ACCOUNTING SEPARATION OF TELSTRA CURRENT COST ACCOUNTING REPORT FOR JULY-DECEMBER 2010

May 2011

Executive Summary
This report provides financial statements for Telstras core services the unconditioned local loop service, PSTN originating and terminating access services and local carriage service which have been prepared on the accounting basis of historical cost accounts (HCA) and current cost accounts (CCA). This report is intended to provide general guidance only. Particular qualifications to the financial statements are discussed in the report. It should be noted there are differences between the manner in which Telstras financial statements have been prepared and how costs and asset values are estimated for the purpose of determining prices for regulated services. When determining access prices for a number of telecommunications services, the ACCC has in the past regularly adopted the total service long-run incremental cost (TSLRIC+)1 approach as a costing methodology. The ACCC had initiated a review of these access pricing principles in 2009 considering different pricing approaches, including the building block methodology. Following amendments to the Competition and Consumer Act 2010, this review was suspended. In March 2011, the ACCC issued interim access determinations adopting the building block (also known as a regulated asset base) approach in determining access prices for declared fixed-line services. The ACCC has also now commenced consultation on the final access determinations for regulated fixed line services.

'+ refers to the addition of common and indirect costs

1 Introduction
In December 2002, the Government enacted the Telecommunications Competition Act 2002, which introduced a statutory framework for the enhanced accounting separation of Telstras wholesale and retail operations. On 19 June 2003, the Minister for Communications, Information Technology and the Arts made a Direction implementing this accounting separation. The Direction required the ACCC to establish a regular reporting regime under which Telstra would prepare half yearly financial statements on HCA and CCA basis. Further, the ACCC was directed to publish the reports as they relate to the core services the unconditioned local loop service, PSTN originating and terminating access services and local carriage service, and comment on the accuracy of the reports and other matters. Current cost refers to the present-day cost of acquiring an asset which is identical or substantially similar in capacity or functionality to the existing asset in use (which may have been purchased a number of years ago). Historical cost refers to the original purchase price of the existing asset. The bases on which Telstra is to prepare these financial statements are contained in record keeping rules (RKR) that the ACCC made under the then Trade Practices Act 1974, now the Competition and Consumer Act 2010 (the CCA). In addition, these reports are prepared consistently with the existing Telecommunications Industry Regulatory Accounting Framework (RAF). Telstras initial report, released in December 2003, covered the two half years and full year of 2002-03. In May 2004 a second set of current cost reports was released covering the half year to 31 December 2003. In September 2004, the ACCC revised the basis on which these reports were to be prepared. The revision specified the use of modern equivalent asset (MEA) valuations2 and the use of financial capital maintenance (FCM)3 as the basis of reporting as this was consistent with the ACCCs TSLRIC+ pricing approach at that time. Since this time there has been considerable debate and uncertainty about what constitutes an MEA for a copper network, which should be borne in mind when reading this report. The building block approach the ACCC adopted in its recent interim access determinations for fixed line services takes a different approach, and looks at the actual costs incurred when constructing or purchasing an asset as opposed to estimating the hypothetical costs of a MEA in the TSLRIC+ approach.

Under the MEA valuation method, the replacement cost of an asset is based on the cost of a modern equivalent asset, which is an asset with the same service potential as the existing asset and can produce the same stream of services and at the same level of quality. FCM is concerned with maintaining the real financial capital of a firm so that it can continue financing its functions. (Refer to section 2.1 of this report.)

2 Financial statements
The following financial statements are provided at Attachments A(1) to A(3): A(1) Fixed asset statement as at 31 December 2010 A(2) Capital employed statement for first half (1H) of 2010-11 A(3) Capital adjusted profit and loss statement for 1H of 2010-11

2.1 Qualifications to the financial statements

There are a number of matters that should be considered in interpreting the enclosed financial statements. These are: Telstra operates a number of networks in addition to its fixed-line PSTN, and the core services represent a relatively small use of Telstras fixed line PSTN infrastructure hence these financial statements do not provide guidance on Telstras overall financial performance, the performance of its fixed line services more generally or of the overall valuation of Telstras fixed line network a very high proportion of the reported costs are common costs, i.e., they are incurred in order to support a number of different services (including services not the subject of this report) hence, reported costs reflect allocations made to the core services from cost pools, and changes in costs over time can reflect changes in these allocations as well as changes in the cost pools. the financial statements have been prepared using Telstras own estimate of its weighted average cost of capital, which exceeds what the ACCC considers to be a reasonable estimate a higher WACC will increase the reported value of capital employed and reduce the reported capital adjusted profit. CCA revaluations of many of the assets used to supply the core services have been prepared on a simple indexation basis only, and this is likely to have affected the accuracy of the CCA information contained in this report. CCA revaluations are not undertaken for asset classes that represent less than ten percent of the total assets by historic value. the concept of financial capital maintenance has been adopted in the CCA financial statements, which reduces the reported capital adjusted profit below what would be reported in nominal terms. These matters are discussed further below. Limited scope of financial statements The core services are some of the wholesale services that Telstra supplies over its fixed line PSTN. Telstra also operates cable and wireless networks, and supplies various retail and wholesale services over these networks. Telstra also supplies other services, such as directories and media services. Reflecting this, the enclosed financial statements represent a small proportion (less than ten percent) of Telstras operating revenues and costs. Consequently, the enclosed statements cannot be relied upon to
4

provide guidance on Telstras overall financial performance. Nor do the enclosed financial statements reflect the overall valuation of Telstras fixed line network (which is that used to provide wholesale and retail services). Common costs A very high proportion of the costs reported for the core services are incurred in common with the supply of at least one other service. Consequently, it is necessary to allocate costs from common cost pools when preparing financial statements for each of the core services. This is done based on an assessment of the relative importance of a service to a particular cost pool. Given the high proportion of common costs, these allocations can have a significant influence on the financial statements for a given service. Further, changes in costs over time or between services can reflect changes in the proportion of costs allocated to services as well as changes in the overall cost base. For instance, in the enclosed reports, costs allocated to the local carriage service are significantly less than those reported for previous periods, and costs allocated to the unconditioned local loop service have been significantly increased. This is consistent with the reallocation of common costs as a result of changes in relative demand for these services. Cost of capital The cost of capital is the opportunity cost of the debt and equity funds that finance the operations of the firm. The average opportunity cost of the firms debt and equity financing is weighted to give a weighted average cost of capital. (WACC) The WACC values reported in these financial statements are identified in the Capital Employed Statement. They have been calculated by Telstra, and exceed the ACCCs estimate of the WACC values that would be appropriate for Telstras fixed line PSTN businesses. A higher WACC will increase the reported capital employed and reduce the reported capital adjusted profit. Consequently, reducing the WACC values to levels that the ACCC considers would be appropriate would reduce the reported capital employed and increase the capital adjusted profit and loss. It is also important to note that the enclosed profit and loss statements have been prepared on a capital adjusted basis. This differs to a nominal profit and loss statement, in that the opportunity cost of equity financing (i.e., a normal return for shareholders) is accounted for before calculating the reported profit or loss. Approach to CCA asset valuation Under CCA, assets are to be valued at their current replacement cost rather than historical cost. This could be done primarily via one of the following methods: indexation absolute valuation, or service potential valuation.

The indexation method involves revaluing an asset by indexing its historical/revalued value. The absolute valuation method involves obtaining current unit price data for specific assets and multiplying this by the physical number of units currently in service. This price data incorporates volume discounts and escalations for installation and commissioning costs. The service potential valuation method is similar to the absolute valuation method, except that an adjustment is made for the differences in service potential between the substitute (modern equivalent) asset and the commercially-unavailable existing asset. Telstra has progressively implemented a modern equivalent asset valuation methodology in respect of switching, optical fibre, transmission and mobile network assets. However, as a result of Telstras system limitations, it remains impossible to identify CAN Copper Cables and CAN Ducts and Pipes with sufficient accuracy to enable their measurement on an absolute valuation or service potential valuation basis. These assets have therefore been valued by indexing the written down value (WDV) of the CAN Copper Cables and CAN Ducts and Pipes. WDVs are available from the asset accounting system.4 Composite indexes of labour, material and other costs have been used to index these assets over their service lives to the end of the relevant periods. The use of this valuation method for CAN assets in these reports should not be construed as the ACCC endorsing indexation valuations more generally. While the ACCC is concerned that the use of indexation as the primary basis for valuation for a significant portion of Telstras existing asset base is the least preferred measurement approach, following representations from Telstra, the ACCC has agreed to Telstra continuing its use for CAN asset valuations until December 2010. The ACCC will consider the appropriate approach for CAN asset valuations for future periods. Also, in the enclosed CCA reports, not all asset classes have been revalued. The ACCC has agreed to those asset classes that represent less than ten percent of the historical cost base not being revalued. This is on the basis that revaluing these asset classes would be unlikely to have a material effect on the overall accuracy of the CCA financial statements. These asset classes can be identified in the enclosed Fixed Asset Statement as those valued the same under HCA and CCA. Financial capital maintenance In determining the level of profit reported in the CCA profit and loss statements, the concept of financial capital maintenance (FCM) has been used. FCM is concerned with maintaining the real financial capital of the company. Capital is maintained if shareholders funds at the end of the period are maintained in real terms at the same level as at the beginning of the period. Therefore profit is only measured after provision has been made to maintain the purchasing power of opening-

In most cases, the written down value of an asset is its original purchase cost less accumulated depreciation.

period financial capital. Consequently, under FCM, reported profit will be less than what would be reported in nominal terms. Accordingly, the CCA profit and loss statements have been adjusted to reflect the effects of inflation on the resources invested in the enterprise, in addition to the other adjustments typically made under CCA i.e., to reflect holding gains or losses arising from changes in the value of the assets over the relevant period, and consequent changes to depreciation allowances.

2.2 The extent to which the reports comply with the RAF and other requirements
As part of the framework to apply to the current cost reports, the ACCC developed detailed requirements for the auditing of the reports. The audit objectives are as follows: to determine whether Telstra has implemented the requirements of the RKR appropriately and effectively to determine whether Telstra has met the ACCCs procedural requirements as specified within the RKR to determine whether the information produced and supplied by Telstra in compliance with the RKR provisions can be relied upon by the ACCC in undertaking its regulatory obligations to determine whether the historical-cost RKR reports produced by Telstra reconcile with the current-cost RKR reports produced by Telstra to determine whether Telstra exercises consistency in applying the RKR specifications to their accounting systems, and to ascertain the adequacy of Telstras monitoring, review and implementation arrangements with respect to changes which impact upon the RKR and/or the Regulatory Accounting Procedure Manual (RAPM).

As part of the audit process, the ACCC also requires the auditor to ascertain that assets have been revalued on an appropriate basis using either indexation, absolute valuation or service potential valuation methods. The information provided by Telstra for JulyDecember 2010 has not been audited yet. This will occur in conjunction with the audit of the reports for JanuaryJune 2011 and the full year 2010-11. As such, the ACCC is not in a position to conclusively state whether the report provided by Telstra for JulyDecember 2010 is accurate.

Attachment A(1)

FIXED ASSET STATEMENT AS AT 31 DECEMBER 2010

Unconditioned Local Loop Service(Declared) Domestic PSTN Originating/Terminating Services (Declared) historic cost current cost change Local Carriage Services (Declared) current cost

Values in $A millions Wholesale Fixed Assets 2-1 Communications Plant & Equipment 2-1-01 CAN Ducts & Pipes - Primary Asset 2-1-01-1 Historical/Revalued Value 2-1-01-2 Accumulated Depreciation 2-1-02 CAN Ducts & Pipes - Other Assets 2-1-02-1 Historical/Revalued Value 2-1-02-2 Accumulated Depreciation 2-1-05 CAN Copper Cables - Primary Asset 2-1-05-1 Historical/Revalued Value 2-1-05-2 Accumulated Depreciation 2-1-06 CAN Copper Cables - Other Assets 2-1-06-1 Historical/Revalued Value 2-1-06-2 Accumulated Depreciation 2-1-10 CAN Other Cables - Primary Asset 2-1-10-1 Historical/Revalued Value 2-1-10-2 Accumulated Depreciation 2-1-11 CAN Other Cables - Other Assets 2-1-11-1 Historical/Revalued Value 2-1-11-2 Accumulated Depreciation 2-1-15 CAN Pair Gain Systems - Primary Asset 2-1-15-1 Historical/Revalued Value 2-1-15-2 Accumulated Depreciation 2-1-16 Can Pair Gain Systems - Other Assets 2-1-16-1 Historical/Revalued Value 2-1-16-2 Accumulated Depreciation 2-1-20 CAN Radio Bearer Equipment - Primary Asset

historic cost

current cost

change

historic cost

change

594.6 (257.3) 0.0 0.0 0.0 0.0 652.1 (443.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

1,992.8 (1,025.2) 0.0 0.0 0.0 0.0 1,200.2 (906.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

1,398.3 (767.9) 0.0 0.0 0.0 0.0 548.1 (463.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

15.4 (7.6) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

89.1 (48.8) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

73.6 (41.2) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

853.9 (369.8) 0.0 0.0 0.0 0.0 931.8 (633.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 91.3 (73.7) 0.0 0.0 0.0 0.0

2,872.8 (1,478.7) 0.0 0.0 0.0 0.0 1,715.1 (1,295.8) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 140.6 (125.7) 0.0 0.0 0.0 0.0

2,018.8 (1,108.9) 0.0 0.0 0.0 0.0 783.2 (662.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 49.3 (52.0) 0.0 0.0 0.0 0.0

2-1-20-1 Historical/Revalued Value 2-1-20-2 Accumulated Depreciation 2-1-21 CAN Radio Bearer Equipment - Other Assets 2-1-21-1 Historical/Revalued Value 2-1-21-2 Accumulated Depreciation 2-1-25 Other CAN - Primary Asset 2-1-25-1 Historical/Revalued Value 2-1-25-2 Accumulated Depreciation 2-1-26 Other CAN - Other Assets 2-1-26-1 Historical/Revalued Value 2-1-26-2 Accumulated Depreciation 2-1-30 Switching Equipment - Local - Primary Asset 2-1-30-1 Historical/Revalued Value 2-1-30-2 Accumulated Depreciation 2-1-31 Switching Equipment - Local - Other Assets 2-1-31-1 Historical/Revalued Value 2-1-31-2 Accumulated Depreciation 2-1-35 Switching Equipment - Trunk - Primary Asset 2-1-35-1 HISTORICAL/REVALUED VALUE 2-1-35-2 ACCUMULATED DEPRECIATION 2-1-36 Switching Equipment - Trunk - Other Assets 2-1-36-1 HISTORICAL/REVALUED VALUE 2-1-36-2 ACCUMULATED DEPRECIATION 2-1-40 Switching Equipment - Other - Primary Asset 2-1-40-1 HISTORICAL/REVALUED VALUE 2-1-40-2 ACCUMULATED DEPRECIATION 2-1-41 Switching Equipment - Other - Other Assets 2-1-41-1 HISTORICAL/REVALUED VALUE 2-1-41-2 ACCUMULATED DEPRECIATION 2-1-45 Inter-exchange Cables - Primary Asset 2-1-45-1 Historical/Revalued Value 2-1-45-2 Accumulated Depreciation 2-1-46 Inter-exchange Cables - Other Assets 2-1-46-1 Historical/Revalued Value 2-1-46-2 Accumulated Depreciation 2-1-50 Transmission Equipment - Primary Asset

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 1,072.2 (1,004.6) 0.0 0.0 0.0 0.0 7.2 (7.1) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 377.1 (166.2) 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 569.4 (552.5) 0.0 0.0 0.0 0.0 7.2 (7.1) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 450.3 (218.3) 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.0 (502.7) 452.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 73.1 (52.1) 0.0 0.0 0.0 0.0

23.3 (20.7) 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 315.6 (295.7) 0.0 0.0 0.0 0.0 2.2 (2.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 170.2 (75.0) 0.0 0.0 0.0 0.0

26.6 (26.5) 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 175.6 (169.8) 0.0 0.0 0.0 0.0 2.2 (2.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 203.2 (98.5) 0.0 0.0 0.0 0.0

3.3 (5.8) 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.0 (140.0) 125.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 33.0 (23.5) 0.0 0.0 0.0 0.0

2-1-50-1 Historical/Revalued Value 2-1-50-2 Accumulated Depreciation 2-1-51 Transmission Equipment - Other Assets 2-1-51-1 Historical/Revalued Value 2-1-51-2 Accumulated Depreciation 2-1-55 Radio Bearer Equipment - Primary Asset 2-1-55-1 Historical/Revalued Value 2-1-55-2 Accumulated Depreciation 2-1-56 Radio Bearer Equipment - Other Assets 2-1-56-1 Historical/Revalued Value 2-1-56-2 Accumulated Depreciation 2-1-60 Data Equipment - Primary Asset 2-1-60-1 Historical/Revalued Value 2-1-60-2 Accumulated Depreciation 2-1-61 Data Equipment - Other Assets 2-1-61-1 Historical/Revalued Value 2-1-61-2 Accumulated Depreciation 2-1-65 Mobile Network and Terminal Equipment - Primary Asset 2-1-65-1 Historical/Revalued Value 2-1-65-2 Accumulated Depreciation 2-1-66 Mobile Network and Terminal Equipment - Other Assets 2-1-66-1 Historical/Revalued Value 2-1-66-2 Accumulated Depreciation 2-1-70 Customer Equipment - Primary Asset 2-1-70-1 Historical/Revalued Value 2-1-70-2 Accumulated Depreciation 2-1-71 Customer Equipment - Other Assets 2-1-71-1 Historical/Revalued Value 2-1-71-2 Accumulated Depreciation 2-1-75 Satellite Equipment - Primary Asset 2-1-75-1 Historical/Revalued Value 2-1-75-2 Accumulated Depreciation 2-1-76 Satellite Equipment - Other Assets 2-1-76-1 Historical/Revalued Value 2-1-76-2 Accumulated Depreciation

0.4 (0.1) 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.9 (0.8) 0.0 0.0 0.0 0.0 0.4 (0.3) 0.0 0.0 0.0 0.0 3.7 (2.7) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

0.4 (0.1) 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.9 (0.8) 0.0 0.0 0.0 0.0 0.4 (0.3) 0.0 0.0 0.0 0.0 3.7 (2.7) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

203.9 (134.6) 0.0 0.0 0.0 0.0 35.0 (24.5) 0.0 0.0 0.0 0.0 11.0 (3.6) 0.0 0.0 0.0 0.0 0.3 (0.2) 0.0 0.0 0.0 0.0 2.4 (1.8) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

97.7 (50.6) 0.0 0.0 0.0 0.0 35.0 (24.5) 0.0 0.0 0.0 0.0 11.0 (3.6) 0.0 0.0 0.0 0.0 0.3 (0.2) 0.0 0.0 0.0 0.0 2.4 (1.8) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

(106.2) 84.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

58.3 (38.3) 0.0 0.0 0.0 0.0 17.6 (12.3) 0.0 0.0 0.0 0.0 1.6 (1.3) 0.0 0.0 0.0 0.0 0.7 (0.5) 0.0 0.0 0.0 0.0 6.4 (4.7) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

28.2 (14.6) 0.0 0.0 0.0 0.0 17.6 (12.3) 0.0 0.0 0.0 0.0 1.6 (1.3) 0.0 0.0 0.0 0.0 0.7 (0.5) 0.0 0.0 0.0 0.0 6.4 (4.7) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

(30.1) 23.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2-1-80 International Network Cables - Primary Asset 2-1-80-1 Historical/Revalued Value 2-1-80-2 Accumulated Depreciation 2-1-81 International Network Cables - Other Assets 2-1-81-1 Historical/Revalued Value 2-1-81-2 Accumulated Depreciation 2-1-85 International Network - Other Systems - Primary Asset 2-1-85-1 Historical/Revalued Value 2-1-85-2 Accumulated Depreciation 2-1-86 International Network - Other Systems - Other Assets 2-1-86-1 Historical/Revalued Value 2-1-86-2 Accumulated Depreciation 2-1-90 Other Communications Plant & Equipment Primary Asset 2-1-90-1 Historical/Revalued Value 2-1-90-2 Accumulated Depreciation 2-1-91 Other Communications Plant & Equipment - Other Assets 2-1-91-1 Historical/Revalued Value 2-1-91-2 Accumulated Depreciation Total Communications Plant & Equipment 2-2 Non-Communications Plant & Equipment 2-2-01-4 Information Technology 2-2-03-4 Buildings And Improvements 2-2-05-4 Other Total Non-Communications Plant & Equipment 2-3 Other Non-Current Assets 2-3-01-4 Long Term Receivables 2-3-05-4 Long Term Investment 2-3-10-4 Intangibles 2-3-20-4 Land 2-3-25-4 Other Total Other Non-Current Assets Total Fixed Assets

0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.6 (4.1) 0.0 0.0 0.0 0.0 17.6 (7.4) 0.0 0.0 0.0 559.4 0.0 4.4 4.4 1.5 10.2 0.0 0.0 0.0 1.1 1.8 72.7 75.6 645.2

0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.6 (4.1) 0.0 0.0 0.0 0.0 17.3 (7.4) 0.0 0.0 0.0 1,273.9 0.0 4.0 2.5 0.8 7.4 0.0 0.0 0.0 0.8 1.5 67.0 69.3 1,350.6

0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 (0.3) 0.1 0.0 0.0 0.0 714.5 0.0 (0.3) (1.9) (0.6) (2.8) 0.0 0.0 0.0 (0.3) (0.3) (5.7) (6.3) 705.4

0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.7 (2.7) 0.0 0.0 0.0 0.0 228.1 (107.1) 0.0 0.0 0.0 496.5 0.0 1.0 3.4 1.1 5.5 0.0 0.0 0.0 0.6 1.2 25.7 27.6 529.6

0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.7 (2.7) 0.0 0.0 0.0 0.0 228.1 (107.1) 0.0 0.0 0.0 477.1 0.0 1.0 3.3 1.1 5.3 0.0 0.0 0.0 0.6 1.2 25.3 27.1 509.5

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 (19.4) 0.0 (0.0) (0.1) (0.0) (0.2) 0.0 0.0 0.0 (0.0) (0.0) (0.4) (0.5) (20.1)

0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.8 (7.2) 0.0 0.0 0.0 0.0 162.5 (79.0) 0.0 0.0 0.0 1,031.3 0.0 5.5 6.6 2.2 14.3 0.0 0.0 0.0 1.5 2.5 86.2 90.2 1,135.7

0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.8 (7.2) 0.0 0.0 0.0 0.0 162.1 (78.9) 0.0 0.0 0.0 2,045.4 0.0 5.0 3.9 1.3 10.3 0.0 0.0 0.0 1.0 2.1 78.3 81.4 0.0 2,137.1

0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 (0.4) 0.1 0.0 0.0 0.0 1,014.1 0.0 (0.4) (2.7) (0.9) (4.0) 0.0 0.0 0.0 (0.4) (0.4) (8.0) (8.8) 1,001.3

Attachment A(2) CAPITAL EMPLOYED STATEMENT 1H 2010-11

Unconditioned Local Loop Service(Declared) Values in $A millions Wholesale Assets 2-1 Communications Plant & Equipment 2-1-01 CAN Ducts & Pipes - Primary Asset 2-1-02 CAN Ducts & Pipes - Other Assets 2-1-05 CAN Copper Cables - Primary Asset 2-1-06 CAN Copper Cables - Other Assets 2-1-10 CAN Other Cables - Primary Asset 2-1-11 CAN Other Cables - Other Assets 2-1-15 CAN Pair Gain Systems - Primary Asset 2-1-16 CAN Pair Gain Systems - Other Assets 2-1-20 CAN Radio Bearer Equipment - Primary Asset 2-1-21 CAN Radio Bearer Equipment - Other Assets 2-1-25 Other CAN - Primary Asset 2-1-26 Other CAN - Other Assets 2-1-30 Switching Equipment - Local - Primary Asset 2-1-31 Switching Equipment - Local - Other Assets 2-1-35 Switching Equipment - Trunk - Primary Asset 2-1-36 Switching Equipment - Trunk - Other Assets 2-1-40 Switching Equipment - Other - Primary Asset 2-1-41 Switching Equipment - Other - Other Assets 2-1-45 Inter-Exchange Cables - Primary Asset 2-1-46 Inter-Exchange Cables - Other Assets 2-1-50 Transmission Equipment - Primary Asset 2-1-51 Transmission Equipment - Other Assets 2-1-55 Radio Bearer Equipment - Primary Asset 2-1-56 Radio Bearer Equipment - Other Assets 2-1-60 Data Equipment - Primary Asset 2-1-61 Data Equipment - Other Assets
2-1-65 Mobile 2-1-66 Mobile

Domestic PSTN Originating/Terminating Services (Declared) change historic cost current cost change

Local Carriage Services (Declared) historic cost current cost change

historic cost

current cost

337.2 0.0 209.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 (0.0) 0.0 0.1 0.0 0.1 0.0

967.6 0.0 293.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 (0.0) 0.0 0.1 0.0 0.1 0.0

630.4 0.0 84.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0

7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 67.6 0.0 0.1 0.0 0.0 0.0 211.0 0.0 69.3 0.0 10.5 0.0 7.3 0.0 0.1 0.0

40.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 16.9 0.0 0.1 0.0 0.0 0.0 232.0 0.0 47.1 0.0 10.5 0.0 7.3 0.0 0.1 0.0

32.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 (50.7) 0.0 0.0 0.0 0.0 0.0 21.0 0.0 (22.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

484.1 0.0 298.7 0.0 0.0 0.0 17.6 0.0 2.5 0.0 0.1 0.0 19.9 0.0 (0.3) 0.0 0.0 0.0 95.2 0.0 20.0 0.0 5.3 0.0 0.3 0.0 0.2 0.0

1,394.0 0.0 419.2 0.0 0.0 0.0 14.9 0.0 0.0 0.0 0.1 0.0 5.8 0.0 (0.3) 0.0 0.0 0.0 104.7 0.0 13.7 0.0 5.3 0.0 0.3 0.0 0.2 0.0

909.9 0.0 120.6 0.0 0.0 0.0 (2.7) 0.0 (2.5) 0.0 (0.0) 0.0 (14.1) 0.0 0.0 0.0 0.0 0.0 9.5 0.0 (6.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Network And Terminal Equipment - Primary Asset Network And Terminal Equipment - Other Assets

2-1-70 Customer Equipment - Primary Asset 2-1-71 Customer Equipment - Other Assets 2-1-75 Satellite Equipment - Primary Asset 2-1-76 Satellite Equipment - Other Assets 2-1-80 International Network Cables - Primary Asset 2-1-81 International Network Cables - Other Assets 2-1-85 International Network - Other Systems - Primary Asset 2-1-86 International Network - Other Systems - Other Assets 2-1-90 Other Communications Plant & Equipment - Primary Asset 2-1-91 Other Communications Plant & Equipment - Other Assets Total Communications Plant & Equipment 2-2 Non-Communications Plant & Equipment 2-2-01-4 Information Technology 2-2-03-4 Buildings And Improvements 2-2-05-4 Other Total Non-Communications Plant & Equipment 2-3 Other Non-Current Assets 2-3-01-4 Long Term Receivables 2-3-05-4 Long Term Investment 2-3-10-4 Intangibles 2-3-20-4 Land 2-3-25-4 Other Total Other Non-Current Assets 1-1 Current Assets and Free Funds 1-1-01 Eivablnet Reces 1-1-10 Other Current Assets And Related Receivables 1-1-20 Trade Creditors 1-1-30 Provisions Total Current Assets and Free Funds Total Capital Employed Weighted Average Cost of Capital Cost of Capital

1.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 10.2 0.0 559.4 0.0 4.4 4.4 1.5 10.2 0.0 0.0 0.0 1.1 1.8 72.7 75.6 0.0 28.7 3.3 (2.4) (0.8) 28.8 674.0 15.00% 50.5

1.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 10.0 0.0 1,273.9 0.0 4.0 2.5 0.8 7.4 0.0 0.0 0.0 0.8 1.5 67.0 69.3 0.0 28.7 3.3 (2.4) (0.8) 28.8 1,379.4 15.00% 103.5

(0.0) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 (0.2) 0.0 714.5 (0.3) (1.9) (0.6) (2.8) 0.0 0.0 (0.3) (0.3) (5.7) (6.3) 0.0 (0.0) 0.0 0.0 0.0 705.4 0.0 52.9

0.6 0.0 0.0 0.0 0.0 0.0 1.0 0.0 121.1 0.0 496.5 0.0 1.0 3.4 1.1 5.5 0.0 0.0 0.0 0.6 1.2 25.7 27.6 0.0 38.4 1.7 (1.1) (0.1) 38.8 568.4 15.00% 42.6

0.6 0.0 0.0 0.0 0.0 0.0 1.0 0.0 121.1 0.0 477.1 0.0 1.0 3.3 1.1 5.3 0.0 0.0 0.0 0.6 1.2 25.3 27.1 0.0 38.4 1.7 (1.1) (0.1) 38.8 548.3 15.00% 41.1

(0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 (19.4) (0.0) (0.1) (0.0) (0.2) 0.0 0.0 (0.0) (0.0) (0.4) (0.5) 0.0 (0.0) 0.0 0.0 0.0 (20.1) 0.0 (1.5)

1.7 0.0 0.0 0.0 0.0 0.0 2.6 0.0 83.5 0.0 1,031.3 0.0 5.5 6.6 2.2 14.3 0.0 0.0 0.0 1.5 2.5 86.2 90.2 0.0 65.9 4.2 (3.1) (1.4) 65.5 1,201.3 15.00% 90.1

1.7 0.0 0.0 0.0 0.0 0.0 2.6 0.0 83.1 0.0 2,045.4 0.0 5.0 3.9 1.3 10.3 0.0 0.0 0.0 1.0 2.1 78.3 81.4 0.0 65.9 4.2 (3.1) (1.4) 65.6 2,202.6 15.00% 165.2

(0.0) 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 (0.3) 0.0 1,014.1 (0.4) (2.7) (0.9) (4.0) 0.0 0.0 (0.4) (0.4) (8.0) (8.8) 0.0 (0.0) 0.0 0.0 0.0 1,001.4 0.0 75.1

Attachment A(3) CAPITAL ADJUSTED PROFIT AND LOSS STATEMENT 1H 2010-11

Unconditioned Local Loop Service (Declared) Values in $A millions Wholesale Revenue Total Wholesale Revenue Wholesale Costs Network Costs Other Costs 33.2 43.6 33.2 41.2 (0.0) (2.4) 43.2 27.4 43.2 27.2 0.0 (0.2) 69.6 47.8 69.6 44.5 0.0 3.4 106.4 106.4 0.0 86.6 86.6 0.0 247.4 247.4 0.0 historic cost current cost change Domestic PSTN Originating/Terminating Services (Declared) historic cost current cost change Local Carriage Services (Declared)

historic cost

current cost

change

Total External Wholesale Costs

76.8

74.4

(2.4)

70.6

70.4

(0.2)

117.5

114.1

3.4

Gross External Wholesale Profit/Loss CCA Adjustments Holding gains/losses on asset adjustment Supplementary depreciation adjustment Backlog depreciation adjustment Inflation adjustment Total CCA Adjustments External Wholesale Cost of Capital External Wholesale Capital-Adjusted Profit/Loss

29.6

32.0

2.4

16.0

16.2

0.2

129.9

133.3

3.4

(129.9) 34.6 53.5 8.6 (33.2) 50.5 (21.0) 103.5 (38.3)

(129.9) 34.6 53.5 8.6 (33.2) 52.9 (17.3) 42.6 (26.6)

0.1 (3.1) (5.4) 3.1 (5.3) 41.1 (19.6)

0.1 (3.1) (5.4) 3.1 (5.3) (1.5) 7.0 90.1 39.8

(187.2) 51.4 75.2 13.8 (46.8) 165.2 14.9

187.2 51.4 75.2 13.8 46.8 75.1 (24.9)

Access Cost Adjustment Access Revenue Adjustment External Wholesale Access Adjusted Profit/Loss (21.0) (38.3) (17.3)

139.2 (185.1) 19.3

155.8 (184.8) 9.4

16.6 0.3 (9.9) 39.8 14.9 (24.9)