in ~~knowledge~~or payable in US dollars, ~~equipped~~in London. The Issuer will ensure that it maintains a paying agent in ~~tools~~a Member State of the European Union that is not obliged to withhold beor ~~able~~deduct tax pursuant to doEuropean ~~their~~Council ~~jobs~~Directive on2003/48/EC aor ~~day-to-day~~any other ~~basis.~~Directive ~~The~~implementing ~~knowledge~~the ~~shift~~conclusions isof ~~just~~the ~~going~~ECOFIN toCouncil bemeeting ~~important.~~of ~~Things~~26-27th November, ~~that~~2000 ~~are~~on ~~done~~the ~~today~~taxation inof ~~certain~~savings ~~ways~~income ~~will~~or ~~not~~any belaw ~~done~~implementing ~~tomorrow.~~or ~~That’s~~complying ~~what~~with, weor introduced ~~have~~in order to ~~keep~~conform ~~in mind~~to, such Directive.

Q: (Indistinct)

2.		This Global Note is issued in representation of an issue of Notes in the aggregate Nominal Amount specified above.

3.		All payments in respect of this Global Note by or on behalf of the Issuer will be made without withholding of or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, withheld or assessed by or on behalf of the Commonwealth of Australia or any political sub-division or authority therein or thereof having power to tax, unless the Issuer is compelled by law to withhold or deduct any such taxes, duties, assessments or governmental charges. In that event, the Issuer will pay such additional amounts (“Additional Amounts”) as may be necessary in order that the net amounts receivable by the holder hereof after such withholding or deduction shall equal the respective amounts which would have been receivable in respect of this Global Note, in the absence of such withholding or deduction, except that no such additional amount shall be payable with respect to this Global Note:

MR(a) ~~ROBBIATI:~~to, ~~Sir~~or to a third party on behalf of, Ia ~~would~~holder ~~love~~who is liable to ~~have~~such ~~many~~taxes, ~~discussions~~duties, assessments or governmental charges in respect of this Global Note by reason of his having some connection with mythe ~~mother,~~Commonwealth ~~but~~of ~~unfortunately she~~Australia ~~passed~~other ~~away~~than ~~10 years~~the ~~ago.~~mere Soholding ~~it’s~~of this Global Note provided that such holder shall not be regarded as being connected with the Commonwealth of Australia for the reason that such a ~~bit~~holder ~~difficult.~~is ~~But~~a ~~let~~resident meof ~~just~~the ~~give~~Commonwealth ~~you~~of ~~an analyst’s~~Australia ~~perspective~~within ~~about~~the ~~this.~~meaning ~~When~~of Ithe ~~was~~Income anTax ~~analyst~~Assessment IAct ~~was~~1936 ~~asked~~(the ~~exactly~~“Tax Act”) where, and to the ~~same question;~~extent ~~would~~that, ~~you~~such ~~invest~~tax inis ~~shares~~payable ~~you’re~~by ~~having~~reason of Section 128B(2A)of the Tax Act;or (b) to, or to a ~~bi-rating~~third party on orbehalf ~~would~~of, ~~you~~a holder who could lawfully avoid (but has not. ~~It’s~~so avoided) such deduction or withholding by complying or procuring that any third party complies with any statutory requirements or by making or procuring that any third party makes a ~~case~~ declaration of ~~damn~~non-residence ifor ~~you~~other dosimilar itclaim ~~and damned~~for ifexemption ~~you~~to ~~don’t~~any –tax ~~pardon~~authority mein the ~~expression~~place –where ~~because~~this Global Note is presented for payment; or (c) if ~~you~~presented ~~don’t~~for ~~invest,~~payment ~~then~~more ~~people retort~~than 15 days after payment is due in respect of this Global Note except to ~~you~~the ~~you’re~~extent ~~not~~that ~~putting~~the ~~your~~holder ~~money~~of it would have been entitled to such additional amounts on presenting it for payment on the fifteenth day; or (d) where ~~your~~such ~~mouth~~withholding or deduction is~~. If~~ ~~you~~imposed ~~do,~~on ~~you’re~~a ~~accused~~payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of ~~conflict~~the ECOFIN Council meeting of ~~interest.~~26-27th SoNovember, ~~from~~2000 myon ~~perspective~~the taxation of savings income or any law implementing or complying with, Ior ~~just simply~~introduced ~~steer~~in ~~away~~order ~~from~~to conform to, such Directive; or (e) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting this. ~~I’m~~Global ~~not~~Note ~~investing~~to another paying agent in ~~any~~a Member State of the ~~shares~~European ofUnion; myor ~~employer~~(f) to, ~~I don’t~~or ~~think~~to ~~it’s~~a ~~appropriate.~~third ~~Simply~~party ~~just~~on asbehalf of, a ~~matter~~holder who is liable to such taxes, duties, assessments or governmental charges in respect of ~~principle I’ve~~this ~~learned~~Global ~~the~~Note ~~lesson~~by ~~six~~reason ~~years~~of ~~ago~~his being an Offshore Associate of the Issuer and Ithe ~~stick~~holder tois ~~what~~acting ~~I’ve~~other ~~learned~~than in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme within the meaning of the Corporations Act 2001 of Australia.

Q:For ~~(Indistinct)~~the purposes of this Global Note:

MR“Offshore ~~ROBBIATI:~~Associate” ~~Two~~means ~~questions~~an onassociate ~~your~~(as ~~side.~~defined ~~The~~in ~~first~~section ~~one~~128F ~~is,~~of ~~is it wireless or FTTN, basically one or~~ the ~~other.~~Tax ~~That~~Act) ~~was the first part~~ of the ~~question.~~ ~~The~~Issuer ~~second~~that ~~question~~ is, ~~what~~either is(i) a ~~the~~non-resident ~~node?~~of ~~Don’t~~Australia ~~forget~~which ~~that~~does ~~we will want to push solutions that are platform-independent. So it’s~~ not ~~one~~acquire orthis ~~the~~Global ~~other. It could be both~~Note in ~~some~~carrying ~~cases~~on ~~and~~a itbusiness ~~could~~in beAustralia ~~just~~at ~~one~~or inthrough ~~one~~a ~~case,~~permanent ~~depending~~establishment onof ~~what~~ the ~~customers~~ ~~truly~~associate ~~want. So it’s not – there is no offsetting and hedging between investments~~ in ~~platforms. Both provide different services that can be integrated and that provide value to customers. The second part of your question is~~Australia, ~~what~~or is (ii) a ~~node?~~resident ~~The~~of ~~best way~~Australia Ithat ~~can~~acquires ~~picture~~ this ~~for~~Global ~~you~~Mote ~~is the green street cabinets that you’re used to here~~ in ~~Australia.~~carrying ~~It’s~~on ~~very~~a ~~familiar~~business in ~~Europe~~ asa ~~well,~~country isoutside ~~when~~Australia ~~you~~at ~~walk~~or ~~past~~through a ~~street~~permanent ~~corner you will find a green~~establishment ~~cabinet~~of ~~that~~the ~~has~~associate ain ~~number on it~~ that ~~says “dial 133-something” if you think that there is a problem with the apparatus~~country.

So what it means, fibre to the node, is that the fibre in theory gets down to that point. That’s what we refer to the node, and it’s servicing an area which is around the perimeter, approximately one half, 2 kilometres around the perimeter of that green street cabinet that you can refer to.

Q: (Indistinct)

MR ROBBIATI: No. The question was, do you have coaxial cable going from the node to your house. No, we will not put coaxial cable from the node to your house because since you brought the fibre close to the customer premises the rest of the distance can be covered with copper and what is

ASX 16/05/06 TAREK ROBBIATI

known as being ADSL IPD slams. So that’s the architecture you’re going to have.

4.		The payment obligations of the Issuer represented by this Global Note constitute direct,unconditional, unsubordinated and unsecured obligations of the Issuer and rank and will rank pari passu without any preference among themselves with all other present and future, unsecured and unsubordinated obligations, of the Issuer other than obligations preferred by mandatory provisions of law.

5.		If the Maturity Date or, if applicable, the relevant Interest Payment Date is not a Payment Business Day (as defined herein), payment in respect hereof will not be made and credit or transfer instructions shall not be given until the next following Payment Business Day (unless that date falls more than 364 days after the date of issue, in which case payment shall be made on the immediately preceding Payment Business Day) and the bearer of this Global Note or the holder or beneficial owner of any interest herein or rights in respect hereof shall not be entitled to any interest or other sums in respect of such postponed payment.

Q:As ~~(Indistinct)~~used in this Global Note:

MR“Payment ~~ROBBIATI:~~Business ~~No,~~Day” ~~I’m~~means ~~not~~any ~~saying~~day ~~that~~(other wethan ~~have~~a ~~reached~~Saturday ~~agreement.~~or Ia ~~think~~Sunday) ~~that~~on ~~the~~which (a) ~~discussions~~commercial banks and foreign exchange markets settle payments and are ~~progressing~~open for general business in London and in the place of payment for each Specified Currency, ~~they’re~~which ~~progressing~~in ~~well~~the case of Australian dollars shall be Sydney, (b) both Euroclear Bank S.A./N.V., ~~You~~as ~~know~~operator of the Euroclear System and Clearstream Banking, insociete ~~those~~anonyme ~~circumstances~~are operating and (c) in ~~it’s~~relation ~~never~~to ~~done~~a ~~until~~payment ~~it’s~~to ~~done.~~be ~~There~~made in euros, the TARGET system is nooperating ~~way~~credit ~~you~~or transfer ~~can~~instructions ~~predict~~in ~~how~~respect ~~long~~of itpayments ~~will~~in ~~take~~euros (a ~~I’m~~“euro ~~afraid~~Business Day”).

~~FACILITATOR:~~“TARGET” ~~Just~~means ~~one~~the ~~more~~Trans-European ~~question~~Automated ~~down~~Real-Time ~~the~~Gross ~~front~~Settlement ~~here~~Express Transfer (TARGET) system or any successor thereto.

Q: Just to return to the voiceover IP, I understand British telecom is going entirely over to the Internet. It surprised me that you hadn’t included that in your suite of offerings that you have here.

6.		This Global Note is negotiable and, accordingly, title hereto shall pass by delivery and the bearer shall be treated as being absolutely entitled to receive payment upon due presentation hereof free and clear of any equity, set-off or counterclaim on the part of the Issuer against any previous bearer hereof.

7.		This Global Note is issued in respect of an issue of Notes of the Issuer and is exchangeable (free of charge) in whole (but not in part only) for duly executed and authenticated bearer Notes in definitive form (“Definitive Notes”) whether before, on or, subject as provided below, after the Maturity Date:

MR ROBBIATI: We can start a very long debate about British telecom because I’ve lived in the UK for 15 years and I could tell you everything about them having scrutinised the company at length. I think they are at a cross-roads. The company itself it at cross-roads. One thing that people tend to forget is how much of BT depends on wholesale revenue. If you look into analysts’ reports you will see that more than 60 per cent of BT’s value is in wholesale. That value is coming down very, very fast. So they don’t have much choice. They are pushing and building an NGN network but I think from my perspective, having seen how the market has evolved, this has been done way too late. They are thinking about their 21 century network maybe five years behind schedule. I’m not saying it is five years behind schedule, I’m saying their thinking is five years behind when it should have been relative to where the market maturity is.

	(a)		if Euroclear or Clearstream, Luxembourg is closed for a continuous period of 14 days (other than by reason of weekends or public holidays, statutory or otherwise) or announces an intention to permanently cease to do business or does in fact do so and no successor or alternative clearing system is available; or

	(b)		if default is made in the payment of any amount payable in respect of this Global Note.

~~They~~If ~~don’t~~an ~~have~~event ~~much~~in ~~choice~~paragraph ~~given~~(a) or ~~where~~(b) above ~~they~~occurs, ~~stand~~the ~~today~~Issuer ~~and~~hereby ~~the~~undertakes ~~vulnerability~~that, ~~of the~~upon ~~business~~presentation toand ~~push~~surrender ~~voiceover~~of ~~IP.~~this ~~But,~~Global byNote ~~the~~during ~~way,~~normal ~~we’re~~business ~~not~~hours ~~saying~~to ~~we’re~~the ~~not pushing~~above ~~voiceover~~specified ~~IP,~~office Iof ~~never~~Deutsche ~~said~~Bank ~~that.~~AG Weacting ~~are~~as ~~building~~Issuing anand IPPaying ~~core~~Agent ~~precisely~~(or ~~because~~to weany ~~know~~other ~~it’s~~person ~~coming.~~or Weat ~~will~~any beother ~~ready~~office ~~for~~outside ~~it.~~the ~~All I’m~~United ~~saying~~States isas ~~don’t~~may ~~think~~be ~~that~~designated ~~voiceover~~in IPwriting isby the Issuer to the ~~panacea~~bearer), the Issuing and ~~that~~Paying ~~will~~Agent ~~provide~~shall ~~the ultimate~~authenticate ~~solution~~and ~~from~~deliver, ain exchange ~~customer~~for ~~standpoint.~~this ItGlobal isNote, ~~just~~Definitive ~~one~~Notes ~~product,~~denominated ~~one~~in ~~feature,~~the ~~albeit~~above-mentioned ~~important,~~Specified ~~that~~Currency ~~will~~in bean ~~part~~aggregate ofnominal ~~the~~amount ~~future,~~equal ~~but~~to ~~not~~ the ~~whole~~Nominal ~~future~~Amount of this Global Note.

FACILITATOR: Many, many thanks. That’s probably the most generous Q and A time we’ve ever had at investor hour. So I’d like to thank you for your endurance there. If everyone could put their hands together for our guest speaker today.

8.		If, for whatever reason, Definitive Notes are not issued pursuant to the terms of this Global Note in full exchange for this Global Note before 5.00 p.m. (London time) on the thirtieth day after surrender, this Global Note (including the obligation hereunder to issue Definitive Notes) will become void and the bearer will have no further rights under this Global Note (but without prejudice to the rights which the bearer or any other person may have under a Deed of Covenant dated 12 December 2006 entered into by the Issuer copies of which are available for inspection during normal business hours at the offices of the Issuing and Paying Agent referred to above).

9.		If this is an interest bearing Global Note, then:

MR ROBBIATI: Thank you very much.

	(a)		notwithstanding the provisions of paragraph 1 above, if any payment of interest in respect of this Global Note falling due for payment prior to the Maturity Date remains unpaid on the fifteenth day after falling so due, the amount referred to in part (a) or (b) (as the case may be) of paragraph 1 shall be payable on such fifteenth day or, if earlier, on the Maturity Date;

	(b)		upon each payment of interest (if any) prior to the Maturity Date in respect of this Global

ASX 16/05/06 TAREK ROBBIATI

22 May 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

Note, the Schedule hereto shall be duly completed by the Issuing and Paying Agent to reflect such payment; and

~~ELECTRONIC~~(c) ~~LODGEMENT~~ if no Interest Payment Dates are specified on the face of the Global Note, the Interest Payment Date shall be the Maturity Date.

~~Dear~~10. ~~Sir~~If orthis ~~Madam~~ is a fixed rate interest bearing Global Note, interest shall be calculated on the Nominal Amount as follows:

Appendix 3X–Initial Director’s Interest Notices

	(a)		interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days or, if this Global Note is denominated in Sterling or if market practice so dictates (as determined by the Issuing and Paying Agent), 365 days at the Fixed Interest Rate specified above with the resulting figure being rounded to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards); and

	(b)		the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is an “Interest Period” for the purposes of this paragraph.

In11. ~~accordance~~If ~~with~~this ~~the~~is ~~listing~~a ~~rules~~floating Irate ~~enclose~~interest anbearing ~~Appendix 3X~~Global —Note, ~~Initial~~interest ~~Director’s~~shall ~~Interest~~be ~~Notice~~calculated ~~for~~on Mrthe ~~John~~Nominal ~~Zeglis~~Amount ~~and~~as ~~Mr Peter Willcox.~~ follows:

~~Yours~~(A) ~~sincerely~~ (a) if this Global Note specifies LIBOR as the Reference Rate, interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days or, if this Global Note is denominated in Sterling or if market practice so dictates (as determined by the Calculation Agent), 365 days at a rate (the “Rate of Interest”) determined on the following basis:

Fiona Mead Acting Company Secretary On behalf of Douglas Gration Company Secretary

	(i)		on the first day of each Interest Period (if this Global Note is denominated in Sterling) or, if this Global Note is denominated in euros, on the second euro Business Day (as defined in paragraph 5 above) before the beginning of each Interest Period or, if this Global Note is denominated in any other currency, the second London Business Day (as defined below) before the beginning of each Interest Period (each a “LIBOR Interest Determination Date”) the Calculation Agent will determine the offered rate for deposits in the Specified Currency in the London interbank market for the Interest Period concerned as at 11.00 a.m. (London time) on the relevant LIBOR Interest Determination Date. Such offered rate will be that which appears on the display designated as page 3750 or 3740 on the Moneyline Telerate Monitor (or such other page or service as may replace it for the purpose of displaying London interbank offered rates of major banks for deposits in the Specified Currency for a duration approximately equal to the Interest Period). The Rate of Interest for such Interest Period will be the aggregate of the Margin and the LIBOR rate which so appears, as determined by the Calculation Agent;

	(ii)		if on any LIBOR Interest Determination Date for any reason such offered rate is unavailable, the Calculation Agent will request each of the Reference Banks to provide its offered quotation to leading banks in the London interbank market for deposits in the Specified Currency for a duration approximately equal to the Interest Period concerned as at 11.00 a.m. (London time) on the relevant LIBOR Interest Determination Date. The Rate of Interest for such Interest Period will be the aggregate of the Margin and such quotation (if only one is provided) or the arithmetic mean (rounded, if necessary, up to the nearest four decimal places) of such quotations (if two or more are so provided), as determined by the Calculation Agent; and

~~Telstra Corporation Limited ACN 051 775 556 ABN 33 051 775 556~~16

~~Appendix 3X Initial~~(iii) ~~Director’s~~if the Calculation Agent is unable to determine the Rate of Interest ~~Notice~~ for an Interest Period in accordance with (i) or (ii) above, the Rate of Interest for such Interest Period will be the Rate of Interest in effect for the last preceding Interest Period to which (i) or (ii) above have applied;

~~Rule 3~~(b) the Calculation Agent will, as soon as practicable after 11.~~19A~~00 a.1 m. (London time) on each LIBOR Interest Determination Date, determine the Rate of Interest and calculate the amount of interest payable (the “Amount of Interest”) for one Global Note of each Denomination for the relevant Interest Period. The Amount of Interest shall be calculated by applying the Rate of Interest to the Nominal Amount of one Global Note of each Denomination, multiplying such product by the actual number of days in the Interest Period concerned divided by 360 or, if this Global Note is denominated in Sterling, or, if market practice so dictates (as determined by the Calculation Agent) by 365 and rounding the resulting figure to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards). The determination of the Rate of Interest and the Amount of Interest by the Calculation Agent will (in the absence of manifest error or fraud) be final and binding upon all parties; (c) a certificate of the Calculation Agent as to the Rate of Interest payable hereon for any Interest Period will be conclusive and binding as between the Issuer and the bearer hereof; (d) the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is called an “Interest Period” for the purposes of this paragraph; and (e) the Issuer will procure that a notice specifying the Rate of Interest payable in respect of each Interest Period be given as soon as practicable after the determination of the Rate of Interest.

~~Appendix 3X~~“London Business Day” means any day on which commercial banks and foreign exchange markets settle payments and are open for general business in London.

~~Initial~~(B) ~~Director’s~~(a) If this Global Note specifies EURIBOR as the Reference Rate, interest shall be payable on the Nominal Amount in respect of each successive Interest ~~Notice~~ Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days at a rate (the “Rate of Interest”) determined on the following basis:

Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX’s property and may be made public.

	(i)		on the second euro Business Day (as defined in paragraph 5 above) before the beginning of each Interest Period (each a “EURIBOR Interest Determination Date”) the Calculation Agent will determine the European Interbank Offered Rate for deposits in euros for the Interest Period concerned as at 11.00 a.m. (Brussels time) on the relevant EURIBOR Interest Determination Date. Such offered rate will be that which appears on the display designated as page 248 on the Moneyline Telerate Monitor (or such other page or service as may replace it for the purpose of displaying European Interbank Offered Rates of prime banks in the euro-zone (as defined below) for deposits in euros for a duration approximately equal to the Interest Period). The Rate of Interest for such Interest Period will be the aggregate of the Margin and the EURIBOR rate which so appears, as determined by the Calculation Agent;

	(ii)		if on any EURIBOR Interest Determination Date for any reason such offered rate is unavailable, the Calculation Agent will request the principal euro-zone office of each of the Reference Banks to provide its offered quotation to leading banks in the euro-zone interbank market for deposits in euros for a duration approximately equal to the Interest Period concerned as at 11.00 a.m. (Brussels time) on the relevant EURIBOR Interest Determination Date. The Rate of Interest for such

~~Introduced 30/9/2001.~~17

Name of entity		Telstra Corporation Limited
ABN		33 051 775 556

We (the entity) give ASX the following information under listing rule 3.19A.1 and as agent for the director for the purposes of section 205G of the Corporations Act.

Name of Director		JOHN D ZEGLIS
Date of appointment		17 May 2006

Part 1 — Director’s relevant interests in securities of which the director is the registered holder

In the case of a trust, this includes interests in the trust made available by the responsible entity of the trust

Note: In the case of a company, interests which come within paragraph (i) of the definition of “notifiable interest of a director” should be disclosed in this part.

Number & class of securities

NIL

+ See chapter 19 for defined terms. 11/3/2002 Appendix 3X Page 1

~~Appendix 3X Initial~~EURIBOR ~~Director’s~~ Interest ~~Notice~~ Period will be the aggregate of the Margin and such quotation (if only one is provided) or the arithmetic mean (rounded, if necessary, up to the nearest four decimal places) of such quotations (if two or more are so provided), as determined by the Calculation Agent; and

~~Part~~(iii) ~~2 —~~if ~~Director’s~~the ~~relevant~~Calculation ~~interests~~Agent is unable to determine the Rate of Interest for an Interest Period in ~~securities~~accordance with (i) or (ii) above, the Rate of ~~which~~Interest for such Interest Period will be the ~~director~~Rate isof ~~not~~Interest in effect for the ~~registered~~ ~~holder~~ last preceding Interest Period to which (i) or (ii) above shall have applied;

InFor the ~~case~~purposes of ~~a trust,~~ this ~~includes~~Global ~~interests~~Note, in“euro-zone” means the ~~trust~~region ~~made~~comprised of ~~available~~the bycountries ~~the~~whose ~~responsible entity~~lawful ofcurrency is the ~~trust~~euro;

~~Name~~(b) the Calculation Agent will, as soon as practicable after 11.00 a.m. (Brussels time) on each EURIBOR Interest Determination Date, determine the Rate of ~~holder~~Interest &and ~~nature~~calculate the amount of interest ~~Number~~payable &(the ~~class~~“Amount of ~~Securities~~Interest”) for one Global Note: ~~Provide~~of ~~details~~each Denomination for the relevant Interest Period. The Amount of Interest will be calculated by applying the ~~circumstances~~Rate ~~giving~~of ~~rise~~Interest to the ~~relevant~~Nominal ~~interest~~Amount of one Global Note of each Denomination, multiplying such product by the actual number of days in the Interest Period concerned divided by 360, and rounding the resulting figure to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards). ~~NIL~~The determination of the Rate of Interest and the Amount of Interest by the Calculation Agent shall (in the absence of manifest error or fraud) be final and binding upon all parties; (c) a certificate of the Calculation Agent as to the Rate of Interest payable hereon for any Interest Period will be conclusive and binding as between the Issuer and the bearer hereof; (d) the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is called an “Interest Period” for the purposes of this paragraph; and (e) the Issuer will procure that a notice specifying the Rate of Interest payable in respect of each Interest Period be given as soon as practicable after the determination of the Rate of Interest.

Part 3 — Director’s interests in contracts

12.		All notices required to be given under paragraph 11 in respect of this Global Note will be delivered to Euroclear and/or Clearstream, Luxembourg or, if this Global Note has been exchanged for Definitive Notes pursuant to paragraph 7, it will be published in the *Financial Times* or in another leading London daily newspaper.

13.		Instructions for payment must be received at the offices of the Issuing and Paying Agent together with this Global Note as follows:

~~Note:~~(a) Inif ~~the~~this ~~case~~Global ofNote ais ~~company~~denominated in Australian dollars, ~~interests~~at ~~which~~least ~~come~~two ~~within~~Payment ~~paragraph~~Business ~~(ii) of~~Days prior to the ~~definition~~ ofrelevant ~~“notifiable~~payment ~~interest~~date; of(b) aif ~~director”~~this ~~should~~Global beNote ~~disclosed~~is denominated in ~~this~~United ~~part.~~ States dollars or Sterling on or prior to the relevant payment date; and

~~Detail~~ in ofall ~~contract~~other ~~NIL~~cases, ~~Nature~~at ofleast ~~interest~~one ~~NIL~~Payment ~~Name~~Business ofDay ~~registered~~prior ~~holder (if issued securities) NIL No. and class of securities~~ to ~~which~~the ~~interest~~relevant ~~relates~~payment ~~NIL~~date.

+14. ~~See~~This ~~chapter~~Global 19Note shall not be validly issued unless manually authenticated by Deutsche Bank AG as Issuing and Paying Agent. 15. This Global Note will become void unless presented for ~~defined~~payment ~~terms~~within a period of ten years from the Maturity Date. ~~Appendix~~16. 3XThis ~~Page~~Global 2Note ~~11/3/2002~~is governed by, and will be construed in accordance with, the laws of England. 17. In relation to any legal action or proceedings arising out of or in connection with this Global Note (Proceedings) the Issuer irrevocably submits to the jurisdiction of the courts of England and any courts of appeal from them and waives any objection to Proceedings in such courts whether on the grounds that the Proceedings have been brought in an inconvenient forum or otherwise. This submission is made for the benefit of the bearer of this Global Note and shall not limit the right of

~~Appendix 3X Initial Director’s~~such ~~Interest~~bearer ~~Notice~~ to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any court of competent jurisdiction preclude the bearer from taking Proceedings in any other court of competent jurisdiction (whether concurrently or not). The Issuer irrevocably appoints Telstra Europe Limited at Telstra House, 21 Tabernacle Street, London EC2A 4DE (or at any address of the Issuer in England at which process may be served on it in accordance with Part XXIII of the Companies Act 1985) as its authorised agent for service of process in England. Nothing in this Global Note shall affect the right to serve process in any other manner permitted by law. If for any reason such agent shall cease to be such agent for service of process, the Issuer shall forthwith appoint a new agent for service of process in England.

~~Rule 3~~18.~~19A~~ No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.1

~~Appendix 3X~~Signed in facsimile on behalf of Telstra Corporation Limited

~~Initial~~By: ~~Director’s~~By: ~~Interest~~(Authorised ~~Notice~~ Signatory) (Authorised Signatory) AUTHENTICATED by Deutsche Bank AG Without recourse, warranty or liability and for authentication purposes only By: By: (Authorised Signatory) (Authorised Signatory)

~~Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX’s property and may be made public.~~ SCHEDULE

~~Introduced~~Payments ~~30/9/2001.~~of Interest

Name of entity		Telstra Corporation Limited
ABN		33 051 775 556

The following payments of interest in respect of this Global Note have been made:

WeNotation ~~(the~~on ~~entity)~~behalf ~~give~~of ~~ASX~~Issuing ~~the following information under listing rule 3.19A.1~~ and asDate ~~agent~~Made ~~for the~~Payment ~~director~~From ~~for~~Payment ~~the~~To ~~purposes~~Amount ofPaid ~~section~~Paying ~~205G of the Corporations Act.~~ Agent

Name of Director		PETER J WILLCOX
Date of appointment		17 May 2006

Part 1 — Director’s relevant interests in securities of which the director is the registered holder

In the case of a trust, this includes interests in the trust made available by the responsible entity of the trust

Note: In the case of a company, interests which come within paragraph (i) of the definition of “notifiable interest of a director” should be disclosed in this part.

Number & class of securities

NIL

+ See chapter 19 for defined terms. 11/3/2002 Appendix 3X Page 1

~~Appendix 3X Initial~~Pro ~~Director’s~~forma ~~Interest~~Redemption ~~Notice~~Calculation (Index-Linked Global Note)

~~Part~~This 2is —the ~~Director’s~~Redemption ~~relevant~~Calculation ~~interests~~relating into ~~securities of which~~ the ~~director~~attached isindex-linked ~~not the~~Global ~~registered holder~~Note:

InCalculation ~~the case of a trust, this includes interests in the trust made available by the responsible~~Date: ~~entity of the trust~~

Name of holder & nature of interest			Number & class of Securities
Note: Provide details of the circumstances giving rise to the relevant interest.
Peter John Willcox Superannuation Fund			10,000 Ordinary Shares

Calculation Agent:

~~Part~~Redemption ~~3 —~~Amount: ~~Director’s~~to ~~interests~~be incalculated ~~contracts~~ by the Calculation Agent as follows: [Insert particulars of index and redemption calculation] [Indicate whether the calculation refers to nominal or coupon]

~~Note~~Confirmed: ~~In the case of a company, interests which come within paragraph (ii) of the~~ ~~definition of “notifiable interest of a director” should be disclosed in this part.~~

~~Detail~~For ofTelstra ~~contract~~Corporation ~~NIL Nature of interest NIL Name of registered holder (if issued securities) NIL No. and class of securities to which interest relates NIL~~Limited

+Note: ~~See~~The ~~chapter~~Calculation 19Agent is required to notify the Issuing and Paying Agent for ~~defined~~the ~~terms.~~Notes ~~Appendix~~of the 3XRedemption ~~Page~~Amount 2immediately ~~11/3/2002~~upon completing its calculation of the same.

25 May 2006		Office of the Company Secretary
The Manager Company Announcements Office Australian Stock Exchange 4th Floor, 20 Bridge Street SYDNEY NSW 2000		Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA Telephone 03 9634 6400 Facsimile 03 9632 3215

Part 2 — Form of Definitive Note

TELSTRA CORPORATION LIMITED
ABN 33 051 775 556
(Incorporated with limited liability in Australia)

THIS DEFINITIVE NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NEITHER THIS DEFINITIVE NOTE NOR ANY PORTION HERE OF MAY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, US PERSONS. TERMS USED IN THIS PARAGRAPH HAVE THE MEANINGS GIVEN TO THEM IN REGULATIONS.


No:								Series No:


Issued in London on:								Maturity Date:


Specified Currency:								Denomination:


Nominal Amount:¹


Fixed Interest Rate³/Margin:⁴ % per annum								Interest Basis:* Floating Rate/Indexed/Discount/Fixed Rate

Reference Banks:⁴								Calculation Agent:²

								(Floating rate or Index-linked)

Interest Payment Dates:⁵								Reference Rate: LIBOR/EURIBOR⁶


Interest Commencement Date:⁵

For value received, Telstra Corporation Limited (“Issuer”) promises to pay to the bearer of this Definitive Note on the above-mentioned Maturity Date:

	(a)		the above-mentioned Nominal Amount; or

	(b)		if this Definitive Note is index-linked, an amount (representing either nominal or coupon) to be calculated by the Calculation Agent, in accordance with the redemption calculation, a copy of which is attached to this Definitive Note and is available for inspection at the office of the Issuing and Paying Agent referred to below,

together (in any case) with interest thereon at the rate and at the times (if any) specified herein.

All such payments shall be made in accordance with an Issuing and Paying Agency Agreement dated 12 December 2006 between, inter alia, the Issuer and Deutsche Bank AG as paying agent and as issuing agent (“Issuing and Paying Agent”), a copy of which is available for inspection at the office of the Issuing and Paying Agent at Winchester House, 1 Great Winchester Street, London EC2N 2DB and subject to and in accordance with the terms and conditions set forth below. All such payments shall be made upon presentation and either surrender or endorsement, as the case may be, of this Definitive Note at the office of the Issuing and Paying Agent referred to above by transfer to an account denominated in the Specified Currency maintained by the bearer (i) if the Specified Currency is other than euros or US dollars, in the principal financial centre in the country of the Specified Currency or (ii) if this Definitive Note is denominated or payable in euros, in Paris, Brussels, Frankfurt or Luxembourg or any principal financial centre of a country which operates a clearing system in euros or (iii) if this Definitive Note is denominated or payable in US dollars, in London. The Issuer will ensure that it maintains a paying agent in a


*		Delete as appropriate.

1		Complete for all Notes (words and figures if a Sterling Note).

2		Complete for index-linked Notes only.

3		Complete for fixed rate interest bearing Notes only.

4		Complete for floating rate interest bearing Notes only.

5		Complete for interest bearing Notes if interest is payable before Maturity Date.

6		Delete as appropriate. The Reference Rate should always be LIBOR unless the Note is denominated in euros and the Issuer and the relevant Dealer agree EURIBOR should be used instead.

8 December 2006

Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27th November, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive.

All payments in respect of this Definitive Note by or on behalf of the Issuer will be made without withholding of or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, withheld or assessed by or on behalf of the Commonwealth of Australia or any political sub-division or by any authority thereof having power to tax, unless the Issuer is compelled by law to withhold or deduct any such taxes, duties, assessments or governmental charges. In that event, the Issuer will pay such additional amounts (“Additional Amounts”) as may be necessary in order that the net amounts receivable by the holder hereof after such withholding or deduction shall equal the respective amounts which would have been receivable in respect of this Definitive Note, in the absence of such withholding or deduction, except that no such additional amount shall be payable with respect to this Definitive Note:

	(a)		to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessments or governmental charges in respect of this Definitive Note by reason of his having some connection with the Commonwealth of Australia other than the mere holding of this Definitive Note provided that such holder shall not be regarded as being connected with the Commonwealth of Australia for the reason that such a holder is a resident of the Commonwealth of Australia within the meaning of the Income Tax Assessment Act 1936 (the “Tax Act”) where, and to the extent that, such tax is payable by reason of Section 128B(2A) of the Tax Act; or

	(b)		to, or to a third party on behalf of, a holder who could lawfully avoid (but has not so avoided) such deduction or withholding by complying or procuring that any third party complies with any statutory requirements or by making or procuring that any third party makes a declaration of non-residence or other similar claim for exemption to any tax authority in the place where this Definitive Note is presented for payment; or

	(c)		if presented for payment more than 15 days after payment is due in respect of this Definitive Note except to the extent that the holder of it would have been entitled to such additional amounts on presenting it for payment on the fifteenth day; or

	(d)		where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27th November, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or

	(e)		presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting this Definitive Note to another paying agent in a Member State of the European Union; or

	(f)		to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessments or governmental charges in respect of this Definitive Note by reason of his being an Offshore Associate of the Issuer and the holder is acting other than in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme within the meaning of the Corporations Act 2001 of Australia.

For the purposes of this Definitive Note:

“Offshore Associate” means an associate (as defined in section 128F of the Tax Act) of the Issuer that is either (i) a non-resident of Australia which does not acquire this Definitive Note in carrying on a business in Australia at or through a permanent establishment of the associate in Australia, or (ii) a resident of Australia that acquires this Definitive Note in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country.

The payment obligations of the Issuer represented by this Definitive Note constitute direct, unconditional, unsubordinated and unsecured obligations of the Issuer and rank and will rank pari passu without any preference among themselves with all other present and future unsecured and unsubordinated obligations, of the Issuer other than obligations preferred by mandatory provisions of law.

If the Maturity Date or, if applicable, the relevant Interest Payment Date is not a Payment Business Day (as defined herein), payment in respect hereof will not be made and credit or transfer instructions shall not be given until the next following Payment Business Day (unless that date falls more than 364 days after the date of issue, in which case payment shall be made on the immediately preceding Payment Business Day) and the bearer of this Definitive Note or the holder or beneficial owner of any interest herein or rights in respect hereof shall not be entitled to any interest or other sums in respect of such postponed payment.

As used in this Definitive Note:

“Payment Business Day” means any day (other than a Saturday or a Sunday) on which (a) commercial banks and foreign exchange markets settle payments and are open for general business in London and in the place of payment for each Specified Currency, which in the case of Australian dollars shall be Sydney, (b) both Euroclear Bank S.A./N.V., as operator of the Euroclear System and Clearstream Banking, société anonyme are operating and (c) in relation to a payment to be made in euros, the TARGET system is operating credit or transfer instructions in respect of payments in euros (a “euro Business Day”).

“TARGET” means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) system or any successor thereto.

5.		This Definitive Note is negotiable and, accordingly, title hereto shall pass by delivery and the bearer shall be treated as being absolutely entitled to receive payment upon due presentation hereof free and clear of any equity, set-off or counterclaim on the part of the Issuer against any previous bearer hereof.

6.		If this is an interest bearing Definitive Note, then:

	(a)		notwithstanding the provisions of paragraph 1 above, if any payment of interest in respect of this Definitive Note falling due for payment prior to the Maturity Date remains unpaid on the fifteenth day after falling so due, the amount referred to in part (a) or (b) (as the case may be) of paragraph 1 shall be payable on such fifteenth day or, if earlier, on the Maturity Date; and

	(b)		upon each payment of interest (if any) prior to the Maturity Date in respect of this Definitive Note, the Schedule hereto shall be duly completed by the Issuing and Paying Agent to reflect such payment; and

	(c)		if no Interest Payment Dates are specified on the face of the Global Note, the Interest Payment Date shall be the Maturity Date.

If this is a fixed rate interest bearing Definitive Note, interest shall be calculated on the Nominal Amount as follows:

	(a)		interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days or, if this Definitive Note is denominated in Sterling or if market practice so dictates (as determined by the Issuing and Paying Agent), 365 days at the Fixed Interest Rate specified above with the resulting figure being rounded to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards); and

	(b)		the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is an “Interest Period” for the purposes of this paragraph.

If this is a floating rate interest bearing Definitive Note, interest shall be calculated on the Nominal Amount as follows:


		(A)		(a)		if this Definitive Note specifies LIBOR as the Reference Rate, interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days or, if this Definitive Note is denominated in Sterling or if the market practice so dictates (as

determined by the Calculation Agent), 365 days at a rate (the “Rate of Interest”) determined on the following basis:

	(i)		on the first day of each Interest Period (if this Definitive Note is denominated in Sterling) or, if this Definitive Note is denominated in euros, on the second euro Business Day (as defined in paragraph 4 above) before the beginning of each Interest Period or, if this Definitive Note is denominated in any other currency, the second London Business Day (as defined below) before the beginning of each Interest Period (each a “LIBOR Interest Determination Date”) the Calculation Agent will determine the offered rate for deposits in the Specified Currency in the London interbank market for the Interest Period concerned as at 11.00 a.m. (London time) on the relevant LIBOR Interest Determination Date. Such offered rate will be that which appears on the display designated as page 3750 or 3740 on the Moneyline Telerate Monitor (or such other page or service as may replace it for the purpose of displaying London interbank offered rates of major banks for deposits in the Specified Currency for a duration approximately equal to the Interest Period). The Rate of Interest for such Interest Period will be the aggregate of the Margin and the LIBOR rate which so appears, as determined by the Calculation Agent;

	(ii)		if on any LIBOR Interest Determination Date for any reason such offered rate is unavailable, the Calculation Agent will request each of the Reference Banks to provide its offered quotation to leading banks in the London interbank market for deposits in the Specified Currency for a duration approximately equal to the Interest Period concerned as at 11.00 a.m. (London time) on the relevant LIBOR Interest Determination Date. The Rate of Interest for such Interest Period will be the aggregate of the Margin and such quotation (if only one is provided) or the arithmetic mean (rounded, if necessary, up to the nearest four decimal places) of such quotations (if two or more are so provided), as determined by the Calculation Agent; and

	(iii)		if the Calculation Agent is unable to determine the Rate of Interest for an Interest Period in accordance with (i) or (ii) above, the Rate of Interest for such Interest Period will be the Rate of Interest in effect for the last preceding Interest Period to which (i) or (ii) above have applied;

	(b)		the Calculation Agent will, as soon as practicable after 11.00 a.m. (London time) on each LIBOR Interest Determination Date, determine the Rate of Interest and calculate the amount of interest payable (the “Amount of Interest”) for one Definitive Note of each Denomination for the relevant Interest Period. The Amount of Interest shall be calculated by applying the Rate of Interest to the Nominal Amount of one Definitive Note of each Denomination, multiplying such product by the actual number of days in the Interest Period concerned divided by 360, or if this Definitive Note is denominated in Sterling or, if market practice so dictates (as determined by the Calculation Agent) by 365 and rounding the resulting figure to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards). The determination of the Rate of Interest and the Amount of Interest by the Calculation Agent will (in the absence of manifest error or fraud) be final and binding upon all parties;

	(c)		a certificate of the Calculation Agent as to the Rate of Interest payable hereon for any Interest Period will be conclusive and binding as between the Issuer and the bearer hereof;

	(d)		the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is called an “Interest Period” for the purposes of this paragraph; and

	(e)		the Issuer will procure that a notice specifying the Rate of Interest payable in respect of each Interest Period be given as soon as practicable after the determination of the Rate of Interest.

“London Business Day” means any day on which commercial banks and foreign exchange markets settle payments and are open for general business in London.


		(B)		(a)		If this Definitive Note specifies EURIBOR as the Reference Rate, interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Interest Commencement Date to the Maturity Date only, in arrears on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 360 days at a rate (the “Rate of Interest”) determined on the following basis:

	(i)		on the second euro Business Day (as defined in paragraph 4 above) before the beginning of each Interest Period (each a “EURIBOR Interest Determination Date”) the Calculation Agent will determine the European Interbank Offered Rate for deposits in euros for the Interest Period concerned as at 11.00 a.m. (Brussels time) on the relevant EURIBOR Interest Determination Date. Such offered rate will be that which appears on the display designated as page 248 on the Moneyline Telerate Monitor (or such other page or service as may replace it for the purpose of displaying European Interbank Offered Rates of prime banks in the euro-zone (as defined below) for deposits in euros for a duration approximately equal to the Interest Period). The Rate of Interest for such Interest Period will be the aggregate of the Margin and the EURIBOR rate which so appears, as determined by the Calculation Agent;

	(ii)		if on any EURIBOR Interest Determination Date for any reason such offered rate is unavailable, the Calculation Agent will request the principal euro-zone office of each of the Reference Banks to provide its offered quotation to leading banks in the euro-zone interbank market for deposits in euros for a duration approximately equal to the Interest Period concerned as at 11.00 a.m. (Brussels time) on the relevant EURIBOR Interest Determination Date. The Rate of Interest for such EURIBOR Interest Period will be the aggregate of the Margin and such quotation (if only one is provided) or the arithmetic mean (rounded, if necessary, up to the nearest four decimal places) of such quotations (if two or more are so provided), as determined by the Calculation Agent; and

	(iii)		if the Calculation Agent is unable to determine the Rate of Interest for an Interest Period in accordance with (i) or (ii) above, the Rate of Interest for such Interest Period will be the Rate of Interest in effect for the last preceding Interest Period to which (i) or (ii) above shall have applied;

For the purposes of this Definitive Note, “euro-zone” means the region comprised of the countries whose lawful currency is the euro;

	(b)		the Calculation Agent will, as soon as practicable after 11.00 a.m. (Brussels time) on each EURIBOR Interest Determination Date, determine the Rate of Interest and calculate the amount of interest payable (the “Amount of Interest”) for one Definitive Note of each Denomination for the relevant Interest Period. The Amount of Interest will be calculated by applying the Rate of Interest to the Nominal Amount of one Definitive Note of each Denomination, multiplying such product by the actual number of days in the Interest Period concerned divided by 360, and rounding the resulting figure to the nearest amount of the Specified Currency which is available as legal tender in the country of the Specified Currency (with halves being rounded upwards). The determination of the Rate of Interest and the Amount of Interest by the Calculation Agent shall (in the absence of manifest error or fraud) be final and binding upon all parties;

	(c)		a certificate of the Calculation Agent as to the Rate of Interest payable hereon for any Interest Period will be conclusive and binding as between the Issuer and the bearer hereof;

	(d)		the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but

excluding) the next succeeding Interest Payment Date is called an “Interest Period” for the purposes of this paragraph; and

(e) the Issuer will procure that a notice specifying the Rate of Interest payable in respect of each Interest Period be given as soon as practicable after the determination of the Rate of Interest.

9.		All notices required to be given under paragraph 8 in respect of this Definitive Note will be delivered to the bearer of this Definitive Note or, if that is not possible, it will be published in the *Financial Times* or in another leading London daily newspaper.

10.		Instructions for payment must be received at the offices of the Issuing and Paying Agent together with this Definitive Note as follows:

	(a)		if this Definitive Note is denominated in Australian dollars, at least two Payment Business Days prior to the relevant payment date;

	(b)		if this Definitive Note is denominated in United States dollars or Sterling on or prior to the relevant payment date; and

in all other cases, at least one Payment Business Day prior to the relevant payment date.

11.		This Definitive Note shall not be validly issued unless manually authenticated by Deutsche Bank AG as Issuing and Paying Agent.

12.		This Definitive Note will become void unless presented for payment within a period of ten years from the Maturity Date.

13.		This Definitive Note is governed by, and will be construed in accordance with, the laws of England.

14.		In relation to any legal action or proceedings arising out of or in connection with this Definitive Note (Proceedings) the Issuer irrevocably submits to the jurisdiction of the courts of England and any courts of appeal from them and waives any objection to Proceedings in such courts whether on the grounds that the Proceedings have been brought in an inconvenient forum or otherwise. This submission is made for the benefit of the bearer of this Definitive Note and shall not limit the right of such bearer to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any court of competent jurisdiction preclude the bearer from taking Proceedings in any other court of competent jurisdiction (whether concurrently or not).

		The Issuer irrevocably appoints Telstra Europe Limited at Telstra House, 21 Tabernacle Street, London EC2A 4DE (or at any address of the Issuer in England at which process may be served on it in accordance with Part XXIII of the Companies Act 1985) as its authorised agent for service of process in England. Nothing in this Definitive Note shall affect the right to serve process in any other manner permitted by law. If for any reason such agent shall cease to be such agent for service of process, the Issuer shall forthwith appoint a new agent for service of process in England.

15.		No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Definitive Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

Signed in facsimile on behalf of
Telstra Corporation Limited



By:		By:
(Authorised Signatory)		(Authorised Signatory)

AUTHENTICATED by
Deutsche Bank AG
Without recourse, warranty or
liability and for authentication
purposes only



By:		By:
(Authorised Signatory)		(Authorised Signatory)

SCHEDULE

Payments of Interest

The following payments of interest in respect of this Definitive Note have been made:


				Notation on behalf
				of Issuing and
Date Made	Payment From	Payment To	Amount Paid	Paying Agent

Pro forma Redemption Calculation
(Index-Linked Definitive Note)

This is the Redemption Calculation relating to the attached index-linked Definitive Note:


Calculation Date:

Calculation Agent:

Redemption Amount:		to be calculated by the Calculation Agent as
		follows:

		[Insert particulars of index and redemption calculation]

		[Indicate whether the calculation refers to nominal or coupon]
Confirmed:


For Telstra Corporation Limited


Note:		The Calculation Agent is required to notify the Issuing and Paying Agent for the Notes of the Redemption Amount immediately upon completing its calculation of the same.

Directory

ISSUER

Telstra Corporation Limited
Level 35, 242 Exhibition Street
Melbourne 3000
Australia

ARRANGER

Citibank International plc


		Address:		Citigroup Centre
				Canada Square
				Canary Wharf
				London E14 5LB

		Telephone: +44 20 7986 9070
		Fax: +44 20 7986 6683
		Contact:		Short-Term Fixed Income Desk

DEALERS


Banc of America Securities Asia Limited		Barclays Bank PLC

Business Certificate # 03899547-000-07-06-0		Address:	5 The North Colonnade
			Canary Wharf
Address:	Level 42		London E14 4BB
	Two International Finance
	Centre
	8 Finance Street
	Central Hong Kong
		Telephone:	+44 20 7773 9075
Telephone:	+852 2847 6681	Fax:	+44 20 7773 4875
Fax:	+852 2847 6675	Contact:	ECP Trading Desk
Contact:	Fixed Income Trading Centre

Citibank International plc		Deutsche Bank AG, London Branch

Address:	Citigroup Centre	Address:	Winchester House
	Canada Square		1 Great Winchester Street
	Canary Wharf
	London E14 5LB		London EC2N 2DB

Telephone:	+44 20 7986 9070	Telephone:	+44 20 7545 1048
Fax:	+44 20 7986 6837	Fax:	+44 11 3336 2014
Contact:	Short-Term Fixed Income Desk	Contact:	ECP Group

ISSUING AND PAYING AGENT

Deutsche Bank AG, London Branch


		Address:		Winchester House
				1 Great Winchester Street
				London EC2N 2DB

		Telephone: +44 20 7545 8000
		Fax: +44 20 7547 5782
		Contact:		Trust & Securities Services

13 December 2006


		Office of the Company Secretary
The Manager

		Level 41
Company Announcements Office		242 Exhibition Street
Australian Stock Exchange		MELBOURNE VIC 3000
4^th Floor, 20 Bridge Street		AUSTRALIA
SYDNEY NSW 2000
		Telephone 03 9634 6400
		Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

~~Cash~~Announcement ~~Capital~~pursuant ~~Expenditure~~to ~~Guidance~~Listing Rule 3.16.3 — Change of Auditor

InTelstra ~~accordance~~Corporation ~~with~~announced today that following the ~~listing~~completion ~~rules~~of T3 the Auditor-General has resigned as Telstra’s auditor, Ias ~~attach~~foreshadowed anin ~~announcement~~the ~~for~~T3 ~~release~~share offer prospectus. Ernst & Young has been appointed as Telstra’s auditor, having acted as agent of the Auditor-General to assist in performing independent external audit duties since fiscal 2000. Ernst & Young’s appointment extends to the ~~market~~year ending 30 June 2009, subject to confirmation of their appointment at Telstra’s 2007 annual general meeting.

Yours sincerely

~~Fiona Mead Acting Company Secretary On behalf of~~ Douglas Gration Company Secretary

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

~~Media~~22 ~~Release~~December 2006

25 May 2006 103/2006


		Office of the Company Secretary
The Manager

		Level 41
Company Announcements Office		242 Exhibition Street
Australian Stock Exchange		MELBOURNE VIC 3000
4^th Floor, 20 Bridge Street		AUSTRALIA
SYDNEY NSW 2000
		Telephone 03 9634 6400
		Facsimile 03 9632 3215

~~Cash~~ELECTRONIC ~~Capital Expenditure Guidance~~LODGEMENT

AsDear ~~part~~Sir ofor ~~Telstra’s 05/06 interim results announcement made on 9 February 2006, the company~~Madam ~~advised that cash capital expenditure for the 2005/06 year was expected to be between $4.8bn and $5.1bn.~~

~~After~~Telstra aresponds ~~review of end of year expected expenditure levels, this guidance has now been revised~~ to ~~an expectation~~ACCC ofInterim ~~between~~Determinations ~~$4.1bn~~on ~~and~~Spectrum ~~$4.4bn.~~Sharing ~~Of the $700 million reduction to guidance approximately~~Service ~~$200m~~Access ~~is deferred to the 2006/07 fiscal year. Management’s focus has been on optimising project~~Disputes ~~performance and contractual outcomes to deliver shareholder value during the transformation of the~~ ~~company.~~

~~There~~Further ~~are~~to its disclosure in the T3 Offer documents that Telstra had received two draft Interim Determinations from the ACCC in respect of Spectrum Sharing Service (SSS) Access Disputes at a ~~number~~price of ~~factors~~$3.20 per month, Telstra wishes to inform the market that ~~have~~the ACCC ~~driven~~has ~~this~~now ~~revised~~issued ~~guidance~~Interim ~~and~~Determinations ~~these~~for ~~are:-~~both those Access Disputes at that price, effective from 21 December 2006.

•There ~~lower~~is ~~costs~~no change to Telstra’s previously issued guidance for ~~property~~this Financial Year or the long-term management objectives, ~~plant~~however ~~and~~the ~~equipment~~impact aswill anbe ~~outcome~~closely ofmonitored. As stated in the ~~company’s~~T3 ~~tough~~Offer ~~procurement~~documents, ~~contract~~Telstra ~~negotiations~~considers ~~and~~that ~~improved~~in ~~capital~~the ~~labour~~longer ~~productivity~~term, ~~across~~such ~~all~~a ~~projects;~~price •will ~~stopping~~lead ~~additional~~to accelerated ~~discretionary~~growth ~~projects~~in ~~that~~SSS ~~were~~enabling ~~not~~our ~~aligned~~competitors to ~~the~~provide ~~transformation~~broadband ~~strategy;~~and •VoIP ~~efficiencies~~services ~~obtained~~with greater ~~from~~growth ~~merging~~opportunities ~~some~~while ~~transformation~~we ~~projects;~~are •restricted ~~lower~~to ~~program~~supplying ofbasic ~~work~~access inservices. ~~some~~In addition, ~~areas;~~we •believe ~~Transformation~~such ~~project~~reduced ~~deferrals~~access ~~representing;~~prices are likely to lead to a reduction in our retail prices.

	o		minor delays (8-10 weeks) in the Business Support Systems transformation due to some industry changes and some outstanding contract negotiations. This is expected to be recovered next fiscal year; and
	o		minor delays (4-5 weeks) in the wireline transformation due to delays in the completion of key network architecture design. This will also be recovered in the next fiscal year.

Yours sincerely

~~All~~Douglas ~~other~~Gration Company ~~aspects of the transformation strategy remain on track.~~Secretary

~~Capital~~Telstra Corporation ~~expenditure~~LimitedACN ~~for~~051 ~~Fibre~~775 ~~to the Node was not part of the initial guidance and is not part of~~556 ~~the~~ABN ~~revised~~33 ~~guidance.~~051 ~~The~~775 ~~Fibre to the Node investment remains on hold.~~ 556

All other elements of the guidance for 2005/06 given on 9 February remain unchanged.

John Stanhope Chief Financial Officer
Telstra Media Contact		Investors Contact
Andrew Maiden 02 9298 5259		David Anderson 03 9634 2410

Telstra’s national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:

www.telstra.com.au/abouttelstra/media

For news, views and discussion on telecommunications in Australia see

www.nowwearetalking.com.au

Telstra Corporation Limited ABN 33 051 775 556

7 June 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

27 December 2006


		Office of the Company Secretary
The Manager

		Level 41
Company Announcements Office Australian Stock Exchange 4^th Floor, 20 Bridge Street SYDNEY NSW 2000		242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA
		Telephone 03 9634 6400 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra ~~presentation~~Corporation toLimited ~~the~~— ~~UBS~~2006 ~~Media & Telecommunications Conference~~20-F

InFor ~~accordance~~your ~~with the listing rules~~information, Iattached ~~attach~~is a copy of athe ~~presentation~~form by20-F ~~Justin~~filed ~~Milne,~~by ~~Group~~Telstra with ~~Managing~~the ~~Director~~United ~~BigPond,~~States atSecurities ~~the~~Exchange ~~UBS~~Commission ~~Media~~and &made ~~Telecommunications~~available ~~Conference,~~on ~~for~~our ~~release to~~website ~~the market~~www.telstra.com.au/abouttelstra/investor

Yours sincerely

Douglas Gration
Company Secretary

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

~~BigPond~~Telstra ~~Content~~Corporation Limited

~~UBS~~Form 20-F ~~Media & Telecommunications Conference~~2006

~~7th~~This document ~~June,~~has ~~2006~~been 1lodged ~~Title:~~with ~~070606~~the —Securities ~~UBS~~Exchange ~~Conference~~Commission. Shareholders may request a hard copy of the complete audited financial statements free of charge by emailing [email protected]

~~The~~SECURITIES ~~future~~AND ~~will~~EXCHANGE ~~be about using multiple devices on one IP network Communication Work Entertainment Information 2Title: 070606 – UBS Conference~~COMMISSION

Washington, D.C.

FORM 20-F/A

(Amendment No. 1)

(Mark One)


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission file number: 1-14722

TELSTRA CORPORATION LIMITED

(Exact name of Registrant as specified in its charter)

AUSTRALIAN CAPITAL TERRITORY, AUSTRALIA

(Jurisdiction of incorporation or organization)

242 EXHIBITION STREET, MELBOURNE, VICTORIA 3000 AUSTRALIA

(Address of principal executive offices)

Securities registered or to be registered
pursuant to section 12 (b)of the Act.


Title of each Class		Name of Exchange on which Registered

Ordinary Shares⁽¹⁾ American Depositary Shares⁽²⁾		New York Stock Exchange New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.


Ordinary Shares		12,443,074,357

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

Yes þ No o

If this is an annual report or transition report, indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

(1) Not for trading but only in connection with the listing of the American Depositary Shares.

(2) Evidenced by American Depositary Receipts, each American Depositary Share representing five Ordinary Shares.

~~Telstra is focusing on developing a relationship with Australians in their digital homes...~~Explanatory Note

~~Kitchen~~We are filing this amended and restated annual report on Form 20-F/A as Amendment No. 1 (this “Amendment”) to our annual report on Form 20-F for the fiscal year ended June 30, 2006, which was filed with the US Securities and Exchange Commission on December 19, 2006 (the “Form 20-F”) in order to correct the inadvertent omission of the report of our independent registered accounting firm and the amendment to note 34 of the financial statements referenced in such report. This Amendment does not reflect events occurring after the filing of the Form 20-F on December 19, 2006 and does not modify or update the disclosure in the Form 20-F other than as described in the preceding sentence.

Broadband Phone

Family Zone Premium Mail Hosting

Home Office

Horseracing

BigPond Movies BigPond Music Online Storage Anti-Spam Firewall & Security

BigBlog

AFL V8 Supercars VOBB NRL BigPond Games

3 Title: 070606 — UBS Conference

~~...and~~Form 20-F isCross ~~positioning~~Reference ~~BigPond as a brand to win in a converged world~~Index

3G Mobile


Form 20-F Item Number and Caption		Page
Item 1: Identity of Directors, Senior Management and Advisers		Not applicable to annual reports on Form 20-F

Item 2: Offer Statistics and Expected Timetable		Not applicable to annual reports on Form 20-F

Item 3: Key Information

	A. Selected Financial Data	7-9

	B. Capitalization and Indebtedness	Not applicable to annual reports on Form 20-F

	C. Reasons for the Offer and Use of Proceeds	Not applicable to annual reports on Form 20-F

	D. Risk Factors	10-17

Item 4: Information on the Company

	A. History and Development of the Company	94,104

	B. Business Overview	94-109,113-124

	C. Organizational Structure	94-97,104 Notes 29 and 30 to the Financial Statements

	D. Property, Plant and Equipment	109

Item 5: Operating and Financial Review and Prospects

	A. Operating Results	29-89

	B. Liquidity and Capital Resources	77-80

	C. Research and Development, Patents and Licenses, etc.	84-85

	D. Trend Information	29-31,33-34

	E. Off-balance sheet arrangements	82

	F. Tabular disclosure of contractual obligations	81-82

Item 6: Directors, Senior Management and Employees

	A. Directors and Senior Management	125-131

	B. Compensation	191-217 Note 32 to the Financial Statements

	C. Board Practices	125-145,191-217

	D. Employees	63-64,110-112

	E. Share Ownership	132,191-217, Note 31 to the Financial Statements

Item 7: Major Shareholders and Related Party Transactions

	A. Major Shareholders	22-26

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Wireless Broadband

4 Title: 070606 — UBS Conference

BigPond has developed a market leading suite of content services


Form 20-F Item Number and Caption		Page
	B. Related Party Transactions	82-84, Note 33 to the Financial Statements

	C. Interests of Experts and Counsel	Not applicable to annual reports on Form 20-F

Item 8:	Financial Information

	A. Consolidated Statements and Other Financial Information	10,109-110, Financial Report

	B. Significant Changes	30-31

Item 9: The Offer and Listing		20-21

Item 10: Additional Information

	A. Share Capital	Not applicable to annual reports on Form 20-F

	B. Memorandum and Articles of Association	152-158

	C. Summary of Material Contracts	None

	D. Exchange Controls	146-151

	E. Taxation	159-164

	F. Dividends and Paying Agents	Not applicable to annual reports on Form 20-F

	G. Statement of Experts	Not applicable to annual reports on Form 20-F

	H. Documents on Display	158

	I. Subsidiary Information	Notes 29 and 30 to the Financial Statements

Item 11: Quantitative and Qualitative Disclosures about Market Risk		90-93 Note 35 to the Financial Statements

Item 12: Description of Securities other than Equity Securities		Not applicable to annual reports on Form 20-F

Item 13: Defaults, Dividend Arrearages and Delinquencies		Not applicable

Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds		Not applicable

Item 15: Controls and Procedures

	A. Disclosure controls and procedures	141

	B. Management’s annual report on internal control over financial reporting	Not applicable

	C. Attestation report of the registered public accounting firm	Not applicable

	D. Changes in internal control over financial reporting	141

Item 16:

	A. Audit committee financial expert	137

	B. Code of ethics	142

	C. Principal Accountant Fees and Services	Note 8 to the Financial Statements

	D. Exemptions from Listing Standards for Audit Committees	Not applicable

	E. Purchasers of Equity Securities by the Issuer and Affiliated Purchasers	Not applicable

Entertainment Sport

• Exclusive content

· NRL

· AFL

· V8 supercars

Mobile/Broadband Integration

• Shared sport Content

· Com Games coverage • mobile DVD Rental • mobile music download to PC

Movies Music Games

Content enables BigPond to rely less on price as a differentiator and to focus on the value proposition for customers

5 Title: 070606 — UBS Conference

The Commonwealth Games was used to promote market leading content and functionality


Form 20-F Item Number and Caption				Page
Item 17: Financial Statements				Not applicable

Item 18: Financial Statements				Financial Report

Item 19: Exhibits				424

3G Phones to support launch of BigPond mobile services

• Blogs and Email

· Photos

· Video Telephony & Messaging

· BigPond Mobile Client (TAM)

· New headsets

· Stimulator for hero handset

Samsung Motorola Z510 V3x 6 Title: 070606 — UBS Conference

~~Going~~Cautionary ~~forward~~Statement weRegarding ~~will~~Forward-Looking ~~increase content penetration and the number of transactions / subscriptions per visitor~~Statements

1 Some of the information contained in this Form 20-F constitutes forward-looking statements that are subject to various risks and uncertainties. ~~Increased~~These ~~Penetration~~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 statements relating to our outlook for fiscal 2007 and strategic management objectives set forth in “Operational and Financial Review and Prospects”, including under the captions “Operational and Financial Review and Prospects — Strategic Management Objectives” and “— Outlook”. Our actual results, performance or achievements could be significantly different from the results or objectives expressed in, or implied by, those forward-looking statements.

~~Advertising~~ Our fiscal 2007 outlook and strategic management objectives contained in this Form 20-F are based on a large number of assumptions concerning future events, including without limitation the successful implementation of our transformation strategy and no further adverse regulatory outcomes, as well as a number of assumptions and estimates relating to factors affecting our business. As a result, these assumptions and estimates are inherently uncertain and subject to a wide variety of risks, including significant regulatory, business, economic and competitive risks, that could cause our actual results to differ materially from our fiscal 2007 outlook and strategic management objectives. Investors should note that our Board established the strategic management objectives in order to measure the performance of management, particularly in relation to the implementation of our transformation strategy. See “Operating and Financial Review and Prospects — Strategic Management Objectives”. It is important to note that our outlook for fiscal 2007 and strategic management objectives are not forecasts or projections, and should not be regarded as such by investors. Investors should also note that any movement in an assumption may offset or compound the effect of a change in any other assumption. Accordingly, there can be no assurance that the fiscal 2007 outlook and strategic management objectives will be indicative of our future performance or that actual results will not differ materially. We can not give any assurance that either our fiscal 2007 outlook or strategic management objectives will be achieved and their inclusion in this Form 20-F should not be regarded as a representation by any person that they will be achieved.

· Important ~~Leverage~~factors ~~Telstra~~that ~~generic~~could ~~brand~~cause ~~ads~~our ~~for~~actual ~~Content~~results to differ materially from our fiscal 2007 outlook and strategic management objectives and other forward-looking statements in this Form 20-F are set forth under the caption “Risk Factors” and elsewhere in this Form 20-F, including under the captions “Operational and Financial Review and Prospects — Outlook” and “ — Strategic Management Objectives”. Given these risks, uncertainties and other factors, you should not place an undue reliance on any forward-looking statement.

~~· Content specific advertising to increase awareness of on-line Content~~1

Distribution

· Through Telstra call centres

· Through retail outlets (pre-paid and non prepaid)

2. New Product Services

· Game Downloads

· Music dual-delivery (Broadband and mobile)

· Viiv/Media Centre implementation

· Mobile TV

3. Increased ARPU

New revenue models

· Subscription

· Bundles

Simplified transactions/billing

•Unified identification and billing

•Integration between mobile and Broadband

7 Title: 070606 — UBS Conference

14 June 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

TABLE OF CONTENTS

ELECTRONIC LODGEMENT


Summary Overview			3
Summary Consolidated Financial & Statistical Data			7
Risk Factors			10
Dividends			18
Exchange Rates			19
Listing Information			20
Major Shareholders and Related Parties			22
Relationship with the Commonwealth			24
Operating and Financial Review and Prospects			27
Quantitative and Qualitative Disclosures about Market Risk			90
Information on the Company			94
Competition			113
Regulation			116
Directors and Management			125
Exchange Controls and Foreign Ownership			146
Description of Shares and our Constitution			152
Taxation			159
Glossary			165
Directors’ Report			170
Financial Report			218
Index of Exhibits			424
Exhibit 1 – Constitution of Telstra Corporation Ltd			425
Exhibit 8 – Subsidiaries			501
Exhibit 12 – 302 – Certifications pursuant to Rule 13(a)-14(a)/Rule 15(d)-14(a) of the US Securities Exchange Act			502
Exhibit 13 – 906 – Certifications pursuant to 18 U.S.C. section 1350			504
Exhibit 15 – Consent of Ernst & Young			506

~~Dear Sir or Madam~~2

Telstra presentation to the Citigroup Next Generation Wireless Communications in Australia Conference

In accordance with the listing rules, I attach a copy of a presentation by Mike Robey, Telstra Consumer Marketing and Channels, at the Citigroup Next Generation Wireless Communications in Australia Conference, for release to the market.

Yours sincerely

Douglas Gration Company Secretary

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

~~Next~~Summary ~~Generation Wireless Communications in Australia~~Overview

~~Mike~~ This ~~Robey~~summary highlights key aspects of this Form 20-F. This summary is not a substitute for the more detailed information contained in the rest of this Form 20-F. The terms “we”, “our”, “us”, and other like terms refer to Telstra ~~Consumer~~Corporation ~~Marketing~~Limited and ~~Channels~~its ~~Citigroup~~consolidated subsidiaries, ~~June~~unless the ~~2006~~context ~~Page~~requires 1otherwise. ~~Version~~The 1Commonwealth of Australia is referred to as the “Commonwealth” and the Government of the Commonwealth of Australia is referred to as the “Australian Government” or the “Government”.

General

We are Australia’s leading telecommunications and information services company, offering a full range of services in these markets. We also operate in 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(R), 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 our strengths in providing integrated telecommunications services is our extensive geographical coverage through both our fixed and mobile network infrastructure. This underpins the carriage and termination of the majority of Australia’s domestic and international voice and data traffic.

We own 50% of FOXTEL, and our international businesses include interests in CSL New World Mobility Group (“CSL”), Hong Kong’s leading mobile operator, 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 Holdings Limited, a leading real estate and home furnishings website in China.

Corporate Objective

Our corporate objective is to create long-term shareholder value through providing integrated communication, information and entertainment services and customer-focused solutions.

Vision and Mission

Our vision is to do for our 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.

Our mission is to know our customers and meet their needs better than anyone else. We aim to give customers a personalised, seamless experience that makes it easy for them to do what they want, when they want it.

~~Mobiles are now very much more than voice!~~Strategy

~~From~~ Following ~~end-April~~a ~~2005~~comprehensive review of our operations during the first half of fiscal 2006, from customer-facing to ~~end~~back-~~April~~office ~~2006~~operations, we announced a whole-of-company, five year transformation strategy in November 2005. The key elements of this transformation strategy are:

~~a26%~~• ~~increase~~building ina ~~SMS~~next-generation ~~messages~~fixed ~~a34%~~network ~~increase~~to insupport ~~MMS~~the ~~messages~~growing ~~a23%~~demand ~~increase~~for inIP-based ~~active~~services ~~Mobile~~and ~~Browsing~~simplifying ~~users~~IT ~~a42%~~systems; ~~increase~~• inrolling ~~Mobile~~out ~~Games~~next-generation ~~downloads~~wireless ~~aMobile~~services ~~data~~over ~~traffic~~our recently launched NEXT G(TM) national wireless broadband network (“NEXT G(TM) wireless network”); • implementing market-based management using extensive customer research and knowledge to differentiate our 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 ~~than~~efficient ~~doubled~~and simplifying operations; • expanding and enhancing our 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 we do business.

Our ~~handsets~~transformation strategy involves a complex and fundamental change to our business, operations, networks and systems and we are ~~changing~~undertaking ~~too!~~the transformation on an accelerated schedule. A transformation of this size, speed and complexity has not been attempted by any other telecommunications company around the world. The initiatives associated with our transformation strategy involve significant capital expenditure and extensive management attention and resources and entail substantial risks. Our ongoing investment in this transformation has significantly reduced income and free cash flows. We believe we have to undertake these major changes at this time and under our proposed schedule in order to maintain our competitiveness and improve our financial results in an increasingly competitive, technologically challenging and highly regulated environment. The main initiatives of our transformation strategy are described below.

~~Telstra~~Strengthening ~~handset~~our ~~base~~fixed ~~technology~~line ~~penetration~~telecommunication ~~(%)~~network and services

~~March~~ We 03intend ~~December~~that 05our next-generation fixed network will deliver new, better and faster services to our customers. This next-generation fixed network will include an IP core network that will offer increased platform capacity compared to our current network. We intend to provide users with more reliable and stable media and telephony services and expand the number and range of services available to customers.

~~WAP~~ The ~~22%~~development ~~57%~~of ~~MMS~~our 1%IP ~~45%~~core ~~Java~~network 1%is ~~41%~~well advanced. We are 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. We will offer new multimedia applications to residential customers when higher speed services become available.

~~Page~~ The 2new ~~Version~~next-generation 1fixed network is expected to provide us 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. We are also investing in technology that greatly improves the speed of ADSL.

Deploying NEXT G(TM) — our national wireless broadband network for Australians

In October 2006, we launched our new NEXT G(TM) wireless network to replace our existing CDMA network. Our NEXT G(TM) wireless network customers will enjoy access to a greater range of content and services as well as many enhanced features, such as improved video calling services and faster broadband access speeds, in addition to better in-building coverage. We will continue to operate services over both our existing GSM and CDMA networks until the national NEXT G(TM) wireless 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

~~Video~~upgrades ~~Streaming~~are iscomplete ~~taking~~and ~~off~~the new service matches or betters the current range and performance of CDMA and any necessary Government agreements have been gained, we will close our CDMA network. We expect that this initiative will reduce duplication of both capital and operational expenditure.

~~Streaming~~Implementing ~~Users~~market-based management

~~Users~~ We are implementing a market-based management approach focused on our customers’ needs. We believe that extensive customer research will allow us to differentiate ourselves from competitors by creating offers that are more relevant to the lifestyles and needs of particular customer segments. Our ongoing customer research has guided the restructure of our consumer and small business sales and marketing teams around seven consumer and five small and mid-sized enterprise segments.

~~Jan-06~~Creating ~~Feb-06~~integrated ~~Mar-06~~solutions ~~Apr-06~~for ~~May-06~~customers

~~Streaming~~ We ~~Revenue~~are seeking to provide individual and business customers with an integrated user experience across devices and platforms — fixed, wireless and Internet. Our transformation strategy involves the integration of services across mobiles, BigPond(R), and Sensis and is designed to facilitate product differentiation tailored to customer needs, increasing the value of our products and services for our customers.

~~Free~~Rationalising ~~Comm~~product ~~Games~~and network platforms using a “one factory” approach

$ We ~~Streams~~are 0endeavouring ~~Jan-06~~to ~~Feb-06~~remove ~~Mar-06~~costs ~~Apr-06~~from ~~May-06~~our ~~Page~~operations 3in ~~Version~~part 1by reducing complexity, making business systems more efficient and simplifying operations. We are 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 complexity and the associated cost from our operations is a critical first step to deliver customers a powerful and seamless user experience, integrating devices and platforms in a simpler way.

Expanding and enhancing Sensis’ online offerings

Sensis, our 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(R) 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 our culture

We are also undergoing a cultural transformation, with large investments in training employees and improving the way we do business.

We have recast leadership, talent management and performance incentives to deliver essential culture change. Our technical field workforce is becoming more mobile and responsive to customer needs with new tools and equipment to support its operational performance. We are investing an additional A$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

We remain 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 we believe is good for our business, our shareholders, our customers and the Australian telecommunications industry overall. We 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.

T3 Global Offering

In November 2006, the Commonwealth of Australia completed the third stage of its privatization of Telstra through a global offering of a total of 4,248,049,190 of its shares in Telstra (including the over-allocation option exercised in December 2006) (the “T3

~~Browsing~~Global &Offering”). ~~video~~The ~~calling~~T3 Global Offering was conducted in Australia and New Zealand as a retail offering, in the United States as an institutional offering, in Japan as public offer without listing and as an institutional offering in several other jurisdictions. Payment will be made for the shares sold in the T3 Global Offering in two instalments. Upon payment of the first instalment, purchasers of the shares will be issued instalment receipts. Each instalment receipt will evidence beneficial ownership in a particular share, subject to a security interest in favor of the Commonwealth securing payment of the final instalment for that share.

~~Apr~~ Upon ~~‘06~~payment ~~63%~~of ~~active~~the ~~BigPond~~first ~~mobile~~instalment, ~~users~~the ~~19%~~underlying ~~active~~shares ~~video~~are ~~callers~~transferred to the instalment receipt trustee, Telstra Sale Company Limited, under a trust deed among the Commonwealth, the trustee and the holders of instalment receipts. The trustee will be the registered holder of the shares and will hold them in trust for the benefit of the holders of instalment receipts until payment of the final instalment, subject to a security interest in favour of the Commonwealth securing payment of the final instalment.

~~40%~~ The ~~had~~trust adeed ~~chargeable~~allows ~~event,~~for the holder of the instalment receipt to exercise the voting rights attached to the share underlying each instalment receipt and to receive all dividends and other benefits paid or given on that share... Upon payment of the final instalment, the instalment receipts will be cancelled and ~~carriage~~investors iswill ~~also~~become ~~charged~~registered holders of the underlying shares.

~~Page 4 Version 1~~6

~~Wireless~~Summary ~~Broadband~~Consolidated ~~Strong~~Financial ~~growth~~and ~~during~~Statistical ~~2005~~Data

~~Acceptance~~ The byfollowing ~~corporate~~summary consolidated financial data comes from our audited consolidated financial statements. The statistical data represent management’s best estimates. The following information should be read in conjunction with our audited consolidated financial statements and the ~~enterprise~~other ITinformation ~~groups~~contained in this Form 20-F. Our audited consolidated financial statements for the year ended 30 June 2006 were prepared in accordance with A-IFRS, and comparative information for the year ended 30 June 2005 has been restated in accordance with A-IFRS, except for AASB 132: “Financial Instruments: Disclosure and Presentation” and AASB 139: “Financial Instruments: Recognition and Measurement”, where comparative information was not required to be restated. In addition, we have elected to early adopt AASB 7: “Financial Instruments: Disclosures”, which supersedes the disclosure requirements of AASB 132. The financial information for the years ended 30 June 2004, 2003 and 2002 has been reconciled to US-GAAP and is derived from our audited consolidated financial data for those periods, which is not included herein. A-IFRS differs in some material respects from US-GAAP. For a reconciliation of the material differences between A-IFRS and US-GAAP as they relate to our audited consolidated financial statements, see note 37 to our audited consolidated financial statements.

~~Productivity~~Financial ~~gains~~data in accordance with A-IFRS for the two-year period ended 30 June 2006

aQuick issue resolution aEasy collaboration with distributed work teams

Year Ended 30 June

2006

2006 (1)

2005

US$

(In millions, except per share amounts)

Income Statement data

Total Income (excluding finance income)(2)

23,100

17,147

22,442

Expenses (excluding depreciation, amortisation and finance costs)(2)(3)

13,516

10,032

11,978

Depreciation and amortisation

4,087

3,034

3,529

Net finance costs

936

695

880

Profit before income tax expense

4,561

3,386

6,055

Profit for the year

3,181

2,362

4,309

Basic earnings per share(4)

0.26

0.19

0.35

Dividends paid(5)

4,970

3,689

4,124

Dividends declared for the fiscal year

4,224

3,135

4,970

Dividends declared per share

0.34

0.25

0.40

Total income comprises

Sales revenue

22,750

16,888

22,161

Other revenue

Other income

328

243

261

Finance income

23,166

17,196

22,525

Balance Sheet data

Total assets

36,175

26,853

35,211

Current borrowings

1,969

1,462

1,507

Non-current borrowings

11,409

8,469

10,941

Share capital

5,569

4,134

5,536

Equity/net assets

12,832

9,525

13,658

Page 5 Version 1


(1)		Unless otherwise noted, all amounts have been translated at the noon buying rate on 30 June 2006 of A$1.00 = US$0.7423.

(2)		For a breakdown of operating revenue by product group and a breakdown of operating expenses by expense category, see “Operating and Financial Review and Prospects”.

(3)		Includes our share of net (profit)/loss from jointly controlled and associated entities.

(4)		Calculated based on the weighted average number of issued ordinary shares that were outstanding during the fiscal year. Refer to note 3 in our consolidated financial statements for further details. Basic earnings per share for each year was materially consistent with diluted earnings per share. As at 30 June 2006, we had issued ordinary shares of 12,443,074,357 (2005: 12,443,074,357). During fiscal 2005, we completed a share buy-back of 185,284,669 ordinary shares.

(5)		During fiscal 2006, we paid dividends of A$4,970 million, being the previous year’s final dividend of A$1,739 million, a special dividend of A$746 million paid with the previous year’s final dividend, the fiscal 2006 interim dividend of A$1,739 million and a special dividend of A$746 million paid with the interim dividend.

~~Applications~~Financial data in accordance with US-GAAP for the five-year period ended 30 June 2006

Applications community maturing


	Year Ended 30 June
	2006			2006 (1)			2005 (4)		2004 (4)		2003(4)			2002(4)
	A$			US$			A$		A$		A$			A$
	(In millions, except per share amounts)
Income Statement data
Operating revenue		22,779			16,909			22,167		20,737		20,495			20,196
Net income, before cumulative effect of change in accounting principle		2,718			2,019			4,204		1,265		3,847			3,922
Cumulative effect of change in accounting principle(2)		(245	)		(181	)		—		4		(309	)		—

Net income		2,473			1,838			4,204		1,269		3,538			3,922
Basic earnings per share, before cumulative effect of change in accounting principle		0.22			0.16			0.34		0.10		0.29			0.31
Cumulative effect of change in accounting principle(2)		(0.02	)		(0.01	)		—		—		(0.02	)		—

Basic earnings per share(3)		0.20			0.15			0.34		0.10		0.27			0.31
Proforma net income(2)		2,718			2,019			4,184		1,228		3,569			3,936
Proforma basic earnings per share(2)		0.22			0.16			0.34		0.10		0.28			0.31
Balance Sheet data
Total assets		35,777			26,557			37,040		35,670		40,529			42,948
Current borrowings		1,984			1,473			1,524		3,246		1,323			1,866
Non current borrowings		11,734			8,710			11,641		9,095		11,580			12,372
Share capital		5,954			4,420			5,921		6,164		6,568			6,536
Equity/net assets		11,803			8,761			14,196		15,082		17,899			18,363

aTransport Logistics aMining aHealthcare


(1)		Unless otherwise noted, all amounts have been translated at the noon buying rate on 30 June 2006 of A$1.00 = US$0.7423

(2)		During fiscal 2006, we changed our accounting principles under US-GAAP in relation to mobile handset subsidies and capitalisation of pension costs. Refer to note 37(b) in our financial statement for further details. The proforma amounts for net income and basic earnings per share assume that these changes in accounting principle were applied retroactively.

(3)		Calculated based on the weighted average number of issued ordinary shares that were outstanding during the fiscal year. Refer to note 3 in our consolidated financial statements for further details. Basic earnings per share for each year was materially consistent with diluted earnings per share. As at 30 June 2006, we had issued ordinary shares of 12,443,074,357. As at 30 June 2005, we had issued ordinary shares of 12,443,074,357 after completing a share buy-back of 185,284,669 ordinary shares. As at 30 June 2004, we had issued ordinary shares of 12,628,359,026 after completing a share buy-back during fiscal 2004 of 238,241,174 ordinary shares. As at 30 June 2003 and 30 June 2002, we had 12,866,600,200 issued ordinary shares.

(4)		Certain US-GAAP amounts in 2005, 2004, 2003 and 2002 have been restated as a result of a number of immaterial adjustments that were identified as part of our adoption of A-IFRS. Refer to note 37(a) in our consolidated financial statements for further details.

~~Benefits~~8

aBetter resource utilisation aImproved customer service

Page 6 Version 1

~~Lifesaving~~Statistical —Data ~~will~~as goat ~~mobile~~the ~~with~~end ~~broadband~~of the period (except for traffic data)

Page 7 Version 1


	Year Ended 30 June
	2006		2005		2004		2003		2002
Billable Traffic Data (in millions)
Local calls (number of calls)		7,432		8,469		9,397		9,794		10,269
National long distance minutes(1)		7,215		7,743		8,520		9,161		9,170
Fixed to mobile minutes		4,491		4,375		4,226		3,944		3,691
International direct minutes		534		580		651		740		781
Mobile voice telephone minutes(2)		7,311		6,746		6,145		6,335		5,780
Inbound Calling Products — B Party minutes		2,922		2,773		2,708		2,655		3,345
Inbound Calling Products — A Party minutes		1,012		940		938		918		N/A
Number of short messaging service (SMS) sent		3,019		2,289		1,944		1,413		N/A
Network and Operations Data (in millions)
Basic access lines in service(3)
Residential		5.46		5.60		5.87		6.20		6.35
Business		2.32		2.45		2.57		2.71		2.72

Total retail customers		7.78		8.05		8.44		8.91		9.07
Domestic wholesale		2.16		2.07		1.84		1.55		1.33

Total basic access lines in service		9.94		10.12		10.28		10.46		10.40

ISDN access (basic lines equivalents) (in thousands)(4)		1,214		1,208		1,288		1,213		1,268

Mobile Services in Operation (SIO) (in thousands)(5)
3G		317		—
GSM		6,468		6,894		6,653		5,812		5,346
CDMA		1,703		1,333		951		757		596

Mobile services in operation		8,488		8,227		7,604		6,569		5,942

Total Wholesale mobile SIOs (in thousands)		119		83		61		N/A		N/A

Online subscribers (in thousands)
Narrowband subscribers		1,027		1,205		1,194		1,158		1,056

Broadband subscribers — Retail		1,476		856		427		121		168
Broadband subscribers — Wholesale(6)		1,427		888		379		240		N/A

Total Broadband subscribers		2,903		1,744		806		361		168

Total online subscribers		3,930		2,949		2,000		1,519		1,225

Total FOXTEL subscribers (in thousands)		1,130		1,023		904		836		800
Employee Data
Domestic full-time staff(7)		37,599		39,680		36,159		37,169		40,427
Full time staff and equivalents(8)		44,452		46,227		41,941		41,941		44,977
Total workforce(9)		49,443		52,705		N/A		N/A		N/A


(1)		Includes national long distance minutes from our public switched telephone network (“PSTN”) and independently operated payphones. Excludes minutes related to calls from non-PSTN networks, such as ISDN and virtual private networks.

(2)		Includes all calls made from mobile telephones including long distance and international calls, excludes data, messagebank, international roaming and CSL New World.

(3)		Excludes Incontact service (a free service with restrictive calling access) and advanced access services, such as ISDN services.

(4)		Expressed in equivalent number of clear voice channels. Comparatives have been restated to reflect updated assessment of channels per SIO on ISDN 10/20/30. The previous assessment was based on a calculation of channel configurations across sample services. The revised assessment is based on the entire customer base.

(5)		Excludes CSL New World SIOs.

(6)		Within Broadband, retail products include cable, satellite, BigPond Wireless, HyperConnect, ADSL and Symmetrical HDSL, while wholesale products include DSL Layer 1, DSL Layer 2, DSL Layer 3, Spectrum Sharing and vISP Broadband. Total Broadband subscribers exclude Broadband component of ULL and Mobile Broadband which form part of intercarrier services and mobiles revenue respectively.

(7)		Excludes offshore, casual and part time employees.

(8)		Includes all domestic and offshore employees, including controlled entities.

(9)		Includes all domestic and offshore employees, including controlled entities, as well as contractors and agency staff.

~~More~~Risk content! Example : AFL / NRL Broad range of AFL / NRL content to our 2G and 3G customers Access to exclusive mobile video including AFL /NRL match highlights News, Q4 news desk, tribunal, fixture, player profiles, club pages & results Good example of “next generation” technical and business challenges Page 8 Version 1Factors

The following describes some of the significant risks that could affect us. Additionally, some risks may be unknown to us and other risks, currently believed to be immaterial, could turn out to be material. Some or all of these could materially adversely affect our business, profits, outlook and management objectives, assets, liquidity and capital resources. These risks should be considered in conjunction with any forward-looking statements in this Form 20-F and the cautionary statement regarding forward-looking statements in this Form 20-F.

We operate in a highly regulated environment that negatively affects our business and profitability. In particular, we believe that regulation limits our ability to pursue certain business opportunities and activities affecting the returns we can generate on our assets. We are required to give our competitors access to certain services and infrastructure in which we have invested significant shareholder funds, even though the competitors could have invested in developing their own capabilities but chose not to do so.

A further description of Australia’s telecommunications regulatory regime is contained in “Relationship with the Commonwealth — The Commonwealth as regulator” and “Regulation”.

Telstra believes that regulation is the most significant ongoing risk to the company. There can be no assurances as to future policies, ministerial decisions or regulatory outcomes. These may be significantly adverse to our shareholders.

We are focused on building competitive advantage. This may however be undermined by adverse policies, decisions or regulatory outcomes.

We believe the current regulatory regime is value destroying. Regulatory reform is an issue with which management is seriously engaged and although recent history does not give us any indication that regulatory risks will be reduced, we are committed to seek regulatory reform on behalf of our shareholders.

We face substantial regulatory risks that we believe have, and will continue to have, substantial adverse effects on our operations and financial performance. The key risks include:

	•		Access pricing: The ACCC can require us to provide certain services to our competitors using our networks, at a price based on the ACCC’s calculation of the efficient costs of providing these services if the parties fail to agree a price. In many cases we believe that the ACCC proposes prices that are below our efficient cost of supply. The ACCC is yet to issue its final ruling on the prices it will allow us to charge for various wholesale services including unconditioned local loop service (“ULLS”) and spectrum sharing service (“SSS”). We believe that these are extremely important matters for the financial performance of our business. The ACCC has recently issued several interim determinations in ULLS arbitrations to which we are a party, reducing the price from A$22 to A$17.70 per line per month in band 2 (metropolitan areas, where the greatest number of ULLS services will be provided). We are effectively required by law to charge the same price for a basic line rental service for all retail customers across Australia, but the ACCC will not follow the same principle for wholesale customers, instead setting prices which differentiate between metropolitan and non-metropolitan areas (de-averaged prices), well below our calculation of the efficient costs. This will enable our competitors to target customers in higher density areas where access prices are low, leaving us to provide services to some customers in high cost, low density areas at the same retail price as in metropolitan areas. The ACCC may reduce access prices further which would adversely affect our revenues, earnings and shareholder returns, including dividends. In addition, the ACCC recently issued two draft interim decisions in SSS arbitrations significantly reducing the monthly charge to A$3.20. We believe such a price would lead to accelerated growth in SSS enabling our competitors to provide broadband and VoIP services with greater growth opportunities while we are restricted to supplying basic access services. In addition, we believe such reduced access prices would be likely to lead to a reduction in our retail prices. Since the draft interim decisions were issued, three further SSS arbitrations have been filed against us claiming that our charges for SSS are too high.

	•		Mandated access to Telstra networks: A key part of our transformation strategy involves deploying next-generation networks, including our recently launched NEXT G(TM) wireless network. The ACCC may hold a public inquiry at any time into whether compulsory competitor access to the network should be required. We believe such compulsory competitor access would not be appropriate because of the wide availability of competing wireless networks. Were such access to be required this would deprive our shareholders of the benefits of the wider coverage of our network and we believe this would materially adversely affect our investment returns, earnings and shareholder returns, including dividends. This may undermine our commercial incentives to continue to invest in the NEXT G(TM) wireless network, for example, to increase data speeds.

Reducing complexity

	•		Conduct regulation: On 12 April 2006, the ACCC claimed that we engaged in anti-competitive conduct when we raised our wholesale basic access prices to allow greater recovery of our estimated costs of providing the service without a similar increase in retail prices, in breach of the Trade Practices Act. The ACCC may take us to the Federal Court for this alleged breach. The maximum potential penalties that the Federal Court could impose exceed A$470 million as at 30 September 2006 and are increasing at A$3 million per day. Optus Networks Pty Ltd, a subsidiary of one of our principal competitors, has issued proceedings in the Federal Court in the same matter seeking damages and an injunction. We will vigorously defend these proceedings and any enforcement proceedings that may be brought by the ACCC, on the basis that we have not acted anti-competitively and that we believe we should be allowed to move our prices closer to our costs. The ACCC may in the future reach the view that other of our conduct is a breach of the Act. For example, a refusal by us to supply services to our competitors for what we believe to be normal commercial reasons may in the ACCC’s view, be a breach of the Act. We believe that, should the ACCC allege that we have engaged in anti-competitive conduct, it will rely upon the potential for very large fines in an endeavour to have us modify what we believe to be normal commercial behavior. We will defend our right to act in what we believe to be a normal commercial manner.

	•		Wide ministerial and regulatory discretion: The Communications Minister has broad and largely discretionary powers to impose and vary licence conditions and other obligations on us. For example, the requirement to operate separate retail, wholesale and network business units (“operational separation”) places a burden on us with many restrictions imposed on the way we run our business. Refer “Regulation — Operational separation”. However, the real risk with operational separation lies in the power of the Communications Minister to determine the way we conduct our business by directing us to vary our operational separation plan, subject only to the aims and objects of the legislation which are very broad. In addition, we are subject to retail price controls —for example, we are not allowed to charge for directory assistance (even to customers of our competitors), but there is no such restriction on our competitors charging for these services. Also, we are obliged to make certain uneconomic services available in rural and remote areas, without receiving what in our opinion is a fair contribution to our costs from our competitors. Further, the ACCC has broad discretionary powers and is in general not subject to ministerial oversight or direction.

~~Device~~ Because ~~manufacturers~~of ~~improving~~these regulatory factors, there is a risk that we are, and could be, exposed to significant limitations, uncommercial imposts, penalties and compensation payments in ~~device~~relation ~~usability~~to our current and future activities and assets. This may make it prudent on some occasions for us to cease, or choose not to engage in, business activities in which we might otherwise engage; or avoid, defer or abandon certain capital projects as was the case with our fibre to the node (FTTN) project, where we chose not to build this network because in our view the access price likely to be set by the ACCC would not enable us to earn a competitive return for our shareholders. These regulatory risks could therefore have an adverse effect on our ability to pursue certain business opportunities and activities and the returns we can generate on our assets, and could benefit our competitors. This may in turn adversely affect our financial performance.

~~“Walk~~ For ~~Out~~more ~~Using”~~detailed —information ~~Telstra~~regarding ~~initiative~~our toregulatory ~~enable~~environment ~~all~~and ~~devices~~our ~~“out~~obligations ofand potential ~~the~~liabilities ~~box~~under Australian regulations, see “Regulation”.

~~aRequires~~We ~~close~~may ~~cooperation~~not succeed in implementing our transformation strategy. Even if successfully implemented, our transformation strategy may not achieve the expected benefits, or may not be achieved within the intended timeframe.

~~across~~ We ~~Telstra~~have invested substantial capital and other resources in the development, streamlining and modernisation of our networks and systems and have embarked upon a substantial transformation of the company. Our transformation strategy involves a complex and fundamental change to our business, operations, networks and systems, and we are undertaking the transformation on an accelerated schedule. A transformation of this size, speed and complexity has not been attempted by any other telecommunications company around the world. There is a significant risk that we may not be successful in the implementation of our transformation strategy. In particular, there are substantial risks that:

~~with~~• ~~key~~our ~~device~~next-generation technologies and network, ~~application~~including our recently launched NEXT G(TM) wireless network, and ~~infrastructure~~IT ~~partners~~support systems and processes will not function as anticipated; • key vendors on which we are dependent may not perform as expected; • customer take-up of and planned large-scale migration to our new products and services are significantly less than planned; • extended delays and other execution problems in implementing our transformation strategy may develop;

~~Increases useage revenue~~11

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~~Telstra~~• ~~Technology~~competitors ~~Roadmap~~may in time offer similar services and capabilities; and • our actual capital and operating costs turn out to be substantially greater than those budgeted.

~~Page~~ The 10occurrence ~~Version~~of 1any or all of these risks may have a material adverse impact on our competitiveness, earnings and shareholder returns, including dividends.

Our next-generation technologies and network and IT support systems may not function as planned and the timetable for implementation is aggressive.

Our next-generation technologies span across our fixed line and wireless networks, including our switching and transmission systems, as well as all our network and IT support systems and processes. We face significant risks that the technology may not be installed in a satisfactory manner, on time or within budget, and that the technology may not perform as expected and represented by our key vendors. The risks of non-performance include those relating to speed of transmission, quality of service, costs to deploy and operate the new networks and systems, the ability to create and effectively implement new product and service offerings and the capability to integrate applications and create seamless interfaces with front office order-entry systems and back office billing and customer support systems. As more customers are migrated to our next-generation networks and systems, some of these operational risks will increase. Any substantial delays in completing the new IT systems, or the customer migration, will lead to an extended period where we face the additional cost of operating old and new systems in parallel and delay the benefits from decommissioning the old systems.

One of the most complex and highest risk elements of our transformation strategy is the rationalisation of our network platforms and IT systems, including our operational support systems and business support systems. Our plan to cap or exit 65% of our network platforms and reduce the number of our IT systems by at least 80% by 2010 is in its early stages and we have not yet delivered the initial release. If we are unable to simplify and rationalise our networks and systems or if we are substantially delayed in achieving this objective, we may not be able to achieve the full benefits of our transformation strategy.

Our transformation strategy also depends upon the installation of new and untested support systems that we expect will allow us to price and sell services efficiently and bill and care for the customers who purchase them. The systems we are deploying are largely untested in the applications and the environments we intend for them. There is therefore substantial risk that our planned system installation and the migration of our customers to the new systems may not be successful or that we may not be able to integrate the systems supporting the multiple technologies and services we plan to operate. In addition, the migration of our CDMA customers to our NEXT G(TM) wireless network may be more costly or take longer than anticipated, leading to unanticipated costs in operating the CDMA network for longer than expected.

We are dependent on key vendors which may not perform as expected.

We are dependent on key vendors for the implementation of our transformation strategy, such as Accenture, Alcatel, Cisco, Ericsson, Siebel, Kenan Systems and IBM. Our dependence on key vendors for the implementation of our next-generation technologies creates a number of risks, including risks that key vendors may not deliver or perform as promised or may fail, and the products we have chosen may be discontinued or become unsupported. Also, our ability to use other vendors, obtain contractual recourse or secure intellectual property rights should one of our chosen vendors fail to deliver or perform as promised may be limited.

Customer acceptance and take up of our new product and service offerings and our planned large-scale customer migration to new platforms, including in relation to our recently launched NEXT G(TM) wireless network, may be significantly less than planned.

The success of our transformation strategy depends upon the large scale customer take-up of newly-created products and services enabled by our next-generation networks, including our NEXT G(TM) wireless network. No other major international telecommunications company has proven the commercial viability of creating and marketing the next-generation products and services we are planning to roll out. There is a substantial risk that we will not be able to create and develop appropriate or commercially attractive products and services that take advantage of these new network capabilities and meet market demand or that we will not develop appropriately tailored bundles of products and services compared to our competitors. Even if we do, there is a risk that customers will not purchase them in sufficient quantities or at high enough prices to recoup our investment.

3G The ~~City~~take-up Toof ~~Country~~new Anext-generation ~~game~~products ~~changing~~and ~~move~~services also depends on our ability to successfully migrate our substantial customer base to our new network platforms. There is a risk that we may be unable to migrate our customers to our new networks and systems successfully and that we experience excessive churn of customers to other providers during the migration process. We may also be unable to suppress continuing demand for development of existing or legacy IT systems. The occurrence of any of these risks could also complicate the build and integration of new systems and hamper the application of sufficient resources to build and integrate the new systems and cause us to have to operate old and new systems for an extended period.

~~Most~~We ~~pervasive,~~may ~~homogeneous,~~face ~~high~~extended ~~capacity~~delays ~~wireless~~and ~~network~~other execution problems in ~~Australia’s~~implementing ~~history~~our transformation strategy.

~~Once~~ Our ~~the~~transformation ~~new~~strategy ~~HSDPA~~calls for more deployments of more network istechnologies ~~complete~~and IT support systems than we have ever attempted or that any major telecommunications company worldwide has successfully accomplished. The risks of executing all aspects of these deployments and the integration process on time and on budget, itwith high quality results, are significant. The risks associated with any one such deployment increase significantly as multiple deployments are being pursued simultaneously, each dependent in some measure upon the others being performed. In addition, our transformation is being executed in a relatively short period by a company that has not experienced a transformation process of this magnitude. There is substantial risk that our installation of these systems and the conversion of our embedded base of customers to them will ~~provide:~~take ~~aGreater~~longer, be more expensive and cause more disruption than ~~98%~~we ~~population~~anticipated, ~~coverage~~leading a1to lower sales, higher costs and widespread customer dissatisfaction.6 ~~million~~The ~~square~~risks ~~kilometres~~associated with the execution of ~~coverage~~our transformation ~~aConsistency~~strategy also include the lack of ~~services~~suitable inpersonnel ~~metropolitan~~and resources to implement our transformation, an inability of new IT systems and ~~country~~processes ~~areas~~to deliver productivity gains and targeted workforce reductions and the potential for industrial disputes, each of which could significantly delay the transformation or limit its effectiveness.

~~Page~~Competitors 11may ~~Version~~in 1time offer similar services and capabilities.

We expect our competitors to continue to adapt their product offerings and technical capabilities. As a result, there is a risk that our ability to differentiate ourselves from our competitors on the basis of our planned next-generation technologies, network and IT support systems may be reduced, affecting our revenues, margins and profits. In addition, the relative advantages expected of our NEXT G(TM) wireless network’s geographic and in-building coverage and speed may be offset by competitors offering similar services and capabilities.

Our actual capital and operating costs may turn out to be substantially greater than budgeted.

Our transformation strategy is very costly and has resulted in significant declines in our net income and our cash flow available for reinvestment or the payment of dividends. The foregoing risks could cause additional costs and expenses, delays in the availability of new technology and new products and services, fewer than expected customers buying fewer new products at lower than expected prices, and asset write-downs. These risks could lead to us not generating profits or cash flow to the levels prevailing when the transformation began and could also result in a significant reduction in earnings and shareholder returns, including dividends. In addition, while our transformation strategy is designed to respond to current market changes through the modernisation of our networks and systems, future technology and market changes may create the need for other network and systems changes and therefore require us to spend more than currently budgeted.

The success of our transformation strategy is highly dependent on our key personnel and the loss of one or more of these key executives could materially impact the timely and effective implementation of this strategy.

Our 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. The transformation strategy that we are now pursuing is an enormous enterprise formulated by our current senior management team. Given the breadth of the strategy and the significant undertakings associated with it, the loss of one or more of these key executives, in particular the CEO or COO, could have a material adverse impact on our ability to achieve some or all of the objectives of the transformation strategy and consequently our earnings and shareholder returns, including dividends. There is also a risk that if the CEO were to leave us one or more of the overseas executives he has recruited may also leave.

We could experience difficulty in retaining and attracting skilled and experienced people.

As technology evolves we will need to attract, retain and train our workforce. The relevant skills are in short supply worldwide. There is a risk that an inability to attract and retain skilled and experienced people and hence to embrace new technology and retain our corporate knowledge could impact our ability to remain competitive.

~~Orange~~ For ~~areas~~more ~~combined~~information ~~represent~~on ~~City~~our toworkforce, ~~Country~~see ~~coverage~~“Directors ~~equal~~and ~~to CMDA coverage today~~Management”.

~~Page~~If 12we ~~Version~~are 1not successful in addressing the decline in revenues from our traditional high-margin fixed- line (PSTN) products and services and in increasing the revenues and profitability of our emerging products and services, our overall profitability will decline.

Our PSTN revenues declined by 6.7% in fiscal 2006. This decline will continue and may accelerate. The decline has been caused by increasing competition, substantial regulatory impacts and the continued growth and development of technologies that offer increasingly viable alternatives to our PSTN services. This trend is present across telecommunications markets globally, and it is expected to continue. PSTN revenues comprise a significant portion of our revenues and provide high margins and strong cash flows that enable us to invest in and develop our business. If we are unable to arrest or slow the rate of decline in our PSTN revenues or grow alternative revenue sources, manage costs and minimise margin erosion in newer lower-margin products and services, such as mobiles, Internet, IP solutions, advertising and directory services and pay TV bundling, our earnings and shareholder returns, including dividends, could be materially adversely affected.

Rapid technological changes and the convergence of traditional telecommunications markets with data, Internet and media markets expose us to significant operational, competitive and technological risks.

Rapid changes in telecommunications and IT are continuing to redefine the markets in which we operate, the products and services required by our customers and the ability of companies to compete in the telecommunications industry in Australia and elsewhere in the world. These changes are likely to broaden the range, reduce the costs and expand the capacities and functions of infrastructure capable of delivering these products and services. We are responding to current market changes through the modernisation of our networks and systems, including the deployment of our new nationwide NEXT G(TM) wireless network, but future technology and market changes may create the need for other network and systems changes at considerable cost to Telstra.

To address the continuing changes in converging telecommunications, data, Internet and media markets, we may be required to devote considerable resources to enhancing our ability to deliver services required by these markets. There is a risk that competitors may leverage both their own and our infrastructure or deploy or develop technologies or infrastructure that provides them with a lower cost base or other operating advantages that may drive down market prices. This could give these competitors an advantage if we are unable to promptly and efficiently provide equivalent services.

Competition in the Australian telecommunications market could cause us to continue to lose market share and reduce our prices and profits from current products and services.

The Australian telecommunications market has become increasingly competitive since the Commonwealth introduced open competition on 1 July 1997. Although the overall market has experienced growth to date, we have lost substantial market share in some key markets particularly 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. In response to increased competition, we have lowered the prices of our products and services, particularly the prices for our local calls, national long distance calls and international telephone services and calls to and from mobile services.

There is also a risk that non-traditional competitors with greater access to content, substantial resources and/or alternative delivery platforms, such as Internet search engine and Internet trading companies, VoIP and media companies, may enter and compete effectively in our telecommunications markets.

We expect vigorous price and facilities or network-based competition to continue or accelerate. We also expect that our competitors will continue to market aggressively to our high value customers. The continued loss of market share or downward pressure on prices would have an adverse effect on our financial results in the market or markets in which this type of competition occurs.

The Australian Government has announced Connect Australia, a A$1.1 billion package to subsidise the supply of broadband, mobile and fixed line services for people living in regional, rural and remote areas in Australia. In addition, nine of our 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. Connect Australia is likely to increase facilities and network-based competition in these areas.

For more information on our competitive environment, see “Competition”.

3GOur ~~City~~ability Toto ~~Country~~pursue our strategy with some joint investments may be limited.

Some of our domestic and international activities are conducted through subsidiaries, joint venture entities and other equity investments. These include our interests in FOXTEL, REACH, our 3GSM ~~family~~2100 network sharing partnership with Hutchison (3GIS), CSL and SouFun. Under the governing documents for some of ~~technologies~~these entities, certain key matters such as the approval of business plans and decisions as to capital invested and the timing and amount of cash distributions require the agreement of our co-participants. Our co-participants may have different approaches with respect to the investment and the markets in which they operate and on occasions we may be unable to reach agreement with them. Any dispute or disagreement from time to time with our partners may negatively affect our ability to pursue our business strategies.

~~a82%~~ In some cases, strategic or venture participants may choose not to continue their participation. In addition, our arrangements with our co-participants may expose us to additional investment, capital expenditure or financing requirements. There are also circumstances where we do not participate in the control of, or do not own a controlling interest in an investment and our co-participants may have the ~~global~~right ~~digital~~to ~~mobile~~make ~~market~~decisions ~~a1.8~~on ~~billion~~certain ~~mobile~~key ~~users~~business ~~globally~~matters with which we do not agree.

~~Average~~ All ~~data~~of ~~rates~~these ~~between~~factors ~~500kbps~~could negatively affect our ability to pursue our business strategies with respect to the concerned entities or business objectives and ~~1Mbps~~the atmarkets ~~launch~~in which they operate. For more information on some of our investments, see “Information on the ~~new~~Company ~~HSDPA~~— International ~~network~~investments” and “Information on the Company — Products and services — Mobiles — 3G wireless service” and “Information on the Company — Products and services — Subscription television”, and “Information on the Company — Networks and Systems”.

~~Simplified~~Network ~~integration~~and ~~aApplications~~system ~~developed~~failures ~~for~~could ~~one~~damage ~~technology~~our ~~Page~~reputation 13and ~~Version 1~~earnings.

Our technical infrastructure is vulnerable to damage or interruption from a range of factors including floods, wind storms, fires, power loss, telecommunication failures, cable cuts and/or intentional wrongdoing. The networks and systems that make up our infrastructure require regular maintenance and upgrade that may cause disruption. The occurrence of a national disaster or other unanticipated problems at our facilities or any other damage to or failure of our networks and/or systems could result in consequential interruptions in service across our integrated infrastructure. Network and/or system failures, hardware or software failures or computer viruses could also affect the quality of our services and cause temporary service interruptions.

There is a risk that our major customers’ capacity requirements will be in excess of our ability to supply, resulting in lost revenue, customers moving to competitors and possibly claims by customers against us.

Our IT systems are complex and there is a risk that our ability to support strategic priorities in customer service and growth products may be delayed by our transformation program and the complexity of changing our systems. Our IT systems are also vulnerable to viruses, denial of service and other similar attacks which may damage our systems and data and that of our customers. Any of these occurrences could result in customer dissatisfaction and damages or compensation claims as well as reduced earnings.

Future sales of a substantial portion of our shares by the Future Fund could depress the market price for our shares and other equity interests.

The Commonwealth has indicated it will transfer its Telstra shares not sold in the T3 Global Offering to the Future Fund, a Commonwealth investment fund. Following the T3 Global Offering the Future Fund will have a substantial shareholding in Telstra. The shares held by the Future Fund will be subject to an escrow or lock-up period of two years (with certain exceptions). After the escrow or lock-up period, the Future Fund will be required to sell down its shareholding over the medium-term to a level consistent with its investment strategy (at least below 20% of our issued share capital). See “Future Fund — General investment mandate”. Future disposals by the Future Fund of our shares or the perception that such disposals may occur could reduce our share price, and adversely affect the timing and effectiveness of our capital raisings, which could have an adverse impact on our cost of capital.

The Finance Minister may issue directions to the Board of the Future Fund in relation to Telstra shares held by the Future Fund, including specifying how disposals, voting and other rights relating to the shares are to be exercised. While the current Government does not intend to issue directions specific to Telstra shares (except to impose the escrow and require the sell-down), a future Government might take a different approach, using its direction power to require the disposal or voting of the Telstra 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 our other shareholders, and the Future Fund could take actions that we may not regard as being in the best interests of our shareholders.

~~Significant~~There ~~platform~~are ~~simplification~~significant differences between the Commonwealth and the Telstra Board with respect to the election as a director of Mr Geoffrey Cousins.

2G Telstra’s 2annual general meeting was held on 14 November 2006 shortly before the completion of the T3 Global Offering, at which time the Commonwealth still owned approximately 51.5G8% 3Gof ~~Super~~Telstra shares. 3GThe 4GCommonwealth sought the nomination of Mr Geoffrey Cousins for election as a director of Telstra at the annual general meeting and voted its shares 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.

~~Sharing~~ Mr Cousins was a part-time consultant to the Prime Minister for nine years resigning upon his nomination for the Board.

~~HSDPA1~~ 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 will 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 “The Future Fund”). The Government raised Mr Cousins’ nomination with Telstra at the beginning of the week commencing 11 September 2006 and believes that it gave Telstra ample time to consider his nomination, having regard to his extensive experience.

~~3GSM~~ The 10Telstra ~~Mbps~~Board &did 2not 1seek ~~Gbp~~Mr ~~peak~~Cousins’ ~~(WCDMA~~nomination ~~)100~~and ~~Mbps~~did ~~peak~~not ~~550-1100~~have ~~Kbps~~the ~~(target~~opportunity ~~goal)~~to adequately ~~220-320Kbps~~assess ~~(target~~Mr ~~goal)~~Cousins’ ~~GSM~~candidacy ~~GPRS~~in ~~EDGE~~accordance ~~9Kbps~~with ~~30-40~~its ~~Kbps~~governance ~~100~~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-~~130~~executive ~~Kbps~~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 Telstra’s ~~Today~~notice of meeting for the annual general meeting, the Board did not recommend that shareholders vote in favour of Mr Cousins.

~~Deployed~~ To ~~Active~~be ~~rollout~~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.

~~Wide~~ The ~~Area~~Government ~~Wireless~~believes ~~Retaining~~that ~~option~~Mr Cousins will act independently as a director and not as a representative of the Government on the Telstra Board.

~~Not~~ However, ~~currently~~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.

~~Short~~Actual ~~Range~~or IPperceived ~~pursuing~~health ~~WiFi~~risks ~~Wireless~~relating ~~Page~~to 14the ~~Version~~emission 1of electromagnetic energy (“EME”) by mobile handsets and transmission equipment could lead to decreased mobile communications usage.

While certain reports have suggested that EME emissions from mobile handsets and transmission equipment may have adverse health consequences, the overwhelming weight of scientific evidence is that there are no adverse health effects when wireless equipment is used in accordance with applicable standards. Nonetheless, any widespread perception of EME risks may lead to decreased mobile communication usage, which would decrease our wireless business.

~~Customer~~There ~~benefits~~may ~~For~~be ~~city-based~~a ~~customers:~~lower level of dividends.

~~Significantly~~ The ~~improved~~Board’s ~~coverage~~current ~~compared~~intention is to ~~their~~declare ~~GSM~~dividends ~~service~~totaling ~~today~~A$0.28 per share fully franked for fiscal 2007, subject to continued success in implementing our transformation strategy and no further material adverse regulatory outcomes during the course of the year. There is a risk that if we are unsuccessful in implementing our transformation strategy or there are further material adverse regulatory outcomes, the amount of dividends in any year may be reduced or not fully franked, which would negatively affect yield.

~~For~~There ~~country~~are ~~customers:~~limits on foreign ownership of our shares

~~Improved~~ The ~~city~~Telstra ~~coverage~~Corporation Act 1991 imposes limitations on the ownership of shares by “foreign persons”. Foreign persons and their “associates” may not in total have interests in more than 35% of our shares not held by the Commonwealth, ~~wireless~~and ~~broadband~~no single foreign person and 3Gits ~~services~~associates may have an interest in more than 5% of our shares not held by the Commonwealth. If either of these limitations is exceeded, the person who acquired shares or instalment receipts which resulted in the limits being exceeded may be subject to fines.

~~For~~ Under ~~all~~the ~~3G850~~trust ~~customers:~~deed ~~Better~~and ~~in-building~~our ~~coverage~~constitution, we and the trustee have the power to compel the sale of the shares or instalment receipts held by foreign persons or their associates that exceed these limits. We or the Commonwealth may also seek relief from the courts, which could include:

~~Much~~• ~~improved~~directing ~~international~~the ~~roaming~~disposal of shares or instalment receipts; • restraining the exercise of any rights attaching to shares or instalment receipts; and • prohibiting or deferring receipt of sums payable on shares or instalment receipts.

~~Available~~We ~~across~~intend ato ~~national~~deregister ~~network!~~from the SEC and delist our ADRs from the NYSE as soon as feasible following adoption of new SEC regulations on deregistration.

~~Page~~ In 15December 2005, ~~Version~~the 1SEC proposed rules that, if adopted, would make it easier for foreign companies to terminate their SEC registration. If these or similar rules are adopted, we intend to deregister from the SEC and to delist our ADRs from the NYSE at the earliest opportunity. Following the deregistration and delisting, we will no longer prepare annual reports on Form 20-F and instead will only be required to comply with the Australian reporting obligations. Investors should note that such disclosure obligations differ in certain material respects from our SEC ongoing reporting obligations. In addition, the public trading market for our ADRs on the NYSE would then no longer exist.

Other risks

We also face other risks with respect to economic exposure to movements in market risks and the environment which are discussed in “Information on the Company” and “Quantitative and Qualitative Disclosures about Market Risk”. In addition, the government of the Australian Capital Territory is seeking to charge rates on our infrastructure, which could lead to an additional cost burden on us if this practise were to spread.

~~Progress to date~~Dividends

~~Network~~ Our ~~deployment~~Board ~~progressing~~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 A$0.28 per share for fiscal 2007. This assumes that we continue to be successful in implementing our transformation strategy and there are no further material adverse regulatory outcomes during the course of fiscal 2007.

~~Good~~ The ~~range~~Board is unable to give guidance on ordinary dividends for fiscal 2008 owing to the continuing uncertainty attached to regulatory outcomes and impacts on our business as well as transformation and market place risks. The final amount of ~~handsets~~dividends declared for any year is a decision for the Board to make twice a year in its normal cycle having regard to our earnings and cash flow as well as future regulatory impacts and all ~~segments~~other factors that affect our operations.

~~Exciting~~ See ~~service~~also ~~portfolio~~“Operating inand ~~development~~Financial Review and Prospects — Liquidity and capital resources” and “Operating and Financial Review and Prospects — Outlook”.

~~Communication~~ It is our policy to pay dividends to Australian and New Zealand shareholders by direct credit to the shareholder’s or another nominated person’s account with a bank or other financial institution. We consider that payment by direct credit is fast, efficient and secure and significantly reduces our ~~CDMA~~administrative ~~customers~~costs ~~well~~in ~~progressed~~relation to payment of dividends.

~~Page 16 Version 1~~18

~~Summary~~Exchange Rates

Our consolidated financial statements are shown in Australian dollars (“A$”) except where another currency is specified. For convenience, this Form 20-F ~~Mobile~~has ~~internet~~translations ~~coverage~~of ~~will~~certain ~~reach~~A$ ~~98%~~into US dollars (“US$”) at an exchange rate as at 30 June 2006 of ~~all~~A$1.00 = ~~Australians~~US$0.7423. ~~when~~These ~~the~~translations ~~new~~are ~~HSDPA~~indicative ~~network~~only isand ~~complete,~~do ~~with~~not mean that the ~~vast~~A$ ~~majority~~amounts ofcould ~~customers~~be converted ~~receiving~~to ~~broadband~~US$ ~~speeds~~at the rate indicated.

- The ~~Applications~~following &tables ~~content~~show, ~~use~~for ~~growing~~the ~~fast~~periods and dates indicated, information concerning the rates of exchange at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. On 27 November 2006, the noon buying rate was A$1.00 = US$0.7785.

- Tipping point in next generation mobile is here


	High		Low
June 2006		0.7527		0.7284
July 2006		0.7664		0.7407
August 2006		0.7699		0.7568
September 2006		0.7704		0.7461
October 2006		0.7743		0.7434
November 2006		0.7896		0.7629

Page 17 Version 1


Year Ended 30 June	At Period End		Average Rate(1)		High		Low
2002		0.5628		0.5240		0.5748		0.4841
2003		0.6713		0.5884		0.6729		0.5280
2004		0.6952		0.7155		0.7979		0.6930
2005		0.7618		0.7568		0.7974		0.6880
2006		0.7423		0.7472		0.7781		0.7056


(1)		The average of the noon buying rates on the last day of each month during the year.

Fluctuations in the A$ to US$ exchange rate will affect the US$ equivalent of the A$ price of the shares and the instalment receipts on the ASX.

~~Questions~~Listing Information

~~Page~~Markets 18in ~~Version~~which 1our shares are traded

We are listed on the ASX and the NZSX. We also have ADRs listed on the NYSE.

In December 2005, the SEC proposed rules that, if adopted, would make it easier for foreign companies to terminate their SEC registration. If the SEC’s proposed deregistration rules are adopted, we intend to deregister from the SEC ongoing reporting obligations and to delist our ADRs from the NYSE at the earliest opportunity, which may be accomplished by the end of fiscal 2007.

The stock market operated by the ASX is the principal stock exchange in Australia. The exchange operates by way of the Stock Exchange Automated Trading System (“SEATS”), which is a fully computerised system.

Trading on SEATS takes place each business day between the hours of 10:00am and 4:05pm, Australian Eastern Standard Time or Australian Eastern Daylight Time. At 4:05pm each day, the ASX subsequently matches any buy and sell orders in the system that satisfy both buyers and sellers. The prices of all listed shares are continuously quoted while the market is open and the system prioritises orders first by price and second by time of placement in the system. Exchange participants can cross stock between buying and selling orders, at the buy or sell quote, provided those quotes are no more than one marketable bid apart and can cross outside this range in amounts of A$1 million or more. Transactions on the ASX are settled on the third business day following the trade date.

Our securities were initially listed on 17 November 1997. This followed the sale by the Commonwealth of 33.3% of its shares in Telstra. This initial sale by the Commonwealth was followed by a further two share offerings to the public. The first being on 18 October 1999 (T2), when the Commonwealth sold an additional 16.6% of shares and the second when the Commonwealth sold an additional 34.1% of shares in Telstra in November 2006 in the Telstra T3 Global Offering.

Price history of our shares

The following tables give the price history of our shares and ADSs as derived from the daily official list of the ASX and NYSE.

High and low closing price for shares and ADSs — on an annual basis — for a period of five years or time of trading if less than five years


	A$ per Share				US$ per ADS
Period	High		Low		High		Low
Fiscal 2002		5.68		4.48		14.85		12.10
Fiscal 2003		5.04		3.96		15.25		11.84
Fiscal 2004		5.15		4.45		19.17		14.87
Fiscal 2005		5.49		4.63		21.61		16.35
Fiscal 2006		5.14		3.63		19.62		12.77

(1) Each ADS represents 5 ordinary shares

High and low closing price for shares and ADSs — on a quarterly basis for the two most recent full financial years


	A$ per Share				US$ per ADS
Period	High		Low		High		Low
2004
1 July — 30 September		5.05		4.63		18.45		16.35
1 October — 31 December		4.94		4.63		19.42		16.77
2005
1 January — 31 March		5.49		4.81		21.61		18.30
1 April — 30 June		5.17		4.79		20.01		18.37
1 July — 30 September		5.14		4.04		19.62		15.36
1 October — 31 December		4.32		3.76		16.10		14.10
2006
1 January — 31 March		4.10		3.63		15.58		12.77
1 April — 30 June		3.97		3.64		15.33		13.35
1 July — 30 September		3.94		3.45		14.98		13.12


(1)		Each ADS represents 5 ordinary shares

29 June 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

High and low closing prices for the most recent six months


	A$ per Share				US$ per ADS⁽¹⁾
Period	High		Low		High		Low
2006
April		3.94		3.65		14.75		13.37
May		3.97		3.71		15.33		14.07
June		3.82		3.64		14.21		13.35
July		3.87		3.67		14.59		13.76
August		3.94		3.45		14.98		13.12
September		3.71		3.53		14.05		13.23
October		3.97		3.57		15.45		13.52
November		3.97		3.63		15.40		14.12


(1)		Each ADS represents 5 ordinary shares

There were 10,338,416,428 shares and instalment receipts issued and available for trading on the market as at 29 November 2006. At that date, 32,699,544 ADS’s (equivalent to 163,497,720 shares were held by 51 record holders and 2,409,272 ordinary shares were held by 1,283 US record holders. At that date there were 1,445,208 Australian record holders, representing 99.24% of all record holders.

We successfully completed a A$1 billion off-market share buy-back in November 2003, and a A$750 million off-market share buy-back in November 2004.

Before the buy-backs, we had 12,866,600,200 shares outstanding, including those held by the Commonwealth. As a result of the 2003 buy-back, the number of shares outstanding reduced to 12,628,359,026 and the number of shareholders reduced from approximately 1.805 million to 1.769 million. Following the 2004 buy-back, the number of shares outstanding reduced to 12,443,074,357 and the number of shareholders reduced to 1.634 million. The Commonwealth did not participate in the buy-backs.

On 30 November 2006, the number of shareholders was 1,589,369.

The closing price for our shares on the ASX on 30 November 2006 was A$3.77.and the closing price of our ADSs on the NYSE was US$14.92.

Major Shareholders and Related Parties

Major shareholders

The following table shows the number of unlisted shares and listed shares and installment receipts (IRs) on issue at 29 November 2006. The table also shows, as a group, the shareholdings of our directors and officers:


Title of Class	Identity of Person or Group	Amount Owned		% of Class
Shares	The Commonwealth	2,104,657,933			16.9
Shares/IRs	Listed shareholders	10,338,416,424			83.1

		12,443,074,357			100.0

Shares/IRs	Directors and officers as a group	1,626,665	(2)


(2)		Refers to direct and indirect holdings.

The shareholdings of each person known by us to be the owner of more than 5% of our voting securities, as at 29 November 2006, is shown in the table titled “Twenty largest registered securityholders as at 29 November 2006”. As at 29 November 2006, we are not aware of any individual beneficial holder, other than the Commonwealth, whose securities represent more than 5% of the issued and outstanding securities. The Commonwealth has equal voting rights with all other securityholders.

Distribution of shares

The following table summarises the distribution of our public listed shares and IRs as at 29 November 2006:


	Number of Registered
	Securityholders(1)				Shares
Size of Holding	Number		%		Number		%
1-1,000		885,250		60.33		542,025,234		5.24
1,001-2,000		271,310		18.49		423,907,496		4.10
2,001-5,000		216,052		14.72		683,677,241		6.61
5,001-10,000		61,155		4.17		441,544,944		4.27
10,001-100,000		32,698		2.23		691,129,267		6.69
100,001 and over		960		0.07		7,556,132,242		73.09

Total		1,467,425		100		10,338,416,424		100


(1)		Number of shareholders holding less than a marketable parcel of shares was 10,240, holding 875,842 shares. Number of IR holders holding less than a marketable parcel of IRs was 98, holding 16,889 IRs

Twenty largest registered securityholders as at 29 November 2006

The following table sets out the top 20 securityholders other than the Commonwealth when multiple holdings are grouped together:


		Number of		% of Issued
Shareholders			Shares	Shares(1)
1	Telstra Sale Company		4,341,549,190		41.79	%
2	National Nominees Limited		681,302,404		6.56	%
3	Westpac Custodian Nominees Ltd.		523,423,174		5.04	%
4	J P Morgan Nominees Australia Ltd.A		453,793,122		4.37	%
5	Citicorp Nominees Pty Limited		246,287,067		2.37	%
6	ANZ Nominees Limited.		212,795,112		2.05	%
7	HSBC Custody Nominees (Australia) Limited		126,783,002		1.22	%
8	Cogent Nominees Pty Limited		101,584,556		0.98	%
9	RBC Global Services Australia Nominees Pty Ltd		89,832,268		0.86	%
10	UBS Nominees Pty Ltd		62,092,201		0.60	%
11	Telstra ESOP Trustee Pty Ltd.		51,461,125		0.50	%


		Number of		% of Issued
Shareholders			Shares	Shares(1)
12	Queensland Investment Corporation		45,002,879		0.43	%
13	AMP Life Limited		42,936,363		0.41	%
14	Warbont Nominees Pty Ltd		34,871,657		0.34	%
15	Australian Foundation Investment Company Limited		32,928,338		0.32	%
16	Westpac Financial Services Ltd.		26,204,988		0.25	%
17	Australian Reward Investment Alliance		19,222,034		0.19	%
18	Argo Investments Limited		18,954,800		0.18	%
19	Telstra Growthshare Pty Ltd.		17,508,460		0.17	%
20	Questor Financial Services Limited		13,087,092		0.13	%

	Total		7,141,619,832		68.75	%


(1)		Not including those shares held by the Commonwealth.

Substantial shareholders

As at 27 November 2006, other than the Commonwealth we did not have any substantial shareholders. Except as described in ‘Relationship with the Commonwealth’, Telstra is not directly or indirectly controlled by another entity or person or any foreign government and there are no arrangements known to Telstra, the operation of which may, after the date of this Form 20-F, result in a change in control of Telstra.

Relationship with the Commonwealth

We have a number of distinct relationships with the Commonwealth, including as shareholder, regulator and customer. Until the recently completed T3 Global Offering, the Commonwealth was our controlling shareholder. Our relationship with all of our shareholders (including the Commonwealth) is, in general, regulated by the Corporations Act, the ASX Listing Rules and our constitution. Commonwealth departments and independent agencies are also responsible for the regulation of the telecommunications industry generally and us in particular under the Telstra Act, the Trade Practices Act, the Telecommunications Act and the Telecommunications (Consumer Protection and Service Standards) Act.

The Commonwealth as shareholder

The Commonwealth has sold down its original 100% equity holding in us in three tranches: it sold 33.3% of its shares in November 1997; it sold an additional 16.6% of shares in October 1999 and a further 34.1% of shares in November 2006. Once the transfer of its remaining shares to the Future Fund is complete (which we expect to occur by February 2007), the Commonwealth will cease to hold any shares in the Company.

T3 Global Offering

In September 2005, the Commonwealth amended the Telstra Act by passing the Telstra (Transition to Full Private Ownership) Act 2005 (the “Transition to Full Private Ownership Act”) to enable the Commonwealth to undertake a sale of all or part of its remaining stake in Telstra.

In November 2006, the Commonwealth sold approximately 34% of its shares in a global offering, taking its equity holding in us from 51.8% to 17.8%. The sale was completed when the 30 day over-allocation option given by the Commonwealth to the banks who conducted the sale on its behalf was exercised, in December 2006. The remaining shares in us held by the Commonwealth will then be transferred to the Future Fund. See “The Future Fund” and “Risk Factors”. After a two year lock up period (which is subject to several exceptions), the Future Fund is expected to sell down its Telstra shareholding over the medium term to a market-weight holding.

The Commonwealth issued requests to us and our Board under section 8AQ of the Telstra Act for us and our Board to assist the Commonwealth and its advisers with the T3 Global Offering. The Telstra Act provides that, in providing such assistance, we are not subject to restrictions that would otherwise apply under the Corporations Act, the listing rules of stock exchanges regulated under Australian law, or rules of common law or equity (except for administrative law rules). The Commonwealth has indemnified us and our directors and senior management for certain liabilities in relation to the T3 Global Offering, and to reimburse us for our reasonable costs incurred in relation to the T3 Global Offering.

Consequences of the T3 Global Offering

Under the amendments to the Telstra Act made by the Transition to Full Private Ownership Act, certain provisions in the Telstra Act and other Commonwealth legislation have ceased or will cease to have effect or apply to us 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 completion of the T3 Global Offering will not be considered to be owned by the Commonwealth. This means that these thresholds either have already or will be triggered a short time after the completion of the T3 Global Offering.

The Commonwealth’s ownership of Telstra fell below 50% on completion of the T3 Global Offering (excluding the over-allotment option) on 24 November 2006. As a result, we have lost our Australian capital gains tax (CGT) exempt status on assets that we acquired before 20 September 1985. Accordingly, any future gains in the value of these assets after completion of the T3 Global Offering will be taxable upon disposal of the asset by us. Since we do 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 having fallen below 50% are not considered to have a material impact on Telstra but include:

•

our 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

•

our auditor, currently the Commonwealth Auditor-General, may (and is expected to) resign. In any event, the Auditor-General will cease to be our auditor on the earlier of his resignation or the end of the first annual general meeting held after the Commonwealth’s ownership of Telstra falls below 50%. This means that we and our shareholders can decide who to appoint as our auditor.

The Commonwealth has advised Telstra that it will introduce legislation into parliament that maintains coverage for Telstra employees under existing Commonwealth long service leave legislation for three 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 T3 Global Offering. This is intended to occur as soon as practicable after the exercise or expiry of the Over-allotment 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:

	•		we will no longer be subject to the obligations to provide financial and other information to the Commonwealth;

	•		we will no longer be subject to the Communications Minister’s power to direct us (as appears to the Communications Minister to be necessary, in the public interest); and

	•		we will no longer be subject to the Finance Minister’s power to direct us not to dilute the Commonwealth’s equity in Telstra or to issue securities or financial products.

The closing of the T3 Global Offering and the transfer of the Commonwealth’s remaining shares to the Future Fund has required and may require further regulatory or governmental approval under regulatory licenses of Telstra’s international operations. For more information, refer to “Regulation — Offshore subsidiaries”.

Following completion of the T3 Global Offering, we expect to no longer have a standing obligation to appear before and provide information to Parliamentary committees.

The Commonwealth as regulator

We are currently regulated by the Commonwealth, its Ministers and independent agencies under a number of statutes including:

	•		the Telstra Act;

	•		the Telecommunications (Consumer Protection and Service Standards) Act 1999;

	•		the Trade Practices Act; and

	•		the Telecommunications Act.

The Commonwealth has stated that 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 also supports industry self-regulation and is intended to minimise the financial and administrative burdens on the telecommunications industry.

The Commonwealth believes that 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 Commonwealth regards the regulatory legislation as settled. However, the Commonwealth has announced that it will review the telecommunications competition regulatory regime in 2009.

Refer to “Regulation” for details of the regulatory regime and its effect on our business.

The Commonwealth as customer

The Commonwealth is a major user of our services. The Commonwealth, as a result of telecommunications liberalisation, is increasingly seeking to take advantage of open competition when purchasing telecommunications services in such a competitive environment.

Related party transactions

A discussion of our related party transactions is contained in “Operating and Financial Review and Prospects — Related party transactions”.

Operating and Financial Review and Prospects

The following discussion should be read in conjunction with the annual consolidated financial statements, including the notes to these consolidated financial statements, which are included with this Form 20-F. These annual consolidated financial statements have been prepared for the first time in accordance with Australian equivalents to International Financial Reporting Standards (“A-IFRS”). Our comparatives 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. A-IFRS differs in certain respects from U.S. generally accepted accounting principles (“US-GAAP”). A discussion of the principal differences between A-IFRS and US-GAAP as they relate to us and a detailed reconciliation of net income and equity to US-GAAP, is provided in note 37 to our consolidated financial statements. Refer to the 2005 Annual Report for the financial results of the prior periods determined under previous Australian Generally Accepted Accounting Principles (“AGAAP”).

The Operating and Financial Review and Prospects includes statements of future expectations and forward-looking statements that are based on management’s current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in the forward-looking statements. For a discussion of some of the principal risks that could affect our business is presented in this Form 20-F refer to “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”.

In this section, we refer to our fiscal years ended 30 June 2006 and 30 June 2005 as fiscal 2006 and fiscal 2005 respectively. We have referred to the two fiscal years ended 30 June 2006 as the two-year period.

Our transformation strategy

At the beginning of fiscal 2006, our new CEO and management team initiated a comprehensive review of our operations and strategies. Based on this review, we determined that our networks, systems and products and service offerings were outdated and lagging behind our international peers and that our costs were escalating due to increasing costs of goods and labour costs as well as rising costs associated with maintaining and supporting complex legacy systems. In addition, revenues from our traditional high margin PSTN products and services have been declining due to a combination of increased competition and customers migrating to lower margin emerging products and services.

In November 2005, we decided to implement wholesale changes to our networks, systems and operations under a five-year transformation strategy. The key elements of this transformation strategy are:

	•		building a next generation fixed network to support IP-based services;

	•		rolling out next generation wireless services over our recently launched NEXT G(TM) WIRELESS NETWORK;

	•		implementing market-based management and using customer research to differentiate our product offerings;

	•		providing customers with integrated services across fixed, wireless and Internet platforms;

	•		simplifying systems and operations to reduce costs;

	•		expanding and enhancing our Sensis advertising, search and information services business; and

	•		instituting cultural changes through business reform and increased training.

We believe that if we can successfully transform our business, it will improve our competitiveness and financial results.

Our transformation strategy is significantly more extensive than similar initiatives undertaken by other telecommunications companies, involves significant capital spend and is subject to significant execution risks. In addition, we are endeavouring to accomplish this transformation on an accelerated timetable. As a result, during the early years of the transformation our earnings and cash flows will be significantly reduced, and we have needed to increase borrowings to fund our capital expenditures, investments and dividends. However, we believe that we need to undertake these major changes now and under our proposed timetable in order to remain competitive and improve the financial results and position of our company in the future.

Strategic Management Objectives

Together with the announcement of our transformation strategy in November 2005, our Board set strategic management objectives to measure the successful implementation of our five year transformation strategy. We have linked our remuneration structure to the transformation strategy, with the aim of increasing the focus and understanding by senior executives of the key strategic objectives and motivating employees to execute on the strategy. In October 2006, our Board revised these strategic targets in order to reflect the current regulatory environment and market conditions and the experience of the first year of our transformation plan, and approved the following:

	•		revenue compound annual growth in the range of 2.0% to 2.5% (to fiscal 2010 from the fiscal 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 our next-generation networks;

	•		new product revenue exceeding 30% of sales revenue by fiscal 2010;

	•		limiting compound annual growth of operating expenses (excluding depreciation and amortisation) to 2.0% to 3.0% (to fiscal 2010 from the fiscal 2005 base level);

	•		EBITDA compound annual growth in the range of 2.0% to 2.5% (to fiscal 2010 from the fiscal 2005 base level) and EBITDA margins of between 46% to 48% by fiscal 2010. We are expecting EBITDA during the five year transformation strategy to decrease in the early years of the transformation, and are 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 fiscal 2010;

	•		free cash flow increasing to between A$6,000 million and A$7,000 million by fiscal 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 our Board in order to measure our 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 primarily based on:

	•		our decision not to roll-out an FTTN network, and instead offer high-speed broadband products and services through our existing networks;

	•		successfully rolling out our NEXT G(TM) wireless network services and migrating CDMA customers to the new network;

	•		successfully deploying our next-generation fixed line network;

	•		existing regulatory settings, including the ACCC interim determination establishing ULLS pricing of A$17.70 per month in band 2, and no mandated competitor access to our NEXT G(TM) wireless network;

	•		successfully implementing short, medium and long-term revenue initiatives in key PSTN, mobile and broadband markets and customer segments;

	•		our ability to differentiate ourselves and obtain new revenues from our new networks and new products and services to replace declining revenues from our traditional high-margin PSTN products and services;

	•		rationalising our operational support systems (OSS) and business support systems (BSS), and achieving an 80% reduction in the number of such systems by the end of fiscal 2010;

	•		key vendors in connection with our transformation performing on-time and as contracted;

	•		growing our 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

	•		our workforce embracing our 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. Our ability to achieve our strategic management objectives is subject to significant risks. See “Risk Factors” for a description of these key risks. Investors should note that many of these risks are outside of our control, and that no assurance can be given that we will successfully complete our transformation or achieve our strategic management objectives.

Revenue and products

During the two-year period, our increase in sales revenues was due mainly to revenue growth in mobiles, Internet and IP solutions, advertising and directory services, and pay TV bundling. Our challenge moving forward will be to continue and to consolidate the growth in these areas, while controlling costs, minimising margin erosion and managing the decline in our PSTN revenues. Competition has continued to intensify and, as a result, we have seen our revenues decline in a number of areas despite increasing volumes. We have continued to focus on maximising returns from our higher margin traditional products such as PSTN products, while managing the shift in customer demand for our lower margin emerging products, such as mobiles, broadband and other Internet based products. We have aligned our investment strategies with our growth products and continue to focus on simplifying our existing processes to identify cost efficiencies and protect operating margins, while improving our customer service levels. Our overall operating margins are under constant pressure from the product mix change to lower margin products. However, we are building a software-based cost efficient infrastructure that we expect will enable us to deliver new products at low incremental costs and good margins.

Most of our revenues are generated from basic access, fixed and mobile call charges, specialised data, Internet and IP solutions, advertising and directories services, solution management services and our international operations. We are focusing on a range of key products and services within these categories in order to grow our revenues. This is further described below:

	•		PSTN products: We first experienced a significant decline in overall PSTN revenues in the second half of fiscal 2005. Performance in this market has been depressed by competition and product substitution. Our PSTN revenue was also adversely impacted by ULL as carriers have reached customer density thresholds to be able to undertake viable ULL investment, which has further been assisted by falling equipment prices reducing the capital required.

			This market remains a focal point and a significant part of our company in terms of sales revenue. It continues to provide us with strong cash flows.

			We continue to focus on maximising returns and improving customer service in this area by offering a broad range of product packages that include bundling traditional products with new products. In addition, in June 2006 we introduced new capped calling plans on our basic access lines, which includes untimed local and national long distance calls. Despite a positive response to these initiatives, total PSTN revenues declined in fiscal 2006, led by competitive pricing pressures and the continued migration of customers to mobiles and other products and services.

	•		Mobiles: While the rate of growth has slowed, mobile revenue growth has been driven by low access fee plans, value added services including mobile data and the increasing popularity of prepaid offerings. We continue to increase revenues by providing more innovative products on our mobile networks including access to a wide range of Internet products and content through mobile handsets and the provision of high-speed wireless services, including 3G mobile services. In addition, revenues continue to increase with the higher number of mobile users.

	•		Internet and IP services: Growth in this area was attributable to an increase in both retail and wholesale broadband subscribers. We expect the Internet and IP solutions products to continue their expansion as a result of large increases in the number of broadband subscribers and robust competition as providers compete for market share. This market is in a growth phase and our strategy to capitalise on this growth involves the provision of high speed, innovative Internet products such as the launch of Australia’s first legal movie download service. The ability to offer a suite of product and services, combined with value based pricing, is a key to our strategy.

			We expect take up of ADSL and other emerging broadband Internet services via HFC cable and satellite to increase in future reporting periods as the market becomes more aware of their performance capabilities.

	•		Advertising and directories: Growth in our Sensis business has been led by an increase in revenue from our Yellow(R) and White Pages(R) printed and online advertising solutions. This was predominantly driven by product innovation and customer demand. In addition, we have continued to grow our Yellow(R) and White Pages(R) Online directory businesses.

			As telecommunications, computing and media technologies continue to converge, we are focused on enhancing our capabilities to provide new and innovative application and content services and to expand further into these converging markets.

	•		Solutions management: We have continued to strengthen our position in the managed services and information and communication technology (ICT) market. During fiscal 2005, we acquired KAZ, a provider of business process outsourcing, systems integration, consulting, applications development and IT management services. During fiscal 2005, we also acquired PSINet, a provider of e-business infrastructure solutions and corporate IP based communication services. These acquisitions expanded our IT services capability to both our Australian and international customers, complementing our core strength in telecommunications. These acquisitions combined with our pre-existing solutions management business have significantly broadened our solutions management services, which we believe will assist us to achieve our goal of becoming an Australian leader in the ICT market.

	•		International operations: Our offshore controlled entities contributed 7.7% of our total sales revenue in fiscal 2006 and 7.3% in fiscal 2005. This is primarily attributable to the CSL New World Mobility Group operations in Hong Kong and the TelstraClear operations in New Zealand, which generate revenues mainly from the mobile market and from fixed network services respectively.

			During fiscal 2006, we merged our 100% owned Hong Kong mobile operations (CSL) with the Hong Kong mobile operations of New World Mobility Group to form the CSL New World Mobility Group (CSLNW). Under the merger agreement, CSL issued new shares to New World Mobility Holdings Limited in return for 100% of the issued capital of the New World Mobility Group and A$42 million in net proceeds. The share issue diluted our ownership in the merged group to 76.4%. This merger was undertaken because the two entities have complementary services in providing mobile telecommunication products and services in Hong Kong. We believe CSLNW will be able to leverage their strong brand recognition and common network to improve its operating performance. The merged entity is now the largest wireless service provider in the Hong Kong market.

			During fiscal 2006, TelstraClear unveiled a new strategic focus for growth through the delivery of differentiated services and investment in high value voice and data services. New Zealand is a strategically important market for our trans-Tasman customers and the combination of TelstraClear and Telstra enables us to provide customers on both sides of the Tasman with seamless communication and IT solutions.

We have maintained our attention on managing the performance of our individual product and service categories. However, as a fully integrated telecommunications company, we are building on our existing customer base and capturing the market trend towards integrated access and seamless voice, data and content offerings. To achieve this, we continue to bundle our individual products and provide customers with price discounts. In addition, we are expanding the integrated content services provided through our BigPond(R) and Sensis applications to enable our customers to access content across multiple devices including mobiles, personal computers and home phones.

In fiscal 2006, we implemented a number of revenue initiatives, particularly in our PSTN, mobile and broadband businesses. These initiatives include subscription pricing plans, targeted “win-back” campaigns, differentiated customer propositions and distribution channel optimisation. Achievement of our strategic management objectives, particularly during the later years of our transformation, depends in part on our success in implementing these initiatives.

Events after the end of fiscal 2006

Except as described below and in “Directors Report – Events occurring after the end of the financial year” and Note 34 to our Financial Statements, there have been no events that have occurred since the end of the 2006 financial year that have significantly affected or may significantly affect Telstra’s operations, the results of Telstra’s operations or the state of Telstra’s affairs.

On 31 August 2006, we announced our acquisition of a 51.0% shareholding (on a fully diluted basis) in SouFun Holdings Limited (SouFun) for a total cash consideration of US$254 million (approximately A$334 million plus acquisition costs). SouFun is a leading real estate and home furnishing and improvement website in China. It provides information, advertising and listing services to China’s growing online real estate and home furnishing and improvement sectors. This investment is integral to Sensis’ growth strategy of expanding into new geographic markets through the pursuit of partnerships or acquisitions that can deliver value to our shareholders. On 31 August 2006, we also announced the sale of Australian Administration Services (AAS), the superannuation administration business of our subsidiary KAZ, for A$235 million, giving rise to a profit on sale of A$55 million. The sale followed our

comprehensive review that determined that superannuation administration services were no longer strategic to our business in future reporting periods. As a result of these transactions, we have divested a non core asset and redeployed the funds into one of our growth areas.

Costs and operational efficiency

In fiscal 2006 we began our transformation program as outlined by the strategic review. During this review, we identified complexity in the business involving our cost and operational structure, resulting in an upward pressure on costs. The transformation program will occur over a five-year period, with cost reduction being a major objective of the overall program.

Our total expenses grew during the two-year period, led by the recognition of additional expenses incurred as part of the transformation program, including a provision at year end for restructuring and redundancy costs of A$427 million. We also experienced expense growth across various categories to support our emerging business areas such as broadband, 3G mobile services and pay television, as well as to meet our customer service requirements, partly offset by previous cost reduction programs. In addition, our depreciation and amortisation expense increased reflecting the impact of a review of the service lives of our assets as part of the transformation strategy. The accelerated depreciation and amortisation was mainly in relation to adjusting the service lives of the CDMA network, our switching systems, certain business and operational support systems and related software.

We are committed to continuing our review of areas of the business where cost and operational efficiencies can be achieved, while improving the customer experience. We believe opportunities to achieve this include:

	•		rationalising our various IT and network platforms;

	•		streamlining our business operations;

	•		obtaining better value from our capital expenditure;

	•		extracting synergies from our recent investment acquisitions;

	•		improving network efficiency; and

	•		managing total labour costs more efficiently.

During the two-year period, we have devoted increased capital expenditure to upgrade our telecommunications networks, eliminate components that are no longer useful and improve the systems used to operate our networks. We continue to upgrade and simplify our telecommunications networks to meet customer demands, particularly for new growth product areas such as broadband.

As part of our strategic review, we have introduced the “one factory” approach to consolidate and simplify the way we operate at all levels of the business. The company is very dependent on business and operational support systems. Historically, significant time and investment has been required to meet changing market conditions. The IT transformation will provide an integrated platform that is much more flexible and is expected to require lower costs to maintain. The objective is an 80% reduction in the number of systems over five years from November 2005. In addition to operational efficiency, overall effectiveness is expected to improve. We believe the deployment of our new IP core network will reduce the cost of installing new applications and will provide our customers with better and faster services. We believe incremental change is not enough to meet our strategic objectives and as a result we are looking to transform our IT capability.

On 6 October 2006, we launched our new NEXT G(TM) wireless network. This network will replace our existing CDMA network, and over time we will migrate all of our mobile customers onto the NEXT G(TM) wireless network. The move will reduce duplication of both capital and operational expenditure and the digital divide between our regional and metropolitan customers. In addition to current services already experienced on existing networks, we believe our NEXT G(TM) wireless network customers will enjoy access to a greater range of content and services, as well as many enhanced features, such as improved video calling services and faster broadband access speeds, in addition to better in-building coverage. We plan for the CDMA network to be available until replacement services and coverage provided by our NEXT G(TM) wireless network are the same as or better than the CDMA network and in any event at least until January 2008.

Customer service

We strive to continually improve our customer service. During fiscal 2006, we announced a A$210 million training initiative to ensure our staff have the best available training to enable and maintain next generation networks. In addition, we are achieving service delivery innovations that cater to the needs of our customers such as providing and improving our online billing facilities. Our focus for continual improvement in customer service is in the following key areas:

	•		upgrading our networks and reducing fault incidence;

	•		placing additional trained staff in our call centres to directly deal with our customers;

	•		providing tools to sales representatives that help them consult with customers;

	•		improving the self service technology;

	•		enhancing the skills of our staff, enabling them to solve a customer’s problem on the first call;

	•		ensuring customer appointments are met and reducing response times and queue lengths; and

	•		further improving our performance under the customer service guarantees.

Business segments

During fiscal 2006, we changed our business segments to improve the way our business is structured and operates to meet the needs of our customers. We have restated all our comparative segment information to reflect the current financial reporting position as if all our new business segments and segment accounting policies existed in the prior year. Our significant changes included:

	•		the creation of a new business segment named Telstra Business to specifically cater for the full provision of telecommunication products and services to small and medium enterprises;

	•		the creation of a new business segment named Telstra Operations. This group consolidated Telstra Services (formerly known as Infrastructure Services), Telstra Technology, Innovation and Products and Operations Support, which was previously reported within our corporate areas. The consolidation of these operational areas reflects our move to the “one factory” approach;

	•		the creation of the Telstra Product Management Group within Telstra Operations to focus on the management and performance of our existing and future products; and

	•		the creation of the Strategic Marketing Group to implement the market based management approach adopted to better understand the needs of our customers and provide better products and services to meet their requirements.

The Telstra Country Wide(R) business unit ensures we continue to have a strong commitment to telecommunication services in the major rural, minor rural and remote areas of Australia. In addition, under the USO regime, we deliver the standard telephone service and prescribed carriage services to all people, wherever they reside or carry on business. Through our continued focus on providing excellent customer service, we aim to satisfy our existing customers and drive future revenue growth by providing quality services to all our customers.

Refer to “Information on the Company — Organisational structure” for details on our organisational structure.

Returns to shareholders

During the two-year period, in addition to continuing ordinary dividends, we have also returned A$2,988 million to shareholders through special dividends and share buy-backs as part of our capital management program. During fiscal 2006, we announced that the third year of the capital management program, whereby A$1,500 million was to be returned each year to shareholders through special dividends and share buy-backs, would not occur to allow the funds to be diverted to our transformation program.

In fiscal 2006, we paid special dividends totalling A$1,492 million (A$0.12 per share). In fiscal 2005, we paid a special interim dividend of A$746 million (A$0.06 per share) and also undertook a share buy-back that resulted in the buy-back of 185,284,669 ordinary shares. In total, 1.47% of our total issued ordinary shares, or 3.00% of our non-Commonwealth owned ordinary shares, were bought back. The cost of the share buy-back comprised the purchase consideration of A$750 million and associated transaction costs of A$6 million. The shares bought back were subsequently cancelled, reducing the number of fully paid ordinary shares on issue. The Commonwealth did not participate in the share buy-back and as a result its shareholding increased from 51.0% before the buy-back to 51.8%. The share buy-back improved our earnings per share as we have fewer shares outstanding and has not hindered our ability to take advantage of profitable investment opportunities when they arise.

Outlook

Overview

Whether our future financial performance will improve is largely dependent on our ability to implement and execute our transformation strategy successfully and generate the increased volumes and usage rates for our products and services we seek to achieve. In addition, our 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 we are implementing throughout our systems and operations. Our ability to successfully implement our transformation strategy is subject to significant risks. See “Risk Factors”.

We are involved in continuing discussions over the current and future regulatory environment impacting the Australian telecommunications industry in general and us in particular. There are several key regulatory issues, which include:

	•		regulated wholesale access pricing;

	•		retail price controls;

	•		any potential competitor access to our NEXT G(TM) wireless network; and

	•		the use by the ACCC of the conduct rules in the Trade Practices Act to affect the way we price our products and services.

	Some of the key factors that we believe may impact our future financial results include:

	•		our ability to implement and execute our transformation strategy, including the deployment of our NEXT G(TM) wireless services, and the rationalisation of our various IT and network platforms;

	•		our ability to introduce new value-added products and services to compensate for lower prices, volumes and earnings we expect to realise from our traditional higher margin product and service lines;

	•		the difficulties for us in predicting regulatory outcomes and, in our view, the unpredictable actions of the key regulators; and

	•		changes to our competitive environment as markets and technologies evolve and competition intensifies, and the actions and initiatives of our major competitors.

General trends

Our 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. We expect 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 our transformation is to position the company to have the networks, systems and capabilities to meet the evolving needs of our customer base. With our planned next-generation networks, we are building the infrastructure to reduce our reliance on our traditional high-margin PSTN revenue stream and to grow our mobile, Internet and other next-generation revenues.

We intend to streamline our businesses, systems and operations to reduce the high operating costs associated with maintaining and supporting complex legacy IT systems, products and services. However, we expect depreciation and amortisation to increase as we invest heavily in transforming our 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 our largest wholesale customers to A$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. We are uncertain as to the ACCC’s timeframe for making these final determinations. We no longer propose to build an FTTN network because we disagreed with the ACCC as to the costs which could be taken into account in setting a price at which our competitors could use that network.

Fiscal 2007 outlook

We are currently in the early years of our transformation, which has required increased capital and operating expenditures to roll out new networks and implement our planned system and operational changes, resulting in significant reductions to our earnings and cash flow.

Accordingly, we expect that our fiscal 2007 financial results will show:

	•		reported revenue (total income) growth of between 1.5% and 2.0% compared with our fiscal 2006 total income of A$23,100 million;

	•		reported earnings before interest and income tax expense (“EBIT”) growth in the range of 2.0% and 4.0% compared with our fiscal 2006 EBIT of A$5,497 million, but we expect fiscal 2007 reported EBIT will be in the range of 18% to 20% lower than fiscal 2005 EBIT of A$6,935 million. Note 7(b) of our 2006 audited financial statements discloses that in explaining our fiscal 2006 financial performance, it is relevant to note that expenses associated with the implementation of the strategic review initiatives of A$1,126 million were incurred. We expect similar net costs of approximately A$800 million to be incurred in fiscal 2007; and

	•		reported cash capital expenditure (excluding investments) in the range of A$5,400 million to A$5,700 million.

Importantly, our ability to achieve the fiscal 2007 outlook described above, as well as our outlook for the first and second halves of fiscal 2007 described below, is subject to a number of key assumptions, including:

	•		not building an FTTN network;

	•		a band 2 ULLS price of A$17.70 per month applying to all wholesale customers for the remainder of fiscal 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 our NEXT G(TM) wireless network services;

	•		growth in the retail broadband market and in our market share;

	•		growth in Sensis print and online revenues;

	•		not exceeding budgeted net transformation related operating expenditure costs of approximately A$500 million; and

	•		general productivity gains from our reduced workforce.

Our ability to achieve our fiscal 2007 outlook is also subject to significant risks. Refer to “Risk Factors” for a description of these key risks.

We expect fiscal 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 we continue to be successful in implementing our transformation strategy, we expect our free cash flow to improve in fiscal 2008 compared with fiscal 2007.

It is the current intention of the Board to declare fully franked ordinary dividends of A$0.28 per share for fiscal 2007. This assumes that we continue to be successful in implementing our transformation strategy and there are no further material adverse regulatory outcomes during fiscal 2007. The Board will make its final decision on the future amount of dividends in its normal cycle having regard to, among other factors, our earnings and cash flow, as well as regulatory impacts on our business and all other factors that affect our operations. On 10 August 2006, the directors declared a fully franked final dividend of A$0.14 per share (A$1,739 million), which will be recognised in our accounts for fiscal 2007.

Two months ended 31 August 2006 review

Our 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 41.0%, 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 services. In addition, the rise in sales revenue reflected the inclusion of revenues for the New World Mobility Group.

	•		EBIT decline of 8.6% as our income growth during the two months was offset by higher expenses mainly due to an increase in cost of good sold led by additional take up of our 3G mobile handsets and a rise in the number of subscribers to our services and higher depreciation and amortisation expenses attributable to our transformation initiatives. The increase in expenses was partially offset by lower labour expenses reflecting a reduction in the number of staff.

We believe that our results for the first two operating months of fiscal 2007 are consistent with the trends identified during fiscal 2006 and we are on track to achieve our fiscal 2007 outlook. Investors should note, however, that these results are only for two months and are not necessarily indicative of what our results will be for the year.

First half fiscal 2007 outlook

We expect that our reported results for the first half of fiscal 2007 will be impacted by the following factors:

	•		revenue will be impacted by the distribution of Melbourne Yellow(R) being completed in the second half of fiscal 2007, therefore the revenue will be recognised in the second half of fiscal 2007. In fiscal 2006, distribution of Melbourne Yellowwas completed in the first half of fiscal 2006 and as a result, the revenue was recognised in the first half of fiscal 2006;

	•		expenses will include significant transformation related costs in the first half of fiscal 2007 compared with no transformation expenses in the first half of fiscal 2006;

	•		revenue and expenses for the CSL New World Mobility Group will be included for the full year in fiscal 2007; and

	•		accelerated depreciation and amortisation expenses in the range of A$150 million to A$175 million will be reported in the first half of fiscal 2007, reflecting our transformation, compared with no accelerated depreciation and amortisation in the first half of fiscal 2006.

As a result of these factors, we expect our reported EBIT to be 17% to 20% lower in the first half of fiscal 2007 compared with the first half of fiscal 2006.

Second half fiscal 2007 outlook

We expect that our reported results for the second half of fiscal 2007 will be impacted by the following factors:

•

revenue will be impacted by the distribution of Melbourne Yellow(R) being completed in the second half of fiscal 2007, therefore the revenue will be recognised in the second half of fiscal 2007. In fiscal 2006, distribution of Melbourne Yellow(R) was completed in the first half of fiscal 2006 and as a result, the revenue was recognised in the first half of fiscal 2006;

	•		expenses will reduce in the second half of fiscal 2007 compared with the second half of fiscal 2006. During fiscal 2006, transformation costs were only incurred in the second half of fiscal 2006 including the redundancy and restructuring provision. We do not expect to raise a redundancy and restructuring provision during fiscal 2007; and

	•		revenue and expenses for the CSL New World Mobility Group will be included for the full year in fiscal 2007.

As a result of these factors, we expect our EBIT to be 37% to 40% higher in the second half of fiscal 2007 compared with the second half of fiscal 2006.

Due to the combination of our expected first half and second half reported results for fiscal 2007, we expect reported EBIT for fiscal 2007 to increase between 2.0% and 4.0% compared with fiscal 2006 as previously outlined.

Management estimates and judgements in the application of our critical accounting policies

Our consolidated financial statements have been prepared in accordance with A-IFRS. Our basis of preparation and significant accounting policies are fully described in note 1 and note 2 to our consolidated financial statements respectively.

During fiscal 2006, we adopted A-IFRS in the preparation and presentation of our consolidated financial statements. Our accounting policies for both fiscal 2006 and fiscal 2005 are compliant with all aspects of A-IFRS. As a result, we remeasured and restated our fiscal 2005 comparative financial information to be consistent with A-IFRS. We have taken the exemption available under AASB 1: “First time adoption of Australian Equivalents to International Financial Reporting Standards” to only apply AASB 132: “Financial Instruments: Disclosure and Presentation” and AASB 139: “Financial Instruments: Recognition and Measurement” from 1 July 2005. In addition, we elected to early adopt AASB 7: “Financial Instruments: Disclosures”, which supersedes the disclosure requirements of AASB 132.

In all material respects, our accounting policies are applied consistently across the Telstra Group of companies and to all business segments. Where there is no conflict with A-IFRS, we align our accounting policies with US-GAAP to reduce the number of A-IFRS/US-GAAP reconciliation differences required to be adjusted in note 37 to our consolidated financial statements.

The preparation of our consolidated financial statements requires management to make estimates and judgements that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of off balance sheet arrangements, including commitments and contingent liabilities. We continually evaluate our estimates and judgements. We base our estimates and judgements on historical experience, various other assumptions we believe to be reasonable under the circumstances and, where appropriate, practices adopted by international telecommunications companies. Actual results may differ from these estimates in the event that the scenarios on which our assumptions are based proves to be different.

The following are the critical accounting estimates and judgements we have applied in producing our A- IFRS consolidated financial statements:

Carrying value and amortisation of investments, goodwill and acquired intangible assets

We assess the carrying value of our goodwill and other indefinite useful life assets for impairment annually at each reporting date. In respect of other assets, an assessment of the carrying value is only required in instances where there is some indication of impairment. Our assessment of the carrying value covers both goodwill and other assets, as it would be difficult to separate the cash flows generated from the other assets as distinct from the cash flows supporting the carrying value of goodwill. In addition, we have allocated goodwill and intangible assets with an indefinite useful life to cash generating units (CGUs) for the purposes of undertaking impairment testing.

Our assessment of the carrying value generally applies the discounted cash flow analysis approach, except in the case of listed investments, where we use market prices. The discounted cash flow analysis is based on the value in use calculation, representing the present value of the future amount expected to be recovered through the cash inflows and outflows arising from the assets continued use and subsequent disposal, discounted to its present value by an applicable discount rate.

In determining our value in use, we apply management judgement in establishing our forecasts of future operating performance of the assets in their current condition, as well as the selection of an appropriate discount rate and terminal value growth rate. These

judgements are based on past experience and expectations for the future. The discount rate reflects the market determined discount rate adjusted for specific risks relating to the CGU and the country in which it operates. Our terminal value growth rate represents the growth rate applied to extrapolate our cash flows beyond the five year forecast period.

We acquire intangible assets either as part of a business combination or through separate acquisition. Intangible assets acquired in a business combination are recorded at fair value at the date of acquisition and recognised separately from goodwill. On initial acquisition, we apply management judgement to determine the appropriate allocation of purchase consideration to the assets being acquired, including goodwill and identifiable intangible assets.

The carrying value of goodwill was A$2,073 million as at 30 June 2006 compared with A$2,037 million as at 30 June 2005. On initial acquisition, and at each subsequent reporting date, we assess the useful life of goodwill and other acquired intangible assets as part of our assessment of the carrying value of our investments. The increase in the carrying value of goodwill was mainly attributable to the acquisition of controlled entities and foreign exchange movements.

The carrying value of our investments in jointly controlled and associated entities was A$23 million as at 30 June 2006 compared with A$48 million as at 30 June 2005. The carrying amount has reduced during fiscal 2006 due to the sale of our 35.0% shareholding in Xantic B.V.

The carrying value of our acquired intangible assets including patents, trademarks, licences, brandnames, customer bases and mastheads was A$1,686 million as at 30 June 2006 compared with A$1,702 million as at 30 June 2005. The carrying value of these intangible assets are assessed annually and adjusted down where it exceeds recoverable amount.

Our acquired intangible assets are amortised on a straight-line basis over the period of expected benefit starting from the commencement date of use, with the exception of assets assessed as having an indefinite useful life (predominately relating to mastheads). We apply management judgement to determine the amortisation period based on the expected useful lives of the respective assets. In some cases, the useful lives are supported by external valuation advice at the time of acquisition. As at 30 June 2006, the remaining amortisation period of our acquired intangible assets was reviewed and deemed appropriate. The mastheads of A$447 million were acquired as part of our acquisition of the Trading Post(R). The mastheads are deemed to have an indefinite life, the appropriateness of which is reassessed at each reporting date.

If our forecasts and assumptions prove to be incorrect or circumstances change, we may be required to impair the carrying value of our investments, goodwill and acquired intangible assets. In applying our assessments, we have not written down significant amounts of these assets during the two-year period. We believe that as at 30 June 2006 our investments, goodwill and acquired intangible assets are recoverable at the amounts at which they are stated in the consolidated financial statements.

Carrying value and depreciation of property, plant and equipment

Property, plant and equipment assets made up 65.3% of our total assets in fiscal 2006 compared with 65.0% in fiscal 2005. We therefore consider our accounting policies in relation to the carrying value and depreciation of these assets to be critical. We have adopted the cost basis of recording our property, plant and equipment, rather than the fair value basis. Land and buildings are subject to valuation at least every three years, except properties that are on a disposal program, which are subject to valuation each year.

We assess whether there is an indicator of impairment in our property, plant and equipment at each reporting date. Where assets can be shown to be working together to generate net cash flows, this assessment is performed over the group of assets rather than individually. When considering this assessment we exclude the HFC cable network, as we do not consider this network to be integrated with the rest of our ubiquitous telecommunications infrastructure in Australia. As at 30 June 2006, our assessment of the ubiquitous network and the HFC cable network did not identify any impairment triggers and therefore it was not necessary to perform a recoverable amount test in relation to the carrying value of the network assets.

We assess the appropriateness of the service lives of our property, plant and equipment assets on an annual basis. This assessment includes a comparison against international trends for other telecommunications companies. In relation to communications assets, our assessment includes a determination of when the asset may be superseded technologically. We use a ’end date lifing’ methodology where we believe technologies will be replaced by a certain date. Assets are grouped into classes based on technologies when making the assessment of useful lives.

The review of service lives was carried out at the commencement of the year and updated in November 2005 to take into account the impacts associated with the transformation. As part of our review, certain assets are reassessed with lives being extended or in some cases being reduced. The net effect of the reassessment for fiscal 2006 was an increase in our depreciation expense of A$66 million compared with a decrease of A$60 million in fiscal 2005. The fiscal 2006 net increase comprised a reduction in depreciation of A$196 million based on the review of services lives at 1 July 2005 and accelerated deprecation of A$262 million as a result of our transformation initiatives. Any reassessment in a particular year will affect the depreciation expense (either increasing or decreasing) for both that current year and future years through to the end of the reassessed useful life.

If our forecasts and assumptions prove to be incorrect or circumstances change, we may be required to impair the carrying value of our property, plant and equipment. Our impairment for property, plant and equipment was A$69 million in fiscal 2006 compared with A$17 million in fiscal 2005. The increase in fiscal 2006 was mainly due to our decision to shut down certain networks and platforms that are no longer considered recoverable as part of our transformation program. This also includes our decision to cancel certain projects relating to the construction of property, plant and equipment. We believe that as at 30 June 2006 our items of property, plant and equipment are recoverable at the amounts at which they are stated in our consolidated financial statements.

Capitalisation of costs

Costs are classified as either operating or capital expenditure. We expense operating expenditure to the income statement as it is incurred. We capitalise expenditure where it is expected to generate future economic benefits. Capital costs are recorded as assets and reported in our balance sheet based on the asset class considered most appropriate to those costs. Management judgement is applied in determining costs to be capitalised in relation to the following major asset categories:

Capitalisation of costs related to construction activities

The cost of our constructed property, plant and equipment includes directly attributable costs such as purchased materials, direct labour and direct overheads required to bring the asset to the location and condition necessary for its intended use. Satisfying the directly attributable criteria requires an assessment of those unavoidable costs that, if not incurred, would result in the asset not being constructed or installed.

The cost of our constructed property, plant and equipment also includes an allocation of indirect overheads. Indirect overhead costs are directly attributable to the construction of assets, but can only be allocated to specific projects on an arbitrary basis, as they do not usually vary with construction activity volumes. Examples of indirect overhead costs include planning and design of construction projects and the management of construction contracts. Management judgement is applied in determining the indirect cost pool and allocating it to each project.

Capitalisation of software assets developed for internal use

We capitalise costs associated with the development of network and business software for internal use where future benefits embodied in the particular asset will eventuate and can be reliably measured. Management applies judgement to assess the costs to be capitalised in the development of software assets and the amortisation period applied.

Costs capitalised as software assets for internal use include:

	•		external direct costs of materials and services consumed;

	•		payroll and direct payroll related costs for employees associated with a project; and

	•		internal indirect costs directly attributable to the software asset being developed.

Capitalised software assets totalled A$1,782 million as at 30 June 2006 compared with A$1,970 million as at 30 June 2005. The recoverability of capitalised software assets is assessed semi-annually at each reporting date. If our estimates prove to be incorrect or circumstances change, we may be required to impair the carrying value of our software assets.

The service lives of software assets are reviewed each year with reference to global industry practices. Software assets have a weighted average life of six years in both fiscal 2006 and fiscal 2005, despite the changes resulting from the impact of transformation on certain software asset lives in the current year. Major systems such as certain billing systems may have a longer life. The net effect

of the reassessment of the useful life of software assets for fiscal 2006 resulted in an increase in amortisation expense of A$160 million in fiscal 2006 compared with A$nil in fiscal 2005, reflecting the impact of transformation initiatives in the current year.

If these assumptions prove to be incorrect or circumstances change, we may be required to impair the carrying value of capitalised software assets. Our impairment for capitalised software assets was A$65 million in fiscal 2006 compared with A$nil in fiscal 2005. The increase in fiscal 2006 was led by our decision to shut down certain networks and platforms that are no longer considered recoverable as part of our transformation program. This also includes our decision to cancel certain projects relating to the development of software. We believe that as at 30 June 2006, our capitalised software assets are recoverable at the amounts at which they are stated in our consolidated financial statements.

Deferred expenditure

Our deferred expenditure relates to costs deferred for basic access installation and connection, major service solution contracts and the generation of Yellow(R) and White Pages(R) revenue. In addition, incentive and administration fees associated with acquisition of certain mobile subscribers are also recorded as deferred expenditure.

We defer expenditure where it is probable that the future benefits embodied in the particular asset will eventuate and can be reliably measured. As a result, we are required to identify future benefits expected to arise from the deferral of expenses, which relate to the revenue that is to be recognised in future periods. Each year we use management judgement to determine the average period over which the related benefits of our deferred expenditure are expected to be realised. We also review expenditure deferred in previous periods to determine the amount, if any, that is no longer recoverable. The amount of deferred expenditure that is no longer recoverable is recorded as an expense immediately in the income statement.

A substantial portion of our deferred expenditure relates to basic access installation and connection costs. These costs are taken to the income statement in line with the release of installation and connection fee revenues, which are deferred and recognised over the average estimated customer life. Based on our reviews of historical information and customer trends, we have determined that the average estimated customer life is five years for both fiscal 2006 and fiscal 2005. Our deferred expenditure after amortisation was A$582 million as at 30 June 2006 compared with A$620 million as at 30 June 2005.

Defined benefit assets and actuarial gains/losses

We currently sponsor two post employment defined benefit plans. The Telstra Entity and some of our Australian controlled entities participate in the Telstra Superannuation Scheme (“Telstra Super”). Our controlled entity, CSL, participates in the HK CSL Retirement Scheme. We recognise a defined benefit asset for the net surplus recorded in each of our post employment defined benefit plans. The net surplus represents the fair value of the plan assets less the present value of the defined benefit obligations, adjusted for contributions tax. The fair value of plan assets approximates its net market values. Defined benefit obligations are based on expected future payments required to settle the obligations arising from current and past employee services. This obligation is significantly influenced by factors such as estimates on final salaries and employee turnover.

All of the actuarial gains/losses associated with our defined benefit plans are recognised directly in retained profits in the period in which they occur. For financial reporting purposes, we engage an actuary to assist in the determination of our net defined benefit asset and the associated actuarial gains/losses at each reporting date. The following represent the main assumptions used in the actuarial calculations of the pension expense, plan assets and defined benefit obligations:

	•		the discount rate to determine the defined benefit plan expense;

	•		the discount rate used for reporting defined benefit obligations;

	•		the rate of increase on future salary levels for both the defined benefit plan expense and the defined benefit obligations; and

	•		the expected long term rate of return on plan assets.

The assumptions applied in our calculation have a significant impact on the reported amount of our defined benefit plan assets of A$1,029 million as at 30 June 2006 and A$247 million as at 30 June 2005. In fiscal 2006, the increase was mainly due to higher investment returns than expected and a reduction in accrued benefits as a result of a large number of defined benefit members leaving the scheme, mainly reflecting the redundancies during the current year. In applying our estimates, we have recorded an actuarial gain

of A$962 million in fiscal 2006, compared with an actuarial loss of A$90 million in fiscal 2005, directly in retained profits in accordance with the applicable accounting standard. Refer to note 28 to our consolidated financial statements for details on the assumptions applied to each of our defined benefit plans, the method of determining these assumptions and sensitivity analysis of a one percentage point decline in these key assumptions on our defined benefit expense and asset.

If our current estimates proves to be incorrect, the carrying value of our defined benefit assets as at 30 June 2006 may be materially impacted in the next reporting period. Additional volatility may also be recorded in retained profits to reflect differences between actuarial assumptions of future outcomes applied at the current reporting date and the actual outcome in the next annual reporting period. Based on the assumptions applied at year end, we believe that as at 30 June 2006, our defined benefit assets are fairly stated in our consolidated financial statements.

Valuation of receivables

We maintain allowances for doubtful debts based on an estimate of the inability of our customers to pay amounts due to us for services rendered to them. These allowances are based on historical trends and management’s assessment of general economic conditions. An allowance for doubtful debts is raised when it is considered that there is a credit risk, insolvency risk or incapacity to pay a legally recoverable debt. We have adopted a number of methodologies depending on the different customer portfolio to determine the appropriate allowance for doubtful debts in each of our business segments. If the financial condition of our customers deteriorates, these provisions may not be sufficient and may lead to an increase in bad and doubtful debt expenses. We have no reason to believe that the allowances raised will not sufficiently cover bad debts arising from the receivables we currently have on hand.

Our allowance for doubtful debts was A$144 million as at 30 June 2006 compared with A$159 million as at 30 June 2005. Trade debtors before any allowance for doubtful debts was A$2,565 million as at 30 June 2006 compared with A$2,434 million as at 30 June 2005.

Included in our receivables is the loan to REACH of A$210 million as at 30 June 2006 and A$204 million as at 30 June 2005. We fully provided for this loan to REACH in both fiscal 2006 and fiscal 2005 due to the uncertainty of repayment in the medium term.

Provisions

Our provision for employee benefits predominantly relates to the provisions for annual leave and long service leave entitlements. The calculation of annual leave entitlements should be based on remuneration rates expected to be paid when the obligation is settled. Ordinarily this would require the provision for annual leave entitlements to use estimated remuneration rates at the time leave is expected to be settled or taken. We use nominal remuneration rates in determining the annual leave provision on the basis that the difference between the nominal rates and applying the estimated future rates would not be material to our provision.

We accrue for long service leave entitlements not expected to be paid or settled within one year of balance date at present values of the future amounts expected to be paid. The calculation is actuarially determined and includes the following estimates:

	•		the projected increases in wage and salary rates over an average of ten years;

	•		the probability of employees reaching their long service leave entitlement at year 10;

	•		the employee leave taking rate; and

	•		the weighted average discount rate.

In relation to the discount rate, we apply the weighted average government bond rate for the one year period ended 30 June, rather than the government bond rate as at 30 June. This approach is taken to limit the impact of volatility in government bond rates. Our provision for employee benefits was A$892 million as at 30 June 2006 compared with A$946 million as at 30 June 2005.

We self-insure for workers’ compensation liabilities. A provision is taken up for the present value of the estimated liability, based on an actuarial review of the liability. This review includes an assessment of actual accidents and estimated claims incurred but not yet reported. Our provision for workers’ compensation was A$216 million as at 30 June 2006 compared with A$214 million as at 30 June 2005.

Our provision for redundancy of A$186 million and provision for restructuring of A$209 million was recorded in fiscal 2006 as part of our transformation program. A provision has been raised for only those redundancy and restructuring costs where a detailed formal plan has been approved and we have raised a valid expectation in those affected that the plan will be carried out. Management judgement was applied in determining the extent that future transformation activities were likely to result in restructuring costs and in estimating those future costs. These provisions extend beyond a period of 12 months, and as a result we applied the pre-tax government bond rate for the redundancy provision and the Telstra pre-tax weighted average cost of capital for the restructuring provision as the discount rate to reflect the present value of these provisions as at 30 June 2006.

Derivative financial instruments and hedge accounting

Under A-IFRS, we are required to recognise the fair value of all our derivative financial instruments on the balance sheet from 1 July 2005. As a result, we apply management judgement to determine the application of an appropriate valuation technique, which includes references to prices quoted in active markets, discounted cash flow analysis, recent arm’s length transactions involving the same or similar instruments and option pricing models.

When using a discounted cash flow analysis, our assumptions are based on market conditions existing at balance date and we use an appropriate market based yield curve, which is independently derived and representative of our cost of borrowing.

We use various derivative financial instruments to hedge the following risks:

	•		changes in the fair value of our financial assets and liabilities;

	•		variability of future cash flows attributable to foreign currency fluctuations; and

	•		the foreign currency risk when we translate the net assets of our foreign investments.

Revenue recognition

We recognise revenues when they are earned through the delivery of a product or service. Telecommunications revenues are recorded at amounts billed plus an appropriate accrual for calls made since the last billing date. Revenues that relate to more than one period are deferred and amortised into sales revenue over the expected period of benefit.

All of our Yellow(R) and White Pages(R) print directory advertising revenues are recognised on delivery of the published directories. We apply our management judgement to determine that our directories are delivered when they have been published and delivered to our customers’ premises. Revenue from online directories is recognised over the life of service agreements, which is on average one year. Voice directory revenues are recognised at the time of providing the service to customers.

Accrued revenue comprises mainly the recognition of unbilled amounts relating to telephone usage, service and maintenance. Our major billing system generates most of the accrued revenue and automatically accrues revenue for billing cycles that remain unbilled as at the reporting date.

Where multiple revenue generating deliverables are sold under a single arrangement each deliverable that is considered to be a separate unit of accounting is accounted for separately. We allocate the consideration from the revenue arrangement to the separate units based on the relative fair values of each unit. If the fair value of the delivered item is not readily available, revenue is allocated based on the difference between the total arrangement consideration and the fair value of the undelivered items. We currently have a number of arrangements that are considered to be distinguishable into separate units of accounting, including mobile handsets offered as part of a mobile network contract or sold as part of a prepaid package, broadband Internet installation kits where the modem is provided and advertising in the Yellow(R) printed and online directories.

Management estimates and judgements applied in our US-GAAP reconciliation

We disclose our A-IFRS/US-GAAP reconciliation differences in detail in note 37 to our consolidated financial statements. During fiscal 2006, the conversion to A-IFRS required us to restate our fiscal 2005 comparative financial information, including our US-GAAP reconciliation. The management estimates and judgments that we believe have the most significant impact on the US-GAAP reconciliation are as follows:

Capitalisation of indirect costs and borrowing costs before 1 July 1996 for property, plant and equipment

Under previous AGAAP, we did not capitalise indirect costs and borrowing costs prior to 1 July 1996. In addition, under A-IFRS we no longer capitalise borrowing costs. However, under US-GAAP we are required to capitalise borrowing costs and those indirect costs associated with operations and personnel directly involved in the construction of our communication assets. This involved the use of estimation techniques and the reconstructing of records as far back as 1980. Due to the fact that we used estimation techniques to reconstruct the balances, the actual balance may have been greater or less than the adjustment calculated. This impacts the adjustment made to property, plant and equipment each fiscal year and the resulting annual depreciation expense in our US-GAAP reconciliation.

Property, plant and equipment with a net book value of A$834 million as at 30 June 2006 and A$894 million as at 30 June 2005 was capitalised for US-GAAP purposes, which was not capitalised under A-IFRS. Additional depreciation and disposals have also been recorded of A$147 million in fiscal 2006 and A$168 million in fiscal 2005 as a result of this difference.

Net pension asset/liability and actuarial gains/losses

We engage an actuary to assist in the determination of our prepaid pension asset/liability and retirement benefit gains and losses. Many of the assumptions used under A-IFRS are also applied under US-GAAP. These assumptions have a significant impact on the calculations and adjustments made. The discount rate applied under US-GAAP is different to the discount rate applied under A-IFRS due to the differing treatment of investment tax, with A-IFRS accounting for investment tax of the fund by adjusting the pre-tax discount rate.

Under A-IFRS we have elected to recognise all our actuarial gains/losses directly in retained profits. Under US-GAAP, the recognition of certain gains/losses are delayed in the income statement using the corridor approach. Under this approach, the aggregated unrecorded gains and losses exceeding 10% of the greater of the aggregated projected benefit obligation or the market value of the plan assets are amortised over the average expected service period of active employees expected to receive benefits under the plan.

As at 30 June 2006, the net pension liability for US-GAAP was A$167 million, comprising the net deficit of Telstra Super of A$172 million, partially offset by a surplus of A$5 million in relation to the HK CSL Retirement Scheme. Refer to note 37(f) for further details on the accounting treatment under US-GAAP.

Impairment of goodwill

During fiscal 2006, the balance of our goodwill in CSL was impaired prior to the merger with New World Mobility Group. Due to historical US-GAAP adjustments, our CSL goodwill balance for US-GAAP has always been higher than under A-IFRS and previous AGAAP. For the purposes of recording the impairment, we have applied management judgement with the assistance of external advisers, in calculating an implied fair value of CSL and allocating that fair value to CSL’s identifiable assets and liabilities, including the intangible assets. The impairment of CSL’s goodwill for US-GAAP purposes does not impact the carrying value assessment of the goodwill recognised under A-IFRS.

Changes in accounting policies

Australian entities reporting under the Corporations Act 2001 must prepare their financial reports for financial years commencing on or after 1 January 2005 under A-IFRS as adopted by the Australian Accounting Standards Board (AASB). This involved preparing our first full year set of consolidated financial statements applying A-IFRS for the financial year ended 30 June 2006.

The transitional rules for first time adoption of A-IFRS require that we restate our comparative financial report using A-IFRS applied as of 1 July 2004, except for AASB 132: “Financial Instruments: Disclosure and Presentation” and AASB 139: “Financial Instruments: Recognition and Measurement”, where comparative information was not required to be restated. In addition, we have elected to early adopt AASB 7: “Financial Instruments: Disclosures”, which supersedes the disclosure requirements of AASB 132.

For reporting in the current year, comparatives were remeasured and restated for the financial year ended 30 June 2005. Most of the adjustments on transition were made to opening retained profits at the beginning of the first comparative period (i.e., at 1 July 2004).

Our adoption of A-IFRS has significantly impacted the accounting policy and reported amounts of the following items:

	•		share based payments;

	•		business combinations;

	•		income taxes;

	•		property, plant and equipment;

	•		leases;

	•		employee benefits;

	•		changes in foreign exchange rates;

	•		borrowing costs;

	•		investments in associates and joint ventures;

	•		impairment of assets; and

	•		intangible assets.

Under A-IFRS, our net profit after tax may be more volatile compared with previous Australian accounting standards. The volatility in net profit after tax could be caused by the accounting requirements in areas such as impairment of goodwill balances and hedging. However, the adoption of A-IFRS has not affected our net cash flows, our ability to borrow funds or our capacity to pay dividends to our shareholders. In note 36 to our consolidated financial statements, we have:

	•		identified and explained the key differences in accounting policy;

	•		provided our differences on the date of transition (i.e., 1 July 2004) and for the current comparative period (i.e., 30 June 2005);

	•		provided full reconciliations of our reported results under previous AGAAP to those comparatives reported in our current year consolidated financial statements under A-IFRS; and

	•		provided qualitative information on the exemptions applied under AASB 1 on first time adoption of A-IFRS.

Other than the adoption of A-IFRS, we have had no significant change in accounting policy during the two-year period.

Results of operations


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A$ millions)									(% change)
Sales revenue		22,750			22,161			589			2.7	%
Other revenue (excl. finance income)		22			20			2			10.0	%

Total revenue		22,772			22,181			591			2.7	%
Other income		328			261			67			25.7	%

Total income (excl. finance income)		23,100			22,442			658			2.9	%

Operating expenses (excl. interest expense and depreciation and amortisation		13,521			11,884			1,637			13.8	%
Share of net (gain)/loss from jointly controlled and associated entities		(5	)		94			(99	)		(105.3	)%

Earnings before interest, income tax expense, depreciation and amortisation (EBITDA)(1)		9,584			10,464			(880	)		(8.4	)%
Depreciation & amortization		4,087			3,529			558			15.8	%

Earnings before interest & income tax expense (EBIT)(1)		5,497			6,935			(1,438	)		(20.7	)%
Net finance costs		936			880			56			6.4	%

Profit before income tax expense		4,561			6,055			(1,494	)		(24.7	)%
Income tax expense		1,380			1,746			(366	)		(21.0	)%

Net profit for the year		3,181			4,309			(1,128	)		(26.2	)%

Effective tax rate		30.3	%		28.8	%					1.5	%
EBITDA margin on sales revenue		42.1	%		47.2	%					(5.1	)%
EBIT margin on sales revenue		24.2	%		31.3	%					(7.1	)%


	Change
	A$ (cents)		A$ (cents)		A$ (cents)			% change
Basic earnings per share(2)		25.7		34.7		(9.0	)		(25.9	)%
Diluted earnings per share(2)		25.7		34.6		(8.9	)		(25.7	)%
Dividends paid or declared:
Interim dividend paid		14.0		14.0
Special dividend paid with interim dividend		6.0		6.0
Final dividend declared (2005 paid)		14.0		14.0
Special dividend to be paid with final dividend (2005 paid)		—		6.0


(1)		EBITDA reflects our profit prior to including the effect of interest revenue, borrowing costs, income taxes, depreciation and amortisation. We believe that EBITDA is a relevant and useful financial measure used by management to measure our operating profit. Our management uses EDITDA, in combination with other financial measures, primarily to evaluate our operating performance before financing costs, income tax and non-cash capital related expenses. In consideration of the capital intensive nature of our business, EBITDA is a useful supplement to net income in understanding cash flows generated from operations that are available for payment of income taxes, debt service and capital expenditure. In addition, we believe EBITDA is useful to investors because analysts and other members of the investment community largely view EBITDA as a key and widely recognised measure of operating performance. EBITDA is not a US-GAAP measure of income or cash flow from operations and should not be considered an alternative to net income as an indication of our financial performance, or as an alternative to cash flow from operating activities as a measure of our liquidity. EBIT is a similar measure to EBITDA, but takes into account the effect of depreciation and amortisation.

(2)		Basic and diluted earnings per share are impacted by the effect of shares held in trust for employee share plans and instruments held under executive remuneration plans.

In fiscal 2006, sales revenue growth was driven by Internet & IP solutions, mobile revenues, advertising & directories, CSL’s merger with New World PCS and pay TV bundling. Growth was partially offset by a decline in revenues mainly from PSTN calling products, specialised data and ISDN products. Sales revenue grew by 2.7% as we continue to manage the shift in customer demand from our traditional products such as PSTN to our emerging products such as broadband.

In April 2006, CSL and New World Mobile Holdings Limited merged, however this had minimal impact on the overall sales revenue in fiscal 2006. Apart from this transaction, there was little activity in the mergers and acquisitions area in 2006.

Sales growth was marginally impacted by acquisitions that took place in fiscal 2005, with current year revenue figures including a full twelve months of operation for acquired entities KAZ, PSINet, Universal Publishers Pty Ltd (Universal Publishers) and Telstra Business Systems Pty Ltd (formerly known as Damovo (Australia) Pty Ltd).

Our expenses have been impacted by the initial stages of our transformation strategy and our focus continues to be on executing our strategy as announced to the market in November 2005. Our total expenses increased due to higher labour costs, in particular redundancy costs, higher goods and services purchased supporting revenue growth, and higher other expenses, primarily as a result of the transformation program. These expense categories were also impacted by the recognition of a provision at year end for redundancy and restructuring of A$427 million to cover activity in future years relating to our business transformation. Depreciation and amortisation also increased, primarily due to accelerated depreciation after a review of asset service lives impacted by our transformation strategy.

As a result of these factors, our profit before income tax expense was A$4,561 million in fiscal 2006 compared with A$6,055 million in fiscal 2005, and our net profit decreased by 26.2% in fiscal 2006.

Operating revenues

In the following discussion, we analyse revenue for each of our major products and services. The principal areas of operating revenue growth for fiscal 2006 were:

	•		mobiles;

	•		internet and IP solutions;

	•		advertising and directories; and

	•		pay TV bundling.

In fiscal 2006, our sales revenue growth was partially offset by a 6.7% decline in PSTN product revenues as customers continue to move towards new products and services to satisfy their requirements and competition further intensifies in the market.

Competition has continued to intensify and, as a result, we have seen our revenues decline in a number of areas despite increasing volumes. We have also experienced a continued shift in revenue from our traditional higher margin retail operations (such as our PSTN products) to our lower margin retail products (such as mobiles and broadband). We have continued to concentrate on product bundling initiatives and managing the migration of customers to other products. In the second half of fiscal 2006, we introduced our first subscription price based offers into the consumer market to help address the decline of our traditional product revenues and to make pricing easier for our customers. We have also introduced market based management to enable us to better serve our customers’ needs.

We expect that there will be continued competitive pressure in some of our traditional product areas. However, the volume of telecommunications services purchased in Australia has increased and the range of products and services offered continues to expand.

Categorisation of our operating revenue

We categorise revenue from the products and services we derive from wholesale customers according to the nature of the product or service provided. For example, we categorise operating revenue from interconnect and access charges relating to PSTN and mobiles, within those categories as appropriate. Products resold are also within the relevant product categories. This is a revised approach from how interconnect and access charge revenues were presented in the prior year.

We are actively promoting alternative access services that are faster and have more capabilities than our basic access service. As more of our customers purchase these alternative services, operating revenue will continue to move from one category to another. For example, as our customers continue to switch from buying basic access services to buying other forms of access services, such as ADSL, operating revenue from some customers will shift from the basic access category to the Internet and IP solutions category.

The rates we charge our retail customers are subject to regulated retail price controls

The rates we charge our retail customers for selected fixed network telephony products are subject to retail price controls. The retail price control regime, set by the Commonwealth, applies to us and no other telecommunications provider. The new price control regime commenced on 1 January 2006.

These retail price controls require us to:

	•		ensure parity in the local call prices offered to regional and metropolitan customers;

	•		ensure there is a package of PSTN services targeted and available to low income customers;

	•		notify and seek the consent of the ACCC when price increases to residential line rental rates are proposed; and

	•		report on compliance to the ACCC no later than three months after 30 June 2007 and subsequently each year until 30 June 2009.

	In addition, we are required to apply the following price controls:

	•		the price of a bundle of services including basic access, local calls, national long distance calls, fixed-to-mobile calls and international calls will not increase;

	•		basic residential and business access charges will not increase by more than the consumer price index (CPI) with current basic residential access charges maintained until 30 June 2007;

	•		charges for connections capped to increases in CPI;

	•		the charge for charity organisations not to be increased to a level which exceeds the price of the standard residential line rental rate;

	•		the price for local calls made from one of our public payphones will not exceed A$0.50 (GST included) per call; and

	•		the price for untimed local calls and dial-up Internet calls are capped at A$0.22 (GST included) per call, except for untimed local or dial-up calls which form part of a subscription pricing package or a discounted line rental arrangement.

Despite these restrictions, we have been able to innovate and recently introduced a range of calling plan options, including new capped calling plans. We continue to reduce prices on a range of telephony services in order to respond to customer needs and market conditions. We also monitor our pricing to ensure that we comply with the price control requirements.

The previous price control determination that applied up until 31 December 2005 had required our revenues from line rentals and calling products to be separately measured. These price controls imposed a cap of CPI plus 4% for line rental, and CPI minus 4.5% on a basket of calls comprising local, long distance, international and fixed-to-mobile. The previous regime also required the price for local calls made from one of our public payphones not to exceed A$0.40 (GST included) per call. Business customers on negotiated contractual arrangements are excluded from the new price controls.

Operating Revenues


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
PSTN Products
Basic access		3,318		3,362		(44	)		(1.3	)%
Local calls		1,023		1,284		(261	)		(20.3	)%
PSTN value added services		246		250		(4	)		(1.6	)%
National long distance calls		913		1,013		(100	)		(9.9	)%
Fixed to mobile		1,491		1,566		(75	)		(4.8	)%
International direct		201		234		(33	)		(14.1	)%
Fixed interconnection		286		309		(23	)		(7.4	)%

Total PSTN		7,478		8,018		(540	)		(6.7	)%

Mobiles
Mobile services — Retail		3,846		3,736		110			2.9	%
Mobile services — Wholesale		36		24		12			50.0	%
Mobile services — Interconnection		623		547		76			13.9	%
Mobile handsets		467		381		86			22.6	%

Total Mobiles		4,972		4,688		284			6.1	%

Internet and IP solutions
Narrowband		220		275		(55	)		(20.0	)%
Retail broadband		730		463		267			57.7	%
Wholesale broadband		461		261		200			76.7	%
Internet direct		143		123		20			16.3	%
IP solutions		285		207		78			37.7	%
Other		68		48		20			41.7	%

Total Internet and IP solutions		1,907		1,377		530			38.5	%

ISDN products		807		890		(83	)		(9.3	)%
Specialised data		884		966		(82	)		(8.5	)%
Advertising and directories		1,711		1,585		126			7.9	%
Intercarrier services		351		290		61			21.0	%
Inbound calling products		449		449		—			—
Solutions management		989		931		58			6.2	%
HKCSL New World		830		734		96			13.1	%
TelstraClear		620		625		(5	)		(0.8	)%
Offshore services revenue		295		252		43			17.1	%
Payphones		104		121		(17	)		(14.0	)%
Pay TV bundling		320		263		57			21.7	%
Customer premises equipment		274		231		43			18.6	%
Other sales & service		759		741		18			2.4	%

Sales revenue		22,750		22,161		589			2.7	%
Other revenue		22		20		2			10.0	%

Total revenue		22,772		22,181		591			2.7	%
Other income		328		261		67			25.7	%

Total income		23,100		22,442		658			2.9	%

PSTN Products


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A$ millions)							(% change)
Basic access revenue
Retail		2,592		2,725		(133	)		(4.9	)%
Domestic wholesale		726		637		89			14.0	%

Total basis access revenue		3,318		3,362		(44	)		(1.3	)%
Local call revenue		1,023		1,284		(261	)		(20.3	)%
PSTN value added services revenue		246		250		(4	)		(1.6	)%
National long distance call revenue		913		1,013		(100	)		(9.9	)%
Fixed to mobile revenue		1,491		1,566		(75	)		(4.8	)%
International direct revenue		201		234		(33	)		(14.1	)%
Fixed interconnection		286		309		(23	)		(7.4	)%

Total PSTN revenue		7,478		8,018		(540	)		(6.7	)%

Basic access lines in service (in millions)
Residential		5.46		5.60		(0.14	)		(2.5	)%
Business		2.32		2.45		(0.13	)		(5.3	)%
Total Retail		7.78		8.05		(0.27	)		(3.4	)%
Domestic wholesale		2.16		2.07		0.09			4.3	%

Total access lines in service		9.94		10.12		(0.18	)		(1.8	)%

Number of local calls (in millions)		7,432		8,469		(1,037	)		(12.2	)%
National long distance minutes (in millions)(1)		7,215		7,743		(528	)		(6.8	)%
Fixed to mobile minutes (in millions)		4,491		4,375		116			2.7	%
International direct minutes (in millions)		534		580		(46	)		(7.9	%)


Note: statistical data represents management’s best estimates.

(1)		Includes national long distance minutes from our public switched telephone network (PSTN) and independently operated payphones. Excludes minutes related to calls from non-PSTN networks, such as ISDN and virtual private networks.

Total PSTN products revenue in fiscal 2006 was A$7,478 million, which declined by 6.7% or A$540 million from fiscal 2005. This compares with a decline of 3.6% in fiscal 2005 (inclusive of fixed interconnection).

There has been a general reduction in PSTN volumes, with a decline in retail basic access lines, and volume reductions across local calls, national long distance calls, international direct calls and fixed interconnection. Yields have also declined in local calls, national long distance, fixed-to-mobile, international direct and fixed interconnection due to competitive pricing pressure. The decline in the first half of the fiscal year was 7.6% which was slowed to 5.8% for the second half of the fiscal year.

Work continues on the integration of mobile, fixed and broadband services to add value to the fixed line. This is aimed at arresting the decline in fixed line use.

Late in the second half of the year, we introduced subscription pricing plans for our PSTN customers, which offer greater choice and value from the home phone, including untimed national long distance calls and low or no charge local calls. These plans did not have any significant impact on our PSTN revenues in fiscal 2006 with the benefits expected to be seen in the next fiscal year.

Basic access

Our basic access revenue includes monthly rental fees, installation charges and connection charges, from telephone service connections between a customer’s premises and our PSTN network.

Basic access revenues are affected by:

	•		housing growth;

	•		competition;

	•		demand for telephone services and additional lines;

	•		regulatory constraints in relation to wholesale basic access;

	•		migration to other products such as Broadband and mobiles; and

	•		price changes.

Under our basic access pricing structure, we have a range of access and call pricing packages to give our residential and business customers choice in the plan they select, along with a range of reward options. These pricing packages are reviewed regularly to reflect the changing needs of customers. For the most part, wholesale customers receive the pricing plan which only incorporates the basic telephone service with local call rates, excluding long distance and fixed-to-mobile calls (with a “residential” and “business” differentiation still applying).

Our operating revenue from basic access services was also affected by competition during fiscal 2006. During fiscal 2006, the number of retail residential and business basic access lines decreased due to strong competition and migration to alternative products such as broadband and mobiles. Domestic wholesale basic access lines in service grew, reflecting the increased penetration of our competitors into the retail basic access market. In the retail segment, we saw a decline of 270,000 lines in service or 3.4%, mainly driven by the migration to other technologies which is underpinning the retail trend across PSTN revenues. This decline was partially offset by an increase of 90,000 lines in service or 4.3% in the wholesale market.

Overall our operating revenue from basic access services decreased by A$44 million or 1.3%. During fiscal 2006, we introduced various basic access packages, which reduced the decline in revenue in this area, despite an overall decrease in basic access lines in service.

Rental revenue increased due to a rise in line rental price charges from December 2005, which included a rise in basic access prices for wholesale and non preselected retail residential customers. In addition, penetration of higher value HomeLine plans including HomeLine Ultimate, a new subscription based plan introduced in April 2006, is also expected to contribute positively. Partly offsetting this was an increase in the discounts to Whole of Business customers and pensioners.

Local calls

Our local call revenue from local call charges, consists of revenue from local calls on our PSTN network and includes revenue from our megapop product which allows ISPs to offer untimed local call PSTN dial up access for their customers via a single national dial up 019 number. For the most part we charge for local calls without a time limit.

Our local call revenue is affected by:

	•		the number of basic access lines in service and customers moving from our basic access service to our other access services, such as mobiles and broadband;

	•		competition;

	•		increasing use of email;

	•		customers migrating to mobile and fixed-to-mobile calling; and

	•		pricing changes and regulatory retail price restrictions.

Local call revenue decreased by A$261 million or 20.3% in fiscal 2006, with both our retail and wholesale revenues being negatively impacted by ongoing product substitution from fixed calling to mobile voice calls and SMS, which is accelerated by the take up of capped mobile plans currently being heavily promoted by competitors. Substitution of data local calls continues to occur due to the migration of dial up Internet customers to broadband. The price in the wholesale market also declined as a result of a rise in volume discounts.

Generally, call volumes have continued to fall during fiscal 2006, reflecting the impact of customers migrating to other products, such as mobiles, fixed-to-mobile, and broadband products, and fewer basic access lines in service. This is highlighted by the fact that the number of local calls reduced by 12.2% during the year.

PSTN value added services

Our revenue from PSTN value added services declined by A$4 million or 1.6% during fiscal 2006. This decrease was driven by a reduction in a number of mature products, such as Indial, Siteline, Enhanced faxstream and other access products nearing the end of their lifecycle. Customers are also migrating to product offerings such as Internet products and premium voice communication applications.

Messaging and call completion products increased marginally during fiscal 2006. Calling number display continued to grow due to attractive packaging discounts resulting in subscriber numbers increasing by 10%. This has been partially offset by call return revenue which declined by 14% due to lower overall call volumes and substitution to other products.

National long distance calls

Our operating revenue from national long distance consists of revenue from national long distance calls made from our PSTN network to the fixed network.

We generally charge for national long distance calls based on the time of day, day of week, destination and duration of the call, but packages are also offered on a capped price basis and under subscription pricing arrangements. A variety of promotions and pricing options are offered to encourage our customers to use our service and to inform them about the price and value of our service. The majority of our operating revenue from national long distance calls comes from our residential and small business customers.

General economic conditions and customer perceptions about the cost and value of our service relative to competitor alternatives, largely drive our national long distance call revenue. Competitive activity continues to negatively affect this revenue category directly through override and preselection, and indirectly through competition for access lines. In addition, national long distance calls are impacted by customers migrating to mobile, broadband and fixed-to-mobile calling.

Our operating revenue from national long distance calls declined by A$100 million or 9.9% in fiscal 2006 compared with fiscal 2005. Competitor activity in the fixed line market continues to be high and most carriers have a fixed or mobile cap, or a combination of both, in the market. This is having a direct impact on our national long distance revenues, particularly where competitors are bundling these calls with broadband offerings. Volumes are down as a result of lower basic access services in operation and the impact of fixed-to-mobile substitution and other calling options available to customers. We have increased discounts compared to fiscal 2005 in order to retain and win back customers.

We continue to respond to competition with competitively priced packages. However, with the strong growth in mobile and Internet services in the Australian market, we expect national long distance call revenue to continue to be negatively impacted by ongoing migration of customers to mobile and Internet products, and by the continued growth of subscription pricing plans.

Fixed-to-mobile calls

Our fixed-to-mobile revenue is generated by calls originating on our fixed networks and terminating on any mobile network. We generally charge for fixed-to-mobile calls based on time of day and mobile carrier, however packages are also offered on a capped price basis. Our operating revenue for fixed-to-mobile calls is approximately split evenly between business and residential customers. The growth of the Australian mobile telecommunications market has driven revenue expansion in this product category in recent times. However, the introduction of capped plans in the mobile market has now impacted the volume of fixed-to-mobile activity as customers continue to slowly move their usage from our PSTN products. The fixed-to-mobile environment is influenced by fixed-to-mobile preselection, whereby the carriage service provider (“CSP”) selected by a customer for national long distance calls automatically becomes the customer’s provider for fixed-to-mobile calls.

During fiscal 2006, fixed-to-mobile revenue declined by A$75 million or 4.8%. We experienced a decline of A$114 million due to lower revenue per minute resulting from higher discounts from ongoing competitive pressure, including incorporating fixed-to-mobile calls in reward offerings and the changing mix in services in operation (“SIOs”) from PSTN to ISDN and CustomNet. This increase in the level of discounting is representative of our increased campaign activity aimed at reducing customer churn to other providers and win customers in the market place.

This decline in revenue was partially offset by growth in call volumes mainly due to the continued expansion of mobile services in the Australian market. The positive volume growth for fiscal 2006 contributed A$38 million due to higher calls and minutes of use. This growth is consistent with the growth in the total market mobile SIOs, meaning there is a higher number of mobiles on which fixed calls can terminate, and hence a higher number of calls.

International direct calls

Our operating revenue from international direct relates to revenue we generate from international calls made from Australia to a destination outside Australia (outbound). This revenue is largely driven by general economic conditions, customer perceptions about the cost and value of our service, competition, migration to broadband alternatives and promotion and advertising.

Our international direct revenue declined by 14.1% to A$201 million in fiscal 2006 primarily as a result of lower volumes and continued competitive pressure on price. Factors which have influenced this trend include the competitive pressures from calling cards, fixed-to-mobile substitution and the growth of Voice over IP in the market place. Despite major international events and the occurrence of unfortunate circumstances which have provided short term stimulus to call traffic, international direct minutes declined 7.9% for the year.

Fixed Interconnection

Fixed interconnection is made up of local and non local PSTN/ISDN access interconnection services provided to other carriers. This category is a highly regulated area of the Australian telecommunication market. Our operating revenue from fixed interconnection decreased by 7.4% to A$286 million during fiscal 2006 driven by reduction in both volume and price. Volume declines are in line with cross company trends in PSTN traffic and have been particularly impacted by migration to mobiles and, to a smaller degree, ULL build.

Mobiles

Our operating revenue from mobiles consists of revenue from access fees and call charges, as well as value added services comprising international roaming, mobile MessageBank(R) and mobile data. It also includes revenue from the sale of mobile handsets and interconnection charges where calls from other carriers’ customers terminate on our network.

During fiscal 2006, we commenced the construction of our new NEXT G(TM) wireless network. We launched this network on 6 October 2006. Until recently, we operated two primary mobile networks, GSM and CDMA. Over time we will migrate our customers from our old networks onto our new NEXT G(TM) wireless network. We continue to offer 3G services to our customers over our existing 3G 2100 network, a network jointly owned through our joint venture with Hutchison Telecommunication (Australia) Limited (Hutchison).

The mobile telecommunications market continued to grow during fiscal 2006, although at a lower rate of growth than in the prior year. The growth was slowed by the increase in capped price plans by all the major mobile competitors, heightened campaign activity particularly around 3G services, and the increasing use of mobile data services such as Blackberry and EVDO. While voice continues to be the largest contributor to mobiles revenue, value added services, including mobile data, is the fastest growing, now representing 25.4% of mobile services revenue in fiscal 2006. With competition intensifying, we have introduced a comprehensive and broad reaching program of segment based customer management to enable us to provide the best service and solutions to all of our customers.

Mobiles


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A$ millions)									(% change)
Access fees and call charges		2,703			2,765			(62	)		(2.2	)%

Value added services:
— International roaming		266			243			23			9.5	%
— Mobile messagebank		199			187			12			6.4	%
— Short message service (SMS)		494			457			37			8.1	%
— Other mobile data		184			84			100			119.0	%

Total value added services		1,143			971			172			17.7	%

Total mobile services revenue — retail		3,846			3,736			110			2.9	%
Mobile services revenue — wholesale		36			24			12			50.0	%
Mobile services revenue — mobiles interconnection		623			547			76			13.9	%

Total mobile services revenue		4,505			4,307			198			4.6	%
Mobile handset sales		467			381			86			22.6	%

Total mobile goods and services revenue(1)		4,972			4,688			284			6.1	%

3G mobile SIO (thousands)		317			—			317			—
GSM mobile SIO (thousands)		6,468			6,894			(426	)		(6.2	)%
CDMA mobile SIO (thousands)		1,703			1,333			370			27.8	%

Total mobile SIO (thousands)		8,488			8,227			261			3.2	%

Mobile Wireless — EVDO SIO (thousands) (included in CDMA SIO above)		60			19			41			215.8	%
Prepaid mobile SIO (thousands)		3,597			3,570			27			0.8	%
Postpaid mobile SIO (thousands)		4,891			4,657			234			5.0	%

Total mobile SIO (thousands)		8,488			8,227			261			3.2	%

CDMA wholesale mobile SIO (thousands)		73			62			11			17.7	%
GSM wholesale mobile SIO (thousands)		46			21			25			119.0	%

Total wholesale mobile SIO (thousands)		119			83			36			43.4	%

Number of SMS sent (in millions)		3,019			2,289			730			31.9	%
Deactivation rate		23.4	%		19.2	%		—			4.2	%
Mobile voice telephone minutes (in millions)(2)		7,311			6,746			565			8.4	%
Average revenue per user per month A$’s(3)		38.35			39.33			(0.98	)%		(2.5	)%
Average prepaid revenue per user per month A$’s(3)		10.85			12.24			(1.39	)		(11.4	)%
Average postpaid revenue per user per month A$’s(3)		58.99			59.06			(0.07	)		(0.1	)%
Average mobile data revenue per user per month(4)		6.77			5.70			1.07			18.8	%


Note: statistical data represents management’s best estimates.

(1)		Excludes revenue from:

		— calls from our fixed network which we categorise as fixed-to-mobile; and

		— CSL New World which is recognised separately as controlled entity revenue.

(2)		Includes all calls made from mobile telephones including long distance and international calls, excludes data, MessageBank(R), international roaming and CSL New World.

(3)		Average retail revenue per user per month is calculated using average retail SIO and includes mobile data, MessageBank(R) and roaming revenues. It excludes interconnection and wholesale revenue.

(4)		Includes mobile wireless EVDO revenue, excludes BigPond(R) wireless.

During fiscal 2006, mobile service revenue increased by A$198 million or 4.6% mainly due to the continued growth in the number of mobile telephone subscribers and expanding minutes of use, offset by continued pressure on prices. In addition, we experienced strong growth in our value added services revenue for example MessageBank(R), SMS, Blackberry and EVDO.

Access fees and call charges declined by 2.2% to A$2,703 million in fiscal 2006 reflecting a decrease in GSM revenues partially offset by an increase in CDMA revenues. Both technology categories have been impacted during the year by the competitive environment and the growth in capped price plans which has directly impacted yields. CDMA prepaid was also impacted by lower

revenues attributable to a promotion which gave CDMA subscribers half price calls for a year. During the year we moved from 1% of our mobile customers on capped plans to 4.3% on capped plans.

SIOs increased overall, but it was CDMA that drove the growth with a 27.8% increase while GSM (including 3G) reduced marginally by 1.6%. The CDMA revenues benefited from increased activations during the first half of fiscal 2006 and the availability of more competitively priced handsets. Call minutes generally increased for each technology, but these benefits did not outweigh the impact on price for the period. Average revenue per user (ARPU) dropped by A$0.98 over the year led by a reduction in prepaid ARPUs by 11.4% or A$1.39, with postpaid ARPUs stable.

Revenue from international roaming grew by 9.5% to A$266 million in fiscal 2006. The rise was primarily due to an increase in outbound roaming minutes and a marginal increase in revenue per call. In addition, inbound roaming revenue remained steady as price increases offset decreased usage.

Revenue from MessageBank(R) increased by 6.4% to A$199 million in fiscal 2006 primarily due to growth in minutes resulting from higher mobile usage and SIOs.

During fiscal 2006, SMS and Multimedia Messaging Services (MMS) revenues increased by 8.1% to A$494 million after a significant increase in the number of messages sent. There is a component of migration from voice communication to message communication which is evident in the reported growth rates. This was stimulated by a A$0.01 text offer and other rewards and bonus options offered during the year. In addition, mobile data growth was also experienced in the corporate segment through the Blackberry and Telstra Mobile Broadband TM products on the CDMA network. This is reflected in the average mobile data revenue per user per month increasing over fiscal 2006.

Revenue from handset sales increased by 22.6% to A$467 million in fiscal 2006 primarily due to growth in the number of GSM mobile handsets sold. This growth was attributed to an increase in marketing campaign activity focusing on the sale of 3G handsets, particularly in the second half of the year.

Mobiles interconnection revenue has grown 13.9% to A$623 million during fiscal 2006. The main product driving this growth is GSM wholesale domestic roaming which grew in fiscal 2006 by A$43 million after Hutchison 3G roaming commencing in April 2005. This corresponds directly to an A$8 million drop in CDMA roaming after Hutchison introduced their 3G product as an alternative to CDMA. SMS interconnect has grown A$17 million due to an increase in traffic resulting from growth in mobile SIOs as well as a continued increase in the popularity of text messaging as a cheaper alternative to mobile voice calling. In addition, mobiles terminating revenue grew by A$24 million due to a 12% increase in termination volumes, partially offset by price reductions resulting from regulatory pricing pressures on mobile terminating rates. The increase in termination volumes has resulted from growth in retail SIOs, particularly in CDMA and pre-paid services.

Wholesale mobile service revenue increased in fiscal 2006 by 50.0% or A$12 million due to growth in the wholesale GSM resale product introduced in fiscal 2005. It enabled resellers to develop and market their own branded mobile solutions including voice, text, multimedia messaging and MessageBank(R) on the GSM network which they could only previously do on the CDMA network. Minutes of use have grown significantly since this product was introduced.

The level of deactivations increased by 4.2% which was driven by prepaid activity. After we changed systems for managing prepaid SIO’s in fiscal 2005, all relevant prepaid SIOs were automatically given a recharge period of 12 months, extended from the normal 6-month period, to ensure no customers were disadvantaged while we consolidated the new system. In the last quarter of fiscal 2006, these SIOs reached the end of this period and many were subsequently deactivated. This contributed to the deactivation of 1.1 million prepaid SIOs in fiscal 2006. This change in recharge period has not impacted the year on year growth rate but has impacted the timing of deactivations occurring throughout the year.

Internet and IP solutions

Our operating revenue from Internet and IP solutions is driven primarily by:

	•		demand for capacity to support business networking;

	•		the increased use of IP services by business customers (small to medium enterprises);

	•		the introduction of new products to meet customer needs;

	•		the movement of our customers from basic access and associated calling products to other access services such as ADSL; and

	•		demand for greater bandwidth services such as broadband.

While the IP and Internet markets have been experiencing growth, competition has put pressure on our prices. We expect that these trends will continue.

Internet and IP solutions


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Narrowband		220		275		(55	)		(20.0	)%
Retail broadband(1)		730		463		267			57.7	%
Wholesale broadband		461		261		200			76.6	%
Internet direct		143		123		20			16.3	%
IP solutions		285		207		78			37.7	%
Other		68		48		20			41.7	%

Total internet & IP solutions revenue		1,907		1,377		530			38.5	%

Broadband subscribers — retail (in thousands)(1)		1,476		856		620			72.4	%
Broadband subscribers — wholesale (in thousands)		1,427		888		539			60.7	%

Total broadband subscribers (in thousands)		2,903		1,744		1,159			66.5	%
Narrowband subscribers — retail (in thousands)		1,027		1,205		(178	)		(14.8	)%

Total online subscribers		3,930		2,949		981			33.3	%

Average revenue per retail broadband subscriber per month (A$’s)		52.16		60.10		(7.94	)		(13.3	)%


Note: statistical data represents management’s best estimates.

(1)		Telstra mobile broadband and Telstra internet direct (Retail ADSL) are not included in retail broadband revenue and subscriber numbers.

Our narrowband products allow customers to connect to the Internet from any telephone line in Australia. Our broadband products allow customers to experience an “always on” connection to the Internet, although this is not available to all lines due to technology limitations. In fiscal 2006, continued demand for capacity combined with competitive pricing has resulted in customers migrating their narrowband services to broadband. This trend placed additional price pressure on our dial-up products and resulted in a decline in our narrowband revenues.

We offer a range of Internet products and packages under our BigPond(R) brand. Telstra BigPond(R) home and business packages offer dial-up modem services to residential and business customers across Australia. Telstra BigPond(R) broadband provides broadband Internet services to consumer and business customers via HFC cable, ADSL, satellite and mobile access technologies.

During fiscal 2006, our Internet and IP solutions revenue grew by 38.5% or A$530 million to A$1,907 million, despite a reduction in prices. The subscriber base for our broadband products grew significantly during this time, partially due to migration from narrowband products but also due to growth in the overall online market. As at 30 June 2006, we had approximately 2.9 million broadband customers of which nearly 1.5 million were retail customers. There has been a significant rise in demand resulting from competitive pricing strategies.

Narrowband revenue decreased by 20.0% to A$220 million in fiscal 2006. This decline highlights the growing impact of dial-up to broadband migration as the dial-up market proceeds with its decline. We expect this trend to continue with further price adjustments likely to occur as broadband prices fall and customers require higher speeds.

Retail broadband revenue increased by 57.7% to A$730 million in fiscal 2006, mainly due to strong increases in SIOs. SIO growth has occurred across all technologies but ADSL has been the key driver of the growth. We have introduced a number of key price and value campaigns to stimulate broadband take up including a combination of discounting access and installation offers. We have also introduced new products and plans including a wireless EVDO offer and enhanced focus on our cable offerings. The Australian

Government’s Higher Bandwidth Incentive Scheme (HiBIS) and broadband regional connect packages have also enabled affordable broadband and higher bandwidth to be provided to regional and remote locations and encourage take up in those areas. Given this strong take up, increased competition and resultant price offerings, average revenue per user has declined.

Wholesale broadband revenue increased by 76.6% to A$461 million in fiscal 2006 driven by a continuing strong market demand for high bandwidth services and increased demand at the retail level. Wholesale DSL Internet grade has grown by A$180 million driven by volume increases with a 60.7% growth in SIOs.

Internet direct is our business oriented Internet access product with a range of data access options and features to meet the needs of business. Internet direct revenue increased by 16.3% during fiscal 2006 to A$143 million. The result was driven by our virtual ISP product which increased by A$14 million, mainly because of a new commercial deal signed resulting in a significant increase in data usage. SIOs for this product category increased by 258% in fiscal 2006.

IP solutions revenue increased by 37.7% to A$285 million in fiscal 2006, mainly due to the products in this category being in the growth phase of their lifecycle. Fiscal 2006 saw an increase of A$48 million in IP MAN/Ethernet, our ’next generation’ data access services which provide high speed IP and Ethernet access solutions respectively for large and medium corporate enterprises. The government sector has been the key user and driver of this product. IP WAN grew by A$29 million, after growth was stimulated through competitive pricing and improved network performance. It is also evident that customers now appear more willing to move towards IP based solutions.

Other Internet and IP solutions revenue grew by A$20 million in fiscal 2006 due to growth in wholesale Internet and data traffic, in particular in our Wholesale Ethernet product, and increased revenue from our wholly owned entity, Chief Entertainment, which is a media production house that provides Internet content.

ISDN

ISDN is a flexible, switched network based on digital technology. It can support many applications at one time (such as voice, data and video) while using a single access point to the network. ISDN services are offered to residential and business customers across Australia. Our ISDN products revenue is impacted by offerings and packages in the broadband market, growth in the number of DSL enabled exchanges and migration to advanced data products such as IP solutions.

ISDN


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Access		418		421		(3	)		(0.7	)%
Data calls		118		165		(47	)		(28.5	)%
Voice calls		271		304		(33	)		(10.9	)%

Total calls		389		469		(80	)		(17.1	)%

Total ISDN revenue		807		890		(83	)		(9.3	)%

ISDN access lines (basic access line equivalents (in thousands))(1)		1,214		1,208		6			0.5	%


Note: statistical data represents management’s best estimates.

(1)		Statistical data — we have adjusted comparative data to show a more accurate reflection of the market. Conversion factors have been adjusted in calculating ISDN access lines.

ISDN access revenue has declined marginally to A$418 million in fiscal 2006. Growth in access lines has slowed in recent years from 3.3% in fiscal 2005 to 0.5% in the current year. Data access line declines in the consumer segment have been driven by customer movement to broadband, while declines in the business segment have arisen as a result of the migration to alternative technologies such as ADSL and symmetrical HDSL. Data access line declines have been offset by voice access line growth, driven by customers taking up ISDN as a stepping stone towards a full IP environment. Whole of customer discounts in the enterprise segment have also impacted the result in the current year.

ISDN voice calls revenue, which is made up of local, national and international voice calls made on the integrated services digital network, declined by 10.9% or A$33 million in fiscal 2006, mainly due to declines in the local and national categories. National voice

calls revenue was negatively impacted by competitor price pressure during the year. Local voice calls revenue was negatively impacted by a decrease of 14% in minutes of use primarily because calls on our Priority(R) One3 and 1300 A Party products have been reclassified from ISDN to inbound calling revenues. This reclassification amounted to A$13 million in fiscal 2006.

ISDN data calls revenue declined in fiscal 2006 by 28.5% or A$47 million. Both ISDN local and national data calls contributed to the decline. ISDN local data and ISDN national local data calls revenue declined by 28% and 32% respectively due to customers migrating to alternative products such as ADSL and symmetrical HDSL, as a result of improved bandwidths at reduced prices in each of these products.

Specialised data


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Frame Relay		305		351		(46	)		(13.1	)%
ATM		90		89		1			1.1	%
Digital data services		198		227		(29	)		(12.8	)%
Leased lines		229		235		(6	)		(2.6	)%
International private lines		30		26		4			15.4	%
Other specialised data		32		38		(6	)		(15.8	)%
Total data revenue		884		966		(82	)		(8.5	)%
Domestic Frame access ports (in thousands)		30		34		(4	)		(11.8	%)

Note: statistical data represents management’s best estimates.

Specialised data revenue is comprised mainly of revenue from frame relay, digital data services and leased lines. Frame relay offers high speed data transmission from 64kb to 45Mb per second to customers connecting any number of sites to other national or international locations. It is frequently used as a building block to construct corporate wide area networks. Digital data services provide high quality, leased line digital data transmission offering dedicated bandwidth from 1.02Kb to 1,984Kb per second, which may be used for communication between all major capital cities, and most regional and country areas in Australia. Analogue leased lines provide high quality, low cost, low bandwidth and dedicated end-to-end connections between customer sites.

During fiscal 2006, total specialised data revenue decreased to A$884 million, reflecting a decline in mature products such as frame relay, digital data and leased line services. This decline has been driven by product substitution to more technologically advanced IP and DSL based product options, included with our Internet and IP solutions revenue category.

Frame relay revenue decreased as this product enters the declining stages of its product life cycle with customers migrating to new technologies such as Business DSL which offers the same coverage and similar assurance, but at a lower price. In addition, we introduced price discounting to retain existing customers. Reduced frame relay revenue was due to a combination of a reduction in ports by 11.8% with a similar reduction in revenue per customer.

Digital data services are mature products that declined 12.8% to A$198 million during fiscal 2006 primarily due to customers transferring to newer technologies and price pressures experienced from alternative products.

Leased line revenues experienced a 2.6% reduction to A$229 million, mainly due to customers with voice graded dedicated lines moving to DSL, wireless or IP telephony based solutions. Other high capacity products such as wideband have grown. New business has also been generated by offering premium packages in combination with Internet Direct but they tend to be short distance services which are low revenue generating.

Advertising and directories

Our advertising and directories revenue is predominantly derived from our wholly owned Sensis group. Sensis provides innovative advertising and local search solutions through a print, online, voice, wireless and satellite navigation network.

The majority of Sensis’ revenue is derived from its print and online directories — Yellow(R) and White Pages(R) — which have grown steadily overall due to the introduction of new print and directory advertising initiatives.

Product innovation and customer demand continue to drive growth in our broader online and electronic advertising and non-directories advertising business.

Advertising and directories

Year Ended 30 June

2006

2005

Change

2006/2005

(In A $ millions)

(% change)

Advertising and Directories revenue

1,711

1,585

126

7.9

Yellow(R) revenue increased by 5.8% to A$1,172 million in fiscal 2006, primarily due to the strong performance in our non-metropolitan books and 54% growth in Yellow(R) OnLine revenue to A$124 million. The growth in non-metropolitan books has been driven by new category guides and subheadings, higher uptake of half page advertisements and the release of three new local directories. Online performance was driven by a 25% rise in Yellow OnLine display customer numbers and higher uptake of Platinum advertising, leading to increased revenue per customer.

During fiscal 2006, White Pages(R) revenue grew by 12.2% to A$302 million, reflecting continued growth in both print and online, with improved sales force effectiveness through better “go to market” strategies. Growth has continued with the success of coloured listings and logos resulting in higher revenue per customer.

Our emerging businesses delivered 17.1% revenue growth, driven by strong growth in Whereis(R) location-based search revenues and in MediaSmart(R). Fiscal 2006 includes a full year of revenue for our mapping and travel related products company Universal Publishers (purchased December 2005).

Overall revenue performance was impacted by a decline in classifieds revenue over the period. This was driven by competition and economic weakness in the Sydney and Melbourne markets. However, we regard our advertising and directories business as a growth area, with improving margins especially online, and strong market presence accounting for almost 14% of the Australian main media advertising market.

Sensis’ Trading Post(R) business is experiencing strong growth in online classifieds revenues while print based classifieds revenues are declining. This trend is expected to continue, and as a result the achievement of continued online revenue growth is critical to the future performance of the business.

Intercarrier services

Our operating revenue from intercarrier services comprises a number of products and services relating to the provision of telecommunications services to other carriers (including REACH), CSPs and ISPs. The majority of this revenue base is derived from interconnect and access services which is a highly regulated area of the Australian telecommunications market. Interconnection revenues relating to our PSTN and mobile products are included in those product categories.

The remaining revenue component in intercarrier services is derived from wholesale specific product offerings such as facilities access, wholesale transmission and ULL which, while they are subject to significant price pressures resulting from ongoing oversupply of capacity in the market place, are a focus for delivering incremental revenue growth for us in the coming years. This growth, however, will be negatively impacted by the recent interim determinations by the ACCC regarding a reduction in the amount we can charge wholesale customers for ULL access.

Intercarrier services revenue

Year Ended 30 June

2006

2005

Change

2006/2005

(In A $ millions)

(% change)

Intercarrier services revenue

351

290

21.0

Intercarrier Services revenue has grown by 21.0% to A$351 million during fiscal 2006 due to increases in facilities access, wholesale transmission solutions and other wholesale revenues mainly consisting of ULL.

Our growth in facilities access was 39.8% or A$24 million during fiscal 2006 for the year largely driven by demand for equipment building and mobile tower access as other carriers and service providers have sought to expand their infrastructure over time.

Growth in wholesale transmission relates to leased transmission services led by a rise in demand from Internet service providers for backhaul transmission to expand their DSL network coverage. Partly offsetting these increases in intercarrier revenue was the unfavourable impact of a backdated rate adjustment for MCI Worldcom in September 2005 as well as a decline in services leased by the same customer.

Other wholesale intercarrier revenue growth of A$18 million was due to ULL driven by a number of factors such as:

	•		carriers have reached customer density thresholds on wholesale DSL and resale PSTN to be able to undertake viable ULL; and

	•		falling equipment prices have reduced the capital required by carriage service providers to undertake ULL build.

Inbound calling products

Our operating revenue from inbound calling products consists principally of the fees we charge our business customers for the provision of inbound calling numbers:

	•		for Freecall(TM) 1800, the cost of the call, charged to the party called, with no cost incurred by the caller;

	•		for Priority(R) 1300 and Priority(R) One3:

	•		the calling party from a PSTN service incurs a cost of A$0.25 (including GST) from anywhere in Australia. Different charges apply for calls made from ISDN, mobiles and payphones; and

	•		the service owner incurs the other components of the call charges as applicable.

Also included is revenue from enhanced call centre products using network voice processing, which provides access to advanced call handling capabilities, without customers having to purchase and maintain their own networks.

Our inbound calling products revenue therefore is driven by two different streams, the caller (A party) and the lessee of the inbound service (B party). The A party revenues are affected by substitution to other voice products such as mobiles and the Internet. B party revenues are affected by increased customer competition impacting prices.

Revenue from inbound calling products remained steady at A$449 million in fiscal 2006 mainly due to an increase in Priority(R) One3 and 1300 A Party products offset by Priority(R) One3 and 1300 B Party products.

Inbound calling products


	Year Ended 30 June
	2006		2005		Change		2006/2005
	(In A $ millions)						(% change)
Inbound calling products revenue		449		449		—		—

B Party minutes (in millions)		2,922		2,773		149		5.4	%
A Party calls (in millions)		1,012		940		72		7.7	%

		3,934		3,713		221		6.0	%


Note: statistical data represents management’s best estimates.

Our overall revenue from PriorityOne3 and 1300 B Party products declined in fiscal 2006 due to very competitive market pressures resulting in lower returns. Minutes of use and services in operation have actually increased in this category of calls, but large customers are being won or retained at lower prices resulting in reduced revenues. This is offset by higher call volumes on our Priority(R) One3 and 1300 A Party products after calls from our ISDN and Siteline products to these numbers were reclassified in the current year to inbound calling. This amounted to A$13 million in fiscal 2006. There is also an increasing trend for calls to these numbers from mobile phones which are recorded as mobiles revenue.

Revenue from Freecall(TM) 1800 has declined mainly due to intense price competition leading to reduced price and a declining customer base. Our other inbound calling products, such as Enterprise Speech Solutions, have continued to grow strongly throughout fiscal 2006.

Solutions management

Our operating revenue from solutions management is derived from managing all or part of a customer’s communications and IT solutions and services covering:

	•		managed network services, which is network based voice and data products, including IP based networks and IP telephony, CPE management, radio networks and new wireless based technologies;

	•		IT services, which is managed customer infrastructure (e.g. desktop and end user devices), managed storage and security services, in addition to hosting and application development. IT services also includes the provision of professional consulting and deployment services; and

	•		other refers to our eBusiness solutions and global data centre.

Solutions management


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Managed network services		337		337		—			—
IT services		632		572		60			10.5	%
Other		20		22		(2	)		(9.1	)%

Solutions management revenue		989		931		58			6.2	%

In fiscal 2006, solutions management revenue increased 6.2% or A$58 million mainly due to increases in IT services.

IT services grew by 10.5% or A$60 million in the current year, mainly due to our wholly owned entity KAZ winning major contracts, one of which was a five-year contract for an estimated A$200 million to provide the Department of Defence’s Central Office IT Infrastructure Support Services. Fiscal 2006 IT services revenue also included an additional A$12 million due to a full 12 months of results for KAZ compared to only 11 months in the previous fiscal year. Managed professional services revenue also contributed to the growth in IT services, with an increase of A$16 million due mainly to increased project work on an existing contract.

In addition to increases in IT services, managed data, managed WAN and managed radio, which are in ’managed network services’, all contributed positively to the revenue growth due mainly to increases in a number of contracts. Managed voice however offset this growth in revenue, declining due to a reduction in contracts in this area.

Offshore controlled entities

The offshore controlled entities category relates to our offshore subsidiaries, which provide a variety of products and services within their various regions of operation. Included in this category are the following significant offshore controlled entities:

	•		CSLNW, which generates its revenues from the Hong Kong mobiles market. CSLNW was formerly known as CSL. In March 2006, this entity merged with Hong Kong based mobile company New World PCS. As result of this transaction, we now own 76.4% of the merged entity;

	•		TelstraClear, which generates its revenues from providing full integrated services to the New Zealand market; and

	•		other offshore controlled entities predominantly in the Telstra Enterprise and Government segment, which mainly generate revenues from the provision of global communication solutions to multinational corporations through our interests in the United Kingdom, Asia and North America.

Offshore controlled entities — revenue


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
CSL New World		830		734		96			13.1	%
TelstraClear		620		625		(5	)		(0.8	)%
Other offshore controlled entities		295		252		43			17.1	%

Total offshore controlled entities revenue		1,745		1,611		134			8.3	%

Consolidated revenue from offshore controlled entities increased in fiscal 2006 by 8.3% to A$1,745 million primarily due to the following factors:

	•		CSLNW experienced revenue growth across the majority of its revenue streams, except for local voice which continues to be impacted by sustained pricing pressure. The merger between CSL and New World PCS resulted in increased revenue in the current year of A$66 million. Excluding this component, revenue has grown in both prepaid and postpaid categories after increased subscribers and handset revenue due to recent promotional activity. Revenue growth was also assisted by a A$11 million favourable foreign exchange rate impact.

	•		TelstraClear experienced a net decline in revenue of 0.8% to A$620 million. There were significant declines in calling revenues largely due to price erosion and pricing plan reductions in the Internet and IP business due to heavy retail competition. Revenue was also negatively impacted by the NZ$/A$ exchange rate, causing a A$22 million decline. These declines were mostly offset by strong growth in the business sector and an increased contribution from a full year’s ownership of the Sytec business. There were also a number of one-off implementation revenues from the provision of new and/or additional services to a number of key customers.

	•		The 17.1% growth in revenue to A$295 million from other offshore controlled entities was mainly due to growth in Europe, Asia and the US. In Europe, the inclusion of a full 12 months ownership of PSINet contributed A$15 million in revenue growth. Both Telstra Singapore and Telstra Hong Kong started to grow revenue by selling the full suite of international data products in the Asian market. KAZ also exhibited strong growth in the same region due to the synergies gained by combining this business with our telecommunications business in one bundle to customers. Growth in the US of A$15 million was mainly the result of a major contract to provide telecommunications solutions over an integrated global IP-based network, contributing A$12 million to revenue growth.

For further detail regarding our major off shore subsidiaries CSLNW and TelstraClear refer to the business summaries that follow.

Payphones


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Payphone revenue		104		121		(17	)		(14.0	)%

Telstra owned and operated payphones (thousands)		30		31		(1	)		(3.2	)%
Privately owned and operated payphones (thousands)		27		30		(3	)		(10.0	)%

Total number of payphones (in thousands)		57		61		(4	)		(6.6	)%


Note: statistical data represents management’s best estimates.

Payphone revenue declined by 14.0% to A$104 million in fiscal 2006, impacted by substitution to other products, particularly prepaid mobile phones and competitors’ prepaid calling cards. As a result of this migration, we removed a number of low usage phones resulting in a 3.2% reduction in the number of Telstra owned and operated payphones.

There has also been a decline in privately owned and operated payphones of 10.0%, as private operators removed their support for unprofitable payphones. Telstra owned and operated payphones also reduced due to the loss of some payphones to private operators and lower demand in new growth locations.

Pay TV bundling


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Pay TV Bundling revenue		320		263		57			21.7	%

FOXTEL Pay TV Bundling subscribers (thousands)		292		280		12			4.3	%
Austar Pay TV Bundling subscribers (thousands)		51		55		(4	)		(7.3	)%

Total Pay TV Bundling subscribers (thousands)		343		335		8			2.4	%


Note: statistical data represents management’s best estimates.

Total pay TV bundling revenue grew by A$57 million, comprising increases in revenue for FOXTEL of A$46 million and AUSTAR of A$11 million.

FOXTEL bundled services revenue grew by 20.0% or A$46 million during fiscal 2006 after an increase in subscribers and higher revenue per user. As customers have migrated from analogue to digital services, discount plans have been phased out and customers are upgrading their packages. It is intended that full customer migration will be completed by March 2007. The growth in subscribers was driven by low price installation/upgrade offers made to the market along with the FOXTEL 10th Anniversary promotion, which targeted both new customers and existing customers through digital migration. FOXTEL IQ, an interactive digital feature available to all FOXTEL digital subscribers also performed well, aided by a low installation price point campaign. At 30 June 2006, analogue services in operation represented 14.7% of FOXTEL bundled customers compared with 36.8% at the start of the year.

Austar bundled services revenue growth for fiscal 2006 of A$11 million was driven by an increase in the average revenue per user after a change in the subscription offerings. Subscriptions, however, fell due to lower advertising activity, which resulted in slower sales rates while the disconnection rate remained consistent.

Customer premises equipment

Year Ended 30 June

2006

2005

Change

2006/2005

(In A $ millions)

(% change)

Customer premises equipment revenue

274

231

18.6

CPE revenue increased by 18.6% to A$274 million during fiscal 2006 mainly driven by strong growth in the sales of PBX equipment and communication packages known as Telstra Business Systems (TBS) packages. TBS sales more than tripled in the current fiscal year due to an expansion of the vendor base combined with new carriage pricing plans and investment made in support tools that enabled improved processing and reduced transaction time.

The current year’s revenue also includes a full 12 months of operations for Telstra Business Systems Pty Ltd (formerly known as Damovo (Australia) Pty Ltd) as it was acquired September 2004. We also acquired Converged Networks Pty Ltd, Western Australia’s largest CPE dealer in April 2006.

This growth was partially offset by an A$11 million decline in first phones/extensions due to continued substitution of rental phones due to sales of CPE and mobiles.

Other sales and services


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Telstra information and connection services		120		134		(14	)		(10.4	)%
Customnet and spectrum		110		112		(2	)		(1.8	)%
Virtual private network		17		15		2			13.3	%
Card services		50		59		(9	)		(15.3	)%
Security products		34		33		1			3.0	%
HFC cable usage		84		65		19			29.2	%
Conferlink		48		47		1			2.1	%
Commercial and recoverable works		57		58		(1	)		(1.7	)%
External construction		108		85		23			27.1	%
Other		131		133		(2	)		(1.5	)%

Total other sales and services revenue		759		741		18			2.4	%

In fiscal 2006, operating revenue from other sales and services increased by 2.4% or A$18 million mainly due to HFC cable usage and external construction revenue.

HFC cable usage includes revenue received from FOXTEL for carriage services, cable installations and service calls. Revenue increased by A$19 million this year due to FOXTEL promotional activity which resulted in an increase in services in operation. There was also a scheduled FOXTEL contract rate increase during the period.

External construction, which delivers communications network infrastructure solutions, had revenue growth of 27.1% or A$23 million in fiscal 2006. This growth can be mainly attributed to increased activity relating to the construction of the 3G 2100 network in conjunction with our joint venture partner, Hutchison.

The above increases were partially offset by a A$14 million decline in information and connection services revenue as a result of lower call volumes. Also, card services declined by 15.3% or A$9 million. This was due to products such as Homelink 1800 and telecard being mature products and impacted by substitution to more cost effective convenient products such as pre-paid cards and mobiles.

Other income


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A $ millions)									(% change)
Proceeds from sale of property, plant and equipment		46			51			(5	)		(9.8	)%
Proceeds from sale of investments		93			252			(159	)		(63.1	)%

Asset/investment sales		139			303			(164	)		(54.1	)%

Cost of property, plant & equipment		(23	)		(42	)		19			(45.2	)%
Cost of investment		(31	)		(173	)		142			(82.1	)%

Cost of asset/investment sale		(54	)		(215	)		161			(74.9	)%

Net gain/loss on assets/investment sale		85			88			(3	)		(3.4	)%

USO Levy Receipts		58			63			(5	)		(7.9	)%
Government subsidies		135			71			64			90.1	%
Miscellaneous income		50			39			11			28.2	%

Other income		243			173			70			40.5	%

Total other income		328			261			67			25.7	%

In fiscal 2006, total other income increased by 25.7% or A$67 million.

In fiscal 2006 proceeds from sale of investments of A$93 million were due mainly to the sale of Xantic B.V and Fundi Software Pty Ltd, with Xantic yielding a net gain of approximately A$58 million. In fiscal 2005, proceeds from the sale of our investments was mainly made up of the sale of our interests in Intelsat Limited, Infonet Services Corporation and the redemption of the convertible note issued by PCCW.

The majority of the growth in government subsidy revenue was sourced from Higher Bandwidth Incentive Scheme (HiBIS) receipts and the broadband Connect Australia scheme, which can be attributed to an increase in the provision of broadband services to regional, rural and remote areas of Australia. Refer to the Internet and IP products section for further details regarding HiBIS.

Operating expenses


	Year Ended 30 June
	2006			2005		Change			2006/2005
	(In A $ millions)								(% change)
Labour expense		4,364			3,858		506			13.1	%
Goods and services purchased		4,730			4,211		519			12.3	%
Other expenses		4,427			3,815		612			16.0	%

		13,521			11,884		1,637			13.8	%

Share of net (gain)/loss from jointly controlled and associated entities		(5	)		94		(99	)		(105.3	)%

		13,516			11,978		1,538			12.8	%
Depreciation and amortization		4,087			3,529		558			15.8	%

Total operating expenses		17,603			15,507		2,096			13.5	%

In fiscal 2006, our total operating expenses (including share of net (gain)/loss from jointly controlled and associated entities) was A$17,603 million, compared with A$15,507 million in fiscal 2005. One of the major drivers of the 13.5% increase was the inclusion of a restructuring and redundancy provision of A$427 million, which has impacted all three of the expense categories. Our operating expenses have been impacted by the following factors:

	•		costs associated with transformational initiatives and certain project write-offs;

	•		increased costs associated with network rehabilitation;

	•		higher redundancy expense as a result of reduced staff numbers as efficiencies have been implemented;

	•		higher goods and services purchased costs due to increased marketing campaign activities and new offers aiming to stimulate sales growth in a range of our products and services;

	•		the benefit of ongoing cost control programs, including the consolidation of vendors and IT systems;

	•		growth in our communications plant asset base, along with the impact of a service life review of our asset base to align with the transformation program, has increased our depreciation and amortisation expense during fiscal 2006; and

	•		the consolidation of additional operating expenses in fiscal 2006 from our acquisition activity, including the merger between CSL and New World PCS, as well as the inclusion of a full fiscal year of expenses relating to entities we acquired in fiscal 2005. These included Universal Publishers from December 2004, Telstra Business Systems (formerly Damovo (Australia) Pty Ltd) from September 2004, PSINet from August 2004, and KAZ from July 2004.

Labour expense

	•		salary, wages and related on-costs, including superannuation costs, share based payments, workers’ compensation, leave entitlements and payroll tax;

	•		costs of engaging contractor labour and agency costs; and

	•		restructuring costs, including redundancy expenses.

In the table below, our domestic full time employees include domestic full time staff, domestic fixed term contracted staff and expatriate staff in overseas subsidiary entities. Domestic full time employees do not include employees in our offshore subsidiary entities, or casual and part time employees. Our full time employees and equivalents include the total of our domestic and offshore full time employees, and casual and part time employees measured on an equivalent basis. Our total workforce includes domestic and offshore full time, casual and part time employees as well as contractors and staff employed through agency arrangements measured on an equivalent basis.

Labour expense


	Year Ended 30 June
	2006			2005		Change			2006/2005
	(In A $ millions)								(% change)
Labour expense		4,364			3,858		506			13.1	%

Domestic full time employees (whole numbers)(1)		37,599			39,680		(2,081	)		(5.2	)%
Full-time employees and employed equivalents (whole numbers)(2)		44,452			46,227		(1,775	)		(3.8	)%
Total workforce, including contractors and agency staff (whole numbers)(3)		49,443			52,705		(3,262	)		(6.2	)%
Reduction in total workforce in fiscal 2006		(3,262	)
Reduction in total workforce in fiscal 2006 excluding impact of New World merger		(3,859	)


Note: statistical data represents management’s best estimates

(1)		Excludes offshore, casual and part time employees.

(2)		Includes all domestic and offshore employees, including those of our subsidiary entities.


(3)		Includes all domestic and offshore employees, including subsidiary entities as well as contractors and agency staff.

During fiscal 2006, our total workforce decreased by 6.2% or 3,262 full time equivalent staff, contractors and agency staff. This decrease is predominantly due to specific efforts across the business to rationalise the number of people working for the Telstra Group as part of our business transformation initiatives. During the year, CSL merged with New World PCS, which resulted in the Telstra Group acquiring 597 new employees. Excluding the impact of the New World PCS merger on staff numbers, our total full time equivalent staff, contractors and agency staff reduced by 3,859 full time equivalent staff.

We incurred redundancy expenses of A$348 million in fiscal 2006 compared with A$91 million in fiscal 2005. The higher redundancy expense reflects the implementation of cost control initiatives to improve the efficiency of our operational structure. In addition, a further A$186 million of redundancy expense is included as part of a restructuring and redundancy provision as at year end to account for redundancies expected to occur as part of the restructuring over the next two years.

Our labour expense increased by 13.1% in fiscal 2006 mainly due to:

	•		the increased levels of redundancy and the redundancy provision referred to above;

	•		salary increases averaging between 2% and 4% for employees as specified in our enterprise agreements and as per the normal annual salary review process; and

	•		a full year of ownership of several subsidiaries acquired part way through fiscal 2005 (such as KAZ and Telstra Business Systems), and acquisition of new entities such as the New World Mobility group and a controlling interest in Adstream.

The above increases in labour expense were partially offset by cost reductions associated with the 6.2% decrease in the number of employed staff, contractors and agency staff.

Excluding the impact of redundancy expense, labour expense increased by 1.7%.

Based on the latest detailed actuarial report provided on the financial position of Telstra Super as at 30 June 2003, we have reported that a surplus in this superannuation fund continues to exist. In accordance with the recommendations within the actuarial investigation, we were not expected to, and did not make employer contributions to Telstra Super during fiscal 2006 and fiscal 2005. The detailed actuarial report is undertaken every three years. The next detailed actuarial investigation of Telstra Super is due to be completed by 30 June 2007 based on the scheme’s financial position as at 30 June 2006.

As at 30 June 2006, the vested benefits index (the ratio of fund assets to members’ vested benefits) of the defined benefit divisions of Telstra Super was 115%. Our contributions to Telstra Super will recommence when the vested benefit index of the defined benefit divisions falls to 103%. The continuance of our contribution holiday is dependent on the performance of the fund and the level of contributions required to meet employer obligations, and we are monitoring the situation on a monthly basis. Based on the latest actuarial advice, we do not expect to make any contributions to Telstra Super during fiscal 2007.

In fiscal 2006, we recognised A$185 million of pension costs in our labour expenses compared with A$203 million in fiscal 2005. This expense is due to the relevant A-IFRS standard requiring us to recognise the actuarially determined movement in our defined benefit pension plans in our operating results.

Goods and services purchased

Goods and services purchased includes core costs of our business that vary according to business activity. The largest component of this expense category is network payments, which are payments made to other carriers to terminate international and domestic outgoing calls and international transit traffic. Other significant items include the costs of mobile handsets and Internet modems, costs of mobile sales (including subsidy costs, usage commissions and dealer incentives), managed services costs (including service contractors, sub-contractors and leases), service fees (predominantly in relation to our pay television services) and paper purchases and printing costs.

Goods and services purchased


	Year Ended 30 June
	2006		2005		Change			2006/2005
	(In A $ millions)							(% change)
Cost of goods sold		917		726		191			26.3	%
Usage of commissions		281		289		(8	)		(2.8	)%
Handset subsidies		504		424		80			18.9	%
Network payments		2,002		1,904		98			5.1	%
Service fees		319		273		46			16.8	%
Managed Services		242		190		52			27.4	%
Dealer performance commissions		113		41		72			175.6	%
Paper purchases and printing		147		159		(12	)		(7.5	)%
Other		205		205		—			—

Total goods and services purchased		4,730		4,211		519			12.3	%

Our goods and services purchased increased by 12.3% to A$4,730 million in fiscal 2006 mainly due to higher cost of goods sold, mobile handset subsidies, network payments and dealer performance commissions. Increases were experienced across most categories within goods and services purchased except for usage commissions and paper costs. Additionally, a restructuring provision of A$54 million has been raised in relation to the replacement of EVDO cards and additional customer and dealer costs associated with the shut down of our CDMA network in the future.

Our goods and services purchased increased by 12.3% to A$4,730 million in fiscal 2006 due to the following factors:

	•		the inclusion of the full financial year of expenses relating to our subsidiary entities acquired part way through the prior fiscal year, including KAZ, Telstra Business Systems (formerly Damovo (Australia) Pty Ltd), PSINet and Universal Publishers. In fiscal 2006, CSL merged with New World PCS, the consolidation of which has caused an increase of goods and services purchased expense of A$29 million;

	•		a rise in cost of goods sold mainly due to higher sales volumes for mobile handsets, primarily driven by increased market campaign activity, strong BigPond(R) broadband demand, costs of supporting the Commonwealth Games, together with sales growth in other product categories such as EVDO, CPE for small business customers, Managed WAN equipment and voice related products. Also contributing to the increase are payments made to Brightstar, in accordance with our procurement agreement with them to centrally source wireless devices from global suppliers with a view to achieving cost savings. Inclusive of these payments, the Brightstar arrangement has provided net savings of approximately A$70 million, primarily relating to handset costs;

	•		an increase in mobile handset subsidies, attributable to a rise in the take up of handsets on subsidised plans as well as higher average subsidies offered, especially following a significant campaign undertaken in the last quarter, whereby a greater range of handsets are being subsidised. As a result, our average subscriber acquisition cost has increased from A$120 to A$137. In addition, the CSLNW has implemented a more aggressive handset subsidy policy in order to increase handset sales. In fiscal 2006, we have also made an A-IFRS accounting policy change to expense handset subsidies as incurred, as opposed to previously deferring and amortising them over the contract period. The prior year comparative figure has been adjusted to allow a like for like comparison;

	•		network payments continued to grow due to volume increases of domestic mobile and SMS traffic terminating on other carriers’ networks, partially offset by a reduction in the average mobile terminating rate. Additionally, expansion and growth in our UK, USA and Asian operations, which drove both growth in our offshore outpayments and higher outbound roaming revenue, partly offset by a reduction of costs through routing traffic to overseas carriers that offer lower prices and favourable foreign exchange variations in our New Zealand operations. Additional Network Access Charges were also incurred as a result of our 3G 2100 partnership activities with Hutchison;

	•		service fees increased by 16.8% to A$319 million in fiscal 2006 led by a rise in bundling of pay TV services due to growth in bundled FOXTEL subscribers;

	•		managed services costs grew by 27.4% to A$242 million in fiscal 2006, mainly attributable to increased third party maintenance and service costs for the support of customer contracts. There are also a number of reclassifications from other expenses such as service contracts, service fees and consultancy amounting to A$26 million. Offsetting these increases are decreases due to lease renegotiations;

	•		increase in dealer performance commissions, mainly attributable to increased proactive sales activity in our personal calling program. New dealer payments resulting from the implementation of the new dealer remuneration model have also contributed to the growth; and

	•		an increase in other goods and services purchased due to the inclusion of a restructuring provision of A$54 million in fiscal 2006, offset by a decrease in commercial project payments as described below.

These increases were partially offset by a decrease in other goods and services expenses such as usage commissions, commercial project payments and paper purchases and printing costs.

	•		usage commissions decreased by A$8 million mainly as a result of the discontinuation of commission payments to Keycorp following our acquisition of their Transaction Network Solutions business during the year. This was partly offset by increased dealer commissions mainly associated with non-mobile related products, including BigPond(R) products;

	•		commercial project payments declined from A$59 million in fiscal 2005 to A$34 million in fiscal 2006 mainly relating to a lower level of deferral and amortisation of its basic access installation costs. The expense fluctuates in accordance with our installations over the five prior years. An equivalent amount is amortised into revenue and hence there is no EBIT impact. Also contributing to the decline was a change in the line usage billing arrangement for outsourced faxstream costs; and

	•		paper purchase and printing costs decreased from A$159 million in fiscal 2005 to A$147 million in fiscal 2006 due to savings achieved through printing contract discounts, together with a reclassification of expenses into cost of goods sold. There was also a reduction in printing costs relating to superannuation industry contracts after a push towards the use of online notifications.

Other expenses


	Year Ended 30 June
	2006		2005			Change			2006/2005
	(In A $ millions)								(% change)
Property and IT rental expense		559		572			(13	)		(2.3	)%
Net foreign currency conversion losses/(gains)		2		(40	)		42			(105.0	)%
Audit fees		8		7			1			14.3	%
Service contracts and other agreements		1,836		1,556			280			18.0	%
Promotion and advertising		356		330			26			7.9	%
General and administration		793		806			(13	)		(1.6	)%
Other operating expenses		544		394			150			38.1	%
Impairment and diminution expenses		329		190			139			73.2	%

Total other expenses		4,427		3,815			612			16.0	%

Our other expenses were A$4,427 million in fiscal 2006 and A$3,815 million in fiscal 2005, representing a 16.0% increase year on year. A restructuring provision of A$137 million was raised at year end mainly relating to property rationalisation, cancellation of server leases, the decommissioning of certain IT platforms and operational and business support systems and related stock obsolescence. Excluding the impact of the provision, our total other expenses grew by 12.5% to A$4,290 million.

Our other expenses in fiscal 2006 include an additional A$17 million of expenses attributable to the merger of CSL with New World PCS during the period. In addition, a full twelve months of expenses have been included in fiscal 2006 for KAZ, PSINet, Universal Publishers, and Telstra Business Systems (formerly Damovo (Australia) Pty Ltd), which were acquired part way through fiscal 2005.

The movement in the significant categories of other expenses is discussed below.

The largest component within this expense category is service contracts and other agreements. This expense increased from A$1,556 million in fiscal 2005 to A$1,836 million in fiscal 2006, mainly driven by the following factors:

	•		increased network maintenance and rehabilitation activity;

	•		costs associated with transformational initiatives;

	•		maintenance of the existing 3G 2100 MHZ network and the operational expenditure relating to the construction of our new NEXT G(TM) wireless network;

	•		volume based increases including installations for digital pay television, as well as increased activations and fault rectifications for BigPond(R) products due to product growth; and

	•		a rise in consultancy costs associated with our transformation strategy and increased market research activity due to a focus on understanding customer needs.

The above increases are partly offset by savings from the renegotiation of a major vendor contract, a reduction in mainframe server lease charges as well as the completion of consulting work from fiscal 2005.

General and administration expenses decreased from A$806 million in fiscal 2005 to A$793 million in fiscal 2006. This was driven by lower IT costs resulting from savings achieved in repairs and maintenance through continued infrastructure consolidation. The closure of an IT system and the decommissioning of an IT platform have also contributed to reduced IT related costs. Discretionary costs such as seminars and conferences, travel and entertainment costs have decreased in fiscal 2006 as a result of a strong focus on cost reduction. Legal costs have however risen in the year due to increased litigation and other legal work, especially around the C7 case (refer to note 27 of the annual report for further details), operational separation issues and various project initiatives.

Other operating expenses increased from A$394 million to A$544 million during fiscal 2006 primarily due to the provision for restructuring of A$105 million raised in this category. Excluding the impact of the provision, our other operating expenses increased by A$45 million. This was largely driven by lower construction activity resulting in higher operations and maintenance activity being expensed.

Property and IT rental expense decreased by 2.3% to A$559 million during fiscal 2006, mainly due to reduced PC leasing costs driven through a consolidation of server leases, which has enabled us to negotiate contracts at a more competitive rate. The decommissioning of an old IT platform and the consolidation of various vendor contracts have also contributed to the decrease in IT rental costs.

Our promotion and advertising costs increased by 7.9% to A$356 million during fiscal 2006 mainly due to increased spend during the Commonwealth Games, as well as more marketing activity in the face of increased competition and efforts to stimulate revenue.

Our impairment and diminution expense has increased from A$190 million in fiscal 2005 to A$329 million in fiscal 2006, mainly attributable to the retirement of a number of IT assets and increased costs associated with the cancellation of partially completed capital projects after a review of project direction as part of our transformation strategy. Also included in fiscal 2006 was a provision relating to business restructure of A$32 million. Our inventory write down expense also rose due to increased write-offs in our construction business, as well as the impact of our active promotion of mobile handsets, causing slow moving stock to be written off more quickly. This increase was partly offset by the decrease in our bad and doubtful debts, which decreased from A$150 million in fiscal 2005 to A$139 million in fiscal 2006. Improved credit management performance has led to lower provision requirements and write-offs, as well as fewer payments to external debt collection agents.

Net foreign currency conversion costs represents the remaining foreign currency exposure after taking into account our hedging activities. The loss of A$2 million in fiscal 2006 compared with a gain of A$40 million in fiscal 2005 is mainly due to an A-IFRS accounting adjustment relating to the REACH capacity prepayment, which was processed in fiscal 2005.

Share of net (gain)/loss from jointly controlled and associated entities


	Year Ended 30 June
	2006			2005		Change			2006/2005
	(In A $ millions)								(% change)
Share of net (gain)/loss from jointly controlled and associated entities		(5	)		94		(99	)		(105.3	)%

Our share of net (gain)/loss from jointly controlled and associated entities includes our share of both profits and losses from equity accounted investments.

In fiscal 2005, we entered into an agreement with our joint venture entity, REACH, which included a commitment to fund half of REACH’s committed capital expenditure for a period until 2022. Under A-IFRS, this transaction was deemed to be part of our investment in REACH and resulted in equity accounted losses being recognised in fiscal 2005. REACH contributed A$102 million in equity accounted losses in fiscal 2005.

The current year equity accounting gain has arisen after improved performance from our joint venture entity Xantic prior to its sale.

Depreciation and amortisation

Our depreciation and amortisation expense remains a major component of our cost structure, reflecting our expenditure on capital items.

Depreciation and amortisation


	Year Ended 30 June
	2006		2005		Change		2006/2005
	(In A $ millions)						(% change)
Depreciation		3,183		2,876		307		10.7	%
Amortisation		904		653		251		38.4	%

Total depreciation and amortization		4,087		3,529		558		15.8	%

Our depreciation and amortisation expense has risen by 15.8% to A$4,087 million in fiscal 2006. During fiscal 2006, we have undertaken a strategic review of the service lives of our assets as part of the transformation strategy. As a result, we have accelerated depreciation and amortisation by A$422 million mainly in relation to adjusting service lives of the CDMA network, our switching systems, certain business and operational support systems and related software.

Excluding the impact of the accelerated depreciation, our depreciation and amortisation grew by 3.9% to A$3,665 million, mainly attributable to:

	•		growth in our communications plant asset base, which is consistent with our level of capital expenditure over recent years; and

	•		consolidation of A$16 million of depreciation and amortisation expenses from our newly merged entity, CSLNW, along with the inclusion of a full 12 months of depreciation and amortisation expenses relating to entities acquired in fiscal 2005.

Net finance costs


	Year Ended 30 June
	2006			2005			Change		2006/2005
	(In A $ millions)								(% change)
Finance costs		1,002			963			39		4.0	%
Finance income		(66	)		(83	)		17		(20.5	)%

Net finance costs		936			880			56		6.4	%

Our borrowing costs are influenced by:

	•		our debt level;

	•		interest rates;

	•		our debt maturity profile;

	•		our interest payment profile; and

	•		our level of cash assets (affects net debt).

In fiscal 2006, our net debt levels increased from A$11,771 million to A$13,057 million. This increase was driven by our cash requirements to fund the payment of the fiscal 2005 final dividend and the fiscal 2006 interim dividend, both of which included a 14c per share ordinary dividend and a 6c per share special dividend. This level of dividend payments is higher than in previous periods and hence, required an increase in our borrowing levels.

The higher level of net debt has driven an increase in our net finance costs despite the fact that our net cost of debt has declined marginally during the year. The reason for the decline in average cost of debt is that long term bonds which were issued at historically high interest rates are maturing and being refinanced at the current, comparatively lower, interest rates.

Income tax expense


	Year Ended 30 June
	2006			2005			Change			2006/2005
Income Tax Expense		1,380			1,746			(366	)		(21.0	)%

Effective Tax Rate		30.3	%		28.8	%		—			1.5	%

In fiscal 2006, our income tax expense decreased by 21.0% to A$1,380 million. The primary driver of the reduction in tax expense is lower profits for the year compared to fiscal 2005.

In fiscal 2006, the effective tax rate increased to 30.3% compared with the effective tax rate of 28.8% in fiscal 2005. The higher effective tax rate is due to a change in the taxation adjustments for items that have different treatments for accounting and taxation purposes, such as equity accounted FOXTEL losses and the depreciation of certain items of plant and equipment. In addition, the current year tax expense includes an amount for under provision of tax in the prior year that is A$34 million higher than the amount included in fiscal 2005 for under provision in fiscal 2004.

Major subsidiaries — financial summaries

Below is a summary of the major reporting lines for our three largest subsidiaries: Sensis, TelstraClear and CSLNW. This information is in addition to the product analysis previously provided in the document and is intended to show these businesses as stand alone entities.

Sensis financial summary


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A $ millions)									(% change)
Sales revenue		1,826			1,708			118			6.9	%
Total income		1,827			1,708			119			7.0	%
Total expenses		(917	)		(863	)		(54	)		6.3	%
EBITDA		1,001			908			92			10.2	%
EBIT		910			845			65			7.7	%
CAPEX		100			83			17			20.5	%
EBITDA margin		54.8	%		53.2	%		—			1.6	%

Amounts included for Sensis represent the contribution included in Telstra’s consolidated result.

We are a leading provider of advertising and search services through our advertising business Sensis and its respective subsidiaries. Sensis provides advertising and local search solutions through a print, online, voice, wireless and satellite navigation network.

The 6.9% increase in sales revenue to A$1,826 million during fiscal 2006 has primarily been driven by advertising and directories revenue as described in the Advertising and Directories product discussion. The growth in this area has been driven by good performance in White Pages and Yellow print and online. The inclusion of acquired entities in fiscal 2006 has also contributed to growth in the current year.

Operating expenses increased by 6.3% due mainly to the following:

	•		Labour expenses grew by A$18 million during fiscal 2006 due to organic growth of the workforce, redundancy costs and a A$10 million write back of a deferred expense provision.

	•		Cost of goods sold increased by A$14 million after the inclusion of a full 12 months of results from Universal Publishers acquired mid way through fiscal 2005; and

	•		Increased depreciation and amortisation expense by A$27 million after commissioning new software, the inclusion of amortisation for Universal Publishers and Adstream and the revision of certain software service lives as part of our transformation strategy.

Cost management and growing yields and margins in print and online led to underlying EBITDA growth of 10.2% in fiscal 2006.

CSL New World Mobility Group financial summary

In February 2001, we acquired a 60% ownership interest in CSL. We paid A$3,085 million, including incidental acquisition costs, to acquire this controlling interest. In June 2002, we acquired the remaining 40% ownership interest in CSL as part of our redemption of a convertible note from PCCW. In March 2006, we merged the CSL entity with New World PCS to form CSLNW. This transaction involved us exchanging a 23.6% share in CSL and receiving a controlling interest in the merged entity of 76.4%.

CSLNW operates in the highly competitive Hong Kong mobile market and has delivered revenue growth in fiscal 2006 despite a difficult operating environment, characterised by significant market competition and local voice price erosion. CSL and New World PCS have retained their own brandings as they target different market segments. CSL remains Hong Kong’s premium provider of mobile voice and data services while New World PCS targets value conscious customers with a low cost business model. The merged entity provides a much broader customer base for growth.

CSL New World financial summary


	Year Ended 30 June									Year Ended 30 June
	2006			2005			Change			2006			2005			Change
	A$m			A$m			%			HK$m			HK$m			%
Total income		833			735			13.3	%		4,831			4,308			12.1	%
Total expense		(757	)		(648	)		16.8	%		(4,145	)		(3,583	)		15.7	%
EBITDA		240			217			10.6	%		1,390			1,272			9.3	%
EBIT		77			87			(11.5	)%		686			725			(5.4	)%
CAPEX		98			128			(23.4	)%		568			755			(24.8	)%
EBITDA margin		28.8	%		29.5	%		(0.7	)%		28.8	%		29.5	%		(0.7	)%

Note: Amounts presented in HK$ have been prepared in accordance with A-IFRS.

Amounts presented in A$ represent amounts included in our consolidated result including additional depreciation and amortisation arising from consolidation fair value adjustments.

Amounts include three months of New World PCS in fiscal 2006.

Total income increased by 12.1% or HK$523 million in fiscal 2006. The majority of the increase resulted from the inclusion of the New World PCS business from March 2006. This resulted in an 8.7% increase in total income year on year. The remaining revenue growth was driven by rising data, international voice, and prepaid revenues offset by a decline in local voice revenues after sustained pressure on prices. Mobile handset revenue also increased after recent handset promotions.

Total operating expenses increased by 15.7% mainly due to the following:

	•		the incorporation of costs after the merger with New World PCS;

	•		increased subsidies as part of heightened promotional activity to drive sales; and

	•		higher offshore outpayments associated with higher international voice revenues.

Depreciation and amortisation expense increased as CSLNW is now carrying higher network assets due to the roll out of its 3G network. EBITDA increased by 9.3% or HK$118 million while EBIT decreased by 5.4% or HK$39 million due to the impact of higher depreciation.

CSLNW continues to enhance its 3G network and promote 3G services through the deployment of pioneering technology and innovative applications. In February 2006, we announced the launch of Hong Kong’s first 3G Mobile TV service enabling customers to enjoy a variety of news and “infotainment” stations.

TelstraClear financial summary

TelstraClear, the second largest full service carrier in New Zealand, has been operating in its current form since December 2001. In December 2001, we merged our 50% owned joint venture, TelstraSaturn and CLEAR Communications, to form TelstraClear. As part of this transaction, we acquired an additional 8.4% interest in the merged entity and began the consolidation of 58.4% of TelstraClear’s results. In April 2003, we acquired the remaining 41.6% interest in TelstraClear and consolidated 100% of TelstraClear’s results from that date.

TelstraClear financial summary


	Year Ended 30 June									Year Ended 30 June
	2006			2005			Change			2006			2005			Change
	A$m			A$m			%			HK$m			HK$m			%
Total income		620			625			(0.8	)%		693			676			2.5	%
Total expense		(645	)		(648	)		(0.5	)%		(713	)		(695	)		2.6	%
EBITDA		111			112			(0.9	)%		124			122			1.6	%
EBIT		(25	)		(24	)		4.2	%		(20	)		(19	)		5.3	%
CAPEX		126			115			9.6	%		141			125			12.8	%
EBITDA margin		17.8	%		18.0	%		(0.2	)%		17.9	%		18.0	%		(0.1	)%


Note:		Amounts presented in NZ$ represent the New Zealand business excluding intercompany transactions and have been prepared in accordance with A-IFRS.

Amounts presented in A$ represent amounts included in our consolidated result and include the Australian dollar value of adjustments to consolidate TelstraClear into the Group result.

In fiscal 2006, revenue increased by 2.5% to NZ$693 million for the following reasons:

	•		the full year impact of the national HomePlan offering in the consumer segment; and

	•		the current year included the first whole year of Sytec Resources Limited and its controlled entities (Sytec) revenue after its acquisition in November 2004.

These increases were offset by:

	•		access and call revenue declines in the wholesale and small to medium enterprise segments due to price erosion caused by competition in the market. This was moderated by growth in our customer bases in those segments; and

	•		Internet revenues have declined, particularly in the second half, as reduced pricing plans have impacted yield in the consumer segment.

Total operating expense increased by 2.6% to NZ$713 million due to the following:

	•		an increase in outpayments due to higher revenue; and

	•		a small increase in labour expenses driven by the inclusion of a full year of Sytec costs.

TelstraClear’s acquisition of local ICT service provider, Sytec in November 2004 and its controlled entities was an important step to leverage TelstraClear’s existing service capability and provided growth and opportunities in this segment in fiscal 2006. New Zealand is a strategically important market for our trans-Tasman customers and the combination of TelstraClear and Telstra enables us to provide customers on both sides of the Tasman with seamless communication and IT solutions.

REACH

REACH is primarily focused on meeting the increasing needs of its shareholders, Telstra and PCCW, as well as third party voice and satellite services. We are the premier provider of international voice and satellite services in Asia via the operation and management of the most diverse high-speed network in the region.

In February 2001, we sold our global wholesale business, including certain offshore controlled entities, to REACH in exchange for 50% ownership in REACH.

Since the original transaction, REACH has been operating in a difficult environment. Prices for international voice and data carriage have fallen, but growth in usage has not been sufficient to compensate for the loss in revenue caused by the price reductions. Consequently, we have previously been required to write down our investment, reducing the carrying value to nil. Equity accounting was suspended at that date and remains suspended. As a result, our share of net profits/(losses) in relation to REACH are not booked in the Telstra Group results.

Fiscal 2006 operational performance of the business continued to track according to plan with a focus on consolidation of a new operating model. Data volumes continue to grow strongly and voice business volumes are stable. REACH has also recently signed a memorandum of understanding (MOU) with a consortium of entities to plan and develop a proposal to build an international undersea cable linking South East Asia with the United States of America. In addition, in October 2005, REACH announced the launch of the first stage of its international IP enabled Next Generation Network.

Cash flow


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A$ millions)									(% change)
Receipts from customers		25,229			24,526			703			2.9	%
Payments to suppliers/employees		(14,785	)		(13,848	)		(937	)		6.8	%

Net cash generated by operations		10,444			10,678			(234	)		(2.2	)%
Income tax paid		(1,882	)		(1,718	)		(164	)		9.5	%

Net cash provided by operating activities(1)		8,562			8,960			(398	)		(4.4	)%

Net cash used in investing activities(1) (see table below)		(4,012	)		(3,766	)		(246	)		6.5	%

Operating cash flow less investing cash flow(1)		4,550			5,194			(644	)		(12.4	)%

Movements in borrowings/finance leases		493			1,393			(900	)		(64.6	)%
Employee share loans		24			19			5			26.3	%
Dividends paid		(4,970	)		(4,124	)		(846	)		20.5	%
Share buy-back		—			(756	)		756			—
Finance costs paid		(940	)		(879	)		(61	)		6.9	%
Purchase of shares for employee share plans		(6	)		—			(6	)		—

Net cash used in financing activities(1)		(5,399	)		(4,347	)		(1,052	)		24.2	%

Net increase/(decrease) in cash		(849	)		847			(1,696	)		(200.2	)%


(1)		Due to the implementation of A-IFRS, we have revised the presentation of the cash flow summary and our statutory reported statement of cash flows. This has resulted in some reclassifications between our key cash flow totals (net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities). Consequently, the 2005 comparative totals disclosed for these lines have changed from the amounts disclosed as at 30 June 2005. The most significant change is the reclassification of our finance costs paid from operating into financing, and the reclassification of interest received from operating into investing.

Net cash provided by operating activities

Our primary source of liquidity is cash generated from our operations. Net cash provided by operating activities includes receipts from trade and other receivables, payments to suppliers and employees, income tax paid, and GST received, paid and remitted to the Australian Taxation Office.

During fiscal 2006, net cash provided by operating activities decreased by 4.4% to A$8,562 million. Higher revenue and lower working capital items were offset by higher expense payments. The key drivers of our increased revenue were our mobiles and broadband products. Our higher expense payments were mainly due to increased labour costs, in particular redundancy payments, our variable operating expenditure items that increase with revenue and our service contracts and agreements expenditure.

In addition, our cash paid to the Australian Taxation Office was A$164 million higher in fiscal 2006 than in fiscal 2005 due to a low tax instalment rate requiring us to make a larger final tax payment in respect of fiscal 2005. The final payment in respect of fiscal 2005 was made in fiscal 2006.

Net cash used in investing activities

Net cash used in investing activities represents amounts paid for capital assets and investments, offset by cash receipts from the sale of capital assets and investments, and other cash receipts from our investing activities.

Net cash used in investing activities


	Year Ended 30 June
	2006			2005			Change			2006/2005
	(In A $ millions)									(% change)
Switching		452			338			114			33.7	%
Transmission		426			358			68			19.0	%
Customer access		800			870			(70	)		(8.0	)%
Mobile telecommunications networks		1,043			497			546			109.9	%
International assets		338			279			59			21.1	%
Capitalised software		556			523			33			6.3	%
Specialised network functions		237			291			(54	)		(18.6	)%
Other		340			377			(37	)		(9.8	)%

Operating capital expenditure		4,192			3,533			659			18.7	%
Other intangibles		63			6			57			950.0	%

Capital expenditure before investments		4,255			3,539			716			20.2	%
Add: investment expenditure		48			590			(542	)		(91.9	)%

Capital expenditure and investments		4,303			4,129			174			4.2	%
Sale of capital equipment, investments and other proceeds		(139	)		(244	)		105			(43.0	)%
Proceeds from other investments		(86	)		(76	)		(10	)		13.2	%
Repayment of loans to jointly controlled and associated entities		—			37			(37	)		—
Interest received		(66	)		(78	)		12			(15.4	)%
Dividend received		—			(2	)		2			—

Net cash used in investing activities		4,012			3,766			246			6.5	%

In fiscal 2006, our expenditure on operating capital, intangibles and investments amounted to A$4,303 million, an increase of 4.2% on the previous fiscal year. This growth was driven by our next generation network transformation program, which is part of our ongoing strategy of transforming the business.

The increases in our operating capital expenditure were across most capital expenditure categories, with the exception of minor decreases in customer access and specialised network functions. The drivers of our operating capital expenditure for fiscal 2006 were as follows:

	•		higher domestic switching as a result of our fixed line transformation program, which involves building a new IP core and the next generation ethernet transmission network. Further expenditure was also incurred to cater for increasing demand for broadband ADSL and specialised wideband services;

	•		higher transmission expenditure to support the new NEXT G(TM) wireless network and to provide capacity to support increased broadband demand for digital subscriber line (DSL) technology;

	•		lower expenditure on customer access due to the achievement of operational efficiencies and the use of new IP ADSL technology at a lower unit cost;

	•		significantly higher expenditure on our mobile networks, primarily due to two items: payments to Hutchison amounting to A$312 million for the purchase of a 50% share of its 3G 2100 network, acquired in fiscal 2005 with payments deferred until fiscal 2006 and fiscal 2007; and costs incurred in relation to the roll out of our NEXT G(TM) wireless network. Most of the expenditure incurred on the NEXT G(TM) wireless network relates to installing and updating our base stations to enable them to carry the new network. During fiscal 2006 we installed 3,500 base stations out of an intended long term program in excess of 5,000 base stations;

	•		higher expenditure on international assets, predominantly related to the purchase of additional international transmission capacity to facilitate increased Internet traffic with the United States;

	•		marginally higher expenditure on capitalised software as we embark on a three to five year program of transformation projects. In this early stage of the program we have been through a process of rationalising and streamlining our software applications; and

	•		lower expenditure on specialised network functions due to the postponement of a number of projects as we undergo a review to ensure that each project is aligned to our transformation initiatives. The expenditure we incurred during the year was mainly in relation to improving the reliability and robustness of the network and on improving the IP telephony network infrastructure platform.

Our expenditure on investments and other intangibles amounted to A$111 million in fiscal 2006, compared with A$596 million in fiscal 2005. Investment expenditure was significantly higher in fiscal 2005 predominantly due to our acquisitions of KAZ and PSINet.

In fiscal 2006 our cash payments for investments and intangibles resulted from the following items:

	•		A$56 million for the acquisition of the TNS business assets and customer bases from our associated entity Keycorp Limited;

	•		A$21 million for the acquisition of a further 25% of the issued share capital of Adstream Australia Limited, to increase our shareholding to 58% making Adstream a controlled entity;

	•		A$5 million cash contribution to our joint venture entity FOXTEL; and

	•		other minor investments.

	In fiscal 2005, our cash payments for investments resulted from the following items:

	•		A$340 million for the acquisition of 100% of the issued share capital of KAZ;

	•		A$124 million for the acquisition of 100% of the issued share capital of PSINet;

	•		A$66 million for the acquisition of 100% of the issued share capital of ESA Holding Pty Ltd and its controlled entity Damovo (Australia) Pty Ltd (now known as Telstra Business Systems), and Damovo HK Limited; and

	•		A$46 million for the acquisition of 100% of the issued share capital of Universal Publishers.

Our proceeds from the sale of capital equipment, sale of investments and other proceeds amounted to A$139 million in fiscal 2006, compared with A$244 million in fiscal 2005.

Our cash proceeds from asset sales in fiscal 2006 included the following:

	•		the sale of our share of Xantic B.V. of A$89 million; and

	•		sale of property, plant and equipment amounting to A$50 million.

Our cash proceeds from asset sales in fiscal 2005 included the following:

	•		the sale of our 1.7% shareholding in Intelsat Limited for A$69 million;

	•		proceeds from sale of property, plant and equipment of A$68 million; and

	•		the sale of our 5.3% shareholding in Infonet Services Corporation for A$65 million.

During fiscal 2006 and fiscal 2005 we also received cash from other investment transactions. These included:

	•		receipt of A$42 million as part of the settlement of the merger transaction with New World PCS in fiscal 2006;

	•		receipt of A$18 million from a share buy-back performed by Xantic prior to our disposal of our interest in Xantic in fiscal 2006;

	•		receipt of A$16 million from our associated entity Keycorp, due to a return of capital in fiscal 2006; and

	•		the redemption of the converting note issued by PCCW with a cash consideration of A$76 million in fiscal 2005.

Our capital expenditure in fiscal 2007 is expected to be between A$5,400 million and A$5,700 million. This is significantly higher than our traditional expenditure levels which is largely due to transformational expenditure, including further construction of our new NEXT G(TM) wireless network, and upgrading our customer access network by delivering a new fixed line IP core in the 5 major capital cities.

We also expect to incur future capital expenditure in the following areas:

	•		meeting ongoing customer demand for existing products and services, while ensuring service levels are improved;

	•		developing new products and services to meet the changing needs of our customers;

	•		asset lifecycle management;

	•		further development of our broadband and online infrastructure to meet future growth;

	•		providing telecommunications services to rural and remote areas; and

	•		internal business support infrastructure to ensure continued productivity improvements, operational efficiencies and customer relationship process improvements.

We believe our cash flow from operating activities and available borrowings will be sufficient to meet our anticipated capital expenditure and investment requirements.

Net cash used in financing activities

Our net cash used in financing activities increased in fiscal 2006 by 24.2%.

A significant portion of our net financing cash outflows related to the payment of dividends and, in fiscal 2005, a share buy-back. The amount paid to shareholders in fiscal 2006 was largely consistent with the combined amount paid by way of dividends and the share buy-back in fiscal 2005. In fiscal 2006, shareholders received the payment of two special dividends of A$0.06 each per share, amounting to A$1,492 million, one was the final dividend for fiscal 2005 and the other was the interim dividend for fiscal 2006.

We also receive and repay significant amounts in relation to our borrowings to fund our working capital requirements and other business needs.

The net increase in cash used in financing activities is due to higher dividends and a share buy-back in fiscal 2005, partially offset by a higher net level of proceeds from our debt issuances in fiscal 2005. Our net proceeds from debt were high during fiscal 2005 due to the refinancing of debt which matured during the year and our need to increase our level of liquidity to fund working capital.

During the year, we received A$8,641 million in borrowed funds and repaid A$8,141 million. In fiscal 2005, we received A$7,416 million in borrowed funds and repaid A$6,007 million. This resulted in a net increase in cash of A$1,909 million over the two-year period, which assisted in funding the outflows from the payment of dividends and finance costs.

Balance Sheet


	As at 30 June
	2006		2005		Change			2006/2005
	(In A$ millions)							(% change)
Current assets
Cash and cash equivalents		689		1,548		(859	)		(55.5	)%
Other current assets		4,190		4,034		156			3.9	%

Total current assets		4,879		5,582		(703	)		(12.6	)%

Non current assets
Property, plant and equipment		23,622		22,891		731			3.2	%
Intangibles — goodwill		2,073		2,037		36			1.8	%
Intangibles — other		4,050		4,292		(242	)		(5.6	)%
Other non current assets		1,551		409		1,142			279.2	%

Total non current assets		31,296		29,629		1,667			5.6	%

Total assets		36,175		35,211		964			2.7	%

Current liabilities
Borrowings		1,969		1,507		462			30.7	%
Other current liabilities		5,917		4,905		1,012			20.6	%

Total current liabilities	&nb

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