CURRENT COST ACCOUNTING REPORT RELATING TO THE

ACCOUNTING SEPARATION OF TELSTRA FOR THE SECOND HALF OF 2012-2013,

AND FULL YEAR 2012-2013.

November 2013

1 Overview

In 2004, the ACCC issued the Current Cost Accounting Record Keeping and Reporting Rules (CCA RKR) in respect of Telstra’s accounting separation pursuant to the Australian Competition and Consumer Commission (Accounting Separation – Telstra Corporation Limited) Direction (No 1) 2003 (the Direction). Under the CCA RKR, Telstra is required to provide the following financial statements:

Fixed asset statement

Capital employed statement, and

Capital adjusted profit and loss statement.

This report provides an overview of the information in those financial statements for the second half of 2012-13, and full year of 2012-13 in respect of Telstra’s core regulated services. These core services include the following regulated wholesale services provided on Telstra’s public switched telephone network (PSTN):

the unconditioned local loop service (ULLS)

PSTN originating and terminating access services and

the local carriage service.

These financial statements have been prepared on the accounting basis of both historical cost and current cost.

This report is intended to provide general guidance only. Particular qualifications to the financial statements are discussed in the report.

It should be noted that the manner in which Telstra estimates costs and asset values in the preparation of its financial statements differs from the approach used by the ACCC in determining access prices for the regulated fixed line services.

It should also be noted that Telstra’s Structural Separation Undertaking (SSU) came into force on 6 March 2012. The SSU contains a number of interim equivalence and transparency obligations which require Telstra to supply regulated services to wholesale customers on equivalent terms to those on which it supplies its own Retail Business Units.

The SSU also requires Telstra to regularly report on its compliance with these equivalence and transparency obligations. These reporting obligations surpass those contained in the accounting separation regime. In this context, the ACCC understands that a government decision concerning the future of the enhanced accounting separation regime is pending. Should the Minister choose to revoke the Direction requiring the ACCC to administer the enhanced accounting separation of Telstra, the ACCC would proceed to revoke the CCA RKR.

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2 Introduction

The Telecommunications Competition Act 2002 introduced a statutory framework for the enhanced accounting separation of Telstra’s wholesale and retail operations. The Direction builds on the statutory framework.

The Direction required the ACCC to establish a regular reporting regime under which Telstra would prepare half yearly financial statements based on a historical cost accounting and current cost accounting. The ACCC was also directed to publish the reports as it relates to the ‘core services’—the ULLS, PSTN originating and terminating access services and the local carriage service—and comment on the accuracy of the reports and other relevant matters.

Historical cost refers to the original purchase price of the existing asset. Current cost refers to the present-day cost of acquiring an asset that 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).

The basis upon which Telstra is required to prepare these financial statements is contained within the CCA RKR.1 In addition, these reports must be prepared in a manner consistent with the Telecommunications Industry Regulatory Accounting Framework (RAF).

In the past, when the ACCC determined access prices for a number of telecommunications services, it regularly adopted the total service long-run incremental cost (TSLRIC+)2 approach as a costing methodology. In September 2004, the ACCC revised the CCA RKRs to require using modern equivalent asset (MEA) valuations3 and the use of financial capital maintenance (FCM)4 as the basis of reporting to ensure consistency with the TSLRIC+ pricing approach that was adopted at that time. Since then, 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.

In July 2011, the ACCC issued final access determinations (FADs) for the regulated fixed line telecommunications services. The ACCC adopted the building block methodology commonly used in other regulated industries in the FADs.

Therefore, it should be noted that the manner in which Telstra estimates costs and asset values in the preparation of these financial statements differs from the approach used by the ACCC in its determination of access prices for the regulated fixed line services issued in June 2012.

1 The CCA RKR was made by the ACCC under the Trade Practices Act 1974 (now the Competition and Consumer Act 2010).2 ‘+’ refers to the addition of common and indirect costs.3 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.4 FCM is concerned with maintaining the real financial capital of a firm so that it can continue financing its functions (refer to section 3.1.5 of this report).

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3 Financial statements

The following financial statements are provided at Attachments A(1) to A(4):

A(1) Fixed asset statements (as at 30 June 2013).

A(2) Capital employed statements (for the second half of 2012-13).

A(3) Capital adjusted profit and loss statement for the second half of 2012-213

A(4) Capital adjusted profit and loss statement for the full year of 2012-2013.

3.1 Limitations to the financial statementsThere are a number of matters that should be considered in interpreting the enclosed financial statements. These include:

The extract of the financial statements provided in this report provides only limited guidance on Telstra’s overall financial performance, the financial performance of its fixed line services more generally and the overall valuation of Telstra’s fixed line network. This is because Telstra also uses its fixed line PSTN to supply other services in addition to the ‘core services’ presented in the report. Further, Telstra also operates other networks in addition to the fixed-line PSTN.

A significant proportion of the reported costs are common costs of a number of services including those not covered in this report. Hence, reported costs reflect allocations made to the ‘core services’ from the overall cost pools, and changes in reported costs over time may reflect changes in these allocations as well as changes in the cost pools.

The financial statements are based on Telstra’s own estimate of its weighted average cost of capital (WACC), which exceeds what the ACCC considers reasonable. A higher WACC will increase the reported cost of capital and reduce the reported capital adjusted profit.

Current cost accounting revaluations of many of the assets used to supply the ‘core services’ have been prepared on a simple indexation basis, which is likely to have affected the accuracy of the financial statements. Further, current cost accounting revaluations are not undertaken for those individual asset classes representing less than 10 per cent of the total asset values measured on the historical cost basis.

The concept of financial capital maintenance adopted in the current cost accounting financial statements reduces the reported capital adjusted profit below that would be reported in nominal terms.

These matters are discussed further below.

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3.1.1 Limited scope of financial statements

The extracts of financial statements provided in this report only cover certain core services which consist of a number of wholesale services that Telstra supplies over its fixed line PSTN. The core services covered only account for a small part of Telstra’s overall service mix for the fixed line PSTN. Further, in addition to the 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.

As a result, the financial statements provided in this report only account for a small share of Telstra’s operating revenues and costs. Consequently, these statements only provide very limited guidance on Telstra’s overall financial performance and the overall valuation of Telstra’s fixed line network (which Telstra uses to supply both wholesale and retail services).

3.1.2 Common costs

A significant 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 weight of common costs, these allocations can have a significant influence on the reported figures 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.

3.1.3 WACC

A firm’s WACC is the risk-adjusted rate of return on capital required by debt and equity capital providers to the firm. It reflects the return investors could expect to earn by investing in the next best investment with equivalent risk; that is, it represents the firm’s opportunity cost of capital.

In preparation of the financial statements, Telstra estimated its WACC values to be 13.98 per cent for the second half of 2012-13. This WACC value exceeds the estimate used by ACCC in making its fixed line services FADs.

A higher WACC will increase the reported cost of capital and reduce the reported capital adjusted profit. Consequently, reducing the WACC value to levels that the ACCC considers appropriate would reduce the reported cost of capital and increase the capital adjusted profit.

It is also important to note that the profit and loss statements have been prepared on a capital adjusted basis, which accounts for cost of capital when calculating the reported profit or loss.

3.1.4 Approach to current cost accounting asset valuation

Under current cost accounting, 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

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service potential valuation.

The indexation method involves revaluing an asset by indexing its historical/re-valued value. The absolute valuation method and the service potential method involve 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. Under these approaches, if an asset is not commercially available, its list price is taken to be the list price for the closest commercially-available substitute for the asset. The service potential valuation method also provides for an adjustment for the differences in service potential between the substitute (modern equivalent) asset and the existing asset.

Telstra has progressively implemented modern equivalent asset valuation in respect of switching, optical fibre, transmission and mobile network assets. In respect of its customer access network (CAN) assets (i.e. CAN copper cables, ducts and pipes), Telstra continues to employ an indexation method, which values these assets by indexing their written down values (WDV) extracted from its asset accounting system.5 Telstra uses composite indices of labour, material and other costs to index these assets over their service lives to the end of the relevant periods.

This method is likely to give a less accurate measure of the current cost of the relevant CAN assets. However, switching to using the MEA method would require Telstra to make significant system and data improvements, and the ACCC has agreed to Telstra not making these changes while the future of the reporting requirement is unclear.

The use of the indexation method by Telstra for its CAN assets however should not be construed as the ACCC endorsing indexation valuations more generally.

Although the ACCC considers the indexation method less satisfactory, it agreed that Telstra continue using this method for valuation of its CAN assets until 31 December 2014.6 This decision recognises the significant costs involved in switching to a different valuation basis. It also takes into account the fact that the underlying reporting obligation may become superseded in future as a result of arrangements relating to Telstra’s SSU.

Moreover, not all asset classes have been valued on a current cost accounting basis. Those asset classes representing less than 10 per cent of the cost base measured on a historical cost basis are not required to be valued on a current cost basis. This takes into account that revaluing these asset classes would be unlikely to have a material effect on the overall accuracy of the current cost accounting financial statements.

These asset classes can be identified in the enclosed Fixed Asset Statement as those with the same values under historical cost accounting and current cost accounting.

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

6 ACCC’s letter to Telstra, 5 June 2013.

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3.1.5 Financial capital maintenance

In determining the level of profit reported in the current cost accounting profit and loss statements, the concept of 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. Profit is therefore only measured after provision has been made to maintain the purchasing power of opening period financial capital.

Accordingly, the current cost accounting profit and loss statements have been adjusted to account for holding gains or losses arising from changes in the value of the assets over the relevant period, depreciation differences between historical and current cost accounting and the impact of inflation on the resources invested in the enterprise.

3.2 The extent to which the reports comply with the RAF and other requirements

Telstra sought an exemption from the auditing requirements under the CCA RKR for the financial year ending 30 June 2013 on the basis that it should not be required to incur the expense of an audit when a decision is pending by the Minister for Communications concerning the future of the enhanced accounting separation regime.

As a consequence of granting Telstra this exemption, the ACCC is not in a position to state whether the report provided by Telstra for the January-June 2013 period is accurate.

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Attachment A(1)

FIXED ASSET STATEMENT – AS AT 30 JUNE 2013Unconditioned Local Loop Service

(Declared)Domestic PSTN

Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millionshistoric cost

current cost change

historic cost

current cost

change

historic cost

current cost

change

Wholesale Fixed Assets2-1 Communications Plant & Equipment2-1-01 CAN Ducts & Pipes - Primary Asset2-1-01-1 Historical/Revalued Value 820.7 2,715.2 1,894.4 7.0 39.9 32.9 572.4 1,896.1 1,323.7

2-1-01-2 Accumulated Depreciation (383.5) (1,518.9)(1,135.4

) (3.6) (23.5) (19.9) (267.5) (1,060.8) (793.3)2-1-02 CAN Ducts & Pipes - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-02-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-02-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-05 CAN Copper Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-05-1 Historical/Revalued Value 882.2 1,759.1 876.9 0.0 0.1 0.0 614.1 1,224.5 610.42-1-05-2 Accumulated Depreciation (690.7) (1,506.8) (816.2) (0.0) (0.1) (0.0) (480.8) (1,048.9) (568.1)2-1-06 CAN Copper Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-06-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-06-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-10 CAN Other Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-10-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-10-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-11 CAN Other Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-11-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-11-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-15 CAN Pair Gain Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-15-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 51.8 83.6 31.82-1-15-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 (47.6) (83.0) (35.4)2-1-16 CAN Pair Gain Systems - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-16-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-16-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-20 CAN Radio Bearer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-20-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 37.9 44.1 6.12-1-20-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 (35.8) (44.1) (8.2)2-1-21 CAN Radio Bearer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-21-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

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2-1-21-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-25 Other CAN - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-25-1 Historical/Revalued Value 0.1 0.1 0.0 0.1 0.1 (0.0) 0.1 0.1 0.02-1-25-2 Accumulated Depreciation (0.0) (0.0) 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.02-1-26 Other CAN - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-26-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-26-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-30 Switching Equipment - Local - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-30-1 Historical/Revalued Value 0.0 0.0 0.0 1,168.4 616.3 (552.1) 188.4 104.6 (83.9)2-1-30-2 Accumulated Depreciation 0.0 0.0 0.0 (1,153.3) (615.5) 537.8 (185.9) (104.2) 81.72-1-31 Switching Equipment - Local - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-31-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-31-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-35 Switching Equipment - Trunk - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-35-1 Historical/Revalued Value 0.0 0.0 0.0 11.6 11.6 0.0 1.3 1.3 0.02-1-35-2 Accumulated Depreciation 0.0 0.0 0.0 (11.3) (11.3) 0.0 (1.1) (1.1) 0.02-1-36 Switching Equipment - Trunk - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-36-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-36-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-40 Switching Equipment - Other - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-40-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-40-2 Accumulated Depreciation 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.02-1-41 Switching Equipment - Other - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-41-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-41-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-45 Inter-exchange Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-45-1 Historical/Revalued Value 0.0 0.0 0.0 60.3 77.0 16.7 44.4 56.7 12.32-1-45-2 Accumulated Depreciation 0.0 0.0 0.0 (29.8) (41.8) (12.0) (21.9) (30.8) (8.9)2-1-46 Inter-exchange Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-46-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-46-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-50 Transmission Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-50-1 Historical/Revalued Value 0.4 0.4 0.0 258.0 96.0 (162.0) 40.3 15.2 (25.1)2-1-50-2 Accumulated Depreciation (0.2) (0.2) 0.0 (203.4) (56.8) 146.6 (31.7) (8.9) 22.72-1-51 Transmission Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-51-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-51-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-55 Radio Bearer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-55-1 Historical/Revalued Value (0.0) (0.0) (0.0) 17.6 17.6 0.0 4.6 4.6 (0.0)

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2-1-55-2 Accumulated Depreciation 0.0 0.0 0.0 (11.1) (11.1) 0.0 (2.9) (2.9) 0.02-1-56 Radio Bearer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-56-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-56-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-60 Data Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-60-1 Historical/Revalued Value 0.7 0.7 0.0 5.8 5.8 0.0 0.5 0.5 0.02-1-60-2 Accumulated Depreciation (0.6) (0.6) 0.0 (3.7) (3.7) 0.0 (0.5) (0.5) 0.02-1-61 Data Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-61-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-61-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-65 Mobile Network and Terminal Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-65-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-65-2 Accumulated Depreciation (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 (0.0) (0.0) 0.02-1-66 Mobile Network and Terminal Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-66-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-66-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-70 Customer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-70-1 Historical/Revalued Value 4.3 4.4 0.0 0.7 0.7 (0.0) 3.3 3.3 0.02-1-70-2 Accumulated Depreciation (1.3) (1.3) 0.0 (0.2) (0.2) 0.0 (1.0) (1.0) 0.02-1-71 Customer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-71-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-71-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-75 Satellite Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-75-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-75-2 Accumulated Depreciation (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 (0.0) (0.0) 0.02-1-76 Satellite Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-76-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-76-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-80 International Network Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-80-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-80-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-81 International Network Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-81-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-81-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-85 International Network - Other Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-85-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-85-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-86 International Network - Other Systems - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-86-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

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2-1-86-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-90 Other Communications Plant & Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-90-1 Historical/Revalued Value 27.6 27.5 (0.0) 113.5 102.8 (10.8) 71.2 53.5 (17.6)2-1-90-2 Accumulated Depreciation (16.6) (16.6) 0.0 (61.4) (54.3) 7.1 (40.4) (28.8) 11.62-1-91 Other Communications Plant & Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-91-1 Historical/Revalued Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-91-2 Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Communications Plant & Equipment 643.1 1,462.8 819.7 165.1 149.5 (15.6) 513.3 1,073.1 559.82-2 Non-Communications Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-2-01-4 Information Technology 5.5 7.3 1.8 1.4 1.1 (0.3) 4.2 5.4 1.22-2-03-4 Buildings And Improvements 5.9 10.5 4.7 5.4 4.6 (0.7) 5.8 8.8 3.12-2-05-4 Other 1.7 3.0 1.3 1.1 0.9 (0.2) 1.4 2.3 0.9Total Non-Communications Plant & Equipment 13.1 20.9 7.8 7.9 6.7 (1.2) 11.4 16.5 5.12-3 Other Non-Current Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-3-01-4 Long Term Receivables (0.1) (0.1) (0.0) (0.0) (0.0) 0.0 (0.1) (0.1) (0.0)2-3-05-4 Long Term Investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-3-10-4 Intangibles 0.4 0.4 0.0 0.1 0.1 (0.0) 0.3 0.3 0.02-3-20-4 Land 0.4 0.4 (0.0) 1.7 1.7 0.0 0.9 0.9 (0.0)2-3-25-4 Other 92.1 111.2 19.2 24.3 21.3 (3.0) 67.0 79.6 12.5Total Other Non-Current Assets 92.8 112.0 19.2 26.1 23.0 (3.0) 68.1 80.6 12.5

Total Fixed Assets 749.0 1,595.7 846.7 199.1 179.2 (19.9) 592.8 1,170.2 577.4

11

Attachment A(2)

CAPITAL EMPLOYED STATEMENT FOR 2012-13 (INCLUDING COST OF CAPITAL FOR FY 2012-13 AND 2H OF 2012-13)Unconditioned Local Loop

Service(Declared)Domestic PSTN

Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millionshistoric

costcurrent

cost changehistoric

costcurrent

cost changehistoric

costcurrent

cost change

Wholesale Assets2-1 Communications Plant & Equipment2-1-01 CAN Ducts & Pipes - Primary Asset 437.3 1,196.3 759.0 3.4 16.4 13.1 304.9 835.2 530.32-1-02 CAN ducts & pipes - other assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-05 CAN Copper Cables - Primary Asset 191.5 252.3 60.7 0.0 0.0 0.0 133.3 175.6 42.32-1-06 CAN Copper Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-10 CAN Other Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-11 CAN Other Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-15 CAN Pair Gain Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 4.2 0.6 (3.6)2-1-16 CAN Pair Gain Systems - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-20 CAN Radio Bearer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 2.1 0.0 (2.1)2-1-21 CAN Radio Bearer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-25 Other CAN - Primary Asset 0.1 0.1 0.0 0.1 0.1 (0.0) 0.1 0.1 0.02-1-26 Other CAN - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-30 Switching Equipment - Local - Primary Asset 0.0 0.0 0.0 15.1 0.8 (14.3) 2.5 0.3 (2.2)2-1-31 Switching Equipment - Local - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-35 Switching Equipment - Trunk - Primary Asset 0.0 0.0 0.0 0.2 0.2 0.0 0.2 0.2 0.02-1-36 Switching Equipment - Trunk - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-40 Switching Equipment - Other - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-41 Switching Equipment - Other - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-45 Inter-Exchange Cables - Primary Asset 0.0 0.0 0.0 30.5 35.2 4.7 22.5 25.9 3.52-1-46 Inter-Exchange Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-50 Transmission Equipment - Primary Asset 0.2 0.2 0.0 54.7 39.2 (15.5) 8.6 6.2 (2.4)2-1-51 Transmission Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-55 Radio Bearer Equipment - Primary Asset (0.0) (0.0) (0.0) 6.4 6.4 0.0 1.7 1.7 (0.0)2-1-56 Radio Bearer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-60 Data Equipment - Primary Asset 0.1 0.1 0.0 2.1 2.1 0.0 0.1 0.1 0.02-1-61 Data Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2-1-65 MOBILE NETWORK AND TERMINAL EQUIPMENT - PRIMARY ASSET 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-66 Mobile Network And Terminal Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

12

2-1-70 Customer Equipment - Primary Asset 3.1 3.1 0.0 0.5 0.5 (0.0) 2.3 2.4 0.02-1-71 Customer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-75 Satellite Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-76 Satellite Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-80 International Network Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-81 International Network Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-85 International Network - Other Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-86 International Network - Other Systems - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-1-90 Other Communications Plant & Equipment - Primary Asset 10.9 10.9 (0.0) 52.1 48.5 (3.7) 30.8 24.7 (6.0)2-1-91 Other Communications Plant & Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Communications Plant & Equipment 643.1 1,462.8 819.7 165.1 149.5 (15.6) 513.3 1,073.1 559.8

2-2 Non-Communications Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.02-2-01-4 Information Technology 5.5 7.3 1.8 1.4 1.1 (0.3) 4.2 5.4 1.22-2-03-4 Buildings And Improvements 5.9 10.5 4.7 5.4 4.6 (0.7) 5.8 8.8 3.12-2-05-4 Other 1.7 3.0 1.3 1.1 0.9 (0.2) 1.4 2.3 0.9Total Non-Communications Plant & Equipment 13.1 20.9 7.8 7.9 6.7 (1.2) 11.4 16.5 5.1

2-3 Other Non-Current Assets 0.0 0.0 0.0 0.0 0.0 0.02-3-01-4 Long Term Receivables (0.1) (0.1) (0.0) (0.0) (0.0) 0.0 (0.1) (0.1) (0.0)2-3-05-4 Long Term Investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02-3-10-4 Intangibles 0.4 0.4 0.0 0.1 0.1 (0.0) 0.3 0.3 0.02-3-20-4 Land 0.4 0.4 (0.0) 1.7 1.7 0.0 0.9 0.9 (0.0)2-3-25-4 Other 92.1 111.2 19.2 24.3 21.3 (3.0) 67.0 79.6 12.5Total Other Non-Current Assets 92.8 112.0 19.2 26.1 23.0 (3.0) 68.1 80.6 12.5

1-1 Current Assets and Free Funds 0.0 0.0 0.0 0.0 0.0 0.01-1-01 Net Receivables 40.3 40.4 0.1 25.8 25.8 (0.0) 48.5 48.5 0.01-1-10 Other Current Assets And Related Receivables 1.1 1.2 0.1 1.2 1.1 (0.0) 1.3 1.4 0.11-1-20 Trade Creditors (6.0) (6.6) (0.6) (3.0) (2.9) 0.1 (5.2) (5.6) (0.4)1-1-30 Provisions (13.2) (13.4) (0.2) (6.2) (6.1) 0.0 (12.3) (12.4) (0.2)Total Current Assets and Free Funds 22.2 21.6 (0.6) 17.8 17.9 0.1 32.3 31.9 (0.4)

0.0 0.0 0.0 0.0 0.0 0.0Total Capital Employed 771.1 1,617.2 846.1 216.9 197.1 (19.8) 625.1 1,202.1 577.0Weighted average Cost of Capital(1H) 13.92% 13.92% 0 13.92% 13.92% 0 13.92% 13.92% 0Weighted Average Cost of Capital (2H) 13.98% 13.98% 0.0 13.98% 13.98% 0.0 13.98% 13.98% 0.0Cost of capital (full year) 103.5 219.3 115.8 32.7 29.9 (2.8) 86.1 166.6 80.5Cost of Capital (2H) 53.9 113.1 59.2 15.2 13.8 (1.4) 43.7 84.0 40.3

13

Attachment A(3)CAPITAL ADJUSTED PROFIT AND LOSS STATEMENT - 2H 2012-13

Unconditioned Local Loop Service (Declared)

Domestic PSTN Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millionshistoric

costcurrent

cost changehistoric

costcurrent

cost changehistoric

cost current cost change

Wholesale Revenue

Total Wholesale Revenue 157.0 157.0 0.0 60.6 60.6 0.0 196.1 196.1 0.0

Wholesale Costs

Network Costs (47.1) (47.1) (0.0) (33.6) (33.6) 0.0 (42.2) (42.2) 0.0Other Costs (56.5) (63.9) (7.4) (26.7) (25.5) 1.2 (44.1) (49.0) 4.8

Total External Wholesale Costs (103.6) (111.0) (7.4) (60.3) (59.2) 1.2 (86.3) (91.2) 4.8

Gross External Wholesale Profit/Loss 53.4 46.0 (7.4) 0.3 1.5 1.2 109.8 105.0 (4.8)

CCA AdjustmentsHolding gains/losses on asset adjustment 0.0 140.5 140.5 0.0 3.6 3.6 0.0 98.9 (98.9)Supplementary depreciation adjustment 0.0 43.0 43.0 0.0 (6.0) (6.0) 0.0 30.8 30.8Backlog depreciation adjustment 0.0 (79.2) (79.2) 0.0 (6.6) (6.6) 0.0 (59.7) (59.7)Inflation adjustment 0.0 5.1 5.1 0.0 0.9 0.9 0.0 3.9 3.9Total CCA Adjustments 0.0 109.4 109.4 0.0 (8.1) (8.1) 0.0 73.9 (73.9)

External Wholesale Cost of Capital 53.9 113.0 59.1 15.2 13.8 (1.4) 43.7 84.0 40.3

External Wholesale Capital-Adjusted Profit/Loss (0.5) (176.4) (175.9) (14.9) (4.3) 10.6 66.1 (52.9) (119.0)

Access Cost Adjustment 0.0 0.0 167.2 316.8 149.6 0.0 0.0

Access Revenue Adjustment 0.0 0.0 (197.1) (186.9) 10.2 0.0 0.0External Wholesale Access Adjusted Profit/Loss (0.5) (176.4) (175.9) 15.0 (134.1) (149.1) 66.1 (52.9) 119.0

14

Attachment A(4)CAPITAL ADJUSTED PROFIT AND LOSS STATEMENT – FULL YEAR 2012-13

Unconditioned Local Loop Service (Declared)

Domestic PSTN Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millions historic costcurrent

cost changehistoric

costcurrent

cost changehistoric

costcurrent

cost change

Wholesale Revenue

Total Wholesale Revenue 302.2 302.2 0.0 124.6 124.6 0.0 390.4 390.4 0.0

Wholesale Costs

Network Costs (88.9) (88.9) (0.0) (69.3) (69.3) 0.0 (82.6) (82.6) (0.0)Other Costs (106.4) (107.6) (1.1) (49.6) (47.9) 1.7 (85.4) (85.5) (0.1)

Total External Wholesale Costs (195.3) (196.4) (1.1) (118.9) (117.2) 1.7 (168.0) (168.1) (0.1)Gross External Wholesale Profit/Loss 106.9 105.8 (1.1) 5.7 7.4 1.7 222.4 222.4 (0.1)

CCA AdjustmentsHolding gains/losses on asset adjustment (79.5) (79.5) 3.7 3.7 (64.1) (64.1)

Supplementary depreciation adjustment 79.3 79.3 (12.0) (12.0) 57.8 57.8

Backlog depreciation adjustment 36.6 36.6 (12.7) (12.7) 23.1 23.1

Inflation adjustment 1.8 1.8 0.3 0.3 1.3 1.3

Total CCA Adjustments 38.2 38.2 (20.7) (20.7) 18.1 18.1

External Wholesale Cost of Capital 103.5 219.3 115.8 (32.7) 29.9 62.6 86.1 166.6 80.5

External Wholesale Capital-Adjusted Profit/Loss 3.4 (151.7) (155.1) (27.0) (1.7) 25.3 136.3 37.6 (98.7)

Access Cost Adjustment 317.9 448.0

Access Revenue Adjustment (371.4) (371.0)External Wholesale Access Adjusted Profit/Loss 3.4 (151.7) (155.1) 26.5 (78.7) (105.2) 136.3 37.6 (98.7)

15