CURRENT COST ACCOUNTING REPORT RELATING TO THE

ACCOUNTING SEPARATION OF TELSTRA FOR JULY–DECEMBER 2007

April 2008

Executive Summary This report presents financial statements that Telstra has prepared for core access services. These financial statements have been published under a Direction issued by the Minister for Communications, Information Technology and the Arts (DCITA) on 19 June 2003.

The financial statements comprise:

Fixed assets statements

Capital employed statements

Profit and loss statements

which have been prepared on a historical cost basis and a current cost basis.

Current cost financial statements account for changes in the replacement cost of an entity’s assets since the time they were acquired, and hence differ to historical cost financial statements.

It is important to note that the cost data presented in this report are not calculated using a fully or substantially optimised network configuration, and do not represent the efficient forward looking costs of supplying the core services. Further, they are the result of allocations Telstra makes to the core access services from common cost pools on a fully-distributed basis.

In determining access prices for a number of telecommunications services, the ACCC has generally preferred, and has used, a costing methodology based on total service long-run incremental cost (TSLRIC) which is a forward-looking economic costing approach for an optimised network.

The financial statements presented in this report indicate that the current cost of the fixed assets that Telstra uses to provide the core access services exceeds their historic cost, with consequences for the level of capital employed and profit contribution that is reported for these services within the current cost financial statements.

Also, it is important to note that the current cost information in this report represents the replacement cost of Telstra’s existing assets based on Telstra’s actual network configuration. That is, the information indicates the present-day cost of acquiring Telstra’s existing assets or, where these are no longer available, assets that could provide equivalent service.

Further, due to data limitations Telstra has measured the replacement cost of its customer access network (CAN) assets – which represent over half of the assets (by written down value) used to supply the core services – by a simple indexation method.

As with previous reports, the adoption of this approach to asset valuation for the presented current cost financial statements should not be construed as the ACCC endorsing this approach as a robust basis for preparing future financial statements.

1 Introduction

In December 2002, the Government made provision for an enhanced accounting separation of Telstra’s wholesale and retail operations with the passage of the Telecommunications Competition Act 2002.

In accordance with this Act, the Minister for Communications, Information Technology and the Arts issued a Direction on 19 June 2003. This instructed the ACCC to issue Record Keeping Rules (RKRs) under the Trade Practices Act that required Telstra to provide, amongst other reports, financial statements prepared on a historical and current cost basis, and for the ACCC to publish these reports as they concern the core services.

The Minister’s Direction made provision for initial reports and subsequent reports. This recognised that the initial reports were likely to rely on more limited data than would be available for subsequent reports.

The ACCC issued an RKR to Telstra with respect to initial reports at the end of June 2003. Telstra’s financial statements made under the initial RKR – for the two half years and full year of 2002-03, and the half year to 31 December 2003 – were released in December 2003 and May 2004 respectively.

In January 2004 the ACCC released a framework document outlining the current cost asset valuation and capital maintenance methodologies to apply longer term. The document specified the use of modern equivalent asset (MEA) valuation1 and the use of financial capital maintenance (FCM)2 as the basis of this reporting.

In September 2004, the ACCC issued a new RKR that specifies the requirements on Telstra to implement fully the current cost accounting framework.

The ACCC and Telstra agreed a timetable by which the framework was to be implemented for various classes of assets. Pursuant to the agreed timetable, MEA valuations have been introduced for many of the relevant asset classes, including switching, optical fibre and transmission.

However, due to limitations in Telstra’s fixed asset register, MEA valuations are yet to be implemented for CAN assets – which represent over half of the written down value (WDV) of assets used to supply the core services. These assets are instead valued for the current cost financial statements by indexing the WDV of the assets.

1 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.

2 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 Current cost financial statements

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.

Under the Ministerial Direction, the ACCC must make rules requiring Telstra to keep and retain records that enable the preparation of separate financial statements:

(i) in relation to each of the services of Telstra to which the Telecommunications Regulatory Accounting Framework (RAF)3 applies, and

(ii) that are prepared on both an historic cost and a current cost basis in accordance with a methodology (if any) determined by the ACCC in writing.

The Direction requires that the ACCC make available to the public copies of the reports in respect of the core services.

For the purposes of the Direction, core services are the:

Domestic PSTN Originating and Terminating Access Service

Unconditioned Local Loop Service (ULLS), and

Local Carriage Service (LCS).

When publishing the reports, the ACCC must also include a statement as to:

(a) the accuracy of the reports

(b) the extent to which the reports comply with the RAF and any other relevant record-keeping rules made by the ACCC, and

(c) any direction given by the ACCC under clause 8 of the Direction which deals with Telstra making the reports publicly available.

The financial statements presented in this report are for the period July-December 2007 and are reproduced at Attachments A(1) to A(3).

3 The RAF specifies that reporting carriers and carriage service providers must supply to the ACCC

a set of reports on a six-monthly and full-year basis. The reports are the Capital-Adjusted Profit and Loss Statements, Capital Employed Statements and Fixed Asset Statements.

2.1 Notes to the financial statements

Approach to asset valuation For the current cost financial statements, asset valuations are based on the replacement cost as measured during the reporting period. The following methods could be adopted to adjust the historical-cost base of Telstra’s assets to current replacement cost in this way:

indexation – this involves revaluing an asset by indexing its historical/revalued value

absolute valuation – this involves obtaining current unit price data for existing assets and multiplying this by the physical number of units currently in service, or

service potential valuation – this is used where the existing asset is no longer available for purchase, and adjusts the absolute valuation method to reflect differences in service potential between the substitute asset which is used for valuation purposes and the existing asset.

The price data incorporates volume discounts and escalations for costs such as installation and commissioning.

Commencing with previous reports, improvements in asset valuation methodologies have been implemented for various relevant asset classes including switching, fibre-optic and transmission asset classes.

However, as reported previously, Telstra’s current reporting systems are, in some respects, not suitable for the preparation of full current cost financial statements as specified in the Direction. More specifically, Telstra’s asset register does not identify some fixed asset classes (and in particular CAN asset classes) in such a manner as to allow meaningful current cost derivation and analysis.

And so, the valuation approach used in the preparation of the current cost financial statements has required compromises to be made in relation to the methodology and values to be adopted. The CAN assets have as a result 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.

This means that the ACCC notes that approximately 53 per cent (by WDV) of the fixed assets in Telstra’s asset register5 have been valued for the purposes of the current cost financial statements using an indexation method.

While the ACCC is concerned that the use of indexation as the primary basis for valuation for a significant portion of Telstra’s existing asset base is the least-preferred

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

depreciation.

5 in relation to Communications Plant and Equipment used to provide the three core services ULLS, LCS and Domestic PSTN OTA.

measurement approach, following representations from Telstra, the ACCC has agreed to its continued use for CAN asset valuations at least until December 2008.

Approach to financial capital maintenance In determining the level of profit in the current-cost profit and loss statements, the concept of financial capital maintenance (FCM) has been employed.

FCM is concerned with maintaining the real financial capital of the company so that it can continue financing its functions. 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. Under FCM, profit is therefore only measured after provision has been made to maintain the purchasing power of opening-period financial capital.

The FCM basis of capital maintenance requires adjustments to be made to the current-cost profit and loss statement to reflect holding gains or losses arising from changes in the value of the assets over the relevant period, depreciation differences between historical cost and current cost accounting, and the effects of inflation on the resources invested in the enterprise.

Approach to cost allocation

Under the RAF, costs are to be allocated direct to products where possible, with remaining common costs allocated across services. Reporting carriers have discretion as to how these allocations are made in practice.

Reflecting the extent to which the core access services share network elements and support systems with other services, including Telstra’s retail services, a high proportion of the costs reported in these financial statements represent allocations that Telstra has made from common cost pools.

2.2 Accuracy of the financial statements As part of the framework to apply to the current cost reports, the ACCC specified detailed requirements for an annual audit of these financial statements. 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 ACCC’s procedural requirements specified in 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 Telstra’s 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 re-valued on an appropriate basis.

The audit is occurs at the end of each financial year in respect of each of the financial statements prepared during that year. And so, the audit of the financial statements presented in this report will occur following the end of the 2007–08 financial year.

As these financial statements have not yet been audited, the ACCC is not in a position to conclusively state whether the report provided by Telstra for the current reporting period is accurate and complies with the RAF and RKR.

t A(1) Attachmen CURRENT COST ACCOUNTING (CCA) REPORT July to December 2007

FIXED ASSET STATEMENT - EXTERNAL WHOLESALE BUSINESS

values in $A millions

Unconditioned Local Loop Service(Declared) Domestic PSTN Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

historic cost current cost change historic cost current cost change historic cost current cost change

Wholesale Fixed Assets 2-1 Communications Plant & Equipment 2-1-01 CAN Ducts & Pipes - Primary Asset 2-1-01-1 HISTORICAL/REVALUED VALUE 177.1 618.6 441.5 21.4 134.0 112.5 998.4 3,545.9 2,547.5 2-1-01-2 ACCUMULATED DEPRECIATION (70.5) (287.6) (217.0) (10.0) (66.8) (56.8) (399.0) (1,652.8) (1,253.8) 2-1-02 CAN Ducts & Pipes - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-02-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-02-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-05 CAN Copper Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-05-1 HISTORICAL/REVALUED VALUE 199.4 375.9 176.5 0.0 0.0 0.0 1,099.6 2,073.1 973.5 2-1-05-2 ACCUMULATED DEPRECIATION (111.7) (230.0) (118.3) 0.0 0.0 0.0 (615.9) (1,268.5) (652.6) 2-1-06 CAN Copper Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-06-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-06-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-10 CAN Other Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-10-1 HISTORICAL/REVALUED VALUE 0.1 0.1 0.0 0.1 0.1 0.0 0.5 0.5 0.0 2-1-10-2 ACCUMULATED DEPRECIATION (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 (0.1) (0.1) 0.0 2-1-11 CAN Other Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-11-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-11-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-15 CAN Pair Gain Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-15-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 9.8 11.7 1.9 167.9 210.8 42.8 2-1-15-2 ACCUMULATED DEPRECIATION (0.0) (0.0) (0.0) (7.9) (11.6) (3.7) (103.7) (132.0) (28.3) 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 0.0 2-1-16-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-16-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-20 CAN Radio Bearer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2-1-20-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 28.6 37.9 9.3 2-1-20-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 (19.6) (32.3) (12.7) 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 0.0 2-1-21-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-21-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-25 Other CAN - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-25-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.1 0.0 2-1-25-2 ACCUMULATED DEPRECIATION (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 2-1-26 Other CAN - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-26-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-26-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-30 Switching Equipment - Local - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-30-1 HISTORICAL/REVALUED VALUE 0.1 0.1 0.0 796.4 419.7 (376.7) 954.1 534.4 (419.8) 2-1-30-2 ACCUMULATED DEPRECIATION (0.1) (0.1) 0.0 (684.5) (338.1) 346.4 (827.2) (441.2) 385.9 2-1-31 Switching Equipment - Local - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-31-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-31-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-35 Switching Equipment - Trunk - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-35-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 12.2 12.2 0.0 4.0 4.0 0.0 2-1-35-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 (10.2) (10.2) 0.0 (3.3) (3.3) 0.0 2-1-36 Switching Equipment - Trunk - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-36-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-36-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-40 Switching Equipment - Other - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-40-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 2-1-40-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.0 2-1-41 Switching Equipment - Other - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-41-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-41-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-45 Inter-exchange Cables - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-45-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 211.5 256.3 44.8 291.2 352.9 61.7 2-1-45-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 (84.7) (109.4) (24.7) (116.7) (150.7) (34.0) 2-1-46 Inter-exchange Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-46-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-46-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 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 2-1-50-1 HISTORICAL/REVALUED VALUE 0.2 0.2 0.0 274.7 154.0 (120.8) 285.0 160.2 (124.8) 2-1-50-2 ACCUMULATED DEPRECIATION (0.1) (0.1) 0.0 (164.9) (70.7) 94.3 (171.0) (73.6) 97.4

2-1-51 Transmission Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-51-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-51-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-55 Radio Bearer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-55-1 HISTORICAL/REVALUED VALUE (0.0) (0.0) 0.0 29.1 29.1 0.0 47.0 47.0 0.0 2-1-55-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 (15.7) (15.7) 0.0 (25.4) (25.4) 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 0.0 2-1-56-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-56-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-60 Data Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-60-1 HISTORICAL/REVALUED VALUE 0.3 0.3 0.0 2.0 2.0 0.0 4.1 4.1 0.0 2-1-60-2 ACCUMULATED DEPRECIATION (0.2) (0.2) 0.0 (0.9) (0.9) 0.0 (2.5) (2.5) 0.0 2-1-61 Data Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-61-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-61-2 ACCUMULATED DEPRECIATION 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 0.0 2-1-65-1 HISTORICAL/REVALUED VALUE 0.1 0.1 0.0 0.1 0.1 0.0 0.6 0.6 0.0 2-1-65-2 ACCUMULATED DEPRECIATION (0.0) (0.0) 0.0 (0.0) (0.0) 0.0 (0.1) (0.1) 0.0 2-1-66 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 2-1-66-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-66-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-70 Customer Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-70-1 HISTORICAL/REVALUED VALUE 0.5 0.5 0.0 0.9 0.9 0.0 4.1 4.1 0.0 2-1-70-2 ACCUMULATED DEPRECIATION (0.5) (0.5) 0.0 (0.8) (0.8) 0.0 (4.0) (4.0) 0.0 2-1-71 Customer Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-71-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-71-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-75 Satellite Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-75-1 HISTORICAL/REVALUED VALUE 0.4 0.4 0.0 0.7 0.7 0.0 3.2 3.2 0.0 2-1-75-2 ACCUMULATED DEPRECIATION (0.4) (0.4) 0.0 (0.7) (0.7) 0.0 (3.2) (3.2) 0.0 2-1-76 Satellite Equipment - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-76-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-76-2 ACCUMULATED DEPRECIATION 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 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-80-1 HISTORICAL/REVALUED VALUE 5.3 5.3 0.0 8.8 8.8 0.0 41.8 41.8 0.0 2-1-80-2 ACCUMULATED DEPRECIATION (0.4) (0.4) 0.0 (0.6) (0.6) 0.0 (2.9) (2.9) 0.0 2-1-81 International Network Cables - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-81-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2-1-81-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-85 International Network - Other Systems - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-85-1 HISTORICAL/REVALUED VALUE 0.9 0.9 0.0 1.6 1.6 0.0 7.4 7.4 0.0 2-1-85-2 ACCUMULATED DEPRECIATION (0.8) (0.8) 0.0 (1.4) (1.4) 0.0 (6.6) (6.6) 0.0 2-1-86 International Network - Other Systems - Other Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-86-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-86-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-90 Other Communications Plant & Equipment - Primary Asset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-90-1 HISTORICAL/REVALUED VALUE 21.4 21.4 0.0 192.8 192.8 0.0 375.7 375.7 0.0 2-1-90-2 ACCUMULATED DEPRECIATION (9.8) (9.8) 0.0 (83.4) (83.4) 0.0 (165.5) (165.5) 0.0 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 0.0 2-1-91-1 HISTORICAL/REVALUED VALUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-91-2 ACCUMULATED DEPRECIATION 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Communications Plant & Equipment 211.3 493.9 282.6 496.4 513.6 17.2 1,846.9 3,439.1 1,592.2 2-2 Non-Communications Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-2-01-4 INFORMATION TECHNOLOGY 2.5 2.5 0.0 3.9 3.9 0.0 14.2 14.2 0.0 2-2-03-4 BUILDINGS AND IMPROVEMENTS 3.4 3.4 0.0 7.5 7.5 0.0 22.1 22.1 0.0 2-2-05-4 OTHER 1.6 1.6 0.0 3.6 3.6 0.0 10.7 10.7 0.0 Total Non-Communications Plant & Equipment 7.5 7.5 0.0 15.0 15.0 0.0 47.0 47.0 0.0 2-3 Other Non-Current Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-3-01-4 LONG TERM RECEIVABLES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 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 0.0 2-3-10-4 INTANGIBLES (1.3) (1.3) 0.0 (0.0) (0.0) 0.0 (8.3) (8.3) 0.0 2-3-20-4 LAND 1.9 1.9 0.0 2.8 2.8 0.0 10.4 10.4 0.0 2-3-25-4 OTHER 22.2 22.2 0.0 31.6 31.6 0.0 141.2 141.2 0.0

Total Other Non-Current Assets 22.8 22.8 0.0 34.5 34.5 0.0 143.4 143.4 0.0 Total Fixed Assets 241.5 524.2 282.6 545.9 563.1 17.2 2,037.3 3,629.5 1,592.2

TELSTRA CORPORATION LTD Attachment A(2) CURRENT COST ACCOUNTING (CCA) REPORT July to December 2007

CAPITAL EMPLOYED STATEMENT - EXTERNAL WHOLESALE BUSINESS

Unconditioned Local Loop Service(Declared) Domestic PSTN Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millions historic cost current cost change historic cost current cost change historic cost current cost change Wholesale Assets 2-1 Communications Plant & Equipment 2-1-01 CAN DUCTS & PIPES - PRIMARY ASSET 106.6 331.0 224.4 11.5 67.2 55.8 599.4 1,893.1 1,293.7 2-1-02 CAN DUCTS & PIPES - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-05 CAN COPPER CABLES - PRIMARY ASSET 87.7 145.9 58.2 0.0 0.0 0.0 483.7 804.6 320.9 2-1-06 CAN COPPER CABLES - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-10 CAN OTHER CABLES - PRIMARY ASSET 0.1 0.1 0.0 0.1 0.1 0.0 0.5 0.5 0.0 2-1-11 CAN OTHER CABLES - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-15 CAN PAIR GAIN SYSTEMS - PRIMARY ASSET 0.0 0.0 (0.0) 1.9 0.1 (1.8) 64.2 78.8 14.6 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 0.0 2-1-20 CAN RADIO BEARER EQUIPMENT - PRIMARY ASSET 0.0 0.0 0.0 0.0 0.0 0.0 9.0 5.6 (3.4) 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 0.0 2-1-25 OTHER CAN - PRIMARY ASSET 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.1 0.0 2-1-26 OTHER CAN - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-30 SWITCHING EQUIPMENT - LOCAL - PRIMARY ASSET 0.0 0.0 0.0 111.9 81.6 (30.4) 127.0 93.1 (33.8) 2-1-31 SWITCHING EQUIPMENT - LOCAL - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-35 SWITCHING EQUIPMENT - TRUNK - PRIMARY ASSET 0.0 0.0 0.0 2.0 2.0 0.0 0.7 0.7 0.0 2-1-36 SWITCHING EQUIPMENT - TRUNK - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-40 SWITCHING EQUIPMENT - OTHER - PRIMARY ASSET 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-41 SWITCHING EQUIPMENT - OTHER - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-45 INTER-EXCHANGE CABLES - PRIMARY ASSET 0.0 0.0 0.0 126.7 146.8 20.1 174.6 202.2 27.7 2-1-46 INTER-EXCHANGE CABLES - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-50 TRANSMISSION EQUIPMENT - PRIMARY ASSET 0.1 0.1 0.0 109.8 83.3 (26.5) 114.0 86.6 (27.4) 2-1-51 TRANSMISSION EQUIPMENT - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2-1-55 RADIO BEARER EQUIPMENT - PRIMARY ASSET (0.0) (0.0) 0.0 13.4 13.4 0.0 21.6 21.6 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 0.0 2-1-60 DATA EQUIPMENT - PRIMARY ASSET 0.1 0.1 0.0 1.1 1.1 0.0 1.6 1.6 0.0 2-1-61 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 0.1 0.1 0.0 0.1 0.1 0.0 0.5 0.5 0.0 2-1-66 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 2-1-70 CUSTOMER EQUIPMENT - PRIMARY ASSET 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.0 2-1-71 CUSTOMER EQUIPMENT - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-75 SATELLITE EQUIPMENT - PRIMARY ASSET 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 2-1-76 SATELLITE EQUIPMENT - OTHER ASSETS 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 5.0 5.0 0.0 8.2 8.2 0.0 38.9 38.9 0.0 2-1-81 INTERNATIONAL NETWORK CABLES - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-85 INTERNATIONAL NETWORK - OTHER SYSTEMS - PRIMARY ASSET 0.1 0.1 0.0 0.2 0.2 0.0 0.8 0.8 0.0 2-1-86 INTERNATIONAL NETWORK - OTHER SYSTEMS - OTHER ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2-1-90 OTHER COMMUNICATIONS PLANT & EQUIPMENT - PRIMARY ASSET 11.6 11.6 0.0 109.5 109.5 0.0 210.2 210.2 0.0 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 0.0 Total Communications Plant & Equipment 211.3 493.9 282.6 496.4 513.6 17.2 1,846.9 3,439.1 1,592.2 2-2 Non-Communications Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.0 2-2-01-4 INFORMATION TECHNOLOGY 2.5 2.5 0.0 3.9 3.9 0.0 14.2 14.2 0.0 2-2-03-4 BUILDINGS AND IMPROVEMENTS 3.4 3.4 0.0 7.5 7.5 0.0 22.1 22.1 0.0 2-2-05-4 OTHER 1.6 1.6 0.0 3.6 3.6 0.0 10.7 10.7 0.0 Total Non-Communications Plant & Equipment 7.5 7.5 0.0 15.0 15.0 0.0 47.0 47.0 0.0 2-3 Other Non-Current Assets 0.0 0.0 0.0 0.0 0.0 0.0 2-3-01-4 LONG TERM RECEIVABLES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 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 0.0 2-3-10-4 INTANGIBLES (1.3) (1.3) 0.0 (0.0) (0.0) 0.0 (8.3) (8.3) 0.0 2-3-20-4 LAND 1.9 1.9 0.0 2.8 2.8 0.0 10.4 10.4 0.0 2-3-25-4 OTHER 22.2 22.2 0.0 31.6 31.6 0.0 141.2 141.2 0.0 Total Other Non-Current Assets 22.8 22.8 0.0 34.5 34.5 0.0 143.4 143.4 0.0 1-1 Current Assets and Free Funds 0.0 0.0 0.0 0.0 0.0 0.0 1-1-01 NET RECEIVABLES 2.7 2.7 0.0 48.6 48.6 0.0 84.0 84.0 0.0 1-1-10 OTHER CURRENT ASSETS AND RELATED RECEIVABLES 1.5 1.5 0.0 4.8 4.8 0.0 12.8 12.8 0.0 1-1-20 TRADE CREDITORS (2.0) (2.0) 0.0 (4.1) (4.1) 0.0 (11.9) (11.9) 0.0 1-1-30 PROVISIONS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Current Assets and Free Funds 2.2 2.2 0.0 49.4 49.4 0.0 84.9 84.9 0.0 0.0

Total Capital Employed 243.8 526.4 282.6 595.3 612.5 17.2 2,122.2 3,714.4 1,592.2

0.0 0.0 0.0 0.0 0.0 Weighted Average Cost of Capital 15.9% 15.9% 0.0 15.9% 15.9% 0.0 15.9% 15.9% 0.0 0.0 Cost of Capital 19.4 41.9 22.5 47.4 48.8 1.4 168.9 295.7 126.7

TELSTRA CORPORATION LTD Attachment A(3)

CURRENT COST ACCOUNTING (CCA) REPORT July to December 2007 CAPITAL-ADJUSTED PROFIT STATEMENT - EXTERNAL WHOLESALE BUSINESS

Unconditioned Local Loop Service (Declared) Domestic PSTN Originating/Terminating Services (Declared)

Local Carriage Services (Declared)

values in $A millions historic cost current cost change historic cost current cost change historic cost current cost change Wholesale Revenue Total Wholesale Revenue 29.1 29.1 0.0 120.3 120.3 0.0 394.4 394.4 0.0 Wholesale Costs Network Costs 13.4 13.4 0.0 57.6 57.6 0.0 153.3 153.3 0.0 Other Costs 24.7 24.7 0.0 31.1 31.1 0.0 92.6 92.6 0.0

Total External Wholesale Costs 38.2 38.2 0.0 88.7 88.7 0.0 245.9 245.9 0.0

Gross External Wholesale Profit/Loss (9.1) (9.1) 0.0 31.5 31.5 0.0 148.5 148.5 0.0 CCA Adjustments Holding gains/losses on asset adjustment (39.8) (39.8) 74.4 74.4 (122.8) (122.8) Supplementary depreciation adjustment 10.6 10.6 (11.6) (11.6) 44.1 44.1 Backlog depreciation adjustment 17.3 17.3 (27.7) (27.7) 60.6 60.6 Inflation adjustment 3.5 3.5 3.2 3.2 23.8 23.8 Total CCA Adjustments (8.4) (8.4) 38.3 38.3 5.7 5.7 External Wholesale Cost of Capital 19.4 41.9 22.5 47.4 48.8 1.4 168.9 295.7 126.7 External Wholesale Capital-Adjusted Profit/Loss (28.5) (42.6) (14.1) (15.8) (55.5) (39.6) (20.4) (152.9) (132.5)

Access Cost Adjustment 196.4 196.4 Access Revenue Adjustment (149.8) (149.8) External Wholesale Access Adjusted Profit/Loss (28.5) (42.6) (14.1) (15.8) (102.0) (86.2) (20.4) (152.9) (132.5)