Slide 1: TelstraClear 12 months on... Operational Briefing
TelstraClear TelstraClear 12 monthson... Operational Briefing Together. A better way. 29November 2002 Together.A better way. TelstraClear)
Slide 2: TelstraClear 12 months on... Operational Briefing
TelstraClear TelstraClear 12 monthson... Operational Briefing Together. A better way. 29November 2002 Together.A better way. TelstraClear)
Slide 3: Disclaimer
DISCLAIMER These slides are provided to analysts and investors as support material for the operational briefing provided by TelstraClear management. The information in these slides has not been subjected to an independent audit and should not berrelied upon by investors in making investment decision
Slide 4: Session One, Two and Three agenda
Session One Session Two ‘Session Three 8:30am — 10: 10:30am ~ 11:40am 11:45am — 12:30pm Telstra's International Solutions Management Information Systems Strategy Customers, Business Networks Strategy & Business oveney Customers, Consumer Summary cesRerarecaetaraet Customers, Wholesale Q8A Access 8A
Slide 5: Telstra's International Strategy
TelstraClear Telstra’s International Strategy Dick Simpson, President Telstra international Chairman TelstraClear Together.A better way. TelstraClear)
Slide 6: Telstra's Strategic Compass
A full service, fully integrated telecommunications company Telstra’s Strategic Compass Together. A better way.
Slide 7: Strategy, tactics and financial criteria
> Strategy > Growth through acquisition and consolidation > Focused primarily on the Asia-Pacific region > Tactics > Countries with acceptable regulatory regimes and sovereign risk > Strong Operational interaction > Build and manage relationships > Financial Criteria > Early EPS returns required
Slide 8: Alternative telecommunications company history
Alternative reitringtum Telecommunications situ R N Ea ‘Company 2000 1990 1996 TelstraClear > Dec 2001 Kiwi Cabl of Gelstra "eo CLEAR eee 1991 1996 attra Telstra?
Slide 9: Then and now: acquisition comparison
aa. dat! Time G > Purchase price NZ$435M > Revenue $168M > Discount to net assets 7 | > EBITDA ($77M) 2 200,000 customers c LEAR | @ 1200staff 2 Revenue NZs399M > $800M debt > 842 staff > 100,000 customers NPAT break even s Harney network, superior a voodnetyork coveiage IMIS: good architecture and
Slide 10: Strategy and challenges
Strateqy Focus on building fong-term value customer base (Corporate, SME, residential, wholesale and trans-Tasman) Scale & critical mass- strong No.2 Create a world-leading challenger Drive operating efficiency and simplify the business Consolidate all levels of staff Rationalise CAPEX | Network rol
Slide 11: Integration Plan: Key Focus Areas
Integration Plan: Key Focus Areas 2 | Growth Revenue f Operating Cost Margin Reduction Key Focus Areas Process Improvement f Employee feenal Bn Goals Meise vaa ti
Slide 12: Telstra 58.4%, Austar 41.6% shareholding
D> Telstra 58.4%, Austar United Communications 41.6% shareholding > Telstra has operational, management and Board control > Telstra Nominee Members - Dick Simpson, David Thodey, John Stanhope, Mike Foster > Austar Nominee Directors — John Porter, Mike Fries > Significant Telstra investment $NZ1.28 D
Slide 13: Value Creation
Value Creation Trans-Tasman Pipeline Growth in revenue and gross margin TelstraClear Bring forward of break even point Primed CAPEX efficiency 20% Focus on trans-Tasman Regutatory experience Challenger Learnings Ability to leverage Australia being NZ's #1 export market and the #1 investor in NZ 20"
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Slide 15: Strategy & Business Overview
TelstraClear Strategy & Business Overview Rosemary Howard, Chief Executive Together.A better way. TelstraClear)
Slide 16: Providing Communications Solutions
Providing Communications Solutions > > Vision World Leading Communications Challenger > Customers > Business, Consumer and Wholesale customers who want to have a fong-term relationship with their communications provider and want to do more via communications Mission What customers need: Our solution
Slide 17: Unique Benefits, Key Differentiators
Unique Benefits Key Differentiators > Together. A better way. 2 Contributing to our customers and 2D Working with customer, and New Zealand’s future partners to deliver better > communications packages > Better is Smarter, Faster and more Adaptable > Right size for New Zealand, we are small enough b
Slide 18: TelstraClear's Strategic Direction
Gelstra Financial Performance TelstraClear’s Strategic Direction Objectives Customer Management &Loyalty Operating Efficiency & Effectiveness Organisational Effectiveness Goals Brand of choice Aspromised - customer solutions delivered Profitable, loyal customers Customer focused - management informa
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Slide 20: New Zealand's Economic Outlook
New Zealand’s Economic Outlook ... one of the fastest growing industrialised economies > Medium term outlook is for return to above-trend growth from around mid-2003, so tong as global economic recovery continues a 266 27% 29% 29% > Moderate inflationary pressures likely to emerge but remain below 3
Slide 21: Communications growth vs NZ GDP
TelstraClear’s Growth Rate 2 Clearly outperformed 2084 NZGDP growth 2 Cycticat and GOP-sensitive 2 Communications/G0P 3 growth multiple \ historically above 4 ~~, é VW 4 times A D> Currently ") Lae if rT 5 Communications|GDP growth multiple at 2.2 times NZ Communications Services — Nzo0P
Slide 22: Improving Competitive, Regulatory and Technology Landscape
Improvi Competitive, Regulatory and Technology S “A, 4 Landscape 2D Trans-Tasman marketplace - Telstra Te'straClear, Telecom-AAPT, Vodafone NZ- Vodafone Australia > Broader based competition - BCL, Walker Wireless, Utilities, ISPs, Regional Communities D> Newregulatory environment 2 Significant expa
Slide 23: Market Awareness Improving Strongly
Market Awareness Improving Strongly TelstraClear Brand Awareness Prompted Unprompted Together. A better way.
Slide 24: Integration Achievements
: ye Operating Cost Reduction Employee Goals Process Improvement f Effiden integration Achievements Grow Margin { Contribution Headcount Talent Retained Finance System Merged Product rationalisation Valves driven Integration suite Property replepd Genes HR System Migrated teased rationalisation Mode
Slide 25: Operations simplification and culture
> Continuous operations simplification through Six Sigma Process Management > Creating a Dynamic, Accountable and Entrepreneurial Way of doing things > Regulatory environment which encourages choice and competition Mobility Customer Value Management itty ve
Slide 26: Governance and operations review
> Board has met 9 times this year > Strategic Focus, Business Plan, Quarterly Reviews > Quarterly Financials rolled up into Tetstra’s quarterly reporting > Three sub-committees > Audit > Finance > Remuneration TelstraClear Advisory Committee established Operations Review Monthly SLT {SMT > Start of
Slide 27: Communications with stakeholders
> Customers > Account Management, Telephone Account Management, Contact Centres > Internet > Advertising, Sponsorship > Staff > CEO Roadshow D> CO Weekly Newsletter > Team briefings, SLT/SMT'MBWA’ > inductions, Staff suggestions & Intranet > Brown Bag presentations 2 Government | Media { Shareholder
Slide 28: TelstraClear
TelstraClear
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Slide 30: Economic Customer Access
TelstraClear Economic Customer Access Kevin Millar, Head of Change Together.A better way. TelstraClear)
Slide 31: Globally-connected communications industry
> Globally-connected communications industry is crucial for NZ’s economic development > As well as players being efficient, the industry as a whole needs to be efficient > An environment that favours competition and an umpire to correct market failure > Wholesaling offers opportunity to the incumben
Slide 32: Wholesale market creation
> The wholesale market was created after Telecom lost its monopoly status > Resale - the wholesaling of existing complete end-to-end products and services to other carriers that can be directly on sold to end users, with little or no change > Wholesale services - those only available at the wholesal
Slide 33: Newly regulated telecommunications market
> World’s most unregutated telecommunications market regutated after more than adecade. However... 2 New Telecommunications Act covers only interconnection and resale of Tetecom’s retail services 2 Does not cover wholesale only products (eg network inputs such as xDSL tails) > Crucial for enabling i
Slide 34: Interim interconnection determination
> _ interim determination delivered 5th November, for 12 months > Rate of 1.13cents, on a minute plus second charging basis, cf Telecom's 2.7cents and median of 0.66cents > _ Rate retrospectively applied to 1 June 2002 > Approximately $14M refund from Telecom for period 1 June to 05 November, or $30
Slide 35: Access to residential customers via resale
> Ability to access over 1.4 million residential customers throughout New Zealand > Provides new growth opportunities Bundling residential access with consumer services ve TelstraClear has applied to the Commerce Commission to resell Telecom’s residential services > Commensurate changes to TelstraCl
Slide 36: Telecom's USO cost calculations
> Telecom’s revised calculations at $NZ408M (annual) > Compared to Telstra’s total USO cost of $A211M set by the Minister August 2002 > International benchmarks USO cost of about 1% of fixed line revenue, cf Telecom estimate approx 12% > NZ lower cost environment than Australia itty
Slide 37: Tollfree number portability
2 Tollfree number portability goes live 12 December 2002 > Market size in excess of $160M per annum 2 Local number portability will eliminate business line switching barriers > Mobile number portability will assist next operator (physical or virtual)
Slide 38: Wholesale DSL access
a“ > tn Australia D> Regulatory and industry expectation that provision of Unbundled Local Loop (ULL) would enable development of a competitive broadband market > However because of the wide range of DSL options, provided by Telstra Wholesale, wholesate DSL has been a faster growing segment of the m
Slide 39: Relationship with Vodafone under agency model
Relationship with Vodafone under agency model Exploring new ways to grow and strengthen partnership 2.5G and 3G network build capabilities eoo9 Co-location and Roaming are specified services in the Act
Slide 40: New regulatory regime enabling customer access
2 Dramatic shift from 12 months ago 2 New regulatory regime shown to be capable of enabling economic customer access > World leading timeframes 2 Commissioner undertaking study into ULL and Data access in 2003 > Opportunity to align with intemational practice > We expect detivery of ‘true’ wholesali
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Slide 42: Financial Performance
TelstraClear Financial Performance John Hooper, Chief Financial Officer Together.A better way. TelstraClear)
Slide 43: Revenue Growing
Revenue Growing > Solid quarterly growth 6 leading to strong annualised growth, currently exceeding plan > Key Factors > Good cross segment Quarterly Revenue a8 Revenue ($ millions) suas sales performance > Churn rates controlled a and now reducing re > Underpinned by Dect Meroe Juno Spon traditiona
Slide 44: Active Cost Management Program
—— | ~~. X _ Active Cost Management Program . oe, d zi Main Opex Elements Efficiency Initiatives Siler a D> Project Simplicity > Optimise Company Sourcing Advertsing > Simplity & Align Product Set Fromiiine so > Business Sates Productivity ea > End to End Customer Processes aN > Improve IT Efficienc
Slide 45: Key Contributors
> > Key Contributors Strong sales growth Benefits of Integration now being realised Growth in Contribution from new customers Tight OPEX management Vy vive Short to medium term, continual improvement in revenue to OPEX ratios EBIT and Cashflow positive in 2 to 3years iz TelstraClear EBITDA Positive
Slide 46: Quarterly CAPEX
Quarterly CAPEX D> Capital Expenditure envelope soo for FY03 between $150M and $200M a D> CAPEX envelope split between 0 integration and growth ! 2D initial investment in the 2° integration supports further ‘0 OPEX efficiency 2 Continued investment in ve network and products sail enhances margin SMi
Slide 47: Debt Funding
Debt Funding is now $1400 Borrowings 100% provided by ewe shareholders & $1,000 > leveragingTetstra’s — & 8 strong credit rating _ ise 2 Reduced financing costs & *° 2 Increased operational a focus Dec-o1 Mar-02 June Sepa > Flexibility for growth DShareholderAdvances Ml External Banks attra TelstraC
Slide 48: International Challenger Benchmarking
_ International Challenger Benchmarking %, Overall Targeted Cost Customer Reduction Profitability Program Improvement Opportunities Greatea Mobile as Dynamic, well as Fixed Accountable, strategy Entrepreneurial culture Appropriate regulatory environment essential Gelstra Together.A better way. Telst
Slide 49: In summary
> Insummary, we have > > > > > Strong Revenue growth Focused cost reduction and commitment to save where possible Strong EBITDA growth - above ptan A batanced, prioritised CAPEX ptan Successfully refined the company and have flexibility going forward a7 Strong company and financial governance, parti
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Slide 51: Solutions
TelstraClear Solutions Delivering solutions to meet customer needs Patrick Carson - Head of Solutions Management
Slide 52: Solutions Management
Solutions Management 4 Business Mass omen Sales Markets Mentha Change Is Networks Customer Finance . Solutions Services For business and lifestyleneeds
Slide 53: Best of Breed Challenger
Best of Breed Challenger Network Ni Internet Seamless Reach GeBuiation & Trans Tasman Network aque. Applications Mobility New Generation Service Provider
Slide 54: Our Consumer Customer Solutions
Gelstra Residential On-Net Residential Off-Net Our Consumer Customer Solutions > = 2 | > Cable Modems, 88 internet ft Local, National & International Catling Cable TV ¢ per view) uous National & international Calling Internet Dial-Up Phone Cards Flexible billing options Together. A better way, Telst
Slide 55: Our Business Customer Solutions
Our Business Customer Solutions Network Applications > Access DrrameRelay | | Scontac Centre || Ddiatup DResale of Dtocat Damm DNetwork WR Broadband Vodafone DNationat DPrivate iP Satyaco Dtosting services for international |) SDSL Dskitts Based 2Gaming pleat business Dating Cable Modem Routing Boe
Slide 56: Market Opportunity and Market Share
Product Measure | Market | Total Share | Market Internet Subs 22% 720k Fixed Line Calling | Revenue | 16% | $2,150m DatajiP Revenue 16% $640m Business Access Lines 10% 553k Residential Lines 4% 4,465k Access Asat30 June 2002 Market Opportunity Market Share by Revenue TelstraClear 11% Vodafone 12% Ot
Slide 57: Balanced product portfolio
Balanced product portfolio Revenues underpinned by core catting services such as national, international, fixed to mobite calls and telephony access Growth in data services, particutarly Private IP TelstraClear Product Mix Connect Aetoss Other 8% 12% 6% Mobile Data-IP 7% 15% Voice _ 43% a) Based on
Slide 58: Network evolution to IP and SoftSwitch
7 | (Crs. Medio 2 Driver: Lower network cost Server 2 Enables new products and a services. Bundled IP packages Sgraling (voice,data} Gateway — Trunk = 2 Push voice switciing to the edge Gateway = of the network - reduce backhaul, Dedicated IP Bees flower network cost Roe are vers ‘Access [— POTS, 2
Slide 59: Product Integration
Product Integration Internet Voice Reduction from 6 Voice Switches to 4 Reduction of Calling Card Platform from 4 to 2 Retirement of Clear Voice VPN Retirement of TSL Centrex service Featurelink Data ‘Consolidation of Intelligent Networks Capped expenditure ATM Simplification & Rationalisation of pr
Slide 60: Portfolio Development
Portfolio Development Voice 2 Toll ree portability 2 Wholesale(Resale) D contact centre WE, 2 Flexblebilling ~ 2 2 Advanced 2 Network Centric ContactCentre = IPT SW 2 DSL DIP Gateways Access Internet 2 IDC Expansion > Email Virus Scanning Gelstra Together. A better way, TelstraClear>
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Slide 62: Business Markets
TelstraClear Business Markets John Boon, Head of Business Sales Together.A better way. TelstraClear)
Slide 63: NZ Businesses by Region and Size
NZ Businesses by Region Enterprices (000) NZ Businesses by Size North island South Island os ea: Iie isco) ioe: F FTEs HL 35% Auckland Based Source: Siu NZ, 2002 # Wellington and|Conterbury 13% each TelstraClear
Slide 64: Business customer segments
> KeyAccounts > Highest spend > Complex Needs D> Corporate Accounts > = Public/Private sector accounts > Greater than $20k spend per month > Commercial Accounts > Accounts outside of Key/Corporate > Spend greater than $500 and less than $20k per month Business MarketsReverwe by Segment $72m (QLFY03)
Slide 65: Solutions by Segment
Solutions by Segment Degree af Solution Taitoring Market Segments =, 20 Key Small Bus a ee
Slide 66: Business Sales direct and indirect channels
Business Sales utilise a number of direct and indirect channels > Face-to-face sales by permanent sales staff > Auckland, Wellington, Christchurch > Hamilton, Dunedin, Rotorua, Tauranga, Napier, Nelson & Palmerston North Face-to-face sales by temporary, contract sales staff Telephone management of c
Slide 67: Revenue Drivers in Business Markets
ue Drivers in Business Markets wh gf $75 2 tn Commercial, Locat access and putl-through voice revenue comprises 60% of total > _ tn CorporatefKey, Data is largest component of revenue (37%) > Data is also the fastest soo + growing product in both segments Business Markets Revenue Revenue (sm) 3 g qr
Slide 68: Our Value Proposition
Commercial Key & Corporate > > > Our Value Proposition Simple innovative solutions Competitively priced product bundles Communications as an enabler of business success Total communications solutions Most advanced IP network in NZ Trans-Fasman capabilites Customised Service levels Together. A better
Slide 69: Recent major bid wins
> _ Customer solution focused, not product pushed > High success rate in recent major bids > Westpac > Amway > BNZ > Biolab > NZAA > State Services Commission > Unisys > AXA > Restaurant Brands > Pumpkin Patch > mspd > Cigna insurance > Customs > Sensation Yachts
Slide 70: Leverage Telstra's group of companies
Leverage Telstra’s group of companies Leverage Trans-Tasman capabilities Develop tailored customer solutions Whole of business sales Ve oovu”e Strong TelstraClear partnerships
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Slide 73: Residential & Small Business Markets
TelstraClear Residential & Small Business Markets Steve Jackson, Head of Residential & Small Business Markets Together.A better way. TelstraClear)
Slide 74: Residential Off-Net, On-Net and Small Business
Residential Off Net Residential On-Net Small Business > Nationwide > 180k customers D> 15% Market Share > $30 monthlyARPU D 1.2 products per customer 2 Wellington and Christchurch metropolitan D 53k customers (60k fines} > Penetration: 38% in Wgtn and 28% in Christchurch > Growth since Jan ’02: 10%
Slide 75: Our Customers
Our Customers 4. Residential & Small Business Markets Revenue by Segment $53 m (Qi FY03) 53,000 Customers 33% Residential (On-net) 180,000 Customers: 31% Residential (Off-net) 63,000 Customers Ene Sm. Bus (< $6k pa) Based on QuFY03 Gelstra Together. A better way. TelstraClear >
Slide 76: Residential and Small Business Revenue
Bp» Gg Lm > Res On-Net revenue isquite i Residential &Sm all Business Revenue evenly generated by Access, Internet, Voice and Cable TV Residential Revenues 8 2D In Res Off-Net, Voice is the dominant product type, with Internet (CLEARNet and Paradise) also significant > Small Business revenue is Reve
Slide 77: Customer Service Centre
Centre | Customer Service
Slide 78: On-Net Our Value Proposition
Gelstra On-Net Our Value Proposition e bundle (including SKY and Pay TV) Innovative Pricing Packaging One Bill Innovative Pricing Packaging Credible alternative to Telecom Together. A better way,
Slide 79: Residential market focus areas
eveveves Focus on high vatue customers (current and potential) Maximise network penetration Generate scale ina cost effective manner Diversity of distribution channets Scalable and flexible sates resource Minimise churn Appropriate service standards for customer segments TelstraClear
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Slide 127: Media Release: Telstra's changes to better serve customers
Media Release 29 November, 2002 395/2002 Telstra's changes to better serve customers Telstra Corporation today announced organisational changes which will better serve all customers. Telstra CEO Dr Ziggy Switkowski said the three existing groups of Telstra Retail, Telstra Mobile and Telstra Country