Annual General Meetings

(UPBEAT MUSIC PLAYS)

CAROLYN BRIGGS:

Good morning. Good morning, everybody, and welcome to this beautiful part of the city down near the this beautiful centre for the AGM for Telstra. So my name is Carolyn Briggs and I'm the Eldest spokesperson of the Boon Wurrung, which is the language Yaluk-ut Weelam, which means the people of the river. So I'm here to welcome you all. So I've introduced myself, so I know who you are, and I've got to pay my respects to the Telstra board that are out here this morning and also pay my respects to you. I also pay my respects to my Elders and to my Ancestors and to our futures, our younger generation who are coming through. So, and the language afforded to me, it's (SPEAKS AN INDIGENOUS LANGUAGE) That means welcome to our beautiful home, the land (COUGHS) the lands of the two great bays. (UNKNOWN) being Port Phillip Bay and Marin being Western Port Bay. But it's also about this beautiful river that runs flows past us, which is known as the Yarra. But to our people, it was known as the Birrarung.

And it's also when we put ga on the end of it, it's Birrarung-ga, meaning the country of the river. So you're a part of the country of the river. You're getting in a little bit of a history lesson in language. So as a descendant of the First Peoples of Melbourne, we welcome you and the word (SPEAKS INDIGENOUS LANGUAGE) means come with a purpose. The land that we now stand is the traditional country of the (UNKNOWN) clan of the Boon Wurrung language group. The Boon Wurrung people were part of a much larger nation, or confederacy, known as the eastern colon. Colon means mankind. The Boon Wurrung and the eastern colon have a unique history and culture, and we are pleased to be able to celebrate that history and heritage with you today. Just that word (SPEAKS INDIGENOUS LANGUAGE), come, ask the common. What is your intention for coming? It is to be a part of this AGM the 2019. Traditionally, the Boon Wurrung and the other clans of the (UNKNOWN) nation would meet just like you to celebrate, to trade.

These celebrations were held each month to celebrate the coming of the new full moon. The descendants of the Boon Wurrung in the eastern colon have continued to take an active and progressive approach to the leadership and protection of our values. This is one of this one, this is one more way that we can acknowledge and celebrate our shared indigenous history and heritage. In traditional society of the eastern colon, we were committed to the maintenance of our society by valuing the importance of learning, showing respect, celebrating life and honouring the sacred ground. This importance of learning was a transmission of knowledge and understanding that ensured our culture survived. This commitment to learning has been a part of every generation since time began. And that's one of the reasons why we are still strong today. We believe that you must respect the past in order to understand its futures. And according and these are the things that have maintained our guiding principles for our life ways.

Showing respect. In our traditions, visitors are always welcome. But but they are required to show respects to the (UNKNOWN) the laws of the land. This is the same way we show respect to each other's diversities, cultures, religious or spiritual beliefs today, and we are here to celebrate the 2019 Telstra AGM. This is also a celebration of life. The arrival of new children, the coming of the six seasons, the visiting of the neighbouring clans was very much an important part of our traditional life. We talk about respecting sacred ground. We should all acknowledge the sacred ground on which we stand, and Melbourne is a host to many people from many different nations, and we still call upon them to respect sacred ground by understanding its history and heritage of the first people of the eastern colon. And today is my hope that we can all take pride in our shared history and celebrate the strength of this great country of ours. And according to our traditions, our lands will always be protected by our creator, Bunjil who travels as an eagle and (UNKNOWN) who protects our waterways travels as a crow.

Bunjil, asked of First Peoples to ask all visitors to make a number of commitments, one not to harm the (UNKNOWN) lands, not to harm our knees, our waterways and particularly not harm Bunjil's children. And if you accept these laws or these dumb bars, this is about allowing you to travel through our many landscapes in safety. And this is one way we do this by your commitment is through the exchange of a small bow dipped in the water of the land. So once again, (SPEAKS INDIGENOUS LANGUAGE). I wish you well in your endeavours with the new AGM for this year. So let's celebrate, (SPEAKS INDIGENOUS LANGUAGE) and the celebration. I want you to all say (SPEAKS INDIGENOUS LANGUAGE). You can do a bit louder. You know, because you're articulating 2,000 generations of say the word come. What's your purpose for coming? Thank you. (SPEAKS INDIGENOUS LANGUAGE). I wish you well. (VIDEO PLAYS)

SPEAKER:

It's always been about people about bringing us closer together, connecting us and the communities where a part of. Making sure each and every one of us gets to experience the best technology on the best network. Because in the right hands, we know our network has the power to change things, to help us take care of each other, get back on our feet, build up the next generation and connect our businesses with the rest of the world. No matter who you are or where you live, with the power of connection, everyone can live better, more fulfilling lives. Everyone can thrive. (VIDEO ENDS)

JOHN MULLEN:

Great. Good morning, ladies and gentlemen. My name is John Mullen, and it's my pleasure to welcome you this morning to Telstra's 2019 Annual General Meeting. All of the directors are here, including your Chief Executive Officer Andy Penn, and I join them in offering you a very warm welcome this morning. Thank you also to Auntie Carolyn for the earlier welcome to country. Today's meeting is being webcast, so welcome also to those shareholders joining us online. And with a quorum present, I would like to formally declare today's meeting open. The notice of meeting was distributed earlier and that's about the business and the resolutions to be considered today. So I propose to take that notice as read. There are a number of items of business on the agenda today, all of which are shown on the screen behind me. Items three to five-set out resolutions to be voted on today. Item six is a conditional item and any vote cast on it will be of no effect unless we receive what is known as a second strike on the remuneration report.

To assist with the efficient conduct of the meeting, I declare the resolutions on items three to six now properly before the meeting. Voting on items three, four and five and if required, item six will be conducted by poll and that poll is now open. If for any reason any shareholder wants to leave the meeting early, you can still vote by completing your voting card and placing it in one of the ballot boxes near the exits. I'd like to now formally introduce the colleagues with me here today. With me on stage or Andy Penn our Chief Executive Officer,, Sue Laver a company secretary. Vicki Brady, chief financial officer and my fellow members of the board. And can I particularly welcome new director Eelco Blok, who has been nominated by the Board for election at today's meeting. I would also like to introduce Andrew Price from our auditors, (UNKNOWN). I can see him I see over there. Andrew's available. if shareholders have any questions about the audit or the audit process. So let me now turn to Telstra's activities and performance during the 2019 financial year.

This year has been one of the most important years in Telstra's history. And why did I say that? I say that because 2019 was the year when we commenced a T22 strategy to transform Telstra for the future. A year in which we completed our nearly $3 billion strategic investment program that was needed to create the types of networks we will need in the future and to completely digitize our business. And a year in which, as an industry, you pass the halfway mark in the migration to the NBN. I don't want to appear overly dramatic, but it is our belief that the T22 transformation that Telstra is undertaking today is the most radical and ambitious being undertaken by any telecommunications company in the world today, and we have made significant progress already. And Telstra today is a very different, much simpler and more customer-focused organisation than we were just a year ago. (UNKNOWN) will give you more detail shortly. But let me just try and give you a few examples. Firstly, we have produced more than 1800 consumer and small business plans to just 20 in-market plans.

We've done away with locking contracts on all new consumer and small business, fixed and mobile plans. We've eliminated excess data charges in Australia on all our new mobile plans. And since 2016, the number of calls coming into our contact centres has fallen by more than 15 million per year, and our goal is to reduce them by another 16million by 2022, all driven by a better customer experience. That will be a reduction of over two-thirds of the calls coming into Telstra, or 31 million calls in total. And the number of trucks that we needed to dispatch to repair faults with 900,000 fewer than last year. And we've achieved around 1.2 billion of annual cost reduction since FY16, with a further target of another 630 million this year. We are on track to achieve our target of an annual $2.5 billion reduction in underlying fixed costs by fiscal year 22. Now, in this regard, we announced around 6000 direct employee row reductions this year, and that, of course, is a source of great concern at every employee as a person with a family with hopes and aspirations.

And we must never forget the human dimension in these decisions. However, shareholders should be aware that one of the biggest drivers of this is the transfer of Telstra's fixed line business back to government ownership. So while we've lost 6,000 employees NBN now employees, 6,400 employees and many thousands of contractors in addition. So overall employment has actually risen in the industry. And clearly, it's simply not possible to maintain all those employees, and the part of the business that they worked in has been transferred to another entity. Now, our industry is changing in an extraordinary pace, and it will never be the same again. And if we don't adapt, we will fail. No business is too big to fail today if it doesn't reinvent itself on a continual basis. So you're witnessing the greatest transformation that Telstra has ever undertaken way beyond anything that we have tried to do before. A couple of years ago, Andy Penn said that Telstra was becoming a technology company. It was a predictable coterie of critics who said that Telstra was aspiring to be another Google or Facebook, which of course, was not at all what he meant.

But Andy was absolutely right. Like other telcos, the world over Telstra has come from a world of monopoly or semi monopoly telephone operations, originally just connecting person to person with voice communication. But that world has gone forever, and our industry today is exploding into a world of cloud computing, machine learning, artificial intelligence, internet of Things, autonomous vehicles, big data, drones, satellite technologies and many, many more. This is the new technological world, and the old world is not coming back. And while we may not like it, the days of Telstra's high legacy margins and 100% dividend payout ratio are not coming back, either. So let me now turn to Telstra's performance during the year. Firstly, our results were in line with guidance and with market expectations. We delivered what we said we would deliver. However, as expected and previously flagged, our results also reflected current market realities, including the impact of the NBN and intense competition.

We reported total revenue of 27.8 billion, EBITDA of 8 billion and net profit after tax of $2.1 billion. A major reason for the decline in the profit compared to last year was the impact of the NBN, which represented some 600 million of negative recurring EBITDA headwind during the year. Combined with a total interim dividend paid in February 2019, shareholders will receive a total dividend of 16 cents per share fully franked for FY19, which will be returning $1.9 billion to shareholders. Now, what is particularly significant about our results this year, however, is that they indicate an inflection point for the business. The clearest view of the future financial performance of our business is one that excludes the NBN headwind. And in this respect, we expect fiscal year 20 to be a pivotal year for us financially as momentum in our underlying business is expected to deliver up to $500 million of growth, excluding those NBN headwinds. This is a significant improvement on the decline of around 400 million in fiscal year 19.

2019 was also the year in which we again demonstrated clear network leadership. We were the first operator in Australia and in fact amongst the first in the world to launch 5G, the next generation of mobile telecommunications technology. 5G is enabling extraordinary new developments and opportunities and new fields such as those that I mentioned, Internet of Things, machine learning, artificial intelligence and so on. We continue to expand on network, and Telstra's mobile coverage footprint now stretches out to more than two and a half million square kilometres, vastly more than any other mobile network in Australia. And our coverage extends to 99.5% of the Australian population. We are really proud of this, and our commitment remains to work cooperatively with governments and with other stakeholders to continue to do our absolute best to bridge the gap between metro and rural areas better than anyone else. And in this regard, just how important actually is Telstra to Australia and to Australians?

Well, we now provide over 23 million customer services, including more than 18 million domestic mobile retail customer services, 3.7 million retail bundles and standalone fixed data services and 1.4 million standalone voice services. We estimate that up to 95% of Australians use Telstra in some way on a regular basis, even if they don't realise it. An example If you are on a competitors network and you do a Google search, your request likely goes from your phone via a Telstra submarine cable to Google in the US and back again. If you use an ATM or you pay for something by EFTPOS or you book a taxi or an airline ticket, chances are your bank or other organisation will be using Telstra to provide the service. 65 million voice calls are made every day on our fixed and mobile networks and more than 33 petabytes of data received and sent. Submarine cables linking us to the outside world are long enough to encircle the planet 10 times. We offer voice, data and video of a mobile fixed NBN, wide band, narrowband and other networks from machine to machine transmission.

Now, this complex array of technologies works exceptionally well and is exceptionally reliable. Yet with this scale of customer interaction, only one small part of this complex system needs to go wrong, and that can equate to thousands and thousands of unsatisfactory experiences for customers. As chairman, I receive a lot of complaints and I respond to every one of them because that is my job and they disappoint me every time. When I analyse those complaints, they often relate to the systems that we're using, legacy systems that are difficult to navigate, systems that are now being removed or improved as part of T22. Despite the best of intentions, there's always human error where maybe a customer's billing is wrong. Maybe the technician didn't come the time promised. Maybe the NBN connection doesn't work, and NBN blames Telstra, and Telstra blames the NBN and so on. As I mentioned before, we receive about half a million calls per week, mostly to address relatively minor but frustrating issues.

And despite the substantial reduction we have achieved in these complaints and calls, we still have a long way to go and I feel this frustration keenly, as do my fellow directors and Telstra's employees, especially as they work so hard every day to improve things. This then is why Telstra's T22 strategy to radically simplify and streamline the business and digitise our interactions with customers the greatest extent possible is so critically important. Now let me make a few comments about the NBN. The creation of the NBN 10 years ago has had a seminal effect on our industry and on Australia. And it's always easier to comment with the benefit of hindsight, I know, but it is my view that over the last 10 years, private-sector competition between strong players such as Telstra, Optus, TPG and others was always going to build 100 megabit broadband access and speed to the majority of the population in Australia and an ongoing competitive landscape and at no cost whatsoever to the taxpayer.

Governments could then have decided how much subsidy they were willing to provide the industry to extend this coverage to regional and rural areas where private sector economics were unattractive. This would all have been at a fraction of the tele cost of today's NBN. Instead, however, in the end, in the NBN, we have created a state-owned monopoly that's going to cost the country more than $50 billion. This said, however, we got here, and Telstra too must be a part of the blame for this due to its recalcitrance in helping government at the time. But whether we like it or not, the NBN is here to stay. And today it is in Telstra's interest, it's an industry's interests and the country's interest to do all we can to make the NBN successful. And Telstra is unequivocally trying to play its part in achieving this.

SPEAKER:

However, that decision 10 years ago has left a number of substantive challenges for the industry and Australia to solve. In the 12 years since the NBN project was announced and the 10 years old since the NBN itself was formed, Australia's mobile industry has consistently ranked amongst the best in the world. In August this year, the Speed Test Global Index rated Australia as having the second fastest mobile networks in the world after South Korea. However, in the same test, Australia's fixed broadband industry ranked 58th fastest in the world behind countries like Moldova, Belarus, Panama and Andorra. Financially, the impact on all fixed broadband providers has been significant, despite some compensation paid to those operators whose fixed line businesses have been nationalised. In Telstra's case we estimate that we have now absorbed around 50% of the economic headwind that the NBN creates for us, or about $1.7 billion on an annualised basis, with more than 60% of Australia's homes now connected.

Telstra has in part being compensated by the government for this, of course, the majority of which is being returned to shareholders. But after the end of the NBN rollout, Telstra will be worse off by more than $3 billion per year into the future. The impact on the bottom line, and therefore EPS from which we pay dividends is even greater and up to 50% reduction net profit after tax, resulting in an inevitable flow through to dividends and share price. There are few precedents in corporate Australia for a challenge of this magnitude and there's no magic solution to make up for the loss of up to half of the company's net profit. But we are not sitting on our hands. Our T22 program is a radical and ambitious initiative to fundamentally restructure Telstra to enable us to respond rapidly to this changing environment and to continue to lead the Australian telco market. Then there have been claims by some that the payments NBN makes to Telstra for infrastructure access are the reason why NBN's wholesale prices are so high.

In fact, as the industry well knows, exactly the opposite is true. These payments to Telstra have actually helped keep the cost of the NBN down. By the NBN's own admission, without access to Telstra's very extensive network of exchanges, fibre, ducts, pits and pipes, the NBN would have had to build all this infrastructure from scratch at a much higher cost and over a much longer period. Then another tropical matter which is becoming problematic is the question of the NBN's starting to sell directly to enterprise customers. Now, the original mandate for the NBN was that the NBN would be wholesale provider only and would not favour or discriminate between retail service providers or RSPs. It certainly wasn't envisaged that NBN Co would negotiate contracts directly with customers and encourage them to seek special deals from certain RSPs. That, however, is what we are seeing today. Instead of remaining a wholesaler, the NBN is now going outside this mandate and is targeting our customers directly.

As one of our competitors clearly noted recently, the reasons why the industry objected to this are three. Firstly, reciprocity. It seems inequitable that the NBN can now move outside its mandate and sell directly to our customers. But RSPs in the industry have to stay within their mandate and cannot sell to the NBN's own protected market in return due to regulations which prevent retail providers investing in fixed line infrastructure to provide consumer services. Secondly, the original intent of the NBN was to bring high speed internet a competitive pricing to those without such access. It seems a waste of collective resources to be delaying investment in the consumer rollout to people yet to be connected and instead be focusing investment and the enterprise market where the NBN is duplicating existing high speed fibre for no service or speed advantage. And thirdly, the NBN's government ownership gives it a very significant cost of capital advantage over the private sector, which is being used to its competitive advantage.

Now, we understand that maximising the financial return of the NBN is important, however, for the NBN to be allowed to move outside its mandate and to achieve this, but reciprocal competition from RSPs remains restricted seems inequitable. There's very little doubt in my mind that were the NBN open to competition, wholesale broadband prices in Australia would fall materially. Now, let me be clear, we are not recommending that the nation's policy settings be changed, but we are saying that if the policy settings are not to change, then both sides should respect their original mandates. And lastly, may I try to make another important comment on affordability, affordability of the project itself and affordability of retail broadband services. You would have seen that Telstra, along with much of the rest of the industry, has been recommending that the NBN reduces wholesale broadband prices. This has been criticised by some as being self-serving, and while of course this would benefit Telstra, it would also benefit all the rest of the industry and all of the actual uses of broadband since without a drop in wholesale pricing, the inevitable outcome will be higher retail prices.

Dismissing the industry's suggestion as whingeing may make good media headlines, but this avoids Australia facing into the real ends issue here for both the industry and for the country. When Telstra was a regulated wholesale provider to the industry, Telstra charged on average about $20 per user per month. The NBN is now charging some $44 per month on average, and the NBN states its ambition is to get that up to $49 by fiscal year 23. As a very broad generalisation, a retail service providers average internal cost is in some 12 to $18 on top, plus approximately another six to eight for the (UNKNOWN) cost to connect. So, this gives an all in cost for an RSP to resell the NBN of over $70 per month. Market prices to the consumer, however, are averaging below $70 per month, excluding GST. Now, clearly, losing money is unsustainable for all 180 odd RSPs out there, and this is why we have already seen some companies starting to withdraw from reselling the NBN. In addition, these economics are leaving many companies to invest in 5G fixed wireless and other technological solutions to allow them to offer competitive broadband without using the NBN at all, which just makes the situation even worse.

Ironically, it's actually beckoning in the interests of those competitors that are embracing these new technologies that NBN's prices remain high, so the alternative technologies become more attractive. And bottom line of this is that Australia already has some of the highest wholesale broadband pricing in the world. And if this trend continues, over time most resellers of the NBN will withdraw, or they will go broke. The downside of this, in turn, will be fewer service providers and, ultimately, higher broadband prices to the consumer. Alternatively, a reduction in the wholesale price of the NBN would mean that reselling the NBN would be profitable for all RSPs, resulting in a dynamic and competitive broadband industry and retail prices would be kept materially lower. Now, Telstra will compete either way, but surely a reduction in the wholesale price, a competitive market and lower prices for consumers has to be a better outcome than a high priced oligopoly, both for the industry and for Australia.

To this end, we welcome the announcement yesterday by the ACCC that it's launching an inquiry into NBN pricing from an affordability perspective. Now, let me just close this out by saying, by stressing, here that I'm in no way criticising the leadership of the NBN. To the contrary, they are capable and professional people with whom we have a constructive and engaged relationship and whom we respect. These challenges are not of their making either, as they too have to work with the cards they have been dealt and they are doing their very best in difficult circumstances. But this is not just an NBN or a Telstra problem, it is a problem for the whole of Australia to resolve, government, industry and the NBN together. So, turning now to the changes this year in Telstra's leadership. Andy will talk about his management team shortly, but we continue to completely reshape our board to put in place the right balance of experience, including global telecommunications experience, technical expertise and fresh thinking.

I may be biased, but with a couple of new appointments still to come, I think that we're building one of the strongest boards in Australia and a board fit for purpose to help steer Telstra through these unprecedented times. You will hear shortly from the director standing for election, but can I again firstly welcome Eelco Blok. Eelco brings more than 30 years experience at the Netherlands leading landline and mobile telecommunications company, KPN, and he is an outstanding addition to our board. Then directors will be aware that two current directors, Craig Dunn and Nora Scheinkestel, are also eligible for re-election. Both are highly valued and respected members of our board, and both have made huge contributions to Telstra. Let me start with Craig Dunn. Craig is an outstanding director who joined our board in 2016. He is the current chairman of the Audit and Risk Committee and a member of the Nomination Committee. In my view, Craig is one of the best public company directors in the country.

We are aware that there has been commentary around Craig's association with the AMP, where he was CEO more than six years ago. However, it is important to note that at no time whatsoever has Craig ever been accused of anything improper himself. All I can say as chair is that Craig is an extremely valuable director with exceptional skills in the areas of finance, risk and general board supervision, and the board supports his re-election 100%. Were he not to be re-elected, it would be a great loss to Telstra, and I therefore ask you too vote in favour of his re-election. Let me then also comment briefly on the other director standing for re-election today, Nora Scheinkestel. Nora is a member of the board's Audit and Risk Committee, Nomination Committee and Remuneration Committee, and previously she was chairman of the Audit and Risk Committee from 2012 to 2019. If successful, this will be Nora's fourth three year term. In accordance with our board tenure principles where a non-executive director is approaching the end of their third three year term, a more formal review of their continuing directorship takes place, including considering length of service when making an assessment of the director's independence.

Nora is simply an outstanding director and brings considerable skill, wisdom and experience to our board. And in particular, Nora has a deep corporate memory, including being involved in the NBN transaction from the very beginning. With a number of directors only being recently appointed, this continuity of key corporate knowledge is critically important to us. So, when the board considered Nora's tenure, independence and contribution, it had no hesitation in unanimously recommending she remain a member of the Telstra board. I hope that you too will support her re-election. This brings me then to the issue of executive remuneration and items four, five and potentially six on today's agenda. Shareholders will recall that last year significant concerns were raised around the remuneration report by proxy advisers and others, meaning that a substantial number of shareholders did not approve the report. This gave us what is termed a first strike, and this is deeply disappointing both to me and to my board colleagues.

We were disappointed because the Telstra board takes this responsibility incredibly seriously. We spent a huge amount of time really trying to get the balance right between protecting shareholders interests and not overpaying executives, while at the same time motivating, incentivising and retaining the best management talent that we can. This is particularly the case where, as in our situation, market dynamics, including ones outside management's control, have been challenging and shareholder returns have not always been able to be at the level that we would have hoped for. But the fact is is Telstra is a $42 billion market cap company with around 30,000 employees, 1.3 million shareholders, and we operate a leading edge of telecommunications markets here in Australia and around the world. We are operating in times of great challenge and volatility, and the future of the company depends on our implementing one of the world's largest and most complex transformation strategies within a tight timeframe.

And in that environment first class leadership could not be more critical, and attracting, retaining and motivating high calibre executives depends on a number of things. One of course of which is remuneration. Overseas and Australian executives will simply not leave well-paid jobs elsewhere to join Telstra unless we have a competitive remuneration strategy. This year, Telstra's remuneration committee and the rest of the board again spent a significant amount of time trying to get the structure right. We consulted extensively, we listened, we worked, and we reworked our executive compensation scheme to try to find the best balance. The plan for a FY20, therefore, includes a number of material changes to try to better align with the creation of sustainable long term shareholder value. We have reduced maximum potential remuneration. We've increased the equity versus cash ratio. We have extended vesting for restricted shares. We've expanded the clawback provisions on our equity terms and a number of other measures.

And we strongly believe that these changes strike the right balance between protecting shareholder interests, not overpaying executives, but at the same time motivating, incentivising and retaining talented leaders. And we really, really hope that shareholders will agree. I'm on the record as saying that some executive remuneration in Australia and especially overseas, has been too high in the past, and there's no doubt that this has damaged the reputation of big business around the world. However, executive remuneration in Telstra has been progressively trending down. I absolutely do not think that this is the case in Telstra today. Indeed, I would like to particularly stress how important it is to reward and motivate management in difficult times, even more so perhaps than in good times. It's a natural reaction for shareholders who have seen their shares reduced in value to be disappointed and to question whether executives are feeling the same pain as well. However, the share price cannot be the only metric by which we evaluate management performance.

External factors can mean that you can have a reduction in the share price despite outstanding management performance, just as you can have increased share price despite mediocre management performance. If in the end the only criterion is the share price itself, then why even bother with the complicated remuneration structures that we have? Simply pay the executive a fixed amount and do away with a whole industry that has grown up around remuneration, including proxy advisers and company remuneration committees that spend an inordinate amount of time trying to get remuneration right. But if you want to pay on performance, then you have to look at a lot more than just the share price to judge good or poor management performance and really understand the drivers inside the business. For Telstra the reality is that external factors, including the impact of the NBN headwinds I mentioned earlier, are very substantial drivers of our company's performance, and this would have been far worse if management had not done such an excellent job in this environment.

We genuinely believe that Telstra's management has performed excellently this year, and we are fortunate that the last 12 months has also seen Telstra's share price rise materially and outperform the market. This has led to a well-earned increase in compensation for the team and for our chief executive, Andy Penn. His actual pay increased by 34% this year, but the context for this is really important to understand. The remuneration that Andy has received actually fell by almost 50% over the previous two years because Telstra was under pressure from a number of external factors over which Andy had little control, including the impact of the NBN headwinds that I mentioned earlier. So, even with a rise this year, therefore, the total remuneration that he received is still more than 20% below where he was three years ago. And ultimately, because Andy received such a significant portion of his total remuneration in the form of shares, we are comfortable that his remuneration is directly tied to Telstra's share price performance, and it mirrors shareholders own experience.

For all of that, however, executive remuneration continues to challenge the board, and we continue to search for solutions that satisfy everybody. In the end, all we can do is to diligently and transparently set targets for management that we think are ambitious and will deliver lasting value to shareholders despite the market environment. And we believe that that is what we have done this year. But we must also never forget that incentive schemes are designed to be an incentive, not a disincentive. Chairs and directors may come and go, but in the end, the single greatest contributor to shareholder value in the business is a talented and motivated management team. When I was younger, almost every executive aspired to be the CEO of a big, public company. Today, there's a real risk that the media scrutiny, the populist criticism and governance challenges, are starting to lead talented executives to look for alternative career paths, such as private equity as an example, where they can build their careers out of the spotlight.

So, there's no doubt transparency and accountability are, of course, good things, but we need to be very careful that the pendulum does not swing too far and we lose top talent, as this ultimately will only be to the detriment of shareholders. Andy is a strong leader and has assembled a very talented and high performing management team to steer Telstra through these unprecedented times. Rewarding Andy and his team appropriately for their efforts is critical and in this regard I cannot apologise for continuing to do what we believe is the right thing for the company and the right thing for shareholders in the long term. So, let me close then by touching on Telstra's role in society more broadly. In the past year, the Australian corporate landscape has undergone a seismic readjustment, particularly in the wake of the recent banking royal commission. Customers, regulators, investors and the community at large have very publicly reminded large organisations of the value that they place on companies being transparent, ethical and accountable in everything they do.

An important part of that is how companies conduct themselves and the contribution that they make to the communities of which they are part. That is a good thing, and Telstra can be very proud of its record in this respect, especially regarding the important role we continue to play in connecting and supporting communities, including in regional and remote areas and in serving the needs of our customers in vulnerable circumstances. As digital technologies play an increasingly central role in our world, there remains a significant gap between those who are connected and those who are not. And to bridge that gap, this year we helped around one million customers living in vulnerable circumstances to stay connected, including providing assistance for people on low incomes impacted by domestic or family violence or living with a disability. We also reached more than 30,000 people through our digital capability programs and created more than $110 million of value through our social investment programs.

Through the Telstra Foundation we also support digital learning experiences in schools, public libraries and remote indigenous communities. No other telecommunications company in Australia and, in fact, few other businesses full stop, can match Telstra for its involvement in and positive impact on the communities in which we operate. This year, we also achieved 40% reduction in our carbon emissions intensity, and we collected 15.5 tonnes of mobile phones from our customers for recycling. It is an ongoing source of enormous organisational pride for all of us. So, to sum up then, 2019 was an incredibly important year for Telstra, a year in which we met guidance and market expectations. Where we maintained or grew market share in key areas and where we built significant early momentum behind our ambitious T22 strategy. The NBN is what it is and we have to work with us, but in the end, The end of the nbn rollout is actually insight. After which, looking at Telstra's performance and progress will become much clearer again.

T22 is positioning us for success at a time when telecommunications networks are amongst the most important pieces of infrastructure in the world. A time when the demand for connectivity has never been greater. And to succeed in this new world, we need to find ways to translate demand into revenue and profit to completely reinvent Telstra as a new, digitally-enabled business, able not just to compete but to win. And that is exactly what we are doing. We're still closer to the start of T22 than the finish, but we are confident that we're moving at speed and creating sustained value for our customers, our shareholders, and our employees. You can be confident that you have shares and not just the best telco in Australia, but one that is respected around the world, and we're all working extremely hard to make the company even better still. Finally, and before I invite Andy to address you, let me sincerely thank you our shareholders for your patience and your support during the year. Let me also thank our customers for their ongoing support, as without them, there would be no Telstra.

And lastly, but by no means least, let me also thank every Telstra staff member. The board greatly appreciates all that you do, and I believe so too do our shareholders. Thank you for listening. And now let me introduce our Chief Executive Officer, Andy Penn, and invite him to address the meeting. Thank you. (APPLAUSE)

ANDY PENN:

Well, thank you very much, chairman, and good morning, everybody, thank you all for joining us here today, particularly including those who have joined us online. We do very much value this opportunity to meet with shareholders and to keep you across the many incredible opportunities that face your company in the future. We also welcome, of course, the opportunity to hear your comments and your feedback, and to address any of the questions that you may have. In my presentation this morning, I'd like to cover four things. Firstly, and building on the chairman's comments earlier, I will provide an overview why this year has become such a pivotal year for your company. Secondly, I will comment further on the progress we are making in transforming your company through a T22 strategy. Thirdly, I want to explain why telecommunication networks will have such a significant influence on the success of our economy and our nation over the next decade and why 5G is absolutely central to this. And finally, I will confirm our guidance for the 2020 financial year.

The chairman has already taken you through our financial results for the year, but I wanted to share why I believe 2019 was such a pivotal year. Notwithstanding the intense competitive environment and the challenging structural dynamics of the industry, including the nbn. 2019, was the year in which we believe we have started to see the turning point in the fortunes of the company from the changes that we are making. 2019 was the year in which we completed the Strategic Investment Program, which we announced in 2016. Whilst we will obviously continue to make investments, we are now doing so on a business as usual basis. 2019 is the year in which, as you heard from the chairman, we passed the halfway mark on the nbn. And 2019, was also the year in which we again demonstrated a clear telecommunications network leadership by being the first operator in Australia and among the first globally to launch 5G, the next generation of mobile telecommunications technology. 5G is clearly going to be important for Telstra's growth in the future, but it's also going to be important for Australia's future, and I will explain why that is the case in a moment.

Finally, 2019 was also the year in which we commenced the T22 strategy to radically simplify our products and services, improve the digital experience for our customers, establish Telstra InfraCo as a separate business unit, simplify how we work, reduce their cost base, and improve our portfolio management. In short, then 2019 was a year in which we made very significant progress in our program to make Telstra's challenges of today and to put us in the best possible position for the future. Telstra today is already a very different, much simpler company, a more focused customer organisation than we were a year ago. Importantly, though, we are well-positioned for the era into which we are about to head the 2020's. Let me now comment, therefore, on the progress this year on the many initiatives under T22. T22 is built fundamentally around four pillars and two critical enablers, building the networks for the future and digitising our business. We have made a very strong start, so let me cover some of the highlights.

Firstly, under pillar one to radically simplify our product offerings, eliminate customer pain points, and create all-digital experiences. We have completely overhauled and simplified our product range, reducing more than 1,800 consumer and small business plans to just 20, creating simpler, more flexible ways for customers to choose the best value connectivity set devices for them. During the year, Telstra became the first telco in Australia to introduce no lock-in plans across both fixed and mobile. We also launched our build-your-own mobile plans to give our customers freedom and flexibility and removed excess data charges on all-new mobile plans. As the chairman said earlier, one of the most pleasing measures of the progress we have made was a 22% reduction in the number of calls coming into our call centres from our consumer and small business customers during the year. We've also significantly improved our online experience, including refreshing the Telstra 24 by seven app and our digital experience now accounts for more than 53% of all service transactions, including account management, prepaid product, and billing-related inquiries.

As well as flexibility, simplicity, and choice, our customers also though want to be rewarded and recognized for their loyalty towards Telstra. And in response to this, this year, we launched Telstra Plus, a program offering customers the opportunity to earn rewards, discounts on new technology, as well as bonus entertainment, and much more. Our support for our small business customers was also improved this year, with no locking contracts, and excess data charges removed on new mobile and tablet plans, as well as more dedicated support services. This includes account management for all small business customers for a new 24-7 tech support service where we have trained 1,000s of dedicated small business specialists. Last month, we also launched Telstra Purple Australia's largest Australian owned technology services business. Telstra Purple brings together Telstra's enterprise business technology service capabilities. It consists of 1,500 certified experts in network, security, cloud collaboration, mobility, software, data analytics, and design.

Turning then to pillar two, the creation of Telstra InfraCo. Telstra InfraCo now controls assets with a book value of more than $11 billion and it is responsible for key network assets to Telstra, including data centres and exchanges, most of our fibre network, the residual copper and HFC networks not transferred to the nbn, the international subsea cables that the chairman mentioned poles, ducts, and pipes. Let me take a moment, though, to remind shareholders the rationale for setting up Telstra InfraCo, which is threefold. Firstly, we're conscious that the investment community increasingly considers infrastructure assets differently from operating businesses. Therefore, InfraCo provides a greater degree of transparency for our shareholders on the very significant infrastructure assets that we own. Secondly, by housing our infrastructure assets in a separate standalone business unit. This creates and facilitates stronger management focus on maximising the value of these assets. And thirdly, to create optionality for the future, particularly for when the nbn might be privatised, given that this is the stated policy of both sides of government.

And encouragingly, we are making good progress on all of these objectives. The third pillar of T22 is on simplifying our structure and ways of working. A critical part of transforming Telstra for the future is changing how we work to allow our people to collaborate more easily so that they can deliver better, faster outcomes for our customers. The chairman has described earlier the changes that we are making in our workforce and in particular, the numbers of people that are impacted. And that is why we are continuing to make sure that we support those people through up to $50 million transition program, which provides a range of services for those that are moving into new roles. The full strategic pillar is delivering an industry-leading cost reduction program and portfolio management. We accelerated our cost program in the second half of 2019 and into 2020, and we remain on track to reach our target of reducing our annualized fixed costs by 2.5 billion by 2022. The other aspect of pillar four is focused on actively managing our portfolio to monetize up to $2 billion in assets.

In this regard, throughout the year, we restructured Telstra Ventures, we exited Ooyala, and more recently we sold the Edison Exchange in Brisbane's CBD, as well as entering into an agreement to sell three international data centres. We also recently announced the establishment and part sale of an unlisted property trust to own 37 of Telstra's exchanges, including existing properties. As part of this transaction, Charter Hall-led consortium has acquired a 49% stake in the new trust for $700 million. This reflects a capitalization rate of 4.4% and values the entire property trust at more than 1.4 billion. So, combined the recent changes to Telstra ventures, the sale of the Edison Exchange and the other transactions that I have mentioned bring the total value of assets monetized as part of T22 to around a billion dollars. T22 is built on the foundation provided by our strategic investment program that we announced in 2016. We have now completed this program having invested $2.6 billion digitizing the business and building the networks of the future.

But let me be clear, without these investments, the initiatives that we are undertaking within our T22 program would just not have been possible. The digitization aspect of the program has seen our customer management, our provisioning, our billing HR, and many other of our computer systems upgraded, digitised, and taken to the cloud as key enablers of the many customer experience improvements that we are delivering. As an example, the announced enhanced functionality on our Salesforce customer management system has helped increase our sales pipeline over the past year. We also introduced Telstra Connect as a single digital channel for business-to-business-customer interactions. Bringing together more than 50 active portals that we previously had. Ongoing investment in our network has also been very important and a foundation for our T22 program. This is about building the networks for the future, including launching 5G this year. I will talk more about 5G in a moment, but in addition to 5G, we also added more than 250 new mobile sites and upgraded a further 1,200 including extending our 4G coverage even further.

As the chairman have mentioned, we now have mobile coverage to 2.5 million square kilometres of Australia's landmass. At least 1 million square kilometres than any other mobile network operator in Australia. Service reliability and resilience also (UNKNOWN) critical factors for our mobile customers and a key network differentiator for Telstra. Since 2016, customer impact hours from outages have been reduced 76% as a consequence of the ongoing improvements that we have been making. We also continue to lead the market in key speed benchmarks. Independent third party recognition for the speed and quality of our network this year included winning the P3 and systemic network surveys for Australia's best mobile network and the Netflix Speed Index for the last 18 months in a row. Perhaps the most significant network achievement this year, however, was launching 5G. Telstra is a global leader in 5G and was the first to introduce it here. The rollout is ongoing and is currently focused on CBD locations and selected regional centres, where more than 4 billion people work, live or visit every single day.

We have already enabled more than 350 sites and base stations around the country in ten cities. We will increase this to more than 800 by the end of the calendar year, and we expect 5G coverage to increase almost fivefold over the next 12 months. As a further 35 Australian cities and major towns are connected. 10s of 1,000s of customers are already enjoying 5G today. In fact, our customers that currently have a 5G device are spending around 26% of their time and 61% of their data on 5G and their 5G devices can let them experience twice the speed of 4G. Ultimately, we expect 5G to deliver speeds up to ten times faster than 4G. 5G is a critically important telecommunications technology, therefore. However, the real point about 5G is that it is arriving at the same time as other key technologies are converging and maturing cloud computing, artificial intelligence or machine learning, edge computing, software-defined networks to mention, but a few because as we move into the 2020s, it's the combination of these technologies that is going to propel the world forward in automation and robotics, autonomous cars and trucks, augmented virtual reality tools, robotic surgery, the economic and productivity gains will be extraordinary.

The changes to our society will be transformational. And the common feature of this technology innovation is that it all depends on high capacity, fast, and reliable telecommunication networks. And that is why it is so important to get the policy settings for telecommunications in Australia, right. It's not just about Telstra. This is for the future success of our nation. In this regard, we believe there are six key principles and policy areas where focus is needed right now to ensure Australians can take advantage of the economic and social opportunities that this rapidly evolving technology environment create. Firstly, Australia needs a policy and regulatory framework that is pro-investment. High-quality telecommunications networks require an incredible amount of capital investment. Telstra spent $4 billion alone just in the last 12 months on capital expenditure. The industry in total has spent more than 12 billion a year over the last three years, and the investment is crucial. There is no point with application developers and software engineers or service providers investing in great products and services.

If the network providers do not have the capacity or the incentive to invest in the communication platforms to support them. We, therefore, urge policymakers and regulators whilst asking legitimate questions, such as whether customers are getting a good deal and a low price. Please do so through the lens of the amount of capital the telecommunication companies need to invest. Most telcos returns on invested capital already below their cost of capital unless the economics, therefore in the industry are allowed to improve. The consequence will be lower investment in the future, which will lead to poor quality networks similar to that which you see in many international markets. Competition is intense in our industry, in both fixed and mobile. The last few years in particular has seen increasing data allowances to customers and other inclusions, as well as falling prices. Competition is good for industry, and it is good for customers, but it would be wrong to conclude that there is insufficient competition in Australia today.

A second objective is the need to ensure the social and economic benefits of the nbn are realised. Australia needs the nbn to be successful, as you heard from the chairman, but as he explained, there are areas where without change our fixed-line networks in Australia are going to continue to fall behind when compared internationally. This will clearly have a negative impact on Australia's competitive standing. Yes, we need the nbn to be successful, but not at the expense of the rest of the industry failing. That has to change. The third objective is that we must have a regulatory and policy framework that has the same rules and for the same service, regardless of the origins of the industry or the provider. Technology is evolving very quickly, and regulation is struggling to keep pace. As a consequence, some of the policy settings in place today are no longer fit for purpose. For example, many companies such as Telstra hold telecommunication carrier or broadcast licences. These licences impose very significant obligations on us and liabilities, if we do not meet these obligations, there are serious consequences.

At the same time, many of the services that we provide are increasingly mirrored by companies who sit outside of this regulatory framework, including those that operate over the internet rather than traditional channels. These service providers do not have the same universal services obligations. They do not provide the same customer protections as telecommunication companies. I'm not criticizing them for that. I'm simply making the point that it is an unlevel playing field when it comes to regulation and this is bad for competition and bad for customers. My fourth point is on the critical issue of security, cyber breaches and security incidents are definitely on the rise. Our 2019, cybersecurity report shows that 65% of Australian businesses were interrupted one way or another by a cyber breach over the last 12 months. Meeting this challenge needs tight engagement between government who control national security policy and the private sector, where much of the technical innovation in cyber to security takes place.

The importance of ongoing engagement on critical topics such as regulation and encryption, data retention, the operation of networks, interception grow more important by the day. In fact, more important by the hour. My fifth point is that policy and regulatory framework for telecommunications needs to be pro-innovation. As a nation, our future has to be built on innovation. It is the key to diversifying and strengthening our economy. The key to driving the creation of new globally connected industries. The key to developing a strong services based export sector. And the key to produce to boosting productivity and driving new employment. Telstra is part of this. We're currently in the process of recruiting more than 1,500 new roles into the companies in new areas such as software engineering, data analytics, and data science, and cybersecurity. However, the pool for which we are recruiting domestically is too small. Last year, Australia's tertiary system produced about 1,200 software engineers.

Telstra is seeking to recruit 1,500. India produced 44,000. We must therefore continue to support and increase the emphasis on science, technology, engineering, and mathematics subjects through every layer of education, training and retraining sectors in our curriculum and in our classrooms. We must also systematically review our regulations in every industry and every sector, in everything from R and D, immigration visas, dialling up the incentives, and dialling down the red tape. My final point is that we must have a framework that is pro customer and in particular in pro in inclusion. Too many Australians and particularly regional low-income Australians are simply missing out on the opportunities of the digital age. Policy must continue to recognise these divides and contribute to a future where a focus on affordability, accessibility, a digital ability programs, work to build inclusion, particularly for vulnerable and low-income customers, those that are most in need.

ANDY:

As a society and as an economy, as businesses and as individuals, we have become incredibly dependent on our telecommunications networks. That is why telecommunications is fast becoming and arguably already is the single most important infrastructure in every company, in every community, in every state, and in every country in the world. It is also why Telstra remains absolutely committed to ensuring that business is future fit with the best network. Shareholders would be aware that just last week we announced that we will switch off our 3G technology in June 2024. As we grow and upgrade our mobile network, we have reached a point where we must say goodbye to the older network technology, just as we did in 2016, when we switched off 2G to give 4G a boost. We're now at the point where we need to look at switching off 3G to give that spectrum to 5G. Before finishing up. I would like to reconfirm our guidance for the 2020 financial year. The guidance, which can be seen on the screen behind me, was updated last month following the release of NBN's 2020 corporate plan.

That plan indicated a 25% reduction in the total number of premises forecast to be connected during 2020, from two million to 1.5 million. A change, obviously, of that magnitude does materially impact Telstra's guidance on total income, underlying embittered, and the amount included in the NBN headwind, as well as their net one-off NBN receipts. Less the NBN net cost to connect. This change also led Telstra to update a 2020 cost reduction target from 660 million to 630 million. The changes to forecast activations also affect and defer SSI receipts from NBN from 2020 into the future. This, of course, will also be partly offset by the natural hedge, including benefits from lower NBN costs to connect lower network payments to NBN and retained wholesale EBITDA. I want to reinforce, however, that the only change to this NBN rollout and their corporate plan has changed our guidance for 2020. I would also like to highlight that the updated plan does not alter our view provided to the market in August, that our underlying EBITDA when we exclude the NBN headwind is expected to grow by up to $500 million in 2020.

This is a significant improvement on the decline of around 400 billion in 2019 and goes to the point that the chairman has said why this is such an important year and such a point of an inflection point for the company. So, let me summarise before I hand it back to the chairman. 2019 was a year in which we met our guide and built important momentum behind our 02:22 strategy. As expected, and as previously flagged, our results currently reflect the current market realities, including the impact of the NBN and intense competition. Whilst these factors will continue to influence the year ahead, we are now approximately halfway through the negative headwind from the NBN and we expect the hard work from our teams to translate to momentum in the underlying business. That progress was the result of the combined efforts of many people, including many dedicated employees. Every day they are focused on serving our customers and helping to return value to our shareholders. And on your behalf, I want to sincerely thank them for their efforts and their commitment.

I'd also like to thank the Telstra management team, many of which are here today for their dedication, hard work, and willingness to step up to the very significant challenges this year. I'm incredibly proud to work with such a talented and committed group of professionals. We are sitting at an incredibly exciting inflection point in technology, in telecommunications, and for Telstra. We are only a few months away from the dawn of the 2020s. We're already at the dawn of 5G and we have entered a period of rapid technology innovation, which will provide significant opportunities for your company in the future. T22 is about positioning in this world as a simpler, more digitally enabled business with the best network, the right economic model, a strong balance sheet that skills and capabilities, cultures, and ways of working that we need to succeed. Thank you. And let me hand it back to the chairman.

SPEAKER:

Great. Thank you very much, Andy. So, turning now to the film business of the meeting. The atmosphere of business for today's meeting is set out on the screen. I will shortly introduce and invite questions on all of these items. But before I do, I'll outline the question and voting procedures for today's meeting. When you registered this morning, you will have been given a card. Yellow cards are for shareholders who may speak and vote, blue cards for shareholders who may speak but not vote. You will need your card to ask a question or re-enter the meeting. I will introduce each item and then invite questions from the floor. There are several microphones located in the room, as you can see with the numbers there. If you'd like to ask a question, please move to the reserved seating area behind one of the microphones. Please share your card to the microphone attendant and give your name. As a courtesy to all shareholders. Please also state your affiliation if you are not here today in your personal capacity.

The microphone attendant will invite you to the microphone when your turn comes. As always, in the interests of all shareholders, please try to ask only one question at a time, and keep your questions and comments in no more than two minutes to allow as many shareholders as possible to speak, and for me to remember what you asked, and also, please, ask questions which are relevant to shareholders as a whole. If you have individual, customer, or shareholder issues, that's fine, but please speak with one of the customer service staff here who can help you. They are located in the room here and in the customer service area outside wearing Telstra shirts. If we can't answer your question fully here today, then we will aim to provide you with a response after the meeting. As I mentioned at the start of the meeting, voting on items three to five and six, if required is being conducted by poll. For shareholders who are able to vote at today's meeting. You can lodge your vote by completing the voting boxes on your yellow card.

If you have questions about voting at any time today, please speak with one of our staff in the room here or in the shareholder registration area outside who will be happy to assist you. We have received proxies from nearly 22000 shareholders and direct votes from approximately another 13,200 shareholders. The votes recorded for and against each item will be shown on the slide behind me at the conclusion of a discussion of that item. The four numbers displayed for items three to five and against four items six, if required, will include proxies received and available to be voted by the chairman of the meeting. Miss Emma Jones of Link Market Services Ltd, Telstra Share Registrar will act as returning officer in relation to the poll. The results of the poll on items three to five and six if a second strike is received on the remuneration report will be available later today on the ASX and on our website. Lastly, a light lunch will be served at approximately 12 noon. However, if the meeting is still underway at that time, we will not be able to adjourn the meeting for lunch.

So, I turn now to Item two on today's agenda, which is to discuss the company's financial statements and reports for the year ended 30th June 2019. This item provides shareholders with the opportunity to ask questions about and comment on 2019 financial statements and reports, as well as the business operations and management of Telstra. You may also ask questions of our auditor shareholders. I now invite you to move to the microphone to ask any questions you have about our 2019 results or any general questions you have about the company. We're ready to go. Number three?

EMMA JONNES:

Chairman, I would like to introduce Sue Shields from the Australian Shareholders Association.

SUE SHIELDS:

Good morning, my name is Sue Shields, and the volunteer company Monitor with the Australian Shareholders Association. Today, I hold proxies from over 2000 shareholders for approximately 27 million securities, which puts the RSA in your top 10 shareholdings. The ordinary dividend this year represents a 59% payout ratio on underlying earnings, while the Australian Shareholders Association appreciates that in determining the dividend, the board took into account the objectives of maintaining financial strength and flexibility. It's well short of one of the principles of Telstra's capital management framework, namely a payout ratio of 70 to 90%. What assurances can you give us concerning future payout ratios?

SPEAKER:

Great. Thank you. Thank you very much. Good question. I can't give you a firm assurance to your question. The policy on capital management is well laid out, and it seeks to achieve a combination of both balance sheet strength while returning as much as possible to shareholders at the same time. We are very conscious that this year my ordinary pay that 59 on the special, I think about 63%, overall payout this year was around 88%. It's inevitable. Well, that's our framework. But there will be fluctuations from time to time. This was a particularly unusual year with a lot of redundancy costs and restructuring going on. Next year will be a cleaner year and we hope, going forward as well. So, we're very confident that over time, we will absolutely adhere to those two measures we have given being served in the minds of ordinary and approximately 75% of the special. So, you can be assured of that. Thank you. Another one?

EMMA JONNES:

Chairman, I would like to introduce Shane Murphy from Sydney, New South Wales, to speak.

SHANE MURPHY:

Thank you, John Andy, And shareholders. I stood here as a national president of the CIA. You were not here, but in Sydney, 12 months ago or around that time at the last AGM. And since then, we've continually seen customer frustrations, lower payments to shareholders, and whilst we've seen a slight increase in the share price. We're seeing a significant increase in offerings in pay or remuneration to the CEO. At the same time as that, offering of some 33% to 34% remuneration increase is being offered, workers are still struggling to get an enterprise agreement with the company. Whilst we have made some significant inroads over the past negotiation meetings, we are still without an agreement for working people. They are being offered or paid pay rises below inflation. And yet today we still have the CEO being offered some 34% increase in overall remuneration. That clearly causes us as representatives of working people in this nation, in this company, concerns. There's a clear disconnect between what current workers who form a big part of the success of this company are being offered compared to those at the executive level or the CEO.

Thank you.

SPEAKER:

Thank you, Shane. I, of course, 100% understand where you're coming from, but let me try and make a couple of points in response to that. Firstly, I did mention in my earlier comments it's Andy's total remuneration rose by 34%, but that is firstly a fixed and variable amount. The fixed remuneration of the CEO at Telstra has been falling for 10 years and is now lower than it was 10 years ago, and his variable remuneration goes up and down with results. And yes, it went up 34% this year. But let's not forget, it went down 50% in the last two years, so he is still 20% below where he was two years or three years ago. So, no one is expecting your members to take a 50% reduction in their compensation and remember they have a fix, but they also have a variable pace, which you didn't mention. So, there is an SGI component there for employees as well. That said, look, there's no easy answer to your concern other than saying that the amount being offered today, which I think is 1.5%, is actually more than inflation.

Inflation, to my knowledge, is a little bit lower than that, and I have every confidence that the management team will find an acceptable resolution for both you and the company. Thank you.

EMMA JONNES:

Chairman, I'd like to introduce Kyle Robertson, from Northern Victoria.

KYLE ROBERTSON:

Mr. Chairman. My question is about the risk with 5G. Given that Swiss Re-lists 5G and its top five risks for 2019. Can you confirm that Telstra has no public liability insurance for any injury caused by 5G and therefore assumes full direct liability for all claims? Why does the board deem it appropriate to expose shareholders to such extreme liability by deploying 5G technology before the safety of technology has been positively established through comprehensive independent testing instead of through extrapolation, assumption, and experimentation on the public and further infringement of the Nuremberg code prohibits experimentation on human subjects without consent. It says consent is absolutely essential. I want to make it clear I do not consent.

SPEAKER:

OK, thank you. The whole industry, including Telstra, has spent an inordinate amount of time and money on researching any potential health impacts of all ages, not just 5G. So, have governments, so have a wide number of international studies. I can assure you, we are acutely aware of our responsibilities in those areas. But there is absolutely not one shred of evidence that 5G or for that matter, 4G has any harmful effect on humans. And I realized for those that believe, like anti-vaccination or even the flat Earth society, it is very hard to change people's opinion. (CROSSTALK) Just let me just finish. If ever there is any indication whatsoever that we and the industry are wrong, you can be 100% sure that we will not only accept the liability, but we will be all over it. But as of today, there is absolutely no evidence.

KYLE ROBERTSON:

May I just refer you to Professor Martin Paul from the University of Washington? I met the professor there, who, in an open letter to ARPANSA, stated 187 bodies of evidence about human exposure and health risk?

SPEAKER:

Well, the same thing about vaccination and flat earth. I'm sorry. We can only go with the science that is proven by a majority collective view, and there is no such science today.

KYLE ROBERTSON:

I'll also state, for the record, that I am electrically sensitive, so I really don't care what your studies may or may not prove because I feel it.

SPEAKER:

I can see you are a very sensitive person, and so am I to this issue. We will do the right thing, I can assure you.

KYLE ROBERTSON:

Thank you. And before (INAUDIBLE)

EMMA JONNES:

Chairman, I'd like to introduce John Ellery from Warragul Victoria to ask his question.

JOHN ELLERY:

Yes, good morning members of the board. Just to introduce myself, John Ellery. I'm a senior union official with the communications union. Previously, I spent, from 1975, 19 years working in Telstra's leading research area, so I'm not unaware of the circumstances of new technology and all that sort of stuff. I've spent the last 25 years watching a really great company go downhill. And quite frankly, you people on the board really need to ask one simple question of yourself. And that is, where are you taking this company? This company now employs less than 25,000 staff.

SPEAKER:

Originally, it probably employed about 100,000 Australians. So all those Australians that used to work for a once-great icon in Australia. Most of them don't work for that company anymore, and it's an absolute disgrace. The intention with T22 is to have 9,500 job cuts, not the reported 8,000. It's 9,500 job cuts. That will leave less than 20,000 staff once this program of Mr Penn is completed. You, you the board, have corporate responsibility given you have been set up by the Australian taxpayer. That's where Telstra came from, a company owned by taxpayers who clearly expected jobs in Australia for Australians. That arrangement allowed many thousand Australians to be employed and pay their taxes and do all sorts of things that every average everyday Australian as a worker did. You have 20,000 staff members who are seeking security in their job. With Telstra not with some constructed arrangement that you're pursuing at the moment. Which is to appear to throw most of those people across to wholly-owned subsidiaries.

That's what we're learning out of our enterprise agreement negotiations. That your master plan is to probably get the bigger, wider Telstra down to about 5,000 staff. Now that is outrageous. People who are moved or potentially moved across to subsidiaries are in a very precarious position. And we call on you to stop that madness. You've also got 20,000 staff, as Shane mentioned before, who are being offered a paltry ludicrous pay rise at the very same time that Mr Penn is seeking a 34% pay rise. Again, we say absolutely outrageous, ludicrous and you should stop this nonsense. You have an extremely contentious enterprise agreement proposal that is really all about trying to force staff to take long service leave, for instance, at the behest of the manager, not at the individual. People who have been a long-serving staff of yours are now being pushed into taking long service leave when the boss wants them to. Again pull back on these ludicrous plans that you have, you claim it's cost-cutting we say it's ludicrous.

So I repeat, what is your master plan for these 20,000 current staff? Or is it only to have 5,000 Telstra staff and then have the rest of them moved over to subsidiaries? Or just plain sacked or moved or their jobs moved offshore? You've been pretty good at that. You got a lot of calls in the staff offshore in Manila. You got a lot of technical staff not even working for Telstra, doing Telstra work that was done in Australia by high-level technical people over in Pune, in India. So you've really got a real question about you. About what are your moral guidance, what is your moral guidance? About, you know, where are jobs being produced in Australia? 20,000 of your current staff really wanna know where their future lies. I'll leave it at that. Thank you, board.

AUDIENCE:

(APPLAUSE)

CHAIRMAN:

OK, thank you. I did try to address some of this in my earlier comments. Of course, we take it very seriously. We do not like, we feel the human impact of losing staff. But your suggestion that because Telstra once employed 100,000 people, somehow we're doing badly when we no longer employ that. I think if the measure of a company's success was how many staff it was employed, not sure that the shareholders in this meeting would be very happy with us. The reality is our world is changing. I've been through the impact of the NBN. Half of those 6,000 which is ultimately gonna be 8 or 9,000. Those people are losing their jobs 'cause we're losing half of the business that we used to operate. Are you really suggesting that we keep those people just sitting in an office somewhere while the work is being done in another part of the industry? Unfortunately, we're not alone. Every industry is going through. If you're going to David Jones and go in the lift, there isn't somebody who got Jingjing which floors you press a button.

No, that is happening across every industry, and ours is probably at the leading edge of it. Your 5,000 staff thing, is the first I've heard of that. I'm not aware of anybody on the board I can see management nodding. We've never heard of the 5,000, so I'm not sure where you've invented that from. Where are we going? Well, we're just trying to explain we're going through the biggest transformation this company has ever been through. The T22 program is extensive. It's to make sure that Telstra survives and wins in this environment where everyone is going through the same thing. You look at every big telco, they have exactly the same thing. They're laying off staff. They're restructuring, they're embracing technology. Sadly, that is the reality of life. And one more thing on Andy's pay. I really have to say I struggle that for some reason the business community is singled out. You know, if somebody devotes their life to sports and on a Friday night, they then instead of going out with their mates, they go training and they give up their holidays and weekends.

They get to top of their sport, they get rewarded for it, and no one seems to begrudge that. And so same with music. The online gaming industry young kids can earn $5 million now by playing Fortnite. And even influencers you can earn millions of dollars just by wearing a nice jacket and standing in front of a landmark. And yet, when a business executive devotes a huge portion of their life, they work long, long hours, weekends. They miss family events when they get to the top of their profession. Somehow, it is morally wrong that they get rewarded for it in an international global market. I think that is wrong. Thank you.

AUDIENCE:

(APPLAUSE)

CHAIRMAN:

Number three.

SPEAKER:

Chairman, I would like to introduce Scott Hunter from Melbourne, please.

SCOTT HUNTER:

Good morning. I've got a few brief comments to make. In 1983, there were 26,000 public phone boxes. There's now 13,000. These are public assets originally paid for by the taxpayer need to be kept and maintained, and therefore emergency calls are often needed. The new design has no privacy to make a call. It used to be a booth with a bench to put one's bag and documents on. The new ones don't. They're designed by someone who doesn't use them. 50 cents for a call if you use a $2 coin, you don't get change. Every other device in this country, ticket machines, drink machines give change. Why don't phone boxes? The Telstra pricing of some services is wrong and unfair. The cheapest home phone plan is $42 a month, with each call to a mobile phone charged at $1 a minute. Mobile plans can be got for $30 a month, which is $1 a day, with unlimited calls to mobile phones. One is too cheap, the others too dear. There are a lot of pranks attempted scam robbery nuisance calls that need to be blocked, traced and stopped permanently.

Particularly once fraudulently claiming to be Telstra staff. The technology is available to do this. The aim of these scammers is to steal information to rob everyone they contact. This could bankrupt potentially everyone in Australia. Don't wait for the government to ask you to stop these calls. Telstra should show leadership and do it themselves. Is there a Telstra museum? If so, where is it? If not, why not? It could display PMG Telecom and Telstra history in artefacts, phones, phone books, phone boxes and phone cards. There's a secondary market for these items and souvenirs. Telstra should be middle manning the price. When someone comes out to connect up the NBN and the contractors are used through incompetence, cut off the Telstra service to a house and you have to ring up and get Telstra to come out and repair it at Telstra's expense, and you're left without a phone for three days. Does Telstra pass on the cost of this back to the NBN or do they just pay it themselves? If they pay it themselves, why?

And when you sack 4,000 middle-level management staff that leaves staff at the bottom unmanaged. Is this wise? What happens to the sacked staff? And it's not just the person sacked, but the position forever. Can't you retrain them as the IT staff you need?

AUDIENCE:

(APPLAUSE)

CHAIRMAN:

Well, thank thanks for sticking to the two questions. Yeah, that's one two three four five six seven eight, that's nine. But I'll do my best. I'll do my best. So on the phone boxes, I have to say I'm not intimately acquainted with why it doesn't give change. But I'm sure Andy if you got do you wanna say anything about that?

ANDREW PENN:

Well, I'd happily say so. We actually have 15 and a half thousand public phone boxes at the moment. They're under the universal services obligation with the government, so we work with them regarding the design and the placement of them. But ultimately, you know, our aspiration is actually to make them free. So it does not make sense to go through and systematically upgrade the technology to provide change we'll make them essentially free over time.

CHAIRMAN:

Great. The next one was on mobile charges. Look, this is a very dynamic industry. Mobile plans have to be competitive with the rest of the industry. We make no secret of the fact that we're more expensive than most operators because we believe we have the best network and the best service. But that said, we have to be competitive or people wouldn't use us. On the scams, that is a very difficult one. And it's easy for you to say we should just wave a magic wand and fix scam calls. We can and do block numbers where we know that scams are originating. But the technology is out there is to rotate through millions of different numbers. A call comes from a different number every time. We and the rest of the industry we're working with, ACMA are working with ACCC on trying to find ways of identifying the sources of these scam calls and trying to build technologies to beat them. But it's a constant race as the scammers and the criminals, like in many areas of society, are always innovating and one step ahead.

All I can say really is the individual has to try to use their own wisdom, and if you don't trust it, just hang up. If it's really important, it'll come back. If it isn't just hang up. And there is actually a Telstra brochure which can be found on the website and saying, Is it really Telstra calling? That will give you some guidance through that. But sadly our society does have criminals in it and we don't have a solution to fixing every single one of those criminal attempts. Is there a Telstra museum? Yes, there is, and it is in Hawthorn, it is actually well worth a visit. Some fantastic history in there. Regarding the NBN I can't really generalize. It depends when a fault is fixed, whether the fault was the fault of the NBN or it was the fault of Telstra or some other matter. But I can assure you, we don't give NBN a free ride there. You asked what had happened to the 4,000 middle management staff? Obviously, I don't know the individual outcomes. But I do know that Telstra's invested $50 million in trying to help people retrain outside the company.

And within the company, we have an extensive retraining program, which I think we'll see 1,500 people or something or more actually move into other jobs. That I think was the end of your nine questions. I hope I've answered those. Thank you. Number four.

AUDIENCE:

(APPLAUSE)

SPEAKER:

Chairman, I would like to introduce Vince Misquera (UNKNOWN) from Sunshine Victoria.

VINCE MISQUERA:

Good morning, John. I have a two-part question. My first question is directed to the CEO, Andy. I'm a former employee of Telstra. Andy when your predecessor, David Thodey was in charge we had an active Telstra alumni program. Under your leadership, it has gone quiet. My second part is second question is when I was going to university many years ago, a professor of economics said to me that the salary of the lowest-paid employee and the highest-paid employee should never be more than 10 times that. So that we don't have a situation where we have CEOs becoming too rich. Would you look at having some sort of a ratio for Telstra? Thank you.

AUDIENCE:

(APPLAUSE)

CHAIRMAN:

Let me answer the second bit, and then maybe Andy you have a go at the first bit. So on the multiple. Yeah, that is something that we are very conscious of. If we look around the world, Australia and Telstra actually performs pretty well and obviously still not to the satisfaction of everybody. The multiple in the United States is 287 times, multiple in the UK is 200 times. In Telstra, it's about 60, but depending on because so much of Andy's pay is variable and goes up and down. If you've got no variable pay, it would be 20. So on a fixed comparison, it's only 20. But obviously, that goes up with whether it's been a good year or a bad year. So we are as Australia amongst the lowest, and Telstra sits pretty well within that within Australia as well. Do you wanna have a go at the first question, Andy?

ANDREW PENN:

Yeah, sure. Look well, obviously. Telstra has a very rich and significant Alumni being such a large organisation. And at different points in the past, we've had various different alumni programs. We obviously take feedback in terms of how they received it and how people want to engage with the organisation. You know, we've mentioned the Telstra museum that's something that a number of our alumni get involved in. Telstra exchange, which is something that we use in terms of our broader communication. As well as Telstra Super, which obviously is an important part of the post-employment support of employees. The formal alumni program was not getting is a significant support that we would have aspired for it to have. I'm very happy to continue to get feedback from former Telstra employees and I'm personally like to speak to them from time to time and get their feedback as well 'cause it's something that we'll continue to look at.

CHAIRMAN:

Thanks, Andy. Number four.

SPEAKER:

Chairman, I would like to introduce Peter Star from Sydney, New South Wales.

PETER STAR:

Morning, John. How are you?

CHAIRMAN:

Good, Peter. Welcome, as always.

PETER STAR:

Yes if I'd been here last year, maybe we wouldn't have got the strike. I apologize for that. For those who don't know, I've been a long term shareholder for more than 12 years. I also represent a number of other shareholders and (UNKNOWN) superannuation pension funds. John, it's always a hard thing remuneration across the board, and I go to a number of meetings. But from where I stand and I heard what Sue had to say. I feel that you look at the mum and dad shareholders look at the share price. And I know it's easy to gloss over and say, Oh, well, it doesn't matter because, you know, back in February 2015, we were at $61 but we've had NBN and all the rest and we got $11 million. And I know Nora's been there and I've been there when all that negotiations and everything we went through. It's a hard thing for mum and dad shareholders sometimes to say, well, you know. Friday, our shares closed at 357. Yesterday we closed the 350 because of some announcement, you know. We just getting tossed around and we feel it, especially for the people who are holding and continue to hold and indeed even reinvest.

So I just think that as far as what we're gonna pay Andy from the shareholders I represent and myself personally. I don't have a great problem with it, but I just think we just need to be aware of the alignment as far as where the shares and the price sits. Because that's what affects mum and dad shareholders. And this company is made up of a lot of mum and dad shareholders. John, your predecessor, Miss Livingston, was probably wish that she was back here instead of being dragged through the mess at CommBank and the Royal Commission and the tears that's brought her. But you're here. So it is the mum and dad shareholders are very important to this organisation and to this company. So I'll have some other things to say on other questions. But and again, the second one just for you, John. Andy, I don't know if Michael Eklund is here. Is he here, Andy?

CHAIRMAN:

Depends on what you're gonna ask.

PETER STAR:

Don't worry.

CHAIRMAN:

Yes, he is. He's here.

PETER STAR:

I hope he got the message from his staff.

CHAIRMAN:

Did he get the message? He did.

PETER STAR:

Now he knows me, he'll be able to talk to me. Thanks, John.

CHAIRMAN:

Thank you. Look, Peter, of course, we are acutely aware of the impact that the share price has on mums and dads, on superannuation funds and the like. We have, I think, pretty well. The highest retail shareholder base of any major corporate in Australia of around 50%. Which is all of the people in this room today and many, many, many more. We have 1.3 million shareholders, the vast majority of whom are private individuals. So we absolutely understand that we are all shareholders too. Every one of us sitting on up here is a shareholder, so we experience it too. The reality is, however, we only have a limited degree of control over what happens to the share prices. And big business is no different to a little business. You know if you're in a small business, if you've got two news agencies and they're both making a profit and you sell one newsagent, you'll only have one news agency left. Are you gonna employ all the same number of staff? Are you going to earn the same? No, no, you're not.

And that's what's happening to Telstra. The NBN is taking away about half of up to half of our net profit, which from which dividends are paid and obviously impacts the share price. So that's the fact we can't do anything about it. But other than that, we then have to not just sit on my hands, but we have to try to rebuild Telstra as actively as we can so that we can increase dividends again one day and see our share price rise. And that's what's the T22 program is all about. And there are many thousands of people working extremely long hours trying to deliver the sort of result that you ask for from mums and dads shareholders. So we will never forget it. We can't unfortunately wave a magic wand. But we will never forget our responsibility.

PETER STAR:

Thanks, John.

CHAIRMAN:

OK. Number one.

SPEAKER:

Chairman, I'd like to introduce Ian Blair from Carlton Victoria to ask his question.

IAN BLAIR:

Thank you very much for this opportunity. Firstly, I'd like to congratulate the board for having a good presentation, and I hope that it's available on the net rather than just having it as a printed document. (CROSSTALK) Secondly, I in over a 10 year period, worked for five years with Telstra, so I'm a strong Telstra fan.

SPEAKER 1:

I've got one observation and one question. Firstly, I was there at the time of the NBN negotiations. And I was appalled that the board rolled over with Richard Alston and let the government turn around and take it away. Telstra was in a fantastic position to have rolled out the whole NBN, done it for half the cost, and yet got totally Turnbull and everyone else torn it apart. So, I think it's too late to plead. But in future, have a bit of backbone to stand up to the government. And to turn around, Telstra is a huge company. And with all the fathers and mothers and families, shareholders, you should be able to convince the government on proper policy. So, Gina Rinehart was prepared to get out on the mining industry, and the mining tax. Let's see the board on the back of a truck going around and convincing the government on good telecom policy because as you rightfully pointed out, the whole future digital disruption is going to dominate every industry. And we need to be on top of it. So, the question is, how about Telstra having a fantastic training program that's available to us shareholders, so that we can keep up with 5G, and what the next one is, but also train their staff that are coming away so that we don't have to get them in on 457 visa's thing.

We've got the talent in Australia, let's train them and use them here. Thank you.

JOHN MULLEN:

Good. Well, firstly on the NBN, and backbone, et cetera. I think I made some comments earlier. They're clearly some strong views around these to what the NBN could have been or not been if things had been different. But they weren't, where we are. I mean, please don't forget that when you're negotiating with a government, it's not a normal commercial relationship, because they just pass a law to make you do what they want you to do, and that's quite hard to fight. However, today we are where we are. And yes, we absolutely try to have a backbone, as you put it, to robustly defend the interests of Telstra. But we're also mindful, as you heard from both Andy's comments to mine, that this currently, anyway the NBN and the broadband issue. That's a national issue, that's not a Telstra issue, or an NBN, or anybody else. It's a national issue that the whole industry and government needs to get together to resolve. And you can be sure that we will absolutely do our part in that. Then, I think you asked, how do you as shareholders ensure that the company is keeping up with technology and leading Telstra in all the changes that are going on?

I can honestly say there, I've been amazed in the time that I've been at Telstra that, Telstra really does punch above its weight as the expression goes on a global basis. So, we may be a big fish in the little pond here in Australia, when you go overseas, Telstra's very little fish in a very big pond. But I'm constantly amazed at the access that Telstra gets, the recognition that Telstra gets for the innovation that takes place under Andy and the team. And it's something a long tradition. A whole number of industry firsts have taken place here in Australia, the most recent one being 5G on the Gold Coast with Ericsson, which I think was the first. That was the first global demonstration of how Andy, personally sits, not just on the GSMA but he's on a quite number of industry bodies and forums where Telstra's voice is heard loud and clear. And I can absolutely say, Telstra is right up there at the cutting edge of change in our industry. And we as a board will continue to 100% support Andy and the team in making sure that Telstra stays there.

Something I think you can be justifiably proud of. Thank you. Number three.

SPEAKER 2:

Chairman, I would like to introduce Norman Wong, from Melbourne.

NORMAN WONG:

Thank you. Mr Chairman, members of the board, and shareholders. My question is, how active are your customer satisfaction surveys if they exist? Thank you.

JOHN MULLEN:

Thank you. So, trying to keep pace, obviously, with what the customer thinks, given the number of customers we have, 18 million or more, is always a challenge, and no measure is perfect. We measure two principle metrics, which is around the Net Promoter Score Methodology, which is a widely accepted methodology used in the marketplace around the world. We divide that into an episode. And by episode NPS we mean, when you've just had an interaction or an experience with Telstra, you've just been on the phone, or you've just bought something from the store, or whatever you've just that moment done, we ask you for your feedback on Telstra's performance and customer service, at that moment in time. That we feel represents the cutting edge of change and improvement that we're making in Telstra. Then, we also measure what is called Strategic NPS, which is a sort of general perception of Telstra, would you recommend Telstra to someone else, et cetera. That inevitably lags movement. If the company goes into decline or starts to really improve, it takes a while before the general perception changes will do eventually.

So, what happens in an episode will ultimately impact Strategic, but it takes time. So, we measure both in order to try to be on top of the now, but also the general impression that Telstra is creating. And you'll be glad to know that we are making good gains. Still nowhere near where we'd like to be, but we're making good gains and management are targeted at every year. Part of their variable compensation is based around achievement of improvement in those Net Promoter Scores. Thank you. Number three, again, I think, you know.

SPEAKER 2:

Chairman, I would like to introduce Hans Witteveen from Seymour Place.

HANS WITTEVEEN:

Thank you. Good morning, Mr Chairman.

JOHN MULLEN:

Morning.

HANS WITTEVEEN:

In the financial statement, the cost reduction program and reducing fixed costs. It always comes back to staff reductions, 8,000 people, whatever it is. My question is, how is this balanced against maintaining skill levels with it to keep the company going? I did take note of the CEO's comment that we're recruiting people for new skills. But at the same time, you also need to keep people to maintain the old levels until you're at the new platforms. You spoke fairly convincingly on the need to recognize the skills of the board. You spoke less convincingly on the remuneration of the actual staff. But the real question is when you let 8,000 people go, how are you dealing with maintaining the skills to keep the business going?

JOHN MULLEN:

Yeah. Look, that's obviously a critically important issue. It's also a complicated issue, 'cause of the people that leave. Some people are leaving because we just don't have that job anymore. Some people are leaving because technology has changed and that particular activity is now being replaced with another, and a whole variety of different reasons. But I do know that our HR team, you know, very ably led by Alex Badenoch, who is here, puts a huge amount of time and effort with the rest of the management team, on ensuring that the skills mix is right is fit for purpose. Sometimes you lose people you don't want to lose. Of course, it doesn't always go to plan. But by and large, we've been actually really reassured that if anything, the skill set of Telstra is improving. It's rising. It's not declining, as a lot of those older, more manual jobs are disappearing and they're being replaced by more high tech jobs. But it is something we absolutely have to focus on. The race is for talent just as much as it is for financial success.

And we have to make sure that we're up there and a leader, in that respect. Number one, please.

SPEAKER 3:

Chairman, I'd like to introduce Bill Davey from Victoria.

BILL DAVEY:

I'm Bill Davey, a shareholder. My question is, what percentage of revenue comes from broadband as against mobile services? And what's your estimate in, say, five years time, the split between the revenue streams?

JOHN MULLEN:

Sorry, what percentage comes from the segments and?

BILL DAVEY:

Percentage of revenue comes from broadband services as against mobile services?

JOHN MULLEN:

Well, correct me if I'm wrong, Andy. I think our fixed revenue is about 19 or 20% of our total revenue, and the data and IP revenue is about nine.

ANDREW PENN:

In mobile, would be close to about 40%.

JOHN MULLEN:

Mobile close to 38, 40%. Yeah. But mobile is a bigger contributor to margin, than the others.

BILL DAVEY:

And what's the estimate in, say, five years time? Is that more mobile against fixed broadband or?

JOHN MULLEN:

Well, we would hope to maintain a strong fixed base despite the whole of the, will change going on in the NBN. That's the one, obviously, where we have less certainty, probably. Mobile is clearly going to be an absolute critical success factor for any telecommunications company in the future. I mean, we have nearly 50% market share. It's our biggest profit generator, and we have by far the best network in Australia. So, we will be doubling down on our performance in that area. That said, obviously, fixed, we're now becoming just a reseller of the NBN, and we have to try and succeed in that world. And we've done actually quite well there in that as the transition took place from a direct relationship with the customer to the relationship through the NBN. There are a lot of predictions that Telstra will lose, share, et cetera. Well, we haven't. In fact, if anything, we've certainly held not growing market share and the old data and IP area, that's obviously an area of considerable flux.

I made some comments there about the NBN's activities in that area. That's an important part of a small but still very important part of our business. And we have to see that transition through it, whether it's to new wideband solutions provided by Telstra, or a resetting of the NBN.

BILL DAVEY:

Thank you.

JOHN MULLEN:

Thank you. Number four.

SPEAKER 4:

Chairman. I'd like to introduce Lee Kilton from Northern Rivers, New South Wales.

LEE KILTON:

Thank you, Mr Chairman. I am representing my self-managed super fund, and I have taken a 50% hit in my earnings from my investment in Telstra this year. So, I feel the pain of some of the staff who haven't had increases. I don't share the pain with the board, because you haven't had any decrease at all. But that's the way it is. Last year, we had a reduction in profit after tax of nearly 10% in the company. This year, we're down 40%. And that is the net profit after tax, which in fact is what affects most of our investment in the company. It seems to me that this meeting should have been held seven or eight years ago when we were given hope for the future by the new technologies, and the new systems that are being put in place. Last year at the AGM, you mentioned that the NBN was the main contributor to our woes, and we all pointed out to you that this wasn't something new you had known about the NBN for some time. Next year, you're saying that we're hitting even greater headwinds with the NBN.

So, I wonder whether 10% to the 40%, will go next year, and consequently what happens to our dividends in years ahead? The buck stops with the board and as I mentioned to you last year, there's no point in bemoaning the fact that we have an NBN rollout that we've known about for 10 years. You've been on the board for more than 10 years and the one or two other members of the board that have been there for significant periods of time. Surely at that stage when they introduced the NBN, you did some modelling as to what the effects of the rollout would be and how you would maintain value in the company when that started to take place. You know, you talked about the newsagent having two newsagents and selling one and not expecting it to be the same business afterwards. Well, what did your modelling say you should do with this company when shares were up around the $6.50 mark, when the CEO was appointed, and when you took over as chair? And we're now sitting at $3.50 in round terms. So, you know, we can say the share price is of little relevance because we can't control what the market says.

What the share price does is it is the collective intelligence of the investing public out there, both here and overseas, as to whether this is a company worth that sort of money to invest in. So, I get back to my point that the collective responsibility here rests with the board as to the direction and the quality of the company and what we are doing with the resources within the company. I asked a question at last year's AGM as to what you're doing with board renewal. Because I don't see any younger faces who've grown up with digital technology, sitting on the board or even recommended for board positions. I see a lot of people who are professional directors that sit on the board that haven't grown up with that space of technology that we are needing to take this company forward. So, can you please explain to me what you are doing with board renewal that reflects the future direction of the company, not the past history of the company? Thank you.

JOHN MULLEN:

Thank you. OK, let me have a go at the first bit. Yes, we did know 10 years ago that the government had an intention to create an NBN. We did not know what form that would take. We did not know how that would be structured. We did not know when it would actually finally happen. So, in all that meantime, we had to continue running Telstra because there was no NBN. So, to suggest that we should have suddenly made all those changes 10 years ago in anticipation of the NBN might have arrived, I think it's a little ludicrous. That said when the NBN did arrive, yes, we did make a whole lot of projections. And one thing, whether we're at fault or I don't know, we certainly read the whole industry estimate that reselling the NBN would be a profitable occupation. Now, we all had different views of how profitable we certainly had our modelling. That, unfortunately, has turned out for the whole industry to not be the case. So, absolutely is the board accountable, 100%, so is management. But it's very easy to say, well, you've lost half your net profit, we'll just go and replace it.

I had this conversation with shareholders all the time. So, what do you actually recommend that Telstra does, that it's not doing now with the G20 program anything else? And very easy to say, just find, 3 billion. But that is equivalent to finding another ASX 20 company. It's the equivalent of creating overnight another Qantas. So, I really think it's a little impractical to expect that a board or management team can wave a magic wand, and just achieve that. That said, we are on the hook 100%, and accountable for doing something about it, which is what we are doing. And the T22 program is one of the most ambitious in the world, if not the most ambitious. As I mentioned earlier, I found it quite interesting that in recent times we used to go overseas a lot to look at other major telcos and see what lessons we could learn, 'cause everyone is going through the same challenges, and they don't have any solutions either. We have gone overseas to look and see what we could learn. The T22 program is actually engendering traffic the other way, and we are starting to have a number of visits from very large international telcos who are coming to look at the T22 experience and the Telstra experience as being leading, in this respect.

So, have we got it alright? No. Are we able to fix everything and fill every gap? No, but I can assure you we are trying extremely hard and that has been recognised in the Global Telco World. Last but not least, your comment about board renewal. Let me say two things. One, I'm extremely proud of the board renewal that we have. We now have an extremely well-equipped board for the challenges of today. We have three leading technology senior executives from around the world who have been through this sort of thing in much bigger economies than ours. We're extremely lucky to have them. And then, we have some very diligent and talented local directors as well. We have two vacancies that we are about to fill. I had been hoping that I would be able to do it before this meeting in order to address exactly your question. Both of those will be filled before Christmas. And one of them you'll be delighted to know is an awful lot younger than all the rest of us on this board. And we look forward to introducing you to her next year.

Number one.

SPEAKER 3:

Chairman, I'd like to introduce Patrick Masrani from Sydney to come to the mike.

PATRICK MASRANI:

Chairman, board, shareholders, Minchin's been made of the Telstra alumni program this morning, it's a cause that the board's devotion could not be questioned on. Indeed, you've bolstered their ranks by nine and a half thousand. Those staff who haven't yet graduated to alumni status are increasingly concerned that their roles are going to be moved into subsidiaries, like corporate nesting dolls. Their terms and conditions undermined each step further removed from the company that's taken. What undertaking can you give to those staff that their conditions won't go backwards, that they won't be undercut through the creation of subsidiaries? Thank you.

JOHN MULLEN:

Yeah. I don't understand why there would be a fear that I mean, a company like Telstra, I don't know how many companies we've got in the group. We've got many 100s, and our employees and or assets are structured all across those. It really is. We are, however, one group. And whether an employee is in this part or that part doesn't make any difference to the terms and conditions. So, we have no intention of some sinister methodology of moving somebody from one company to another, in some way disadvantage them or give them less terms and conditions than they have today. We've no intent to do that.

PATRICK MASRANI:

Sorry. Chairman, just for clarity. So, to understand correctly, that you would not be in a position to give an undertaking that staff will not be transferred to subsidiaries, where they would receive less favourable conditions than that which they currently receive as Telstra employees?

JOHN MULLEN:

I can give you an undertaking. There is no intent to transfer somebody from Company A to Company B, just to reduce their terms and conditions. Absolutely. OK.

PATRICK MASRANI:

Noted.

JOHN MULLEN:

OK. Number three.

SPEAKER 2:

Chairman, I would like to introduce Dr Michael Chong, please, from Rosanna.

DR MICHAEL CHONG:

Mr Chairman, thank you for the opportunity to ask questions. I'm respecting myself, my wife, my family, I'm super fun and the children. We all got Telstra shares from the beginning. And first of all, we bought the share because it was a monopoly. I like Monopoly. Unfortunately, the government changed their mind. And then, they stripped their monopoly from Telstra. And it's very, very unfortunate. But now.

SPEAKER:

This NBN has been built gradually, but now they're not just wholesaler. They're also pinching the customer from the Telstra (INAUDIBLE) and other Optus. Like Coles, Woolies and (INAUDIBLE) they're pinching customer. Would that impact the profit of the retailers? Second thing is that if you, because it's very hard to earn money in this section. Can you ask Mr. (UNKNOWN) create a new business in the Telstra Corporation so they earn money to compensate for the loss of business in Telstra. Thank you.

JOHN MULLEN:

Was there any money to compensate the loss of...?

SPEAKER:

I'm not sure. I mean, the reference was to the NBN entering into the enterprise market. I'm not sure.

JOHN MULLEN:

I'm not sure I got all of your questions so come back if I've left anything out, but we should keep the NBN in perspective. Yes, it's a big impact on our business, but we still have an extremely dynamic and successful business outside the NBN. And I don't want the whole focus just to be on the impact of the NBN. Our mobile business, it's 50% market share in the company. We are absolutely world leading. I gave you some of the statistics earlier, that's probably a rank number two in the world. That is the future of Telstra. So don't be too alarmed that because we're having battles in the fixed area with the NBN that it spells doom for the whole corporation. It doesn't. That said, we were asked about backbone. Yes, we are fighting our corner in that whole fixed area, because it is an important part of our business, a profitable part of our business. And the particular issue that I raised was the mandate of NBN not to go direct to our customers, but to sell wholesale through ourselves and other service providers.

That we believe, is critical, head to the structure and the order that governments have put into the fixed market, whether we like it or not, it's the way it is. But both sides need to respect their mandate. So we will be pressing government and NBN very hard to try to make sure that they honour their side of the bargain. Just like we are honouring our side of the bargain. Thank you. Number four.

SPEAKER:

Chairman, I would like to introduce Kevin Saunders from Melbourne, Victoria.

KEVIN SAUNDERS:

Thank you chairman. I'm a shareholder both directly and as a part of our superannuation fund. My question, you've clearly pointed out today, the impact of NBN on our business. And you refer to it, I think quite cleverly as owning two shops and now you only have one shop. My point is I would like to know, as we now have one shop, do we still require such a large board and senior management? And should our CEOs still be paid the same salary? Thank you.

JOHN MULLEN:

Well, I think that's just a reiteration of the subject we've been over a few times. I would again stress, boards are really important, but what is a lot more important is management teams. And the one thing that you as shareholders can guarantee will damage your interests, is if you don't have a top, talented management team to navigate through these difficult times. Managing a business in good times is an awful lot easier than managing business in difficult times. And it's absolutely critical that the board ensures that you as shareholders have an outstanding management team. Which I believe we do, but we have to support them and remunerate them accordingly or we won't have such a team. Number one, please.

SPEAKER:

Chairman, next up I've got an Emily Cross from Melbourne who would like to ask her question.

EMILY CROSS:

I apologize for my croaky voice. Gentlemen, first of all I usually get up on principle at AGMs because apart from the lady representing other shareholders, no other female has as yet taken to the (INAUDIBLE) microphone here. So, could you unravel this particular little story for me? As I look around the room, most of people have got hair my colour. So I thank you for the platinum plan, but could you unravel this story for me? At the Carlton shop where I usually go for my appointments, in the last six months the first young person who used to take my problems has gone off to do a musical career. He was brilliant. Second one got moved to another store to be manager, good luck to them. Another one has gone off to USA somewhere to take up a position with some US IT company. So my question is, what efforts do you make to keep young people at these lower levels in stores in the company, and give them opportunities to become one of you?

JOHN MULLEN:

That's a very good question. Let me try and answer it with an anecdote. A friend of mine, I discovered by accident, actually has a son working at Telstra. Who is, I'd say he's probably 28 or something like that, a young person. And my friend said, "Would you meet with him and just have a chat? It would make his day." (INAUDIBLE) "I'd love to, of course, no problems." I went and had a coffee with him a little while ago in Sydney. He is an extremely bright young man involved in the digitization project. That's digitizing our company from top to bottom, working in agile teams. And I came away from that meeting so infused probably more, I think, than he was. He said that the digital transformation program going on in Telstra today is the most exciting in Australia. Everybody in his area wants to work in it. I actually know with another hat of being told the CIO, the chief... The head of IT in Toll, said to me that we can't recruit anybody in digitalization because all the engineers have gone to Telstra.

So we do actually have an extremely dynamic young middle core there that is building a Telstra of the future. And these people are all my children's age, they're not our age. Our job is the supervision of the entity overall, but the people who will be sitting here in years to come will be some of those really bright, driven, dynamic and motivated young people in Telstra. I can absolutely assure you, there are a lot of them. Thank you. Well, believe it or not, there are no more questions as yet. Shareholders, even better news, lunch and refreshments are now being served outside. So if I wait... No more questions? Great. OK. There are no more questions there. That's finished, that item. Now, our next item is item three, being director election and reelection. As I mentioned before, we have three candidates standing for election or reelection and their details were served in the notice of meeting. So, I would now like to invite the three candidates, Eelco, Craig and Nora to address the meeting, in that order.

EELCO BLOK:

Thank you, John. Good morning, ladies and gentlemen, my name is Eelco Blok. I'm very honoured to have been nominated to join the board of Telstra. I've enjoyed the journey so far since I joined the board in the beginning of this year. I'm Dutch and have 35 of years of telecommunication experience, of which the last seven years from 2011 until 2018 as CEO of KPN, the Dutch former increment operator. In addition, I was on the board of directors at the industry association, the GSMA, and given my telecommunications experience and the transformation of KPN, I believe I'm well positioned to contribute to Telstra, particularly as the company transforms under the T22 strategy. I look forward to continue to add as much value as I can to this great company, its customers, its employees and its shareholders. Thank you. (APPLAUSE)

JOHN MULLEN:

Great.

CRAIG DUNN:

Well, thank you, John. And good morning, ladies and gentlemen, it's been a great honour to serve on the board as your representative, and I'm grateful for the opportunities to speak to you all today. Telstra of course occupies a very special place in the history of our great country and has always made a very significant contribution and an enduring one to the communities it serves, as I know it will continue to do so. But as John mentioned in his opening remarks this morning, no company's future can be guaranteed or its success can be guaranteed, particularly in a world of such constant and rapid change. And so it is critical that a business can respond and adapt quickly and decisively. That means sometimes making very difficult decisions to stay relevant and to keep providing value to its customers. It obviously needs to do that in a way that's responsible, but also in a way that adds value to the risk capital that you shareholders invest in the company. And as John and Andy has explained, T22 does just that.

And in an environment that we are facing as a company, it's important that the stewardship and effective governance of Telstra, the board level, is done very well. And it's also important that those that take on that responsibility are equally committed to the delivery of the T22 program as it works its way through the next couple of years. And I like the rest of my colleagues, I'm very committed to the roll out of T22. I believe I've made a demonstrable contribution to the board, and I believe I have the career experience to keep doing so. I've worked in the financial services sector for nearly 25 years. I've lived and worked overseas, both in Asia and in Europe. And during that period, I've learned some very valuable lessons, which I think are things that can be shared at Telstra, including during the period of the global financial crisis. And more recently, as with other directors, following the Royal Commission into Financial Services. And a key lesson that stands out for me from both those experiences is the importance of good corporate governance and effective board oversight in providing a clear compass for sound decision making for the benefit of shareholders and customers alike.

I've also made a significant contribution to the development of sound public policy settings in financial services. I've been on a number of important government inquiries. And I think, again, that's something that I can add to given the regulatory oversight in the telecommunication sector. And finally, in a large and complex organization like Telstra, I think it's critical that your board's make up include directors with strong financial backgrounds. And with that in mind, I was very honoured to take on the role of chair of Telstra's audit and risk committee earlier this year. So with your support, I look forward to continuing to support you and working for this great company. Thank you. (APPLAUSE)

NORA SCHEINKESTEL:

Good morning ladies and gentlemen, I feel we are starting to sound like a bit of a broken record, but I can't emphasize enough how Telstra is at the forefront of the profound change that's happening in society today. And it is brought about by new technology, but also by fundamental change in the way where living, working, playing. And Telstra is helping our customers, both retail and business to adjust to these changes, which are affecting every aspect of their lives. But we too are feeling the impacts. And that is why we have embarked on this very important transformation program, T22, so that we can better serve our customers, but also be a fitter and stronger company, delivering good returns to our shareholders and providing meaningful roles for our employees. I've served nine years on the Telstra board. And normally I would've retired at this meeting, but the board has asked me to serve another term subject, of course, to your deciding, to reelect me today. That's because they believe that my experience in the nine years here at Telstra, but also in more than 25 years, serving on many other boards across pretty much every sector of our economy will be of help as we progress through this significant transformation.

I've been part of reshaping other companies facing intense competition in their markets, significant disruption and huge regulatory change. I've chaired many audit and risk committees of major listed Australian companies. And believe that that background will continue to help the Telstra management team and board manage the critical risks which are inherent in the important work we are undertaking. We've also had a lot of change. As the chairman mentioned, we've had change on our board of directors and obviously in our own management team as we prepare ourselves for the challenges that lie ahead. The board therefore also recognized that I could bring both continuity and some corporate history. Indeed, as I think it's been mentioned earlier today, I joined the board while the ink on the first NBN deal was still wet. So I've seen two of those now and we look forward to the next stage. Delivering on T22 and then setting the course for Telstra for the next phase ahead, I think is critical, not just for our company, but indeed for our country.

And I do believe that I can help the Telstra board and management team achieve those objectives. Thank you.

JOHN MULLEN:

Thanks Nora. Right. So now we turn to the formal part of the reelection. So item 3A on today's agenda, which is to consider the election of Eelco Blok. As you've heard Eelco joined the board in February, this year as a member of our nomination committee. And over this last year, we've been recruiting some very talented telecommunications professionals, which greatly add to the wealth of experience we have on the board. Eelco has added to that significant depth, given his recent experience and the similar challenges facing operators all around the world. And he brings great value to the board as we continue to execute on our critical T22 strategy. So the board other than Eelco himself of course recommends his election. I will now take any questions you may have regarding Eelco's election. Do we have any questions? Yes, yes.

SPEAKER:

Chairman and introducing Joanna Richardson from Yarraville.

JOANNA RICHARDSON:

Thank you everyone. I'm OK. I really like the idea of the retention of corporate memory and experience balanced with the renewal of the board. I'm also interested in diversity across boards, not just of gender and age, but background. I'm a bit curious as to why we've gone to Europe rather than our closer neighbours in Asia, which is a very broad idea, but just what was the thinking behind going to the Holland? Yeah.

JOHN MULLEN:

Yes, certainly. So I can assure you, it's not an easy thing finding directors of the talent and capability of some of my colleagues here. We undertook a global search across Asia, Europe, and the United States. It, it is important to us that we try and get a balance because the three regions are very different. The United States in particular is a very dynamic, highly competitive, low regulated environment. Europe is a much heavier regulated environment, a lot more like us, and Asia's probably more emerging and sort of in between the two. We interviewed a number of very capable candidates. And for this position, Eelco was the outstanding candidate. Head and shoulders above the others that we met with. It wasn't necessarily a specific target that we had to have someone from Europe. What we did have to have was somebody who really understands the deep technological change going on in our industry. It is a kind of enormous change as you've heard, but technically it's extremely complicated and I'm the first to admit that myself, when management are presenting a very complicated technological issue, I don't have the skills to necessarily drill down into every last part of that proposal.

And it's very important that we have a number of directors who do have that experience and are able to do that. And Eelco certainly fits that bill. He has deep technical knowledge about our industry, which is absolutely critical. And you don't want your whole board to be all in Tokyo industry. You want a balance as you said, a diversity of backgrounds, which is what we're working on doing. We are cognizant that the gender ratio has dropped due to losing two female directors. We're in the process of rectifying that so that we will get ourselves back up to a much better level by the time we meet next year. Thank you. OK. If there are no more questions, then we will now vote on this item. The proxy and direct voting position is being shown on the slide behind me. As indicated in the notes of meeting, I intend to vote all available proxies on this item in favour of your Eelco's elections. So please now complete your vote for item 3A. Good. Thank you. Congratulations, Rilke. I now turn to item 3B, which is to consider the reelection of Craig Dunn.

As you heard again, Craig has been an on executive director since 2016, a member of the nomination committee and also fulfils an important role as chairman of the audit and risk committee. As I mentioned earlier, he's an outstanding director. He's a highly regarded business leader with significant expertise and experience in financial services, financial technology, and providing strategic advice for government and major companies. The board, other than Craig of course recommends his reelection. And I will now take any questions you have in relation to his reelection. Do we have any questions?

SPEAKER:

Yes. Chairman reintroducing, Sue Shields of the Australian shareholders association.

SUE SHIELDS:

Could Mr. Dunn expand on how, on reflection, his experience at AMP and Westpac adds to his contribution at Telstra?

JOHN MULLEN:

Yeah. Thank you for that. I might ask Craig to respond directly. I think it'd be a lot more fitting than coming through me.

CRAIG DUNN:

Yeah. Thank you, John. And, and thank you for the question. So I'm sure like others who've had responsibilities in leading or governing in financial services, given recent events, they've reflected very deeply on their learnings. And I've certainly done that. I touched on briefly in that in my address to the meeting, but just to go into a bit further detail to answer your question, the sorts of things that I've reflected on go to increasing a focus on non-financial risks. Also to making sure that companies have good and different procedures in place for vulnerable customers who often face greater challenges than sort of the broader customer base. To make sure that we have very good root cause analysis that goes around our customer complaints so we can learn from customer complaints and improve (INAUDIBLE) for customers. And also, I'd say, just making sure that there are very clear accountabilities for management in the day-to-day responsibilities for the organization. And I'm seeking to apply all those learnings as a director on the board and also in my role as chair of the Audit and Risk Committee.

JOHN:

Thank you very much. I think we have another question on (INAUDIBLE).

SPEAKER:

Yes, chairman. I would like to introduce Lee Kelton from Northern Rivers, New South Wales.

LEE:

Chairman, my comments really follow on from what I said earlier on. I have difficulty with this and the following re-election candidate in that they're both being part of a board that hasn't delivered value for shareholders. And I believe in board renewal, and I believe this is an opportunity to have a board renewal. And I see absolutely no reason why we should be re-electing members to a board that hasn't performed.

JOHN:

OK, well, Mr. Kelton, you're obviously entitled to your opinion. One thing I can assure you is we are undergoing board renewal, significant board renewal. If you look along at the table, here are a lot of relatively new faces. And as I said, by the end of the year, we'll have another two new faces. So actually, the issue is more the other way of keeping corporate memory, which was why I was so strongly recommending. I hear you, sir. But I think that your board is actually in a good shape. I feel it's the strongest board since I've been at Telstra and many other boards I've been on. I think this is a very strong board indeed, representing your interests. Number four, again, I think.

SPEAKER:

Chairman, I would like to introduce Peter Starr from Sydney, New South Wales.

PETER STARR:

Thank you, John. Through you, John, to Mr. Dunn, the concerns I have on behalf of the shareholders that I'm here representing myself is you were at AMP and the fallout, as we know from the royal commission and what's happened there. I just can't see how you can not shoulder some responsibility for that, given that you were the CEO and now you're seeking re-election here for the board. And I have to tell you honestly that I can't vote for you.

JOHN:

Thank you, Peter.

PETER STARR:

Thank you, John.

JOHN:

I would just make two quick comments. Firstly, Craig left the board...Left the AMP more than six years ago. And secondly, there is absolutely no allegation whatsoever being raised of anything improper on his part. All I can say is this is a Telstra meeting and a Telstra board. Craig is an exceptionally useful, diligent, and professional director on the Telstra board, and we would be far, far worse not having him on the board. So I and all of my colleagues 100% support his re-election. We think he is a man of great integrity and he brings a lot. Any more questions? Fine in that case thank you very much. I also intend to vote all available proxies on this item in favour of Craig's re-election, so please complete your vote now for item 3B. Thank you, congratulation Craig. I turn now to item 3C on today's agenda, which is to consider the re-election of Nora Scheinkestel. Nora has been a member of your board since 2010. As you heard, she's a member of the nomination and remuneration committees.

She's also a member of the Audit and Risk Committee, which she chaired extremely ably for close to seven years until earlier this year. She's an outstanding director and has served as chairman and director on a range of companies across various industry sectors and in the public, private, and government area. She continues to make a very significant and valuable contribution to our board, and, as I mentioned earlier, provides continuity in light of the changes of the board in recent times, and the board, other than Nora, unanimously recommends her re-election. I will now take any questions you may have regarding Nora's election well, please. Peter.

PETER STARR:

Thank you, John. Hi, Norah, how are you? I'm very glad that you decided to stay another term. I think it's important. All the proxies in my own personal votes will be voting for you. I think you've done an outstanding job. You were there when we were negotiating the contracts. If Sol Trujillo hadn't have staffed it up, Telstra would have built NBN. That's the reality of it for those who don't know. But thank you, Nora.

NORA SCHEINKESTEL:

Thank you.

JOHN:

Praise indeed, Nora. Thank you. I think that's it. Any more questions? No. Good. Thank you all for your questions. We've now finalized the discussion and the proxy and direct voting position is being shown on the slide behind me. Similarly, as indicated in (INAUDIBLE), I intend to vote all available proxies on this item in favour of Norris re-election. Please now complete your vote for Item 3C. It looks like it got ahead of me. So it's great. Congratulations, Nora. Great. I now turn to Item four on today's agenda, which is to consider the grant of restricted shares and performance rights to RCA Andy Penn under the Telstra FY119 executive variable remuneration plan as outlined on the screen behind me. Details of the proposed grants are set out in the expansion attached to the notice of meeting. In summary, the number of restricted shares and performance rights to be granted to the CEO was based on the dollar value of the CEOs EVP outcome. The CEO's EVP outcome was in turn determined based on the performance of Telstra over the 2019 financial year as against specific measures set by the board for that year.

Each restricted share is a fully paid ordinary Telstra share. These shares are restricted (INAUDIBLE) and the CEO will not be able to sell any shares until after the 30th of June 2021. Each performance right entitles the CEO to one fully paid ordinary Telstra share, but the CEO will only be able to receive these shares of Telstra relative total shareholder return ranks at the 50th percentile or greater against an ASX 100 comparator group over a five year period ending in June 2023. The CEO cannot trade any performance rights granted to him. The board, other than Andy Penn himself, excuse me, considers the grants of restricted shares and performance rights to the CEO to be appropriate in all the circumstances, and recommends shareholders vote in favour of items 4A and 4B. And I will now take questions on these two items. Mark (INAUDIBLE).

SPEAKER:

Sorry, it's me again, Mr. Chairman. Can you just clarify these performance rights are being issued based on a value of $3.73 roughly, is it?

JOHN:

It's on a VWAP of five days or seven days, I think.

SPEAKER:

According to the booklet... So there's a dollar value applied to the...

JOHN:

Yeah, $3.7332.

SPEAKER:

...to the award, and that's divided by the share price of $3.73.

JOHN:

Precisely to give the number of grants. Yeah.

SPEAKER:

I know this may sound a bit harsh, but again, when the CEO was appointed, the share price was about $6.50 in round terms. I would be a lot more comfortable if he was assessed on this bonus that he will get on the share value when he took over as CEO. Not drawing a line under the last few disastrous years and saying, let's just issue him right at a reduced level. I mean, to me, he should be judged on his performance since taking out...since taking office, as opposed to some arbitrary figure, which, you know, most of us wouldn't have been happy getting a $3.70 for our shares when we paid $6.50 for them. So I would just ask that maybe we reconsider the number based on what the share price was when he started having an influence on the share price of the company.

JOHN:

Look, I hear you, but his incentive is not on a share price target, it is on a range of metrics that we believe are the right metrics to drive a successful future for Telstra. Every year we go through those, there are quite a number of metrics that make up the EVP, both financial and non-financial. And it's against the success of those that ultimately a grant is given the share prices then just an arithmetic exercise. To calculate...

SPEAKER:

Mr. Chairman that's not an arithmetic exercise. We can talk about gymnastics in the remuneration system, but he is being given a number of shares based on a value which is well below the value of the shares when he took office. So you can talk about the metrics and everything else. The bottom line is the number of shares being offered under this system are based on a much reduced value in the shares in the share value.

JOHN:

The number of shares are based on the share price at the time the scheme is put in place and at the time the targets are set and if Andy delivers on all of those and the rest that are on his team and all of those metrics, obviously we anticipate the share price will rise. It may, it may not, but we can only judge Andy on the things that he can control himself, which, by the way, is a standard market practice across all of the industry. Thank you. Peter again.

PETER STARR:

Thank you, John, just for the benefit of the other shareholders in the room. I just want to point out that I did races in an email to Mr. Payne, and he did respond. And I have to say, John, that our leanings are with the previous speaker, but I can see that you do work hard Andy I know that for a fact. So I will be voting for...But as I said, John's already acknowledged that you know, the mum and dad shareholders really look at that share price, you know, and I know it's a big thing for mum and dad shareholders, as John's acknowledged. And just one other thing, John, while I'm here. I was just asked to mention for those who remember David Thodey, I keep in regular contact with him. He did ask to say hello to all the mum and dad shareholders as well. Thank you, John.

JOHN:

OK, I don't want to be seen to be pushing back, but somebody very eloquently said earlier and it was lovely when we were a monopoly. Monopolies are great things if you have them. They are very bad things if you're everybody else. The world, the world has moved on. Telstra is not the monopoly provider anymore. The NBN is here to stay. It has transformed the landscape. Technology is developing left, right and centre. There are new entrants. There's 5G. This is the real world and I understand the angst and concern of this new shareholder. But just to say I wanted to go back to where it was and be $6 and payout 100% of dividends. It's just not going to happen. We are in a dynamic, competitive world today and no amount of wishful thinking, looking back is going to help. We are where we are today. The responsibility of the board and the management is to try to move us forward from where we are today and deliver as much value to you as shareholders as we possibly can. And that's what we're trying to do.

Sadly, that will not please everybody and we can't turn the clock back. Thank you any more questions. Yes, number three.

SPEAKER:

Chairman, re-introducing Hans Witervane from Seymour Place. Thank you. Thank you again, Mr. Chairman. The previous speaker raised the question of the value of the shares and I believe that because today's dated the decision date, therefore the date of legal effect and the shares should be valued at whatever the market says today. You were fairly eloquent in terms of $6 (INAUDIBLE) which is what I fondly remember. But as you said, we can't go back. The value of the shares should be whatever the market says today, and I believe in legal terms today is when we decide and that's what the CEO should get.

JOHN:

Well, the shares are set at the price at the time the scheme is (INAUDIBLE) and you are being asked to vote on the issue of shares as at that point in time and the price that relates to that, it's not the share price as it is today itself. This was how long ago? Yeah. I mean, it's obviously this has been has to be worked out well in advance of an AGM and all the board has to approve the metrics, the incentives for the management for the forthcoming year. And these calculations are done at that time. And you as shareholders are then asked to ratify that, which you obviously have every right not to do so if you don't agree. OK. I think there are no more questions on that one. So the board...I'm sorry. We will therefore we finalized and we will therefore move to the voting in the proxy and direct voting position again should be being shown on the slide behind me. As indicated in last meeting I also intend to vote all available proxies in favour of the grants to the CEO. So please now fill in your voting cards for items, 4A and 4B.

Thank you very much. So I now turn to item five on today's agenda, which is to consider the adoption of the remuneration report for the year ending 30th of June 2019. In my opening address, the start of today's meeting, I tried to cover all the key aspects relating to remuneration at Telstra this year. I highlighted some of the key enhancements that we've made to the executive variable remuneration plan for the 2020 year to ensure it continues to best meet the overall objectives of our remuneration policy and delivery of T22 strategy, and aligns with creation of sustainable long term shareholder value. We've also, of course, had some quite considerable debate among shareholders here from the floor on this matter already. However, if there are any more questions, I will now take them on item five.

SPEAKER:

Chairman reintroducing Sue Shields. The Australian Shareholders Association supports the remuneration resolution, and we recognize that a comprehensive review and consultation has resulted in significant changes. Increase in investing period of the restricted shares from two to a four year period and the five-year relative total shareholder return on performance shares are high ground compatibility with ASA guidelines. And we thank you for including us in your consultation.

JOHN:

Well, thank you. Those are kind words, and we equally much appreciated the input we got from professional organizations such as yourselves and others. We did indeed engage very broadly, and we had some 44 meetings with major shareholder groups on this. And thank you for your kind words. Much appreciated. OK, I think...I'm sorry, number three.

SPEAKER:

Chairman re-introducing Scott Hunter from Melbourne place.

SCOTT HUNTER:

Yeah, before in justifying payments to Telstra stuff. You said something about sports, people that get paid more in game players and whatever. And these were just bowl kickers, bowl movers, button presses and Twitter influencers who take far more out of society than they're worth and what they put in that's irrelevant to what Telstra paid. But Telstra staff getting say for the CEO $6,000 a day and the 10 executives on Page 46 get over a million a year, which works out to a daily figure of $3,000 a day with the potential to double it. People would say that if they had a job like that, they're on a pretty good wicket. And the incentive to having a job like that and keeping it is to just keep it for one more day. And why do you need long-term incentives when you're rewarding them so well?

JOHN:

Well, thank you. I don't really know how to respond beyond what I've already responded many times to very similar questions. We absolutely recognize executive pay is a sensitive issue, but all we can do is to really diligently, do our very best to ensure that we get a balance between motivating and incentivizing the best management in the business and making sure that we represent shareholders interests at the same time. And I believe we do, we will never please everybody, of course, but I think we have found that balance as best we can.

SPEAKER:

Chairman, I'd like to...

JOHN:

Peter.

SPEAKER:

Chairman, I'd like to re-introduce Peter Starr from Sydney, New South Wales.

JOHN:

It would be easier if you come sit up here with me it will make it a lot quicker.

PETER STARR:

Thank you John just quickly it's probably good, Andy, that you don't make too many more appearances on the 2GB Ray Hadley Show. I think run the company. But he did alright, sir.

JOHN:

I take that as a compliment, Peter, thank you. Great. No more questions. OK. That means we have now finalized the discussion on Item five, the proxy and direct voting position on this item, as well is being shown behind me. And as indicated in the last meeting, I intend to vote all available proxies in favour of Item five as well. Please now complete your vote for this item. Shareholders based on the proxy and direct voting. Sorry positions displayed on the screen for Item five and the number of votes that have been informed are represented on the floor today. It is clear that more than 75% of the votes cast or to be cast on Item five will be cast in favour of the remuneration report. This means that the company has not received a second strike and as a result, shareholders are not required to vote on Item six. The conditional spill resolution item six, therefore, will not be put to the meeting. Shareholders, that concludes our discussion of all items on today's agenda. If you haven't already done so, please do complete your voting now.

Every vote's important. Attendance are carrying ballot boxes throughout the room, and ballot boxes are also located near the exits. The poll will remain open for a further 15 minutes to enable shareholders to cast their votes, and the results of the poll on items three to five will be available later today and can be obtained by visiting ASX or our websites. All items of business having been considered, I can now declare the meeting closed, subject to finalization of the poll. Thank you to all of those of you who viewed the AGM online. Thank you also to our microphone attendance, audiovisual and other support making today go so smoothly. Lastly, thank you very much to all of you for your attendance today, and I now invite you to join us for lunch in the foyer outside. Thank you very much.

PAULINE:

My name is Pauline (UNKNOWN), a Yorta Yorta woman with bloodlines connecting me to South Central Victoria, the home of five Kulin Nations. This acknowledgement of country is an important act of cultural respect, and I take this moment to honour the Elders who have lived and died for their culture. Elders who continue to carry knowledge and practice culture, articulating who they are in their own words and by their own definition. Standing right here, I acknowledge the Boonwurrung, the river Birrarung, Woiwurrung, Wathaurong, Djadjawurrung, and my great, great grandparents country, Taungurung. I acknowledge that I live and benefit in this country called Naarm, Melbourne. I'm kept nourished and connected and grounded. And for this, I'm grateful. Working within Telstra gives me the opportunity to embed cultural knowledge and listen for areas where we can transform together. We can drive change, embedding cultural knowledge. This is vital to who we are and how we do business. Because Telstra's business connects so many people in the far corners of this country, including our international relationships.

We are mindful that who we are and what we do, can have a ripple effect, creating impactful, positive change in people's lives. It's a lifetime commitment to look after our humanity, and we can't be complacent. We owe it to ourselves and to each other. I'm proud to say I'm of the oldest living culture in the world spanning 65,000 years. And you can imagine we've seen a few highs and we've seen a few lows, and we've taken a few risks. But we're still here. I guarantee we'll see a few more highs, we'll see a few more lows, and undoubtedly take a few more risks. That's not only a constant for us. It's a universal theme throughout human societies. I would also like to take this opportunity to extend this acknowledgment to all of you here today. And lastly, in his own words, humanitarian award winner Gunditjmara man Archie Roach says, Be careful when you walk through this land. A child was born here. Thank you and have a great day. (VIDEO STARTS) It's a magical time to be alive. Things we never imagined possible in our part of our everyday lives, cars that drive themselves, farms that run themselves, in cities that think for themselves.

To many, it's daunting, to others, it's the greatest opportunity of our times. That's us. We are technology optimists. We believe in the power of technology to help transform any business of any size in any location. Now, we have reimagined ourselves as a world-class technology company that empowers people to connect. Our network has always been exceptional. Now we're making it smarter, more intuitive, more attentive, so we can become the makers of the magic. Together, we can make billions of devices talk to one another. We can make our cities run like clockwork. Help our architects walk through buildings before they're built. Let our farmers know when it's time to water and help our front line stay safe. Together, we can help secure your most valuable information, and expand your business from Sydney to San Fran. And less time that takes to fly there. There is no one better placed to be Australia's world-class technology company. We have the history, the partnerships, and the resources.

Together, we will be the magicians. And together we will thrive. (VIDEO ENDS)

JOHN MULLEN:

Thank you, Pauline. Thank you very much for that acknowledgement of country, earlier. Good morning, ladies and gentlemen. My name is John Mullen. It's my great privilege to be the chairman of your company. On behalf of my fellow directors, it's a pleasure to welcome you all here this morning. And I also extend a very warm welcome to the many shareholders joining us today online. We have a quorum, and I would therefore like to declare the meeting now open. And notice of the meeting was distributed earlier, setting out the business and resolutions to be considered at today's meeting, and I will take that notice as read. There are five items of business on today's agenda. Firstly, presentations by myself, and the Chief Executive Officer, Andrew Penn. Secondly, a discussion of our 2017 financial statements and reports. Consideration of the re-election of directors, consideration of the proposed grant of performance rights and restricted shares to the CEO. And finally, consideration of the remuneration report.

Voting on items three to five will be conducted by a poll, and that poll is now open. If for any reason, though, you wish to leave the meeting early, you can still vote by completing your voting card and placing it in one of the ballot boxes near the exits. For those shareholders who have registered to use the link vote app, it is also now open for you to lodge your votes electronically if you so wish. Let me now introduce my colleagues here with me today. So, with me here on the stage, Andrew Penn, our Chief Executive Officer, Damien Coleman, our Company Secretary, Warwick Bray, Chief Financial Officer, and my fellow members of the board. Can I also introduce Andrew Price from our auditors, Ernst & Young? Andrew is available to answer any questions that you may have on the conduct of the audit, or on the auditor's report itself. So, let me start by making some comments about Telstra's performance in the 2017 financial year. 2017 was a year of solid progress for the company. It was a year where we delivered our guidance to the market.

We grew income, earnings and profit on a continuing all like for like basis. On a reported basis from continuing operations, total revenue increased by 4.3% to 28.2 billion, and EBITDA was up 2% to 10.7 billion. And one of the most important measures for any company, though, is that it continues to attract new customers. And this year, Telstra added 218,000 new retail mobile services, and 132,000 new retail broadband services. In addition, we achieved 676,000 new NBN connections. Now, these results show that we are very much holding our own in what is an increasingly competitive and rapidly changing marketplace. This year, we also continued our important work to continue to reduce costs and boost productivity. We were able to reduce our underlying fixed costs by $244 million, and we remain on track to achieve at least 1.5 billion of productivity savings by financial year 22. In short, we still have a long way to go, but we are making good progress. And this year, the board announced the fully franked final dividend of 15.5 cents per share, bringing the total dividend for the financial year to 31 cents per share.

So, that combined with the 1.5 billion on market and off-market share buybacks that we completed during the year, means that we returned $5.2 billion to shareholders in the 2017 financial year. And that level of return was one of the highest made by an ASX listed company. Now, shareholders would also be aware, though, that this year we announced the change to our dividend policy. Because I know that this is so important to many of you, I would like to comment on that in some detail. In understanding why we took this decision, it's firstly really important to understand the context. Telstra today is a strong, well-run, and well-performing company. But like many companies around the world, we're also facing unprecedented change, and challenge. Our results this year were achieved in the most competitive market environment that I have seen in nearly 10 years as a Telstra director. For Telstra, those challenges have been driven by a number of factors, including intense competition in both fixed and mobile marketplaces, an exponential rate of change in technology and connectivity, and unprecedented growth and capacity demand.

A rapid acceleration in the rollout of the NBN, which will ultimately cost Telstra some $3 billion in earnings before interest, taxes, depreciation. And the announcement that a fourth mobile network will shortly be launched in Australia. Those factors all underpin the board's decision this year to change our dividend policy. And I'm going to step through three of them carefully to help shareholders better understand why we took the difficult decision that we did, and why it is absolutely the right decision for the company. So, the first challenge that we're facing is the exponential rate of change in technology and the growing demand for connectivity. In Australia and around the world, digital technologies are now a primary engine for economic growth, and an increasingly central feature of most of our lives, and a catalyst for incredible change. I don't think there's any precedent for the scale of change that we're seeing, all of which is driven by the extraordinary pace of technological innovation.

No business at all is immune from direct or indirect impacts, and many are being disrupted. And disruption, of course, occurs where someone finds a better, quicker, easier or cheaper way of delivering a service or product. And that's what people are continually trying to do in every industry. And if we do not stay ahead in our industry, then it will unquestionably also be done to us too. 20 or 30 years ago, people thought little of having to wait a month or two for their phone to be connected. And those days are over. We're in the age of Amazon, the age of Uber, the age of Netflix. If you can't go online and get a product the same day, you simply go to another supplier. That's the type of fast, streamlined, easy experience we aspire to offer our customers. We want to eliminate frustrating and time-wasting visits to stores, the emails and telephone calls backwards and forwards, the delays and complications and frustrations. We receive around 135,000 customer service calls per day. And when I say we're committed to delivering a brilliant customer experience, we're not talking about reducing 135,000 calls to 100,000 calls.

We're talking about eliminating the need for as many calls as we possibly can every single one if that is possible. We're talking about being able to buy and activate a new phone within a few hours over the internet. We're talking about making Telstra a pleasure to deal with 100% of the time and never a frustration. Now, that is our aspiration. That is the sort of company we must become if we are to succeed in the future. We are making substantial progress towards that, but it is not an easy challenge, and we know that we still have a very long way to go. Now, in addition, these industry changes are also fundamentally altering the economics of the telecommunications sector. User prices have plummeted, but the average mobile subscriber price per megabyte falling 99%, between 2005 and 2013. And this is continuing to trend down as customers demand more value. At the same time, data speeds have skyrocketed, and today's 4G networks are 12,000 times faster at transmitting data than 2G was. And the next generation 5G, the technology, which Telstra will begin trialling next year, will be another 100 times faster, than 4G again.

All the while, demand is increasing dramatically. Last year, over 5,000 petabytes of data trebled over Telstra's fixed and mobile networks each day, 40% more than the previous year. And therefore, the volume of data that we carry is effectively doubling every 18 months to two years, where customers are expecting to pay less and less. I really cannot think of many other large established businesses in Australia, where usage of core products and services is increasing at such a pace. The second major challenge Telstra is facing is the rapidly accelerating rollout of the National Broadband Network. Shareholders will recall, the NBN is expected to have around a $3 billion negative impact on our earnings when it is fully rolled out. And put that number into context, that's the equivalent to the annual earnings of a major ASX company. The size of origin energy, or a CSL, or even a Qantas. It can take decades to build a business that size. But we don't have decades. The NBN rollout began to gather pace in 2013.

And over the past four years, about 30% of homes have been connected. But while it's taken four years to connect 30%, the NBN is expected to reach 85% connection in only the next two years. And that means in just two years, we expect to be facing the loss of 85% of the $3 billion of our earnings, and that is obviously very significant. Another additional fact that shareholders may not be aware of is that there are now 180 registered resellers of the NBN, of which Telstra is just one. So, competition levels have also increased exponentially. We currently enjoy a 52% market share, excluding satellite. But this gives you an indication of just how competitive the market has become and how profoundly the landscape is changing. The third challenge that Telstra is facing is the imminent entry of a fourth mobile network operator into the Australian market. TPG is and will be a formidable competitor, and that, there is absolutely no doubt. We do not underestimate the impact that this may have the effect on pricing, nor the fact that we must and most certainly will continue to invest heavily to maintain our mobile network superiority.

And continue to improve the experience that we offer our customers. To reiterate then, in an environment where competitive pressures are already intense, Telstra also faces unprecedented growth in capacity demand, an acceleration in the rollout of the NBN, with its implications on our earnings, and the imminent launch of a fourth mobile network in Australia. Any one of these issues on its own would be a significant challenge to any company, but all of them together represent a really unique challenge. That, then, is the context for the important changes that we have made to our dividend policy this year. So, with that background, let me just explain now, the new dividend policy itself. So, our new policy moves us away from a historical practice of paying out almost 100% of net profits, ie, returning everything that we earn to shareholders and not giving anything back for reserves against the future or for new growth opportunities. From the 2018 financial year, we will adopt an ordinary dividend payout ratio of 70 to 90% of underlying earnings, which is in line with global peers and is in line with other large local companies.

In addition to the ordinary dividend, we intend to return in the order of 75% of the net one-off NBN receipts to shareholders over time, through fully franked special dividends. These are the one-off receipts relating to the transition of our customers to the NBN. With the implementation of this new dividend policy, we expect the total dividend in fiscal year 18 to be 22 cents per share, fully franked. Then, while we cannot predict earnings out into the future, as a consequence of our new dividend policy in FY 18, the dividend has been reduced to a level where we would be disappointed if we were not able to maintain or even again, increase the total dividend over time as we seek to grow underlying earnings and the special dividends decline. This, of course, will depend on economic conditions at the time and on our ability to grow underlying earnings in order to support the ordinary dividend. Any decision about future dividends will, of course, always be contingent on our underlying earnings and will be made in accordance with our capital management framework.

Now, I'd like to say that changing the dividend policy was one of the toughest decisions the board has ever had to make. We spent many long hours debating it, many sleepless nights working through it in our minds, knowing full well, the impact that it would have on shareholders, and trying to arrive at the best balance between providing consistent shareholder returns and the strategic direction that the company must take. To have continued on the same course would also have put at real risk, or other great strength, which is our balance sheet and A bank credit rating. We believe it is absolutely fundamental to maintain our balance sheet strength in this challenging environment, so as to manage the business efficiently, effectively and invest for growth. And we must do that because of our potential competitors of the future. And not just the traditional Optus and Vodafone, but are also likely to be dynamic newer companies like Amazon, which does not pay a dividend at all, and which reinvest an evergreen cash flow in cheaper and better products.

Lastly, despite the dividend and policy change, I'd like to point out that Telstra's payout ratio and yields still remain at the higher end of ASX companies. And because we absolutely understand and appreciate the impact this policy change has had on our shareholders, we took the decision to maintain the 31 cent dividend for this full year and give advance warning of the changes, rather than just cutting the dividend overnight, as is usually the case. So, I don't like it. I know that you don't like it. But the world has changed, and it would have been irresponsible of the board not to take this tough but correct decision for the future. And it is then the future, in particular Telstra's future growth opportunities I'd now likely to focus on. I've had shareholders ask, why can't we just go out and find growth businesses to replace the $3 billion in earnings that we're losing because of the NBN, so we can maintain the dividend at previous levels? Well, firstly, that's very easy to say, and very hard to do.

As I mentioned earlier, the earnings that we are losing are more than very few ASX companies achieve in total, even after decades of existence. And to expect that we can suddenly just go out and create another $3 billion EBITDA business overnight is simply just not realistic. Secondly, I do not think that shareholders would appreciate our going out and spending billions of dollars to buy a business or businesses that would replace the lost earnings through acquisition just for the sake of making up the numbers. This would be very expensive. This could take us away from our core competencies, and a whole new areas of risk. And this could jeopardise the strength of our balance sheet. Instead, therefore, our strategy to grow the business, position it to meet the challenges and opportunities ahead, and to create long term shareholder value, is built on three strong pillars. Firstly, delivering much better customer experiences than we do now. Secondly, driving further value and growth from our core business.

And lastly, building new growth businesses close to the core. Now, this may sound a bit boring, but it is not. It is prudent, is well thought through, and it best leverages our strengths. Delivering brilliant customer experiences means offering customers simple, intuitive and increasingly digital ways to interact with us. And while our customer experience scores are excellent with big enterprise customers, we know that we fall down too often with consumers. And that's significant because one way or another, virtually everyone in Australia is a Telstra customer, whether directly as Telstra mobile user, fixed or broadband customer or indirectly through our wholesale relationships with other providers. And as I said, just now, despite our world-class networks and coverage, too many customers will have had a bad experience with Telstra or will know someone who's had a bad experience with Telstra. This has to be once and for all eliminated, and we are doing everything that we possibly can, to fix it.

If we do do this well, we will win more market share from our competitors, which will mean more revenue and more earnings should follow. Then driving value and growth from the core is about leveraging our strengths and networks and connectivity and making the best use of our skills, expertise and experience to deliver additional value. And if we do this well, our customers will be willing to pay more for better and better products and services. And lastly, building new growth businesses close to the core recognizes the opportunities that we have to expand with new products and new services in new markets. And if we do this well, we will increase our revenue and earnings from new but related areas and improve the retention of existing customers. Everywhere we look, there are these growth opportunities. 5G is coming with a huge range of new and upgraded opportunities. The Internet of Things, where there are nearly one billion intelligent sensors today in Australia and the market is forecast to be worth $5 billion in five years.

Driverless cars, drones, connected homes, artificial intelligence, machine learning, smart cities, smart agriculture and many, many more. And these are the opportunities that represent our future. But of course, as fast as these new technologies are developing, it's still going to take a few years before they are scale businesses that can replace the old legacy businesses that we are losing. So despite today's challenges, we are in a strong position as we look to grow our business. We have one of the best overall management teams in the industry and certainly the best that I have seen in my time on the board. We have an incredible mobiles business, which is, of course, built around the best network in the land. We deliver great earnings, have a strong market share and are counted as a world leader in our industry. We are the largest reseller of the NBN. Our network applications and services businesses grew income this year by 30% and has become a $3.3 billion business from a standing start just five years ago.

Our productivity program to a quarter of a billion dollars of underlying core fixed cost out of the business this year ahead of our target and is on track to deliver 1.5 billion of annual savings. And we continue to make targeted acquisitions in exciting new areas like cloud, workplace mobility, Internet of Things and Cyber Security. These new capabilities leverage our already world-class networks and will help us grow in the markets of the future. One thing we think is critically important, therefore, is that we do not allow a preoccupation with replacing the earnings lost through the NBN to be the defining point in our strategy. Our strategy is about doing what we do now much better to drive value from the businesses that we have, rather than starting from the premise of having to go out and replace the lost earnings overnight. But another way we're not going to do anything foolish just to plug that $3 billion gap. It is critical that Telstra makes bold choices and we will do that. But we have no intention of risking the company.

At the macro level, if we achieved a digital transformation of our company and deliver as good a customer experience as the new first-generation businesses that I've mentioned earlier, then we will transform our customer acquisition and customer retention. We will protect our balance sheet and we will build market share. And over time, these new markets will achieve scale and will be a major player in most of them. All of this, of course, will then lead to materially improved financial outcomes from our core business, as well as growth in the closely related markets of the future. Which should always going to be a better road to follow than starting new businesses and markets we do not know so well. Telstra remains a fantastic company with great people, with great assets and great technologies, and we have many opportunities to grow without taking excessive risk. In conclusion, then 2017 was a year of significant progress for Telstra, but also a year of significant change and challenge, and whether we like it or not, we have to accept that the world around us has changed dramatically and Telstra is having to change just as dramatically as well.

However, over our long history, we've actually used periods of change in technology and challenges in industry structure to grow a company and to move forward. Changing our dividend policy is just one change among the many that we will need to make as we enter the exciting new world of the future. Some we can control and some we cannot. But whatever the future brings, Telstra is an exceptional company with exceptional people and exceptional assets. There is absolutely no reason why we should not do just as well in this unknown world of the future as we have done in the past. And we continue to develop our capabilities, build our resources and make our network stronger, faster and better so we can continue to be at the cutting edge of companies delivering the promise. The digital age and as that digital age unfolds, we will be at the forefront and we will be better positioned than most of our competitors. Lastly, we will not forget who our shareholders are and the responsibility that we have to them.

We will continue to do everything that we can to deliver shareholder value through dividends, capital management, other value-enhancing activities despite the changes that are going on around us. In closing, then I really want to sincerely thank Andy Penn, the senior executives and the entire 32,000 strong Telstra team for their efforts in delivering the many achievements that I have described this morning. They have one of the most difficult tasks in business today, and I think they are doing a fine job. I'd also like to thank my board colleagues for their support and their strategic guidance. All of us feel very privileged to lead this great company. And lastly, I would like to thank you, our shareholders for your patience and support. With that, I'll now hand over to your Chief Executive Officer Andrew Penn to comment on our operations for the year in more detail. Thank you.

ANDREW PENN:

Well, thank you very much, chairman, and good morning, everybody. Can I also add my thanks to Pauline for that wonderful welcome to country and welcome here today? We value this opportunity to meet with you as shareholders to keep you across what we believe is a very exciting future for our company. To hear your thoughts and to address your questions, I would like to cover four things in my presentation this morning. Firstly, I will provide you with an overview of how your company performed in the 2017 financial year. Secondly, I will make some comments on the rollout of the NBN with a particular focus on what I feel are the critically important considerations and priorities for customers. Thirdly, I will comment on the progress that we are making in transforming your company to compete in this increasingly digital world. And finally, I will confirm guidance for the 2018 financial year. Turning then firstly to the financial results for 2017. 2017 was a strong year, and we are pleased to have delivered against their guidance and strategy in the context of a highly competitive and increasingly dynamic market.

Total income on a reported and guidance basis was up 4.3% to 28.2 billion dollars. Excluding the regulatory changes to mobile terminating access service or MTAS and the final access determination, FAD. Total income was up 5.9%. EBITDA was up 2% to 10.7 billion dollars on a reported basis and was up 4.5% to 11.2 billion dollars on a guidance basis. On a guidance basis and excluding the regulatory changes that I mentioned to MTAS and FAD, EBITDA was up 5%. Net profit after tax from continuing operations was up 1.1% to $3.9 billion. Earnings per share was up 2.8 per cent to 32.5 cents per share, and the board declared a final dividend of 15.5 cents per share, which was paid in September. This brought the total dividend for the year to 31 cents per share. Our number one objective, though throughout the year, was to improve the experience we provide to our customers. And while I know that there is still more that we need to do, I am pleased that we are making progress. Both strategic and episode net promoter scores, which we use to measure customer satisfaction, improved in the second half.

Up six points and two points respectively. Our mobile business performed strongly in 2017, and we saw continued strong customer growth across all segments. New mobile services were up 219,00, including 169,000 post-paid handheld customers. Retail fixed broadband services were up 132,000, and retail bundles were up 224,000. Almost 90% of our retail fixed broadband customers are now importantly on a bundle and the proportion of those who are on an entertainment bundle, which is increasing very fast grew more than 50% and now represents one-third of customers that do take a bundle with Telstra. As you heard from the chairman, our network applications and services business grew very strongly, with income up over 30% to $3.3 billion. This was driven by major contract wins and renewals, as well as growth in NBN commercial works. Within NAS, we achieved strong performances from our cyber security products, our unified communication products and from cloud business, where in particular we saw revenue growth of more than 50%.

During the year, we reduced our underlying costs by 3.5% or 244 million, which was ahead of our target. On top of this, we improve productivity in our new businesses, where we reduce costs by a further 68 million. Given this strong performance, we have increased and accelerated our productivity plans. We now intend to deliver our previous $1 billion net productivity target one year early in 2020. And we've also increased the target overall by a further $500 million and in total, therefore, we now plan to deliver more than $1.5 billion in net productivity or net cost out by 2022. The focus of our productivity work is to deliver a better customer outcome, though. And for example, this year we've been working with our assurance partners to increase first call resolution rates and through this achieved a 4% reduction in truck rolls. This year, we also further extended our mobile network with standard 4G coverage to 99% of the population. And many sites further upgraded to the new 4G X, which gives us twice the speed, and this it now extends to 90% of the population.

Finally, we also continue to make very good progress in the NBN market and added 676,000 new NBN connections taking our NBN market share, excluding satellite to 52%. But the rollout of the NBN is projected to now scale up significantly, and it is essential that during this period that the whole industry remains focused on ensuring the customers receive the best possible experience and at an affordable price because four million homes are due to be connected in the next two years alone. In this regard, there are three areas of critical importance for our customers. Firstly, the service experience. Today, the time taken to activate customers on the NBN can be considerably longer than for traditional broadband services that we activate today. This is due to the extra complex, the extra complexity that is involved. We are working closely with the NBN to assist them in streamlining our respective processes to ensure this becomes a more seamless experience for all customers. Secondly, not all customers are receiving the speeds that they were either anticipating or hoping for.

Now, this can be for a number of reasons. Critically available speeds are first determined by the underlying technology that NBN chooses to roll out. Whether this is fibre, whether it is HFC cable, whether it is ADSL and therefore copper or indeed other forms of technology. This choice has a material impact on the maximum speed ultimately, that will be available to customers, and it is a function of the rollout that the NBN determines. Once the maximum speed available, though, is determined by NBN's choice of technology in their area, the customer then chooses the appropriate plan from their retail service provider like Telstra. We call this person the RSP. The RSP must then make sure that they purchase the right amount of capacity from NBN, and this capacity is delivered through something known as CVCs. Now, the ACCC has recently issued guidelines to all our RSPs to ensure that they purchase sufficient CVCs, such that customers can expect that at least 60% of the maximum speed in their plan is available during the peak times of 7 to 10 pm.

At Telstra, our position has always been to provide the best possible network experience on the NBN. That is why we continually monitor the traffic and adjust our CVCs to meet demand. In fact, we installed robotic testers in our network some time ago to measure customer speeds to ensure that we are buying enough CVCs. There are, of course, other factors that can affect the speed that customer's experience. For example, in-home wiring and Wi-Fi configuration. Customers can find lots of tips on our website on how to optimise their broadband experience at home. We're also continuing to develop products and tools to help our customers. These include the latest gateways or modems with superior Wi-Fi performance. The Telstra home dashboard, which helps customers diagnose their own issues in the home. And we have an upcoming Wi-Fi solution that will help detect and automate, automatically optimise Wi-Fi performance for customers in the home. All of these, combined with Telstra's platinum service, are targeted to deliver the best possible experience for customers in an NBN world.

And if customers are still not experiencing what they anticipated, it is quite likely to be a fault in the NBN network or some other factor in which case they should contact us so that we can investigate and advise the NBN accordingly. The third and final factor affecting customers in the migration to NBN is affordability due to the significant costs associated with the rollout of the NBN, wholesale broadband prices in Australia from NBN are increasing by almost 100 per cent in the migration. This will increase by a further 20 to 25% over the next three to four years under NBN's plans. Now, NBN are currently conducting a review of its prices and it will be important in the long term that wholesale prices are set at a level which ensures affordability of broadband for all Australians. Let me now turn to the progress that we have made on our broader strategic direction. Telstra is a telecommunications company, a telecommunications company with more than 100 years of history, a history of connecting people and businesses in Australia and around the world.

We have always been a leader in innovation. We have always believed that technology can bring tremendous benefits for businesses, society and the nation. That is why we are always investing and always innovating. In the 1900s, Telstra built the first trunk telephone connections between Sydney and Melbourne. It was the end of the age of the Telegram. In the 1960s, Telstra late the first coaxial cables carrying telephone and TV, as well as satellite telecommunications and transmissions. In the 1980s, Telstra launched the first mobile phones in Australia, and in the 2000s we were the first to launch 3G and then again, the first to launch 4G. Many of these investments marked major transformational periods in technology innovation. We see another one now as the right and pace of change and the way in which the world is digitizing increases. In recognition of this, two years ago, we launched our vision, our vision to become a world-class technology company that empowers people to connect. There were two reasons for this change of emphasis.

Firstly, it is often said that today every business in every industry needs to be a technology company. But this concept has special meaning for us. It has special meaning for us at Telstra, and that is because the traditional worlds of telecommunications and computing are converging. What I mean by this is that there is no technology innovation that is happening today that is not intended to be connected. From drones to driverless cars, cloud computing to online banking, e-commerce to the Internet of Things. All of these applications have one thing in common they rely on high quality, fast, reliable and increasingly secure telecommunications networks. We are an organisation with a long history and deep skills in network and electrical engineering. A world leader, we have applied these skills to build the best telecommunications network in Australia. But to support these technology innovations, these new applications and services, we need to build new skills in new areas, in software engineering, in data science, in artificial intelligence and in quantum computing.

And that is what we are doing. The second reason for this change of emphasis is that these applications and services are driving significant data growth on our network. For example, streaming services such as Netflix, as the chairman referenced earlier. Telecommunications globally, telecommunications companies globally have been investing tens of billions of dollars over recent years so customers can enjoy downloading high definition movies and TV shows from streaming services like Netflix. Today, Netflix has a market capitalization and is worth more than $100 billion. However, the telecommunication companies around the world who make this experience possible have not captured value to anywhere near the same extent, and this has reduced returns on invested capital across the telecommunications industry globally. But we should not see this as a threat. We should see it as an opportunity. That is why we are technology optimists. But if we're going to take advantage of this opportunity, we must lead in the future, not only in our network, but also in offering the best applications and services on our network.

That is why our vision is to become a world-class technology company that empowers people to connect. As you heard from the chairman, though, we also need to move fast. We need to accelerate our change. Our world is not standing still. We are seeing increased competition. We are seeing increased digital disruption and we are experiencing the unique dynamic of the NBN, which has the impact of reducing our EBITDA by approximately $3 billion. It is against this background that we made two critical decisions. Firstly, we have increased our level of investment by $3 billion over the next three years, which I will talk about more in a moment. And secondly, as you heard from the chairman, we are implementing a new dividend policy where we will retain some capital to invest in the future and maintain balance sheet strength and flexibility. It was a tough decision, and we do not underestimate the impact on you as shareholders. But it's an important decision. It's about setting up the business for success in the future.

It's about giving ourselves the flexibility to invest and to compete effectively.

ANDY:

In our history, it is is pivotal moments like this that we have made important decisions to invest in our differentiation and move to the next technology first and fast. We did this with 3G. We did it with our next gen IP network. We did it with 4G and we're doing it again now with the $3 billion of incremental investment we are making and it is targeted at achieving a step change in our customer experience. We're investing in the network of the future. With data on the network growing at around 40% per annum, we will need five times the capacity of today's traffic by the early 2020s. This is about building the foundations for the next generation of the network. It's about 5G. It's about the platform for the Internet of Things, and it's about new standards in redundancy and resiliency. The second area of major investment under the program is in digitization. New companies are changing the nature of experiences that our customers are experiencing, and we need to improve ours. We also need to improve the digitization of our core operating environment.

Through these investments, we expect to deliver a step change in our customer experience, an incremental EBITDA of $500 million dollars per annum from 2021 and we have made good progress on achieving this and achieving our vision. While I know we have more to do, I would like to take a moment to step back and recognize some of the progress that we have made. Firstly, we have simplified our business and our strategy, and we are aligning our new investments much more closely to the core as we did with our acquisition of Pacnet, Readify and Kloud. We're also investing in continuing to lead with the best network and in the applications and services on the network for our customers. Secondly, we're accelerating innovation in the company through Telstra Ventures, through Moradi, through Telstra Labs, which now includes hardware and software labs, Australia's first open IoT lab, a 3D printing lab and collaboration areas for our partners and our customers. This year, we were ranked number one in the ASX 50 for innovation in the Australian Corporate Innovation Index.

Thirdly, we're making progress in building the capabilities that we will need for the future. For example, we are working to meet the ever growing, ever changing risks associated with cybersecurity. In Australia, the rate of cyber crime has doubled over the last 12 months. This year, we've added significantly to our existing capabilities through the establishment of new security operation centres, and they support our global network of more than 500 cyber security experts that work within the company today. Fourthly, we are delivering new market leading, digitally enabled applications and services. In addition to monitoring our own network and our own operations, these new security centres work in junction with our digitally enabled managed security services, enable us to monitor, detect and respond to security incidents for our enterprise customers, and our future plans are to bring new products to market, which will further extend these capabilities to consumers and small businesses with enterprise grade cyber security protection from unwanted and malicious online traffic for everybody.

We've also launched the Telstra program or network to our enterprise customers, which enables them to dynamically manage their network and their cloud requirements digitally. Where it used to take six months to stand up a very complex set of services for enterprise customers to achieve this, customers can now do it for themselves digitally in a matter of minutes. We're also launching new offers for consumers. Telstra TV provides a fantastic, digitally enabled media service for customers. With almost 1 million services already in the market, we will be launching Telstra TV2 next week with an extensive new format, including the integration of free to air and universal searching. Last month, we also launched Mobile Belong, this builds on the success of belong in the fixed market in attracting new broadband customers with simple, no frills offers. And to support all of these digital enabled offers, we are leveraging our global relationships with world leading technology companies. We have important partnerships with Google, Facebook, Apple, Microsoft, IBM, Cisco, Ericsson, Tesla and many others, bringing the best technology globally and combining it with the best network in Australia for our customers.

The fifth area that we're making very significant progress is in exactly that, the network where we are improving resiliency and redundancy and building some of the critical platforms for the future. We are well progressed in building the foundations for the next generation of mobile technology, 5G. And what sets 5G apart from earlier generations is its extremely low latency, enabling the time between a request for data being sent and that data and that message being received to be in the single milliseconds. As a consequence, 5G will enable revolutionary new automaton technologies, including autonomous driving. As a leader in setting telco standards globally, Telstra will be hosting 3GPP, which is the global standard setting body on the Gold Coast next year. At this meeting, we expect many of the global standards for 5G to be discussed and progressed. We have also commenced the transmission or rather the rollout of our optical transmission capability. This is the backbone of the network around the country that carries the consolidated data from all of our networks.

These investments will give us the capability to increase speeds to up to more than 100 terabytes per second in our call for both undersea and overseas cables. And finally, on the network, we recently launched Cadmium one. This is the network platform for the Internet of things that you heard the chairman talk about. It enables millions of low power devices and sensors to be connected. And it's important because in the future, everything that can be connected will be connected. We have now extended this platform across our 4G network with more than 3 million square kilometres of coverage across the country. It will support applications in logistics, agritech, mining and resources, retail, health care and many other sectors. Through these investments, therefore, not only do we have the largest, the most reliable and the fastest network in Australia. We also now have the smartest network in Australia. In summary, this is a very significant program of investment. The positions are strongly for the future.

And while the operating environment will no doubt be tough over the next two to three years, for the reasons that both the chairman and I have already highlighted, these investments will support our core business and open up valuable new opportunities for growth in the future. Before concluding, let me reconfirm guidance for the 2018 year. In 2018, we expect income to be in the range of 28.3 billion to 30.2 billion and EBITDA to be in the range of 10.7 billion to 11.2 billion. Guidance for EBITDA is after absorbing incremental restructuring costs of 200 to 300 million, which are associated with the increase in our productivity targets. We expect net one-off nbn DA receipts less than net costs to connect for customers to be in the range of two to $2.5 billion. We expect to spend capex in the range of 4.4 to 4.8 billion, or approximately 18% of sales. Finally, we expect free cash flow to be in the range of 4.4 to 4.9 billion. And of course, as is usually the case, the basis on which we provide guidance is detailed in the footnotes to the documents that were lodged with the ASX this morning.

So let me summarize before I hand back to the chairman. In 2017, we demonstrated strong financial performance and delivered against our guidance. We continue to grow our customer numbers and deliver strong performances in mobiles ness and productivity. We are on track in our transformation, and whilst we have more to do, we have delivered important new capabilities creating the network of the future. We made an incredibly important but difficult decision to introduce a new dividend policy. And finally, we lift our level of aspiration in relation to productivity and we will deliver more productivity and we will deliver it sooner. There is no doubt that the operating environment has become more challenging, with significant data growth, increased competition, digital disruption and the migration to the NBN over the next two to three years. Against this background, the decisions and the investments we are making are critical to ensure our success in the future. We are confident that we will not only strengthen and differentiate our core business, but they will also open up new opportunities for growth for us in the future.

The ultimate mark of success, however, will be the quality of experiences that we provide our customers and above all else, that is what underpins our strategy, guides our actions, directs our investments and defines our future. We are working to take Telstra to the next level to set a new standard for excellence, to become a world class technology company that empowers people to connect. I would like to finish by thanking the whole of the Telstra team for their hard work. I would also like to thank the chairman and the board for their support and guidance. Thank you again for your time this morning and I will now hand back to the chairman. Thank you.

JOHN MULLEN:

Great. Thank you very much, Andy. So there are four remaining items of business in front of us, and I will shortly introduce and invite questions on these items, but before I do, I'll outline the question of voting procedures for today's meeting. When you registered this morning, you would have been given a card. Yellow cards are for shareholders who may speak and vote. Blue cards offer shareholders who may speak but not vote. You will need your card to ask a question or to re-enter the meeting. We're pleased to offer shareholders who are attending the meeting in person here today a new way to lodge their vote using their mobile phone or tablet device. And if you've registered to use the new Link Vote app at the meeting today, your yellow card will have a green stripe across it as you will be logging your vote directly by using the app. If you have any questions about how to use the Link Vote app during the meeting, please speak with one of our staff located in the room here and the shareholder registration area outside wearing large Telstra voting badges who will be happy to assist you.

I will introduce each item and then invite questions from the floor. There are several microphones located in the room that side and that side. If you'd like to ask a question, please move to the reserve seating area behind one of the microphones. Please show your card to the microphone attendant and give your name. As a courtesy to all shareholders, please also state your affiliation if you are not here today in your personal capacity. The microphone attendant will invite you to the microphone when your turn comes. In the interest of all shareholders present, though, please, please ask only one question at a time. Keep your questions and comments to no more than two minutes to allow as many shareholders as possible to speak. If your question relates to director re-election or to the allocation of equity, to the CEO or remuneration that Telstra, please ask your question when we come to those items of business later in the program and please ensure that your questions are relevant to shareholders as a whole.

If we can't answer your question fully here today, we will aim to provide you with a response after the meeting. Also, if you have an individual, customer or shareholder issue, please speak with one of our customer service staff who will be able to assist you. They, too, are located in the room here and in the customer service area outside wearing Telstra shirts. There are then three items requiring a shareholder vote today. Shareholders who are using the app to lodge their votes electronically, Please follow the prompts on your device to log your vote. For shareholders voting with the yellow card, the voting boxes are on the back of your card. Please complete these boxes on your card to log your vote. We have received proxies from approximately 31,060 shareholders and direct votes from approximately 15,790 shareholders. The votes recorded for and against each item will be shown on the slide behind me at the conclusion of the discussion of that item. The four numbers displayed will include proxies received and available to be voted by the chairman of the meeting.

Telstra Share Registrar was Fran Kelly of Link Market Services Ltd will act as returning officer in relation to the poll and the results of the poll will be available later today on the ASX and on our websites. A light lunch will be served at approximately 12 noon. However, if the meeting is still underway at that time, we will not be adjourning the meeting for lunch. So I now turn to Item two on today's agenda, which is to discuss the company's financial statements and reports for the year ended 30th June 2017. Now, this item provides shareholders with the opportunity to comment on and ask questions about our financial statements, reports, as well as the business operations and management of Telstra. You may also ask questions of our auditor. If you have a question about the 2017 results or any general questions about your company, including the outcomes of our Capital Allocation Strategy Review and our new dividend policy, this is the time to ask your question. So I now invite shareholders to move to the microphone and to ask any questions you may have on this item.

I think we're just getting a question coming over here. Microphone one.

SPEAKER:

Chairman, I would like to introduce Michael Ordinaria.

MICHAEL:

Good morning, Mr Chairman. I've got a very simple question. Is there any chance that we can have quarterly updates of our financial results rather than six monthly updates?

JOHN MULLEN:

The reporting standard in Australia is six monthly, and that's what we will continue to do. However, the company does issue from time to time updates on matters of importance or where disclosure is required. So there will never be a period where we're keeping back information that is not disclosed to the market.

MICHAEL:

Some of the banks offer quarterly results. I mean, I wouldn't expect like a full annual report, but it's nearly seven months before we know what's going on at the moment with just about four months into a half year. And as far as I'm concerned, we don't get told enough. There's very few updates during the six monthly period, and I was wondering whether we can get a sales update or just some general notification every three months. It's not too hard or a difficult task.

JOHN MULLEN:

Well, the beginning of each year we issue guidance which tells the market what we expect to happen. If there's any deviation from that substantial material deviation, then we make a further announcement to the market and disclosure. So if we're not tracking, as we've said we are, then you will know. So I don't agree that there can be a period, a long period where you just don't know what's happening in the company. It's either proceeding as per our guidance or if it isn't, then we will make a disclosure to that effect to the market. Thank you. Microphone three.

SPEAKER:

Chairman, I would like to introduce (UNKNOWN) from Melbourne. Mr Chairman, I want to ask you a question if you permit me to, but one of the (INAUDIBLE) regarding the financial statements. Telstra used to be a good company but is not as good as used to be. So you never justify how you manage to get from five point plus per share to three plus at the moment. Next, the report you presented to us was more wish than a play on how to improve things which will result in financial results. And the next one is the problem with Telstra, which people they go away from here is the training of the base of Telstra. If you go to one shop and Telstra to pay a single bill takes you up to one hour. And if you have a problem like I used to have just to be alright, my bill, my phone bill took me nine months going everywhere and no one to fix it. So how can you be a good company? The same attitude in its outside. I tried to talk to two of your employees, which they told me very arrogant one of them that they are an IT and show me because I told them something regarding the communication and efficiency of Telstra, and one of them make a indecent, I would say, just to go in and that's it.

We work somewhere. The problem is with Telstra is you have no service which people like to have. If you have a problem, you get nowhere, nowhere, where to do, how to solve it. There is no plan, but looks like you are more than the central committee of the Chinese Communist Party over there. Doing what? All nicely coming to work, getting the money, but no results. And if you are keep blaming that Australia, it's a big country and it's very hard to be competitive, I don't think it is still valid today because the signals and all digital doesn't come by donkey, come by network, which you may not have it. Thank you.

JOHN MULLEN:

Thank you. It's the first time that I've been likened to a member of the Chinese politburo, but my education continues. So a number of points in your question, I think. Firstly, the share price. Look, obviously we don't control a share price. The share price is impacted by lots of factors outside our control. What we can control is the business itself day to day, and then we have to let the share market make its own evaluation as to how we're going and...

SPEAKER:

As to the future. We have a very clear strategy of what we want to do with a company, where we're going. We've got a number of big initiatives, important initiatives that we've announced today, to offset that three billion, which is causing a lot of concern, the productivity program, one and a half billion of savings, that will come from that, the strategic CapEx program should deliver another 500 million of EBITDA by FY21 and a whole lot of activity going on every day in mobiles and other areas. So I think all we can do, is management team and the board is to ensure that we have the right strategy, stick to it and measure the delivery of the company against those objectives. Your second point about service. Look, we are acutely aware and I think I tried to spend some time on that in my speech, and I know Andrew Power, chief executive officer, did the same. We are acutely aware that particularly in the consumer area, we do not yet meet expectations of where we would like to be and where our market would like to be.

In the enterprise area, where we create the experience where we we have people on hand to manage a customer's issues. We actually do extremely well. So clearly, our systems, our networks of technologies can do the job where we're dealing with our some 17 and a half million mobile customers. It is difficult to get that right every time, every day, but that we absolutely understand is the key to success. If we are gonna succeed as a company in the years to come, we have to become like these new companies. We mentioned the Amazons and Apples and Ubers where customer service is just a byword for their existence. We are absolutely committed to that. Andy and the management team spending $3 billion extra of capital to try to deliver those service improvements and digitise our network. So Sir, I hear you loud and clear. We are embarrassed. I don't like standing up in front of you knowing that there are service issues out there. We are working on them. We are making progress, but it's gonna take a bit of time yet.

As to your particular issue, if somebody didn't give you the answers that you wanted outside, please see one of the other representatives or even myself afterwards, and we will address your question. Thank you. With your permission. One quick one, you don't have to answer. How much cost a glass of water for us to have outside? How much we're gonna charge you for the glass of water? Or how much (CROSSTALK). I didn't know we don't have any water, but I'm sure that can be rectified. (INAUDIBLE)` Sorry. (INAUDIBLE) Yeah. There are a number of water stations in this room. Actually, it's just been pointed out to me. So over there. I can see one another, one over there, quite close to you. Microphone four. Chairman. I would like to introduce Scott Hunter.

SCOTT HUNTER:

Good morning. I've got a few points to make. With Telstra's financial performance, $28,000 million in income reduces to $4,000 million in profit, so 28 becomes four. Telstra has the worst share price performance in the past three months on the stock exchange, in terms of pricing calls from home or public phones to mobiles or (UNKNOWN) a $1 a minute, including an 80 cent connection fee. This is far too high. However, unlimited data fee of $30 per month, or $1 a day, is far too low. In fact, some people give their children a fine, and they just make unlimited data calls as a child mining service for $1 a day, I don't think children should be playing around with an adult communication services as a form of playtime. Seven out of every 10 people seems to be using their phones, all their waking hours, making calls or text messages or whatever. However, this doesn't seem to be converting into revenue for Telstra, particularly other companies that their entire business is based around the internet and they're making substantial profits.

Telstra doesn't seem to be getting a big enough slice of the profit. Public phone boxes seem to be disappearing and vanishing quickly. These are needed for emergency calls, and if they're not there no one can make them. Your staff don't seem to understand Telstra's fees, practices and policies. Two examples of this is, to get a home phone service reconnected, I ask the price of that at three separate Telstra shops and was given three separate quotes, $30, $50 and $80. Either two or three of them are completely wrong and they should be able to get the exact price right. And I would consider even $5 would be a substantial fee just to flick a switch and get the phone put back on when the wiring's still there. Second example is, when I was handling a (UNKNOWN) estate, the phone bill came coming out in the dead person's name, even though it had been changed half a year ago, the staff said when I rang up to complain, the staff said that they can only talk to the account holder. When I said they deceased, they said, sorry, I can't help you.

Was there anything else and hang up? Your foreign staff can't comprehend Secondary school Australian English, especially words such as pro rata or backdated? I don't know what they mean. Not only that, these staff have Australian people's jobs, and if there's 2,000 staff overseas, that means there's 2,000 Australians who never get the opportunity to work for Telstra to gain employment income that they can use on mobile phone services or whatever else often, which is about on a monthly basis, there are people ringing up claiming to be Telstra's staff. They're obviously not. They've got a foreign accent and they're trying to gain access to one's computer. This is attempted fraud on the company and should be investigated thoroughly, and there should be a number that a member of the Telstra customer can ring, and say that I've just had a call I don't believe is from your staff. Are you able to trace it? And you should be able to track down these people and get it stopped. And in terms of Foxtel, nine out of 10 people don't watch it, you own a broadcasting company and you need to broadcast programs people wanna watch, not just reruns of rerun reruns.

You can get them on the TV you don't have to pay for, just buy them from a library.

SPEAKER:

How many Foxtel's (INAUDIBLE)

SCOTT HUNTER:

Until. (APPLAUSE)

SPEAKER:

Well, Mr. Hunter, a lot of data there. I'm not quite sure what all the questions were, but let me try and take two or three of the things that you mentioned and respond to them. Firstly, the flow through from 28 billion of revenue to net profit of four, that in that order of magnitude, I don't actually see whether, I understand the criticism of that. That's quite a strong performance. That's very much in line with what we committed to the markets to deliver. Share price performance itself, I think I've already answered to the previous questionnaire. It's not in our control. What we do is manage the things that are in our control as best as we can. You mentioned about core costs being too high, I think in data costs being too low. This is an extremely competitive market. We have some very capable and able pricing teams who are continually adjusting prices to ensure the maximum return for the company balance with competitiveness in the market. And we do remain competitive. You mentioned the lack of conversion of volume to returns, and that's a very good point.

That is something I think the chief executive Andy referred to, the Netflix is of the world and the over the top, companies have benefited far more than the telecommunications providers who are actually providing the bandwidth to deliver these services. And we are continually offering more and more data and more and more services to people for the same price or only a slightly increased price. So that is a concern for the whole industry. And that's why, again, we have to put our maximum effort into reducing our cost and into improving our customer service so we can charge for the work that we carry. You mentioned there were 2,000 staff overseas. We actually have a lot more than that overseas. Remember we also have, we're in 20 countries, we have large overseas businesses and those people work in those countries running those businesses. So yes, we have some call centres offshore, but to think that we could just relocate everybody who's running an international business to Australia is just not practical.

You mentioned fraud calls. Yes, that's a concern to us. Every company goes through it. I get those calls myself so does every one of my colleagues and pretty well, everybody in an industry gets calls and phishing emails and the like. It's a constant battle for the whole world community, certainly Australian community. It's not peculiar just to Telstra, but if you are receiving things on a repetitive basis, then please do alert us. We will do our best to help. But these people are extremely adept at using millions of phone numbers that are recycled all the time. So tracking them down is actually very difficult. And lastly, you said, I think of Foxtel nine out of 10 people don't watch it. I'm not quite sure why you'd say that, there are two and a half million active users of Foxtel and it's by far the largest cable provider in Australia. So I hope that touched on the majority of your points. Thank you again for the question. Microphone three. (INAUDIBLE) I'm sorry, I can't hear. (INAUDIBLE) The question was about the deceased state.

Obviously, it's extremely embarrassing when something like that does happen. It's very rare, but yes, we do make mistakes. When that happens, we go out of our way. Obviously, if it's brought to our attention to try to address it and you'd like to give us more information on that particular matter, we can try to follow through on it. So I apologize on behalf of the company for the sort of errors. Microphone three, please. Thank you, chairman. I'd like to introduce Bala Krishna from Brisbane.

BALA KRISHNA:

Good morning Mr. Chairman and hello to your Board members. I'm 81, 82 years of age, I reside in Brisbane, but I decided to make this long trip in order, I think I feel what I need the board members to know and be aware of because half the problem is that, you don't give us Telstra bills on time. And I'll come to that later on. Is not delivered at my house, and now Telstra tells me that I'm going to get into the computer and I'm going to print it out. I mean, that's the joke. Every other company sends me bills home, you're asking me to get into my email computer and ask me to print my own statements, how? All you got to do is have a good look at myself and you think I can do all those things? No, I can't. I'm speaking on behalf of 151,76 shareholders, because that's the holding I now hold in my hand. (INAUDIBLE) holdings and I hold 151,576 shares. That's my confidence in Telstra. Telstra is a fantastic company. There are no two questions about it. I know you have your hard moments, but at the same time, I just wonder now you're talking in terms of cutting down the dividends and so on and so forth.

How much do y'all actually cut down on your, your payments? So it's good to bring that out for the change. I'm not trying to be funny, or I'm trying to pick on you, but listen, we own the company. So we also want something in return and we have the confidence. So changes are happening and we need to have a look at it. And some of the problems that I have personally have, except is that for (INAUDIBLE) chairman, I accept your exceptional people, is an exceptional company and I think you have my support all the same. As I mentioned to you, they then started asking me to pay my own bills. No, sir, I'm not going to do that. If the bill is not delivered at my post box, I'm not going to pay you, I pay it when it arrives. I got into the internet, I mentioned that several times, but nobody's paying any attention to it. Now you're asking senior citizens like myself who are 81 years of age to do my own troubleshooting and solve problems. Is that a joke? How do you expect me at, did my age go into a computer and start troubleshooting and trying to solve those problems?

I ring and ask you all for help, because I believe that's one of your functions to do that. So I think you must really look at the point where you really help some of the older people, as against the younger people who can do things like that. Now, we had a wonderful guy at the Stafford City Shopping Centre. He was a very dedicated man, he was a Telstra shop owner, and I watched there how often he helps people. He spends a lot of time, he's a dedicated Telstra supporter. And all of a sudden the shop has been closed down. And he a man who really spent a lot of his time to help Telstra customers. He's the other day, he was in tears unable to explain why that has happened, and he's now being thrown out. And so now they're still asking me to go all the way to (UNKNOWN). (UNKNOWN) is so far away, but I managed to drag myself into Brookside, there my mobile phone was not working. I make a call and as I'm speaking, get cut off. So I went and told that guy say OK. He took that. He made a call here and there, it worked.

And say no, it's working, it's fine. I said, now, listen, I won't come all this way if my phone is actually working. I've come here. He said, No, I'm sorry. I can't do anything more than that. If you want, I'll take the phone and I send it to the company. Let them investigate that. Surely, Mr Chairman, that's not what you do. It's your problem. Please try to help us too. And the dividends, I hope that there is a fair, fair look at that before somebody talks about cutting down dividends. Dividends are for all the people, not myself, something that is very important and I'm prepared. I'm not joking here. I'm giving all my dividends and all of my income to poor people who really can't have food. So I hope that you will also try to do, remember that we are all young. We make a whole heap of money and you come to an old state like myself where money is meaningless to me. I got plenty of money, and I'm honest in saying that I want to now share the money with poor people. And I feel that I really, by coming here, I sincerely feel that I hope you'll do something about what's happening about Telstra bills, about the older generation, please.

Thank you, chairman. (APPLAUSE)

SPEAKER:

Thank you. Thank you very much. Thank you for making the effort and taking the trouble to come here. We appreciate it and thank you also for the courtesy of your question. Now there are a number of points, which I hope I've noted. I will try and respond to them. Firstly, regarding your bill, it's my understanding that as a pensioner, you can request a paper bill free of charge and the company will do that. So if that's not happening for you, we have some reason it hasn't worked. Again, please see one of the Telstra staff here today and we will get that fixed for you today. That should not be an issue. (INAUDIBLE) I'm afraid I can't hear anything. And you then talked about reductions, I guess, in board and management fees. So the board fees are set benchmarked across the ASX 20 companies and they are fixed. Management fees very much move with performance. And as you will have seen, the aggregate pay of our senior management team fell by 27% this year. The other thing we're doing, is we're also seeing as we're moving to a new remuneration scheme, which the chairman of the remuneration committee will outline to you shortly, where 65% of senior management's earnings will be in shares, much higher percentage than before, and also over a longer vesting period, which really aligns, we believe, management with shareholders as go shareholders fortunes go management.

You mentioned then around having to do your own troubleshooting and no, you shouldn't have to do your own troubleshooting. Of course, that is our responsibility. And again, if you would see one of our representatives and explain what your particular issue is, we will do our very best to fix it now here, while you are here today. And lastly, the dividend, obviously, we absolutely understand and empathize with the concern that you have over dividend. As I try to explain in my speech, we spent a very long time researching it. We did analyse it to your question and every which way to try to land on what we thought was the best balance between shareholder returns and maintaining the financial integrity of the company. And that's why we made the decision that we did. But thank you again for your question and thank you for coming. Microphone three again, I think. Chairman, I'd like to introduce Lynne, (UNKNOWN) from Melbourne.

LYNNE:

Good morning, Mr. Chairman and Mr. CEO and members of board. I was listening to your presentation about, you know, managing Telstra, and I will try to understand perhaps the complexity of managing cooperation of telecommunication corporation, that is not easy to do so. With, as a shareholder, with prices of Telstra shares down, with dividends being cut and with the, as issues that have been brought up by other Telstra shareholders just a while ago. And also with, you know, the costs and expensive, it being very expensive to use Telstra products and services, I'm just wondering if you would seriously consider offering Telstra shareholders a discount to be able to, you know, for using the mobile and internet services because I'm sure that there's a lot of us who are here who feel that, you know, we may not be able to afford it. And I'm sure that there's a lot who are actually using the competitor's service instead of being retained as a Telstra customer. So I think that if you are able to offer some discount for Telstra shareholders, and I think that may be able to help to have a customer retention as well for Telstra.

Thank you.

SPEAKER:

Thank you for that question, too. We do not offer a discount to shareholders in general, but we do offer quite extensive discounts to pensioners. I believe some 700 and or nearly 800,000 people do benefit from discounts off our services and for those in hardship, or just simply a pensioner status. So we do make a serious effort to help those who find it difficult to use or pay for our services. Thank you. Microphone four. Thank you, Chairman. I would like to introduce Sam Bonica.

SAM BONICA:

Good morning, Mr. Chairman. My question is around the share buyback that was conducted. Today, this morning, you mentioned that it was one of the largest share buybacks in ASX history. I question the value of that because normally when a company does a share buyback, the dividend actually goes up.

SPEAKER:

So for the future, perhaps the board could consider paying out a special dividend instead and forget about share buybacks in the future. Thank you. Thank you, Mr.(UNKNOWN). This one obviously is always a topic of debate when we engage in capital management programs. Not everyone has the same view, but we do, we believe, respond to the overwhelming majority of views, which is that share buybacks are advantageous both for those who take advantage of the franking and the tax credits at the time of the actual buyback and those who don't because the number of shares obviously on issue are reduced and therefore ultimately it pushes up earnings per share and hopefully share value. So every time we do it, we analyse those different options very carefully and depends on the balance of things, franking credit balance, the ATO rulings and the like. But I do believe that on the whole off market share buybacks are the best way to proceed. Thank you. Microphone three. Chairman, I'd like to introduce Eric Platt from Melbourne.

Good morning, Mr Chairman, CEO and board members. There's been quite a bit of mention about the NBN. Unfortunately, it seems to be in a bit of a political football, and I think we've got some answers in terms of the micro-level where Telstra are trying to better manage it. Just wondering if there's a more macro type considerations out there? Question one. Do you want to give me a follow one or do you want me to answer that first? Yes, if I could. Now, it might be dirty washing from well in the past, but PCCW Hong Kong and I'm talking on the acquisition side of things. Is there any remaining involvement and secondly, have the lessons have been learned from that unfortunate venture? Thank you. OK, so thank you. Firstly, on the NBN, on the macro, as you termed it, obviously that is not in our control. The NBN is a matter of the national government of the day. What we certainly stand for and try to ensure is, as the CEO said in his speech that it's critical that broadband access at affordable prices are available to all Australians.

And we would hope that whatever the play out of the political football as you term it, whatever that ends up with that, the end result is indeed that affordable broadband access is available to all Australians. Regarding PCCW Hong Kong, I just checked with Andy, as I understand we don't have a formal shareholding, but we still do have some relationships with them. If you need more detail and you can perhaps just explain what that is. Do you have a particular concern or a particular issue? Only the fact I believe that there were lessons to be learned from that venture, and I'm wondering whether those lessons have been suitably appreciated and leveraged, leveraged to a good point. Yeah, no. Well, certainly. Obviously, big companies make lots of acquisitions and they don't always go well. But the challenge for the board, I think, is to make sure that, as you say, we certainly learn from the ones that don't go well. We try not to make the mistakes twice but equally, we do have to take risks.

In building businesses, we have to make some punts. We have, I think, some $300 million invested in venture capital startups in the United States, which we, we hope will ultimately bring some value to Telstra. We don't expect to necessarily back the next Facebook, but we would hope that some of those technologies being developed will benefit Telstra in the future. Now, a lot of those companies won't. But it's really like research and development I guess. PCCW it before, I think virtually all our time here, but that was more than research and development. That was a very major issue and certainly, I think I tried to allude to in my speech, well, we will take risks and we will buy companies if they make sense. But we're not going to buy companies that risk the future of the company. We're not going to take bets of that magnitude that we would jeopardise Telstra. Thank you. Microphone one please. Chairman, I would like to introduce Colin (UNKNOWN) area. Thank you. Good morning, Mr Chairman, everyone on the board.

If you'd allow me, I'd like to say a few words. I've been a member of Telstra since they started. I was down for the Melbourne Marathon weekend and I thought I'd try and kill two birds with one stone, come to my first Telstra meeting. I took me an hour to try and find this place being a country bumpkin but I just like to congratulate you for yourself and your board. I've got complete confidence in what you do. You might get the knocks but I just want to give you some credit for the whole lot, what Telstra does. Thank you. Thank you very much for those generous words. It is our job as a board and management to listen to the issues and the complaints and to try to deal with those things. But it's very nice to hear from time to time that we have that level of support. I can assure you, the board and management try extremely hard to deliver value for shareholders and do the right thing with the company. Thank you again. Microphone number four, please. Thank you, Chairman. I would like to introduce Roman North.

Good morning, Mr. Chairman, I spend a lot of time up in the country doing farm work, and I stay with my brother. I have a mobile phone and often I leave it in the hallway and some of the calls take two or three hours to come through. Now there's a lot of towers going up in the country, are they Telstra towers or not? It's up in the up on the Murray River. And the other question I'd like to know, he tells me that he's fixed lines going to close in a couple of years, so what kind of fine is he going to end up with from Telstra? And how is he going to be assured that he will get a call coming through to him, I don't know whether those mobile towers are working, but you know, in the future for those country people, how are they going to come? Thank you. Thank you for that question. Our mobile coverage is by far the most extensive in Australia. We cover some 99.4% of the population and nearly two and a half million square kilometres. Now, that doesn't mean we cover absolutely everybody, of course, but we certainly do cover the vast majority with over eight and a half thousand base stations across Australia.

There's a particular program with a government partnership called Blackspot Program, where we and others, but we're by far the largest participant in that program. But together with the government to put mobile towers into areas that would otherwise be uneconomic. We have a plan of, I think, some 577 new mobile base stations being rolled out under that program. So I can't tell you standing here whether that particular attire you saw was a Telstra one or not, but it's certainly more likely to be one of ours than anyone else's. We have by far the most extensive coverage across Australia as as I mentioned. You also said something about your fixed line going to be closed. I'm not quite sure what that would mean, perhaps the NBN is passing. I don't know why. I don't think we would cut off a fixed-line. It's our obligation to provide a fixed-line to every person who wants one in Australia. So again, if you'd like to see one of our staff or any of us afterwards, we can investigate that for you and answer that question for you.

Thank you. Microphone one, please. Chairman, I would like to introduce Hans Witteveen from Seymour. Thank you. Good morning, Mr. Chairman, ladies and gentlemen. I have to declare a personal interest. I'm a 58'er. That means I've worked since 1958 till retirement for PMG Telecom Telstra. I understand the report that you've made and that finances have to be used wisely, and I can see that some of this is going into new technology. What I'd like to talk about is Telstra points of presence. In the days of Frank Blount, there's a senior manager who just about cut down all the points of presence. So if you wanted to find Telstra, where do you find him? A couple of years later, the pendulum swung the other way and Doug Campbell moved to Aubery to set up countrywide. I see you're nodding here, do you remember this? What I'd like to talk to you about now is that recently I too have become a country bumpkin. I've moved from the metro area to Seymour. And here this bill, I want to support a previous speaker in how Telstra deliver service.

This also was organized from an overseas call centre and they tried hard, but it was a shemozzle not to put too fine a point on it. So, OK. I went to a Telstra point of presence, except it's not a Telstra point of presence anymore. It's now a franchise I believe. But I had a problem and I stalled and joined a queue and it would be about a half-hour. At this point I probably got a bit snarly. Is this how you treat customers? Shit. All of a sudden I've got a queue jump. Yeah, a bloke came to look after my problem and found that it was in fact, a problem that he couldn't fix on the spot, but he was knowledgeable and an expert. Still alone he couldn't fix it, so I appealed to the director and the problem is in hand. In fact, contrary to someone else's experience, I shook the hand of the guy, the Mr Fix-It, who sat side here. So but, the point is that if we're are saving money by cutting out points of presence and we deal with customers by sending them overseas, and I know it sounds racist, but some of these people, their accents are worse than mine.

They're hard to understand. Then if the problem has to come back to Australia to be fixed, it's a question, are we really saving money here? And if I can fire the second bell, I'd also like to support another playful speaker on the subject of paper ills. I paid two bucks for a paper bill. It's Mickey Mouse money to me, it's Mickey Mouse money to this company. I've spoken at the previous Telstra AGM in Melbourne on the same subject. Rendering a bill is part of the operational cost of any commercial enterprise., doesn't matter what it is. And to charge a surcharge for that, even as little as two bucks, it's unconscionable. The previous chairman didn't agree with me, so be it. This one's on your neck, Mr Chairman, sorry. Thanks very much, and thank you also for your continued and long term loyalty, that's wonderful. I think I mentioned earlier the coverage we have across Australia is second to none. Does that mean that we have a point of presence everywhere where you'd like there to be one?

No, we don't but we do still have Telstra countrywide that you referred to very much active. We have area general managers, so there should be a support structure to address issues that you have wherever you are based in Australia. You also mentioned offshore. We use a mix of onshore-offshore franchises owned premises, staff, etc. and that provides flexibility to meet changing call volumes and needs across the business. But we hold all of our call centres to the same high standards of customer service, privacy and the like, the same with franchisees in the country. They held to exactly the same standard, so it shouldn't make any difference where that person is from, what language they speak, what nationality they are. We hold everybody accountable the same. The paper bill issue, yes, I know that comes up regularly. It's something we continually review. It is an industry-standard not that that helps, I'm sure with you but everybody in the industry does charge that. Clearly, in today's electronic age, there is a lot of benefit to the customer, but also to the company by transacting online electronically.

And ultimately, most businesses, I think, will end there and we would certainly like to get there, too. In the meantime, if you still require a paper bill, we will provide that paper bill. Thank you. Microphone number two. Chairman, I would like to introduce Howard Pascoe from Doncaster. Mr Chairman, CEO and fellow board members, all of us are worried about unemployment for our children or grandchildren. One area that's a huge demand at the moment is someone that's an expert in stopping your computer system from being hacked, cyber security. And it's quite interesting that you look at one of the most popular TV programs in Australia at the moment is border security. There's Border Security Australia, Border Security New Zealand, Canada, millions of Australians love border security. What I would like to see Telstra do is lead a national think tank involving all experts in all the telco companies to solve the problem of security, cyber security, hacking, fraud on a national basis so that Australia becomes a world island continent.

We secure our borders from international hacking, fraud, cyber security, we're guaranteed for all our customers. Now, who was asking for this? Government departments, defence, federal, state, local government. They're all worried about how secure their computers are. Private enterprise, the home. This fine gentleman here, just how secure is this laptop computer? What guarantee is he got that he's not been hacked in this very moment? So there's a huge opportunity for you. You can make billions out of solving the problem. We can lead the world and if you want me to give an example of how terrible it is, look at the US presidential election. The Russians hacked driven millions of computers is the allegation, influencing millions of Americans. So that gives an example of where you can go in the future. Thank you, Mr Chairman. Well, thank you for that very enthusiastic suggestion. Actually, all joking apart, you're right on the money. It is an area of huge opportunity and it's an area that Telstra I am glad to be able to say to you is leading by a long way at the moment.

We recently opened, I think two, Sydney and Melbourne are two large new cyber security centres. We work actively with government. We do actually participate, the prime minister has a task force or a small advisory group on exactly this subject of which Andy Penn sits on, participates and so, we are right across that. Cyber security is a very large part of the network applications and services offering that we make to corporates, and that is gradually filtering down more and more into smaller businesses and ultimately even the consumer. So I think it's going to be a huge, huge part of our future. You're absolutely right. Microphone four, please. Thank you, chairman, I would like to introduce Gary Atkinson from Tasmania. First of all, Mr Chairman, I'd like to congratulate you and the board and management on the performance of Telstra because I think under difficult circumstances you have done a very good job. However, we're here to, I'd like to raise the idea that Telstra still seems to me to be a public service business, that is a carryover from the old days from telecom or whatever it was then.

And you raised the prospect of a new mobile competitor coming into the market. And to me, they seemed to come along and take the low hanging fruit, if we put it that way. I live in Tasmania in the Tamar Valley, about 12 kilometres north of Launceston. I have good Telstra service there. My next-door neighbour doesn't use Telstra. If she wants to use her mobile phone, she has to walk up the backyard and stand next to the chook pen to get the service. I might add that since she got rid of the rooster, the service has improved about 50%. So what I'm suggesting is that Telstra does not promote the quality of its service. As compared to the people who only want to, you know, have a service in the middle of Sydney and Melbourne and take the big profits from those areas rather than service the people in the outer lying areas of Australia. Are you addressing those issues in a better and more vigorous manner or are you going to let these new people come in and take more of the low hanging fruit off Telstra and of course, affect our dividends and our profits in the future?

Thank you. Thank you. That's a very good question. I mean, firstly, you referred to the coverage you get and that others, even with a chook pen, don't get. So, you know, we have invested heavily in that network superiority. We will continue to invest in that network superiority in particular when TBG comes along. And that said, we understand that TBG will go after a sector of the market that will impact the market, and they will, as you said, go for low hanging fruit, which means they will probably go for the large cities to start with a low priced offering. So it will be a very different offering to Telstra. We do not intend to chase that down. We intend to continue to promote the benefits of our network and the investment we make in superior service. But we have to be realistic, there will be people who will change for a large price discount. And for that reason, we've also spent a lot of time planning the launch of Belong Mobile, which used to be a fighter brand for broadband and is now selling mobile as well.

That will be with a cost structure and a similar network coverage that Will serve a network offering that TPG offers. So we believe that with that, we can bifurcate the market. We will stay the mothership in the main premium end of the market, which is where we belong. But we will have the means to fight down below in that maybe 15, 20% of the market there will be very price sensitive. Thank you. Microphone one. Mr chairman, I would like to introduce Nina Anderson from South Melbourne.

NINA ANDERSON:

Good morning, Mr Chairman. I'm particularly interested in what you're doing in innovation. I wonder if you could share a bit more light on that and the industries you're focusing on, as well as some of the talent you brought into the organization, please?

SPEAKER:

I might ask Andy to, he'll get a much better answer than I will on this one. It's certainly an area that the board is particularly interested in. And obviously, innovation and all the development in technology is critical to our future. So if you'll allow me, I'll just ask Andy to make a few comments on that.

ANDY:

Thank you very much, Chairman and also to Mr Atkinson, and I hope he's enjoying the new small cell, which we just put into Lilydale in the time of valley, just north of Launceston. But look, turning to innovation, look, thank you. It is a very important topic. And of course, Telstra is an extraordinarily large company, and so encouraging innovation in the context of a large company is always very challenging. And it's not down to one single initiative, but we have a range of initiatives which I do believe are making an impact. And as I mentioned in my address, I was particularly proud that we were ranked number one in innovation in Australia this year in the Australian Corporate Innovation Index of the Top 50. And not only were we ranked number one, but actually our score rating was double for the next most innovative company in Australia, which was very encouraging. And so how are we achieving it? Well, firstly, we're investing through Telstra Ventures, which is a venture investing part of our business, where we have invested $300 million in more than 45 technology startups, very much aligned to telecommunications.

So they're in things such as mobile apps, mobile radio access communication, types of investment messaging systems, that sort of thing. (UNKNOWN) is our accelerator. So this is supporting companies before they even get to the point of venture capital. So this is ideas before there's a business model, and we've supported around 80 new startups again in the technology space. We've got a partnership with Pivotal. Pivotal is an American company, which was one of the founding pioneers in technology, or rather a methodology referred to as agile, which you may have heard of. We got a joint venture here with them in Sydney, where we're introducing agile based methodologies into the organisation. We have over 100 teams now that are using that methodology actively within the business. Another area of importance for us, I mentioned, is in data science and data analytics that's becoming critically important. We have around 70 data specialists in the company today. We've relaunched something called Telstra Labs recently, which is a virtual innovation and laboratory capability under Stephen Elop, one of our group executives who heads that up, that's got an IIT lab, 3D printing lab, software lab, hardware labs based here in Melbourne, but also in Sydney.

And we've also got capabilities internationally as well. So there's a lot of activity in the innovation space as well. And it's also, of course, about, as you said, attracting new people into the organisation as well. And so we're very much pushing that through our graduate programs. And so look, there's a number of initiatives that are underway. And I think, as I say, there's no single silver bullet solution to becoming a more innovative company, but through a whole range of different initiatives and investments and processes, we're really sort of starting to see the benefit of that as as demonstrated in the recognition through the award earlier this year. So I thank you.

SPEAKER:

Thank you. Well, we have no further questions at this time, so I would just remind the shareholders this is the opportunity for you to ask any general question about the business or its operations before we go on to remuneration and the final topics. It looks like we have no. We do have a question. So microphone one. Chairman, I would like to introduce Edgar Segars from Eltham.

EDGAR:

Thank you for allowing me to ask the question. The 5G network that you're going to implement, how does that compete with the NBN as it is at the moment? And if I may also ask, the black spot program, how does that look in the long-term for the so-called driverless car when you reach one of these black spots? Thank you.

SPEAKER:

OK. Well, your first part of your question, the 5G network. The 5G network is not being set up to compete with the NBN. The 5G network is being set up to deliver a whole raft of new capabilities at higher speeds than have been available before. Now, there will be always an overlap between fixed and mobile, and ironically, fixed networks are becoming more mobile and mobile are becoming more fixed as small cells get closer and closer to the home, et cetera. But the whole purpose of 5G is to offer greatly enhanced services, lower latency, a lot of the technology, you mentioned driverless cars and the like. So that will be the prime motivator and driver of investment in that. As to what happens to a driverless car in a black spot. I'm not sure I can answer that completely, but I won't be in it. I can assure you of that. Look, I mean, there's obviously a fair bit of work to be done. Driverless cars is gonna be the most dramatic transformation of the landscape. I think I read that by 2030, the United States were about 440 million cars is believe they'll drop to about 40 million cars by then.

This is a sheer efficiency of your own. You just need a car when you need it for the 50 minutes to go down to the shops or whatever. But in Australia, there are over 700 pieces of legislation that need changing before a driverless car can run on our roads. So it's gonna take a while, not just technologically, but also in terms of regulation and the like. But it's definitely gonna come and it is going to be absolutely transformational. Thank you. Microphone two. Thank you, Chairman. I would like to introduce Victoria Brown from Melbourne.

VICTORIA BROWN:

Thanks for the opportunity to talk to you, Mr Chairman and the rest of the board. I just heard a query about how Telstra practically consults with customers. Have you considered doing custom surveys as a way to understand customers issues and needs? It would seem to me that you could get some really good qualitative and quantitative data about what people's concerns and also to get opportunity to understand future customer products and services that you can provide. Maybe that would enable you to understand what the problems are at the customer interfaces in your customer shops and that may be really useful data for you. Thank you.

SPEAKER:

Thank you. Thank you. I'd respond to that with two components of an answer. And firstly, obviously, we have an extremely efficient and extensive, well-run marketing department, which spends a lot of time doing exactly that in holding focus groups with customers. Every new product that goes out to market is tested exhaustively beforehand with customers. So I think there wouldn't be many companies in Australia that do more market research across their customer bases than we do. The other really important factor to point out, of course, is that 40% of senior management teams variable compensation is based on net promoter score performance. So that some people will say that's not a financial measure. It sort of is because it's not something that can be gamed. That's external evaluation of what the interaction of a customer, the customer experience with us. So the episode, NPS, as we call it. So when you've had a telephone call with Telstra or you've been to shop you've done whatever, large number of people, so it's a very meaningful data of sample are asked how do you rate that experience?

And then in the other half of the 40%, so 20% is on the strategic NPS, as we call it, which is irrespective of what performance you may have had not had, would you recommend Telstra as a supplier? So that puts a huge, huge amount of effort and focus in management's minds. I can assure you. They're extremely targeted and oriented towards customer service to understanding what makes better customer service. I hope that answers question. Microphone three. Thank you, chairman, I would like to introduce Murray Newman.

MURRAY NEWMAN:

Good. Thank you, chairman. My query is, I think if you didn't answer, I think I've missed it, but I don't think there was a figure that you gave for any likely net profit increase for the year we're now in. I'll be pleased if you could give us some idea of that. You gave us other figures of income and sales, but I'm not too sure if you gave it as a percentage increase.

SPEAKER:

Sorry, I misheard the question. I understand it was guidance, not historically reported. No, we do not issue guidance on net profit because of the many factors that can influence a final net profit. So we limit it to the measures that you see revenue, EBITDA and cash flow.

MURRAY NEWMAN:

Alright. Thank you.

SPEAKER:

Thank you. Microphone two. Thank you, chairman. I'd like to introduce David Holland from Tasmania.

DAVID HOLLAND:

Hi there, chairman. I'd just like to say first, I think you guys are doing a pretty good job. Second, I like to watch Sky News Business with Ticky Fullerton, and you were on that show a couple of weeks ago and you said if Telstra hadn't paid a dividend for the past ten years, you would have a $15 billion war chest available. I know you've only been on the board for nine years and chairman for the past year or two. But if Telstra didn't pay a dividend, what would you've done with all that money?

SPEAKER:

Very good question. Very good. Firstly, thanks for the compliment. We appreciate that. No, the point all I was trying to make there wasn't specifically reference to Telstra. It was just that the world is changing so fast around us that it's not just the technology and the products and services that new companies offer that is a change. It's also the business model of those companies. And if you look at many of them like Amazon's and others, they do not pay a dividend because they reinvest in their growth business to grow their market share, reduce prices, enhance their product offerings. That drives strong share price appreciation and you see enormous share price, thousands of percent share price appreciation from those companies, which to those investors who backed them, obviously outweighs the lack of a dividend. I was just making the point in general across all of corporate Australia. It's not specific to Telstra. We're very much, Australia is very much a yield driven market historically with high payout ratios, and it's gonna be interesting to see how those go over the coming years.

Not just us, but the whole corporate world. That was that was all I meant. And just because we pay a very large amount of money out as a dividend, I just wanted to emphasize the magnitude of it and say, if hypothetically, which don't worry, we've never considered not paying a dividend and we won't consider not paying a dividend. But if one hadn't, if one had behaved the same way as some of those other companies, we would have a war chest of $50 billion. Now, I'm not sure we'd have done anything better with it than giving it back to you, which is why we gave it to you. But I do think it's a very important and challenging change in the corporate landscape going forward. Microphone two again. Chairman I'd like to introduce Rob Metcher from French Island.

ROB METCHER:

Mr. Chairman, board of directors. I'm retired now, but I live in an isolated community. My previous job was one of the things we had to do is transport Telstra crews onto the island as we don't have a bridge and their expertise and their forbearance was a pleasure to work with them, except for one New Zealand guy who like to refer to Greg Chappell underarm incident a little too frequently. And more serious note, a wonderful federal government with a dodgy power supply in the future. Does Telstra have any clout along with other businesses to keep them up to the mark if the incompetence and messing around leaves us without power and our communication system? Thank you.

SPEAKER:

The subject of electricity prices, it's probably not the topic that we should get too deep into here. But suffice it to say that I think our increase is here and over 100 million. We've increased cost to us because of the rise in electricity prices. So it's very much something as forefront of mind. I very much hope that successive governments will get their act together and get an energy policy finally, that that addresses these needs for the long term, and I'm confident it will happen. But I think there's a year or two of challenge before we get there. Microphone three, please. Chairman, I would like to introduce Robert Pelly.

ROBERT PELLY:

Good morning, Mr. Chairman and members of the board, I'm one of the unfortunate tier two investors who took financial advice from Peter Costello. After 12 or more years, my question, considering Telstra is one of the biggest, well, is the biggest telecommunications company in Australia, I'm just wondering, after 12 or more years, why the Telstra share price is still half of what I paid for it back in the tier two days?

SPEAKER:

Thank you. Obviously, we are extremely mindful of that. The tier two tranche, I think, was the most disadvantaged in terms of price versus the ultimate yield. And I believe that it's returned over some 17 years, only about 16%, which is far lower than the Tier one and tier three tranches produced, which were more like 175% and 87%, I think. So, again, reference to the comments we made earlier about share price. I mean, all we can do as a company is to set a business strategy that we believe will deliver the maximum value to shareholders and then make sure that management execute on that. Decisions that come down from on high, like the creation of the NDN, regulatory changes and other things, as well as the competition is something we can't control. We have to be mindful of. We have to make sure that we respond as efficiently as we can to those challenges, but we do not control them. Obviously, there are many, many factors that go into affecting the share price, not just how one is performing today, but how markets perceive that the industry and the particular player will go in the future.

Microphone one. Chairman, I would like to reintroduce Michael (UNKNOWN) from Wollen.

MICHAEL:

Mr Chairman, I'd just like to ask, where is the next Autohome business gonna come from? I was really upset that you sold that business because of such a successful business. Why did you find it necessary to sell Autohome the Chinese business? And could you also comment on how this medical software business is going? Because from what I hear, it's really struggling to make any money, the medical business. But firstly, why did you sell Autohome and if you could comment on the medical software business? Thank you.

SPEAKER:

Thank you. We sold Autohome because it was an investment in a company in another country, China, as you know, where we made an extraordinary large profit close to $2 billion of profit. And we felt it would be prudent as a company, as a board to take that profit and put it in the bank and then indeed, that facilitated the further return to shareholders. There's always the, you know, with every shareholding, there's a question do you hold on, hold on hoping it will go higher or do you wait and then sometimes see that value dissipate considerably? I don't think we'd have been thanked if the share price had gone the other way, and we lost $2 billion on the investment. So I think you can always be criticized for not picking the absolute peak of the market. But making a $2 billion profit on investment like that is pretty good and it doesn't happen every day. Where's the next one coming from? Well, I think Andy mentioned we have some 35 investments in Telstra Ventures in Silicon Valley. Will one of those becoming an Autohome?

I don't know. It's potential for that. But we do hope at the very least, they will contribute financially and strategically to the development of the company. Lastly, regarding Telstra health, look, yes, Telstra Health hasn't hit everything we expected it to do, but it's a start up business again in a new area where we're bound to make some mistakes and we have made some mistakes. But we've also made a lot of successes and Telstra Health is actually slightly sort of under the covers a bit some of the success that it has had. We administer the electronic transaction to more than 260 million scripts annually, between 22,000 GP's and nearly 5,000 pharmacies. And our patient flow and queue manager solutions are used by over 100 public hospitals, with the largest health software and technology provider already employing about 800 health professionals. And we're embarked on some very major projects like the National Cancer Screening Registry and others. So I think it's exactly what we should be doing as a company.

We should be taking risks that should pay off. Sometimes they don't. Sometimes they do. But none of them will affect the future of the company completely. We're not taking risks, as I said in my earlier speech, that jeopardize the whole company. But Telstra Health is on the way to being a very substantial and successful business. Well, we've got some clear plans, which we don't obviously publicize as to when it will make money. Very few businesses of scale make money from day one. Now, if you look at our network applications and services business at the time I've been on board, that was in a very similar situation when it started. It lost money and there was a lot of questioning. Should we be in this or should we not? Now, you look at where where it is, over $3 billion business growing at 30% annum and the margins have more than tripled since we started. So yes, we don't get everything right. And yes, it may take longer than everyone would like for something like Telstra Health to be profitable, but we're very confident it'll be.

Otherwise, we wouldn't stay in it. If it wasn't, we would cut it. Thank you. Microphone four. Thank you, chairman. I would like to introduce Francis Mallon from Cobourg.

FRANCIS COBOURG:

Thank you.

FRANCIS:

I would just like to ask one question about the rollout of the NBN. The (UNKNOWN) people who are putting these yellow structures on the footpaths because I'm one of the unfortunate people who has fallen over it. I rang Telstra and I asked them why they can't be made level with the footpath, but I didn't get much of a reply really about this. So, is it the Telstra Company that are putting these up?

JOHN P MULLEN:

Thank you Francis. Are you a long distant relative that I don't know about?

FRANCIS:

No, I really don't know. I spell my name the same way and everything, but we originated from Manchester, so I don't know.

JOHN P MULLEN:

I reckon not. But, anyway, look, I'm not a specialist in the operations there, Andy just tells me the orange covers like you're referring to are probably actually temporary pit covers, which are protecting a damaged (UNKNOWN) somewhere where remediation is needed. I don't think that would be the NBN, the NBN is responsible for putting obviously their own infrastructure and not Telstra. So, I'm pretty sure that is what it would be. And I hope you don't fall over any more. Thank you. (UNKNOWN), again, please.

SPEAKER:

Yes chairman. I would like to introduce Frederick Cornelius from Essendon.

FREDRICK CORNELIUS:

Good morning, chairman and CEO and board members. Just on service, I'm experiencing an increasing number of my download speeds decreasing and also a lot of dropouts. I must say your support staff are very good, they bend over backwards to try and help you and they do a fantastic job. Sometimes, it is a bit difficult with accents, but they really do try very hard. The other aspect also is Telstra doesn't inform you as a customer when they put new plans out. Sometimes there could be advantages to the old plan that you have. For instance, now you mentioned something on pensioner discounts, I have no idea what they are. And if they are, where would you find them and could you extend it to foxtail?

JOHN P MULLEN:

Regarding the first part of your question, downloads speeds, I don't know what service were they or ADSL, so what the service is.

FREDRICK CORNELIUS:

ADSL2, yeah.

JOHN P MULLEN:

Say? ADSL2?

FREDRICK CORNELIUS:

Yeah.

JOHN P MULLEN:

Right. Well, there's no reason why you should be experiencing problems and lower download speeds. In fact, we've invested quite heavily over the last six, 12 months on improving ADSL performance. So, again, without knowing the specifics of your particular issue, there are staff here who can address anything that's outstanding that hasn't been resolved by the people that you spoke to previously. Regarding being kept informed of new plans, we do promote them pretty widely. Our website in particular lists all of those sort of services and concessions that you can obtain. So, I would suggest you perhaps go there, or, again, give us a ring and ask if you've got any particular area that you're interested in where we can try and answer that for you.

FREDRICK CORNELIUS:

I understand that, but the daily(UNKNOWN) and busy lifestyle, you don't think of getting on, finding out what are the new plans, your life just goes by so quick.

JOHN P MULLEN:

Well, it does. And obviously the landscape is changing extremely rapidly all the time. We do proactively contact customers where we see that they're on a plan that is not the right one for them or is costing them too much. Whatever we do proactively on a large scale contact customers to tell them that. But most of the communication, inevitably, as it's all changing so fast, is on the website.

FREDRICK CORNELIUS:

Notification of different events with tickets and what have you, 99% of them, which I never go to, so why couldn't they send out a message saying that, you know, we've got new plans, have a look at them.

JOHN P MULLEN:

Well, literally the plans are changing daily and weekly. The marketing team and product teams are developing new pricing, new plans on a constant basis. It would be impractical to email every customer or potential customer, let alone send a physical letter to everyone. So, I would encourage you to go online and/or ring our customer service. Thank you.

FREDRICK CORNELIUS:

Thank you.

JOHN P MULLEN:

Right. I have no more questions here. So, last chance for everybody before we go on to the other items. Great. OK. Well, thank you very much for those very thorough, engaging questions. We've now finished our discussion on this item, and I now turn to ITEM 3a on today's agenda, which is to consider the re-election of Peter Hearl. So, Peter's details are set out in the notice of meeting, and I would just add that we note that Peter retired from the Board of Treasury Wine Estates, effective 31st of August 2017. Peter has been a non-executive director since August 2014. He's a very valuable member of the board with excellent experience and an important role as chairman of the remuneration committee and a member of our nomination committee. Peter is a very experienced company director with substantial international experience as a senior executive in fast moving consumer goods sector, including of Yum Brands and PepsiCo. The board, other than Peter, recommends his re-election. So I'll now take any questions you may have regarding Peter's re-election.

Looks like there are no questions. Thank you, so we will now vote.

SPEAKER:

(INAUDIBLE)

JOHN P MULLEN:

We do? We have one on the way. Sorry.

SPEAKER:

Chairman, I'd like to reintroduce Maurice Newman.

JOHN P MULLEN:

Thank you, Mr. Newman.

MAURICE NEWMAN:

Thank you. My query is quite a general one. I note that at the board there are only two people who really, I think, technical who have been trained as an engineer. And I find this rather surprising because you've mentioned quite frequently through the morning that you are a technical organisation, you are an engineering type organisation, but you only have two directors who I think could lay claim to being that. I was wondering why that is and if you had any board vacancies, whether in the future, that you would put some people with engineering training under the board. Thank you.

JOHN P MULLEN:

Thank you. That's a very valid question indeed. We are very conscious of that. We did have up until recent retirements two others. We had John Ziegler and Geoff Cousins, both of whom had specific telco experience, and we had Catherine Livingston, who was an expert in pretty well everything. So, we had adequate representation, I think, at that time. I am though very mindful and we are currently looking to try to boost the board's strength with specific technical knowledge, as you have said. So, it's a very good point, sir.

MAURICE NEWMAN:

Good. Thank you.

JOHN P MULLEN:

(UNKNOWN) three again.

SPEAKER:

Chairman, I'll be introducing Noel Levi.

NOEL LEVI:

Mr. Chairman. And I've just got one comment to make about the re-election of this director. I am not happy with the remuneration scheme, it's too generous. There's quite a few other comments I'd like to make, but not now. But I'll be voting against you because you are the chairman of the remuneration committee. And typically, these AGMs comments from the floor seem to be ignored. So, I decided in the future maybe make a comment, but fought against all of those people who are on the remuneration boards and maybe in that way they may take some notice. Thank you, Mr. Chairman.

JOHN P MULLEN:

OK, thank you. Look, we will be covering remuneration in more detail when the chairman of the remuneration committee speaks shortly, but let me since you've asked a question, let me try to respond to it now. Firstly, we do listen and I can assure you that both the remuneration committee and the board take the issue of remuneration extremely seriously. We scour the world for best practice within Australia and elsewhere. We benchmark against other ASX 20 companies, and we're constantly mindful of the balance between attracting the best talent, but also meeting shareholder concerns and expectations over excess remuneration. One of the reasons that we are changing the remuneration policy that you will hear from my colleague Peter in a minute is that we want to get further alignment of remuneration of management with shareholders. And to that end, as I said earlier, we're moving to 65 percent of their income will come in shares, which very much aligns them, we think, to shareholder interests as well.

So, directors fees, we obviously get external advice to benchmark ourselves. We don't seek to be the highest, we don't seek to be the lowest, but we seek to be broadly in line with other large corporates of our size. So, again, I would just emphasise we do take the issue of rem extremely seriously. It probably has more prominence in the company now than almost any other component of our business. So, thank you. OK, I think we have no further questions on Peter's re-election, so we will now vote on this item. The proxy and direct voting position is being shown on the slide behind me. As indicated in (UNKNOWN) meeting, I intend to vote all available proxies on this item in favour of Peter's re-election. So, please complete your vote now for ITEM 3a. With that, I will now turn to ITEM 3b, I will step down from the chair and invite Nora Scheinkestel, Chairman of your Audit and Risk Committee, to chair the meeting for this item.

NORA SCHEINKESTEL:

Thank you, John. Good morning, shareholders. ITEM 3b is to consider the re-election of John Mullen. John's details are set out in the notice of meeting. He joined the board in 2008 and has been chairman of your board since April 2016. He's chairman of the Nomination Committee and was previously chairman of the Remuneration Committee for five years until 2016. John has over two decades experience in senior executive roles with different multinationals in the transportation and logistics sector, including most recently as managing director and CEO of Asciano Limited from 2011 till 2016. The board, other than John Mullen, recommends his re-election. I will now take any questions you may have in relation to John's re-election. Yes. Microphone four, thank you.

SPEAKER:

Thank you. I would like to introduce Scott Hunter.

SCOTT HUNTER:

Yes, the two people up for re-election share nine other directorships or job appointments. Page 32 to 33 of the annual report shows that the 10 current directors have 43 other positions between them. Including the Telstra directorships, 10 people have 53 jobs. This is not in line with the statistical average of employment in Australia, where most people have one job. Also, in a country where two million people have no job at all. As there are only 168 hours in a week, and no one could work that whole amount anyway, are these staff not overcommitted? And in terms of a dispute over the phone bill, say, with one of the other companies that they have directorships for, whose side do they take or do they take no side at all, which would make Telstra have to make a decision about that with one person less?

NORA SCHEINKESTEL:

Thank you for your question. Sir, maybe starting with the last part. Certainly at Telstra, both from our internal policies, but also under the Corporations Act, there are quite strict rules that govern any conflicts of interest. So, if any of us have any conflict of interest in relation to a matter that's for decision before the board, then we will excuse ourselves from that item, we won't receive material on it. So, any conflict of interest that would arise relating to your other commitments or involvements are dealt with quite strictly, and we take that aspect of it very seriously. In respect to John's workload specifically, he has involvement with two other companies, Toll, which is a private, unlisted company, which he chairs and he's a member of the Brookfield Infrastructure Board. And in addition, he has involvement with a number of not for profit organisations. As chairman of the Audit Committee, I actually undertook John's review as part of our board review process earlier this year and spoke both to management and my fellow directors.

And one of the aspects that we talked about was certainly his commitment, and people commented that his involvement, his availability, his accessibility was exceptional. So, from the board's perspective, we're very comfortable about his workload and his level of commitment to the organisation. Thank you for your question. As there seem to be no other questions, then we've finalised discussion of this item. The proxy and direct voting position is now being shown on the slide behind me. As indicated in the notice of meeting, I intend to vote all available proxies on this item in favour of John's re-election. So, could you now please complete your vote for ITEM 3b? And as we've now finalised this item, I'll hand back the chair to John.

JOHN P MULLEN:

Thank you very much, Nora. I now turn then to items four and five on today's agenda. We'll deal with both of these two remuneration related items together as they relate firstly to the grant of performance rights and restricted shares to the Chief Executive Officer Andrew Penn under the new Telstra fiscal year 18 Executive Variable Remuneration Plan or EVP, and Telstra's 2017 remuneration report, which addresses both the remuneration outcomes for 2017 and the new EVP, which is a key part of senior executive remuneration for the future. I'd now like to invite Peter Hearl, chairman of the Remuneration Committee, to provide some introductory comments about this year's remuneration report. Our remuneration outcomes for fiscal year 17 and our executive variable remuneration plan. Peter will also take questions from the floor on these two items. Peter. Just need to mention. For those interested, lunch is being served outside now.

PETER HEARL:

I might go out. (LAUGHTER) Thank you, John. Good morning, fellow shareholders, I firstly would like to provide you with an overview of our remuneration outcomes for FY17, as explained in our remuneration report. Before then, looking ahead to 2018 and the introduction of the new Executive Variable Incentive Plan, or EVP. Our remuneration report provides a comprehensive overview of our performance and remuneration outcomes for financial year 2017, as well as a summary of our governance practices. Through our remuneration report we seek to enable you, our shareholders, and other interested stakeholders to understand the links between remuneration, company's strategy and Telstra's performance and the framework we have in place to provide effective governance over remuneration at Telstra. During FY17, there were no fixed remuneration increases and no changes to the short term incentive and long term incentive opportunities, as a percentage of fixed remuneration for our senior executives. The senior executive remuneration mix has remained the same since 2013.

Our remuneration policy is designed to link financial rewards directly to employee performance and contributions and company performance. And the financial year 2017 remuneration outcomes for senior executives are totally consistent with this. Looking at the short term incentive outcomes, as you have heard this morning, 2017 was a year of solid progress for the company, a year where we delivered on our guidance to the market and made progress in improving customer service. The outcomes under the FY17 STI plans therefore reflect the performance of the business, with senior executives receiving on average 41.3% of the maximum available opportunity. This reflects Telstra's performance on the free cash flow, EBITDAR, episodic and strategic MPS performance measures. We did not achieve our total income measure, resulting in no payment on this component. The Board exercised discretion in determining the outcomes of the financial measures to ensure there were no windfall gains or losses due to the timing of the NBN rollout, spectrum purchases and material acquisitions and divestments.

The board also considered and adjusted for restructuring costs to ensure management did not receive any windfall gains. While the aggregate effect of these adjustments on the FY17 STI results was a positive adjustment, overall, the resulting impact on FY17 senior executive STI plan payments was negligible at less than one half of 1%. Turning to the long term incentive outcomes, as we did not perform against our relative total shareholder return and free cash flow return on investment targets, senior executives received no remuneration under the FY15 LTI plan. When assessing performance under the FY LTI plan the board did not make any adjustments and therefore did not provide any relief for the effects of our strategic investment program. This is the program that we announced in August last year, which involves an additional investment of up to $3 billion over three years on our networks for the future and for digitisation of our business. The reason the board did not make any adjustments was because the FY15 LTI plan was already in place when the Strategic Investment Program was announced.

CHAIRMAN PETER HEARL:

This principle will also be applied to the FY16 LTI plan, which will be tested at the end of June 2018. For the NY17 LTI plan, when the free cash flow ROI measure is tested at the end of financial year 19, any reward will reflect the Board's assessment of management's performance in delivering against the Strategic Investment Plan. This will include both the costs and the benefits of the program over the performance period. Turning to non-executive director remuneration, there were no changes to non-executive director or committee fees during FY17. In FY17, Telstra conducted a review of its fees for non-executive director roles relative to other major companies in the ASX 20. The results of that review found the fees for the role of the remuneration committee chair and remuneration committee members, which has remained the same since August 2010, had not kept up with market rates for similar companies. The fees for these roles at other companies had changed as a result of their increased responsibilities on governance and accountability to shareholders.

Effective July 1, 2017, the board has increased the fee for the role of the Remuneration Committee Chair by $6,000 to $56,000 and for remuneration committee members by $3,000 to $28,000. No other changes were made to non-executive director or committee fees. Looking ahead to 2018, we've implemented a new simpler remuneration structure for our senior executives in the form of the Executive Variable Plan, or EVP. As we mentioned earlier, the proposed allocation of equity to the CEO under Item 4 is based on this EVP. The EVP is developed, has been developed following a review of our remuneration structures for the CEO and for our group executives, including our long term incentive plan structure, which was complex. It combines our existing STI and LTI arrangements into a simplified single incentive plan. Importantly, there's been no change to either the target or the maximum opportunity that the CEO or senior executive can earn under the plan. The new EVP is designed to continue to drive performance against customer experience and financial metrics, which create long term shareholder value, and rewards management in a way that provides a much better link to executive performance and alignment to shareholders through longer-term equity rewards.

This is achieved by a more significant proportion of the reward tested against the relative total shareholder return of a comparative group, which in future will comprise the ASX 100, excluding all the resource companies. The EVP extends the overall plan to five years from the current four, which further aligns executive rewards to shareholder interests. Consistent with our strategy to deliver brilliant customer experiences, NPS continues to be a significant component of the plan. The NPS system tells us how our customers perceive Telstra, and we believe this measure is the most effective indicator of our progress in delivering on this aspect of our strategy. Finally, we understand the importance to our shareholders of continuing to enhance the insight we provide on the link between remuneration and executive and company performance. As we introduce the EVP, we are committed to continuing to focus on the transparency with which we explain how remuneration outcomes are determined in future remuneration reports.

The board, other than Andrew Penn, recommends shareholders vote in favour of item 4, the allocation of equity to the CEO under the EVP. The board also recommends that shareholders vote in favour of item 5, the adoption of the remuneration report. I will now take any questions you may have on either items 4 or 5.

SPEAKER:

Chairman, I'd like to introduce Bilek to you from Melbourne.

BILEK:

Hi.

CHAIRMAN PETER HEARL:

Good morning.

BILEK:

Hello. You can listen to me?

CHAIRMAN PETER HEARL:

Yes, yes. I said good morning.

BILEK:

Anyway, I want to congratulate you. If you run for the federal election, you would win with this speech because it came out very nice around a very unclear situation. Anyway, the question is when is Telstra and any other companies will change their culture of remuneration and incentives? I work for 40 plus years in a private company. Never I was paid because I did something special, because they pay me to do the job. And you are paid and you have remuneration to do what is required to do. And why do you need extra and extra and extra? For what? Because you still have the old concept. Yes, if I have to do something to do my work, I need more remuneration, I need a different remuneration. I don't think it's a valid reason you... I would say if I was in power, I would chop your remuneration for the performance you have. So what do you need extra for? You explain to me, but not generic answers. I want specific answers. Yes, this gentleman needs more remuneration, more money because he did something.

But what does he do for doing his job?

CHAIRMAN PETER HEARL:

Well, firstly, thank you for your question. I want to emphasize that the board and the remuneration committee takes its governance and oversight of Telstra's remuneration policies and philosophies very seriously. We compete in a global market, in a very competitive global market, for the best possible CEO and group executives that we can get. And our whole philosophy is designed to, 1, support the strategy that we've put in place and to reinforce our culture and values. Secondly, to link financial rewards directly to employee contributions and company performance. And third, and importantly, to provide competitive remuneration to attract, retain and motivate highly skilled employees. I'd also emphasize, in terms of fixed remuneration, we use the midpoint of the ASX 20 as our benchmark or bellwether in terms of setting a fixed remuneration. So we believe that we, to get the best and brightest people that we've got, have to get to deliver on our strategies. We have to be competitive in remuneration, and that's exactly what we've done.

As I said, we take our role as oversight of the Remco philosophy and policies very, very seriously. And thank you for your question. Microphone 2.

SPEAKER:

Thank you, chairman. I have Liz Richards from Sydney.

CHAIRMAN PETER HEARL:

Thank you.

LIZ RICHARDS:

Thank you, Mr Hearl. Mr Hearl. I'm actually a treasurer of a village with 250 people, and I have to explain things financially to them at times. What distresses me is your use of TLAs and SLAs. You know what they are? Three letter acronyms and six-letter acronyms. You say FY.

CHAIRMAN PETER HEARL:

Financial Year.

LIZ RICHARDS:

I know it's Financial Year, but it takes the same time as saying FY. And you need to explain to anyone here who's grey head what some of these TLAs and SLAs are. You need to say the full words. Thank you.

CHAIRMAN PETER HEARL:

Thank you very much for that feedback, and I'll make sure that, if I'm standing here next year, I will comply.

LIZ RICHARDS:

(INAUDIBLE) is today as well.

CHAIRMAN PETER HEARL:

Are there any other questions, ladies and gentlemen? Yes, we have one here, and we've got one on microphone 2, first, I think, then 4.

SPEAKER:

Thank you, chairman. I'd like to reintroduce David Holland.

DAVID HOLLAND:

Hi there, Peter.

CHAIRMAN PETER HEARL:

David, how are you?

DAVID HOLLAND:

Pretty good. Just about ready to go outside and eat up, hopefully.

CHAIRMAN PETER HEARL:

You're not alone.

DAVID HOLLAND:

Thanks. The old man had a saying. He said if you pay peanuts, you get monkeys. And I reckon that saying holds true. So I reckon you're doing a good job as well. Yeah, that's about it. Thanks.

CHAIRMAN PETER HEARL:

Thank you, David. Microphone 4.

SPEAKER:

Thank you, chairman. I would like to introduce Scott Hunter.

SCOTT HUNTER:

The salary component that's paid in cash, or however it's paid, 2.3 million, that works out as a daily rate of $6,000 a day each day, every day. And I don't consider that to be peanuts. I consider the short term and long term incentive of earning $6,000 a day in a job. It's that one gets to keep it, and that should be motivation in itself. A number of people I know, if they were getting that, they'd be running into work to get there on time, not upsetting anybody, doing the job properly and then sticking their hand out for the $6,000 a day. And I don't see why you have to give any further incentive than that. I mean, why don't you just put the money in just a cash component instead of something that can increase to up to 5 million, which would be 15,000 a day, which is a pretty good salary.

CHAIRMAN PETER HEARL:

Thank you for your question. We believe that having a mix of cash restricted stock and performance shares is an appropriate way to attract, retain and motivate world-class executives. And we think what we've done with the EVP does just that. In terms of the FY17 remuneration, the REM policy, as I said earlier, is designed to link financial rewards directly to employee contributions and company performance. The CEO's remuneration, the outcome for the last year, is consistent with that philosophy. We delivered solid STI results and made progress against our strategies. In terms of the LTI outcome, which covers both the relative total shareholder return and the free cash flow return on investment, we did not deliver on our targets. So Andy received no remuneration under the FY15 LTI plan. And as a group, our key management personnel received 27% less cash equivalent remuneration in FY17 versus FY16, and Andy's remuneration on that basis was down 23%. I thank you for your question. Microphone 3.

SPEAKER:

Thank you, chairman. I'd like to reintroduce Noel Levy of Wollongong.

CHAIRMAN PETER HEARL:

Morning, Noel.

NOEL LEVY:

Good morning, Mr Chairman. First of all, with this new system you've got, it's a bit confusing, you know, working out which is STIs and which are LTIs. But based on what I've got here, for the short term incentive, you get 35% cash, 26% restricted shares. Is that correct of the total remuneration? And then for the long term incentive, it's 39% performance rates.

CHAIRMAN PETER HEARL:

Well, it's all part of the single incentive program.

NOEL LEVY:

But it's confusing. All the other companies...you are the first company that I've cut shares in. Put those two things together, and basically, it's making it more difficult for me, anyway, to decipher exactly what the STIs are and the LTIs. So can you answer the question, first of all? Am I correct in assuming that the total remuneration of the incentive schemes is 35% cash, 26% restricted shares for the STI and 39% of performance rates for the LTI.

CHAIRMAN PETER HEARL:

That's correct.

NOEL LEVY:

Well, if that's correct, it means the short term incentives, they're getting 61% and they're only getting 39% for the long term. Now, it's good having these long term being four or five years, but it doesn't encourage them to make long term decisions. They're getting 61% for the short term decisions. So it's in their interest to make decisions which are going to benefit in the short term.

CHAIRMAN PETER HEARL:

Well, as I said earlier, it's a single incentive program where 65% of the reward is in the form of either restricted stock or performance stock. The performance shares are, in fact, subject to a second hurdle at the end of four or five years for the FY18 EVP. And they're also subject to the first hurdle of achieving the performance results against the performance year, the first year of the performance plan.

NOEL LEVY:

Another question. On Page 7 where it says Plan terms and Conditions, the CEO's target is 200% of his fixed remuneration. And I'll turn over the page, top of the next page, CEO opportunity. It says the maximum opportunity is 400% of his fixed remuneration. So this means that allocation of equity methodology, when it comes in there, it said this fixture remuneration is 2.39 million. So 200% of that is 4.7 million. But in fact, it's twice that amount. It's 400%, not 200%. It is possible (UNKNOWN) have, which is closer to 10 million. (CROSSTALK) is fixed annual remuneration added to that, it's coming up towards 12 million. It's over the top.

CHAIRMAN PETER HEARL:

Well, the point I'd make as I did in my address is that the size of the opportunity, whether it's at target or maximum, is unchanged from the existing STI and LTI plans. The reality is that we've put more of the incentive into the form of equity, either restricted stock or performance shares. And we believe that much more tightly aligns with the interests of shareholders. And it's done over a longer timeframe, which, again, reinforces the alignment with shareholder interests.

NOEL LEVY:

The last comment and the last complaint is this, that relative TSR. That really doesn't align shareholders with the executives because they can still cash their incentives if they perform better than the ASX 100, minus the mining shares. So the share price could go down or dividends could go down. There could still get the remuneration, but we'd be losing our money.

CHAIRMAN PETER HEARL:

Well, there have to be in the top 50th percentile. The other point I make is that 80% of our shareholder base are domestic shareholders. And as such, we believe that the ASX 100 is much more relevant in considering the competition we face for investor capital. We also sought feedback extensively from major investors and proxies as we design the EVP. And the overwhelming feedback we got from those folk was that the ASX 100, excluding resources, is a much more relevant measure of shareholder return for Telstra.

NOEL LEVY:

Thanks, Mr Chairman.

CHAIRMAN PETER HEARL:

Thank you. There being no further questions at this time, I'm gonna hand back to the Chair. Thank you.

CHAIR:

Great. Thank you very much, Peter. Shareholders, I am now about to finalize discussions of Item 4 and 5 and conclude the meeting. So if you have any final questions on these two items or any other questions that you'd like to ask about your company that are relevant to shareholders as a whole, please, move to a microphone now. I take it as not. So thank you, shareholders. We've not finalized discussions of items 4 and 5 in the proxy and direct voting position on these two items is being shown in the slides behind me. As indicated in the notice of meeting, I intend to vote all available proxies in favour of Item 4, the grant to the CEO, and in favour of Item 5, the adoption of the remuneration report. Please, complete your vote now for these two items. Shareholders, that concludes our discussion of all items on today's agenda. If you haven't already done so, please, complete your voting now. Attendants are carrying ballot boxes throughout the room and ballot boxes are also located near the exits.

The poll will remain open for a further 15 minutes to enable shareholders to cast their votes, and the results of the poll will be available later today and can be obtained by visiting the ASX or our websites. All items of business having been considered, I now declare the meeting closed, subject to finalisation of the poll. Thank you and thanks to all of those who viewed the AGM online. Thank you for your attendance today, and I now invite you to join us for lunch in the foyer area. Thank you.

JOHN MULLEN:

Good morning, ladies and gentlemen. My name is John Mullen, and my honour to be the new chairman of your company. So on behalf of my fellow directors, it's also my pleasure to welcome you all this morning to Telstra's 2016 Annual General Meeting. And I also extend a very warm welcome to the many shareholders joining us today online. I would like to begin by acknowledging the traditional owners of the land on which we're meeting the Gadigal people of the Eora nation and pay my respects to the elders past and present. We have a quorum today and I therefore declare the meeting open. Can somebody lift the volume, please? I apparently can't be heard. The notice of meeting was distributed earlier, setting out the business and the resolutions to be considered at this meeting, and I will obviously take that notice as read. There are five items of business on today's agenda; Presentation's firstly by myself and or Chief Executive Officer Andy Penn. Secondly, discussion about 2016 financial statements and reports.

Thirdly, consideration of the election and re-election of directors, consideration of the proposed grant of performance rights to the Chief Executive Officer and consideration of the remuneration report. Voting on items three to five will be conducted by a poll and that poll is now open. If you do need to leave the meeting early for any reason, you can vote by completing your voting card and place it in one of the ballot boxes near the exits. I'd now like to introduce my colleagues who are here with me today. Firstly, joining us today from our auditors Ernst and Young is Steve Ferguson is available to answer any questions you may have on the conduct to the audit or on the auditor's report. This will be Steve's final AGM as Telstra's auditor, and I would really like to acknowledge his great service to the company over the past six years. He will be succeeded by Andrew Price, also from Ernst and Young for the 2017 financial year. Then with me here, also on the stage are Andrew Penn, our Chief Executive Officer, Damien Coleman, our company secretary, Warwick Bray, our chief financial officer and my fellow directors on the board.

Shareholders will also be aware this year director Nora Kessel is standing for re-election and Craig Dunn and Jane Hemstritch, who joined the board earlier this year are standing for election. And I will shortly invite those directors standing for election and re-election to introduce themselves individually. But before I do that, I would first like to acknowledge the contribution of Chin Hu Lim, who's notified the board that he intends to retire as a director of Telstra at the conclusion of today's meeting. Chin Hu has been a director since 2013 and a member of the board's nomination committee from earlier this year. Chin Hu has made a very valuable contribution and on behalf of the board, I would like to express our sincere thanks and wish him well for the future. I would not just like to break for two seconds to ask Mr Lim to address the meeting.

CHIN HU LIM:

Good morning. I would like to thank all our shareholders who are present here today for giving me the opportunity to serve you as your director in the last few years. I've been from John Mullen, the chairman, about two months ago that I don't intend to stand for re-election in today's AGM. Now, some of you who know me would know that I'm actually based in Singapore, not in Australia. And for personal family reasons, I've decided to travel less and spend more time with my family in Singapore. It has been a real privilege to serve as your director, and I've had the privilege of working with some of the brightest talent in the industry, both with Andy Penn and his current management team and before that, David Toddy before he retired. I've enjoyed the many hours of discussion we have had on Telstra's key opportunities, as well as some of the challenges that a company faces. I have no doubt Telstra will move into greater heights and continue to create value for you as our shareholders. I'll be watching the company with keen interest, even as I retire.

And finally, thank you again for giving me the opportunity to serve you, and I wish all of you and Telstra the very best. Thank you.

JOHN MULLEN:

Thanks very much, Chin Hu. And again, our very best wishes to you for the future. So I'd now like to invite the director standing for election to introduce themselves, starting with Craig Dunn.

CRAIG DUNN:

Alright. Thank you, chairman and good morning, ladies and gentlemen. It's been a great honour for me to be invited to join the Telstra board and act as your representative. And I like to take the opportunity to say a few words this morning. Telstra, of course, occupies a very special place in the history of our great country. It makes a very substantial and enduring contribution to all the communities it serves, and I know that it will continue to do so into the future. I'm very conscious of the important role our board plays in the governance and stewardship of any company and believe my background and career enable me to contribute effectively to this role. I've held senior executive positions in other large Australian companies, including in finance strategy and as CEO, and I've lived and worked overseas in both Europe and Asia. In more recent years, I've taken a very strong interest in technology and the digital revolution and act as chair of Australia's leading fintech incubator here in Sydney.

I believe my background gives me valuable insights and experience into the opportunities and challenges likely to face the board of a large, complex and nationally significant company like Telstra. So I'd like to thank you for listening to me. Thank you for your support, and I look forward to continuing to add as much as I can as your shareholder representative. Thank you.

JANE HEMSTRITCH:

Good morning, fellow shareholders. I feel very privileged to have been asked to serve on both the Telstra board of directors and as a member of the Board Remuneration Committee and stand for election today. As a Telstra board director, I will bring to the table two main things. Firstly, my experience as a senior executive in a large global technology organisation, during which time I was responsible for 12 Asia-Pacific countries, including China, Japan and India, and over 30,000 personnel. Secondly, I'll bring my experience of over a decade as a director of other major Australian companies, allowing me to bring to Telstra some insights into governance, best practice and the ways in which other companies are implementing major change initiatives and tackling new technologies. With respect to my committee, I chair remuneration committees and other organization. And while Telstra has many unique characteristics and circumstances, in some ways faces similar challenges to other large ASX companies and insights, I think from other places can inform some of Telstra's choices.

I look forward to being part of the team that's the Telstra board of directors, and I ask for your support for my election as a director, and I'd be pleased to work on behalf of all shareholders during the next phase of the company's development. Thank you.

NORA SCHEINKESTEL:

Good morning, ladies and gentlemen. My name is Nora Scheinkestel, and this is the third time I'm standing for re-election, having joined the board in 2010. During my time as a director of Telstra, I've chaired the Audit and Risk Committee since 2012 and I've chaired the due diligence committees for the two NBN transactions and the two buybacks, which we've done over recent years. Telstra, like the whole Australian economy, is experiencing a dynamic and fast changing environment, and your board and management team are focused on being agile and responsive to our customers needs and demands, as they too continue to change. With some 25 years of experience as a non-executive director, having served in almost every sector of the economy, I've been part of leadership teams needing to fundamentally transform their business, respond to deep shifts in customer expectations and to meet increasing regulatory hurdles. While the disruption that's occurring is certainly presenting challenges, it's also offering us tremendous opportunities.

We won't always get it right, but responding quickly and learning from our missteps is key to being able to delight our customers, deliver value to you our shareholders and also meet the requirements of our broader stakeholder group. That's why at the Audit and Risk Committee, we're currently working with our management team to redesign our risk management practices so that we're better equipped to respond when issues arise. Should you choose to re-elect me, I believe my experience will allow me to make a valuable contribution to our leadership team as we face into what is a very exciting time. Thank you.

JOHN MULLEN:

Thank you, Nora, Craig and Jane, and I would like to thank all of my directors for their contribution, for their support and their commitment during the last year. Now, before addressing progress over the last 12 months, I'd just like to say a few quick words about the board and the governance framework of Telstra. Our board's role is to provide a robust structure through which our business objectives are set. The performance of our management team is monitored, the risks that we face are managed and shareholders interests are protected. We seek at all times to ensure that the board has an appropriate mix of skills, diversity, experience and expertise to enable it to effectively fulfill its responsibilities to help your company navigate the opportunities and the challenges that we face. Now, in this regard, there were a couple of changes to the board during the last year. In particular, shareholders would be aware that in February this year, Catherine Livingstone announced that she would be retiring as chairman and as a director, and she ceased to hold office as chairman and director in April.

While unfortunately, Catherine is unable to join us here today, can I say that Catherine has been an exceptional chairman and her contribution to Telstra through times of great change has been absolutely enormous. She was a director for nearly 16 years and chairman for the past seven. During that time, Catherine has helped ensure that Telstra is very well placed to capitalise on the enormous opportunities of the digital age, and that your company continues to build the expertise, the capability and the customer focus that we need if we're going to succeed in the future. Through so many fora, she has shown her passion for technology, her passion for science, reform and innovation. And in so doing, she's earned the deep respect of stakeholders around the world. So on behalf of the Telstra board, the leadership team and I'm sure many shareholders here today, I would like to express our sincere thanks to Catherine for her great contribution to the company and to extend to her our best wishes for the future.

So I now have the honour and the privilege of succeeding Catherine in the role of chairman, very large shoes to fill indeed. But my focus and that of all my colleagues on the board is to maintain the exciting strategic course that we've jointly set and help take the company to new levels of performance in the future. So let me just make a few comments now about Telstra's performance in the 2016 financial year. 2016 was a year of increasing external change. But despite that, we were pleased to deliver another solid outcome for shareholders growing revenue and EBITDA on a guidance basis and again providing consistent shareholder returns. Net profit after tax from continuing and discontinued operations was up 35.9% to $5.8 billion, including the 1.8 billion that we realised from the sale of Autohome shares. Earnings per share for the year rose to 31.6 cents per share on a continuing basis, and the board declared a final dividend for the year of 15.5 cents per share, which takes the total dividend for the year to 31 cents, which is up 1.6% on the last financial year.

And while the results are solid, there's no doubt the competitive intensity has increased across all our segments and products as a piece of technology and innovation continue to accelerate and the rollout in particular of the NBN network, progressed. 2016 was a year where ongoing advances in technology and constant innovation continue to reshape the telecommunications and technology markets in which Telstra operates. 2016 saw more and more people, and more and more businesses, both large and small, take advantage of the exciting, empowering possibilities of new connective technologies. I think it's safe to say today there's virtually no technology innovation that does not fundamentally rely on a network and collectively, Telstra's networks are Australia's best. Thank you. We believe it, too. So to give you a sense for the scope of Telstra's operations, on average, 55 million calls and 365 million data connections are made over our network every day, connecting friends, connecting families, connecting businesses and essential services around Australia and for that matter, increasingly in the world.

And to give you a sense for the demand that we're seeing, a single 4G wireless broadband modem on the network today can deliver more than the total combined network throughput of 10 years ago and data traffic on our wireless network continues to double every two years. I'm not sure that anyone predicted this level of change or the speed of such change even a few years ago. Customers are expecting more and more capacity at a lower and lower price, and I cannot think of many other large established businesses in Australia, where usage of its core products and services are increasing at such a pace. It is for this reason that we were very disappointed to let customers down through the network interruptions we experienced in the second half of this financial year. We are deeply sorry for the impact of this had on our customers, and Andy Penn will take you through the steps that we're taking to mitigate the risk of this happening again in the future, particularly as reliance on smart devices grows and grows.

This said, there is nothing, and I repeat absolutely nothing inherently wrong with Telstra's core networks. An assessment of Telstra's networks by independent global experts has told us that we have world class network infrastructure, but we need to keep investing to stay ahead of demand by simplifying our products and platforms, retiring old technology and legacy systems that slow down and complicate how customers are served and by investing in materially greater capacity, growth and speed. We anticipate that demand for our services will only continue to grow. And so to meet this demand and to extend our network leadership, in August this year, we committed to invest up to an extra $3 billion over three years on a far reaching network of the future and digitization program. Now, Telstra has always sought to be a leader, and Telstra has demonstrated this many times. The launch of the next G 3G service in 2006 established Telstra as a clear market leader and saw distance ourselves from the competition.

Today, though, the competition has narrowed that gap somewhat. While we still have the best set of networks in Australia, it is time for us to distance ourselves again. This wave of new investment will digitise many of our core legacy processes to deliver significant customer benefits, reinforce our market differentiation over the longer term, and usher in a range of business benefits, including capital efficiency, reduced operating costs and increased revenue. It is a really exciting and transformational programme by which Andy Penn will provide a bit more detail in his presentation to you shortly. So let me now make some additional comments about the three pillars of Telstra's strategy, which are to focus on improving the customer experience, to drive value and growth from our core business and to build pathways towards future sustainable long term growth. Improving customer advocacy remains the most important priority, and the new investment that we'll be making will be in very large part focused on this critical initiative.

I think it's fair to say that over recent years we've been successful in our customer advocacy program in that there is not a single employee in Telstra today who does not now understand the importance of the customer. However, we also have to admit that we still do not always give our employees the tools they need at their fingertips to fix the customer's problem. The new investment that I've mentioned will seek to address this through the digitisation of legacy platforms and to enable our employees to deliver an exceptional customer experience that will differentiate us again from our customers. Second pillar of the strategy is driving value and growth from our core business, which is built around our networks. Over the past year, we've invested $4 billion in capital expenditure into our fixed and mobile networks, and we've now achieved 98% population coverage with 4G and we're on track to reach 99% population coverage by June 2017 if the regulatory settings for such investment remain favourable.

Our Telstra Air Wi-Fi network now has over 650,000 hotspots nationally, including over 4,500 public hotspots and over 1.1 million customers activated to use the Telstra Air Network. In relation to the National Broadband Network, Telstra is Australia's leading provider of services on the NBN with a market share of 50%, and we are seeing continuing strong demand from customers as this rollout scales up. We're also helping NBN Co with the rollout of the NBN network through a number of commercial agreements, including a $1.6 billion contract signed in April to provide planning, design, construction and construction management services within the Telstra HFC footprint until the expected end of the NBN network built in 2020. Now, of course, the NBN network will have one off and recurring impacts on our earnings. The shareholders will recall while the definitive agreements that we have signed with NBN Co and the government partially compensate us for the effect of the NBN network. The impact of the NBN goes well beyond those agreements through the impact of transitioning costs and ongoing operational access costs.

Overall, the forecast net effect on our business is a reduction of some two to $3 billion EBITDA per annum at the conclusion of the NBN network build. So our task is to offset these impacts over the next few years through a number of strategic initiatives, including driving value and growth from our core business, by reducing our fixed costs, enhancing share through digitisation, simplification and process improvements and building new growth businesses. So this is perhaps an appropriate moment to mention that, as we all know, Telstra operates in a complex regulatory environment. The formation of NBN Co highlighted this that while the NBN Co relationship is now strong and transparent, we still face other regulatory risks on a regular basis. One of these is the current declaration inquiry into domestic mobile roaming by the ACCC. And for those of you not aware, the declaration of domestic mobile roaming would essentially allow our competitors to utilise the Telstra network in areas where we have invested and provide coverage and where they have not.

Since privatisation, Telstra has spent many billions of shareholders dollars on building one of the world's largest and best networks. Customers in the cities and in the bush value the extra coverage very highly, and it's one of the main reasons why they buy our mobile services. One of our competitors is seeking regulation to close this competitive gap by cheaply riding on our network to avoid spending their own capital. Simplistically, this is the equivalent of an airline, say, wanting to provide services in regional Australia and instead of investing in his own airplanes to make seats available, it pushes for regulation to force another airline to reserve half the seats on its plans for its own customers. One can understand why some competitors would lobby for this. It would be a free Christmas present for them. But just as in the airline example, Telstra has carefully invested billions of dollars over many years building the best networks, and we do not think it is right that others be given a free ride on those networks.

If the ACCC decides to declare mobile roaming, they would absolutely be at the expense of you, the Telstra shareholders. It would also be very bad for Australians that live and work in regional areas is clearly why would anyone invest in maintaining or upgrading their regional networks when they can hitch a ride on someone else's network, and there's no longer any competitive differentiation from greater network coverage? It is a big issue. Your board and management are carefully explaining these effects to the ACCC. An increasing number of regional stakeholders and policymakers are also making their concerns with a proposal clear. And we remain very hopeful that sense will prevail, that we will keep your shareholders informed on any material developments. This leads me to our third strategic pillar, building new growth businesses, which is about realizing new opportunities that can leverage Telstra's core assets and strengths. In this, we are working on innovations that create new opportunities and possibilities in areas, including digital media, E-health, applications services, and software.

The successful integration of Pacnet over the past 15 months means that Telstra is now a leader in international connectivity with one of the largest submarine cable networks in the Asia Pacific region. Our joint ventures in China, through Telstra PBS, and Indonesia, through Telecom Telstra, both enjoyed strong demand for services this year. We also signed a memorandum of understanding with the Shanghai Institute of Medical Quality to make Telstra's health hospital data tools available in China. And network applications and services business has seen double digit growth each year for the last few years, and now generates annual revenues in excess of $2.7 billion. Telstra Health is now one of Australia's leading providers of eHealth solutions, and in May was selected by the government to deliver the National Cancer Screening Register under a five year contract. This year, we also announced the sale of most of our stake in Chinese online car sales site, Autohome, for what was a $1.8 billion profit on sale.

Autohome has been a incredibly successful investment for Telstra. And we remain very proud of the role that we played in rapid growth since we first invested back in 2008. We believe the time was right for us to realize significant value for shareholders. We do, however, retain a 6.5% interest and a board seat. Let me now make some comments on Telstra's ongoing work in the community. We are continually seeking to identify ways that can use our technology, skills and scale to operate more responsibly, better serve vulnerable customers and help safeguard the environment to create long term value for our company and the communities in which we operate. For example, this year, we helped more than 1 million vulnerable customers stay connected. We reached more than 59,000 people through our digital literacy programs, which includes tech savvy seniors, Telstra Digital ambassadors, and our cyber safety awareness programs. And we also provided $175 million of value through our social and community investment programs, which includes sponsorship and disaster relief, employee volunteering and giving, and our customer and community digital inclusion programs.

Under the federal government mobile blackspots program, we are deploying 429 new 3G, 4G base stations over three years to improve mobile coverage for over 400 communities across Australia. Last month, we activated the 60th mobile base station under this program. I'll turn now to our capital management strategy, which continues to be underpinned by a clear focus on maximizing returns to shareholders and maintaining financial strength and retaining financial flexibility. On the back of our results, we announced that we would return that to approximately $1.5 billion of capital to shareholders, comprising a 1.25 billion of market share buyback, which has recently been completed and a further 250 million on market share buyback. These buybacks are being funded from Telstra surplus cash and continued strong free cash flow generation, including that from the recent sale of Autohome shares. The advantage of a buyback program over a special dividend is that earnings per share is expected to increase to all shareholders as are then less shares on issue.

In addition, shareholders can now also elect to participate in our dividend reinvestment plan, which were reintroduced in response to earlier shareholder feedback. So, in conclusion then, 2016 was a good year for Telstra. A good year for its shareholders. It's been a year of increased change and competition. So, a year that has seen challenges from the outages to regulatory imposts and capacity growth. But despite these challenges, we delivered on our financial and other objectives for the year, and Telstra definitely remains Australia's best telecommunications and technology company. Indeed, we continue to be held in the highest regard around the world. I would like to take this opportunity to sincerely thank Andy Penn, his senior executives and the entire 33,000 strong Telstra team for their efforts in delivering the many achievements that I have described this morning. Looking forward, there's no doubt connected digital technologies will continue to drive change. And increasingly, we will see most people and most things connected through smart technologies, smart devices, and smart networks.

We can't even imagine what the world will look like in another 10 years. The challenge for Telstra is to harness the fantastic people, fantastic assets, and great opportunities that we have, stay ahead of our competition, and realize our vision to become a world class technology company that empowers people to connect. And I'm very confident that is exactly what we will do. With that, I will now hand over to your chief executive officer, Andy Penn, to comment on our operations for the year in more detail. (APPLAUSE)

ANDY PENN:

Well, thank you very much, Chairman, and good morning, everybody. Thank you for taking the time to be with us here this morning. As our shareholders, we value the opportunity to see so many of you and to hear your thoughts and to address your questions. I'd like to cover three things in my presentation to you this morning. Firstly, I will provide an overview of how the company has performed in 2016. Secondly, as many of you will be aware, and as the Chairman has already alluded to, we did have some network service interruptions in the first half of the calendar year. And so I will address what we're doing to rectify those. I will also discuss our responses to the issues and our work to ensure we continue to have the best networks in the country. Thirdly, I will comment on our announcement with our full year results to make a significant investment in our core business, a program that will transform customer experience and position Telstra strongly for the future. As we see, the rate and pace of technology innovation accelerating and the continued growth of data on our networks.

I will conclude by confirming our guidance. I would like to start though with an overview of 2016. Because 2016 was a year of strong performance for Telstra in what was an increasingly competitive market. We delivered against their guidance in our three key measures of income, EBIT and free cash flow. Net Profit After Tax from continuing and discontinued operations was up 35.9% to $5.8 billion. Importantly, given the competitive dynamics, we continue to attract new customers. We added 560,000 net new domestic retail mobile services and 235,000 net new domestic retail fixed broadband services. We also saw another 322,000 customers taking one of our bundled offerings. On the NBN, we added 289,000 net new customers, including our 500,000th customer on the NBN since the rollout started. This in fact coincided with NBN zone announcement of its 1,000,000th connected home. So, we're very pleased with our share in this critically important market. In fact, the monthly connection volumes of NBN for Telstra have doubled since February of this year.

That means that Telstra is now connecting one new customer to NBN services every minute. During the year, we also signed a number of significant contracts with NBN to both build and maintain their network. These contracts are worth over 1.6 billion over the next few years. Encouragingly, global enterprise services continue to grow strongly with income up 11.5%. And we're particularly pleased with our performance internationally with GS with revenues up 55.5% following the successful integration of Pacnet. Our fixed broadband business perform strongly with good customer wins leading to solid revenue growth. And we saw particularly strong performance from our challenger brand, Belong, which is now in its third year since launch. In mobile, there is no doubt that the market has been very competitive. Despite this, we have performed well growing EBITDA and our margins, even though underlying revenue remained flat. Mobile's performance in the business sector was strong and reflected the increasing use of mobile technologies to drive new solutions for industries, mobile workers and connected devices.

This year, we upgraded more than 2,000 network sites to 4GX, we achieved 98% population coverage for 4G and our customers experienced a 25% increase in the average download speed of their 4G devices On Air network. We also launched Australia's first voice over LTE, or VoLTE service, with more than 1 million customers now having access to high definition calling over 4G. And, of course, 5G is the next generation of wireless technology. And we are actively engaged in setting new international 5G standards, and getting ourselves ready to bring this technology to Australia. Only three weeks ago, and in partnership with Ericsson, we completed a successful real world trial of 5G in our Global Operations Centre in Melbourne. The test saw download speeds greater than 20 gigabits per second and confirmed that 5G will be a quantum leap in terms of speed, latency, and overall capacity and capability. And we intend to be at the forefront of this technology in Australia. 2016 was also an important year for our media business.

We signed long term agreements for the exclusive mobile digital rights for the AFL, the NRL and Netball, Australia's biggest broadcast and grassroots sports. These agreements underpin the huge and growing popularity of watching live sport on a mobile device, smartphones and tablets. Already, more than 750,000 of our mobile customers are enjoying premium sport and music content experiences through their Telstra Mobile plans. We're also using our media assets to enhance the value for our fixed line services. And customers now have more than 400,000 Telstra TVs in Australian homes in less than one year since launch. During the year, we took the next step in the evolution of our brand in line with our vision to become a world class technology company that empowers people to connect. We launched a new brand in July, and we are extremely pleased with the way in which it has been received. The financial results included a $1.8 billion profit on the sale of the majority of our shareholding in Autohome.

This transaction realized significant value for shareholders. Autohome has been incredibly successful investment for Telstra. And our decision to sell the majority of our shares reflects the opportunity to underpin the next phase of its growth through a strategic partnership between Autohome and the Ping An Insurance Group in China. We retain a 6.5% shareholding Autohome and a seat on the board of the company. The results this year also included a $246 million impairment of Ooyala, reflecting the changing dynamics in the intelligent video market and the business performance. Overall, earnings per share for the year was up 37.4% to 47.4 cents per share, or 31.6 cents per share on a continuing basis. As the chairman mentioned earlier, the board declared a fully frank dividend for 2016, a 15.5 cents per share, taking the total dividend for the year to 31 cents per share up 1.6% on the last financial year. Despite the strong results, we were disappointed that our advocacy result, which is we measure via the Net Promoter Score, declined four points.

What this means is that we did not deliver to the extent that we should on all occasions for our customers. And as a consequence of this, the portion of executive remuneration which is attributable to our customer results was not paid. There are a number of factors which influenced this, including the network service interruptions that we experienced in the second half of the financial year. Telstra is networks include approximately 230,000 kilometres of optical fibre cabling, 170,000 routers and switches, over 8,500 mobile network sites and more than 5,000 exchanges. And, of course, with this level of complexity and the volume of data and traffic on our network, it is true to say that occasionally issues do occur. However these interruptions had a wider impact and is acceptable. And we have apologized for that. Our energy since have been firmly focused on an extensive network review with input from international and independent experts to address these issues. As a result, in June we announced a $250 million program of investment of initiatives from within our current capital budgets.

This include a $250 million investment in mobiles to improve recovery times and network monitoring. $100 million investment in our core network to improve resilience and reliability, and a further $100 million investment to increase ADSL capacity to respond to the significant growth in customer demand from increased video streaming. Well progress with this program and have already substantially improved their mobile network recovery times. And in parallel, of course, we have continued to build our network capabilities. Now this work is critical because all of us are relying more and more on smart devices, smart technologies, and fast connectivity every single day. In 2013, mobile banking in Australia represented 24% of all banking transactions. In less than two years, that number has nearly doubled to 38%. Mobile video consumption has increased eight fold since 2011, with twice as many people watching four times as much video on a mobile device. At the recent Rio Olympic Games, the seven Telstra Olympic App simultaneously streamed 36 channels.

And over the two weeks of the games, the app was downloaded 1.5 million times and there were more than 37 million live streams of coverage. We're also seeing the same dynamic with the AFL and the NRL. Just over a week ago at the AFL Grand Final, 1.8 5 million minutes of action was watched on the official AFL App, up 134% on the previous year. And, of course, it was a similar story at the NRL Grand Final the following day where 1.1 million minutes were watched up 107% Oon the previous year. Now, if we've seen this much change in the last five years, just imagine what 2020 will look like as the rate and pace of technology innovation accelerates. Over the next five years our network traffic will grow enormously, driven by an explosion of media, digitization, and the use of cloud computing. Now, we've thought deeply about what this means for our business, what this means for our customers, and what our network needs to look like. We've thought deeply about how we will differentiate Telstra from others in this market.

Telstra has a history of making investments ahead of the curve to create strategic differentiation. And the time is right to do that again now. In August of this year, we committed to invest up to $3 billion in additional capital over the next three years, lifting our CapEx to sales ratio to 18%. We will be investing in our network in a way that delivers customer experiences, reduces our time to market, increases flexibility and reduces costs. This means we will be able to do things faster with lower latency, and offer products and services that can move seamlessly between fixed and wireless networks. And network will be smart, adaptable and scalable. That is the world of the future. And that is the world that we're investing in so that our customers can enjoy brilliantly connected experiences. Now, these investments are going to be made in three key areas. Firstly, in building the network of the future. The foundation of the program. Secondly, in accelerating the digitization of our business.

And thirdly, in improving our customers experience. Let me comment briefly on each of these areas in turn. We will also be discussing the program in more detail at our upcoming investor day next month. To deliver the future network experiences, we will use software defined networking architecture to build a more programmable, flexible and resilient network that we can scale easier and at lower cost. We will build the foundation for the next generation of wireless services 5G. In the very near term, we will further improve the service levels on our ADSL fixed broadband network to deliver faster speeds to more of our customers. from a mobile perspective, we will further enhance depth and breadth of the network. In metro areas, this will mean greater in building coverage in homes and in offices. We will also extend 4G coverage in regional areas, provided the regulatory settings remain conducive to investment. And in that regard, you've already heard our concerns from the chairman with regards to the ACCC's inquiry into domestic roaming.

Australia has one of the best mobile industries in the world. Despite our dispersed population, approximately 99.3% of the population enjoys mobile coverage today. And that is because to win in a highly competitive market, Telstra, your company, has disproportionately invested in regional areas to cement our place as the number one network for coverage and quality in Australia. This competitive dynamic that has benefited people in regional Australia would be put at risk if roaming were to proceed. For example, we are very pleased to be actively participating in round two of the government's mobile blackspots program. However, future rounds of this program would be seriously threatened by roaming. Now, of course, the principle advocate for mobile roaming is a foreign company that has chosen not to invest to the extent that Telstra has. A foreign company that is actually very capable of investing and a foreign company that has argued against roaming in other markets where it suits it to do so.

We are hopeful for the benefit of all Australians, particularly for you as shareholders, that this foreign companies regulatory campaign will not be successful. Thank you. The second area where we are investing is in digital enablement of our sales service and product experiences. The focus here includes purging complexity from our legacy systems and creating a world where customers can interact with Telstra on their terms. We are accelerating move of apps and services to the cloud, and overhauling systems such as billing and order to activate. We expect these changes will deliver customers a fundamentally better experience when they interact with Telstra, as well as create financial benefits for all shareholders. Underpinning these initiatives will be adaptable digital IT core architecture that will deliver a single access point to our underlying systems and move away from the complex systems environment that we have today. Ultimately, all of these investments are focused on delivering better customer experiences.

Customers will experience new rich communication services with capabilities such as voiceover LTE, integrated messaging, and video. Sporting events and other media will be greatly enhanced through the use of broadcast services and video streaming based on LTE Broadcast technology. The program will also open up a world of augmented reality, autonomous driving and robotics. For our business customers, new opportunities in productivity. Business insight will be offered as industries such as agriculture, banking, healthcare, logistics, and transportation services are all enhanced by the billions of sensors and connected devices that are arriving with the Internet of Things. Similarly, applications in areas such as drone technology and remote healthcare diagnostic will explode over the next four years. For business and enterprise customers both domestically and internationally, we will invest in our enterprise technologies and capabilities, particularly in cloud, in collaboration and in managed security.

ANDREW PENN:

And finally, we will also be investing to deliver greater reliability, greater resilience and greater security for all of our customers, as the growth in data volumes across our networks continues. In summary, this is a very significant program of investment that will position Telstra strongly for the future. Before closing, let me reconfirm our guidance for the year. In 2017, we expect to deliver mid to high single digit income growth and low to mid digit EBITDA growth. We expect CapEx, excluding externally funded CapEx to be approximately 18% of sales, and we expect free cash flow to be in the range of 3.5 to $4 billion. Our guidance assumes wholesale product price stability, and excludes any proceeds on the sale of businesses. It also excludes mergers and acquisitions and purchase of spectrum. The guidance also assumes that the NBN rollout will be in accordance with NBN's own 2016 corporate plan. The 2017 guidance excludes the $246 billion Ooyala impairment in 2016, and also excludes restructuring costs in 2017 of 300 to $500 million.

Finally, a 2017 income and EBITDA growth on a reported and guidance basis will be impacted by the wholesale pricing decisions that were implemented in 2016. There will therefore be a full 12 month impact from the mobile terminating access services and final access to termination decisions. In conclusion, I would like to thank the whole of the Telstra management team for their dedication, hard work, and the willingness to step up to the challenges this year. I would also like to thank the chairman and the whole of the board for their support and guidance. This is an exciting time for Telstra, we see a great future for your company, as accelerating technology innovation drives a world of rapid change and new opportunities. We need to take advantage of these opportunities at the same time as addressing the very considerable challenge of the two to $3 billion negative impact on our EBITDA from the migration to NBN. The ultimate mark of our success will be the quality of the experiences that we provide for our customers.

Because above all else, this is what underpins our strategy, guides our actions, and will define our future. We're working to take Telstra to the next level, to set a new standard of excellence to become a world class technology company that empowers people to connect. Thank you again for your time this morning. And I would now like to hand back to the Chairman. Thank you.

JOHN MULLEN:

Great. Thank you very much, Andy. So, we have four remaining items of business today. And I will shortly introduce and invite questions on these items. But before I do, I just need to outline the question and voting procedures for today's meeting briefly. When you registered this morning, you would have been given a card. Yellow cards are for shareholders who may speak and vote, blue cards are for those shareholders who may speak but not vote. And you will need your card to ask a question or to re-enter the meeting. I will introduce each item separately, and then invite questions from the floor. There are several microphones located in the room. If you'd like to ask a question, please move to the reserved seating area behind one of the microphones. Please show your car to the microphone attendant and give your name. As a courtesy to all shareholders, please also state your affiliation if you're not here today in your personal capacity, and the microphone attendant will then invite you to the microphone when your turn comes.

Just a bit of housekeeping in the interests of all shareholders though please only ask one question at a time. Do try to keep your questions and comments to no more than a minute or two to allow as many shareholders as possible to speak. If your question relates to Director election, the grant of performance rights to the CEO or to remuneration at Telstra, please ask your question when we come to that item of business. And please ensure that your questions are relevant to shareholders as a whole. If we can't answer your question fully here today, then we will aim to provide you with a response after the meeting. Similarly, if you have an individual customer or shareholder issue, please speak with one of our customer service staff here who will be able to assist you. They are located both in the room here, and in the customer service area outside wearing Telstra shirts. There are three items requiring a shareholder vote today. For shareholders with a yellow card, the voting boxes are on the back of your card.

We have received proxies from approximately 27,500 shareholders and direct votes from approximately 12,700 shareholders. The votes recorded four, and against each item will be shown on the slide behind me at the conclusion of the discussion of that item. The four numbers displayed will include proxies received and available to be voted by the chairman of the meeting. Telstra share registrar is Fran Kelly of Link Market Services Limited will act as returning officer in relation to the poll. The results of the poll will be available later today on both the ASX and our websites. Finally, a light lunch will be served at approximately 12:00. However, if the meeting is still underway at that time, we will not adjourning the meeting for lunch. So, I turn to item two on today's agenda, which is to discuss the company's financial statements and reports for the year ended 30 June, 2016. This item provides shareholders with the opportunity to comment on and ask questions about our financial statements and reports as well as the business operations and management of Telstra.

You may also ask questions of our auditor. As I mentioned earlier, there will be opportunity to ask questions on Director election, the CEO performance rights grant and remuneration when we come to those items a little later in the meeting. However, if you have a question about our last year's results or any general questions about your company, this is the time to ask your question. Just before we do go to the floor though, I would like to call on our auditor to address two questions we received which both related to whether the auditor was satisfied with Telstra's internal controls. So, that ends, I would just now like to invite Steve Ferguson our auditor, to the microphone to respond to these questions.

STEVE FERGUSON:

Thank you, Chairman. We received two questions. The first of those, that aside all internal controls to the satisfaction of the auditor. And the second question, is the auditor happy with the Telstra's internal controls. As part of our normal procedures, we identify and test the internal controls that are relevant to the external audit of the financial report. In our view, the internal controls that we identified and tested were at the level we would expect for a top 10 Australian listed corporate. Thank you, Chairman

JOHN MULLEN:

Thank you, Mr Ferguson. I would also add that from Telstra perspective, a comment on the reassurance that the board seeks on the system of internal control as part of his process to approve the company's financial statements each half year. To the end, the CEO and the CFO, provide a declaration required by the Corporations Act and the ASX Corporate Governance Principles and recommendation. That declaration gives a confirmation relating to the proper maintenance of the company's financial records and compliance with the accounting standards in the preparation of these financial statements. This includes a personal declaration from the CEO and the CFO that their opinion has been formed on the basis of a sound system of risk management and internal control, which is operating effectively. As outlined in our 2016 Corporate Governance statement, this declaration has been provided by the CEO and the CFO in respect to the financial statements for the 2016 financial year. So, I would now like to invite shareholders to move to microphone to ask any questions that you may have on this item.

Shareholders as I mentioned, this is the part of the meeting where you have the opportunity to ask any general questions, about the business operations and management of Telstra as well as the questions about our 2016 financial reports and results. The other items you'll have an opportunity to talk about when we get to them. It looks like we have some sort of a technical problem too. So, have we got any questions on any of the other ones? No? Yep, we do. Can we go to microphone three then?

SPEAKER:

Mr Chairman, I'd like to introduce John Hillman of Yagoona.

JOHN HILLMAN:

Mr Chairman, and indeed the CEO, thank you for your presentations. My question relates to a very serious matter raised by both of you. And that is, to put it in my terms, a totally unjustified attempted ride on shareholders assets by an overseas controlled company. Now, shareholders might like to have a pin, and something to write on for this. Mr Chairman, you and the CEO presented some good facts to us about what could happen if the government, in my view very foolishly, allows this raid on Telstra infrastructure to take place. So, my question is probably a rhetorical question, and it's just as much to every shareholder as to yourselves. And whilst you haven't gone this far, I will, Mr Chairman, would it not be very, very wise for every single shareholder and their friends and their family to contact not only their local, Lower House member of parliament but every senator in their state, and tell them that we would be horrified, and we would demonstrate that horror in the appropriate way as electors, if the government allowed a raid on Telstra's assets?

Now, I'm a shareholder from the float. And I'm sure there's a lot of people doesn't matter whether it's from the float or the bottom few days ago or whatever. Our assets are seriously under threat from this. And so, I'll repeat my question. And I guess, Mr Chairman you can't go as far as I can being the head of the company and the CEO can't go this far. So, in a sense, it's a rhetorical question. Would it not be very wise. Indeed, would it be foolish if we did not contact our lower house members and every single senator? And indeed, we can tell it to our state MPs as well, because they're all part of the same parties. So, I guess that's a rhetorical question. But I would strongly urge every person in this room to do just that, because that's what the government will listen to when we are trying to protect our assets and our future income stream. Thank you.

JOHN MULLEN:

Thank you, Mr Hillman. I think one just brief precision, it is not actually the government that is doing this it is the ACCC who is considering. They are different, the ACCC that is actually considering this declaration. So obviously, we feel strongly about it. As we've we've already said, it's an individual choice of any shareholder or other stakeholder as to whether they want to get involved in the debate or not. But certainly, if you do feel strongly, we would suggest that you make your views known to the ACCC as and when they call for submissions on the paper that they will issue shortly. Thank you. The next microphone, microphone two.

SPEAKER:

Chairman, I would like to introduce Robert Robson from Melbourne.

ROBERT ROBSON:

Mr Chairman, I'm greatly encouraged based on your record for shareholders as managing director of Asciano, and hope you can emulate that performance as Chairman of Telstra. And also, by the comment of your ex chairman at Asciano who said you were one of the great hardest working executives he'd ever met.

JOHN MULLEN:

Well, that makes me feel very good. Thank you very much.

ROBERT ROBSON:

But my question sir is, when I look at the annual report, I see that revenue is up about one and a half percent profit is actually down when you take away the extra ordinary or the abnormal sale, and your operating cash flow is marginally down and pretty flat. And you paid a dividend of 31 cents out earnings of 31 and a half cents. Do you see the way this trend, that this will be reversed in the future and the dividend policy will be maintained?

JOHN MULLEN:

I think it's safe to say that everybody would recognize that market conditions are difficult, they are more difficult than they have been for a long time in this industry. And we expect that the levels of competition and disruption to continue. That said, I think if you look at the track record of Telstra, it's got an amazingly strong performance of offsetting similar trends in the past. And, you know, we've seen a continual decline in fixed line revenues now, which are some of the most profitable revenues the company had that's been going on for many years. Census was another big profit contributor. We sold assets, CSL and others. So, despite all of those, the management team have done a very good job, I think of maintaining earnings. We're facing another similar challenge now, the decline of fixed line continues. We now have the effect of the NBN. If we mentioned in speeches, which over a number of years is going to have a two to $3 billion impact. So clearly, all the focus now of the management and the board is to ensure that once again, we overcome that new hurdle, and we keep our earnings level or growing, so that we can indeed continue to improve our dividend.

I can't predict what the dividend will be in the future, but it's certainly a firm principle of the company that we wish to see it grow. Thank you. Next microphone, one.

SPEAKER:

Thank you, Chairman. I have a question from Kevin Daly of Kensington in New South Wales.

KEVIN DALY:

Yes, Mr Chairman. About a fortnight ago, there was a statewide blackout in South Australia. I'm wondering if you could report to shareholders how Telstra's networks withstood the blackout and the aftermath.

JOHN MULLEN:

Well, as you know, the the blackout was caused by energy. But of course, that obviously impacted Telstra directly as well. The battery life of our towers when there's only a few hours, Andy. So, once once the energy supply goes longer than that, then those towers come down. But Telstra mobilized a huge emergency workforce to counteract all those impacts, and particularly focusing on the emergency services, making sure they had priority use of mobile towers that were being installed for that purpose. So, I think it's safe to say that Telstra came out probably one of the best of the various providers in recovering from that incident.

KEVIN DALY:

I was expecting a bit more quantitative detail on that. How many mobile towers were out and for how long?

JOHN MULLEN:

I'll have to ask Andy to answer that one.

ANDREW PENN:

In South Australia, our two main exchanges continued working through the whole of the period. And because we were able to switch the backup through diesel generators, that's where we provide that backup. And we were also in direct contact with the Premier's office in South Australia, and provide a lot of support. There are about 300 mobile towers which were variously sort of impacted one way or another through the period, as the Chairman said. I mean, obviously, the mobile towers rely on power. And then, we have obviously backup battery power, and then we're able to bring in what we call COW's, which is cells on on wheels. But they were about variously about for up to 300 mobile towers. But ultimately, we were able to restore services pretty quickly as soon as the power was available. And as the Chairman said, the state government was very appreciative of our support to them and of all emergency services responses we were really able to stand up and give them the support, as we were similarly in Victoria on Friday when Victoria experienced some high winds, which also impacted power supplies.

KEVIN DALY:

Thank you.

JOHN MULLEN:

Thank you, Mr Daly. Next microphone three.

SPEAKER:

Thank you, Mr Chairman. I'd like to introduce William Bill of Eastwood.

JOHN MULLEN:

Mr Bill.

WILLIAM BILL:

Yes. Good morning, Chairman. First of all, I'd like to thank a board member that's no longer here. And that was (UNKNOWN). I got to know him after one of the annual general meetings, and he was the most customer focused managing director or CEO I've ever met. And I do appreciate knowing him. And some of the things you've done for me is extremely appreciated. Now, I'd also like now, I'll go on after that. I'd also like to thank you for writing off my bill of $1.16. I have not been a shareholder for some time or a customer some time, but I kept getting a bill for $1.16. And I ignored it. And you finally written it off. I thank you for that. One of the other things that people get annoyed with Telstra is I have a mobile phone at the time and I'm only brought up this time, and three or four days after warranty it went, there was a fault in it, oh sorry, what sir? It's out of warranty. That does not go down well with a customer. And I've gone from other companies and even knows, you go overseas and a lot of people don't like our overseas when you ring up without a problem.

And this company I had a problem, I kept going at it. It's not a Telstra as I said. But in the end, I rang up sales. And I said, I'm gonna keep ringing of sales until I put me through an Australian person in that company. They finally put me through an Australian person and the Australian solved it were overseas couldn't. It really annoys a lot of people, the overseas call centres. And I don't know what you can do about that? Thank you.

JOHN MULLEN:

Well, let me respond in two parts to that. Firstly, we are acutely aware as management and board, that customer service generally can be improved in the company. We're actually spending the next couple of days in a strategy session between management and board addressing exactly that. We recognize that we have to do better, and that's one of the reasons why the extra two to $3 billion has been spent that Andy mentioned. So, we are going to really, really focus on trying to improve that. The call centre question, look, we, like many companies maintain a mix of local Telstra staff, local agencies and overseas partners to manage customer calls and service needs. And that provides us flexibility in how we meet the changing call volumes that run across the business. But everyone is held to the same standard and quality. So, if you didn't get the answer you wanted from an overseas call centre, it's not because that call centre is allowed to operate at any lower standards, that call centre obviously, did not meet your expectations, and they should have done.

But it's not a question of whether that person is based in Sydney, Melbourne, Manila or anywhere else. So, we absolutely aim for the same standard of response from everyone. Thank you. Next microphone two. I think, one. Sorry, one.

SPEAKER:

Thank you, Chairman. I have a question for (UNKNOWN) from Sydney. The Chairman, I'm afraid this is the light relief. First of all, I'd like Telstra to remain Australian because I think privacy is a very important thing and we're being more and more invaded wherever we go on the internet, and you don't have to give your name and you get six other people contacting you. But my question, this is it. It is, what is the future of the landline? You sorta hear that you, this is being lied to the house or you need the landline to have the internet or whatever it is picking. It never gets a message. And I've got everything, I've got, you name it it's there. I don't know how to work it, but I can answer the phone. But that's my question. Thanks. I know it's silly, but yeah. Thanks.

JOHN MULLEN:

Well, I would. I would answer that. I think Simplistically, the old fixed landline to a telephone just for voice is obviously disappearing and that will continue to disappear. But we think that there will be an ongoing need for high-volume data-fixed lines as households use more and more devices, and need more and more bandwidth, particularly where your equipment is fixed. Conversely, if you do most of your interactions on the internet or whatever on your mobile device, then clearly faster and faster wireless speeds will be important as Andy mentioned, 5G, et cetera. So, we see a world where both exist. So, the NBN's large pipe giving you a large amount of volume to the home will be needed, but increasingly so will mobile. Thank you. Next question from number two is it? Yeah.

MODERATOR:

Thank you, chairman, I have Stuart Brew from Adelaide.

STUART BREW:

Good morning, Mr Chairman. Well, my question, I suppose, is I started off with that Telstra has seen infinite wisdom this year. Decided it wouldn't send me an annual report, so I thought that wasn't a big deal. I'll get the answers to the questions I need and pick an annual report up here. On my arrival, of course, I was then told that they didn't have any here. So, bear with me when I go through these questions if they are in the annual report. So, all I had is the meeting, which has got two pages of the company's results for the whole year. Anyhow, under our business, and then there's our customers, what interests me is we've got down here, we got on average 55 million calls and 356 million data connections are made over the network each day. So, my interests would be what percentage of the whole is that so we can get some idea of the size of Telstra's actual work if you like and then it goes on actually saying 72% of Australia's small and medium businesses, SMB's are Telstra customers, which is obviously very, very good.

But it makes no mention of the big business customers, the BBS's as I would name them. How many of those that we wrote, what percentage of those? And there's one more under our values, which always interests me. I'll go to the last one where it says, find your courage. That, to me, worries me a bit. If this is part of our values, does that mean that if you come up with a really good idea, you've got to be courageous to go to your boss and say, 'Look, look, do this or is it some bullying?' I mean, this is a bit of a light-hearted thing, but it stands out find your courage as part of our values. And I suppose one final thing.

JOHN MULLEN:

I have to write this down. Hold on.

STUART BREW:

The final one is on disability and people with a disadvantaged background, and I worked that you employ 1.61% of the workforce have a disability. But as I noted in the paper today, the government has got 21.8%. So, although it may be employing 533 people with disability is good, we probably could do better anyway. So, they are my question.

JOHN MULLEN:

OK, let me have a shot at those then. Firstly, those volume statistics, that is, the total network that is being used. So, that is 100% of the network activity on a daily basis.

STUART BREW:

The question really was what about all your competitors?

JOHN MULLEN:

Oh, the whole market?

STUART BREW:

Yeah, that was my question. Well, presuming that you have (CROSS-TALK).

ANDREW PENN:

Maybe if I can sort of just respond. So, in terms of market share, typically, I mean, that tends to be measured by third party organizations. But if you look more sort of generally, Telstra's market share would be approximately 50% in the retail sector, which is obviously where the vast majority of those calls and data transmissions would originate on. So, you can assume that the total market is approximately double those numbers. And then in relation while I've had the mic, maybe chairman if that's OK, in relation to your question in relation to big business, we do business with pretty much most large companies in Australia, but our market share in the big business sector of the market would be at least the same scale as that of small medium business as well.

JOHN MULLEN:

Does that answer those parts of the question? Then the next one was, I think about courage.

STUART BREW:

Yes.

JOHN MULLEN:

So, look, I think what that's designed, it says we want people to speak up. We want our employers to put their views forward and challenge the established order. We want people to be innovative. And sometimes companies can be a bit stifling of that and cannot prevent good ideas filtering up from below. So, we make a real effort to ensure that we have an open and transparent environment where everybody can have a say and gets listened to. And I think last part of your question was on disability.

STUART BREW:

Yes.

JOHN MULLEN:

Yes. So, again, we are extremely focused on complete diversity across our workforce of everything, gender, race, all the other things and disability. And I think we've done probably better than most large companies in the disability programs that we have, but we can always do more and we will definitely be attempting to do that in the future.

STUART BREW:

Thank you very much, Mr Chairman.

JOHN MULLEN:

Thank you. Next, from microphone number one.

MODERATOR:

Thank you, chairman, I have a question from John (UNKNOWN) Meli of Wollongong.

JOHN MELI:

Thank you, Mr Chairman. John from a previous field. Good to see you as chair of Telstra. I should say that my experiences with Telstra over the years and I've been with Telstra since I've probably could talk have been nothing but exemplary, whether it's been overseas or local call centres. So, we all suffer frustrations, but that's part of life. One of the things though in relation to the ACCC review - the Telstra share price of just over $5 is probably where it was when we had three famous amigos coming to this country. Thankfully, none of the board members are still on the board 'cause that's a story in itself, and that's history. But it's been languishing and it's been moving sideways for something like about ten odd years. The ACCC review probably has a tendency to further erode that. I suppose the question is if the decision goes against Telstra, is Telstra, where what the potential impact would be and probably more of a comment, I would urge that Telstra board to fight it all the way through wherever it may be 'cause it is our funds, our money, our investment that the ACCC is playing with.

And equally, though, I would also probably a little bit more on a firmer note, say that as the comment was, well, it's up to shareholders to respond in whatever way they see fit. I actually look at it a little bit deeper and think that it's up to Telstra to provide a framework for the Telstra shareholders, 1.2 million shareholders to actually make sure in whatever way that we participate so that the ACCC is aware of the displeasure of the Telstra shareholders. I think there has to be a firmer position from the board and from Telstra to marshal its shareholders to respond to the ACCC decision. But in short, are we aware what the impact would be if the decision goes against Telstra?

JOHN MULLEN:

Yes, we are. Obviously, the challenge with giving you an answer on that is we don't know how the decision could go against us. Is it total roaming? Is it partially? Is it some areas? Is it some technologies, et cetera? There is no single answer to that. But obviously management have modelled all of the possible options and we're very aware of those. Secondly, we are taking this very seriously and we are responding strongly about it. And you can be assured that both board and management will leave no stone unturned in trying to address it. Thirdly, I think for individual's responses, I don't think it's up to the company's place to actually provide that for you. I think we can certainly provide you with whatever information you want so you can understand the issue properly. But ultimately, I think it's up to you to formulate a view and to make that heard by submitting to the ACCC, and we can certainly explain how that process works for you if that makes it easier. Thank you. Next, the microphone two.

MODERATOR:

Thank you, chairman, I have John Hutchison from Sydney.

JOHN HUTCHISON:

In a future question, I reveal that when I was with Telecom, everything was great. It was run by my mate, Ken Douglas. With Telstra has been an absolute disaster, but that's not for this question. It will be for a later question. I specialize in investment analysis, and look for the situation of the return on investment over time. First of income, fully franked dividends, and asset growth in the company's assets in the background. Now Telstra has a good reputation in terms of the income size. But what's the situation or how can you reveal to us that there's an asset growth in the background so that the cost of living will be competed with in five to ten years? I'm not talking about the share price, the gamble price. I'm talking about what setting in the account, in the bank, in assets that if the company was wound up, we would get a satisfactory thing. So, what is the situation with asset growth and how are those revealed in the balance sheet?

JOHN MULLEN:

I'm not sure I totally understand your question, but if it's how do we see that the growth and value of our business, and that is obviously disclosed in the balance sheet of the company. And that depends very much on our earnings growth and how much profit we make each year, which ultimately the residual ends up on the balance sheet. And we also, of course, try to increase our dividend along the way. But that is all transparent.

JOHN HUTCHISON:

What I'm really saying is, are you spending all the money that we make year-by-year or are you keeping something in the bank behind us?

JOHN MULLEN:

Well, we're paying a percentage of our annual profit in dividend is very high in this company. It has traditionally been in the 90%, which we continue to do. We also make sure that any investments that we make exceed our current return on invested capital and also EPS accretive, earnings per share accretive so that we are adding value when we spend money, not diminishing value. Does that answer your question?

JOHN HUTCHISON:

Let me say yes. The 10% doesn't impress me that you're keeping behind.

JOHN MULLEN:

Sorry, I missed that one, the 10%.

JOHN HUTCHISON:

The 90% going out in dividends. (INAUDIBLE)

JOHN MULLEN:

Yes, and as you know, we had 4.4 billion dollars of surplus cash flow at the end of 2016, which is why we returned some of that to shareholders. And we've done that previously and we'll do it again.

JOHN HUTCHISON:

Is it going to be enough in five years time?

JOHN MULLEN:

We very much hope so. That's what we are all here to do is to continue to deliver earnings growth so that our dividend can be maintained or increased during that period. I can't predict where we'll be in five years, but I can assure you that's what we're all working to achieve. If you could speak to the microphone, maybe so other shareholders can hear what you're saying.

JOHN HUTCHISON:

I'm saying as an investment analysis, you've got to be able to have have a go at predicting what the situation is in five years time. I mean, I can tell you in some industry what it's going to be in five years time. You want to be able... You won't get at 100% right, but you'll get it in the right direction.

JOHN MULLEN:

Of course, and that is what board and management spend their time focusing on ensuring that a strategic five-year plan looking forward does deliver ongoing growth. We mentioned earlier that we're going to lose some two or $3 billion of current earnings through the arrival of the NBN. So, management are going to have to find ways of recovering that to get us back to where we need to be and that we intend to do.

JOHN HUTCHISON:

Thanks for your answer.

JOHN MULLEN:

Thank you. Next, microphone number one.

MODERATOR:

Thank you, chairman, I have a question from Anthony Grima of Maroubra.

ANTHONY GRIMA:

Mr Chairman, thank you for taking my question. Recently, we have seen a fee for monthly billing statements, and since August, a fee of $1 was introduced for not paying the bills electronically. I accept that there is a cost of postage to print and send statements. However, Mr Chairman, what is the cost of your clients printing their own statements, calling to one of your branches and paying their bills in cash.

JOHN MULLEN:

I know this is always a vexatious question. But we are moving more and more to an online world. And I think as Andy said earlier, banking is no different from 24 to 38% where all have been transacted online. Ultimately, I think that's where we have to get to. And there is an increasing cost to companies of maintaining older paper in-person-type transactions. The charges are very minimal, but we would like to work with shareholders and customers and everyone who interacts with us to move more and more to a digital interaction in the future.

ANTHONY GRIMA:

What about if people can't or haven't had any credit cards or don't believe in credit cards?

JOHN MULLEN:

Well, the option is still there. We're not taking it away. There's just a a small charge imposed for that facility.

ANTHONY GRIMA:

And again, the client is coming to your offices and paying you in cash, what is the cost involved in that?

JOHN MULLEN:

It's still obviously more than an online interaction, and that's where we're trying to ultimately get to, where we don't need to have personal contact, not just because it saves money, but because it's actually more efficient and delivers a faster, more efficient response for the person paying the bill as well. But for those who don't want to do that, we still maintain the physical capacity.

ANTHONY GRIMA:

Thank you.

JOHN MULLEN:

Thank you. Next question, microphone number two, please.

MODERATOR:

Thank you, chairman, I have Peter Starr from Sydney.

PETER STARR:

Yes, good morning, John. And good morning, ladies and gentlemen, fellow shareholders. I'm here representing a number of shareholders. And the first thing I like to say is David Thodey asked me to send his apologies. He's in the Gold Coast this morning delivering a speech. Those who aren't aware, he's now the chairman of the CSIRO. To you, Mr Limb, David asked me to say, do you enjoy more time with your family? And you've done a great service. John, to reiterate another gentleman who spoke, you've done great work at Asciano. I hope you do the same here.

JOHN MULLEN:

Thank you.

PETER STARR:

On behalf of the shareholders I represent, we also believe that Elizabeth Fisher from the Australian Shareholders Association is here and I want to address the ACCC issue in a few minutes. I'd also like to say on behalf of the shareholders I represent, we'd like to pay our enormous respect and hard working to Miss Catherine Livingstone, who did step down. Catherine, I know you'll be listening. We wish you all the best in your future endeavours. You did exemplary service for this company, and the guidance and the due diligence you paid and brought to the board was outstanding. So, we wish you all the best. I guess it's remarkable that we have Andy Penn there. David was the one who hired you and you're doing a remarkable job. Even though we had some outages, you didn't bury your head in the sand and we didn't have to be dragged before a Senate inquiry like the banks. So, that's to your credit, Andy. Yes, thank you. In relation to the issue, the company, I named the company in case you don't know its Vodafone folks.

I don't want to spend money here. But they're listed under Hutchison and their shares are worth one cent. Our shares are worth over $5. There's a big difference. They want to coat tail on to us. And you people will all pay the price. Well, let me tell you, it's a very simple exercise right to the ACCC right to Rod Sims, you'll all have a chance. It's a simple, very exercise. You people are all shareholders. This will affect you if it goes through. I can't strongly tell you anything different. It is really, really serious. It's a free ride if they get that and all of us will pay the price for that, and it's wrong, absolutely wrong. I'd like to go further, it's criminal, just wrong, absolutely wrong. I'm outrageous about it. It's just totally wrong and the shareholders I represent, we will absolutely be making representations and I would encourage Elizabeth Fisher, who's here from the Australian Shareholders Association, to make representations to on the shareholders she represents. Finally, John, welcome aboard.

I'm sure you do a great job. Nora, it was nice to hear you speak too. I've known you for a long while, and Warwick doing well there, so thank you.

JOHN MULLEN:

Thank you, Peter. Thank you for the kind sentiments for David and Catherine. We'll make sure those are passed on, I think with respect to the (UNKNOWN). I think we've probably said what has to be said. And obviously we appreciate your support and anyone who is willing to write to the ACCC about it obviously would add value. Thank you. Next, microphone three.

MODERATOR:

Thank you, Mr Chairman, I have another question from William Bell from Eastwood.

WILLIAM BELL:

Good morning, again chairman. Now, this time, I'm going to go on DOT, and for anyone who doesn't know what DOT is, it's Digital Office Technology. It is something that Telstra really got wrong. And I will tell you why. First of all, one of our phones went down at the place I work at. We had to get a technician out to change the modem. Again, we had a couple of months or quite a long time later. We had another phone go down. I rang up Telstra and I got on to a service place in Townsville. It was very helpful. Talked to him for about half an hour. Then he said, I'll get back to you and then three and a half hours later. I give in. I can't fix this. Telstra introduced a system where they didn't know what they were doing. Not doing enough research on a product. What happens is with DOT, if you virtually have just a standard phone and a modem, fine, it will work perfect. But once you put it on a server, the DHCP on a server, what happens is if they reset a phone, you cannot get it back. Because basically, what Telstra are the DHCP is off, we'll reinitialise that on the router.

Once they do that, they knock all the email off the company. And they cannot get the phone back only because I got to know David Thodey, basically, I got a senior technician from Telstra, our IT from External IT come in. Two hours, it took them to work out how to do it on the server. And then once they're done on the server, I can now reset any phone in the business, a factory reset and get that phone working again without Telstra. I don't know if Telstra has been able to call every call centre and explain what happens when DHCP is on the server compared to a modem. It is totally different. And you can knock out two phones and yet they cannot get it back only because of David and what they've done, we got these phones working and hopefully and I don't know if Andrew can answer this. Hopefully, the DHCP problem can be fixed. With the phone (UNKNOWN) and also when you come out, it's got 'Oh, I want to add a name.' So, you go into your directory, 'Oh, I want, Chris. Oh, 111, I've now got city.

I showed the technician, Oh, it's on a server. I go into and have a look at the IP address. I log in to the phone, put the name, put the phone number, put the mobile phone and click on. And I've finished.

SPEAKER:

The technician had never seen that. Something I could do better than a technician, which is very unusual, I gather, but I did it. The other thing was (UNKNOWN). Basically if you get it right, you can do the whole phone system. And you can log on to any phone in the office, six phones, I can log into any phone and actually put a new number in every single phone in the office from one computer, and that is something technology wise that Telstra should be pushing. Thank you very much.

CHAIRMAN:

Right. Look, obviously, I'm not aware of the individual details of the problem that you had, and there are people here who, separately from this, can actually talk to you in more detail about that. What I would say though is that we are very aware that these sort of frustrations are the things that cause customer angst. Our networks are the best. They are good, but sometimes accessing them, on boarding them, bills, whatever it is of the areas and the sort of problems that you've mentioned are the things that frustrate people. That is very much the effort that Andy and the team are now making with this extra expenditure to address those and make a digital interaction with the company so that you can fix things yourself, or we can fix them online without having to send technicians out for three hours.

SPEAKER:

That's correct. The thing is, where was the research done to find out, I've got this product that I can use in these many fields. Where was research done to say yes, I've now got all these problems and I can know what to do?

ANDREW PENN:

Look, I mean, the only thing I would sort of say, in addition to the chairman's, to Mr. Bell is, look, DOT is very successful product for us. You're absolutely right, there were some teething problems when the product was first launched and this is one of the dilemmas that we always face because technology is moving at such a rapid pace that we are keen to bring the best of technology to our customers where we can. But as we just heard from Mr. Bell, its a complex business environment, and getting that absolutely right in every customer's circumstance is something that we don't get right every time, but we are very focused on it. We've invested a lot of money in DOT, and DOT is actually going really well now. So I can only apologize to Mr. Bell for your particular experience. And if there were any residual matters, please do speak to one of our people here and we will follow that up. But we will continue to be investing, as the chairman said, in trying to improve the digitized interaction that our customers have with Telstra in a world where this technology innovation is rapidly growing.

SPEAKER:

Thank you (UNKNOWN). Next, microphone number two. Thank you, chairman. I have Ian Willis from Brisbane.

IAN WILLIS:

Morning chairman, directors, fellow shareholders, my name's Ian Willis, I'm a shareholder down from Brisbane. Couple of little things, we've largely sold out (UNKNOWN). There was an announcement last year regarding a possible tie up with a group in the Philippines that seems to have disappeared into the cloud. We're now a large player in a mature pond, Australia. There are a lot of small add on bolt on programs that Mr (UNKNOWN) talked about. But are these programs going to generate sufficient income to recover that 2 to $3 billion we'll lose when the NBN rollout is finished. On Page four of the annual report, there's productivity improvements. Productivity improvements can go to a certain degree, but if you cut back and cut back and cut back, ultimately, then you're going to have system failures. And is there any program of large scale growth in the future?

CHAIRMAN:

Yes, right. Let me address those, in turn. Firstly, the investment in (UNKNOWN), that's been an extremely successful investment for us from a stake of only cost the company a few hundred million dollars originally. We were able to sell it that business for $2.1 billion which we think represents exceptional shareholder return, and we felt that we should capitalize on that opportunity as it arose. And management worked very hard to get that sale across the line. We have retained a residual six and a half percent in the company and the board seat, so we are still involved, and that residual stake is still worth a lot of money. On the Philippines, that was a normal business process of investment. Management saw an opportunity to invest in a mobile market where there were two incumbent players, both offering very poor levels of service and very basic technology, but quite a high margin of returns that those companies were making in that market and it looked like an attractive opportunity. However, the more that management team went into looking at the risks involved, (INAUDIBLE) have to read the papers about some of the stuff going on in the Philippines today, ultimately, management concluded that they would not recommend going further with that investment.

Even though on paper it looked good, the risk was too high and so the board obviously supported that. I think that's the normal process that should go on in the company to come up with ideas. You debate them, you look at the risk profile and you say yes or no. Now, neither of those mean that we've in any way lost any appetite for growth to the country. I think you've seen our investment in (UNKNOWN). Recently in Asia we're now the leading cable owner in Asia, and I think that will continue. We have to be selective about what we invest in. We need to invest in things we know. Either the geographies we know or in products we know. We're very unlikely to go and invest in some completely different business in another part of the world. I think that would be taking too high a risk with shareholders funds. But clearly, we see that two to three billion gap and we have strategies both internally. So, the majority of the $3 billion extra that we're going to spend is on improving our core products and our core business.

Exactly the sort of problems that the gentleman over there was mentioning. 'Cause if we get those right, we think we can gain more market share, we can command better pricing and there's a big return from that. At the same time, we'll still be looking at the international opportunities, particularly in Asia.

IAN WILLIS:

Thank you.

CHAIRMAN:

Thank you. Next microphone number three.

SPEAKER:

Thank you, Mr. Speaker, I have Yvonne Chen of Bellevue.

YVONNE CHEN:

Morning Chairman and the board. I'm a shareholder as well as a customer of Telstra. I got a comment and a question. First of all, my comment is, since I took up the internet few years ago, I have very good service from your tech support as well as the sales staff overseas as well as in Australia. So therefore, I have no problem with service. Second is my question. I have a frustration, a constant frustration of getting overseas scamming calls. Is there a way to actually stop those call despite whether we are unlisted numbers or actually just listed numbers. I have tried the government, no avail, and I thought perhaps I shouldn't give up and I try Telstra as well. So please enlighten me chairman.

CHAIRMAN:

Thank you very much Miss Chen. Firstly, on your kind words about the tech support. It's good to hear that. And it's in no way an excuse but we have 17 million mobile customers. The great majority of them get very good service but do we have some failures? Yes, of course we do, and we have some frustrations and even one is too many. But the great majority of Telstra customers get a very good service or we wouldn't be where we are, but thank you very much for that comment. Regarding scam calls, et cetera, I'm afraid it's a plague of society, generally. I mean I get them almost nightly as well as most people I would think in this room. And as fast as barriers and controls are established to try to stop it, so these people find other ways around it. And particularly, I think, the phishing emails and things which (INAUDIBLE) do more damage when people click on attachments to emails and that if they download malware and all sorts of nasty things or even wipe out your computer. I can really sympathize with those who've experienced that.

So, there's nothing particularly that we can do if somebody calls you, but you should hang up straightaway if you're not sure who the person is on the other end of the phone, and you can also report the call to the ACCC who will do their best to try to follow up and understand where those calls are coming from. Some of them are systemic, so there are literally thousands of these calls coming from one source and the authorities can do something about that. But when it's an individual call to an individual person, it's very difficult. So, I'm putting out the answer you want to hear, but I think we just have to be very vigilant all of us in society today.

YVONNE CHEN:

With our technology, surely we can do something.

CHAIRMAN:

Well, the problem is, if someone wants to ring you, how can we tell technology wise whether it's me saying hello or it's somebody trying to do harm? I mean, unless you know where that call is coming from, so we can block numbers. If you want a silent number, we can do that as well. So, those opportunities are there. But if someone has your phone number, it's very difficult to actually know what they're gonna call you about.

YVONNE CHEN:

They even call and say they're from Telstra and they have certain information that's actually quite related to Telstra. And I thought, well, Telstra shouldn't be calling me.

CHAIRMAN:

Yeah. Well, the banks have it even worse, I think. Obviously the same reason people calling bank customers pretending to be people other than who they really are. I think we just have to be really, really vigilant and be suspicious. and if you hang up on a friend every now and again, that's probably not a bad thing. Yeah. Thank you. Number two. Yeah. Microphone two.

SPEAKER:

Thank you, chairman, I have George Sinclair from Bronte.

GEORGE SINCLAIR:

If either John or Andrew could please comment on whether Telstra has any plans in terms of the current ownership or investment in Foxtel and the increased competition, I guess in the video streaming market and also the on demand services.

CHAIRMAN:

Yeah. Well, Foxtel is a very important investment for us and we are in continual discussions with other shareholders about the future of Foxtel. At this stage, that hasn't reached any particular conclusion but there are a number of potential options open which are being discussed by both sides, both shareholders. And we remain very very vigilant about the future of that industry and make sure that we maximize value for our shareholders in the long run. There's no immediate answer to it, but we are very mindful of the changes going on in the dynamics of that industry.

GEORGE SINCLAIR:

And it continues to be profitable?

CHAIRMAN:

To be profitable? Yes it does.

GEORGE SINCLAIR:

Thank you.

CHAIRMAN:

Thank you. Microphone four.

SPEAKER:

Thank you, chairman. I'd like to introduce Adrian Evans from Traralgon, Victoria.

ADRIAN EVANS:

I'm not sure who to direct my question to. Many of you here, this room at this meeting would not be aware that Traralgon is only a small regional town in Victoria of about 25,000 people. So, we're not huge and lots of people don't have an idea of where we are. However, I happen to work for a very, very small business whose accountant in his, I guess you could say in his (UNKNOWN) I guess, suggested that we switch the accounting system I use to do all my financial data to pass on to the accountant via the Internet. Now, I was a bit sceptical of this but I thought, OK, I'll go with what my boss wants because that's what his accountant wants. And when I'm paid a fee of $45 an hour and I sit there for 15 minutes out of every hour, sometimes even longer, because I'm in the middle of recording a transaction or figuring out how to print out my superannuation report so that I can file that with the ATL, it actually starts becoming a very costly process. Now, I'm not the only one in Traralgon who's had these problems.

Because I was speaking to my daughter the other day and she actually rang me and she said, "Mum, I've had the internet on at home with Telstra for two months. The first two weeks I had it connected, it didn't work at all. It was on sporadically for about two weeks. It's been on and off since. I've just been on the phone with Telstra for the last hour and a half, I've still got no internet. Can I come up to your place and connect to your Wi-Fi?" I said I'm just sitting here. I'm the only one here. Nobody else here in the house, but I don't have Telstra internet, I've actually got Southern France. I said to her, "Come up, use the internet." So, she sat there, and over a period of 45 minutes did all the stuff she had to do. So, what I actually as, I guess you could say as a customer because my boss uses Telstra, as well as our daughter who's a Telstra customer would like to know is, what's going on with the internet service we have in Traralgon? Why is it so unreliable? When can we actually look forward to something that is much more reliable?

Because from my own point of view, sitting there twiddling my thumbs for 15 minutes and sometimes longer on every hour is something that I know from my bosses point of view is not a very effective use of my time. Thank you.

CHAIRMAN:

Firstly, I didn't fully understand whether the challenges you had in your own business were because of the financial system that you were using or whether it was the internet speed and connection or both.

ADRIAN EVANS:

It's the fact that the internet drops out. I'll be in the middle of trying to print a report and it just drops out. And I will sit there for, like I said... I've sat there for up to an hour to try to get it back connected again. And then I'll just say to my boss, "I'm going for a walk, I'll come back. It might be a back on by then."

CHAIRMAN:

Yeah. Well, obviously that shouldn't happen. If you do have a little bit of time today, we have people in here and outside when we go out after who can try and address your issue now while you are here. So, I commit to you that we will do our very best to resolve that. Obviously, I don't know the cause of it, and I don't think anybody here would right now, but it shouldn't happen, and you have our commitment that we will get it fixed.

ANDREW PENN:

Maybe I could add. I do know where Traralgon is. I was there in June and I'm not aware of any specific issues relative Traralgon, but Jenny West, who's Aboriginal general manager here, if she just stands up, she will come and see you after the formal proceedings and talk to you specifically about your issue and what we can do about that, but I apologize.

ADRIAN EVANS:

But the other issue, I guess, is that somebody waiting on a phone line for an hour and a half for somebody to come back and address the issue, is that because Telstra has closed so many call centres here and instead send them overseas? You have to look at a balancing issue, I think, where is how long do you actually keep your customer on a hold line for before you answer their call?

CHAIRMAN:

I can only agree. Again, I would reiterate my commitment. We will try to address this for you today while you are here. It should not happen. Thank you. Microphone one, please.

SPEAKER:

Thank you, chairman, I have a question from Christina Wu of Strathfield.

CHRISTINA WU:

Thank you, Mr. Chairman and members of the board. I only have one question. I have been a Telstra shareholders from the beginning since Telstra listed, and I'd like to know why, in spite of your good performance, increased market share and you know, we've had very good performance over the years. Why hasn't THE share price performed? Why hasn't the Telstra share price performed? It's been very disappointing. Particularly in the last few months it has gone backwards, particularly with the share buyback and so on.

CHAIRMAN:

Look, it's not trying to avoid the question, but it's very hard to comment on specific share price movement of any stock on the ASX. There are a wide range of factors that influence share prices. All we can do is what is in our control, which is to try to deliver the best possible performance from our company. And then we would hope that ultimately the share price will reflect that. And that is very much what we're trying to do.

CHRISTINA WU:

Is it also your interaction with the analyst as well? Perhaps you should have greater interaction with financial analysts.

CHAIRMAN:

We have very extensive interaction with financial analysts and institutional shareholders. I do that personally as chairman once or twice a year. I've just completed doing that, seeing some 26 of our biggest customers together with our investors, together with our investor relations staff, and depend on the management team to a much more extensive one twice a year after each half year's results. So, we are very very much interacting with all of that (UNKNOWN) of the investment base on a regular basis.

CHRISTINA WU:

OK.

CHAIRMAN:

Thank you. Next microphone. One again, I think so.

SPEAKER:

Thank you, Chairman, I have a question from (UNKNOWN) of Beecroft. Thank you, Mr... (CLEARS THROAT). Excuse me. Thank you, Mr. Chairman. I'm just wondering about the $11 billion that Telstra was supposed to receive in respect of the NBN, whether it's all been received or when it's going to be received. And also how is it traded in the books of account?

CHAIRMAN:

The 11 billion is the net present value of all of the revenue streams that were coming over a longer period from the NBN, and that's comprised of one off payments. It's comprised of connection payments, it's comprised of ongoing payments for the use of our ducts and other infrastructure. So, each of those as we receive payments during the course of the year and I think in 2016 it was some 760 million, something like that, we received directly from NBN, that will continue to accelerate over the next two or three years through to about 2020 and then it will start to decline again and just go to the recurring revenues that we get from the use of our ducts and other equipment. And then on top of that, we've got other one off deals like the 1.6 billion HFC contract that Andy mentioned earlier that wasn't considered at the time when we derived that 11 billion net present value.

SPEAKER:

So it's treated as revenue?

CHAIRMAN:

Its treated as revenue. Yes.

SPEAKER:

Thank you.

ANDREW PENN:

And chairman, we do provide a separate disclosure of all of the NBN payments in our investor relations material. So if you go to the website and you access the Investor Relations presentation for the full year results, you will see the schedule, a page in there, that itemizes the NBN payments.

SPEAKER:

Thank you.

CHAIRMAN:

Thank you. And next, microphone three.

SPEAKER:

Thank you, Mr. Chairman, I have Eric Chen of Kempsey.

ERIC CHEN:

Good morning, chairman and the board. I'm rather disappointed to hear from you that with the advancement in technology and you intend to invest so much more in future technology, and yet at the same time you were telling us just now that you cannot stop the scamming calls from overseas. I thought you would have that kind of technology by now to detect they are coming from overseas and they are scam. Because we know they're all scamming people. The minute I pick up the phone, I hear it, I can hear this very fuzzy, poor quality call coming through, and I know there is a scam call. And indeed is always worked out that way that they are scamming. Now, since you cannot stop them, Telstra cannot stop them from coming through and you advice just to put down your phone, I think that's probably the second best solution. Maybe, but the better solution would be to play along with them, play ignorance. Just asks them what they want. How to go or what they want or what they want you to do. Like in the instance where they say, (UNKNOWN) having some bucks coming through in one hour, you just turn on your computer and they'll tell you to doing certain things, just play along with them.

If you can spend 15 minutes with them and everyone in Australia do that.

SPEAKER:

I think you will kill the industry within three months. So why can't we do that? Instead of telling people to put down the call, It only takes them five minutes. They don't have to employ any more people. If they have to spend 15 minutes or 10 minutes with every single scam call, you kill them in three months. So I think Australia should be doing this first.

MULLEN:

That sounds like very interesting advice. (LAUGHTER) Look, firstly, I'd say it's not that things aren't being done, we're involved in and we can tell you there's a huge amount of work that goes on with the authorities trying to stop this. Particularly around, not so much calls that just annoy you or whatever, but around these phishing attempts and people who are after money from your bank account. And so there's an enormous amount of work going on. What I'm saying is; it's very difficult, very difficult thing to address. Many of us can tell a call. I mean, I can usually tell, you can usually tell, but they tend to often target the vulnerable, the elderly, that people who are not so quick to recognize that it's a scam call. So that's why we would advise if you're unsure, just hang up. Don't go there. But, and I wouldn't want to give the impression that we're just sitting here saying sorry, there's nothing we can do. The authorities are extremely aware of it and we interact with them all the time on trying to improve and stop these sort of things.

If it gets really bad, then you apply for a silent number. And hopefully, that gets rid of; virtually all of it. Can we expect phone number one?

SPEAKER:

Thank you, Chairman. I have a question from Robert Caterson from Engadine. Thank you, Chairman and CEO and the board. My question is with customer service within Telstra at the present time. It's quite easy to go online and buy something from Peter's of Kensington or an airline ticket or something, you know, quite plain and simple. But to deal with your telecommunications requirements, at the present time, is damn well difficult to deal with Telstra at the present time. We've heard a number of people in this audience today express their frustration with the level of customer interaction we have. Now, this is the front door of this business. If you can spend billions of dollars in creating a world-class technology situation for our customers, but you cannot spend a few 100 million, I don't know how much it will cost to create a customer-friendly customer interface for this business. You are lost because at the present time, with my experience, I had to walk out of a Telstra shop. And I was very upset because I'm a Telstra shareholder, I've been a Telstra employee and they're very uncomfortable.

I had to go down the road to a competitor to buy a new mobile phone recently. With the level of frustration, I've had with Telstra and other people. Now, you fobbed off another person in this audience, in terms of the billing charges, right? Now, David Thodey got rid of a lot of those mosquito-like billing charges that have reappeared on our bills. Now, I know you're trying to contain costs and I know that you're confronting a challenge from Australia Post in increasing their postage charges. But if that creates a level of frustration with our customers, then obviously you're leaving the door open, even by a few, you know, percentage in market share, but that's going to lose us money. Secondly, with these natural disasters, even locally, if we have bad weather, there isn't enough reaction time now within our exchange networks to keep our mobile phone services and our landlines. Now, the amount of business this company will lose, because we're not actually reactive, proactive towards dealing with these natural disasters; and I've raised this at a previous forum, and these situations have not been addressed.

Now I need the board's commitment to spend as much money as I need to improve our customer interface.

MULLEN:

Thank you for that comment. On the first part of your, statement, I can only agree. We all share, everybody here along this table, we share your concern that our customer service is not where it should be. We have spent billions of dollars as you said, on networks, and that has produced Australia's best networks. We now need to replicate that with the customer experience. And the expenditure that Andy Penn mentioned earlier, the $3 billion, is going primarily into exactly that. It is simplifying our systems, simplifying products, eliminating old legacy platforms that create complexities and inability to allow you to interact quickly, digitally, as you should be able to. So that is you have our absolute commitment to your question. That is exactly what we're going to do over the next three years. We're going to spend that money wisely. But we're going to spend it aggressively on improving the customer experience.

SPEAKER:

At the end of the day, you need people to listen to you.

MULLEN:

Of course. Absolutely. To your last point about disasters, I think that may be a little bit unfair. I think Telstra's response to natural disasters has actually been pretty exemplary. And particularly as Andy mentioned earlier, in South Australia, we were lauded for the efforts and the speed with which we did get operations back up running. And that's repeated, there's hardly a week that goes by without some sort of disaster event somewhere in Australia. And even if it's very localized, and Telstra, I think, is actually quite good at that.

SPEAKER:

So you can guarantee me that exchanges won't go down. That we've got the reactivity within our exchanges, that the phone system won't go down?

MULLEN:

We have a degree of control at the Telstra board, but I cannot control meteorological events that adverse Australia

SPEAKER:

I know the meteorological events. But they should be triggered within our exchanges and turn on generators, to turn on batteries, straightaway.

MULLEN:

But I think on the flippancy aside, I think Andy did mention earlier that the response in South Australia included actually bringing in mobile towers If you want a better word...

SPEAKER:

I realized that was catastrophic. But, you know, locally, we need to be guaranteed that if we have some sort of local event, I won't get a response from a phone operator saying, 'Oh, it might be back on in a week's time.'

MULLEN:

Well, seriously, again, I would...

SPEAKER:

(INAUDIBLE) person from overseas.

MULLEN:

I don't know how many actually events these guys would know. But I would say there is not a single week or even practically a day where something doesn't happen. Some building site, some backhoe operator cuts the cable, you know that stuff happens all the time, or you have rain or you have floods. And I think Telstra has actually got a very good track record of addressing that quickly. And putting more and more backups in place. Can we say we'll guarantee never to have it? No, we can't. But I think we're certainly doing our best. And we're doing a lot better than we did previously.

SPEAKER:

But getting back to customer service. The last situation I had, I had to make three phone calls to get a problem resolved. Problem resolved. Now, other customers are in the same situation. As I said, I can order something from Peter's of Kensington and I can get an airline ticket online, but dealing with your telecommunications is a different kettle of fish.

MULLEN:

Yes, you're right. And it should be digital. And it will be. That is absolutely where we are heading.

SPEAKER:

And if I gotta call for a person, I need to get somebody that will listen and will solve the problem straight away.

MULLEN:

Yes, and part of it, Of course, as we said earlier, as well is; it's not that the person's not listening. It's that we haven't necessarily given them the tools to fix the challenge. So if you can raise the problem with them, unless they've got the tools to address that situation for you, then all they can do is talk and that's obviously not going to solve the problem for you. But that's what we're going to work really hard on trying to do; is giving them the tools, especially digital tools, so that can be done online, as you said, like interaction with an airline or whatever. And you don't actually need to go through human at all. Thank you. Microphone three?

SPEAKER:

Thank you, Mr. Chairman I have a third question from William Bell of Eastwood.

MULLEN:

Good to know you are well, Mr. Bell

SPEAKER:

Yes, Good morning Chairman again, I'll bring up customer service. Why can't you have a tick list to say; this has got to be done to virtually start a product. Basically, I had a friend, George his name. A year gone in his cable, set up for him yet and it failed. The only reason fail is because he already asked Telstra; 'Have you given me everything I need to start broadband?' Yes. So I forgot to give him his email address. When I didn't give him his email address, that's as far as he went half an hour on the phone to try and get in it. And then he logged off And then he remembered, oh, wait a minute is a callback number. He called back, that number, finally got the email address and we got his broadband working that night. They didn't virtually give him everything. The simple thing is a checklist. Oh, yes, yes. Yes. Have we got it? All right. A lot of times. And then, only a couple of weeks ago, he said, I had a problem with the phone, Telstra said there's nothing wrong with the phone.

There was. And eventually they did fix it. But he's just an angry customer. He said, maybe when I renew my contract, I'll go with someone else. This is not good for Telstra. You know you hear it whenever you talked to people about Telstra. People tell you? 'Oh, yeah, I've had experience and I don't want to come back. I've known friends who have been in Optus. And I don't want to even mention that word in this thing. But yeah, they've been in Optus for many years because of the experience they had with Telstra. Now, the other thing I want to bring up is, 'why do the technicians still use old technology?' You keep talking about new technology. One of the technicians I saw 12 months ago had a dolphin torch, a great torch at the time. But it's had its days. Basically, in Bunnings, you cannot even buy that torch, they still sell the globes in case you haven't. But once those globes are gone, my mate says bindings won't even keep the globes, they'd gone to a LED torch. The LED torches last six to seven times longer for the battery.

Within a couple of batteries, you paid for new dolphin torch. But what I saw the technician having, are we've got old technology, and we've got not a LED torch but a globe torch which uses a heap of batteries. It's something that Telstra should be saying, 'we need to change our torches'. It costs money to start with, but it will save you money for the last six to seven times along with the battery. With the exchanges; go past the exchange fully lit up outside the exchange. Why can't they be centralized? And if they are lights, why can't they be LEDs. They use about so much less power and they last so much longer. Even our stop lights, that in the city These days are all LED based. They've been changing over. Why can't Telstra do the same?. Thank you.

MULLEN:

Mr. Bell, I think we get the message. And obviously, I really don't think I can comment on the specific type of torch that one specific technician uses somewhere. If we will check, I'll be very interested to know whether we've still got those in head office or not as well. That's all seriously, we understand there's an issue in customer service, and interaction with Telstra. It's a manual process in many cases. I would again not defensively say that the numbers of interactions, 365 data connections, million data connections a day and 45 million calls those things; there are a very large number of people are very happy with their interaction. Even one failure is too many. We are conscious of that. And we are going to do our very best, between board and management and we are going to spend a lot more money than we have on trying to address exactly those sort of frustrations that you have. You have our commitment on that. Thank you. Number one, please.

SPEAKER:

Thank you, Chairman. I have a question from Steve Gorgantis of Sydney. Thank you, Mr. Chairman. I'm a shareholder and customer of Telstra. I'd like to focus on customer experience and service as well. I looked in the annual report, but I couldn't see any figures on the number of complaints you're getting on a year-by-year basis so I can compare where there's any improvement. Because been in the public service before. They also focused on cost-cutting, which you're doing as well. But when I asked them the question, 'What about the customer service?', they didn't really care because it was all about saving money. And I'd love to see something in the annual report so we can compare how you're going with customer service. Because if you lose the customers, you won't have a company. And every year people complain about the customer service. I know you're spending money on it. But I want to give you a couple of examples that I've had basically with the call centres; I have a landline. And basically, I have the same problem on an ongoing basis.

Whenever a Telstra technician comes into the street, they fix somebody else's line and my dial tone goes. So I ring up the call centre and I tell them, 'Listen, I've lost my dial tone.' This is the problem, the technicians have been in the street, Can you check it and get it fixed? Basically, and I go through this script because of their call centre staff. And they're wasting my time and I'm telling them on a mobile phone. This is a problem. Just check it. Don't tell me, 'I've got to pull out the plug and do all this. I've been through this problem before. I know what the problem is. After 15 minutes I said look, I'll check the line. Yes, sir. It's the line, basically. So they're not listening. When I said, 'Well, don't you have my history on your database?' Sorry. So I can only see your last complaint. So where's the problem, where you have the history of the person complaining? Now you have legacy systems, but years ago, I was told you changed from the old legacy system to a new system.

That didn't happen. OK. So that's one of the issues I've got with your customer service plus, talking to people from the call centre, they don't seem to understand one had an English problem as well, so I couldn't talk to them. The other thing was basically that with the buyback, you talked about it improves the earnings per share. But the problem is that you give out shares to the board and to yourself, and things like that. So the earnings per share have gone backward. As a shareholder, I'd rather see you return the capital as cash. Now you don't have banking credits, to payout increase dividends, but just give us cash because we want to keep the shares and get the dividends. But by giving out, buying back the shares, we miss out; basically, just give us the money back. And the last thing I have to say about this scamming. I have to say I'm pretty disappointed as a chairman of the company, you don't even know what your company can do for us. Because I have the same problem. I have people ringing me up every day, sometimes twice, eventually got tired.

I rang up your call centre. When I told them the problem, they said, 'Steve, what we can do for you, we will put a trace on your phone number plus the landline. If you give us details of the phone number ringing you, which you don't get it because it's anonymous, but give us the time and the dates. We bring this back, tell us the data and we will then block them. Eventually, after several calls and give them enough information, guess what? I don't get the calls anymore. That's the only positive thing I can say about Telstra, they blocked the calls. So that's my issue for today. Thank you, Mr. Chairman.

MULLEN:

Thank you. So there were a number of components there, if I recall in your question. The first one was around, do we measure complaints and similar? We do. We measure very carefully, all of the complaints that come into the company. And you mentioned 'Can you see it in the annual report?'. I think the most visible example of the attention that we pay to that is in the remuneration and the STI that goes to senior management of the company; 40%, all the way down through the whole company, in fact, of their bonuses are based on the performance of the customer NPS scores that we achieved. This last year, we went backwards by four points. And as you will have seen as a result, nobody got any bonus at all for that. So we do measure it. And we do hold management accountable for that. On the buyback, I'm afraid this is always a difficult question. Because every shareholder is different. And every shareholder has a different view as to what would suit them best. It depends on your particular situation in life, It depends on your tax status, it depends on a whole lot of other things.

So holistically, we believe that a buyback is the best way to achieve this, because it allows even shareholders who choose not to participate in the buyback to benefit from improved earnings per share, because obviously, the number of shares on issue are reduced. On a scamming thing; I hope that was clear. I think there are things you could do, you can have numbers blocked, you can even have a completely silent number. Just saying that we can't wave a magic wand and stop what is a an increasingly appalling level barrage of this this sort of thing that afflict society generally today, but we are doing everything we can. So we're also working with authorities, but if you have a specific issue, you can raise it with us and we will do our best to help. Did that cover all of your questions?

SPEAKER:

I want transparency from the company, publishes their complaints. So we as the owners, because we're the owners, not you; How many complaints are getting by category so we can see whether you're improving or not. That's what we really want.

PENN:

Well, the complaints across the industry are published by the industry's ombudsman. And what you'll see is over time, our complaint numbers have been going down. They report the complaints as a number according to, I think is every 10,000 customers. There was a small increase in the number of complaints across the industry following the Switch to the multi-technology model for the rollout of the NBN, which occurred in December of last year. And it kicked up at that point, because of the new technology coming in. And there were some teething problems experienced by NBN and the industry responding to those. But overall, our complaint experience has been improving over time. And as the Chairman said, I mean, obviously, we're disappointed on every single occasion when we let a customer down. But at the same time, you know, we are working very hard. And we have improved a lot of aspects of our customer experience over the years. Now more than 50% of all interactions with customers are actually via digital mechanism online.

The 24/7 app is downloaded by 2.9 million customers, that gives you a lot of control and access over your mobile plans, checking how much data you've got on there. It's very individualized. So there are a number of things that we're doing. But as the chairman says, we continue to hold a very high bar for ourselves and, every time we let a customer down, it's a big disappointment. And we will continue to invest and do everything that we can to address that and improve that.

SPEAKER:

Well, I want to say one thing. All I can say is that with my landline. I just got to a stage where I just got to lodge a complaint, and I asked for compensation. It cost your money for them to reimburse my bill for three months. So that's what I do. And I talk to everybody else. Just complain and ask for compensation basically. So it's costing you money, for not listening to people to fix their problem. That's all I say. Thank you,

MULLEN:

Again, with any particular personal issue, we do have people here to try to address it for you, today. Not probably off the future, we will address it today for you. Microphone two please.

SPEAKER:

Thank you, Mr. Chairman. I have Peter Starr from Sydney with another question. John, I can only suggest to Mum and Dad shareholders here and shareholders; if you haven't gone down to 400 George Street, go in there and have a look around and look at the experience in the service there. It wasn't always like that. But over time, it has improved. You go to any Telstra shop now, our presence is very clear and present. It wasn't like that but it is like that. Let me encourage you to go down there and have a look at the experience. Secondly, John, Andy might be best to answer this; is that, what's happening with the Galaxy Note Seven, just to bring you up to date. Samsung's about to recall the recall for those of you who are affected because it's still catching on fire even if you're charging the phone. A six-year-old girl this morning was burned; not here in Australia but on a record of the phone, so

PETER:

And what - is anybody from Samsung? Can updates and see what's going on because they are about to recall the recall, John, if you may (CROSSTALK). Thank you.

JOHN P MULLEN:

I think I can give you a short answer on that. We have temporarily paused shipping and replacement of Galaxy Note 7 smartphones while Samsung investigates the reported incidents, which have primarily been in the United States. We've asked them to provide us with an update on the investigations which they are doing as a matter of priority. And in the meantime, we're actually providing loan phones to anybody who asks for those who don't want the exchange program, a change of it, an alternative smartphone. So we are managing that very proactively.

PETER:

Yeah, just update to that is this morning in breaking if you haven't caught up with it, the the phones that they rereleased with the new batteries in them, same problem. If you haven't been aware, I'm making your way, so you might want to just take that on board. But yeah, they are about to recall those, so yeah.

JOHN P MULLEN:

Thank you, Peter. Well, we will try to stay on top of that to the best of our ability. Microphone three, please.

SPEAKER:

Thank you. Mr Chairman. I have a second question from John Hillman of Yagoona.

JOHN HILLMAN:

Thank you, Mr Chairman. This will be brief. It again relates to the major threat to our share price and to our dividends in the future. There's been discussion about the ACCC following my comment about writing to parliamentarians. I'm formally asking you, Mr Chairman, and I'll explain why I'm here, I'm formally asking you if Telstra will look at sending, for example, an electronic distribution to all of the shareholders that it possibly can giving details of how, specifically how we will be able to communicate our message to the ACCC. You know, I'm informally asking you so that it's quite clear on the record that you are reacting to a shareholder request. It's not an initiative or a lobbying process by yourselves, it's reacting to a specific request from shareholders. But I would say that that is the request, but I would also say that and think about mining and agriculture shareholders. Of course, it's the Foreign Investment Review Board, et cetera, et cetera. It's these bureaucratic processes.

I'm not having a shot of them, Adam. They're there and they listen to technical arguments. But do not forget that ultimately it does come down to the pressure that politicians and governments apply. And if a lot of opposition and a lot of government parliamentarians, Lower House and Senate, bring forward all of your messages to their party rooms and the respective minister then gathers that together and communicates that message, the ACCC is not, and we'll just talk about it as an entity, the management of the ACCC is not stupid. If they get a very powerful, overwhelming message and it can even be via a ministerial through your local members and then back to the ACCC, that will be the best thing we can do to protect our share value and our ongoing dividends from this overseas hijacking, this overseas raid, this overseas and it's been characterized in terms earlier criminality. I personally will reserve my judgment on that. But that's my formal request to you, Mr Chairman, that you provide us as shareholders with the specific details and an explanation as to why it's important, how it will affect our ongoing share price and dividends in various scenarios so that it's quite clear that we expect our board and the management of Telstra to help us, to react to our request to carry forward this process and make sure the penny drops with the ACCC and with our elected representatives.

Thank you.

JOHN P MULLEN:

OK, thank you for that precision. Again, I would reiterate that the company is doing everything it possibly can to ensure that everybody who will be affected by this has a voice and responds to the ACCC. We will leave no stone unturned. As regards individual shareholders, the process will be that the ACCC will issue an issues paper, which is, I think, due almost any day, and it's very shortly anyway. And that paper will request input from any concerned parties of which shareholders obviously would be one. So we would urge that when that comes out, the ACCC publish it on their website, that you then take the time to respond with your views. To your specific point about the company's role in that, let me talk with my colleagues in the coming days as to whether we can provide any more background information for shareholders that would help facilitate you forming a judgment and making that recommendation. We will take that on board. Thank you, microphone one?

SPEAKER:

Thank you, chairman. I have a question from Reginald Lobb of Stanwell Park.

REGINALD LOBB:

Thank you. You are a very patient chairman. I've attended a number of meetings and there's actually one Telstra shareholder who hasn't arrived, I'm quite surprised. It would have been a longer meeting. So, two very brief comments. We travelled within the last two months across the Nullarbor, both ways to Perth and home. We were advised that you needed Telstra Mobile. And accordingly, we bought a phone, added a Telstra SIM card, paid, we were alarmed to find that the gentleman who set it up for us here in Sydney, a helpful man, had set it up to receive data. Not for air use in emergencies across the Nullarbor. There was an emergency. But fortunately, that was when we were back in the city of Renmark. We have been to Telstra since, and they have adjusted that phone, but there was certainly an alarm that we did not have the communication device we needed. Before we went and in the course of planning the holiday, I had negotiated - we had negotiated a new bundle. When the bundle - we were told, yes, you'll get a new modem and other technology.

The modem arrived, and that's the old modem kept on working. Then suddenly, we had no internet. And tell Big Pond support, somewhere in somewhere overseas. And the question body is this. We have - it's a major issue. When you get down to a Telstra centre and they don't understand your question. They are not equipped to tell you and assist you. When I was asked the number of the modem, I was told, "That is not your modem." I had it in my hand. So there must be better customer service, advice. I got up to speak on this because this has been a question reiterated around this room today, hasn't it? Yes, get the service better. Thank you.

JOHN P MULLEN:

Thank you very much, Mr Lobb. We appreciate those comments. I am not sure that there was a great deal of value in going on reiterating one interaction after another. That's not in any way not taking them seriously. We do take them seriously. If you have a specific issue that you have not had fixed to your satisfaction, we have people here, as we've said before, to address that more generically. The board and your management team are acutely aware of these sorts of issues, and we are doing our very best to fix them. We are taking unprecedented levels of expenditure forward to do that over the coming years, and you have our absolute commitment that each time we stand up here before you at an AGM, we will be able to report improvement on addressing these sorts of issues. Now, I don't want to stifle any debate, but we are running very behind. Lunch is already served outside. I would suggest that we perhaps move on to the more formal part of the meeting now unless there are any other issues that you'd like to raise, any other questions that are not around the same topics as we've already expressed.

Yes please, microphone two.

SPEAKER:

Yes, sir. (INAUDIBLE) from Sydney would like to make a comment. Thank you. Thank you, Mr Chairman. I would just want to say that I have the most marvellous service from Telstra. I am not - I am very naive about it. I have the laptop that Mi-Fi - whatever it is, landline. And this green object appeared on one of my things and I took a photo of it and went down saying it wanted me to update it. I just took it down to Telstra shop. It was Android - I had an Android or whatever it was thing, and I should have updated it. But the people helped me and they... I don't understand the language of the IT or anything, but I take a photo. If it's an annoying phone call, I usually know who's ringing me and I let it ring at least ten times and hope it's one of those nuisance calls, it's dropped dead by then. But I am very happy with Telstra, and they put up with me and I terrorise them from Sydney to Ballarat. Shepparton included and they're good. Bye.

JOHN P MULLEN:

Thank you, Miss. I just again would say that we do have a very large amount of very happy customers. Obviously, you don't get customers ringing you up every day saying what a great experience you've just had. You expect that and you should rightly expect that. When you have a complaint is when you speak up. And then obviously, with the sheer volume of contacts that we have and users of our network, there will be a number of these complaints, but we're going to do our absolute best to try and drive them out of the system. Oh, maybe one more question. Is there anybody other than Mr Bell? Because we've already had a few questions from you Mr Bell, but I'm happy to speak to you afterwards for as long as you like. If there's any other questions. If there are none, Mr Bell, the last one and then we will move forward.

MR BELL:

Good afternoon, chairman. One other thing I want to bring up is safety. There are a lot of pits around that are unsafe in Telstra. I have complained several times of Telstra. Sometimes I've replaced it about 10 times. Not that I've booked it 10 times, but once I did find a pit that was being destroyed and they had bollards, they had everything. But when a 40-tonne fuel tanker goes over that pit, even concrete just snaps. I'm happy to say that you have virtually replaced that with a steel one and I haven't seen it broken since. But what happens when someone complains about a pit or anything in Telstra infrastructure? One of those towers, I don't know what you call it, I drove past it one day and it had fallen over. Two months later, I drove past again. It was still on the ground. If anyone rolls it up or it snaps the wires, it's probably over 100 or 200 phone people who are going to lose all their phones. It was even on social media around the Marrickville area that this thing had fallen over.

I'm sure someone had phoned to Telstra about it, but actually, then I took a photo and sent it to David Thodey. This time virtually two days later, it was fixed. Why does it take so long to fix safety and infrastructure faults in Telstra? And that's my last question. Thank you very much.

JOHN P MULLEN:

Thank you. Mr Bell, we have, I think, 7 million pits nationally and another 250,000 manholes. When they are reported as being faulty, we take action immediately. But on top of that, we actually have a remediation program. Andy, I think that you are rolling out across the nation to make sure that we get to all of those pits on a regular basis. But it's a lot of pits. And do things happen? Yes, they do occasionally, but we take it very seriously because obviously, you can severely injure somebody if they fall into a pit or whatever. So we have a very robust occupational health and safety function within the company. These issues are reported to the board at every board meeting, and we actually go through every single incident that's affected the company or members of the public during that previous period. We go through those as a board. We take it seriously. Alright, I think that brings us to the end of that section. We've finalized our discussion there. So I would not like to turn to Item 3A on today's agenda, which is to consider the election of Mr Craig Dunn.

You heard from Craig at the start of today's meeting and his details are set out in the Notice of Meeting. Craig is a highly regarded business leader with more than 20 years of experience in financial services and pan-Asian business activities, including six years as Chief Executive Officer of AMP Ltd. He has significant expertise and experience in financial technology, including through his role as chairman of independent not-for-profit financial technology hub Stone and Chalk, and through providing strategic advice for government and major companies. He joined the board in April 2016 and has been a member of our Audit and Risk Committee since that time. The board, obviously than Craig himself, unanimously recommends his election. So I'll not take any questions you may have regarding Craig's election. I take that there are no questions. We will now vote on this item. The proxy and direct voting position has been shown on the slide behind me. As indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Craig's election.

So please fill out your voting cards for Item 3A. I'll now turn to Item 3B, which is to consider the election of Jane Hemstritch. You've also heard from Jane at the start of today's meeting, and her details are set out in the Notice of Meeting. Jane joined the board in August this year and has also been a member of our remuneration committee since then. She's a very experienced company director and has extensive senior executive experience in information technology, communications, change management, and accounting. She also has broad experience across financial services, telecommunications, government, energy and manufacturing sectors, and in business expansion in Asia. Again, the board, other than Jane herself, unanimously recommends her elections. So I will not take any questions that you may have in relation to Jane's election. I take that as there being no questions, so we will now vote on this item as well. The proxy and direct voting position have been shown on the slide behind me.

And as indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Jane's election. So please fill out your voting cards for Item 3B. I now turn to Item 3C, which is to consider the re-election of Nora Scheinkestel. You've also heard from Nora at the start of today's meeting, and her details are set out in the Notice of Meeting. Nora has very significant experience as a non-executive director, having served as Chairman and director for a range of companies across a wide variety of industry sectors. Her background includes experience as a senior banking executive and international project financing. She consults for government, corporate and institutional clients in areas such as corporate governance, strategy and finance. And Nora has been a very valuable member of our board since 2010 and also has a very important role as chairman of the Audit and Risk Committee. Again, the board, other than Nora herself, unanimously recommends her re-election.

I will now take any questions you may have on Nora's re-election. We do have one question. Microphone two. Thank you, John. Nora, I've just been asked to say that all the votes that I'm holding will be going to you. We're very grateful that today you've done an excellent job and we hope you continue to look after us and serve us well. Thank you. Thank you very much, Mr Starr. So thank you for the questions. We've now finalized our discussion of this item as well, and the proxy and direct voting position have been shown on the slide behind me. As indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Nora's reelection. So please fill out your voting cards for Item 3C. I now turn to Item Four on today's agenda, which is to consider the grant of performance rights to the CEO, Andrew Penn, under Telstra's fiscal year 17 long-term incentive plan, as outlined on the screen behind me. Details of the proposed grant are set out in the explanatory notes to the Notice of Meeting.

But in summary, if shareholder approval is obtained, each performance right will entitle Andy to one fully paid ordinary Telstra share at the end of the three year performance period, subject to the satisfaction of two separate performance measures. And those two measures are first, Telstra's relative total shareholder return performance, and secondly, our free cash flow return on investment performance. Half of the performance rights are subject to the RTSR measure, and the other half are subject to the free cash flow ROI measure. As explained in the Notice of Meeting, the targets set for the free cash flow ROI measure do not yet take into account two things. Firstly, the investments and the resulting returns from the three-year strategic investment program that we have just announced as the phasing of that program has not yet been finalized and was not done so at the time this meeting was convened. The program is expected to increase our CAPEX to sales ratio in each year of the FY17 to FY19 performance period to approximately 18%.

As details of the investment program and the resulting benefits are progressively confirmed during the period, these targets will be adjusted against the basis of the pre-existing plans that did not reflect that program at the time. Secondly, the impacts of certain new accounting standards applicable in future reporting periods, namely mainly new revenue recognition and lease accounting rules, have also not been included. Importantly though, although necessarily Andy's initial targets were set based upon our pre-existing plans, I would like to reiterate that as soon as the new investment plans are finalized, then the board will fully take these into account and hold him accountable when determining the outcome for the free cash flow ROI measure. All amendments to performance will be measured against the planned outcome of those investments. Both will then also consider the impact of new accounting standards and will exercise its discretion to ensure that the overall vesting outcomes are appropriate.

The number of performance rights, being 853,210, represents the maximum potential number of shares that may be earned by the CEO under the plan. The actual number of shares you may receive in 2019 will then be determined based on Telstra's performance over the three-year period. If any of those performance rights vests, the shares earned will be subject to a further one-year service condition and trading restriction. The board, other than Andrew Penn himself, considers the grant of performance rights to the CEO to be appropriate in all the circumstances and recommends shareholders vote in favour of Item Four. I will now take any questions you may have on this item. Microphone two. Mr Chairman, I intend to vote in favour of the motion, but I wanted to make a comment on the share price. Mr Penn was very lucky that the

SPEAKER 1:

The share price. I'm sorry, the volume weighted average of the share price for the five days was $545. It's come way down since then. Being a substantial holder of Telstra shares, I was concerned. I've been retired for over 20 years and I've held Telstra shares most of that time. It seems to me that, and I was going to mention this before, but I didn't think, it was appropriate. But the share price rises and falls according to the whims of lots and lots of people. Not just the buyers and sellers, but also the advisers. The big firms who buy and sell shares. And the advice I keep getting from licensed dealer in securities is that Telstra has not got a clear plan forward. They're not saying what they're going to do. And this means that because of this, the share price is being marked down. Now, I'm told I should sell the Telstra shares and buy TPG, which I'm not going to do. But it's just interesting to hear that coming from some of my fellow analysts. So, I just like to say you're doing a great job, but we really do need to do a little bit more of releasing information about what we're going to do in the future to enhance our share value.

Thank you, Mr. Chairman.

MR. CHAIRMAN:

Thank you. And that broader discussion on the share price was really, I think, more relevant to the first discussions we've had. But in the context of Andy's remuneration, clearly, one of the main reasons why these rights or this this opportunities offered in the form of shares, is to perfectly align and his interests with your interest as a shareholder. So, if it doesn't go well for you, it doesn't go well for any. So, we have a collective interest in seeing that share price go up. Thank you. Any other from microphone one.

SPEAKER 2:

Thank you, chairman, I have a question from Charles Weekes, from (UNKNOWN).

CHARLES WEEKES:

Hello. I'm a long time shareholder, bought at $7.40. Now $5. That is 30% down. Now, I'm also concerned, your point about the increase. Your dividend is 81.5 over the year. I've done a few numbers going on the CPI index. There's $7.40. It comes out now at $11.72. The share price is less than half on the CPI. At 2005, it had a 40% dividend. Then it got down to 28 regularly, in 2006. But they didn't do the CPI index. There should be 36.8 cents. We're well behind the CPI. My question is the short term and long term incentives and the executive salaries, how do they compare to the CPI? Seeing how income has gone down. Wondering how the CPI, I mean, the executives and their incentives have gone down or up compared to the CPI? Thank you.

MR. CHAIRMAN:

Thank you for your question, Mr. Weekes. If you as a shareholder invested in each of the three tranches of sale down by the government over the 1997, 1999 and 2006 tranches, if you'd invest in each one, you would have more than doubled your investment given today's share price. And the respective increases were over 200% of the first 32, for the second, and 120 odd for the third. I don't think, this is probably, the place or the issue in which to debate the share price at great length. But clearly, we hear what you say. The incentive schemes in this company have directly targeted their performance and measuring executives, including Andy, on performance. And you can see, it's not a question of relating it to CPI in a particular year. You can see if performance is good, management will do well. If performance is bad, they won't do well. And you will see that in this year's STI, where management only achieved about 43% of their entitlement. Including zero payout on income, and zero on the customer service measurement.

Because of exactly those concerns. So, we try very hard as a board to make sure that we are continually aligned between shareholder and management. And if management do well, that's because shareholders have done well, not vice versa.

CHARLES WEEKES:

Failed.

MR. CHAIRMAN:

Well, I hear what you say, but I would have to beg to disagree. We try extremely hard and we take very seriously the alignment of executive compensation with shareholder interests. That's our job. OK, I don't think we have any further... No, we do.

SPEAKER 2:

Mr. Chairman, I have Levi Noel, from Wollongong.

MR. CHAIRMAN:

OK, thank you.

LEVI NOEL:

Mr. Chairman, my question relates to the long term incentive scheme. You did mention there, that the performance of the return, if you like, of the chief executive needs to be directly related to the shareholders, so that, if he gains, we gain. Now, because 50% of the LTI entitlement is based on relative total shareholder return. Now, that does not align with the shareholders. Relative just means that he has to perform a little bit better than the comparator group, which I'm sure you're familiar with the group that they compared to. Now, if share price goes down and dividends might just stay the same or it may go down. Well, obviously as the shareholders we lose. But the executive can still get theirs, if they perform relatively good compared to the rest of the ASX shares that you're compared to. So, for that reason, these things are not aligned. I think, it was absolute TSR years. If you're going to use relative TSR, well, then there should be options. In those situations, you'd be aligned directly with us, the shareholders.

So, that's my first complaint about it. The second question is, (INAUDIBLE). They are long term incentive. You can earn a maximum of 200% of this fixed annual remuneration. So, it's fixed annual remuneration is 2.3 million. So, that's quite another, nearly, 5 million. Brits are up to 7 million. The other thing is, as far as the short term, I haven't got that information here, but what's the short term incentive? Is that 200% of (INAUDIBLE), as well or not. Why I'm asking this is because I'd like to see the long term incentive be much better than the short term. Because if its long term, it's better for the company. Better probably, for us shareholders, and very definitely better for the employees. So, the company performs well. These executives, they come, they go. But employees have to be with the company, maybe 30 or 40 years. So, that's my second question. How does the long term incentive compare to the short term? Are they 50 50 or is the short term 50%?

MR. CHAIRMAN:

Thank you very much, Mr. Noel. So, on your first question about the use of relative TSR as opposed to straight TSR, I'm afraid there's no right or wrong answer in this debate. Many companies do it different ways. The measurement that we use is a pretty standard industry measure. The reason for that is, so, some of the earlier debate about other influences on share price that may be completely outside the company or management's control. If the whole index is rising or falling, you actually, want your company to do better than the others. And we therefore use a relative measure because whether the share price has risen or fallen, we want to reward management for doing better than their peers. Not for just riding that wave, which is what would happen if you used absolutely TSR. So, we're comfortable that that is the best measure.

LEVI NOEL:

But would you not accept that our interests are not aligned using this relative to yourself? Because state executives can get their incentives, even though the shareholders, we lost money.

MR. CHAIRMAN:

But if the executive does get shares in that situation, that means that the executive has been part of a team has driven an above average performance for your shares in that period of time. So, they have done far better than the competitor group. I think, that is actually a more aligned structure than just going on the absolute. And also point to remind everybody, that the the reward is not cash, it is shares so. So, from that point on, the executives are totally aligned with you as a shareholder.

LEVI NOEL:

They would be, if there were options for them to actually pay something for them. Anyway, I'm not going to disagree with you. I accept what you're saying. But what about the other in the short term and long term?

MR. CHAIRMAN:

Well, that's based on a similar structure of up to 200.

LEVI NOEL:

Right? Yeah. So, why not have the long term system much higher to encourage, you know, long term interests. So that, the long term benefits the company, as well?

MR. CHAIRMAN:

Well, again, I don't think, there's a right or wrong here, but judgment is that you want an evenly balanced level of effort from management on fixing today's problems, as well as, long term problems. You don't want things done in the company today that are at the expense of the long term, just to get a better result, today. But equally, we don't want to forsake today for the long term, which is why we have both the STI and the LTI structure.

LEVI NOEL:

And why not extend the three year to four year or five year for the long term incentive, rather than just three years? That's pretty short term.

MR. CHAIRMAN:

Well, it is four, because there's an additional year at the end before the executives can actually, trade in those shifts. Again, we think four is about the right balance.

LEVI NOEL:

Thank you, Mr. Chairman.

MR. CHAIRMAN:

Thank you. There are no further questions on this matter. We will now vote on the item. The proxy and direct voting position has been shown on the slide behind me. As indicated in the notice of meeting, I intend to vote all available proxies in favour of the grant of performance rights to the CEO. So, please fill out your voting cards for item four. I will not turn to item five on today's agenda, which is to consider Telstra's remuneration report for the year ended 30th of June, 2016, as outlined on the screen behind me. Before inviting questions from the floor, I would like to provide some introductory comments about this year's remuneration report, and our remuneration outcomes for fiscal year 16. Our aim in preparing the remuneration report is to enable you, as shareholders and interested stakeholders, to understand the links between remuneration, company strategy and Telstra's performance. And the framework that we have in place is to provide effective governance over remuneration at Telstra.

The overall structure and philosophy of our approach, as well as, the structure of the remuneration report itself, remain consistent throughout the 2016 financial year. This remuneration philosophy is based on linking financial rewards directly to employee contributions and company performance As you've heard this morning, overall, in 2016, Telstra delivered solid results for shareholders. However, we did not make enough progress on improving customer experience. The remuneration outcomes for the 2016 financial year, therefore, reflect this underperformance. And as a result, no incentive payments were made to senior management in respect of customer service performance. This meant that senior executives received an average of 40.5 of the maximum opportunity open to them, under the fiscal year, 16 STI plan. Separately, 53% of the maximum opportunity vested for senior executives under the fiscal year 14 LTI plan. In response to feedback that we received in the lead up to last year's meeting, we've also provided more information about how the board determined the outcome under the cash flow performance measure of the fiscal year 14 LTI plan, when we prepared this year's report.

The board determines remuneration outcomes under both the STI and LTI plans, to ensure there are no windfall gains or losses due to the timing of the NBN rollout. And by adjusting reported results for non-recurring items such as spectrum purchases and unplanned material acquisitions and divestments, as well as, any other significant unplanned business development or material, regulatory or legislative change where relevant. So, as I summarise, the key outcomes under RTI and LTI plans this year, therefore, I will highlight what the board considered to include or exclude when it determined these outcomes. For the FY16 short term incentive, STI, all senior executives participated in the same STI plan, with one exception of the group executive Telstra Wholesale, who for regulatory reasons, participated in the standalone plan. The performance measures of the STI plan were free cash-flow, a total income of strategic customer advocacy, net promoter score or NPS, and individual performance objectives.

The board selected these performance measures as it believes they are a critical link between achieving the outcomes of our business strategy and increasing shareholder value. Senior executives received an average of 40.5 of the maximum opportunity available, based on the assessment of financial, customer advocacy, and individual performance. We did not achieve a total income or NPS gateways. And as a result, as I said, no payment was made for these components. The board included the impairment of (UNKNOWN) business as this was a negative for the company. And the impact was therefore, included in cementing the final outcome to management's detriment. Conversely, the board included the profit on sale of Autohome in determining the final outcome, as this was a tremendous success for the company and management benefitted accordingly. For the long term incentive, or LTI, the performance period for the fiscal year 14 LTI plan concluded on the 30th of June, 2016. The outcome of that was at 53% of the maximum opportunity vested, as restricted shares.

Performance rights form the basis of the reward, under the LTI plan, or for any performance right to vest as restricted shares, a minimum threshold performance against the relevant measure must be satisfied. And the fiscal year 14 LTI plan had two separate performance measures. Relative total shareholder return, or RTSR, as, we've just been discussing. And free-cash flow return on investment or free cash-flow ROI. Half of the performance rights were subject to each of these two separate measures. The result of the two planned measures, where the RTSR ranked at the 50 second percentile of the comparator group, and Telstra achieved a free cash-flow ROI outcome of 15.9% , which exceeded the target of 15.1% that was set for the fiscal year 14 LTI plan. The board therefore, determined that the free cash-flow ROI outcome of the fiscal year 14 LTI plan is as described in our remuneration report. The most significant items that affected the outcome were the exclusion of the cash proceeds from the Autohome divestment, over the profit on sale that was included.

This had the effect of reducing the outcome for management. The exclusion of spectrum purchases and the purchase price and trading cash flows of acquisitions, for example, while the Packnett and Video Plaza. And lastly, the divestments, the exclusion of sale prices, but trading cash flows were included as if they continued to contribute to our results. These were mainly CSL and the census advertising and directories business. The board also took into account certain regulatory decisions in the NBN transaction, but these aspects did not have a significant impact on the outcome. Overall, the free cash-flow ROI outcome reduced from 16.% to 15.9%, against a target of 15.1%. And the fiscal year 14 LTI plan vesting outcome decreased from 59.25% to 53%. Finally, I would remind shareholders that the shares allocated to executives under this plan are subject to a further one year restriction period that ends on the 30th of June, 2017. In closing, I would just like to highlight a couple of other important aspects about remuneration that Telstra.

Which are outlined in the report. Firstly, there have been no changes to senior executive remuneration during the 2016 financial year, except at the time of promotion to a senior executive role. There have also been no changes to non-executive director or committee fees. Secondly, in the fiscal year 16 STI plan, strategic NPS was the sole metric for the customer measure. Strategic NPS is the overall impression of Telstra as a company. And that was chosen as it helps us understand how our customers feel about Telstra, and whether they would recommend us to others. In fiscal year 17, though, we also want to increase the focus on how our customers feel about their direct interactions with us on a daily basis. I think, it's very relevant to a lot of the discussion that we've had, today. So, to do this, we're introducing an additional metric known as the Service Experience Index, or SEI. This is a measure of the experience that our customers receive each time they actually, use us or in contact with us to fix a problem.

We already measure those experiences as part of our NPS program, so, that is not hard to calculate. So, the overall quantum of the customer metric will remain unchanged. But going forward, the strategic strategic NPS and the new SEI metrics will now contribute how the customer measure each. So, we're going to measure how to customers think of Telstra as a whole and how to customers rate their individual experiences and actions with the company. Other than this change to the customer measure, we do not anticipate any other changes in our approach to senior executive remuneration in fiscal year 17. In particular, for fiscal year 17, there will be no fixed remuneration increases and no changes to the STI and the LTI opportunities as a percentage of fixed remuneration for the senior executives, including the chief executive. The board recommends that shareholders vote in favour of the adoption of the remuneration report. And at this point I would now invite questions from any shareholder who wishes to raise anything.

OK, I take it that there are no questions. So, we've not finalized discussion of this item, and the proxy indirect voting position on this item is being shown on the slide behind me. As indicated in the notice of meeting, I intend to vote all available proxies on this item in favour of the adoption of the remuneration report. So, please now fill out your voting cards for Item five. Shareholders, as the meeting is about to conclude, if you have any other questions you'd like to ask about your company that are relevant to shareholders as a whole, please move to a microphone, now. Microphone three. Mr Bell.

MR. BELL:

One quick question. Why are we still on paper and most companies got going in shares too, they have the electronic one? Can the board think of doing the electronic one thing in the future? Thank you.

MR. CHAIRMAN:

Yes, we are. And we will work on that during this forthcoming year. Thank you. Shareholders that concludes our discussion of all items on today's agenda. If you haven't already done so, please complete your voting card and place it in one of the ballot boxes, which the tenants are carrying throughout the room, or in one of the ballot boxes near the exits. The poll will remain open for a further 15 minutes to enable shareholders to cast their votes, and the results of the poll will be available later today and can be obtained by visiting the ASX ,or our own website. All items of business have now been considered, and I therefore declare the meeting closed, subject to finalization of the poll. Thanks to all of you also who viewed the AGM online. Thank you very much for your attendance today, shareholders. And I now invite you to join us for lunch or what's left of it in the foyer area. Thank you.

SPEAKER:

Telstra is creating a brilliant, connected future for everyone. Our strategy is focused on improving customer advocacy, driving value from our core business and building pathways to future growth. Customers are our highest priority. We want to keep improving the way we interact with them. We are committed to network leadership. And we're building new growth businesses. We are becoming a world-class technology company that empowers people to connect in Australia and around the world. Telstra has delivered again for shareholders. We grew revenues. Added fixed and mobile customer services. Continued to invest in our network and increased our dividends for shareholders. Our challenge now, to create pathways to the future, building world-class capabilities to make a brilliant connected future come alive.

CATHERINE LIVINGSTONE:

Good morning, ladies and gentlemen. My name is Catherine Livingstone and I am the chairman of your company. On behalf of my fellow directors, I'm pleased to welcome you to Telstra's 2015 Annual General Meeting and also to extend a very warm welcome to the many shareholders joining us today online. I would like to begin by acknowledging the traditional owners of the land on which we meet, the Wurundjeri people of the Kulin nation and pay my respects to their elders past and present. We have a quorum and I declare the meeting open. A notice of meeting has been distributed, setting out the business and resolutions to be considered at this meeting, and I will take the notice as read. There are five items of business on today's agenda presentations by myself and your chief executive officer, Andrew Penn. Discussion of our 2015 financial statements and reports. Consideration of the election and the re-election of directors. Consideration of the proposed grant of performance rights to the CEO and consideration of the remuneration report.

Voting on Item three to five will be conducted by a poll and that poll is now open. If you do need to leave the meeting early, you can vote by completing your voting card and placing it in one of the many ballot boxes near the exits. I would now like to introduce Telstra's auditors. Yeah. Joining us today from EY is Steve Ferguson, and he's available to answer any questions you may have on the conduct of the audit, or on the auditor's report. Joining me on stage are, Andrew Penn, your Chief Executive Officer, Damian Coleman, company secretary, and Warrick Bray, your chief financial officer, your board, of course, and Trae Vassallo, who has been nominated by the Board for election at today's meeting. I will shortly invite the director standing for election to introduce themselves individually. But first, I would like to acknowledge directors Geoffrey Cousins and John Zeglis. Mr Cousins and Mr Zeglis have announced their intention to retire from the board at the conclusion of today's meeting.

Both joined Telstra in 2006 and each has completed three terms or nine years on the board. Mr Cousins and Mr Zeglis have played a significant roles in helping to oversee the evolution of Telstra through a period of substantial change in the telecommunications industry, and we thank them for their contribution. I would now like to invite Mr Cousins and Mr Zeglis to address the meeting.

GEOFFREY COUSINS:

Good morning, ladies and gentlemen, and thank you very much, chairman, for those words. I'm Geoff Cousins. You know, this company today is an entirely different company, to the one I joined nine years ago. Firstly, it's a better company. It's better in almost every respect. Its relationship with its customers is better and they respond to that. Its relationship with the government is better, and the government has responded to that. And indeed it's return to shareholders is better, and I trust you all respond very favourably to that. But it's not only a better company, it's a different company. When I joined it, it was an old style telco business, earning most of its revenue from voice traffic. Today, it's well on its way to being a new technology company with new services, new systems, new thinking and some new geography as well. It's been a remarkable transformation and one of the great experiences of my corporate life to play just a small part in it. And you, as shareholders, have elected me three times over that period.

I'm very grateful for that. Thanks for having me.

JOHN ZEGLIS:

Good morning. I am the aforementioned John Zeglis. I am an American and the last nine times I have stood before you I have used these few moments to suggest why I belong on your board of directors. Not standing for re-election this time, I want to say thank you for having me for those nine years. Two points, really. First Country. Australia is a fabulous country. Sure, I track your political debates. I wring my hands with you over economic challenges. But maybe it's my distance and that little perspective that makes me want to cry out. You have an awesome country and you have created a brilliant society within it. And that leads me to the second point, company. A country that good deserves a great company, delivering up life, affecting innovation and technology. Over and over and over again. And as Geoffrey just said, you have that company, Telstra, this board, that management team, tens of thousands of employees out where you live, delivering the service. Nobody in the world does it better.

So that's it. Country. Company, thank you so much for letting me be even the tiniest part of both these last nine years. I'll be forever grateful.

CATHERINE LIVINGSTONE:

Well, Jeff and John, again, on behalf of the board and shareholders, thank you both for your commitment to Telstra over the last nine years. I'd now like to invite the directors who are standing for election to introduce themselves. I we'll start with Russell.

RUSSELL HIGGINS:

Thank you, chairman. My name is Russell Higgins and I've been a member of the Telstra board since 2009, and I serve on the Audit and risk committee as well. And as the chairman mentioned, I'm standing for re-election at this AGM. I bring a broad range of skills to the Telstra board gained from more than 20 years as a director of listed companies, private companies, government, business enterprises and international organisations, and from an executive career, including as a CEO in the Australian government and at the OECD in Paris. Today, our lives, our economy and our society are being transformed by rapid technological change, and Telstra operates at the heart of that change. I look forward to using my skills and experience to help guide Telstra in this rapidly evolving world. Thank you.

MARGARET SEALE:

Good morning, everybody, my name is Maggie Seale, and I'm standing for re-election today. I joined your board in May 2012 and I'm also a member of the Audit and Risk Committee. I'm a professional company director with experience in Australia and internationally, with particular focus on understanding consumer markets, customer engagement, brand management, strategic and business development, media and content, and transition to new digital business models. With an extensive background leading companies in the publishing sector at this time in Telstra's development, I particularly bring a deep understanding of an industry in transformation. As publishing continues to move from print to digital, so does Telstra move from primarily an engineering company and infrastructure company to a technology and consumer based organisation? I bring a perspective to the board from that background, which I hope will contribute to Telstra's terrific development. Thank you very much.

STEVEN VAMOS:

Good morning, everyone, I'm Steve Vamos. I've been a director on your board since September 2009. I also serve on the board remuneration nomination committees and I'm standing for re-election today. It's been a great privilege to participate in Telstra's journey and transformation over the past six years. And during that time, it's become clear that the pace of change in technology in our industry continues to accelerate, and that leading and adapting to change is now a critical capability for all businesses large and small. This area is of particular interest to me, given over 30 years in information technology industry, but also now as a non-executive director, business advisor and as an investor in startups. I'd be very proud if re-elected to continue to serve on the Telstra board. Thank you.

TRAE VASSALLO:

Good morning, ladies and gentlemen. My name is Trae Vassallo, and I'm honoured to be nominated by the board and to stand for election today. I'm a US based technology executive investor and strategic adviser. I was previously a general partner at the California venture capital firm Kleiner Perkins Caufield and Byers. I bring to Telstra 20 years of experience working in the technology sector, which is a source of so much of the rapid change and innovation that is shaping the future of Telstra's business, as well as the opportunities and challenges that lie ahead. My career has included designing and developing groundbreaking products for companies like Palm and Dell, and investing in successful technology companies like Nest Labs, Opower and Dropcam. I was also a co-founder of an early stage tech business called Good Technology, and I currently invest in emerging early stage technology companies and serve on their boards, as well as advisory boards in the US. If elected today, I look forward to contributing my expertise and global perspective as Telstra continues to pursue its strategy for future growth.

Thank you.

CATHERINE LIVINGSTONE:

So I'd like to take this opportunity to thank all of my fellow directors for their contribution and support during the past year. Now turning to leadership changes shareholders. You would be aware that David Thodey retired in May as Telstra's chief executive officer. In his six years as CEO, David took Telstra from what was a very challenging position to now one of strength. His determination to instil a culture deep culture of customer advocacy is a powerful legacy. While he is unable to be with us this morning, I would like to take this opportunity to thank David for his enormous contribution to Telstra. The board's appointment of Andrew Penn as CEO reflects a commitment to continuing our current strategic direction. In his previous Telstra role as CFO, Mr Penn was integral to developing this strategy. He is also a seasoned executive in global markets and has a proven ability to lead organisations through significant transition and growth. I will talk further about Telstra's growth agenda shortly, but first I would like to make some brief remarks about this year's financial performance.

2015 was a year of ongoing momentum for your company. A year in which it again met its commitments. It was a year that demonstrated the value being created for shareholders through a continued focus on improving customer advocacy, driving value from the core business and building new growth businesses. In terms of our results, this was our first full financial year without the CSL Hong Kong mobile business, which was sold in May 2014. As a consequence, our reported profit numbers appear lower on a comparative basis. On a guidance basis, however, where we exclude the CSL operating results from last year and the profit from its sale, our total income was up 6.6% and EBITDA was up 4.5%. Shareholders there has been much commentary recently on whether big business pays its share of tax. I can report that in the 2015 financial year, Telstra paid $1.7 billion in Australian income tax, and this represents approximately 2.5% of the total Australian company tax revenue. On the back of our results, Telstra also continued to create shareholder value through a number of capital and portfolio management activities.

The board announced a further increase in the final dividend to 15.5 cents per share, fully franked. This brings the total dividend for the 2015 financial year to 30.5 cents per share. When combined with the off market share buyback, $4.7 billion was returned to shareholders in the year. In addition, shareholders can now also elect to participate in our Dividend Reinvestment Plan, which we reintroduced in response to shareholder feedback last year. More than 100,000 shareholders, representing 6% of issued capital, chose to participate in the DRP for this recent dividend. All shares required to fulfil the DRP were purchased on market, and no brokerage or other transaction costs were payable by shareholders. I'd now like to turn to the National Broadband Network. The revised definitive agreements we reached with NBN Co and the federal government to support a multi technology model for the NBN have now come into effect. In those areas where NBN Co has built its fibre to the premises network, the migration of eligible services is taking place and Telstra's copper and HFC network is being disconnected.

Last month, we started to progressively transfer to NBN Co, part of Telstra's copper network in readiness for the launch of its fibre to the node products. This activity represents a fundamental structural change both in our industry and in the shape of Telstra's business. Going forward as an access seeker as opposed to the network owner and operator. Telstra is determined to become Australia's leading provider of consumer and business services on the NBN network. Income from the NBN definitive agreements is also flowing through, with related income of at $811 million this year, up 27% on the year before. This is, of course, offset to some extent by the one off migration costs associated with connecting customers to the NBN. And then as we go forward, we we'll need to pay network access charges to NBN Co in relation to these customer connections. And as at June the 30th, we had 211,000 NBN connected customers. Separate from the NBN definitive agreements, Telstra also receives additional income by completing work for NBN Co, such as planning and design services.

I'd now like to make some broader comments about the accelerating rate of technology innovation and describe how those rapid changes are influencing Telstra's future shape and direction. As you heard from Directors', technologies are evolving rapidly and the level of connectivity is growing exponentially as broadband and wireless technologies become more embedded in our lives and businesses than ever before. Three key drivers underpin much of the change. Firstly, the rapid growth of video on connected devices. Secondly, the growth of the Internet of Things. And finally, the incredible power of cloud computing. Firstly, to video globally, mobile data traffic is is expected to increase tenfold over the next five years, and three quarters of that growth will be VIDEO. As the popularity of services like IPTV and subscription video on demand grows. On Telstra's networks, video has already grown to over half of the traffic volumes on our fixed network and is approaching half on our mobile network.

The second major driver of change is the rapid growth of the Internet of Things, increasingly, mobile internet connections are embedded in electronics, buildings, vehicles and other machinery to create a vast internet of things. Already, there are more connected things in the world than there are connected people. And by 2030, it's expected that as many as 50 billion devices will be connected to the internet. So, for example, the in-ground sensors in parking spaces detect when the permitted time limit has expired and electronically notify the nearest parking officer. (LAUGHTER) Not an advantage, you might think. The third driver of change is the rapid growth of cloud computing. Cloud is where computing resources are moved off premises, typically to a data centre and managed by service provider. Clouds power and popularity comes from it's affordable, scalable IT infrastructure for customers ranging from multinational corporations to a single person wanting to back up their photographs taken on a smartphone.

Each of these technologies is driving change at a global scale. Each is also influencing the future shape and direction of Telstra as we build pathways to the future through our investment in growth businesses and an enhanced focus on innovation. So I'd like to comment in particular on three areas of investment. So Video, Cloud and Health. In video, Telstra has invested in acquisitions in Silicon Valley, Stockholm and London to build an intelligent video platform in our Ooyala business. Ooyala's video capabilities extend to video production, broadcast planning, analytics and ad insertion. And it now has more than 550 customers worldwide, including leading broadcasters and media companies. Later this month, we will also launch Telstra TV, which will offer customers access to leading subscription video on demand products alongside a selection of free to air and catch up TV services, and the latest releases from Big Pond movies. In Cloud, we have significantly expanded our capabilities through the acquisition of Packnett earlier this year.

Packnett substantially increases the reach and scale of our operations in Asia by enhancing our ability to offer connectivity, managed services and data centre services to carriers, multinational corporations and governments in the region. So combining Packnett extensive network of submarine fibre optic cables and data centres with ours means Telstra now carries about one third of all lit data capacity in the Asia Pacific region. Our cloud business has grown 20 to 30 per cent per annum over the last three years and revenues in our network applications and services business, which includes cloud with $2.4 billion this year, up from $1 billion five years ago. Finally, in health, we're working to become Australia's leading provider of integrated e-health solutions. Telstra Health was formally launched as a standalone business unit in October 2014 and now offers connected solutions in primary aged and residential care hospitals, radiology, pharmacy, health analytics and tele medicine. So in summary, through applying new technologies and particularly connected technologies, the shape of Telstra is changing as we position the company for long term success in a dynamic, competitive and global industry.

Moving now to the role of Telstra and the role it plays in the community, we think it's important that all Australians, irrespective of their age, income, ability or location, are able to enjoy the many benefits connectivity brings. And that is why we continue to support a range of national programs that address important social issues, including digital inclusion, cyber safety and social disadvantage. The total benefit we provided this financial year in social and community contributions, including programs to support over one million vulnerable customers was $214 million. And this included six million from the Telstra Foundation, which is supporting a range of programs, including Code Club Australia, which helps young people learn computer coding, which is a critical skill in the digital age. In the important area of reconciliation, Telstra this year also launched a Reconciliation Action Plan, which aims to double the number of Aboriginal and Torres Strait Islander employees at Telstra over the next three years, significantly expand telehealth network in remote areas and introduce new programs in cyber security and digital literacy.

We've also made a significant commitment to infrastructure with a co-investment with the Northern Territory government of $30 million over three years to fund new mobile services and broadband in remote communities. And finally, our ongoing focus on the environment also saw our total carbon emissions decreased by 1.3% this year. That's decrease in total carbon emissions, despite data loads on our network increasing by 36%. So in closing, I'd like to take this opportunity to thank Mr Penn and his senior executives and the entire Telstra team for their efforts in delivering the many achievements I've described to you this morning. Looking forward, there is no doubt the disruptive digital technologies will continue to drive a global wave of change that will increasingly see everyone connected to everything through smart technologies, smart devices and smart networks. The challenge for Telstra and indeed the challenge for Australia as a nation, is to harness these many opportunities by focusing on innovation.

Telstra is innovating in the way we add value to our products and services, and in the way we foster new skills and mindsets critical to success in a connected digital future. I'll now hand over to your chief executive Andrew Penn, to comment on our operations for the year in more detail. Thank you very much.

ANDREW PENN:

Well, thank you very much, chairman, and good morning, everybody. In my first opportunity to address an annual general meeting of shareholders, I wanted to share with you three things this morning. Firstly, an overview of last year's financial and operational performance and the outlook for 2016. Secondly, and building on the chairman's comments, some reflections on what's driving change in our industry that will shape our future, particularly from a technology perspective. And thirdly, to reassure you as your new chief executive, that our strategy remains unchanged. But we are lifting the level of our aspiration to make Telstra a world class technology company, a world class technology company that empowers people to connect. I wanted to start, though, by reflecting on the fact that during a period of incredible technological change, one thing remains more important than ever before, and that's customer service. We have spent the last five years on executing a transformation program to put the customer at the heart of everything that we do.

And whilst we have made good progress on this journey, we have more to do. We still experience too many instances where we do not deliver everything that we should. Too many instances where we do not make it as easy as we should for our customers to do business with us. And my commitment is to ensure that we stay focused on addressing this, on providing our customers with simple solutions at greater speed. And during my time as the chief executive of Telstra, that is my number one priority. Now let me recap on 2015, there were many highlights. Firstly, we welcomed 664,000 new retail mobile services and we now have 16.7 million retail mobile services in Australia. To put that number in context, it is more than the number of average aged working Australians in Australia. We also welcomed 189,000 new retail fixed broadband customers. And pleasingly more than two thirds of our broadband customers choose to bundle those services with other services from Telstra, such as our entertainment. We rolled out 3,500 public Wi-Fi hotspots.

This is part of a $100 million commitment to create the largest Wi-Fi network in Australia, with 16 million hotspots connected internationally through a partnership with Forme. We now have more than 180,000 customers on our Wi-Fi network. During the year, we continued to build our capabilities in new businesses, in e-health, in cloud And software in our network and services area, right the way across the Asia-Pacific region, we acquired PacNet, the largest privately owned intra Asian network operator, and that acquisition has added 29 data centres, 109 points of presence and nearly 250,000 kilometres of submarine cable to our growing global network. We partnered with Telkom Indonesia to launch a joint venture to deliver network applications and services in that market. And of course, we completed 5 million service and installation jobs, answered 44 million calls to our service centres and received almost 200 million unique visits to telstra.com. Crucially, we saw more of our customers become advocates for Telstra as we improved our net promoter score by five points.

We know we have more to do to improve customer service, but we did make strong progress in 2015. Turning to our financial performance, on a reported basis, total income for the year, excluding finance income, was up 1.2% to $26.6 billion. EBITDA was down 3.5% to $10.7 billion, and net profit after tax was down 5.8% to $4.3 billion. This was our first full financial year operating without CSL- the Hong Kong mobile business, which we sold in May 2014 and this impacted our income and profit numbers on a comparative basis. On a guidance basis and excluding CSL for comparative purposes, total income was up 6.6% to $26.3 billion, EBITDA up 4.5% to 10.8 billion, and earnings per share increased 0.3% to 34.5% per share. And if you heard from the chairman, the board declared a final dividend of 15.5 cents per share and this took the total dividend for the year to 30.5 cents per share, up 3.4% on 2014. So in summary, 2015 was a strong year for Telstra, a year in which we grew revenues. We added fixed and mobile customer services.

We continued to invest in our networks and returned 4.7 billion to shareholders in the form of dividends and through the $1 billion off-market buyback in October of last year. These results give us confidence that our strategy is working. Customer advocacy has improved, we continue to drive value from the core of our business, and we made important progress laying foundations for growth in the future. Our guide for, our guidance for 2016 is to deliver mid-single-digit growth in total income and low-single-digit growth in EBITDA. Free cash flow is expected to be in the range of $4.6 to %5.1 billion and capital expenditure is expected to be around 15% of sales to fund increased investment into our mobile network. This guidance is based on wholesale product price stability and no impairments to investments. It excludes any proceeds on the sale of businesses, mergers and acquisitions in the purchase of spectrum. Capex to sales guidance excludes externally funded Capex. Now, in relation to wholesale pricing, there have been two important decisions that have been made by the ACCC since we announced our results in August, and I would like to update you on the expected impact of those decisions on our 2016 reported results as these are not included in our guidance.

Firstly, on 13 August, the ACCC released its final decision in relation to wholesale prices for Mobile Terminating Access Services. We estimate the net effect of this decision on FY16 will not be material on a reported basis on EBITDA but will result in a reduction in reported revenue of approximately $350 million. The second decision was last Friday when the ACCC released its final access determination for fixed-line services. Unfortunately, the decision does not follow the ACCC's fixed pricing principles. These require your company to be able to recover from wholesale customers, the costs of the services that we provide to them. Any regulated entity should be concerned by this, especially in circumstances where the opportunity for a merits review has been removed. Because investors in infrastructure need a regulatory framework in which fix pricing principles are followed, a regulatory framework where their costs are able to be recovered. Otherwise, important investment decisions in investments in infrastructure are unlikely to be made.

We are particularly disappointed to see that the ACCC departed from its draft decision in March. That decision correctly recognized the importance of providing price stability to the industry at this time of transition to the NBN. The estimated reduction in reported revenue and EBITDA in 2016 of the ACCC's final access determination decision for fixed-line services is expected to be a reduction in EBITDA of up to $80 million. Needless to say, we are extremely disappointed in this decision and we are considering options for appeal. On a more positive note, Let me now move to the second topic that I wanted to address this morning, and that is the dramatic change we are seeing in our industry- change that we believe brings great opportunity. We operate in a market of accelerating technological innovation, and this is driving an ever-growing demand for connectivity. As the chairman mentioned earlier, there are three significant forces behind this. The growth of mobile, the emergence of cloud computing and advancements in machine learning in conjunction with big data and the Internet of Things.

20 years ago, there were less than 100 billion mobile devices in the world. Today, there are more than five billion. Today, connected mobile devices, like smartphones and tablets, are used for everything from emails to shopping, watching TV to banking and many other activities. And of course, this trend is accelerating. Globally, mobile data grew nearly 70% in 2014, and of course, the new significant trend is the Internet of Things. Billions of connected devices, from vending machines to household appliances, aircraft equipment to agricultural machinery and cars. And I will return to connected things or the Internet of Things in a moment, but it is the fastest-growing part of our mobiles business today. And as a consequence of our ongoing investments in seeking to ensure that our customers have the best network experience in Australia faster downloads, fewer black spots, greater reliability- mobiles is the largest part of our business today. The second area of technology innovation, the chairman mentioned, is the cloud.

There are significant productivity and service benefits for organisations and enterprises from cloud computing. And that is why a recent research study of large Australian companies showed that 86% are now using cloud in their production environment. It's also why it is one of the fastest-growing parts of our business which grew more than 30% last year. In fact, Telstra, your company today, is the leading provider of hybrid cloud solutions in Australia. The third significant area of technology innovation is machine learning and its interface with big data and the Internet of Things. Connected devices producing an exponential growth in the volume of data on digital networks and advanced algorithms are taking us into the world of machine learning. And through these technologies, computers can now see and hear better than humans and can learn as we provide them, more data. Software and devices can now be used to assist in diagnosis and treatment of a range of illnesses, including cancer with speed and precision and at scale.

And in future, of course, many traditional service activities will be done by computers more quickly, more cheaply and more accurately. It is these incredible global trends that are driving change in the shape and capability of our company. These trends that underpin their decisions to invest in new opportunities, such as intelligent video through the platform of Ajala and such as Telstra Health, as you heard from the chairman. Your company is at the intersection of so many exciting digital changes in the world today. And this brings me to my third and final topic of my address this morning, which is how we are lifting our level of aspiration to become a world-class technology company? The global technology shifts that I discussed are profound and I strongly believe the technology innovation can bring enormous benefits. And that is why I describe myself as a technology optimist. As I said in my introduction, our strategy remains unchanged but as the light of technology innovation accelerates, we see great opportunity.

Great opportunity for those that embrace technology innovation and a great opportunity for Telstra. Because Telstra is no longer simply just a phone company, technology provides everything that we do today. Our vision is that we now take this to the next level and become truly world-class. A world-class technology company that empowers people to connect with world-class customer service, world-class technology and world-class telecommunication networks. And I would like to finish on this last point of telecommunication networks. The traditional worlds of technology and telecommunications are converging, and network coverage and quality is crucial. There is no technology innovation that is occurring today that does not rely on an underlying network of connectivity. And that is why at Telstra, we are committed to have the best networks. For many years, the foundation of Telstra's success has been our network excellence, and this remains the heart and soul of your company. We are already investing billions of dollars in our networks, and this year we announced further significant investment into our mobile network.

We will increase our total capital expenditure to 15% of sales for the next two years and this will provide more than another $0.5 billion for mobiles. In total, over the three years to June 2017, we expect to have invested more than $5 billion in Telstra's leading mobile network. We will continue to expand our 4G footprint to 99% of the population. We will increase our overall geographic footprint to more than 2.5 million square kilometres, which we believe is double that of our next nearest competitor. We are committed to maintaining our mobile leadership in Australia, committed to offering our customers better coverage, better core reliability, fewer dropouts and faster downloads. Importantly, we believe that Telstra's network will be the best equipped to meet the explosion in video traffic that the chairman has spoken about and which today is already challenging other networks. But it's also not just about the mobile network, Telstra Air a nationwide WiFi program, which I mentioned before, is providing our fixed broadband customers access to their home data allowances when they are away from home.

We will continue these investments in innovation in network engineering and in access technologies. Technology is taking us into a world of rapid change, constant innovation and increasing competition, but in the end, what is important here is that it is about our customers. Technology is just simply a way to make their lives easier, their business is better, which is why our vision is to make Telstra a world-class technology company. In conclusion, I would like to thank you all and all of the Telstra staff for their dedication and hard work this year. I would also like to thank the very senior, very capable senior management team for their determination to continue improve the business, to try new things and to build a culture where people feel valued and where they want to come to work. Last week, I announced three new senior leaders being promoted to the executive team- a sign of the depth and diversity of the talent within the organisation and careful succession planning. I would also like to thank the chairman and the board for their support and guidance since I assumed the role of CEO in May.

And finally, I would like to offer my sincere thanks to my predecessor David Thodey, both for his great contribution during his career with Telstra, but also for supporting and advising me and ensuring my smooth transition into this role. It's an exciting time for Telstra. We see a great future for your company as we work together to make it not just a better company, but a world-class technology company. Thank you again for your time this morning and I will now hand back to the chairman. Thank you. (APPLAUSE)

CHAIRMAN:

Well, thank you, Andy. Now, shareholders, there are four remaining items of business today. I'll shortly introduce and invite questions on these items, but before I do, I'll outline the question and voting procedures for today's meeting. So when you registered this morning, you would have been given a card. Yellow cards are for shareholders who may speak and vote, blue cards for shareholders who may speak but not vote. You will need your card to ask a question or to re-enter the meeting. I will introduce each item separately and then invite questions from the floor. There are several microphones in the room, so if you would like to ask a question, please move to the reserved seating beside a microphone and one of the microphone attendants will help you from that point. I am pleased to see that we've had a really good turnout at the AGM today, so thank you all very much for coming. But we do have some shareholders attending the AGM from an overflow area. So if those shareholders would like to ask a question, could you please make your way to the main auditorium in the Savoy Ballroom, where one of the attendants will be able to direct you to a microphone.

Please show your card to the microphone attendant and give your name. And as a courtesy to all shareholders, please also state your affiliation if you are not here today in your personal capacity. The microphone attendant will invite you to the microphone when your turn comes. In the interests of all shareholders present, please ask only one question at a time, keep your questions and comments to no more than two minutes to allow as many shareholders as possible to speak. And if your question relates to a particular item of business, for example, director election or remuneration policies, please ask your question when we come to that item of business in the meeting and do ensure that your questions are relevant to shareholders as a whole. If we can't answer your question fully here today, we will aim to provide you with a response after the meeting. Finally, if you have an individual, customer or shareholder issue, please speak with one of our customer service staff who are outside and will be able to help you.

There are some also in the room and they have Telstra shirts and badges on- so readily identifiable. Now there are three items requiring a shareholder vote today. So for shareholders with a yellow card, the voting boxes are on the back of your card. We have received proxies from approximately 31,000 shareholders and direct votes from approximately another 14,000. The votes recorded for and against each item will be shown on the slide behind me at the conclusion of the discussion of that item. The four numbers displayed will include proxies received and available to be voted by me as chairman of the meeting. Telstra's share registrar is Fran Kelly of Link Market Services Ltd will act as the Returning Officer in relation to the poll, and the results of the poll will be available later today on our website and also at the ASX. A light lunch will be served at approximately 12pm. However, if the meeting is still underway at that time, we will not be adjourning the meeting for lunch. So, I'll now turn to item two on today's agenda, which is to discuss the company's financial statements and reports for the year ended 30 June 2015.

This item provides shareholders with the opportunity to ask questions about our 2015 results and questions on the management and the operations of the company generally, as well as the conduct of the audit. As I mentioned earlier, there will be an opportunity to ask questions on the election of directors and our remuneration policies when we come to those items later in the meeting. So I now invite shareholders to move to a microphone to ask questions on this item. We're just taking a moment to get organized here, I think. Perhaps if we can... On microphone one, perhaps we could start with microphone three.

SPEAKER:

Chairman, I have a question from Douglas Ransome from DBRHML Super Fund.

DOUGLAS RANSOM:

Good morning, Madam Chairman. Unfortunately, I can't see you behind that once you're there.

CHAIRMAN:

I might just get... Microphone attendant one, could you move the one...

DOUGLAS RANSOM:

How about that?

CHAIRMAN:

Oh, perfect. Yes, good.

DOUGLAS RANSOM:

Actually, I have a question of Andrew Penn, who's just made some comments about the adverse costs Telstra will bear as a result of the ACCC decisions. And so far in this meeting, there's been no comment about the recent changes to the telecommunications interception and access amendments, which have been a bit in the news in the last week, generally dealing with the new costs and burdens associated with data retention. And I'm wondering whether Mr Penn or any other member of your board is able to make some comment about the expected burden and costs associated with these recent legislative developments?

CHAIRMAN:

Thank you very much, Mr Ransome. Well, actually, we're pleased to say that Telstra is one of the few, if not only, I think, telecommunication providers that has submitted the Data Retention Plan and had it approved by the government. So we are organized to do this and we will implement it over 18 months and of course, we will work with the government following through on their undertaking to reimburse us for the costs incurred. So that's a conversation that's ongoing. Once we go through, our implementation would have a better understanding of what the costs are and absolutely we will seek to recover those costs from the government. But we are well on top of this issue and as I say, have our plan approved and implementation underway. So we're very conscious of regulatory costs incurred and will absolutely recover them as we can. So thank you very much for that question. So if I could move to microphone one?

SPEAKER:

Chairman, I have Paul (UNKNOWN) from Adelaide.

PAUL:

I'm as nervous as hell now, and I hope that I touch on some of the things that everyone is thinking and too frightened to stand up and speak. I'm gonna read, first of all, begin by expressing my thanks to Catherine, the board and for the opportunity to discuss my concerns as a shareholder. It's a rare opportunity and shareholders should not miss it because this is our only chance of making contact with you. For our part, it's really no mean fit. It's expensive to travel all the way from all over Australia to come to Melbourne and listen, see and express our views on how our company is being managed. On every occasion that I've attended, Catherine and the board have willingly responded with answers to questions from the floor of the AGM. Now, as shareholders, we also have the opportunity to have some insight into the culture of this iconic organisation and its willingness to listen and respond. At the 2014 AGM, one shareholder took a stand and made known his displeasure of the illusionary gain of the discounted buyback.

Now, this exercise was unfair to mum and dad shareholders, and I sincerely hope that the message has been heard and that that exercise doesn't take place again. The board was urged to reinstate the Dividend Reinvestment Plan. And the long term shareholders who want to see their commitment to this company grow are extremely grateful for the board for listening and responding accordingly. Now, several years ago, I was at an AGM and heard another shareholder stand up and urged the board to diversify its operations of Telstra into other areas such as banking. I don't really feel that's a smart thing to do. Once you're in competition with your customers, I think you'll lose your customers. I didn't support that course of action, but at that time. But I do feel that there is an opportunity at the moment that the board should re, should assess anyway. The government is looking at privatising Australia Post. Now, I can see an opportunity to resurrect the old PMG and vertically integrate...

SPEAKER:

Question!

CHAIRMAN:

Sorry, can we just...

PAUL:

Guys, you know how nervous I am? Oh, dear.

CHAIRMAN:

Alright, so look, I'm sorry...

PAUL:

Now, I'm going...

CHAIRMAN:

The shareholder asking you question. It is (CROSSTALKS) Mr (UNKNOWN) if you could get to, you've made some points already and I'll respond to those.

PAUL:

My question is this, I really wanna see Telstra's earnings come from other sources besides telecommunications. I wanna see vertical integration. Now, I want to see us taking over not just the delivery of data, but the delivery of goods and other services, and I feel that this is a stepping stone in the right direction. But I'm gonna cut all the speech out completely and say to you that we as a company have done extremely well. I...

SPEAKER:

Wait a minute. Yeah, Mr (UNKNOWN).

PAUL:

I've got a heckler and I'm gonna cut it here, but I'll finish off. Andy, congratulations on your appointment. Your speech was absolutely spot on. It's what I wanted to hear. It's what other people wanna do. Please, let me know if you have any intentions of moving into other areas besides those we are currently involved in. Thank you.

CHAIRMAN:

OK, thank you, Mr (UNKNOWN). Could I actually just make a couple of comments there? Look, we do recognise that it's an effort for everyone to come to the AGM. What we have done in recent years is we have retail shareholder presentations in all of the states where we are not actually holding the AGM in that year. So...

CATHERINE LIVINGSTONE:

...please bear that in mind. So next year, there will be a separate retail shareholder presentation in Melbourne because we won't be having the AGM here. Thank you for your comments on the DRP. Yes, we did listen to shareholder feedback and have reintroduced it. In terms of diversity of earnings, I think you heard hopefully through my remarks and those of the CEO that we are actually diversifying in adjacencies, and we're doing this in a very considered way. And the products that we're delivering are digital products and digital services because basically, this is a software world. So our diversification is through our networks and our products like Telstra Air, the Wi-Fi network, but it's also the diversification in terms of the expansion of our networks in Asia and the services that we're able to provide to our Asian customers. And of course, we have our Telstra Health, which is an adjacency where we're offering connectivity services, digital services within the health system. So I think we are very focused on, if you like, extending our capabilities into adjacencies and different products and services.

So thank you very much for your question. I think microphone one again.

SPEAKER:

Chairman, I have a question from Peter Starr, a shareholder from Sydney.

CATHERINE LIVINGSTONE:

Thank you.

PETER STARR:

Yes. Good morning Catherine, and good morning board, and most importantly, good morning, ladies and gentlemen and fellow shareholders. That's very important. I'm representing a number of shareholders: Leading family from Sydney, Doctor Justin's Cumming, and now Cummings, Dyer Mcinerney Trust and Superannuation Fund one and two. On behalf of the shareholders I represent, I'd like to thank you, Catherine, for your leadership. You've been there a long time and it's very valued and appreciated. Yesterday, I received an email from the outgoing CEO, David Thodey. He asked to mention to all the shareholders here that he wasn't able to be here, but he will be at the next one in Sydney as a shareholder. To you, David, you did a great job. And on behalf of the shareholders I represent, I wanted to just thank you personally, and they've asked me to thank you as well, and I know you'll hear the broadcast. A couple of the great things that David did, ladies and gentlemen, was hire Andy Penn. And what a great appointment and hiring it was.

So congratulations, Andy. Look after our company, do it well - I'm sure you will. And to you Warwick Bray, who took over into Andy's position, look after our finances, I'm sure you will. To Jeff and to John who are going, thank you, Jeff, you did a lot of work on the NBN negotiations. I remember the meetings very well. Yeah, a round of applause, ladies and gentlemen, I think he really deserves it. I'm about to.

CATHERINE LIVINGSTONE:

Yeah, I think we need - we do need to get to your question.

PETER STARR:

The question - one of the questions I have, Andrew, is that there was a recent report as of about three weeks ago which raised concerns about the mobile network where a politician was actually hacked and they showed it. Now I know some of my investors that I represent were a bit concerned about that. I wonder if you could cover that for the general shareholders. It also goes to relevance on the questions about the data retention a bit too as well. So if we could just maybe have some clarification on that? Thanks, Catherine.

CATHERINE LIVINGSTONE:

Absolutely. Thank you, Mr Starr. I think there were various aspects of that 60 Minutes program, and without going into the technical details of it, can I say on the Telstra network, we have very rigorous and constant monitoring. We can pick up unusual activity on our network almost immediately and then we monitor our - basically, the way we work is rapid identification and rapid response, and we have timeframes in that. The other point about that particular described event, on Telstra's network there's actually masking of location. So what was purported to be able to be done could not be done if you're on the Telstra network. But can I assure you that we take security incredibly seriously and we have invested enormous resources in protecting the security of our network? So, thank you. Microphone three, please.

SPEAKER:

Chairman, I have a question from Hans Witteveen from Melbourne.

CATHERINE LIVINGSTONE:

Thank you.

HANS WITTEVEEN:

Thank you, Madam Chairman. The CEO spoke on the subject of customer service, which is a - he recognized the things that we need to fix, as well as the things where we're doing well. I'd like to put one that we do need to fix. And now, I'm speaking as a customer rather than a shareholder. It's one thing to win customers. It's another thing to customers to drift in if they're in trouble. When I was in trouble, the old fault number in the directory, you can't find it anymore. Who do you call? In the end, I wound up calling the normal Telstra number and I got shuttled from this call centre to another. And eventually, we wound up overseas, and this is where I want to - I asked the board to consider whether we're getting value for money from contracting out instead of using our own people, because neither India nor the Philippines was (INAUDIBLE) conscious of difference in time zones, and they didn't understand the technology. And when they funded us talking about something different and (INAUDIBLE), they wanted to put me back in the queue for another 48-hour wait.

They didn't understand public hazards. All up I'd like, and I have put this to you at a previous annual meeting. I'd like the board to consider going back to Australians for Australian jobs because I didn't think we were getting value for money out of my personal experience as a customer.

CATHERINE LIVINGSTONE:

OK. Alright, thank you very much. (APPLAUSE). And as Andy has reiterated, clearly we take customer service really as an absolute priority. And there is always more to do, so I'm sorry you had that experience, and if you can follow up with one of our customer service people. In terms of contact centres, we do use various partners both in Australia and in the Philippines to provide contact centre resources. Actually, our focus is on providing online access for our customers so that they can transact in a way and at a time that suits them. And in fact, we have over 52% of transactions now online, which is excellent. In terms of the contact centres, we hold all contact centres to the same standard of performance. And in fact, the board went to the Philippines earlier this year to actually see for itself and understand the training and the standards and the processes used in those contact centres, just as we have done in the contact centres in Australia. So we recognise there is much more to do and we continue to invest in training and process improvement, including using digital technologies to improve the contact centre experience.

In terms of jobs in Australia, we have increased the jobs in Australia. We have added people, particularly in our newer businesses, so in our Telstra health and also in our global enterprise and services business. So we're very conscious of our role in Australia as an employer. But thank you for that question. Going to microphone two.

SPEAKER:

Chairman, I have a question from Gary B.O.B from Brisbane.

GARY B.O.B:

Good morning, Madam Chairman. I'll be very specific. I'm concerned about cyber attacks and would like to know what Telstra has done with regard to cyber insurance.

CATHERINE LIVINGSTONE:

The cyber insurance, Mr B.O.B, is effectively the processes that we have in place, and we feel we're best positioned to understand how we can protect our networks and our customers from cyber attacks. So we have a very clear understanding of what we have to do around our data to know where it is and who has access to it. We have very good connections with various authorities who keep us up to date on an hourly basis in terms of potential cyber-attacks. And then we have our internal processes and invest heavily in the skills and capability of our people. I think the vigilance on cyber security has to be literally hour by hour because of the innovation by people with mal intent. And we're very aware of that, and that's why we have so much invested in protecting our networks. I can assure you there is nothing more important than the security of our networks and the confidence that we can give to our customers. We don't take out specific insurance. Effectively the self-insurance is our own capability.

It's not helpful to get reimbursement after the event when the damage is done. Our absolute focus is on making sure as far as possible that damage can't be done in the first instance. Are there any other questions at the moment? Shareholders, this is your opportunity to ask about any aspect of the business or the accounts. All right. Well, thank you very much for your questions, and we've now finalised our discussion on this item. So I now turn to Item 3A on today's agenda, which is to consider the re-election of Russell Higgins. And you heard from Russell at the start of today's meeting and his details are set out in the Notice of Meeting. Russell is an experienced company director who's worked at very senior levels of both the government and the private sectors, and he's been a non-executive director of Telstra since 2009 and a very valuable member of the Audit and Risk Committee. So the board, other than Russell Higgins, recommends his re-election. I'll now take any questions you may have regarding Russell's re-election.

Well, if there are no questions on this item, the proxy and direct voting position is being shown on the slide behind me. And as indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Russell's re-election. So please fill out your voting cards for Item 3A. I now turn to item 3B, which is to consider the re-election of Maggie Seale. Again, you heard from Maggie at the start of today's meeting and her details are set out in the Notice of Meeting. Maggie has been a non-executive director of Telstra since 2012, and again a very valued member of the Audit and Risk Committee, and she has more than 25 years of experience in senior executive roles in Australia and overseas, including in consumer goods, global publishing and the transition of traditional business models in a digital environment. So the board, other than Maggie Seale, recommends her re-election. I'll now take any questions you may have in relation to that re-election. Alright, if there are no questions, again, the proxy and direct voting position is being shown on the slide behind me.

And as indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Maggie's re-election. So please fill out your voting cards for Item 3B. I now turn to Item 3C, which is to consider the re-election of Steve Vamos. Again, you've heard from Steve at the start of today's meeting and his details are set out in the Notice of Meeting. Steve has more than 30 years of experience in the information technology, internet and online media industry. He's been a director of Telstra since 2009 and has an important role as a member of both the nomination committee and the Remuneration Committee. The board, other than Steve Vamos, recommends his re-election. I will now take any questions you may have on Steve's re-election. So if there are no questions, again, the proxy and direct voting position is being shown on the slide behind me. And as indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Steve's re-election.

So please complete your voting cards for item 3C. I now turn to Item 3D, which is to consider the election of Trae Vassallo as a director. You have heard from Trae at the start of today's meeting and her details are set out in the Notice of Meeting. Trae is based in San Francisco and is an experienced technology executive, investor, and advisor working in Silicon Valley and with a successful track record in the technology and venture capital sectors. We are pleased that Trae is able to commit her time and energy to Telstra, given her wide range of expertise. And given her experience in sectors and technologies of strategic interest to Telstra, the Board recommends her election, and we believe she will make an immediate contribution to the board if her nomination is supported by shareholders today. I'll now take any questions you may have on Trae's election. Microphone one.

SPEAKER:

Chairman, I have a question from Peter Starr, a shareholder from Sydney.

PETER STARR:

Thank you. Just a quick question. Trae, welcome. I know before this has been mentioned at other meetings, but new directors make certain to get some skin in the game or some shades. Welcome aboard.

CATHERINE LIVINGSTONE:

Thank you, Mr Starr. As you know, we have a guidance that all directors on the board hold 50%, in terms of value, of their director-based director fee in Telstra shares. They have some time to build that up, but it is a shareholding requirement for directors. So thank you for your point. If there are no other questions, we have now finalised the discussion of this item and the proxy and direct voting position is being shown on the slide behind me. And as indicated in the Notice of Meeting, I intend to vote all available proxies on this item in favour of Trae's election. So please now fill out your voting cards for Item 3D. So I now turn to item four on today's agenda, which is to consider the grant of performance rights to the CEO Andrew Penn under Telstra's financial year 16 long-term incentive plan, as outlined on the screen behind me. Details of the proposed grant are set out in the explanatory notes to the Notice of Meeting. In summary, if shareholder approval is obtained, each performance right will, subject to satisfaction of the performance measures described in the Notice of Meeting, entitle Andy to one fully paid ordinary Telstra share at the end of the three year performance period.

The number of performance rights being 758,564 represents the maximum potential number of shares that may be earned by Andy under the FY16 LTI plan. The actual number of shares he may receive in 2018 will be determined based on the company's performance over the three year performance period. Any shares earned, if the performance rights vest, will be subject to a further one-year restriction period, which means that they can't be traded. The board, other than Andy Penn, considers the granted performance rights to the CEO to be appropriate in all the circumstances and recommends that shareholders vote in favour of Item four. I will now take any questions you may have on this item. The microphone four.

SPEAKER:

Chairman, I have Noah Levy from Wollongong.

NOAH LEVY:

Good morning, Miss Chairman. My first question is, why do you not have options instead of rights? In the case of options, the Executive have to put some of their money into the business when they're vest, if they do vest. So why don't you have options? That's my first question. Do you want some other questions, or?

CATHERINE LIVINGSTONE:

Well, if you just have one other question, if we can deal with everything and then I can respond, but if you have a huge list of questions, perhaps not. (CROSSTALK).

NOAH LEVY:

Well, directly, the remuneration is too generous. Like all the remuneration systems, he gets 200% of his fixed annual remuneration, but also in the short term, I think he gets a similar amount. So at the end of three years, he'd have a short-term incentive vesting and you'd have his long-term vesting as well. So there'd be both vesting in the one year. So the vesting period being three years, I think it should be longer, at least five years. Otherwise, there should be no short-term incentive. Just the long term for three years would be fine. The other thing with the rights, sorry I've got to mention these now that they've come to head. The rights, they're based on the relative total shareholder return. Now, that's not aligning the performance rights with the shareholders. If it was absolute total shareholder return, yes, but not with this relative. If you had options, yes. Yes, it'd be alright. Do you agree or disagree with that? That, whether you use absolute or relative, does make a difference?

CATHERINE LIVINGSTONE:

Alright, Mr Levy, thank you for those questions. Perhaps if I could address them, we'll pick up some of the responses in the next item, which is the remuneration report. But just going to a couple of your points in terms of the remuneration here, we're asking for approval for the 200% level of allocation to Mr Penn. That is not necessarily and is unlikely to be what he receives, but in terms of the process here, we have to ask for approval for the maximum so that we're able to award under that level. The 200% is the maximum. If you look at the history of what's been awarded, it is historically below that. So it's just a process in terms of the cap. In terms of the overall vesting, with the rate of change in this industry, we have a long term incentive linked to our three-year plan projections because the uncertainty beyond that time in terms of the financials and projections is high and it would be demotivating to hold people to account for over a longer period. What we do is actually after the three year period, we have a further one year where they may be awarded the performance rights, but they are still subject to the performance of the company because they can't deal with those performance rights for another year.

So that is effectively a four-year period for our LTI. And we think that's an appropriate matching of shareholder interest and motivation for senior executives. In terms of your point on absolute versus relative TSR, we compare our TSR to the performance of other companies in our industry, and that's a global basket of companies, as we describe in our accounts. So we do believe that outperformance relative to them is more meaningful to shareholders and to executives than an absolute performance compared to other industries which may have no basis of comparison with telecommunications, for example. So that's a decision that the board has spent much time looking at, and we formed the view that our relative performance to others in our industry is a much better benchmark than an absolute performance to a basket of companies where the industry sectors are very different from ours. In terms of your point about options versus performance rights, again, if you go back, there were various changes in both taxation and accounting provisions, and we looked at this issue and determined that we would actually use performance rights as the basis of our long-term incentive plans, and we felt there were more effective than options.

Alright, if there are no more questions at this time, so we've now finalized our discussion on Item Four and the proxy and direct voting position is being shown on the slide behind me. As indicated in the Notice of Meeting, I intend to vote all available proxies in favour of the grant of performance rights to the CEO. So please fill out your voting cards for item four. I now turn to item five on today's agenda, which is to consider Telstra's remuneration report for the year ended 30 June 2015, as outlined on the screen behind me. I will now invite John Mullen, who's the chairman of your remuneration committee, to provide some introductory comments regarding this year's remuneration report before I invite questions from the floor. John.

JOHN MULLEN:

Thanks. Great. Well, thank you very much, Catherine, and a very good morning to you, our shareholders. Now our aim in preparing the remuneration report is to enable you, our shareholders, to understand the links between remuneration, company strategy, and Telstra's performance, as well, of course, as a framework that we have put in place to provide effective governance over remuneration at Telstra. To support this, we have sought to provide a comprehensive overview of our performance remuneration outcomes, including additional voluntary disclosures, as well as a summary of our governance practices. There are three significant items addressed in the report, which I'd like to mention before commenting on the outcomes for fiscal year 15. Firstly, on David Thodey's retirement, all benefits that he received were in accordance with his contract of employment and the terms of the relevant incentive plans, with the exception that the Board exercised discretion to allow David to retain a pro-rated amount of his FY15 long term incentive subject to the performance conditions and restriction periods in the plan.

The Board consider this appropriate to reflect his contributions to the company's success up to the time that he retired. Secondly, Andy Penn's fixed remuneration as CEO of 2.325 million was set between the 25th percentile and the median of ASX 20 companies, which the board considers to be appropriate for a new CEO. I would note that this is less than David's Thodey's fixed remuneration at the time of his retirement. Finally, following a review, the board decided to increase the chairman's fee to positions appropriately against the ASX 20. Catherine Livingstone did not participate in this decision, and also no other changes were made to any of the Committee or Non-Executive Director fees. Turning then to the remuneration outcomes for senior executives for fiscal year 15, our remuneration philosophy is based on linking financial rewards directly to employee contributions and the company's performance, and the overall structure and the philosophy of our approach to remuneration remain consistent this year with last.

JOHN:

As you've heard this morning, Telstra continue to perform very well in fiscal year 15 across most key measures, including financial results and customer service. And the remuneration outcomes for 15, therefore, reflect the strong performance of the business and the value of creative shareholders over the past four years. To summarise the key outcomes under our incentive plans this year, firstly, for the fiscal year 15 Short Term Incentive, or STI, all senior executives participated in the same STI plan, with the exception of the group executive for Telstra Wholesale, who, for specific regulatory region reasons, participates in a standalone plan. Our senior executives received an average of 61% of the maximum opportunity available based on the assessment of financial customer advocacy and individual performance. The performance measures of the plan, which they were charged against, were Free Cash Flow, EBITDA, Total Income, Customer Advocacy, Net Promoter Score, NPS and executives individual performance objectives.

And the board selected these performance measures as it believes they are a critical link between achieving the outcomes of our business strategy and increasing shareholder value. Turning, then, to the long term incentive, or LTI, the performance period for the fiscal year 13 LTI plan concluded on the 30th of June 2015. The outcome of that was that 85.5% of the maximum opportunity vested as restricted shares. Under this plan, there were two performance measures, as you've heard, relative total shareholder return and free cash flow return on investment. If I could make a brief comment on the structure before going on to the outcome for this year, this incentive plan recognises both the importance of a market-based return measure and the central role of long term free cash flow generation in creating shareholder value. The feedback that we have received from the overwhelming majority of institutional shareholders is that they support this structure for our LTI. The results of the two planned measures were that the Telstra RTSR ranked at the 70-second percentile of the comparative group and Telstra achieved a free cash flow return on investment outcome of 20.5%, which exceeded the target of 19.3% for the fiscal year 13 LTI plan.

The reported value of these restricted shares reflects the fact that Telstra's share price increased by more than 66% over the three year performance period. The shares, as Chairman noted, allocated to executives under this plan are subject to further restriction period ending in August 2016. Consistent, then, with (UNKNOWN), the board has determined remuneration outcomes under our incentive plans to ensure that there were no windfall gains or losses due to the timing of the NBN rollout and by adjusting for non-recurring items, such as spectrum purchases and acquisitions and divestments. So this year, in determining the outcome of the free cash flow measure under the LTI plan, there were larger adjustments for these items than in prior years due to the number of significant events over the planned performance period. These included fiscal year 15 investments in mobile spectrum that we now use for 4G services, the divestment in fiscal year 14 of significant businesses, including the CSL mobiles business in Hong Kong, and a majority stake in Census.

The adjustments also included the variance between the actual NBN rollout and our assumptions in the fiscal year 13 three year plan. And for this plan period, the actual rollout by NBN Co was less than 25% of that assumed in the plan. The NBN related adjustments have both positive and negative impacts for senior executive remuneration across the different incentive plans as a result of the board's resolve to ensure that there are no windfall gains or windfall losses for management. As a result of the size of the adjustments this year, we have received feedback from some shareholders relating to the level of detail we provided when explaining the outcome under the cash flow performance measure this year. The board takes the feedback provided through this advisory vote very seriously in reviewing our remuneration practices. And while we understand that a full reconciliation of these calculations would assist shareholders in assessing how the board determine the outcome, there are some adjustments, including those made to ensure there are no windfall gains or losses due to the timing of the NBN rollout, which we do not release the detail for because of the commercial and confidence nature of that information.

We do, however, explain our approach in the remuneration report. And the calculations we made and the remuneration report itself were also subject to review by our external auditors. So we do believe that shareholders can take confidence from the fact that the outcome of this cash flow measure vesting at 80% is aligned with the shareholder return measure, vesting at 91%. This alignment is, in our view, consistent with the central role of long term free cash flow generation in creating shareholder value. Thank you very much, shareholders, and thank you, Catherine.

CHAIRMAN CATHERINE LIVINGSTONE:

Thank you, John. So following those explanatory comments, the board recommends that shareholders vote in favour of the adoption of the remuneration report. And I'll now take any questions that you may have in relation to this item. So Microphone 1.

SPEAKER:

Chairman, I have a question from Mr Murph McDougall from Beechworth, Victoria. He's representing the Australian Shareholders Association.

MR MURPH MCDOUGALL:

Madam Chairman, before discussing the remuneration, I'd like to offer my congratulations to you and the board for the smooth transition to the new CEO. This is a key responsibility of boards, which is often doesn't quietly go as well. so thank you on that. In general, the principles on your remuneration structure and the ISI policies are broadly aligned. We only have a couple of little differences. And one I'd like to raise is the Short Term Incentive plan. We would like to see at least 50% of the Short Term Incentives allocated in equity. At the moment, you allocate 25% in equity. And I just ask that in your next review, perhaps you look at that, whether you could increase that extent at all. But apart from that, we support the remuneration report. Thank you.

CHAIRMAN CATHERINE LIVINGSTONE:

Thank you very much, Mr McDougal. And yes, we do have 25% deferral. So that means, in terms of the short term incentive, people receive 75%, but 25% is withheld. And that goes into Telstra shares so that the employee is still exposed to the performance of Telstra for that 25%. I'd also add that, just in terms of alignment with shareholders, we do require senior executives to hold Telstra shares to the equivalent value of their fixed remuneration. So they must have that minimum shareholding throughout the time. So that, I think, also helps to align interests between executives and shareholders. Microphone 1, again.

SPEAKER:

Chairman, reintroducing Peter Ster from Sydney.

CHAIRMAN CATHERINE LIVINGSTONE:

Thank you.

PETER STER:

Thank you, chairman. Just following up from the gentleman from the Shareholders Association. The Mum and Dad Shareholders, I know this is a big thing. STIs, LTIs, and things like that, I think it's commendable to remember two things, ladies and gentlemen. You pay people peanuts, we get monkeys. And I don't want monkeys running the company. Secondly is that, as Mr Livingston has explained, this is a very fair and equitable system. And if you look at the outgoing CEO, still holds all his shares and he has no plans to sell. OK, thank you.

CHAIRMAN CATHERINE LIVINGSTONE:

Thank you for those comments, Mr Ster. Microphone 3.

SPEAKER:

I have a question from Scott Hunter, a shareholder from Melbourne.

SCOTT HUNTER:

Hello. How do the remuneration... The remuneration comes out of the profits of the company. How do the profits come from charging people a fee to pay their account with cash in a Telstra shop of $2? I think that's unjust. And also, phone cards have an expiry date. These are paid for at a real money and if you haven't used them by a certain day, the money disappears. Perhaps if directors fees had an expiry date, it'd honour me to understand what this meant.

CHAIRMAN CATHERINE LIVINGSTONE:

Thank you, Mr Hunter. I mean, in terms of the fees that we charge for certain methods of payment of bills, this is really to help offset the costs in providing the ability to pay the bills in that way given that we have enabled so many other platforms in terms of digital ways of paying the bills, and we would really encourage as many people as possible to take advantage of those methods to pay their bills. But I do acknowledge your feel point. Are there any other questions? Microphone 3.

SPEAKER:

Chairman, re-introducing Douglas Ransom from DBRHML Super Fund. My apologies. This is Hans Witteveen from Melbourne.

HANS WITTEVEEN:

Madam Chairman, I would have to express my disagreements with you and my support for the previous speaker on the subject of having to pay a fee to pay your bill. The way business is done in this country is that you use a service. You expect to pay for it. You get an invoice or an account, whatever you want to call it, you pay it. You don't have to pay a surcharge for you to accept payment. If you want to express it as a discount for a different payment platform, I guess that's an option to look at. In my personal customer experience, so before the meeting started, I had an issue with bill payment. My account has just been altered without my request or consent to pay to have a bill rendered by email. I find that objectionable because this was computer generated. It wasn't something I've wanted. I've had it fixed. The people at the front fixed it fairly quickly and efficiently. But I think if we're going to start asking for a surcharge for people to just pay their bill, then there's something wrong with this company that we ought to look at.

CHAIRMAN CATHERINE LIVINGSTONE:

OK. Thank you, Mr Witteveen. And I think I would just reiterate the response I gave to the previous shareholder on the fee issue. Are there any more questions on the remuneration report? Alright. Well, look, thank you for your questions. We've now finalized discussion of this item, and the proxy and direct voting position is being shown on the slide behind me. As indicated in the notice of meeting, I intend to vote all available proxies on this item in favour of the adoption of the remuneration report. If you could please fill out your voting cards for Item 5. Shareholders, that concludes our discussion of all items on today's agenda. And if you haven't already done so, please, complete your voting card and place it in one of the ballot boxes which the attendants are carrying through the room or in one of the ballot boxes near the exits. And the poll will remain open for a further 15 minutes to enable shareholders to cast their votes. As I said, the results of the poll will be available later today and can be obtained by visiting our website or that of the ASX.

Can I say, thank you very much for your attendance today and for staying throughout the full discussion of all of the items. We do appreciate your coming and we do value your feedback. So all items of business having been considered, I now declare the meeting closed. Thank you very much.

CATHERINE LIVINGSTON AO:

To acknowledge the traditional custodians of this land, and pay my respects to their elders past and present. We have a quorum, and I declare the meeting open. A notice of meeting has been distributed and will be taken as read. There are five items of business on today's agenda. Presentations by myself and your CEO, David Thodey. Discussion of our 2014 financial statements and reports. Consideration of the election and re-election of directors. Consideration of the proposed grant of performance rights to the CEO. And finally, consideration of the remuneration report. Voting on items three to five will be conducted by a poll, and that poll is now open. So, if for some reason you need to leave the meeting early, you can vote by completing your voting card and placing it in one of the ballot boxes near the exits. I would now like to introduce Telstra's Auditors. Joining us today from EY is Steve Ferguson, and he's available to answer any questions on the conduct of the audit and the auditor's report.

Joining me on stage, David Thodey, your Chief Executive Officer. Damien Coleman, your Company Secretary, Andrew Penn, your Chief Financial Officer, and your board. So, I'd now like to invite your directors to introduce themselves individually.

GEOFFREY COUSINS:

Good morning, ladies and gentlemen. My name is Geoff Cousins. I've been a member of your board for eight years now, and I am also a member of the Nomination and Remuneration Committees. You know, this is really an entirely different company, to the one that I joined eight years ago in almost every sense, from the way it treats its customers, to the results it delivers to its shareholders. And I'm very proud to have been some small part of that. Thank you very much.

JOHN MULLEN:

Good morning, everybody. My name is John Mullen. And I've had the privilege of being a Director of Telstra since 2008. And today, I am standing for re-election. Currently, I am also the Chief Executive of another ASX 50 company called Acciona. And if I am re-elected today, which obviously I hope I will be, I believe that I have many years of experience working in Asia, working in the United States, working in Europe, particularly in the areas of change management and remuneration. And I have the privilege of being the Chairman of the Remuneration Committee. Thank you.

MARGIE SEALE:

Good morning, everybody. My name is Margie Seale, and I joined your board in May 2012. I'm a member of the Audit and Risk Committee. I'm a company director with senior executive experience in Australia and overseas, with a particular focus on the transition to new digital business models, brand management, customer management, and sales and marketing. I'm extremely proud to be a Director of Telstra and to work on your behalf, for its continued success. Thank you.

RUSSELL HIGGINS:

My name is Russell Higgins. I've been a member of the Telstra board since 2009, and I serve on the Audit and Risk Committee. I bring a broad range of skills gained from being a director for over 20 years of listed companies, private companies, government business enterprises, and international organizations. And from an executive career, including as a CEO in the Australian government and at the OECD in Paris, I look forward to another rewarding year at Telstra, and to helping guide Telstra through the many opportunities and challenges that lie ahead. Thank you.

PETER HEARL:

Good morning, ladies and gentlemen. My name is Peter Hearl. I was both honoured and delighted to join the Telstra board in August of this year, and I'm equally honoured to stand for election today. I believe I bring a wide range of experiences from 40 odd years of corporate life around the world, including Asia, Europe and North America, with companies such as Exxon, PepsiCo and Yum, as well as a number of other Non-Executive roles. My experience in fast-moving consumer goods businesses will I trust assist Telstra in building consumer advocacy. If elected, I can promise you, I will also bring a passion for brand building, talent development and constant innovation, which I believe can help contribute to Telstra's growth strategies in the years ahead. Thank you.

NORA SCHEINKESTEL:

Good morning, ladies and gentlemen. My name is Nora Scheinkestel, and I'm the Chair of the Audit and Risk Committee. As you'll hear today, we've continued to streamline our portfolio this year with sales and acquisitions. And the audit committee has played an important role in overseeing the control framework, the accounting and reporting of those events, and the risk management associated with those activities. My executive career in finance, my over 20 years as a Non-Executive Director in many different industries, and my extensive experience chairing audit committees at major Australian companies, has allowed me to assist the board in making strategic decisions around these issues and leading the audit committee in its work. Thank you.

CHIN HU LIM:

Good morning. My name is Chin Hu Lim. I joined the Telstra board in August last year. I bring to Telstra almost 30 years of experience in the technology sector across the Asia-Pacific region. I'm currently involved in venture capital, as well as serve on several listed and private companies in the region. I'm delighted to continue to contribute towards Telstra's growth in Asia-Pacific. Thank you.

STEVEN VAMOS:

Good Morning, everyone. I'm Steven Vamos, I've been a Director on your board since 2009, and I'm a member of the Remuneration and Nomination Committees. I've over 30 years of experience in the information technology and digital media industries, and I've experienced the consequences of technology change in many different contexts, over that time. I have a real interest in how organisations embrace the leadership, culture, and management models required to guide their business through fast-changing times. It is a great privilege to serve on the Telstra board. Thank you very much.

JOHN ZEGLIS:

Good morning, all. My name is John Zeglis. I am now completing my eighth year of service on your company's board. I am an American, that's where I had a career in telecommunications, ending up as President of AT&T, and then when AT&T Wireless was demerged, CEO of that company. These last several years, I have been privileged to bring my own telecom experiences to bear on the special issues and extraordinary opportunities facing your company, Telstra. I am grateful for that opportunity and especially thankful to all of you for making it happen. Thanks.

CATHERINE LIVINGSTON AO:

Well, I would really like to take this opportunity to thank my fellow directors for their contribution and support during the past year, it's a very strong board for your company. I would also like particularly to welcome our newest Director, Peter Hearl, who, as you have heard, brings valuable experience in building multinational brands, and in doing business in Asia. Today marks the first time Telstra has held its annual general meeting in Queensland. And Queensland is such an important part of our business. We have more than 9,000 people here, approximately 45,000 kilometres of optic fibre cable, and more than 1,700 Telstra Mobile towers, which provide coverage to nearly 99% of Queensland's population. Telstra also pays $31 million each year in local and state taxes in Queensland. Many of you would also be aware that Brisbane will next month host the G20 Heads of Government Summit. And Telstra has built the new Queensland government wireless network that uses state of the art, communication technologies to connect law enforcement and emergency response teams.

And beyond the G20, the network will be expanded to the remainder of South East Queensland and will provide ongoing emergency communications during critical events like cyclones and bushfires. I would now like to make some comments about Telstra's financial results for the year. 2014 was a year of continuing momentum for your company, a year in which we saw growth in revenue, profit, and customer numbers in line with our commitments. These results demonstrate the value being created by our strategic focus on improving customer advocacy while continuing to invest in our core and growth businesses. Our net profit after tax this year was $4.3 billion up 14.6%, on the previous year. We also increased our total dividend for the 2014 financial year to 29.5 cents per share fully franked, distributing $3.7 billion back to shareholders. As part of our capital management strategy, we have also successfully completed a $1 billion off-market buyback of Telstra shares. Under the buyback, which was announced on the 14th of August 2014, Telstra bought back around 217.4 million shares or 1.75% of issued capital.

The buyback price was $4 60 per share, which represents a discount to the market price of 14%. And payment for shares bought under the buyback will commence from today. We undertook this buyback because we had excess capital as a result of our strong operating performance, together with cash from key divestments completed during the year. We believe the buyback is of benefit to all Telstra shareholders. For those shareholders who did not participate, the buyback is expected to improve the earnings per share ratio, because the number of shares on issue has been reduced. Turning now to the NBN. The new federal government elected last year, determined that the design of the NBN would be modified to use a range of technologies instead of the previous government's predominantly fibre to the premises approach. As a result, we are currently engaged in renegotiations with the government and NBN Co, on aspects of our 2011 definitive agreements. The renegotiations are progressing well and the parties are working constructively towards a common goal.

Through all of this, we are committed to acting in the best interest of you, our shareholders. We are focused on maintaining the value of current agreements, achieving certainty of outcome as soon as possible, and minimizing any additional regulatory risk. I'd now like to comment on our longer-term strategy. During the year, we refined our strategy and made some changes to better align our efforts with growth opportunities both in Australia and overseas. Our strategy focuses the business on three key priorities. Improving customer advocacy, driving value from the core, and building new growth businesses. And I'd like to discuss each element in turn. So, on improving customer advocacy, we continue to regard this as our highest priority. Every day and right across the business, we're striving to earn the advocacy of our customers by having a positive impact on their lives with our products and services. Feedback through our net promoter system indicates that we did make progress this year.

Nonetheless, we still have much work to do to ensure that we consistently provide our customers with an outstanding experience on every occasion. Our strategy also includes an ongoing focus on driving value from the core of our business.

CATHERINE LIVINGSTONE:

Telstra's remarkable network, upon which so much of our reputation and core advantage is built, is a key part of our future, and is something in which we continue to invest. In this context, this year, we started design work on a new $100-million, five-year project to create what will be Australia's largest national public WiFi-access network. Our range of products and services also continues to change, as new technologies emerge and customer demand for connectivity and mobility grows. Only five years ago, much of our revenue was driven by voice over fixed and mobile phones. The focus then shifted to data over devices, and now increasingly, we provide solutions over networks. Moving to our third strategic priority, which is building new growth businesses: in this much of our focus is in Asia, where we are looking to capitalize on our Asian and global network capabilities and opportunities in fast-growing markets across the region. Some people may not be aware that Telstra's networks offer customers more than 2,000 points of presence around the world.

We also operate an extensive submarine cable network. These are key facilities which we will continue to leverage as we pursue growth. An important part of the growth strategy is being able to build partnerships across the region, and we were very pleased recently to sign a joint venture agreement with Telecom Indonesia to provide network applications and services to businesses in the Indonesian market. Another long-term focus for growth is the development of our Telstra health business, and here we are working to help build a health system that is more connected and improves opportunities for services like in-home monitoring of ill, elderly or remote Australians. Turning now to our management of our portfolio of businesses: recently, we added to our capabilities by acquiring software-based online video and analytics company Ooyala. During the year, we also undertook a range of other portfolio-management activities. This included the sale of our stake in the Hong Kong mobile business CSL, taking advantage of an opportunity for us to maximize our return on this asset.

We also announced the sale of a 70% stake in our Census directories business, establishing a partnership with Platinum Equity to maximize the value of the Census asset for Telstra. Shareholders, you would also be aware that part of our presence in China is through our 62.9% stake in Autohome, that country's leading online destination for car buyers. During the year, we moved to evolve the capital structure of that business by listing it on the New York Stock Exchange, and today, that investment is worth approximately $3 billion to Telstra. Through all of this activity, our approach to managing our portfolio continues to be active and disciplined, and always with the intent of maximizing value to shareholders. Let me return briefly to the subject of accelerating technological change. Many of the technologies that drove our results this year were barely conceived five years ago, but the growing demand for smart wearable devices, smart network solutions in the cloud and the establishment of our own software development team all point to the fact that Telstra is, today, a very different company from what it was when many of you first became shareholders.

We are constantly seeking to nurture the innovation mindset and culture inside the company, and this includes the creation of our own innovation incubator, called muru-D, and our online collaboration tool, the innovation hub, which is a wide-ranging online community that facilitates problem-solving and innovative thinking across the business. All of this contributes to our determination to find new ways of having a positive impact on the lives and businesses of our customers, through our products and services. In this environment of ongoing change, this year, we clarified our organizational purpose, which we now describe as being to create a brilliant, connected future for everyone, and five key values underpin this, and they centre on caring, collaboration, trust, simplicity and courage. And these values define our commitment to good corporate governance, responsible business practice to our customers, to our workforce, to the environment and to the communities in which we operate. And Telstra is committed to playing a positive and active role in building better communities.

We want all Australians, regardless of their age, income, ability or location, to be able to enjoy the many benefits which modern communication technologies bring. To that end, this year, we have continued to focus on ensuring that everyone has the opportunity to build the skills and confidence to participate safely in our increasingly digitized world. Through our Everyone Connected digital inclusion programs, we provided digital literacy training to 143,000 older Australians. Our Access for Everyone program also provided $145 million in benefits, including home-phone-rental concessions, to more than 1 million households, including those on low incomes. And through the Telstra Foundation, we're also supporting a wide range of social innovation programs, including our partnership with Code Club Australia, which aims to give every Australian child the chance to learn computer code: a critical skill in the digital edge. In closing, I would like to take this opportunity to thank David Thodey and his senior executive team for their efforts during the year.

Telstra is very fortunate to have such a highly talented and high-performing team of leaders. I would also like to thank the entire Telstra team for their work in delivering the many achievements that I have described here this morning. As we look forward, we continue to focus on improving customer advocacy while investing in our core and growth businesses. Shareholders, your company has delivered on the commitments we made for 2014, and we are, again, committed to building on this momentum in the year ahead. I will now have over to your chief executive officer, David Thodey, to present our operations for the year in more detail. Thank you very much.

DAVID THODEY:

Well, thank you very much, Chairman, and let me just add my good morning and thank you very much for coming. It's a great pleasure to see you all here, and also to everyone who's joining us online. It's always a pleasure to come back to Brisbane. I went to primary school here, and so it's always great to be in the Sunshine State. So, to my report. First, as the chairman said, 2014 was a strong year: a year in which we delivered consistent earnings growth, we increased shareholder returns and we continued to build on that momentum for our future growth. It was also a year in which I'm very pleased to say a lot more customers said, "We're just about ready to be an advocate for Telstra." Our continuing focus on finding ways to make a real and positive contribution to the lives of our customers, the community where we operate and of course the productivity of this great country, through the wonderful products and services that we deliver. And it's all about what we say, creating a brilliant, connected future for everyone.

And there were some really great highlights during the year. We welcomed nearly one million new domestic retail mobile customers, and we now have 16 million customers on that network. In fact, if you look back over the last three years, we've nearly added four million new services to the mobile network. We also announced our 100 million commitment to creating one of the world's largest WiFi networks here in Australia, which will also be linked internationally. Telstra WiFi aims to offer all Australians, whether you're a Telstra customer or not, access to two million WiFi hotspots, right across this great nation over the next five years. We will have about a thousand hotspots, hopefully, turned on by Christmas, which will include another 350 here in Queens and especially in holiday locations. We also established new businesses, as Catherine mentioned, in eHealth, software and also security solutions, which is so important for the future. We also announced a very important international partnership to deliver network application services to Indonesian enterprises, and the partnership is with Telkom Indonesia.

This is a first and a very important initiative for us. And importantly, very important, we conducted 11 million customer surveys. I dare say, many of you may have been surveyed. On average, 30,000 every day, we get feedback on how we can do better, for which we appreciate all your help. So 2014 was a very busy year. What I'd like to do today is to cover off firstly, just a little bit more detail on the financial results, give you more information on our strategy. And that's just a little bit more in some details than Catherine gave you, comment briefly on the NBN and also just reaffirm our outlook for this year. So let's start with the financial performance. Our total income increased to 26.3 billion dollars, up 6.1% on the previous year. EBITDA was up 9.5% to 11.1 billion dollars and net profit after tax increased 14.6% to 4.3 billion dollars. These results were underpinned by our commitment to provide our customers with the best connectivity on Australia's best networks. And we are seeing continued growth right across Australia in the usage of devices and the demand for our services as well as across Asia.

In fact, right across the world. That is why we continue to invest significantly in our networks. Also, we must continue to invest in customer experience and very, very importantly, we must continue to innovate, innovate around products and services. We must be an innovative company. Let me now turn to the elements of this growth strategy. As the chairman mentioned, our strategy centres on three key pillars, firstly, around customer advocacy, secondly around driving real value from this core domestic business and also building these new growth businesses. So let me just go through a little bit of some of the detailed things that we are doing around these initiatives. Firstly, customer advocacy. I want to stress, this is our number one priority. It is hard to do, and we see it not just as serving our customers, but actually providing such a great service that our customers will become advocates for Telstra. That's a really different type of experience that you've got to create because when someone says they'll be an advocate for you, that is a far greater level than just saying the service is OK.

We're committed to building Telstra into being a business that has the customer right at the centre of every decision, every action, every opportunity, and do it every day. Bold words, but very hard to do. As a part of this thinking, we have moved during this year, to providing what we hope will become a trademark for the company around providing personalized service. I want to give you some examples of this because it's just early stages, but I hope it gives you an insight into the type of company we want to be. We made a really big change in our contact centres. When you ring our contact centres now, our operators will give you their name and contact details. It's a very simple but powerful change that means if you need to get back in touch with us, you can go directly to that person who you've already explained your issue or your need or your opportunity. And this is so important in providing a more personalized service, but it's just not in our contact centres. If you now go into our stores and you buy a new postpaid mobile service, you'll get a phone call from that consultant that served you within 48 hours, just making sure the purchase is OK, everything's working OK.

Just that personalized contact that we think is something we really want to be known for. Also, our really important field technicians who are out every day, visiting about 30,000 homes. When they come to your home, they leave a calling card and whether they're installing a new service or actually fixing, maybe a problem, again, this means that you don't need to ring back into the call centre. You can ring directly to that field technician and talk about whether the problem's gone away or what service you need. These may seem small changes. They are very hard to implement, but they are really significant in terms of driving a more personalized service and really getting some humanity back into the way we deal with our customers. Now, we know we don't get it right every day, but we are trying, and we're going to keep trying until we get to that lofty ideal of nearly every time having a great experience. But it hasn't been just in personalized service, we've been doing lots of other things because you've got to provide great products and services along the way.

One of the important areas is people using their internet or their mobile devices more, keeping track of your usage of data.

SPEAKER:

Also, we've been looking at how we can cut international roaming charges, in fact, announced some significant changes just recently. And also, keeping you informed about how your services are working, where you're at in terms of your monthly plan. We've also introduced some really innovative new tools around your broadband for those who use our broadband services. It's a product called Telstra Broadband Assistance. And it allows you to actually determine how your network's working in the home, checking your WiFi network. And it's all a proactive service. And it's a very innovative solution. We also launched a new service called Telstra Platinum. The Platinum guys have a slightly different uniform but they're a one-stop-shop for all technical support that we provide to you, our customers. And you can either take it on a subscription basis or whenever you need it. Since we launched in November 2013, we've helped nearly 220,000 customers set up their home networks or provide support for their phones, their internet connection, their WiFi network, tablets, IPTV, or their computers.

And this has been very, very well received. Also, we've introduced a product called Telstra StayConnected for that horrible time when you lose your mobile phone with all your contact details, or you drop it in the water or something like that. And what allows you is the service that we can provide to quickly replace the mobile phone, get all the contacts back onto the phone. And this again has been a great service. We've helped about 360,000 customers since it was launched in September 2013, almost replacing nearly 30,000 - I think the number is 27,000 phones within 24 hours. Little things, but they make a real difference. And we've got lots more plans this year to keep innovating around the service we provide. One of the important services we wanna talk about is how we provide service. And you may be aware that more and more of our customers are now choosing to connect with us online. Some people call this the online revolution. In fact, every day we have about 1.5 million hits on our website, 1.5 million.

Each month, about 6 million unique users come to our website. We engage about 200,000 people. There is online chat. Some of you may not use it, but this is just when you're online, you can have a chat with a consultant. And we now have 1.7 million users of a little mobile application called 24x7. That allows you to monitor your bill and the sort of usage you've got. There is no doubt in my mind, this trend towards online services is accelerating - and we, as a company must become a more digital company. We've got to be more online. We've gotta do it in more innovative ways. So, we hope to become a digital company. However, I wanna stress one very important aspect of this is that we always give customers the choice of how they want to interact with us - whether you want to phone us, you wanna talk to us, or come online. But we have to be realistic. A lot of those people are under the age of 30, they only wanna deal with us online. So, we've got to build that capability as we move forward.

A subject that people ask me a lot about is our offshore call centres. And I'm sure that there'll be some questions today. So, I wanted to try and just take a moment to at least give you a perspective on this because it's very important and it really relates around two areas. One is the offshore core centres, but secondly, it's about the quality of service we provide. So, firstly, to the international call centres, there's no question, as I said, people are moving to online. So, actually managing the demand of phone calls coming in is getting more difficult. So, as we try to verbalize that workforce and as we try to drive the economies of scale by glow of using global providers, we think that managing this fluctuation of calls by using offshore call centres is a good business decision. This means, though, that our call centres will continue to decline in terms number of operators we have, not because people - we don't wanna provide the service, but just because the demand is going down.

So, we will continue to do this, but we are very committed to running a sustainable business around digital mobile. And we must be a part of a global world because more and more of our customers are actually coming from Asia. The second issue, which is a really important issue is the quality of the service we provide. And I wanna point out in all our centres, regardless of where they're based around the world, you should expect a high-quality service. And that means they understand you, they understand your need, they understand where you are, they have good communication skills, they understand privacy and security. That's irrespective of wherever they're based. So, we see this online move, we see strong usage of our call centres, both here and offshore, but will continue to decline over time. But our standards will remain very high. Customer advocacy must remain our number one priority. And while we've implemented many, many initiatives to improve the service we offer our customers, we still have a long way to go and we're always looking for help along the way.

So, now, let me turn to the second pillar of our growth strategy, which is driving value from this core business. The focus here is around customer and revenue growth. It's about technology network leadership and, of course, driving greater productivity by simplifying the way we run the business. I just wanna briefly touch on these areas. As you know, I would say the 4G mobile network is one of the best in the world. It covers 87% of the Australian population. And we now have more than 5.2 million 4G customers on the network. The quality, the outstanding coverage or reach in the popularity of our network continues to grow because we continue to invest in it. And I wanna give you a bit of a sense of how much we invest in the network. Since 2006, we've invested $5.5 billion in that network. And just last year we invested $1.1 billion. Growth comes from investment. Those who invest should reap the rewards. Even just last month, we spent $1.3 billion in a very, very important strategic holding in spectrum.

It's called the Digital Dividend Spectrum, not that you need to understand it. But what it will do is double the spectrum we have available to run that mobile network, which means better phone calls, better quality, better speed in terms of using your services. To many of our customers, this is very, very important, and this will service very well over the next decade. Also, I mentioned simplifying the business. This is a complex business. There's no two ways about it, but we don't need you to know how complex it is. We need to make it seem simple. And the simpler we make it, the more benefit we can drive to the bottom line. So, we continue to transform our internal business processes to streamline them, trying to remove barriers that get in the way of productivity. We're trying to be more like a team. And we're trying to use that by really galvanizing around the customer 'cause that's what gets us out of bed every morning. The total value of benefits we realize in full-year '14 was about $550 million of expense reduction.

Also, that included capital and avoided costs, which took it up to about a billion dollars. We must continue to really drive that cost reduction as we go forward because that allows us to reinvest in the business. Also, we continue to rebalance this business. As Katherine mentioned, as new technologies come, we have to change the structure of the business and often moving people from one division to another division. So, we're increasing resources in one area while we're sometimes decreasing in other areas. An interesting fact that I really wanna stress. Last year in Australia, we added 400 new jobs. We added 400 new jobs in Australia. And when you look across the international division, we actually increased hundreds of new jobs in the company. But at the same time last year, we made redundant 1,600 people. So, what's happening is you've got one division declining while we're reinvesting in new businesses. And this must continue, but we are very, very conscious of the impact that has on the community and on individuals, so we need to do it in the right way.

So, this is very important. The businesses continue to go through enormous change and we must continue to drive value from the core business. Let me now turn to the third area of really building new businesses for the future. When we talk about the future, we think about 2020. Our focus here is on realizing new and emerging opportunities that really leverage Telstra's great strengths. These are things that will underpin our growth in the future include things like network applications and services when we serve large enterprise customers, its expansion into Asia and other new opportunities like Telstra Health and Telstra Media. Our work in Asia is about offering a range of services and platforms, including these areas of the enterprise area of managed network services, international data, voice and satellite solutions, and leveraging the incredible legacy we had from the old OTC company of these submarine cable networks. People forget Telstra has done business in Asia for over 70 years, 70 years, we are not new to Asia.

As the Chairman said, we also continue to build our capabilities in this very important area of eHealth, and our vision here is to develop a truly connected healthcare system for all Australians. Since its inception last April, we have secured and or acquired made strategic investments and entered a new license arrangement with 11 ventures now. And we're building this strong capability and we think this is a very exciting future. It will take time, but we think it's very exciting. Some people may not be aware also that Telstra is Australia's largest IP or Internet Protocol television service provider through the T-Box. And that also leverages this very strong relationship we have with Foxtel. We added to this media capability during the year acquiring a Silicon Valley-based company called Ooyala, Ooyala. It's a leader in video streaming to the web. It's an unusual name, but it's catchy. Ooyala provides a software platform that delivers personalized video and TV experiences across multiple screens.

So, this allows you to watch television on your mobile phone, on your tablet, on your PC, on anything that is connected to the internet, but also it allows you to do publishing and what is called analytics about how people are watching different programs and, of course, to monetize it. So, I'm not sure you're aware, but if you look at your children or grandchildren, how they actually consume entertainment has fundamentally changed. In fact, some of my children don't even watch television anymore. They just do it on the PC or on their mobile phone. So, that's about growth. What I've taken you through is just talk a little bit about customer advocacy, about driving value from the core and about new growth businesses. They're our key strategic priorities. So, let me just talk a little bit about the National Broadband Network. The Chairman has already provided an update on our progress around finalizing these revised agreements with the Government. I would like to reiterate, though, that we are committed to acting in the best interest of you, our shareholders, and to maintaining the value of the current agreements.

We will keep you informant of the renegotiation as it progresses, but in the meanwhile, the NBN is rolling out and it's going to many communities right across the country. And we continue to be very focused on bringing more customers the benefits of what we can bring in terms of connecting to the NBN. Now, outside there's a number of displays and you can go and see the NBN and how it works, and I'd really encourage you to do so. It is interesting. And it's a nice, new, bright, shiny Telstra van out there as well that is cleaner than it normally is. I can assure you. So, I would encourage you gonna have a look. So, let me just conclude. I'd like to just start by thanking the incredible Telstra staff. You know, they really are incredibly dedicated and hardworking. You know, we're really fortunate to have such a great team right across the business. They have a commitment and a passion you don't find in many businesses, and it's a great pleasure to work with them. I'd also like to thank the senior management team, they're sitting at the front here.

They're a very capable team. And they've been absolutely fantastic because they're determined - they're absolutely determined to improve the business, improve the way we deal with customers, you know, find new things that make life better for our customers and to build a culture in the company where people really feel valued.

DAVID:

when they come to work. I'd also like to thank the chairman and the board of directors who provide incredible support and guidance to us. The management team. They provide great governance, which is so important, but also to us, the leadership of the company. Now, just a few words on the outlook, looking ahead in 2015, we expect continued low single-digit income and EBITDAR growth to offset the absence of the CSL business, which we sold out of Hong Kong, at that operating revenue and EBITDA. As a result, after you exclude the $561 million of profit on the sale of CSL in 2014, Telstra's income and EBITDA guidance for 2015 is broadly flat. But remember, we're picking up what we've sold. Telstra's expected 2015 free cash flow will be between 4.6 and 5.1 billion dollars, and capital expenditure, we think, will stay around the 14% of sales. So, in summary, in 2014, Telstra delivered consistent earnings growth increase returns to you, our shareholders, and generated strong operating momentum as we move into 2015.

Our focus remains on improving how we interact with all our customers and to have a genuine and positive impact on their lives with our products and services. We believe that focus is really positioning us well for good long term growth. I truly believe this is a really exciting time for Telstra. We do see a great future, a future for this company that we think can really make connection, this brilliant connection, just great for everyone that we serve. Thank you again for your time this morning. Thank you. (MUSIC PLAYS).

SPEAKER:

Well, thank you very much, David, and I hope you all enjoyed seeing that video, which really does represent our aspiration to create a brilliant, connected future for everyone. And shareholders, there are four remaining items of business, and I'll shortly introduce and invite questions on these. But before I do, I'll outline the question and voting procedures for today's meeting. When you registered this morning, you would have been given a card. Yellow cards are for shareholders who may speak and vote. Blue cards are for shareholders who may speak but not vote. You will need your card to ask a question or to re-enter the meeting. I'll introduce each item separately and then invite questions from the floor, as you see, there are several microphones located around the room. If you'd like to ask a question or speak on a particular item, please move to the reserve seating area behind one of the microphones. Please show your card to the microphone attendant and give your name. As a courtesy to all shareholders, please also state your affiliation if you are not here in your personal capacity.

The microphone attendant will invite you to the microphone when your turn comes. In the interests of all shareholders, please only ask one question at a time. Keep your questions and comments to approximately two minutes so that we can allow as many shareholders as possible to speak. And if your question relates to a particular item of business, such as the director election and re-election or remuneration, please ask your question when we come to that item of business in the meeting. And finally, do ensure that your questions are relevant to shareholders as a whole. And if we can't answer your questions here today will aim to provide you with a response after the meeting. If you do have an individual customer or shareholder question, please speak with one of our customer service staff and they'll be able to assist you. And they are located at the tea store outside, as David is mentioned and also at each microphone. And they should be wearing brightly coloured t-shirts with Telstra badges.

There are three items requiring a shareholder vote today. For shareholders with a yellow card, the voting boxes are on the back of your card. We received proxies from approximately 32 and a half thousand shareholders and direct votes from a further 14,000. The votes recorded for and against each item will be shown on a slide behind me at the conclusion of the discussion of that item. The four numbers displayed will include proxies received and available to be voted by the chairman of the meeting. Telstra share registrar Ms (UNKNOWN) of Link Market Services will act as returning officer in relation to the poll. And the results of the poll will be available later today on the (UNKNOWN) website and on our website. We will be serving a light lunch at approximately 12:00 noon. However, we will not be adjourning the meeting for lunch. I now turn to Item two on today's agenda, which is to discuss the company's financial statements (AUDIO DISTORTS). Over and done with, I thank the board for the opportunity to present my concerns.

I'm happy with what Telstra has done this year. Otherwise, I wouldn't be a shareholder, I would have bailed out long ago. But it's my opinion that the share buyback was not in the best interests of all shareholders and that Telstra could have better served them with a more equitable distribution of the excess cash. Not with the type of buyback which was implemented, but probably with the provision of a special dividend so that all shareholders can take some gains out of all their effort. The major beneficiaries of the buyback were the super funds in the pension phase to get the imputation credits because they pay zero tax and probably those shareholders whose taxable incomes fall below the threshold. But the vast majority of mum and dad shareholders don't fit into these two groups. They were offered the privilege of selling their shares for four dollars 60 when the market price is five dollars 40 and then pay on the sum of the franc dividends and imputation credits to pay the tax on that.

Now, any capital loss for them is most likely quarantined against some uncertain future capital gain and someone's certain future time. Now, these mum and dad shareholders all have to pay this tax, whilst at the same time receiving 14% less than the market price for their shares. And therein really lies an even more serious issue for all shareholders in Telstra. With this exercise, Telstra has exposed the fact that a significant number of shares can be bought at four dollars 60. Now, what signal does that send to the market? And what's the significance of this fact for the long term price of Telstra shares? Yesterday, the shares had a closing price of five dollars 24. I now ask the board, how does this unfair distribution fit in with your stated aim of driving shareholder value as that all shareholders rewarded for buying and maintaining their shares in Telstra? I'm urging the board to remember that it was the share volume of mum and dad investors that gave Telstra the political clout to defend this company from the intimidation that it was subjected to just recently.

Now, if this is a tactic that's going to be repeated in any future share buyback, I think for mum and dad investors it's probably well-advised to avoid it. Thank you. Great. Thank you very much, Mr (UNKNOWN), for those comments. In terms of the buyback itself, as you know, Telstra has a capital management strategy and dividends and fully franked dividends to shareholders are a very important part of that strategy. But we do have excess capital at the moment. And so the board formed the view that a small buyback in which is what we've done was actually in the best interest of all shareholders and the best use of that excess capital and a better use, for example than paying down debt with more shareholder value in doing the buyback than continuing to pay down debt. In terms of the benefit to shareholders, the participation in the buyback was an individual decision for shareholders, depending on their circumstances, and as you point out, there are different circumstances for different shareholders.

But we believe that the buyback was in the best interests of all shareholders, and buybacks actually benefit continuing shareholders in the sense that there are fewer shares on issue and therefore the earnings per share does go up and over the long term that underpins the share price. So, a buyback has important benefits for continuing shareholders, just as it might provide benefits for those shareholders whose circumstances lead them to participate in the buyback. But we did, as a board, we deliberated and took into account the interests of all shareholders in making that decision as part of our portfolio of capital management, which did include, as you know, increasing our ordinary dividend both at the interim and the final dividend this year. But, but thank you for your comments. If I can go to microphone four, please. Chairman, I would like to introduce Mr (UNKNOWN). Well, I do have some dissatisfaction with the process of the buyback because it did not equally satisfy the needs of all the shareholders, particularly disadvantage were the minor shareholders who had to sell the whole parcel or nothing.

And to do so at 14% reduction to the weekly average trade is a bit like this scam bloke who sends us off letters to say I'll buy you shares for nothing. So, at 14% discount that then sold at around about 50% to the purchase price. And while I'm on that point, the share, Telstra share price is still performing abysmally. Another point I'd like to raise is that we are the owners of the company and perhaps a bit more respect. The difficulty with security this morning stripping my bag down to the smallest items taking away small items that I need for glucose to attend the meeting and be well, they took them away and threw them in the bin. That's a little bit unfortunate that you employ such ruthless security people and I'll leave those comments, thank you. Thank you. Mr (UNKNOWN), we'll just if I can address the security issue. We do always have important security procedures at all of our AGMs and we always have done. And as a company, we are particularly concerned about security, as you know, including through all of our products, but also at forums such as this.

So, I understand the inconvenience that we all have to go through in terms of security, but this is an area on which we don't feel that we can compromise.

MS LIVINGSTONE:

Again, in terms of the buyback, I'll just reiterate my comments to Mr Micycles that the participation in the buyback being through a tender offer was really an individual decision for every shareholder. There was no requirement to participate. And as I've said, for continuing shareholders, there is a benefit through the increased earnings per share. So again, we thought that having considered all of the options for a buyback, that an off-market buyback in a tender format was the best approach to conduct the buyback and provide those shareholders with the option who wanted to participate, in fact, to participate through that process. But I would reiterate that we are strongly of the view that the buyback does provide a benefit to continuing shareholders through the increased earnings per share. Can I go to microphone one, please?

SPEAKER:

Chairman, I would like to introduce Peter Starr from Sydney.

PETER STARR:

Good morning Miss Livingston, how are you?

MS LIVINGSTONE:

Very well, thank you.

PETER STARR:

That's good. And good morning, David. I'm representing myself and quite a number of private equity shareholders, and some of them are superannuation funds. I will mention them. Mr Kane Dyer, Mr Bernard Lean Superannuation Fund, Dyer Mcinerney Superannuation Fund. Since the question in relation to the buyback has come up, I'll just say this, that I advised all my clients not to do that. We're very happy to hold and continue to hold, and it's good that we've come to Brisbane to have the meeting here. My apologies that I missed the meeting in Sydney, David, but... Just in relation to that buyback and something about the share price was raised for those who may not be aware, but I can tell you when the share price reached, when David first came in and it got down to 284, our share price under David Thodey's leadership has doubled to 560. There's been a slight pullback recently, but that is in market terms if you look at the market. Our market has dropped back to about, in the last 18 months given what's going on in the US market.

So we've gone from 284, we are up to 560. The increasing of the dividend that he announced and that the board announced, you've maintained that and you've increased it, and I think that's something that on behalf of the shareholders I represent, they want to tell you to keep going and to look to further increase. The other quick thing I want to say in relation to the buyback is that the shareholders that I represent, and there might be mum and dad shareholders here too that want to have, instead of taking the dividend but want to do dividend reinvest. Now, I know I have raised this before with you, Miss Livingstone, so it may be something to consider to give the option. I know it's just a thing that I get constantly asked about from the people I'm representing. I want to point out too that the people I represent are just mum and dad shareholders who have their superannuation tied up. And we're very happy to have it tied up in Telstra. Under your leadership, David Thodey, the company - go and have a look, ladies and gentlemen.

Go and have a look at the Telstra branding and the showrooms. They weren't there under your predecessor. He couldn't have cared less. You care. And that's what's important, and that's relevant right throughout your staff and the improvements that have happened. And you never bury your head in the sand. You never say, "Well, we're happy where it is." You want to strive and you continually do strive to make certain that these things happen. And that's what's so important. Also, I guess it's important, very important that you might mention, through Miss Livingstone or through yourself, David, in relation there was a court case in The ACT where it had to do with the NBN Co and the - we got awarded some money. So there again, ladies and gentlemen, our CEO is watching what's going on and making certain that NBN Co keeps to its word. So you might like to touch on it. They may be shareholders who aren't aware, like I'm aware in that matter, David. And some other things, because you are gracious and that you never mentioned, but... I might be long, mate.

Sorry, I'm over the two-minute (INAUDIBLE), representing a few people, so I'll be brief.

MS LIVINGSTONE:

I think you've given me enough things to respond on, Mr Starr, so I'm happy to respond on those. Just... Well, first of all, thank you very much for your comments and your analysis of the increase in the share price over the last five years. So it's certainly - our focus is on the earnings and then when the market translates, that's to the share price, clearly. We're very pleased to see that happen. On the DRP, yes, people do raise this often, but as the buyback has shown, we actually have excess capital at the moment, so we don't need a DRP to increase our capital. And I was very pleased to hear you mention the fact that it's evident that Telstra cares because that's one of our key values, which we have enunciated now. That is to show that we care, and we're trying to do that through all of our operations and all of our products. So I'm glad that it's coming through. And in terms of the NBN Court case, I think you're probably referring to the CPI increase where this relates to our existing agreements with NBN Co.

And we have a difference of view over when a certain CPI factor applies from and that's a matter that's before the courts. But thank you very much for your comments, Mr Starr. If I can go to microphone four, please.

SPEAKER:

Chairman, I would like to introduce Mr Michael Waterhouse.

MR MICHAEL WATERHOUSE:

Welcome to Brisbane. It's our pleasure to host a GM of Telstra. I am the representative of The Australian Shareholders Association and I represent the voice of over 3,100 shareholders and... Yeah, and almost 32 million shares. It's to do, again, with the buyback. I think it was eloquently identified, some of the issues in the first questioner, but in the recently completed share buyback, the price set was the volume-weighted average price of Telstra shares traded on the ASX. Why would a significant number of shares traded on the Chi-X be excluded from the price calculations? And is it true that if they had been included in the calculation? Shareholders participating in the buyback would have received a higher price for their share. The second point is since, with excess cash, you chose to do a buyback, it's the equivalent of an alternative investment. In your long-term incentive plan, you have a return on investment of 15.1% as your threshold to reward anyone for the company in terms of its investment.

What was the return on investment of the buyback?

MS LIVINGSTONE:

Thank you, Mr Waterhouse. Responding to your first question on the Chi-X traded shares, in fact, the ATO will not permit us to use the price of shares traded on the Chi-X as part of our volume-weighted average price. So, that was a compliance issue that we had to adhere to. In terms of buyback being an alternative investment, you're absolutely right, and we took that into account. And as I said, for example, it was better in terms of shareholder value to do the buyback than to pay down our debt. And we do have excess capital at the moment, so we feel in terms of our capital management framework, we have the capacity to make other investments. And as we've pointed out, both David and I have pointed out today, for example, we made the investment in Ooyala, so we have the capacity to make those bolt-on investments and we actually have a very low gearing. So in fact, we're determined as part of the capital management mix. So it's very important to understand this is an element in our capital management strategy, it's not our complete capital management strategy.

So we have an increased dividend and we have a buyback and we have the capacity to make ongoing investments. And also just in terms of the buyback and the dividend component, we did have excess franking credits which came from the acceleration of income tax payments. As you know, the government changed to a monthly remittance cycle from a quarterly. So that gave us additional franking credits that were excess to the ordinary dividend, and we felt it was important to return those to shareholders, particularly in view of the proposed reduction in the company income tax rate the government has foreshadowed.

MR MICHAEL WATERHOUSE:

May I ask that in next year's annual report, a section include the return on investment of the buyback, please, because this is becoming a common occurrence in many companies. And I'd like - we would like to see what the return on investment of that activity is. Thank you.

MS LIVINGSTONE:

Thank you, Mr. Waterhouse. Microphone one, please.

SPEAKER:

Chairman, I'd like to introduce Ian Maxwell.

IAN MAXWELL:

As another Queenslander, welcome to Brisbane. Nice to see all of you here. We don't get very many national companies feeling they have to circulate around the country, but it's nice to see Telstra has a sense of social responsibility towards its shareholders as well as to everybody else.

MS LIVINGSTONE:

Well, we're delighted to be here, Mr Maxwell.

IAN MAXWELL:

Just on this business of the shareholders, I refer you to page... The print is a bit small for me, I'm getting on for older years. 196 of your annual report, which gives the breakdown of shareholders. Now you don't have to look it up, but 20% of the shares are held by 90% of your shareholders, and they're roughly, give or take, about 1.2 million people. As I remember, the board report, none of you people on the board, all of your shareholders, but none of you would qualify as a small shareholder. All of you have more than 10,000 shares. So, you're not really in a situation where you understand the point of view of a small shareholder. Now, small shareholders, particularly with Telstra and a couple of other companies - Wesfarmers, Woolworth and the banks, what we basically want to do is, we want to spread our investments across a wide number of companies, solid companies, but we don't want to sell them. We want to, if possible, reinvest the dividends or live on the dividends, depending on whether we have plus or minus 60.

I'm over 60. I'm over 70 actually, and I'm in the stage where I am living off dividends, but prior to that, I'd like to reinvest them. The last thing small shareholders want is a buyback. All it means is, we sacrifice the shares for illusory return, and that only works if we're in pension mode. What we would like is more shares. Now why don't - if this ever comes up again, why don't you ever talk to Richard Goyder? Wesfarmers have a much more approachable brilliant approach as far small shareholders are concerned. They actually give you the money back. They reduce the cost. They reduce the value of individual shares. It's a much better way as far as we're concerned because we don't have to give up our shares. We don't have to mortgage or give up future dividends. We don't want share buybacks. The only people who want share buybacks are big superannuation funds. Right? That's the first point. The second point is, you've got over 600,000 shareholders, or I don't know - after the buyback it's probably less than that - with less than 1,000 shares or less.

You're going to have 500,000 shareholders with 5,000 shares or less. Now, those people would love probably to reinvest their dividends and acquire more Telstra shares. But you've got no dividend reinvestment scheme. Now, obviously, you don't need to acquire the capital, but you've just proved that you can buy shares on the market.

MR MAXWELL:

Cheaply. And even if you didn't buy them at a discount, you could still negotiate the brokerage a lot more easily than any individual shareholder. I mean, I know shareholder is going to go along and say, 'Oh, I've got a $400 dividend from Telstra, I'll reinvest in Telstra shares.' It's too hard. The costs are too high. What we'd like is for you to come up with a dividend reinvestment scheme where you buy the shares on the market for us. Don't charge us brokerage. And use your clout, I can assure you it would cost Telstra very little and it would reward the small shareholders, and it would reduce... (APPLAUSE) It would reduce the administrative costs of servicing shareholders because gradually, over time your small shareholders would become much bigger shareholders. Now that's what we want. We want to know why you can't be innovative. And what were the other words you use? Make it simple. Reduce the complexity as far as small shareholders are concerned.

CATHERINE LIVINGSTONE:

Alright, well. Thank you. Thank you very much, Mr Maxwell. I think we will certainly take your points on notice.

MR MAXWELL:

I have a couple more questions to later on.

CATHERINE LIVINGSTONE:

Well, if you I don't think we have anyone else waiting at the other microphone. So if you would like to ask your questions a little bit briefly, if possible.

MR MAXWELL:

OK, well, they won't be... They won't be missionary questions like that. I'm quite happy to receive most of my shareholder communications electronically. It is an electronic age and I'm adapting. The trouble is, you use link as your shareholding the shareholder, whatever they are, and link is very uncooperative. I want to get my annual report written, right printed. I've tried using the online report. It has no search function. The interactive report, you can find things if you try hard enough, but you don't know where you are. So if you want to refer to a particular page, you can't do it. Frankly, neither of your online reports is what I would call shareholder-friendly. They are complex and they're not simple. So can you please tell link that if I want a written shareholder report, I can have everything else electronically? At the moment, you have a choice with link. You can have everything by post or you can have everything electronic. Or if you want everything, oh, they'll make an exception and send you your dividend statements by post.

You don't need that. If you go to Computershare or boardroom, you can have your annual return, annual report by post and everything else electronic. I have asked link over and over and over again, and they all say, 'Oh, that's what our clients want, but we won't do it because that's what Telstra says'.

CATHERINE LIVINGSTONE:

Well, Mr Maxwell, I think we will ask our company secretary who's in charge of this area to take the matter up with Link 'cause it's a very fair point.

MR MAXWELL:

Thank you, cool.

CATHERINE LIVINGSTONE:

Alright, I think we have... (APPLAUSE) I think we have no further questions, but I did actually just want to comment on one particular area that's concerning us and this is the number of calls that people are receiving from people purporting to be from Telstra. And we know it's causing a great deal of distress to people receiving those calls, and it's certainly causing distress to us to have the misrepresentation and sadly affecting our brand and our image. And we certainly work with the regulators to try and when these companies and these people are identified, we try and work with them- with the regulators to try and have them prosecuted, and there has been a recent successful case. But quite apart from that, we're actually about to start a new information program. So from almost, I think the bill is going out now, we will be including a small flyer that helps you identify whether it really is Telstra calling, and I don't know whether we can get that image up on the screen, but it is, it's a small brochure.

And if you just keep it with you so that you can identify the sort of questions and the sort of material that we would be talking about. And if it's not in that form in that format, then it is not Telstra calling. And if we could encourage you all too, with your friends and anyone in your community to also become aware of this program and will make the flyer available and also on our website, I would hope. So it's just something to just to have with you so that we can all working together prevent these scammers from their fraudulent activities. So can I thank you all for your questions, and we have taken those comments on board and we will follow up, particularly on the small shareholder issue, but we've now finalised our discussion on that item. I now turn to item three A on today's agenda, which is to consider and, if thought fit, pass the following resolution as an ordinary resolution, and that is that Mr Peter Hearl, being eligible, be elected as a Director. You heard from Peter at the start of today's meeting and his details are set out in the notice of meeting.

We regularly review the set of skills, the diversity, the experience and the expertise on the board, and we match it with our strategy. And this is to ensure that the board continues to have an appropriate diversity of thinking to enable it to discharge its responsibilities effectively and to be well equipped to help our company navigate the range of decisions before us. As David Thodey and I outlined earlier, building customer advocacy continues to be our number one priority. And we considered that the Telstra board would benefit from additional experience in this area, and we are very pleased that Peter has joined us. He brings considerable experience from industries, including consumer goods and in building customer advocacy for brands. This fits well with our need to be a company, be a company intensely focused on our customers in our decisions. Peter also brings very valuable experience from his time running businesses in Asia. So the board, other than Peter Hearl, recommends the election of Mr Hearl.

I will now take any questions you may have regarding his election. Microphone four.

SPEAKER:

Chairman, I would like to introduce back Mr Michael Waterhouse.

MR MICHAEL WATERHOUSE:

Michael Waterhouse, Australian Shareholders Association, again representing the voices of 3,100 shareholders. We welcome Mr Hearl on his appointment. Our only concern for Mr Hearl is his other directorships, good midfielders and treasury warrants. I just hope he doesn't bring any contagion with him, with those two, because they are not very shareholder-friendly in terms of having destroyed quite significant value. That's the only reservation Australian shareholders have.

CATHERINE LIVINGSTONE:

Thank you, Mr Waterhouse. I mean, clearly, we're not here to discuss the affairs of other organisations, but I can say that Mr Hearl was re-elected to those boards with over 99% votes in favour. And as far as his contribution, even in the very short time that he has been on the Telstra board, he's made a very strong contribution and it's clear that the skills that we were seeking in his experience have been evidenced during the discussion, which is why the board strongly supports the election of Mr Hearl. I think there are no other questions, so we now have finalised our discussion and the proxy and direct voting position is being shown on the slide behind me. As indicated in the notice of meeting, I intend to vote undirected proxies on this item in favour of the election of Mr Hearl. So if you please fill out your voting cards for item three A. I now turn to item three B, which is to consider and, if thought fit, pass the following resolution as an ordinary resolution that Mr John Mullen, being eligible, be re-elected as a Director.

Now you've heard from John at the start of today's meeting and his details are set out in the notice of the meeting. John has been a non-executive director since 2008 and he's a very valuable member of the board with excellent experience and a very important role as chairman of the remuneration committee. He has worked for over two decades in a number of senior positions with multinational companies, and his experience as a present Managing Director and CEO of Asciano provides him with current insights, particularly into remuneration practices which are very valuable for Telstra. Now, consistent with our practice each year since he took up his role at Asciano and as part of the board's recent annual director performance review, John's performance was assessed to ensure that his Asciano commitments were not impeding his effectiveness on the Telstra board. It was agreed by the board that they were not. The board, other than John Mullen, recommends the re-election of Mr Mullen. I will not take any questions you may have in relation to his re-election.

Microphone four.

SPEAKER:

Chairman, I would like to introduce again Mr Michael Waterhouse.

MR MICHAEL WATERHOUSE:

The Australian Shareholders Association would like to just make one comment of a concern around Mr Mullin's being the Remuneration Chair. Being a CEO, we have a concern around the possible conflict of interest. As Mr Mullen leads to the Remuneration Committee when he is a working CEO and a member of the CEO's club, surely, it's a conflict of interest for him to be leading the remuneration policy in amounts of the CEO and senior executives.

CATHERINE LIVINGSTONE:

Thank you, Mr Waterhouse. Well, we actually take quite the opposite view. And the fact that Mr Mullen is a current CEO means that he is very clear and very familiar with current remuneration practices and not just at the senior executive level but throughout the organization. And I can assure you, Mr Mullen brings to his role as Chair of the Remuneration Committee and inquiring and challenging and a questioning, as well as a very informed mind to that role and responsibility. Again, the Remuneration Committee makes recommendations to the board and all decisions are subject to board approval, including the CEO's remuneration. But I just want to emphasise that Mr Mullen's experience as an acting CEO is very valuable in terms of his role on the Remuneration Committee. I think we don't have any other questions, so we'll take the discussion on that item is finalised and the proxy and direct voting position is being shown on the slide behind me. And as indicated in the notice of meeting, I intend to vote undirected proxies on this item in favour of the re-election of Mr Mullen.

So if you can fill out your voting cards for item three B. I now turn to item three C, and as this involves my re-election, I will step down from the chair and invite Nora Scheinkestel, Chairman of your Audit and Risk Committee to chair the meeting for this item, Nora.

NORA SCHEINKESTEL:

Thank you, Catherine. Good morning again, shareholders. Item three C is to consider and, if thought fit, pass the following resolution as an ordinary resolution that Ms Catherine Livingstone, being eligible, be re-elected as a Director. Catherine's details are set out in the notice of meeting. She joined the board as a non-executive director in November 2000 and has been our chairman since May 2009. Catherine has significant senior management experience in the areas of finance and general management, especially in the medical devices sector. She's an extremely experienced non-executive director, having served on the boards of a number of large Australian corporates across a range of industries. And of course, as many of you will know, this year, she has been appointed as President of the Business Council of Australia. Catherine brings invaluable experience and expertise to the board as an independent non-executive director, your board believes that she is an outstanding chairman of your company.

And Telstra has seen considerable success during her tenure as chairman. The board, obviously, other than Catherine, recommends the re-election of Ms Livingstone. So I'd now take any questions that you may have on her re-election.

SPEAKER:

Microphone one. (INAUDIBLE). Sorry. Microphone four perhaps. Chairman, I would like to introduce (UNKNOWN). Once again, the Australian Shareholders Association wants to note that as Catherine is now being a member of the board for 14 years, we do not regard her as independent. After 12 years, a director is not classified in our policies as an independent director. The (UNKNOWN) understands that Telstra has a policy relating to the tenure of long-serving directors. Is there a policy relating to long-serving chairmen, if not, and why not? The reason I ask that question is because on election of this particular period, the next time Catherine might come for election as the chairman, she will reach the 12-year limit. Thank you, Mr (UNKNOWN) for your comments. Every year, the board conducts a review of our own performance and of each individual director and I, as chairman of the Audit Committee, in fact, conducted Catherine's review. And, of course, particularly for those directors that are up for re-election, the board spends considerable time assessing their suitability.

In that process, of course, tenure was an issue that the board gave a lot of thought to and independence. And as you've heard from not only David and Catherine this morning but also some of the directors when they were introducing themselves, Telstra's a very different company today from what it was five years ago, a little known when Catherine began. So, the board took into account that for independence, independence of mind is extraordinarily important. Catherine continues to bring a fresh external perspective. Her many other roles, particularly now with the BCA, brings an external perspective to our business that really is invaluable. So, the board was certainly comfortable that she does remain independent and on tenure that it was appropriate given the success of the company, the many issues that Catherine has studied over the last few years, some of which is still ongoing, that it was important and appropriate that we support her re-election. But we note your comments and I thank you for them.

So, now I'll try microphone one. Thank you, chairman, we have (UNKNOWN) for another question. Good morning, (UNKNOWN). We'd just like to say and express you Miss Livingston, that congratulations on the appointment of President of the Business Council. And also on behalf of the shareholders, we want to thank you, the ones that I represent, we want to thank you for the diligent and good job that you've done for Telstra. Thank you. Thank you, Mr (UNKNOWN), for your comments, and I'm sorry, Mr (UNKNOWN), I got my names muddled up. If there are no further questions, then I think we have now finalised discussion of this item and the proxy and direct voting position is being shown on the slide behind me. As indicated in the notice of meeting as chairman of the meeting for this item, I intend to vote undirected proxies on this site and in favour of Miss Livingston's re-election. So, if you could please now fill out your voting cards for Item three C. And as we have now finalized this item, I'll turn the meeting back over to Catherine.

CATHERINE LIVINGSTONE:

Well, thank you very much, (UNKNOWN), and can I thank you, shareholders? It's a huge honour to chair the board of your company and to be working with Telstra, which is one of Australia's longest and greatest organisations. So, as I say, it's a huge honour and thank you very much for your support. I now turn to Item four on today's agenda, which is to consider and if thought fit passed the following resolution as an ordinary resolution. "That approval be given for all purposes for the grant to the Chief Executive Officer David Thodey of up to 939,716 performance rights under the Telstra FY15 Long Term Incentive plan on the terms summarised in the explanatory notes. In summary, if shareholder approval is obtained, each performance right will, subject to satisfaction of the performance measures described in the notice of meeting, entitle David to one fully paid Telstra share at the end of the three year performance period. The number of performance rights represents the maximum potential number of shares that may be earned by David under their FY15 LTI plan.

The actual number of shares that he may receive in 2017 will be determined based on the company's performance over the three year performance period. Any shares earned if the performance rights (UNKNOWN), will be subject to a further one-year trading restriction period. David, as the CEO, is the only director entitled to participate in the plan. The board, other than David Thodey, considers the grant of performance rights to the CEO to be appropriate and recommends shareholders vote in favour of Item four. I will now take any questions that you may have on this item. I think we're waiting between Mr (UNKNOWN) and Mr (UNKNOWN). So, I'll go to microphone four.

SPEAKER:

Chairman, I would like to introduce (UNKNOWN). Thank you. Again, Australian Shareholders Association. Performance rights, long term incentive programs, short term incentive programs, fixed remuneration. The mixture of all those elements we find tends to be a bit of a black art. However, we have a number of policies that we try to encourage companies to take on. And I know a number of elements of the remuneration program that Telstra uses contradicts some of those policies. First of all, I know that the fixed remuneration is considered by the remuneration on their analysis and surveys of others to be approximately at the 50% or the mean of the companies they surveyed, so that the fixed remuneration is about right, according to where the board wants to place the fixed remuneration. Where we come to short term incentive programs, short term incentive awards are anywhere between, for the CEO, 150% to 200% of the fixed remuneration. The policy for ASA is that the maximum we don't encourage short term incentives that much, we want to see most of them put in the long term incentive, but the maximum would be equal to the fixed remuneration, not twice the fixed remuneration.

As we understand the long term incentive, it's the opportunity is there to achieve the same amount as fixed remuneration in shares. We would certainly like to see that large incentive for short term measures to be moved to the long term incentive program and the short term reduced significantly, very significantly. Because even when at the short term incentive, you only had to reach the thresholds, you still get 50% of the award, which is twice fixed remuneration as we read it. So, we certainly accept the efforts and the results of Telstra and the reward to shareholders. We accept that. However, I just alert you that we will be looking at a lot closely at the remuneration program at Telstra over the next 12 months to try and get it in alignment with the policies of ASA. Thank you.

CATHERINE LIVINGSTONE:

Thank you, Mr (UNKNOWN). The matters you raise actually relate to the next agenda item, but nonetheless, let's address them now. In our remuneration framework, we actually place a significant emphasis on the incentive pay. And that's why. So, for the CEO's remuneration, Mr Thodey's fixed remuneration will actually be kept constant for the third year in a row. No increase in the fixed remuneration because we believe that the rewards should be through the incentive remuneration, both this short term incentive and the long term incentive. So, that's why we set the CEO's remuneration at the 50th percentile for the reference group, which you see ASX 20. Other organisations pay a fixed remuneration at a higher percentile level. And in terms of our short term incentive, there is a longer-term dimension to that because 25% of the short term incentive is deferred into Telstra shares, which they invest at 12 months and 24 months after the actual earning of the short term incentive. So, the executives are exposed to the share price for a further two years after the short term incentive award being made.

So, that's how we link the short term and the long term if you like. But the way the remuneration is structured, the emphasis is on the incentive pay not on the fixed remuneration. So, if I could go to microphone one, please?

SPEAKER:

Chairman, we'd like to welcome back (UNKNOWN) for another question. Thank you, Madam Chairman. I should just indicate that to both John and to Peter and to yourself that all the votes that I carry who voted for you people.

CATHERINE LIVINGSTONE:

Thank you.

SPEAKER:

Ladies and gentlemen, I just want to say this in respect of our CEO David Thodey who when he came to the company and I told you that what our share price was. And he stood there and he told mum and dad shareholders, as well as the institutional shareholders what he was going to do and there would be pain and there was pain. He never, as I said, buried his head in the sand and he's always been willing. You think about the asbestos in the pits. He never buried his head in the sand. I mean, the CEO understands and gets the picture. He never took us to (UNKNOWN) like half the other CEOs, brickworks coal mining companies? What more? The CEO understands the business, and that's clearly evident in the shareholder return and the share price from what it was when he started to where it is now. And he never gets up there and praises himself. He always says there's more to do. And at every meeting I've ever been to representing other people, they're the words that comes out of his mouth, he's humble.

He's gracious. And it's the people that he brings along with him that makes the organization great. Thank you.

CATHERINE LIVINGSTONE:

Thank you very much, Mr (UNKNOWN), and I'll take those comments as being in supportive of the resolution. I think there are there are no other questions. Sorry. Microphone one.

SPEAKER:

Chairman, welcome back (UNKNOWN). Thank you for this. I've been looking at my (UNKNOWN). And on Page 54 it shows that (UNKNOWN) is reasonably well-compensated, 8 million this year and almost 9 million last year. I don't really got the year before that. Well, I happen to think he's doing a fabulous job. I happen to think that Telstra has improved out of sight because I've been a customer since the PMG days. I mean, I really do know what improvement means. I can remember trying to get a phone when telecom was running things. I mean, gee. So, yes, Telstra is doing well. But what do you do with $8 million a year? And on top of that, why do you need a million performance rights at, say, six bucks a share? Another 6 million as an incentive? And on top of that again, I'm quite sure David Thodey would come and do his job, as would any other of the senior management team if there was no long term incentive at all because they like doing it. When I worked in the corporate environment, admittedly never for a company quite as big as Telstra...

MAXWELL:

We had a very effective short-term incentive. And the short-term incentive was do your job, or it don't come Monday. I can't see the point of short-term incentives at all for senior executives. They either do the job because they like doing it, and they're competent. But they don't need short-term incentive. Long-term incentives, sure, fine. So, if you were to kill the short-term incentive for all of them, not just David Thodey, and then restructure the long-term incentives so that there was a lot more at risk, that would make more sense. But this Rich C scheme you've got, and on top of that, another, five million, I don't understand what are you gonna do with all that money? (AUDIENCE CLAPPING)

SPEAKER:

Mr. Maxwell, thank you for your observations. I think through our remuneration report, we've tried to be very transparent in terms of the structure of the remuneration, as well as the reasons for having that structure. And we are constantly having to make sure that we retain and attract very senior talent into this business, and therefore we have to have regard to the market and the remuneration structures that are available as options to the people that we wish to attract. We believe we do have a very competitive remuneration structure in terms of being able to attract and retain people. And we have, as I said, balanced it so that we have as much in terms of incentive pay versus the fixed remuneration. And in both the short term and the long term incentive, there is ongoing exposure to the Telstra share price, which means that the interests of executives and the interests of shareholders are aligned through that exposure. But we note your comments. I don't think we have any more questions on that item, so we have now finalized our discussion on Item 4, and the proxy and direct voting position is being shown on the slide behind me.

As indicated in the notice of meeting, I intend to vote all available proxies in favour of the grant of the performance rights to the CEO. So, if you could fill out your voting cards for item 4 at this stage. I now turn to item 5 on today's agenda, which is to consider and, if thought fit, pass the following resolution as an ordinary resolution. That the Remuneration Report for the year ended 30 June 2014 be adopted. The vote on this item is advisory only. However, the board will take the outcome of the vote into consideration when reviewing our remuneration practices and policies. And, for example, as a result of the feedback at last year's AGM, we have improved the clarity of reporting of short-term and long-term incentive outcomes. As I've tried to indicate in my just earlier comments, the governance of remuneration outcomes remains a key focus for the board and for the remuneration committee. We do regularly review our policies to ensure that the remuneration for our executives continues to be aligned with company performance, that it supports our business strategy, and reinforces our culture and our values.

At the same time, we provide market competitive remuneration to attract, motivate and retain highly skilled people, thus creating sustainable value for Telstra and our shareholders. The overall structure and philosophy of our approach to remuneration remained constant throughout 2014. As you've heard this morning, Telstra delivered strong financial results in the 2014 financial year. These results were underpinned by progress against our key strategic priorities, including continued growth in customer numbers and improvements in customer service and productivity. This serves to reinforce our position as a leading telecommunications and technology company. But I'd like to comment on a few of the specific items in terms of our remuneration structure and outcomes. As I've said, the CEOs fixed remuneration was not increased during FY14, as it is close to the median of the ASX 20 CEO positions. And this was always the target that we set right from the time when Mr. Thodey was appointed as CEO in 2009.

Total reported remuneration for the CEO decreased from 8.8 million to 8.2, primarily due to a lower short-term incentive outcome in the 2014 financial year. For the 2014 financial year, all our senior executives participated in the same short-term incentive, or STI plan, with the exception of our group executive wholesale, for whom the STI reflects regulatory requirements. The performance measures of the plan were free cash flow, EBITDA, total income, our customer advocacy net promoter score, and individual performance objectives. The board selected these performance measures as it believes they're a critical link between achieving the outcomes of our business strategy and increasing our shareholder value. For FY 14, the STI outcomes for senior executives was an average of 53.6% of the maximum opportunity, and that was based on the assessment of financial, customer, and individual performance. This outcome reflects Telstra's strong financial performance, but also that we did not achieve our customer advocacy target, notwithstanding that our advocacy score improved across all customer segments.

So, that portion of the STI, and it's a significant portion, that was attributed to the net promoter score, was awarded zero short-term incentive. Turning to the long-term incentive or LTI outcomes, the performance period for the FY12 LTI plan concluded on the 30th of June 2014, 78.15% of the performance rights vested in the form of restricted shares for this plan. There were two performance measures, relative total shareholder return and free cash flow return on investment. In terms of the relative shareholder return, Telstra ranked at the 95th percentile of the global peer group over the three-year performance period. There was also above target performance on free cash flow return on investment measured over the same three-year performance period. The shares allocated to executives under this plan are subject to a further 12 month restriction period, which ends in August 2015. Consistent with prior years, the board determined outcomes relating to both the STI and the LTI to ensure that there were no windfall gains or losses due to the timing of the NBN rollout or spectrum purchases, as well as acquisitions and divestments, including CSL and Census.

In particular, I want to note that the profit and the cash received on the sale of our Hong Kong Mobile Business, CSL, was excluded in determining these outcomes. And finally, in respect of non-executive director remuneration, there was no increase in board or committee fees in the 2014 financial year. So the board recommends that shareholders vote in favour of the adoption of the remuneration report, and I'll now invite any questions on this item. Microphone 4. Chairman, I would like to introduce Michael Waterhouse.

MICHAEL WATERHOUSE:

Thank you. I'd like to commend Telstra on the efforts they've gone to, to be transparent with the whole remuneration program. And I'd like to make a couple of comments around some of the detail of it. It's interesting that you use the ASX evaluation to determine the base salary and its median comparing your fixed remuneration, and then from that, your multiples is what you use for incentive programs. However, when you come to total shareholder value, you take the 23 companies from around the world, which represent Telstra type companies. And you note that you were 96% achievement today. In other words, you're almost at the top of the tree. I wonder whether you're at the top of the tree if you use the ASX200. If you're gonna use it for one, would you not use it for the other? The reason I ask that question is because Telstra has a legacy from its history. Like a lot of the 23 companies you're using as a peer group, in other words, there have been a monopoly situation, government-owned, et cetera, and regulatory, confined or protected, whichever way you wanna look at it, for many, many years and have built those systems and rights of ways, et cetera.

While a lot of those things have been replaced by technology, the rights of ways is what is giving you a lot of revenue in terms of NBN, particularly as one example. So, I wonder, given the different regimes, regulatory regimes, government policies, etc., of the 23 peer group that you're using to compare for total shareholder return. I wonder if you pick out probably half a dozen of those which are in a much equal competitive environment that we have here in Australia and has the legacy that is equivalent to what you have here, and compare those as the core of the peer group and leave the other 20 or 16 or 18 fall into the background so we can look at the 23, but also pull out the likes of Bell Canada, Sprint, AT&T and pull them out and directly compare them, so that their average is not washed out by the mediocre.

SPEAKER:

Thank you, Mr. Waterhouse. So, just commenting, first of all, in terms of the reference group for the shareholder return versus remuneration. The reason we use the peer group that we do and the global peer group is because we expect our executives and our senior leadership team to be doing better than the peer group in terms of the strategies available to telecommunications businesses today, and it is a global business. And as you've heard, we're participating increasingly on a global basis. So in terms of the incentive, we're trying to provide the incentive to our executives to build shareholder value. And we have as a reference point the strategies that other telcos around the world are using. In terms of selecting out individual or a smaller group of those telcos. In fact, the executives and David visit those telcos, and we as a board also meet when we travel overseas. There's no one model for a telco, and even looking at its heritage and its legacy, and we actually try to learn from all of them and apply the strategies to our own business.

But we look to find the best that there is and apply it to us. So, there's no one or even a small group of global peers whom we regard as exactly analogous with our business because telcos have developed so differently in every country because, as you say, of the regulatory environment and the technology. So that's why we use that global peer group reference. I think there are no other questions on this item. So we've now finalized discussion, and the proxy and direct voting position is being shown on the slide behind me. As indicated in the notice of meeting, I intend to vote all available proxies on this item in favour of the adoption of the remuneration report. So please fill out your voting cards for item five. Shareholders that concludes our discussion of each item on today's agenda, and if you haven't already done so, please complete your voting card and place it in one of the ballot boxes, which the attendants will be carrying throughout the room or in one of the boxes at the exits to the room.

The poll will remain open for a further 15 minutes to enable everyone to cast their votes. And as I said, the results of the poll will be available later today on our website and the ASX. So can I thank you all very much for your attendance today? It's been a pleasure to be in Queensland, and the board is here for another few days for its board meetings. But we're delighted to have been here, and can I thank you all for coming to the AGM and also thank those who viewed the AGM online. So, all items of business having been considered, I now declare the meeting closed and invite you to join us for lunch. Thank you very much. (AUDIENCE CLAPPING)